Title: Rhodes v. Hamilton Cty. Bd. of Revision

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Rhodes v. Hamilton Cty. Bd. of Revision, 117 Ohio St.3d 532, 2008-Ohio-1595.] 
 
 
 
RHODES, AUD., APPELLEE, v. HAMILTON COUNTY BOARD OF REVISION ET AL., 
APPELLEES; MA RICHTER VILLA LTD. ET AL., APPELLANTS. 
[Cite as Rhodes v. Hamilton Cty. Bd. of Revision,  
117 Ohio St.3d 532, 2008-Ohio-1595.] 
Taxation — Real property — Valuation — R.C. 5713.03 — Recent, arm’s-length 
sale between willing buyer and willing seller establishes true value of real 
property. 
(No. 2007-0615 — Submitted February 5, 2008 — Decided April 9, 2008.) 
APPEAL from the Board of Tax Appeals, No. 2005-M-1098. 
__________________ 
 
O’DONNELL, J. 
{¶ 1} MA Richter Villa Ltd. and Vigran Brothers Villa Ltd. (collectively, 
“MA Richter”) appeal from a decision of the Board of Tax Appeals (“BTA”) that 
reversed the Hamilton County Board of Revision’s decision to reduce the value of 
property owned by MA Richter for purposes of real estate taxation for the 2004 
tax year pursuant to R.C. 5713.03.  The issue before this court concerns whether 
the BTA reasonably and lawfully determined that the true value of this property is 
$4,375,000, the amount MA Richter paid for it in April 2003, or whether the 
value of that property should be reduced on the basis of other appraisal methods.  
In conformity with our decision in Berea City School Dist. Bd. of Edn. v. 
Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 
782, we conclude that the recent, arm’s-length sale between a willing buyer and a 
willing seller establishes the true value of the property in accordance with R.C. 
5713.03, and thus we affirm the decision of the BTA. 
{¶ 2} In April 2003, MA Richter paid $4,375,000 for a 14,649-square-
foot building, which is leased to Walgreens for the operation of a drugstore 
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pursuant to a long-term lease.  The county auditor utilized this purchase price as 
the true value of the property for the 2004 tax year.  MA Richter filed a complaint 
with the Hamilton County Board of Revision (“BOR”) seeking a reduction in the 
tax value of that property on the basis of an appraisal that considered the value of 
the long-term lease as an indicator of market value.  The BOR agreed and reduced 
the value of the property to $1,950,000.  The county auditor appealed that 
decision to the BTA, which reversed the reduction and found that the sale price 
reflected the property’s true value as of January 1, 2004, pursuant to our holding 
in Berea, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782.  MA Richter has 
now appealed to this court, contending that Berea does not apply to the facts and 
circumstances presented here. 
{¶ 3} MA Richter advances three principal arguments in support of 
reversal.  First, MA Richter generally contends that Berea does not apply here 
because the property in this case is encumbered by a long-term lease to 
Walgreens.  That position is not well taken.  In Berea, where long-term leases 
also encumbered the property, we held 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.’ ”  Id., 
106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782, ¶ 13, quoting R.C. 
5713.03.  Although Berea involved an encumbrance of a lease for “below market” 
rent and this case involves “above market” rent, this is a distinction without legal 
significance.  Just as the recent, arm’s-length sale price in Berea constituted the 
true value of the property, despite the existence of the long-term leases, the sale 
price here also reflects the true value of the property. 
{¶ 4} Second, MA Richter argues that the sale price does not reflect the 
value of the “fee simple,” because the law requires a fee interest to be valued as 
though the lease did not exist.  In Berea, however, the existence of the long-term 
leases did not prevent the use of the sale price to determine the property’s value.  
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3 
Moreover, we recently rejected this argument in Cummins Property Servs., L.L.C. 
v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d 516, 2008-Ohio-1473, ___ 
N.E.2d ___.  There, the school board argued that because the deed restricted the 
use of the subject property, the sale price did not accurately reflect the value of 
the entire “fee simple.”   We held that the existence of the encumbrance did not 
prevent the recent, arm’s-length sale price from constituting the true value of the 
property for tax purposes.  Thus, we decline to adjust the sale price paid by MA 
Richter on the basis of the long-term lease held by Walgreens. 
{¶ 5} Finally, MA Richter contends that the sale price does not establish 
the value of the real property because it reflects not only the value of the 
underlying realty, but also the value of the Walgreens business.  In St. Bernard 
Self-Storage, L.L.C. v. Hamilton Cty. Bd. of Revision, 115 Ohio St.3d 365, 2007-
Ohio-5249, 875 N.E.2d 85, ¶ 14, after the owner claimed that almost half of the 
recent sale price of the property was attributable to goodwill, we held that an 
owner’s allocation of sale price to an intangible business asset as opposed to the 
underlying real property imposed a burden on the owner to prove the propriety of 
