Eminent Domain

In modifying, the Appellate Division first upheld Supreme Court's determination that an increment above regulated value was appropriate because of the reasonable probability that the wetlands designation would have been held invalid as a regulatory taking. But the court then emphasized that the appropriate increment was a percentage that represents the premium a reasonable buyer would pay for the probability of a successful judicial challenge. In this case, the court held that the increment proposed by condemnee and accepted by Supreme Court was not based on sufficient evidence and was not adequately explained. The Appellate Division held that the court should, instead, have accepted the increment proposed by the city's appraiser, which was based on market data and which provided a reasonable basis for the appraiser's conclusion.

Comment

A condemnee who proves that there is a reasonable probability that its land was previously subject to a regulatory taking is due an increment above the property's regulated value. For instance, in In re Town of Islip (Mascioli), 49 N.Y.2d 354 (1980), the Court of Appeals affirmed the grant of an increment above the value of an undeveloped property that had been restrictively zoned as residential, because there was a reasonable probability that a court would have invalidated the zoning ordinance as confiscatory. The evidence showed that: 1) the property's size and shape made it unsuitable for residential use; 2) the property's market value — effectively nothing as zoned — would increase if the property were rezoned for commercial use; and 3) a zoning change would be harmonious with the surrounding area. In contrast, where a condemnee fails to show the reasonable probability that, but for the condemnation, a regulatory agency or court would have granted a variance or invalidated the regulation, the claimant is not entitled to an increment. Thus, in Broadway Associates v. State, 18 A.D.3d 687 (2005), the Second Department affirmed a judgment denying damages where a claimant asserted, without showing the reasonable probability of a taking or variance, that a commercially-zoned property's highest and best use was as a high-density multi-family residential development.

Ideally, courts would compute the increment by examining sales of comparable land as regulated. Those sales would reflect the market's evaluation of the risks and costs associated with challenges to the regulation. Often, however, there have been no sales of comparable parcels subject to the regulation. See, e.g., In re City of New York (BayCrest Manor, Inc.), 46 Misc.3d 1219[A], modified 156 A.D.3d 163 (both appraisers testify that they know of no comparable sales of property subject to wetlands regulation). As a second-best solution, courts compute the value of the property free of regulation, subtract the value generated by uses permitted with the regulation in place, and then award a percentage of the difference as an increment on top of the value for uses permitted under the regulation. The percentage generally reflects the supposed cost of developing in light of the need to undo the regulation. For instance, in Berwick v. State (Berwick II), 159 A.D.2d 544, 545-548, the Second Department calculated a property's unregulated value by starting with the claimant's appraisal based on comparable sales, and adjusting downward based on the state's evidence of wetlands-related likely development costs. The court then subtracted the nominal value of the property if used for permitted recreational purposes, and then added a 75% increment of that difference to the property's value for recreational use.

Courts determine increment percentages based on the parties' submissions and market data, and a court may not apply a proposed increment percentage just because it was used in a previous case. Thus, in In re Bluebelt Phase 3 (BayCrest Manor, Inc.), 156 A.D.3d 163, 177–78, the Second Department modified an increment award to use the city's appraiser's proposed increment percentage, rather than that proposed by the claimant's appraiser, because the claimant's appraiser relied only on the increment percentage applied in Berwick II, which concerned wetlands in a different part of the state decades earlier. By contrast, the city's appraiser calculated an increment percentage by finding the difference between analogous regulated and unregulated properties near the wetlands-regulated property in question. See, In re City of New York (BayCrest Manor, Inc.), 46 Misc.3d 1219[A], 2014 WL 7896339, at 12 (Sup. Ct.) (describing the city's appraiser's methodology). The Second Department's decision relied on both the city's appraiser's reasonable explanation of why his calculation was an appropriate measure of what a theoretical knowledgeable buyer would pay for the property, and the claimant's appraiser's lack of sufficient evidence supporting its proposed increment percentage.