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Subway Litigation

It has been a long time since the City of New York embarked on a program of subway building with resulting cases defining the rights in the context of a condemnation proceeding. However, we are about to embark on another of those periods in New York City history when the subject will come up again in view of the planned Number 7 Line Extension, the Second Avenue Subway, the Long Island Railroad connection to Grand Central Terminal and the planned new railroad line from New Jersey to Penn Station.

The problem has never been the right to receive compensation for a taking of an interest in the property itself, but rather, the issue in the prior cases had been damages to abutting properties when either elevated railroads or subways were built within the street itself. Today, we see problems not considered in prior case law because today the problem is more complicated. One of those complications is the recently used form of ownership of condominiums and cooperatives both as to who makes claim and who receives the award pursuant to the internal agreements. A further complication is the new technology used in building the subways themselves, the use of rock boring machines which enable construction much deeper underground than in the last subway buildings era, particularly when the tunneling is deep under existing buildings. Then there is the effect on abutting properties of an open cut in the street into which the boring machine is dropped and then kept open to accommodate removal of the rock and dirt from below ground.

Recent events pointed up the below ground tunneling problem. Some time ago when the MTA was taking easements seventy and more feet deep under buildings along Park and Madison Avenues, we received telephone calls asking whether owners should file claims for the taking or take the nominal sums being offered in compensation. We answered that while there was a taking and a right to damage the question could only be answered by they going out and getting engineering advice as to the impact on the building both from the construction and later from the operation of the subway. We pointed out the MTA Environmental Impact Statement (“EIS”) discussed the subject. Whether such advice was sought we do not know or even whether the offered payment was taken or even whether a claim was filed, since we were not retained to file a claim. Our understanding is that both the EIS and the appraisals of the MTA were based on the proposition that by reason of the proposed subway being built far below ground and drilled through the bed rock there would be no impact on the properties affected. Based on the then known facts, that appeared to be a reasonable conclusion.

Fast forward to about two months ago, when we received a telephone call from a recent purchaser of a townhouse in Manhattan’s east side under whose property a tunnel for the Long Island Railroad connection to Grand Central Terminal was being built. He had, before buying the property, been advised of the subway to be built under his proposed purchase. He read the EIS and conclusions of no impact on the properties through which the tunnel was being built and made other inquiries and was satisfied that he could safely buy the property as there would be no discernable impact from the proposed subway.

So what occasioned the telephone call to us? Shortly before, he felt vibrations throughout his house and found out it was being caused by the drilling of the subway beneath his house. Inquiry by him of the MTA confirmed it was caused by the rock drilling machine beneath the house. We confirmed from the MTA that there had been a condemnation of easements in his property some time before. One by one his neighbors were experiencing the same problem and were up in arms. Our inquiry also revealed that the seller had filed a claim in the proceeding, the time for which having expired some time before. We assume an appropriate accommodation was made between the parties thereafter, as we heard nothing abut the situation after that.

But here is the problem. The MTA, in good faith, based on engineering advice, concluded there would be no impact on the properties affected. Inquiry by the above owner from the MTA had revealed they were reportedly as shocked by the impact as was the owner. The vibrations from the drillings was to be only a temporary inconvenience. The drilling machine, we were told, drills through bed rock at the rate of one foot per hour. Assuming the typical townhouse is twenty five feet wide the drilling should be well past any property in a few days. But what happens when the subway work is finished and trains are running. Does any one know whether they will cause similar vibrations? The EIS concludes it will not. The engineering advice reportedly did not foresee the vibrations caused by the drilling. Is it equally unreliable as to potential impacts from the running of the subway trains?

No one will really know until it happens. But when will that be and what does one do if a trial as to valuation is held before then. The Number 7 Line Extension was projected to be completed in 2012. Anyone want to bet the real date and what happens if, as now seems probable, there is a substantial delay before the subways are operational. The present condemnation for the Second Avenue Subway is for only a small section of the line and questions are being raised as to funding. When trains will actually run is a real question. Then, what about those who in good faith, based on the representations in the EIS as to impacts, waived their claims and received nominal compensation, if it turn out those projections were in error. Is it to be caveat emptor.

Now let us look at the rights of those abutting property owners where the subway is being built in the street, focusing on the condos and coops and with particular reference to Murphy v. State of New York, 14 A.D.3d 1276, 787 N.Y.S.2d 120 (2nd Dept., 2004), We had commented on that decision in our column on February 3, 2005. In that case, the Court, making reference to the particular provisions of the condo’s by-laws, found that where there was a taking of a “common element”, there lawn areas adjacent to townhouses, which caused a serious diminution in their value, the claim for damages was in the condo association rather than in the individuals who sustained the damages, even though, under the by-laws, the proceeds were to be distributed to all of the condo owners, not just to those who sustained the damage. While we believe the decision was wrongly decided, we are not the Court of Appeals and that case is still out there, albeit only in the Second Department. The problem is that the by-laws in that case are, while not exact, are remarkably similar to those we have seen in other condo by-laws.

Now let us look at what impact not only that decision might have but other problems as well. That takes a discussion of the rights of abutting owners when the subway is built in the street, as well as impacts from partial takings whether of improved portions or common areas, all of which will be involved in one property or another in these proposed takings. Looking at them, we think we know at least some of the problems, but we are not sure we know the answers, since many will be cases of first impression.

We start with proposition of what interest an abutting property has in a street, assuming, as is the case in most of Manhattan, the fee title is held by the City of New York. It was in the elevated railroad cases in the nineteenth century and thereafter that those rights were defined in cases such as Story v. New York Elevated R.R. Co., 90 N.Y. 122 (1882). Essentially the abutting owner has private easements of light, air and access and it is because the elevated railroad structures impaired on those rights that their construction was deemed a taking of those easements giving rise to the right to damages to the abutting owners. Earlier, in People v. Kerr, 27 N.Y. 188 and Kellinger v. Forty-Second Street, etc. R.R. Co., 50 N.Y. 206, it was held that building of a street level railroad (horse drown street cars) did not give rise to a damage claim as it did not interfere with the rights of abutting owners except in an inconsequential way. Lastly, in Culver Contracting Co. v. Humphrey, 268 N.Y. 26 (1935), the building of a subway in a street was deemed to not to give to the abutting owner a right to recover damages for their taking as no interest of the claimant was “taken”, limiting the claim to a separate damage action, should there be damages caused by the construction itself.

With that as a background, we now look at the various actions contemplated in addition to merely building a subway in the bed of the street. To start with, a large hole will be put into streets to permit the dropping of the rock drilling machine, the effect of which will be to close a portion of the street, There will also be the noise and dirt accompanying its digging and its continuation for the removal of the debris from below ground. Is that deemed a sufficient interference with the easement of access, pursuant to Story v. Elevated R.R.Co. to constitute a taking or is to be like Humphrey vs. Culver Contracting Corp. Will the fact it is not a permanent condition be the determinant. Then there are to be partial takings to accommodate subway stations and facilities for exhaust fans from the subway. Some will be in space owned by condo owners themselves and others will be in common areas. Then, suppose the running of trains in the area below the building, assumedly a common area, causes vibrations and depreciates the values of some apartments more than others. It is at that point that Murphy v. State of New York, supra, becomes a factor. Many of the buildings from which an interest in the real estate is being taken are either condos or coops. While we have not seen more than a few of their by-laws, those that we have seen are similar to that in Murphy v. State insofar as defining the rights of the parties in the event of a condemnation. What will happen when the subway exhausts gasses emanating from an exhaust facility built in a common area are directly below a particular apartment causing depreciation in its value? What will happen when a condo unit is taken but the by-laws define walls and ceilings as common elements? What happens when particular owned parking spaces are taken in a building’s garage and the garage is defined as a common element? What about the second floor apartment which will sit above the newly created subway entrance in either a common area or the space of another owner with its attendant noise which diminishes its market value. The by-laws we have seen do not begin to define the rights of the parties in any common sense way.

We suspect that between the very poorly drawn condemnation clauses and what we believe as the incorrectly decided Murphy v. State, there will be considerable litigation, the result of which we cannot predict unless in contemplation of the coming condemnations the by-laws of these buildings are rewritten as to condemnation

Reprinted with permission from the April 30, 2008 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Where is the Temporary Commission on Eminent Domain?

As a result of the U.S. Supreme Court decision in Kelo v. City of New London, 545 U.S. 469 (2005), 42 states have now enacted legislative reform. The New York State Bar Association named a special task force to study eminent domain.

Twenty-one New York attorneys and academics (including M. Robert Goldstein) were appointed to the special committee. The task force held several meetings in Albany and listened to the presentations of members of the Judiciary, law professors, and practitioners in the area of eminent domain.

The task force issued a final report in July 2007. In its earlier March 2006 report it noted that 17 bills were pending at that time in the state Legislature which would affect eminent domain. Since that date, the Legislature only adopted two bills which were extremely limited. The task force observed the lack of state-specific research and data to accurately assess both the need for, and impact of, many of the proposed reforms. It was reported that in the 30 years since the enactment of the Eminent Domain Procedure Law (EDPL), little recodification has occurred. ‘Actually, the vast majority of provisions remain in its original form.’

We have made several comments about the need to amend the EDPL. (See, ‘Need to Amend the Eminent Domain Procedure Law,’NYLJ, Oct. 25, 2000 p. 3). We suggested that the Legislature define ‘public purpose and blight.’

Does the EDPL’s language of exclusivity need to be reinforced? If the law is truly exclusive, how does a condemnor attempt to evict property owners in the Village Justice Court without complying with EDPL 405A which requires the payment first of a good faith advance payment? The EDPL should be clarified to state unequivocally that the justice presiding in the Condemnation Court alone has jurisdiction over a writ of assistance to remove condemnees.

Traditionally, condemnation judges are in a better position to assure compliance with the EDPL, whether the advance payment has been paid, whether it is a good faith advance payment and whether sufficient time and assistance have been accorded for a condemnee to relocate. Condemnation judges also are keenly aware of the harshness of removing a trade fixture claimant and will not do so if the condemnor cannot demonstrate actual need for the site.

The practice is, however, particular to the specific court. There is certainly need for codification of fundamental guidelines.

Should the EDPL be revised to provide a set period to file a claim for compensation? If the state of New York appropriates your property, one has three years to file a claim in the Court of Claims from the date of personal notification of the taking. However, in all other takings, the Supreme Court is authorized to set the time period for a condemnee to file a claim. EDPL §503(B). While the periods vary, many courts select one year. Why? These are not slip and fall cases, but the taking of property and there seems to be no rationale or constitutional reason to limit a party from filing a claim to one year.

