Opinion ID: 1602835
Heading Depth: 1
Heading Rank: 8

Heading: Property of State or Governmental Subdivision

Text: We turn first to TERC's finding that the Warehouse Addition was owned by Vitalix and thus not [p]roperty of the state or a governmental subdivision as required by § 77-202(1)(a). The record in this case shows that the Warehouse Addition was included in a list of assets reported by Vitalix to the federal government for tax purposes. The lease between the City and Vitalix provided that [w]ith prior permission of [the City, Vitalix] may make alterations or additions to the premises, but that [i]n the absence of consent of [the City], all additions and alterations to the premises, including fixtures, made by [Vitalix] shall become property of [the City] upon termination of the lease. Finally, the lease provided that [a]ny fixtures, equipment or supplies not removed from the premises by [Vitalix] upon termination of the lease shall become property of [the City]. Neither of these exceptions is relevant in this case, as the City granted consent for the Warehouse Addition and the lease has not yet been terminated. An addendum to the same lease specifically notes that Vitalix, and not the City, had constructed, on the real property that is the subject of the lease, a warehouse building. The record also includes a deed of trust between Vitalix, the institutions which financed the project, and the City. Both the addendum and the deed indicate that Vitalix is responsible for the repayment of all funds. Vitalix's primary argument is that as a general rule, when improvements are made to leased real estate, the improvements become a part of the real estate and are owned by the landowner, not the tenant. And this is indeed the general rule. [5] But the general rule does provide for the converse upon agreement of the parties. And this lease, as is noted above, makes such provision: Any improvements become the City's property only under certain circumstances not at issue here. More importantly, the addendum to the lease does not include any language suggesting otherwise. Neb. Rev. Stat. § 77-1374 (Reissue 2003) also supported the general conclusion that improvements do not necessarily become part of the underlying real estate, at least for taxation purposes. That section provided in part that [i]mprovements on leased public lands shall be assessed, together with the value of the lease, to the owner of the improvements as real property. Indeed, besides the Warehouse Addition, Vitalix has been assessed for other improvements to the leasehold interest in question, and it is not protesting that assessment. The burden is on Vitalix [6] to show that the Warehouse Addition was [p]roperty of the state. [7] Vitalix failed to meet that burden. We conclude that TERC's conclusion that Vitalix and not the City owned the Warehouse Addition despite the fact that the building was constructed on real property owned by the City conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.