Jul 24, 2020

New Jersey Supreme Court Rejects Municipal Assessment for Dam Repairs

Schenck Price achieved a significant win for New Jersey residents facing the prospect of assessments for dam repairs. On Wednesday, July 22, a unanimous New Jersey Supreme Court ruled that a dam assessment imposed on property surrounding Glen Lake by the Township of Sparta was illegal.  John E.  Ursin of Schenck Price represented a group of six homeowners at Trial Court and through the appeals, including arguing the case at the New Jersey Supreme Court in Crispino v. Township of Sparta, A-16-19.

After a number of serious storms that caused flooding and dam failures in New Jersey in the early 2000’s, the New Jersey state legislature created a program to loan money to lake owners and associations struggling with dam maintenance, repair and reconstruction.  The program allowed the municipality to serve as a co-borrower for the loan.  The importance of the co-borrower relationship was that the municipality could then use its power of taxation to create a special assessment and pass the cost on to surrounding property owners.

The program has been successful and has benefitted many lakes in providing funding to repair and replace dams. The program is not controversial where the lake association is clearly defined. However, many lakes have no formal association. Lakefront owners often form groups to address lake issues, but the cost of dam work is significant. Some lake associations and municipalities have attempted to spread the cost to surrounding property owners by special assessments. Some assessments are imposed on owners where their property has no connection to the lake at all.

In its decision, which significantly clarified and confirmed principles of special municipal assessments, the New Jersey Supreme Court specifically ruled that only properties that benefit from a dam or lake project would be included in the special assessment. The benefit must be identified objectively with reasonable precision. The benefit to a property is typically measured by an increase in the fair market value. Further, the Court ruled that the amount of the assessment cannot exceed the benefit and that all of the assessments must be proportional to the benefits to each individual property assessed.

Ursin indicated that he believes this ruling is a very important victory for the rights of taxpayers. He states that he has seen many cases where dam assessments have been levied against properties without proper methodology. These homeowners are surprised as they had no idea that they could be forced to contribute to a lake where there is no association. Many times the property owners do not fight the assessments because they do not understand the process or because the amount of the assessment when spread over a period of time is not worth protesting.  This case shows that a group of homeowners can join together and insist that the assessments burden only the properties that have some connection to the lake. Ursin said he believes that this is a serious issue because the assessments have the same priority in terms of liens against property as real estate taxes.  Failure to pay the assessments can result in tax liens and eventually foreclosure. These assessments can have a negative impact on the value of a home. The assessments must be disclosed to buyers and a potential buyer will likely be concerned about what type of costs could be generated by lake issues in the future.

This ruling also places municipalities and lake associations on notice that they must follow proper procedures in levying assessments for dam repairs in the future. The New Jersey Supreme Court decision provides clear guidance on the objective framework for determining which properties can be assessed and the amount of the assessment. The process can be expensive, but it serves to protect homeowners with no connection to a lake.

For more information, individuals facing dam assessments or homeowners association‘s pursuing dam projects and assessments are invited to contact John E. Ursin, Esq. at 973-540-7335 or jeu@spsk.com.