It is necessary for the Legislature to define what exactly is ‘blight.’ It seems to us that ‘blight’ is in the eyes of the beholder. Since a court will not review a blight designation, justice and fairness require a solid definition.

In another column (See, ‘Will 2007 Change Eminent Domain Proceeding Law, ‘ NYLJ, Dec. 29, 2006, p. 3), we suggested additional areas requiring legislative review:

  • Should there be a shorter limit on how long a condemnor can condemn property once it determines to take it? Present conditions provide for a three-year period and up to 10 years if the acquisition is done in stages. This creates a cloud of condemnation which affects property values.
  • Should there be at least three years to file a claim for compensation when property is condemned? If the state takes your land, one has three years to file a claim in the Court of Claims. In Supreme Court, it is open to the justice to provide a time period.
  • What is the appropriate interest to be paid. If the state or a state agency takes your property, it pays 9 percent, if a local government acquires, it pays 6 percent. It seems inappropriate and illogical for the agency with the lower credit rating to pay less. Should the interest rate fluctuate and should it be compounded?
  • Should there be one uniform system for public hearing and review? Condemnations should not be exempted from EDPL procedures because other statutes provide for land-use review.
  • Should pre-vesting offers by condemnors be true good faith offers based on proper appraisals? And should these appraisals be by independent appraisers, not by in-house staff? Should the offers include amounts for trade fixtures as well as real estate owners and should such prevesting offers be a jurisdictional requirement before a petition to condemn is filed?
  • Should a jury trial be a right in a condemnation? New York may be the only state in America that does not provide for a jury trial in a condemnation. Why should one have the right to a jury in a false arrest case but not when one’s property is taken?
  • Should an award be made for the loss of a business’ good will? In a normal business transaction, good will has substantive value and is taken into account in the valuation of a business. The loss is real and there should be compensation.
  • Why should there by any limit for relocation expenses?
  • The EDPL provides for the special proceeding to be expeditiously disposed. But they are not. There are no judicial guidelines for condemnation cases. There should be continuous calendar and status conferences of condemnation claims as is conducted in Kings County Supreme Court.
  • Legal fees, appraisal fees and related disbursements should be awarded in the court in full when the condemnor’s offer or trial appraisal is increased by 25 percent.
  • A condemnor must have sure and certain compensation available to pay all advance payments immediately on vesting and the final award promptly.
    Should there be a requirement that once taking property is completed it actually be used for the intended purpose within a period of time or the project be deemed abandoned and returned to former owner?
  • Should a condemnor be allowed to make a substantial change in the scope of a proposed economic development project without new public hearings?
  • Should the Legislature define what is a ‘compensable trade fixture?’
Need for Legislative Action

The task force report stated, ‘there is critical need today for codification in the substantive law of eminent domain.’ A total of eight recommendations were made which involved significant change to the existing law.

  • The use of eminent domain should not be restricted to specified public projects.
  • Local governments should not have a veto over exercises of eminent domain by public authorities of larger entities within their borders.
  • Agencies exercising eminent domain for economic development purposes should be required to prepare a comprehensive economic development plan and a property owner impact assessment.
  • The present 30-day statute of limitations in EDPL §207 for judicial review of the condemnor’s determination and findings should be expanded.
  • A new public hearing under EDPL §201 should be required where there has been substantial change in the scope of a proposed economic development project involving the exercise of eminent domain.
  • No exceptions to the EDPL are necessary for acquiring property for public utility purposes.
  • Acquisitions should not be exempted from the EDPL’s eminent domain procedures simply because other statutes provide for land-use review.

The last recommendation was that a Temporary State Commission on Eminent Domain should be established, resolving issues such as defining public use, the appropriate level of judicial scrutiny, just compensation, and others will be accomplished through study by a variety of stakeholders to assure that all viewpoints are represented. This was two years ago. Nothing has happened to put the task force recommendations in place. There exists no Temporary Commission.

Ohio’s Key Changes

Ohio recently passed a broad revision of its eminent domain law. Ohio Senate Bill 7 made significant changes, the result of a task force created by the Ohio Legislature in response to the Kelo decision. One of those revisions imposed significant restraints on the use of eminent domain to take property for private development. Interestingly, the new law changed the existing burden of proof as to issues regarding the right or necessity to condemn. It is now the condemnor’s burden to establish the right and necessity to use the power of eminent domain. The law added other significant property owner’s rights including the requirement of personal service or certified mail of notice which must provide proper notice of the proceeding and also advise the owner that it has the right to seek attorney’s fees and costs. In addition, the condemnor must obtain an appraisal of the property prior to submitting a good faith offer and must provide a copy of the appraisal to the owner when it makes its offer. Other significant provisions of the new Ohio law include payment for ‘good will.’ Attorney’s fees will be awarded if any award is 125 percent of the condemnor’s offer. Either party may request nonbinding mediation and a trial is supposed to take place 60 days after the condemnation is approved. If Ohio is capable of such reform, why can’t the Empire State?

Atlantic Yards

The Second Circuit rendered a decision in Goldstein v. Pataki on Feb. 1, 2008. This was one of many challenges brought to stop the Atlantic Yards Project which will include an arena for the Nets basketball team, office buildings, and housing. The decision focused on plaintiff’s argument that the proposed condemnation violates the Public Use Clause of the Fifth Amendment, while there was little doubt that the arena would serve a public purpose. But the project’s public benefits were serving as a ‘pretext’ that masks its actual raison d’être: enriching the private individual who proposed it and stands to profit most from its completion. The Circuit Court was not persuaded by the pretext argument. The court rejected the notion that in a single sentence, the Kelo majority sought to overrule prior precedent and require federal court to give close scrutiny to the mechanics of a taking rationally related to a classic public use as a means to gauge the purity of government motives. This is an interesting statement which might not follow what New York courts are doing when pretext takings issues are before it as was demonstrated in Matter of 49 WB, LLC v. Village of Haverstraw, 44 AD3d 226 (2nd Dept. 2007).

Now, what is really intriguing about Goldstein v. Pataki is its last sentence in which it dismissed the federal claims with prejudice and the state claims without prejudice. Normally, one has 30 days to challenge a determination and findings to condemn by filing a petition pursuant to EDPL §207 directly in the Appellate Division. The time period has been strictly construed. The federal lawsuit commenced by the Goldstein plaintiffs contains an amended complaint which contains a supplemental EDPL §207 complaint. Since federal law allows the filing of a state claim within 30 days after dismissal, it seems that a petition can still be filed since state legislation cannot divest a federal court of jurisdiction.

Reprinted with permission from the March 14, 2008 edition of the New York Law Journal © 2011 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

The Prior Appraisal

Appraisers typically send a draft of their appraisal report to attorneys for prior review or comment before finalizing the report. This review can be extremely helpful to ascertain if there is something missing or inaccurate in the appraisal. The law may require a certain formula in the assay of damages. An example is the appraisal of a partial taking. New York law requires a two step appraisal, the before and after method which involves two calculations made by identical methods. Diocese of Buffalo v State of New York,24NY2d 320 (1969). Many appraisers, incorrectly, will simply calculate direct damages and calculate the remainder. There may also be factual information which is inaccurate. The appraiser may not be aware that the property should be valued as part of a larger holding. Consequential damages to the remainder may have resulted from the use that the property taken has been devoted. A change in access to the highway may have created consequential damages if it changed the highest and best use of the remainder property. There is also a very good rationale for having the appraisal reviewed for accuracy and completeness in terms of the comparable sales or comparable leases used by the appraiser. In short, it is a good idea to review a report before it is finalized if only to check the math. The danger is that the reviewer may totally revise a report so as to put the appraiser’s credibility in question. It becomes increasingly difficulty for any expert to continue to provide meaningful reliable testimony when it is shown that the appraiser drastically changed his or her opinion of value after the submission of a draft appraisal.

Prior appraisals can be used to impeach an appraiser on cross-examination. But before we focus this, one should also be aware of The Appraisal Foundation’s requirements regarding appraisal report retention. The Appraisal Standards Board has adopted Uniform Standards of Professional Appraisal Practice (USPAP). USPAP was adopted to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. USPAP addresses the ethical and performance obligations of appraisers through definitions, rules, standards, standards rules and statements. USPAP also provides advisory opinions.

USPAP requires an appraiser to maintain a work file for each appraisal. The work file must contain the name of the client and related information; true copies of any written reports, documented on any type of media; summaries of oral reports or testimony, or a transcript of testimony; and all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions.

The appraiser must retain the work file for a period of at least five (5) years after preparation or at least two (2) years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment, whichever period expires last. This is a mandatory part of USPAP’s ethics rule. Thus, the failure to maintain copies of prior reports can be shown to violate the appraiser’s ethics rule which alone may result in substantial impeachment.

Once it has been determined that a prior opinion of value exists it must be produced for use on cross-examination. It doesn’t matter what label has been put on the prior report, “draft”, “attorney’s work product”, “confidential”, etc. If prepared by the witness, it qualifies as a prior appraisal.

On cross-examination, the rules of evidence allow a party to impeach the credibility of his adversary’s witness through the use of prior inconsistent statements. “Once a proper foundation is laid, a party may show that an adversary’s witness has, on another occasion, made oral and written statements which are inconsistent with some material part of the testimony, for the purpose of impeaching the credibility and thereby discrediting the testimony of the witness.” §6-411, Prince Richardson on Evidence, Eleventh Edition citing People v Duncan, 46 NY2d 74, 80, 412 NYS2d 833, cert den 442 US 910, rearg dsms 56 NY2d 646; Larkin v Nassau Electric R.R., 205 NY 267, 98 NE 465).

Allowing a prior appraisal to be produced provides counsel with a fair opportunity for effective cross-examination, consistent with a party’s constitutional right of confrontation and with Rule 4514 of the New York Civil Practice Law and Rules.

It is well established law in New York that a prior appraisal prepared by an expert witness testifying at trial may be introduced into evidence to impeach the credibility of that witness’s testimony. Hicksville v Properties, Inc. v Board of Assessors, 116AD2d 717, 718 (1968) (“where an unfilled appraisal report was prepared by a party’s trial expert and is consistent with his trial testimony, the unfilled report may be introduced into evidence for impeachment purposes and used to cross-examine the witness”) citing Swartout v State of New York, 44 AD2d 766, 354 NYS2d 254; Matter of City of New York (Brooklyn Bridge Southwest Urban Renewal Project), 50 Misc 2d 478, 480, 270 NYS2d 703.

