Maricopa County v. Novasic

• Decision Date: 13 August 1970
• Docket Number: CA-CIV,No. 1,1
• Citation: 12 Ariz.App. 551,473 P.2d 476
• Parties: MARICOPA COUNTY, Arizona, L. Alton Riggs, William S. Andrews, B. W. Burns, as members of and constituting the Board of Supervisors of Maricopa County, Arizona, C. L. Sparks, Assessor of Maricopa County, John A. Foote, Treasurer of Maricopa County and Cal Boies, Sheriff of Maricopa County, Appellants, v. Nick NOVASIC, Appellee. 1114.
• Court: Arizona Court of Appeals

Page 476

473 P.2d 476

12 Ariz.App. 551

MARICOPA COUNTY, Arizona, L. Alton Riggs, William S. Andrews, B. W. Burns, as members of and constituting the Board of Supervisors of Maricopa County, Arizona, C. L. Sparks, Assessor of Maricopa County, John A. Foote, Treasurer of Maricopa County and Cal Boies, Sheriff of Maricopa County, Appellants, v. Nick NOVASIC, Appellee.

No. 1 CA-CIV 1114.

Court of Appeals of Arizona, Division 1, Department B.

Aug. 13, 1970.

Moise Berger, Maricopa County Atty., by Frederic W. Heineman, Sp. Deputy Atty., for appellants.

Murphy, Posner & Franks, by John R. Franks, Phoenix, for appellee.

JACOBSON, Judge.

In this appeal from the Superior Court of Maricopa County we are asked to determine when title to a certain building erected by a lessee on land owned by the City of Phoenix vests in the underlying fee ownership.

Plaintiff-appellee, Nick Novasic, brought an action against the conglomerate taxing authorities of the County of Maricopa, hereinafter referred to as the defendant, seeking a refund of certain 'unsecured personal property' taxes paid by plaintiff under protest. Upon a stipulated set of facts, the trial court entered judgment in favor of the plaintiff as follows: (1) for a refund of the taxes paid by plaintiff for the year 1968 under protest, (2) a declaration that the building erected upon the leased real property was owned by the City of Phoenix and therefore exempt from taxation for ad valorem tax purposes, (3) a direction to the defendant to remove the building from the assessment tax rolls and (4) an injunction against the defendant from assessing the building as long as it remained in an exempt status. ¹

The facts in this case are not in dispute. On January 5, 1960, plaintiff's predecessor in interest entered into a lease with the City of Phoenix, for certain unimproved real property located at the Sky Harbor Airport in Phoenix, Arizona. The term of the lease was for 52 years and the lease required the lessee to erect, at his own expense, an office building on the site. The office building was constructed as required and subsequently plaintiff acquired all of lessee's interest in the lease. In 1968, for the taxable year of 1967, defendant caused the building to be placed on the tax roll and assessed as 'unsecured personal property' pursuant to A.R.S. 42--227 (1956). This assessment resulted in taxes being paid by the plaintiff, under protest, in the sum of $3,239.90. The contention of the parties is relatively simple. The plaintiff contends the building is real property belonging to the City of Phoenix and therefore exempt from taxation under the provisions of the Arizona Constitution. Defendant contends that upon completion of the building title thereto vested in plaintiff and title would not be vested in the City of Phoenix until the happening of certain contingencies and therefore, the building is taxable. Both parties agree the terms of the lease are controlling of this question as a matter of law. Inasmuch as the parties agree that the defendant cannot tax plaintiff's 'leasehold interest' as such, we have not considered that specific question, but have limited our attention to the narrow issue presented above.

Defendants' contention that the title to the building is in plaintiff while the lease is in full force and effect is based solely on three provisions of the lease. These are as follows:

(1) '(In the event of default by lessee), Lessor at any time thereafter shall without demand or notice, which the Lessee waives, have full right, at its election to enter upon the leased premises and to take immediate possession thereof and terminate the lease. In such event, the office building all improvements and fixtures, on said premises shall be retained by and belong to the said Lessor as liquidated damages * * * and all interest of the Lessee in the lease shall terminate.' (Emphasis added.)

(2) '(That upon termination of the lease) the Lessee shall quit and surrender said premises and all improvements thereon, which includes, but is not limited to, the electrical, plumbing, heating and cooling equipment and all other component parts * * * (Which) shall thereupon become the property of the Lessor without compensation by him to the Lessee.' (Emphasis added.)

(3) '(In the event of bankruptcy of the Lessee), the Lessor may, by giving the Lessee ten (10) days notice of such election, terminate Lessee's right to possession of the leased premises and terminate this lease and The title to the building shall then vest in the Lessor. This lease or the rights hereunder, including the building to be constructed, shall never be considered as an asset of the bankrupt estate.' (Emphasis added.)

Defendants argue that these three provisions of the lease 'vesting' title to the building in the City upon the happening of certain contingencies, of necessity must be interpreted as 'vesting' title in the plaintiff until the happening of these contingencies. We do not believe these provisions of the lease have the effect urged by defendant County. As a general rule, permanent structure placed by a tenant upon leased premises and attached to the realty are deemed to be real property and belong to the lessor. See Kinkead v. United States, 150 U.S. 483, 14 S.Ct. 172, 37 L.Ed. 1152 (1893); 1 G. Thompson, Real Property at 253--265 (repl. 1964). This general rule is subject to the exception that the parties by express agreement may treat the building as belonging to the tenant, in which case the right to removal of the building at the termination of the lease is incidental to that ownership. Marcos v. Texas Co., 75 Ariz. 45, 251 P.2d 647 (1953); Williams v. Long, 1 Ariz.App. 330, 402 P.2d 1006 (1965).

Defendant agrees with this general proposition, but urges that the three provisions set forth above evidence an intent that the parties agreed to treat the...