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Commerce Associates, LP v. New Castle County Office of Assessment

Supreme Court of Delaware

April 11, 2017

COMMERCE ASSOCIATES, LP and 1000 COMMERCE CENTER, LP, Plaintiffs Below, Appellants,
v.
NEW CASTLE COUNTY OFFICE OF ASSESSMENT and NEW CASTLE COUNTY BOARD OF ASSESSMENT REVIEW, Defendants Below, Appellees.

          Submitted: April 5, 2017

         Court Below: Superior Court of the State of Delaware C.A. No. N15A-07-009

         Upon appeal from the Superior Court. REVERSED.

          Richard A. Forsten, Esquire (Argued), Olufunke Fagbami, Esquire, Saul Ewing LLP, Wilmington, Delaware, for Appellants Commerce Associates, LP and 1000 Commerce Center, LP.

          Adam Singer, Esquire (Argued), Tanisha L. Merced, Esquire, New Castle County Office of Law, New Castle, Delaware, for Appellees New Castle County Office of Assessment and New Castle County Board of Assessment Review.

          Before STRINE, Chief Justice; VALIHURA, VAUGHN, and SEITZ, Justices; SLIGHTS, Vice Chancellor, [*] constituting the Court en Banc.

          STRINE, CHIEF JUSTICE:

         I.

         In this case, the New Castle County Office of Assessment ("New Castle County") valued office condominium units for real property tax purposes but failed to take into account depreciation. The Superior Court affirmed the decision of the New Castle County Board of Assessment Review (the "Board") upholding New Castle County's valuation.[1] The property owner appeals, arguing that its office condominium units were over-assessed because New Castle County and the Board did not factor in the age and resulting depreciation of the units. Because Delaware law requires that all relevant factors bearing on the value of a property-in its current condition-be considered, [2] we reverse and require that New Castle County reassess the value of the units, taking into account the influence depreciation has on their taxable value.

         II.

         This case raises the singular issue of whether depreciation must be considered in valuing a property for tax assessment purposes.[3] The appellant, Commerce Associates, LP, owns four units in One Commerce Center, an eleven-story condominium office building located at 1201 North Orange Street, Wilmington, Delaware.[4] One Commerce Center was constructed in 1983. The current tax assessment value of each of the units owned by Commerce Associates is $432, 900. New Castle County uses a "base year" approach in assessing properties for tax purposes. Two methods for calculating the base year value are commonly used in the New Castle County assessment process: i) calculating the current fair market value of the units and "trending back" that amount to the 1983 value; and ii) calculating what the current fair market value of the units would have been in 1983 using data from 1983. Under both methods, a fixed rate of taxation is then applied to the base year amount to reach a uniform result. In this case, Commerce Associates used both methods. New Castle County only used the second.

         On appeal, Commerce Associates claims that New Castle County did not appropriately take into account depreciation in assessing its office condominium units for tax purposes, and that the proper assessment value is $249, 000. In defense, New Castle County argues that because it uses 1983 as a base year for value and the properties in question were brand new in 1983, it does not need to apply depreciation to the value of the units as of 1983. But, there is an obvious flaw in that reasoning.[5] Although New Castle County is permitted to use the base year approach, [6] it must then consider what the value of the units-in their current conditions-would have been in 1983, and so must the Board.[7] Here, despite the reality that the units are now more than 34 years old, New Castle County did not take into account any depreciation, and neither did the Board when the case was presented to it.

         It is not necessarily the case that depreciation will always result in a diminution in value-that depends on the interrelationship of depreciation to other economic factors-but it must be fairly considered to reach a valuation. For example, the reality that an older building does suffer from depreciation does not mean that it necessarily declines in value. An older building could appreciate in value, depending on a major known real estate factor ("location, location, location") or other factors.[8] In other words, New Castle County and the Board must consider all relevant factors bearing on what ...


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