Eminent Domain

Condemnation Award Must Reflect Possibility That Current Restrictions Would Be Lifted in the Future

Application of City of New York (Grantwood Retention Basin)

NYLJ 9/21/11

(Supreme Ct., Kings Cty.

(Saitta, J.)

In New York City's condemnation proceeding, the city moved for an order dismissing landowner's claim. The court denied the city's motion, holding that the city had not established that the land had no value.

The city acquired title to the subject parcel ' 97,294 square feet ' on Oct. 9, 2008. At the time of acquisition, the parcel was vacant, and was restricted by a declaration limiting its use to a storm water retention basin until such time as the city constructed a storm water outlet for the storm flow contributing to the retention basin. The city argued that the property had no value because the declaration prohibited development on the day title vested in the city. It said that costs would have prevented the developer from building a retention water system that would have allowed development under the terms of the declaration. The owner, by contrast, submitted an appraisal report contending that the highest and best use of the site was as a speculative investment, and discounted the unregulated value of the property by 85%. The city contended that the owner's valuation method was not valid, and sought dismissal of the claim.

In denying the city's motion, the court relied in part on a city drainage plan for the area, showing storm sewers for the site. The court held that where a claimant can show that there is a reasonable probability that, absent condemnation, a higher or more productive use would eventually have become available by reason of legislative action, claimant is entitled to compensation that reflects the premium a knowledgeable buyer would pay for a potential change to a more valuable use. The court analogized to property subject to wetlands regulation. Here, because the city failed to show that no investor would purchase the property on the expectation that restrictions would be lifted in the future, the city was not entitled to prevail on its motion to dismiss.

COMMENT

In determining condemnation awards, the government must consider the value of uses not currently permitted by regulations when the owner shows a reasonable probability that, absent the condemnation, the regulations prohibiting those uses would have been relaxed or removed. Government need not, however, award landowner the full value of the prohibited use. Thus, in Masten v. State, 11 A.D. 2d 370, affd 9 N.Y. 2d 796, the court held that the owner offered sufficient evidence to justify a condemnation award that reflected the possibility of a commercial use even though the zoning code only permitted residential uses. The owner proved both that the municipality had shown a pattern of granting variances to permit commercial uses, and that a citizens committee had recently been organized to consider changing the current zoning code. On those facts, the court did not grant the owner the full value of a commercial use, but rather increased the original award by an incremental value that reflected the possibility of future government action.

However, courts will not award an increment when the owner cannot support the higher value use with any evidence. In Matter of Shorefront High School, City of New York v. Burnick, 25 N.Y.2d 146 , the owner failed to persuade the court to value his property as if it had qualified for governmental grants under the Mitchell-Lama Act because he was unable to show any evidence that he could obtain the necessary governmental approvals to qualify for the subsidies.

In situations when the owner is able to offer evidence that a higher value is probable, such as, for example, by presenting an appraisal report, the city must rebut that evidence with its own report that justifies a valuation based only on currently permitted uses. Thus, in Spriggs v. State of New York, 54 A.D.2d 1080, once the owner introduced a valid appraisal report indicating a higher value if certain regulations were removed, the government had to offer rebuttal evidence to justify its original condemnation award. Because the city failed to introduce such evidence, the court held that the city had failed to establish that the owner's valuation of the property was erroneous as a matter of law. As a result, landowner was entitled to an award that included a premium based on the likelihood that a different use would be permitted. Similarly, in City of New York, the city did not rebut the owner's evidence of the city's future development plans because the court held that the government's only evidence ' testimony that no such plans existed ' was inadmissible hearsay.

Condemnation Award Must Reflect Possibility That Current Restrictions Would Be Lifted in the Future

Application of City of New York (Grantwood Retention Basin)

NYLJ 9/21/11

(Supreme Ct., Kings Cty.

(Saitta, J.)

In New York City's condemnation proceeding, the city moved for an order dismissing landowner's claim. The court denied the city's motion, holding that the city had not established that the land had no value.

The city acquired title to the subject parcel ' 97,294 square feet ' on Oct. 9, 2008. At the time of acquisition, the parcel was vacant, and was restricted by a declaration limiting its use to a storm water retention basin until such time as the city constructed a storm water outlet for the storm flow contributing to the retention basin. The city argued that the property had no value because the declaration prohibited development on the day title vested in the city. It said that costs would have prevented the developer from building a retention water system that would have allowed development under the terms of the declaration. The owner, by contrast, submitted an appraisal report contending that the highest and best use of the site was as a speculative investment, and discounted the unregulated value of the property by 85%. The city contended that the owner's valuation method was not valid, and sought dismissal of the claim.

In denying the city's motion, the court relied in part on a city drainage plan for the area, showing storm sewers for the site. The court held that where a claimant can show that there is a reasonable probability that, absent condemnation, a higher or more productive use would eventually have become available by reason of legislative action, claimant is entitled to compensation that reflects the premium a knowledgeable buyer would pay for a potential change to a more valuable use. The court analogized to property subject to wetlands regulation. Here, because the city failed to show that no investor would purchase the property on the expectation that restrictions would be lifted in the future, the city was not entitled to prevail on its motion to dismiss.

COMMENT

In determining condemnation awards, the government must consider the value of uses not currently permitted by regulations when the owner shows a reasonable probability that, absent the condemnation, the regulations prohibiting those uses would have been relaxed or removed. Government need not, however, award landowner the full value of the prohibited use. Thus, in Masten v. State, 11 A.D. 2d 370, affd 9 N.Y. 2d 796, the court held that the owner offered sufficient evidence to justify a condemnation award that reflected the possibility of a commercial use even though the zoning code only permitted residential uses. The owner proved both that the municipality had shown a pattern of granting variances to permit commercial uses, and that a citizens committee had recently been organized to consider changing the current zoning code. On those facts, the court did not grant the owner the full value of a commercial use, but rather increased the original award by an incremental value that reflected the possibility of future government action.

However, courts will not award an increment when the owner cannot support the higher value use with any evidence. In Matter of Shorefront High School, City of New York v. Burnick, 25 N.Y.2d 146 , the owner failed to persuade the court to value his property as if it had qualified for governmental grants under the Mitchell-Lama Act because he was unable to show any evidence that he could obtain the necessary governmental approvals to qualify for the subsidies.

In situations when the owner is able to offer evidence that a higher value is probable, such as, for example, by presenting an appraisal report, the city must rebut that evidence with its own report that justifies a valuation based only on currently permitted uses. Thus, in Spriggs v. State of New York, 54 A.D.2d 1080, once the owner introduced a valid appraisal report indicating a higher value if certain regulations were removed, the government had to offer rebuttal evidence to justify its original condemnation award. Because the city failed to introduce such evidence, the court held that the city had failed to establish that the owner's valuation of the property was erroneous as a matter of law. As a result, landowner was entitled to an award that included a premium based on the likelihood that a different use would be permitted. Similarly, in City of New York, the city did not rebut the owner's evidence of the city's future development plans because the court held that the government's only evidence ' testimony that no such plans existed ' was inadmissible hearsay.