Goldblum on Re-definition of “Change of Ownership”
Martin T. Goldblum
California’s Proposition 13 in general allows for the reassessment of the value of real estate for the property tax
purposes only upon a change of ownership or additional construction.
Under Section 64 of the California Revenue and Taxation Code, (“CRT”) the transfer of ownership interests in an
entity does not constitute a change of ownership in real property owned by an entity unless a person or other
entity obtains ownership or control of more than 50% of the voting stock or ownership interests in the entity (CRT
Section 64(c)). The effect of this provision is that any acquisition of a controlling interest in an entity results in a
deemed change of ownership of the real property and allows for its reassessment. For example, if a person owns
49% of an entity and acquires an additional 3% there is a change of ownership; or if a person owns no interest in
the entity and acquires 51% there is a change of ownership.
However, the existing law would allow a sale of 100% of the ownership interest in an entity without a
reassessment. For example, a 100% owner of an entity could sell 49% to each of two unrelated people and 2% to
a third person and there would be no change in control or any combination thereof and no reassessment can
occur. A recent California appellate case confirmed this interpretation in setting aside the Los Angeles County
Assessor’s attempt to reassess the Fairmont Miramar Hotel in 2006 following a transfer of ownership interests in
the ownership entity but where no one party owned 50% or more of the ownership interests following the transfer.
Because, as indicated, the transfer of more than a majority of the ownership interests in an entity can be
structured to avoid reassessment a bill has now passed the State Assembly (AB 2372) that would amend the law
to cover, in addition to a change of control under existing law, a change of ownership of 90% or more in an entity
that occurs in a single transaction.
The logic of the Bill is such that it passed the Assembly with more than the necessary two-thirds majority and
seems likely to pass the Senate, notwithstanding the need for a two thirds majority in that forum.
We expect this legislation to become law.