Pokorny v. Local 310, Intern. Hod Carriers, Bldg. Common Laborers Union

• Decision Date: 12 July 1973
• Citation: 35 Ohio App.2d 178,64 O.O.2d 277,300 N.E.2d 464
• Parties: , 64 O.O.2d 277 POKORNY et al., Appellees, v. LOCAL 310, INTERNATIONAL HOD CARRIERS, BUILDING COMMON LABORERS UNION, Appellants, Lilbe Tavern, Inc., Appellee.
• Court: Ohio Court of Appeals

Page 178

35 Ohio App.2d 178

300 N.E.2d 464, 64 O.O.2d 277

POKORNY et al., Appellees, v. LOCAL 310, INTERNATIONAL HOD CARRIERS, BUILDING COMMON LABORERS UNION, Appellants Lilbe Tavern, Inc., Appellee.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

July 12, 1973.

Syllabus by the Court

1. In an appropriation case the value of a leasehold interest, in real estate is the full amount of the difference between the fair market rental of the leased premises and the rent paid under the terms of the lease for the unexpired term of the lease plus any option period.

2. In an appropriation case evidence of comparable rentals is admissible on direct examination as substantive proof of the fair market rental to be used in determining the value of a leasehold interest.

3. When a trial court sustains objections to a question, a statement must be made or proffered as to what the expected answer would be in order that a reviewing court can determine whether or not the action of the trial court is prejudicial; and in the absence of a proffer, the exclusion of evidence may not be assigned as error.

4. Article I, Section 19 of the Ohio Constitution, which guarantees a property owner a right to a trial by jury, applies to proceedings to determine the value of a leasehold in appropriation cases.

5. A trial court has the discretion to grant a motion for a jury trial when a party is not entitled to a jury trial as a matter of right. Civil Rule 39(C); R.C. 2311.04. If the trial court grants such a motion and a jury trial is held, the jury verdict and judgment of the trial court will not be set aside in the absence of a showing of abuse of discretion and prejudicial error.

Merkel, Campbell, Dill & Zetzer, Eli Manos and Michael Gavin, Cleveland, for appellees, Lilbe Tavern, Inc.

Mortimer Riemer, Cleveland, for appellants, Local 310.

KRENZLER, Judge.

The Cuyahoga County Commissioners filed a petition for appropriation of property in the Common Pleas Court of Cuyahoga County, Probate Division. Defendants included the property owner, Local 310, hereinafter referred to as appellant, and Lilbe Tavern Inc., tenant under a lease, hereinafter identified as appellee.

The jury assessed compensation to be paid by the Board of County Commissioners for the fee simple interest of the property in the sum of $285,000.

Appellant filed a motion for distribution in which the court was asked to hear evidence as to the respective interests of the parties and make distribution accordingly. Appellee requested a trial by jury on the issue of the amount of compensation to be paid to it. Appellant filed a motion to strike the jury demand of appellee for the reason that appellee was not emtitled by law to a jury determination of the question of the value of its leasehold interest in the condemnation award.

The trial court granted the request for jury trial and denied the motion to strike the jury demand. A jury trial was had to determine the value of appellee's leasehold interest and the jury returned a verdict in the sum of $47,000.

Appellant filed a motion for judgment notwithstanding the verdict or in the alternative for a new trial. The motions were overruled. Appellant has appealed from the judgment of the trial court and assigns three errors:

1. The award was grossly excessive and not supported by the evidence.

2. The court erred in refusing to admit evidence of the rental price of comparable property.

3. The court erred in granting a jury trial.

Generally, appropriation cases encompass two stages: (1) a jury determination of the fair market value of the appropriated property, and (2) apportionment of the award among the respective interests in the property.

In this case we are only concerned with the apportionment of the award between the two defendants, the lessor and lessee; and the issue is whether the determination of the fair market value of the leasehold interest was proper.

In determining fair market value, there are three recognized methods of appraisal: (1) cost of reproducing property less depreciation, (2) market data approach utilizing recent sales of comparable property, and (3) income or economic approach based upon capitalization of net income. State v. Covich (1968), 260 Cal.App.2d 663, 67 Cal.Rptr. 280; United States v. Sowards (10th Cir. 1966), 370 F.2d 87.

