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ARLEN NANUET v. STATE NEW YORK (12/31/68)

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, THIRD DEPARTMENT Claim Nos. 39972, 40099 1968.NY.44117 <http://www.versuslaw.com>; 296 N.Y.S.2d 117; 31 A.D.2d 221 December 31, 1968 ARLEN OF NANUET, INC., ET AL., RESPONDENTS,v.STATE OF NEW YORK, APPELLANT. BERNARD S. SIEGEL ET AL., RESPONDENTS-APPELLANTS, V. STATE OF NEW YORK, APPELLANT-RESPONDENT Arlen of Nanuet v. State of New York, 50 Misc. 2d 934, modified. Louis J. Lefkowitz, Attorney-General (Ruth Kessler Toch and Julius L. Sackman of counsel), for appellant and appellant-respondent. David Marcus and William S. Gray for Bernard S. Siegel, respondent-appellant. Skinner & Bermant, Leddy & Raber (Bernard L. Bermant and Carl J. Moskowitz of counsel), for Arlen of Nanuet, Inc., respondent. Aulisi, J. Staley, Jr., and Gabrielli, JJ., concur with Aulisi, J.; Herlihy, J. P., concurs in part and dissents in part, in an opinion; Reynolds, J., dissents, in an opinion. Author: Aulisi


Arlen of Nanuet v. State of New York, 50 Misc. 2d 934, modified.

Aulisi, J. Staley, Jr., and Gabrielli, JJ., concur with Aulisi, J.; Herlihy, J. P., concurs in part and dissents in part, in an opinion; Reynolds, J., dissents, in an opinion.

Author: Aulisi

 These are appeals, as limited by the briefs from judgments in favor of claimants, entered September 15, 1966, upon a decision of the Court of Claims. An order directing a joint trial of the claims was affirmed on a previous appeal. (22 A.D.2d 722.)

Since the facts have been fully detailed in the reported decision of the Court of Claims (Arlen of Nanuet v. State of New York, 50 Misc. 2d 934), they will be only summarized here. The claimant, Arlen of Nanuet, Inc., is the assignee of Banner Holding Corporation which, on May 10, 1961, the day of the appropriation, had a 25-year lease of the subject parcel with the fee owners. The agreement called for annual rentals of $30,000 in the first year and $61,250 thereafter. The tenant had an option to purchase the land at the end of 10 years for $31,000 per acre plus the balance due on any mortgages. E. J. Korvette, Inc. had obtained a sublease from the tenant, which obligated the tenant sublessor to erect a large discount department store, supermarket, patio shop, and parking area, after which a yearly rent of $285,000 was to be paid. The same parties had also entered into two other subleases calling for nominal annual rentals; it was contemplated that one of the included parcels would be released to the tenant sublessor for the construction of satellite furniture and tire stores. After the taking by the State, the subleases were transferred intact to a neighboring parcel (hereinafter referred to as the "built-on" site) owned by Arlen Operating Corporation and leased to Arlen of Nanuet, Inc. The Korvette and satellite buildings were constructed as planned, and the shopping center was put into operation.

The Court of Claims found a before value of the landlords' interest of $823,610, an after value of $121,000, and total damages of $702,610. It computed the value of the leasehold at $875,000 and made an award to Arlen in that amount.

THE LANDLORDS' CLAIM

In determining the value of the lessors' interest, the court properly chose to capitalize the rent reserved in the main lease and to add the estimated value of the optioned reversion (Wer Realty v. State of New York, 26 A.D.2d 732). The appraisers for the landlords and the State had made similar computations, with the former using a 6% capitalization rate and the latter a 9% rate. The court employed a 7% rate. The State asserts in substance that this finding is invalid to the extent that it is made in reliance on the landlords' appraisal, on the ground that there was no support for the 6% figure.

