In Strongsville Board of Education v. Cuyahoga County Board of Revision (2007), 112 Ohio St. 3d 309, the Supreme Court affirmed the Board of Tax Appeals’ (BTA) decision to use an appraisal, as opposed to a recent sale lease-back transaction, to determine the subject property’s tax value. Typically, a recent sale transaction will determine the property’s value for tax purposes, unless the sale is not at arms’ length. Where it is shown that a recent sale was not an arm’s length sale, appraisal evidence can be used to establish the property’s value.
In Strongsville, the owner was in a dire financial situation and had a balloon mortgage payment due. It decided to sell the subject property to acquire the funds to pay the balloon payment. It still needed to operate on the property, however, so it entered into a sale lease-back agreement with the purchaser of the property for $16 million. The City of Strongsville School District filed a complaint with the Board of Revision (“BOR”), asserting that the true value of the property was $16 million, not the appraised value of $8,326,400. The BOR found the property’s value to be $9.5 million, based on the owners’ appraisal evidence.
The Ohio Supreme Court agreed with the BTA that the recent sale lease-back of $16 million did not constitute an arms’ length transaction; therefore, it was not the “true value” for taxation purposes and the appraisal evidence was properly used to determine the value. The Court did not base its decision on the fact that the recent sale was a sale lease-back. Instead, it reached its conclusion by finding the sale was conducted under duress. The Court cited three factors indicating duress on the part of the seller. First, the company’s financial situation was unsteady. Second, the company had an impending balloon mortgage payment and insufficient funds to make it. Third, all the appraisers involved in the case treated the sale as not being an arms’ length sale. Specifically, the Court found that “the need to sell the building was so pressing that [the company] rejected an offer for the property higher than the one ultimately accepted because of the longer time it would have taken to complete the proposed transaction.”