Opinion ID: 1386091
Heading Depth: 4
Heading Rank: 1

Heading: Transfer of Lessor's Interest in Property Subject to 35-year Lease

Text: (6) Subdivision (g) of section 62 provides that a change in ownership does not include Any transfer of a lessor's interest in taxable real property subject to a lease with a remaining term (including renewal options) of 35 years or more. Plaintiff contends this provision embodies the task force's conclusion that when a lessee has the exclusive right of occupancy for 35 years or more, the lessee and not the lessor is to be treated as the owner for property tax purposes because the value of the estate rests primarily with the former. Hence, in plaintiff's view, no change in ownership occurred. Two rules of statutory construction guide our inquiry. We look to the plain language of the statute. ( People v. Woodhead (1987) 43 Cal.3d 1002, 1007 [239 Cal. Rptr. 656, 741 P.2d 154].) And because sections 60, 61 and 62 are in pari materia, we strive to interpret them in a manner that gives effect to each yet does not lead to disharmony with the other two. (See Title Ins. & Trust Co. v. County of Riverside, supra, 48 Cal.3d 84, 91; California Mfrs. Assn. v. Public Utilities Com. (1979) 24 Cal.3d 836, 844 [157 Cal. Rptr. 676, 598 P.2d 836].) The rules of statutory construction are not akin to Robert's Rules of Order and we do not apply them hierarchically, but rather to achieve the primary and overriding goal of all statutory interpretation: ascertaining the lawmakers' intent. (See People v. Woodhead, supra, 43 Cal.3d at p. 1007.) Applying these principles, we conclude that the Legislature did not intend that its rule against finding a change in ownership upon the transfer of a lessor's interest encumbered by a 35-year lease should apply to a sale and leaseback. We have already observed that the task force decided that the creation, transfer or termination of a leasehold of 35 years or more should achieve a change in ownership because in that case the primary economic value of the land resides in the lease. (See ante, p. 165; task force rep., supra, at pp. 39-41.) The Legislature followed that recommendation. (§ 61, subd. (c).) By contrast, the Legislature decided that when the remaining term of an existing lease equaled or exceeded 35 years, any transfer of a lessor's interest would be excluded from a change in ownership. (§ 62, subd. (g).) In the transaction before us there was no existing lease and hence no remaining term. Because section 62, subdivision (g), by its plain language does not apply to the present transaction, our inquiry could end here. ( People v. Woodhead, supra, 43 Cal.3d at p. 1007.) But we believe the better method for extracting the legislative intent is to look to the language and purpose of sections 60, 61, and 62 as a whole. (See California Mfrs. Assn. v. Public Utilities Com., supra, 24 Cal.3d at p. 844.) The Legislature's intent is apparent when viewed through the filter of those sections and the task force report. Both the report and the statutes demonstrate that the drafters and the Legislature intended to find a change in ownership when the primary economic value of the land is transferred from one person or entity to another. That general rule applies here. When parties enter into a lease they create the legal relationship that governs their respective rights in the land, and either's successor in interest will be bound thereby. When the parties are sophisticated commercial entities of the type likely to sign leases for 35 or more years, such leases will often confer substantial rights on the lessee, such as the right to develop or modify capital assets, the long-term use or uses to which the land is to be put, and the like. [5] A long-term lease may also require the lessee to pay property taxes; indeed, the lease here imposes that duty on plaintiff. In sum, the primary economic value of land encumbered by a lease of such duration rests with the lessee; the lessor's rights as a practical matter are limited to receiving rental payments under a relationship the terms of which are fixed by prior agreement for a time substantially equivalent to the duration of a fee. The Legislature's determination that a change in the lessor under these circumstances will not work a change in ownership is consonant with the concern of the task force report drafters that a transaction should not trigger reassessment unless it transfers the interest of the party carrying the primary economic weight of the property. (Task force rep., supra, at p. 40.) Such a determination also comports with commercial reality and public expectations, both subjects of concern to the drafters of the report. (See id. at pp. 38, 41, 61.) The mischief a contrary rule could create is evident: for example, a rule permitting reassessment whenever the fee changed hands in land subject to a lease with a remaining term of 35 years could result in an enormous tax increase for a lessee that has erected major capital improvements on the land and whose lease requires the lessee to pay property taxes. The increase could occur merely because the lessor has sold that interest to a third party  a transfer over which the lessee has no control. The foregoing counterexample is well removed from the reality of the present transaction. Both parties did change their position. No prior agreement bound plaintiff to the terms of a lease of long duration. Plaintiff and Metropolitan Life established their relationship at the time of the conveyance, creating new interests both in plaintiff and in Metropolitan Life. Plaintiff's status changed from freeholder to tenant for years. To apply the rule of subdivision (g) of section 62 to such a transaction would be anomalous indeed: it would contravene the plain language of the code section and would defy Proposition 13's mandate that a change in ownership triggers reassessment of California property. We hold, therefore, that the Legislature did not intend the exception created in subdivision (g) of section 62 to apply to this transaction.