Kings Daughters & Sons Home c/o Pond Home Community, Inc. v. Board of Assessors of the Town of Wrentham; Pond Home Community v. Board of Assessors of the Town of Wrentham (September 30, 2002)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD

KINGS DAUGHTERS & SONS HOME     v.      BOARD OF ASSESSORS OF
c/o POND HOME COMMUNITY, INC.           THE TOWN OF WRENTHAM
Docket No. F256776

POND HOME COMMUNITY, INC.       V.      BOARD OF ASSESSORS OF
Docket No. F260100                      THE TOWN OF WRENTHAM

                                        Promulgated:
                                        September 30, 2002		



These are appeals filed under the formal procedure, pursuant to G.L. c. 59,  §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Wrentham to abate real estate taxes on property assessed to the appellants under G.L. c. 59, § 38, for fiscal years 2000 and 2001.
	Commissioner Rose heard these appeals and was joined by Chairman Burns and Commissioners Scharaffa, Gorton and Egan, in decisions for the appellee.  These findings of fact and report are promulgated at the request of Kings Daughter's & Sons Home and Pond Home Community, Inc., pursuant to G.L. c. 58A, § 13, and 831 C.M.R. 1.32.
	
	M. Robert Dushman, Esq., for the appellants.
	Ellen M. Hutchinson, Esq., for the appellee.



FINDINGS OF FACT AND REPORT

	These appeals raise the issue of whether the subject property, located at 279 East Street, should be exempt from real estate tax pursuant to G.L. c. 59, § 5 cl. 3, because the property was occupied by the appellant Pond Home Community, Inc., ("PHCI") for the charitable purposes for which it was organized.  A second issue, applicable to fiscal year 2001 only, is whether the assessors overvalued the subject property.  Based on the testimony and exhibits offered at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.

Jurisdiction	
A. Fiscal Year 2000
The parties stipulated that valuation was not at issue for fiscal year 2000.  Accordingly, the appellants' fiscal year 2000 appeal relates solely to the issue of exemption.  Prior to addressing the merits of the appellants' exemption claim, the Board must determine whether it has jurisdiction to hear and decide the appeal.  
Duane Tibbetts, who at all material times was President of the Board of Trustees of Kings Daughters & Sons Home, Inc. ("KDS"), and President of the Board of Directors for PHCI, testified on behalf of the appellants.  Mr. Tibbetts testified that on December 23, 1998, he signed a deed that transferred the subject property from KDS to PHCI.  The deed was recorded on January 5, 1999.  Given the fact that Mr. Tibbetts was the chief executive officer of both KDS and PHCI, the Board finds that the deed was delivered by KDS and accepted by PHCI on December 23, 1998 when Mr. Tibbetts signed the deed.  The Board therefore finds that, although there was a delay in recording the deed, title to the subject property passed from KDS to PHCI on December 23, 1998, because the deed was delivered and accepted on that date.  Accordingly, and as more fully explained in the Opinion below, the Board finds that PHCI held title to the property as of December 23, 1998.
Pursuant to G.L. c. 59, § 5, cl. 3, corporations claiming a charitable exemption must timely file with the assessors a list, known as a "Form 3ABC," listing all property held by it for charitable purposes on the preceding January 1.  See G.L. c. 59, § 29.  Further, corporations claiming exemption must also file with the assessors a copy of the report known as the "Form PC."  See G.L. c. 59, § 5, cl. 3 (b) and G.L. c. 12, § 8F. 
For fiscal year 2000, the deadline for filing with the assessors the Form PC and the Form 3ABC listing property held for charitable purposes on January 1, 1999, was March 1, 1999.   
In the present appeal, PHCI, which held title to the subject property on January 1, 1999, did not file a Form 3ABC with the assessors for fiscal year 2000 at any time.  In its initial Motion To Dismiss, filed on May 18, 2001, the assessors filed with this Board an affidavit indicating that PHCI had failed to file a Form 3ABC but that KDS had timely filed Form 3ABC.  In its renewed Motion, the assessors submitted a revised affidavit, together with a copy of the date-stamped Form 3ABC, indicating that KDS filed the Form 3ABC on May 26, 1999.  The Board therefore found that KDS, which transferred the property to PHCI prior to January 1, 1999, did not filed a Form 3ABC with the assessors until May 26, 1999, well after the March 1, 1999 deadline.  The Board further found that the May 26, 1999 filing by KDS was the only Form 3ABC filed by either appellant for fiscal year 2000.  Moreover, there is no evidence in the record that either PHCI or KDS filed a Form PC with the assessors for fiscal year 2000.  Accordingly, the Board finds that no timely Form 3ABC or Form PC were filed on or before the March 1, 1999 due date for fiscal year 2000 by either appellant.  Therefore, the Board finds that it lacked jurisdiction to hear the fiscal year 2000 appeal. 
	B.	Fiscal Year 2001
 For fiscal year 2001, PHCI timely filed the Form 3ABC and a copy of the Form PC with the assessors on March 1, 2000.  The assessors valued the property at $6,950,000 for fiscal year 2001 and assessed a tax at the rate of $14.21 per thousand in the amount of $98,759.50.  Because the actual tax bill for fiscal year 2001 was not sent until March 30, 2001, the deadline for the payment of the tax and filing of the application for abatement were both May 1, 2001.  See G.L. c. 59, § 57A.  PHCI timely paid its actual tax bill on April 10, 2001 and timely filed its abatement application with the assessors on April 18, 2001.  The grounds stated in the application were that the subject property qualified for the charitable exemption from real estate tax pursuant to G.L. 59, §5, cl. Third, and that the property was overvalued.  The application was denied on May 16, 2001.  On May 31, 2001, PHCI timely filed its appeal with the Board.  On this basis, this Board found that it has jurisdiction to hear the fiscal year 2001 appeal.   

