Contaminated property is worthless (almost)

In an opinion that has been approved for publication, the New Jersey Tax Court has ruled that for purposes of real property taxation, a heavily contaminated property warranted only a nominal assessment. In Methode Electronics, Inc. v. Township of Willingboro, the subject property is a small parcel improved with a 6,800 square foot concrete slab that was once the floor to a manufacturing facility. Other improvements include a groundwater treatment system installed to address ongoing remediation of the property. The groundwater treatment system is comprised of 57 monitoring wells, piping and a small building to house other associated equipment. The total assessment under appeal was $404,600 with an equalized value (i.e., implied true market value) of $425,000.

At the time of trial, the remediation costs to date were $8.5 million with the remaining cost estimated to be anywhere between $2.4 million and $3.7 million, not including the annual cost to maintain the groundwater treatment system which is estimated to be anywhere between $120,000 and $150,000. At trial, plaintiff presented the manager of the remediation project and a real estate appraiser who opined that the property cannot be developed in its present condition and that there is no realistic probability of being fully remediated at any identifiable future date. As such, he opined that the market value is $1.

The Township presented an appraiser who opined that the land was worth $413,200, less an adjustment of $160,500 to account for the contamination – although that amount was equal to the carrying costs (i.e., taxes and utility charges over a projected 7 year holding period until the property is fully remediated). Thus he concluded a land value of $252,700. The Township’s appraiser also added an improvement value of $81,915, which represented the depreciated value of the building that houses the groundwater treatment equipment for a total value of $334,600.

The court held that a nominal assessment is appropriate for the subject property due to the extensive contamination and migration of that contamination to neighboring properties. The court noted also the wide-spread presence of remediation and monitoring equipment and the concrete slab, which serves as a vapor cap, on the small parcel. The court agreed with the property owner’s findings that there is no development potential in the foreseeable future due to the indefinite duration of ongoing remediation and monitoring efforts, not to mention the continuing threat posed by emission of toxic vapors from the property. As such, the court concluded that the property should be assessed at a nominal value of $2,000.

A copy of the Methode Electronics case may be found here.

For more on how the Tax Court values contaminated properties see:            

Appeals Court Refuses to Lower Tax Assessment for Environmental Cleanup Costs

Environmental Impacts in Real Estate Valuation Litigation

So what does moldy bread have to do with valuing contaminated property?

Valuing contaminated properties – “in use” or ”not in use”, that is the question. . . .