A Perfect Example of The Highest And Best Use Concept

On September 21, 2016, New York’s Appellate Division, Second Department, handed down Matter of 730 Equity Corp. v New York State Urban Development Corp., __ AD3d ___, 2016 NY Slip Op 06086 (2d Dep’t 2016).

If there was an eminent domain case book, this decision would be included as an example of establishing a highest and best use in a condemnation.

The claim involved a one-half acre parcel of vacant land on Atlantic Avenue, Brooklyn, New York.  The land was under a long term triple net lease to a major gasoline company.  Because of a merger, the tenant closed the station due to its operation of another station at the next corner.

We represented the claimant.

The property was valued by offering experts who established a reasonable probability of rezoning the land from M1-1 to C6-2A, which changed the floor area ration from 1 to 6.  The asserted highest and best use was a 12-story budget hotel.  In addition to a land planning expert, the claimant also utilized a real estate appraiser, construction expert and a cost estimator.

The condemnor had asserted that the highest and best use of the property was for continued auto-related use under the M1-1 zoning.  The claim was tried before the Honorable Wayne P. Saitta, Supreme Court Justice, Kings County.

The Appellate Division stated,

“The measure of damages in a condemnation case ‘must reflect the fair market value of the property in its highest and best use on the date of the taking, regardless of whether the property is being put to such use at the time.’  [Citations omitted].  The determination of highest and best use must be based upon evidence of a use which reasonably could or would be made of the property in the near future.  [Citations omitted].  ‘The potential uses the court may consider in determining value are ordinarily limited to those uses permitted by the zoning regulations at the time of taking.’  [Citations omitted].  However, when there is a reasonable probability of rezoning, some adjustment must be made to the value of the property to reflect that fact.”  [Citations omitted].

“‘In determining an award to an owner of condemned property, the findings must either be within the range of expert testimony, or be supported by other evidence and adequately explained by the court.’  [Citations omitted].  Where the parties offer inconsistent highest and best uses and their experts appraise only their own proposed uses, the award must be based upon the evidence offered by the party prevailing on the use question “with such adjustments as the evidence will support.’”  [Citations omitted].

“Although ‘[i]n condemnation cases, the authority of this Court to review findings of fact after a nonjury trial is as broad as that of the trial court’ and it ‘may render the judgment it finds warranted by the facts, taking into account that in a close case the trial court had the advantage of seeing and hearing the witnesses’ [citations omitted], ‘[w]here the trial court’s explanation of its award is supported by the evidence, it is entitled to deference and will not be disturbed on appeal.'”  [Citations omitted].

“Here, the Supreme Court properly determined that the claimant had established that, in the absence of the project, there was a reasonable probability that the property would have been rezoned to C6-2A.  Contrary to ESDC’s contention, the court’s failure to delineate the exact boundaries of a probable rezoning did not undermine its findings that the property would probably have been rezoned absent the project.  The court’s findings that many of the buildings in the immediate area had been converted to commercial and residential use, that New York City policy was to rezone underutilized industrial sites to allow for commercial or residential development, and that a zoning district with a FAR of 6 would be in scale to this portion of Atlantic Avenue were supported by the record.  The court properly distinguished the Atlantic Avenue corridor from lots on the more narrow Pacific Street, which are more functionally part of Prospect Heights than the subject property.  The fact that a rezoning of the immediate area to C6-2A would result in certain nonconforming uses, such as the rail yards, does not undermine the court’s determination that such a rezoning was reasonably probable. …”

“Further, the Supreme Court properly accepted the highest and best use proposed by the claimant of a 12-story budget hotel.  [Citations omitted].  Contrary to ESDC’s contention, the Amoco lease on the property did not prohibit a finding of a different highest and best use than contemplated in the lease, since the property must be valued at ‘its highest and best use on the date of the taking, regardless of whether the property is being put to such use at the time.’  [Citations omitted].  The court’s determination that a 12-story budget hotel would be legally and physically possible and financially feasible on the property was supported by the record, including testimony by ESDC’s own expert regarding alternative designs for such a hotel which would meet the zoning requirements, and the evidence of an increased demand for and development of hotels in Brooklyn around the vesting date.  The court was not required to accept the opinions of ESDC’s experts on the financial feasibility issue.”

The case was also discussed in “Good, Better, Best – Never Let It Rest: Zoning and the Highest and Best Use Concept in Condemnation.”  New York Zoning Law and Practice Report, Vol. 16, Issue 6.  (May/June 2016).

Posted in Highest and Best Use, Recent cases, Zoning
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