MACHT AND MACHT, TRUSTEES U/W OF MORTON MACHT v. DEPARTMENT OF ASSESSMENTS OF BALTIMORE CITY
No. 16, September Term, 1972
Court of Appeals of Maryland
Decided November 8, 1972
Mоtion for rehearing filed November 30, 1972; denied December 6, 1972.
John S. McDaniel, Jr., with whom were Calhoun Bond and Cable, McDaniel, Bowie & Bond on the brief, for appellants.
Ambrose T. Hartman, Deputy City Solicitor, with whom were George L. Russell, Jr., City Solicitor, and Charles Freeland, Assistant City Solicitor, on the brief, for appellee.
SINGLEY, J., delivered the opinion of the Court. BARNES and DIGGES, JJ., dissent and BARNES, J., filed a dissenting opinion in which DIGGES, J., concurs at page 616 infra.
This case poses a novel question, apparently one of first impression in this State: Are there circumstances where airspace superjacent to real property may be made the subject of a separate assessment on which state and local real estate taxes can be levied?
The hoary common law concept, cujus est solum, ejus est usque ad coelum et ad inferos,1 has been substantially eroded by technology.2 For example,
“It is true that if a landowner is to have full enjоyment of his land, he must have exclusive control of the immediate reaches of the enveloping atmosphere. Otherwise buildings could not be erected. The landowner owns at least as much of the space above the ground as he can occupy or use in connection with the land.”
This quotation is substantially taken from United States v. Causby, 328 U. S. 256, 264, 66 S. Ct. 1062, 90 L. Ed. 1206 (1946).
As a consequence, the owner of land in fee holds all the complex elements of a single right, a bundle of sticks, if you will, which include not only the right to use the surface, but so much of the superjacent airspace as he can use, as well as the subjacent reaches below. And it is obvious that when a landowner utilizеs his airspace for the erection of a building, or quarries or mines below the surface, such use will ordinarily enhance the market value of his property as well as its value for purposes of taxation. Here, however, the question is, what are the tax consequences if he leases his airspace to another?
Philip Macht and Sophia Romm Macht (the Machts), as trustees, hold fee simple title to the property at 11-13 East Fayette Street in Baltimore City, fronting 24 feet on Fayette Street with a depth of approximately 113 feet, improved by a small building some 100 feet in height. In 1961, Charles Street Develoрment Corporation (the Blaustein Building) determined to erect a multi-storied office building on property immediately to the west of that now owned by the Machts. Apparently aware that the doctrine of ancient lights had been rejected by our predecessors, Cherry v. Stein, 11 Md. 1, 21-22 (1857), some positive assurance that the building‘s eastern face would have unimpeded access to light and air was a problem of immediate concern. To that end, the Blaustein Building opened negotiations with the Machts’ predecessor in title. These culminated in an agreement under which the Machts’ predecessor leased to the Blаustein
While the lease gave the Blaustein Building two purchase options and reserved a sale option to the lessors, only two of the options are significant here: the right of the Blaustein Building to purchase the airspace at the end of the lease term for a base price of $100,000.00, adjusted, however, for fluctuations in the purchasing power of the dollar, and the obligation of the Blaustein Building to purchase the fee, the improvements and the airspace for $200,000.00 if demanded by the Machts.
The Department of Assessments of the City of Baltimore (the City) first endeavored to value the airspace and place the valuation on the assessment rolls for the fiscal yеar ended 30 June 1966. For procedural reasons not here important, the City‘s efforts came to naught, and two years passed until the “air rights” were valued at $50,700.00 and placed on the assessment rolls at that figure for the tax year ended 30 June 1969.
The Machts appealed to the City‘s Board of Municipal and Zoning Appeals (the Board), which vacated the assessment. The City, in turn, appealed to the Maryland Tax Court (the Tax Court), which reversed the Board, and reinstated the assessment. The Machts then entered this appeal from the order of the Tax Court.
The Machts advance three arguments why the order of thе Tax Court should be reversed. We shall consider each of them:
“The Department of Assessments of Baltimore City has no authority to value and assess ‘Air Rights Only’ as a class or subclass of real property separate and distinct from all other interests in the land under such ‘Air Rights Only.‘”
The thrust of this argument is postulated upon Article 15 of our Declaration of Rights, which provides, in part:
“... [T]he General Assembly shall, by uniform rules, provide for the separate assessment, classification and sub-classification of land, improvements on land and personal property, as it may deem proper; and all taxes thereafter provided tо be levied by the State for the support of the general State Government, and by the Counties and by the City of Baltimore for their respective purposes, shall be uniform within each class or sub-class of land, improvements on land and personal property which the respective taxing powers may have directed to be subjected to the tax levy;....”
and upon
“In valuing and assessing real estate, the land itself and the buildings or other improvements thereon shall be valued and assessed separately; ....”
