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MATTER NORMAN F. ERNST v. BOARD ASSESSORS CITY LOCKPORT (12/19/68)

SUPREME COURT OF NEW YORK, NIAGARA COUNTY 1968.NY.44001 <http://www.versuslaw.com>; 295 N.Y.S.2d 712; 58 Misc. 2d 504 December 19, 1968 IN THE MATTER OF NORMAN F. ERNST, SR., ET AL., PETITIONERS,v.BOARD OF ASSESSORS OF THE CITY OF LOCKPORT, RESPONDENT Fogle, Andrews, Pusateri, Brandt & Shoemaker (Anthony L. Pusateri of counsel), for petitioners. Peter P. Corrallo, Corporation Counsel, for respondent. Frank J. Kronenberg, J. Author: Kronenberg


Frank J. Kronenberg, J.

Author: Kronenberg

 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 and assessed it for $442,500, in accord with its policy of assessing at 50% of the appraised value.

Petitioners' experts show the fair market value as $1,029,800 (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 ($145,000 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 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 over a 40-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. 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 appraisment it is the appraisers conclusion that the subject property has a gross economic rent potential of $1.50 per square foot", and they continue:

"The percentage or overage clause contained in the lease were also considered. Overages at best are highly speculative particularly with the subject property * * *.

"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 square foot when it had an economic potential of $1.50 per square 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 ...


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