The Court of Appeals determined that Chapter 940 was unconstitutional because
it did not substantially advance a legitimate State interest, and concluded that
it had effected an unconstitutional regulatory taking of property.
, requiring the claimant to offer renewal leases for the 39
apartments, subject to the regulatory provisions of the Rent Stabilization Law,
the effect of Chapter 940 not only prevented the claimant from renting them,
free from those regulations, at open market rates, but also effectively
prevented the claimant from selling them as
As noted by the Court of
Appeals: "The statute vests renewal rights in an entity of unlimited existence,
. . ." Manocherian v Lenox Hill Hospital
, at 399.
The parties agree that the period of the taking was from August 1, 1985, the
date on which the claimant would no longer have been required to offer renewal
leases but for the provisions of Chapter 940, to October 20, 1994, the effective
date of the Court of Appeals determination that those provisions were
Based upon the foregoing, both parties submitted appraisals of the subject
property, in accordance with Rule 206.21 of the Uniform Rules for the Court of
Claims, which governs appropriation claims. In accordance with Court of Claims
Act §12(4), the Court has viewed the subject property.
Both appraisals valued the 39 apartments as if Chapter 940 had never been
enacted (before value, on August 1, 1985), and as affected by the provisions of
Chapter 940 (after value, on October 20, 1994). Both appraisals also
calculated, as additional damages, the net operating loss attributable to the 39
apartments during the period of the temporary taking.
The claimant's appraisal calculated the "before" value as $8,818,660, the
"after" value as $1,968,113, and the operating loss as $491,163, for total
damages of $7,341,710. The State's appraisal calculated the "before" value as
$100,000, the "after" value as zero, and the operating loss as $435,000, for
total damages of $535,000.
The significant difference in the amounts of the appraisals results, in the
first instance, from a difference in highest and best use in the respective
appraisals. The claimant's appraisal is based upon a highest and best use of
the subject property as condominium apartments; the State's appraisal is based
upon a highest and best use as rental apartments.
The difference also results from the inclusion in the claimant's calculation of
each of the 3 components of damages, of either an interest or a discount rate,
the effect of which is to increase the "before" value and the amount of lost
rental income, and to decrease the "after" value.
Upon consideration of the appraisals and the testimony of the appraisers, the
Court concludes that the highest and best use of the 39 apartments is as
condominium apartments. The conclusion of the State's appraisal's to the
contrary is based upon the incorrect premise that without the enactment of
Chapter 940 the 39 apartments would have remained subject to the provisions of
the Rent Stabilization Law. Moreover, to the extent that the State's highest
and best use is based upon the view that the conversion to condominium ownership
in 1981 was financially unsound, because the apartments in the building were
occupied by tenants afforded the protection of the Rent Stabilization Law, the
State's appraisal ignores evidence which demonstrates that apartments were
While only 9 vacant apartments were sold prior to August 1, 1985, the evidence
in the record that as apartments became vacant they were sold within a
reasonable time, is uncontradicted.
, Exhibit 22, page 8. In this regard, there is nothing in the record
which undermines the claimant's contention that had the 39 apartments become
vacant on August 1, 1985, they too would have been sold. In addition, 49 other
apartments were purchased by their tenants, of which 8 were subsequently resold,
all prior to August 1, 1985. The evidence in the claimant's appraisal also
indicates that between August 1985 and October 1995, 18 apartments were sold, of
which 16 were vacant, and 26 apartments were resold by their individual
The claimant's appraisal utilized the sales comparison approach and aspects of
the income capitalization approach. It estimated that sales of the 39
apartments would have occurred over a period of 5 years commencing in 1985, had
Chapter 940 not been enacted; and that sales of the 39 apartments would have
occurred over a period of 9 years, commencing in 1994, after the determination
of the Court of Appeals that Chapter 940 was unconstitutional.
For each year of each period, the claimant's appraisal calculates the income
the claimant would have received from sales, based upon a per square foot of
value arrived at by comparison with sales of other apartments in the building,
and from the rental, at estimated market rates, during the estimated time
apartments would have remained unsold. Each "sell out" scenario, and "interim
rental" scenario, accounts for a variety of factors such as selling costs,
renovation costs, real estate taxes, common condominium charges, vacancy rate,
and costs associated with the interim rental of the apartments.
Using the foregoing methodology, the claimant's appraisal arrived at a cash
flow for each of the 5 years of the sell out commencing in 1985, and applied a
rate of interest through October 1994. Similarly, a discount rate was applied
to the cash flow for each of the 9 years of the sell out commencing in 1994, to
arrive at a present value as of October 1994.
Upon examination, the estimated sell outs, while not without any reasonable
basis, are speculative at best; they do not "provide a sound basis for
approximating with reasonable certainty" the lost profits the claimant seeks to
establish as its damages.
Anbe Realty Co., v City of New York
, 223 AD2d 416, 417. In the first
place, the "after" sell out, commencing in 1994, is based upon sales occurring
over a 9 year period, despite the fact that evidence was offered by the claimant
(Exhibit 30) that at least 36 of the 39 apartments were actually sold within 2
years, from November 1996 to December 1998. Notable by its absence is any
evidence of the actual price at which any of the 39 units were sold. Nor does
the appraisal include evidence of actual market rents received during the period
of the sell out commencing in 1985, although that information, too, must exist,
but was not offered.
