America's Property Tax Advisor

Ohio Supreme Court Sides with
Property Owner


A property’s sales price in an arm’s length transaction is not necessarily the value of the property for tax assessment purposes, according to a recent ruling by the Ohio Supreme Court.


The Case


Bronx Park South III Lancaster, LLC et al. v. Fairfield County Board of Revision, et al involves the real-property valuation of a Walgreens drugstore in Lancaster, Ohio. The facts and procedural history of this case largely mirror those of Terraza 8, L.L.C. v. Franklin County Board of Revision.


As in Terraza, a school board sought to have real property valued according to a recent arm’s-length sales price. The property owners, relying on appraisal evidence, contended that a lease encumbrance precludes use of the sales price to value the property.


The Fairfield County auditor assessed the property at $1,084,660 for tax year 2014. The Lancaster City School District Board of Education complained that the property should have been valued at $5,641,100, because that is what Bronx Park paid for it in July 2014. The Board of Review agreed and increased the property’s valuation to $5,641,100.


Leased Fee versus Fee Simple


Bronx Park appealed the Board of Review ruling and introduced testimony and appraisal of Sara H. Coers, a member of the Appraisal Institute. She concluded that the sales price represented the value of the leased fee, not the unencumbered fee-simple real estate.


Coers stated that since Walgreens is a high-quality tenant, the lease provides for a rental rate that is more than double the market rent. Also, the lease term exceeds what is generally available in the market. She noted that “the 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.”


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. The Board of Tax Appeals refused to address the merits of the appraisal so Bronx Park appealed to the state Supreme Court.


In the high court’s ruling, justices reiterated that taxing authorities must consider more than just the sales price to correctly value business real property.