The New Jersey Five-Year Exemption and Abatement Law
Business Law Articles
By: Michael Haviland
Earp Cohn P.C.
Cherry Hill, New Jersey
As many developers and landlords know, real estate is about location, location, location. In addition to more typical considerations like highway and public transportation access, proximity to cities and commercial corridors, and neighborhood amenities, the developer and landlord should also consider whether the municipality offers exemptions or abatements for improvements under New Jersey’s Five-Year Exemption and Abatement Law N.J.S.A. 40A:21-1 et al. (the “Abatement Law”).
Under the Abatement Law, an “exemption” is when the full value of an improvement is not regarded as increasing a property’s taxable value. An “abatement” is when part of the property is assessed as it existed before the improvement, which is then exempt from the taxation.
The Abatement Law grants municipalities broad power to adopt ordinances authorizing exemptions and abatements for improvements. For example, the municipalities may provide different exemption or abatement eligibility for different neighborhoods. The exemptions and abatements are not limited to one type of property and can be for improvements to residential, commercial, or industrial property. The municipality can also determine what types of improvements may be exempt or abated.
Although municipalities have significant leeway determining the exemption or abatement eligibility, there are statutory limitations. For example, the exemptions and abatements may only be granted for up to five (5) years. Certain limits on the abatement amount may also apply.
Despite the short amount of time that the exemption or abatement can be in place, these can be especially useful tools. For example, if a developer or landlord is considering acquiring property, making significant improvements to the property, and anticipates a relatively short but several year holding period before resale, the abatement or exemption provides an excellent way to reduce costs during the carrying period.