Valuation of Property in an Eminent Domain Case

I argued a case on June 20, 2016 in the Appellate Division, Second Department which involved an appeal by the Condemnor, New York State Urban Development Corporation.  The case arose in the Atlantic Yards – Barclays Center project, Brooklyn.  The case, decided by Justice Wayne Saitta, is reported at 43 Misc3d 1226(A), 2014 N.Y. Misc. LEXIS 2275 (Sup. Ct., Kings Co., 2014).

The decision awarded claimant $9,186,000 as against an appraisal for $2,075,000 by Condemnor.

The trial court found that there was a “very strong probability” of a zoning change from M1-1 to C6-2A.  The zoning change enabled Claimant’s appraiser, Daniel Sciannameo, M.A.I. of Albert Valuation Group New York, Inc., to use a Floor Area Ratio of six.  The Court also agreed that Mr. Sciannameo’s proposed highest and best use of a budget hotel was also appropriate and that the hotel would be economically feasible.

These are factual findings which if based on evidence will rarely be disturbed on appeal.  The Appellate Court will defer to the trial court, which had the advantage of seeing the witnesses and judging their credibility.  Northern Westchester Professional Park Associates v Bedford, 60 NY2d 492 (1983).

What was surprising was the Condemnor’s argument that there could be no consideration of a reasonable probability of rezoning “because it improperly disregards the lease for an Amaco gas station that was in effect on the property prior to the vesting date that restricts the owner from seeking such rezoning.”

This was quite an incredible argument.

The argument indicated a complete failure to understand what is probably the most fundamental and basic rule in eminent domain.  When real property is acquired by condemnation, it is valued on the date of acquisition free and clear of all leases, mortgages and liens at its highest and best use regardless of the property’s actual use.  Matter of City of New York (Mott Haven Houses), 33 Misc2d 808 (Sup. Ct. Spec. Term, Bronx Co., 1960), aff’d 16 AD2d 637 (1st Dept 1962), aff’d 13 NY2d 959 (1963).

This is the concept of highest and best use.

The rule that real property is valued at its highest and best use free and clear of leases, mortgages or other encumbrances regardless of actual use on condemnation is so fundamental that just about every eminent domain decision begins with the above statement.

In 1931, the Court of Appeals wrote in In Matter of City of New York (Allen Street), “The City pays for what it takes and nothing else.  By such taking it extinguishes all existing rights and interests in the property taken.”  256 NY 236, 242 (1931).  The Court stated, “Even if the lease by the landlord to the tenant in this case had not contained a clause expressly providing that ‘the term of the lease shall cease’ when possession of the property is taken by the city, nevertheless, by virtue of the fiat of the sovereign, the lease would ‘cease and determine and be absolutely discharged’ upon vesting of title which, indeed, preceded the actual taking of possession.”  256 NY 236 at 242.  Also see Matter of Willcox, 165 AD 197 (2d Dept 1914).  It is not a new principle.  See Edmands v City of Boston, 108 Mass 535 (1871).  As the Court of Appeals noted in the Allen Street case, citing Edmands, “No leasehold can survive the appropriation of the land itself, and where the City takes annexations to leased real property, it takes them, not because they are owned by either landlord or tenant or appurtenant to some interest in the property, but because they are part of the real property.”  Matter of City of New York (Allen Street), supra, 256 NY 236, 242 (1931).

In the finding of the highest and best use of the property, the court must consider the reasonable probability of rezoning the property.  Matter of Town of Islip (Mascioli), 49 NY2d 354, 360-361 (1980).  The question of whether there exists a reasonable probability of change in existing zoning restrictions is factual and its resolution is a function of the trial court.  Jankiewicz v State of New York, 54 AD2d 1092 (4th Dept 1976).  The quantum of proof to establish the probability of rezoning is merely reasonable proof.  Matter of Washington Avenue, 67 Misc2d 144 (Sup. Ct. Spec. Term, Nassau Co. 1971).

We expect the Appellate Division to affirm.

Posted in Eminent Domain, Highest and Best Use, Recent cases
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