Upon the evidence presented, therefore, the Court is left to value the subject
property by comparison with evidence in the record of actual sales of similar
apartments in the building at or about each of the dates which are pertinent to
the taking herein. The difference between the value of the 39 apartments on
August 1, 1985, and their value on October 20, 1994, constitutes the direct
damages to the claimant as a result of the taking.
In arriving at a value before the taking for the 39 apartments, therefore, the
Court has considered 25 sales of apartments in the building from May 1984
through December 1986,
15 months before and 17 months after August 1, 1985, the date on which the
provisions of Chapter 940 resulted in a taking. In arriving at a value after
the taking, the Court has considered 10 sales of apartments in the building from
July 1993 through October
The Court has not considered the sale of apartment 12E, on October 27, 1994.
As noted in the claimant's appraisal, the sale was to an "officer of a company
related to ownership/sponsor." It has not been considered for that
16 months before and 12 months after October 20, 1994, the date on which the
claimant once again had the ability to sell the apartments, as a result of the
determination of the Court of Appeals. All of the sales considered were either
of vacant apartments, or resales by individual owners, thus representing market
The data in the claimant's appraisal concerning the sales of apartments listed
in footnote 3,
, results in an average value per square foot of $233.64, and a
median value of $226. In order to utilize these values as a basis for
determining the value of the 39 apartments, it is necessary to consider that
nearly two-thirds (25) of the 39 apartments are 2.5 rooms, and that for the 8
comparable sales which were of 2.5 room
the average value per square foot
is $214.63, and the median value is $208. Upon all of the evidence, therefore,
the Court adopts $220 per square foot as the basis for determining the value of
the subject property as of August 1, 1985.
As applied to the 39 apartments affected by the taking (with a total area of
18,617 square feet,
Exhibit 21, page 15), this results in a value before the taking of
$3,264,996 ($220 x 18,617 square feet minus 6% selling costs minus $585,000
Utilizing the data in the claimant's appraisal concerning the sales of
apartments listed in footnote 4,
, results in an average value per square foot of $199.90, and a
median value of $193.50. The Court adopts $195 per square foot as the basis for
determining the value of the subject property as of October 20,
As applied to the 39 apartments affected by the taking, this results in a value
after the taking of $2,632,496 ($195 x 18,617 square feet minus 6% selling costs
minus $780,000 renovation costs).
The difference between the before and after values is $632,500, which are the
direct damages as a result of the temporary taking of the 39 apartments.
Having arrived at the value in 1994 in accordance with the foregoing, there is
no basis for applying a discount rate to the value as of October 1994. Nor,
under the circumstances, is there any basis for the application of a rate of
interest to the August 1985 value. As noted by the Assistant Attorney General
in the State's post trial brief, any damage suffered by the claimant
attributable to the lost opportunity to earn a return is accounted for by the
interest on the damages to which the claimant is entitled by statute from the
date of the taking.
In addition, the Court has considered evidence of the actual losses sustained
by the claimant during the period of the taking, as a result of the fact that
the 39 apartments remained subject to the Rent Stabilization Law, so that the
rent received was less than the claimant's costs. The State does not dispute
that the claimant suffered such a loss during the period of the taking (Exhibit
A, page 47).
Both appraisals calculated these losses based upon the rental income for the 39
apartments for the period of the taking, offset by the following expenses:
common charges, special assessments, real estate taxes, repairs and maintenance,
reserves, and management. In addition, the claimant's appraisal accounted for
decorating expenses. The State's appraisal calculated the net operating loss as
$285,958, for the years 1986 to 1994. The claimant's appraisal calculated the
net loss for the same period as $343,950, before applying an annual reinvestment
rate and a future value factor, to October 1994. The difference in these
amounts is accounted for by differences in the estimation of repairs and
maintenance, reserves, and management, and the inclusion of decorating expenses
in the claimant's appraisal, and small differences in the amounts for common
charges and special assessments.
Upon consideration of the respective appraisals, the Court adopts the
calculation of the amount as arrived at in the claimant's appraisal, $343,950.
As previously noted, the Court finds no basis for the application of
reinvestment factor or future value factor, which is accounted for by the
interest to which the claimant is entitled by statute from the date of the
In accordance with the foregoing, the claimant is entitled to a total award of
$976,450 with statutory interest from August 1, 1985 to the date of this
decision and thereafter to the date of entry of judgment pursuant to CPLR 5001
and 5002, and Court of Claims Act §19(1).
In the absence of opposition from the defendant, the claimant's application for
the severance of that portion of the claim seeking attorney's fees is granted;
the Chief Clerk is directed to assign a new claim number to the severed claim.
Counsel for the parties are directed to submit, and exchange, memoranda of law
which address the applicability of EDPL §701 to the claim herein. Upon
receipt of the memoranda of law, the Court will schedule any necessary further
LET JUDGMENT BE ENTERED ACCORDINGLY.