Uniroyal, Inc. v. Middlebury Bd. of Tax Review

• Decision Date: 14 March 1978
• Citation: 174 Conn. 380,389 A.2d 734
• Parties: UNIROYAL, INC., et al. v. MIDDLEBURY BOARD OF TAX REVIEW.
• Court: Connecticut Supreme Court

Page 734

389 A.2d 734

174 Conn. 380

UNIROYAL, INC., et al. v. MIDDLEBURY BOARD OF TAX REVIEW.

Supreme Court of Connecticut.

Argued Oct. 12, 1977.

Decided March 14, 1978.

John W. Barnett, New Haven, with whom was Norman Fineberg, New Haven, for the appellants (plaintiffs).

Joseph Adinolfi, Jr., Hartford, with whom were Brian A. Barnes, Waterbury, and, on the brief, Donald W. O'Brien, New London, for the appellee (defendant).

Before HOUSE, C. J., and LOISELLE, BOGDANSKI, LONGO and SPEZIALE, JJ.

LOISELLE, Associate Justice.

The plaintiffs appealed to the Court of Common Pleas, pursuant to General Statutes § 12-118, from a refusal by the board of tax review of the town of Middlebury to reduce the assessor's valuation of land and buildings located within the town. The matter was referred to a state referee, who, exercising the powers of the Court of Common Pleas, determined that the plaintiffs were not aggrieved by the board of tax review's decision not to reduce the October 1, 1973 and October 1, 1974 assessments. The plaintiffs have appealed from that judgment.

In 1969, the plaintiff Uniroyal, Inc., hereinafter Uniroyal, entered into an agreement with the plaintiff Metropolitan Life Insurance Company, hereinafter Metropolitan, whereby Uniroyal conveyed to Metropolitan land in the town of Middlebury on which Metropolitan was to finance the construction of a corporate headquarters and research facility for Uniroyal. ¹ Under the terms of the agreement, while construction was in progress, Uniroyal was to pay Metropolitan an annual rent in a sum equal to 9 percent of the amount advanced for the construction of the headquarters. Whenever Metropolitan made an advance of funds, the parties, pursuant to the lease, entered into a separate amendment to the lease to establish interim rent. Upon completion of the project and in accordance with the original agreement, Uniroyal began to pay an annual rent equal to 9.2 percent of the total cost of the project. A final amendment to the lease recites that the total cost to Metropolitan was $42,500,000, on which the final rent established was $3,910,000 per year. The twenty-eight-year lease, commenced on December 1, 1972, gave Uniroyal the privilege of renewing the lease for two successive ten-year terms at a reduced rental.

Prior to establishing the assessed valuation of the Uniroyal complex on the grand list of October 1, 1973, the Middlebury board of assessors sought the advice of Robert J. Flanagan, a real estate appraiser. Employing the income approach, Mr. Flanagan found the full valuation of the Uniroyal complex to be $24,809,000 as of October 1, 1971. The board of assessors rejected this report, determining the value to be $39,100,000 as of October 1, 1973. Representatives of Uniroyal and the board of assessors met and thereafter, on January 30, 1974, the assessors reduced their valuation for the grand list of October 1, 1973, to $32,959,760. When the board of tax review refused to reduce the valuation further as requested by Uniroyal, an appeal was taken to the Court of Common Pleas. Subsequently the plaintiffs amended their appeal to include the assessed valuation on the grand list of October 1, 1974. The $32,959,760 assessment made for both years was predicated on a valuation of the land at $517,100 and the buildings at $32,442,660.

The matter was referred to a state referee and a full hearing was held. Each side in the dispute offered the expert testimony of an appraiser whose qualifications were conceded by the opposing party. Due to the lack of sales data on similar properties, neither appraiser developed the market data approach in determining the fair market value of the complex.

The plaintiffs' appraiser utilized an income approach in determining the property's value. His approach was developed on the basis of his analysis and adjustment of rent received for office space in New Haven and Bridgeport, and office-industrial-research space in New Haven, West Haven, Norwalk, Stamford, Stratford and Hamden. His comparative analysis led to a determination that the earning or income-producing capacity, sometimes referred to as economic rent, of the Uniroyal complex property was $2,118,508 per year. Using an overall capitalization rate of 9.35 percent as of October 1, 1973, and a rate of 9.7 percent as of October 1, 1974, he determined that the value of the appraised property as of October 1, 1973, and October 1, 1974, was $22,658,000. Of this amount, $517,000 was allocated for land, while the remainder represented the value of the buildings and other real improvements.

