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Town of Sanford v. J & N Sanford Trust
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:  1997 ME 97 
Docket:  YOR-96-588 
Argued March 3, 1997 
Decided  May 6, 1997



	[¶1]  The Town of Sanford appeals from the judgment of the Superior
Court (York County, Saufley, J.) affirming the decision of the State Board of
Property Tax Review.  The Town contends that the Board erred as a matter
of law in using the "lease fee value" of a shopping center to determine the
appropriate amount of a property tax abatement.  We agree and vacate the
	[¶2]  The J & N Sanford Trust owns the King's Plaza shopping center
on South Main Street in Sanford.  The center, built in the 1960s, sits on an
eleven-acre parcel of land and has approximately 10 rental units within its
one-story building.  Because of the shopping center's dated architectural
style, low energy efficiency, and particular floor layout, it suffers from
substantial functional obsolescence.  
	[¶3]  In April 1992 the Town assessed the value of the shopping
center at $2,772,800 for property tax purposes.  The Assessor denied the
Trust's request for an abatement and the Trust appealed to the Town's
Board of Assessment Review.  When the Town Board denied the Trust's
appeal, the Trust appealed to the State Board of Property Tax Review.  At a
hearing in July 1995 the Trust presented the testimony of Norman Gosline,
a certified real estate appraiser, who provided two different figures for the
value of the property:  the "lease fee value" of $1.3 million{1} and the "fee
simple value" of $1.7 million.  According to Gosline, the lease fee value is
determined by capitalizing the income produced by the actual leases on the
property, while the fee simple value is determined by capitalizing the
income that would be produced by market rents.  The Trust's leases were
below market rents so the lease fee value was lower than the fee simple
	[¶4]  John Gendron, a real estate broker who had worked with the
owners of the King's Plaza in the past, testified that he advertised the Plaza
for sale in 1991 for $1.4 million and that he received one offer of $900,000.
	[¶5]  Laurence Dolby, the assessor for the Town of Sanford, testified
that he arrived at his 1992 assessment of $2,772,800 by using valuation data
from 1987 and 1989 with an adjustment for annual depreciation.  Dolby did
not consider the recent income of the property when assessing the
property's value in 1992 but used income information from the property's
valuation in 1987.  Dolby testified that he did not know if the $2,772,800
assessment represented the market value of the property.
	[¶6]  The Board concluded the Town's assessment was manifestly
wrong.  The Board then went on to determine the appropriate value of the
property on which to base its abatement and discussed the difference
between the $1.3 million lease fee value and the $1.7 million fee simple
value.  The Board's written decision states:
	[The Trust] presented evidence of value from both the
income and market approaches which differs drastically from
the assessment.  On the other hand, the Town failed to consider
the income approach to value.  The Town presented no evidence
of fair market value and, in fact, declined to assert that its
assessment represented fair market value.

	The Board notes that the comparables used by [the Trust],
whether distress sales or not, are an indication of the market. 
The Board notes further that [the Trust's] lease fee fair market
value is reasonable.  

	Therefore, . . . the Board . . . hereby grants an abatement to
an assessed value of $1,300,000, which represents the leased
fee value proposed by [the Trust], after correction for the
capitalization rate.

	[¶7]  The Town sought review of the Board's decision in the Superior
Court pursuant to 5 M.R.S.A. §§ 11001-11008 (1989) and M.R. Civ. P. 80C,
asserting that the Board erred in using the lease fee value to determine the
just value of the King's Plaza property.  The court affirmed the Board's
decision, concluding that although the valuation could not properly be based
on the lease fee value alone, the Board did not err because it used the lease
fee value along with other factors to determine the property's fair market
	[¶8]  The Town contends the Board's written decision and oral
deliberations establish that it relied solely on Gosline's lease fee value to
determine the fair market value of the property.  We agree.
	[¶9]  When "the Superior Court acts in its appellate capacity, we
review directly the decision of the Board for abuse of its discretion, error of
law or findings unsupported by substantial evidence in the record."  IBM
Credit Corp. v. City of Bath, 665 A.2d 663, 664 (Me. 1995) (citations
omitted); 5 M.R.S.A. §§ 11007-11008 (1989) (setting forth manner and
scope of judicial review).
	[¶10]  The Board's oral deliberations and its written decision establish
that the Board used Gosline's lease fee value as the sole measure of the fair
market value of the property.  First, the Board's written decision states that
the abatement based on the value of $1.3 million "represents the lease fee
value proposed by [the Trust]."  Second, the record of the Board's oral
deliberations reflects that the Board members understood the distinction
between the lease fee value and the fee simple value and that they chose to
use the lease fee value of $1.3 million because they believed it better
represented what a willing buyer would pay a willing seller for the property. 
For example, one member, in response to a question about whether the
Board should use the $1.3 million or $1.7 million value, stated:
[I]f anybody's going to buy that property, they want to make sure
that they can make the payments and make some, earn some
money.  They're going to look at the lower figure, they'd have to. 
I mean, who's going to buy it for two million, or a million-seven,
or two million-seven?  I mean, if they're going to lose money, I
mean, I think the income approach is very clear in this case.  I
think the income approach has to be used.