“In case of the separate ownership of the surface of land and of minerals or mineral rights therein, the assessing authority may, in its discretion, make separate rate assessments of the value of the surface and of such minerals or mineral rights.”
Taking these provisions as a starting point, the Machts then pin their hopes on State Tax Commission v. Gales, 222 Md. 543, [referred to as State Tax Commission v. Wakefield in] 161 A. 2d 676 (1960), which struck down,
It seems to us that this argument confuses the concepts of the separate classification of real and personal property and of the sub-classification of personal property contemplated by
What State Tax Commission v. Gales, supra, struck down was an effort to value land used for agricultural purposes at a lesser figure than similar land used for other purposes. Nor do we find any validity in the argument that the Code provision authorizing the separate assessment of mineral rights effectively precludes the separate assessment of other rights which together may comprise fee simple ownership. The provision for the separate assessment of mineral rights is directed at the situation where the surface is in one ownership and the mineral rights in another. We are simply not persuaded that an assessment based on the separate valuation of a property owner‘s several rights is a classification at all. Indeed, situations may be postulated where a fair and equitable valuation can only be achieved by the use of this mechanism. It has long been established that assessors have reasonable latitude in selecting a method of valuation, so long as they arrive at the “full cash value,” Weil v. Supervisor of Assessments, 266 Md. 238, 292 A. 2d 68 (1972), Sears Roebuck v. State Tax Comm., 214 Md. 550, 557-558, 136 A. 2d 567 (1957).
An argument almost on all fours with that advanced by the Machts was made in Susquehanna Power Co. v. Tax Commission, 159 Md. 334, 151 A. 29 (1930), aff‘d, 283 U. S. 291, 51 S. Ct. 434, 75 L. Ed. 1042 (1931). In that case, the power company appealed from an order of the State Tax Commission which had assessed 2,110 acres of land, submerged under the lake created by the Conowingo Dam, at $2,349,300.00. One of the power company‘s contentions was that the submerged lands which the power company owned could not be considered for assessment purposes separate and apart from the water which flowed over them, which it did not own. The Court disposed of this by a simplistic analogy to a bowl of milk, where the bowl had one owner and the milk another. The Court went on to hold that the separation of the power company‘s ownership into its component parts
Here, the Machts sеem to concede that the revenue derived from the lease of the airspace could properly be considered, like any other rent, in reaching a valuation of the property as a whole. Under the teaching of Susquehanna Power, we see no reason why land, improvements and airspace could not be separately valued for assessment purposes, so long as the sum of the elements did not exceed the value of the whole. See Note, Conveyancing and Taxation of Air Rights, 64 Colum. L. Rev. 338, 350-354 (1964).
The Tax Court advanced an additional argument which is not without merit: that in separately valuing the airspace, the City was acting to reach “escaped” property as permitted by
(ii)
“If the Department of Assessments may lawfully value and assess ‘Air Rights Only’ as a class or subclass of real property separate and distinct from all other interests in the land under such ‘Air Rights Only‘, it may not constitutionally (a) value and assess, and thereby subject to taxation, only those ‘Air Rights Only’ which have been leased by the owners thereof to other persons for the benefit of other real property owned by such other pеrsons without (b) also valuing and assessing, and thereby subjecting to taxation, those ‘Air Rights Only’ which are utilized by the owners thereof for the benefit of real property owned by such owners other than the land under such ‘Air Rights Only.‘”
We turn now to the Machts’ second argument, which we find equally unpersuasive: they say that had the
We regard the City‘s rejoinder as reasonаble and acceptable. The City concedes that if the Blaustein Building had owned 11-13 East Fayette Street, no assessment would have been placed on the airspace above it, because the airspace would not have produced income, as the Machts’ did. But John G. Arthur, Director of the City‘s Department of Assessments, testified that the fact that the Blaustein Building under such circumstances, would have had unimpeded access to light and air on most of its east front would have been taken into account in reaching an assessable basis for the Blaustein Building, since the availability of light and air would be “reflected” in the rentals, and accordingly, in value.
In the case before us, the Blaustein Building‘s unimpeded access to light and air on most of its east face was assured, not by its ownership of 11-13 East Fayette Street, but by the exclusive right to the airspace which it acquired under the lease. Here again, this was reflected in the rentals as well as in the valuation for purposes of assessment.
