ALJDEC decisions subject to certification as final

21F-T020-LAN · State Land Department · 2021-02-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

IN THE MATTER OF THE APPEAL THE ALTERNATIVE RENTAL STATEMENT LEASE YEARS 2020/2021 FOR LEASE NO. 03-109743-99 FOR THE STATE LAND DESCRIBED THEREIN.

APPELLANT: RM DESERT RIDGE, LLC

__________________________________

IN THE MATTER OF THE APPEAL THE ALTERNATIVE RENTAL STATEMENT LEASE YEARS 2020/2021 FOR LEASE NO. 03-111658-99 FOR THE STATE LAND DESCRIBED THEREIN.

APPELLANT: HIGH STREET BUILDINGS, LLC

No. 21F-T019-LAN

No. 21F-T020-LAN

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: The matter was decided on stipulated facts, written argument, and oral argument that was conducted on January 6, 2021

APPEARANCES: Gregory Y. Harris, Esq. and Michael J. Phalen, Esq. for the Appellants; David Jacobs, Esq. for the State Land Department

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On July 16, 2020 the Arizona State Land Department (“ASLD”) issued Notices of Hearing in docket numbers 21F-T019-LAN and 21F-T020-LAN, setting the matters for hearing on August 17 and August 14, 2020 at the Office of Administrative Hearings in Phoenix, Arizona.

The Appellant in the T019 matter is RM Desert Ridge, LLC.

The Appellant in the T020 matter is High Street Buildings, LLC.

At the parties’ request, the matters were consolidated and adjudicated based on stipulated facts, ASLD’s administrative record, and written and oral argument.

The stipulated facts are reproduced in full in the next section.

This is a contracts dispute. Each Appellant leases from ASLD land in Phoenix’s Desert Ridge and pays rent according to the terms of their leases, which are essentially identical. SF ¶¶ 4, 5, 6.

There are two types of rent: Base Rent and Alternative Rent. At issue is how to calculate the Alternative Rent for July 7, 2020 through July 6, 2021, which is the 23rd Lease Year after the Development date of July 7, 1998. SF ¶ 7.

The Notice of Hearing shows the issue as whether ASLD acted within its authority in denying each Appellant’s Alternative Rent Statement. At root is the question of whether the full cash value (FCV) or the limited property value (LPV) is the correct value to use in calculating the Alternative Rent.

Also pending is Appellants’ Motion to Limit, through which it asserts that ASLD did not comply with A.R.S. §§ 41-1030(B), 41-1092.03(A) and 41-1092.05(B).

Paragraph 4.7 of the leases call for Alternative Rent to be “determined by multiplying 0.0035 by the ‘full cash value’ of the Improvements on the Subparcel, as such term is presently defined in A.R.S. § 42-201(4), as shown on the Notice of Valuation ....” SF ¶ 11.

In 1993, when the Leases were issued, FCV was as defined in A.R.S. § 42-201(4), as follows:

“Full cash value” for property tax purposes is that value determined as prescribed by statute. If no statutory [method] is prescribed, full cash value is synonymous with market value which means that estimate of value that is derived annually by the use of standard appraisal methods and techniques. Full cash value shall be used as the basis for the purpose of assessing, fixing, determining and levying secondary property taxes.

SF ¶ 21.

In 2019 the Legislature enacted SB 1235, which prescribed that improvements on state trust land would be valued for ad valorem tax purposes using LPV rather than FCV. SF ¶ 31.

SB1235 amended Title 42, chapter 15, Arizona Revised Statutes, repealed A.R.S. § 42- 19116, and added Article 7. SF ¶ 31 (providing the full text of Article 7).

In August 2019, the County Assessor issued Notices of Valuation in which it valued the Improvements for ad valorem tax purposes based on LPV due to the passage of SB 1235. SF ¶ 36.

Appellants assert that because “the Legislature prescribed limited property value as the value of Improvements, it is the ‘value prescribed by statute’ within the meaning of A.R.S. § 42-201(4).” Therefore, according to Appellants, “the limited property value of the Improvements is the value prescribed by the Leases to calculate the Alternative Rent.”

