Diversified Golf v. HART COUNTY BD.

• Decision Date: 26 March 2004
• Docket Number: No. A03A2317., No. A03A2276
• Citation: 598 S.E.2d 791,267 Ga. App. 8
• Parties: DIVERSIFIED GOLF, LLC v. HART COUNTY BOARD OF TAX ASSESSORS (two cases).
• Court: Georgia Court of Appeals

267 Ga. App. 8

598 S.E.2d 791

267 Ga.App. 8

DIVERSIFIED GOLF, LLC v. HART COUNTY BOARD OF TAX ASSESSORS (two cases).

Nos. A03A2276, A03A2317.

Court of Appeals of Georgia.

March 26, 2004.

Reconsideration Denied April 13, 2004.

Certiorari Denied September 7, 2004.

Burr & Forman, John A. Howard, Gregory F. Harley, James H. Ludlam, Atlanta, Robert E. Ridgway, Jr., Hartwell, for appellant.

Hulsey, Oliver & Mahar, Julius M. Hulsey, Jane A. Range, Gainesville, Walter J. Gordon, for appellee.

ADAMS, Judge.

The City of Hartwell acquired land to create a spray field for disposing treated wastewater, then decided to develop a municipal golf course on the property, which could be irrigated with the water. The City conveyed the property to a newly established recreation authority, which then leased the land to Diversified Golf, LLC, a private concern formed to develop, construct, and operate the golf course. When Hart County later assessed Diversified for ad valorem taxes based on the value of the land and improvements, Diversified began a series of appeals regarding whether its interest in the land is taxable. That issue is now before us.

The basic facts are undisputed. Apparently in response to a mandate from the Georgia Environmental Protection Division to find an alternative to disposing wastewater in a creek, the City of Hartwell acquired 445 acres of land to use as a spray field for treated wastewater. In response to public opposition to the original plan, the City decided to develop a municipal golf course on a portion of the property. The City of Hartwell Recreation Authority was created by local act to, among other things, facilitate low cost financing with revenue bonds, acquire real property, and lease property, both in connection with city recreation projects — including the proposed golf course — and construction of waste treatment facilities. Ga. L.1996, p. 3998. The City then conveyed the parcel to the authority. The limited warranty deed transferred the property to the authority in fee simple in consideration of the public purposes to be served by the authority, and it was recorded on August 19, 1996. It appears that the golf course is not located in the city.

In that same year, the authority entered into several agreements relative to the property, including a fifty-year lease agreement with Diversified; a "Waste Water Effluent Spraying and Operating Agreement" with Diversified; three construction contracts in which Diversified agreed to build a golf course, clubhouse, wastewater distribution facility, and wastewater storage ponds; and an intergovernmental contract between the City and the authority. In early 1997, the golf course became operational. The golf course occupies approximately 60 of the 445 acres, but almost all of the property is used as a spray field for disposal of the wastewater.

In 1999, Hart County issued a tax assessment notice to Diversified assessing the taxable value of Diversified's interest in the property at $4,024,000. Diversified initiated an appeal of the assessment to the Hart County Board of Tax Assessors. On April 19, 2000, the board conducted a hearing that apparently also addressed the year 2000 assessment, and on August 7, 2001, denied Diversified's appeal. The matter was automatically forwarded to the Board of Equalization. On November 12, 2001, that board conducted a hearing and issued a decision, which states,

Because of the significant restrictions on the lessee's ability to use the Property as they please, we feel that the buildings only are taxable, this amount is $491,950. This agreement meets the criteria for usufruct interest.

Both Diversified and the Board of Tax Assessors appealed the decision to the Superior Court of Hart County.¹ The parties submitted cross-motions for summary judgment, and on June 2, the court entered an order granting the Assessors' motion and denying Diversified's. The court held that the property was not public property exempt from ad valorem taxation and that Diversified's interest in the property was a taxable estate for years and not a non-taxable usufruct. Diversified appeals.

Diversified contends that the trial court erred by concluding that its interest in the property is a taxable estate for years, rather than a nontaxable usufruct.

