W. T. Grant Co. v. Srogi

• Citation: 438 N.Y.S.2d 761,52 N.Y.2d 496
• Decision Date: 09 April 1981
• Docket Number: No. 3,No. 1,No. 2,1,2,3
• Parties: , 420 N.E.2d 953 W. T. GRANT COMPANY, Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City of Syracuse, Respondent-Appellant. (Proceeding) ED GUTH REALTY, INC., Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City of Syracuse, Respondent-Appellant. FRANCHISE REALTY INTERSTATE CORPORATION, Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City of Syracuse, Respondent-Appellant. (Proceeding) W. T. GRANT COMPANY, Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City of Syracuse, Appellant. (Proceeding)
• Court: New York Court of Appeals

Page 761

438 N.Y.S.2d 761

52 N.Y.2d 496, 420 N.E.2d 953

W. T. GRANT COMPANY, Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City

of Syracuse, Respondent-Appellant. (Proceeding No. 1.)

ED GUTH REALTY, INC., Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City

of Syracuse, Respondent-Appellant.

FRANCHISE REALTY INTERSTATE CORPORATION, Appellant-Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City

of Syracuse, Respondent-Appellant. (Proceeding No. 2.)

W. T. GRANT COMPANY, Respondent, v. Robert Z. SROGI, as Commissioner of Assessment of the City

of Syracuse, Appellant. (Proceeding No. 3.)

Court of Appeals of New York.

April 9, 1981.

Franklin J. Schwarzer, Syracuse, for appellants-respondents

David M. Garber, Corp. Counsel, Syracuse (Harold L. Fisher, Donald A. Marshall, Andrew S. Fisher and Gerald Gorinsky, Brooklyn, of counsel), for respondents-appellants.

OPINION OF THE COURT

JASEN, Judge.

These appeals raise a number of issues concerning tax assessment review proceedings under article 7 of the Real Property Tax Law. The primary question presented is whether a court may grant a preliminary injunction restraining a municipality from transferring title to real property acquired by the municipality by virtue of nonpayment of taxes during the pendency and final determination of proceedings to reduce the tax assessment on that property.

These consolidated tax review proceedings involve two parcels of commercial property located in the downtown Syracuse business district. This area has been and continues to be a hotbed of tax litigation. Cases involving the properties involved herein, as well as other parcels of real estate in this district, have been in our courts on a number of occasions already (see Matter of Rice v. Srogi, 70 A.D.2d 764, 417 N.Y.S.2d 537; McCrory Corp. v. Gingold, 52 A.D.2d 23, 382 N.Y.S.2d 407; Guth Realty v. Gingold, 41 A.D.2d 479, 344 N.Y.S.2d 270, affd. 34 N.Y.2d 440, 358 N.Y.S.2d 367, 315 N.E.2d 441; Matter of Guth Realty v. Gingold, 16 A.D.2d 372, 228 N.Y.S.2d 120), and there presently are pending over 150 applications seeking review of other assessments imposed by the City of Syracuse.

The instant proceedings were brought to review assessments for the years 1971-1976 on two separately owned parcels. The first of the two properties is located at 323 South Salina Street in Syracuse and will be referred to as the "Guth" property. The second property is located at 425-427 South Salina Street and will be referred to as the "Grant" property.

The Guth property is located in the 300 block of South Salina Street. It is improved by a five-story building which is approximately 80 years old. The prior owner, Ed Guth, purchased the property in 1955 and used the building to house a hobby shop and toy store until 1974 when he sold the property to Franchise Realty Interstate Corp., the real estate division of the McDonald's Corporation.

Mr. Guth previously had offered this property for sale from as early as 1962, but apparently had received no purchase offer worth considering until that of Franchise Realty. The original offer by Franchise Realty was for $130,000, but the price was negotiated upward to $150,000 when the property was finally sold. At the time of this sale, Mr. Guth had no connection with Franchise Realty. Moreover, Mr. Guth was in sound financial condition at the time, but had decided to give up his business because of declining sales and the high cost of operation.

After Franchise Realty purchased the Guth property, an arrangement with a prospective McDonald's licensee who was to occupy the building fell through. As a result, the property remained vacant and Franchise Realty offered it for sale. Franchise Realty, however, has been unsuccessful in obtaining a purchaser for the Guth property.

Despite two prior proceedings which resulted in substantial reductions in tax assessment (Guth Realty v. Gingold, 41 A.D.2d 479, 344 N.Y.S.2d 270, affd. 34 N.Y.2d 440, 358 N.Y.S.2d 367, 315 N.E.2d 441, supra; Matter of Guth Realty v. Gingold, 16 A.D.2d 372, 228 N.Y.S.2d 120 supra ), the city continually assessed the Guth property at $212,200 each year from 1964-1974. In 1975 and 1976, the city assessed the property at $180,200.

