RICK AUERBACH v. ASSESSMENT APPEALS BOARD NO. 1 FOR THE COUNTY OF LOS ANGELES
Filed 7/17/06
IN THE SUPREME COURT OF CALIFORNIA
RICK AUERBACH, as Assessor, etc., )
)
Plaintiff and Appellant, )
v. )
ASSESSMENT APPEALS BOARD NO. 1 )
FOR THE COUNTY OF LOS ANGELES, ) Los Angeles County
) Super. Ct. No. BS084737
)
NORTHERN TRUST BANK OF )
CALIFORNIA, as Trustee, etc., )
)
Real Party in Interest and )
Respondent. )
__________________________________ )
Proposition 13, adopted in 1978, limits the amount that the assessed value of real property may be increased to reflect increases in the property's actual market value. When ownership of the property changes, however, the property may be reassessed at its current market value. (See Pacific Southwest Realty Co. v. County of Los Angeles (1991) 1 Cal.4th 155 (Pacific Southwest).) Changing the assessed value of real property to its current market value can result in a substantial increase in the tax on that property. Thus, determining whether and when a change of ownership has occurred can have significant tax consequences.
Here, the ownership of land subject to a 20-year lease has changed. We must decide whether a building on that land, constructed after the lease had commenced, has also changed ownership. The answer depends on who owns the fee or equivalent interest in the building for these purposes--the lessor or the lessee. We conclude that, for purposes of Proposition 13, the lessor owns the building as well as the land. Accordingly, the change in ownership of the land also changed ownership of the building. We affirm the judgment of the Court of Appeal, which reached a similar conclusion.
I. Facts and Procedural History
Robert and Electra Anderson (the grandchildren) are the grandchildren of Stanley and Marguerite Anderson (the grandparents). Each grandchild is the beneficiary of one of two trusts that together hold a 50 percent interest in property on North Rodeo Drive in Beverly Hills. Real party in interest Northern Trust Bank of California (Northern Trust) is the cotrustee of the trusts. In February 1996, the trusts, along with two other trusts not involved in this litigation, leased the property to Tommy Hilfiger Retail, Inc. (Hilfiger) for 10 years with two five-year options to extend the term. At the time the parties entered the lease, the property was improved with a retail building.
The written lease defined the premises being leased as including the improvements. Paragraph 7.4(a) of the lease, captioned â€
