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Bronx Park South III Lancaster, L.L.C. v. Fairfield County Board of Revision

Supreme Court of Ohio

April 25, 2018

Bronx Park South III Lancaster, L.L.C., et al., Appellants,
v.
Fairfield County Board of Revision et al., Appellees.

          Submitted January 25, 2018

          Appeal from the Board of Tax Appeals, No. 2015-973.

          Siegel Jennings Co., L.P.A., Victor Anselmo, J. Kieran Jennings, and Jason Lindholm, for appellants.

          Rich & Gillis Law Group, L.L.C., Mark Gillis, Karol C. Fox, and Kelley A. Gorry, for appellee Lancaster City School District Board of Education.

          O'Connor, C.J.

         {¶ 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.

         Facts 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, ...


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