The court in Brooklyn Bridge Southwest, supra, held that “there is no question regarding the use of any other appraisals made by witness himself relevant and pertinent to the proceeding to impeach his credibility by showing that he made a prior statement inconsistent with his testimony on the trial. They are required to be produced for that purpose and to be used to that limited extent on the witness’s cross-examination, which will afford him the opportunity to explain any apparent inconsistency.”

Recently, the First Department held in CMRC Ltd. v State of New York, 270 AD2d 27 (2000) ,

“The motion court improvidently exercised its discretion when it ordered the State to turn over an appraisal report dated November 22, 1995. The report, which was prepared in contemplation of the settlement of an eminent domain proceeding, “enjoy[s] the conditional immunity from disclosure which is conferred on material prepared by litigation by CPLR 3101(d)” (Schad v State of New York, 240 AD2d 483, 484). To the extent that the report might become relevant and discoverable for the purpose of impeaching the State’s appraisal expert at trial, disclosure at this juncture is premature. We note that if the State chooses to call the expert to testify, a reasonable adjournment will sufficiently protect Claimant’s right to cross-examination, but we also note the possibility that the State may choose not to call the expert as a witness. In sum, we cannot agree with the dissent that the cloak of immunity protecting the State’s appraisal report may presently be removed merely because, at some point in the future, the material sought may become discoverable.”

In Sullivan v. State of New York, 57 Misc 2d 308, 309 (Ct. Cls., 1968) Judge Lengyel stated “all prior appraisals prepared by an expert witness called to testify or by the appraisal firm by whom that appraiser is employed must be produced upon proper demand. Such appraisals are admissible, if relevant and germane to the proceeding, when utilized to impeach said witness’s credibility by developing prior statements inconsistent with his testimony at trial.”

In Wettlaufer v State of New York, 66AD2d 991 (4th Dept., 1978), it was noted, “the trial court erred in refusing to direct production of the prior appraisal of the subject property made by the expert witness called by the State to testify an in refusing to permit inquiry into an appraisal made of neighboring land by the State appraiser.”

Citing CMRC, Ltd. v State of New York, supra, as authority, the Third Department recently held in Matter of Niagara Mohawk Power v Town of Moreau, 8 AD3d 779(2004), “while it is true that materials prepared for litigation by an appraiser who is not called as a witness are protected from disclosure as attorney work product (See, Xerox Corp. v Town of Webster, 206 AD2d 935 (1994); See also CPLR 3101 (d), here Petitioners established that Lagassa’s prior appraisal relied upon and incorporated information contained in Thompson’s prior appraisals of the subject hydroelectric power facilities. As such, these prior appraisals are relevant for the purpose of impeaching Lagassa on cross-examination and, thus, are subject to disclosure (See CMRC, Ltd. v State of New York, 270 AD2d 27 (2000).”

In another recent case, Erie County Industrial Development Agency v Muszynski, the Supreme Court, Erie County, 165 Misc2d 362, held:

“The rule in New York is that an appraisal prepared by an expert who is not called as a witness and which was intended to be used solely for litigation, or for negotiation in an effort to accomplish a settlement prior to trial, or to establish a basis for a pre-taking advance payment is not admissible at trial, as the appraisal enjoys a conditional immunity from disclosure as material prepared for litigation per CPLR 3101 (d). Swartout v State, 44 AD2d 766, 354 NYS2d 254 (4th Dept., 1974), and Sullivan v State, 57 Misc2d 308, 292 NYS2d 244 (1968). The one exception to that rule is that all appraisals prepared by an expert witness who is called to testify must be produced as such are admissible when used to impeach said witness’s credibility by developing prior statements inconsistent with his testimony at trial. See Sullivan, supra.”

It is also stated:

“Because earlier Courts have relied so heavily on the concept of allowing, for impeachment purposes, the discovery of prior inconsistent statement by the opposing party, this Court must conclude that statement made prior to the within litigation by the litigation appraiser relative to the value of the contested properties may form the basis to permit discovery thereof. See Sullivan, supra, and Carriage House Motor Inn v City of Watertown, 136 AD2d 895, 524 NYS2d 930 (4th Dept., 1988).”

Thus, it can be shown that prior appraisals must be maintained by the appraiser. And once that appraiser has testified, any conditional immunity a prior report had disappeared. An appraiser can be substantially impeached by the prior appraisal. See Gerosa v State of New York, 180 AD2d 552 (1st Dept., 1992).

Reprinted with permission from the April 27, 2007 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Condemnation and Tax Certiorari – The Use of a Motion in Limine in a Condemnation Case

In its purest sense, a motion in limine is an application brought on in the beginning or threshold of a trial which seeks to exclude anticipated prejudicial evidence. In State of New York v. Metz, 241 A.D.2d 192, 198, the First Department stated, “generally, the function of a motion in limine is to permit a party to obtain a preliminary order before or during trial excluding the introduction of anticipated inadmissible, immaterial or prejudicial evidence or limiting its use. Its purpose is to prevent the introduction of such evidence to the trier of fact, in most instances a jury.” The Metz case involved an action brought under the Martin Act alleging securities fraud. In the lower court, the State’s motion for summary judgment based on depositions taken unilaterally was denied and the use of same limited at trial. The Appellate Division reversed noting the function of an in limine evidentiary ruling and holding that the Court should have required defendants to oppose the summary judgment motion.

There is no requirement that a motion in limine be made in writing and be in accordance with CPLR 2214. Wilkerson v. British Airways, 292 A.D.2d 263 (1st Dept., 2002). However, some courts have stated that a motion in limine which challenges evidence which is claimed to be inadmissible, immaterial, prejudicial or requests a limitation on the use of evidence should be in writing. This is especially true if the motion in limine asserts that an expert will tender an opinion which cannot be made with a reasonable degree of scientific certainty.

We think it certainly advisable to file a formal written motion if you want the trial court to give your application the appropriate consideration.

In a condemnation case, where appraisals are generally exchanged long before trial, courts do not readily appreciate trial objections premised on a deficiency of, for example, an alleged violation of court rules. No judge will appreciate a party objecting to an appraisal for some perceived omission which could have been addressed prior to trial. We think this is true in all types of litigation, but especially in condemnation. What sets a condemnation case apart is the fact that an eminent domain proceeding is not a private litigation.

The major distinctions between the ordinary civil case and the condemnation claim is the constitutional obligation to pay just compensation to the former property owner. A condemnation proceeding is not a private litigation. There is a constitutional mandate upon the Court to give just and fair compensation for any property taken. (Emphasis supplied) Yaphank Development Company, Inc. v. County of Suffolk, 203 A.D.2d 280 (2nd Dept., 1994), citing Matter of County of Nassau [County Beach Club], 43 A.D.2d 45, aff’d 39 N.Y.2d 958.

The Courts have also stated that this means ‘just’ to the claimant and “just” to the people who are required to pay for it. The rule is abundantly clear that property must be appraised at its highest and best use and paid for accordingly. Since the constitutional mandate is upon the Court, it is the Court that is responsible to assure that just compensation is awarded. Indeed, if it cannot do so, when for example both sides employ an improper theory of damages, the Court must remit for retrial upon proper theory. Frank Micali Cadillac-Oldsmobile, Inc. v. State of New York, 104 A.D.2d 477 (2nd Dept., 1984).

An example of an appropriate in limine motion in a condemnation case is an application to exclude evidence and testimony relating to environmental contamination remediation costs. See Matter of City of New York v. Mobil Oil Corporation, 2005 N.Y. Misc. Lexis 1038 (Gerges, J.) Affirmed 12 A.D. 3rd 77 (2nd Dept. 2004). Also see D’onofrio v. Village of Port Chester, 2005 N.Y. Misc. Lexis 1461 (Dickerson, J.)

New York has adopted Court rules which pertain to the format and exchange of appraisals in condemnation and tax certiorari cases 22 NYCRR Sec. 202.59 et seq. The rules are generally followed, but not completely. For example, while the rules require filing appraisals with the clerk of the part, the only court that rigorously requires filing and effects an exchange of reports after both sides file, is the Court of Claims. Other court clerks refuse to receive appraisals leaving it to the litigants to exchange. (Some clerks have explained that there are no facilities available to handle the large number of appraisals often involved). While the rules provide that what appears to be a rigorous format, judges are free to excuse defaults, especially when they are insubstantial and do not cause prejudice. If the party believes that there is a major deficiency, a motion in Limine should be quickly filed.

Just as the Appellate Division in the Metz case held that the trial court was in error in treating a summary judgment motion as a motion in limine, it is wrong to seek summary judgment by a motion disguised as one in limine. If the relief requested in dispositive of the entire claim, a condemnation court will generally view such applications with extreme displeasure, especially after the exchange of appraisals. Since the condemnation claim is proven and defended by means of appraisals, if the motion in limine results in striking the appraisal courts have permitted a resubmission of a new appropriate appraisal.

If a condemnor objects to a claim, it is required to timely file an answer under the Eminent Domain Procedure Law. Only the State of New York is exempt from this requirement in the Court of Claims. EDPL Sec 507. Filing a motion without an answer would be appropriate if the motion is filed immediately after the claim is filed. However, if the condemnor fails to file an answer and then fails to timely move before it is required to file a Note of Issue, such an application would be untimely. The Eminent Domain Procedure Law requires a condemnor to file a Note of Issue after the time set forth in the vesting order to file claims expires. EDPL Sec 506. There is statutory obligation on the condemning authority to move the proceeding to trial. Most of the time a Note of Issue is not filed until after the exchange of appraisals is completed, or after the court schedules trial on a date certain. At this point, filing a motion in limine is late and one should request permission to file any motion from the court and should also have a very good reason excusing the delay.

A motion in limine which is in reality a motion to dismiss is fatally late if a condemnation claim is ready for trial and a date certain is fixed. The motion is untimely and may not be considered no matter its merit. This is ruling of the Court of Appeals in Brill v. City of New York, 2 N.Y.3d 648 (2004) which although not a condemnation case readily shows the court’s lack of tolerance for such conduct.

Reprinted with permission from the August 24, 2005 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Discovery in Condemnation Cases and “The Appraisal Rule”

Discovery in a condemnation case is unusual and when it is allowed, it is extremely limited. Indeed, the Eminent Domain Procedure Law (EDPL) provides for only two instances of discovery.

The first is set forth in EDPL § 302. This provision gives a condemnor the right to inspect the property prior to vesting and to request financial information to be used for a pre-vesting offer. A party affected by such demand may, where the demand for such information is unreasonable, petition the court for relief. The provision provides that the failure of the owner to comply with the request suspends the condemnor’s obligation to make an offer pursuant to Article Three until the information is provided. Since property is valued utilizing market rents and market expenses, most appraisers ignore actual circumstances in a condemnation case. The same is not true in tax protest cases.