"All real property including, but not limited to, leaseholds, interests less than fee, and all personal property shall be liable to taxation and shall be taxed, except as otherwise provided by law." OCGA § 48-5-3. But a usufruct is not considered an interest in land and therefore it is not subject to ad valorem taxation. Macon-Bibb County Bd. of Tax Assessors v. Atlantic Southeast Airlines, 262 Ga. 119, 414 S.E.2d 635 (1992); Whitehead v. Kennedy, 206 Ga. 760, 761, 58 S.E.2d 832 (1950). A leasehold interest that constitutes an estate for years is taxable. Delta Air Lines v. Coleman, 219 Ga. 12, hn. 1, 131 S.E.2d 768 (1963). A usufruct occurs where one accepts the grant of "the right simply to possess and enjoy the use of such real estate...." OCGA § 44-7-1(a). An estate for years occurs where one accepts "the right to use the property in as absolute a manner as may be done with a greater estate, provided that the property or the person who is entitled to the remainder or reversion interest is not injured by such use." OCGA § 44-6-103. There is a rebuttable presumption that a lease for five years or more is a taxable estate for years. Macon-Bibb County Bd. of Tax Assessors,262 Ga. at 119,414 S.E.2d 635. But, "[w]hether ... an estate in the land passes to the tenant, or he obtains merely the usufruct ... depends upon the intention of the parties; and this is true without regard to the length of the term." Hutcheson v. Hodnett, 115 Ga. 990, 993, 42 S.E. 422 (1902). Accord Macon-Bibb County Bd. of Tax Assessors,262 Ga. 119,414 S.E.2d 635.

Not unexpectedly, there are numerous cases involving leases which have some provisions characteristic of the conveyance of an estate for years along with others indicative of the grant of a mere usufruct. In such cases, of which this is one, all provisions of the lease must be scrutinized objectively to determine whether the legal effect of the agreement is to grant an estate in the property or merely a right of use.

(Footnotes omitted.) Jekyll Dev. Assoc. v. Glynn County Bd. of Tax Assessors, 240 Ga.App. 273, 274-275(2), 523 S.E.2d 370 (1999).

The lease at issue has a 50-year term and therefore the presumption of an estate for years applies. The question before us is whether that presumption is rebutted by the intention of the parties as reflected in the terms of the lease. Although "[a]n estate for years may be encumbered or somewhat limited without being reduced to a usufruct," Jekyll Dev. Assoc., 240 Ga.App. at 275(2), 523 S.E.2d 370, if the lease imposes sufficient conditions and limitations upon the use of the premises to negate the conveyance of an estate for years the interest passed is reduced to a mere usufruct. Warehouses, Inc. v. Wetherbee, 203 Ga. 483, 489, 46 S.E.2d 894 (1948). See also Macon-Bibb County Bd. of Tax Assessors, 262 Ga. at 120, 414 S.E.2d 635.

We begin by assessing the parties' intent by looking at the general characteristics of the lease as a whole. See Warehouses, 203 Ga. at 488, 46 S.E.2d 894; Richmond County Bd. of Tax Assessors v. Richmond Bonded Warehouse Corp., 173 Ga.App. 278, 279, 325 S.E.2d 891 (1985). Although the parties termed the instrument a lease, they did not specifically state in the lease whether they intended an estate for years or a usufruct. At one point, Diversified's rights are described as "possession, use or occupancy" of the golf course. This phrase suggests a usufruct.

The parties agreed to several provisions related to ad valorem taxation, at least some of which suggest that they intended Diversified's interest to be a usufruct. The parties to the lease first acknowledged that the authority's interest in the property is not subject to ad valorem taxation by the state or any subdivision thereof. And Diversified agreed that it was liable for all taxes and governmental charges on any interest it held pursuant to the lease and on the golf course or any equipment or related property, as well as the following:

All taxes and governmental charges of any kind whatsoever upon or with respect to the Golf Course or any equipment or related property installed or brought by the Developer therein or thereon (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to the income or profits of the Authority from the Golf Course which, if not paid, will become a lien on the Golf Course prior to or on a parity with the security interest created hereunder or a charge on the Revenues prior to or on a parity with the security interest therein).

But, the lease also provides that Diversified could contest any such tax and that the authority would cooperate with Diversified in doing so. Therefore these provisions are inconclusive of the parties' intent. See, e.g., Clayton County Bd. of Tax Assessors v. City of Atlanta, 164 Ga.App. 864, 865-866(1), 298 S.E.2d 544 (1982) (usufruct created despite provision in lease that lessee was liable for any taxes and any assessment levied on the property).

However, Diversified agreed to pay to the City, from 2018 through 2046 (the end of the lease term), "an amount equal to the ad valorem property taxes that would be paid to City if the golf course was located in the City assuming that the Developer was the fee simple title owner of the Golf Course." This provision suggests that the parties intended a usufruct. Otherwise, Diversified would, in effect, be required to pay double the normal ad valorem taxation on the property during the years 2018 through 2046: actual ad valorem taxes to Hart County and a contractual equivalent to the City.

Finally, the authority agreed that it would protect the ad valorem tax...