Michigan Court of Appeals Clarifies Role of Deed Restrictions in Property Valuation
On June 17, 2026, the Michigan Court of Appeals issued a published decision holding that deed restrictions imposed as a condition of qualifying for tax exempt bond financing must be taken into consideration in establishing the value of property for Michigan property tax purposes. The decision, in DRSN Real Estate GP LLC v City of Grosse Pointe Woods, involved a low-income housing project with deed restrictions requiring rental units to be offered at restricted rents to certain individuals. The Tax Tribunal disregarded the impact of those deed restrictions because it found that there was not sufficient evidence of the offsetting impact of the tax-exempt bond financing which required those restrictions. The court reversed and remanded, ordering the Tribunal to take into consideration both the impact of the deed restrictions on the value, and, if there was competent evidence available, the offsetting impact of the tax-exempt bond financing.
Why is this important?
For public and private sector entities, the decision clarifies that the tax tribunal cannot ignore the impact of deed restrictions on the valuation of property, even though they may qualify the property for other benefits. The decision clarifies that the tribunal must take the impact of those restrictions into account because they affect the "current economic income," which prior precedent expected parties to consider.
The decision could have an impact on the valuation of properties with deed restrictions outside of the low-income housing context. For example, the decision might impact the ongoing controversy around the so-called "dark stores" theory of valuation of big box retail stores. Such stores commonly have self-imposed deed restrictions that prevent a future owner from putting the property to a similar use to that of the current owner. The Tribunal is a battlefield for those issues, which continue to rage after the 2017 decision of the Michigan Court of Appeals in Menard Inc. v Escanaba. That case held that the assessor and the Tribunal cannot rely solely on unadjusted sales of deed-restricted properties in valuing active viable retail properties, but rather must also consider the cost-less-depreciation approach.
This decision represents the other side of the coin and holds that the Tribunal cannot completely disregard deed restrictions on a subject property but must take them into consideration. The dark stores issue presents different nuanced questions regarding the valuation and methodology used to value large retail locations, but this case serves as a reminder that deed restrictions can impact the value of a property and cannot be disregarded entirely.
Please contact your Miller Canfield attorney or one of the authors of this alert if you would like to learn more about how this decision may impact your organization.
Miller Canfield’s Public Finance, Tax and Real Estate Experience
Miller Canfield’s public finance, tax and real estate attorneys advise clients on tax-exempt financing, affordable housing transactions and related regulatory issues. The team works with public entities, borrowers, developers and lenders on bond financing structures, tax compliance and project eligibility.
