Ernst v. Board of Assessors of City of Lockport, Niagara County
| Decision Date | 19 December 1968 |
| Citation | 295 N.Y.S.2d 712,58 Misc.2d 504 |
| Parties | Petition of Norman F. ERNST, Sr., et al., and Stephen J. Siciliano, Petitioners, to Review the 1968 Assessment on Real Property by The BOARD OF ASSESSORS OF the CITY OF LOCKPORT, NIAGARA COUNTY, New York, Respondent. |
| Court | New York Supreme Court |
Fogle, Andrews, Pusateri, Brandt & Shoemaker, Lockport, for petitioners; Anthony L. Pusateri, Lockport, of counsel.
Peter P. Corrallo, Corp. Counsel, for respondent.
Petitioners have instituted this action seeking a review of the 1968 Tax Assessment upon certain premises under lease to Sears, Roebuck & Company.
The litigants have sought to justify their respective positions by using the 'Income Approach to Value' in determining the fair market value of subject property.
The Department of Assessment and Taxation of the City of Lockport, New York appraised the subject property for $885,000.00 and assessed it for $442,500.00, in accord with its policy of assessing at 50% Of the appraised value.
Petitioners' experts show the fair market value as $1,029,800.00 (more than the city's value!!). However, petitioners' experts contend that due to a 'deficient lease' the subject property has an estimated present value of $740,000.00 ($145,000.00 less than the city's value).
In using the 'Income Approach to Value' we must first concern ourselves with the 'income potential' and then the lease agreement covering subject property and the extent to which said agreement may be permitted to influence the fair market value of said property.
The Lease Agreement (petitioners Exhibit 7) was entered into between Stephen J. Sciciliano, individually and Sears, Roebuck & Company on January 6, 1965 and calls for an annual minimum rental of $107,800.00 over a forty year period. (Twenty years plus an option of four separate and consecutive five year periods.), plus an additional rental of 2 1/4% Of the excess in sales above $4,792,906.67 and an additional rental for gross sales above $5,500,000.00.
Petitioners' Exhibit I (appraisal of Donald L. Brand, M.A.I. and Walter F. Marcus, M.A.I.) at page 13, under 'Income Approach' cites the income of five other parcels and concludes:
* * * 'In comparing the above gross economic rents with the property under appraisement it is the appraisers conclusion that the subject property has a gross economic rent potential of $1.50 per square foot', and they continue:
'For reasons outline' (in its Summary and Conclusion) * * * 'The appraisers have disregarded additional income from this source.'
'The Subject property is leased at a rent of $1.10 (per) square foot for twenty years with four 5 year options.'
Leasing the property for $1.10 per sq. foot when it had an economic potential of $1.50 per sq. foot produces a 'leasehold value' of $.40 per square foot and this in turn evidences additional value and further indicates that the landlord did not secure the full economic potential from the premises.
Can we, for tax purposes, permit the owner of taxable property to create 'instant economic obsolescence' by encumbering said property with an inadequate lease agreement? And then must the taxing authority 'bail' him out? The Court doesn't believe so.
Isn't the value of the property the 'sum of the whole'; the value to the lessor plus the value to the lessee?
The Appraisal of Real Estate; American Institute of Real Estate Appraisers (4th Ed.) p. 399.
In discussing the apportionment of the fee owners interest and the leasehold interest petitioners' appraiser (Exhibit I p. 17) conclude as follows:
Fee Owners $740,000.00
Leasehold $289,800.00
Isn't the 'leasehold interest' out of proportion with the 'fee interest'?
Doesn't this clearly show that the rental established was inadequate and according to petitioners own experts (p. 17 supra) doesn't the tenant have a benefit of some $27,000 per year under the lease agreement?
Under an agreement wherein the landlord obtained the full economic rental of the premises, the leasehold interest of the tenant would be next to nil. If the owner doesn't command the...
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