by Erika Kelley, Esq.

Despite living in this time of uncertainty and confusion, one must be aware that our contractual obligations to perform do not cease.  In the event of a real estate closing that is to take place during our national crisis, mandatory shut-downs and curfews, a buyer cannot automatically presume that their closing will be extended simply due to our changing conditions in the advent of the Coronavirus/COVID-19 situation.

In our highly technological age, considerations of social distancing and sanitary conditions may and should be addressed by remote technological means if possible and simple accommodations related to the physical space the closing is to occur in.

To fail or refuse to close – specifically with COVID-19 concerns addressed – would put the buyer in breach, thereby exposing the buyer (unless there is a specific provision that excludes performance due to Acts of God, war, force majeure, etc.) to possible liquidated damages, loss of deposit monies and a potential suit for specific performance.

Accordingly, it is imperative to recognize that buyers simply do not have the ability to refuse to perform under contracts for the sale of real estate, in the absence of express language to the contrary, despite the dark days that our State faces due to this crisis.

SB 212 Makes Towing in CICs Easier

Let’s be honest, no one likes to have their car towed. It’s inconvenient and costly. However, it’s equally frustrating to a resident living in a common interest community (CIC) to fi nd another car parked in their assigned spot, or when a person uses a handicap space without a permit, or leaves their vehicle in a red zone hindering the necessary access emergency vehicles need. The 2019 Nevada Legislature understands and has responded by passing Senate Bill 212 making it easier for residential communities to have cars removed for parking illegally inside a CIC.

Most of us are aware that part of living in a CIC is the requirement that homeowners and guests abide by rules and restrictions intended to protect the “community” and preserve its aesthetics. Doing so helps owners maintain the property value in their communities. These rules, commonly
referred to as CC&Rs (covenants, conditions, and restrictions), restrict the usage and enjoyment of real property. A staple of all CC&Rs is parking guidelines – where you can park, where you can’t, and when your car will be towed.

Under Nevada law, there are two types of legal tows: consent and non-consent. Anytime a car is towed from a residential community without the owner’s permission it’s deemed to be a non-consent tow. To protect car owners, the law requires a CIC’s homeowners association (HOA) to give notice of the possible tow. The notice may be in the form of a vehicle sticker affi xed to the car advising the owner that it may be towed if, after 48 hours, the violation is not cured. However, more serious parking violations, which will be discussed in further detail below, could
subject a vehicle to being towed “immediately.”

Clink link to read full artlice – SB 212 Makes Towing in CICs Easier



by Fredric L. Shenkman, Esq., LL.M.

This article is intended as an introduction to  the law of servitudes.  It is  a starting point for a detailed analysis of the subject; it is useful for those not familiar with servitudes and those refreshing themselves on the subject.

DEFINITION OF A SERVITUDE: A servitude is a legal device that creates a right or an obligation in land; it can also be an interest in land.  Put differently, a servitude is an interest in another’s possessory estate in land, entitling the holder of the servitude to make some use of another’s property.  Borough of Princeton v. Board of Chosen Freeholders of County of Mercer, 333 N.J. Super. 310 (App. Div. 2000), cert. granted, 165 N.J. 676 (2000), affirmed and remanded, 169 N.J. 135 (2000).  Simply, a servitude is the right to use or enjoy someone else’s land or restrict the use of land.

A servitude often “runs with the land,” meaning that the rights and obligations imposed by the servitude pass to successive owners of the lands in question.  A servitude that runs with the land is called a “benefit.” The land benefitting from the servitude is called the “dominant” estate. The land which is burdened by the servitude is called the “servient” estate.

A servitude can take a number of forms including an easement, a profit à prendre, a license, or a covenant. An easement is a non-possessory right to enter and use the land of another.  It obligates the owner of the servient estate not to interfere with the uses contemplated by the easement.            The owner of a servient estate cannot unreasonably interfere with the dominant holder’s rights or change the character of the servitude making the use of the easement more difficult or burdensome.   Tide-Water Pipe Co. v. Blair Holding. 42 N.J. 591 (1964).

Easements can be “appurtenant” or “in gross.”  Appurtenant easements are as described above: there is a dominant estate and a servient estate; the rights or obligations are tied to ownership or occupancy of the land.  An easement in gross does not have a dominant estate that benefits from the easement; the benefit or burden of the easement is not tied to ownership or occupancy of the land.  For example, a utility easement permitting gas lines on the property of another does not generally serve the benefit of a particular piece of land, thus, there is no dominant estate.   Tewksbury Tp. v. Jersey Central Power & Light Co., 159 N.J. Super 44 (App. Div. 1978), affirmed, 79 N.J. 398 (1979). The burden of an easement is always appurtenant; the benefit may be appurtenant or in gross.   See Rosen v. Keeler, 411 N.J. Super. 439 (App. Div. 2010).  Easements in gross are always non-possessory. Village of Ridgewood v. Bolger Foundation, 202 N.J. Super 474 (App. Div. 1985), cert. granted, 102 N.J. 343 (1985), reversed, 104 N.J. 337 (1985).

