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March 27, 2026 Get Citation Alerts Download PDF Add Note

In re Equalization Appeal of City of Council Grove

Court of Appeals of Kansas

• Citations: None known
• Docket Number: 126290

• Precedential Status: Non-Precedential

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• Authorities (9)

• Cited By (0)

• Summaries (0)

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Combined Opinion

NOT DESIGNATED FOR PUBLICATION

No. 126,290

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

In the Matter of the Equalization Appeal for the
CITY OF COUNCIL GROVE,
for the Tax Years 2014, 2015, and 2016.

MEMORANDUM OPINION

Appeal from Board of Tax Appeals. Submitted without oral argument. Opinion filed March 27,
2026. Affirmed.

Linda Terrill, of Property Tax Law Group, LLC, of Overland Park, for appellant City of Council
Grove.

Michael A. Montoya, of Michael A. Montoya, P.A., of Salina, for appellee Morris County.

Before PICKERING, P.J., CLINE, J., and CAREY L. HIPP, District Judge, assigned.

CLINE, J.: The City of Council Grove appealed the property tax valuation of City-
owned land surrounding Council Grove Lake that is subject to long-term residential
leases. The appraiser hired by Morris County found the lease rent to be below market
value, so he did not base his appraisal on it. The Board of Tax Appeals (BOTA) agreed
with this approach, only making minor adjustments. We remanded the valuation
approved by BOTA with directions for BOTA and the appraiser to explain what weight
was given to the lease rent in determining the appraised value of the land or explain why
little weight was given to the lease rent. In re Tax Appeal of City of Council Grove,
No. 121,005, 2020 WL 3394453, at *7 (Kan. App. 2020) (unpublished opinion).

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The case now returns to our court for determination of whether BOTA complied
with our remand instructions.

Upon review of the record, we find the appraiser and BOTA complied with our
instructions. At the evidentiary hearing on remand and in BOTA's order on remand, the
appraiser and BOTA explained why little weight was given to the lease rent in
determining the appraised value of the land. We are unpersuaded by the City's claim that
the appraiser and BOTA's valuation of the land violates Kansas law and therefore affirm
BOTA's order on remand.

FACTUAL AND PROCEDURAL BACKGROUND

This case involves the property tax appraisal of improved land surrounding the
Lake for the years 2014 through 2016. The Lake, which is a source of water for the City,
and the land surrounding it, is owned by the City. The City leases the land to individuals
(Homeowners) under a form lease agreement that this court has previously noted is
"unique and may be the only one in the State of Kansas." In re Tax Appeal of City of
Council Grove, No. 116,414, 2017 WL 3669088, at *1 (Kan. App. 2017) (unpublished
opinion). There are 350 leased lots for permanent and part-time residences, five public
park areas, boat ramps, and common areas on the land.

The relevant portions of the lease agreement that each Homeowner signed
required the Homeowners to pay the City $1,200 per year in lease rent for the years at
issue in this appeal. The lease provides that the City may increase rent only under certain
circumstances, such as a significant increase in expenses. The initial lease term was 30
years, but it automatically renews for successive 30-year terms. Homeowners may devise
their interest in the lease or transfer it with prior approval by the City.

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Homeowners are responsible for all taxes on the leased land, including taxes
assessed by the County against the improvements which are separate from the land.

The form lease was drafted by the Council Grove City Lake Association in 2008.
At the time, the City's mayor advocated for charging $2,500 per lease. According to one
of the Homeowners, Dave Fritchen, "everyone went ballistic" over the proposed lease
amount. Thus, a committee was formed to address the lease rate, with members from
local businesses, Lake residents, individuals from each ward (including Fritchen), and the
city council. Fritchen noted that the committee did not seek "a fair market rent, but part
of the purpose of bringing us together was the leaseholders around there were concerned
about rent stability." Fritchen also agreed that "the impetus behind all this movement was
to get the taxes down because they were going too high."

The County hired Tim Keller with Keller, Craig & Associates to appraise the land
to determine its fair market value for the tax years 2014, 2015, and 2016. Keller prepared
an appraisal report for each of those years. The fair market value of the land is used to
determine the amount of ad valorem tax the City is required to pay. See K.S.A. 79-1439.

