Notestine Manor, Inc. v. Logan Cty. Bd. of Revision (Slip Opinion)
152 Ohio St. 3d 439
Ohio2018Background
- Property: 11-unit nonprofit residential project (Notestine Manor) developed under HUD Section 202; construction cost ≈ $1.5M with ≈ $1.3M federal capital advance.
- Use restrictions: Recorded regulatory/use agreements (40-year term) limit tenancy to very-low-income seniors, cap tenant rent at HUD-prescribed levels ($407/month including utilities), and tightly restrict transfers, surplus accumulation, and rent increases.
- Valuation dispute: County auditor reappraised value for 2013 at $811,120; owner sought reduction (initial BOR value sought $165,000; BTA adopted appraiser’s income-capitalization value of $75,000).
- Appraisal approach: Owner’s appraiser used a contract-rent (actual restricted rents) income approach, adjusted for incomplete construction and market-comparable expenses; county argued market-rent approach was required.
- Procedural posture: BOR kept auditor’s value; BTA adopted owner’s appraisal and set value at $75,000; county appealed to Ohio Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether market-rent appraisal is required for government-subsidized housing (Section 202) | County: Alliance Towers requires valuing such properties using market rents to remove affirmative value of subsidies | Notestine: Contract-rent approach permissible where contract rents do not exceed market rents and subsidies do not inflate value | Court: Preference for market-rent is presumptive, not absolute; contract-rent is appropriate when contract rents do not exceed market rents and no affirmative subsidy value inflates market value |
| Whether HUD use restrictions recorded before lien date must be disregarded under "fee simple as if unencumbered" language of R.C. 5713.03 (H.B. 487) | County: Statutory language requires ignoring encumbrances and valuing unencumbered fee simple | Notestine: Recorded governmental restrictions may be considered; H.B. 487 wasn’t intended to displace Woda Ivy Glen doctrine | Court: H.B. 487 does not override Woda Ivy Glen; governmental use restrictions remain relevant to valuation |
| Whether appraiser’s reduction for incomplete construction and rent loss on lien date was improper | County: Reduction and use of below-market contract rents underestimate true value | Notestine: Adjustments reflect facts (incomplete status, restricted rents) and comply with appraisal practice | Court: BTA did not abuse discretion in accepting those adjustments and the appraisal |
| Whether valuation approach improperly grants de facto local tax subsidy and policy concern about shifting tax burden | County: Low valuation shifts tax burden and requires local services not covered by taxes | Notestine: Policy objections do not change applicable valuation law; exemptions/legislative remedies are for legislature | Court: Policy concerns are for legislature; precedent governs valuation and supports BTA decision |
Key Cases Cited
- Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision, 37 Ohio St.3d 16 (discusses market-rent approach and disregarding affirmative value of government subsidies)
- Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175 (governmental use restrictions must be considered in highest-and-best-use valuation)
- Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 151 Ohio St.3d 12 (reinforces that market rents remove affirmative value of subsidies, but does not categorically preclude contract-rent approaches)
- Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision, 150 Ohio St.3d 527 (interprets H.B. 487 amendment to R.C. 5713.03 and sale-price presumptions for unencumbered fee simple)
- NBC-USA Hous., Inc. v. Levin, 125 Ohio St.3d 394 (Section 202 projects are residential and do not qualify for charitable-use tax exemption)