Sheffield Crossing Station, L.L.C. v. Lorain Cty. Bd. of Revision

[Cite as Sheffield Crossing Station, L.L.C. v. Lorain Cty. Bd. of Revision, 2020-Ohio-6938.]

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Sheffield Crossing Station, L.L.C., :

Appellant-Appellant, :
No. 19AP-687
v. : (B.T.A. No. 2018-926)

Lorain County Board of Revision et al., : (REGULAR CALENDAR)

Appellees-Appellees. :

D E C I S I O N

Rendered on December 29, 2020

On brief: The Gibbs Firm, LPA, Ryan J. Gibbs, and Geoffrey
N. Byrne, for appellant Sheffield Crossing Station, L.L.C.
Argued: Geoffrey N. Byrne.

On brief: Pepple & Waggoner, Ltd., and Christian M.
Williams, for appellees Sheffield-Sheffield Lake City School
District Board of Education. Argued: Christian M.
Williams.

On brief: Dennis P. Will, Lorian County Prosecuting
Attorney, and Cara M. Finnegan, for appellees Lorian County
Board of Revision and Lorian County Auditor. Argued:
Cara M. Finnegan.

APPEAL from the Ohio Board of Tax Appeals

BEATTY BLUNT, J.

{¶ 1} Appellant Sheffield Crossing Station, L.L.C., appeals the September 10, 2019
decision of the Ohio Board of Tax Appeals ("BTA") valuing the subject property, a shopping
mall consisting of ten combined tax parcels with an anchor tenant of Giant Eagle, for tax
year 2017 at the December 23, 2015 purchase price of $16,095,000. The BTA's opinion
neatly summarizes the facts and proceedings in this case:
No. 19AP-687 2

The subject property is a shopping center anchored by a Giant
Eagle. The subject sold on December 23, 2015 for $16,095,000.
The record shows a company called Sheffield Ridge Equities
LLC sold the subject property—ten parcels in total—to Sheffield
Crossing via limited warranty deed, and the deed was recorded
on December 23, 2015. The parcel card confirms general sale
information, including a sale price of $16,095,000. The parties
do not dispute the sale date or sale price.

The auditor valued the subject property at approximately
$13,693,350 for tax year 2017. Sheffield Crossing filed a
decrease complaint with an opinion of value at $11,950,000,
and the appellee school board filed a counter-complaint asking
the subject to be valued in accordance with the December 2015
sale. Sheffield Crossing did not appear at the BOR hearing but
did submit an appraisal developed by Richard G. Racek, Jr.,
MAI, which valued the property at $11,950,000 as of January 1,
2015. The school board objected to the appraisal since the
appraisal was for a different tax-lien date and because Mr.
Racek did not appear to authenticate the appraisal. The school
board instead relied on the information contained in the sale
documents and asked the BOR to value the subject in
accordance with the sale. The BOR agreed with the school
board and ultimately did value the subject in accordance with
the sale.

Sheffield Crossing appealed to [the BTA]. At [the BTA's]
evidentiary hearing, Sheffield Crossing offered the appraisal
and testimony of Mr. Racek who valued the subject (in a new
appraisal) at $11,250,000 as of January 1, 2017. The BOR
offered the appraisal and testimony of Thomas D. Sprout, MAI,
who valued the subject at $17,655,000 as of January 1, 2017.
No party offered testimony from a person with actual
knowledge of the December 2015 sale.

Mr. Racek valued the subject [property] at $11,250,000 using
the sales comparison and income capitalization approach * * *.
[He concluded a sales comparison] value of $100 per square
foot or $11,368,800 * * *. Capitalized at 8%, Mr. Racek's
income approach came to $11,150,000 rounded. He reconciled
both approaches to a value of $11,250,000 as of the tax-lien
date.

Mr. Sprout valued the subject at a combined $17,655,000 using
the sales comparison and income capitalization approaches.
For his sales comparison approach, Mr. Sprout segregated the
shopping center into smaller subunits, e.g., the anchor, the in-
line retail space, a Cracker Barrel, an Arby's, a BP, an auto
No. 19AP-687 3

service garage. He then compared each subunit using
comparable properties. He followed a similar method in his
income approach and reconciled each individually.