In Keller's appraisal, he did not use a cost approach analysis to determine the fair
market value of the land because it would be the least reliable analysis "due to the age of
the property and current market conditions." Instead, Keller applied an income approach
to determine the fair market value. No one challenges Keller's decision to take this
approach to valuing the land. Rather, the City contends Keller erred by using "market
rent" instead of the actual lease rent the Homeowners pay the City.

According to Keller's appraisal:

"Market rent is defined as the most probable rent that a property should bring in a
competitive and open market reflecting all conditions and restrictions of the specified

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lease agreement including the rental adjustment and revaluation, permitted uses, use
restrictions, expense obligations, term concessions, renewal and purchase options, and
tenant improvements."

Because of the low amount paid through the current lease, Keller considered three lake
land leases in the Midwest. When comparing the Lake to the other properties, Keller
considered the waterfront, water view, presence of boat docks, occupancy period, lot size,
and lake size. Keller's appraisal acknowledged that the characteristics in the locations
differed and adjusted the valuations accordingly. For example, two of the comparable
properties had an inferior waterfront when compared to the Lake properties. Keller
adjusted their rent by increasing the rent by 100% to account for the difference. But those
same two properties had a larger lake, so he reduced their rent by 30% to account for the
different lake sizes.

Given his calculations, Keller estimated that an annual rent between $4,150 and
$5,600 was appropriate. His report settled on $5,500 annually based on "the amenities
that are available such as year round availability and large sites that support permanent
structures."

Keller made several adjustments to this amount, including calculating the net
operating income and then applying a 7% capitalization rate to that amount. He also used
a discounted cash flow analysis to determine a second market value for the land.

Using the market values derived from the two income approaches, Keller
determined that the market value of the land for tax year 2014 was $24,000,000. Using
the same methods, Keller determined that the market value of the land for tax year 2015
was $25,000,000, and, for tax year 2016, it was $26,000,000.

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The County assessed taxes against the City using Keller's appraised fair market
values. The City appealed that valuation to BOTA. It argued that the County's appraisal
failed to comply with K.S.A. 79-503a, which sets standards for determining fair market
value of real property including the consideration of government imposed restrictions.
BOTA heard evidence and arguments on the valuation from the parties in May 2018.
BOTA generally accepted Keller's appraisal, with some modification based on different
adjustments it found were necessary. BOTA ultimately determined appraised values of
the land as follows: $16,581,000 in 2014, $17,579,000 in 2015, and $17,657,000 in 2016.

The City then appealed BOTA's decision to this court. We reversed BOTA's
decision on the valuation of the land and remanded the case to BOTA after finding Keller
and BOTA failed to address the lease rent. In explaining our decision, we said:

"BOTA did not adequately address Keller's failure in its full and complete opinion. In
short, the governing statutes require that the actual rents be considered in arriving at the
fair market value of real property. Neither Keller nor BOTA appears to have done so. The
law does not mandate that the stated rents are necessarily controlling. But we would
expect an appraiser and the reviewing administrative agency to acknowledge those rental
amounts and to explain what weight they have been given in arriving at a tax valuation
and, especially if they have been given little weight, why. . . . See K.S.A. 79-503a." In re
Tax Appeal of City of Council Grove, 2020 WL 3394453, at *7.

The case was returned to BOTA with instructions for the lease rent to be
considered "'in connection with cost, income, and other factors'" to determine the
fair market value of the land. 2020 WL 3394453, at *7 (quoting K.S.A. 79-503a).

5
Consideration of Contract Rent on Remand

BOTA held an evidentiary hearing on remand in May 2021. Keller testified about
how he considered the lease rental rates in determining the fair market value of the land:

