Stellar GT v. Supervisor of Assessments

RAYMOND G. THIEME, JR., Judge, Ret’d, Specially Assigned. This appeal raises the question of when the Supervisor of Assessments for Montgomery County, appellee, is authorized by statute to revalue a property during the three year period between regular valuations. Md. Ann.Code, Tax-Property Article, Section 8-104(c) (2001 RepLVol.) lists six situations in which “real property shall be revalued” if they occur “[i]n any year of a 3-year cycle.” Believing that one of those situations existed, the appellee revalued the Georgian Towers, a Silver Spring apartment building owned by appellant, Stellar GT, TIC, LLC, et al, less than six months after a regular triennial assessment. Disagreeing that any of those situations existed, appellant protested.

The Maryland Tax Court upheld the Supervisor and, in turn, was upheld by the Circuit Court for Montgomery County. In this appeal, appellant raises three questions: ⁶²⁷ 1. Did the circuit court err in interpreting Section 8-104(c)(l)(iii), Tax Property Article, Annotated Code of Maryland (the “Maryland Tax Code”) to allow Assessment II reportedly based on substantially completed improvements adding at least $50,000 in value to the Property, but triggered by a sale of the Property that exceeded the Assessment I value? 2. Did the circuit court err in interpreting Section 8-104(c)(l)(iii) of the Maryland Tax Code to allow a complete mid-cycle revaluation approximating the subsequent sale price, rather than limiting the revaluation to the amount of value added by substantially completed improvements to the Property? 3.

Did the circuit court err in interpreting Section 8-401(f)(4) of the Maryland Tax Code to allow Assessment II, even though it was after the Date of Finality for substantially completed improvements made during 2003? The appellee condenses these three questions into one, asking: When the value of the subject property has increased by more than $50,000 because of substantially completed improvements in the previous calendar year, and this increase in value is not captured in the existing assessment, does § 8-104(c) mandate and/or authorize the Supervisor to issue a new property assessment before the next tax year to establish the new, correct value? We agree with appellant as to the threshold question of whether a mid-cycle reassessment was permitted by § 8-104(c) of the Tax Property (“T.P.”) Article, which provides: (1) In any year of a 3-year cycle, real property shall be revalued if any of the factors listed below causes a change in the value of the real property: (i) the zoning classification is changed at the initiative of the owner or anyone having an interest in the property; (ii) a change in use or character occurs; ⁶²⁸ (iii) substantially completed improvements are made which add at least $50,000 in value to the property; (iv) an error in calculation or measurement of the real property caused the value to be erroneous; (v) a residential use assessment is terminated pursuant to § 8-226 of this title; or (iv) a subdivision occurs. For purposes of this subsection, “subdivision” means the division of real property into 2 or more parcels by subdivision plat, condominium plat, time-share, metes and bounds, or other means.

The Tax Court decided that the assessment was permitted, based upon the following evidence: George Thomas Borger, the President of Borger Management, Inc., testified that he had been the property and construction manager for the Georgian Towers beginning in 1988. In that capacity, he began preparing for the upcoming 2004-2006 reassessment by going to the office of the Supervisor of Assessments and speaking with Mr. Gantz in October of 2003. Borger provided an income questionnaire and documentation of the scope of improvements made over the past three to five years. The total construction cost was just under $ 13 million, of which approximately 50% represented the past three years and $ 7 to 8 million was for deferred maintenance, rather than enhancements.

At the time he met with Gantz, all of the work was completed except for the “final touches” to the smaller of two lobbies. That work, totaling $ 425,000, was shown on the “Construction Summary” submitted to Gantz, as was $ 195,000 worth of outstanding work on the leasing office. Gantz was informed of the status of the work and Borger recalled that they discussed the fact that Gantz had not “looked at the property in any detail.” Early in December, 2003, Gantz called to inform Borger that the assessment was completed and the new value was approximately $ 52 million. Within a month, Borger received a notice setting the value at $ 52,561,600.

At the time he was dealing with Gantz, Borger had an idea that “something was going on,” but he did not know details about a sale to the ⁶²⁹ appellant, Stellar Management, which would occur in March of 2004, at a price of $ 89 million. In July of 2004, Stellar informed Borger that it had received notice of the mid-cycle reassessment. Daniel Ercolani, Supervisor of Assessments, confirmed that Gantz had not visited the property before issuing his assessment. He testified that the relevant statutes forbade reassessment during the middle of a triennial cycle unless one of the six specified factors existed.