Another type of discovery sanctioned by the EDPL is the right to enter the property prior to acquisition to conduct an environmental survey and related tests. EDPL§ 404.

Discovery is Disfavored

Discovery is disfavored in a condemnation case because it runs contrary, indeed is the antithesis to the legislative purpose of the EDPL which requires the establishment of rules to reduce litigation and expedite payments to property owners. EDPL § 101.

The stated policy of the EDPL set forth in §301 confirms the necessity of the condemnor to make every reasonable and expeditious effort to justly compensate persons for such real property by negotiation and agreement.

The condemnor is also required to file a Note of Issue after the last date to file a claim, EDPL §506, or, more practically, after the last appraisal is exchanged.

There is another reason why discovery is unnecessary in a condemnation and that is that is “The Appraisal Rule” which will be discussed later.

Pretrial disclosure was originally considered by the New York State Commission on Eminent Domain. In an early draft of the proposed EDPL, the Commission envisioned full pretrial discovery as set forth in Civil Practice Law and Rules (CPLR) Article 31 (Proposed § 610). Examinations before trial were also provided for. (Proposed §610) However, after much deliberation, pre-trial discovery was dropped in all later reports by the Commission (see 1972, 1973 and 1974 Reports of the State Commission on Eminent Domain). The final version of the EDPL adopted by the legislature as Chapter 839 of the Laws of 1977 does not provide for pre-trial discovery.

A condemnation proceeding, like a tax certiorari proceeding, is a special proceeding. Under CPLR 408, leave of the court is required for disclosure in all special proceedings. The Advisory Committee notes to CPLR 408 indicate that the requirement of an Order for Disclosure is designed to preserve the summary nature of a special proceeding.

It seems more likely that limited discovery will be allowed in tax reduction cases especially if the discovery is related to income and expenses of the property, but not always. In Matter of General Electric Company v. Macejka, 117 A.D.2d 896 (3rd Dept., 1986), the Third Department held that for a court to direct disclosure in a special proceeding, the information sought must be found to be material and necessary to the defense. “The test is one of usefulness and reason.” The Appeals Court deferred to the trial court stating that the lower court “has broad discretion in the control of the disclosure process. Deference should be accorded by the Appellate Court to the trial court’s exercise of discretion and this is especially indicated in a special proceeding such as the one before us where the legislature has specifically given the court greater control of disclosure than in actions.” The Third Department affirmed the trial court’s denial of discovery on the basis of a failure to show necessity. Other courts have indicated that discovery should be permitted in special proceedings only upon a showing of “ample need” or disclosure should be available only when “special circumstances” exist which warrant it. Harris v. Bigelow, 135 Misc.2d 331 (Civ. Ct. N.Y. Co., 1987). Notwithstanding, from time-to-time, a judge will order discovery in a condemnation case but usually when there is an issue of title or standing.

As noted above, the legislature has specifically given the trial court greater control over disclosure in a special proceeding than is usual. See CPLR 408; General Elec. Co. v. Macejka, 117 A.D.2d 896, 897; Matter of American Cyanamid Co. v. Board of Assessors, 225 A.D.2d 440 (2nd Dept., 1998); Matter of Xerox Corp. v. Duminuco, 216 A.D.2d 950 (4th Dept., 1995); Matter of State of New York v. Town of Northampton, 171 A.D.2d 395 (3rd Dept., 1991); Matter of General Electric Company v. Macejka, 117 A.D.2d 896 (3rd Dept., 1986).

The Appraisal Rule

What makes discovery in a condemnation case particularly unnecessary is the fact that there are no surprises on trial. This is because of the requirement to first exchange a written appraisal or other expert report. 22 NYCRR § 202.61. See Osborn Memorial Home Association v. Assessor of the City of Rye, 2004 NY Slip op 50793 V (Westchester Sup. Ct., 2004) where Justice Thomas A. Dickerson provides a remarkable history of the appraisal rules in New York. In New York, condemnation trials are limited by the information set forth in the parties’ appraisals. After the exchange of appraisals, each side may file a rebuttal report within 60 days after receipt of the document sought to be rebutted. The appraisal reports are required to contain a statement of the method of appraisal relied on and the conclusions as to value reached by the expert together with the facts, figures and calculations by which the conclusions were reached. The appraisers are also required to provide specific information regarding their comparable sales, leases and photographs of the property under review.

Upon the trial, expert witnesses are limited in their proof of appraised value to details set forth in their reports. Under the Rules, the Court has the ability to relieve any party of a default. It should be noted that the Rule only applies to expert witnesses who are offering opinions. No report need be filed by a fact witness. In fact, the Third Department held in Faulkner v. State of New York, 247 A.D.2d 798 (3rd Dept., 1998) that an expert may be permitted to testify without first submitting an expert report if the testimony is factual and does not constitute opinion evidence. In Faulker, the issue concerned the testimony of a surveyor who testified as to square footage of the area taken.

The Appraisal Rule allows the parties to prepare for trial with knowledge of each other=s valuations and the foundations and justifications thereof. Parisi v. State, 62 Misc.2d 378, 382 (Ct. Cls., 1979). As the Fourth Department stated in Novickis v. State of New York, 44 A.D.2d 508, 512 (4th Dept., 1974) “[s]imply expressed, the Rule attempts to require full disclosure, to take the game aspect out of the case, to prevent surprises, to permit the court to determine just compensation based solely upon the facts unhindered by gamesmanship.” In Matter of White Plains Properties Corp. v. Tax Assessor of City of White Plains, 58 A.D.2d 871 (2nd Dept., 1977), aff’d 44 N.Y.2d 971 (1978), the Second Department affirmed the trial court’s preclusion of expert testimony when no appraisal report was exchanged. However, this does not mean that a trial court will automatically preclude expert testimony or strike a defective appraisal if it lacks the level of detail indicated by 22 NYCRR 202.59(g)(2). In Guilo v. Semon, 265 A.D.2d 656 (3rd Dept., 1999), the Court held that although the petitioner’s appraisal lacked the requisite facts, figures and calculations upon which the appraiser’s opinion was based, there was sufficient evidence to establish a prima facie case that the assessment was erroneous. The Court searched the appraisal and found enough facts, figures and calculations regarding the comparable sales despite the deficiency which would allow respondent to cross-examine.

We note above that the Rules provide that the trial court can relieve a party from a violation of the Appraisal Rule. It is far better to make an application prior to trial to either be relieved of default in the service of a report, or to extend the time to exchange or allow amended or supplemental reports to be filed. The trial court also has the inherent ability to grant any such application after the trial has begun. If a party believes that the other side’s report is defective, one should not wait for the trial to object to the report. Rather, one should file a motion in limine shortly after exchange. Trial courts look askance at trial by ambush and will often deny motions to preclude when they are made on the day of trial. There is another fundamental reason for the court’s reluctance to bar valuation evidence at a trial in a condemnation case.

The Fourth Department put it best in Town of Cheektowaga v. Starlite Builders, Inc., 247 A.D.2d 933 (4th Dept., 1998). In Cheektowaga, the trial court granted the condemnor’s motion to strike claimant’s appraisal and directed judgment for the Town initially dismissing the claim entirely. Later, realizing that just compensation had to be paid, the court entered a supplemental judgment in the amount of the town’s appraisal report. The Fourth Department reversed and stated that “A condemnation proceeding is not a private litigation. There is constitutional mandate upon the court to give just and fair compensation for any property taken. This means ‘just’ to the claimant, and ‘just’ to the people who are required to pay for it. The rules are abundantly clear that property must be appraised at its highest and best use and paid for accordingly.” (Macali Cadillac-Oldsmobile v. State of New York, 104 A.D.2d 477, 481, quoting Matter of County of Nassau [County Beach Club], 43 A.D.2d 45, 48, aff’d 39 N.Y.2d 958; see Yaphank Dev. Co. v. County of Suffolk, 203 A.D.2d 280). Frank Micali Cadillac-Oldsmobile, Inc. v. State of New York, 104 A.D.2d 477 (2nd Dept., 1984) cited by the Cheektowaga court is informative because the Appellate Court found that both appraisals were defective and remanded for retrial, again stating that a condemnation proceeding is not a private litigation. Thus, the court must exercise due care to assure that just compensation is paid. The same is not true in a tax protest case where tax assessments are presumptively deemed valid and the burden is on the party challenging an assessment to establish that the property is overvalued.

Reprinted with permission from the April 26, 2005 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Just and Not So Just Compensation

In our April 28, 2004 column titled “Valuation of Condominiums and Cooperatives,” we decried the inadequacy of condemnation clauses in condominiums and cooperatives agreements. We ended the article predicting that because of it “we may see some strange results in condemnation proceedings.” Based upon the recent decision of Murphy v. State of New York in the Second Department (2004 N.Y. Slep Op. 09607), we should have added that when such clauses are drawn those who draft them should understand the potential consequences of their language because they may lead to unintended results. That is what happened in that case.

The case involved the taking of a strip of land of about 60,000 square feet by the State of New York for the widening of Shelter Rock Road in Roslyn, Long Island. The strip was part of the common land of a residential condominium and resulted in a few of the units being placed right on top of what is a major thoroughfare. Not only was a claim filed in the Court of Claims by the condominium for both direct and consequential damages on behalf of all of the unit owners, but a separate claim was filed by at least one of the unit owners. She claimed she was specially damaged in that it seriously diminished the value of her unit, distinguished from the general damage suffered by all of the unit owners. Apparently, the road widening placed the common swimming pool and recreation area immediately adjacent to the road and allegedly made the condominium as a whole less valuable.

The condominium consists of 48 residential units in 24 buildings on 24 acres, together with roads, a swimming pool, tennis courts, utilities and other common elements. The unit owners own the interior of their units and a 1/48th “undivided interest” in the common lands and the exclusive right to occupy “irrevocably restricted common elements” such as decks and driveways. That the individual unit claimant was recognizably more severely damaged than other unit owners is evidenced by the fact that the Department of Transportation (without consulting the Attorney General’s office, so we are advised) paid as an advance payment to that owner $400,000 as its “highest approved appraisal.” We assume this amount was not before the court as it is not noted in the opinion and it would have been reversible error for it to be put before the Court of Claims by the claimant.