"Q. In your appraisal report, can you describe to [BOTA] how you address the
ground lease in valuing this property?
"A. So lease terms were considered, I looked at the ground lease, in fact, I
summarized some of the terms in my appraisal report and included a copy of the contract,
the lease, in my appraisal. And because I didn't think it was a market-derived transaction,
I did not consider it in my cash flow projections. I did not use the contract rent in my cash
flow projections, I ignored them, I used instead a market rent that I derived in my report
based on analysis of other competing properties and sales.
"Q. So when you say that you ignored it, could you explain what that word
'ignored' means?
"A. Yes, so in preparation of this report, I didn't use the contract rent; I didn't use
the rent that's specified in the contract. I used what I thought was market rent.
"Q. Why didn't you believe that the rent in the contract represented market rent?
"A. Well, it didn't meet the—it didn't meet the—kind of my test, or the test that
we use as appraisers. When you try to consider whether or not a transaction is a market-
based transaction, you look at several things about the transaction. And you look at the
transaction itself and wonder if there's some issues there that are not typical to market.
You also look at the terms of the lease in terms of how they were developed. And it's not
unusual in our business to be provided with leases that maybe don't meet that same test of
a willing buyer/willing seller and the other things that are in our statute when it comes to
market value.
". . . There was no conversation about how to derive the rent, there wasn't any
market studies that were done, it was, for a lack of a better word, a political decision that
was—the negotiation was between members of the city counsel and property owners that
live out there, some of which, are probably voters. But because of those things, I didn't
think the lease was a market rent transaction.
"And, like I say, this is something that we oftentimes run into when we might
have a family-related lease between party members. We get a copy of that when we're

6
doing our assignment, we don't necessarily rely upon that when we're trying to come up
with what we think is a fair market value."

BOTA then explained in its order:

"It is clear from Keller's testimony both at the original hearing and at the hearing
after remand that he concluded the contract leas[e] rates on each Council Grove Lake lot
were below market. [BOTA] finds no basis in the record to disagree with Keller's
conclusion on this point, particularly in light of specific testimony from individuals
directly involved with the process that the contract rates were negotiated not to reflect the
market for similar lease lots, but to achieve rent stability, prevent the city from raising
rental rates on the lots, and keep the real estate taxes on the lots low. See County Brief on
Remand, p. 11-13. Keller's testimony establishes that he was clearly aware of the
perpetual lease contracts in place on all of the Council Grove Lake lots but disregarded
the actual contract rate in his analysis, because he did not find it to be indicative of the
market rate that he was required to apply utilizing generally accepted appraisal principles.
Keller's approach here was, on its face, consistent with both the Appraisal Institute's
directive that an appraiser conducting an income approach analysis to determine a
property's fee simple value should use market rental rates, rather than contract rental
rates, and with Kansas law requiring valuation of a fee simple estate, rather than a leased
fee. See ARE, at 420; K.S.A[.] 74-2433(g)."

Thus, BOTA ultimately did not change its opinion that Keller's valuation using higher
rental rates than the $1,200 in the lease was appropriate. The City moved for
reconsideration, which BOTA denied, and then it appealed.

REVIEW OF THE CITY'S APPELLATE CHALLENGE

The City argues that Keller erred in appraising the land when he "ignored" that the
City and Homeowners have a perpetual lease in place which limits the rent that the
Homeowners pay. The City also asserts that BOTA erred in maintaining its original

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conclusion, because it contends K.S.A. 79-503a requires BOTA to use the lease rent
when determining the fair market value of the land.

The County, for its part, argues that this court did not require the lease rent to be
used when appraising the land, but simply ordered that there must be a complete
explanation of the role that the lease rent played in the appraisal to comply with K.S.A.
79-503a.

Standard of Review

The Kansas Judicial Review Act, K.S.A. 77-601 et seq., governs appellate review
of BOTA's rulings. K.S.A. 74-2426(c); K.S.A. 77-603(a). When determining the validity
of an assessment of the valuation of real property for uniformity and equality in the
distribution of taxation burdens, the essential question is whether the standards prescribed
in K.S.A. 79-503a have been considered and applied by taxing officials. In re
Equalization Appeal of Tallgrass Prairie Holdings, 50 Kan. App. 2d 635, 649, 333 P.3d
899 (2014); Krueger v. Board of Woodson County Comm'rs, 31 Kan. App. 2d 698, 702,
71 P.3d 1167 (2003), aff'd 277 Kan. 486, 85 P.3d 686 (2004). Because the City is
challenging BOTA's action, the City bears the burden of proving the invalidity of the
action. See K.S.A. 77-621(a)(1).

To the extent this issue involves statutory interpretation, this court's review is
unlimited. Bruce v. Kelly, 316 Kan. 218, 224, 514 P.3d 1007 (2022). But when construing
tax statutes, provisions which impose a tax are to be construed strictly in favor of the
taxpayer. In re Tax Appeal of BHCMC, 307 Kan. 154, 161, 408 P.3d 103 (2017).

