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Cost to cure pollution was sufficiently reliable to determine fair market value.

The taxpayer appealed the valuation by the Board of Tax Appeals (Board) of unremediated property in Burlington, Vermont. The property was a gasoline station from the 1940s until the 1970s, when a fire caused the station's removal. The taxpayer purchased the lot in 1987 to use for her business, Bilmar Team Cleaners. In 1993, it was discovered that petroleum was contaminating the property's groundwater, most likely due to leaky underground storage tanks. Since the discovery, taxpayer spent over $20,000 on engineering studies and installed several wells to monitor the contamination. Currently the taxpayer rents out the property as a single-family dwelling for $20,400 annually.

The Vermont Department of Environmental Conservation requested an additional $10,000 of monitoring on taxpayer's property before it would issue a "Site Management Activities Completed" designation for the property and remediation efforts cease. The property remains listed as an unremediated petroleum pollution site due to the taxpayer's refusal to pay for additional monitoring or obtain funding for monitoring from the Vermont Petroleum Cleanup Fund (PCF). The PCF provides up to $990,000 in remediation costs once a property owner has paid the initial $10,000.

The Board assessed the property at $193,500. The Board started with a fair market value of $225,000 based on the value of nonpolluted properties, discounted $10,000 because of the property's petroleum pollution, and then applied an equalization rate to arrive at this value. The Board noted that the availability of the PCF is the best predictor for the property's future.

The taxpayer argued the $10,000 cost-to-cure reduction did not adequately account for the impact that the stigma of pollution had on the property's value. The trial court disagreed and upheld the Board's valuation. The taxpayer appealed to the Vermont Supreme Court.

The Vermont Supreme Court started with the presumption that the Board's valuation was fair, stating a taxpayer can defeat this presumption by presenting credible evidence that shows the property was appraised at more than its fair market value.

The Vermont Supreme Court noted that bona fide property sales provide the most persuasive method for appraising residential property, but that method is not required. The Board determines the best method for valuation on a case-by-case basis. Here, the trial court accepted the cost-to-cure method as accurately calculating the property's value because neither the city's nor the taxpayer's appraiser could find sufficient comparable properties in the area with similar pollution levels. Furthermore, both parties' appraisers agreed that the property, if pollutant free, would have a fair market value of $225,000. The appraisers' opinions differed over the actual cost of remediation and not the cost-to-cure method itself.

The Vermont Supreme Court agreed that the trial court's finding that $10,000 was the actual cost to cure was supported by the record. The evidence showed remediation costs were unlikely to exceed the PCF's limit of $990,000. The property was not highly polluted or located in a sensitive area, and the pollution levels on the property have been decreasing over the years.

The taxpayer's appraiser testified that the property would be valued between $204,000 and $255,000 using the gross rent multiplier method, and the city introduced testimony that an investor had offered $185,000 to purchase the property. The Vermont Supreme Court found this evidence supported the Board's appraisal.

The taxpayer argued the $10,000 cost-to-cure is arbitrary because the total cost of remediation is unknown. The Vermont Supreme Court found this argument unconvincing because regulatory uncertainty does not prevent the appraiser from considering development potential in determining fair market value.

The Vermont Supreme Court affirmed the $193,500 valuation.

In Re Bilmar Team Cleaners

Supreme Court of Vermont

January 16, 2015

2015 WL 1186157

Alan M. Weinberger, JD, has been a professor at Saint Louis University School of Law since 1987. Previously, he practiced for twelve years with law firms in Detroit and Washington, DC, where he specialized in real estate transfer, finance, and development. Weinberger graduated magna cum laude from the University of Michigan Law School. He has published articles and chapters in the fields of real estate finance, partnership, and property law. He is coauthor of Property Law Cases, Materials and Problems, 3rd ed., published by West Group. His most recent article, "Tools of Ignorance: An Appraisal of Deficiency Judgments," was published in the Spring 2015 issue of the Washington and Lee Law Review.

Contact: weinbeam@slu.edu

Megan Murphy, JD, is an attorney in the Denver law firm of Hackstaff & Snow, LLC. She graduated magna cum laude from Saint Louis University School of Law where she was the Mel Friedman Fellow in Real Estate Law.
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Title Annotation:Recent Court Decisions
Publication:Appraisal Journal
Geographic Code:1U1VT
Date:Jun 22, 2015
Words:774
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