Case Title: Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision

Citation: 2005-Ohio-4979

Docket Number: 20032168

State: ohio

Court: Ohio Supreme Court

Date: 2005-10-05T00:00:00Z

Document:
[Cite as Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 
269, 2005-Ohio-4979.] 
 
 
BEREA CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLEE;  
MANLAW INVESTMENT COMPANY, LTD., APPELLANT, v. CUYAHOGA COUNTY 
BOARD OF REVISION ET AL., APPELLEES. 
[Cite as Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 
106 Ohio St.3d 269, 2005-Ohio-4979.] 
Real-property taxation — Appraisal — R.C. 5713.03 — Price of recent arm’s-
length sale to be considered true value — Long-term lease at rate 
unfavorable to owner — Ratner v. Stark Cty. Bd. of Revision overruled. 
(No. 2003-2168 — Submitted May 10, 2005 — Decided October 5, 2005.) 
APPEAL from the Board of Tax Appeals, 
Nos. 2003-J-143, 2003-J-144, and 2003-J-1150. 
__________________ 
 
O’DONNELL, J. 
{¶ 1} The principal issue presented to this court concerns the proper 
method for determining the taxable value of a 10.719-acre parcel of property 
located at 17840 and 18000 Bagley Road in Middleburg Heights, a suburb of 
Cleveland, Ohio. 
{¶ 2} The property at issue contains two buildings: one, constructed in 
1968 or 1969, contains approximately 113,000 square feet and houses a Kmart 
store and an in-line store; the other, constructed in 1986, is a separately standing 
3,454-square-foot Burger King restaurant. 
{¶ 3} Further, the parcel is subject to two long-term leases.  The first of 
these, entered into on August 9, 1967, between the original owner and the Kmart 
Corporation for an initial term ending in 1992, offered Kmart the option of 
extending the lease for three additional five-year periods to May 1, 2007.  
Kmart’s annual base rent is $205,806, or $1.82 per square foot, plus an overage 
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rent of one percent of the gross sales.  The second, entered into on July 1, 1985, 
between Kmart and a Burger King franchisee, offers Burger King the option of 
extending the sublease for four additional five-year periods to June 20, 2025. 
{¶ 4} The record here reflects and the parties agree that in March 1996, 
Manlaw Investment Company, Ltd. (“Manlaw”) purchased the property, 
encumbered by the two leases, for $2,600,000.  After the Cuyahoga County 
Auditor valued the property at the $2,600,000 sale price for tax year 1997, the 
Berea City School District Board of Education (“BOE”) filed a complaint with the 
Cuyahoga County Board of Revision (“BOR”) seeking to increase that valuation 
to $5,500,000 based on its contention that the existing leases on the property do 
not reflect current economic rental potential because they were entered into in 
1967 and 1985 respectively.  In response, Manlaw filed a countercomplaint 
requesting the BOR to maintain the auditor’s initial valuation based on the sale 
price of the property.  After its review, the BOR increased the property valuation 
to $4,200,000, and both the BOE and Manlaw appealed that determination to the 
Board of Tax Appeals (“BTA”). 
{¶ 5} At a hearing before the BTA, Manlaw offered testimony from its 
appraiser, Robert J. Weiler, who valued the property at $2,130,000 based on the 
actual rent paid by Kmart; in contrast, the BOE presented its appraiser, Richard G. 
Racek, who valued the property at $4,800,000 using economic or market rent as 
the basis for his appraisal.  Relying on Alliance Towers, Ltd. v. Stark Cty. Bd. of 
Revision (1988), 37 Ohio St.3d 16, 523 N.E.2d 826, the BTA concluded that the 
property must be valued as a fee-simple estate unencumbered by the Kmart and 
Burger King leases.  As a result, the BTA rejected Manlaw’s actual-rent approach 
and valued the property at $4,800,000 based primarily on the BOE’s calculation 
of the fair-market rental rate for comparable Cleveland-area properties. 
{¶ 6} Manlaw then appealed to this court, asserting that the recent arm’s-
length sale between a willing seller and a willing buyer, i.e., the 1996 sale for 
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3 
