Opinion ID: 1386091
Heading Depth: 4
Heading Rank: 3

Heading: The Value of Which Is Substantially Equal to the Value of the Fee Interest

Text: The third prong of section 60 requires that the value of the interest transferred be substantially equal to the value of the fee interest. The facts show this test was met. Because Metropolitan Life acquired the entire fee, not only did the value of the interest transferred substantially equal ... the value of the fee interest, it was of identical value because it was a transfer of the fee itself. (See Industrial Indemnity Co. v. City and County of San Francisco, supra, 218 Cal. App.3d 999, 1005.) The property sold essentially for the market price, and plaintiff is now paying rent at the market rate. There is no indication that the property would resell for less than the market price. Hence, notwithstanding the reservation of an encumbrance in the form of an estate for years, the value of the transfer equaled that of a conveyance of fee simple. (4) In enacting the third prong of section 60 the Legislature meant to insulate from Proposition 13's effect transfers in which only an estate of lesser value was conveyed. Two examples illustrate the Legislature's intent when it adopted the task force report's findings and enacted the statutory scheme before us. One example considers the conveyance of a lease for one year. It would not be rational to apply a constitutional provision for reassessment following a change in ownership when the owner of an apartment leases it to another for one year, thereby conveying an estate of lesser value than that retained. By contrast, the Legislature decided, following the task force's recommendation, that the creation of a 35-year lease would achieve a change in ownership (§ 61, subd. (c)(1)) because the length of the lease would give the lessee's interest some of the practical attributes of a conveyance of fee simple. A lease of such duration will constitute the main economic value of the land, even though the leaseholder does not own a freehold estate  lenders are, in the report drafters' view, willing to lend on the security of such an instrument. (See task force rep., supra, at pp. 39-41.) Another example is the conveyance of fee simple from parent to child subject to the reservation of a life estate. The Legislature desired to avoid creating a rule that would characterize such a conveyance as a change in ownership. Because this is a relatively common form of conveyance, the Legislature, again following the task force's recommendation, included it in its list of examples of exempt transfers. (§ 62, subd. (e).) But even if the Legislature had not done so, reassessment would be barred under the carefully drafted basic test of section 60, not only because the beneficial use would not have transferred, but also because the value of each divided interest in the estate would not approach that of a fee. A purchaser of the reserved estate would be buying a life estate per autre vie  a freehold estate, to be sure, but an estate of questionable value because subject to complete defeasance at an unknown time. Rare is the mortgagee willing to lend on the security of an estate so ephemeral. The value of the reversionary or remainder interest would also be reduced because the time of vesting would be uncertain and, depending on the care with which the original conveyance was drafted, the value of the ultimate estate might be less at the time of vesting because of intervening conveyances, creditors' demands, and the like. [4] By contrast, when the life estate ends and the remainder or reversion indefeasibly vests in the grantees the value of the estate is known and is identical to the value of the fee. It is at that point that a change in ownership has occurred, as the Legislature specifically provided in accord with the task force's recommendation. (§ 61, subd. (f).) (1c) As stated above, we find nothing in the nature of the transaction before us to suggest that Metropolitan Life is unable to sell its fee interest in the property to a purchaser for anything less than its full market value. There are no contingent interests that make the value of Metropolitan Life's interest uncertain or questionable. Nor is it likely that Metropolitan Life would have paid substantially the market price for the land if any such contingency had presented itself at the time of the conveyance. We find, therefore, that all prongs of section 60's test have been met, and that the transaction worked a change in ownership under Proposition 13.