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Inc. v. Washington County Board of Revision

Supreme Court of Ohio

May 22, 2018

Lowe's Home Centers, Inc., et al., Appellants,
v.
Washington County Board of Revision et al., Appellees.

          Submitted February 13, 2018

          Appeal from the Board of Tax Appeals, No. 2014-4606.

          The Gibbs Firm L.P.A., Ryan J. Gibbs, and Geoffrey N. Byrne, for appellants.

          Rich & Gillis Law Group, L.L.C, and Kelly A. Gorry, for appellees.

          Per Curiam.

         {¶ 1} In this real-property-valuation case, the Board of Tax Appeals ("BTA") relied on an appraisal report furnished by appellees Washington County Board of Revision ("the BOR") and Washington County auditor (collectively, the "county") to value a property owned by appellants, Lowe's Home Centers, Inc./Lowe's Home Centers, L.L.C. (collectively, "Lowe's"). Although Lowe's presented its own appraisal report, the BTA found that the county's report constituted the most competent and probative evidence of the value of the subject property for tax year 2013. Lowe's has appealed.

         {¶ 2} We conclude that our decisions in Steak 'N Shake, Inc. v. Warren Cty. Bd. of Revision, 145 Ohio St.3d 244, 2015-Ohio-4836, 48 N.E.3d 535, Rite Aid of Ohio, Inc. v. Washington Cty. Bd. of Revision, 146 Ohio St.3d 173, 2016-Ohio-371, 54 N.E.3d 1177, and Lowe's Home Centers, Inc. v. Washington Cty. Bd. of Revision, 145 Ohio St.3d 375, 2016-Ohio-372, 49 N.E.3d 1266, provide the proper guideposts for resolving this controversy. The BTA, however, did not take this trilogy into account, and understandably so; at the time of the BTA's decision, Steak 'N Shake had just been decided and Rite Aid and Lowe's had not yet been decided. Because the BTA, as the finder of fact, has yet to evaluate the evidence in this case in light of the legal standards articulated in those decisions, we vacate its decision and remand the cause for further proceedings.

         FACTS AND PROCEDURAL BACKGROUND

         {¶ 3} The property at issue consists of five parcels constituting roughly 16 acres of land in Marietta. The property is improved with a 142, 446-square-foot home-improvement store. The store is owner-occupied by Lowe's and was constructed in 2002. For tax year 2013, the county auditor valued the property at $9, 595, 570; Lowe's challenged that valuation with a decrease complaint.

         BOR proceedings

         {¶ 4} At the BOR hearing, Lowe's presented an appraisal report and supporting testimony from Richard G. Racek Jr., a certified appraiser. Racek's report describes the appraisal as valuing the fee-simple interest in the property. He opined that the property's highest and best use, as improved, is its continued retail use and, as vacant, is a permitted retail use.

          {¶ 5} Racek performed a sales-comparison and an income approach to value. For the sales-comparison approach, Racek evaluated nine transactions involving big-box stores located throughout Ohio. Six involved unoccupied properties that sold in the absence of a lease. The remaining three involved properties that sold with a lease in place. When appropriate, Racek made adjustments to the properties to account for such characteristics as location, condition, land-to-building ratio, and rental rate.

         {¶ 6} For the income approach, Racek evaluated 20 properties. Eleven of these involved properties with a lease in place, five involved properties with an asking rental rate, and the remaining four involved Lowe's stores that were leased as of the January 1, 2013 tax-lien date. Racek noted adjustments to the rent comparables when appropriate.

         {¶ 7} After reconciling the two approaches, Racek opined a value of $5, 700, 000 as of January 1, 2013.

         {¶ 8} The BOR retained the county auditor's valuation of $9, 595, 570, in accord with the recommendation of its technical adviser.

         BTA proceedings

         {¶ 9} At the BTA hearing, the county presented an appraisal report and supporting testimony from Thomas D. Sprout, a certified appraiser. According to Sprout, he appraised the property's unencumbered, fee-simple interest. He opined that the property's highest and best use, as improved, is its existing use and, as vacant, is a retail building consistent with the locality's zoning provisions.

         {¶ 10} Sprout performed a sales-comparison and an income approach to value. For the sales-comparison approach, Sprout attempted "to find big box users, retail users, that were occupying their building at the point of sale." He evaluated seven transactions. Five involved properties where the sale occurred with a lease in place. He described the sixth transaction as the sale of a Costco Wholesale store without a lease in place. But on cross-examination, counsel for Lowe's presented to Sprout evidence that the sixth transaction was instead a buyout of a ground lease, [1]to which Sprout responded that had he known that the sale was a buyout of a ground lease, he would not have included it in his report. The seventh transaction involved a sale without a lease in place, but Sprout stated that he gave this sale no weight. When appropriate, Sprout noted adjustments to the comparables for property rights conveyed, market conditions, location, and building size and condition.

         {¶ 11} For the income approach, Sprout evaluated eight properties. He strove to identify "occupied units where leases were recently renewed" and instances when "second time users [were] coming into the property." Sprout noted whether the location and condition of each rent comparable was superior, inferior, or similar to those of the subject property. He then noted whether the rent for each comparable fell on the lower, middle, or upper end of the range as compared to what the subject property could rent for if it was not owner-occupied.

         {¶ 12} In his final reconciliation, Sprout gave equal weight to the sales-comparison and income approaches, opining a value of $8, 800, 000 as of January 1, 2013.

         {¶ 13} The BTA concluded that Sprout's appraisal provided the most competent and probative evidence of the subject property's value. The BTA found that in contrast to Racek's heavy reliance on second-generation sales, "Sprout's inclusion of first-generation properties and build-to-suit properties subject to long-term leases was most appropriate, given that [Lowe's] occupied the subject property as of the tax lien date."[2] BTA No. 2014-4606, 2015 WL 11018613, *3 (Dec. 3, 2015). It found persuasive Sprout's characterization of the property as being situated in a "regional hub." Id. at *4. And it found that Sprout's selection of comparable properties and his adjustments to those properties were proper. The BTA also rejected Lowe's' argument that Sprout's appraisal-especially his reliance on comparable sales of lease-encumbered properties-violated R.C. 5713.03 as amended by 2012 Am.Sub.H.B. No. 487 ("H.B. 487"), which directs county auditors to value property in its "fee-simple estate, as if unencumbered."

         {¶ 14} After the BTA issued its decision, Lowe's filed a motion urging the BTA to reconsider its decision in light of Steak 'N Shake, 145 Ohio St.3d 244, 2015-Ohio-4836, 48 N.E.3d 535, which we decided about a week before the BTA issued its decision. But given the looming deadline to appeal, Lowe's filed its notice of appeal to this court instead of waiting for the BTA to rule on the motion.[3]

         STANDARD ...


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