Opinion
No. 68-127
Decided December 4, 1968.
Taxation — Real property — Leased premises — Valuation — Leasehold estate — Value based on sale price of fractional interest and other credible evidence — Leased-fee estate — Value based on capitalization of income.
Where a parcel of real estate is subject to a long-term lease, the sales price of a fractional interest in that leasehold estate may be considered, together with all other credible evidence, in assessing the tax value of the property.
APPEAL from the Board of Tax Appeals.
This appeal is by the Board of Revision and the Auditor of Cuyahoga County from the decision of the Board of Tax Appeals reducing the assessed taxable value of a parcel of real estate from $2,372,830 to $1,296,750.
In the proceedings before the Board of Tax Appeals it was agreed that only evidence bearing upon the fair market value of the premises involved for the tax years in question was to be introduced. It was agreed that the fair market value of the premises was equal to its true value and that the percentage figure applicable to true value in order to arrive at taxable value was 39%.
The premises involved, located upon the public square in downtown Cleveland, is comprised of four parcels of land improved with buildings and is known as the Williamson Building group. All the parcels are subject to long-term leases. Prior to the date of the hearing of this matter before the Board of Revision of Cuyahoga County, the One Euclid Company, which was then the owner of one-third of the leasehold interest, acquired by purchase the remaining two-thirds leasehold interest from a number of individuals and a corporation. Appellees' testimony bearing upon market value of the parcel, produced by the appellees at the hearing before the Board of Tax Appeals, was based upon the price paid as consideration for the sale of the two-thirds fractional leasehold interest to the One Euclid Company and by capitalizing at 7 1/2% the $58,100 net income derived by the owners of the land annually.
The appellants' evidence, elicited as an opinion by an expert who used the economic and cost approaches to value, set the value of land and improvements at $4,453,000.
The appellants complain that it was unreasonable and unlawful for the Board of Tax Appeals to accept the sale of the two-thirds fractional leasehold interest to the owner of the one-third fractional leasehold interest as an arms-length transaction and in using the price paid as a basis for determining the fair market value of the leasehold interest.
The appellants contend that: "It is apparent from the journal entry of the Board of Tax Appeals that the board considered only the sale of the fractional interests in the leasehold estate as evidence of the fair market value of the entire leasehold estate." In connection with this statement, appellants quote the following language from the opinion of the board:
"Accordingly the Board of Tax Appeals finds that the Park Investment rule to the effect that the actual sale determines the value if made under proper circumstances, controls the true value in money of fractional interests in real property as well as complete ownership transfers. It was therefore proper for the appellant to submit evidence of the sale of the fractional interests in the leasehold as evidence of the fair market value of the entire interest in the leasehold."
It is the appellants' argument that the sale in question, being partial instead of total, is not only not determinative of value under appellants' concept of the rule in State, ex rel. Park Investment Co., v. Board of Tax Appeals, 175 Ohio St. 410, but that it has so little evidentiary value that the evidence presented by the appellants based upon the economic approach must, as a matter of law, prevail. It is principally upon these grounds that appellants seek a reversal of the decision of the Board of Tax Appeals.
Mr. John T. Corrigan, prosecuting attorney, Mr. Thomas P. Cyrus and Mr. Adam P. Angelas, for appellants.
Messrs. Ford, Clarke, Howland, Whitney Haase, Mr. John J. Whitney and Mr. William A. Hancock, for appellees.
In State, ex rel. Park Investment Co., v. Board of Tax Appeals, supra, the aggregate value of a number of residence properties in Cuyahoga County, as indicated by selected actual sales and the aggregate value of a similar sampling of parcels of commercial property also as indicated by selected actual sales, were compared with the tax valuation of these identical parcels in order to demonstrate mathematically that commercial property was being valued for tax purposes at a higher percentage of its true value in money than was residential property. Park recognized that, for the purpose of that case, the prices paid in arms-length sales clearly demonstrated that the constitutionally required uniformity of tax valuation was not being accomplished. Park recognized also that it was the duty of the Board of Tax Appeals, upon review, to correct this inequity. Judge Matthias, in Park, declared that in arriving at the value of an individual parcel of real estate the price paid in an arms-length sale between a willing seller and a willing buyer is usually the best evidence of market value. With this we agree. We hasten to add that the aggregate sale prices of a number of real estate parcels more certainly equate with market value than does the individual sales price with individual market value.
Counsel for the appellees agree that in assessing the valuation of a parcel of property, all available credible evidence must be considered. They agree also that the price shown to have been paid in a sale, which is apparently an arms-length transaction, may be shown by other credible evidence to be less or more than its actual market value.
In spite of the language quoted from the entry of the board, the record in this case reveals that the board did, in fact, show a real regard for the evidence introduced by the appellants in arriving at its valuation and did not limit its inquiry to the value based upon the sale price of the fractional leasehold interest.
Appellants argue that we should proscribe the use of testimony concerning the sale price of a fractional leasehold interest as bearing upon the value of the entire leasehold interest. Such evidence is competent and, when considered with and tested by all other credible evidence of value, may be most persuasive.
The decision of the Board of Tax Appeals is neither unlawful nor unreasonable, and is, therefore, affirmed.
Decision affirmed.
TAFT, C.J., ZIMMERMAN, MATTHIAS, O'NEILL, DOYLE and SCHNEIDER, JJ., concur.
DOYLE, J., of the Ninth Appellate District, sitting for HERBERT, J.