Court Opinion

ID: 6485790
Source: CourtListenerOpinion
Date Created: 2022-06-26 23:08:57.27581+00
Date Added: 2024-06-11T15:54:17.573550
License: Public Domain

*197CONCURRING OPINION OF
PETERS, C. J.
This appeal involves blocks B, C, D and E of the Piopio tract in the city of Hilo, Hawaii County, having an aggregate taxable area of 519,844 square feet. They abut in the order named upon the mauka or northerly side of Kamehameha avenue, formerly known as Front street, with an aggregate frontage, according to the blue print in evidence, of approximately 2110.89 feet and are separated by intervening spaces suitable for streets. The rear of blocks B, C and D adjoins Punahoa street which runs parallel to Kamehameha avenue, terminating at the Wailoa river where it flows past the northeast corner of block D. Punahoa street is unimproved but capable of traffic. Block E is bounded on the rear in part by the north bank of the Wailoa river and in part by a detached piece of government land bordering upon the north side of the river. Its easterly end forms a gore between the tracks of the Hilo Consolidated Eailway Company and a small government piece on the north side of the river. The northwesterly corner of block B is about 110 feet easterly from the northeasterly corner of Kamehameha avenue and Piopio street. The dimensions of these blocks, beginning with the Kamehameha avenue frontage and proceeding around as the hands of a clock, are: Block B: 242.3 ft. x 293 ft. x 242.3 ft. x 280 ft.; block C: 600.82 ft. x 258.4 ft. x 600.82 ft. x 289.9 ft.; block D: 597.77 ft. x 290 ft. x 597.77 ft. x 255 ft.; block E: on Kamehameha avenue 670 ft., then follows an irregular line from the northeasterly corner to the southwesterly corner and the westerly side is 250 feet long. The tract narrows at the center and then widens until it intersects the Wailoa river and narrows' tngain. All of these blocks are subdivided into lots. "'Phe Subdivision of blo.cte;B, C)Vand.,I),., was effected by practically dividing the blocks in two'by lines parallel to Kamehameha avenue and Punahoa street and running lines across the blocks approximately at *198right angles to the bisecting line at intervals in block B of 60 feet and in blocks C and D of 50 feet. Block E was subdivided by running diverging lines from Kamehameha avenue at intervals of 50 feet through to the rear, resulting in slightly wider lots in the back than upon the Kamehameha avenue frontage. Due to the irregularity of the rear boundary some lots are of greater depth than others. Block B contains eight lots, four fronting upon Kamehameha avenue and four upon Punahoa street; blocks C and D each twenty-four lots, half of which face on Kamehameha avenue and half on Punahoa street, and block E twelve lots — one of which, however, lot No. 5, of an area of 8715 square feet, is not subject to this appeal being exempt from taxation. The depth of all the lots in block E is coextensive with the depth of the block. The four lots in block B facing Kamehameha avenue are of about the same size and average 8918.5 square feet. Of the four lots in block B facing on Punahoa street one has an area of 6740 square feet while the remaining three are each 9000 square feet. The lots in block C facing on Kamehameha avenue are also of about the same size, the average being 6710.4 square feet, while those facing on Punahoa street have a uniform area of 7000 square feet. The lots in block D fronting on Kamehameha avenue are of about the same size and average 7058.08 square feet, while the lots facing on Punahoa street have a uniform area of 6500 square feet, except two, which are a little less and which aggregate 11,465 square feet. All the lots in blocks B, C and D fronting on Kamehameha avenue have an average depth of about 140 feet. The lots subject to taxation in block E aggregate 124,803 square feet. The lots in block B fronting on Kamehameha avenue aggregate 35,674 square feet; those similarly situated in block O 80,525 square feet and those in block D 84,637 square feet. The aggregate area of all the lots in these same *199blocks fronting on Punahoa street is 194,205 square feet. The entire tract is subject to lease, there being forty-three leases. Some of these leases demise but one lot, some include both front and rear lots but in all instances the leases are based upon the lot subdivisions. The land is used variously by the different tenants, most of whom are Orientals. Those whose lots front on Kamehemaha avenue have erected in most cases two-story buildings and use the ground floor for stores and the upper floor for living quarters. The rear facing Punahoa street is used for apartment purposes. There are some cottages. It is used mainly for residential purposes and the buildings are of more or less cheap construction. In the case of twenty-three old leases and one new lease (the terms “old” and “new” leases being hereinafter more particularly explained) the improvements revert to the lessee upon the expiration of the leases. In three old leases and sixteen new leases the improvements revert to the lessor.
