The Ohio Supreme Court recently issued decisions in three cases further clarifying the valuation of “leased fee sales” (property that is subject to an existing lease at the time of the sale).
The purchase price of a leased fee interest, particularly when the lease has a many years left, more accurately reflect the value of the cash flow that the lease will generate rather than the value of the underlying real estate. This is why real estate investors had for years sought changes to Ohio’s property valuation law (the legislature acted in 2013). Since then, the battle has been in the courts to determine how the changes would be implemented.
In recent years, the courts have given life to those changes in decisions ordering the board of tax appeals to disregard the sales in “sale leaseback transactions” and in these most recent cases, in ordering the Board of Tax Appeals to consider appraisal evidence of leased fee sales.
The Court issued decisions on that issue in three cases on May 6, 2019:
Store Master Funding VI, LLC v. Franklin County Board of Revision, 155 Ohio St.3d 253, 2018-Ohio-4301
Spirit Master Funding IX, LLC v. Cuyahoga County Board of Revision, 155 Ohio St.3d 254, 2018-Ohio-4302
Northland-4, LLC v. Franklin County Board of Revision, 155 Ohio St.3d 257, 2018-Ohio-4303
The Court also issued a decision regarding the exclusion of easement rights in determining the value “as if unencumbered.” The Court found that the express language of the statute, ordering that the value of real estate be determined “as if unencumbered” means that the value of an easement benefiting a parcel should be excluded when determining the value of that parcel. Worthington City Schools Bd. of Edn. V. Franklin County Board of Revision, 155 Ohio St.3d 187, 2018-Ohio-2909
The end result for all four of these cases points to a better opportunity for real estate investors to challenge the auditor’s adoption of the recent sale price of properties subject to leases or other encumbrances,
Learn more about Finney Law Firm’s Property Valuation practice here.