Cent. Appraisal Dist. of Taylor Cnty. v. W. AH 406, Ltd.

• Decision Date: 26 April 2012
• Docket Number: No. 11–10–00115–CV.,11–10–00115–CV.
• Citation: 372 S.W.3d 672
• Parties: CENTRAL APPRAISAL DISTRICT OF TAYLOR COUNTY, Appellant, v. WESTERN AH 406, LTD., Appellee.
• Court: Texas Court of Appeals

372 S.W.3d 672

CENTRAL APPRAISAL DISTRICT OF TAYLOR COUNTY, Appellant,

v.WESTERN AH 406, LTD., Appellee.

No. 11–10–00115–CV.

Court of Appeals of Texas, Eastland.

April 26, 2012.

Stephen H. Suttle, McMahon, Surovik, Suttle, Buhrmann, Hicks, Gill & Cannon, Abilene, Kirk Swinney, Roy L. Armstrong, Matthew Tepper, Shelburne J. Veselka, McCreary, Veselka, Bragg & Allen, P.C., Round Rock, for Appellant.

William Ikard, William W. Kilgarlin, Jordan Haedicke, Carrie D. Helmcamp, Ikard Wynne LLP, Austin, Charles Scarborough, Scarborough Law Firm, Abilene, for appellee.

Panel consists of WRIGHT, C.J., McCALL, J., and KALENAK, J.

OPINION

TERRY McCALL, Justice.

This is a property tax dispute. Western AH 406, Ltd. (Western) owns the 406–unit Quail Hollow apartment complex in Abilene, Texas. Western filed this suit against the Central Appraisal District of Taylor County (TCAD) disputing TCAD's appraised values of Quail Hollow for the tax years 2002 through 2004. Following a bench trial, the trial court entered a final judgment in January 2005 that Western take nothing on its cause of action and ordered that the appraisal rolls reflect the market value for Quail Hollow as was determined by TCAD. Western appealed from the trial court's judgment. We reversed the judgment of the trial court and remanded the case for a new trial in Western AH 406 Ltd. v. Central Appraisal District of Taylor County, 213 S.W.3d 544 (Tex.App.-Eastland 2007, pet. denied). We will refer to Western's earlier appeal in this case as Western I. On remand, Western challenged TCAD's appraised values of Quail Hollow for the years 2002 through 2009. Following a jury trial, the jury found that the values of Quail Hollow for the years 2002 through 2008 were the same as those described in the September 29, 2009 appraisal of Western's expert appraiser, Gerald A. Teel. The parties stipulated that the value for 2009 would be the same as the value found for 2008. The trial court entered judgment in Western's favor in accordance with the jury's verdict. The trial court also awarded attorney's fees to Western. TCAD appeals the trial court's judgment.

We find that the testimony of Western's appraiser was legally insufficient to support the jury's findings. Although there was some evidence of Quail Hollow's market value, the evidence did not conclusively establish the market value. Therefore, we reverse and remand.

The Subject Property

Quail Hollow is a privatized military housing complex. It was designed for the purpose of providing housing for Dyess Air Force Base personnel on a preferred basis. Western constructed Quail Hollow pursuant to a contract with the United States Air Force. The contract documents between Western and the Air Force contained a number of components, including, among other things, (1) a Declaration of Restrictive Covenants and Use Agreement (Use Agreement), (2) a Lockbox Agreement, and (3) Direct Loan Documents (Loan Agreement) relating to a loan from the Air Force to Western.

Western obtained an interim construction loan from Chase Manhattan Bank for the purpose of constructing Quail Hollow. Construction of Quail Hollow was completed in 2002. Pursuant to the Loan Agreement, the Air Force loaned money to Western to pay off the Chase Manhattan loan. Western executed a Multifamily Note and a Deed of Trust in connection with the loan. As evidenced by the note, the terms of the loan were favorable to Western.

Quail Hollow consists of two- and three-bedroom apartments and townhouses. The apartments and townhouses were built for targeted classes of military personnel. The Use Agreement limits the amount of rent that may be charged to targeted military tenants. The Use Agreement also restricts Quail Hollow's occupancy because it requires Western to give priority to targeted military personnel when leasing vacant units. If Western cannot rent a vacant unit to a targeted tenant, it may lease the unit to another prospective tenant based on an order of preference of tenants that is stated in the Use Agreement. The rent and occupancy restrictions were the subject of our opinion in Western I.