A profit à prendre (“profit”) is an easement that confers the right to enter and remove timber, minerals, oil, gas, game or other substances from land owned by another.  Profits have recently been in the news due to extraction of gas by “fracking.”

A license is an authority to enter another’s land without possessing any interest in the land; it is usually revocable at will. An example would be allowing a piece of equipment to cross land for use on construction on a different piece of land.

A covenant is a servitude  if the benefit or the burden runs with the land; the converse being that if a covenant doesn’t run with the land it isn’t a servitude.   An “affirmative covenant” requires a covenanter to do something.  Affirmative covenants call for the payment of money, the supply of goods or services, or the performance of some other act, either on or off the land owned or occupied by the covenanter.

A “negative covenant” requires the covenanter to refrain from doing something.  A “restrictive covenant” is a negative covenant that limits permissible uses of land.   An example of a negative covenant that is not a servitude is an owner of a shopping center entering into a lease with a pizza parlor; a negative covenant in the lease prevents the owner from leasing any other location in the shopping center to another pizza parlor. Another example of a negative covenant, one that is a servitude, is a restriction on land from ever being for a particular purpose i.e. a restriction in a deed that prevents the land  from ever being used for industrial purposes.

A more infamous example of a restrictive covenant is  one that prevents the sale of land to a person of color; colloquially, this type of covenant is referred to as a “racial covenant.” Unlike the ordinary restrictive covenant, a racial covenant does not seek to limit the use of property; it seeks to limit who can own  property. Although racial covenants have been unenforceable for decades (Shelly v. Kraemer, 334 U.S. 1 (1948)), they still appear frequently in chains of title.

CREATION OF A SERVITUDE: A servitude is created if the owner of the servient estate enters into an agreement creating a servitude or there is a conveyance intended to create a servitude.  It is important to note the implications of the Statute of Frauds (N.J.S.A. 25:1-1, et seq.) on the creation of servitudes.  N.J.S.A. 25:1-10 defines an “interest in real estate” as including a profit and an easement. An “interest in real estate” is generally not effective unless in writing, N.J.S.A. 25:1-11.

Due to an amendment to the Statute of Frauds, interests in real estate can be created without a writing if: (1) the description of the real estate is sufficient to identify it and the nature of the interest being created; and (2) the existence of the agreement and the identity of the parties can be ascertained by “clear and convincing” evidence.  The standard of proof in most civil cases is “preponderance” of the evidence.  “Clear and convincing” is a higher standard than “preponderance of the evidence” but less than the criminal standard of “beyond a reasonable doubt.”   See N.J.S.A. 25:1-13(b). However, an unwritten agreement concerning real estate is not effective against a bona fide purchaser for value or against lienholders without some type of notice. N.J.S.A. 25:1-14.

There are certain  servitudes that were never required to be in writing pursuant to the Statute of Frauds, N.J.S.A. 25:1-11(d). These include servitudes by: estoppel; implication; necessity;  and prescription.   Mandia v. Applegate, 310 N.J. Super. 435 (App. Div. 1998).

A servitude by estoppel is created if an injustice can only by avoided by preventing the owner of the servient estate from denying the existence of a servitude.  This occurs in two situations: (1) when the servient estate permitted the use of the land under circumstances where it was reasonably foreseeable that the user of the servitude would substantially change position believing that the servitude would not be revoked and that the user did change its position in reliance on that belief; and (2) where the owner of the servient estate represented that the land was burdened by a servitude when it was reasonably foreseeable that the person to whom the representation was made substantially changed position based upon reliance on the representation.

An example of servitude by estoppel involving the first situation would be: the owner of a house asks the abutting farm owner to use a small portion of the farm to accept storm water run-off from the house. There is nothing in writing.  However, the farm owner permits  a piece of the farm to be used for storm water runoff for ten years.  At the end of ten years, the farm owner abruptly builds a wall that prevents the farm  from being used for runoff. The homeowner has no other viable alternative to the farm accepting the run off.  In this situation, a court could impose a servitude by estoppel.

An example of a servitude by estoppel involving the second situation is as follows: a developer of a housing complex indicated in sales brochures that a piece of land in the development would be used in perpetuity as open space.  Set-back restrictions were imposed on homeowners to insure the continued viability of the land as open space.  The open space was never restricted in writing.  Fifteen years later the developer tries to sell the open space for commercial purposes.  This is another situation where the courts could impose a servitude by estoppel to prevent the land from being used other than for open space.

A servitude by implication is created where it may be implied from the circumstances surrounding the conveyance of an interest in land and  the beneficiary of the servitude can be implied by the facts and circumstances of the transaction.  An owner of a farm, subject to a restriction that part of the farm will continue to be operated as a farm,  sells an unrestricted portion of the farm to Jones.  It can be implied that Jones is the beneficiary of a restriction to use the unsold portion of the land as a farm.

