First City Corp. v. City of Lansing

• Decision Date: 05 November 1986
• Docket Number: Docket No. 83224
• Citation: 153 Mich.App. 106,395 N.W.2d 26
• Parties: FIRST CITY CORPORATION, Petitioner-Appellant, v. CITY OF LANSING, Respondent-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 26

395 N.W.2d 26

153 Mich.App. 106

FIRST CITY CORPORATION, Petitioner-Appellant, v. CITY OF LANSING, Respondent-Appellee.

Docket No. 83224.

Court of Appeals of Michigan.

Submitted Feb. 4, 1986.

Decided April 29, 1986.

Released for Publication Nov. 5, 1986.

Thrun, Maatsch & Nordberg, P.C. by Patrick J. Berardo and Gordon W. VanWieren, Lansing, for petitioner-appellant.

Alvan P. Knot, Chief Asst. City Atty., Lansing, for respondent-appellee.

Before ALLEN, P.J., and HOOD and LIVO ^*, JJ.

PER CURIAM.

Petitioner appeals as of right from the Michigan Tax Tribunal's opinion and order that found that the true cash value ("TCV") for the 1982 and 1983 tax years for petitioner's 28-unit apartment building known as Southwind Apartments was $421,600 for each year, the same TCV found by the respondent assessing unit. At the hearing, petitioner contended that respondent's assessment level exceeded 50 percent of TCV because it failed to consider the building's present economic income. Petitioner presented testimony that the property was sold on land contract in 1979 for $355,000, but the purchaser defaulted in 1983. With difficulty, petitioner resold the property by land contract in 1983 for $305,000. At the hearing, petitioner ultimately contended that TCV for the property was $290,000.

Petitioner offered testimony through Kenneth Fowler, who purchased the property for First City Corporation in 1974, that, although the location of the building was not bad, it had numerous deficiencies which decreased the property's value. The lot was small with virtually no green area, the parking lot was in poor condition and the apartments were small. The heating system made the apartments difficult to heat, they had virtually no insulation and the sewer clogged continously and backed up into the apartments. The appliances were worn out, particularly the dishwashers, which leaked and caused severe problems. Fowler termed the property "a classic example of a building that is functionally obsolescent", the "bottom of the barrel" in relation to neighboring apartments.

In 1979, the last year in which petitioner was directly involved in rentals at the building, there was a strong rental market, but the building had less than 90 percent average occupancy rate. The first land contract purchaser showed petitioner an unverified 1981 total income from the building of $60,950, a figure which seemed reasonable to Fowler. Petitioner had no actual income or operating expenses, but Fowler thought the 1981 figures might also be reasonable in 1982, with a slight increase in expenses and a decrease in income. Petitioner capitalized at 12 percent a 1981 net income of $27,692 and concluded that the building was worth $230,766. Fowler regarded both land contract prices as having been too high, but the buyers presumably paid those prices because they thought they could "turn the property around" through good management.

The Lansing City Assessor appraised the property for 1981 and indicated that the same value would also apply to 1982, based on his subsequent appraisal. He indicated that he considered all three traditional approaches to valuation, but thought the market approach was the most useful, given a strong market for similar properties in Lansing.

The cost approach to valuation, made using the Marshall Valuation Service manual, gave a value of $499,000 when land value was added. The assessor took this as an upper limit. He never used the cost approach alone to value a property.

In using the income approach, the assessor considered "economic rent", essentially the rent that comparable units produced elsewhere in Lansing at the same time. He had no idea what rents were actually charged at Southwind Apartments, but based on his market assumptions, including a 5 percent allowance for vacancy and operating expenses lower than those testified to by petitioner, the assessor determined a net economic income of $57,754. Applying a 12 percent capitalization rate, he valued the property at $423,000.

The assessor also examined several comparable sales to determine selling price per unit. He felt that Southwind Apartments are located in the Lansing "hot spot", the only area of rapid development in the city. He visited all the comparables, and regarded most as very similar to Southwind Apartments in terms of their lack of amenities. After making the necessary adjustments to five comparables, the assessor concluded that the property's value was $440,000. He made no adjustments for unit size, apparently concluding that the comparable apartments were the same. Two of the comparable sales were not within Lansing city limits.

The assessor visited the property in the summer of 1982, but did not look at the inside of the property until December 29, 1982, after he completed his appraisal report. He examined a one-bedroom and a two-bedroom apartment, both vacant. They appeared to be in a "little better condition" than the exterior of the building, which he described as "in need of attention". He did not examine the appliances. Both units were smaller than the average equivalent apartment in Lansing.

