Eminent Domain Law

Condemnation Award Should Not Be Based on Current Use

Matter of City of New York v. Jamaica Arms Hotel, Inc.

NYLJ 2/7/05, p. 46, col. 5

AppDiv, Second Dept

(memorandum opinion)

In the city's eminent domain proceeding, the claimant appealed from the Supreme Court's award of $2,864,000 as just compensation. The Appellate Division modified to increase the award to $3,996,250, holding that the Supreme Court had improperly based its conclusions on the city's appraisal, which was on the “low end of the indicated rental range.”

The subject property is a residential hotel with over 90 units comprised of one or two rooms, and one three-room unit. For several years before the condemnation, the city used the hotel's units to provide emergency housing for homeless families. Then, in 1990, the city licensed the facility and operated it as a homeless shelter, before condemning the property in 1992. In the condemnation proceeding, the claimant's appraiser contended that the property's highest and best use was as a commercially operated hotel for the homeless, the use to which the property had been put before condemnation. The city's appraiser, by contrast, argued that the property's highest and best use was as rental apartments. The city cited a determination by the city to eliminate the use of privately owned hotels as transitional housing for the homeless by 1993. The Supreme Court agreed with the city's appraiser, and made its award based largely on the value set in the city's appraisal.

In modifying, the Appellate Division first agreed with the Supreme Court that the property's highest and best use was as rental apartments. The court concluded that a use that is no more than a speculative or hypothetical use in the mind of the claimant may not serve as the basis for a condemnation award. Here, the court cited the policy change by the city as evidence that the claimant's appraisal was speculative. The court did, however, conclude that the city's appraisal undervalued the likely rental income for the units in the building, and increased the total award to reflect a more realistic estimate of rental values.

COMMENT

When the current use of property is contingent on continuation of a municipal policy, courts are reluctant to value that property as if the municipal policy will remain in effect. For example, in Matter of City of New York v. Regent Hotel, the city was operating a residential hotel, under a license, as a temporary shelter for homeless families at the time of condemnation. NYLJ 10/26/99, p. 35. In determining the highest and best use of the property, the court considered whether the best use would be its current use, as a homeless facility, or as rental units. At the time, the city had instituted a policy to discontinue the use of private hotels to house homeless families. The court's paramount consideration was the reliability of the income stream from the property under the proposed uses. The court determined that because of the city's political and financial climate, the need for, and therefore the income potential of the property as a homeless facility, was too unpredictable to establish it as a viable long-term use the basis for a condemnation award.

However, if a condemning authority engages in value-depressing acts before the actual taking of a property, the court will examine the specific circumstances to determine if the acts of the authority have created a reduction in value from which it is not entitled to benefit. When the threat of condemnation attaches to a property that therefore deprives the owner of substantial use and benefit of his land, compensation will be based on the value of the property as it would have been at the time of the taking but for the value-depressing acts of the authority. Thus, in City of Buffalo v. Irish Paper Co., 26 N.Y.2d 869 (1970), the City notified the landowner that the property would soon be taken in 1961. By 1962, the property was vacated although the title was not actually taken until 6 years later. In the interim, the value of the building deteriorated substantially because of the “cloud of condemnation” that hung over the property. The court held that the city, in instructing the tenants to vacate the property and that demolition would soon begin, had engaged in value-depressing acts from which it was not entitled to benefit and valued the property as if the threat of condemnation did not apply.

Condemnation Award Should Not Be Based on Current Use

Matter of City of New York v. Jamaica Arms Hotel, Inc.

NYLJ 2/7/05, p. 46, col. 5

AppDiv, Second Dept

(memorandum opinion)

In the city's eminent domain proceeding, the claimant appealed from the Supreme Court's award of $2,864,000 as just compensation. The Appellate Division modified to increase the award to $3,996,250, holding that the Supreme Court had improperly based its conclusions on the city's appraisal, which was on the “low end of the indicated rental range.”

The subject property is a residential hotel with over 90 units comprised of one or two rooms, and one three-room unit. For several years before the condemnation, the city used the hotel's units to provide emergency housing for homeless families. Then, in 1990, the city licensed the facility and operated it as a homeless shelter, before condemning the property in 1992. In the condemnation proceeding, the claimant's appraiser contended that the property's highest and best use was as a commercially operated hotel for the homeless, the use to which the property had been put before condemnation. The city's appraiser, by contrast, argued that the property's highest and best use was as rental apartments. The city cited a determination by the city to eliminate the use of privately owned hotels as transitional housing for the homeless by 1993. The Supreme Court agreed with the city's appraiser, and made its award based largely on the value set in the city's appraisal.

In modifying, the Appellate Division first agreed with the Supreme Court that the property's highest and best use was as rental apartments. The court concluded that a use that is no more than a speculative or hypothetical use in the mind of the claimant may not serve as the basis for a condemnation award. Here, the court cited the policy change by the city as evidence that the claimant's appraisal was speculative. The court did, however, conclude that the city's appraisal undervalued the likely rental income for the units in the building, and increased the total award to reflect a more realistic estimate of rental values.

COMMENT

When the current use of property is contingent on continuation of a municipal policy, courts are reluctant to value that property as if the municipal policy will remain in effect. For example, in Matter of City of New York v. Regent Hotel, the city was operating a residential hotel, under a license, as a temporary shelter for homeless families at the time of condemnation. NYLJ 10/26/99, p. 35. In determining the highest and best use of the property, the court considered whether the best use would be its current use, as a homeless facility, or as rental units. At the time, the city had instituted a policy to discontinue the use of private hotels to house homeless families. The court's paramount consideration was the reliability of the income stream from the property under the proposed uses. The court determined that because of the city's political and financial climate, the need for, and therefore the income potential of the property as a homeless facility, was too unpredictable to establish it as a viable long-term use the basis for a condemnation award.

However, if a condemning authority engages in value-depressing acts before the actual taking of a property, the court will examine the specific circumstances to determine if the acts of the authority have created a reduction in value from which it is not entitled to benefit. When the threat of condemnation attaches to a property that therefore deprives the owner of substantial use and benefit of his land, compensation will be based on the value of the property as it would have been at the time of the taking but for the value-depressing acts of the authority. Thus, in City of Buffalo v. Irish Paper Co., 26 N.Y.2d 869 (1970), the City notified the landowner that the property would soon be taken in 1961. By 1962, the property was vacated although the title was not actually taken until 6 years later. In the interim, the value of the building deteriorated substantially because of the “cloud of condemnation” that hung over the property. The court held that the city, in instructing the tenants to vacate the property and that demolition would soon begin, had engaged in value-depressing acts from which it was not entitled to benefit and valued the property as if the threat of condemnation did not apply.