Wisconsin Lawyer
Vol. 82, No. 10, October 2009
In Saddle Ridge Corporation v. Board of Review, No. 2007AP2886, 2009 WL 2615647 (Wis. Ct. App. Aug. 27, 2009), the Wisconsin Court of Appeals held that for purposes of taxation and assessment, ownership of the common elements of a condominium, including vacant land reserved for development, is to be determined by the terms of the condominium declaration. The court held that in the case before it, units that were declared but not yet constructed “do not possess any appurtenant interest in the common elements of the condominium” and therefore were not subject to assessment for real property taxes.
In his dissent, Judge Dykman stated that declared but unbuilt units should be considered “units,” with corresponding percentage interests in the common elements. The dissent noted that the majority opinion “will be read as legitimizing the notion that condominium declarations can be used to make some declared but unbuilt condominium units non-taxable and to shift unit taxation to others,” and that under the majority’s decision, “if a declared but unbuilt unit does not establish a taxable parcel, the Town of Pacific will be unable to tax anything in these areas until something is built.”
The Likely Effect of Saddle Ridge
The condominium at issue in Saddle Ridge was an expandable condominium. Its declaration recited that the number of units would increase “in the event of annexation of additional properties and improvements to the condominium.” The majority in Saddle Ridge interpreted this clause to limit ownership of the common elements to built units. Thus, the majority wrote, the unbuilt units do not possess any percentage interest in the common elements. Once a unit is built, it would then receive a percentage interest.
The Wisconsin Condominium Act, however, precludes a declaration from creating such “springing” percentage interests. Wis. Stat. section 703.13(1) states that every unit owner owns an undivided percentage interest in the common elements equal to that set forth in the declaration. Section 703.13(4) states that the percentage interest shall have a permanent character and, except as specifically provided in the Act, may not be changed without the written consent of all the unit owners and their mortgagees.
The Act specifically provides that percentage interests may change when units are added, merged, divided, or taken by eminent domain. It does not provide that percentage interests, once assigned, may change based on whether a unit is built or unbuilt. But that appears to be the effect of Saddle Ridge.
Thus, a declarant may have a substantial ownership interest in such common elements as a pool, clubhouse, and land, yet have no property tax liability. “If the majority is correct,” Judge Dykman wrote, “Saddle Ridge has found the Holy Grail of real estate taxation.”
Wisconsin Lawyer