A concept related to a servitude by implication is a quasi-easement.  An owner of property cannot have an easement over his or her own land.  Leasehold Estates, Inc. v. Fulbro Holding Co., 47 N.J. Super. 534 (App. Div. 1957), cert. granted 25 N.J. 538 (1958 ). However, when there is joint ownership of two abutting parcels with, as an example, a driveway over one parcel to access the other parcel,  same is a quasi-easement. If the owner  sells the parcel which benefits from the driveway, the quasi-easement is converted to an easement by implication or necessity.  See Mandia v. Applegate, supra.  The parcel served by the driveway being the dominant estate and the parcel  over which the driveway runs being the servient estate.

A servitude by necessity is created by a conveyance that would otherwise deprive the grantee of the land reasonable enjoyment of the land.   An owner of two abutting pieces of property conveys a portion to Jones.  The piece owned by Jones would be inaccessible but for the ability to traverse the parcel not sold, hence, Jones has a servitude other the abutting piece of property for access.

A servitude by prescription is simply a servitude created by means of adverse possession. Adverse possession is the acquisition of title to land or an easement from the legal owner due to possession.  Patton  v.  North  Jersey Dist. Water Supply Com’n , 93 N.J. 180 (1983).

TERMINATION OF SERVITUDES: Servitudes can be terminated by expiration, release, abandonment, merger, estoppel, prescription and changed circumstances, along with other events.

Servitudes can terminate by their own terms: an easement allowing passage for construction equipment ends, by its terms, in one year. A termination of a servitude by release is when the parties agree to terminate contractually. A termination by abandonment is what its name implies, a beneficiary abandons the rights created by a servitude. A termination of a servitude by merger occurs when, for example,  joint ownership of  dominant and servient properties comes into being. A termination by estoppel occurs when the person who has the benefit of the servitude communicates, in words, writing, action, inaction or silence, that he or she intends to terminate the servitude and the burdened party changes position based on same. A termination of a servitude by prescription (N.B. discussion above) occurs when the servitude is lost due to adverse possession. A termination of a servitude because of changed conditions is when there has been a change that makes the imposition of a servitude impossible. An example of this is a piece of land is restricted such that it can only be used for residential purposes; over time,  the abutting property becomes a chemical plant; this renders the use of the land for housing impossible; as such, the servitude no longer exists due to changed circumstances.

INTERPRETATION OF SERVITUDES: A servitude, like a contract, is interpreted to give effect to the intention of the parties as evidenced by the language of the instrument of creation.  If the servitude was not created by a writing, the circumstances surrounding its creation should be examined to ascertain the purpose for which it was created.

In that servitudes are often imprecise,  there are rules of interpretation  if the history surrounding the creation of the servitude is not helpful.  If a servitude by necessity does not have a term, it will be understood to last as long as necessary to satisfy the conditions that caused its creation.  A servitude that is personal lasts only as long as the life of the person benefiting from the servitude.  A conservation servitude is deemed to be perpetual.

If the location and dimensions of the servitude are not defined by a writing, they are determined as follows: (1) the owner of the servient estate has the right, within a reasonable time, to specify a location that is reasonably suited to carry out the purpose of the servitude; (2) the dimensions are those reasonably necessary for the enjoyment of the servitude; (3) the owner of the servient estate is entitled to make reasonable changes in the location or dimensions of the easement, at the servient owner’s expense, to permit normal use and development of the servient estate unless the changes will lessen the utility of the easement, increase the burdens on the owner of the dominant estate, or frustrate  the purpose for which the easement was created.

The unpublished case of Atlantic City Electric v. Evergreen Environmental, Chancery Division-General Equity, Cape May County, Docket No. CPM-C-13-11 dealt with some of these issues.  The Chancery Division was faced with a peculiar set of facts relating to the size and use of an easement. An abandoned railroad line was acquired; the railroad  ran from the Garden State Parkway eastward to the Wildwoods.  To the north and south of the property ran transmission lines serving the Wildwoods.  The prior owner of the railroad line granted an easement so that it could be used to  service, repair and replace  the northerly and southerly transmission lines.  The land between the railroad line and the transmissions lines  was environmentally sensitive.  The new owner of the railroad line wanted to convert it into a wetlands mitigation bank. The easement instrument described the easement area only by lot and block.  The owner of the rail line argued that the easement was intended to allow reasonable access to transmission lines but it was not so expansive as to prevent other uses of the rail line.  The owner of the transmission lines argued that even though a description of the easement area was by lot and block which, admittedly, is not precise enough to describe the property by metes and bounds, it was sufficient for the court to determine that the entire property, regardless of its precise location and boundaries, was encumbered by the easement.  The trial court, on cross-motions for summary judgment, agreed that the easement burdened the entire rail line due to the easement’s description by lot and block.