II.  Merits of the Exemption Claim
According to its Articles of Organization, executed in July of 1998, PHCI was:
Organized exclusively for charitable and/or educational purposes, including, for such purposes, the making of distributions to organizations which qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, . . . .  In pursuance of the foregoing purposes, the Corporation shall have the power to provide elderly persons with residential facilities and numerous supportive services specially designed to meet their physical, social, and psychological needs, specifically including one or more assisted living residences, adult day care, and home care services, and to promote their health, security, happiness, and usefulness in longer living, the charges for such facilities and services to be predicated upon the provision, maintenance, and operation thereof on a nonprofit basis.

	In December of 1998, PHCI purchased from KDS a parcel of land in Wrentham consisting of approximately 37 acres of pine forest and meadowland for $1,320,000.  The deed contained four restrictions:  1) the parcel must be owned by a corporation organized under G.L. c. 180; 2) the parcel must be utilized exclusively for housing and supportive services for residents age 55 and older;  3) no structures can be erected or altered on the parcel, except with the Grantor's consent; and 4) for 80% of the residential units constructed on the property, the monthly carrying charges for such units (exclusive of the one time construction fee) must not exceed 30% of 80% of the area median income for the Boston area, as determined by the US Department of Housing and Urban Development ("HUD").  
This provision ensured that 80% of the units would be "affordable" for HUD defined "low income" households.  HUD does not provide subsidized housing for "low income" families.    
	PHCI began construction on The Community at Pond Meadow ("the Community") in the Spring of 1999.  Construction for the 66 independent living units within the Community was completed in three phases.  Twenty-two units were built between September and November of 1999, twenty-one additional units were completed on February 15, 2000, and the final twenty-three units were completed on September 29, 2000.  As of June 2000, one hundred percent of phase one and phase two, and sixty percent of phase three, were complete.  	Upon completion in September of 2000, the facility contained twelve one-bedroom, one-bathroom units, forty two-bedroom, one and one-half bathroom units, and fourteen "deluxe" units with two bedrooms and two bathrooms.  The units are marketed as "independent living units" ("ILUs") within an age-restricted community.  The units were designed and built to accommodate an aging or wheelchair bound resident with such features as one-story living, larger garages, roll-in showers with shower bars, electric stoves, and emergency call systems in the units.  The call systems were connected to the nurse's station at the rest home owned by KDS located at 289 East Street in Wrentham, adjacent to the subject property.  The emergency call system was monitored by certified nurses assistants or registered nurses employed by KDS.  
As of January 1, 2000, to become a resident at the Community possessing a "license to occupy" a specific unit, the applicant had to:  1)  make a $1,000 deposit upon executing the Reservation and Deposit Agreement;  2)	complete the Residency and Membership Application that included information regarding assets and income;  3)  complete the Construction Agreement accompanied by a $9,000 deposit;  4)  execute the Residency and Membership Agreement and pay the remainder of the construction fee of between approximately $138,000 and $211,000 upon closing.  Further, at each step of this process, the potential resident was required to certify his or her continued ability to live independently without professional assistance with activities of daily living.  The Residency and Membership Agreement sets forth the bulk of the respective obligations of the resident and PHCI and is a binding contract when executed by both parties.  
In keeping with both its deed restriction and its purpose to provide affordable housing for low income seniors, monthly carrying charges are set to be affordable in 80% of the units for "low income" residents.  The monthly carrying charge for occupancy upon opening in September 1999 ranged between $458 and $602.  Amenities provided by PHCI at no extra monthly charge included services such as a management fee paid to Rogerson Communities for a manager to assist with the day-to-day management and operation of the Community, maintenance of the alarm system in the unit, landscaping, trash removal, property insurance, exterior repairs and maintenance, appliance repairs and maintenance, plumbing and electrical repairs, taxes, assistance with move-in, reserves for replacement, contribution to a "hardship fund", and maintenance of the Community Center.
Under the Residency and Membership Agreement, PHCI makes a specific unit available for the resident's exclusive occupancy.  PHCI reserves the right to enter that unit to make repairs or to remarket the unit.  Advance notice is given except in cases of emergency.  The resident is responsible for paying, among other expenses, his or her own separately metered utilities, insurance for personal property, and repairs to the interior of the unit not specifically enumerated as PHCI's responsibility.  The resident is also solely responsible for routine cleaning and decorating of the interior of the unit.  
The Residency and Membership Agreement specifies that PHCI does not provide "optional services" such as housekeeping, scheduled transportation, laundry, meals, wellness services, or personal care services.  A Nursing Administrator serving both the KDS rest home and the Community is available to assist with referrals for services and referrals for coordination of care.  The Agreement states that the resident is free to contract for such services with any service provider or the KDS rest home.  The KDS rest home charges for its services are due with a resident's payment of his or her monthly carrying charge.  Linen and housekeeping services performed by KDS were available at the time the Community opened in September 1999.  Mr. Tibbetts testified that the balance of services through KDS became available in approximately June of 2000.  
To bolster its claim of availability and affordability to a large class of beneficiaries, PHCI offered the testimony of Mr. Michael Lerner, Director of Real Estate Development for Rogerson Communities.  Rogerson Communities is a non-profit corporation that provides, among other things, assistance to non-profits providing housing and health services to elders.  Rogerson Communities provides property management services for a fee to the Community.  Mr. Lerner stated that the Community's independent living requirement and guideline regarding the preferred percentage of monthly income (40%) spent on monthly carrying charges are flexible and dependant on individual circumstances.  He testified that the flexibility regarding the requirements for income makes residency more "affordable" than a market rate rental, and thus more accessible to a larger class of elders.  
