Glovis Am., Inc. v. Cnty. of Ventura

ordered and managed by the NAVFAC Southwest Senior Appraiser to ensure that all Federal Appraisal Standards are met.

(Italics added.) Paragraph 3.2 specifies Glovis's annual rent for the initial lease term. Paragraph 3.1 permits Glovis to perform long-term maintenance of the leased premises in lieu of paying rent. Paragraph

The amendment also replaces Paragraph 2 of the lease with the following language:

TERM . The initial term of this Lease shall be for five-years [ sic ] commencing on September 16, 2013 [,] and ending on September 15, 2018 , unless sooner terminated under Paragraph 15.

Extension Requests . LESSEE may request that GOVERNMENT extend the term of the lease for an additional five-year period (an "Extension Request"). Any Extension Request may be approved or rejected by GOVERNMENT in its sole discretion for any reason or no reason at all. LESSEE shall have no recourse in law or in equity in the event GOVERNMENT rejects an Extension Request, and no more than two Extension Requests shall be requested or approved.

Legal framework

"Privately held possessory interests in property owned by the federal government ... are subject to taxation." ( Connolly v. County of Orange (1992) 1 Cal.4th 1105 , 1118, 4 Cal.Rptr.2d 857 , 824 P.2d 663 .) A lease of federal property is a possessory interest. ( Cal. Code Regs., tit. 18, § 20, subd. (c)(3).) It may be taxed based on the leaseholder's "reasonably anticipated term of possession." ( Cal. Code Regs., tit. 18, § 21, subd. (d)(1).) The reasonably anticipated term of possession is the term of possession stated in the lease, unless there is clear and convincing evidence that the lessor and lessee have agreed otherwise. ( Ibid .) The stated term of possession as of a specific date is the remaining period of possession specified in the lease, including any option to extend the period of possession "if it is reasonable to assume that the option ... will be exercised." ( Id. , subd. (a)(6).)

The option

Glovis contends the assessor miscalculated the lease's stated term of possession because the lease does not include an option to extend its term. We disagree.

"[A]n option is a contract by which the owner of property invests another with the exclusive right to [lease] said property ... in the future." ( Caras v. Parker (1957) 149 Cal.App.2d 621 , 626, 309 P.2d 104 .) It is obligatory on the optionor, and cannot be withdrawn or revoked. ( Ibid . ) An option has a "dual nature: on the one hand it is an irrevocable offer, which upon acceptance ripens into a bilateral contract, and on the other hand, it is a unilateral contract [that] binds the optionor to perform an underlying agreement upon the optionee's performance of a condition precedent." ( Palo Alto Town & Country Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494 , 502, 113 Cal.Rptr. 705 , 521 P.2d 1097 ( Palo Alto Town & Country Village ).) It is a legal right that must rest on more than a hypothetical probability of extension. ( San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517 , 531, 86 Cal.Rptr.2d 473 ( SDMTDB ).)

Whether Glovis's lease with the Navy includes an option is a question for our independent review. (

Applying these rules here, we conclude that the terms of the lease evidence the parties' mutual intent to grant Glovis the option to extend its possession of the Navy's property past the initial five-year term. Paragraph 2 of the lease clearly and explicitly gives Glovis the exclusive right to lease the Navy's property until 2028. And it contains no language permitting the Navy to withdraw or revoke its offer. That is the definition of an option. ( Palo Alto Town & Country Village , supra , 11 Cal.3d at p. 502, 113 Cal.Rptr. 705 , 521 P.2d 1097 .)

Other lease terms would be superfluous if Paragraph 2 did not include an option to extend the term of possession. Paragraph 2 defines the initial lease term as running from 2013 to 2018, which suggests that other terms may follow. Similarly, Paragraphs 3.1 and 3.2 specify Glovis's annual rent for the initial lease term, while Paragraph 3.3.4 includes a mechanism to determine rent for a term of possession extending past five years. The lease is exempt from the federal five-year contract term limit. Giving these provisions effect by interpreting Paragraph 2 to include an option is more reasonable than leaving them devoid of purpose. ( Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc. (1961) 189 Cal.App.2d 613 , 620, 11 Cal.Rptr. 634 .)

