[Cite as HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 138 Ohio St.3d 223, 2014-Ohio-523.]




             HIN, L.L.C., APPELLANT, v. CUYAHOGA COUNTY BOARD
                           OF REVISION ET AL., APPELLEES.

              [Cite as HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision,
                        138 Ohio St.3d 223, 2014-Ohio-523.]
Taxation—R.C. 5713.03—Arm’s-length sale—Sale price is presumed to establish
        value—Lease encumbrance or appraisal evidence does not invalidate sale
        price.
  (No. 2012-0725—Submitted August 20, 2013—Decided February 20, 2014.)
             APPEAL from the Board of Tax Appeals, No. 2008-K-2386.
                                ____________________
        FRENCH, J.
        {¶ 1} In this appeal, the owner of an office building contests the Board
of Tax Appeals’ (“BTA’s”) decision to adopt the April 2004 sale price of $7.4
million as the property’s value for tax-year 2006. Because we have previously
addressed and rejected the legal arguments the property owner makes, and
because the BTA properly determined the value of the property, we affirm the
BTA’s decision.
                                           Facts
        {¶ 2} The property at issue is a 34-acre parcel containing a two-story,
78,500-square-foot office building. The property is located in Bedford, Ohio.
        {¶ 3} Tops Markets, L.L.C. (“Tops”), owned the property in 2003. U.S.
Bank contracted to purchase the property from Tops but later assigned its
purchasing rights to JBK Properties, Inc. (“JBK”). As of September 8, 2003, the
parties had put together a deal for JBK to purchase the property from Tops for
$4.9 million and then lease it to U.S. Bank. In fact, JBK’s purchase of the
property was contingent upon the U.S. Bank lease. JBK and U.S. Bank signed the
                                 SUPREME COURT OF OHIO




triple-net lease1 on November 1, 2003. Tops signed over the deed to JBK on
December 24, 2003, and JBK recorded the deed with the county auditor on
December 30, 2003.
        {¶ 4} In January 2004, appellant, HIN, L.L.C. (“HIN”)—a company
unaffiliated with Tops, JBK, or U.S. Bank—approached JBK about purchasing
the property. HIN was interested in buying a building with a triple-net lease in
order to close a 1031 exchange.2 On April 29, 2004, JBK transferred the property
to HIN for $7.4 million. HIN recorded the transfer with the county the next day.
        {¶ 5} The April 2004 sale was discussed by this court in a previous case.
HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-
687, 923 N.E.2d 1144 (“HIN I”). The issue in HIN I concerned the value of the
property for tax-year 2004. This court considered the December 2003 sale price
of $4.9 million as well as the April 2004 sale price of $7.4 million.                       We
determined that the December 2003 sale price was the value of the property
because it was closer in time to the tax-lien date. Id. at ¶ 30.
        {¶ 6} The same parties are back before this court to argue over the
property’s tax value for 2006. For tax-year 2006, the Cuyahoga County auditor
set the value at $8 million. HIN filed a complaint with appellee Cuyahoga
County Board of Revision (“BOR”) seeking a decrease in value to $5 million, an
amount very close to the December 2003 sale price. The BOR held a hearing on

1. In a triple-net lease, the tenant agrees to pay utilities, maintenance, real estate taxes, and
insurance. Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 112 Ohio St.3d 309, 2007-
Ohio-6, 859 N.E.2d 540, ¶ 3, fn. 1, citing Appraisal Institute, The Appraisal of Real Estate 477
(12th Ed.2001).

2. A 1031 exchange is a like-kind property exchange made to take advantage of tax benefits in 26
U.S.C. 1031. The exchanges are a method of tax deferment. “ ‘The concept behind a 1031
exchange is that, when a property owner sells a property and reinvests its proceeds into another
property, any economic gain has not been realized in a way that generates funds to pay any tax.’
Hilliard City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, BTA No. 2006-T-1804, at 7
(Jan. 13, 2009). Accordingly, the Internal Revenue Code defers the taxation of any gain from the
sale of the property in this situation.” HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio
St.3d 481, 2010-Ohio-687, 923 N.E.2d 1144, ¶ 7, fn. 2.