***

[W]e find no credible evidence to show the December 2015 sale
was anything but arm's-length. Although the subject was
allegedly sold as part of a portfolio sale, no party presented
evidence from any person with actual knowledge of the sale;
therefore, the sale created a rebuttable presumption of value in
favor of the sale price. Second, while Sheffield Crossing argues
the sale should be rejected because the sale was for a fee simple
estate subject to an existing lease, the record is clear the sale
price and existing lease rates were in line with market rates. As
we noted recently * * * a fee simple sale subject to a lease does
not disqualify a sale unless the lease is above market.

Ultimately, this case boils down to the fact that the sale is more
persuasive evidence of value. * * * The appraisal process
requires a wide variety of subjective judgments about
underlying data. Here, two MAI appraisers developed very
different appraisals using different methodologies. One came
to an opinion of value below the sale. One came to an opinion
of value above the sale. However, both appraisals contain raw
data that suggests to [the BTA] that the sale was in accord with
the market.

We are further compelled to find the sale is the best evidence of
value because both appraisals have features that make them
less persuasive than the sale. For example, Mr. Racek valued
the property using a definition of encumbrance that this board
and the Ohio Supreme Court have rejected. Sheffield Crossing
argues R.C. 5713.03 required Mr. Racek "to value the property
not as if it were leased as of January 1, 2017, but as if the
property were available to be leased on that date. As [the BTA]
noted * * * the Ohio Supreme Court rejected such [an]
argument in Harrah's Ohio Acquisition Co, LLC v. Cuyahoga
Cty. Bd. of Revision, 154 Ohio St.3d 340, 2018-Ohio-4370.

(Decision at 2-6.)
{¶ 2} In accordance with its rejection of the appraisals, the BTA adopted the 2015
sale price as the true value of the property for tax year 2017. Sheffield Crossing Station
appeals to this court, and asserts 14 assignments of error with that decision:
[I.] The Board of Tax Appeals erred by adopting the recent sale
price of a leased-encumbered property as the value for tax
No. 19AP-687 4

purposes when the record contained competent and probative
appraisal evidence of the subject property's unencumbered
value.

[II.] The Board of Tax Appeals erred as a matter of law when it
determined that the recent lease-encumbered sale price
remained the "best evidence" of value despite being
affirmatively rebutted by unencumbered appraisal evidence.

[III.] The Board of Tax Appeals erred when it found that a sale
is the best evidence of value when its leases are "at market"
despite this premise being explicitly rejected by the Ohio
Supreme Court in Terraza 8, L.L.C. v. Franklin County Board
of Revision, 83 N.E.3d 916, 150 Ohio St.3d 527, 2017-Ohio-
4415.

[IV.] The Board of Tax Appeals erred as a matter of law when it
held that the proper value standard in Ohio is "fee simple sale
subject to a lease" at market when R.C. 5713.03 explicitly states
that property must be valued "as if unencumbered."

[V.] The Board of Tax Appeals erred as a matter of law when it
adopted a lease-encumbered sale price, without any
adjustment, when the Ohio Supreme Court has previously
stated that R.C. 5713.03 demands valuation "free of
encumbrances such as leases."

[VI.] The Board of Tax Appeals erred by deviating from the
plain meaning of a clear and unambiguous statute.

[VII.] The Board of Tax Appeals erred as [a] matter of law when
it found that the fact that the recent sale of the subject property
was "market driven" overrode the requirement that only the
subject property's unencumbered value be taxed under R.C.
5713.03.