In the alternative, Appellants argue that (1) after SB 1235 was implemented, the County was no longer using FCV for ad valorem tax purposes, (2) Section 4.7 therefore requires the parties to determine the value of the Improvements based on a similar method; and (3) the Legislature has directed that LPV is that similar method. See SF ¶ 11 (Section 4.7 requires the parties to mutually agree on a different appraisal process to determine the FCV of any Improvements if the Assessor’s office stops using the full cash value or a similar method for determining the value of real property for ad valorem tax purposes).

ASLD argues that (1) the Legislature did not change the definition of FCV as used in A.R.S. § 42-201(4); (2) FCV is still being used for ad valorem tax purposes; and (3) LPV is not a method that is similar to FCV.

FCV is currently defined in A.R.S. § 42-11001(6):

“Full cash value”, for property tax purposes, means the value determined as prescribed by statute. If a statutory method is not prescribed, full cash value is synonymous with market value, which means the estimate of value that is derived annually by using standard appraisal methods and techniques. Full cash value is the basis for assessing, fixing, determining and levying primary and secondary property taxes on property described in section 42-13304. Full cash value shall not be greater than market value regardless of the method prescribed to determine value for property tax purposes.

SF ¶ 22.

LPV is currently defined at A.R.S. §§ 42-11001 and 42-13301. SF ¶ 23.

A.R.S. § 42-11001(7) provides:

“Limited property value” means the value determined pursuant to § 42-13301. Limited property value is the basis for:

Computing levy limitations for counties, cities, towns and community college districts.

Assessing, fixing, determining and levying primary and secondary property taxes on all property except property described in § 42-13304.

SF ¶ 24.

A.R.S. § 42-13301 provides in full:

42-13301. Limited property value

The limited property value of property for property taxation purposes is the limited property value of the property in the preceding valuation year plus five per cent of that value.

The current limited property value of a parcel of property shall not exceed its current full cash value.

The limited property value of a parcel of property shall be determined and shown on notices and tax rolls as the total limited property value of the property. Separate determinations shall not be made for the limited property value of land and for the improvements on the land in reference to property parcels.

SF ¶ 25.

STIPULATED FACTS

Parties / Leases

The State Land Commissioner, through the Arizona State Land Department (“ASLD”), is the trustee of the State Land Trust, with authority to manage and dispose of interests in State Trust Land subject to the requirements of the Arizona Enabling Act, the Arizona Constitution, and Arizona law, including the Urban Lands Act (A.R.S. §§37-331 to 37-338).

Appellant High Street Buildings LLC (“HSB”) leases from ASLD 24.22 acres of State Trust Land, located west of North 56th Street and just south of Deer Valley Road in the Desert Ridge commercial core in Phoenix, pursuant to ASLD Commercial Lease No. 03-111658 (the “HSB Lease,” submitted as Exhibit H1).

Appellant RM Desert Ridge LLC (“RM”) leases from ASLD 12.42 acres of State Trust Land, located west of North Tatum Boulevard and north of Loop 101 in the Desert Ridge commercial core in Phoenix, pursuant to ASLD Commercial Lease No. 03-109743 (the “RM Lease,” submitted as Exhibit R1).

Both Appellants are successors-in-interest to portions of the original lessee’s lease of the entire 337-acre Desert Ridge commercial core property, leased pursuant to ASLD Commercial Lease No. 03-52415 (the “Commercial Core Lease”), which Lease ASLD sold at public auction and entered into as of July 7, 1993.

All the terms of HSB Lease and the RM Lease (collectively “Appellants’ Leases” or “Leases”) are essentially identical to the Commercial Core Lease except for such things as the name of Lessee, the acreage, and the Base Rent, which is based on the acreage covered by each Appellant’s Lease. The Term for the Appellants’ Leases is for the remainder of the original 99 year Commercial Core Lease Term, which is scheduled to end on July 6, 2092.

Each Appellant is subject to payment of rent to ASLD according to the formula provided in the Commercial Core Lease, and recreated identically in the Appellants’ Leases.

Lease and Lease-related Provisions / Rent Calculation

This appeal involves rental due for the Lease Year from July 7, 2020, through July 6, 2021 (the “Lease Year”), which is the 23rd Lease Year after the Development Date, defined as July 7, 1998, in Paragraph 1.14 of the Leases.

