Laws, Regulations & Annotations
Property Taxes Law Guide – Revision 2017
Revenue and Taxation Code
Part 0.5. Implementation of Article XIII A of the California Constitution
Chapter 2. Change in Ownership and Purchase
60. Meaning of "change in ownership." A "change in ownership" means a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest.
Construction.—This Section was intended as a guidepost in cases not covered specifically by Sections 61 through 66 and is inapplicable to cases in which specific provisions cover the transaction that occurred. Shuwa Investments Corporation v. Los Angeles County, 1 Cal.App.4th 1635. Where the owner of an apartment building conveyed title in fee simple to a buyer who planned to convert the building to cooperative housing, the buyer provided a down payment, the remainder of the purchase price was covered in an all-inclusive trust deed carried by the owner, and initial payments of interest by the buyer could be satisfied by transferring to the owner the rental income generated by the building, a change of ownership occurred. The sale documents were absolute on their face, containing no conditions, exceptions or reservations regarding transfer of full title, and buyer's sale of fractional interests to individual investors and the subsequent conveyance by one of those investors to a third party were consistent with the change of ownership at the time of the transaction between owner and buyer. Cal-American Income Property Fund II v. Los Angeles County, 208 Cal.App.3d 109. The legislative treatment of partnerships and corporations similarly and in a manner differently from joint tenancies and tenancies in common for purposes of real property transfers, which results in a 100 percent reassessment, is not irrational. Partnerships and corporations are recognized legal entities, whereas joint tenancies and tenancies in common are not, and both partners and shareholders have limited rights in the partnership or corporation's real property. Munkdale v. Giannini, 35 Cal.App.4th 1104. Majority partner's purchase of minority partners' partnership interests and partnership transfer of title to partnership real property to the sole partner constituted a change in ownership under this section. Zapara v. Orange County, 26 Cal.App.4th 464.
Under Section 61 and this section, a partnership's transfer of parcels of real property to a partner was a change in ownership requiring a 100 percent reassessment. The transfer was a transfer of a beneficial interest. Munkdale v. Giannini, 35 Cal.App.4th 1104.
The purchase by a property owner of transferable development rights allowing the owner, in developing its property, to exceed the maximum floor area ratio otherwise allowed under a city redevelopment plan, was a taxable event within the framework of Article XIII A of the Constitution, permitting reappraisal upon a change of ownership. The purchase involved a transfer of a significant present, beneficial property interest within the meaning of this section. Mitsui Fudosan (U.S.A.), Inc. v. Los Angeles County, 219 Cal.App.3d 525.
All three parts of the Section 60 test must be applied to a change in ownership analysis of a real property transfer. Auerbach v. County of Los Angeles Assessment Appeals Board No. 1, 39 Cal.4th 153.
Step transaction doctrine.—For purposes of determining whether a 100 percent change of ownership has occurred so as to support reassessment pursuant to Article XIII A, Section 2 of the Constitution and Section 60 et seq., the application of the step transaction doctrine requires an analysis of the parties' purposes and intents in carrying out the various steps in the transaction. Such matters as intent and purpose are customarily viewed as factual. Moreover, the existence of an independent business purpose for each of the various steps, while of significance, does not prevent the application of the doctrine. Even if only one or two of the relevant tests is satisfied, a step transaction finding may be made for reassessment purposes. And, even where each step may have been made according to a particular exclusion from reassessment, the series of steps may be amalgamated and viewed in their entirety if such is necessary to comply with the spirit, rather than the letter, of the change in ownership rules under Article XIII A. McMillin-BCED/Miramar Ranch North v. San Diego County, 31 Cal.App.4th 545.
An assessor may not apply the step transaction doctrine to reassess a retail shopping center whose lease was extended for a term that exceeded 35 years and then sold to the lessee and an outside investor when the original lease term was for greater than 35 years and the two steps, viewed together, were not for the purpose of avoiding reassessment of property taxes. Thus, the shopping center should not have been reassessed because no change in ownership occurred within the meaning of Revenue and Taxation Code Section 60. Dyanlyn Two v. County of Orange (2015) 234 Cal.App.4th 800.
Life estate.—A transfer of a life estate to a nonspouse third party constitutes a change in ownership under this section. The transferee receives a present interest in the property, the beneficial use of the property, and the primary interest under the value equivalency test. Leckie v. Orange County, 65 Cal.App.4th 334.
