Facts: A commercial landlord enters into a 60-year lease agreement with a tenant that includes an option to purchase the property during their 30th year of tenancy. In the 30th year of their tenancy, the tenant and landlord agree to extend the lease term an additional 15 years, resulting in 45 years remaining on the lease. Soon after, the landlord sells the property to the tenant. The county reassesses the property due to a change of ownership and the tenant pays the property taxes.

Claim: The tenant seeks a refund for paid property taxes claiming there is no reassessable change of ownership since a tax code exemption precludes reassessment if the property is encumbered by a long-term lease with at least 35 years remaining at the time of transfer.

Counter-claim: The county claims the property is subject to reassessment since the landlord and tenant purposefully avoided reassessment by extending the remaining lease term beyond 35 years before the transfer and thus, the tax code exemption does not apply.

Holding: A California court of appeals holds the sale of the property subsequent to the lease term extension does not trigger a change of ownership subject to reassessment since the property was encumbered by a long-term lease with at least 35 years remaining, thereby meeting the requirements of the tax code exemption and entitling tenant to their refund of property taxes. [Dyanlyn Two v. County of Orange (2015) 234 CA4th 800]


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