Town of Sanford v. J & N Sanford Trust

• Decision Date: 06 May 1997
• Citation: Town of Sanford v. J & N Sanford Trust, 694 A.2d 456, 1997 ME 97 (Me. 1997)
• Parties: TOWN OF SANFORD v. J & N SANFORD TRUST.
• Court: Maine Supreme Court

Page 456

694 A.2d 456

1997 ME 97

TOWN OF SANFORD v. J & N SANFORD TRUST.

Supreme Judicial Court of Maine.

Argued March 3, 1997.

Decided May 6, 1997.

Sally J. Daggett (orally) and William H. Dale, Jensen, Baird, Gardner & Henry, Portland, for plaintiff.

David P. Silk (orally), Curtis Thaxter Stevens Broder & Micoleau, Portland, for defendant.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, RUDMAN and DANA, JJ.

DANA, Justice.

¶1 The Town of Sanford appeals from the judgment of the Superior Court (York County, Saufley, J.) affirming the decision of the State Board of Property Tax Review. The Town contends that the Board erred as a matter of law in using the "lease fee value" of a shopping center to determine the appropriate amount of a property tax abatement. We agree and vacate the judgment.

¶2 The J & N Sanford Trust owns the King's Plaza shopping center on South Main Street in Sanford. The center, built in the 1960s, sits on an eleven-acre parcel of land and has approximately 10 rental units within its one-story building. Because of the shopping center's dated architectural style, low energy efficiency, and particular floor layout, it suffers from substantial functional obsolescence.

¶3 In April 1992 the Town assessed the value of the shopping center at $2,772,800 for property tax purposes. The Assessor denied the Trust's request for an abatement and the Trust appealed to the Town's Board of Assessment Review. When the Town Board denied the Trust's appeal, the Trust appealed to the State Board of Property Tax Review. At a hearing in July 1995 the Trust presented the testimony of Norman Gosline, a certified real estate appraiser, who provided two different figures for the value of the property: the "lease fee value" of $1.3 million ¹ and the "fee simple value" of $1.7 million. According to Gosline, the lease fee value is determined by capitalizing the income produced by the actual leases on the property, while the fee simple value is determined by capitalizing the income that would be produced by market rents. The Trust's leases were below market rents so the lease fee value was lower than the fee simple value.

¶4 John Gendron, a real estate broker who had worked with the owners of the King's Plaza in the past, testified that he advertised the Plaza for sale in 1991 for $1.4 million and that he received one offer of $900,000.

¶5 Laurence Dolby, the assessor for the Town of Sanford, testified that he arrived at his 1992 assessment of $2,772,800 by using valuation data from 1987 and 1989 with an adjustment for annual depreciation. Dolby did not consider the recent income of the property when assessing the property's value in 1992 but used income information from the property's valuation in 1987. Dolby testified that he did not know if the $2,772,800 assessment represented the market value of the property.

¶6 The Board concluded the Town's assessment was manifestly wrong. The Board then went on to determine the appropriate value of the property on which to base its abatement and discussed the difference between the $1.3 million lease fee value and the $1.7 million fee simple value. The Board's written decision states:

[The Trust] presented evidence of value from both the income and market approaches which differs drastically from the assessment. On the other hand, the Town failed to consider the income approach to value. The Town presented no evidence of fair market value and, in fact, declined to assert that its assessment represented fair market value.

The Board notes that the comparables used by [the Trust], whether distress sales or not, are an indication of the market. The Board notes further that [the Trust's] lease fee fair market value is reasonable.

Therefore, ... the Board ... hereby grants an abatement to an assessed value of $1,300,000, which represents the leased fee value proposed by [the Trust], after correction for the capitalization rate.

¶7 The Town sought review of the Board's decision in the Superior Court pursuant to 5 M.R.S.A. §§ 11001-11008 (1989) and M.R.Civ.P. 80C, asserting that the Board erred in using the lease fee value to determine the just value of the King's Plaza property. The court affirmed the Board's decision, concluding that although the valuation could not properly be based on the lease fee value alone, the Board did not err because it used the lease fee value along with other factors to determine the property's fair market value.

I.

¶8 The Town contends the Board's written decision and oral deliberations establish that it relied solely on Gosline's lease fee value to determine the fair market value of the property. We agree.

