Grossman v. Board of Trustees of Village of Geneseo

• Decision Date: 11 April 1974
• Citation: 354 N.Y.S.2d 188,44 A.D.2d 259
• Parties: In the Matter of the Proceeding on the Petition of Richard A. GROSSMAN et al., Respondents, v. BOARD OF TRUSTEES OF the VILLAGE OF GENESEO, Appellants. (And three other proceedings.)
• Court: New York Supreme Court — Appellate Division

Page 188

354 N.Y.S.2d 188

44 A.D.2d 259

In the Matter of the Proceeding on the Petition of Richard

A. GROSSMAN et al., Respondents, v. BOARD OF TRUSTEES OF the VILLAGE OF GENESEO, Appellants.

(And three other proceedings.)

Supreme Court, Appellate Division, Fourth Department.

April 11, 1974.

Nixon, Hargrave, Devans & Doyle, Rochester, for appellants (G. Robert Witmer, Jr., Rochester, of counsel).

Schwartz & Weiss, New York City, for respondents (Anthony Curreri and Eugene J. Schwartz, New York City, of counsel).

Before MARSH, P.J., and MOULE, SIMONS, MAHONEY and DEL VECCHIO, JJ.

OPINION

SIMONS, Justice.

This is an appeal from a judgment of Supreme Court in four consolidated proceedings under Article 7 of the Real Property Tax Law to review Town and Village tax assessments on a shopping center.

The appellants raise two points: (1) that Special Term improperly restricted the assessment on the property to actual cost less depreciation and (2) that the petition against the Village for the 1968 assessment should have been dismissed because of the taxpayer's willful refusal to answer material questions asked by the Board of Review (Real Property Tax Law § 512, subd. 2).

The property is a shopping center owned by petitioners. It was developed by a corporation in which they own all the stock and built by a contracting company similarly owned by them. The appellants assessed the property based upon a fair market value of $1,312,600. ¹ At the trial petitioners introduced their ledger sheets to show the actual cost of the improvement ² and they produced a real estate expert who testified as to the fair market value based upon the three accepted appraisal methods: capitalization of income, market data, and replacement cost less depreciation. The appellants produced similar expert testimony and the Referee found a full value of $1,150,000 based upon the replacement cost less depreciation, an amount within the range of evidence established by the two experts. Special Term reduced this to the 'actual' costs as shown by the ledger sheets after adding the stipulated land value and estimated profit and interest. It found a full value of $983,247.

The general rule is that real property may not be assessed at an amount which exceeds the cost less depreciation. The reason for the rule was set forth in People ex rel. Parklin Operating Corp. v. Miller, 287 N.Y. 126, 129--130, 38 N.E.2d 465, 467:

'Evidence of income derived, or which can be derived, from real property may at times constitute more persuasive evidence of the price at which the income-producing property can be sold in ordinary circumstances than evidence of actual sales of more or less similar property under more or less similar conditions, for we know that in ordinary circumstances investors will pay for income-producing property a price measured in large part by the amount and certainty of the income which can be obtained from such property. On the other hand, we also know that an investor will not pay more for an income-producing property than the amount for which he could acquire at less cost property which would with equal certainty produce an equal income, either by purchase in the open market or by purchasing unimproved property and erecting upon it a similar improvement.

For these reasons we have recently said in People ex rel. Manhattan Square Beresford, Inc. v. Sexton (284 N.Y. 145, 29 N.E.2d 654 (opinion by Conway, J.)): 'The value of the improvement arrived at by capitalization of potential or actual income may well be weighed and considered but if it be more than reconstruction cost less depreciation, at least in the absence of extraordinary circumstances not present here, the latter still remains the maximum value which may be assessed upon the property." (emphasis added)

Petitioners claim that once actual cost is established, that figure is the maximum cost which may be used in applying this rule. Special Term apparently accepted this theory and refused to accept the Referee's finding of a replacement cost which exceeded the actual cost. The justification for such a severe rule is said to be found in a statement made by the Court of Appeals in Matter of 860 Fifth Avenue Corp. v. Tax Comm., 8 N.Y.2d 29, 32, 200 N.Y.S.2d 817, 819, 167 N.E.2d 455, 456: 'Cost of new buildings or reproduction cost less depreciation establish maximum building value in assessment cases.' Reliance upon that quotation ignores other language contained in the same paragraph of the decision explaining that actual construction cost is properly considered as a Factor or Some evidence of replacement cost. To the same effect, the Court of Appeals stated in Matter of Seagram & Sons v. Tax Comm., 14 N.Y.2d 314, 317, 251 N.Y.S.2d 460, 462, 200 N.E.2d 447, 448:

'that for an office building like this, well suited to its site, the actual building construction cost of $36,000,000 $36,000,000 is Some evidence of value, at least as to the tax years soon after construction' (citations omitted; emphasis added).

The cost of reproduction less depreciation is established as the maximum fair market value for tax purposes because no buyer willingly pays a price for a building which exceeds the cost to him to duplicate it. Actual cost is of first importance in determining replacement cost but it is not conclusive. There is no reason to restrict a court to 'actual' cost figures which may reflect a peculiar advantage or disadvantage derived from the time or circumstances of the construction and there is nothing inherently more reliable or precise in an 'actual cost' which includes estimated profit and interest charges than on a well-documented expert's opinion of replacement cost. In this case in which the owners, the developer, and the construction contractor are all the same people, there is no assurance that the actual cost reflects replacement cost to a potential buyer because the transaction was not an arms-length transaction. If we were to implement the rule suggested, we would place the assessing unit in the position of either accepting the taxpayer's figures on an ipse dixit basis or trying to challenge them item by item, a lengthy and expensive process. It would be foreclosed from supplying opposing expert evidence of reproduction cost for the court's consideration.

The Referee properly considered all of the evidence in the record. He stated valid reasons for accepting and rejecting various items of evidence and since his value was based upon a proper interpretation of the law, we modify Special Term's judgment and accept the Referee's findings that the fair market value of the property for 1968 and 1969 was $1,150,000. The Town assessment for 1968 and 1969 and the Village assessment for 1969 should be adjusted accordingly.

The petition to reduce the 1968 Village assessment should be dismissed. The taxpayers filed their grievance with the Village Board of Review on February 20, 1968. Petitioner Baker, a real estate developer, builder and member of the New York Bar appeared with counsel at a formal grievance hearing March 14, 1968. He refused to answer any question regarding leases or income and stated that he was there 'for the sake of furnishing any information . . . Which I feel is applicable . . . information as to the actual construction costs of the property and as to the amount of money that was paid for the property. I am not prepared to, or am I going to answer any questions about anything else' (emphasis added).

On the basis of that refusal, appellant Village moved to dismiss the petition for 1968 pursuant to Real Property Tax Law § 512, subd. 2, contending that Baker's refusal to answer questions relating to economic data, as well as others related to cost, placed him in violation of Real Property Tax Law § 512, subd. 2 and justified dismissal of the petition. The petitioners answered that they relied solely upon a cost less depreciation valuation, the maximum assessment permitted by law, and therefore information necessary for capitalization based upon leases and rents was not material.

Article 5 of the Real Property Tax Law provides a procedure for fixing and reviewing tax assessments. The assessment is fixed, the taxpayer is notified, and if the taxpayer is dissatisfied, adjustment by administrative action attempted. If the parties fail to adjust the assessment satisfactorily at this administrative level, judicial review may follow under Article 7. However, administrative review is a necessary pre-condition for maintenance of a judicial proceeding (Real...