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A tale of commercial development and PILOTs gone awry p2

5/17/2014 | Real Estate Blog

In 1987, a developer decided to build on a parcel that straddled the border between two towns in Massachusetts. One town had a public sewer system, and the other did not. In a commercial development, access to a sewer system can be critical, so the developer and the city with the sewer system — the city of Marlborough — negotiated an agreement that would give the developer the services he needed.

He agreed to make payments in lieu of taxes to Marlborough. The amount was based on what the property taxes would have been if the entire parcel were in Marlborough, and the agreement included a schedule of increases that the developer — or the property owner — would follow until, apparently, the parties terminated the agreement.

The town of Southborough, the town that shared the parcel with Marlborough, collected taxes on its portion of the property without incident. So did Marlborough.

That was a problem. The PILOTs were specifically to take the place of property taxes. Someone had made a mistake that would, amazingly, go undetected for more than 30 years.

The original owner sold the property a few years after the development was complete. Because neither the property owner nor officials from Marlborough had filed the PILOT agreement with the registrar of records — the city recorder — the new owner had no notice of the arrangement. Nor did the owner after that.

They still made the payments, though. One company classified the payment as a water/sewer fee rather than a PILOT.

In 2012, an employee finally questioned the expense. He wrote to the city and got a surprising response.

Source: Wicked Local Marlborough, “Judge tells Marlborough: ‘In lieu of taxes’ payments were ‘illegal’,” Kendall Hatch (Daily News), May. 9, 2014