However, Mr. Lerner also testified that the residency application includes a list of assets and that PHCI can perform credit checks on potential residents.  Further, PHCI can reject a resident based on inability to pay the construction fee or monthly carrying charge, or based on inability to live independently.  If a resident becomes unable to pay the monthly carrying charge, or becomes incapable of living independently, the Residency and Membership Agreement provides that the organization may terminate the Agreement and pursue all remedies provided by law, including eviction of the resident pursuant to applicable landlord/tenant law.  The Residency and Membership Agreement states that a portion of the monthly carrying charge may be contributed to a hardship fund for residents who may become unable to pay the monthly carrying charge.  However, Mr. Tibbetts testified that there were no funds contributed from July of 1999 through July 1, 2000 into the hardship fund.  Further, there is no evidence in the record regarding when or if this fund was ever funded.
Mr. Lerner further testified that the independent living requirement was flexible.  He testified that the PHCI can approve a resident who may not be able to perform all activities of daily living without assistance, as long as the person can coordinate service providers to assist with their physical needs.  Thus, Mr. Lerner reasoned that such flexibility in the independent living requirement makes residency available to a larger segment of the population.  
In further support of its claim of affordability and availability to a large class of beneficiaries, PHCI offered into evidence the "Report on the Market Feasibility of A Senior Housing Project Sponsored by Pond Home" prepared by Nemeth  Associates and submitted to the KDS rest home Board in October 1997.  Karen Nemeth, principle of the Nemeth Associates, testified that KDS commissioned the study to determine the market feasibility of both the expansion of Pond Home, the rest home operated by KDS, and the market feasibility for independent living units.  Although Ms. Nemeth testified that the study was performed using generally accepted standards of market feasibility and market penetration studies, she acknowledged that the study did not directly address affordability.  Her market depth conclusions were based on potential residents aged 75, a construction fee of $140,000, which is at the low end of the range of construction fees charged for the period at issue, and a monthly carrying charge of $525.  
On cross-examination, Ms. Nemeth admitted that using these statistics, approximately 3.5 percent of the total population of the area within a ten-mile radius could be served by an independent living facility.  Using the same construction and monthly carrying charges, but reducing the age of the potential residents to 65, she concluded that 7.7 percent of the general population could be served.  However, she also acknowledged that these percentages were limited by the fact that the data used to reach her conclusions assumed that seniors owned their houses outright, unencumbered by a mortgage obligation.  The conclusions did not consider affordability to seniors whose equity in their home is diminished by a balance due on a mortgage.  This data is crucial in determining the number of seniors who, after selling their houses and paying off any mortgage on their house, would have sufficient funds to cover the construction fee.  
The Board finds that the study has limited weight in determining whether a sufficiently broad cross-section of the community is benefited by the appellant's operation of the subject property.  The report was commissioned not to determine affordability but instead to determine market feasibility and market depth.  The question of whether there is a sufficient market in the community to justify the construction of a housing project is quite different from the question of whether access to the project is available to a wide enough class of beneficiaries to justify a charitable exemption.  If anything, the testimony and report demonstrate that the class of beneficiaries is not large or fluid enough to justify charitable exemption. 
On the basis of the evidence, the Board makes the following findings of fact regarding the charitable occupation of the subject property.  The Board finds that regardless of whether PHCI calls the elders living in the independent living units "residents," "licensees," or tenants, the Residency and Membership Agreement creates a relationship between PHCI and its residents substantially similar to that of a typical landlord/tenant relationship.  For example, the Residency and Membership Agreement provided that the resident has an exclusive right to occupy a specific unit, is responsible for his or her own utilities measured by separate meters, and is accorded rights under landlord/tenant law if PHCI attempted to terminate the Residency and Membership Agreement and evict the resident.  Further, PHCI employees and agents can only enter the units to repair or remarket them after giving reasonable notice prior to entry, except in cases of emergency.  Based on these facts, the Board finds that the residents, not PHCI, occupied the subject property.
In addition to finding that the appellant does not "occupy" the subject property, the Board finds that the PHCI does not operate the subject property as a charity because it provides independent living units to a limited segment of the population.  The Board finds that in order to live at the Community, an individual is required to pay a substantial up-front construction fee that ranged from approximately $138,000 to $211,000 and monthly carrying charge that ranged from approximately $458 to $602 as of January 2000, the relevant assessment date for fiscal year 2001.  In addition, the resident must certify that he or she is 62 or older, or 55 and disabled, and can live independently, needing no professional assistance with activities of daily living.  On this basis, the potential class of beneficiaries is limited to people who are of sufficient age, do not need assistance with the activities of daily living, and can afford the substantial construction fee and monthly carrying charge.  Accordingly, the Board finds that the potential class of beneficiaries is limited to those who meet minimum health standards and are financially well off.  The Board further finds that the class of individuals meeting these requirements is not sufficiently large to qualify the organization for the charitable exemption under G.L. c. 59, § 5, Third.  
Further, although the monthly carrying charge for 80% of PHCI's units may be deemed "affordable" for "low-income" seniors as defined by HUD, the substantial construction fee could hardly be thought of as affordable for low-income seniors.  Elderly residents who are healthy enough to live independently and have the assets and income to afford the cost of residency are neither a broad enough class of beneficiaries nor a population that, but for PHCI, would require government assistance with housing or health care.  Accordingly, the Board found that the appellant failed to meet their burden of proving that PHCI occupied the subject property in furtherance of a charitable purpose.

