19 A.D.2d 44 | N.Y. App. Div. | 1963
I concur in the affirmance of the findings and the awards with respect to damage parcels 13-13A, 19-19A, 31-31A and 32-32A. I concur in the modification of the decree to vacate the awards for damage parcels 22-22A, 36-36A, 39 and 80-80A, and the remanding of the issues on these parcels to Special Term for retrial. I agree that the record is inadequate to support a proper determination with respect to the value of these parcels.
Clearly, an owner of land taken in condemnation proceedings is entitled to recover the fair market value of his property based
With respect to damage parcel 36-36A, there is a question posed as to the allocation of the award between the landlord and the tenant. This is one of the parcels remanded for further proof, and because we believe that Special Term was in error in charging the leasehold interest with a prorated portion of the demolition and grading cost, assumed and paid by the tenant, a discussion of the facts and the principles involved are in order.
These premises were leased for a period of 10 years commencing on December 1, 1953. In addition to a payment of a yearly rental of $7,200, the tenant agreed to demolish the buildings existing thereon and to grade and improve the premises for use as a parking lot. The tenant carried out its agreement in this respect and the court found that he had expended altogether the sum of $16,000 in effecting the demolition and improvement.
The lease was duly assigned to the claimant-appellant who has succeeded to the rights of the tenant. Thereafter, these proceedings to condemn the property were instituted, with the city taking title as of October 1,1958, with the lease then having 5.17 years yet to run. The parties, for determination of their rights herein, do not rely upon any special provision in the lease, such as a cancellation clause or other clause defining their rights upon a condemnation of the subject premises.
It is true that the improvements of the premises required by the terms of the lease to be effected by the tenant were of a nature that, upon the completion thereof, they became merged with the freehold and the ownership thereof became vested in the landlord as the owner of the land. This is not disputed by
On the condemnation of the leased premises, the tenant, in the absence of an agreement to the contrary, was not entitled to receive compensation for the cost or value of his improvements to the land because, as aforesaid, the improvements were merged in the fee. (See Marfil Props, v. State of New York, 9 Misc 2d 878, 880; Garlock v. United States, 53 F. 2d 926.) But, in appraising the value of the tenant’s leasehold interest, “ the value of the improvements to the premises for leasing purposes for the remaining unexpired term is a proper matter for consideration” (Marfil Props, v. State of New York, supra, p. 880). To the extent the improvements have enhanced the market value of the tenant’s interest “ they become an item of value to be considered in fixing the value of the lease.” (Garlock v. United States, supra, p. 927.) The purchaser of the lease in the open market would derive the benefit of these improvements, and, without additional expense on account thereof would, on the payment of rent reserved, have the use of the property in its improved condition; and the appraisal, in condemnation proceedings, of the tenant’s interest should proceed on this basis. (Garlock v. United States, supra; Marfil Props, v. State of New York, supra. Also Clarkson v. Skidmore, 46 N. Y. 297, 302; People ex rel. Gorham Mfg. Co. v. State Tax Comm., 197 App. Div. 852.)
Of course, the tenant is limited to a recovery of the difference between the rental value of his leasehold for the unexpired portion of the term and the rent reserved in the lease for such period. (See Matter of City of New York [Delancey St.], 120 App. Div. 700; Matter of City of New York [Washington St.], 272 App. Div. 826; Matter of City of New York [Bronx Riv. Expressway], 278 App. Div. 813, 814; Matter of City of New York [Bronx Riv. Expressway], 282 App. Div. 925, affd. 308 N. Y. 782.) In a proper case, also, but not relevant here, the value of a leasehold interest would be affected by special and open or executory covenants on the part of the tenant, constituting a burden on the leasehold estate, such as covenants to pay taxes, to keep the property insured, to keep premises in a certain state of repair or to make certain improvements. (See Matter of William and Anthony Sts. [City of New York], 19 Wend. 678.)
"Where the rental for premises, or portion thereof, is paid in advance at the beginning of the term, the tenant, on the appraisal of his interest in connection with the taking’ of the same in condemnation proceedings, would not be chargeable a second time with the same as rent reserved. (See United States v. 6.87 Acres of Land in Garden City, 147 F. 2d 351.) Bent prepaid, as already received by the landlord has, figuratively speaking, been placed in his pockets. To that extent, the value of his interest is diminished by the outstanding lease and to that extent the value of the leasehold interest is increased. One purchasing, in the market, the interest of the landlord subject to the lease would take the premises with the rental income thereof reduced for the term of the lease to the extent of the prepaid rent. And a purchaser, in the market, of the leasehold would acquire the benefit of the prepaid rent.
It is true that in the carrying of a leasehold interest on the tenant’s books, proper accountancy for bookkeeping or income tax purposes might require that the entire cost to him for his interest be spread over the entire term of the lease. Included to be so treated would be rent paid in advance and the cost of initial improvements. But values in condemnation are not estimated on a bookkeeping basis. Also, it is noted that in certain appraisal areas where it is proper to average over the term of the lease the total cost to the tenant for his leasehold
In the final analysis, the leasehold interest of the subject premises improved and used as a parking lot, must be appraised at its fair market value at the time of taking. (See People ex rel. Gorham Mfg. Co. v. State Tax Comm., 197 App. Div. 852; Matter of City of New York [Washington St.], 272 App. Div. 826, supra.) “ The value of the leasehold is, in effect, the amount for which the lessee could sell his leasehold in the current market” (Friedman, Encyclopedia of Beal Estate Appraising, supra, p. 473). A purchaser of the leasehold interest on the open market, as of the time of the taking of the subject premises, would derive the benefit of the parking lot improvement for the unexpired term of the lease without any additional expense or payment to the landlord on account thereof, and this is the basis on which such interest is to be appraised. On this basis, the tenant receives just compensation and also, on this basis, the right of the landlord to receive the full market value of and just compensation for his interest is not unduly abridged because he has contracted away for the lease term the use of the premises as improved without further payment to bim on account of the improvements. (See Clarkson v. Skidmore, 46 N. Y. 297, 302, supra.)