(iii)
“If the action of the Department of Assessments of Baltimore City in valuing and assessing ‘Air Rights Only’ at 11/13 East Fayette Street in addition to valuing and assessing the land at 11/13 East Fayette Street is to be regarded as merely an administrative device for making a single valuation and assessment of the land at 11/13 East Fayette Street which is comprised of the sum of (a) the valuation and assessment designated as ‘Air Rights Only’ plus (b) the valuation and assessment designated as
‘land‘, such single valuation and assessment in those cases where the ‘Air Rights Only’ have been leased by the owners thereof to other persons for the benefit of real property owned by such other persons may not constitutionally be at a higher proportion of value than the assumed or actual single valuation and assessment in similar cases where the ‘Air Rights Only’ are utilized by the owners thereof for the benefit of real prоperty owned by such owners other than the land under such ‘Air Rights Only.‘”
Although the Machts’ agreement with the Blaustein Building took the form of a lease, we prefer to regard the rights of the parties as they now stand, as most closely resembling those which would exist under a negative easement for a term of years, see 5 Restatement, Property § 452, at 2912, § 528 and Comment a, at 3186 (1944); 3 Powell, The Law of Real Property § 405, at 395 (Rohan ed. 1970); 2 American Law of Property § 9.12, at 372 (1952); 3 Tiffany, Real Property § 756, at 201 (3d ed. 1939), Combe, Law of Light at 5 (1911); 25 Am. Jur. 2d Easements and Licenses § 8, at 422 (1966), by which the owner of real property denies himself the use of one of the rights inherent in his ownership. In Maryland, this may be accomplished by words of grant or covenant, compare Realty Corp. v. Safe Deposit & Trust Co., 160 Md. 457, 472, 154 A. 58 (1931) with Knight v. Mitchell, 154 Md. 102, 106, 140 A. 74 (1928) and see 3 Tiffany, supra, § 763, at 216, § 783, at 260; Annotation, Express Easements of Light, Air and View 142 A.L.R. 467 (1943) and 49 Am. Jur. 2d Landlord & Tenant §§ 174, 176, at 198, 200 (1970).
The City says that the rent reserved makes the arrangement more closely analagous to a profit à prendre, where a landowner receives payment for something taken from his land. It might be argued, too, that the agreement is more closely akin to a license. Regardless of how the arrangement may be characterized, the purpose it was intended to achieve remains the same.
“... The landowner‘s right to use and develop the airspаce above his land is well established in Maryland, however, there is little authority concerning the right to convey or lease airspace. In other jurisdictions, the trend of authority definitely favors a liberal interpretation of the landowner‘s rights in airspace. The modern trend is to recognize airspace as an ‘independent unit of real property‘, the owner of which is entitled to all the rights associated with land ownership. [Note], 64 Columbia Law Rev. 338 (1964). It appears that the prevailing authority would allow airspace to be conveyed, leased, subdivided, and have interests created in it, and estates carved out of it in the same manner as land.” (emphasis in original)
Cf. Horizontal Property Act, Ch. 387 of the Laws of 1963,
So long as the Machts made no use of the airspace over their property, it was not, nor could it be made the subject of an assessment. Once they denied themselves the use of it for a price, it took on value for the purposes of assessment, a value which could be derived by an appraisal based on income, the option price, or both, Bornstein v. State Tax Comm., 227 Md. 331, 337, 176 A. 2d 859 (1962). Concurrently, the Blaustein Building, as holder of the estate to whiсh new rights became appurtenant, has the benefit of an easement, which could be reflected in its assessable basis, because the utility of its site was enhanced.
It should be remеmbered that this case reaches us in an unusual posture. The taxpayers’ attack is levelled at the method by which valuation for tax purposes was reached, and not at the amount of the assessment. If the Machts can demonstrate that the sum of the values separately attributable to land, improvements and airspace exceeds the figure at which the property should have been assessed as a whole, Susquehanna Power Co. v. Tax Commission, supra, relief may be available. However, this point is not made here.
The Machts seem to find comfort in this Court‘s decisions in Delmarva Power & Light Co. v. Eberhard, 247 Md. 273, 230 A. 2d 644 (1967) and Hill v. Williams, 104 Md. 595, 65 A. 413 (1906), which held that an easement was extinguished by the sale of the serviеnt estate for unpaid taxes. This is not only a minority view, see Comment, Property—Effect of Tax Sales on Appurtenant Easement upon Servient Estate Sold for Delinquent Taxes, 10 Wash. & Lee L. Rev. 84, 87 (1953); Note, 7 Miami Law Qtrly. 270, 271 (1953), but the holdings have been somewhat attenuated by the enactment of Ch. 69, § 1 of the Laws of 1967,
The Machts cite these cases in support of their contention that an appurtenant easement is not assessed for tax purposes separately from the servient estate. The cases may more accurately be said to stand more for the propositions (i) that for tax purposes, the easement is included in the valuation of the servient estate and (ii) that absent the statute referred to, the sovereign cannot be charged with knowledge of private arrangements entered into between landowners. Moreover, the argument overlooks the situation where an easement in gross may exist in the absence of a dominant estate, and be taxed as such, as was the case in Consolidated Gas Co. v. Baltimore, 101 Md. 541, 549, 61 A. 532 (1905), 105 Md. 43, 57-62, 65 A. 628 (1907) and Appeal Tax Court v. Western Maryland R.R. Co., 50 Md. 274, 301 (1879).
