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lease

plaintiffappeallease

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Clayton v. County of Los Angeles, 26 Cal.App.3d 390, 102 Cal.Rptr. 687

Facts

The case involved taxpayers seeking a refund for property taxes paid on a department store leased to the May Company. The lease, which began in 1965, allowed the May Company to renew for an additional sixty years, effectively granting them exclusive possession until 2055. The deputy assessor appraised the property at $5,420,000, while the taxpayers' appraisers valued it between $3,300,000 and $3,600,000, primarily due to the lease not generating economic rent.

The property in question is improved with a department store leased to the May Company for thirty years starting in August 1965. The lease agreement gives the May Company an option to renew the lease for sixty additional one year terms.

Issue

The main issue was whether the appraiser could consider the economic rental value of the property in determining its full cash value, even when the actual rental income was below that economic rental.

The question which is determinative of this appeal is simply this: in determining the ‘full cash value’ (Cal.Const., art. XIII, s 37; Rev. & Tax.Code, s 110) of plaintiffs' fee interest in the real property, should the appraiser take into account the ‘economic rental’ (De Luz Homes, Inc., v. County of San Diego, 45 Cal.2d 546, 558, 290 P.2d 544), even if—as here—the actual rental income from the property was below the economic rental?

Rule

The court applied the principle that assessors can use economic rental values in property appraisals, as established in De Luz Homes, Inc. v. County of San Diego, even if the actual rental income is less.

The principle of the case applies, nevertheless, Said the court: ‘. . . In practice, assessors usually enter the entire value of land and improvements on the tax roll without distinction between possessory and reversionary interests, and since this practice results in a single amount reflecting both interests on the roll, the constitutional mandate that all property be taxed is obeyed.

Analysis

The court analyzed the appraiser's methods, noting that the deputy assessor used economic rent rather than the actual rent from the May Company lease. The court found that the appraiser's approach was consistent with established legal principles, emphasizing that the value of the property should reflect its potential rather than the limitations imposed by a suboptimal lease.

Just as White's figure was based on the economic rent of the property, so did plaintiffs' appraisers merely look to the terms of the May Company lease; yet one of them admitted that a prudent investor would not regard that lease as a good one.

Conclusion

The court affirmed the judgment of the lower court, concluding that the assessment of the property was valid and that the appraiser's use of economic rental value was appropriate.

The judgment is affirmed.

Who won?

The taxing authorities prevailed in the case because the court upheld the assessment based on economic rental value, which was deemed appropriate despite the actual rental income being lower.

The court's final decision or holding in 1–2 sentences.

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Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 134 S.Ct. 2398, 189 L.Ed.2d 339, 82 USLW 4522, Fed. Sec. L. Rep. P 98,003, 88 Fed.R.Serv.3d 1472, 2014 Daily Journal D.A.R. 8004, 24 Fla. L. Weekly Fed. S 897

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