The Court in Strongsville 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. 

The Court in Strongsville 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 arm’s 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 owner’s appraisal evidence.

The Ohio Supreme Court agreed with the BTA that the recent sale lease-back of $16 million did not constitute an arm’s-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 that 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 arm’s-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.” 

Strongsville Board of Education v. Cuyahoga County Board of Revision (2007), 112 Ohio St. 3d 309. 

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The Court held that improvements to a factory were part of the realty, not personal property, and were therefore subject to a mechanics' lien.

The sub-subcontractor provided work and materials as part of a factory’s paint line upgrade.  The contractor argued that Mid-Ohio’s mechanics’ lien was invalid because the paint line was personal property, not realty.  The court disagreed, holding that the work and materials Mid-Ohio furnished were, as a matter of law, improvements to a building, fixture, appurtenance, or other structure, noting that the legislature intended the mechanics’ lien statute to provide remedies for a broad range of work, including “appurtenances.”

Mid-Ohio Mechanical, Inc. v. Carden Metal Fabricators, Inc. (5^th Dist., 2006), 169 Ohio App. 3d 225. 

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The Court determined that the general contractor's negligence constituted an "occurrence" under its insurance policy, and thus the insurance company improperly denied coverage.

Dublin was the general contractor for several office  buildings. It retained Reitter Wall Systems to install stucco and cultured stone on the exterior walls of the buildings. After occupancy, the tenants started complaining of musty smells, eye irritation, and other health-related problems. A preliminary investigation found mold growing on the inside surface of the exterior walls.  The inspector concluded that the mold formed as a result of Reitter’s failure to seal the exterior joints of the building. 

The mold contamination rendered the buildings uninhabitable; plaintiff was required to remediate and restore the building walls to cure the mold damage. Plaintiff also incurred substantial costs in cleaning the mold from the buildings, relocating tenants from the uninhabitable office space, and conducting environmental testing.  Dublin filed a claim under a comprehensive commercial general liability insurance policy issued by Selective Insurance Company. The policy contained an exclusion for “business risks.” After Selective denied coverage under the policy, Dublin sued. The trial court found that Selective had properly denied coverage because the mold problems did not constitute “property damage” arising from an “occurrence,” as the policy required for coverage. The court further determined that coverage was precluded by the “business risk” exclusion. Dublin appealed.

Consistent with its prior decisions, the court held that Dublin’s negligent construction, through its subcontractor, constituted an “occurrence” because “occurrence” was defined in part as an “accident.”  The court reasoned that allegations of negligence in constructing or designing a building reasonably fall within the policy's definition of occurrence, that is, accident, because negligent acts are not done with the intent or expectation of causing injury or damage. The court acknowledged that other courts of appeal have held that negligent construction is not an “occurrence,” but rejected that line of cases.

The court also held that the business risk exclusion did not bar coverage, because it only excluded damage to the insured’s “product,” which was defined to exclude real property.  The defendant argued that real property included only land and not the building, but the court held that the accepted definition of “real property” included buildings.

Dublin Building Systems v. Selective Insurance Company of America (10^th Dist. Feb. 6, 2007), No. 06AP-213, 2007 WL 353675.