Musick v. Univ. Park At Evansdale, LLC

• Decision Date: 08 November 2018
• Docket Number: No. 17-0309,17-0309
• Citation: 820 S.E.2d 901
• Court: West Virginia Supreme Court
• Parties: Mark A. MUSICK, in his capacity as the Monongalia County, West Virginia, Assessor, Respondent Below, Petitioner, v. UNIVERSITY PARK AT EVANSDALE, LLC, Petitioner Below, Respondent.

820 S.E.2d 901

Mark A. MUSICK, in his capacity as the Monongalia County, West Virginia, Assessor, Respondent Below, Petitioner,

v.UNIVERSITY PARK AT EVANSDALE, LLC, Petitioner Below, Respondent.

No. 17-0309

Supreme Court of Appeals of West Virginia.

Submitted: October 9, 2018

Filed: November 8, 2018

Webster J. Arceneaux, III, Esq., Lori D. Counts-Smith, Esq., Lewis, Glasser, Casey & Rollins, PLLC, Charleston, West Virginia, Phillip M. Magro, Esq., Assistant Prosecuting Attorney, Magro & Magro, Morgantown, West Virginia, Counsel for the Petitioner

James A. Walls, Esq., Joseph V. Schaeffer, Esq., Spilman Thomas & Battle PLLC, Morgantown, West Virginia, Counsel for the Respondent

John A. Mairs, Esq., Christopher M. Hunter, Esq., JACKSON KELLY PLLC, Charleston, West Virginia, Counsel for Amicus Curiae West Virginia University Board of Governors

Patrick Morrisey, Esq., Attorney General, Thomas M. Johnson, Jr., Esq., Deputy Solicitor General, Joshua L. Jarrell, Esq., General Counsel, West Virginia, Department of Commerce, Charleston, West Virginia, Counsel for Amicus Curiae West Virginia Development Office

WALKER, JUSTICE:

In 2013, West Virginia University (WVU) leased property to University Park at Evansdale, LLC (UPE) for the development of University Park, a student housing facility. On the same date, UPE subleased the student housing back to WVU for purposes of offering it to students for housing. As a result, the residential facilities of University Park are managed and operated solely by WVU. The sublease from UPE to WVU did not include certain retail/commercial premises, which UPE may use or sublease subject to WVU’s approval. We consider for the second time¹ the disagreement between the Assessor of Monongalia County, Mark A. Musick, and UPE regarding a 2015 assessment that valued UPE’s leasehold interest in University Park at more than $9 million. Mr. Musick appeals the circuit court’s decision that based on the evidence presented at the Board of Equalization and Review (BER), the assessment of UPE’s leasehold interest for tax year 2015 was $0.

Mr. Musick’s primary contention is that this Court’s opinion in Maplewood Community, Inc. v. Craig² was incorrectly decided, and thus the circuit court’s application of Maplewood ’s rule as to valuation of leasehold interests was wrong. He also contends that even if Maplewood is correct, the case should have been remanded to the BER for development of additional evidence. We disagree and affirm the circuit court’s order because Mr. Musick contravened the requirements of both West Virginia Code of State Rules § 110-1P-3 and applicable case law in assessing UPE’s leasehold interest.³

I. FACTUAL AND PROCEDURAL BACKGROUND

UPE is the lessor of certain property commonly known as University Park located on the Evansdale Campus of West Virginia University. This property, owned by the West Virginia University Board of Governors, contains student housing facilities and a small amount of retail space.⁴ WVU leased the property to UPE for the development and construction of University Park, and UPE simultaneously subleased the student housing properties back to WVU for purposes of offering it to students for housing. In doing so, UPE retained the ability to sublease the retail space, which comprises only approximately three percent of the property.

As UPE explains, the terms of the December 23, 2013 lease provide that WVU lease the university land to UPE for an initial term of forty years, giving UPE a guaranteed option to renew the lease for a fifteen-year term, plus the remaining term of any outstanding leasehold deed of trust. If the guaranteed option to renew is exercised, UPE can exercise an additional ten-year renewal option with the consent of WVU. Pursuant to the lease, UPE’s sole property interest in University Park is a leasehold interest.

Under the terms of the lease, UPE was required to develop improvements on the university land at its own expense, subject to approval from WVU. Ninety-seven percent of the improvements consists of residential premises for use by WVU as student housing, and the remaining three percent of the improvements consists of commercial premises providing amenities for WVU students, faculty, and staff. WVU immediately received title and ownership to the improvements and the personal property as they were constructed, with the exception of certain limited improvements and personal property belonging to subtenants of the commercial premises as they were brought onto the university land, which WVU already owned.