III.	VALUATION
In support of PHCI's claim of overvaluation, it offered the testimony and "report" of Eric S. Stotz.  Mr. Stotz is a licensed real estate appraiser in Massachusetts, among other states, and has been a Member of the Appraisal Institute since 1992.  The Board qualifies him as an expert witness.  Mr. Stotz's report consists of a "restricted (letter) report of a complete appraisal of the property."  The Board notes, however, that under the standards governing professional appraisers, a restricted report "is for client use only."  Uniform Standards of Professional Appraisal Practice Standards Rule 2-2(c)(xi) ("USPAP").  Further, the restricted report must "warn[] that the appraiser's opinions and conclusions set forth in the report cannot be understood properly without additional information in the appraiser's workfile. . . ."  Id.  Accordingly, under USPAP, a restricted report is limited to client use only and may not be substituted for a self-contained appraisal report that is suitable for adjudicatory proceedings.   Id. 
Mr. Stotz testified that he considered the three generally accepted valuation methods to determine market value, but only fully developed the direct capitalization of income method.  Mr. Stotz rejected the sales approach due to lack of comparable sales of independent living facilities operating under deed restrictions.  The report also dismissed the cost approach, although actual recent cost data was available for construction of the facility as of June 30, 2000. 


Mr. Stotz concluded that the cost approach was undesirable due to the deed restrictions and "depreciation adjustments" necessary for valuing the unfinished construction. He acknowledged that total development costs of $10,720,156 for the subject property are in line with other unidentified recently constructed senior living facilities.  The development costs did not include the acquisition cost of the land, which totaled $1,320,000.  However, the only "depreciation adjustment" Mr. Stotz could identify was a roughly $8,000,000 adjustment to reduce the recently incurred construction costs to his opinion of fair market value.  
The Board finds that Mr. Stotz offered no reasonable justification for his rejection of the cost approach, where the costs to construct the facility were recently incurred, appeared reasonable and appropriate and were readily ascertainable.  Mr. Stotz did not explain what "depreciation" existed between the incurring of the $10,720,156 in construction costs plus the $1,320,000 in land acquisition costs and the relevant assessment date, let alone how and why that depreciation amounted to eighty percent of the construction costs.  
	Due to his dismissal of the sales and cost approach, Mr. Stotz focused on the income capitalization approach for determining fair market value.  He concluded that the highest and best use for the subject property was its continued use as "rental housing," owned by a non-profit corporation, charging the highest possible rent allowed under the deed restrictions.  No testimony was given regarding the impact of the alteration of the age-related deed restriction on highest and best use, or on the ultimate opinion of value.  Likewise, Mr. Stotz did not make adjustments to the opinion of value regarding the possibility of alteration of any of the other deed restrictions.   
To reach an opinion of gross potential revenue, he calculated the maximum deed-restricted rent using appropriate HUD figures for low-income households.  Nine "comparable" properties were considered in reaching a conclusion regarding fair market rent for the units not subject to deed restriction.  Of the nine properties offered for comparison, all were thirteen to thirty years older than the subject.  Five properties were two-story, non-age restricted residences that were not designed to accommodate an aging resident.  
The other four properties were independent living units that were a part of assisted living facilities.  Mr. Stotz testified that he could not give an opinion as to which independent living facility was most comparable to the subject because each facility had different amenity packages included in the rent.  To arrive at his opinion of fair market rent for the subject, he made qualitative and intuitive adjustments for such factors as age, condition, and services offered as a part of the rent.  However, he provided no itemization, explanation or quantification of the factors he considered or the adjustments he made.
Other items were factored into gross potential revenue, including a five percent deduction for vacancy/collection loss, and the addition of other revenue for interest earned on working capital and gain on resale of the units at turnover.  However, he did not consider or even address the effect, if any, of the substantial initial construction fees on revenue or value.  Further, the report used unidentified comparable properties' expenses as well as actual and budgeted figures to determine the operating expenses for the subject property.  However, without identifying the comparables or discussing adjustments, if any, he failed to adequately support his estimates in this regard.  
Using the above factors, Mr. Stotz reached an opinion of value using his income approach of $3,648,357 for the subject property.  He then deducted amounts for the costs projected to complete the improvements on the property and amounts for loss of rent for the unfinished portion of the project.  He reached a final market value for what he called a "part fee simple and part leasehold interest" of $2,463,727.  He nowhere defined or even explained what a "part fee simple and part leasehold interest" is or why the valuation of such an interest should be considered relevant for purposes of ad valorum taxation.
The Board finds and rules that PHCI did not sustain its burden of demonstrating that the subject property was overvalued.  The Board finds that the report was a restricted report, which is inherently suspect for use in these proceedings because it is subject to USPAP rules that limit it to client use only and the requirement that further reference to information in the appraiser's files is necessary.  Further, the Board finds that the analysis contained in his report had significant analytical weaknesses, including his failure to: 1) assign a fee simple fair market value to the subject property; 2) quantify the qualitative and intuitive adjustments to the comparables he used for fair market rent; 3) identify comparable properties he used to determine comparable operating expenses; 4) support his deductions for incomplete construction and rent loss; and 5) analyze the effect on value, if any, of the sizable construction fees.  Moreover, Mr. Stotz nowhere satisfactorily explained his rejection of the cost approach or why the appellant would pay nearly six times his opinion of value to acquire the land and construct the subject property.  On this basis, the Board finds that the appellant's opinion of value is unreliable and lacks probative value, and that the appellant did not meet its burden of proof regarding the claim of overvaluation. 

 
III.  Conclusion
On this basis, the Board finds that:  1) neither appellant filed a timely Form 3ABC or Form PC with the assessors for fiscal year 2000;  2) the appellant did not occupy or operate the subject property in furtherance of their charitable purpose in fiscal year 2001; and  3) the appellant did not demonstrate that the property was overvalued for fiscal year 2001.  Therefore, the Board issued decisions for the appellee in both the fiscal year 2000 and 2001 appeals.

OPINION

 Jurisdiction
For fiscal year 2001, there is no question that PHCI complied with the jurisdictional prerequisites set forth in G.L. c. 59,  § 5, clause 3, as well as G.L. c. 59, §§ 59, 64 and 65.  It timely filed with the assessors the "list, statement, and affidavit required by section 29" of chapter 59 (Form 3ABC) and a "true copy of the report required by section 8F of Chapter Twelve" (Form PC).
	