Despite the prior “advance payment” of $400,000 to the unit owner (and three others similarly situated), the State moved to dismiss the unit owner’s claim by reason of the condominium’s by-law provisions alleging she had no standing to make the claim. The relevant by-law provisions read as follows:

“In the event all or part of the common elements are taken in condemnation or eminent domain proceedings, the award from such proceedings shall be paid to the Insurance Trustee if the award is more than $40,000 and to the Board of Managers if the award is $40,000 or less, to be distributed in accordance with Section 3 of Article VII [governing reconstruction after a casualty] but in the following amounts:

“(a) so much of the award as is applicable to unrestricted common elements, to the Home Owners pro rata according to the respective common interest appurtenant to the Homes owned by such Home Owners.

“(b) so much of the award as is applicable to irrevocably restricted common elements to the Home Owner having general use of such common element.

“In such eminent domain or condemnation proceeding the Board shall request that the award shall set forth the amount allocated to unrestricted common elements and to each irrevocably restricted common element. In the event the award does not set forth such allocation then the question of such allocation shall be submitted to the arbitration in accordance with the Arbitration Statutes of the State of New York.”

The State argued that all of the residents were bound by these by-laws in that no unit owner could receive a separate award for the taking of any part of the common elements. The owner argued that this provision only applied to awards made for the common elements and only had internal application to how that award was handled, that her claim was for consequential damages to the value of her unit which she unquestionably owned and was not an award for the value of the common element. The Court of Claims agreed with the unit owner. The Appellate Division, Second Department, did not and reversed. As we read the decision, it did so almost apologetically. It seemed to be troubled by the result in that it did too much explaining.

As the Court noted, this is a case of first impression in New York and in virtually every other State, except Maryland, where its highest court recognized the right of unit holders to be separately compensated for their unique consequential damages. As the Court stated, “the resolution of this controversy, however, lies not within foreign case law, but within the declaration and by-laws pursuant to which Fairways was created, and its business is conducted.” We would note, however, the resolution of the case rested in how the by-laws were interpreted. Different from the Appellate Division’s interpretation of what was intended, we believe it can be gleaned from the provision giving to the unit owner the award of damages arising from the taking of the “irrevocably restricted” common elements. Thus, not all damages from the taking of a common element go to the Association. This provision recognizes that there may be damages unique to a particular unit holder arising from a taking of a common element. What appears to be reserved in that clause are those damages unique to the unit owner as differentiated from those suffered generally. It makes no sense to us to reserve that right without putting it into context with the first paragraph’s meaning.

However, we admit our interpretation is colored by what we perceive to be the “just” part of the compensation in this case. The language can reasonably be interpreted as did the Appellate Division particularly when the by-laws speak of “the award from such proceedings” going to the Association. But, at the end of the day, it was the individual unit owner who suffered a loss to the value of her unit. It is she who must be made whole. The common elements, like a street, are burdened with the easements of the abutting owners, and as such have but nominal value. (Matter of City of N.Y. [Van Hill Realty Co., Inc.], 19 A.D.2d 739, 242 N.Y.S.2d 782 (2nd Dept., 1963); In re Northern Boulevard, 258 N.Y. 136 (1931)). Its value is reflected, as in a street, in each of the 48 individual units. To the degree each loses value equally, the Association can fairly speak for them. But, not for the special unique damage to a unit holder. That is how we interpret the by-laws. For the Court to state, “If the claimant has indeed been significantly injured disproportionately to other condominium owners, her remedy, if she has any, must lie in the discretion of the Fairways Board” What discretion? Should it interpret the by-laws in a way the Court did not itself feel justified in doing where they provide for a “pro rata” division of the proceeds from the taking of a common element.

While we disagree with the result, the fault lies elsewhere. It lies in the language of the by-laws. While the Court took the literal language of the by-laws and applied it to all damages, “from the condemnation proceedings” we do not believe that was what its drafters intended to accomplish. Our problem is that we have had too many conversations with too many attorneys who do not have a clue of how condemnation clauses are applied or why. We suspect the drafter did not envision a special damage to any unit holder disproportionate to those of the others growing out of a taking of part of the common elements. It certainly puts those uniquely damaged at a severe disadvantage. They have to depend on the good will of the other unit holders to give up their right to be proportionately enriched by the disproportionate damage to the few who were specially damaged. Since the decision rested on the unfortunate opaqueness of the by-laws, all it took was the drafter to be more explicit in the language of the by-laws to avoid such a result. What bothers us most is that from what we had previously been told such language used here is not unique. What would it take to provide that unit owners have a right to claim for damages not suffered generally by the other unit holders, or something similar.

The Court was troubled by the fact that to permit separate claims by each unit holder would not only unduly tax the court system, but increase the cost to the State in responding to such multiple claims. But that would not be the case from our interpretation. Nor, even if it were so, should it be the determinant if it results in unjust compensation. To put the final touch on this, we understand that the State will now sue each of those who received the $400,000 advance payments for return of same plus interest. To really complicate the situation, we understand that one of the unit owners to be sued has since sold his unit.

At about the same time this decision came down, the same court, different panel, decided Village of Port Chester v. Sorto, (2005 N.Y. Slip op-60272). (We represent Sorto.) This case stands for the proposition of who has the right to receive an award for trade fixtures. In a prior decision (Matter of Village of Port Chester, 303 A.D.2d 416), the Appellate Division affirmed the lower court based on the state of the record at that time, in granting a Writ of Assistance to evict the claimant without first having made an advance payment, as provided in EDPL. The Village in that case had challenged the claimant’s right to any award as never having had a written lease for the premises he occupied and thus alleged he had no standing.

In the current litigation, the lower court, in a motion to strike his claim, denied the claimant the right to any compensation based onres judicata and/or collateral estoppel from the first decision. The Village alleged that not having a lease, Sorto was not entitled to an award. The proof showed the claimant took over his brother-in-law’s restaurant, alleging he bought it, and ran it paying the rent to the landlord in his own name for around four years. He also testified he made substantial improvements to the premises, that because the landlord had his offices in the same building and regularly ate at the restaurant, he was aware of all of this.

The Appellate Division found that if that proof be credited the claimant was entitled to an award as a “condemnee” as defined in EDPL. The Court of Appeals said a long time before EDPL that if a claimant was legally in possession, (Matter of City of N.Y. [Allen Street], 256 N.Y. 236) and owned the trade fixtures, the courts would not speculate that he would not have been able to extend his soon to be expiring lease absent the condemnation proceedings and thus he had a right to a trade fixture award. Since then, courts universally have been treating legal occupants as condemnees entitled to a trade fixture award.

The Appellate Division has by this decision once again clarified this rule of law, albeit in the context of the definition of a “condemnee” in EDPL If an occupant is legally in possession of premises which were condemned, he is a “condemnee” entitled to be paid for his trade fixtures, no matter the status of his lease or an absence of same.

Reprinted with permission from the February 3, 2005 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

The Valuation of Condominiums and Cooperatives

It is bound to happen sooner rather than later. The condemnation of an entire condominium or cooperative apartment house or development. It just hasn’t happened yet. What raised the subject was we being asked by both a potential condemnee and a potential condemnor how such properties would be valued. We gave the best answer we could at that point but it started us thinking about the subject. We are aware of no reported New York cases involving such a valuation, although recently the State of New York condemned a portion of the common area in a gated community operated as a condominium. The taking was for a road widening and the part taken was part of a common element, with the bylaws providing for payment for the taking of a common element to all of the owners proportionately. Claim was also made by four unit owners for depreciation in the value of their individual units by being placed very close to the road. On a motion to dismiss one of the claims the Court of Claims upheld the unit owner’s right to be separately compensated for the damage to his unit. (Murphy v. State of N.Y., Claim No. 103472, Motion No. M-63748, filed April 28, 2003, Nadel, J.). That decision is being appealed by the State on the ground of standing to make the claim in that the unit owner is barred by terms of the by-laws. If the State were upheld, it would be a result that was probably never intended by the drafters of the by-laws. Nor do we believe the by-laws should be read that way (we have read the provision).

In seeking answers to the problem, we consulted with appraisers, several attorneys who practice in the area of condo and coop law, and read the statutes and regulations in this area, texts such as the Appraisal Of Real Estate, 12th ed., by the Appraisal Institute, the Appraisal Journal and Nichols on Eminent Domain, among others, none of which provided much help. None of the texts or statutes directly addressed the problem. Whatever text there was focused almost exclusively on acquisition of part of the common element. While we learned how lenders view such properties for mortgage purposes from appraisers and how they are valued in tax certiorari proceedings by reading case law, none of this was helpful for the reasons hereafter discussed.

There appears to be nothing in New York case or statute law to tell us how a coop or a condo is to be valued in a condemnation proceeding. That conclusion was confirmed by others to whom we spoke. What we propose to explore here are the appraisal problems in a condemnation proceeding, which are separate and distinct from those in a tax certiorari proceeding, as well as those for mortgaging purposes.

It is well to first define the terms for therein lies the seeds of the problem. The Appraisal of Real Estate defines a condominium as “a form of ownership of separate units or portions of multitenant buildings that provides for formal filing and recording of a divided interest in property.” Not only does the owner have an individual title to a spatially described part of the building or development, but he owns an undivided interest, together with the other unit owners, in what is called the common areas or elements, such as lawns, lobby, corridors, elevators, etc.

The cooperative is a different entity, legally, although not in purpose. There, a stock corporation owns the entire building and issues proprietary leases for specific units, as well as use of the common areas, and proportionate stock in the corporation. Thus, different from the condominium, the coop corporation owns the building and the lessees merely have stock in that corporation, together with a leasehold interest. That distinction, if dealt with literally, might cause an entirely different valuation scenario, if one exalts form over substance. Sec. 339-i of the Real Property Law states that a condo unit, together with its common interest, constitutes real property. But the same can be said of the coop interest. A lease is an interest in real property.

In order to keep the cash down required to buy or lease a unit, before the sponsor puts a coop building on the market, he may place a mortgage on the building as a whole, with the carrying costs of that mortgage being part of the maintenance costs or common charges, together with the other operating costs. In a condo, unit owners can mortgage their individual units plus their rights to the common areas. Coop lessees can also borrow on their lease and stock interest in the corporation, but secured by a UCC. Each of these interests must be accounted for in a condemnation proceeding. Further, it is not unheard of for a coop to be built pursuant to a ground lease.

In the valuation of either form of ownership in a tax certiorari proceeding it is governed by statute (Real Property Tax Law, Sec. 581). There the property is valued as if it were a rental apartment building, with the value fixed as one entity. Since it is the corporation which pays the taxes, no further step is necessary. Where it is a condo and where each unit is assigned a separate tax lot number, it requires the further step of allocation to each individual unit of its proportionate share of the one overall value. This artificial valuation methodology was created as a form of subsidy to what, in real life terms, were individual home owners. It was to give them the benefits of lower taxes such as one and two family home owners enjoy. How this came about is explained by the fact that the value of an apartment house based upon its rental income is perceived to be and is in fact significantly less than the total market value of all the units in a coop or condo building. This statute, in effect, recognizes how the market place treats the two different types of ownership, i.e., a difference without a distinction, both being a form of home ownership.