Article 4 of the Appellants’ Leases contain the provisions which deal with rent. Paragraph

4.1 provides as follows:

4.1 Base Rent. Subject to Section 4.6, Lessee shall pay rent to Lessor based on a percentage of the appraised land value of the Parcel, as adjusted pursuant to Section 4.4 (“Base Rent”).

According to Paragraph 4.5 of the Leases, Base Rent for the 23rd Lease Year is calculated by multiplying the “Current Appraised Land Value Per Acre,” $81,000, times 10.00 percent, which equals the “Base Rent Per Acre,” $8,100, and then multiplying that number by the number of leased acres.

For HSB, the Base Rent for the Lease Year is $8,100 times 24.22 acres, which equals $196,182.00.

For RM, the Base Rent for the Lease Year is $8,100 times 12.42 acres, which equals $100,602.00.

Appellants’ Leases provide for the payment of the greater of Base Rent or an alternative rent, which provision was included to provide the Land Department “with a mechanism for participating in the economic benefits to be derived from increased land values as the development of Desert Ridge proceeds . . . .” Paragraph 4.6 states in full:

Alternative Rent. Lessor and Lessee agree that the scheduled increases in Base Rent may not adequately compensate Lessor for the increase in land values which the parties anticipate will result as Desert Ridge develops. In an effort to provide Lessor with a mechanism for participating in the economic benefits to be derived from increased land values as the development of Desert Ridge proceeds, Lessee shall, commencing with the fifteenth (15th) Lease Year after the Development Date, pay as rent for any Subparcel for which a Notice of Valuation has been issued, the greater of the prorated Base Rent for such Subparcel or an alternative rent based on a percentage of the value of Improvements constructed on such Subparcel (“Alternative Rent”).

Paragraph 4.7 of Appellants’ Leases set forth the manner by which the Alternative Rent is to be calculated using identical language, italicized below. The Leases each included an example specific to each Appellant, with the italicized example below drawn from the HSB Lease, to reflect the application of the formula to be used to calculate the Alternative Rent. Paragraph 4.7 further provides a procedure common to both leases, double underlined below, for calculating Alternative Rent “[i]f at any time the Maricopa County Assessor’s Office ... no longer uses the ‘full cash value’ or a similar method for determining the value of real property for ad valorem tax purposes”:

Calculation of Alternative Rent. The prorated portion of the Base Rent for each Subparcel shall be determined by multiplying the Base Rent for the Parcel by a fraction, the numerator of which shall be the number of acres within the Subparcel and the denominator of which shall be the number of acres within the Parcel. Lessee shall not be obligated to pay Alternative Rent on any Subparcel unless and until the Maricopa County Assessor issues a Notice of Valuation for any Improvements constructed on such Subparcel. Alternative Rent for the Subparcel shall be determined by multiplying 0.0035 by the “full cash value” of the Improvements on the Subparcel, as such term is presently defined in A.R.S. § 42-201(4), as shown on the Notice of Valuation issued by the Maricopa County Assessor for the immediately preceding calendar year (e.g., for a Lease Year commencing March 1, 2020, the “full cash value” of Improvements would be determined by the Notice of Valuation issued for calendar year 2019). For example, if in the sixteenth (16th) Lease Year after the Development Date, the Parcel contained 24.22 acres for the purpose of calculating Base Rent or Alternative Rent, if applicable, and a one (1) acre Subparcel has been developed with Improvements that were assessed at a full cash value of Two Million Dollars ($2,000,000.00), the Base Rent or Alternative Rent, if applicable, for the Subparcel shall be determined as follows:

Base Rent for Parcel:

Base Rent Per

Number of Acres

Base Rent

Acre = $5,954

(See Section 4.5)

in Parcel = 24.22

for Parcel

$144,205.88

Base Rent for Subparcel:

Number of Acres

In Subparcel = 1 Base Rent Base Rent

Number of Acres

for Parcel=

for Subparcel =

in Parcel = 24.22

$144,205.88

$5,954

Alternative Rent for Subparcel:

Full Cash Value

of Improvements X .0035 = $7,000

=$2,000,000

Because the Alternative Rent ($7,000) is greater than the Base Rent ($5,954) for the Subparcel, Lessee is obligated to pay the Alternative Rent of $7,000.