PHCI timely filed its application for abatement with the assessors on April 18, 2001, and timely paid the disputed tax on April 10, 2001.  Further, PHCI timely filed an appeal with this Board on May 31, 2001, within three months of the May 16, 2001 denial of its abatement request by the assessors.
For fiscal year 2000, however, PHCI failed to properly invoke the jurisdiction of the Board by failing to comply with G.L. c. 59, § 5, cl. Third (b) and G.L. c. 59, § 29.  G.L. c. 59, § 5, cl. Third (b) states:
A corporation coming within the foregoing description of charitable organization . . . shall not be exempt for any year in which it omits to bring in to the assessors the list, statements and affidavit required by section twenty-nine and a true copy of the report for such year required by section eight F of chapter twelve to be filed with the division of public charities in the department of the attorney general. . . . 

	G.L. c. 59, § 29 states:
It shall also require all persons . . . to bring in to the assessors before a date therein specified, which shall not be later than March first following, unless the assessors for cause shown extend the time to April first, true lists, similarly itemized, of all real and personal estate held by them respectively for . . . charitable . . . purposes on January first preceding . . . .


For fiscal year 2000, Section 29 required that the Form 3ABC be filed by March 1, 1999, listing property held on January 1, 1999.  PHCI argues that it was not the "record owner" of the property after the delivery and acceptance of the deed on December 23, 1998.  Instead, PHCI claims that its record ownership commenced upon recording at the Registry of Deeds on January 5, 1999.  Under G.L. c. 59, § 29, PHCI reasons that because the property transfer was not recorded on or before January 1, 1999, the organization did not own the property on January 1, 1999 and therefore it was not required to file a Form 3ABC for fiscal year 2000.
It has long been settled in this Commonwealth that "[a] deed duly signed, sealed and delivered is sufficient, as between the original parties to it, to transfer the whole title of the grantor to the grantee, though the instrument of conveyance may not have been acknowledged or recorded.  The title passes by the deed, and not by the registration."  Colonial Bank & Trust Co. v. Sheehan, 357 Mass. 239, 241 (1970), citing Earle v. Fiske, 103 Mass. 491, 492 (1870).  Thus, on December 23, 1998, when Duane Tibbetts signed and delivered the deed as President of KDS, and accepted the deed as President of PHCI, the transaction was an effective transfer of title to the subject property from KDS to PHCI.  Therefore, the Board finds that for purposes of G.L. c. 59, § 29, PHCI "held" the property on and after December 23, 1998.  The Board further finds that no timely 3ABC was filed for fiscal year 2000 for the subject property held by PHCI.
Failure to timely file the Form 3ABC is "a jurisdictional defect which render[ed] the assessor[s] powerless to exempt the property."  Children's Hospital Medical Center v. Assessors of Boston, 388 Mass. 832, 836 (1983) (citations omitted).    Pursuant to G.L. c. 59, § 5, Third (b), the Board rules that it lacks jurisdiction over the fiscal year 2000 appeal because neither PHCI, nor for that matter KDS, timely filed with the assessors a Form 3ABC or Form PC on or before March 1, 1999.  Thus, the appellants failed to comply with G.L. c. 59, § 5, Third (b) and G.L. c. 59, § 29.  "Since the remedy of abatement is created by statute, the board lacks jurisdiction over the subject matter of proceedings in which this remedy is sought where those proceedings are commenced at a later time or prosecuted in a different manner from that prescribed by statute."  Children's Hospital at 839, (citing Nature Church v. Assessors of Belchertown, 384 Mass. 811, 812 (1981) and Assessors of Boston v. Suffolk Law School, 295 Mass. 489, 495 (1936)).  

II:	Exemption
	Pursuant to G.L. c. 59, § 2, "all property real and personal, situated within the commonwealth [is subject to tax] unless expressly exempt."  G.L. c. 59, § 5, cl. Third, exempts from taxation "real estate owned by . . . a charitable organization and occupied by it or its officers for the purpose for which it is organized . . ."  G.L. c. 59, § 5, cl. Third.  
	It is well established that a party claiming exemption bears a grave burden of proving the claim.  Meadowbrooke Daycare Center, Inc. v. Assessors of Lowell, 374 Mass. 509, 513 (1978).  "Normally all property of a taxable nature should contribute its proportionate share to the support of the State.  Exemption from taxation is a matter of special favor or grace.  It will be recognized only where the property falls clearly and unmistakably within the express words of a legislative command."  Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 716 (1944) (citations omitted).
	PHCI is entitled to an exemption from tax on the subject property for fiscal year 2001 only if it can establish that it owns and occupies the subject property in furtherance of its charitable purposes.  Accordingly, the fundamental issues that the Board must resolve in this case are:  1) whether PHCI's activities at the subject property are "charitable;" and 2) whether PHCI "occupies" the subject property.