The determination of a discount or capitalization rate is a factual question and the finding ought not to be disturbed absent the commission of an error of law (St. Agnes Cemetery v. State of New York, 3 N.Y.2d 37, 47). The trier of fact is not required to select one rate or the other given by the expert witnesses, but may make a finding within the range of testimony (Matter of City of New York [ Maxwell-Hand ], 15 A.D.2d 153, 161, affd. sub nom. Matter of City of New York [ Lincoln Sq. Slum Clearance Project -- American Ice Co.], 12 N.Y.2d 1086 and sub nom. Matter of City of New York [ Lincoln Sq. Slum Clearance Project -- Schnurmacher Corp.], 16 N.Y.2d 497). The landlords' expert was well qualified by training and experience to decide upon an investment rate, the selection of which depends in large part on the insight of the appraiser. He based his estimate upon factors such as the terms of the lease, the topography of the land in question, the history of the area, the anticipated growth of the area, and a study of the rates for United States bonds. There is no uniformly accepted method of arriving at a capitalization rate and we cannot say as a matter of law that the testimony in question was lacking in objective support so as to be incompetent for use in this proceeding. The capitalization rate and the ultimate values are well within the range of testimony and should be affirmed.

THE TENANT'S CLAIM

In evaluating the interest of the lessee, the Court of Claims first capitalized the income of the "built-on" site to find land income of $155,656, which it converted to land value of $2,220,000. It then treated the land income as the economic rent for the subject parcel, and computed the value of the lease by capitalizing the excess of this amount over the contract rent and incorporating the value of the option to purchase. The resulting $944,135 was considerably less than the $1,396,390 which would have been obtained by subtracting the landlords' interest from the unencumbered fee value, a discrepancy which was never explained, and the sum was further reduced to $875,000 because of specified uncertainties in the lease.

We reject at the outset the argument by the State that the terms of the condemnation clause in the lease have the effect of depriving the lease of all market value, and the amended allegations in the State's reply brief that an interpretation of the provisions of the clause is necessary in order to prevent a double recovery. Agreements of this sort concern only the apportionment of the award between landlord and tenant, and they may not be employed in computing the market value of the lease (see, generally, Matter of City of New York [ Allen St.], 256 N. Y. 236, 242-243).

Also unacceptable is the contention that the lessee was not damaged because it was able to secure an equally advantageous lease on other property. Just as subsequent acquisitions of land outside the bounds of the appropriated parcel do not affect an owner's right to damages (St. Patrick's Church v. State of New York, 30 A.D.2d 473, 475), so also the rights of a tenant should not be prejudiced by its success in obtaining a new contract of equivalent value after the date of the taking.

The State properly contends that as a general rule, the courts will first calculate the unencumbered fee value and then carve out the respective interests of the parties (Great Atlantic & Pacific Tea Co. v. State of New York, 22 N.Y.2d 75, 84). It is not, however, incorrect to determine the separate interests, without prior reference to the over-all value, as long as the end result is the same as under the more traditional method (Matter of Trustees of N. Y. & Brooklyn [ Clark ], 137 N. Y. 95, 97). In the previous case, the court computed the unencumbered fee value and then made separate awards which do not add up to that amount. Yet, since the total of the awards is not larger than the over-all fee value, the State has not been prejudiced and this inconsistency cannot form a basis for reversal.

The State further argues that by capitalizing the income of the "built-on" site and applying the result to the subject parcel, which was vacant at the time of the appropriation except for a dilapidated structure not considered by any of the appraisers, the court has determined residual land value by the capitalization of hypothetical profits from a nonexistent business, a method of evaluation which has been disapproved (see Levitin v. State of New York, 12 A.D.2d 6; Wer Realty v. State of New York, 26 A.D.2d 732, supra). The income and cost amounts employed by the court, however, were not presumed or hypothetical but were the actual figures for the "built-on" site. Since the transactions on that land were virtually identical with those which would have occurred on the subject property except for the taking, they are especially pertinent as showing that earnings were "clearly to-be-expected" (St. Agnes Cemetery v. State of New York, supra, p. 45) on the day of the appropriation. (See, also, Crimswal Realty Corp. v. State of New York, 27 ...


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