Yesterday the Appellate Division, Second Department decided In re Matter of New Creek Bluebelt, Phase 4. Lawrence N. Paolella, et al., v. City of New York, in which it affirmed the findings of Supreme Court, Richmond County (Saitta, J.). The lower ruled that there was a reasonable probability that the imposition of wetlands regulations on the subject property constituted a regulatory taking and applied a 75% increment in calculating the final condemnation award of $810,000. For the Claimants, the award represents a 338% increase over the City’s valuation of $185,000.
The case involved the application of wetlands regulations to a 19,500 square foot piece of property located on Staten Island. Subsequent to the Claimant’s purchase of the property, it was designated as wetlands by the New York State Department of Environmental Conservation (“NYSDEC”) and on June 11, 2007 the City of New York acquired the property.
Specifically, the lower court held that (1) Claimants had established to a reasonable probability that the wetlands regulations constituted a regulatory taking; (2) the appropriate increment to be applied was the 75% increment sought by Claimants, not 41% sought by the City; (3) the City’s extraordinary development costs of $723,000 would be accepted, rather than Claimant’s $62,000; and (4) the final award amounted to $810,000.
On appeal, the Appellate Division noted that under Lingle v. Chevron USA Inc., 544 US 538, “if a regulation of property goes too far, it will be recognized as a taking.” The analysis of whether non- possessory government regulation of property has gone so far as to constitute a taking involves a factual inquiry into three factors: (1) the economic impact of the regulation on the Claimant (2) the extent to which the regulation has interfered with distinct investment-backed expectations, and (3) the character of the governmental action.” (Penn Central Transp. Co. v. New York City, 438 US 104).
At trial, the City’s expert appraiser estimated that the wetlands regulation reduced the value of the property by 82%, which, standing alone, the Appellate Division noted, is within the range generally found insufficient to constitute a regulatory taking. However, as to the third factor, the parties agreed that as a result of the wetlands regulation, it was highly improbable that the NYSDEC would issue a permit to develop the property applicable to its R3-1 zoning; accordingly the highest and best use of the property was to leave it undeveloped and vacant.
The Appellate Division stated:
Thus, although the purpose of the wetlands regulations benefits the public good by providing flood prevention and mitigation, the wetlands regulations effectively prevent any economically beneficial use of the property (see id.).
Considering the 82% property value diminution estimated by the City as a result of the wetlands regulations, together with the effective prohibition on development of any part of the property effectuated by the wetlands regulations, we agree with the Supreme Court that the claimants established that there was a reasonable probability that the imposition of the wetlands regulations constituted a regulatory taking of the subject property (Citations omitted).
The purpose of the increment added to the regulated value of the property is to reflect a percentage that represents the premium a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. See Berwick v. State of New York, 107 AD2d 79 at 84). When adding an increment to the value of vacant land to reflect its development potential, the specific increment selected must be based on sufficient evidence and satisfactorily explained. See Matter of County of Suffolk (Firester), 37 NY2d 649.
Here, the Appellate Division found that the 75% increment selected by the Supreme Court was based on sufficient evidence and was appropriate under the circumstances of this case. The Court declined to disturb the lower court’s findings as to the extraordinary costs to develop the property.
The full decision can be read by clicking here.