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IN THE COMMONWEALTH COURT OF PENNSYLVANIA National Retail Properties, Inc., c/o Fuel On/3 Man Corp., Appellant v. Schuylkill County Board of Assessment Appeals, Schuylkill County, Minersville Borough and Minersville Area School District BEFORE: : : : : : : : : : :

No. 824 C.D. 2011 No. 825 C.D. 2011 No. 826 C.D. 2011 Argued: March 12, 2012

HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge (P.) HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE McGINLEY FILED: May 29, 2012

Fuel On/3 Man Corporation (Taxpayer), the lessee of a mini market/gas station owned by National Retail Properties, appeals from the real estate tax assessments of three contiguous parcels (Property) approved by the Court of Common Pleas of Schuylkill County (trial court).

National Retail Properties purchased the Property at issue which included a gas station, convenience store and parking lot for $1,257,642. In

February 2009, National Retail Properties leased the Property to Taxpayer for $40,000 per year, with set periodic increases in the rent over the remaining 18 years of the lease. Specifically, the lease rate was scheduled to increase by

approximately 2.5% every third year. Taxpayer was responsible for all taxes, maintenance fees, utilities and other charges.

Taxpayer received real estate tax assessments from local taxing authorities which determined the fair market values for the three parcels were $967,690, $24,240 and $24,240 for the tax year 2011. On June 22, 2010, Taxpayer appealed the assessments to the Schuylkill County Board of Assessment (Board). The Board denied the appeals on September 9, 2010. Taxpayer appealed the Board's decision to the trial court on September 27, 2010.

Hearings were held on November 17, 2010, and February 17, 2011. The taxing authorities presented their assessment records into evidence.

Taxpayer presented the expert testimony of Alan Rosen (Rosen), a certified real estate appraiser who performed 100 convenience store appraisals throughout the state.1 Rosen relied on the "Income Approach" to valuation and the "Direct Sales Comparison Approach." He disregarded the "Cost Approach" Hearing because he opined that approach "is better to value new property."

Transcript, November 17, 2010 (H.T. 11/17/10) at 23; Reproduced Record (R.R.) at 111a.

Rosen reviewed the Lease and the Income and Expense Report and based his entire conclusion of value for the Income Approach to Value on the contractual rental rate of $40,000 per year. H.T. 11/17/10 at 28; R.R. at 116a. He adjusted the annual rent downward by $2,000 based upon a 5% vacancy rate. He explained that a typical vacancy rate for a property of this type was 5%-10%. H.T. 11/17/10 at 30; R.R. at 118a. He then divided the adjusted annual income by an

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The Taxing Authorities did not present expert testimony.

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8.72% capitalization rate.2 He opined that with convenience store properties of this type the "typical capitalization rate is between 8.5% and 9.5%." H.T. 11/17/10 at 31; R.R. at 119a. Based upon the adjusted net operating income of $38,000 and a capitalization rate of 8.72%, Rosen concluded that the market value of the Property was $436,000. Id. Rosen then utilized the "Direct Sales Comparison Approach" to test the validity of his opinion on the income approach. Based upon three comparable sales located in similar market locations with similar traffic counts, Rosen made several upward and downward adjustments to account for differences in size, traffic counts, uses, condition and then concluded that the sales comparison approach yielded a value of $462,000.

Comparable #1 was a convenience store in Schuylkill County which sold for $578,000 in February 2010.3 To make the comparable sufficiently similar to the subject Property, Rosen made a downward adjustment of 20% because Comparable #1 was on a larger lot and newer. He arrived at an adjusted value of Comparable #1 of $462,000. H.T. 11/17/10 at 40-41; R.R. at 128a-129a.

Capitalization of income is required where, as here, a property is encumbered by a longterm commercial lease. In re Assid, 842 A.2d 995 (Pa. Cmwlth. 2004). 3 The Expert Appraisal Report stated that this comparable was sold in May 2006. Rosen testified, however, that his report contained a typographical error in that the report indicated that sale was made in May 2006, when it should have stated February 2010. H.T. 11/17/10 at 34; R.R. at 122a. The trial court apparently overlooked Rosen's clarification because in its opinion, the trial court noted that Rosen did not use two other properties which sold for more in 2006 as comparables. Trial Court Opinion, April 13, 2011, at 5. Neither party addresses the oversight, and in light of the trial court's reliance on many other factors to reject Rosen's opinions, this Court finds the error was harmless.

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Comparable #2 was a convenience store located in Monroe County which sold for $340,000 in October 2009. Comparable #2 had less square footage and was situated on a smaller lot than the subject Property. It was also vacant when it sold. Rosen adjusted the value upward by 30% to account for the differences and arrived at a value of $442,000. H.T. 11/17/10 at 42; R.R. at 130a.

Comparable #3 was a convenience store in Northampton County which sold for $650,000 in April of 2009. The building was three times the size of the subject Property. Rosen made a downward adjustment of 30% because of the difference in the sizes of the buildings and arrived at an adjusted value of $455,000.

Taxpayer also attempted to demonstrate a violation of the Uniformity Clause of the Pennsylvania Constitution, Article 8,

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