Schultz v. TM Florida-Ohio Realty Ltd.
1991 WL 41054, 577 So.2d 573 (1991)
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Rule of Law:
For ad valorem tax purposes, income-producing property encumbered by a long-term, below-market lease must be assessed at its fair market value as if unencumbered, representing the value of all interests in the land. Property appraisers must consider all statutory factors, but the weight given to any specific factor, including actual lease income, is at their discretion.
Facts:
- TM Florida-Ohio Realty Ltd. Partnership owned an approximately 11-acre tract of land improved with a large department store-type building in Pinellas County.
- The property was occupied by two tenants, a K-Mart and a waterbed store.
- The property was encumbered by a 22-year lease agreement with K-Mart Department Stores, which commenced in 1970 and included four five-year options to renew.
- The rental income from this long-term lease was 'submarket,' meaning it was below the current rental rate for similar property.
- Ronald J. Schultz, the Pinellas County Property Appraiser, assessed the property for 1986 at $3,981,400 for ad valorem tax purposes.
Procedural Posture:
- TM Florida-Ohio Realty Ltd. Partnership filed an action in Pinellas County circuit court (the trial court) contesting the 1986 assessment of its property.
- After a trial, the circuit court entered a final judgment declaring null and void the portion of Ronald J. Schultz's assessment that exceeded $2,950,000, which was the amount found by the taxpayer's expert to be the fair market value.
- Ronald J. Schultz appealed the trial court's reduced assessment to the Florida Second District Court of Appeal.
- The Second District Court of Appeal affirmed the trial court's decision, concluding that submarket rental income from a long-term lease on real property should be weighed in arriving at a proper valuation.
- Ronald J. Schultz's alternative motions for rehearing and rehearing en banc were denied by the district court, but the court certified a question of great public importance to the Florida Supreme Court.
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Issue:
When assessing income-producing property for ad valorem tax purposes, does a property appraiser have to weigh actual submarket rental income from a long-term lease, or can the assessment reflect the fair market value of the unencumbered fee, disregarding the lease's specific income?
Opinions:
Majority - PER CURIAM
No, a property appraiser is not required to give weight to submarket rental income from a long-term lease; the assessment should reflect the fair market value of the unencumbered fee. The Florida Supreme Court found its decision in Valencia Center v. Bystrom controlling and noted that "just valuation" for property tax purposes is synonymous with fair market value. In determining fair market value, the assessor must consider, but not necessarily use, each of the factors set out in section 193.011, Florida Statutes. The particular method of valuation and the weight given to each factor is left to the discretion of the assessor, and the determination will not be disturbed if lawfully considered and within a reasonable range. The Court reaffirmed that the assessed value of the land must represent all interests in the land, meaning the landowner is taxed as though possessing the property in fee simple, ignoring fragmentation of ownership like leases. The owner merely transfers a part of the property's value to the lessee; failing to consider this transferred interest would result in an assessment below fair market value. The trial court's finding that the appraiser's methodology was not erroneous was supported by the record, which showed the appraiser's expert considered all statutory criteria, was aware of the submarket lease, and reasonably afforded no weight to the income factor to value the unencumbered interest.
Dissenting - Overton, J.
Justice Overton dissented, but no reasoning was provided in the opinion.
Analysis:
This case clarifies the standard for property tax assessments in Florida, particularly for income-producing properties encumbered by below-market long-term leases. It reinforces the "unencumbered fee" valuation principle, preventing taxpayers from reducing their property tax liability due to unfavorable lease agreements. The decision grants significant discretion to property appraisers in weighting statutory valuation factors, solidifying the idea that actual contract rent, if below market, does not dictate the "just valuation" for tax purposes. This ensures that the state can tax the full market value of the property, regardless of how private agreements between property owners and tenants might fragment its economic value.