For each Lease Year for which Alternative Rent might be payable hereunder (i.e., for the fifteenth Lease Year after the Development Date and for all subsequent Lease Years), Lessee shall provide to Lessor a written statement computing the amount of Alternative Rent which would be payable hereunder (the “Alternative Rent Statement” shall (i) include a copy of all Notices of Valuation for Improvements located on the Parcel (including Improvements owned by Sublessees), and (ii) include an explanation of how the amount of Alternative Rent was determined. Lessee shall be responsible for obtaining any required information to prepare the Alternative Rent Statement from its sublessees and all assignees of all or a portion of this Lease shall be responsible for preparing an Alternative Rent Statement for their respective Parcel or Subparcel. The Alternative Rent Statement for each Lease Year shall be delivered to Lessor at least six (6) months prior to start of the Lease Year to which it relates (e.g., the first Alternative Rent Statement shall be due six (6) months prior to the start of the fifteenth Lease Year after the Development Date). Lessor shall approve the Alternative Rent Statement so long as it is complete and the computations therein are accurate. Lessor shall notify Lessee of the total Base Rent or Alternative Rent, if applicable, payable for each Parcel or Subparcel at least thirty (30) days prior to the beginning of the next Lease Year. The Alternative Rent or Base Rent, as applicable, for each Parcel or Subparcel shall then be payable on the first day of the next Lease Year.

If at any time the Maricopa County Assessor’s Office (or any successor State or local government body charged with valuing properties for ad valorem tax purposes) no longer uses the “full cash value” or a similar method for determining the value of real property for ad valorem tax purposes, then Lessee and Lessor shall mutually agree in writing on a different appraisal process for determining the full cash value of any Improvements constructed on any Subparcel. The full cash value determined by the mutually agreeable appraisal method will then be substituted for the full cash value set forth in the Notice of Valuation issued by the Maricopa County Assessor for the purposes of calculating Alternative Rent hereunder. Lessee or the owner of the Improvements may appeal in good faith the assessed value of the Improvements on all or any portion of the Parcel in the same manner provided by law for the appeal of real property taxes. Lessor shall execute such documents as may be necessary to establish Lessee’s or owner’s right to appeal such assessed value. Lessor and Lessee shall be bound by the result of any such appeal. If Lessee or the owner of the Improvements elects to appeal the assessed value, but the appeal has not been finally resolved by the time the Alternative Rent based on such assessed value is due hereunder, Lessee shall pay the Alternative Rent based on the contested assessed value during the pendency of the appeal. If the appeal results in a reduction in the assessed value, Lessee shall be entitled to a credit for the difference between the Alternative Rent Lessee paid based on the contested assessed value and the Alternative Rent actually due based on the reduced assessed

value. Such credit (together with interest thereon at the Interest Rate from the time the contested Alternative Rent was paid until such credit is received) shall be applied against the Base Rent or Alternative Rent, if applicable, payable for the Lease Year following the resolution of the appeal.

The Land Department has not adopted a rule or issued a bulletin or other policy statement to define the meaning of the term “similar method” that addresses its determination of what constitutes “a similar method” or its determination that LCV is not “a similar method for determining the value of real property for ad valorem tax purposes.”

The Maricopa County Assessor’s Office issued a “Personal Property Notice of Valuation” (the “Notice of Valuation”) for 2019 for each Appellant on August 28, 2019.

HSB’s Notice of Valuation is included in Exhibit H5.

RM’s Notice of Valuation is included in Exhibit R5.

Each Notice of Valuation contains a value for “Full Cash Value,” defined in the Notice of Valuation as follows: “Full Cash Value (FCV) reflects market, unless other statutory calculations are mandated, and is the appealable value.”

Each Notice of Valuation also contains a value for “Limited Property Value,” defined in the Notice of Valuation as follows: “Limited Property Value (LPV) is used to compute both secondary and primary taxes. The Limited Property Value is calculated according to a statutory formula mandated by the Arizona State Legislature and cannot exceed Full Cash Value. A secondary and primary tax is computed but will use a single value (LPV).”

