NORTH ROYALTON CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLEE, v. CUYAHOGA COUNTY BOARD OF REVISION ET AL., APPELLEES; RISER FOODS COMPANY, APPELLANT.
No. 2009-2057
Supreme Court of Ohio
Submitted June 21, 2011—Decided June 30, 2011.
129 Ohio St.3d 172, 2011-Ohio-3092
{¶ 1} In this appeal, the property owner, Riser Foods Company (“Riser“), challenges a decision of the Board of Tax Appeals (“BTA“) in which the BTA determined the true value of Riser‘s real estate to be $450,000 for tax year 2005, rather than $73,700 as determined by the county auditor and the Cuyahoga County Board of Revision (“BOR“). The BTA‘s determination of value is predicated on the price paid for the property in 2005 in accordance with a buy-out option agreed to by the parties in a ground lease. The ground lease was entered into on December 16, 1998, and ownership was transferred in December 2005.1 The BTA regarded the buy-out-option price as a recent, arm‘s-length sale price that furnished the criterion of value for the property as of January 1, 2005, pursuant to
{¶ 2} On appeal, Riser advances several reasons why the $450,000 buy-out-option price does not reflect a recent, arm‘s-length sale price under
{¶ 3} Riser‘s arguments are not well taken, and we therefore affirm the decision of the BTA.
I. Facts
{¶ 4} The auditor assigned a value of $73,700 to the property for 2005. The school board filed a complaint against that valuation on March 28, 2006, seeking an increase to $450,000 in true value based on a sale of the property in December 2005. A hearing was held before the BOR on August 23, 2006, at which the school board presented the conveyance-fee statement showing a transfer from Gregory and Vincenza Caniglia to Riser for a consideration of $450,000.
{¶ 6} The BOR retained the auditor‘s valuation, and the school board appealed to the BTA. At the BTA, a stipulation was filed through which Riser, the BOR, and the school board agreed to the admissibility, the authenticity, and the truth of the facts contained in the ground lease. The BTA held no hearing, and the parties reasserted their positions to the BTA by brief.
{¶ 7} The ground lease presented to the BOR2 is a contract dated December 16, 1998, and executed on that date between Gregory and Vincenza Caniglia as landlord and Giant Eagle, Inc., as tenant.3 It contemplated adapting the .501-acre site into a parking area for a neighboring Giant Eagle store. The lease stated a ten-year term and specified a rent of $34,600 per lease year for the first five years and $37,500 per year for the second five years. Throughout the term of the lease, the tenant was responsible for repairs, utilities, and taxes. The contract conferred on the landlord a “buy-out option,” under which it could require the tenant to purchase the property for $400,000 during the first five years of the contract or $450,000 during the second five years. Another contract provision provided that if the buy-out option was not exercised during the term of the lease, the landlord was to sell and the tenant would buy the property for $450,000 at the end of the lease.
{¶ 8} On October 13, 2009, the BTA issued its decision. The BTA considered and rejected several arguments advanced by Riser that the $450,000 purchase price did not furnish the criterion of value of the property pursuant to
{¶ 9} Finally, the BTA rejected the contention that because the buy-out-option price had been agreed to in 1998, the actual resulting sale in 2005 was not “recent.” Here, the BTA relied on one of its previous decisions and on the general preference of the law for using a sale price.
{¶ 10} Because it found that Riser had not impugned the recency or arm‘s-length character of the sale, the BTA used the sale price of $450,000 as the criterion of value of the property as of January 1, 2005. Riser timely appealed, and we now affirm.
II. Analysis
{¶ 11}
{¶ 13} In the present case, the dispute centers on whether the December 2005 sale price that was negotiated as part of the December 1998 ground lease qualifies as the price in a recent, arm‘s-length transaction for purposes of
A. As the opponent of using the sale price as the criterion of value, Riser had the initial burden to show that the 2005 sale was either not recent or not at arm‘s length
{¶ 14} At the outset, we address Riser‘s third proposition of law, under which Riser contends that the BTA should have put the burden on the school board to “establish that the transfer was probative evidence of value despite the fact that the sale was negotiated seven years before [the] lien date and by related parties.” Riser predicates this argument on the fact that the BOR had rejected the school board‘s contention that the sale price established the value of the property.
