Eminent Domain Law

AppDiv, Second Dept.

(memorandum opinion)

In a condemnation proceeding, condemnees appealed from Supreme Court's determination that they were entitled to $18,086,658 as just compensation. The Appellate Division affirmed, holding that condemnees had not established that, on the date of condemnation, high-rise residential use was the highest and best use of the condemned property.

Condemnees or their principals have owned the subject property on the Queens waterfront since the 1970s. Beginning in the 1980s, the City of New York began to consider redevelopment of the waterfront, which historically had been devoted to industrial use. The city planned to develop the area for mixed residential and commercial use. In 2002, the Urban Development Corporation condemned the subject parcel and transferred title to the city. On the “vesting date” of the condemnation, the parcel was zoned for industrial use. Condemnees, however, submitted an appraisal valuing the property at $85 million for high-rise residential use. The city challenged the profitability of the land for that use, and contended that the property's highest and best use was for big-box retail stores. The city valued the property at $13.44 million. After a nonjury trial, Supreme Court concluded that high-rise residential use was not financially feasible on the vesting date, concluded that big box store use was the property's highest and best use, but concluded that the city's experts had undervalued the property for that use. As a result the court awarded just over $18 million in compensation. Condemnees appealed.

In affirming, the Appellate Division started with the principle that a condemnee is not entitled to the enhanced value of its property created by its inclusion within a redevelopment plan. The court acknowledged the possibility that the city might have granted variances to permit residential development on the subject parcel, but concluded that the evidence supported Supreme Court's determination that residential use was not financially feasible on the vesting date. The court noted the absence of schools, hospitals, and infrastructure in the area, and cited the absence of evidence that a prospective developer would have been willing to invest in a residential project on the site. In the course of its analysis, the court noted that a nearby site that had obtained a variance for residential use had remained unbuilt on the vesting date. Finally, the court concluded that the city's expert had effectively rebutted the conclusions of the condemnees' expert with respect to the profit a develop would be able to make with condominium development of the site.

COMMENT

When determining just compensation in a condemnation proceeding, the uses that a court may consider are generally limited to those permitted by zoning ordinances. Matter of Town of Islip, 49 N.Y.2d 354. However, when the landowner is able to prove a reasonable probability of rezoning at the time of the taking, the value for just compensation may be appraised based on the increased value of the property as rezoned. Id. at 360.

A court is most likely to find a reasonable probability when the land is unsuitable for the actual zoned use, or when nearby properties are zoned as the claimant alleges the subject property would likely be rezoned. In Matter of Town of Islip, the Court of Appeals held that landowner was entitled to compensation based on the land's value commercial development, because despite the residential zoning ordinance in place at the time, the location, size, and shape of the property made it “unsuitable for residential use.” As a result, it was likely that a challenge to the zoning regulation would be successful Id. at 362. In Spriggs v. State, 54 A.D.2d 1080, the Fourth Department held that land should be valued for multiple-dwelling development despite the single-family zoning ordinance in place at the time, concluding that a reasonable probability of rezoning existed. The court emphasized various factors including the unsuitability of single-family dwellings on the property due to the proximity of a dangerous railroad line, and the fact that nearby land had been zoned as a multiple-dwelling development.

A court is less likely to find such reasonable probability of rezoning when the local legislative body has rarely granted zoning amendments or where the infrastructure would not support more intensive development. For instance, in Swiderski v. State, 105 A.D.2d 1081, the Fourth Department awarded landowner compensation for value for single-family development, rejecting landlord's argument that a rezoning for multiple family apartments would probably have been granted because the town board rarely granted rezoning changes to multiple family dwellings, and the roads leading to the land were too narrow to facilitate heavy traffic. See also Grace v. State, 44 A.D.2d 729 .

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