CONCLUSION: Servitudes, by their nature, encumber the title and use of land. Any acquisition or financing of land requires a careful analysis of the title to land so that the purposes for which the land was acquired or financed are not frustrated.

Why Homebuyers Need Title Insurance and Attorney Representation

For most people, buying a home is the single largest investment in their lifetime. That’s why title insurance should be part of that transaction. Title insurance specifies that an owner has “good and marketable” title to the property, i.e., that the owner owns the property free of any adverse claims by others—except those to which the owner has consented.

Most commonly, an owner might consent to utility easements for electric, phone and others that do not significantly interfere with the owner’s use of the property. An owner presumably would not consent to: (a) a utility easement that cuts across the property and does significantly interfere with an owner’s use of or building plans for the property; (b) a neighbor’s building that encroaches on the property; (c) restrictions set forth in the chain of title, and apart from the applicable zoning ordinance, that specify limitations on the home to which the owner does not consent (e.g. setback requirements, building height limitations and building lot coverage maximums); and (d) prior liens on title to the property, such as a previous mortgage or tax lien.

If a buyer is purchasing property with mortgage financing, his mortgage lender will require that the buyer pay for a title insurance policy. This insures that the title to the property is “good and marketable” and free of title defects. In that case, the buyer, for a nominal additional fee, has the option to purchase owner’s title insurance. If the buyer is not using mortgage financing, he or she has the option to purchase title insurance for the full premium charged (which is set by statute).

The title insurance commitment (which is forwarded by the title insurance company prior to closing) will contain a list of any adverse claims against the property. At the closing, the title insurance clerk will “mark up” the commitment so as to indicate those adverse claims that will be eliminated or insured against and those adverse claims that will not be eliminated or insured against. For example, the commitment would list the seller’s outstanding mortgage on the property as an adverse claim (known as an “exception”); but, because the title insurance company will handle payoff of that mortgage as part of the closing, that exception will be marked removed and will be insured against as part of the title insurance policy that will be issued after the closing to the buyer (and to the mortgage lender, if there is one).

Other exceptions, such as the typical utility easements mentioned above, are not marked removed but rather are marked to remain. They are not insured against by the title insurance policy and will be listed in the policy as “exceptions.” The “marked up” commitment is the basis for the title insurance policy that is issued to the buyer (and to his mortgage lender, if any) after the closing, generally within 30 days. The “marked up” commitment, in effect, is a contract between the title insurance company and the buyer to issue a policy that conforms to the “marked up” commitment.

In the vast majority of real estate closings, adverse claims do not arise afterwards. It is the significant minority of real estate closings, however, that title insurance is intended to cover so as to relieve the buyer of both the substantial expense of attorney’s fees (the title insurer providing an attorney its cost) and the substantial expense and frustration of plans that can result from an adverse claim against the title being upheld. Unlike most insurance for which premiums have to be regularly paid, the premium for title insurance is a one-time payment at closing and the insurance remains in effect for so long as the buyer or his heirs own the property.

The Role of a Lawyer in the Title Process

Notwithstanding the importance of title insurance, most buyers in South Jersey, whether they are getting mortgage financing or not, and to minimize their expenses, do not have a lawyer represent them and, as part of that representation, review the commitment and its “marking up” at the closing. Instead, most buyers rely upon their realtor to take care of the contract and issues that arise between contract and closing as well as issues for the closing and also rely on the title agency clerk at the closing. However, realtors are not trained to review and analyze title commitments and their “marking up” and title agency clerks do not represent the buyer. In fact, the required notice from realtors to buyers and sellers advises them on the limitations of the realtor’s expertise and advises them to consider hiring an attorney. The title commitment itself advises that the title company does not represent the buyer and, likewise, suggests the buyer consider retaining an attorney.

Only attorneys are trained, have the experience and responsibility to review, analyze and advise the buyer concerning the title commitment and the “marking up” of the title commitment. Given that a buyer’s purchase of a home is likely to be the single, largest investment he or she makes during their lifetime, buyers should purchase title insurance and should retain an attorney for the transaction if, for no other reason, to review the title commitment and its “marking up” at the closing.

The premium and legal fees involved are a small percentage of the cost of a home and, in the unfortunate event that an adverse claim against the buyer’s title later arises, the title insurance policy will save the buyer many thousands of dollars.

Lewis J. Schweller is an experienced real estate attorney at Cooper Levenson, based in the firm’s Atlantic City office.

Realtors: Protect Yourself from Being Sued Under the Consumer Fraud Act

If you are a professional seller of real estate, you regularly advertise your properties. Make sure your marketing materials do not land you in court. The law is designed to protect the buyer. In this case, the Consumer Fraud Act (CFA) protects buyers from false promises.Realtors can be sued under the CFA for misrepresenting their properties – even accidentally. Here is how it works: The lawsuit must allege the realtor engaged in unlawful conduct, the party sustained a loss and there was a causal relationship between the realtor’s unlawful conduct and the party’s loss.

