Last month the Oregon Supreme Court recognized and seemingly affirmed a strategy to reduce taxable property value due to the existence of construction defects. In Oakmont, LLC v. Oregon Dept. of Revenue (2016), the owner of an apartment complex valued at approximately $21million negotiated with the county assessor to reduce the taxable value by sixty and seventy percent respectively for two years. The owner sought a similar reduction for an earlier tax year based on the presence of a “likely error” in the assessor’s valuation then, but was denied.
That denial became the subject of an appeal where the Oregon Supreme Court ruled, among other things, that even defects that are latent or unknown during the tax years in question can be a proper basis for a reduction in taxable value. The court reasoned that “real market value” is determined from the standpoint of an “informed buyer . . . who would have engaged in a reasonable inspection of the property and thus would have learned facts that a reasonable inspection on the date of the evaluation would have revealed.”
The decision recognizes the possibility for a reduction in an owner’s assessed property value due to the presence of construction defects. One relatively simple way to value the reduction in property value is to reduce by the amount of the cost to repair the construction defects and damage. In Oakmont, the agreed reductions were based on the cost to repair the defects and damage at issue as well as the associated loss in rental income during the repair period.
The decision also underscores the common sense requirement than an appeal of assessed value be supported by an opinion from a qualified expert that the construction defects and/or damage existed at the time of the tax years in question. An owner will also need a reliable opinion of the cost to repair the defects at the time.
Although the Oakmont case is from Oregon, the court’s reasoning and rationale could be argued in other jurisdictions.
If you have questions regarding this subject, don’t hesitate to contact me or my colleagues at Barer Martin.
