Town of Hempstead (Point Lookout in Vicinity of Sea Spray Drive East), Matter of, 1

• Citation: 437 N.Y.S.2d 451,81 A.D.2d 591
• Decision Date: 06 April 1981
• Docket Number: No. 1,No. 2,1,2
• Parties: In the Matter of The TOWN OF HEMPSTEAD (POINT LOOKOUT IN the VICINITY OF SEA SPRAY DRIVE EAST). (Matter) In the Matter of The TOWN OF HEMPSTEAD (NEAR POINT LOOKOUT MALIBU). (Matter) TOWN OF HEMPSTEAD, Petitioner-Respondent, v. MALIBU ASSOCIATES, INC., Appellant, Ovide E. de St. Aubin et al., Claimants-Respondents.
• Court: New York Supreme Court Appellate Division

Page 451

437 N.Y.S.2d 451

81 A.D.2d 591

In the Matter of The TOWN OF HEMPSTEAD (POINT LOOKOUT IN the

VICINITY OF SEA

SPRAY DRIVE EAST). (Matter No. 1) In the Matter of The

TOWN OF HEMPSTEAD (NEAR POINT LOOKOUT MALIBU).

(Matter No. 2)

TOWN OF HEMPSTEAD, Petitioner-Respondent, v. MALIBU ASSOCIATES, INC., Appellant, Ovide E. de St. Aubin et al., Claimants-Respondents.

Supreme Court, Appellate Division, Second Department.

April 6, 1981.

Hogan & Hogan, Garden City (Howard T. Hogan, Howard Thomas Hogan, Jr., Peter Kellogg Ingerman, Garden City and Julius L. Sackman, New York City, of counsel), for appellant.

W. Kenneth Chave, Town Atty., George J. Farrell, Jr., Farrell, Fritz, Caemmerer & Cleary, P. C., Sp. Counsel, Williston Park (Robert F. Van der Waag and Frank A. Fritz, Jr., Williston Park, of counsel), for petitioner-respondent.

Lapp, Schacher & Bradie, Cedarhurst (Michael Bradie and Charles E. Lapp, Jr., Cedarhurst, of counsel), for claimants-respondents.

Before HOPKINS, J. P., and LAZER, GIBBONS and WEINSTEIN, JJ.

MEMORANDUM BY THE COURT.

In condemnation proceedings, claimant Malibu Associates, Inc. appeals, as limited by its brief and on the ground of inadequacy, from so much of a partial final decree of the Supreme Court, Nassau County, dated May 2, 1979, as awarded compensation for the improvements on the condemned realty.

Decree reversed insofar as appealed from, on the law, with costs payable jointly by respondents appearing separately and filing separate briefs, and the matter is remitted to Special Term for further proceedings in accordance herewith.

In 1954, appellant leased some 361/2 acres of beachfront property on the south shore of Long Island from Ovide de St. Aubin and Manlio Liccione. (Liccione divested himself of his interest in the property prior to this proceeding.) The parties stipulated that their respective interests in the improvements in the property, in the event of condemnation, would be 71.7% to appellant and 28.3% to St. Aubin. These figures were reversed with respect to their respective interests in the land itself. Appellant constructed on the property a large clubhouse for catering, cabanas, lockers, swimming pools, tennis, handball and basketball courts, and other facilities, at a cost of.$2.5 million. The business operation of these facilities was a failure, however, and in 1968, at which time the beach club facilities had a stipulated depreciated value of $1.38 million, the facilities were condemned by the respondent town. From the time of condemnation until the present, the town operated the premises, as had appellant, as catering and recreational facilities. Indeed, the town has not made any substantial structural changes in the improvements on the property. In 1977 it realized an income of approximately $400,000 from the operation of the facilities.

Special Term found that the highest and best use of the condemned property would be single-family residential use, and thus denied compensation for the reproduction value of the beach club facilities, in that they interfered with the highest and best use of the property. We conclude that this ruling was error. There is substantial support for the proposition that the value of improvements which interfere with the judicially-determined best use of condemned property, and which consequently must be destroyed, is not compensable (see Van Kleeck v. State of New York, 18 N.Y.2d 897, 276 N.Y.S.2d 633, 223 N.E.2d 41; Matter of County of Nassau (Colony Beach Club of Lido), 43 A.D.2d 45, 349 N.Y.S.2d 422, affd. 39 N.Y.2d 958, 396 N.Y.S.2d 886, 353 N.E.2d 849; Irv-Ceil Realty Corp. v. State of New York, 43 A.D.2d 775, 350 N.Y.S.2d 784; Spano v. State of New York, 22 A.D.2d 757, 253 N.Y.S.2d 730). However this case is manifestly different. Not only did the improvements not have to be destroyed, but they were actually utilized by the town in connection with the use to which it put the property. Under circumstances such as these, where improvements inconsistent with the best use of the land are nonetheless utilized by the condemnor for the purpose for which they had been erected, the value of the improvements must be compensated (see Matter of Port Auth. Trans-Hudson Corp. (Hudson Rapid Tubes Corp.), 20 N.Y.2d 457, 285 N.Y.S.2d 24, 231 N.E.2d 734, remittitur amd. 20 N.Y.2d 968, 286 N.Y.S.2d 858, 233 N.E.2d 860, cert. den. 390 U.S. 1002, 88 S.Ct. 1244, 20 L.Ed.2d 103; Matter of City of New York (New Gen. Hosp.-Cinelli), 280 App.Div. 196, 112 N.Y.S. 101, affd. 305 N.Y. 835, 114 N.E. 38; City of New York v. State of New York, 49 A.D.2d 659, 371 N.Y.S.2d 189). It would be both irrational and unfair for the town to use the beach club structures for the same purposes as did appellant, and yet not compensate it for the structures because they are inconsistent with the best use of the land. Consequently, the town should compensate appellant for the reasonable reproduction value, less depreciation, of the structures, such sum to be determined after a hearing.