Where a mortgage is placed on a cooperative building as a whole the bank’s appraisers will, for understandable reasons, not be interested in the sum total of the value in the coop market of the individual units but will instead value the building as if it were available for rent. We say understandable because, if a bank were to foreclose, it will not want to be in the business of selling individual units but be in a position to collect rents. It is different on loans to individual unit holders and/or lessees, where borrowing is based on the unit’s sale price in the market place.

The next fact to be put into the mix is that we have never seen nor heard of the sale of an occupied condo or coop building as a whole nor do the attorneys or appraisers tell us of any, except for bulk sales of unsold coops or condos by the developer. Clearly there is no discernable market as such. That is to be distinguished from sales of buildings available to be turned into one or the other. On the other hand, there is a ready market for the sale or resale of both condo and coop units. At any point in time, any appraiser can come up with multiple sales. Like all real estate, the prices will be influenced by location, underlying mortgages, condition, amenities and the like. In both, a major influence will be the amount of the maintenance charges and the amount of cash required, same as in buying a one family house.

So how do you value such buildings? The answer appears to speak for itself. You should not be able to value the condo or coop property, absent a statute which requires it, as a rental building. It is not such a building and considerable time, entrepreneurial effort and money went into converting it into either. Nor is there any market for sale of the building as a whole. The only sales are of individual units, whether coop or condo. The valuation as a rental will not only produce a value considerably less than the total value of all of the units but it will be valuing an entity which does not exist. Nor should the value be based on an average unit applied to the whole. The average of one and eleven is six, but that does not tell you anything about one or eleven.

Nor does the considerations as to a taking limited to part of the common elements shed any light on the problem. The bylaws of either the coop of condo usually provide for what happens when there is a taking of a common element but it and the proprietary lease is usually silent on the subject of a condemnation of the unit itself. We say usual in that we have seen a coop proprietary lease giving that lessee the right to file his own individual claim. We are also told that neither statutes nor regulations cover the subject, other than as to common elements, by being silent. It seems to us that it may be that all of them presuppose the individual unit owner or coop lessee will file his own claim or the drafters assume as such a taking has never happened it never will. In the taking of the whole, valuation principles dictate that no separate award would be made for the common elements as their value is reflected in the value of the units themselves and has but nominal value. It is no different than the valuation of property fronting on a street, the bed of which is owned by the abutting property owners and has but nominal value.

We perceive of no problem in the valuation of condos, since each unit is individually owned in fee. Coops present a different problem, in that each is occupied under a lease with the ownership in a corporation where the law in condemnation proceedings prescribes a methodology for valuation of a leasehold, which is totally inapplicable to a coop and does not produce its market value. The valuation of a leasehold involves the value of the rent advantage the tenant holds over the lease term i.e. the difference between the rent reserved in the lease and the rental value, multiplied by the years remaining in the lease discounted to present value. In a coop there is no rent nor rent advantage nor any term. In point of substance, the coop lessee owns as much of a fee as does the condo owner. In this regard, one can understand the problem in valuing a cooperative when one understands it in terms of the description in New York Jurisprudence, 2d, Sec 140; “the interest in a cooperative apartment is sui generis in modern property law, because it does not fit readily into traditional property classifications. The interest is represented by shares of stock which are personal property, yet in reality what is owned is not an interest in an ongoing business enterprise but a right to posses real property.” Later it states what we believe is the root cause of the problem in valuing coops in condemnation if you try to be guided by its form: “this unique dualism of personalty and realty interest has engendered numerous legal complexities in determining which property interest shall predominate in different types of actions involving cooperative apartments. Characterization of an interest in a cooperative apartment, therefore, is not resolved by uncritical resort either to the rubrics governing real property or those governing personal property”.

Nichols, Sec 12D. 02 (3)c) (3d ed.) in discussing the valuation of a condominium states: “There are two ways to assess the value of a condominium taken by eminent domain, either by assessing the value of the entity as a whole or by aggregating the value of the individual units”. “In general, a condemning authority prefers to value the condominium – – as one parcel, owners, generally fearful that a single valuation will produce a smaller award, prefer appraisal on the unit basis. Sound arguments can be advanced in support of either method. Not only is the unitary appraisal more simple than a fragmentary one, but it also enables the public authority contemplating condemnation to gauge its probable cost with a greater degree of certainty. Regardless of which method is used, just compensation requires that condemnees receive the fair market value of their property, not the cumulative worth of their various interest therein.”

The fact is that it is impossible to value either a condo or coop building without resort to the cumulative worth of all of the interests, if you are fixing the value of the entire building. But that begs the question as the issue should not be the value of the whole but just compensation to each individual owner. The real expediency is not what Nichol’s states but in the methodology of the coop or condo itself in dealing with ground leases, where applicable, and underlying mortgages, since there they relate to the entire property not just individual units. Assumedly each unit’s value is proportionately reduced by the amount necessary to pay off the mortgage or ground lease. The real problem is that these problems should be dealt with in the underlying documents and we are told that almost all are silent on the subject of condemnation of the units themselves. How does one value the entire, clearly not by rental as in an apartment house. They are not the same. Nor by rental or sale of the property as a whole, it never happens. Supposedly one could take sales prices of comparable units in other buildings and come to an average unit of value and leave it up to the underlying documents to apportion it among the various owners, treating the proprietary lessee as an owner, which he is, if you ignore form. And in all of this we are dealing with an entire taking or even of one or more units, less than the whole, where, clearly, justice, if not the underlying documents, requires valuation of the individual units involved.

Some of the problems we foresee in a valuation of the entire as a unit as Nichols suggests are as follows: (a) is the entire to be valued as the owners would sell them, one at a time, or some other methodology to get a value of the whole such as an average unit price; (b) how does one deal with unsold units in the sponsor’s hands; (c) how does one treat with tenants existing before a conversion who opt to continue as tenants and pay rent, rather than buy; (d) how does one value the whole in a mixed use building, stores, offices and apartments (which, no matter which method is used, is a problem); (e) since what we are dealing with is what in essence are peoples homes, no different than one family houses ,and these owners make modifications to their homes, affecting their value, how are they justly compensated in a valuation of all as single unit.

When starting to research to write this column we admit we were not on neutral, but it is only as we started to talk to appraisers such as Daniel Sciannameo and Robert Von Ancken who gave us insight into the appraisal process and we read the statutes, regulations and texts as well as sample documents that we have come to the firm conclusion that, in the case of all or specific units being taken, the only method that is both feasible and just requires a valuation of each individual unit. The problems of underlying mortgages and ground leases while complicating the process is handleable and on balance should not be the determinant. While it may be expedient to do it otherwise, it would not do justice. As one would value 20 row houses which are individually owned on a house by house basis, there is no reason to treat either condominium or cooperative units differently.

At the end of the day, we believe that if the information we have received is accurate, that the underlying documents for both condos and coops are largely silent on the subject of condemnation, that is a situation which should be rectified, or we may see some strange results in condemnation proceedings.

Reprinted with permission from the April 28, 2004 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Street Closings

New York’s law as to the property rights of abutting owners in public streets was clarified in cases such as Story v. Elevated R.R. Co., 90 N.Y.122. Essentially it was held that private easements of light, air and access automatically arise in favor of any property fronting on a public street upon the creation of that street. Thus, in that street were both the right of public access and private easements. While the public generally has the right of access over that street, the abutting property owners, besides sharing in the rights enjoyed by the public at large, have special private property rights. It has also been held that the rights of the abutting owner were more than just the easements of light, air and access. Donahue v. Keystone Gas Co., 181 N.Y. 313.

There is another kind of public street and that is where the bed of the street is privately owned, usually by the abutting property owners to the center line of the street, and where that street has also been dedicated to the public use. Usually, such a street was created in the first instance by a subdivision of a larger tract into lots fronting on mapped streets. The sale of lots referenced to a filed map by an owner of that larger plot gives rise to street easements, including access to cross streets leading into a system of public streets. The sale of those lots is referenced to that map will give rise to the same street easements in favor of the abutting owners, but not to the public at large. Lord v. Atkins, 138 N.Y. 184. To change that private street into a public street requires either a dedication and acceptance by the municipality, a user or a condemnation. In re India Street, Borough of Brooklyn, 29 N.Y.2d 97, 324 N.Y.S.2d 1 (1971). Most municipalities will not accept a dedication (usually by the subdivider), unless the street meets its standards, not only in construction but in utilities, particularly, water and sewer. The fact that the street may not have been physically improved as such does not make it less of a street, in terms of the property rights of the abutter.

There is also the private street. It is the same as that described above, with title and easements held by the abutters, but where it has not been dedicated to the public use with no rights in the public at large.

But there is another type of street, the so called “paper street”. This is not a street at all, but merely lines on a map, constituting the municipal general plan. The mere mapping of the lines of the street on the municipal map, while it may, by statute, restrict development of that land, neither creates a street as such nor deprives the property owner of any property interest in that part of his property which lies within the bed of that mapped street. Foster v. Scott, 136 N.Y. 577; Headley v. City of Rochester, 272 N.Y. 197. When condemned, the owner is entitled to full compensation for the land in that mapped street. In re City of New York (College Point, U.B. II), 78 A.D. 2d244, 434 N.Y.S.2d 711 (2d Dept., 1980); City of Rochester v. Hennen, 56 A.D. 2d 719, 392 N.Y.S.2d 943 (4th Dept., 1977). The property owner(s) may and, indeed, in some instances, is required, when developing that land, to not only recognize that portion of his property as a street but also pay for the cost of putting in the street, particularly where he wishes to subdivide the property. Where the property owner subdivides his property in reference to the municipal map, he creates street easements in favor of the abutting property owners on that portion of his land which lies within that mapped street, In re Braddock Avenue, 278 N.Y. 163; Reis v. City of New York, 188 N.Y. 58.

That these street easements are valuable needs no citation of authority. While the land in the bed of the street usually has but nominal value In re India Street, supra; being burdened by street easements, (In re Braddock Avenue, supra; cf In re Northern Blvd., 258 N.Y. 136) it is the abutting land which acquires value by reason of these easements of light, air and access. Well, what are the nature of these rights? To begin with, when it is a public street, the land is held in trust by the municipality for street purpose, i.e., it cannot be used for other than a street and those uses, which are incidental to its use as a street. In re East Fifth Street, 1 Misc. 2d 977, 146 N.Y.S.2d 794 (Sup. Ct., N.Y. Co., Eder, J., 1955). While a street, it is inalienable, (Green v. Miller,249 N.Y. 88) and there may be no adverse possession which would cut off the use as a street. Even when the fee title is held by other than the municipality and it is a public street, the street easements in favor of the public are still in trust and are also inalienable and not subject to adverse possession.

