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Tenant’s Tax Appeal
by Michael Blahy

Beavercreek Towne Station, a five parcel shopping center in Greene County Ohio underwent a five year reappraisal for the 2014 tax year. The auditor assigned $5,606,900 to Lowe’s, $6,197,150 to Kohl’s and $10,429,800 to the other three parcels for an aggregate of $22,233,850.

Beavercreek City School District Board of Education (“school board”) noticed that the center was sold in October 2014 for an aggregate value of $47,479,830 and filed a complaint against the 2014 valuation of the center with the Greene County Board of Revision (“BOR”).

At a hearing with counsel for Beavercreek and the school board, the BOR accepted the aggregate sale value and split the total amongst the five parcels by a ratio based on the auditor’s reappraisal. Lowe’s was increased to $11,973,400, Kohl’s to $13,233,800 and the others to $22,272,700.

The Board of Tax Appeals (“BTA”) received three appeals to the BOR decision. One by counsel for Beavercreek, appealing the Lowe’s decision, a joint appeal by counsel for Beavercreek and Kohl’s appealing the Kohl’s decision and a third by the school board counsel appealing all five decisions. The BTA held a hearing on the combined three appeals.

Beavercreek and Kohl’s had three appraisals and supporting testimony prepared by Richard Racek Jr. for the BTA. Using the sales-comparison and income-capitalization approaches, he valued Lowe’s at $7,300,000, Kohl’s at $5,930,000 and the other three parcels at $22,075,000 for a combined aggregate of $35,305,000.

The school board offered a copy of the 2014 purchase agreement for Beavercreek Towne Station and a nearby shopping center (one sale, two shopping centers). Included in the document was an appendix listing each parcel and allocated sale price. One parcel was listed under both centers and the Lowe’s parcel was missing. They also subpoenaed the testimony of Beavercreek official Joseph Schlosser about the allocation of the sold properties.

Before the BTA hearing started, the school board moved to exclude Kohl’s as a party saying that as a lessee, it had no standing. The attorney representing Kohl’s and Beavercreek argued that she has authorization from the landlord, and as part of the lease agreement, Kohls has the responsibility to pay the property taxes, so they should have standing. The BTA sided with the school board and excluded Kohl’s. It also struck the evidence presented by Kohl’s.

Beavercreek argued that the sale price should not be used, since it involved leased properties, and a portfolio with additional properties. Valuation should be based on “fee simple estate, as if unencumbered”. It further argued that since the Lowe’s parcel was not listed in the sales document, no portion of the sale price should be allocated to it. The BTA invoked the property owner’s “burden to rebut the propriety of [the] allocation” and found that Beavercreek had failed to rebut the validity of the allocation in the purchase agreement. The BTA then allocated the sale price which substantially altered the tax burden from Kohl’s to Lowe’s. Lowe’s value was changed to $13,698,600, Kohl’s was changed to $11,155,410 and the other three parcels was increased to $22,625,820.

The Ohio Supreme Court received appeals on behalf of both Beavercreek and Kohl’s and one on behalf of Beavercreek.

The Supreme court found that “the BTA correctly determined that as a tenant, Kohl’s had no standing independent from its landlord Beavercreek … Kohl’s could file an appeal from the BOR decision to the BTA only as an agent of Beavercreek, not in its own right.”

As to the striking of evidence, the BTA ignored that:

  1. the appeal from the BOR’s valuation of the Kohl’s parcel was prosecuted not only by Kohl’s but by Beavercreek itself

  2. the school board did not ask for and the BTA did not grant a dismissal of the appeal of the valuation of the Kohl’s parcel

  3. Beavercreek allegedly conferred authority on Kohl’s to pursue the appeal of the value of the Kohl’s parcel on Beavercreek’s behalf because the owner was not on its own initiative going to raise that challenge
Because the BTA errored in excluding evidence of the value of the Kohl’s parcel on behalf of Beavercreek, the Supreme Court reversed the BTA’s exclusion of that evidence.

As to the Lowe’s parcel being included in the reappraisals, the Ohio Supreme Court found ample evidence of a typographical error, including other documentation and testimony of the appraiser and Beavercreek officer.

As to the BTA’s insistence of using the sale price in its calculations, without giving consideration to the appraised values of the properties, the Ohio Supreme Court pointed to the testimony of the appraiser that ”properties that are leased generally sell for far more per square foot than ones that are not leased.” Thus, the appraiser evidence could, if properly considered, substantiate a finding that the sale price might not indicate the value of the unencumbered fee-simple estate.

The Ohio Supreme Court remanded the case to the BTA for further proceedings, including full consideration of the appraisal evidence of the value of the parcels … also give full consideration to the propriety of the allocation in light of all the evidence in the record. But the BTA shall decide the case based on the existing record and not receive new evidence.

(Beavercreek Towne Station, L.L.C. v. Greene Cty. Bd. of Revision (Supreme Court of Ohio, Slip Opinion No. 2018-Ohio-4300))

Decided: October, 2018
Published: October, 2018

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