HOPKINS, J.P., and GIBBONS and WEINSTEIN, JJ., concur.

LAZER, J., dissents and votes to affirm the decree insofar as appealed from, with the following memorandum:

I do not agree, as my colleagues apparently have posited, that a condemning authority which intends to put the property it takes to the same use as the owner did must pay for it on a summation basis at the condemnee's option.

The controversy here concerns not only the total amount of the award for the taking of a parcel known as the Malibu Beach and Cabana Club, but also how the award should have been arrived at. The property consists of 36.413 acres in the "Lido strip" between Lido Boulevard and the Atlantic Ocean in Lido Beach, Nassau County, with 800 feet of frontage on the ocean and 750 on Lido Boulevard. When the Town of Hempstead took the property in 1968, it was improved with six one-family dwellings, 428 cabanas, 212 lockers, a clubhouse with catering facilities, snackbars, tennis and handball courts, swimming and wading pools, parking areas and other related facilities. Although the town's continued use of the property as a beach and cabana club is the focus of the attack on the award, the events of the 14 years before the taking are at least as pertinent.

In 1954 Malibu Associates, Inc. (Malibu) entered into a 21-year lease with two 21-year renewal options with the owners, Ovide de St. Aubin and Manlio Liccione, who has since divested himself of his interest in the property. During the mid-1950's, Malibu and five other clubs in the area constructed beach and cabana club facilities. For 14 years, until the property was taken in 1968, Malibu or its subsidiaries operated a beach and cabana club on the premises, during which time Malibu also became the fee owner of a portion of the land. Since both the fee and leasehold interests were extinguished by the condemnation, Malibu and St. Aubin simplified adjudication of the conflict between their interests by agreeing that Malibu's interest in the land was 28.3% while its interest in the improvements was 71.7% with St. Aubin's interests the converse. The obvious consequence of the agreement was that an award which fixed a high improvement value would benefit Malibu, which had constructed the club facilities, while high land value was to St. Aubin's advantage. To accommodate this stipulation, the claimants requested the court to allocate its award to indicate separately the value of the land and the improvements. Malibu now attacks the allocations and the total amount awarded; St. Aubin defends both.

At the trial, the appraisers produced by the three parties to the proceeding and Malibu's engineer agreed that the beach club improvements were more costly and extensive than those of the neighboring operations and were capable of continued use for the purpose for which they had been constructed. Nevertheless, the record establishes that Malibu's operation was a consistent financial failure. In 1961 Malibu and its operating subsidiary underwent a Chapter XI bankruptcy proceeding, and in 1966 and 1967, the final two years before the taking, the losses incurred were $236,387.74 and $228,562.27, respectively. Malibu neither claimed going concern value nor that the property was a specialty for which the summation method of valuation should be utilized, asserting that the business losses did not reflect upon the income producing capacity of the improvements but only upon the failure of a particular business operation. The parties agreed that the sound value of the improvements at vesting date (apart from the six residential structures) was $1,380,000, a sum which represents the reproduction cost of the improvements less physical and functional obsolescence and 5% for economic obsolescence. St. Aubin and the town reserved the right to demonstrate greater economic obsolescence as well as the claimed irrelevancy of the sound value, but by the time the trial ended they had tendered no further proof on the issue.

The paramount question at Special Term was the highest and best use applicable to the property. The town and St. Aubin contended that single family residential development constituted the highest and best use and that the property therefore should be valued as acreage with an increment for potential development. The experts who supported this view asserted that Malibu's 14-year history (as well as that of the neighboring clubs) demonstrated that the beach and cabana club improvements were not economically feasible. One major consequence of these conclusions as to highest and best use was to render the beach club improvements inconsistent with such residential use so that they became valueless. Indeed, residential development would have required removal of the beach club improvements at substantial expense.

Malibu argued that profitability is not the primary test of highest and best use since the definition of such use must include consideration of community...