Later, the chairman opined:

If we had a piece of property that had these incredibly above-
market, advantageous leases, would we be looking at those in
determining fair market value?  It would in effect increase its
value because it was subject to these long-term very favorable
leases or above market leases.  I suppose we would.

	[¶11]  Contrary to the Trust's argument, it does not appear that the
Board took into consideration any factors or figures other than the lease fee
value provided by the appraiser when it determined the property's fair
market value.  Although the Board's decision mentions unfavorable leases,
the opening of a nearby Walmart, and generally depressed market
conditions, the Board cites to these factors when it sets forth the Trust's
arguments, not as the basis for its decision.  Furthermore, these factors
were included in the appraiser's analysis of both the lease fee value and the
fee simple value, and the Board's mention of them therefore does not
indicate that it considered the lease fee value as one factor among many
others to determine the value of the property.  Rather, the Board used the
lease fee value by itself as a measure of fair market value.
	[¶12]  The Town contends that the Board erred as a matter of law by
using the lease fee value to determine the just value of King's Plaza because
use of the lease fee value violates the requirement in Maine's Constitution
that all real property taxes be apportioned and assessed equally.{2}  We agree.
	[¶13]  Article 9, section 8 of the Maine Constitution requires that "[a]ll
taxes upon real and personal estate . . . shall be apportioned and assessed
equally, according to the just value thereof."  We have held that "just value"
is synonymous with true or market value.  Frank v. Assessors of Skowhegan,
329 A.2d 167, 173 (Me. 1974) (citation omitted).{3}  Market value "has been
judicially equated with that price a willing buyer would pay a willing seller at
a fair public sale."  Id.  In addition, the
assessment must further represent the owner's equal portion of
the burden of taxation, and if the assessors have not appraised at
full true value but only at a fixed percentage of true value, then
such treatment must be uniform and equal on all real estate and
tangible property, so much so that if both cannot be obtained,
then equality must prevail.