The taxpayer pursuant to the provisions of section 1253, E. L. 1915, made a return upon a form entitled “Lessor’s Eeturn of Eeal Property Leased” and therein detailed the royal patent, grant or land commission award in which the land subject to each lease was included, the date, term, annual rental and name of the lessee in each lease, and a description of the premises demised by lot and block number and area. The cash value of each piece of property subject to the respective leases was set forth separately. These separate values aggregated $125,693. This averages 24.2c plus per square foot throughout the tract.
The assessor raised the assessment in each individual case, resulting in an aggregate assessment of $258,266. This averages 49.6c plus per square foot throughout. The taxpayer appealed from the assessment as a whole. No claim was made by the Territory either before the tax *200appeal court or this court that the appeal of the taxpayer was not in proper form. The tax appeal court sustained the tax assessor and the cause is now before this court upon appeal from the judgment of the tax appeal court.
The return of the taxpayer, according to the evidence of Mr. Collins who has been manager of the estate for a period of about five years, was upon a valuation of 40c a square foot for the frontage on Kamehameha avenue to a depth of 100 feet, 20c a square foot on the balance of the front lots and 10c a square foot on the lots facing Punahoa street. In his opinion the return constituted a fair valuation of the premises. The record is silent as to the value of the rear of block E but classifying it with Punahoa street lots we have as a result of the method pursued by the taxpayer 211,089 square feet at 40c; 56,747 square feet at 20c and 252,008 square feet at 10c, aggregating $120,985. If the value of block E were computed on the basis of 40c per square foot for a depth of 100 feet, 20c per square foot for an additional depth of 40 feet (corresponding to the average depth of lots fronting on Kamehameha avenue in the other blocks) and 10c for the remainder in the rear, the valuation of the property would be increased to $123,754.66. As said the return was $125,693. The net annual rental from the property is $5638, which figures a little less than 4%% net on the value returned for assessment. Mr. Collins testified that the estate usually expects a net rental of 6% and the rentals were figured on that basis, being the highest rental obtainable — as put by him, “the most the traffic would bear.”
There are twenty-six “old leases,” so called, dating as far back as 1906, one of which expired in 1922; four of which will expire in 1923, eight in 1924, six in 1925, two in 1926, two in 1928, one in 1930 and two in 1936. All of these leases were for terms of fifteen years with the *201exception of those expiring in 1936, which were for thirty years. These leases involve an area of 320,648 square feet, which is 61.66% of the area of the land involved in this appeal, and net an annual rental of $1045. The respective rentals were based on a 6% net return upon the valuation obtaining at the time of their execution. The net annual rental accruing from the old leases nets 6% on an average valuation of a trifle less than 5%c a square foot.
Within two and one-half years prior to the taxation period (to be exact, beginning May 1, 1919,) the estate has granted seventeen leases, which will be hereafter referred to as “new leases,” each for a term of fifteen years with rentals based on a net 6% return upon a valuation of 40c per square foot for lots fronting on Kamehameha avenue to a depth of 100 feet; the balance of the front lots at 20c per square foot and the lots fronting on Punahoa street at 10c per square foot, the same basis as the return for taxation. Mr. Collins testified that all further leases would be made upon a valuation of 50c a square foot for the front lots and 25c a square foot for the rear lots. From the tax return and from the itemized statement, filed by the taxpayer in this court upon appeal, of the number, date, date of expiration, area and rental of the twenty-six old leases referred to it would appear that the rental of old leases of lots on Kamehameha avenue in ■blocks B, C and D is 6% on from 33c to 35c per square foot, according to location, while the rental of lots facing on Punahoa street is 6% on a valuation of 10c a square foot. The rental reserved in both the new and the old leases of lots in block E is 6% on from 28c to 31c a square foot, according to the location.
I deem the arbitary subdivision made by the taxpayer for classifying the land for taxation purposes, if of any •value, to be inapplicable to lots 1, 2, 3 and 4 in block E. *202By reason of their frontage upon Kamehameha avenue and the Wailoa river they of necessity fall into a class by themselves. Moreover, lack of access to the rear of the remaining lots in block E renders such a subdivision of doubtful value. The conclusion I here reach, however, renders a consideration of the physical conditions of block E unnecessary.
It would seem that for taxation purposes classification of the lots as subdivided by the taxpayer would be the most reasonable basis of valuation of the tract as a whole.
Land subject to old leases was returned at $71,480; that subject to new leases at $54,213.