{¶ 15} It is true that the appellant at the BTA typically bears the burden to establish a different valuation from the one determined below, Colonial Village, Ltd. v. Washington Cty. Bd. of Revision, 123 Ohio St.3d 268, 2009-Ohio-4975, 915 N.E.2d 1196, ¶ 23. But when the issue is whether a proffered sale price should be used to value the property, the burden at the BTA is usually on the same party who bore that burden at the BOR: the opponent of using the sale price. Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222.
{¶ 16} That burden does not shift at the BTA even if the BOR decided not to use the sale price as the criterion of value. In Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 124 Ohio St.3d 27, 2009-Ohio-5932, 918 N.E.2d 972, ¶ 1, the board of revision had rejected the sale price as the value of the property at issue. Id. at ¶ 11. The property owner contended that the board of education had the burden at the BTA to show that the proposed sale price was indicative of value. Id. at ¶ 27. But we rejected that contention, holding that “the BTA was justified in viewing the conveyance-fee statement and the deed that the school board had presented to the BOR as constituting a prima facie showing of value.” Id. at ¶ 28. By the same token, the conveyance-fee statement
{¶ 17} Thus, the burden at the BTA lay on Riser to show why the price reported for the 2005 sale did not constitute the criterion of value for the property.
B. Riser failed to negate the recency of the sale
{¶ 18} Under its first proposition of law, Riser focuses primarily on the contention that “the instant matter does not involve a recent, arm‘s-length sale because the sale price was agreed upon seven years prior to the lien date and [was] thus not reflective of current market conditions as of January 1, 2005.” As a result, according to Riser, the sale did not occur “within a reasonable length of time, either before or after the tax lien date” as required by
{¶ 19} Riser is mistaken. Although the sale price in this case was negotiated in 1998, the sale was not consummated until 2005.
{¶ 20} We hold that Riser‘s position cannot be reconciled with our analysis of the meaning of “recent” in HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-687, 923 N.E.2d 1144. In HIN, the court confronted a situation in which two sales of a property had occurred close to the tax-lien date, one before and one after that date. After determining that
{¶ 21} Under HIN, L.L.C., December 29, 2005, is the date of the sale in this case. Because the sale occurred within a year after the tax-lien date, and because Riser offered no evidence of a change in market conditions between the lien date and the filing of the conveyance-fee statement, the sale was “recent” for purposes of
{¶ 22} In so holding, we do not mean to say that evidence of market change between the date the sale price was negotiated and the date the sale was consummated or a change to the property itself would never be relevant to whether the sale price constitutes the value of the property under
{¶ 23} For the foregoing reasons, Riser failed to show that the December 2005 sale was not within a reasonable time after the January 1, 2005 tax-lien date for tax-valuation purposes.
C. Riser did not show that the long-standing contractual obligation to purchase made the sale involuntary or that a lack of open-market elements was significant
{¶ 24} An arm‘s-length transaction possesses three primary characteristics: it is “voluntary, i.e., without compulsion or duress; it generally takes place in an open market; and the parties act in their own self-interest.” Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 13, quoting Walters v. Knox Cty. Bd. of Revision (1989), 47 Ohio St.3d 23, 25, 546 N.E.2d 932. Under Riser‘s second proposition of law, Riser asserts that the 2005 sale was not voluntary, because under the 1998 ground lease, the “parties were compelled to comply with the buy-out provisions in the lease when the option was exercised, despite the fact that the buy-out price was determined in 1998.” Significantly, Riser does not argue that the 1998 contract itself was the product of compelling business circumstances. To this contention of duress Riser adds that “the transfer did not take place on the open market.” Neither of these contentions establishes legal error in the BTA‘s decision.
1. Riser did not prove duress
{¶ 25} As noted, a sale must be voluntary to be at arm‘s-length, Strongsville at ¶ 13, and
{¶ 26} Of course the contractual obligation to purchase does not establish duress as a general matter. Most sales occur pursuant to a contract, and the mere fact that the parties obligate themselves before actually transferring the property does not negate the voluntary character of the sale or establish that the sale did not occur on an open market.