[VIII.] The Board of Tax Appeals' use of appraiser Thomas
Sprout's lease comparables for the subject property's anchor
space as support for adopting the sale price is an
unconscionable abuse of discretion as each of the leases were
signed more than a decade prior to the tax lien date. The Board
has previously rejected this same approach from Mr. Sprout in
Lowe's Home Centers, LLC v. Lorain Cty. Bd. of Revision, BTA
No. 2017-1023 (August 12, 2019) & Lowe's Home Centers, LLC
v. Lorain Cty. Bd. of Revision, BTA No. 2017-1135 (August 21,
2019). This treatment by the Board is violative of the Equal
Protection and uniform assessment requirements set forth in
Errors 12 and 13 herein.
No. 19AP-687 5

[IX.] The Board of Tax Appeals erred as a matter of law when it
rejected Appellant's argument that R.C. 5713.03 requires
valuation "as if available to be leased" rather than "as if it were
leased as of January 1, 2017," and in its misstatement of the
Ohio Supreme Court's decision Harrah's Ohio Acquisition Co.,
LLC v. Cuyahoga Cty. Bd. of Revision, 154 Ohio St.3d 340,
2018-Ohio-4370 to support this rejection.

[X.] The Board of Tax Appeals' rejection of Mr. Racek's
definition of "encumbrance" is wholly unsupported by the
record and is in active defiance of the Ohio Supreme Court's
holdings in Lowe's Home Centers, Inc. v. Washington County
Bd. of Revision, 116 N.E.3d 79, 154 Ohio St.3d 463, 2018-Ohio-
1974 and Harrah's Ohio Acquisition Co., LLC v. Cuyahoga Cty.
Bd. of Revision, 154 Ohio St.3d 340, 2018-Ohio-4370.

[XI.] The Board of Tax Appeals erred by failing to
independently determine the unencumbered value of the
subject property using the unencumbered data in the record.

[XII.] The Board of Tax Appeals decision violates the
separation of powers implied by the Ohio Constitution in
Articles II, III and IV and the United States Constitution.

[XIII.] The Board of Tax Appeals' decision and order violates
the Ohio Constitution's mandate of uniform assessment.
Article XII, Section 2.

[XIV.] The Board of Tax Appeals' decision and order violates
the Equal Protection clauses under Article I, Section 2 of the
Ohio State Constitution and the Fourteenth Amendment of the
United States Constitution by applying the definition of fee
simple, as if unencumbered, and interpreting §5713.03 of the
Ohio Revised Code, in a manner that discriminates against
certain taxpayers.

As these assignments of error are all related, we will address them together.
{¶ 3} Our review of the BTA's decision is governed by R.C. 5714.04, which provides:
Appeals from decisions of the board upon all other appeals or
applications filed with and determined by the board [including
decisions from a county board of revision] shall be by appeal to
the court of appeals for the county in which the property taxed
is situation or in which the taxpayer resides * * *. If upon
hearing and consideration of such records the court decides
that the decision of [the BTA] is reasonable and lawful it shall
affirm the same, but if the court decides that such decision of
the board is unreasonable or unlawful, the court shall reverse
No. 19AP-687 6

and vacate the decision or modify it and enter final judgment
in accordance with such modification.