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HIN’s valuation complaint and reduced the property value from $8 million to the
2004 sale price of $7.4 million. HIN appealed to the BTA, seeking a reduction to
the December 2003 sale price of $4.9 million.
       {¶ 7} The BTA held a hearing at which HIN offered the testimony of
two experts, appraiser Roger Ritley and real estate investor and attorney Robert
Weiler. Both men attempted to distinguish the “leased fee,” which Weiler defined
as “ownership of real estate that’s encumbered with a lease,” from the “fee
simple,” which Weiler defined as “ownership of real estate unencumbered.” Both
also opined that a lease, such as the one between JBK and U.S. Bank, was an
intangible asset that could not be considered when determining the fee-simple
taxable value of the real property.
       {¶ 8} In his appraisal report, Ritley concluded that the $2.5 million
increase in price from 2003 to 2004 was due exclusively to the U.S. Bank lease,
which he described as “an intangible property component” of the 2004 sale. In
his view, the $7.4 million sale represented the sale of the leased fee, while the
prior $4.9 million sale represented the sale of the fee simple. Ritley appraised the
property at $5.1 million for tax-year 2006, recognizing just a slight appreciation
from the December 2003 sale price.
       {¶ 9} Appellee Bedford City School District Board of Education did not
introduce any appraisal evidence. It submitted only the deed and conveyance
statement showing the details of the April 2004 sale for $7.4 million.
       {¶ 10} Relying on recent case law from this court, the BTA rejected
HIN’s contention that the $7.4 million sale price did not reflect the taxable value
of the property because of the long-term lease encumbrance. HIN, L.L.C. v.
Cuyahoga Cty. Bd. of Revision, BTA No. 2008-K-2386, 2012 WL 1257409, *3
(Mar. 27, 2012). The BTA also held that because the April 2004 sale was a recent
arm’s-length transaction, it would be “inappropriate to consider the alternative




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evidence of value offered by appellant,” such as Ritley’s appraisal. Id. at *5. The
BTA therefore upheld the $7.4 million sale price as the best evidence of value.
        {¶ 11} In this appeal, HIN requests that we reverse the BTA. HIN argues
that the $7.4 million sale price does not represent the taxable value of the
property, because the property was sold with a lease encumbrance. HIN further
argues that the BTA erred in not considering HIN’s independent appraisal as
alternative evidence of value. For the reasons that follow, we affirm the BTA.
                                            Analysis
    A Recent Arm’s-Length Sale Price Establishes the Value of the Property
        {¶ 12} Our analysis begins with former R.C. 5713.03, Am.Sub.H.B. No.
260, 140 Ohio Laws, Part II, 2665, 2722, which was in effect for tax-year 2006.3
Former R.C. 5713.03 provides:


        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 shall consider the sale price of
        such tract, lot, or parcel to be the true value for taxation purposes.


Am.Sub.H.B. No. 260, 140 Ohio Laws, Part II, at 2722. This provision mandates
that a recent arm’s-length sale price be used as the criterion for a property’s value.
Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d


3. At oral argument, counsel for HIN took the position that the amended version of R.C. 5713.03,
effective in 2012, should apply to this case. We reject this suggestion. Instead, we apply the
substantive tax law that was in effect for the relevant valuation year. Sapina v. Cuyahoga Cty. Bd.
of Revision, 136 Ohio St.3d 188, 2013-Ohio-3028, 992 N.E.2d 1117, ¶ 20, fn. 1. The 2012
amendments to R.C. 5713.03 do not apply to a determination of value for tax-year 2006.
Accordingly, we apply the former version of R.C. 5713.03 here.




