Pro Soccer Team’s $2.8M Tax Debt Instructive for Commercial Tenants Seeking Tax Exemptions
June 17, 2014
Negotiating the terms of a commercial lease involves considerable give and take between the landlord and the tenant. Reaching an agreement between those two parties and getting all the parties’ terms written into the lease is not always enough, though, as a pro sports team recently found out. The New Jersey Superior Court, Appellate Division rejected a soccer team’s claim to an exemption from property tax on its stadium because, although the lease detailed an understanding that the team would owe no tax, the team never secured the proper exemption from the correct governmental agency.
When the New York Red Bulls franchise of Major League Soccer contemplated a move from Giants Stadium in East Rutherford, the team entered into negotiations with the Harrison Redevelopment Agency. The team and the agency reached an understanding that the team would not owe property tax for any new stadium built in Harrison. The redevelopment agency believed that holding several civic events in the stadium would allow it to maintain its tax-exempt status.
The parties agreed to terms and consummated a 30-year lease, with the parties expressly reciting in the agreement their understanding that the team would owe no property tax. Unfortunately for the Red Bulls, simply memorializing that understanding with the redevelopment agency in the parties’ lease proved to be a misfire, as the team found out when the town hit it with a $2.8 million tax bill.
The team contested the assessment in court, but this move also failed to yield success. The Appellate Division ruled that, notwithstanding the understanding in the lease, using the land for a pro soccer team was outside the redevelopment agency’s public purpose, which meant that the stadium was not exempt from property taxes.
So, what went wrong? The team made the mistake of failing to interact with the proper agency. The redevelopment agency had no authority to grant the team an exemption, and the agency’s recitation in the lease of its understanding about the property tax issue carried no weight. The team never consulted the town’s tax assessor, and the town never agreed to exempt the team from property taxes on the stadium.
The lesson arising from the Red Bulls’ problem is clear. While parties to a commercial lease should always be certain to include each term and mutual understanding clearly and specifically in the lease that the parties sign, this step is not the end of the path. If a lease agreement is dependent on issues not within the control of your landlord, you should make certain you have consulted with the agency in charge of those decisions and secure all variances and exemptions in advance of executing that lease. For the best assistance with ensuring that you’ve dotted every i and crossed every t regarding your commercial lease, contact the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys have the skills and abilities you need to ensure there are no surprises that await you after you’re already locked into a lease. Reach us online or call (201) 587-1500 or (212) 380-8117.
Contact us through our website or call to schedule your free, confidential initial consultation today.
S Corporation Shareholder Excluded from Management and Salary Still Faces Tax Liability, New York & New Jersey Business Lawyer Blog, June 9, 2014
Department of Labor Can Set Wage Limits for H-2B Workers, According to Third Circuit, New York & New Jersey Immigration Lawyer Blog, March 19, 2014
MBA Student’s Attempt to Deduct Tuition Fails in the Tax Court, New York & New Jersey CPA Tax Lawyer Blog, Aug. 21, 2012
Photo: Groupe Canam at Wikimedia Commons.