Accordingly, "[w]hen reviewing a BTA decision, we determine whether the decision is
reasonable and lawful; if it is both, we must affirm." NWD 300 Spring L.L.C. v. Franklin
Cty. Bd. of Revision, 151 Ohio St.3d 193, 2017-Ohio-7579, ¶ 13 (citing statute). See also MDC
Coast I, L.L.C. v. Union Cty. Bd. of Revision, 10th Dist. No. 18AP-721, 2020-Ohio-683, ¶ 7.
Appellate review of BTA decisions "is guided by the premise that '[t]he fair market value of
property for tax purposes is a question of fact, the determination of which is primarily
within the province of the taxing authorities.' " (Other citation omitted.) NWD 300 Spring
at ¶ 13, quoting EOP-BP Tower, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 1,
2005-Ohio-3096, ¶ 17. The BTA's factual findings are entitled to deference as long as they
are supported by reliable and probative evidence in the record. Bd. of Edn. of the
Westerville City Schools v. Franklin Cty Bd. of Revision, 146 Ohio St.3d 412, 2016-Ohio-
1506, ¶ 26. Furthermore, "[t]he standard for reviewing the BTA's determination of the
credibility of witnesses and the weight to be given their testimony is abuse of discretion."
NWD 300 Spring at ¶ 14. Thus, where the parties present competing appraisals, the BTA is
vested with wide discretion in determining credibility of the witnesses and weighing the
evidence before it. Bd. of Edn. of the Westerville City Schools at ¶ 21 and NWD 300 Spring
at ¶ 13. The BTA's decision finding one appraisal more probative than another appraisal
and adopting a land value in one appraisal over the land value in another appraisal is
reviewed for an abuse of discretion. Id. at ¶ 16. " 'Abuse of discretion connotes an
unreasonable, arbitrary, or unconscionable attitude.' " Olentangy Local Schools Bd. of Edn.
v. Delaware Cty. Bd. of Revision, 153 Ohio St.3d 241, 2017-Ohio-8385, ¶ 7, quoting Renacci
v. Testa, Tax Commr., 148 Ohio St.3d 470, 2016-Ohio-3394, ¶ 32. And although the BTA
is responsible for determining factual issues, this court will not hesitate to reverse a BTA
decision that is based on an incorrect legal conclusion. Bd. of Edn. of the Westerville City
Schools at ¶ 21. We review questions of law de novo. See Terraza 8, L.L.C. v. Franklin Cty.
Bd. of Revision, 150 Ohio St.3d 527, 2017-Ohio-4415, ¶ 7, and Columbus City Schools Bd.
of Edn. v. Franklin Cty. Bd. of Revision, 151 Ohio St.3d 12, 2017-Ohio-2734, ¶ 13. See also
MDC Coast I, L.L.C. at ¶ 7.
{¶ 4} Like other recent decisions of this court, see, e.g., MDC Coast I, L.L.C. at ¶ 9-
16, and Lowe's Home Ctrs., L.L.C. v. Brooklyn City Sch. Dist. Bd. of Edn., 10th Dist. No.
No. 19AP-687 7

19AP-179, 2020-Ohio-464, ¶ 21-27, this valuation dispute revolves around the 2012
amendment to R.C. 5713.03. Prior to this amendment, a recent arm's-length sale was
deemed to create an irrebuttable presumption of true value. See generally Berea City
School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-
4979. But in 2012, the legislature overrode Berea City, and specifically the three words "as
if unencumbered." The statute now provides:
The county auditor, from the best sources of information
available, shall determine, as nearly as practicable, the true
value of the fee simple estate, as if unencumbered but subject
to any effects from the exercise of police powers or from other
governmental actions, of each separate tract, lot, or parcel of
real property and of buildings, structures, and improvements
located thereon * * *. In determining the true value of any tract,
lot, or parcel of real estate under this section, if such tract, lot,
or parcel has been the subject of an arm’s length sale between
a willing seller and a willing buyer within a reasonable length
of time, either before or after the tax lien date, the auditor may
consider the sale price of such tract, lot, or parcel to be the true
value for taxation purposes. However, the sale price in an arm's
length transaction between a willing seller and a willing buyer
shall not be considered the true value of the property sold if
subsequent to the sale: (A) The tract, lot, or parcel of real estate
loses value due to some casualty; (B) An improvement is added
to the property.

(Emphasis sic.) R.C. 5713.03.
{¶ 5} In Terraza 8, the Supreme Court concluded that the 2012 amendment to the
statute had the effect of legislatively overruling Berea, and held that "a recent arm's-length
sale price is not conclusive evidence of the true value of property under R.C. 5713.03 as
amended by H.B. 487." Id. at ¶ 30. The court went on to observe that while "sale price * * *
is the best evidence of the property's true value, subject to rebuttal * * * Market rent
becomes relevant only if an opponent presents it as evidence in an attempt to rebut a sale
price." Id. at ¶ 34.
{¶ 6} The court further explained the amendment in Harrah's Ohio Acquisition
Co., L.L.C. v. Cuyahoga Cty. Bd. of Revision, 154 Ohio St.3d 340, 2018-Ohio-4370, in
which it held that the BTA had wrongly refused to consider an appraisal that valued owner-
occupied property as if it had been leased. The court observed that it had previously
approved that technique:
No. 19AP-687 8

After recognizing that a property owner may be able to realize
the value of its property by encumbering it with a lease, we
concluded that an appraiser may take that possibility into
account when valuing it. Appraising property in this way is
consistent with R.C. 5713.03's directive to determine "the true
value of the fee simple estate, as if unencumbered," so long as
the appraisal assumes a lease that reflects the relevant real-
estate market.