Obviously, one of the major benefits of having a street is being able to gain access to the abutting property. A property without access has little value, as it cannot be used. One of the benefits of the street is to prevent building in the street, preserving light and air to the abutting property. It is when these benefits of a street are legally impaired, and since the street is held in trust for street purposes, they may only be impaired by a body having the power to condemn, that you get into the question of compensation.

Story v. Elevated RR Co., supra, came about from the building of an elevated railroad structure in the bed of a street. The action was brought in the alternative, to either enjoin the building of the structure as not being a proper street use or to hold a condemnation proceeding (the railroad company having the right of eminent domain) so as to compensate the abutting property owners for their damages from impairing their easements of light, air and access. Today it would be called an inverse condemnation.

The reasoning of the Court was that when the streets were created and the land given up for that purpose, it was a very defined purpose. While one could use the street for compatible uses such as sewers, without impairing the street easements, an elevated railroad was not such a compatible use. Interestingly enough, non-elevated street railroads were later deemed to be a proper street use. Kane v. N.Y. El. R Co.,125 N.Y. 164, 176. However, when dealing with access, the Courts, in a series of decisions, have determined a property could be deprived of access to a street, in whole or in part, as long as there was such an adequate access remaining or did not change for the worse the highest and best use of the property (Selig v. State of New York, 10 N.Y. 2d 34;Priestly v. State of New York, 23 N.Y.2d 155, 295 NYS2d 659); Laken Realty Corp. v. State of New York, 29 A.D. 2d 1027, 289 N.Y.S.2d 566 (3rd Dept., 1968); cf. In re East Fifth Street, supra) the so called “Circuity of Access” cases.

But what happens when a governmental entity wishes to close a street? Since street easements are valuable property rights they may not be taken or impaired without just compensation. In re East Fifth Street, supra; Matter of City of New York (Gillen Place),304 N.Y. 215. Since the public has the right to create a street, it has the power to close a street, but since closing the street means acquiring the street easements, the owners of these easements must be compensated. While the value of the bed of the street may be nominal, it is the consequential damage to the abutting dominant estate when the street easements are acquired for which payment must be made (Matter of City of New York, (Van Hill Realty Co., Inc.), 19 App. Div. 2d 739, 242 NYS2d 782 (2d Dept., 1963). In some instances, the closing of the street is accomplished by a straight condemnation proceeding for another use. In some instances, by agreement with the abutting owners, who, after the street is closed, usually have a preemptive right to acquire the bed of the closed street up to its center line, opposite their property, before it is sold to anyone else. See Highway Law, Secs. 123, 30 [18]; Greifer v. Sullivan County, 246 App. Div. 385, 286 N.Y.S. 791, aff’d. 273 N.Y. 515; Administrative Code of the City of New York, Sec. 4-105; Klee v. Wagner, 8 N.Y. 2d 991, 205 N.Y.S. 2d 162; 8 N.Y.2d 1019, 206 N.Y.S.2d 787. It must be noted, however, that temporary closings of streets, during the course of improvement of the street, albeit it may be lengthy, is damnum absque injuria. Cities Service Oil Co. v. City of New York, 5 N.Y.2d 110, 180 N.Y.S.2d 769; Filkins v. State of New York, 63 Misc.2d 380, 311 N.Y.S.2d 54 Sup. Ct., Oneida Co., 1970) and cases cited therein.

The City of New York’s Administrative Code, Sec. 5-430 et. seq (formerly Title E) is a special statute providing the procedure by which a street is closed in the City of New York. In re East Fifth Street, supra. It provides that the order of the Mayor directing the closing shall also direct the Corporation Counsel to start a condemnation proceeding to fix the compensation “to the respective owners of the real property affected, damaged, extinguished or destroyed by such closing.” The interesting part of the statute is that it provides that the street closing, different than in other condemnation proceedings, may be effectuated by resolution of “the Board of Estimate” where it sets a date for the street closing (Sec. 5-438) rather than provide for a court order followed by a proceeding to fix compensation. It further provides that if such a proceeding is not brought, an owner may apply for an order to expedite the proceeding (Sec. 5-367). In interpreting this statute it was held in Matter of City of New York, 12th Avenue from W. 55th Street to West 57th Street, N.Y.L.J. 5/3/41, p. 1979, col. 1 that, absent the holding of the condemnation proceeding, the private street easements continue to exist, which are property rights of the abutting owner. The mere filing of a map showing a discontinuance of the street did not effectuate a taking until the street closing proceeding was actually instituted. It is to be noted that where private street easements exist, but the street has not been improved, nor have street closing proceedings been instituted, that the mere demapping of the street does not affect the existing street easements, without a street closing or condemnation proceeding.

Reprinted with permission from the August 25, 1999 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Partial Takings

The condemnation practitioner, as opposed to the tax certiorari practitioner, when dealing with real estate valuation, has to face two separate classes of appropriation – total and partial. While no case in eminent domain is simple, in the total taking scenario, all we have to deal with is the proper compensation to be paid for the taking which usually means, what is the market value of the property taken, i.e., direct damages.

Partial takings, however, are more complicated. Not only are we concerned with the value of the part taken, we must also look into whether or not the part not taken has had its value affected negatively and if so, is it offset by the positive effects of the planned improvement or by a cost-to-cure.

This, of course, leads us to two more inquiries when there is a partial taking. Is there a consequential damage or not? If there is not, the inquiry, as to that, stops there and we are back where we were in the total taking case, i.e., asking what is the value of the property taken. Believe it or not, however, some people, and courts, have made even that question more complicated but we will address that in another column. First, let us address the question of consequential damages.

For the purpose of this discussion, consequential damages are those damages to the property not taken that have been caused by the partial taking. This can be broken down further into two more classes; (1) severance damages and (2) consequential damages that occur by virtue of the planned improvement for which the property was taken. The courts and some practitioners have sometimes used the terms, “consequential damages” and “severance damages” interchangeably but we believe that only creates confusion and the distinction is a useful tool. For the rest of this column, where we discuss it, we shall distinguish between severance damages and consequential damages.

Severance damages are damages that occur simply because the property acquired is no longer a part of what was once the whole property, i.e., it has been severed. It does not matter why the property was acquired. An example would be improved property in which the improvement has been partially acquired and demolished. Left as is, following the demolition, we usually have a smaller building with one side exposed, clearly an untenable situation for the property owner. Assuming, as we must, that most buildings in this condition are unusable, the result of this severance, with nothing intervening, is a total loss of the building and a total loss of value. It does not matter what the property was taken for. The damage is done by the simple act of the partial acquisition.

Of course, in the situation we describe above, because what we are dealing with in the severance or consequential damage claim is not a taking but a damage as opposed to what we deal with in the direct taking, there is the duty to mitigate the damage. That usually takes the form of a cost-to-cure if, in fact, the damage can be cured. Assuming that the building that is left can be used once the side facing the taken portion is sealed up, the cost of sealing up that side is the cost-to-cure that mitigates the damage that would have been the loss of the entire building. It is axiomatic that the cost-to-cure must be less than the consequential damage it is curing. If it were the same or more, as a matter of common sense, it mitigates nothing and who would bother? If the smaller building, for any reason, is less valuable per square foot, FAR or any other unit, we have a combination of a consequential damage, albeit less than if the problem were not cured, plus a cost-to-cure.

Consequential damages, as we are using the term here, are another thing. In this situation, it is not so much the property that is taken that causes the damage but the use to which the taken area is put. One must be careful, however, to understand that it is not the use alone, regardless of the real damage it may cause, that causes the compensable damage, but the use in combination with and for which there was a partial taking of property, causing a damage to the remainder property which must be compensated. (South Buffalo Rwy Co. v. Kirkover, 176 N.Y. 301, 68 N.E. 366; Hill & Aldrich v. Mohawk & Hudson River Rwy Co., 7 N.Y. 152; County of Erie v. Friedenburg, 221 N.Y. 389, 117 N.E. 611; Bohn v. Railway Co., 129 N.Y. 576, 29 N.E. 802). In this category, as the elevated railroad cases tell us, there need be no direct physical taking of corporeal real estate for there to be a consequential damage. The taking of the easements of light, air and/or access are sufficient. (Story v. New York Elevated R.R. Co., 90 N.Y. 122 (1882)).

Be careful, when considering what we have discussed above, to note that not all consequential damages, no matter how real, are compensable. Examples are damages caused by the diversion of traffic or damages to a business (in New York) unless that damage to business can be translated into a loss of rental value.

There is a practical problem in determining consequential damages, using the definition we employ here. Government being what it is and contractors being what they are, more often than not, the valuation trial and certainly, the preparation for it takes place before the construction of the improvement. Of course, some things are self evident. The construction of a sewerage disposal plant, a landfill or a railroad outside your door, for valuation purposes, do not present much of a problem. It does not take much imagination to understand the deleterious effects on property that those projects will cause.

As to those that are not so obvious, resort can be had to what is actually planned. The construction plans for what is proposed are usually available and one can look to them to see whether a road will be built at, below or above the grade of the remaining property when the taking maps do not tell you. They will also tell you if the property, in spite of the taking maps, are left with practical access.

In determining consequential damages caused by the use to which the appropriated property is put, we are guided by two immutable principles of condemnation law. The first is that property must be valued and the right to damages must be set as of the date title vests in the condemnor. (Wolfe v. State of New York, 22 N.Y.2d 292, 292 N.Y.S.2d 635; Kahlen v. State of New York, 223 N.Y. 383, 119 N.E. 883; Buffalo Valley Realty Co. v. State of New York, 273 N.Y. 319, 7 N.E.2d 297; Chester Litho, Inc. v. Palisades Interstate Park Commission, 33 A.D.2d 572, 305 N.Y.S.2d 681).

The second is that damages must be determined, not necessarily on what the condemnor plans to do but on what it has the right to do. (Wolfe v. State of New York, supra; Spinner v. State of New York, 4 A.D.2d 987; Morton v. State of New York, 8 A.D.2d 49; Weber v. State of New York, 25 A.D.2d 584, 267 N.Y.S.2d 152).

