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successive options, each for 5 years, with no rent escalation.
The lease was a triple-net lease, which meant there was no cost
to the owners of the property because Kmart paid all of the
operating costs of the building.
In 1991, Kmart wished to purchase the parking lot adjacent
to the Kmart property. The owners of the property refused to
sell the lot without the permission of the owners of the Kmart
property; namely, decedent and the Trust. The lease was amended,
granting consent to the purchase and extending the lease term by
10 years. This resulted in a lease extension to the year 2007 at
the same rental rate, leaving 14 years of the lease remaining at
the time of decedent’s death. The lease amendment also provided
another option to extend for an additional 10 years after the end
of the three successive 5-year extension options. The rental
rate for that second 10-year option was to be 90 percent of the
market rate at that time.
Within a few months of decedent’s death in 1993, petitioner
engaged an appraisal company, Realty Consultants USA, Inc., to
perform an appraisal of the Kmart property (Realty appraisal or
estate appraisal). That appraisal was used to report the value
of the property for estate tax return purposes and for the
modification of the mortgage, which modification was completed in
1994. Decedent’s estate tax return valued the Kmart property in
its entirety at $5,300,000. The mortgage modification triggered
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