Parties may alter this rule, however, by specifically agreeing to treat the improvements as owned by lessee. Id.; see also Maricopa Cty. v. Novasic, 12 Ariz. App. 551, 553 (1970). ยถ6 The Sky Ranch lease provides:
Comm'r of Internal Revenue v. Sunnen, 333 U.S. 591, 600 (1948), superseded by statute on other grounds as stated in Vetrano v. Comm'r of Internal Revenue, 116 T.C. 272 (2001). ยถ11 The tax court's 1993 ruling relied on Maricopa County v. Novasic, 12 Ariz. App. 551, 473 P.2d 476 (1970). In Novasic, the taxpayer challenged property tax assessments for improvements that his predecessor-in-interest built on land leased from the City of Phoenix.
The general rule is that "a permanent structure placed upon and attached to the realty by a tenant is real property belonging to the lessor." Id. at 492, 958 P.2d at 8 (citing Maricopa County v. Novasic, 12 Ariz.App. 551, 553, 473 P.2d 476, 478 (1970)). In Novasic, however, we stated that an exception exists: the parties can abrogate the general rule that the lessor owns improvements built by the lessee by expressly agreeing to treat the improvements as belonging to the lessee.
ยถ 14 We do not share this view of ACC's lease. Our view of its provisions is guided by the analyses presented in Maricopa County v. Novasic, 12 Ariz. App. 551, 473 P.2d 476 (1970), and our recent decision in Cutter Aviation, ___ Ariz. ___, 958 P.2d 1. ยถ 15 Like AP in this case, the predecessor in interest to the taxpayer in Novasic entered a lease with an Arizona city for unimproved land at the municipal airport.
"[P]ermanent structure[s] placed by a tenant upon leased premises and attached to the realty are deemed to be real property and belong to the lessor." Maricopa County v. Novasic, 12 Ariz. App. 551, 553, 473 P.2d 476, 478 (1970). ยถ 4 "However, [t]his general rule is subject to the exception that the parties by express agreement may treat the building as belonging to the tenant . . . ."
The general rule is that "permanent structure[s] placed by a tenant upon leased premises and attached to the realty are deemed to be real property and belong to the lessor." Maricopa County v. Novasic , 12 Ariz.App. 551, 473 P.2d 476, 478 (1970) (emphasis added). Arizona courts look to the lease terms to determine whether the parties intended to depart from this general rule.
The general rule is that โpermanent structure[s] placed by a tenant upon leased premises and attached to the realty are deemed to be real property and belong to the lessor.โ Maricopa County v. Novasic, 473 P.2d 476, 478 (Ariz.Ct.App. 1970) (emphasis added). Arizona courts look to the lease terms to determine whether the parties intended to depart from this general rule.
We therefore conclude that they were not owners for purposes of A.R.S. section 42-681(3). This conclusion is supported by Maricopa County v. Novasic, 12 Ariz. App. 551, 473 P.2d 476 (App. 1970), which involved a lease remarkably similar to those at issue here. The lease in Novasic covered land at Sky Harbor and required the construction of an office building on the land.
See also Gunnison County v. Board of Assessment Appeals, 693 P.2d 400 (Colo.Ct.App. 1984); Southern Cafeteria, Inc. v. Property Tax Administrator, 677 P.2d 362 (Colo.Ct.App. 1983). But see Maricopa County v. Novasic, 12 Ariz. App. 551, 473 P.2d 476 (1970). This principle was even applied by the Colorado Court of Appeals in ruling in favor of a tax exemption for property leased by a county from a private party because the county held the most significant incidents of ownership in the improvements.
See Workman v. Henrie, 71 Utah 400, 266 P. 1033 (1928). See also Maricopa County v. Novasic, 12 Ariz. App. 551, 473 P.2d 476 (1970); Lilenquist v. Pitchford's Inc., 269 Or. 339, 525 P.2d 93 (1974); 1 G. Thompson, supra, ยง 69. This Court has previously stated that: The rule seems to be well settled that, in case of buildings or other improvements erected on another's land, if built with the consent of the landowner that they should remain the personal property of the builder, the agreement may be oral, for in such case the character of the building as personalty is fixed before attachment to the realty, and the agreement involves no sale of an interest in the land. . . . Under such circumstances, the building remains the property of the person annexing it, and may be removed by him.