There are three categories of unlawful conduct:
1. When realtors affirmatively make material misrepresentations;
2. When realtors omit material information; and
3. When there is a violation of an administrative regulation.

This article will address the first two: material misrepresentations and omissions of material information.

Material Misrepresentations – Bending the Truth

The difference between a misrepresentation and an omission is that the latter requires proof that the realtor intended to mislead; the former does not. Said another way – realtors who innocently provide misinformation can be sued under the CFA even if they believed they were providing accurate information.

According to the CFA, “An assertion of fact about a property, not puffery, is a violation if the facts are false and material to the transaction. Proof that the false statements were made with knowledge of the falsity of the misrepresentation, negligence, or the intent to deceive is not required.” That means you had better check – and recheck – anything you put in writing that is used to market the home.

Examples of lawsuits against realtors for providing inaccurate information include (1) misinformation that appeared in Multiple Listing Service advertisements, such as “Ready to build now,” when no permits had been obtained; “property suitable for a two-family dwelling,” when no approvals or permits had been obtained; a representation that a property was not in a flood zone – when it was; (2) a representation that the leased area was greater than the actual square footage; and (3) a representation that a dam was not on the property purchased – when it was.

Omissions of Material Misrepresentations – Did You Leave That Out on Purpose?

Examples of lawsuits against relators for omitting to provide information to a buyer include failing to tell buyers that the property purchased was severely constrained by wetlands and failing to tell buyers there were access easements.

It’s Difficult to Avoid Liability

You might think you can rely on provisions in an Agreement of Sale for protection. That is not always the case.

If you fail to disclose a material fact, such as an encroachment, you might try invoking contract provisions which shift the burden to the buyer. For example, there might be a clause that says a sale is subject to easements that could have been discovered on a survey. This still may not protect you from liability.

You also may not avoid liability for your intentional omission by relying on the buyer’s failure to discover it. According to the CFA, “(A) party to an agreement cannot, simply by means of a provision in the written instrument, create an absolute defense … in an action based on fraud in the inducement to contract.” Similarly, a “no representations” clause does not preclude introduction of earlier explicit misrepresentations, if the facts were peculiarly within that party’s knowledge and were, in fact, intentionally misrepresented.

Nor can a realtor necessarily rely on the fact that a party is sophisticated. “A party’s status as a sophisticated party does not immunize a realtor’s intentional or negligent facilitation of a fraudulent scheme,” according to the CFA.

The moral to the story: trust your source before making representations. That is your best chance at avoiding a lawsuit under the CFA.

Rona Zucker Kaplan is a partner at Cooper Levenson Attorneys at Law, based in the firm’s Atlantic City office.

Tax Alert: New Jersey Tax Court Clarifies Disposed Interest in Irrevocable Trusts

The long-debated issue as to what constitutes a complete disposition of interests in real property for purposes of irrevocable trusts was recently settled by the Tax Court of New Jersey in the matter of Estate of Mary Van Riper v. Director, Division of Taxation.

In Van Riper, Mary Van Riper and her husband, Walter Van Riper, established an irrevocable trust in 2007, which this article will refer to as the “Irrevocable Trust.” The sole asset in the Irrevocable Trust was the Van Ripers’ marital home, which was transferred to the Irrevocable Trust in exchange for one dollar.

The Irrevocable Trust permitted Mr. and Mrs. Van Riper to live in their marital home for their respective lifetimes and for the residence to be irrevocably transferred to the couple’s niece upon the second of Mr. and Mrs. Van Riper to pass away. Mr. Van Riper passed away three months after executing the Irrevocable Trust, while Mrs. Van Riper passed away in 2013.

Under New Jersey law, the transfer of property to an irrevocable trust during an individual’s lifetime, which is commonly known as an inter vivos transfer, is generally subject to New Jersey estate and inheritance tax if such transfer is (i) in contemplation of the transferor’s death or (ii) intended to take effect at or after the death of the individual initiating the transfer of property.  However, inter vivos transfers that are an “irrevocable and complete disposition of all reserved income, rights, interests and powers in and over the property transferred” and take place more than three years prior to a transferor’s death are expressly exempt from inheritance tax. N.J. Stat. Ann. § 54:34-1.1. The “Irrevocable Disposition Exemption” to the inheritance tax has been part of New Jersey law since 1955, surviving numerous legislative changes. Three elements must be met in order to gain eligibility for the Irrevocable Disposition


  1. a transfer of real property by deed, grant, bargain, sale, or gift must occur
  2. the transferor must be entitled to some income, right, interest or power in the transferred property
  3. the transferor must irrevocably and completely dispose of all reserved income, rights, interest and powers in and over the transferred property at least three years prior to the transferor’s death.