¶9 When "the Superior Court acts in its appellate capacity, we review directly the decision of the Board for abuse of its discretion, error of law or findings unsupported by substantial evidence in the record." IBM Credit Corp. v. City of Bath, 665 A.2d 663, 664 (Me.1995) (citations omitted); 5 M.R.S.A. §§ 11007-11008 (1989) (setting forth manner and scope of judicial review).

¶10 The Board's oral deliberations and its written decision establish that the Board used Gosline's lease fee value as the sole measure of the fair market value of the property. First, the Board's written decision states that the abatement based on the value of $1.3 million "represents the lease fee value proposed by [the Trust]." Second, the record of the Board's oral deliberations reflects that the Board members understood the distinction between the lease fee value and the fee simple value and that they chose to use the lease fee value of $1.3 million because they believed it better represented what a willing buyer would pay a willing seller for the property. For example, one member, in response to a question about whether the Board should use the $1.3 million or $1.7 million value, stated:

[I]f anybody's going to buy that property, they want to make sure that they can make the payments and make some, earn some money. They're going to look at the lower figure, they'd have to. I mean who's going to buy it for two million, or a million-seven, or two million-seven? I mean, if they're going to lose money, I mean, I think the income approach is very clear in this case. I think the income approach has to be used.

Later, the chairman opined:

If we had a piece of property that had these incredibly above-market, advantageous leases, would we be looking at those in determining fair market value? It would in effect increase its value because it was subject to these long-term very favorable leases or above market leases. I suppose we would.

¶11 Contrary to the Trust's argument, it does not appear that the Board took into consideration any factors or figures other than the lease fee value provided by the appraiser when it determined the property's fair market value. Although the Board's decision mentions unfavorable leases, the opening of a nearby Walmart, and generally depressed market conditions, the Board cites to these factors when it sets forth the Trust's arguments, not as the basis for its decision. Furthermore, these factors were included in the appraiser's analysis of both the lease fee value and the fee simple value, and the Board's mention of them therefore does not indicate that it considered the lease fee value as one factor among many others to determine the value of the property. Rather, the Board used the lease fee value by itself as a measure of fair market value.

II.

¶12 The Town contends that the Board erred as a matter of law by using the lease fee value to determine the just value of King's Plaza because use of the lease fee value violates the requirement in Maine's Constitution that all real property taxes be apportioned and assessed equally. ² We agree.

¶13 Article 9, section 8 of the Maine Constitution requires that "[a]ll taxes upon real and personal estate ... shall be apportioned and assessed equally, according to the just value thereof." We have held that "just value" is synonymous with true or market value. Frank v. Assessors of Skowhegan, 329 A.2d 167, 173 (Me.1974) (citation omitted). ³ Market value "has been judicially equated with that price a willing buyer would pay a willing seller at a fair public sale." Id. In addition, the

assessment must further represent the owner's equal portion of the burden of taxation, and if the assessors have not appraised at full true value but only at a fixed percentage of true value, then such treatment must be uniform and equal on all real estate and tangible property, so much so that if both cannot be obtained, then equality must prevail.

Kittery Electric Light Co. v. Assessors of Town of Kittery, 219 A.2d 728, 734 (Me.1966) (citation omitted).

¶14 We afford "the local assessors considerable leeway in choosing the method or combinations of methods to achieve just valuations." Shawmut Inn v. Town of Kennebunkport, 428 A.2d 384, 390 (Me.1981). When a party challenges the Board's valuation on which the Board grants an abatement, the party "must establish that the method or methods used [in] arriving at the ultimate valuation do not pass constitutional and statutory muster." Id. at 393 (footnote omitted). "[A]n inherently discriminatory method of valuation cannot produce a just result, even though it is possible that in valuing the property by a proper method, the assessors may by chance arrive at the same result...." Id. at 393 n. 8 (citing Farrelly v. Inhabitants of the Town of Deer Isle, 407 A.2d 302 (1979)). When an appraisal method necessarily has a potential for unequal apportionment, it is an error of law for the assessors to use that approach. Farrelly, 407 A.2d at 306. See also Moser v. Town of Phippsburg, 553 A.2d 1249, 1250 (Me.1989) (when taxpayers show that assessor's system necessarily will result in unequal apportionment they do not have to show that property is substantially overvalued in order to obtain abatement).

¶15 We have never squarely addressed whether the lease...