The first principle tells us that when we look at the construction plans to determine the condemnor’s intentions, they must be the plans that existed on title vesting date. If not, we resort to the second principle. That construction plans are relevant has been considered by the courts. In Hill & Aldrich v. Hudson River Rwy. Co., 7 N.Y. 152, supra, the Court of Appeals said, “. . . the plan of the road and the mode of its construction must always be

before the appraisers and enter into and modify the assessment of damages.” And in In re Grade Crossing Commissioner of the City of Buffalo, 6 A.D. 327, the Appellate Division said,

“The true rule — the only rule which will do equal justice to all parties — is to determine what will be the effect of the proposed change upon the market value of the property….the proposed plan of improvement must be considered as a whole and the erection of the structure in the street as a part or incident of it; and if such improvement, or any part of it, will diminish the value of appellant’s remaining property, then that fact should be taken into consideration by the commissioners.”

But construction plans change and sometimes they do not yet exist on title vesting date. That is why the second principle must be considered, i.e., we must consider that the condemnor has done everything detrimental that it had the right to do. Remember, there is usually just one valuation trial and we only get one bite at the apple. In the Spinner, Morton and Weber cases, because the State had reserved, in effect, the right to keep the condemnee from the property appropriated, although it was not its current intention, the Courts ruled that for the purposes of valuation, it had, in fact, done so, and found a loss of access to the remainder property. Had it not so ruled, and the State decided, at some later date, after the valuation trial had finished and damages without a loss of access been awarded, for some reason, to deny access to the remainder property, it would have been too late. The value of the remainder would have been totally destroyed by the consequential damage and the owner would have no recourse. He or she would not get a second chance.

One more word of caution. Much has been said and written in regard to partial takings, that the property should (or must) be valued as it was before the appropriation and then as it is after the appropriation, the difference being the value of the property taken plus the consequential damages. Care must be taken to use that concept judiciously because, first, it is not universally true and second, if it were, depending on the circumstances, it could result in the condemnor paying less than the value of what it took. That, however, is a subject that time and room will not allow us to cover here. It will very likely be the subject of a future column.

Reprinted with permission from the December 23, 1998 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Deduction of General and Special Benefits

In the forty to fifty years that the two of us have been practicing in the area of condemnation law, we have learned that there are no easy cases. There are, of course, as with any area of law, some that are more difficult than others. Generally speaking, partial takings present more problems than total takings. The obvious reason is that all you have to deal with in a total appropriation is the value of the property taken, complicated, of course, by a myriad of legal guidelines. When there is a partial acquisition, however, we first deal with the value of the property as a whole, then with the value of the part taken and finally with the value of the part not acquired, both before and after the acquisition, i.e., consequential damages. Within the area of consequential damages, we must explore, not only the loss in value suffered by the remaining property, but the possible benefits to that remainder which are the result of the improvement for which the part taken was acquired. To further complicate things, the question arises, do we consider special benefits to the remainder as distinguished from general benefits. In this area, New York finds itself holding a minority view.

First, let us define what is meant by general benefits and special benefits. At least for the purposes of this discussion, general benefits are “… those benefits which result from the fulfillment of the public project which necessitated the taking and are common to all lands in the vicinity of the condemnee’s property. They are those benefits which accrue to the owners of property within the usable range of the public work.” (Nichols on Eminent Domain, Third Ed.,§8A.04[2] p. 38) Special benefits are those that “… arise from the peculiar relation of the land in question to the public improvement.” (Nichols on Eminent Domain, Third Ed., §8A.04[2] p. 39)

General benefits are not hard to figure out. Virtually all public improvements are supposed to have them or, at least in theory, there would be no public use which would justify the condemnation. A public school is a clear example. To the extent that residential values are enhanced because a school has been built in the district it serves, there is a general benefit to the properties sharing that enhanced value. Very often, a house will sell for more because it is near a school. It, however, shares that benefit with other houses that are near the school.

Special benefits are somewhat more difficult. Courts, in fact, have had difficulty in many cases in separating them from general benefits. One Court called the distinction, “shadowy at best.” (State Hwy. Comm’n v. Koziatek, 639 S.W.2d 86 (Mo. Ct. App. 1982)). Many states and many courts within states cannot agree on whether a particular benefit is special or general. However, we believe that the difficulties are overstated. Frankly, we suspect that some courts have difficulty because they are trying to justify calling general benefits, special. The reasons will be explained below. Reduced to simple terms, which it should be, if the benefit is shared by a group of properties, it is general. If it is peculiar, by its nature, to one property, it is special. An example of this is a taking for a new road. The road benefits all of the property in its area and to the extent that it provides access to those properties and the properties served by that road are thereby enhanced in value, there is a general benefit. If that road is built through a property and two new frontages are created on that property and the property is the type that benefits from having additional frontage (eg., commercial), that benefit is special to that property. In the first instance, the public, or a segment of it, shares in the benefit and it is general. In the second instance, only the one property benefits and it is special to that property.

The federal and state courts are divided as to what effect, if any, special and/or general benefits have on partial takings. In Chiesa v. State of New York, 36 N.Y.2d 21, 364 N.Y.S.2d 848, the key modern case on this subject in New York, the Court of Appeals cited 2Lewis, Eminent Domain (3rd ed.), §687, p. 1177 et. seq., a well regarded treatise, no longer printed or updated, in its listing of the five classes of applications: “… first, benefits cannot be considered at all; second, special benefits may be set off against damages to the remaining part, but not against the value of the part taken; third, benefits, both special and general, may be set off against damages to the remaining part, but not against the value of the part taken; fourth, special benefits may be set off against both damages to the remaining part and the

value of the part taken; and fifth, both general and special benefits may be set off against both damages to the remaining part and the value of the part taken.”

The majority of states have taken the second of Lewis’ positions. Most states will consider only special benefits and only as an offset against consequential damages to the remaining property. The federal courts have adopted Lewis’ fourth position. They also only consider special benefits, not general, but they not only set them off against consequential damages but, if the remainder is enhanced in value to the extent that it enjoys now, a greater value than it did before, the balance is set off against the value of the part taken.

As we stated above, New York has adopted the position held by a minority of the states. It has adopted Lewis’ third position. New York has not distinguished general from special benefits but it only sets them off against consequential damages, not against the value of the property taken.

At one time, before 1907, New York, or so it seemed, set off all benefits against consequential damages and the value of the property taken. The United States Supreme Court, in 1897, in Bauman v. Ross, 167 U.S. 548, 17 S.Ct. 966, cited those early New York decisions and said, “The just compensation required by the Constitution to be made to the owner is (at least) to be measured by the loss caused to him by the appropriation. He is entitled to receive the value of what he has been deprived of, and no more … when part only of a parcel of land is taken for a highway, the value of that part is not the sole measure of the compensation or damages to be paid to the owner, but the incidental injury or benefit to the part not taken is also to be included.”

In 1907, in Matter of City of New York (Consolidated Gas Co.), 190 N.Y. 350, the New York State Court of Appeals specifically rejected the rule in Bauman v. Ross, (supra). They pointed out that the earlier New York cases involved takings where the statute provided for an assessment against properties partially taken and wholly untaken, for the cost of the public project on the basis that they were benefitted by that project. (In Bauman v. Ross, supra, although not determinative of the case, there was also an assessment for benefit). The New York Court of Appeals, in Matter of City of New York (Cons. Gas Co.), supra, distinguished the earlier New York cases on the ground that they were concerned with statutes which authorized the concurrent exercise of the powers of eminent domain and taxation. As the case under review did not have a special assessment statute which would assess all benefitted properties regardless of whether there was a partial taking, the Court of Appeals held, in that circumstance, “that in no case should an award be made for less than the value of the property actually taken by condemnation.”

The Court based its decision on two reasons. First, there was no assurance that the use which conferred the benefit would be continued and, second, the municipality could not select, arbitrarily, only the owner whose property was partially taken to bear even a part of the cost of the public improvement while, exempting all of the other neighboring properties from bearing the cost when they benefitted to an even greater extent because they did not lose a part of their property.

In 1970, the State of New York appropriated 22 acres of land out of 193 owned by Catherine Chiesa in order to build a new interchange on the New York State Thruway. The appraisers for both sides agreed that the fact that the remainder of the property was near the new interchange enhanced its value. The Court of Claims made an award for the value of the property taken but made no award for severance because the enhancement offset whatever factors might have caused a consequential damage.

In a move that, to us, constitutes official chutzpah, the State appealed and argued that the enhancement should be set off against the award for the property taken to the extent that no award should have been made. In other words, they wanted to take 22 acres of land from an owner, against her will, not pay for it, and have the Court sanction it. The Court of Appeals, in Chiesa v. State of New York, supra, said:

“Applying the holding enunciated above to the case at bar, we recognize that it is unlikely that the New York State Thruway will be relocated in the near future; and, therefore, it is improbable that an owner whose property is partially taken will be unable to realize the benefit accruing to his remaining property by its proximity to the public improvement. However, we are also mindful of the fact that claimant’s adjoining and neighboring property owners have likewise been benefitted by the public improvement without having been compelled to contribute any of their property and without having been specially assessed for the public improvement. Thus, offsetting the general and special benefits to the claimant’s remainder against the value of the 22 acres actually taken from her would be, in effect, an arbitrary and discriminatory exercise of the State’s power of taxation such as was specifically proscribed in Matter of City of New York (Cons. Gas Co.), 190 N.Y. 350, 83 N.E. 299, Supra.”

“…. Since the State has acquired 22 acres which it did not formerly own, it seems to us that the State, and indirectly the public at large, should bear the burden of paying for the land taken for the public improvement … Moreover, we are skeptical of a rule of law that would enable the appropriating authority to simply urge that the public improvement will benefit an individual’s remaining property to such an extent that no compensation need be made for the property actually taken. Finally, … the rule of law established in Matter of City of New York (Cons. Gas Co.) (supra) fosters a more equitable result in instances in which the anticipated benefits to the remainder eventually prove to be illusory because it distributes the cost of the land actually taken upon the State’s entire population.”

We believe the Chiesa decision leaves one question unanswered. If it is unfair, and if it is “an arbitrary and discriminatory exercise of the State’s power of taxation” to, in effect, tax only a property owner whose property is taken by deducting the benefit to his/her remainder property from the value of the property taken, why is it fair and not an arbitrary and discriminatory exercise of the power of taxation to, in effect, tax only that same property owner by consequentially damaging his remainder property and not paying him for it because he benefitted, to the same extent, if not less, than his/her neighbors whose property was not partially taken? That, we believe, is what happened when the State of New York joined the minority of States that deduct general benefits from consequential damages.

Reprinted with permission from the April 22, 1998 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.