The assessor's visit did not change his mind about the TCV he had determined. The assessor knew of the 1979 land contract sale. He suggested that, so far as he knew, the $355,000 may have been fair market value at the time the property was first sold.

The tribunal ruled that the second land contract sale, which occurred seven months after the 1982 tax day, should be considered to support the tribunal's valuation conclusion. As to petitioner's contention that TCV was more accurately reflected by the sales prices in the two arm's-length land contract sales than in the appraisal report's opinion of value, the tribunal stated that, although sale price can never be ignored as a factor, it is not of and by itself controlling. The tribunal compared price to market value, saying:

"[m]arket value, on the other hand is an estimate resulting from careful consideration of all data, with primary reliance on that data which reflects the actions of responsible, prudent buyers and sellers under conditions of a fair sale."

Adopting the respondent's valuation conclusion, the tribunal concluded with the laconic statement that: "Respondent's appraisal report used market analysis, cost less depreciation and capitalization of income to arrive at an opinion of value. This procedure is recognized as accurate and is an acceptable indicator of true cash value for tax purposes."

Petitioner now contends that the tribunal's valuation decision cannot withstand scrutiny by this Court as provided by Const. 1963, art. 6, Sec. 28:

"All final decisions, findings, rulings and orders of any administrative officer or agency existing under the constitution or by law, which are judicial or quasi-judicial and affect private rights or licenses, shall be subject to direct review by the courts as provided by law. This review shall include, as a minimum, the determination whether such final decisions, findings, rulings and orders are authorized by law; and, in cases in which a hearing is required, whether the same are supported by competent, material and substantial evidence on the whole record. Findings of fact in workmen's compensation proceedings shall be conclusive in the absence of fraud unless otherwise provided by law.

"In the absence of fraud, error of law or the adoption of wrong principles, no appeal may be taken to any court from any final agency provided for the administration of property tax laws from any decision relating to valuation or allocation."

As stated, our review of the tribunal's decision requires us to inquire whether there was competent, material, and substantial evidence to support that decision. The absence of such evidence or the adoption of a wrong principle constitutes an error of law that compels reversal. See Antisdale v. Galesburg, 420 Mich. 265, 277, 362 N.W.2d 632 (1984); Teledyne Continental Motors v. Muskegon Twp., 145 Mich.App. 749, 753, 378 N.W.2d 590 (1985); Kern v. Pontiac Twp., 93 Mich.App. 612, 620, 287 N.W.2d 603 (1979). In order to facilitate appellate review, M.C.L. Sec. 205.751; M.S.A. Sec. 7.650(51) and M.C.L. Sec. 205.726; M.S.A. Sec. 7.650(26), the latter of which incorporates M.C.L. Sec. 24.285; M.S.A. Sec. 3.560(185) of the Administrative Procedures Act, require the tribunal to provide a concise statement of facts and conclusions of law. Plymouth Twp. v. Wayne County Bd. of Comm'rs., 137 Mich.App. 738, 756, 359 N.W.2d 547 (1984); Almira Twp. v. Benzie County Tax Allocation Board, 80 Mich App 755, 760-761, 265 N.W.2d 39 (1978). In this case, it is the tribunal's failure to set forth the basis for its conclusions of law which precludes us from determining whether the tribunal's decision was supported by competent, material and substantial evidence and was free of errors of law or the adoption of wrong principles and instead mandates remand to the tribunal.

As we stated in Plymouth Twp., where we held that the tribunal's opinion was inadequate:

"The tribunal's sparse opinion in this highly complex area merely recites the issues and concludes that the proofs failed to establish unfair or discriminatory assessments or that the City of Dearborn was equalized in excess of 50 percent of true cash value. As stated in Almira Twp. v. Benzie County Tax Allocation Bd, 80 Mich App 755, 761, 265 NW2d 39 (1978), 'Merely stating that the tribunal has reviewed the evidence and finds it to be insufficient as a basis for relief is not adequate'. (Emphasis in original.) In other words, the opinion in the present case violated MCL 205.751(1); MSA 7.650(51)(1) because it did not contain 'a concise statement of facts and conclusions of law, stated separately'." 137 Mich App 756, 359 N.W.2d 547.

In the case at bar, the tribunal did not even go so far as to state what evidence it had reviewed. Nor is it clear from its opinion that the tribunal made its own...