Opinion ID: 1537146
Heading Depth: 2
Heading Rank: 1

Heading: Whether the trial court erred in calculating the purchase price.

Text: KLP contends that the trial court erred by excluding the $850,000 mortgage that KLP had refinanced in 2004 from the total purchase price the association had to pay. KLP argues that the language regarding purchase price in the TLOA is so vague and unclear, that it is incapable of being specifically enforced. In the alternative, KLP argues that the clear meaning of `purchase price' in the TLOA is that any purchase, ... requires satisfaction of, or assumption of any outstanding deed(s) of trust on the Property by the purchaser. We review the trial court's conclusions of law de novo. See D.C.Code § 17-305(a) (2001). Whether a contract is ambiguous, what its unambiguous terms mean, and whether a contract should be enforced, are questions of law. See Malik Corp. v. Tenacity Group, LLC, 961 A.2d 1057, 1060 (D.C.2008). KLP's argument relies on subparagraphs 11(A)(1) and (2) of the TLOA. Subparagraph 11(A)(1) provides that [t]he purchase price shall be One Million Five Hundred Thousand Dollars ($1,500,000), plus the amount of any outstanding deed of trust thereon.... (TLOA ¶ 11(A)(1)). Under that provision, the purchase price would be the sum of $1,500,000 plus the $850,000 refinanced mortgage, yielding a purchase price of $2,350,000. Subparagraph 11(A)(2) provides that the purchase price may be paid all in cash, or by making a $1,500,000 cash payment and the purchaser's assumption of the outstanding deed of trust. [13] If subparagraphs 11(A)(1) and (2) were applicable, KLP's argument that the tenants' association must also pay the full amount of the mortgage or assume the mortgage would undoubtedly be correct. But, as the trial court noted, those are not the only provisions in the TLOA that deal with the purchase price, nor are they the ones that apply in this case. Subparagraph 11(A)(4) of the TLOA provides that a different purchase price applies if the investors benefitted from accelerated depreciation: (4).... Further, it is the desire and intent of the parties that the Association and the individual tenants of the property obtain the advantage of the purchase price lower than that set forth in subparagraph [11(A)](1) above if, but only if, the Partnership is able to enjoy the benefits of Section 167 [of the I.R.C.] and of operating loss deductions with respect to that Property. Accordingly, and notwithstanding the provisions of subparagraph ... (1), it is agreed that unless the Internal Revenue Service or a court of competent jurisdiction has ruled or held that the partnership is not entitled to enjoy the benefits of Section 167..., the purchase price referred to in subparagraph ... (1) shall be reduced to the highest price which will assure that the requirements of Section 167 ... are met. TLOA ¶ 11(A)(4). It is undisputed that the partners that invested in KLP enjoyed the tax benefits they anticipated by taking accelerated depreciation deductions. [14] By the terms of the TLOA, once the investors obtained that benefit, the Association and the individual tenants of the property obtain the advantage of the purchase price lower than that set forth in subparagraph ... (1), and the purchase price referred to in subparagraph ... (1) shall be reduced to the highest price which will assure that the requirements of Section 167 [of the I.R.C.]... are met. Id. Section 167 of the I.R.C. provided that: The ... sale of such units are pursuant to a program in which the sum of the taxable income, if any, from leasing of each such unit, for the entire period of such leasing, and the amount realized from sale or other disposition of a unit, if sold, normally does not exceed the excess of the taxpayer's cost basis for such unit of property, before adjustment under section 1016 for deductions under section 167, over the net tax benefits realized by the taxpayer, consisting of the tax benefits from such deductions under section 167 minus the tax incurred on such taxable income from leasing, if any. I.R.C. § 167(k)(2)(B)(iii). The association's expert, Pokrant, calculated that pursuant to this formula, the purchase price would be $584,132, a calculation that KLP does not dispute. [15] Indeed, as the trial court pointed out, KLP agrees that the original cash portion of the purchase price of $1,500,000 is reduced to $584,132 pursuant to the depreciation reduction formula set forth in paragraph 11(4). The sole dispute is the TLOA's allocation of responsibility for the outstanding mortgage; KLP argues that the total purchase price is the sum of the cash pricewhether it be $1,500,000 under subparagraph 11(A)(1) or $584,132 under subparagraph 11(A)(4) plus any outstanding deed of trust on the property, in this case, KLP's $850,000 refinanced mortgage. We agree with the trial court's interpretation of Paragraph 11 of the TLOA, that the purchase cash price calculated in accordance with subparagraph 11(A)(4) is the sum total owed by the association, and is not to be augmented by KLP's outstanding deed of trust. The eventual sale of the property to the tenants' association was anticipated by the partners and was regulated by their written agreement in the carefully phrased terms of the TLOA. The investors, who, after all, were in the business to benefit financially from the partnership, specified two different ways to calculate the purchase price, depending on whether they would profit in the front-end, by taking accelerated depreciation deductions over the five years of the partnership, [16] or in the back-end, by selling the property after twenty years (without the benefit of accelerated depreciation) at a profit of $1,500,000. [17] In the event that the investors were unable to take full advantage of the anticipated tax deductions through accelerated depreciation of the property, under subparagraph 11(A)(1) they would gain the full $1,500,000, as the tenants' association would pay or assume any outstanding deed of trust. But if the investors benefitted during the life of the accelerated depreciation allowance for their investments in low-income housing (at a four-to-one advantage), subparagraph 11(A)(4) controls, which caps the price by reference to Section 167(k)(2)(B)(iii) of the Internal Revenue Code. [18] Our conclusion does not depend on an interpretation of the Internal Revenue Code provisionthe parties agree that under I.R.C. § 167(k)(2)(B)(iii), the maximum allowable price is $584,132but of which definition of purchase price in the TLOA is applicable to the tenants' association's offer to purchase. The TLOA defines the term purchase price in two different ways, depending on whether the KLP partners obtained the anticipated tax benefits. Under subparagraph 11(A)(1), the purchase price shall be One Million Five Hundred Thousand Dollars ($1,500,000), plus the amount of any outstanding deed of trust thereon.... Under subparagraph 11(A)(4), notwithstanding the provisions of subparagraph (A)(1) [with its reference to `any outstanding deed of trust'] ... the purchase price referred to in subparagraph (A)(1) shall be reduced [according to the formula in I.R.C. § 167(k)(2)(B)(iii)]. It cannot be any clearer from the plain language of subparagraph 11(A)(4), as the trial court noted, that in this case, where it is undisputed that the investors derived the hoped-for tax benefits, the purchase price of the property is restricted to the maximum allowed by Internal Revenue Code. See, e.g., Hisler v. D.C. Dep't of Employment Servs., 950 A.2d 738, 746 (D.C.2008) (In determining whether a contract is ambiguous, we examine the document on its face, giving the language used its plain meaning. (citation omitted)). We, therefore, affirm the trial court's judgment that $584,132 is the purchase price set by the TLOA, at which the tenants' association may purchase the property from KLP.