Cox v. Grady Hotel Invs., LLC
| Citation | 605 S.W.3d 575 |
| Decision Date | 28 July 2020 |
| Docket Number | WD 83097 |
| Parties | David COX, Platte County Assessor, and Park Hill School District, Respondents, v. GRADY HOTEL INVESTMENTS, LLC, Appellant. |
| Court | Court of Appeal of Missouri (US) |
Mary Jo Shaney, Kansas City, for Respondent Park Hill School District.
John K. Power, Kansas City, for Appellant.
Division Two: Karen King Mitchell, Presiding Judge, Anthony Rex Gabbert, Judge and W. Douglas Thomson, Judge
W. DOUGLAS THOMSON, JUDGE
Grady Hotel Investments, LLC ("Grady") appeals from the judgment of the Platte County Circuit Court reversing the decision of the State Tax Commission ("STC") finding Grady only has a leasehold interest in the Marriott Hotel at KCI ("Property") and assessing the taxable valuation of that interest at zero ($0.00) pursuant to the bonus value method. We find the STC erred in concluding that Grady's interest in the Property was a leasehold interest and assessing the taxable valuation at zero ($0.00) because that determination was contrary to the plain language of the contracts between Grady and the City of Kansas City ("City"). We affirm the judgment of the trial court reversing the decision of the STC and remanding to the STC for reconsideration consistent with this opinion.
The material facts are not in dispute. On April 29, 2015, Grady purchased certain improvements from Host Hotels & Resorts, L.P. ("Host"). The improvements are located at 775 N. Brasilia Ave., Kansas City, Missouri 64153 on land owned by the City at the Kansas City International Airport ("KCI"). The City is a political subdivision of the State of Missouri which makes the land on which the improvements are located exempt from payment of real property taxes in accordance with Missouri Constitution article X, section 6.
Grady and Host entered into an Agreement of Purchase and Sale for the improvements located upon the City's real estate. The purchase price for the improvements was $8,500,000. Host executed a "quitclaim deed to improvements" ("Quitclaim Deed to Improvements") conveying all interest it had in the improvements to Grady, such interest defined as "the buildings, structures, fixtures and improvements (collectively, the "Improvements") now located on, over and upon that certain piece, parcel or tract of land", subsequently identifying the land by an attached legal description.
Host's ownership of the Improvements it sold to Grady arose from a Lease and Concession Agreement ("2007 Lease") which it entered into with the City on October 14, 2007, for the stated purpose of continuing to operate a hotel at KCI.1 The 2007 Lease was assigned to Grady as part of the transaction with Host in April 2015. The 2007 Lease included the Leased Premises and the Leasehold Improvements as those terms were defined in the Lease. The Leased Premises were defined as "the collective locations leased to Lessee" and by a legal description contained in an exhibit attached to the Lease. The Leasehold Improvements were defined in the Lease as "collectively all improvements located on and within the Leased Premises." In May 2015, a Second Amendment to the 2007 Lease ("2015 Amendment") was executed between the City and Grady modifying certain provisions in the 2007 Lease.
The Platte County Assessor ("Assessor") valued Grady's interest in the Property at $11,222,000, for the 2016 tax year.2 On June 17, 2016, Grady appealed the assessment to the Platte County Board of Equalization ("BOE") listing itself as the owner and stating this was not rental property. On July 11, 2016, after a hearing, the BOE valued Grady's interest in the Property at $13,447,000. Grady appealed the BOE's valuation to the STC.
On January 16, 2018, a STC Hearing Officer ("Hearing Officer") set aside the BOE's valuation. Hearing Officer relied on section 137.115.13 for the method of valuation of the true value in money ("TVM") of Grady's possessory interest in the Property less the total dollar amount of costs paid toward any new construction or improvements. Hearing Officer found the characterization of Grady's interest as a leasehold or fee simple irrelevant because Grady has a possessory interest in the Property in that it may occupy and use the Property and, therefore, section 137.115.1 applies. Consistent with section 137.115.1, the Hearing Officer found the TVM of Grady's possessory interest to be $7,300,000, to-wit: the purchase price stated in the Agreement of Purchase and Sale of the improvements in 2015 ($8,500,000), less costs paid toward new construction or improvements completed after January 1, 2008 ($1,200,000). Hearing Officer declined to address the constitutionality of section 137.115.1, as beyond the authority of an administrative agency.