(Citations omitted.) Id. at ¶ 27. In other words, the court has held that the phrase "as if
unencumbered," means that if the subject property is encumbered, an appraisal should
adjust for the effects of those encumbrances. Such adjustments account for market rent and
occupancy levels, and not simply to simulate vacancy. See, e.g., Lowe's Home Ctrs. at ¶ 22.
Moreover, "[t]he proponent of appraisal evidence need not make any threshold showing
before a taxing authority must fully consider that evidence. Once a party introduces
appraisal evidence, the taxing authority has to consider that appraisal in its totality to
determine whether it or the sale price more accurately values the property." MDC Coast I
at ¶ 10, citing Spirit Master Funding IX, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 155 Ohio
St.3d 254, 2018-Ohio-4302, ¶ 6, Westerville City School Dist. Bd. of Edn. v. Franklin Cty.
Bd. of Revision, 154 Ohio St.3d 308, 2018-Ohio-2855, ¶ 14, and Menlo Realty Income
Props. 26, L.L.C. v. Franklin Cty. Bd. of Revision, 10th Dist. No. 19AP-316, 2019-Ohio-
4872, ¶ 5-6.
{¶ 7} And here, the BTA's opinion did not "fully consider" the merits of either
appraisal. Instead, it concluded that "the sale price was market driven," and that "both
appraisals contain raw data that suggests to this board that the sale was in accord with the
market," and treated that sale price as the de facto value of the property. (See Decision at
5-6.) Moreover, the BTA discarded the estimated value provided by Sheffield Crossing's
appraiser Richard Racek because it disagreed with his appraisal's underlying assumption—
that the property should be valued as unoccupied and available to lease. But given that the
use of this underlying assumption is explicitly permitted by Harrah's and Terraza 8, the
BTA's rejection of the appraisal is tantamount to ignoring it as legally incorrect rather than
fully analyzing the claims of valuation made therein. While BTA explains its rejection of the
Sheffield Crossing appraisal value as "less persuasive than the sale," it gives no basis for its
rejection other than the appraiser's underlying claim that "R.C. 5713.03 required [him] 'to
No. 19AP-687 9

value the property not as if it were leased as of January 1, 2017, but as if the property were
available to be leased on that date.' " (Decision at 5-6.)
{¶ 8} And appraisal evidence using the value of the property as available to be
leased can be (under the statute as amended) just as relevant to the true value of the
property as the sale price is. The Supreme Court of Ohio has specifically reversed and
described as "legal error" the BTA's decision to refuse to consider an appraisal assuming a
lease at market rate, as "[a]ppraising property in this way is consistent with R.C. 5713.03
directive to determine 'the true value of the fee simple estate, as if unencumbered,' so long
as the appraisal assumes a lease that reflects the relevant real-estate market." Harrah's at
¶ 27, quoted in Lowe's Home Ctrs. at ¶ 22. Racek's appraisal specifically valued the property
as if it was available for lease for the tax year at issue, and the BTA's decision does not
challenge his analysis of the relevant real-estate market and lease rates. Without more, it
was legal error for the BTA to discard Racek's appraisal, and that action undermines the
entire foundations of its decision to adopt the sale price as evidence of true value.
{¶ 9} Accordingly, we sustain Sheffield Crossing's first, second, third, fourth, fifth,
seventh, ninth, tenth, and eleventh assignments of error. Its sixth, eighth, twelfth,
thirteenth, and fourteenth assignments of error are moot and we decline to address them.
The decision the Ohio Board of Tax Appeals is hereby reversed and this cause is remanded
to that body for further proceedings in accordance with this opinion.
Decision reversed and remanded.

KLATT and NELSON, JJ., concur.