This legislation was introduced in response to Roman Catholic Archdiocese of Newark v. City of East Orange, where the Tax Court of New Jersey recently held that a religious or charitable organization loses its property tax exemption when it leases property, even for another exempt purpose. As many churches, temples, and other charity groups commonly lease portions of their property for education, day-care and social services to provide additional revenue and greater community outreach, the court's decision in that case prompted many municipal assessors to return such properties to the tax rolls and prompted the legislature to act.
The new legislation, which permits religious and charitable organizations to lease portions of exempt buildings to other tax-exempt organizations without loss of property tax exemptions, and also permits such organizations to lease portions of buildings to for-profit organizations while retaining a partial exemption on remaining portions of buildings used for exempt purposes, was signed into law by Governor Christine Todd Whitman on January 29, 2001.