A.	Charitable Operation
To gain charitable exemption from real estate tax, the organization "must prove that it is in fact so conducted that in actual operation it is a public charity."  Jacob's Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313 (1946) (citations omitted).  PHCI argued that it is a charitable corporation because it is organized under G.L. c. 180 for exclusively charitable and/or educational purposes, and has charitable designation under Internal Revenue Code Section  501(c)(3).  The assessors did not challenge the designation under 501(c)(3).  However, the Massachusetts Appeals Court has noted that although "exemption from Federal taxation by reason of its status as a charitable corporation is relevant to this inquiry", it is not controlling.  H-C Health Services, Inc. v. Assessors of South Hadley, 42 Mass. App. Ct. 596, 599 (1997). 
To prove that the organization operates the subject property charitably, it must show that the use of the exempted property "alleviates 'some burden of government, by conferring benefits which would advance the public interest.'"  Assessors of Quincy v. Cunningham Foundation, 305 Mass. 411, 418 (1940), (quoting Boston Symphony Orchestra, Inc. v. Assessors of Boston, 294 Mass. 248, 256 (1936)).  See also Milton Residences for the Elderly v. Assessors of Milton, 3 Mass. App. Tax Bd. Rep. 147, 150 (1983).  Further, the operation must "benefit . . . an indefinite number of persons . . . [by] . . . lessening the burdens of government."  Jackson v. Phillips, 96 Mass. 539, 556 (1867).
In Western Massachusetts Lifecare Corporation v. Assessors of Springfield, 434 Mass. 96 (2001) ("WMLC"), the Supreme Judicial Court addressed the issue of whether a corporations' operation of an elderly housing complex which included independent living units qualified for a charitable exemption.  In WMLC, the Court found that the health and financial selection criteria required for residence at the independent living units ("ILUs") at "Reed's Landing" restricted the potential class of beneficiaries to a limited class, not a class that has been "drawn from a large segment of society or all walks of life."  Id. at 104 (quoting New England Legal Foundation v. Assessors of Boston, 423 Mass. 602, 612 (1996)).  Residents paid an entry fee ranging from $100,200 to $230,500 and monthly fees from $1,325 to $2,050.  Id. at 99.  The Supreme Judicial Court opined that "[a]n organization that that has expressly limited its services to those who are financially well off does not meet th[e] test [of being 'accessible to a sufficiently large and indefinite class of beneficiaries']."  Id. at 105.  Further, the Court ruled that the operation of Reed's Landing did not lessen the burdens of government because those who could meet the health and financial qualifications for entry into Reed's Landing were not a population that would require governmental assistance with housing or health care.  Id. at 106.  
The crux of PHCI's argument is that since its monthly carrying charge is lower than those in WMLC, the combination of the construction fee and the monthly carrying charge is more affordable to a larger segment of the local elderly population than the independent living units at issue in WMLC.  Although the monthly carrying charge applicable to residents of the subject property is lower than those at issue in WMLC, the initial construction fees are comparable and in some cases higher, in the subject appeal.  Like WMLC, those that can afford the construction fees of between $138,000 and $211,000 and monthly carrying charge of $458 to $602 are drawn from a limited class, "not a class that has been 'drawn from a large segment of society or all walks of life.'"  WMLC at 104 (quoting New England Legal Foundation, 423 Mass. at 612.)  
PHCI also argues in its brief that it does not require "medical verification," making residence criteria more flexible and thus available to a larger class than in WMLC.  However, testimony and documents entered into evidence show that prior to acceptance as a resident, the Community requires certification at several junctures that a prospective resident has the ability to live independently without professional assistance with activities of daily living.  Thus, the selection criterion of ability to live independently places further limit on the class of potential beneficiaries who qualify for residence at the Community.
"Selection requirements, financial or otherwise, that limit the potential beneficiaries of a purported charity will defeat the claim for exemption."  WMLC, 434 Mass. at 104 (citing Boston Symphony Orchestra, Inc. v. Assessors of Boston, 294 Mass. 248 (1936)).  Like WMLC, the benefits available to the residents of the Community are "limited to those who pass its . . . health and financial requirements that make most of the elderly population ineligible for admission."  WMLC, 434 Mass. at 104.  The class of elderly persons who can pay an entrance fee and have, from their remaining assets, monthly income sufficient to pay the monthly carrying charge "is a limited one, not a class that has been 'drawn from a large segment of society or all walks of life.'"  WMLC, 434 Mass. at 104 (quoting New England Legal Foundation, 423 Mass. at 612.  On this basis, the Board finds and rules that the age, financial and health requirements of the Community limit the class of elderly persons qualifying for such housing.  As such, the Community is not available to a significantly large segment of the population to qualify as a charity under the case law, and is remote from the traditional concept of charity.  WMLC 434 Mass. at 105 (citing Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 718 (1944)).  "It is not charitable in the broad sense of the word, however, to rent apartments and provide services to elderly persons who are physically and financially independent, even if it is done on a nonprofit basis."  Milton Residences for the Elderly, Inc. v. Assessors of Milton, 3 Mass. App. Tax Bd. Rep. 147, 150 (1983). 
The last factor to be considered in determining whether the organization operates as a public charity is whether its operation "lessen[s] any burden government would be under any obligation to assume."  Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 717 (1944).  Relieving the government from some obligation is "frequently put forward as the fundamental reason for exempting charities from taxation."  Id.  The Board finds and rules that PHCI does not lessen the burdens of government, as "[t]he vast majority of its residents enjoy sufficient good health to live independently, [and] all of its residents must have significant assets and income" with which to meet the construction fee and monthly carrying charge.  WMLC, 434 Mass. at 106.  Like the residents at Reed's Landing, the population at the Community "is not a population that, but for the operation of [the Community], would be requiring governmental assistance with housing or health care."  Id.