In Van Riper, the Tax Court made two critical rulings which clarified the Irrevocable Disposition Exemption. First, the Tax Court held that the Van Ripers’ rights under the Irrevocable Trust constituted a retained life estate interest (meaning a right to live in the couple’s marital home during their respective lifetimes). Second, the Tax Court determined that the Irrevocable Disposition Exemption’s  retention of the life estate interests, even though the property was subject to an irrevocable disposition, was not a complete disposition of such property. As such, the Tax Court determined that the transfer of the Van Ripers’ marital home from the Irrevocable Trust to the Van Ripers’ niece was subject to inheritance tax.

Despite the Van Riper decision, the Tax Court’s clarification as to ambiguities in the wording of the Irrevocable Disposition Exemption will likely assist taxpayers in the long term. The Van Riper court accepted the New Jersey Division of Taxation’s contention that a life estate was implicitly formed, even though the Irrevocable Trust lacked explicit reference to a deed which transferred the property from the Van Ripers to the Irrevocable Trust.

In a typical scenario that we encounter, the transfer of real property into a trust for $1.00 constitutes a gift with a transferred basis equal to the transferor’s basis. The life estate will be deemed to be included in the decedent’s gross estate and will be subject to a step-up in basis to the fair market value of the property at the decedent’s date of death. This step-up in basis can be extremely beneficial if the property has a low basis. For example, assume a property was purchased for $100,000 and had a value of $450,000 at the decedent’s date of death. If the owner of the property transferred the property to an irrevocable trust in exchange for $1.00 but did not retain a life estate and the property was sold for $450,000, a capital gain of $350,000 would be realized; however, the step-up in basis may result in no capital gains tax if the property is sold after the date of death of the decedent and the initial transfer is characterized as an implied life estate, as the New Jersey Division of Taxation advocated (and the Tax Court accepted) in Van Riper.

Be sure to speak with your legal professionals about utilizing the Van Riper case to carefully plan and draft your trust documents to fully leverage the Irrevocable Disposition Exemption.

Peter Y. Fu is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on sales and use tax, enterprise risk management, and commercial transactions. Peter is licensed to practice law in New Jersey and Florida. Peter may be reached at 609.572.7556 or via e-mail at

Jarad K. Stiles is an attorney in Cooper Levenson’s Business & Tax and Elder Law practice groups. He concentrates his practice on business succession planning, estate and asset protection planning, elder law planning,  and tax controversies. Jarad holds an LL.M. in Taxation. Jarad is licensed to practice law in New Jersey, New York, and the United States Tax Court. Jarad may be reached at 856.857.5594 or via e-mail at

Michael L. Salad is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida and the District of Columbia.  Michael may be reached at 609.572.7616 or via e-mail at

New Jersey Assembly Proposes Tax on Short-Term Rentals

In response to the massive success of short-term rental programs like AirBnB, FlipKey and VRBO, New Jersey lawmakers proposed legislation to regulate and tax online vacation marketplaces by way of Assembly Bill 4441 (“A.B. 4441”), an “act concerning the licensing and regulation of space for accommodation of transient guests.” The bill passed the Assembly Tourism, Gaming and the Arts Committee on February 27, 2017 and has been referred to the Assembly Appropriations Committee, one of the final stops in the New Jersey legislative process, before the bill is voted on by the entire New Jersey Assembly.

If A.B. 4441 is enacted into law, municipal governments will have the authority to license and impose fees/taxes on landlords who host “transient guests,” which is defined as a “person who, for consideration uses, possesses, or has the right to use or possess any space for accommodation for a period of 90 consecutive days or less under a lease, concession, permit, right of access, license to use, or other agreement.” However, the bill specifically exempts “seasonal rentals,” which is defined as a “dwelling unit rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere.” A.B. 4441 at § 3(a).  

Proponents of the bill contend that A.B. 4441 only targets individuals who use online vacation marketplaces outside of their intended purpose, and, in so doing, effectively avoids New Jersey’s extensive statutory laws regarding landlords and tenants. Opponents of A.B. 4441 believe that the bill unfairly attacks non-traditional renters who are unable to pay security deposits, such as college students or seasonal workers without a permanent residence.

Additionally, the landlord licensing requirement of A.B. 4441 may substantially impact homeowners who occasionally rent their homes for extra cash, as such uses may adversely impact homeowners insurance policies and reclassify certain properties for property tax purposes. As such, online vacation marketplace hosts and users should carefully follow the path of A.B. 4441 toward being enacted into law.

Peter Y. Fu is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on sales and use tax, enterprise risk management, and commercial transactions. Peter is licensed to practice law in New Jersey and Florida. Peter may be reached at 609.572.7556 or via e-mail at

Jarad K. Stiles is an attorney in Cooper Levenson’s Business & Tax and Elder Law practice groups. He concentrates his practice on business succession planning, estate and asset protection planning, elder law planning,  and tax controversies. Jarad holds an LL.M. in Taxation. Jarad is licensed to practice law in New Jersey, New York, and the United States Tax Court. Jarad may be reached at 856.857.5594 or via e-mail at

Michael L. Salad is an attorney in Cooper Levenson’s Business & Tax and Cyber Risk Management practice groups. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and cyber risk management. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in New Jersey, Florida and the District of Columbia.  Michael may be reached at 609.572.7616 or via e-mail at

Is a Reverse Mortgage Right for You?

