Saturday Family LP v. Com. Techspec Inc. v. Com.
168 A.3d 400
| Pa. Commw. Ct. | 2017Background
- Saturday Family LP (landlord) and Techspec Inc. (tenant) entered a ground lease with an initial term of 29 years, 11 months, and 3 days, and tenant options to renew up to six 5-year periods at fair market value (FMV) rent determined at the time of each renewal (negotiation or appraisal/arbitration if needed).
- Pennsylvania imposes a realty transfer tax on leases with terms of 30 years or more; statute presumes renewal/options will be exercised if rent is fixed or a method of calculating rent is established.
- The Department of Revenue regulation (61 Pa. Code § 91.193(b)(24)(v)) excludes renewals at the option of the lessee when rent will be at fair rental value at the time of renewal.
- The Board of Finance and Revenue had treated the Ground Lease renewal periods as includable in the lease term, triggering transfer tax; a three-judge panel reversed in Saturday Family I, holding the FMV renewal option excluded the renewal periods.
- The Commonwealth (Department) filed exceptions challenging that ruling, arguing the lease’s FMV determination provisions constitute a "method for calculating the rental charge," so renewals must be included; the Court overruled the exceptions and affirmed reversal of the Board.
Issues
| Issue | Plaintiff's Argument (Commonwealth) | Defendant's Argument (Taxpayers) | Held |
|---|---|---|---|
| Whether lease renewal periods at FMV are excluded from the 30‑year term for transfer tax | Renewal provisions that set procedures to determine FMV are a "method for calculating the rental charge," so renewals count toward the term | Renewal at FMV (determined in future by negotiation/appraisal) is not a fixed calculation method and thus is excluded under the regulation | Court held FMV renewal option does not establish a method for calculating rent; renewal periods excluded, lease <30 years, no transfer tax |
| Whether dispute‑resolution/appraisal clauses convert FMV renewal into a calculative method | Such clauses effectively fix a method and therefore defeat the FMV exclusion | Dispute‑resolution clauses merely provide a way to determine FMV when parties disagree and do not fix rent | Court held dispute‑resolution provisions are permissible mechanisms to ascertain FMV, not a proscribed calculation method |
| Whether courts must defer to the Department's contrary interpretation of its regulation | Department urges deference to its interpretation that parties must be free to renegotiate without binding conditions | Taxpayers argue the regulation is unambiguous and the Department’s interpretation is unreasonable | Court refused deference because the Department’s interpretation was inconsistent with the regulation’s plain language and purpose |
| Whether citation errors by Taxpayers (to a nonexistent statutory subsection) are fatal to their claim | Commonwealth argued citation error undermines Taxpayers’ reliance on the FMV exclusion | Taxpayers consistently argued the FMV‑renewal exclusion and cited the Department regulation correctly in argument | Court found citation errors immaterial; underlying legal basis was clear and unprejudiced the Commonwealth |
Key Cases Cited
- Saturday Family LP v. Commonwealth of Pennsylvania, 148 A.3d 931 (Pa. Cmwlth. 2016) (panel opinion addressing FMV renewal exclusion)
- Popowsky v. Pa. Pub. Util. Comm’n, 853 A.2d 1097 (Pa. Cmwlth. 2004) (agency must follow statute and its regulation; limited deference)
- Popowsky v. Pa. Pub. Util. Comm’n, 910 A.2d 38 (Pa. 2006) (affirming Commonwealth Court)
- Pa. State Police, Bureau of Liquor Control Enforcement v. Benny Enterprises, Inc., 669 A.2d 1018 (Pa. Cmwlth. 1995) (agency interpretation not binding if clearly erroneous or inconsistent)
- Dep’t of Transp. v. Mosites Constr. Co., 494 A.2d 41 (Pa. Cmwlth. 1985) (contract interpretation is a question of law for the court)