Steueb, J. This proceeding for the condemnation of certain properties in the vicinity of Water Street involves several damage parcels of which eight are the subject of appeal. In four of these we find no error in the findings and disposition made by Special Term and no question that requires discussion. Damage parcels 13-13A and 31-31A, being the subject of cross
The balance of the damage parcels, 22-22A, 36-36A, 39 and 80-80A, consist of land unimproved except for grading and paving and used as parking lots. We find the record insufficient to make a determination of value and remand the proceeding as far as these parcels are concerned for further hearings.
Changing conditions call for new approaches in method of value determination. Time was when vacant land in the center of a metropolis had a prospective value only. Any use that the land could be put to was so temporary and the return so minimal that the value of the land as the prospective site for a building was not affected. Today, at least in certain locations of metropolitan New York, it is subject to grave question whether this continues to be true. The vast increase in the use of the streets for vehicular traffic has necessitated restrictions against parking and these restrictions have in turn created a need for space where automobiles may be accommodated off the highway. Parking lot operation has ceased to be a marginal business and land devoted to its use, in certain locations and at certain times, provides an adequate return. On the other hand, it can be seen that in other locations this will not be the situation at all. The distinction will arise from two grounds. The area may be one in which the need for such accommodation does not exist, or it may be one where land values are so high that a parking lot, except as a possible interim enterprise, would not be feasible.
There is no finding, nor any basis for a finding, as to what the situation is with respect to the parcels involved in this appeal. There are adequate proof and findings with which we are in accord as to the base value of the land, that is, the price a buyer would pay for it in order to put a structure on it. An additional award is sought on the theory that value as a parking lot adds to the value of the lot. Whether or not it does depends on several factors. A buyer intending to build will not, in economic theory at least, pay more for a particular plot because a parking lot is in operation on it than he would pay for a comparable plot that was not so used. So that if the plot is being held for sale, the value of the land is merely the base value. In condemnation this would be increased by the value of whatever incidental improvement, such as fences, shanties and paving, were on the lot (Matter of City of New York [Park Row Slum Clearance], 17 AD 2d 534).
However, if the rental value of the property is such that the owner would realize a greater return from leasing it to a
If it should develop that use as a parking lot is merely a temporary expedient, then, of course, the capitalization rate would be that of a temporary structure. In some instances this might possibly indicate a value in excess of the base value plus improvements. If so, it indicates an added increment due to the particular location. Otherwise, the temporary use adds nothing to the base value.
In the resolution of these questions it should be apparent that the usual approach in making proof will be of small help. The exaggerated optimism of claimants’ experts based on assumptions that the property will benefit from the highest rental that any building in the neighborhood enjoys, plus the lowest expenses that are conceivable, as contrasted with the pessimism that seems to govern the opinions of the city’s experts, will be of even less value in the resolution of these questions than they are in the routine determination of the issues of quantum.
In one damage parcel (36-36A) a question arose as to the allocation of the award between the landlord and the tenant. While this is one of the properties remanded for further proof and consideration and hence there is no award to be divided, it is nevertheless fitting that we indicate to Special Term our views on the question presented.
On this question I am not in accord with the views expressed by my colleagues through the medium of the concurring opinion by Mr. Justice Eager, and Special Term should perforce adopt that view rather than what is stated here. I am constrained by my interpretation of the applicable law to a differing view, the
It should be apparent that, these being the factors that control, it makes no difference whatsoever whether the rent has been anticipated or deferred. That fact can make no difference in the determination of whether or not rental value exceeds the reserved rent. Nor is a condemnation proceeding a proper forum for determining equities between the landlord and the tenant. If such equities do exist and are actionable, they should be resolved in a suit between those parties. If the lease provided that the entire rental was payable in advance and the tenant paid it, he could hardly claim that his damage was the entire amount of the reasonable rental because he had no further payment to make.
The decree should be modified, on the facts and the law, by vacating the awards for damage parcels 22-22A, 36-36A, 39 and 80-80A, and remanding the matter to Special Term for further proceedings in accord with this opinion, without costs, and, in other respects, affirmed, with costs to claimant in damage parcels 32-32A and costs to city in damage parcels 19-19A.
Botein, P. J., Breitel and Rabin, JJ., concur with Eager, J.; Steuer, J., concurs in result as to leasehold interest, in opinion, in which all concur except as to leasehold interest.
Decree unanimously modified, on the facts and the law, by vacating the awards for damage parcels 22-22A, 36-36A, 39 and 80-80A, and remanding the matter to Special Term for further proceedings in accord with the opinion of Steuer, J., filed herein, without costs, and, in other respects, affirmed, with costs to claimant in damage parcels 32-32A and costs to the City of New York in damage parcels 19-19A. Settle order on notice.