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                                 January Term, 2014




516, 2008-Ohio-1473, 885 N.E.2d 222, ¶ 13, citing Berea City School Dist. Bd. of
Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834
N.E.2d 782, ¶ 13.
       {¶ 13} HIN does not dispute that the April 2004 sale was recent and at
arm’s length. Instead, HIN contends that there are “factors other than a sale’s
arm’s length nature and recency which can render a sale unrepresentative of
value.” The factors that HIN identifies here are (1) the existence of the long-term
lease and (2) HIN’s appraisal.
       {¶ 14} HIN is mistaken. A sale price is presumed to establish the value of
real property.   Cincinnati School Dist. Bd. of Edn. v. Hamilton Cty. Bd. of
Revision, 78 Ohio St.3d 325, 327, 677 N.E.2d 1197 (1997). The only way a party
can show that a sale price is not representative of value is to show that the sale
was either not recent or not an arm’s-length transaction. Cummins at ¶ 13 (“a sale
price is deemed to be the value of the property, and the only rebuttal lies in
challenging whether the elements of recency and arm’s-length character * * * are
genuinely present”); HIN I, 124 Ohio St.3d 481, 2010-Ohio-687, 923 N.E.2d
1144, at ¶ 27 (“the only considerations articulated in R.C. 5713.03 are whether the
property has been the subject of an arm’s-length sale between a willing seller and
a willing buyer within a reasonable length of time”).
       {¶ 15} The cases HIN relies upon do not support its position.            In
Cincinnati School Dist. Bd. of Edn., we did not recognize any additional factors—
beyond recency and arm’s-length character—that could render a sale price not
representative of value. Indeed, in that case, the only relevant factor was whether
the sale at issue was an arm’s-length transaction. Id. at 327-328. Pingue v.
Franklin Cty. Bd. of Revision, 87 Ohio St.3d 62, 717 N.E.2d 293 (1999), is
similarly unhelpful to HIN. To the extent that Pingue supports HIN’s position,
Pingue relied on Ratner v. Stark Cty. Bd. of Revision, 23 Ohio St.3d 59, 491




                                         5
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N.E.2d 680 (1986), which was later overruled in Berea, 106 Ohio St.3d 269,
2005-Ohio-4979, 834 N.E.2d 782, at ¶ 13.
       {¶ 16} HIN also cites Higbee Co. v. Cuyahoga Cty. Bd. of Revision, 107
Ohio St.3d 325, 2006-Ohio-2, 839 N.E.2d 385, as a case in which “the Court
rejected the use of a recent sale price.” HIN cites one sentence from our opinion,
which stated that although Higbee had “purchased the land for $10, neither of
Higbee’s appraisers valued the land at $10,” id. at ¶ 45, and thus argues that we
ignored the sale price of the property in favor of the appraisal evidence. We
disagree with this characterization. Higbee had purchased undeveloped land and
then constructed a department store. We attempted to determine whether the
BTA properly valued the developed parcel, which had never been sold, by
looking to competing appraisals. The purchase price of the undeveloped land was
not pertinent. Our decision simply did not involve the issue whether the sale price
ought to be regarded as the property’s value. Accordingly, HIN’s citation of
Higbee is unavailing.
       {¶ 17} Next, HIN cites Berea, in which we stated that “ ‘[a]ppraisals
based upon factors other than sale price are appropriate for use in determining
value only when no arm’s-length sale has taken place, or where it is shown that
the sale price is not reflective of the true value.’ ” (Emphasis deleted and added;
citation omitted.) Berea at ¶ 15, quoting Columbus Bd. of Edn. v. Fountain
Square Assocs., Ltd., 9 Ohio St.3d 218, 219, 459 N.E.2d 894 (1984). Again, this
quotation does not support HIN’s attempt to look beyond the arm’s-length
character or recency of a sale. In Berea, we held that outside appraisals would be
appropriate only when (1) there was no sale at all, id., or (2) there was a sale, but
it was not indicative of value, either because it was not recent or not at arm’s
length, id. at ¶ 14. Berea does not hold that a recent arm’s-length sale could
somehow not reflect true value. In fact, it explicitly holds that a recent arm’s-