Between “trusted” celebrity spokespersons and advertisements in newsprint and on line touting the advantages of a reverse mortgage, senior citizens are being bombarded with the benefits of a reverse mortgage as a way to assess money for “the good life” during retirement, “take a much needed vacation!” or “spend it however you want!”. However, what these advertisements neglect to tell the consumers is that the supposed “ease” of getting this money carries risk.

A reverse mortgage is a way for older homeowners to transform the equity in their home in cash without having to either move or make regular loan repayments. If you own a home and are at least 62 years old, you may qualify. The loan does not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out, which is non occupation of the home as the primary residence for a year.

This money can be received in one of three ways: a lump sum, as a line of credit or in a series of regular payments. A reverse mortgage cannot be taken out if there is a prior debt against the home, and the amount received depends on the value of the home, the age of the borrower and current interest rates: the lower the interest rate and the older the borrower, the more that can be borrowed. The borrower is still required to pay all taxes and any other municipal obligations, maintain homeowners insurance and maintain the residence. Interest is also charged on the money disbursed, and at the closing of the loan there are the normal closing costs charged in any other real estate transaction, such as fees and costs to the granting institution and title insurance.

The problem with these loans is that they carry large insurance and origination costs and may affect eligibility for government benefits like Medicaid. They’re not ideal for parents whose major objective is to safeguard an inheritance for their children.

Also, make sure both spouses are on the mortgage, it may be tempting to only use the older spouse, and access more money, but if both spouses are not on the mortgage and the older spouse dies first, the surviving spouse is required to repay the mortgage loan in full or face eviction.

A reverse mortgage can be a great tool in the right circumstances, if needed for paying medical expenses not covered by Medicaid or insurance. If you opt for a reverse mortgage, make sure both spouses names are on the mortgage and watch out for a lump sum loan.

Look for a reverse mortgage with a line of credit with a variable interest rate, where you only access the money as you need it and your interest charges will be lower than a lump sum loan, which have a fixed interest rate and earns interest every month.

Housing Trends Among Millennials: Back to Suburbia

Are you interested in over 80 million of the most highly educated and diverse Americans moving to your town? Then set your sights on millennials. Also known as Generation Y, millennials are those born between 1980 and 2000 and are the largest generation in U.S. history. Across the country, these young adults are reshaping the real estate landscape in search of one-of-a-kind residential communities with premier amenities, but at affordable prices.

Historically, millennials have shown greater interest in large city centers comprised of luxury apartments, food trucks, convenient transit access and trendy bar scenes. Imagine New York’s SoHo, Hoboken, New Jersey, and Washington, D.C. However, only 17% of millennials purchased homes in urban or city centers in 2015, according to an annual survey by the National Association of Realtors (NAR). “It is just too expensive to buy in a city where the mortgage for a small condo costs as much as a 3,500-square-foot home elsewhere,” explains Ernestine Patron, a 31-year-old South Jersey millennial.

So, what is trending for the first-time buyer millennial? The suburbs.

Millennials are increasingly relocating to (less expensive) suburbia to buy real estate. Last year, the median income of a millennial homebuyer was $77,400, and he or she purchased a 1,720-square foot home for approximately $187,400. According to the NAR study, “the millennial generation’s desire to own a home of their own as the primary reason for their purchase” has increased to 48% (from 39% in 2014). Marriage and children are also important factors in the trend toward suburban lifestyles for millennials, who now have a median age of 30 years old. In addition, millennial families overwhelmingly favor single-family homes. National Association of Home Builders reports that 75% of prospective millennial homebuyers prefer detached single-family homes rather than townhomes (11%) or multifamily condos/apartments (4%).

While studies have predicted these trends for years, real estate developers are slow to capitalize on the suburban-bound millennial movement. According to Lawrence Yun, Chief Economist for NAR, “even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is for the most part pushing their search further out.” Unfortunately, most suburban communities do not afford millennials the amenities they desire. As a result, many are forced to purchase older homes in the closest suburb to their favorite trendy city; meanwhile, these millennials can own real estate at a fraction of the cost. “There is a missed opportunity to bring walking trails, daycare centers and coffee shops into new, suburban communities – neighborhoods specially designed with us in mind,” explains Ernestine. “As first-time homebuyers, we really do not have many options.”

Yolanda is a millennial attorney and member of Cooper Levenson’s Land Use Department where she works on various land use issues, including commercial development, redevelopment, real estate, affordable housing and litigation. She focuses her writing on real estate development and economic trends pertaining to millennials in an editorial series titled, “The Millennials Are Here!” Yolanda’s blogs have been studied in college writing courses throughout the country and her work has been featured in a national publication.

