Court Confirms Tenant’s Right To Control Tax Appeal and to Refund

by: Anthony F. Della Pelle
5 Aug 2009

In Aperion Enterprises, Inc. and Quo Non Ascendet, Inc. v. Borough of Fair Lawn, (July 24, 2009) (Approved for Publication in N.J. Tax Reports), the New Jersey Tax Court was confronted with the question of a tenant’s rights in the prosecution and resolution of a tax appeal.  The Tax Court held that the tenant is entitled to any refund of taxes resulting from a successful tax appeal.   The court held also that the tenant is entitled to control the appeal and has the authority to accept or reject a settlement offer by the municipality. 

In 1997, the tenant entered into a lease with the landlord for a term of 35 years.  Under the triple-net lease, the tenant was responsible for paying all taxes and assessments levied against the property.  The tenant was to pay the municipal property taxes directly to the municipal tax collector.  The lease was silent as to which party could file a tax appeal or, which party would be entitled to a refund in the event of a successful appeal resulting in a reduced assessment.

The landlord filed tax appeals for the years 2003, 2005, 2006 and 2007.   The tenant was not listed as a plaintiff.  The court noted that there was no evidence in the record that the landlord gave the tenant notice of the pending appeals.  The tenant only learned of the appeals during the course of an unrelated litigation between the parties concerning the assignment of the lease.  At that time, the tenant was joined as a plaintiff on the landlord’s motion.  The tenant also learned that the municipality had previously presented a settlement offer to the landlord.  The tenant demanded that the landlord accept the offer and turn over the proceeds of the tax refund.  The landlord refused, leading the tenant to file an action in Chancery Division that alleged breach of contract and unjust enrichment.  The matter was transferred to the Tax Court, which was presented with cross-motions for an Order designating which plaintiff has the authority to control the tax appeal and to accept or reject any settlement offer.  The Tax Court advised that the resolution of the question presented also required the court to resolve the question of which party was entitled to any refund in the event of a reduction of the assessment. 

In resolving the dispute, the Tax Court relied on the Supreme Court’s decision in Village Supermarkets v. Township of West Orange, 106 N.J. 628 (1987) which affirmed a tenant’s right to prosecute a tax appeal and expanded on the factors to be considered when deciding whether a tenant may be treated as an “aggrieved taxpayer” for purpose of bringing an appeal under N.J.S.A 54:3-21.  In Village Supermarkets the Court held that circumstances may warrant the prosecution of a tax appeal by a tenant in a manner contrary to the wishes of the landlord.  The Tax Court concluded that the net-lease tenant is also vested with the right to control the tax appeal, even where the landlord is a co-plaintiff. 

As for the right to any refund, the Tax Court found that it would defy common senses and logic to allow an award to the landlord since the tenant was solely responsible for the satisfaction of all tax obligations.  Noting that taxes are assessed against the property and not the owner, Freehold Office Park, Ltd. v. Township of Freehold, 12 N.J. Tax 433 (Tax 1992), and that the landlord had contracted away its obligation to pay the taxes to the tenant, the landlord had no right to recover any refund of property taxes that were overpaid by the tenant.

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