He acknowledged that he was not permitted to change a regular assessment simply because the property sold for a price higher than that assessment. Knowing that one of the legitimate factors for reassessment is “substantially completed improvements ... which add at least $ 50,000 in value to the property,” Ercolani had a method of uncovering these situations. In addition to regularly reviewing reports of property sales, Ercolani received from the county permit office on a quarterly basis, information about permits granted for additions or new construction. Based on that information, he would send an assessor to perform a physical review of the property to determine whether the value of the new construction or addition was over $ 50,000.

In the instant case, Ercolani did not become aware of the Georgian Towers renovations through that procedure. The last assessor to visit the property in “mid-2003” did not provide information to him and he did not know in which quarter of the year the lobby work was done. It was not until he learned of the sale price that he became concerned that his office had “missed the valuation by such a large margin.” The difference was so great that he directed assessors to “take another look to see if we had missed something.” These assessors “went to the county On-Line Permit System that we have access to, and they pulled several permits that alerted us” to the renovation. Ercolani then sent the assessors out to perform a physical review of the property.

He testified that, “[a]fter hearing the report back to me from the field and looking at the permits, it was my opinion that there had been ⁶³⁰ Fifty Thousand Dollars spent in 2003.” Ercolani then “trended [the rents] up to what I thought were accurate rentals for 2004, 2005 ... mimicking what an investor does when they buy a property. They’re looking into the future of what the rents would be for a renovated building.” He “lowered [the expenses stated by Borger] to be reflective more for renovated property where deferred maintenance seemingly had been corrected” and he used the sales price and in “general terms” other market activity in Silver Spring to revalue the property. Ercolani did not take into account the costs of the renovations nor did he distinguish between deferred maintenance and improvements, because he believed that both added to the value of the property. Ercolani admitted that the documents submitted by Borger showed the value of the lobby work as $ 425,000.

He conceded that the reason he eventually focused on the Georgian Towers was not that his employees had inspected the property and reported that there might be “substantially completed improvements ... which add at least $ 50,000 in value to the property,” or because the issuance of permits for the work suggested that was the case. Instead, he testified unequivocally, “The sale triggered it to come to my attention.” The Tax Court characterized the evidence as “basically not in dispute” and concluded: ... as of the beginning of '03, much of the renovation, although much of it was completed, there was a renovation of the East Lobby was—based on the documentary evidence as well as the testimony—was going to cost approximately Four Hundred and Fifty Thousand Dollars. And that apparently was performed predominantly in the calendar year 2003, although some may have been performed in '04, but that’s not really consequential to the decision in this case. There is no dispute that the renovation of this particular property, the subject property, added at least Fifty Thousand Dollars in the value in the calendar year 2003.

If there was a dispute, that’s my finding as a matter of fact, that based upon the evidence that I’ve heard, that the ⁶³¹ renovation did, in fact, increase the value of the property at least Fifty Thousand Dollars during 2003. Now, in this particular case, there were some discussions between the Agent for the property owner, as well as Mr. Gantz—well known to the Court—an Assessor with Montgomery County for many, many years. And there were some discussions, there was some information passed on between the two regarding the renovations. But I’m not—I don’t think that that has a particular impact on what the law is in this particular case.

Mr. Gantz was trying to do his job, and, as far as I could see, the Petitioner was trying to assist Mr. Gantz in doing his job. But Mr. Gantz, after reviewing the information, increased the value from, I think, Forty Million to approximately Fifty-two Million. But that is not what caused the real issue in this case. What happened was, in March of '04, the property sold for approximately Eighty-nine Million Dollars, and that required the Supervisor and others with the Department of Assessments in Montgomery County to take a hard look to find out what happened, which, I think, is the right way to handle something like that.

If you have a Fifty-two Million Dollar assessment as of January 1, '04, and the property sells for Eighty-nine Million, if I was in charge of the Department, I’d be asking some questions too. So I think that was an appropriate response. And, after looking at it, it was very obvious that there had been over Fifty Thousand Dollars in renovation or increased value due to substantial renovations, which occurred over this time period. Well, there’s little question that prior to '03—in '03 there were at least Fifty Thousand that increased the value at least Fifty-two Thousand and Fifty Thousand Dollars.

And the reason that’s important is based on the Code, Section 8-104(c): In any year of a three year cycle—I’m reading from the Code—a revaluation is required and,