The Grant property is located in the easterly half of the 400 block of South Salina Street. The property originally was owned by the University of Rochester and was leased to the W. T. Grant Company in 1944 for a 30-year term which was later extended to 1982 with an option to renew until 2043. Aside from the annual base rent of $77,322.32, Grant was to pay all taxes, utilities, insurance and building maintenance. Grant constructed a five-story building on the property which it sold to and then leased back from the University of Rochester. Each year since 1964, the city has assessed the property at $1,135,700.

Because of declining sales volume, Grant decided in 1974 to close its store. Shortly thereafter, Grant was persuaded to remain open by an agreement with the University of Rochester and the City of Syracuse under which the university deferred the annual rent and the city settled the 1964-1970 tax litigation then on appeal. (See McCrory Corp. v. Gingold, 52 A.D.2d 23, 25, 382 N.Y.S.2d 407, supra.) In 1976, however, the tenancy ended when the Grant chain went bankrupt and vacated the premises.

The University of Rochester sold the Grant property in late 1976 to South Salina Street, Inc., for the sum of $25,000. South Salina Street, Inc., agreed to assume liability for the unpaid 1976 taxes, penalties and interest on the property, thereby making the total consideration for the transfer $175,744.32. South Salina Street, Inc., however, failed to pay the 1976 taxes and has since failed to pay taxes for the years 1977-1979. Pursuant to the city's tax act (L.1906, ch. 75, §§ 21, 22, as amd. by Local Law, 1944, No. 1 of City of Syracuse), tax sales were conducted with respect to the 1976-1978 tax delinquencies. South Salina Street, Inc., did not redeem the premises for the 1976 delinquency (see Real Property Tax Law, § 1010) and on April 9, 1979, the city acquired title to the Grant property pursuant to a tax deed.

In the meantime, tax proceedings were instituted to review assessments on the Grant property for the years 1977-1979. These proceedings are still pending and are not presently before us on these appeals. However, in the context of these proceedings, South Salina Street, Inc., in May of 1979, sought and obtained a preliminary injunction from Special Term restraining the city from transferring title to the Grant property until final determination of the tax assessment review proceedings for the years 1976-1979. It is the issuance of this injunction which is presently before our court on one of these appeals.

As mentioned earlier, these proceedings were commenced to review assessments on the Guth and Grant properties for the years 1971-1976. These proceedings were tried jointly with three others which also involved properties in the downtown Syracuse business district. The parties stipulated to the applicable equalization rates and, therefore, trial was held solely to determine the full values of the properties in question.

At trial, testimony was taken from appraisers for the various petitioners and from the city's appraiser. In regard to the Guth property, petitioner's appraiser valued the property for the years 1971-1976, at prices ranging between $180,000 to $140,000. The city's appraiser testified that the full value of the property was a low of $460,100 in 1970 and a high of $487,800 in 1976.

The trial court, acknowledging the general decline of property values in the downtown Syracuse area, found the value to be between those set forth by the parties' appraisers. Full value for the years 1971-1972 was found to be $300,000, for 1973-1974 to be $275,000, and for 1975-1976 to be $250,000 and the assessments were ordered reduced accordingly. The trial court did not consider the 1974 price of $150,000 at which the Guth property was sold to Franchise Realty to be controlling because, although it was an arm's length transaction, the court was of the view that the sale was "occasioned by the willingness of the owner to sell at a sacrifice." This conclusion was based upon Mr. Guth's desire "to discontinue business at that location due to the fact that he considered the expense of operation did not justify continuing business there."

There was also much disagreement at trial as to the value of the Grant property. The petitioner's appraiser testified that the property had a full value of $1,200,000 in 1971 which declined annually to $625,000 in 1976. On the other hand, the city's appraiser stated that the value of the property ranged between $3,028,200 to $3,150,700 during the years in question. This discrepancy in valuation apparently was caused by the different appraisal methods utilized. The city's appraiser adopted a method whereby estimated rental income, which was ascertained from comparable leases in the area, was capitalized at 9% and then added to the land values to determine the full value of the property. The petitioner's appraiser postulated that reasonable rental income could be determined by multiplying gross sales by a factor of 3%, representing the rent which a national chain store would agree to pay on a percentage lease, and capitalizing the result at 9.25% to 12.2%, the expected rate of return on such an investment during the years in question.

The trial court again found that full value was between those alleged by the parties. Full value for the years 1971-1972 was found to be $1,830,000, for 1973-1974 to be $1,670,000, and for 1975-1976 to be $1,510,000, and the assessments were ordered reduced accordingly. Although indicating approval of the petitioner's gross sales valuation method, the trial court did not expressly accept these figures in arriving...