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Ad Valorem Taxation

Unless specifically exempted, all real and tangible personal property in Kansas is
subject to taxation on a uniform and equal basis. Kan. Const. art. 11, § 1(a); K.S.A. 79-
101. The Legislature enacted a statutory scheme to ensure property is appraised in a
uniform and equal manner for ad valorem tax purposes. A central component of this
statutory scheme is the requirement that property be appraised "at its fair market value as
of January 1 in accordance with K.S.A. 79-503a unless otherwise specified by law."
K.S.A. 79-1455.

Fair market value for ad valorem tax purposes has been defined as "'[a]bsolute
ownership unencumbered by any other interest or estate, subject only to the limitations
imposed by the governmental powers of taxation, eminent domain, police power, and
escheat.' The Appraisal of Real Estate, p. 114 (13th ed. 2008)." In re Equalization Appeal
of Prieb Properties, 47 Kan. App. 2d 122, 130, 275 P.3d 56 (2012), abrogated on other
grounds by In re Equalization Appeal of Walmart Stores, Inc., 316 Kan. 32, 513 P.3d 457
(2022); see also In re Equalization Proceeding of Amoco Production Co., 33 Kan. App.
2d 329, 336-40, 102 P.3d 1176 (2004) (holding Kansas ad valorem valuation
contemplates valuation of the fee simple interest).

"Kansas tax statutes do not use the term 'fee simple'; however, it is clear that the
legislative intent underlying the statutory scheme of ad valorem taxation in our State has
always been to appraise the property as if in fee simple, requiring property appraisal to
use market rents instead of contract rents if the rates are not equal. K.S.A. 79-501
requires that each parcel of real property be appraised for taxation purposes to determine
its fair market value. In turn, K.S.A. 2010 Supp. 79-503a defines 'fair market value' as
'the amount in terms of money that a well informed buyer is justified in paying and a well
informed seller is justified in accepting for property in an open and competitive market,
assuming that the parties are acting without undue compulsion.' (Emphasis added.) It is
clear, therefore, that the fair market value statute values property rights, not contract
rights." In re Equalization Appeal of Prieb Properties, 47 Kan. App. 2d at 130-31.

9
This definition requires all rights and privileges in real property to be valued. But
"[f]or purposes of ad valorem taxation, Kansas law requires the valuation of the fee
simple estate and not the leased fee interest." 47 Kan. App. 2d 122, Syl. ¶ 6.

Fair market value is the key to determining a value for the hypothetical sale.
K.S.A. 79-503a provides:

"'Fair market value' means the amount in terms of money that a well informed
buyer is justified in paying and a well informed seller is justified in accepting for
property in an open and competitive market, assuming that the parties are acting without
undue compulsion. In the determination of fair market value of any real property which is
subject to any special assessment, such value shall not be determined by adding the
present value of the special assessment to the sales price."

Additionally, K.S.A. 79-503a contains a list of nonexclusive factors to provide
guidance on the methods that may be used to determine fair market value:

"Sales in and of themselves shall not be the sole criteria of fair market value but
shall be used in connection with cost, income and other factors including but not by way
of exclusion:
(a) The proper classification of lands and improvements;
(b) the size thereof;
(c) the effect of location on value;
(d) depreciation, including physical deterioration or functional, economic or
social obsolescence;
(e) cost of reproduction of improvements;
(f) productivity taking into account all restrictions imposed by the state or federal
government and local governing bodies, including, but not limited to, restrictions on
property rented or leased to low income individuals and families as authorized by section
42 of the federal internal revenue code of 1986, as amended;
(g) earning capacity as indicated by lease price, by capitalization of net income or
by absorption or sell-out period;

10
(h) rental or reasonable rental values or rental values restricted by the state or
federal government or local governing bodies, including, but not limited to, restrictions
on property rented or leased to low income individuals and families, as authorized by
section 42 of the federal internal revenue code of 1986, as amended;
(i) sale value on open market with due allowance to abnormal inflationary factors
influencing such values;
(j) restrictions or requirements imposed upon the use of real estate by the state or
federal government or local governing bodies, including zoning and planning boards or
commissions, and including, but not limited to, restrictions or requirements imposed upon
the use of real estate rented or leased to low income individuals and families, as
authorized by section 42 of the federal internal revenue code of 1986, as amended; and
(k) comparison with values of other property of known or recognized value. The
assessment-sales ratio study shall not be used as an appraisal for appraisal purposes."

