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Lease Age and Length not a Factor
by Michael Blahy

Walgreen Eastern Company (Walgreen) objected to the market value assigned to its property in the Town of West Hartford Connecticut (town) after a town wide revaluation was conducted of properties on the grand list as of October 1, 2011. The town assessor, John Leary, determined the fair market value of the Walgreen property to be $5,020,000.

Walgreen challenged the valuation and appealed to the Board of Assessment Appeals (board), which upheld the assessor’s valuation.

Walgreen then appealed to the Superior Court claiming the town overvalued its property and that assessment was ‘‘manifestly excessive and could not have been arrived at except by disregarding the provisions of the statutes for determining the valuation of the property.’’

The property is a 1.5 acre parcel located at a high traffic volume intersection, controlled by a traffic light. The 12,805 square foot building constructed in 1949 was originally a movie theater. In 2003, a developer purchased the subject property and the adjoining property to the south and formally subdivided them. The theater was converted, ‘build to suit’ for Walgreen, which entered into 75 year ‘triple net’ or ‘NNN’ lease, where Walgreen was responsible for the payment of all insurance, maintenance, and property tax expenses. The rent is fixed at $430,000 per year for the term of the lease plus a small percentage of the gross sales. In 2006, the developer sold the property to an investor company for $6,718,750.

At trial Walgreen presented the testimony of two appraisers, Richard Michaud and Anthony Barna, who both valued the property at $3 million. The town presented the testimony of the town appraiser, and Christopher Kerin, who valued the property at $4,900,000.

The trial court explained as follows: ‘‘Barna and Michaud, the plaintiff’s appraisers, determined that the market rent for comparable triple net retail properties, which included stores in in-line shopping centers, averaged $20 and $22 per square foot, respectively. They calculated the subject property’s contractual rent at $33.58 per square foot. They declined to adjust the market rate for their analyses because the contract rate was above market.

‘‘Kerin, looking at pharmacies only, found the average market rental rate to be $32.16 per square foot. Because the contract [rental] rate of $33.58 [per square foot] was similar, he used a rate of $32 per square foot for the income capitalization analysis.’’

The trial court then concluded: ‘‘The analysis of Barna and Michaud did not comply with the statutory command to ‘consider the actual rental income . . . .’

The Superior Court determined the new valuation for the subject property of $4.9 million and ordered the town to provide Walgreen with the appropriate reimbursement or credit for any overpayment plus interest. The trial court also found that the town’s assessment was not manifestly excessive.

Walgreen did not like the Superior Court ruling, and appealed to the Connecticut Supreme Court that the relief awarded was insufficient because the trial court improperly determined the true and actual value of the subject property.

The Supreme Court of Connecticut ruled:

  1. Walgreen Co. could not prevail on its claim that the relief awarded by the trial court was insufficient, the trial court having properly determined the true and actual value of the property: the trial court properly rejected appraisal methods used by Barna and Michaud, this court having concluded that First Bethel Associates v. Bethel (231 Conn. 731), which requires that actual rental income be considered under the income capitalization market approach, remains good law, and that, contrary to Walgreen’s claim, neither the amount of time that has passed since the lease was negotiated nor the length of the lease is a factor contemplated in 12-63b (b); moreover, the trial court’s consideration of the rents paid under the lease as one indicator of the true and actual value of the property was consistent authorized and required by the statutory scheme; furthermore, the trial court’s determination that the highest and best use of the property is as a retail pharmacy was not clearly erroneous, as the court’s factual findings regarding the individual characteristics of the property and the existence of a national chain pharmacy submarket were supported by the evidence in the record and by case law from other jurisdictions.

  2. The trial court correctly determined that the plaintiff failed to establish a manifestly excessive assessment of the property under 12-119; in light of testimony demonstrating that the town applied the same process to valuing other properties and the trial court’s ultimate determination as to the property’s true and actual value, the circumstances presented did not rise to the extraordinary level that would warrant relief under 12-119.

The judgment of the Superior Court is affirmed, and in this opinion the other justices concurred.

Walgreen Eastern Co. v. Town of West Hartford, (Connecticut Supreme Court, Docket: SC19750))

Decided: July, 2018
Published: July 2018

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