14 N.Y.2d 314 | NY | 1964
Lead Opinion
In this proceeding to review tax assessments the contest is as to the values ($20,500,000 in two of the years, $21,000,000 in" the third year) assigned by the Tax Commission to the building which was completed just before the first of these tax years at a cost of $36,000,000. Summarized, the position of appellant is that capitalization of rental income, including estimated rent for the offices occupied by appellant itself, would not justify a building value of more than about $17,000,000.
Unlike many of the real property tax proceeding orders reviewed in this court, this order comes to us from an Appellate Division affirmance of Special Term so that questions of fact and of weight of evidence are not before us. We cannot reverse or modify in such a situation unless the record is without any substantial evidence to support the conclusion below or there has been error of law in the use of an erroneous theory of! valuation, or otherwise. We find no such errors here.
Although we do not concur in everything said in the two Appellate Division opinions, we agree that for an office building like this, well suited to its site, the actual building construction cost of $36,000,000 is some evidence of value, at least as to the tax years soon after construction (Matter of 5 East 71st St. v.
Usually, the assumed rent for the space occupied by a building owner would for purposes of capitalization of net rent income be computed at about the same rate as the rents actually paid by other tenants. But there can be many reasons why, as both of the Appellate Division opinions state, “ the building as a whole bearing the name of its owner includes a real property value not reflected in commercial rental income” since “ the owner did not build for commercial rental-income purposes alone, and, as a consequence, capitalization of such income without adjustments produces a false result ” and, therefore, “ one must not confuse investment for commercial rental income with investment for some other form of rental value unrelated to the receipt of commercial rental income ”. In other words, the hypothetical rental for owner-occupied space need not be fixed at the same rate as paid by tenants. This does not mean that advertising or prestige or publicity value is erroneously taxed as realty value. It certainly does not mean that a corporate sponsor of esthetics is being penalized for contributing to the metropolis a monumental and magnificent structure.
The order should be affirmed, with costs.
Dissenting Opinion
(dissenting). We do not suggest that cost of construction is not relevant, that it may not be taken into consideration as bearing on value. That it may be so considered is an old rule recognized in many cases prior to Matter of 5 East 71st St. v. Boyland (7 N Y 2d 859) and Matter of 860 Fifth Ave. Corp. v. Tax Commission of City of N. Y. (8 N Y 2d 29). (See, e.g.,
While the well-settled rule is that capitalized net income is the best measure of the value of commercial rental property
Although this court has no general power to review the fairness and accuracy of real property assessments (Matter of City of New York [Fourth Ave.], 255 N. Y. 25), yet, where the Appellate Division has made explicit its method and the elements of value considered, any errors of law therein are presented to
The narrow and highly technical character of the rule applied by the Appellate Division may be highlighted by comparison with Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y. (19 A D 2d 56, supra) decided by the same court three months after the instant case. There, the court was confronted with a brand new structure quite similar in novelty to the Seagram Building in that it " is unusually distinctive and individualistic in appearance, [and] is set back approximately 14 feet on Park Avenue and 34 feet on 59th Street to provide on said sides a promenade and plaza ornamented with plants and shrubbery.” (19 A D 2d, p. 57.) Yet the court held that it is not “ in the same category as the Seagram Building, that is, a newly-erected structure built especially for prestige and advertising value as well as for the headquarters use of its owner.” (19 A D 2d, p. 59.) Since both are new, held for business rental, and used as headquarters for the owner, the only difference is the presumed benefit accruing to the Seagram Company from having its name associated with an architecturally superior and well-known building.
“ Value ” under section 306 of the Real Property Tax Law is market value given willing sellers and buyers (Administrative Code of City of New York, § 158-1.0; People ex rel. Parklin Operating Corp. v. Miller, 287 N. Y. 126, 129, supra; People ex rel. Gale v. Tax Comm. of City of N. Y., 17 A D 2d 225). In our view, this approach to value necessarily excludes any element that is unique to the present owner of a building. Any increment in Seagram’s outside business enterprises deriving from public appreciation of the Seagram Building will not pass to a buyer of the building in a sale. Such an element would disappear if the building were sold to another investor, engaged in another business or in no business at all, other than real estate invest
Of course, the prestige of the Seagram Building undoubtedly enhances the value of the building in any hands. This is undoubtedly real estate value—value which is transferable in a sale, and for which a buyer will pay. Such value also affects the rental commanded by the building. But, if tenants are willing to pay more for space in the Seagram Building than for similar space elsewhere, that is fully reflected in the capitalization of earnings. In turn, it would seem to follow that such capitalization adequately comprehends any increase in value that the building would bring in a sale—without resorting to concepts foreign to real estate value.
By the consideration of a so-called value element without regard to its place in light of the ultimate statutory norm of market value, and thereby displacing income capitalization as an acceptable measure of value and giving undue prima facie effect to cost, the Appellate Division has committed legal error for which the order appealed from should be reversed and the case remitted for reconsideration without regard to any supposed theory that the building is a specially built structure representing more of a real estate investment in its owner-occupant’s business than a commercial office building.
Judges Dye, Furd and Bergan concur with Chief Judge Desmond ; Judge Burke dissents in a separate opinion in which Judges Van Voorhis and Scileppi concur.
Order affirmed.
The city offered no testimony as to economic value, i.e., capitalization of net income.