And here the City appears to agree. Instead, it raises a different issue on appeal.
While the City acknowledges that both Keller and BOTA provided an explanation for
their decisions, it claims the failure to consider the lease rent violates Kansas law.

Appraisals for ad valorem taxation purposes must comply with the Uniform
Standards of Professional Appraisal Practice (USPAP). K.S.A. 79-506(a). In addition, the
ad valorem appraisal process must "conform to generally accepted appraisal procedures
and standards which are consistent with the definition of fair market value unless
otherwise specified by law." K.S.A. 79-503a. Whether an appraisal complies with
USPAP, as required by K.S.A. 79-503a and K.S.A. 79-506(a), is an issue of law subject
to de novo review. See In re Tax Appeal of Dillon Stores, 42 Kan. App. 2d 881, 885, 891-
92, 221 P.3d 598 (2009).

Explanation of Lease Rent on Remand

At the evidentiary hearing on remand, Keller explained why he did not use the
lease rent when valuing the land. He said the lease rent did not reflect the actual value of

11
the land because it did not meet the test that appraisers use when determining fair market
value. Instead, he compared the lease rent to a below-market transaction like a lease
between family members because he does not necessarily rely on a family-related lease
when determining fair market value either.

When addressing why it found Keller's assessment and methodology appropriate,
BOTA pointed out that in the original hearing individuals directly involved in
determining the lease rent testified that the rates were not negotiated to reflect market
value for the land. The rates were negotiated for other reasons, including to "keep the real
estate taxes on the lots low." It also pointed out that Keller addressed why he gave little
weight to the lease rent, and it found Keller's reasoning was "consistent with both the
Appraisal Institute's directive that an appraiser conducting an income approach analysis
to determine a property's fee simple value should use market rental rates, rather than
contract rental rates, and with Kansas law requiring valuation of a fee simple estate,
rather than a leased fee."

We find both Keller and BOTA adequately explained their decisions not to rely on
the lease rent in determining the fair market value of the land. Thus, we find they
complied with this court's mandate.

K.S.A. 79-503a does not require lease rent be used in appraisals.

The City raises another issue with the appraiser's and BOTA's valuation of the
land. It argues that K.S.A. 79-503a(f), (h), and (j) mandate that the lease rent be used to
determine fair market value of the land. It contends that the lease rent agreed upon
constitutes a restriction imposed by the state or federal government and local governing
bodies as defined in K.S.A. 79-503a(f),(h), and (j). As a result, it claims Keller was not

12
free to ignore the lease rent but was, instead, required to use it because the City contends
the lease is a restriction imposed by the local governing body.

The City relies on In re Equalization Appeal of Ottawa Housing Ass'n, 27 Kan.
App. 2d 1008, 10 P.3d 777 (2000), to assert that "fee simple value for properties with
rents 'restricted by . . . local governing bodies' utilizes the contract rental rate, not the
market rental rate in the income approach to valuation." Yet this case does not mandate
the use of contract rent imposed by local governing bodies in the appraisal of a property,
but rather that it at least be considered. In that case, we held that

"a low-income housing contract is an investment tool for maximizing an investment in
real estate. Buyers and sellers of real estate consider these tools in determining the market
value of real estate. This principle corresponds with the Kansas definition of 'fair market
value' as 'the amount in terms of money that a well informed buyer is justified in paying
and a well informed seller is justified in accepting for property in an open and
competitive market, assuming that the parties are acting without undue compulsion.'
[Citations omitted.]" 27 Kan. App. 2d at 1013.

Thus, in the same way a buyer would consider the restrictions on the property in
creating a purchase offer, the appraiser will consider the restrictions and determine
whether they affect the appraisal.