ASLD contends that the “Full Cash Value” figure on each Notice of Valuation is the appropriate figure to use for calculating Alternative Rent. ASLD has used Full Cash Value when calculating Alternative Rent under all assignment leases deriving from the Commercial Core Lease.

Appellants contend that the “Limited Property Value” figure on the Notice is the appropriate figure to use for calculating Alternative Rent. On April 22, 2020, Appellants’ counsel submitted its justification by letter to ASLD, submitted as Exhibit H4, based on the language of the Leases and statutory changes enacted in SB1235 in 2019.

Calculation of HSB’s Alternative Rent.

Under ASLD’s calculation, HSB’s Alternative Rent for the Lease Year equals Full Cash Value, $96,692,800, times 0.0035, which equals $338,424.80.

Under HSB’s calculation, HSB’s Alternative Rent for the Lease Year equals Limited Property Value, $81,438,919, times 0.0035, which equals $285,036.22.

HSB submitted $338,449.02 to ASLD on or about July 2, 2020, under protest and without HSB’s waiving its rights to challenge the rent calculation.

Calculation of RM’s Alternative Rent.

Under ASLD’s calculation, RM’s Alternative Rent for the Lease Year equals Full Cash Value, $62,412,900.00, times 0.0035, which equals $218,445.15.

Under RM’s calculation, RM’s Alternative Rent for the Lease Year equals Limited Property Value, $32,835,279.00, times 0.0035, which equals $114,923.48.

RM submitted $218,445.15 to ASLD on or about June 17, 2020, under protest and without RM’s waiving its rights to challenge the rent calculation.

The difference between the ASLD’s calculations and Appellants’ calculations is attributable solely to differences in the valuation methodology of the real property improvements for ad valorem tax purposes.

Statutory History related to Appellants’ Argument

In 1993, when the Leases were issued, FCV was as defined in A.R.S. § 42-201(4), as follows:

“Full cash value” for property tax purposes is that value determined as prescribed by statute. If no statutory nothing is prescribed, full cash value is synonymous with market value which means that estimate of value that is derived annually by the use of standard appraisal methods and techniques. Full cash value shall be used as the basis for the purpose of assessing, fixing, determining and levying secondary property taxes.

FCV is currently defined by A.R.S. § 42-11001 as follows:

(6) “Full cash value”, for property tax purposes, means the value determined as prescribed by statute. If a statutory method is not prescribed, full cash value is synonymous with market value, which means the estimate of value that is derived annually by using standard appraisal methods and techniques. Full cash value is the basis for assessing, fixing, determining and levying primary and secondary property taxes on property described in section 42-13304. Full cash value shall not be greater than market value regardless of the method prescribed to determine value for property tax purposes.

LPV is currently defined at A.R.S. §§ 42-11001 and 42-13301.

Section 42-11001(7) provides as follows:

7. “Limited property value” means the value determined pursuant to § 42-13301. Limited property value is the basis for:

Computing levy limitations for counties, cities, towns and community college districts.

Assessing, fixing, determining and levying primary and secondary property taxes on all property except property described in § 42-13304.

Section 42-13301 provides in full as follows:

42-13301. Limited property value

The limited property value of property for property taxation purposes is the limited property value of the property in the preceding valuation year plus five per cent of that value.

The current limited property value of a parcel of property shall not exceed its current full cash value.

In 2012, the Arizona Legislature referred a proposed amendment to the State Constitution to the voters of the State of Arizona titled the “Arizona Property Tax Assessed Valuation Amendment”, which was designated as Proposition 117 on the ballot.

Proposition 117 proposed to amend Article IX, Section 18, of the Arizona Constitution by adding subsection 3(b) which states:

“(b) For the purposes of taxes levied beginning in tax year 2015, the value of real property and improvements, including mobile homes, used for all ad valorem taxes shall be the lesser of the full cash value of the property or an amount five per cent greater than the value of property determined pursuant to this subsection [LPV] for the prior year.”

Proposition 117 was presented to, and approved by, the voters of the State of Arizona on the November 6, 2012 general election ballot.

The improvements constructed on the RM Desert Ridge Lease are considered Improvements on Possessory Rights (“IPR”) which are defined as:

[A]ll residential, commercial and industrial buildings, together with appurtenant awnings, decks, docks, garages, carports, storage or other incidental buildings, located on federal, state, county or municipal property or the property of another political subdivision of this state that is owned by a nongovernmental possessor thereof.

