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November 2017

In This Fall 2017 Issue:

Property Assessment Class Action Fails

On previous occasions, the editors of Property Tax and Valuations Topics have noted that Connecticut courts tend to be rather strict in requiring property owners to pursue statutory appeal procedures and to eschew exotic theories when challenging their assessments.  This reminder came home again in a decision by Superior Court Judge Ingrid L. Moll throwing out a class action lawsuit. 

The owners of many homes in the upscale waterfront Groton Long Point area of the town of Groton challenged their assessments reached in the 2011 general revaluation in that community. Their claim was that the mass appraisal approach employed by the assessor through her outside valuation consulting firm violated Connecticut law in a number of respects.  Their most significant argument was that the assessor improperly increased the value of all of the Groton Long Point homes across the board beyond mass appraisal indices, presumably to reflect their water orientations, and asserted that she did not do so in any other Groton neighborhood.  In essence, while the homeowners asserted that the assessor’s methodology was wrong, they did not establish that their values were “manifestly excessive” as the applicable statute demanded, or even that their values were just too high. Interestingly, not all of the owners within Groton Long Point were part of the class action; several appealed their assessments individually.  (The editors note that many communities along the Long Island Sound often struggle with valuing vacation and second home properties because their market prices tend to be high relative to inland assets.)

The lesson of this case seems to be that it is far more feasible to obtain a property assessment reduction, if warranted, by arguing about the market value of that property as opposed to launching a major attack on the town assessor’s methodology – especially when it entails a well-structured mass appraisal undertaken as part of a general revaluation.

Tuohy et al v. Town of Groton, et al, Sup. Ct. CLD-CV12-60500023-S (July 5, 2017) Laura B. Cardillo can be reached at 860-424-4309 or at lcardillo@pullcom.com for questions about the Tuohy decision.

Valuing Weed-Related Real Estate

“It’s amazing how different your appraisal fee feels when it’s handed over in $20 and $100 bills,” observes Cody Gale, MAI.  In most cases, this is how Mr. Gale’s appraisal fees are paid by owners of marijuana-related real estate because FDIC insured banks face legal prohibitions when dealing with marijuana growers and dispensaries.

Aside from the facilities themselves, Mr. Gale observes that Denver industrial rental rates have risen almost 50 percent in the four years since recreational marijuana was legalized.  Competition between “standard and industrial users” and the “cash – heavy marijuana industry” for space is a big part of the equation, Mr. Gale notes.

Whether the boom in industrial values will dissipate over time, especially as states surrounding Colorado may decide to follow in its footsteps, remains to be seen.  In the meantime, appraising marijuana facilities presents significant challenges due to insufficient market data, unwillingness of market participants to discuss the terms of their transactions and lack of financing.

More information on this topic can be obtained from Mr. Gale’s article “Growth Industry” in the Q2 2017 issue of Valuation magazine.

Huge Non-Filing Penalty Upheld 

MSK Properties, LLC, the manager of 28 limited liability companies that own 28 multi-family rental properties in the City of Hartford, filed income and expense (I&E) reports one day late with the Hartford assessor.  The late filing was apparently due to the mailing envelope being misaddressed.

Statutory 10 percent assessment penalties on each property were imposed by the assessor and upheld by Judge Sheila Huddleston in a recent Superior Court ruling.

The Court batted away MSK’s claim that the City would be unjustly enriched. 

Owners having difficulty in meeting the statutory filing (I&E) deadline are advised to furnish the assessor with as much information as they can gather within the statutory filing period rather than risking a late filing and an expensive penalty. 

MSK Properties, LLC v. City of Hartford, Docket No. CV-15-6029158 (July 3, 2017)

Contact Michael Marafito at 860-424-4360 or mmarafito@pullcom.com for more information about this case.

“Reverse” Appeals in Pennsylvania Limited

Public school districts in Pennsylvania have the ability to appeal assessments challenging them as insufficient; these cases are termed “reverse appeals.”  Last July, the Pennsylvania Supreme Court ruled that school districts may not selectively appeal assessments based on property classifications in order to enhance their tax revenue.  Thus, a court rebuffed the effort of the Upper Merion School District to challenge the assessment of several apartment complexes based on Pennsylvania constitutional requirements.  The decision does not limit reverse appeals entirely but apparently prevents school districts from cherry picking specific property types.