That the Navy must approve the lease extension does not change our conclusion. An option may include a term that requires approval by the optionor. ( Ontario Downs, Inc. v. Lauppe (1961) 192 Cal.App.2d 697 , 700-701, 703, 13 Cal.Rptr. 782 ( Ontario Downs ).) An option may also be conditioned on some future event. ( Wrather Port Properties, Ltd. v. County of Los Angeles (1989) 209 Cal.App.3d 517 , 522-523, 257 Cal.Rptr. 266 .)

State Board of Equalization Property Tax Annotation 220.0350, on which Glovis relies, is inapplicable here. While that annotation states that a conditional option may not be included in computing a lease's term, it applies only where there has been a change in ownership of taxable real property. (Property Tax Annotations, Annotation 220.0350, Change in Ownership (Feb. 18, 1999).) Federal property is exempt from state taxation. ( California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421 , 443, 121 Cal.Rptr.3d 37 , 247 P.3d 112 .) The exercise of an option to extend the lease of tax-exempt real property does not qualify as a change in ownership. ( Rev. & Tax. Code, § 61, subd. (b)(1) ; Cal. Code Regs., tit. 18, § 462.080, subd. (b)(2).)

Whether the option will be exercised

Glovis next contends that, even if the lease includes an option to extend the term of possession, the assessor erred when he determined it is reasonable to assume the option will be exercised. We again disagree.

Glovis next claims it was not reasonable to assume the option would be exercised because the Navy would have to approve any extension. But the evidence established that the Navy had renewed all of Glovis's previous leases, the parties anticipated a long-term business relationship, and the current lease was not subject to the federal five-year contract term limit. And there was no evidence that the Navy did not intend to approve any lease extension.

Finally, Glovis claims it was not reasonable to assume the option would be exercised because any extension would be subject to competitive bidding. But the renegotiation terms in Paragraphs 2 and 3.3.4 imply an exemption from competitive bidding requirements. And a Glovis representative testified that the lease was exempt from such requirements.

This case is like Silveira , supra , 139 Cal.App.4th 989 , 991, 43 Cal.Rptr.3d 501 , in which the plaintiff claimed the assessor overvalued his month-to-month lease by basing the valuation on a years-long anticipated term of possession. He, like Glovis, asserted that such a valuation conflicted with the decision in American Airlines . ( Ibid . ) But in American Airlines , there were " 'no understandings, agreements, negotiations, or discussions ... relating to extension of the leases.' " ( Id . at p. 996, 43 Cal.Rptr.3d 501 .) In contrast, the Silveira plaintiff's lease stated it would continue on a month-to-month basis after its initial expiration.

The judgment is affirmed. The County shall recover costs on appeal.

We concur:

GILBERT, P. J.

YEGAN, J.

The Ventura County Assessor issued a tax bill for the 2014-2015 tax year, and a supplemental tax bill for 2013-2014. The assessor determined that Glovis's reasonably anticipated term of possession is 15 years. He valued Glovis's lease based on the 15-year term.

Glovis appealed the assessments to the Board in October 2014. Glovis conceded it had the burden of showing the assessments were incorrect. Citing the lease and a 2011 newspaper article, Glovis claimed Paragraph 2 did not include an extension option because: (1) Glovis lacked the unilateral right to extend the lease term, (2) the contract was subject to competitive bidding every five years, and (3) previous leases did not include options. Even if Paragraph 2 did include an option, it could not be determined whether it would be exercised.

The evidence showed that this was Glovis's fifth lease with the Navy. All of the prior leases were renewed. While prior leases were subject to competitive bidding, this one was not. And this was the first lease to include an option to extend the lease term.

Additionally, a newspaper article quoted a Glovis representative as saying that the lease was "a critical part of [its] plan to offer ... customers long-term stability at a port strategically located just north of the Los Angeles market." Relocating from Port Hueneme would be a challenge. Glovis "look[ed] forward to a long business relationship" with the Navy.

The Board determined that Glovis did not meet its burden of showing the assessments were incorrect. Glovis presented no evidence of the parties' intent when they included the option language in Paragraph 2. It presented no evidence that the Navy did not intend to approve any lease extension. To the contrary, Glovis's previous relationship with the Navy, the parties' desire for long-term stability, Paragraph 2's rental renegotiation term, and Paragraphs 2 and 3.3.4's implied exemption from federal competitive bidding requirements showed that the parties contemplated a 15-year term of possession.

