Navigating Tax Relief for Owners of Contaminated Properties in New Jersey

This blog was originally published in 2021. It has been updated for relevance and accuracy in 2024.

Owners of contaminated property may be able to obtain potential tax relief which could help mitigate the financial strain of conducting remediation. New Jersey courts have long recognized the negative impact environmental contamination has on the fair-market value of property. For example, in Metuchen I, LLC v. Borough of Metuchen, 21 N.J. Tax 283, 294 (Tax 2004), the Tax Court succinctly concluded that “uncontaminated land is worth more than contaminated land.” However, too often, tax assessments fail to reflect the decreased value of properties impacted by contamination. In these cases, the owners of contaminated property may be able to appeal their tax assessments to reflect the decreased value as a result of the contamination and remediation efforts.

At the heart of New Jersey’s approach to valuing contaminated property for tax purposes is the landmark case of Inmar Associates, Inc. v. Borough of Carlstadt, 112 N.J. 593 (1988). The ruling established that environmental contamination must be factored into the true value of property for tax assessments. Here’s what property owners need to know:

• Proving the Case: To secure a tax adjustment, an owner must demonstrate the environmental damage and present a valuation that differs from the current tax assessment, backed by substantial evidence.
• The Role of Remediation Costs: While cleanup costs indicate the environmental impact on property value, New Jersey courts do not merely subtract these costs from the property’s assessed value. Instead, they employ a nuanced approach, often involving expert appraisal testimony to determine the most fitting adjustment methodology.

Although remediation costs are evidence of the negative impact of environmental contamination on the true value of a property, Inmar, 112 N.J. 605 states that the way to determine true value is “not simply to deduct the cost of cleanup from a putative value of the property.” Instead, New Jersey courts rely on the expertise of appraisal professionals in determining the appropriate adjustment methodology for environmental contamination, recognizing that standard appraisal techniques may need to incorporate non-classical, flexible approaches. For more information, see Inmar, 112 N.J. at 597-598, 606-610; see also Pan Chem. Corp. v. Hawthorne Borough, 404 N.J. Super. 401, 407 (App. Div. 2009), certif. denied, 198 N.J. 473 (2009).

Courts have allocated the total estimated remediation expenses over the anticipated length of the remediation and reduced the property value by the average remediation expenses for each taxable year, as seen in Metuchen I, 21 N.J. Tax at 295-297 and Route 21 Assocs. v. Belleville Twp., 2013 WL 936240 (Tax 2013).

A contract sales price has also been approved as an acceptable measure of the true market value of a property when the sale is between sophisticated parties with full disclosure and knowledge of the contamination, as seen in Orient Way Corp. v. Twp. of Lyndhurst, 27 N.J. Tax 361 (Tax 2013), aff’d, 28 N.J. Tax 272 (App. Div. 2014), certif. denied, 220 N.J. 574 (2015). Furthermore, when environmental restrictions effectively render a property “an ongoing financial liability” a court may find that it has only nominal value. See Methode Elecs., Inc. v. Twp. of Willingboro, 28 N.J. Tax 289 (Tax 2015), in which the court found that the property at issue had only a nominal value of $2,000 because it could not presently or in the reasonably foreseeable future be developed due to the need for remedial actions to mitigate and prevent exposure to toxic vapors.

Even for remediated properties, New Jersey courts have recognized that lingering environmental stigma can continue to negatively impact property values, even if only a portion of the site was previously contaminated. See, e.g., Metuchen I, 21 N.J. Tax at 287-291; In re Custom Distrib. Servs., Inc., 216 B.R. 136 (Bankr. D.N.J. 1997), aff’d in part, rev’d in part on other grounds, 224 F.3d 235 (3d Cir. 2000); Ciba Specialty Chems. Corp. v. Twp. of Dover, 2013 WL 6438501 (N.J. Tax Dec. 5, 2013) (slip op. at *5). There is also a possibility that the stigma of nearby environmental contamination or contamination migrating from a neighboring site may affect the value of property even when that owner has no remediation obligation. In any case, proving stigma damages will require expert evidence and/or testimony.

Davis Environmental Law Can Help Owners Assess and Seek Tax Relief Opportunities

The landscape of environmental law and property taxation in New Jersey is complex but navigable with the right information and support. Whether you’re dealing with a property currently undergoing remediation, a property impacted by ongoing environmental stigma, or both, understanding your rights and the potential avenues and methods available for tax relief is crucial. Davis Environmental Law may be able to help you assess and take advantage of tax relief opportunities applicable for your property. Contact us to see if we can help you.