Tax Appeal – A Settlement Strategy
When the owner, tenant or manager of a commercial property authorizes a lawyer to proceed with the filing of a tax appeal, they are in effect opening a new BILLING/DEBIT account for the lawyer, in particular when the agreement to fees are based on an hourly rate. This is why commercial property owners/managers/tenants should be more proactive in their tax remedies.
Most tax appeal lawyers review the merits of the case before accepting the assignment. Once a tax appeal is filed against a municipality, requests for discovery (examinations) are offered, which both parties must respond to. Once the discovery is complete, attorneys for the plaintiff or the municipality can then, if necessary, have an expert appraiser prepare a preliminary assessment for settlement purposes.
Settlement negotiations can begin at any time after the appeal is filed. Owners and managers of commercial portfolios should be less concerned about receiving a tax refund and more concerned about reducing their taxes in the future. Receiving a tax refund is always nice, but when annual taxes are reduced, the market value of the property increases dramatically. Case Study – There is an ongoing two-year tax appeal (2020 and 2021) on a 100,000 square foot office building valued at $10,000,000 or $100 per square foot. The owner’s attorney believes that the assessment should be lowered by $2,000,000 to $8,000,000 or $80 per square foot. Use of a tax rate of 2.5%; a reduction of $2,000,000 for each year results in a refund of $50,000 for 2020 and 2021 or $100,000. The township’s appraiser/expert appraiser has determined that $100 per square foot is correct. Most appraisers look for a fair and reasonable range of values before settlement meetings. For example, if both parties agree to remove all calls and split the difference at $90 per square foot for the following year (2022), thereby reducing 2022 taxes by $25,000 using a 5% return , this could possibly increase the market value of the property. up to $500,000. As you can see, reducing the tax assessment in the future increases the market value of the property more than a tax refund would in previous years.
In order to avoid costly lawsuits and court costs, most municipalities are more inclined to reduce the assessment in the future in order to avoid a refund of taxes from previous years. This type of settlement is therefore win-win for both parties. Sometimes a commercial property is sold with an unsettled tax appeal pending in tax court. This is unfortunate because the seller most likely could have negotiated a higher sale price for the property if the tax appeal had been settled before the sale and if the assessment and future taxes had been reduced.
Resolving any case is a two-way street. Both sides should leave the settlement table saying they could have done a little better instead of saying they got the better of the other side. Thus, owners and managers should ask their lawyers to settle their tax appeals as soon as possible and not to ask for a large refund; that most municipalities are not willing to pay anyway. Owners can always ask their attorneys to file tax appeals in the future.
They should also ask for a list of times the lawyer met or communicated with the tax assessor. They should ask “What are the offers and counter-offers between the municipality and their lawyer to settle the case?” » Lawyers are required to inform their clients of any significant developments in matters in which they are involved or on behalf of the client. In particular, they are required to inform their clients of proposed settlements in order to represent clients in an ethical and professional manner. Failure to do so is not only unethical, but is not in the best interest of the client’s desire for a fair and equitable outcome.
Strange as it may seem, once a tax appeal is filed, the property owner and tax assessor or municipal officials rarely meet to discuss settlement offers. Most owners and managers leave it to the lawyer to negotiate the settlement of the appeal. Although somewhat unethical, lawyers have more incentive to prolong the case, so they can charge their clients longer than they have to settle the case. To this day, there are properties across the state that have unsettled tax appeals that are over ten years old. This makes the case even more difficult to settle because the reimbursements are generally too high for the municipalities to pay. These older cases result in long and expensive trials and can take even longer if either party appeals the judge’s decision on the case. Once a case is judged, BOTH parties are usually not happy with the judge’s decision anyway. Ultimately, taxpayers and property owners lose when tax appeals are allowed to drag on for years without being settled. The full effect of COVID-19 on commercial properties still remains unclear, but now is the time for owners to inform their lawyers to try to settle these cases.
As a professional, I have over 47 years of experience in the field of tax assessment. During this 47 year period, I negotiated/settled tax appeals filed on properties with a total assessed value in excess of $30,000,000,000.
Daniel S. Cassese, CTA, SCGREA is the Tax Assessor for the Township of Parsippany-Troy Hills