Similarly, when we remanded this case to BOTA, we said: "The law does not
mandate that the [lease rent rates] are necessarily controlling." In re Tax Appeal of City of
Council Grove, 2020 WL 3394453, at *7. We simply held that K.S.A. 79-503a requires
that they be considered and that Keller and BOTA must explain how and why the lease
rent rates were or were not used in reaching their conclusions. 2020 WL 3394453, at *7.

BOTA explained why this situation is not a restriction imposed by the state or
federal government and local governing bodies as defined in K.S.A. 79-503a(f), (h), and

13
(j), which provide as an example "restrictions on property rented or leased to low income
individuals and families as authorized by section 42 of the federal internal revenue code
of 1986." K.S.A. 79-503a(f), (h), and (j). It noted:

"[BOTA] notes that those two provisions of K.S.A. 79-503a specifically referenc[e]
restrictions placed upon property that qualifies for low-income housing under section 42.
Those restrictions notably have the effect of decreasing a property's market value, which
is then offset by tax credits or other means to entice developers to pursue this type of
property development. The relationship between the incentives to build low-income
housing and the restrictions associated with receipt of those incentives ensure that this
type of property is ultimately used for its intended purpose."

Thus, the owner of property limited by section 42 restrictions is either still
assessed the full taxes and receives tax credits as a result of complying with section 42, or
received monetary support in constructing a facility that would allow for low income
housing in lieu of any other opportunity that could be potentially more lucrative and thus
create a higher property value. These avenues create either a limitation on the earning
potential or value of the property, as it is restricted in exchange for a benefit.

Keller addressed this argument as well, when he noted that there are times when
there is a contract rent that does not comport with the fair market rental value of the
property. In those scenarios, he explained that he would not use the contract rent as it
would decrease the tax burden based on an independent agreement. For instance, Keller
referenced situations where a property owner rents their property to a family member for
a low rate. The contract rent could be substantially lower than the fair market value of
renting a comparable property; however, it does not change the value of the property and
the owner is still liable for the taxes on the full value. The owner elected to take a fraction
of the earning value, in exchange for the benefit of their relative being the lessee. Here,
the relationship between the City and the Homeowners is more like the family and friends
discount given by one relative to another.

14
Unlike the scenario of a private individual leasing their property to a family
member for a fraction of the fair market rent, here the lessee is responsible for the taxes.
The Homeowners argue that because they do not own the land but rather have the right to
occupy the land with some restrictions, the value should be limited to the income
approach appraisal that considers the lease rent. But "[f]or purposes of ad valorem
taxation, Kansas law requires the valuation of the fee simple estate and not the leased fee
interest." In re Equalization Appeal of Prieb Properties, 47 Kan. App. 2d 122, Syl. ¶ 6.

The lease gives the Homeowner basically complete control over the land to the
exclusion of others, and beyond an ordinary lessor/lessee relationship, the Homeowners
can "encumber by mortgage or deed of trust, or other proper instrument, its leasehold
interest and estate in the Lease Premises" as well as "sell, transfer, assign, gift, devise by
will or other instrument, its interest in this Lease." In fact, at the first BOTA hearing, the
mayor of Council Grove, who was on the city council at the time of formation of the
lease, confirmed that it would be "a fair statement to say that the real idea of this lease
agreement was to give the tenants full and complete control over this property while, at
the same time, not really saying that they own it." Therefore, we do not find the fact that
the Homeowners bear the responsibility for payment of real estate taxes on the land
requires use of the lease rent to determine fair market value.

Apportioning value based on the Homeowners' lease rent would give the
Homeowners a tax windfall as compared to other Council Grove landowners or lessees
who own or lease land not adjacent to the Lake. We do not believe this result is required
by K.S.A. 79-503a. And the lease here does not provide a benefit or detriment to either
side sufficient to fulfill the types of governmental restrictions referenced in K.S.A. 79-
503a(f), (h), and (j). The Homeowners are enjoying the full right to occupy and use City
property to the exclusion of others, and the rent they agreed to pay to the City does not
reduce the fair market value of the property.

15
CONCLUSION

Pursuant to the remand instructions in In re Tax Appeal of City of Council Grove,
2020 WL 3394453, BOTA and Keller properly explained what role the lease rent played
in determining the value of the land. And we do not find that Keller's appraisal
methodology or BOTA's valuation violate Kansas law. We therefore affirm BOTA's
valuation order on remand.

Affirmed.

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