Grady sought review of Hearing Officer's decision and appealed to the full STC. The STC entered an order setting aside the Hearing Officer's decision. The STC noted that Grady offered testimony from Randy Meyer ("Meyer"), the CFO of Grady's parent company, and David Long ("Long"), the Deputy Director of the Kansas City Aviation Department, both of whom opined that Grady's interest in the Property was a leasehold interest. The STC also noted that Grady's expert, Thomas Slack ("Slack"), a certified general real estate appraiser, opined a bonus value of zero ($0.00) as of 2016. The STC held that the City is the owner of the fee simple interest in the land and improvements, that Grady has a leasehold interest in the land and improvements, that the bonus value methodology is the appropriate valuation approach, that the property has no bonus value and, consequently, that the deduction to the TVM required by section 137.115.1 is unnecessary. Finding a leasehold interest in property owned by the City is considered real property for the purpose of ad valorem taxation, the STC cited Frontier Airlines, Inc. v. State Tax Commission , 528 S.W.2d 943 (Mo. banc 1975), for its conclusion that such an interest should be valued by the bonus value method, which is defined as the difference between economic rent and the contract rent for use and occupancy of the premises.4 The STC declined to render a decision on the constitutional challenge as outside the authority of an administrative agency.
On July 25, 2018, Assessor sought review of the STC's decision with the Platte County Circuit Court. Park Hill School District's ("District") motion to intervene was granted. After a hearing, the trial court entered its judgment reversing the STC's decision and remanding to the STC for reconsideration finding the STC's decision that the taxable value of Grady's interest in the Property is zero was arbitrary, capricious, and unsupported by the law and the facts, specifically that (a) the leasehold improvements located on the Property are owned by Grady, not the City, and therefore, a bonus value appraisal is not applicable to its valuation; (b) the STC should consider the sale price of the Property as evidence of value; and (c) the STC should not exclude value evidence other than a "bonus value" appraisal.5
Grady appealed the trial court's judgment to the Supreme Court which then transferred it to this Court.
On an appeal from a judgment of a trial court addressing the decision of an administrative agency, we review the decision of the administrative agency and not the judgment of the trial court. Bird v. Mo. Bd. of Architects , 259 S.W.3d 516, 520 n. 7 (Mo. banc 2008). Notwithstanding, in our mandate, we reverse, affirm or otherwise act upon the judgment of the trial court. Id. "Pursuant to Mo. Const. art. V, section 18 and section 536.140, we must determine ‘whether the agency's findings are supported by competent and substantial evidence on the record as a whole; whether the decision is arbitrary, capricious, unreasonable or involves an abuse of discretion; or whether the decision is unauthorized by law.’ " Henry v. Mo. Dept. of Mental Health , 351 S.W.3d 707, 712 (Mo. App. W.D. 2011) (quoting Coffer v. Wasson–Hunt , 281 S.W.3d 308, 310 (Mo. banc 2009) ).
" ‘When an administrative agency decision is based on the agency's interpretation and application of the law, we review the administrative agency's conclusions of law and its decision de novo , and we make corrections to erroneous interpretations of the law.’ " Algonquin Golf Club v. State Tax Commission , 220 S.W.3d 415, 418 (Mo. App. E.D. 2007) (citation omitted). " ‘This court reviews the decision of the STC and not the hearing officer.’ " Rinehart v. Bateman , 363 S.W.3d 357, 362–63 (Mo. App. W.D. 2012) (citation omitted).
In point one, Grady argues that the STC properly held that Grady has a leasehold interest in the Property because Grady does not own the leasehold improvements on the basis that the 2007 Lease does not permit Grady to remove any of the improvements at the conclusion of the lease. We disagree.
The STC held that the City is the owner of the fee simple interest in the land and improvements and that Grady merely has a leasehold interest in the land and improvements. In so finding, while noting the language in the contract that Grady owned the Improvements upon which the Assessor relied for its argument, the STC did not offer any analysis of the contractual language contained in either the 2007 Agreement or the 2015 Amendment and, instead, seems to rely on the testimony provided by Meyer, Long, and Slack opining that Grady's interest in the Property was only a leasehold interest.
The interpretation of a lease agreement is a question of law, to which the general rules of contract construction apply. The cardinal rule of contract interpretation is to ascertain the parties' intention and to give effect to that intention. The intent of the parties is to be based upon the terms of the contract alone and not on extrinsic evidence unless the contract language is ambiguous. An ambiguity arises only if the terms are reasonably open to more than one meaning, or the meaning of the language is...
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