Appellee's expert witness Robert Thomas testified that he used the income and market approaches in making his appraisal of the value of the leasehold interest.

He testified, and it is undisputed, that the present lease has three years and eight months remaining with an option for renewal of the lease for an additional five years making a total of eight years and eight months.

Mr. Thomas testified that the stabilized fair market rental was $15,432 per year and the actual rent under the lease for the remainig three years and eight months was $9,600 per year and the rental for the five year option period is $10,200 per year resulting in a leasehold value of $47,250.

Appellant had two expert witnesses, Herbert R. Chisling and Carl R. Larsen.

Mr. Chisling testified that in determining the value of the leasehold he used the comparable sales and economic approaches and concluded that the lease rental and the fair market rental were the same and that the leasehold had no value.

Mr. Chisling also testified that if the market rental was more than the lease rental, it would be proper to take the differential, for the term of the balance of the lease and the option period, and discount it in determining the value of the leasehold.

Mr. Chisling was asked on direct examination what the discount would be if the difference between the fair market rental and lease rental were $47,000 on the subject property. There was an objection to the question and the objection was sustained. A proffer was made that the discount would be 47%.

Mr. Chisling then proceeded to describe six comparable properties in the area that he had used in determining the value of the leasehold of the subject property. When on direct examination he was asked a question regarding the rental price of these comparable properties, there was an objection which was sustained. The trial court stated that on direct examination evidence of comparable lease prices is not allowed. Appellant offered no proffer as to the rental charged on the comparable properties.

Mr. Chisling then testified that he took into consideration comparable rentals of six properties in determining that the leasehold had no value. This evidence was admitted without objection.

Mr. Carl Larsen, appellant's other expert witness, testified that he used the income and comparable rental approaches in determining leasehold value. He testified that he determined the rental prices of comparable properties in the area and used those in determining the value of the leasehold and concluded that the leasehold had no value. He testified that comparable rentals in the area are lower than the leasehold rental. When he was asked to state what the comparable rentals were there was an objection and it was sustained. There was no proffer entered as to what Mr. Larsen's answer would have been to the question.

Appellant's first assignment of error is that the award was grossly excessive and not supported by the evidence.

As noted above, appellee's expert witness testified that the value of the leasehold was $47,000 and appellant's expert witnesses testified that the leasehold had no value. The question of the value of the leasehold was then submitted to the jury, which returned a verdict for appellee in the amount of $47,000.

When there is an issue of fact submitted to the trier of fact, whether it be a court or jury, and there is credible evidence to support the finding or jury verdict and reasonable minds could come to different conclusions regarding the fact questions, a Court of Appeals will not interfere with the verdict and resulting judgment. F. E., Avery Co. v. George (1959), 80 Ohio Law Abst. 595, 160 N.E.2d 305; Frost v. O'Kross (1926), 22 Ohio App. 174, 153 N.E. 879.

In support of its argument that the verdict is not supported by the evidence, appellant claims that the trail court committed prejudicial error in refusing to admit testimony regarding the discounting of the differential between the market rental and the lease rental for the term of the lease.

Discounting is the determination of the present value of future income or benefits. Appellant's theory of discounting leasehold value is that if there is value to the lease, the lessee will receive this value or benefit ratably over eight years and eight months, and if the lessee receives cash for this benefit at one time, the total amount should be discounted because the benefit will come to the lessee all at once and he does not have to wait for it. Some courts have recognized discounting in determining the value of a leasehold, Great Atlantic and Pacific Tea Co. v. State (1968), 22 N.Y.2d 75, 291 N.Y.S.2d 299, 238 N.E.2d 705; Land Clearance for Development Corp. v. Doernhoefer (Mo.1965), 389 S.W.2d 780.

However, a majority of courts have ruled that the fair and reasonable market value of a leasehold interest is the full amount of the difference between the fair market rental value of the leased premises for the unexpired term and the rent paid under the terms of the lease. Department of Public Works and Buildings v. Metropolitan Life Insurance Co. (1963), 42 Ill.App.2d App.2d 378, 192 N.E.2d 607, 613; In re Real Property in Borough of Manhattan (1963), 19 A.D.2d 520, 241, N.Y.S.2d 44, 49; State v. Parkey (Tex.Civ...