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length sale price is always reflective of tax value, regardless of what competing
appraisals might say. Id. at ¶ 13-16.
       {¶ 18} Accordingly, the only way HIN could show that the 2004 sale
price was not indicative of value would be to challenge the recency or arm’s-
length character of the sale; HIN challenged neither. Therefore, the 2004 sale
price established the value of the property. The extraneous factors HIN cites—the
U.S. Bank lease and the Ritley appraisal—are irrelevant.
          Neither the Lease Encumbrance Nor the Appraisal Evidence
                            Invalidates the Sale Price
       {¶ 19} Nevertheless, HIN attempts to make the lease relevant by arguing
that because the property was sold with the lease attached, and because leases are
not taxable, the sale price does not reflect the true value of the property for tax
purposes. HIN claims that the 2004 sale represents the value of the leased fee, not
the unencumbered fee simple.       It argues that we must value property in its
unencumbered state.
       {¶ 20} We have rejected this argument numerous times. In Berea, 106
Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782, we faced the question of how
to value a property subject to two long-term leases. The property had recently
been sold in an arm’s-length transaction. The board of education argued that the
BTA should have disregarded the sale price and valued the property as if
unencumbered with the leases. The board also presented appraisal evidence of
what that unencumbered value would be. We rejected the board’s arguments and
held that when there has been a recent arm’s-length sale, the taxing authority must
disregard appraisal evidence and accept the sale price as the true tax value of the
property, regardless of any lease encumbrances. Thus, despite HIN’s contentions,
a recent arm’s-length sale price establishes the value of real property for tax
purposes even if that property is encumbered by a long-term lease. See also AEI
Net Lease Income & Growth Fund v. Erie Cty. Bd. of Revision, 119 Ohio St.3d



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563, 2008-Ohio-5203, 895 N.E.2d 830, ¶ 17 (“we reject the contention that the
existence of a long-term lease resulting from a sale-leaseback makes the
subsequent sale price not indicative of true value”); Cummins, 117 Ohio St.3d
516, 2008-Ohio-1473, 885 N.E.2d 222, at ¶ 18 (“the arm’s-length sale price of a
legal fee interest should not be adjusted on account of the mere existence of an
encumbrance” [emphasis sic]); Dublin City Schools Bd. of Edn. v. Franklin Cty.
Bd. of Revision, 118 Ohio St.3d 45, 2008-Ohio-1588, 885 N.E.2d 934, ¶ 12
(same); Rhodes v. Hamilton Cty. Bd. of Revision, 117 Ohio St.3d 532, 2008-Ohio-
1595, 885 N.E.2d 236, ¶ 3 (holding that a sale price established the tax value of
property, even though the property was encumbered by a long-term lease).
       {¶ 21} Not only have we affirmed this rule numerous times, we also have
affirmed it in regard to this exact piece of property. HIN I, 124 Ohio St.3d 481,
2010-Ohio-687, 923 N.E.2d 1144, at ¶ 27. In HIN I, we told the parties that
former R.C. 5713.03 “contains no exception for the auditor to value property
encumbered by a lease any differently from unencumbered property.” Id. at ¶ 27.
That principle was true then and it remains true now: the U.S. Bank lease does
not affect our duty to accept the recent arm’s-length sale price as the true value of
the property.
       {¶ 22} HIN attempts to refute this precedent by citing general appraisal
principles.     The appraisal profession defines “fee simple” as “[a]bsolute
ownership unencumbered by any other interest or estate, subject only to the
limitations imposed by the governmental powers of taxation, eminent domain,
police power, and escheat.” Appraisal Institute, The Appraisal of Real Estate 114
(13th Ed.2008).     By contrast, when a property is encumbered by a lease,
appraisers define the property as a “leased fee.” Id. At the BTA hearing, HIN’s
witnesses testified to these terms and distinctions.