A.R.S. § 42-15301.

Real estate improvements located on lands leased by a governmental entity to a private party did not fall within the scope of Proposition 117 and following the enactment of Prop 117 continued to be valued for ad valorem tax purposes based on the FCV of those improvements.

In 2019 the Legislature enacted SB1235, which prescribed that improvements on state land would be valued for ad valorem tax purposes using LPV rather than FCV.

SB1235 amended Title 42, chapter 15, Arizona Revised Statutes, repealed A.R.S. § 42- 19116, and added Article 7, as follows:

ARTICLE 7. ASSESSMENT OF POSSESSORY IMPROVEMENTS ON GOVERNMENT PROPERTY

42-15301. Definition of possessory improvement

In this article, unless the context otherwise requires, "possessory improvement" means all residential, commercial and industrial buildings, together with appurtenant awnings, decks, docks, garages, carports, storage or other incidental buildings, located on federal, state, county or municipal property or the property of another political subdivision of this state that is owned by a nongovernmental possessor thereof.

42-15302. Valuation of possessory improvements

The assessor shall use standard appraisal methods and techniques to value possessory improvements.

42-15303. Determining limited property value of possessory improvements

The limited property value of possessory improvements shall be calculated pursuant to chapter 13, article 7 of this title and is not subject to the exemption for personal property as set forth in section 42-13304.

42-15304. Tax levy of possessory improvements

Ownership of improvements on government property shall be considered sufficient security for the payment of taxes levied thereon and may be placed on the real property roll.

If the tax on any possessory improvement remains unpaid at the date set for selling the real property tax liens, the assessment together with interest, penalties and costs shall be subject to procedures for delinquent taxes as real property pursuant to chapter 18, article 3 of this title.

42-15305. Applicability

This article does not alter the definition of, or the characteristics used to determine ownership under applicable law.

SB1235 had a general effective date and became effective on August 27, 2019.

The 23rd Lease Year is the first lease term to commence since SB1235 became effective.

Before the enactment of SB1235, the Maricopa County Assessor valued the HSB property and the RM Desert Ridge property for ad valorem property tax purposes based on the FCV.

On August 28, 2019, the Maricopa County Assessor (“Assessor”) Notice of Valuation and valued the Improvements on the HSB property and the RM Desert Ridge property for ad valorem tax purposes based on LPV due to the passage of SB1235.

HSB and RM Desert Ridge did not and do not challenge the Notice of Valuation issued by the Assessor or the valuing of the improvements on the real property determined by the Maricopa County Assessor.

HSB and RM Desert Ridge each paid the 2019 property tax bill based on the Notice of Valuation issued by the Assessor.

The payment of ad valorem taxes by HSB and RM Desert Ridge based on the LPV set forth in the Notice of Valuation issued by the Assessor was accepted.

The HSB Alternative Rent Statement is attached as Exhibit H4.

The RM Desert Ridge Alternative Rent Statement is attached as Exhibit R4.

ASLD’s denial of HSB’s Alternative Rent Statement was emailed to HSB on June 4, 2020. See Ex. H6.

ASLD’s denial of RM Desert Ridge’s Alternative Rent Statement was emailed to RM Desert Ridge on June 4, 2020. See Exs. R6.

HSB filed a Notice of Appeal on July 2, 2020 and is attached as Exhibit H7.

RM Desert Ridge filed its Notice of Appeal on June 17, 2020, which is attached as Exhibit R7.

On July 16, 2020, the Department issued a Notice of Hearing to HSB which is attached as Exhibit H14.

On July 16, 2020, the Department issued a Notice of Hearing to RM Desert Ridge which is attached as Exhibit R14.

On July 22, 2020, in response to Appellants’ request, ASLD submitted to Appellants a letter setting forth its position regarding calculation of Alternative Rent. R15.

CONCLUSIONS OF LAW

The burden of proof at an administrative hearing falls to the party asserting a claim, right or entitlement and the standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119.

A preponderance of the evidence is:

The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.

Black’s Law Dictionary 1373 (10th ed. 2014).