Kittery Electric Light Co. v. Assessors of the Town of Kittery, 219 A.2d 728,
734 (Me. 1966) (citation omitted).
	[¶14]  We afford "the local assessors considerable leeway in choosing
the method or combinations of methods to achieve just valuations." 
Shawmut Inn v. Town of Kennebunkport, 428 A.2d 384, 390 (Me. 1981). 
When a party challenges the Board's valuation on which the Board grants an
abatement, the party "must establish that the method or methods used [in]
arriving at the ultimate valuation do not pass constitutional and statutory
muster."  Id. at 393 (footnote omitted).  "[A]n inherently discriminatory
method of valuation cannot produce a just result, even though it is possible
that in valuing the property by a proper method, the assessors may by
chance arrive at the same result. . . ." Id. at 393 n.8 (citing Farrelly v.
Inhabitants of the Town of Deer Isle, 407 A.2d 302 (1979)).  When an
appraisal method necessarily has a potential for unequal apportionment, it is
an error of law for the assessors to use that approach.  Farrelly, 407 A.2d at
306.  See also Moser v. Town of Phippsburg, 553 A.2d 1249, 1250 (Me.
1989) (when taxpayers show that assessor's system necessarily will result in
unequal apportionment they do not have to show that property is
substantially overvalued in order to obtain abatement).
	[¶15]  We have never squarely addressed whether the lease fee value
or the fee simple value is the appropriate measure of fair market value for
taxation purposes.  We have, however, noted the distinction between actual
lease value and market or fee simple value. South Portland Assocs. v. City of
South Portland, 550 A.2d 363, 368 (Me. 1988).  At issue in South Portland
Assocs. was the property valuation methodology to be applied to two large
residential complexes.  In response to the City's argument that the
application of the income approach allowed the property owner to
manipulate the value of the property by renting the property at below-
market rates, we noted that "proof of rents below the going market rates
does not justify discarding the income method; rather it merely justifies the
substitution of the economic rent for the actual rent figures."  Id. at 368.   
Similarly, we affirmed an assessor's refusal to use actual income figures
when determining fair market value in Frank v. Assessors of Skowhegan,
329 A.2d 167 (Me. 1974).  In Frank the actual income for the first few years
of a shopping center's operation was less than the owner originally
anticipated and did not accurately indicate the value of the property.  We
reasoned that "[t]o require owners of property which is not income-
producing to pick up the deficiency resulting from reducing the tax burden
of income property owners each time there is a temporary downward trend
in the economy, would surely not be either feasible or equitable."  Id. at 175.
	[¶16]  The majority of jurisdictions that have addressed whether the
fair market value may be based on a property's lease fee value have
determined that the lease fee value by itself is not an appropriate measure.
E.g., Clayton v. County of Los Angeles, 102 Cal. Rptr. 687, 691 (Cal. Ct. App.
1972); Valencia Center, Inc. v. Bystrom, 543 So. 2d 214, 217 (Fla. 1989);
Martin v. Liberty County Board of Tax Assessors, 262 S.E.2d 609, 611-12
(Ga. Ct. App. 1979); Springfield Marine Bank v. Property Tax Appeal Board,
256 N.E.2d 334, 336 (Ill. 1970); Oberstein  v. Adair County Board of Review,
318 N.W.2d 817, 821 (Iowa Ct. App. 1982); Donovan v. City of Haverill, 141
N.E. 564, 565 (Mass. 1923); Crossroads Center (Rochester), Inc. v. Comm'r
of Taxation, 176 N.W.2d 530, 535-36 (Minn. 1970); Demoulas v. Town of
Salem, 367 A.2d 588, 593 (N.H. 1976); City of New Brunswick v. State
Division of Tax Appeals, 189 A.2d 702, 706 (N.J. 1963); In re Property of
Pine Raleigh Corp., 128 S.E.2d 855, 859-60 (N.C. 1963); People ex rel. Gale
v. Tax Comm'n of New York City, 233 N.Y.S.2d 501, 507 (N.Y. App. Div.
1962); Wynwood Apartments, Inc. v. Board of Revision of Cuyahoga County,
391 N.E.2d 346, 347 (Ohio 1979); Swan Lake Moulding Co. v. Department of
Revenue, 480 P.2d 713, 714 (Ore. 1971); Kargman v. Jacobs, 325 A.2d 543,
548 (R.I. 1974); Yadco, Inc. v. Yankton County, 237 N.W.2d 665, 668-69
(S.D. 1975); Rowland v. City of Tyler, 5 S.W.2d 756, 760 (Tex. Ct. App.
1928); Richmond, F. & P. R.R. Co. v. Commonwealth of Va., 124 S.E.2d 206,
211 (Va. 1962).  These jurisdictions conclude that "valuations of properties
for local taxation cannot vary with the managerial successes or failure of the
owners[,]" and that "the fair rental value, rather than the actual rent payable
under an existing lease, must control."  City of New Brunswick v. State Div.
of Tax Appeals, 189 A.2d 702, 706 (N.J. 1963).  One court reasoned:

If tax assessments on the same property were to fluctuate
according to the varying terms of a lease, the computation of ad
valorem taxes on the basis of such assessments would result in a
tax penalty for one who, through business acumen or fortuity,
succeeds in leasing his property for an amount in excess of its
"fair market value" and a tax windfall to one who, through bad
business judgment, leases far below his property's "fair market

Martin, 262 S.E.2d at 612.  These jurisdictions "express the concern that
the net effect of reliance on actual income in determining tax assessments is
the destruction of the principle of uniformity in taxation.  All [of these]
courts indicate that assessment based on full potential earning capacity is
the most fundamentally fair and even-handed method of distributing the tax
burden."  C.A.F. Investment Co. v. Township of Saginaw, 302 N.W.2d 164,
186 (Mich. 1981).{4}  Furthermore, property taxes are based on the sum of all
rights that make up the property, not just on the lessor's individual interest. 
E.g. Caldwell v. Department of Revenue, 596 P.2d 45, 47 (Ariz. Ct. App.
1979); Dennis v. County of Santa Clara, 263 Cal. Rptr. 887, 893 (Cal. Ct. App.
1989); Heritage Cablevision v. Board of Review of City of Mason City, 457
N.W.2d 594, 599 (Iowa 1990); Donovan, 141 N.E. at 565; Gale, 233 N.Y.S.2d
at 504.  Thus, "[t]he combined value of both the lessor's and lessee's
interest under a long-term lease is subject to taxation." Caldwell, 596 P.2d
at 47 (citation omitted).  Here the lessor's interest is $1.3 million and the
lessees' interest is $400,000 ($1.7 million minus $1.3 million).  Omitting
from taxation the difference between the lease fee value and the fee simple
value presents a distorted picture of the true and full value of the property. 
See, e.g., Yadco, 237 N.W.2d at 668.
	[¶17]  Although the property's lease fee value may aid an assessor in
determining a property's fair market value, the assessment should not be
based on the lease fee value when the lease fee value is different from the fee
simple value.  Use of the lease fee value imposes an unequal tax on taxpayers
who own the same or similarly situated property but manage it differently. 
It inherently discriminates against owners who use the property to its best
potential and treats the same property differently depending on