OPINION OF THE COURT
The broad issue on this appeal is the proper measure of damages for a temporary regulatory taking of property by the State. Specifically, we must determine the correct method of calculating damages when a regulatory taking delays the imminent sale of property. On the facts presented here, we conclude that just compensation requires an award for the lost use of sale proceeds from the time of the taking and not an award that represents only the interim decline in the value of the property.
Claimant, 520 East 81st Street Associates, once owner of a Manhattan apartment building, sued the State for the temporary regulatory taking of 39 apartments. The taking was effected through the enactment of chapter 940 of the Laws of
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1984 and ended with this Court’s invalidation of that legislation in 1994
(Manocherian v Lenox Hill Hosp.,
Beginning in 1968, Lenox Hill Hospital leased 39 of the 163 apartments in claimant’s building which the hospital then sublet to its employees. In 1969, the apartments became subject to New York City’s Rent Stabilization Law requiring claimant to offer lease renewals to its stabilized tenants (Local Law No. 16 [1969] of City of New York § 1, codified at Administrative Code of City of NY § 26-501 et seq.). In 1981, claimant began converting the apartment units to condominiums, giving tenants the option to purchase their apartments or continue leasing until they vacated, at which point claimant could take possession and sell the apartments. Lenox Hill Hospital did not purchase, instead opting to continue leasing the 39 stabilized apartments and subletting them to its employees.
In 1983, the Legislature enacted the Omnibus Housing Act ([OHA] L 1983, ch 403), which amended sections of the Rent Stabilization Law and the Real Property Law to prohibit a primary rent-stabilized tenant from subletting an apartment for more than two years out of the four-year period preceding the termination of a sublease (Administrative Code § 26-511 [c] [12] [f]) and also required stabilized tenants to obtain their landlord’s permission before entering into a sublease (Real Property Law § 226-b [2]). Notwithstanding the requirements of the OHA, Lenox Hill, a primary tenant, continued to sublet its 39 apartments to its employees on an indefinite basis without claimant’s permission. Claimant thus intended to terminate the Lenox Hill leases upon their expiration on July 31, 1985 and then sell the apartments as condominium units.
Before the expiration date of the leases, however, the Legislature enacted chapter 940 of the Laws of 1984. That legislation provided that not-for-profit hospitals leasing rent-stabilized apartments, including Lenox Hill, could sublet those apartments exempt from the two-year residency and landlord approval requirements implemented in the OHA, and their employee subtenants would be deemed qualified primary tenants for purposes of lease renewal. In Manocherian, this Court invalidated chapter 940, holding that the legislation was intended for the primary benefit of Lenox Hill Hospital and *46 failed to substantially advance a closely and legitimately connected state interest. Claimant commenced this proceeding seeking compensation for the temporary regulatory taking of the apartments from August 1, 1985, the date on which claimant would have terminated the Lenox Hill leases but for the enactment of chapter 940, through October 20, 1994, the date of decision in Manocherian.
Since the existence and duration of the taking were not at issue, the dispute in the Court of Claims centered on the issue of just compensation. A key aspect of that dispute was the question of what constituted the highest and best use of the 39 apartments at the time of the taking. Claimant argued that the best use of the property was sale as condominium units while the State argued that the highest and best use was as rental apartments. Both sides introduced evidence from appraisers who valued the property based on their divergent views of its highest and best use.
The Court of Claims determined that the highest and best use for the apartments was sale as condominium units. Using sales data on similar apartments in the same building, the court determined that the value of the 39 apartments on the date the taking began, August 1, 1985, was $3,264,996. The court fixed the post-taking October 20, 1994 value of the apartments at $2,632,496. Concluding that the “difference between the value of the 39 apartments on August 1, 1985, and their value on October 20, 1994, constitutes the direct damages to the claimant as a result of the taking,” the court subtracted the post-taking figure from the pretaking figure, the difference representing compensation for the diminution in value of the apartments over the course of the takings period. The court also adopted claimant’s operating loss figure of $343,950, representing the difference between the income from the 39 Lenox Hill leases and the carrying costs of the apartments over the same nine-year period. Finally, the court applied statutory 9% interest to each category of claimant’s damage award from August 1, 1985 to the date of decision and, thereafter, to the date of judgment. The total damages award, with interest, amounted to $2,345,842.16.
In arriving at its damages award, the Court of Claims rejected claimant’s method of calculating damages. Among other things, the court did not add interest to the August 1985 sale value over the course of the nine-year takings period before subtracting the 1994 sale value. Although claimant argued that such interest was necessary in order to compensate it for *47 the lost ability to realize a return on the 1985 sale proceeds, the court concluded that “any damage suffered by the claimant attributable to the lost opportunity to earn a return is accounted for by the interest on the damages to which the claimant is entitled by statute from the date of the taking.”
The Appellate Division unanimously affirmed (
Both the State and Federal Constitutions require that owners receive just compensation when private property is taken for public use (NY Const, art I, § 7 [a]; US Const 5th Amend). Just compensation puts the property owner in the same relative position it would have enjoyed had the taking not occurred
(see City of Buffalo v J.W. Clement Co.,
Claimant’s primary contention is that just compensation here requires interest on the 1985 sale value of the 39 apartments over the nine-year takings period. According to claimant, the award for diminution in value does not correspond to actual damages it suffered as a result of not being able to sell the apartments in 1985 and earn a return on those proceeds.
The State counters that the award made here fully compensated claimant for its losses. Relying on
Keystone
(
The finding below was that the highest and best use for the 39 apartments, as of 1985, was sale as condominium units. In essence, the courts below agreed that, but for the enactment of chapter 940, claimant would have sold the 39 apartments in 1985. Under just compensation principles, the proper calculation of damages therefore must put claimant, as close as possible, in the same position it would have been in had the apartments been sold in 1985.
Just compensation requires that claimant be awarded interest on the 1985 sale proceeds from the date the deprivation occurred
(see e.g., Washington Mkt. Enters., Inc. v City of Trenton,
68 NJ 107, 124,
Thus, upon remittal, the Court of Claims should determine and then apply the appropriate rate of return on the 1985 sale proceeds over the nine-year takings period. In aiding that determination, we note only that the “amount of interest necessary to bring the payment into accord with the constitutional requirement [of just compensation] is a judicial question, although the interest rate fixed by the Legislature will be deemed presumptively reasonable unless the claimant rebuts the presumption with evidence of prevailing market rates establishing that the statutory rate is so unreasonably low as not to
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constitute just compensation”
(Adventurers Whitestone Corp. v City of New York,
Since the award of operating loss expenses and interest thereon has not been placed at issue before us, we decline to pass on it at this juncture.
Accordingly, the order of the Appellate Division should be modified, with costs to claimant, and the case remitted to the Court of Claims for further proceedings in accordance with this opinion and, as so modified, affirmed.
Chief Judge Kaye and Judges Levine, Wesley and Rosenblatt concur; Judges Smith and Graffeo taking no part.
Order modified, etc.