Glovis challenged the Board's determinations in the trial court. After the court granted the County's motion for judgment on the pleadings with leave to amend, Glovis filed an amended complaint, which included an amendment

Release Rate . LESSEE must submit any Extension Request to LESSOR at least 180 days prior to the end of the current term in order to provide sufficient time for completion of an updated Appraisal which is required to estimate the Market Rental Value of the leased lands. The appraisal cost shall be borne by the LESSEE. The appraisal will be ordered and managed by the NAVFAC Southwest Senior Appraiser to ensure that all Federal Appraisal Standards are met.

The trial court concluded it could not consider the amendment. It sustained without leave to amend the County's demurrer to Glovis's amended complaint.

DISCUSSION

Standard of review

When the trial court sustains a demurrer, we independently determine whether the complaint states a cause of action. ( Blank v. Kirwan (1985) 39 Cal.3d 311 , 318, 216 Cal.Rptr. 718 , 703 P.2d 58 .) We deem true " 'all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.' [Citation.]" ( Ibid . ) We reasonably interpret the complaint, "reading it as a whole and its parts in their context." ( Ibid . ) If the court

The lease amendment

Glovis argues we should consider the 2017 lease amendment to determine whether Paragraph 2 includes an option to extend the term of possession. We independently review whether to use extrinsic evidence to interpret the lease ( Abers v. Rounsavell (2010) 189 Cal.App.4th 348 , 357, 116 Cal.Rptr.3d 860 ), and conclude that there is no need to do so here because the lease is not "reasonably susceptible" to Glovis's proffered interpretation ( Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33 , 37, 69 Cal.Rptr. 561 , 442 P.2d 641 ).

Moreover, the amendment pertains to an issue of fact: whether the parties intended Paragraph 2 to include an option. ( Benchley v. Durkee Famous Foods (1933) 128 Cal.App. 604 , 610, 17 P.2d 1020 .) When a party challenges an issue of fact, this court's review is limited to the administrative record presented to the Board. ( Bret Harte Inn, Inc. v. City and County of San Francisco (1976) 16 Cal.3d 14 , 23, 127 Cal.Rptr. 154 , 544 P.2d 1354 .) The amendment was not part of the administrative record.

Indeed, the amendment did not even exist when the assessment was made or during the Board proceedings. An assessment must be based on the facts known to the assessor at the time of valuation. ( Silveira v. County of Alameda (2006) 139 Cal.App.4th 989 , 1003, 43 Cal.Rptr.3d 501 ( Silveira ).) Evidence that only later comes into existence does not render the assessment invalid. ( Fujitsu Microelectronics, Inc. v. Assessment Appeals Bd. (1997) 55 Cal.App.4th 1120 , 1125, 64 Cal.Rptr.2d 465 ; see also Firestone Tire & Rubber Co. v. County of Monterey (1990) 223 Cal.App.3d 382 , 395, 272 Cal.Rptr. 745 [assessor should not be "held to knowledge obtained after the fact"].) Here, the assessor was allowed to rely on Paragraph 2 as written, and was not required to "ferret[ ] out the ... undisclosed and secret intentions of [the Navy] and [Glovis] relative to the terms of [the] lease." ( Trabue Pittman Corp. v. Los Angeles County (1946) 29 Cal.2d 385 , 392, 175 P.2d 512 .) It would be improper for this court to consider the amendment to undermine the assessor's valuation. ( Fujitsu Microelectronics , at pp. 1125-1126, 64 Cal.Rptr.2d 465 .)

Because the assessor enjoys the presumption that he properly performed his duties, Glovis had the burden to show it was not reasonable to assume the extension option would be exercised. ( Farr v. County of Nevada (2010) 187 Cal.App.4th 669 , 682-683, 114 Cal.Rptr.3d 36 ; see Cal. Code Regs., tit. 18, § 321, subd. (a).) The Board explicitly determined that Glovis did not carry its burden. Our review is accordingly limited to determining " 'whether the evidence compels a finding in favor of [Glovis] as a matter of law.' " ( Dreyer's Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828 , 838, 159 Cal.Rptr.3d 832 .) Specifically, we must determine whether Glovis's evidence was uncontradicted, unimpeached, and of such weight that there is no possibility it was insufficient to support the Board's findings. ( Ibid . )

The same is true here. The trial court thus properly sustained the County's demurrer. And, in light of the above, Glovis has failed to show a reasonable probability that the defects in its complaint can be cured.