329 Conn. 484
Conn.2018Background
- Property: 1.45-acre parcel with a 12,805 sq ft former movie theater converted to a Walgreens under a 75‑year NNN lease (tenant pays taxes, insurance, maintenance); rent = $430,000/year ($33.58/sq ft). 2011 assessor value: $5,020,000 (assessment $3,514,000).
- Ownership history: developer purchased site + adjacent lot in 2003 for $2.5M, built to suit; sold in 2006 for $6,718,750 to an investor. Pharmacy opened 2006; property marketed as single‑tenant national pharmacy product.
- Administrative process: Walgreen appealed the 2011 revaluation to the town board of assessment appeals; board upheld assessor; Walgreen sued in Superior Court under Conn. Gen. Stat. § 12‑117a (overvaluation/aggrievement) and § 12‑119 (manifestly excessive).
- Trial evidence: Walgreen’s two appraisers valued the property at $3,000,000 (did not give substantive weight to contract rent); town’s appraisers produced valuations culminating in Kerin’s $4,900,000; trial court credited Kerin and set true and actual value at $4,900,000, finding aggrievement but rejecting a § 12‑119 claim.
- Trial court rationale: (1) under § 12‑63b(b) income‑capitalization must consider both market rent and existing contract rent; (2) the leased‑fee/leasehold characteristics and a distinct national chain pharmacy submarket justified treating rental potential as reflecting fee‑simple market value; (3) highest and best use = continued use as a retail pharmacy; (4) the assessment was overvalued but not manifestly excessive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 12‑63b(b) requires consideration of contract rent in income capitalization | Contract rent (long‑term, negotiated 2003) is stale and need not be given effect; appraisers may ignore contract rent when above market | Statute mandates considering actual rental income from existing leases along with market rents when determining market rent | Court: § 12‑63b(b) requires consideration of both contract and market rent; trial court correctly rejected Walgreen experts who ignored contract rent |
| Whether trial court valued a leased‑fee (lessee benefit) rather than the fee‑simple interest | Court improperly taxed lessee’s interest by capitalizing contract rent, conflating leased‑fee and fee‑simple values | Considering lease income and leasehold characteristics is proper to determine fair market (fee‑simple) value when market for leased single‑tenant net‑lease properties exists | Court: permitted to use lease income/leasehold indicators as part of fee‑simple valuation; trial court did not err in considering leased fee indicators |
| Whether trial court used too narrow a highest‑and‑best‑use market (retail pharmacy only) | Restrictive highest‑and‑best‑use excludes broader market and understates value | Evidence showed a distinct national chain pharmacy submarket (built‑to‑suit, freestanding, triple‑net) that commands premium rents; highest and best use is retail pharmacy | Court: crediting town experts, the finding of a pharmacy submarket and retail‑pharmacy highest and best use is supported and not clearly erroneous |
| Whether assessment was "manifestly excessive" under § 12‑119 | Assessment disparity vs other town properties shows manifest excess and statutory disregard | Plaintiff must prove an extraordinary illegality, misfeasance, or disregard of statutory valuation rules; mere overvaluation insufficient | Court: § 12‑119 claim fails—Walgreen showed overvaluation but not the high bar of illegality or misconduct; judgment for town affirmed |
Key Cases Cited
- First Bethel Associates v. Bethel, 231 Conn. 731 (1995) (§ 12‑63b(b) requires considering both market rents and actual rents from existing leases)
- Sheridan v. Killingly, 278 Conn. 252 (2006) (assessor may consider lessee/leasehold value as indicator of owner’s fair market value)
- Konover v. West Hartford, 242 Conn. 727 (1997) (procedure and standards for § 12‑117a appeals; trial court weighs appraisers and decides true and actual value)
- Redding Life Care, LLC v. Redding, 308 Conn. 87 (2013) (standards of review in tax appeals: factual findings reviewed for clear error; legal questions reviewed de novo)
- J.E. Robert Co. v. Signature Properties, LLC, 320 Conn. 91 (2016) (valuation of leased fee vs fee simple—if contract rents are at market, leased‑fee and fee‑simple values may coincide)
- United Technologies Corp. v. East Windsor, 262 Conn. 11 (2002) (highest and best use is a factual determination; courts should avoid unduly narrow markets that eliminate comparable‑sales analysis)