A property owner failed to convince the Houston [1st] Court of Appeals that a trial judge abused its discretion when it ruled that the owner failed to carry its burden of proof as to the market value of its property. Karl J. Amelang, Amelang Partners, and EGN Investments II, LP v. Harris County Appraisal District (No. 01-20-00623) arose from the owner’s protest of HCAD’s 2017 and 2018 appraisals of two properties in Houston. The appraisal review board decided in favor of HCAD. The owner sought de novo judicial review in district court, which likewise rendered judgment for the appraisal district. The owner appealed.

The court of appeals affirmed. First, the court rejected the owner’s argument that the appraisal district had the burden of proof under § 23.01, Tax Code, so the trial court erred in ruling that the owner had failed to prove its case. Observing that § 23.01 applies only to the chief appraiser’s initial appraisal (that is, the chief appraiser must have clear and convincing evidence to increase the appraised value of property in the tax year following a reduction in the appraised value as the result of a protest or appeal), the court pointed out the usual rules of civil actions govern de novo judicial review of an ARB order. The burden of proof in a civil action is on the party asserting an affirmative claim for relief. Here the owner alleged excessive appraisal and sought affirmative relief: a reduction in the appraised value. The trial court was thus correct on this issue.

Second, the court found that there was sufficient evidence to support the trial court’s decision. The owner’s burden was to prove the fair market value of the properties and show that the value on HCAD’s appraisal rolls were excessive. To do that, the owner employed an expert who appraised the properties using the income method. Here the properties at issue were two large warehouse complexes on about four acres of land. The owner leased the properties under a master lease to an entity that sublet the buildings for warehouse space and builder’s showrooms. An owner employee testified that the warehouses were nearly 50 years old and just about to the end of their useful life. He and the expert justified the use of the income method on the basis of the master lease, the age of the buildings, and some other characteristics of the property, such as the proximity of power lines. While the expert admitted that the properties were leased below market, he testified that he used market rents to determine the appropriate income factor. The expert further asserted that the highest and best use of the property was its current use, although mixed use development had recently been built on nearby properties. But the expert did say that if the warehouses did not exist, the best use of the properties would be for mid- or high-rise office or residential use, not for leasing warehouse space.

HCAD’s appraiser used the comparable sales method to appraise the properties based on the highest and best use of the properties. He concluded that the value of the land, based on comparable sales, was significantly higher than the lease income generated by the warehouse operation. He testified that his job was to appraise the property at its market value, which in this case suggested that a willing buyer would pay more for the vacant land so that it could be redeveloped. While the appraiser considered the existence of the lease and the nature of the improvements (warehouses), the court stated that the existence of the lease did not require him to use the income approach to value. Moreover, although there may be a presumption that the current use of property is its highest and best use, “the factfinder may consider the highest and best use to which the land . . . can be adapted” (citations omitted).  “The trial court,” the court opined, “resolved the conflicting evidence from the experts by determining that [the owner expert’s] testimony was not competent to establish the fair market value of the properties. Conflicts between the experts’ testimony were left to the factfinder to resolve” (citations omitted).

Finally, the owner challenged HCAD’s selection of comps for its appraisal. But, since the trial court did not render a judgment on the appraised value of the properties (just that the owner had failed to prove that HCAD’s value was excessive), the court “need not address the sufficiency of [HCAD’s] expert testimony.”

This case is worth noting for several reasons, not the least of which is that the court of appeals panel decided to issue an opinion, as opposed to a memorandum opinion. Under Texas Rule of Appellate Procedure 47.4, the court shall designate an opinion as a memorandum opinion unless it does any of the following: (1) establishes a new rule of law, alters or modifies an existing rule, or applies an existing rule to a novel fact situation likely to recur in the future cases; (2) involves issues of constitutional law or other legal issues important to the jurisprudence of Texas; (3) criticizes existing law; or (4) resolves an apparent conflict of authority. It does not appear to us that any of these exceptions to the memorandum opinion rule apply, unless the court considers its decision as applying existing rules to a novel situation likely to recur. Perhaps the court’s holding on the burden of proof and whether the existence of the master lease mandated the use of the income method meet that definition. Property tax lawyers much more qualified than we are will make that determination.

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