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        {¶ 23} But we have already pointed out that these definitions, though no
doubt useful for how appraisers understand their assignments, simply do not
define the subjects of taxation under Ohio law:


                  The distinction between “fee simple” and “leased fee” is
        one drawn in the context of appraisal practice.      The appraisal
        industry uses the term “fee simple” to refer to unencumbered
        property—or to property appraised as if it were unencumbered.
        This distinction is not one recognized by the law, however. A “fee
        simple” may be absolute, conditional, or subject to defeasance, but
        the mere existence of encumbrances does not affect its status as fee
        simple.


(Citations omitted.)     Meijer Stores Ltd. Partnership v. Franklin Cty. Bd. of
Revision, 122 Ohio St.3d 447, 2009-Ohio-3479, 912 N.E.2d 560, ¶ 23, fn. 4.
Accordingly, the appraisal-profession standards espoused by HIN’s experts do not
alter our legal analysis.
        {¶ 24} Additionally, HIN relies on Alliance Towers, Ltd. v. Stark Cty. Bd.
of Revision, 37 Ohio St.3d 16, 523 N.E.2d 826 (1988), in support of its position
that we must value the property as if unencumbered by the U.S. Bank lease. In
Alliance Towers, we stated that “[f]or real property tax purposes, the fee simple
estate is to be valued as if it were unencumbered.” Id. at paragraph one of the
syllabus. In Cummins, however, we distinguished Alliance Towers because it
involved a valuation by appraisal, not the validity of a sale price. Cummins, 117
Ohio St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222, at ¶ 15. We found Alliance
Towers to be inapposite and affirmed that it would never be proper to adjust a
recent arm’s-length sale price because of an encumbrance. Id. at ¶ 25-26.




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       {¶ 25} Finally, even if the lease encumbrance were legally relevant, it
would not be factually relevant in this case. HIN claims that the lease inflated the
2004 sale price and that the $2.5 million increase in price between 2003 and 2004
was due exclusively to the lease. We rejected this argument in HIN I, 124 Ohio
St.3d 481, 2010-Ohio-687, 923 N.E.2d 1144, at ¶ 26, and we reject it again here.
The lease was not a new condition that sprang up after the 2003 sale. The lease
existed prior to, and was a condition of, the 2003 sale. It was contemplated,
negotiated, and signed before the 2003 sale, and the parties had already factored
the lease into the $4.9 million transaction. As we wrote in HIN I:


               [The] position that the [December 2003] sale does not
       reflect any property value increase attributed to the long-term U.S.
       Bank lease is also not well taken. We recognize that the parties to
       sales factor the value of encumbrances into the selling price of the
       property. We therefore assume that both Tops Markets and JBK
       Cuyahoga considered the value of the long-term lease when they
       agreed to the [$4.9 million] sale price, as both parties anticipated
       the subsequent lease of the property to U.S. Bank.


Id. at ¶ 26. We went on to explain that the price increase actually resulted “from
the serendipity of HIN’s purchase, as HIN contemplated a 1031 exchange and
specifically sought a property with a triple-net lease.” Id. at ¶ 28. Thus, HIN
cannot argue that the price increase was due to the lease or that the $4.9 million
price represents a separate, unencumbered valuation.
       {¶ 26} HIN’s appraisal evidence is similarly not relevant to our
determination of value. Appraisal evidence cannot be used to rebut a recent
arm’s-length sale price. “At the very heart of Berea lies the rejection of appraisal
evidence of the value of the property whenever a recent, arm’s-length sale price