The tax assessor assessed the property at 59c plus per square foot for Kamehameha avenue lots in blocks B, C and D, 49c per square foot in block E and 40c a square foot for all lots facing on Punahoa street. This would average 49.6c plus per square foot throughout the tract. He justified his assessment by evidence of several sales made in the vicinity — -an unimproved lot situate on Kamehameha avenue on the Waiakea side of the Volcano Stables with a frontage of approximately 120 feet and a depth of 100 feet and containing an area of 12,000 square feet sold at private sale for $12,000, or $1 a square foot; an unimproved lot situate on the Waiakea corner of Kamehameha avenue and Piopio street with a frontage of 100 feet and a depth of approximately 100 feet and containing an area of 10,367 square feet sold at private sale for $6000, or 58c a square foot; an unimproved lot situate on Kamehameha avenue between the Volcano Stables and Piopio street with a frontage of 90 feet and an approximate depth of 100 feet and containing an area of 9646 square feet sold at public auction for $7,800, or 80c a square foot, and finally three unimproved lots situate in Waiakea on the east side of the proposed Lihiwai street and the north side of the proposed Kuhio street, generally *203described as “across the river and diagonally opposite tlie Honolulu Iron Works,” which occupy the easterly corner of block E, aggregating 10,478 square feet, sold for $27,000, or at a rate of $2.67 a square foot. The tax assessor also introduced evidence to the effect that that portion of the tract fronting on Kamehameha avenue and to a depth of 100 feet was worth 60c and that the entire tract as a whole was worth 50c. The two witnesses giving this opinion, however, did not pretend to have any knowledge of the existing leases and the tax assessor, while admitting that the leases were a “consideration,” stated that he did not “consider them seriously” in making the assessment. The land subject to the old leases was assessed at $150,200; that subject to the new leases at $108,066. The net annual rental from the entire tract is but 2.18% upon the assessment of the tax assessor.
The evidence was undisputed that a reasonable return upon a real estate investment was 8% net.
Prom all the evidence in the case I am inclined to feel that the leases provide the safest method of computation of the cash value of the property at the taxation period. The evidence of sales of land made in the immediate vicinity within a reasonable time prior to the taxation period was perhaps of some value to the tax appeal court due -to the fact that it was presumably acquainted with the conditions obtaining at the times of the respective sales and had a knowledge of the general situation and the character of the land subject to these sales with which it could make comparisons and drew upon that acquaintance and knowledge in coming to its conclusion. But the record is so meager it is impossible to determine therefrom to what extent these specific sales may be employed in determining the value of the land subject to assessment. Nothing further appears than the mere location except in the case of one sale where it appears that *204the property was to be used as a site for a bakery, and another that “it was nearer the business center.” Reference was made to the traffic on Kamehameha avenue and Piopio street. No elements, however, of similarity or comparison were shown and it is impossible to concede any value whatever to the evidence. It is a matter of common knowledge that land in an adjoining block very often is of greater or less value due to location, surrounding conditions and the use to which the same may be put. It is significant- that the one piece which sold at $1 per square foot was assessed at 50c a square foot and the land of the American Factors on the same side of Kamehameha avenue and immediately adjoining was assessed at a like amount. According to the undisputed evidence the rental reserved under the new leases was computed on a Q% basis and that is the best rental procurable. Figured on a 6% basis the cash value of the lots in blocks B, C and D fronting on Kamehameha avenue and subject to new leases is from about 33c to 35c a square foot while the cash value of those subject to the old leases-is from 20c to 22c per square foot. There are only two new leases of lots in block E and a 6% valuation of the land subject to these leases figures at 28c and 29c a square foot respectively.
Opinions of those qualified to speak are of great assistance to a court in determining values. But it must appear that the opinion of the expert is based upon knowledge of the facts involved. None of the witnesses who gave evidence, with the possible exception of Mr. Collins, had any knowledge of the details of existing leases and their evidence was based,,practically upon the theory of unencumbered ownership "iir;fee. In the instant case, however, there is present evidence of value based upon actualities. The new leases by reason of their number and similarity of land demised remove the question of *205value from the realm of opinion evidence. The rents reserved are the rental value in the open market of the lands subject to the respective leases. They are regulated by supply and demand. They are what tenants are willing to pay and the taxpayer to receive. It is evidence of value of a high order and, considered in the light of the undisputed evidence that the investing public would expect a net return of at least 8% from this character of investment, furnishes the. best and safest method of computation that the case affords. I feel that the cash value at the taxation period of all lots subject to the new leases should be determined by capitalizing the annual rental on a basis of 8%. This would result in a raise in the assessment in some instances in excess of the return of the taxpayer, but not in all. In some cases the return of the taxpayer of property subject to new leases is in excess of the aggregate capitalizhtion of the annual rentals at a rate of 8%. The taxpayer returned the land subject to the new leases at $54,213. The rentals from the new leases capitalized at 8% would amount to only $52,891.61. Under the circumstances the return of the taxpayer in all cases in which the property is subject to new leases must be sustained.