B.	Occupation
Charitable health care organizations may enjoy the status of "occupants" of the properties they operate for purposes of G.L. c. 59, § 5, Third.  See HC Health Services, Inc. v. Board of Assessors of South Hadley, 42 Mass. App. Ct. 596 (1997) (accepting without question that nursing home operators were occupants of the subject property). Charitable organizations operating residences generally have not been found to occupy their properties if the residents enjoy the legal protections of tenancy, such as the right to exclusive possession of their unit and legal protection under landlord/tenant laws.  See Charlesbank Homes v. City of Boston, 218 Mass. 14 (1914) (finding that the residents were the tenants and also occupants of the building).  Compare M.I.T. Student House v. Assessors of Boston, 350 Mass. 539 (1966) (finding that charitable organization was the occupant of a dormitory and boarding house because needy students did not have protections under landlord/tenant law); Franklin Square House v. Boston, 188 Mass. 409, 411 (1905) (finding that the charitable organization occupied the subject property because housing working girls was similar to housing students in a dormitory). 
The facts of these appeals are similar to those found in the recently decided Jewish Geriatric Services, Inc., et. al. v. Assessors of Longmeadow, 2002 ATB Adv.Sh. 337 (July 18, 2002).  In Jewish Geriatrics, the organization seeking charitable exemption operated an assisted living facility.  An assisted living facility is a hybrid between a traditional rental housing and a health care facility.  The assisted living facility differs from a traditional apartment in that it is required to offer certain specialized care and services to its residents.  In Jewish Geriatrics, the Board found that residents of the assisted living facility were legal tenants of that facility because G.L. c. 19D, § 14 required a written residency agreement signed by both parties, and required the organization to provide to the resident all the "basic amenities of a traditional apartment, including locks on the entry doors to all units, private bathrooms . . . and a kitchenette or 'access to cooking capacity for every unit.'"  Id. at 353.   The Board ruled that the residents of the assisted living facility were tenants because the organization respected their privacy in their unit, the unit possessed all the amenities of a private residence, and the residents enjoyed legal protections afforded to tenants, especially the legal process accorded to tenants regarding eviction.  Thus, the tenants, not the organization, occupied the subject property.   Jewish Geriatrics at 351-358.   
Similarly, in Charlesbank Homes v. City of Boston, 218 Mass. 14 (1914), the appellant was a charitable corporation whose purpose was "to provide wholesome and sanitary homes for working people and people of small means at moderate cost."  Id. at 15.  The Supreme Judicial Court found that the tenants' right to possession were exclusive as long as rents were paid and they complied with the terms of their leases.  The Court further found that the tenants were the occupants, not mere lodgers, of the apartments and "have an interest in the respective apartments let to them" and are "themselves the occupants thereof."  Charlesbank at 15, 17.  Therefore, the Court found that the organization did not occupy the subject property and denied the charitable exemption for the apartment building.  Id. at 17.
The residences at issue in the present appeal are marketed as ILUs in an age-restricted community.  Each unit has all the amenities of a private residence, including locks on the doors, full bathrooms and complete cooking facilities.  Among other rights and protections accorded by the Residency and Membership Agreement, residents enjoy exclusive possession of a particular unit and have legal rights relating to eviction.  As in a traditional residential setting, the resident may privately contract and pay for health care services.  PHCI does not provide health or personal care services under the Residency and Membership Agreement.  Based on these facts, the Board finds that the ILUs at the Community provide the amenities of a traditional private residence, and that under the Residency and Membership Agreement the residents enjoy the legal protections accorded to traditional tenants, including rights in relation to eviction.  Thus, the Board finds and rules that the residents of the Community, not the organization, are occupants of the subject property. 
The legal protections afforded the residents at the Community and the independent nature of their residential lives distinguish this appeal from Island Elderly Housing, Inc. v. Assessors of Tisbury, 20 Mass. App. Tax Bd. Rep. 232 (1997).  In Island Elderly Housing ("IEH"), the Board found that the charitable organization's relationship with its residents was far greater in sum than a mere landlord/tenant relationship because of the staff's direct and substantial involvement in "offer[ing] daily assistance to its residents with problems of day-to-day living, as well as provid[ing] numerous social and educational programs."  IEH at 234.  At IEH, the employees were on the premises "on a daily and continuous basis to service the personal needs of its residents."  IEH at 235.  The staff was responsible for providing "residents with numerous [on site] social, financial, medical, educational and personal services."  Id.  On this basis, the Board found that IEH occupied and used the subject premises for its charitable purpose, which was to provide "'rental housing and related facilities and services' to the low income elderly and handicapped of Martha's Vineyard."  IEH at 234.  
PHCI's occupancy at the Community is distinguishable from that of the staff at IEH.  PHCI had a property manager who oversaw the day-to-day operation of the property.  It also shared a nursing home administrator with the KDS rest home.  If the resident requested assistance, the administrator provided referrals for personal care assistance or referrals to organizations providing coordination of care services.  However, PHCI employed no health care service personnel, and was not responsible for coordinating or providing personal care assistance or health care services to the residents.  In contrast, IEH had intensive contact and involvement with its residents.  The on-site staff provided crucial health care and social services to its residents.  Further, at IEH, all services were included in the price of the monthly rent.  At the Community, some services, such as snow removal, management fee, insurance and maintenance of exteriors, and appliance repair, were included in the monthly carrying charge.  However, optional services, such as personal care assistance, laundry, housecleaning and medical services, were not included in the monthly carrying charge.  Thus, PHCI's presence at the property and involvement with its residents was much less extensive than that of the staff working at IEH. 
On this basis, the Board finds that PHCI's relationship with its residents is more akin to a landlord/tenant relationship found in Jewish Geriatrics and Charlesbank than the medically and socially supported environment found at IEH.  Like a lessee, the resident at the Community had an absolute right to occupy a specific unit as long as he or she complied with the Residency and Membership Agreement.  Like a landlord, PHCI retained the right to enter the unit in emergencies or at reasonable times to examine, remarket or repair the unit.  Further, PHCI retained the right to terminate the residency agreement and evict the resident for, among other things, non-payment of the monthly carrying charge.  Furthermore, the residents were accorded tenant's rights relating to eviction under the Agreement.  Jewish Geriatric Services, Inc. v. Assessors of Longmeadow, 2002 ATB Adv. Sh. 337, pg. 338.  
Accordingly, the Board finds and rules that the Residency and Membership Agreement is analogous to a lease.  Under the Agreement, the residents enjoy rights accorded to traditional legal tenants, including the right to legal process in the event of an eviction proceeding.  Thus, the Board finds and rules that the subject property is occupied, not by PHCI, but by the individual residents.