It certainly should have been no surprise to the parties that the practical effect of the lease of the airspace was the enhancement of the value of the servient estate because of the rent reserved. In fact, the terms of the agreement are ample proof that this very result was contemplated. In fixing the term of the lease at 98 years and nine months, the parties carefully skirted the provisions of
In setting up the formula upon which the rent was to be based, the parties carefully stipulated that the base rent was to be twice the annual real estate taxes on the “entire property” at 11-13 East Fayette Street “(land, improvements and airspace).” There was not only no element of surprise, but it may well be that the Machts are estopped from denying that the value of the air-
Order affirmed, costs to be paid by appellants.
Barnes, J., dissenting:
Although I agree with much—indeed most—of the majority opinion as an abstract matter, I dissent because the majority (1) largely ignores what the Department of Assessments actually did in the present case; (2) analogizes the lease to an easement which
(1)
In the present case, there is no dispute that the Department did not reassess the value of the Macht property, giving consideration to the lease, either as resulting in a diminution in its value by the leasing of the air rights for the long period of the lease or as a source of income which, upon an income theory of valuation, might result in an increase in the value of the property. The assessment here involved was designated as “Air Rights Only” (Emphasis supplied), and was a separate assessment. Indeed, Max L. Cohen, who is a senior assessor with the Department, worked on the assessment of the Macht property, 11/13 East Fayette Street, the Blaustein Building, as well as many other business properties in the general area of these properties. In his deposition, he stated that “we placed the assessment against air
“We have no doubt but that the General Assembly of Maryland can enact legislation providing for the assessment and taxation of ‘Air Rights‘, separate and apart from other rights held by the owner in the land. However, the Legislature has not chosen to provide for the assessment and taxation of ‘Air Rights’ separate and apart from other rights, and consequently since it has not, the political subdivisions have no power granted to them to create this classification or any other classification not authorized by the Legislature. See State Tax Commission v. Wakefield, 222 Md. 543, 161 A. 2d, 676, and Supervisor of Assessment for Montgomery County v. Alsop, 232 Md. 188, 192 A. 2d, 494.
“We do not mean to imply that ‘Air Rights’ are exempt from their fair share of taxes. We
do hold that the aggregate of rights in and to land totalling absolute ownership thereof, as well as the aggregate interest in buildings and improvements totalling absolute ownership thereof, each respectively must be assessed and taxed as an entirety. “We hold that the Department has no authority to assess ‘Air Rights’ only as property separate and distinct from all other interests in real property to which such ‘Air Rights’ pertain.”
What the Department has done in the instant case is to attempt to create a “classification” or “sub-classification” of land, i.e., “Air Rights Only.” This is a power which the General Assembly of Maryland has been given exclusively by
It is apparent that the General Assembly has not authorized any assessing authority to make a separate val-
Our predecessors have indicated (consistent with the statutory provisions in Art. 81) that land subject to an easement created by the owner for the benefit of adjаcent land continues to be subject to assessment without regard to the easement which is not subject to separate assessment, the assessing authority having no interest in private arrangements made between the landowner and the owner of the easement. Hill v. Williams, 104 Md. 595, 65 A. 413 (1906). Hill has been cited by the Court with approval in e.g., Johns Hopkins University v. County Commissioners of Montgomery County, 185 Md. 614, 617, 45 A. 2d 747, 748 (1946) and Meade Heights v. State Tax Commission, 202 Md. 20, 28, 95 A. 2d 280, 284 (1953).
As the majority observes, the Machts do not contend that the Department may not consider the value of the airspace lease in making the assessment for their property and concludes from this that it “sees no reason why land, improvements and airspace could not be separаtely valued for assessment purposes, so long as the sum of the elements did not exceed the sum of the value of the whole.” With respect, this appears to me to be a non sequitur. True, land and improvements are separately assessed by virtue of the requirement of
The difference between the majority and me on this
(2)
As I see it, the majority leans on a broken reed in analogizing the grant of air rights to a negative easement. As already pointed out, the decision of this Court in Hill v. Williams, supra, holds that there can be no valuation or assessment separate from the valuation and assessment of the fee simple interest in a fee simple property. The Department did indeed attempt to make a separate valuation and assessment of “Air Rights Only“; and if the grant of air rights is an “easement,” its action is prohibited by the holding in Hill.
(3)
The majority suggests (but does not hold) that there might be merit in the argument advanced by the Tax Court that the “Air Rights” could be valued and assessed as “Escaped property,” pursuant to
For these reasons I would reverse the order of the Tax Court reversing the order of the Board of Municipal and Zoning Appeals and reinstate the order of that Board reversing the assessment in this case.
I am authorized to state that Judge Digges concurs in the views herein expressed.