Western I

Western's expert, Gerald A. Teel, of the Gerald A. Teel Company, Inc., appraised Quail Hollow in 2004. He prepared a summary report of his appraisal, dated June 24, 2004. In the report, Teel arrived at retrospective values of Quail Hollow as of January 1, 2002, and as of January 1, 2003. Teel stated in his report that “the retrospective values have been computed using the rental restrictions in place but without the favorable financing that the developer received to make the project financially feasible.” Teel further stated that “[t]hese values will be with rental restrictions and hypothetical market financing in place.”

TCAD moved for partial summary judgment in Western I. In its motion, TCAD contended, in part, that the rent and occupancy restrictions established for Quail Hollow in the Use Agreement could not be considered when determining the market value of Quail Hollow. TCAD contended that “[s]uch a property must be appraised as though it were leased at market rental rates or available to lease at market rental rates.”

In Western I, the trial court granted TCAD's motion for partial summary judgment. The trial court's summary judgment order stated that the agreements between Western and the Air Force were not to be considered in the appraisal of Quail Hollow, that the leases of apartments at “rental rates that differ from market rental rates for comparable apartments in the local area are not to be considered” in the appraisal of Quail Hollow, and that “[Quail Hollow] shall be appraised at its value indicated by the market notwithstanding any voluntarily entered agreements restricting rents or otherwise placing non-market conditions on [Quail Hollow].” Following a bench trial in Western I, the trial court entered a final judgment against Western and ordered that the appraisal rolls reflect the market value of Quail Hollow as was determined by TCAD for tax years 2002, 2003, and 2004.

Western appealed the trial court's final judgment. On appeal, Western asserted that Quail Hollow's rent and occupancy restrictions were individual characteristics of Quail Hollow that had to be considered in determining its market value. Western contended that the provisions of the Texas Tax Code and the Uniform Standards of Professional Appraisal Practice (USPAP) required the appraisers to consider the rent and occupancy restrictions in appraising Quail Hollow and that the trial court had erred by determining that comparable properties with similar rent restrictions could not be considered in appraising Quail Hollow. Western requested us to find that the “rent and occupancy restrictions are individual characteristics that must be considered in determining market value.”

In our opinion, we stated that “[t]he Air Force and Western [had] entered into a contract that established the maximum amount of rent charged to Air Force personnel based upon the Air Force's Basic Allowance for Housing” and that “[t]he contract also restrict[ed] the occupancy of the apartment complex with priority being given to Air Force personnel.” Western, 213 S.W.3d at 545. We quoted Section 23.01(b) of the Texas Tax Code, which currently states in relevant part as follows:

The market value of property shall be determined by the application of generally accepted appraisal methods and techniques.... The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property's market value, and all available evidence that is specific to the value of the property shall be taken into account in determining the property's market value.Tex. Tax Code Ann. § 23.01(b) (West Supp. 2011). We explained that “[t]he question before us [was] whether the agreements between Western and the Air Force that restrict the occupancy and rent of the apartment complex are ‘individual characteristics' that must be considered in determining the market value of the property.” 213 S.W.3d at 546.

In Western I, we cited USPAP Rule 1–2(e) (2004). It provides that an appraiser must “identify the characteristics of the property that are relevant to the purpose and intended use of the appraisal.” See USPAP Rule 1–2(e). These characteristics include “any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature.” USPAP Rule 1–2(e)(iv). We concluded as follows:

[T]he agreements between Western and the Air Force are individual characteristics of the property to be considered in determining the market value of the property. Therefore, the trial court erred in ordering that the property be appraised without considering the agreements restricting the rent and occupancy of the property.... The trial court's final judgment determined the market value of the property based upon TCAD's appraisal that does not include the effect of the agreements between the Air Force and Western restricting rent and occupancy.

213 S.W.3d at 546–47. Therefore, we reversed the trial court's judgment, and we remanded the case to the trial court for further proceedings.

The issue that we determined in Western I was whether the rental and occupancy restrictions were individual characteristics of Quail Hollow that had to be considered in determining Quail Hollow's market value. We specifically noted in our Western I opinion that the trial court's summary judgment order did not address the favorable financing terms that Western received in connection with its loan from the Air Force and that, therefore, “the question of whether the favorable loan contract must also be considered in determining the market value of the property [was] not before us.” Western, 213 S.W.3d at 547 n. 2.

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