Statutes are construed to give effect to the entire statutory scheme. Backus v. State of Arizona, 220 Ariz. 101, 203 P.3d 499 (2009).

Statutes should be interpreted to provide a fair and sensible result. Gutierrez v. Industrial Commission of Arizona, 226 Ariz. 395, 249 P.3d 1095 (2011); see also State v. McFall, 103 Ariz. 234, 238, 439 P.2d 805, 809 (1968) ("Courts will not place an absurd and unreasonable construction on statutes.").

A statute's meaning is conclusive if it is unambiguous considering the statute's language as a whole. US West Communications v. City of Tucson, 198 Ariz. 515, 520, P12, 11 P.3d 1054, 1059 (App. 2000).

The tribunal is required to give effect to the Leases’ unambiguous terms. See Grubb & Ellis Management Services, Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 138 P.3d 1210 (App. 2006).

Through their Motion to Limit, Appellants assert that ASLD did not provide proper notice of the issues as required by A.R.S. §§ 41-1030(B), 41-1092.03(A) and 41-1092.05(B). Appellants argue that ASLD’s denial notices were incomplete and that the Notices of Hearing do not contain all the information required by statute.

On July 22, 2020, ALSD issued to Appellants a letter setting out its reasons for rejecting Appellants’ Alternative Rent Statements. SF ¶ 48.

During oral argument, Appellants acknowledged that they had sufficient knowledge of ASLD’s position and that they were prepared to present their arguments. Consequently, Appellants have not shown that the suffered any undue prejudice. See also Aesthetic Property Maintenance v. Capital Indemnity, 183 Ariz. 74, 900 P.2d 1210 (1995)(strict adherence to statutes is not always required).

SB 1235 amended Title 42, chapter 15, Arizona Revised Statutes, repealed A.R.S. § 42- 19116, and added Article 7, which consists of A.R.S. §§ 42-15301 through 42-15305. SF ¶ 32 (providing a copy of Article 7).

A.R.S. §§ 42-15301 through 42-15305 are not ambiguous and do not modify the definition of full cash value found at A.R.S. § 42-201(4).

Section 4.7 of the Leases requires the Alternative Rent to be determined by multiplying 0.0035 by the “full cash value” of the Improvements on the Subparcel as such term is presently defined in A.R.S. § 42-201(4), as shown on the applicable Notice of Valuation issued by the Maricopa County Assessor. SF ¶ 11.

Although the purposes for which FCV is being used by the County Assessor have changed, the Assessor is still using FCV to determine the value of real property for ad valorem tax purposes, as seen by its inclusion on the Notices of Valuation at issue. SF ¶21 (in 1993, FCV was being used as the basis for the purpose of assessing, fixing, determining and levying secondary property taxes), ¶ 22 (FCV is the basis for assessing, fixing, determining and levying primary and secondary property taxes on property described in section 42-13304) and ¶ 25 (LPV may not exceed a property’s current FCV).

The lease calls for the Improvements to be appraised by a mutually agreeable method only when the full cash value or a similar method is “no longer” being used by the County Assessor. Under a plain reading of the Lease, a change in how the full cash value is being used is not sufficient to require the parties to determine a different appraisal process to determine full cash value of Improvements. See SF ¶ 11.

Because the definition of full cash value in A.R.S. § 42-201(4) has not been changed by SB 1235 and the Assessor has not stopped using the full cash value for valuing properties, Appellants have not shown that ASLD erred when it determined that the FCV should be used to calculate the Alternative Rent at issue. See SF ¶ 11 (Alternative Rent is determined by multiplying 0.0035 by the “full cash value” of the Improvements on the Subparcel).

Consequently, Appellants’ appeals should be dismissed and ASLD’s decisions to reject Appellants’ Alternative Rent Statements should be affirmed.

ORDER

IT IS ORDERED that Appellants RM Desert Ridge, LLC’s and High Street Buildings, LLC’s appeals are denied and the State Land Department’s determination that full cash value should be used to calculate the Alternative Rent at issue.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is the date of that certification.

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-137160-45720000Done this day, February 22, 2021.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Lisa Atkins, State Land Commissioner

State Land Department

-54864001

001

-137160-45720000