The Wisconsin Court of Appeals recently issued an unpublished opinion in
Thomas v. Pringle (Case No. 2006AP697) that could impact anyone
involved in the sale or development of agricultural land. The key issue in this
case was whether a seller/developer has a duty to disclose a “potential” real
estate tax penalty under Wisconsin’s Use-Value Law to a prospective buyer.
Background
Wisconsin’s Use-Value Law assesses property based upon its agricultural value
rather than its fair market value. Under the law, a penalty is imposed whenever
agricultural land is converted to a different use. Also, the Use-Value Law
requires sellers to notify the buyer of three things: (1) that the land has been
assessed as agricultural land under the Use-Value Law; (2) whether the seller
has been assessed a penalty; and (3) if so, whether the penalty has been
deferred. See Wis. Stat. § 74.485(7). In 2002, the WRA Real Estate Condition
Report forms were updated to include this notification requirement.
Facts
In this case, a property owner subdivided a parcel of farmland into a
nine-lot residential subdivision. The property was assessed under the Use-Value
Law and the property was not charged a penalty after the land was subdivided
because it continued to be actively farmed.
In 2004, the seller sold one lot to a prospective buyer, who was told the
land would continue to receive favorable Use-Value tax treatment as long as it
was actively farmed. However, the seller provided the buyer with a completed
2001 version of the Real Estate Condition Report. Shortly after the purchase,
the buyer stopped actively farming the land and then was assessed a penalty
because the assessor determined that a “change of use” had occurred.
Court’s Ruling
The Court concluded the seller failed to provide the buyer with sufficient
notice of a potential penalty by using the outdated and incomplete version of
the Real Estate Condition Report. (Note – The Court never considered whether the
Real Estate Condition report was required in the transaction.) Although the
seller had never been assessed a penalty and had not received a deferral, the
court reasoned that the seller should have disclosed the possible penalty
because the seller knew the buyer was going to build a house on the lot and that
a penalty would be imposed upon the issuance of the building permit. In other
words, the Court reasoned that the penalty was so imminent that the seller had a
duty to inform the buyer of the penalty.
Practice Tip
While an unpublished case has no legal precedent, the case is nevertheless
noteworthy because it highlights how courts could handle similar cases in the
future. REALTORS® should make sure they are always using the most current forms
and encourage sellers to provide information about potential tax penalties under
Wisconsin’s Use-Value Law.
Published: 2/13/2007
