DETROIT LIONS FOOTBALL AND PROPERTY TAX “UNCAPPING”
MICHIGAN COURT MAKES THE CALL
By Steven K. Stawski, Esq.
For football fans, the term “uncapping” may have a different meaning than in a new legal opinion that is binding on Michigan courts.
This play-by-play review provides a “coaching moment” for property owners and related industry professionals, especially appraisers, accountants, realtors, bankers, trustees, business
brokers, and other participants in commercial real estate transactions. An unplanned“uncapping event” can significantly increase property taxes.
The “Play Under Review”: The sale and transfer of the Detroit Lion’s practice facility in 2004 for $44 million for 232.25 acres of land, a two-story office building, a practice building with an
indoor football field, an outdoor football field, a par-three golf course, and certain outbuildings.
It was originally billed as “no uncapping” because the seller and the buyer entities claimed that they fit within a certain exception that protects against increased in property taxes.
The Tribunal’s Initial Ruling on the Field—literally. The Michigan Tax Tribunal found no “uncapping event” occurred—the property’s taxable value stayed relatively low for the new owner. (The court abstained from comment on the par-three golf course within the football facility and possibilities of linemen yielding drivers.)
The “undisputable evidence” needed to overturn the call is whether the transaction fits within a legal exception that insulates a “transfers of ownership” from uncapping and increased property taxes.
Refresher on the “Rules of the Game”. Every current Michigan property owner benefits from a 1994 referendum that capped increases in a property’s taxable value to 5% or the rate of inflation, whichever is less. When a property has a “transfer of ownership,” however, an “uncapping” occurs and the taxable value increases to 50% of the fair market value.
Key Plays. The “transfers of ownership” that trigger “uncapping” events fall within three broad categories:
1) Commonly-recognized conveyances by certain instruments, including deeds, land contracts, and certain leases that are characterized as a conveyance;
2) Certain estate-planning conveyances such as those that are made to trusts or as distributions from trusts or for certain beneficiaries; and
3) Certain transactions that, because of a substantial change in the owner’s shareholders and members, are effectively constitute a legal “transfer” of the underlying property.
Legislative Exceptions that Prevent Uncapping. Michigan law provides 19 exceptions that prevent “uncapping” for tax purposes, such as transfers between spouses and certain estate planning situations and the “commonly controlled” exception at issue here.
Decision after Review. Upon a not-so-instant review of the 2004 transaction, the Michigan Court of Appeals ruled in October of 2013 to reverse the initial call.
The “Play-by-Play” in Slow Motion. Winding the tape back to 2000, the Michigan Court of Appeals reviewed the matter in slow motion and found that there were actually three elements
to the play at issue. Like a quarterback option play, the Lions’ practice field included a purchase option that was never exercised.
The Ford Motor Land Development Corporation (“Ford Land”) quarterbacked the deal by constructing and owning the practice facility in 2000-01; the Detroit Lions (owned by William Clay Ford Sr. and his wife and children) held leasehold interest with an option to purchase; and WCF Land, LLC (a single member LLC with William Clay Ford Sr. as its sole member) was the direct receiver after the lease option was not exercised.
Because the Detroit Lions never exercised the option to buy, the Court found a direct forward pass between Ford Land directly to WCF Land—two entities that did not meet the common control test and could not fit within the exception to uncapping.
Forward Progress. For purposes of forward progress, if the buyer and seller entities appear to be related by common ownership or otherwise, then verify with legal counsel whether the actual ownership interests fit within the specific statutory requirements for “commonly -controlled”—if not, an uncapping event will occur. Especially because the term “commonly controlled” is not defined by the Legislature—or the new published opinion—proposed “transfers of ownership” should be, evaluated individually in context with legal, tax, and related professional advisors.
Steve Stawski, Esq. a former Princeton football player, serves on the Education Committees of the Commercial Alliance of Realtors and the Michigan Land Title Association. He practices real estate law, business law, and commercial litigation and can be reached at (616) 307-1200.