2020 Ohio 464
Ohio Ct. App.2020Background
- Subject property: Lowe's big-box store in Brooklyn/Cleveland, Ohio assessed by auditor at $9.5M; Lowe's sought $7.85M at BOR. BOR left value unchanged for lack of owner evidence. Lowe's appealed to the Board of Tax Appeals (BTA).
- At the BTA hearing each side produced a detailed appraisal: Racek (hired by Lowe's) valued the property ~$6.79M using second-generation sales and income approaches, treating the building as functionally obsolete for successor users; Blosser (for the school board) valued it at $12.02M using cost, sales-comparison, and income-capitalization analyses that treated the current Lowe’s use as highest and best use and applied market rent/occupancy assumptions.
- The BTA applied the "special purpose" doctrine, accepted Blosser’s valuation as best representing true value as of Jan. 1, 2015, and set true value at $12,020,000 (taxable value $4,207,000).
- Lowe's raised 18 assignments of error arguing (inter alia) that R.C. 5713.03's mandate to value the fee simple "as if unencumbered" required assuming vacancy / ignoring hypothetical market leases and that the BTA erred in applying the special-purpose doctrine.
- The court affirmed: (1) whether a property qualifies as "special purpose" is a factual determination for the BTA (deferential review), and (2) "as if unencumbered" does not require assuming vacancy or ignoring market-lease hypotheticals—appraisers may adjust for market rent and occupancy when valuing fee simple estates.
Issues
| Issue | Plaintiff's Argument (Lowe's) | Defendant's Argument (BOE/BTA) | Held |
|---|---|---|---|
| Applicability of the special-purpose doctrine | Property is not a special-purpose asset; BTA abused discretion applying doctrine to a big-box store | Property's size, design, continued profitable first-generation use show it fits special-purpose exception | BTA did not abuse discretion; special-purpose determination is factual and was supported by record |
| Meaning of R.C. 5713.03 "fee simple estate, as if unencumbered" | Requires ignoring hypothetical market leases and treating owner-occupied property as vacant for valuation (no market-rent adjustments) | "As if unencumbered" permits assuming a hypothetical market lease and adjusting comparables for market rent/occupancy; appraiser must simulate market conditions | Court holds Harrah's interpretation controls: appraisers may assume market lease and make occupancy/rent adjustments; vacancy assumption not required |
| Use of encumbered comparables / adjustments | Blosser improperly left encumbrance effects in comparables and unlawfully "valued as encumbered" | If special-purpose applies, adjustments for lease encumbrances may be unnecessary; comparables and market-rent assumptions may be appropriate | Court rejects Lowe's broad rule; comparable-selection and adjustments are appraisal questions and BTA may accept Blosser's approach under special-purpose analysis |
| Deference to BTA weighing competing appraisals | BTA misweighed evidence and credited inconsistent appraisal | BTA has statutory discretion to assess credibility and weigh competing appraisals | Court defers to BTA on factual credibility and weighting; affirms valuation selection |
Key Cases Cited
- Rite Aid of Ohio, Inc. v. Washington Cty. Bd. of Revision, 146 Ohio St.3d 173 (2016) (explains market-exchange valuation and recognizes special-purpose exception)
- Meijer Stores L.P. v. Franklin Cty. Bd. of Revision, 122 Ohio St.3d 447 (2009) (permits valuing owner-occupied property as if under a hypothetical market lease when supported by evidence)
- Harrah's Ohio Acquisition Co. v. Cuyahoga Cty. Bd. of Revision, 154 Ohio St.3d 340 (2018) (holds "as if unencumbered" allows appraisers to assume market lease and make market-occupancy/rent adjustments)
- Dinner Bell Meats, Inc. v. Cuyahoga Cty. Bd. of Revision, 12 Ohio St.3d 270 (1984) (origin of special-purpose doctrine permitting use-focused valuation for unique buildings)
- Target Corp. v. Greene Cty. Bd. of Revision, 122 Ohio St.3d 142 (2009) (declines to apply special-purpose doctrine absent competing appraisal evidence; underscores BTA factfinding)
- Alliance Towers v. Stark Cty. Bd. of Revision, 37 Ohio St.3d 16 (1988) (longstanding statement that fee simple estate should be valued as if unencumbered)