III.  Valuation
PHCI claimed in the alternative, that the property was overvalued for fiscal year 2001.  The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed.  "'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.'"  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974), (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  Further, "[t]he Board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayer[] prove[s] the contrary.'"  Id. at 245.  
In appeals before the Board, a taxpayer may "present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation."  Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983).  

In the present appeal, the appellant offered into evidence a restricted appraisal report.  The restricted report cannot be relied upon by parties other than the client.  USPAP, Standards Rule 2-2(c)(xi) ("USPAP").  Further, the restricted report cannot be understood properly without additional information in the appraiser's workfile.  Id.    Mr. Stotz failed to offer any additional information from his workfile.  Id.  Accordingly, Mr. Stotz's violation of explicit USPAP standards renders his report inherently suspect from the outset and lacking in probative value. 
Aside from the USPAP violation, the income capitalization analysis found in the report was flawed.  First and foremost, the report gave an opinion of value for a "part fee simple and part leasehold interest" in the property.  Valuation of anything less than a fee simple interest is "contrary to established principles of valuation for real estate tax purposes."  Sisk v. Assessors of Essex, 22 Mass. App. Tax Bd. Rep. 64, 66 (1997).  It is well settled the "taxable valuation of a parcel includes the value of all interests in the parcel, 'ascertained by a sale of the land free of [leasehold interests].'" Sisk at 67 (quoting Donovan v. Haverhill, 247 Mass. 69, 71 (1923)).  Mr. Stotz's opinion of value is based on a valuation premise that is contrary to standard real estate valuation principles and is therefore not credible and lacks probative value.  Sisk, 22 Mass. App. Tax Bd. Rep. at 66.
Further, most of Mr. Stotz's conclusions lack evidentiary support, including his failure to: 1) provide the support or bases for qualitative and intuitive adjustments to his comparables; 2) identify his comparable properties in determining operating expenses; 3) support his deductions for incomplete construction and rent loss; and 4) analyze the effect on value, if any, of the sizable construction fees paid to PHCI.  "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board."  Cummington School of Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).    For the reasons detailed above, the Board finds and rules that the report and testimony of Mr. Stotz lacks credibility.  Thus, the Board finds that the appellant failed to support its opinion of value under the income capitalization approach with probative or persuasive evidence.  
Further, Mr. Stotz offered no reasonable justification for his outright rejection of the cost approach despite uncontroverted evidence of the construction costs for the newly constructed subject property.  Evidence of cost may be considered in determining the fair cash value of real property. See Blakeley v. Assessors of Boston, 391 Mass. 473, 479 n. 4 (1984); Jordan Marsh Co. v. Assessors of Quincy, 368 Mass. 322 (1975).  Mr. Stotz's report summarily rejects the cost approach and fails to explain or analyze his assignment of a value of $2,500,000 based on this approach, including why a $8,220,156 depreciation deduction was reached for a facility under construction as of the valuation date.  "Standard objections" regarding the uncertainty in accurately measuring obsolescence and physical depreciation are "irrelevant" for new construction "because neither obsolesence nor depreciation are factors in determining the value of a newly constructed . . . building."  Blakeley, 391 Mass. at 478 (citing Jordan Marsh, 368 Mass. at 324).  The Board finds that the $10,720,156 cost of construction acknowledged by Mr. Stotz, together with the $1,320,000 in acquisition costs for the land, provides reasonable support for the $6,950,000 assessed value of the subject property.  
Accordingly, on the basis of all of the evidence, the Board finds that the appellant did not meet its burden of proving overvaluation of the subject property for fiscal year 2001.  


Conclusion
The Board found that it lacked jurisdiction to hear the fiscal year 2000 appeal.  For fiscal year 2001, the Board found that the appellant did not occupy or operate the property for charitable purposes.  Further, for fiscal year 2001, the Board found that the appellant did not meet its burden of proving that the property was overvalued.  Therefore, the Board issued decisions for the appellee for fiscal year 2000 and 2001.
				

							APPELLATE TAX BOARD
	
						By:___________________________
						   Abigail A. Burns, Chairman		
				

A true copy:
Attest: _____________________
	   Clerk of the Board

 Mr. Tibbetts is listed in the Articles of Incorporation as President of the Board of Directors of PHCI.  The Articles were approved by the Secretary of the Commonwealth on July 27, 1998.  He testified that he held the position until November 2000. 
 This restriction was later changed to age 62 and older or age 55 and disabled.  No explanation was given as to how this deed restriction was changed after the property was transferred to PHCI. 
 According to the testimony of Michael Lerner, HUD defines a "low income" family as one whose household income does not exceed 80% of the area's median income.  Under HUD guidelines, affordable housing for a "low income" household (adjusted for family size) must not exceed 30% of the household's income.
 Ninety-five percent of the construction fee is refundable, either five months after the resident ceases occupancy at the Community or when the unit is resold, whichever occurs first.
 These figures represent construction fees as of September 1999 and the relevant assessment date of January 1, 2000.  In September 2000, the construction fee was increased between three and three and one half percent.
 In September 2000, the monthly carrying charge was increased between three and three and one half percent to range from $474 for the smallest unit to $628 for the largest.
 Duane Tibbetts testified that no hardship fund was established as of July 1, 2000.
   Upon cross-examination, Mr. Stotz mistakenly testified that a restricted report is not limited to client use only.  He further testified that his report relating to the subject property was "more summarized than restricted."  His testimony contradicts not only the declaration in the report, but also the rules governing professional appraisal practice under USPAP.
 Public charities are required to file annually the Form PC with the Division of Public Charities of the Office of the Attorney General.  The Form PC is a written report containing such "financial and other information as the director [of the division of public charities] may require."  G.L. c. 12, § 8F.

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ATB 2002-468