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Real Estate Valuation Methodology

Once the highest and best use for real estate is established, the various methodologies for valuing improved property can be utilized.

The easiest method to understand is the sales comparison approach a/k/a the comparable sales approach. In this method, value is established by analyzing sales, listings or pending sales of properties that are similar to the subject property.

In the sales comparison approach, an opinion of value is developed by comparing properties similar to the subject property that have recently sold, are listed for sale or are under contract. Obviously, the highest and best use of a property is relevant because the sales comparison method works best when the properties being compared have the same or similar highest and best uses.

The sales comparison approach is applicable to all types of transactions when there are sufficient, recent, reliable transactions to indicate value patterns or trends in the market. This, however, is predicated upon the existence of a market. If, for example, a piece of property has a court building constructed on it there may be no market for its sale; the market would be for the vacant land, utilized in another fashion, less demolition costs. Therefore, the sales comparison approach works best for owner-occupied properties not for properties that are purchased for their income producing qualities.

The next method for appraising improvements is the cost approach. This involves the theoretical breakdown of property into land and building components. It is theoretical because buyers purchase rights not land and buildings. This creates issues that are not applicable in the sales comparison approach or the income approach. As an example, external obsolescence is an issue for the cost approach but not for the sales comparison or income approaches.

In the cost approach an analysis is performed of the cost of the improvements by comparison to the costs to develop similar improvements as evidenced by the cost of construction of substitute properties with the same utility as the subject property. The estimate of development cost is adjusted for losses in value caused by age, condition, utility and location. Then the value of the land (assessed by other methods not discussed herein) is added.

The cost approach is an analysis of the market’s perception of the difference between the property being valued and a newly constructed building with optimal utility. The appraiser must consistently distinguish between two costs bases: reproduction costs (an exact replica of the property) or replacement costs (a property of similar size and utility).

The costs to construct the existing structure and site improvements (including hard costs, soft costs and entrepreneurial profit) use three techniques: (1) comparative unit method; (2) unit in place method; or (3) quantity survey method.

The comparative unit method is used to derive a cost estimate in terms of dollars per unit or area or volume based on known cots of similar structures that are adjusted for time and physical differences usually applied to the total building site. Contract prices are usually employed to determine the comparative unit method, i.e. $20/s.f. In the absence of contract prices the total cost of a building can be extracted from sales of similar building as long as the following are met: (1) the improvements reflect the highest and best use of the property; (2) the property has reached stabilization; (3) supply and demand are in balance; and (4) the site value can be reasonably ascertained.

The unit in place method a/k/a segregated cost method arrives at the cost of a property by adding together the unit costs for the various building components as installed, i.e. excavation, foundation, etc.

The quantity survey method is the most comprehensive and accurate method of cost estimating. A quantity survey reflects the quantity and quality of all materials used in the construction of improvement and all categories of labor required. Then contingencies are added for overhead and profit.

From the costs are deducted all depreciation in the property improvements as of the valuation date. Depreciation is established by one or more of the following: (1) market extraction method; (2) economic age-life method; or (3) breakdown methods.

The market extraction method relies on the availability of comparable sales from which depreciation can be extracted.

The economic age-life method is a ratio of the effective age of the property in comparison to its expected economic life and then applying this ratio to the property’s costs. The formula is (Effective Age/Total Economic Life) x Total Cost = Depreciation.

The breakdown method is the most comprehensive and detailed way to measure depreciation because it differentiates depreciation into its component parts: (1) physical deterioration; (2) functional obsolescence; and (3) external obsolescence.

Functional obsolescence is relevant when a property lacks something that other properties have in the market such as air conditioning or elevators. There is also something known as a super-adequacy which is a type of functional obsolescence caused by something in the property that exceeds market requirements but does not contribute an amount equal to its cost. As a simple example, imagine a pool being installed in a residence for $25,000.00. The pool may not increase the value of the house by $25,000.00 and may decrease the value of the house because many owners don’t want to assume the liability imposed by a pool.

External obsolescence is a loss in value caused by an external factor such as an over-supplied market, proximity to an environmental disaster, being located in a neighborhood that would not encourage use of the property, etc.

When the value of the land is added to the cost of the improvements less depreciation the result is the value of the fee simple interest in the real estate.

The third method for valuing real estate is the income capitalization approach. An investor who purchases income-producing property is essentially trading current dollars in expectation of receiving future dollars. The income approach is used to analyze a property’s capacity to generate monetary benefits of income and reversion into an indication of present value.

There are two principle methods for employing the income capitalization approach: (1) direct capitalization and (2) yield capitalization.

Direct capitalization is a method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor.

Yield capitalization is used to convert future benefits, i.e. an income stream, and reverting same into present value by discounting each future benefit at an appropriate yield rate or by applying an overall rate that reflects the investment’s income pattern, change in value and yield rate.

The purpose of this article is simply to provide you with an outline of the appraisal process; it is not intended as a detailed treatise on the appraisal process although it may seem like same.