Owners of commercial properties in Connecticut know that reverse appeals by governmental authorities are not allowed here. 

Valley Forge Towers Apartments v. Upper Merion School District, Pennsylvania Supreme Court (July 5, 2017).

Tax Exemption Narrowly Interpreted

Twenty four spaces in St. George’s Episcopal Church’s parking lot were leased to University of New Hampshire students for $300 per space per semester, while the church held a religious property tax exemption by the Town of Durham for its entire property.  When the Town of Durham learned of the student leasing arrangement, it revoked the exemption for the leased parking spaces. 

The trial court decided that the revocation was appropriate because the spaces were “not used or occupied directly by the Church and . . . were used by the students for their own private and secular proposes . . . .”  On appeal, the New Hampshire Supreme Court deflected the Church’s arguments that because the revenue generated from the parking lot lease was used for the Church’s exempt purposes, the property tax exemption should be maintained.  This argument does not comport with New Hampshire exemption law, the Supreme Court held, observing that the Church misunderstood the rules.  It is the use and occupancy of the leased parking spaces that keys the analysis, the unanimous decision stated, not the use of the proceeds of the commercial leasing arrangement with the students.

A similar result might be expected were this matter to be litigated in Connecticut although the facts and circumstances of any particular arrangement would control.  A partial exemption excluding the parking lot might also be available. 

Bishop of Protestant Episcopal Diocese in New Hampshire v. Town of Durham, New Hampshire Supreme Court, 169 N.H. 485, December 9, 2016.

Gregory F. Servodidio can respond to questions about property tax exemptions at gservodidio@pullcom.com or 860-424-4332

The Multi-Family Housing Market  

In the summer issue of Property Tax and Valuation Topics, we noted that the multi-family apartment market has become super-heated and that selling prices and rock bottom capitalization rates did not seem to be sustainable over the long term. 

Aaron Back’s reportage in the June 22 issue of The Wall Street Journal on the Federal Reserve’s stress test for large banks notes that the tests assume significant declines in multi-family property values going forward as well as slightly smaller declines in commercial real estate valuations.  Mr. Back writes that “(R)egional lenders with big commercial real-estate portfolios are probably at greater risk of failing.”

Interesting (Sewer) Assessment Case

This publication focuses primarily on the valuation of real property in tax assessment and eminent domain cases. However, from time to time a decision which may be of interest even though not falling under these rubrics, is called to our readers’ attention.

One such case involved the conversion of a long vacant 26-story office building in the Hartford central business district to residential apartments. After the conversion occurred, the sewer utility claimed that it was entitled to levy an additional assessment under the authority of a Connecticut statute which referred to the construction of new “structures.”

It was probably news to the residential developer that renovating an office building to apartment units constituted the creation of new structures. However, a Hartford Superior Court judge concluded that the change of use, coupled with the renovation, met the statutory predicate for the imposition of a supplemental assessment even though no increase in the gross or leasable square footage of the building occurred.  The increase in water usage and property value resulting from the conversion may have also helped set the stage for the Court's ruling.

777 Residential LLC v. The Metropolitan District Commission, Sup. Ct. Judicial District of Hartford -CV16-6065515-S (August 1, 2017)

Contact Elliott B. Pollack at 860-424-4340 or at ebpollack@pullcom.com for questions about this litigation.

Attorney Notes

Attorneys Laura Cardillo, Greg Servodidio, Elliott Pollack and Michael Marafito of Pullman & Comley's Property Tax and Valuation practice presented “Making Sense of Property Taxes in Connecticut” at the Connecticut Society of CPAs in Rocky Hill, Connecticut on October 5, 2017.

On September 19, 2017, Greg Servodidio was one of the presenters at the Connecticut Business and Industry Association's well-attended annual property tax program.  Also in September, as a member of the Counselors of Real Estate, Greg attended the organization's annual convention in Montreal entitled, "Cities in Motion: Innovation and Adaptation."

Attorney Elliott B. Pollack presented at the  International Property Tax Institute (IPTI) workshop "Special Assessments and Hidden Property Taxation" in Boston, MA on September 14, 2017. Elliott’s topic was "How To Prevent and Minimize 'Hidden Taxation' Charges," offering corporate managers and property owners insights on how to effectively deal with additional non-ad valorem charges being levied on corporate properties.

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