                                        10
                                 January Term, 2014




has been offered as evidence of value.” Dublin City, 118 Ohio St.3d 45, 2008-
Ohio-1588, 885 N.E.2d 934, at ¶ 8; see also AEI Net Lease, 119 Ohio St.3d 563,
2008-Ohio-5203, 895 N.E.2d 830, at ¶ 22, fn.1 (“appraisal evidence may not be
considered in valuing property when there is a recent, arm’s-length sale price”).
We therefore reject HIN’s contention that the BTA was required to consider
Ritley’s appraisal in valuing the property.
       {¶ 27} HIN did not dispute either the arm’s-length character or the
recency of the April 2004 sale. These were the only measures that mattered.
Both the lease encumbrance and the appraisal evidence were irrelevant.
Therefore, we must accept the $7.4 million sale price as the conclusive value of
the property for tax purposes.
        Using the Sale Price to Value the Property Does Not Violate the
           Constitutional Requirement of Taxation by Uniform Rule
       {¶ 28} Finally, HIN argues that using the 2004 sale price amounts to a
nonuniform assessment in violation of the Ohio Constitution, Article XII, Section
2. This constitutional provision provides that “[l]and and improvements thereon
shall be taxed by uniform rule according to value.” Again, this assertion is one
that we have addressed and rejected. Cummins, 117 Ohio St.3d 516, 2008-Ohio-
1473, 885 N.E.2d 222, at ¶ 25. We stated in Cummins that “the uniform rule is
that property should be valued in accordance with an actual sale price where the
criteria of the recency and arm’s-length character of the sale are satisfied.” Id.;
see also Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio
St.3d 175, 2009-Ohio-762, 902 N.E.2d 984, ¶ 21.           Our pronouncement in
Cummins completely disposes of HIN’s uniformity argument in this case.
                                    Conclusion
       {¶ 29} For the foregoing reasons, we find that the BTA’s decision to
adopt the $7.4 million sale price from April 2004 as the property’s value for tax-




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year 2006 was not unreasonable or unlawful. We therefore affirm the decision of
the BTA.
                                                                 Decision affirmed.
       O’CONNOR, C.J., and O’DONNELL, LANZINGER, KENNEDY, and O’NEILL,
JJ., concur.
       PFEIFER, J., dissents.
                                ____________________
       PFEIFER, J., dissenting.
       {¶ 30} I continue to believe that “[b]lind reliance on purchase price to
determine fair market value of real estate is simplistic and naïve.”        Dublin-
Sawmill Properties v. Franklin Cty. Bd. of Revision, 67 Ohio St.3d 575, 578, 621
N.E.2d 693 (1993) (Pfeifer, J., dissenting). Unfortunately, a majority of this court
continues to adhere to the unnecessarily rigid standard that forms the basis of its
opinion in this case.    Fortunately, based on recent changes to the statutory
scheme, entities involved in the valuation of real estate for taxation purposes,
including this court, will be required to adopt a more nuanced approach. As of
2012, R.C. 5713.03 requires county auditors to determine the “true value of the
fee simple estate, as if unencumbered” and allows, but does not require, county
auditors to consider a recent arm’s-length transaction as the true value for taxation
purposes. 2012 Am.Sub.H.B. No. 487. These changes are welcome because they
more accurately reflect reality than the court’s current interpretation of the
statutory scheme.
       {¶ 31} Our court is not required to adhere to the rigid standard that we
unnecessarily adopted and have slavishly followed. The statutory scheme that
governs this case is not as rigid as this court’s approach has been, as I explained
in my dissent in Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of
Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782. It is possible to
allow evidence of facts and circumstances that affect true value, including the




                                         12
                                 January Term, 2014




effect of encumbrances and the impact of a 1031 exchange. I would allow HIN to
present evidence of the true value of its real estate. I dissent.
                              ____________________
       Siegel Jennings Co., L.P.A., J. Kieran Jennings, and Jason P. Lindholm,
for appellant.
       Kolick & Kondzer, Thomas A. Kondzer, and John P. Desimone, for
appellee Bedford Board of Education.
                           _________________________




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