Scott E. Mollen

Landlord-Tenant—Non-Primary Residence—Trial Court Erroneously Held Tenant’s Pennsylvania Voter Registration and Tax Filings Were “Dispositive” On Issue of Non-primary Residence—No Single Factor is Determinative of Primary Residence—Court Ordered New Trial A tenant appealed from a Civil Court judgment which awarded possession to the landlord in a holdover proceeding. The Appellate Term (court) reversed and ordered a new trial.

There had been a nonjury trial based on the landlord’s allegation that the tenant did not utilize the subject apartment (apartment) as a primary residence. The court found that the tenant had “split her time almost evenly” between a house in Pennsylvania and the apartment. The trial court had awarded possession to the landlord, reasoning that the tenant’s “[Pennsylvania] voter registration and tax filings were ‘dispositive’ on the issue of non-primary residence….” The court explained that “‘[n]o single factor shall be solely determinative’ of primary residence….” The court noted that the cases cited by the trial court “involved tenants who deducted 100 percent of their rent as a business deduction on tax returns, a position logically incompatible with primary residence, and are therefore distinguishable….” There were no such circumstances in the subject case.

The court, in reviewing the trial court’s findings of fact after a nonjury trial, had authority “as broad as that of the trial court” and had “power to render the judgment it finds warranted by the facts….” The court acknowledged that “not every case lends itself to this procedure….” The court explained that when it disregarded “the erroneous conclusion that the tax returns and voter registration are dispositive, the issues presented are much closer, and much would depend on the court’s consideration of all relevant factors…and its credibility determinations….” The court concluded that the “interests of justice would best be served by a new trial.”

92 Cooper Assn v. Roughton-Hester, App. Tm., First Dep’t, Index No. 570427/17, decided Nov. 30, 2017, before Lowe, III, P.J., Schoenfeld, Shulman, JJ.

Landlord-Tenant—Loft Law—Landlord’s Proof That It Purchased Improvements From the Prior Tenant and Thereby Removed the Unit From Rent Regulation Was Insufficient—Unit Was Not Deregulated—Trial Court Decision Denying Tenants’ Motion for Summary Judgment Reversed Affidavit Was “Obviously Calculated to Create A Feigned Issue of Fact”

Tenants appealed from a Civil Court decision which denied their motion for summary judgment dismissing the petition in a holdover summary proceeding. The Appellate Term (court) reversed and held that the tenant’s motion for summary judgment dismissing the petition should be granted. The matter was remanded for a hearing to determine the reasonable value of attorneys’ fees due to the tenants.

The landlord had commenced the holdover proceeding, alleging that the subject loft unit (unit) had been deregulated based on the predecessor owner’s 2008 purchase of improvements (Purchase) belonging to the prior tenant. A trial court denied the tenants’ motion.

The court found that the tenants’ proof “conclusively establishes that the 2008 transaction between the prior owner and [prior tenant] did not constitute a sale of improvements that removed the unit from rent regulation….” The 2008 written agreement cited by the landlord, wherein the prior tenant surrendered possession of the unit and had agreed “to ‘remove all personalty’ in exchange for $20,000, did not mention any improvements, and the prior landlord never filed a record of any sale of improvements as required by 29 RCNY 2-10.” Accordingly, the court held that the 2008 transaction did not constitute a “deregulating event.”

The court further held that the landlord had “failed to raise any triable issue,” since “the 2008 written agreement was clear and unambiguous, and contained a general merger clause….” The court rejected the landlord’s effort “to introduce extrinsic evidence” to show that the parties had “contemplated a sale of improvements.” The court noted that the landlord’s extrinsic evidence consisted of an affidavit by the prior tenant and such affidavit “contradicts” the prior tenant’s earlier affidavit which had been dated just nine days earlier. The court viewed the subsequent affidavit as a document that was “obviously calculated to create a feigned issue of fact….”

The court further held that as the prevailing parties, “tenants are entitled to recover their reasonable attorneys’ fees pursuant to the lease and…Real Property Law §234” and the matter was remanded for an assessment of such legal fees.

BR 31 LLC v. Landess, App. Term, First Dep’t, Index No. 570200/17 decided Dec. 4, 2017, before Lowe, III, P.J., Schoenfeld, Shulman, JJ.

Condemnation—Subsequent Buyer Not Barred From Bringing Regulatory Takings Claim —Chase Manhattan Bank v. State of New York Remains Good Law—“The Reasonable Probability Incremental Increase Rule Applied In Valuing Regulated Wetlands Properties”—Claimant Showed Reasonable Probability That the Imposition of Wetlands Regulations Would Be Found To Be A Regulatory Taking, Reducing Property Value By 88 Percent—Court Accepted City’s Calculation As To the Increment Necessary To Compensate For the Premium A Reasonable Buyer Would Pay For Probability of A Successful Judicial Determination That Regulations Were Confiscatory—Claimant’s Proposed Increment “Lacked A Sound Evidentiary Basis”

This decision involved an appeal by the condemnor, city in a condemnation proceeding from a partial final decree, which found that “the claimant was entitled to an increment above the restricted value of the property on the day of the taking, that the value of the property as if unrestricted was $490,587, and the increment…was 75 percent of the difference between the property’s value as if unrestricted and its value as restricted, awarded the claimant,…$382,190.25.”

