New York Law Review

Tag: Affiliated Companies

  • Matter of 860 Fifth Ave. Corp. v. Tax Comm’n of City of N.Y., 55 N.Y.2d 683 (1981): Actual Rent vs. Fair Market Rent in Property Valuation

    Matter of 860 Fifth Ave. Corp. v. Tax Comm’n of City of N.Y., 55 N.Y.2d 683 (1981)

    When determining property value using the income capitalization method, actual rent is not necessarily indicative of fair market rental, especially when the landlord and tenant are affiliated companies.

    Summary

    860 Fifth Ave. Corp. (petitioner) challenged the tax assessments on its building, leased to its affiliate, from 1975-1979. The central dispute was whether the actual rent charged or a lower, fair market rent should be used to determine property value via the income capitalization method. The petitioner’s expert used comparable leases to find fair market rent, while the city’s expert used the higher actual rent, comparing it to other branch banks. The Appellate Division rejected the actual rent, finding it unrelated to fair market value and accepted the petitioner’s evidence. The Court of Appeals affirmed, holding that actual rent is not necessarily indicative of fair market rental when dealing with affiliated companies.

    Facts

    The petitioner owned a bank and office building leased to its affiliate. The petitioner challenged the 1975-1979 tax assessments on the property. The dispute focused on the proper rental figure to use in the income capitalization method for valuation. The petitioner’s expert analyzed leases of similar properties to determine fair market rental value. The city’s expert used the actual rent charged by the petitioner to its affiliate, comparing it to rents of other branch banks in the area. The trial court rejected the petitioner’s calculation and accepted the city’s analysis.

    Procedural History

    The trial court adopted the city’s valuation analysis, based on the actual rent. The Appellate Division modified the judgment, rejecting the actual rent and accepting the petitioner’s evidence of fair market rental value. The Appellate Division performed its own calculations, arriving at a property value between the petitioner’s and the city’s figures. The City of New York appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Appellate Division erred in rejecting the actual rent charged between affiliated companies and instead relying on evidence of fair market rental value when determining property value for tax assessment purposes.

    Holding

    No, because the weight of the evidence supported the Appellate Division’s conclusion that the rent charged was influenced by factors unrelated to market value and that the comparable rents relied upon by the city lacked probative value.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order, stating that when the Appellate Division reverses the trial court’s findings and makes new findings, the Court of Appeals may choose between the two by determining which is in accord with the weight of the evidence, citing Grant Co. v Srogi, 52 NY2d 496, 510-511. The court emphasized that while actual rent may indicate fair market rental, it is not necessarily so when the rent is arbitrarily set, such as between affiliated companies, referencing Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538, 543. The court found that the Appellate Division’s conclusions were supported by the weight of the evidence, specifically that the rent charged was influenced by non-market factors, and the city’s comparable rents lacked probative value. The court reasoned that the rent charged by petitioner to its tenant was essentially a computation of the cost of carrying the property, with no relation to fair market rental.

  • Marine Midland Properties Corp. v. Srogi, 60 N.Y.2d 885 (1983): Using Actual Rent vs. Fair Market Rent in Property Valuation

    Marine Midland Properties Corp. v. Srogi, 60 N.Y.2d 885 (1983)

    Actual rent is not necessarily indicative of fair market rental value for property tax assessment purposes, especially when the landlord and tenant are affiliated companies and the rent is arbitrarily set.

    Summary

    Marine Midland Properties Corp. challenged the tax assessments on its bank and office building, leased to its affiliate, from 1975-1979. The dispute centered on whether the actual rent charged to the affiliate should be used to determine the property’s value using the income capitalization method, or whether a lower, fair market rental figure was more appropriate. The Court of Appeals affirmed the Appellate Division’s decision, holding that the actual rent was not indicative of fair market rental value because it was arbitrarily set between affiliated companies. The court emphasized that comparable rents used for valuation must have probative value and relate to true market conditions.

    Facts

    Marine Midland Properties Corp. owned a bank and office building in Syracuse, New York.

    The property was leased to an affiliated company of Marine Midland.

    The City of Syracuse assessed the property’s value for tax purposes from 1975-1979 using the income capitalization method, relying on the actual rent charged to the affiliate.

    Marine Midland argued that the actual rent was higher than the fair market rental value and presented evidence of comparable rents from similar facilities.

    The city’s expert used the higher actual rent paid by the affiliate and compared it to rents paid by other branch banks.

    Procedural History

    Marine Midland challenged the tax assessments in court.

    The trial court accepted the city’s valuation based on the actual rent.

    The Appellate Division modified the judgment, finding the actual rent was a cost calculation unrelated to fair market rental value, and accepted Marine Midland’s evidence of true rental value, arriving at a value between the two parties’ estimates.

    The City of Syracuse appealed to the Court of Appeals.

    Issue(s)

    Whether the Appellate Division properly reversed the findings of value made by the trial court.

    Whether, in applying the income capitalization method for property tax assessment, the actual rent charged to an affiliated tenant should be used, or whether a fair market rental value should be determined using comparable properties.

    Holding

    Yes, the Appellate Division’s findings more closely aligned with the weight of the evidence.

    No, because actual rent is not necessarily indicative of fair market rental value when the landlord and tenant are affiliated and the rent is arbitrarily set.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s decision, emphasizing that when the Appellate Division reverses a trial court’s valuation findings, the Court of Appeals determines which is in accord with the weight of the evidence. Citing Grant Co. v Srogi, 52 N.Y.2d 496, 510-511.

    The court acknowledged that while actual rent may indicate fair market rental, it is not definitive when the rent is arbitrarily set, especially between affiliated companies. Citing Matter of Merrick Holding Corp. v Board of Assessors, 45 N.Y.2d 538, 543.

    The court found that the Appellate Division’s conclusion that the rent charged to the affiliate was influenced by factors unrelated to market value was supported by the weight of the evidence.

    The court also agreed that the comparable rents relied upon by the city lacked probative value because they did not accurately reflect market conditions.

    The court emphasized the importance of using reliable and relevant data when determining fair market value for property tax assessment purposes, particularly when dealing with affiliated entities.