$2,600,000, constituted the true value of the property.  Further, it claimed that the 
BTA should not have relied on Alliance Towers and that the actual rent—rather 
than the economic rent—should be the proper indicator of the property’s true 
value.  Conversely, the BOE contends that a recent arm’s-length sale is not 
conclusive evidence of the true value of the property, arguing that Alliance 
Towers demonstrates that the property should be valued as if it were 
unencumbered and further asserting that because the leases on the property do not 
reflect fair market value, the economic rent, rather than the actual rent, should be 
used to calculate the property’s true value. 
{¶ 7} We begin our analysis by reviewing R.C. 5713.03, which provides: 
{¶ 8} “In determining the true value of any tract, lot, or parcel of real 
estate under this section, if such tract, lot, or parcel has been the subject of an 
arm’s length sale between a willing seller and a willing buyer within a reasonable 
length of time, either before or after the tax lien date, the auditor shall consider 
the sale price of such tract, lot, or parcel to be the true value for taxation 
purposes.”  (Emphasis added.) 
{¶ 9} In State ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1964), 175 
Ohio St. 410, 412, 25 O.O.2d 432, 195 N.E.2d 908, we concluded: “The best 
method of determining value, when such information is available, is an actual sale 
of such property between one who is willing to sell but not compelled to do so 
and one who is willing to buy but not compelled to do so.  This, without question, 
will usually determine the monetary value of the property.”  (Citation omitted.)  
See, also, Conalco Inc. v. Monroe Cty. Bd. of Revision (1977), 50 Ohio St.2d 129, 
4 O.O.3d 309, 363 N.E.2d 722, paragraph one of the syllabus, in which this court 
held: “The best evidence of the ‘true value in money’ of real property is an actual, 
recent sale of the property in an arm’s-length transaction.” 
{¶ 10} For more than 20 years, the law in this area had been well settled: a 
recent arm’s-length sale of property evidenced its true value.  However, in Ratner 
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v. Stark Cty. Bd. of Revision (1986), 23 Ohio St.3d 59, 61, 23 OBR 192, 491 
N.E.2d 680 (Ratner I), this court changed that bright-line rule, concluding: 
“Although the sale price is the ‘best evidence’ of true value of real property for 
tax purposes, it is not the only evidence.  A review of independent appraisals 
evaluating the cash equivalency of the sale price is appropriate where it is shown 
that the sale price does not reflect the true value.” 
{¶ 11} In Ratner I, the property at issue, the Mellett Mall shopping center 
in Canton, Ohio, sold for $12,540,500.  Payment consisted of $500,000 cash, a 
$6,000,000 note and assumption of $6,040,500 in debt.  At the time, the Stark 
County Auditor valued the property at $15,899,710.  Although the BTA adjusted 
the taxable value of the property to $12,530,000, the owner appealed, claiming 
that it had paid a considerably lesser cash consideration.  This court reversed and 
held: “In determining true value for property, the board of revision and the BTA 
must at least consider and review evidence presented by independent real estate 
appraisers that adjusts the contract sale price to reflect both the price paid for real 
estate and the price paid for favorable financing.”  Ratner I, 23 Ohio St.3d at 62, 
23 OBR 192, 491 N.E.2d 680. 
{¶ 12} Ratner I and its follow-up case, Ratner v. Stark Cty. Bd. of 
Revision (1988), 35 Ohio St.3d 26, 517 N.E.2d 915 (“Ratner II”), disregard both 
the plain language of R.C. 5713.03 and this court’s precedent of “ ‘consistently 
adher[ing] to the rule that “[t]he best evidence of the ‘true value in money’ of real 
property is an actual, recent sale of the property in an arm’s-length transaction.” ’ 
”  Ratner II, 35 Ohio St.3d at 30, 517 N.E.2d 915 (Locher, J., dissenting), quoting 
Columbus Bd. of Edn. v. Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 
219, 9 OBR 528, 459 N.E.2d 894, quoting Conalco, 50 Ohio St.2d 129, 4 O.O.3d 
