Board of Sup'rs of Fairfax County v. Nassif

• Decision Date: 30 April 1982
• Docket Number: No. 791212,791212
• Citation: 223 Va. 400,290 S.E.2d 822
• Court: Virginia Supreme Court
• Parties: BOARD OF SUPERVISORS OF FAIRFAX COUNTY, et al. v. David E. NASSIF, d/b/a, etc. Record

Page 822

290 S.E.2d 822

223 Va. 400

BOARD OF SUPERVISORS OF FAIRFAX COUNTY, et al. v. David E. NASSIF, d/b/a, etc.

Record No. 791212.

Supreme Court of Virginia.

April 30, 1982.

A. Robert Cherin, Deputy County Atty. (David T. Stitt, County Atty., on briefs), for appellants.

Robert C. Fitzgerald, Bruce A. Kimble, Fairfax (Fitzgerald & Smith, P. C., Fairfax, on brief), for appellee.

John G. MacConnell, Asst. Atty. Gen. (Marshall Coleman, Atty. Gen., Kenneth W. Thorson, Norman K. Marshall, Asst. Attys. Gen., on briefs), for amicus curiae Com. of Va., Dept. of Taxation, for appellants.

Cyril D. Calley, City Atty.; Harry P. Hart; Murphy, Hart & O'Neill, Alexandria, on brief, for amicus curiae City of Alexandria, for appellants.

Joseph P. Rapisarda, Jr., Asst. County Atty., on brief, for amicus curiae County of Henrico, for appellants.

Howard W. Dobbins, William A. Young, Jr., Wallerstein, Goode & Dobbins, Richmond, on briefs, for amicus curiae Virginia Municipal League, for appellants.

Sally T. Warthen, Manakin-Sabot, on brief, for amicus curiae Virginia Ass'n of Assessing Officers, for appellants.

Before CORRICO, C. J., and COCHRAN, POFF, COMPTON, THOMPSON, STEPHENSON and RUSSELL, JJ.

CARRICO, Chief Justice.

This is an appeal by the Board of Supervisors of Fairfax County from a final order reducing the 1978 tax assessment on property owned by David E. Nassif, doing business as Suffolk Properties. The property consists of three adjacent parcels of land improved by a multistory office building and paved parking areas. The building contains 229,549 square feet of leasable space, approximately 94% of which is rented to the federal government for a 20-year term that commenced in 1964. The lease contains no rent-escalation clause or expense-pass-through provision.

Employing the capitalization of income method of appraisal, the County fixed the fair market value of the property at $7,113,840.00 for the year 1978 and assessed it in that amount. In calculating the gross income of the property, however, the assessor ignored Nassif's actual rental income as determined by the lease and used instead enhanced figures representing estimated "economic rent," as derived from market data. ¹

On July 13, 1978, Nassif filed an application under Code § 58-1145 alleging that the 1978 assessment of his property was erroneous and praying for its correction. At the hearing on the application, the parties settled upon the capitalization of income method as the proper way to appraise the property. Because, however, the County had used "other than actual income" in determining fair market value by that method, the trial court held the 1978 assessment erroneous and reduced it to $5,250,000.00. We granted the County an appeal limited to the question whether the trial court erred "in mandating, as a matter of law, that actual contract income must be used by the County in appraising property by the capitalization of income approach." ²

The County contends the trial court erred in ruling that only contract rent should have been used in the 1978 appraisal. Property is made up of many interests, it is argued, and where, as here, economic rent exceeds contract rent, the leasehold interest has value; therefore, only an appraisal employing economic rent will encompass the value of the entire fee-simple interest.

On the other hand, Nassif contends that where actual rental income is known, use of contract rent alone is mandated to satisfy the established test for determining fair market value, viz., the price property will bring when offered for sale by a willing seller and purchased by a willing buyer. A prudent purchaser, Nassif argues, would be concerned about the depressing effect the government's long-term lease would have upon the fair market value of the property. Furthermore, Nassif asserts, the leasehold interest the County seeks to tax is held by the federal government, "a nontaxable entity," and, while the General Assembly has provided for the taxation to the lessee of the value of leasehold interests in real property exempt from taxation to the owner (Code § 58-758.1), no provision has been made for taxation of the interests of tax-exempt lessees.

We believe these arguments and the question involved in this case are answered fully by two of our prior decisions. In Railroad Company v. Commonwealth, 203 Va. 294, 124 S.E.2d 206 (1962), the Richmond, Fredericksburg and Potomac Railroad Company sought correction of the State Corporation Commission's assessment of the railroad's property in Alexandria. Relying upon two long-term contracts with other railroads that restricted use of the property and yielded only limited returns, RF&P contended it was entitled to reduction of the assessment.

We rejected the contention as "without merit." 203 Va. at 301, 124 S.E.2d at 211. Affirming the assessment, we quoted with approval from the Commission's opinion, where it was stated that the "property subject to taxation is the fee simple and not the reversion after the expiration of a lease." Id. We also quoted from Donovan v. Haverhill, 247 Mass. 69, 72, 141 N.E. 564, 566 (1923):

"Manifestly the entire estate to be taxed may be made up of various tenancies, vested and contingent, as well as leasehold interests, the value of which in many cases it would be impracticable to determine. It is plain a deduction of the surrender value of a long-term lease from the...