{¶ 27} What makes the present case atypical is the duration of the sales contract—i.e., the unusual length of time between the agreement on the sale price and the consummation of the sale. Riser argues that the longer the lapse of time between the negotiation of a sale price and the consummation of the sale, the more likely it is that the character of the property or the market for that property has changed. See Quarto Mining Co. v. Litman (1975), 42 Ohio St.2d 73, 87, 71 O.O.2d 58, 326 N.E.2d 676 (the owner of mineral rights and accompanying option to purchase was entitled to compel the sale of some of the surface land, but the price agreed on decades before had to be adjusted to reflect current market value). Riser proposes that the court adopt a six-year bright-line rule, under which a lapse of six years between the execution of a sales contract and the tax-lien date would raise a presumption that the sale price does not reflect true value.
{¶ 28} Although the time between the 1998 ground lease and the 2005 sale is lengthy, the record does not suggest any frustration of contractual expectations on the part of either party to the 1998 ground lease. That agreement expressly provided the purchaser with the opportunity to develop the property as a parking area for its store. Nor has Riser presented any evidence of changes in market conditions from 1998 to 2005 that affected the property or changes to the property during that time that would indicate that the contract price does not reflect the property‘s value. Because the 1998 contract contemplated the adaptation of the property as a parking lot, and because that development apparently occurred, there is no basis for concluding that the agreed price does not reflect the property‘s value.
2. The lack of elements of an open-market sale did not negate the arm‘s-length character of the sale
{¶ 29} As for the open-market character of the sale, we have held that an arm‘s-length transaction is one that “’generally takes place in an open market.‘” (Emphasis added.) Strongsville, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 13, quoting Walters, 47 Ohio St.3d at 25, 546 N.E.2d 932. The case law does not condition character of a sale as an arm‘s-length transaction on whether the property was advertised for sale or was exposed to a broad range of potential buyers. See Walters at 26 (Douglas, J., concurring in judgment only) (distin-
{¶ 30} After Walters, the BTA in a long line of cases has correctly applied the definition of arm‘s-length transaction to “private sales,” i.e., sales that do not bear the indicia of open-market transactions.4 Although the presence of open-market elements definitely militates in favor of finding a transaction to have been at arm‘s length, the BTA decisions establish that their absence does not necessarily negate the arm‘s length character of the transaction.
{¶ 31} As a result, the arm‘s-length character of the sale provision of the ground lease is not impugned by the fact that the seller may not have solicited offers from purchasers other than the nearby Giant Eagle, which wanted to use the property as a parking lot.
D. Riser failed to present a specific argument in support of its contention that the seller and buyer under the ground lease should be deemed related parties
{¶ 32} Riser also challenges the arm‘s-length character of the sale by characterizing the landlord-seller (the Caniglias) and the tenant-buyer (Riser) under the ground lease as “related parties.” Although Riser‘s argument in support of this contention is vague, Riser does assert that the seller and buyer were related because they were landlord and tenant under the ground lease. Because the buyer and seller were related, Riser argues, the $450,000 sale price was not the result of an arm‘s-length transaction for purposes of
{¶ 33} As already noted, one primary characteristic of an arm‘s-length sale is that the parties act in their own self-interest. Strongsville, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 13. The allegation that the parties to a sale are related bears on whether they are self-interested for purposes of
{¶ 34} Do the parties to the ground lease in this case qualify as related parties with respect to the sale? Beyond the bare reference to the landlord-tenant aspect of the ground lease, Riser has offered no explanation for why the parties should be considered related. Absent such an explanation, we regard this issue as having been waived, and we decline to address it. See Util. Serv. Partners, Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284, 2009-Ohio-6764, 921 N.E.2d 1038, ¶ 53 (although appellant asserted a takings claim, it effectively waived that point by supplying “[n]o argument *** regarding whether the relevant case law, applied to the facts of this case, justifies a decision in [the appellant‘s] favor“).
III. Conclusion
{¶ 35} For the reasons set forth, we reject Riser‘s contentions and find that the BTA acted reasonably and lawfully when it adopted the sale price as the value of the property. We therefore affirm the decision of the BTA.
Decision affirmed.
O‘CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O‘DONNELL, LANZINGER, CUPP, and MCGEE BROWN, JJ., concur.
Britton, Smith, Peters & Kalail Co., L.P.A., and Karrie M. Kalail, for appellee North Royalton City School District Board of Education.
Siegel, Siegel, Johnson & Jennings Co., L.P.A., J. Kieran Jennings, and Jason P. Lindholm, for appellant.