309, 363 N.E.2d 722, paragraph one of the syllabus. 
{¶ 13} In accordance with the plain language of R.C. 5713.03 and our 
decision in Fountain Square, today we overrule Ratner I and Ratner II to the 
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extent that they direct the board of revision and the BTA to “consider and review 
evidence presented by independent real estate appraisers that adjusts the contract 
sale price to reflect both the price paid for real estate and the price paid for 
favorable financing,” Ratner I, 23 Ohio St.3d at 62, 23 OBR 192, 491 N.E.2d 680, 
and hold that when the property has been the subject of a recent arm’s-length sale 
between a willing seller and a willing buyer, the sale price of the property shall be 
“the true value for taxation purposes.”  R.C. 5713.03.  Accordingly, because the 
property at issue in this case had been recently sold in an arm’s-length transaction 
for $2,600,000, the law requires that sale price to be the true value of that property 
for the tax year 1997. 
{¶ 14} While we recognize that several of our decisions have permitted 
the BTA to consider market rental value of commercial real property as an 
indicator of the true value of the property, none of those cases involved a recent 
arm’s-length sale of the property between a willing seller and a willing buyer.  
For instance, in Wynwood Apts., Inc. v. Cuyahoga Cty. Bd. of Revision (1979), 59 
Ohio St.2d 34, 35, 13 O.O.3d 19, 391 N.E.2d 346, this court noted that “[t]here 
was no recent arm’s-length transfer of the property to serve as ‘best evidence’ of 
the true value in money which the board must rely upon under R.C. 5717.03 and 
the case law of this court.”  See, also, Alliance Towers, 37 Ohio St.3d 16, 523 
N.E.2d 826; and Canton Towers, Ltd. v. Stark Cty. Bd. of Revision (1983), 3 Ohio 
St.3d 4, 3 OBR 302, 444 N.E.2d 1027, each approving the use of “economic 
rental value of commercial real property as an indicium of value for ad valorem 
real property taxation purposes” where the property had not been sold in a recent 
arm’s-length transaction between willing parties.  Alliance Towers, 37 Ohio St.3d 
at 22, 523 N.E.2d 826. 
{¶ 15} Consequently, Wynwood Apts. and similar cases addressing 
whether market rent or actual rent should be used in a property appraisal do not 
apply to situations in which the property has been recently sold in an arm’s-length 
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transaction.  Indeed, as this court has often observed, “[a]ppraisals based upon 
factors other than sales price are appropriate for use in determining value only 
when no arm’s-length sale has taken place, or where it is shown that the sales 
price is not reflective of the true value.”  (Emphasis added; citations omitted.)  
Columbus Bd. of Edn. v. Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 
219, 9 OBR 528, 459 N.E.2d 894.  See, also, N. Olmsted Bd. of Edn. v. Cuyahoga 
Cty. Bd. of Revision (1990), 54 Ohio St.3d 98, 561 N.E.2d 915, in which we held 
that “[i]n the absence of evidence of a recent arm’s-length sale between a willing 
buyer under no compulsion to buy and a willing seller under no compulsion to 
sell, the testimony of expert witnesses becomes necessary”; and Dublin Senior 
Community Ltd. Partnership v. Franklin Cty. Bd. of Revision (1997), 80 Ohio 
St.3d 455, 459, 687 N.E.2d 426, in which we held that “when an actual sale is not 
available, ‘an appraisal becomes necessary,’ ” quoting Park Invest. Co., 175 Ohio 
St. at 412, 25 O.O.2d 432, 195 N.E.2d 908. 
{¶ 16} Since the property at issue here had been sold in a recent arm’s-
length transaction, we do not need to determine whether actual rent or market rent 
should have been used in the property appraisal.  Accordingly, the decision of the 
BTA is reversed, and the matter is remanded to the BTA for further proceedings 
consistent with this opinion and our instruction that pursuant to R.C. 5713.03, the 
sale price in a recent arm’s-length transaction between a willing seller and a 
willing buyer shall be considered the true value of the property for taxation 
purposes. 
Decision reversed 
and cause remanded. 
 