Nor should the return of the taxpayer upon lands subject to old leases be disturbed. The old leases by reason of the inadequacy of rent and the return which the ordinary investor would'' expect to receive from the land subject thereto at the taxation period constitute an encumbrance and serve to reduce the value of the property subject to such leases. For instance, lease 1260 is of two lots in block B, one fronting on Kamehameha avenue, size 50 ft. x 162% ft., and one fronting on Punahoa street containing an area of 6740 square feet. Were the Bishop Estate receiving a return similar to what it now receives under its new leases it would receive $228 per annum. The *206rent it is actually receiving is $50. Another instance is lease 1349 of lot 6 in block C fronting on Kamehameha avenue, approximately 50 ft. x 137.5 ft. Under the rentals prevailing in the new leases the estate would be entitled to receive $142 per annum. The rental it receives under its old lease is $25 per year. This situation obtains pretty generally throughout the old leases. The rent accruing from old leases capitalized at 8%, without reference to expiration dates, would show a value of only $13,062.50. The land subject to the old leases was returned at $71,840 and assessed at $150,200. Where it appears that the rentals reserved in unexpired long term leases are inadequate and are below the rentals prevailing at the taxation period upon similar lands the cash value of the lands subject to such leases should be determined in the light of such prevailing rentals and an allowance made to the extent that the investing public would demand by reason of their inadequacy. From such calculation as I have been able to make, of the actual “present worth” at the taxation period of the lands subject to the old leases, it would appear that it is less than the respective amounts actually returned. Under the circumstances I am of the opinion that the valuation placed by the taxpayer upon the several lots subject to the old leases is fair and reasonable and represents their cash value at the taxation period.
There are further reasons why the return of the taxpayer of the lots in block E should be sustained. The evidence of values adduced by the taxpayer, if intended to apply to block E, left the value of the rear portion in doubt. Nor did the tax assessor clarify the issues in that regard. The evidence adduced by the latter absolutely failed to take into consideration existing leases. Hence here similarly, as in the case of the lots in the other blocks, one must be guided by the existing leases, both new and old. Two new leases were secured in May, *2071919, — No. 2237 covering lot 1, containing 13,536 square feet, and lease No. 2238 covering lot 4, containing 10,305 square feet, each at a rental of $300 per annum. Both lots have a frontage on the Wailoa river which should render them more valuable than those in the same block which adjoin the government land intervening between the rear of block E and the river. Capitalizing this rent at the rate of 8% each lot would be worth $3750. The land subject to lease 2237 was returned at $3805 and that subject to No. 2238 at $3060 or 28.1c and 29.6c per square foot respectively. Lots 2 and 3 also border on the Wailoa river but are subject to old leases. The area remaining in block E, after excluding lots 1 and 4— 100,962 square feet, — notwithstanding it earns but an aggregate annual rental of $550, which if capitalized at 8% would show a value of only $6875, was nevertheless returned by the taxpayer at $30,390 or 30c per square foot, a cent plus per square foot in excess of the average value per square foot under the new leases.
There remains still to be considered the extent to which the assessment should be affected, if at all, by the value of the improvements upon the premises at the taxation period. The evidence is that the improvements were assessed separately against the lessees. Neither party offered any evidence of what the improvements consisted which were upon the premises subject to leases which revert to the lessor at the expiration of the term, which obviously are the only improvements with which we are • concerned. The only evidence of improvements is that hereinbefore set forth in connection with the uses to which all the premises generally were devoted. Neither the return of the taxpayer nor the assessment of the assess- or contains any reference to improvements. This matter seems to have been an afterthought of the tax appeal court and to have been considered by it in the absence of *208any evidence on the subject: No effort was made to identify any particular improvements as upon any particular lot or its value in whole or in part. In the absence of evidence it is obviously impossible to make any finding on the subject. This is but another instance in which the tax' appeal court evidently drew upon the personal knowledge of its members. Their undisclosed personal knowledge, however, is not a substitute for evidence. Without going into the degree of proof necessary the record must disclose at least some evidence to sustain a finding, otherwise the finding falls. Under the circumstances the value, if any, of improvements upon premises subject to leases containing a provision that improvements at the expiration of the term revert to the lessor cannot be considered.
I concur in the conclusion reached by the majority.