Ramblewood Associates v. City of Wyoming, Kent County, Docket Nos. 77-958

• Decision Date: 04 April 1978
• Docket Number: 77-959,Docket Nos. 77-958
• Citation: 266 N.W.2d 817,82 Mich.App. 342
• Parties: RAMBLEWOOD ASSOCIATES, Plaintiff-Appellant, v. CITY OF WYOMING, KENT COUNTY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 817

266 N.W.2d 817

82 Mich.App. 342

RAMBLEWOOD ASSOCIATES, Plaintiff-Appellant, v. CITY OF WYOMING, KENT COUNTY, Defendant-Appellee.

Docket Nos. 77-958, 77-959.

Court of Appeals of Michigan.

April 4, 1978.

Rehearing Denied May 22, 1978.

Released for Publication June 27, 1978.

Travis, Warren, Nayer & Burgoyne by Bert Burgoyne and David W. Berry, Detroit, for plaintiff-appellant.

Peter W. Steketee, Grand Rapids, for defendant-appellee.

Before KAUFMAN, P. J., and D. E. HOLBROOK, Jr., and WALSH, JJ.

WALSH, Judge.

Petitioner appeals from an order of the Michigan Tax Tribunal establishing the value of petitioner's apartment complex for the years 1974 through 1976. The case presents three questions:

(1) In determining value using the capitalization of income approach did the Tribunal err in capitalizing an income figure based on market rental rather than capitalizing actual income?

(2) Did the Tribunal err in failing to adjust its valuation to reflect the property's disadvantages of location?

(3) Did the Tribunal err in utilizing an appraisal based on average rent per square foot of alleged comparable property without proof of similarity of size of the comparable apartments?

For purposes of taxation property is to be assessed according to its true cash value. Const.1963, art. 9, § 3. The standard for determining "true cash value" is the usual selling price or fair market value of the property. Any method for determining true cash value which is recognized as accurate and reasonably related to fair market valuation is an acceptable indicator of true cash value. CAF Investment Co. v. State Tax Commission, 392 Mich. 442, 221 N.W.2d 588 (1974).

In the instant case the Tribunal determined that the actual rent charged by petitioner was below the market rental for comparable property. It therefore utilized an amount somewhat in excess of actual rent in its capitalization of income calculations in order to make what was, in its judgment, a more accurate determination of the fair market value of the property.

Petitioner, however, argues that M.C.L.A. § 211.27; M.S.A. § 7.27 ¹ requires that actual income must be the basis for calculating true cash value by the capitalization of income approach. As authority for its position, petitioner cites CAF Investment Co. v. State Tax Commission, supra, and CAF Investment Co. v. Saginaw Twp., 79 Mich.App. 559, 262 N.W.2d 863 (1977) (hereinafter CAF v. Saginaw ). Our reading of these cases leads us to a different conclusion.

The precise issue decided in CAF Investment Co. was described by the Supreme Court as follows:

"The principal question of jurisprudential significance on this appeal is whether, under Michigan law, the Tax Commission was entitled to consider and give weight to evidence of valuation based upon a rate of return which comparable, unencumbered property could earn in the present market place, in the face of an existing unfavorable long-term lease with an actual rate of return which is substantially less than the present 'going rate' ". CAF Investment Co. v. State Tax Commission, supra, 392 Mich. at 447, 221 N.W.2d at 591. (Emphasis added.)

The Court rejected the Tribunal's valuation in CAF Investment Co. because in view of the unfavorable long-term lease, the Tribunal's approach bore "insufficient relation to true cash value as defined by the Constitution and by statute". Id. at 454-55, 221 N.W.2d at 594. The requirement of using actual rental income, therefore, was limited to the facts of that case.

"It is only because in this case the record indicates that long term lease rental fairly reflects economic circumstances at the outset of the lease term and bears a demonstrable relation to true cash value that we require its consideration." Id. at 456, fn. 6, 221 N.W.2d at 595. (Emphasis added.)

In CAF v. Saginaw, this Court did nothing more than apply the "law of the case" doctrine and impose the aforementioned requirement in that case.

In the case at bar, petitioner's property is not subject to an unfavorable long-term lease. The apartments were rented for an initial lease of one year and thereafter on a month-to-month basis. The property was not so encumbered by those leases that a potential purchaser could not alter the rental structure if market conditions warranted. In this case, therefore, utilization of an adjusted rental figure in the capitalization of income process may have resulted in a more accurate determination of the "usual selling price" ² of the property.

Thus, although the Tribunal was required to consider actual rental ³ in determining true cash value, it was not precluded from making appropriate adjustments where, in its judgment, market rental in comparable properties or other relevant considerations made the capitalization of an adjusted income figure a more reliable indicator of true cash value. CAF...