RESNICK, LUNDBERG STRATTON, O’CONNOR and LANZINGER, JJ., concur. 
 
MOYER, C.J., and PFEIFER, J., concur in judgment only. 
__________________ 
 
 
January Term, 2005 
7 
PFEIFER, J., concurring in judgment only. 
{¶ 17} “Although the sale price is the ‘best evidence’ of true value of real 
property for tax purposes, it is not the only evidence.  A review of independent 
appraisals based upon factors other than the sale price is appropriate where it is 
shown that the sale price does not reflect true value. (Columbus Bd. of Edn. v. 
Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 219 [9 OBR 528, 459 
N.E.2d 894], construed.)”  Ratner v. Stark Cty. Bd. of Revision (1986), 23 Ohio 
St.3d 59, 23 OBR 192, 491 N.E.2d 680, syllabus. 
{¶ 18} This standard has prevailed for almost 20 years.  It is reasonable 
and should not be overturned lightly.  Ratner confirmed that a recent sale is the 
best evidence of value.  See R.C. 5713.03.  That conclusion is reasonable, but it 
ought not to be etched in stone, because many factors can affect the price a buyer 
is willing to pay.  See R.C. 5715.01.  The second part of the Ratner standard 
sensibly recognizes this unremarkable fact by requiring an independent appraisal 
to establish a valuation different from a recent sales price. 
{¶ 19} Quite simply, there is no reason to overturn Ratner or to embrace 
unnecessarily rigid rules to govern valuation.  As I wrote in Dublin-Sawmill 
Properties v. Franklin Cty. Bd. of Revision (1993), 67 Ohio St.3d 575, 578, 621 
N.E.2d 693 (Pfeifer, J., dissenting), “[b]lind reliance on purchase price to 
determine fair market value of real estate is simplistic and naïve.”  Further, strict 
adherence to the standard advanced in the majority opinion might invite the 
unscrupulous to attempt to lessen their tax burden with sham transactions. 
{¶ 20} I am not unmindful of R.C. 5713.03, on which the majority 
opinion so heavily relies.  That provision, however, is not the only one in the 
Revised Code that addresses real estate valuation.  R.C. 5715.01 states, “The tax 
commissioner shall direct and supervise the assessment for taxation of all real 
property.  The commissioner shall adopt, prescribe, and promulgate rules for the 
determination of true value and taxable value of real property * * * . * * * The 
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rules shall provide that in determining the true value of lands or improvements 
thereon for tax purposes, all facts and circumstances relating to the value of the 
property, its availability for the purposes for which it is constructed or being used, 
its obsolete character, if any, the income capacity of the property, if any, and any 
other factor that tends to prove its true value shall be used.”  The Ratner standard 
reasonably balances the rigid approach of R.C. 5713.03 with the more nuanced 
approach of R.C. 5715.01.  Ratner should not be overruled. 
{¶ 21} Despite my disagreement with the majority opinion, I concur in 
judgment because the recent sale provides the best evidence of true value in this 
case. 
 
MOYER, C.J., concurs in the foregoing opinion. 
_________________ 
 
Kadish, Hinkel & Weibel and Kevin M. Hinkel, for appellee Berea City 
School District Board of Education.  
 
Siegel, Siegel, Johnson & Jennings Co., L.P.A., Fred Siegel, and Annrita 
S. Johnson, for appellant. 
______________________