the allocation.  In the present case, MA Richter offered the testimony and 
appraisal of its expert, Robin Lorms, who expressed the view that the rent charged 
under the Walgreens lease exceeded “market rent.”  Although the record does not 
contain a copy of the lease, Lorms’s appraisal stated that the rent is $26 per square 
foot but that market rent for the property was only $10 per square foot.  In 
Lorms’s opinion, the sale price reflected the high rent and the creditworthiness of 
Walgreens as a long-term tenant — sources of value that Lorms opined should not 
constitute part of the value of the fee simple. 
{¶ 6} Lorms’s testimony, however, does not establish the existence of a 
separate “business value” component of the sale price.  Quite simply, the record 
demonstrates that in April 2003, MA Richter paid $4,375,000 for a fee simple 
interest in the property.  Thus, it acquired all component rights of that interest, 
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including the rights of the lessor and the right to collect payments from Walgreens 
under the long-term lease.  Although the lessee’s business may affect the value of 
the fee simple interest, MA Richter did not purchase any interest in the lessee’s 
business. 
{¶ 7} In support of its “business value” argument, MA Richter cites 
Higbee Co. v. Cuyahoga Cty. Bd. of Revision, 107 Ohio St.3d 325, 2006-Ohio-2, 
839 N.E.2d 385, in which a department store offered an appraisal that calculated 
“external obsolescence” of its property based on the store’s sales experience.  We 
rejected reliance on the store’s actual sales experience because that calculation 
reflected “non-real-estate factors, such as management and advertising,” id. at ¶ 
42, thereby shifting the focus to the actual business currently conducted on the 
site and away from the relevant determination of “what a willing buyer would pay 
a willing seller” for the subject property.  Id. at ¶ 43-44. 
{¶ 8} Higbee, however, is inapposite.  Unlike the property owner in that 
case, MA Richter does not operate the drugstore business conducted on the 
property and does not seek to utilize the sales experience of the drugstore to 
establish the value of the property.  In stark contrast, this case involves the actual 
price MA Richter paid to own the property and to receive the rent that Walgreens 
pays pursuant to the lease. 
{¶ 9} MA Richter’s remaining arguments are likewise without merit.  
We reject the suggestion that using the sale price to determine value constitutes a 
determination of value-in-use of the property as opposed to exchange value.  By 
definition, the sale of the property to MA Richter for consideration was an 
“exchange,” and the sale price constituted an “exchange value” of the property.  
We also reject the assertion that the sale price exceeds the value of the property to 
the extent that it surpasses what the buyer would have to pay in order to construct 
functionally similar improvements elsewhere.  The “principle of substitution” that 
MA Richter relies on may be useful for purposes of appraisal but has no 
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5 
application when a recent arm’s-length sale price between a willing buyer and 
seller demonstrates the true value of the property. 
{¶ 10} Finally, we reject MA Richter’s contention that the type of 
financial arrangement Walgreens entered into with the developer of the property 
(a long-term lease in lieu of a mortgage) removes this case from the realm of 
Berea.  There is nothing in the record before us from which to conclude that both 
Walgreens and its developer were not typically motivated market participants that 
sought to pursue their own financial interests. 
{¶ 11} We reiterate our holding in Berea that, as provided for by the 
legislature in R.C. 5713.03, the true value of property for taxation purposes “shall 
be” the price a willing buyer paid a willing seller in a recent, arm’s-length 
transaction, regardless of other appraisal evidence or methods.  106 Ohio St.3d 
269, 2005-Ohio-4979, 834 N.E.2d 782, ¶ 13.  Therefore, pursuant to R.C. 5713.03 
and our decision in Berea, we conclude that the decision of the BTA, which 
determined that the April 2003 sale price reflected the true value of MA Richter’s 
property for the 2004 tax year, is reasonable and lawful and supported by the 
evidence. 
Decision affirmed. 
 
MOYER, C.J., and LUNDBERG STRATTON, O’CONNOR, LANZINGER, and 
CUPP, JJ., concur. 
 
PFEIFER, J., concurs in judgment only. 
__________________ 
 
Joseph T. Deters, Hamilton County Prosecuting Attorney, and Thomas J. 
Scheve, Assistant Prosecuting Attorney, for appellee Hamilton County Auditor. 
 
Schroeder, Maundrell, Barbiere & Powers and John W. Hust, for appellee 
Princeton City School District Board of Education. 
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Siegel, Siegel, Johnson & Jennings Co., L.P.A., Nicholas M.J. Ray, Jay P. 
Siegel, and Fred Siegel, for appellants MA Richter Villa Ltd. and Vigran Brothers 
Villa Ltd. 
 
Strauss & Troy, Franklin A. Klaine Jr., and Nicole M. Lundrigan, urging 
affirmance for amicus curiae Sycamore Community School District Board of 
Education. 
 
David C. DiMuzio, Inc., and David C. DiMuzio, urging affirmance for 
amicus curiae Cincinnati School District Board of Education. 
______________________