This decision involved the issue of “how to determine just compensation when…property…is subject to wetlands regulations that restrict its development.” Chase Manhattan Bank v. State of New York (103 AD2d 211) (Chase) held that “property taken in condemnation must be valued as restricted in use by wetlands regulations, but that an owner who could prove a reasonable probability of successfully challenging the application of the regulations as an unconstitutional taking of its property would be entitled to an increment, representing the premium that a knowledgeable buyer would be willing to pay for a potential change to a more valuable use.”

The city argued that owners of wetlands property taken in condemnation are “no longer entitled to such an increment because [Chase] has been implicitly overruled by Court of Appeals cases that effectively bar a buyer of regulated property from ever bringing a successful takings claim.” The city contended that “no knowledgeable buyer would be willing to pay a premium for the probability of a successful judicial determination that the regulations were confiscatory.” The Appellate Division (court) held that Chase “remains good law, and that a ‘reasonable probability’ increment may be included in valuing regulated wetlands properties where an owner makes an evidentiary showing of entitlement to it.”

The city argued that “wetlands regulations are background principles of State law simply because they have been enacted.” The court opined that such “contention is at odds with the U.S. Supreme Court’s holding in” (Palazzolo v. Rhode Island, 533 US at 606). The court rejected the city’s assertion that “no knowledgeable buyer would…pay a premium for the probability of a successful judicial determination that the regulations were confiscatory” and held that “the reasonable probability incremental increase rule still may be applied in valuing regulated wetlands properties taken in condemnation.”

The subject claimant had taken title to the property prior to enactment of the wetlands regulations. The court explained that the claimant’s entitlement to an increment above the regulated value of the property can only be based on the claimant’s showing that a reasonable buyer would pay a premium for the probability of a successful judicial determination that the regulations were confiscatory.” The court focused on “the success of a regulatory takings claim that would be brought not by the claimant which took title prior to the enactment of the regulations, but by a knowledgeable buyer who would take title subsequent to the enactment of the regulations….”

The court explained that “the law follows the realities of the marketplace, which are that a knowledgeable buyer would adjust his purchase price to offset the cost in time and money of applying for a permit and challenging its denial in court as confiscatory. Certainly, a knowledgeable buyer would not pay claimants the full unrestricted residential values of their properties on the day of taking, when the wetlands restrictions were still legally in effect. He would pay only the value of the property as so restricted, plus some increment representing its enhanced value at such future time when he is successful in nullifying the wetlands restrictions in court.” The court further stated that its holding did “not mean that the reasonable probability incremental increase rule should be applied where the regulation is shown to be a background principle of State law.” Here, no such showing was made. Thus, “the reasonable probability incremental increase rule still may be applied in valuing regulated wetlands properties taken in condemnation.” The claimant had established that there was a reasonable probability that the imposition of the wetlands regulations on the property would be found to constitute a regulatory taking.

As to whether “the claimant established that there was a reasonable probability that the imposition of the wetlands regulations on the property would be found to constitute a regulatory taking,” the court explained that “[e]xcept where there has been permanent physical invasion of property or where regulations completely deprive an owner of all economically beneficial use of her property, and outside the context of land use exactions, ‘regulatory takings challenges are governed by the standards set forth in Penn Central Transp. Co. v. New York City, 438 US 104’….”

The court in Penn Central acknowledged that it had hitherto been unable to develop any “set formula” “for evaluating regulatory takings claims, but identified several factors that have particular significance”…. Primary among those factors are [t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations…. In addition, the character of the governmental action—for instance whether it amounts to a physical invasion or instead merely affects property interests through some public program adjusting the benefits and burdens of economic life to promote the common good—may be relevant in discerning whether a taking has occurred. Ibid. The Penn Central factors—though each has given rise to vexing subsidiary questions—have served as the principal guidelines for resolving regulatory takings claims that do not fall within the physical takings or Lucas rules….

Based on the Penn Central factors, the court found that the claimant had “established that there was a reasonable probability that the imposition of the wetlands regulations on the property would be found to constitute a regulatory taking” and that “based on the city’s valuations, the wetlands regulations reduced the value of the property by 88 percent.”

Additionally, the city argued that the trial court should have applied the city’s increment formula rather than the increment formula proposed by the claimant. The court explained:

The increment above the regulated value of the property that must be added to the regulated value of the property is a percentage that represents the premium a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory…. When adding an increment to the value of vacant land to reflect its development potential, the specific increment which is selected and applied must be based on sufficient evidence and be satisfactorily explained….

The court found that the claimant’s appraiser had chosen “an increment based only on instructions from the claimant’s attorneys and on a prior case of this court, Estate of Berwick v. State of New York (159 AD2d 544).” The court explained that “[a] prior application of the same percentage increment is insufficient, standing alone, to justify its application in a subsequent case….” The claimant’s appraiser had “added no further evidence to support the application of that increment here.” Thus, the court found that such “increment lacked a sound evidentiary basis.” Rather, the trial court should have accepted the city’s increment formula. The City appraiser’s increment was based on “market data” and that appraisal provided a reasonable explanation as to why “it was an appropriate gauge for what a theoretical knowledgeable buyer would pay for a property like” the subject property. Accordingly, the claimant should have been awarded the principal sum of $156,987.84, rather than $382,190.25.

Matter of New Creek Bluebelt, Phase 3, Baycrest Manor  v. City of New York, App. Div., Second Dep’t, Docket No. 2015-03862, decided Nov. 15, 2017, Leventhal, PJ.; Chambers, Hinds-Radix and Connolly, JJ. concur.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.