Appellate Division: City of Elizabeth Cannot Unilaterally Cancel Long-Term Tax Exemptions by Ordinance

The Appellate Division of the Superior Court of New Jersey has held that a municipality cannot simply adopt an ordinance to unilaterally cancel long-term tax exemptions (commonly called “PILOTs”). The Court ruled that the City of Elizabeth’s attempt to retroactively end PILOTs held by Sills Cummis’ clients violated the Contracts Clause of the New Jersey Constitution. It explained that a municipality must follow the parties’ financial agreement, including giving notice of default and an opportunity to cure. In an opinion issued September 29, 2026, the Appellate Division affirmed the trial court’s (Law Division’s) ruling granting partial summary judgment to Sills Cummis’ clients.

Michael J. Caccavelli was lead counsel for the plaintiffs. He is a Member of the Sills Cummis Real Estate Department and Chair of its Property Taxation and Eminent Domain Practice Group. The plaintiffs are Jersey Walk E Jersey Urban Renewal, LLC; Jersey Walk Lafayette Urban Renewal, LLC; Jersey Walk Garage Urban Renewal, LLC; and Jersey Walk Condominium Association, LLC. They brought an action in lieu of prerogative writs against the City of Elizabeth. The suit challenged an ordinance that rescinded the City’s earlier approval of the PILOTs and terminated the related financial agreements.

The Appellate Division agreed with the trial court that the ordinance was unconstitutional. It found that adopting the ordinance violated the Contracts Clause of the New Jersey Constitution, which rendered the action an arbitrary and capricious use of the City’s powers. The Court explained that the City could not cancel the PILOTs on its own through legislation. Instead, it must follow the financial agreement, which is the contract between the parties, including giving notice of default and the opportunity to cure.

The Court also rejected the City’s argument that the financial agreements and PILOTs were ultra vires contracts in either the primary or secondary sense. In other words, the City unsuccessfully argued that they were contracts it either had no power to make or made improperly. The City also claimed that the agreements were invalid because the properties had not yet been transferred from the parent business entity to the individual urban renewal entities when the financial agreements were signed. The Appellate Division likewise rejected that argument as to both the financial agreements and the PILOTs.

The Appellate Division went further on one point – disagreeing with the trial court’s dismissal of certain claims that were not resolved by the partial summary judgment order. The Appellate Division held that the trial court was required to stay those claims pending arbitration rather than dismiss them. It vacated that part of the order and sent the case back for entry of an order staying the remaining claims pending arbitration.