The defendant's appraiser developed both the income capitalization and the cost approach in determining the property's value. The cost approach involved a study of the individual costs of each building on the site, with a subvaluation for the land derived from a market data approach. The income approach involved not a comparative analysis of comparable rents, but a detailed analysis of the relationship between the income received and the cost of comparable real estate investments by insurance companies on an international and national market. The defendant's appraiser took this approach since the complex property was of such magnitude that it would be the subject of an investment purchase by large investors similar to Metropolitan. His analysis also included a study of the marketability of the subject property, comparing property in a range of sizes and types. On the basis of his total analysis, he determined that the value of the complex could be determined by capitalizing the annual rent, using for 1973 a capitalization rate of 10 percent and for 1974 a rate of 9.3 percent. Applying these rates to the annual rent of $3,910,000, minus the $86,375.68 of rent allocable to items of personal property, the market value was determined to be $38,236,243.20 as of October 1, 1973, and $41,114,236 as of October 1, 1974.

After hearing all the evidence and viewing the premises, the court, explicitly rejecting as invalid the method adopted by the plaintiffs' appraiser, concluded that the method utilized by the defendant's expert was proper. The plaintiffs, on appeal to this court, claim that the court's conclusion that the contract rent was equivalent to economic rent is without basis in the record. It is the plaintiffs' contention that the contract rent contained in the lease between Uniroyal and Metropolitan reflects payment for use of the money advanced by Metropolitan rather than payment for use of the property and that, consequently, it bears no relationship to the value of the property and cannot be capitalized to reach a determination of the property's market value.

General Statutes § 12-64 provides that all non-exempt real estate " shall be liable to taxation at a uniform percentage of its present true and actual valuation . . . to be determined by the assessors." The terms "true and actual value" are defined in § 12-63 to mean "the fair market value thereof and not its value at a forced or auction sale." Fair market value is generally best ascertained by reference to market sales. New Haven Water Co. v. Board of Tax Review, 166 Conn. 232, 236, 348 A.2d 641; Federated Department Stores, Inc. v. Board of Tax Review, 162 Conn. 77, 87, 291 A.2d 715; Sibley v. Middlefield, 143 Conn. 100, 107, 120 A.2d 77. Where this method is unavailable, however, other means are to be found by which to determine value. Underwood Typewriter Co. v. Hartford, 99 Conn. 329, 337, 122 A. 91. A variety of such alternative methods for calculation of "true and actual value" have been approved by this court: use of the cost of reproduction with an adjustment for depreciation; Connecticut Light & Power Co. v. Monroe, 149 Conn. 450, 452, 181 A.2d 118; use of the original property cost less depreciation; Bridgeport Gas Co. v. Stratford, 153 Conn. 333, 335, 216 A.2d 439; Bridgeport Hydraulic Co. v. Stratford, 139 Conn. 388, 393, 94 A.2d 1; and the capitalization of actual income approach; Somers v. Meriden, 119 Conn. 5, 7-8, 174 A. 184. "As a rule, however, '(n)o one method is controlling; consideration should be given to them all, if they have been utilized, in arriving at the value of the property.' Sibley v. Middlefield, supra, 143 Conn. 107, 120 A.2d 77." New Haven Water Co. v. Board of Tax Review, supra, 166 Conn. 237, 348 A.2d 643.

In the present case, the parties agree that the paucity of sales of property similar to the Uniroyal complex renders the market data approach inadequate. Rather, both parties rely on a valuation derived from the use of an income-capitalization method, but the approaches taken by each of the two expert appraisers differ significantly. The plaintiffs' expert sought to determine the property's economic rent, or, as the court defined it, "the earning or income-producing capacity of the property as distinguished from actual earnings," on the basis of an analysis of rents received for the use of other Connecticut properties, with adjustments made for variations in size, location, and so on. The court explicitly rejected that particular approach of the plaintiffs' expert. The court found that the comparisons made, even with the adjustments, were invalid in that the comparative property was not adequately similar to the property in question. The court further found that his adjustments involved consideration of functional obsolescence in the Uniroyal complex, while the court found no such obsolescence. Finally, the court found that...