Submitted January 25, 2018
from the Board of Tax Appeals, No. 2015-973.
Jennings Co., L.P.A., Victor Anselmo, J. Kieran Jennings, and
Jason Lindholm, for appellants.
& Gillis Law Group, L.L.C., Mark Gillis, Karol C. Fox,
and Kelley A. Gorry, for appellee Lancaster City School
District Board of Education.
1} This case involves the real-property valuation of
a Walgreens drugstore in Lancaster for tax year 2014. The
facts and procedural history of this case largely mirror
those of Terraza 8, L.L.C. v. Franklin Cty. Bd. of
Revision, 150 Ohio St.3d 527, 2017-Ohio-4415, 83 N.E.3d
916. As in Terraza, a school board seeks to have
real property valued according to a recent arm's-length
sale price, while the property owners, relying on appraisal
evidence, contend that under R.C. 5713.03 as amended by 2012
Am.Sub.H.B. No. 487 ("H.B. 487"), a lease
encumbrance precludes use of the sale price to value the
property. The Board of Tax Appeals ("BTA")
disregarded the owners' appraisal and valued the property
according to the sale price. As in Terraza, we
vacate the BTA's decision and remand the case for the BTA
to weigh and address the appraisal evidence. See
Terraza at ¶ 39.
and Procedural History
2} The subject property is a 13, 650-square-foot
drugstore situated on approximately 1.2 acres in Lancaster
and owned by appellants, Bronx Park South III Lancaster,
L.L.C., and Fairmont Lancaster, L.L.C. (collectively,
"Bronx Park"). The building was constructed in 2004
and is leased to the Walgreen Company. The lease term, which
began in 2004, is 75 years, the first 25 of which are fixed;
every five years thereafter, the tenant has the option to
terminate the lease. The tenant is responsible for all
expenses, and the rental rate is fixed for the life of the
lease at $27, 500 per month ($24.18 per square foot).
3} The Fairfield County auditor assessed the
property at $1, 084, 660 for tax year 2014. Appellee
Lancaster City School District Board of Education ("the
BOE") complained to appellee Fairfield County Board of
Revision ("the BOR") that the property should have
been valued at $5, 641, 100, because that is what Bronx Park
paid for it in July 2014. The BOR agreed and increased the
property's valuation to $5, 641, 100. Bronx Park appealed
to the BTA.
4} At the BTA hearing, Bronx Park introduced the
testimony and appraisal of Sara H. Coers, a member of the
Appraisal Institute, who concluded that the sale price
represented the value of the "leased fee, " not the
unencumbered fee-simple estate. Based on her interview of the
attorney who represented Bronx Park during the sale, Coers
reported that Bronx Park "was motivated by the
cap[italization] rate for which the property could be
acquired, including the quality of the tenant and the length
of the lease in place."
5} Coers also reported that the sale was a like-kind
exchange under 26 U.S.C. 1031 and that representatives of
Bronx Park had never been to the subject property or to
Lancaster. She noted that Walgreens is a high-quality tenant,
that the lease provides for a rental rate that is more than
double the market rent, and that the term exceeds what is
generally available in the market. She noted that "[t]he
real property would not command this price if it were vacant,
leased at market levels after exposure of the market, or
occupied by a less creditworthy tenant or a tenant with a
shorter remaining lease term."
6} Using the cost, income, and sales-comparison
approaches, Coers appraised the value of the "fee-simple
interest as if unencumbered" at $1, 660, 000 as of
January 1, 2014.
7} The BTA refused to address the merits of the
appraisal and retained the BOR's valuation of $5, 641,