As a result, WVU owns the university land, the improvements, and the personal property, which together comprise University Park. Use of University Park is limited to WVU housing for students, faculty, and staff; commercial, retail, and governmental enterprises benefitting WVU’s constituents or the general public subject to WVU’s written approval; and other expressly-defined permitted uses stipulated to by WVU under the lease.

UPE represents that under the specific terms of the December 23, 2013 sublease of the residential premises back to WVU, all residential premises at University Park are managed and operated solely by WVU as on-campus student housing and are subject to the same WVU policies, procedures, rental terms, and housing requirements that apply to residential tenants in other on-campus housing. UPE maintains that in addition, University Park is within the jurisdiction of and monitored by WVU Police. The sublease does not relate to the commercial premises, which UPE may use or sublease to permitted tenants for permitted uses subject to WVU’s written approval.

As characterized by the circuit court’s order, under the terms of the lease and sublease, WVU collects rents from tenants and pays one hundred percent of those revenues to UPE in consideration for the sublease. Additionally, UPE pays fifty percent of the net cash back to WVU (or more if revenues exceed the amount stated in the lease) in consideration for the lease.

In January 2015, Mr. Musick assessed UPE’s leasehold interest in University Park at $9,035,617 for the tax year 2015. Because it is State property, the fee estate owned by WVU is not taxable.⁵ UPE challenged the assessment before the BER, arguing that because the leasehold was neither freely assignable nor a bargain lease, its leasehold interest was $0.⁶

At the BER hearing, Mr. Musick admitted that he did not utilize the methodology promulgated by the Tax Commissioner for assessment of leasehold interests.⁷ Mr. Musick also agreed that UPE’s lease did not appear to be freely assignable because the lease reserves to WVU the right to reject any potential lessor of the retail space.⁸ And Mr. Musick appeared to agree that, despite his initial belief, the property was not a bargain lease.⁹ Despite this testimony, the BER concluded that because UPE was asserting that the valuation should be $0 and therefore not taxable, the issue was one of taxability, not valuation. Finding that issues of taxability must be challenged before the Tax Commissioner, the BER concluded that it lacked jurisdiction. The BER encouraged UPE to appeal the issue to the circuit court and it did.¹⁰

In considering UPE’s appeal, the circuit court initially found that because the issue was one of taxation instead of valuation, it lacked jurisdiction and UPE was required to appeal Mr. Musick’s decision to the Tax Commissioner. This Court disagreed, and found that UPE’s appeal was a challenge to the valuation of the property, rather than a challenge to taxation, and remanded the matter to the circuit court for a ruling on the valuation of the property.¹¹

On remand in the circuit court, Mr. Musick filed a motion to remand the matter to the BER seeking to develop the record regarding the issue of valuation and the viability of this Court’s decision in Maplewood . UPE objected to that motion on the basis that it was not timely filed. During a January 23, 2017 hearing, the circuit court heard the arguments of the parties regarding valuation and Mr. Musick’s motion to remand.

On February 28, 2017, the circuit court granted the petition for appeal in favor of UPE. The circuit court found that remand was not appropriate because the BER made its decision regarding taxability and jurisdiction after both parties were given a full opportunity to present evidence regarding valuation. The circuit court noted that a remand would allow Mr. Musick an opportunity to present evidence that "he perhaps should have presented before the BER[,]" and found that the remand exception found in West Virginia Code § 11-3-25(c) is not designed to allow litigants an opportunity to present evidence they failed to present the first time.

The circuit court cited Great A&P Tea Co. v. Davis for the proposition that "a separate leasehold is taxable if it has separate and independent value from the free hold."¹² Then the circuit court acknowledged the analysis of the "separate value of a leasehold" we articulated in Maplewood :

... the separate value of a leasehold, if any, is based on whether the leasehold is economically advantageous to the lessee, that is a so-called bargain lease, and is freely assignable so that the lessee may realize the benefit of such bargain in the market place.^{[13 ]}

In reviewing the evidence presented before the BER, the circuit court found that Mark Nesselroad, an attorney who had an ownership interest in UPE and was involved in creating the leasehold with WVU, testified that the lease held by UPE was not freely assignable. The circuit court also found that although Mr. Musick initially contended that the lease was freely assignable and a bargain lease, he later agreed that the lease could not be assigned without prior consent and conceded that the lease was not a bargain lease. So, the circuit court concluded that based upon the evidence presented at the BER hearing, Mr. Musick’s 2015 assessment was erroneous, finding, "if a leasehold interest is not freely assignable and is not a...