Sale and leaseback.—A change in ownership under this section occurred on the sale of an office building at market value with the seller simultaneously acquiring a leasehold interest in a portion of the property for 60 years and in another portion of the property for 21 months, including a renewal option. The seller transferred the entire fee to the buyer, and the buyer acquired its beneficial use during the lease and exercised its beneficial interest by exacting rent from the seller/lessee. Pacific Southwest Realty Co. v. Los Angeles County, 1 Cal.4th 155. A change in ownership under this section occurred on a corporation's sale of an office complex subject to three recently executed 50-year leases assigned to its wholly owned subsidiary. There was a transfer of a present interest, regardless of the presence of the long-term leases. The purchaser acquired beneficial use of the property, since it enjoyed the value of the property represented by the rent under the lease. And the value transferred was substantially equal to the value of the fee interest, being a transfer of the fee itself. Crow Winthrop Operating Partnership v. Orange County, 10 Cal.App.4th 1848. The sale of a building pursuant to a sale and leaseback arrangement was a change in ownership within the meaning of this section, triggering reassessment of the property. That the purchaser contracted by lease to accept the financial value of its right of possession rather than the actual, physical possession of the property did not transform its present interest in real property into a future interest. And, that the purchaser could not occupy the property during the lease period did not deprive it of its right to enjoy the value of its property represented by the rent. Industrial Indemnity Co. v. City and County of San Francisco, 218 Cal.App.3d 999.
Mineral interests.—The transfer of a mineral interest is a change of ownership of the mineral estate under this section, as is the assignment of mineral rights to another. On the other hand, a sand profit A prendre created by a sublease from the general mineral lessee to another does not undergo a change of ownership because of the transfer of the mineral interest or because of the assignment of the mineral rights where the sublessee was in continuous possession throughout the relevant period and changes in the relationships between the owner and the lessee and in the lease did not impact upon the sublease. Howard v. Amador County, 220 Cal.App.3d 962.
Distribution on dissolution.—Distribution of parcels of real property in 1982 to shareholders pursuant to an agreement after dissolution of a corporation was a change in ownership under this section, not exempted by Section 62 as it existed in 1982, triggering reassessment of the parcels. Prior to the distribution, the shareholders had equity interests in each parcel, while after the transfers, groups of shareholders owned fee interests in various different parcels. Kern v. Imperial County, 226 Cal.App.3d 391.
Leasehold interests.—Pursuant to subdivision (c) of Section 61, because the ground lease at issue was for only 20 years, the subsequent transfer of the underlying land included a change in ownership and reassessment of the improvements even though the lessee, and not the ground lessor, had constructed and owned the improvements under the terms of the lease. Additionally, all three parts of the Section 60 test must be applied to a change in ownership analysis of a real property transfer. Auerbach v. County of Los Angeles Assessment Appeals Board No. 1, 39 Cal.4th 153.
Trust beneficiaries.—A change in ownership of real property held by a testamentary trust occurred under Section 60 when an income beneficiary of the trust died and was succeeded by another income beneficiary. The beneficiary's death caused a transfer of the property's primary economic value to the successor beneficiary, who acquired a present beneficial interest in the property. Reilly v. City and County of San Francisco, 142 Cal.App.4th 480. Where commercial real property was owned by a trust, the transfer of the income beneficiary's interest to his children upon his death constituted an assessable change in ownership under Section 60. Prior to death, the deceased beneficiary had a present interest in the improvements constructed by lessee, retained the beneficial use of the property, and by virtue of his life estate, held value in the property that was substantially equivalent to the fee. Phelps v. Orange County Assessment Appeals Bd. No 1 (2010) 187 Cal.App.4th 653.
Joint Tenancy.—When a sole owner of real property created a joint tenancy with his brother, no change in ownership occurred under Revenue and Taxation Code Section 65, subdivision (b). However, subsequent to the creation of the joint tenancy, when one of the joint tenants terminated the joint tenancy by transferring his joint tenancy interest to himself as a tenant in common, a 50 percent change in ownership occurred. Benson v. Marin County Assessment Appeals Board (2013) 219 Cal.App.4th 1445.
Assessment—Reassessment on Change of Ownership—A county contended that there was a change in ownership of a hotel held by a limited liability company when all of the company's membership interests were sold. The county was incorrect. Exhibits submitted to the county assessment appeals board to support the company's tax appeal revealed that no one person acquired more than 50 percent. Thus, Property Tax Rule 462.180, subdivision (d)(1)(B), had no application. Ocean Avenue LLC v. County of Los Angeles (2014) 227 Cal.App.4th 344.
Assessment—Reassessment on Change of Ownership—Presumption Regarding Ownership.— When analyzing whether there has been a change in ownership under Revenue and Taxation Code section 60, courts have applied the rule set forth in Evidence Code section 662. Ocean Avenue LLC v. County of Los Angeles (2014) 227 Cal.App.4th 344.
Assessment—Reassessment on Change of Ownership—Factors.—For Revenue and Taxation Code section 60 to trigger a reassessment, there must be a present interest, a transfer of the property's beneficial use, and the value of the interest transferred must be substantially equal to the value of the fee interest. Ocean Avenue LLC v. County of Los Angeles (2014) 227 Cal.App.4th 344.