Michael Rikon authored an article published in the New York Law Journal about a recent tax certiorari proceeding, Matter of Hempstead Country Club v. Board of Assessors, 2013 N.Y. App. Div. LEXIS 7156. The decision, authored by the Honorable Thomas A. Dickerson and decided on November 6, 2013, involved a challenge to the tax assessments made on 123 acres of property in Nassau County used as a private, not-for-profit golf course.
The parties both agreed that the property should be assessed as a not for profit golf course; they also both agreed that the income capitalization approach was the proper method of evaluation. However, the case centered on how to the real estate taxes imposed on the property should be taken into account when computing the property’s fair market value.
The country club’s appraiser converted the leases for his comparable properties into gross leases under which the owner, rather than the lessee, is obligated to pay the real estate taxes, and utilized the “Assessor’s Formula” pursuant to which a factor is added to the capitalization rate to account for real estate taxes. The appellant’s appraiser adopted an approach assuming a triple net lease, under which the lessee, not the owner, is obligated to pay real estate taxes. Thus, the expense of the real estate taxes was accounted for in the fair market rent for the property and didn’t have to be accounted for within the capitalization rate.
The lower court, in a consolidated decision authored by the Honorable Stephen A. Bucario in the Nassau County Supreme Court, granted the petitions awarding reductions in the assessments and adopted the approach used by the country club’s appraiser.
The definition for an “Assessor’s Formula” was given in a case called Senpike Mall Co. v. Assessor of New Hartford, 136 AD 19, 22-23 (4th Dept. 1988) where the court stated that:
In using the income approach for tax certioriari purposes, the proper method is not to deduct the existing real estate taxes as an expense, but instead to use what is called an “assessor’s formula” by adding to the capitalization rate a factor which will mathematically account for the proper amount of taxes based upon the income value as computed (citing Master of Commercial Structures v. City of Syracuse, 91 AD2d 1197, lv denied 59 NY2d 606)
The Board of Assessors in Town of Hempstead differentiated Senpike by arguing that valuation of actual income producing property should be different than valuation of hypothetical income producing property (i.e.: a golf course). The appellants argued that a tax load factor should not be used in the capitalization rate.
Because any fair and non-discriminating method that will achieve the tax assessment goal of arriving at a fair market value is acceptable, and because valuation is largely a question of fact where courts have considerable discretion when reviewing the evidence, the Appellate Division affirmed the judgments, holding that it was proper to add a tax load factor to the capitalization rate in order to account for the cost of the real estate taxes. The full decision can be accessed by clicking here.
As the NYLJ article points out, the decision is important for a few reasons: only the subject real property was being valued, independent of any business conducted thereon, and the decision confirmed that under well-established law, the value at which real property can be taxed has been equated with market value. The full article can be accessed by clicking here.