Author: Russell B. Bershad

Legislature Cleans Up After Morristown Hospital

The legislative response to Morristown Hospital, Assembly Bill 1135, became law on February 22, 2021. Morristown Hospital, a Tax Court case decided in 2015, stripped Morristown Hospital of its property tax exemption. The case dealt at length with the modern reality that many nonprofit hospitals include for-profit operations within their walls, including private practice groups and ancillary facilities like restaurants and shops. The Tax Court found that, among other reasons, the hospital’s for-profit operations vitiated its property tax exemption in its entirety. The case put in question the realty tax-exempt status of almost every nonprofit hospital in the state and, by extension, the tax exemption of many educational, religious, and charitable institutions which, similarly to hospitals, combine nonprofit and for-profit uses. Morristown Hospital injected uncertainty regarding nonprofits’ property tax exemptions and spawned litigation. After much debate among competing factions, including municipalities on one side and nonprofits on the other, the legislature has finally acted to bring clarity to the landscape. The new law provides for nonprofit hospitals to pay community service contributions based on the number of licensed beds in a given hospital, or a flat, per-day rate for satellite emergency care facilities. However, if the hospital or satellite emergency care facility has previously entered into a voluntary agreement with a municipality, the hospital or...

Proposed N.J. Assembly Bill Allocates a Share of PILOT Funds to School Districts

As reported in the June 16, 2017 NAIOP WeekEnder, a bill is pending in the Assembly requiring five percent of each annual service charge under a PILOT agreement in connection with a residential redevelopment be remitted to the school district. At present, a municipality retains 95 percent of PILOT payments, the other five percent being remitted to the county. Conventional real estate tax payments are divided among the town, county, school district, and some other stakeholders, such as a fire district, municipal open space, etc. The splits vary, but the school district portion is substantial, often the largest share. To use one example, in Sayreville, the 2016 allocation to the school district is 55.74%; the municipal share is 26.49% and the county share is 14.79%. It is often contended that PILOTs are unfair to school districts because none of the PILOT payment is allocated to the school district. Indeed, school districts have challenged PILOT agreements in court. See, for example, the unreported 110 page, 2005 decision of Mercer County Assignment Judge Feinberg Hamilton Township Board of Education vs. Township of Hamilton and 240 Princeton Urban Renewal, LLC. Whether or not PILOTs truly adversely impact school district budgets is a matter of debate. Regardless of the merits of the debate, it is fair to ask if remitting five percent of PILOTs...

“And/Or” – No More

The use of “and/or” in drafting or, for that matter, anything other than the most casual communications, is one of our pet peeves. It is a substitute for careful drafting and an invitation to ambiguity. Ken Adams, in his Manual of Style for Contract Drafting – which we highly recommend to any serious drafter – devotes two pages to using, or perhaps, better said, mis-using, “and/or.” Mr. Adams observes that since the mid-20th century, judges and legal-writing commentators have railed against the use of “and/or” to convey the meaning of the inclusive “or.”

Settlement Update on New Jersey Tax Court’s Closely-Watched AHS Hospital Decision

Several months ago, this blog reported on Judge Vito Bianco’s denial of Morristown Memorial Hospital’s (the “Hospital”) property tax appeal. While this was only a Tax Court decision, it was closely-watched because it had the potential to eviscerate the property tax exemption for modern integrated hospitals, and potentially for other nonprofit organizations with complicated corporate structures or relationships.

New Jersey Bulk Sales Act — Division of Taxation Posts Expanded Frequently Asked Questions and Answers

Recently, this past December, the New Jersey Division of Taxation posted expanded Frequently Asked Questions and responses regarding the Bulk Sales Act, NJSA 54:50-38. Given the breadth of the Act, which was expanded a couple of years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax, a review of these new FAQs is advisable.

Due Diligence in Acquiring Distressed Debt — Part One

There is no shortage of buyers anxious to buy distressed mortgages. The simple reason is the possibility of substantial profit if a loan can be purchased at a significant discount and there is a realistic possibility that the borrower or, if it forecloses, the lender, will be able to salvage the property. This is the first of two articles about counseling clients in acquiring distressed commercial mortgage loans. Bankruptcy, special assets such as condominium properties and UCC foreclosures are beyond the scope of these articles.

NJ State Comptroller Releases Report Critical of Municipal Tax Abatements/PILOT Agreements

The New Jersey State Comptroller released a report Wednesday entitled “A Programmatic Examination of Municipal Tax Abatements.” The Comptroller’s report is critical of both five year abatements and long term abatements granted by municipalities and was being widely reported in the press yesterday. Referring to five year abatements (NJSA 40A-21-1 et seq.) and long term abatements (NJSA 40A-20-1 et seq.), the Comptroller’s report finds “numerous weaknesses in the regulation, implementation and oversight of these programs” including: PILOTs paid to municipalities are at the expense of counties, school districts and other taxpayers; there is lack of transparency and centralization of information about abatement agreements; criteria and processes for evaluating potential abatement agreements are weak; directly affected stakeholders are not adequately involved in the decision making process; municipal follow up on abatement terms and benefits is lacking; redevelopment areas in which abatements are granted are not periodically reviewed to account for neighborhood changes or improvement; municipalities often fail to use abatements to bring in the type of redevelopment that would address community needs or bring appropriate improvement; and the State does not closely monitor the use of abatements or offer significant guidance to municipalities on how to interpret relevant statutes or implement abatement programs.

Sale Leasebacks — New FASB Rules

FASB has proposed rules that, if enacted, would eliminate the distinction between operating and capital leases. Jonathan Hipp, President and CEO of Calkain Companies, Inc. writes in that the economics of transactions won’t change and questions the real impact of the proposed change in accounting rules that will require sale leasebacks to be moved from footnotes to the balance sheet because analysts who follow companies with sale leasebacks “have already baked the operating leases into the debt load of the companies.”

New Jersey Bulk Sales Act — Applicable to Deeds in Lieu?

Does the NJ Bulk Sales Act Apply to Deeds in Lieu? The Bulk Sales Act, NJSA 54:50-38, was expanded a couple years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax. The Bulk Sales Act, NJSA 54:50-38, was expanded a couple years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax. It provides: a buyer who does not comply by requesting a clearance letter and holding an escrow as directed by the Division of Taxation becomes liable for seller’s tax liability to the State, now including income taxes arising from the bulk sale itself in addition to past due taxes; bulk sale means any sale, transfer or assignment, in whole or in part, of a persons business assets, not made in the ordinary course of business; and business assets is defined to mean realty if the primary use of the realty is to support a business on the premises.