New York Law Review

Tag: Condominium Conversion

  • 520 E. 81st St. Assoc. v. State of New York, 99 N.Y.2d 43 (2002): Measuring Damages for Temporary Regulatory Taking Delaying Property Sale

    520 E. 81st St. Assoc. v. State of New York, 99 N.Y.2d 43 (2002)

    When a temporary regulatory taking delays an imminent sale of property, just compensation requires awarding the lost use of sale proceeds from the time of the taking, not merely the interim decline in the property’s value.

    Summary

    520 East 81st Street Associates sued New York State for a temporary regulatory taking of 39 apartment units due to a law benefiting Lenox Hill Hospital. The Court of Claims determined the highest and best use of the apartments was for condominium sales. The court awarded damages for the decline in the property’s value between 1985 (when the sale would have occurred) and 1994 (when the taking ended), plus operating losses, with statutory interest. The claimant argued it should receive interest on the 1985 sale value to compensate for the lost opportunity to earn a return on those proceeds. The New York Court of Appeals modified the lower court’s decision, holding that just compensation requires awarding the lost use of sale proceeds from the time of the taking.

    Facts

    Lenox Hill Hospital leased 39 apartments in the claimant’s building, subletting them to employees. These apartments became subject to New York City’s Rent Stabilization Law. In 1981, the claimant began converting the units to condominiums. In 1983, changes to the Rent Stabilization Law limited subletting. Lenox Hill Hospital continued subletting without the claimant’s permission. Claimant intended to terminate the leases on July 31, 1985, and sell the apartments as condominiums. However, the enactment of Chapter 940 of the Laws of 1984 allowed not-for-profit hospitals to sublet rent-stabilized apartments without restrictions, preventing the claimant from selling the units as planned.

    Procedural History

    The claimant sued the State for a temporary regulatory taking. The Court of Claims found a taking occurred and determined the value of the apartments in 1985 and 1994. The court awarded damages based on the difference in value, plus operating losses, and statutory interest. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether just compensation for a temporary regulatory taking that delays the imminent sale of property should be measured by the lost use of sale proceeds from the time of the taking, or by the interim decline in the property’s value.

    Holding

    Yes, because just compensation requires putting the property owner in the same position it would have been in had the taking not occurred; in this case, that means compensating the claimant for the lost opportunity to invest and earn a return on the proceeds from the sale of the condominium units in 1985.

    Court’s Reasoning

    The Court emphasized that just compensation aims to put the property owner in the same relative position as if the taking had not occurred. When the best use of the property during the taking period would have been sale as condominium units, damages should reflect that intended use. The court found that the lower court erred in calculating damages based solely on the diminution in value between 1985 and 1994, as this did not account for the lost opportunity to earn a return on the sale proceeds. The Court stated, “[W]e assume a person who received the money value of his or her property as of the date of the taking has a beneficial use available for these funds. Interest in this context is not an award of prejudgment interest on a liquidated sum in the traditional sense, but is a measure of the rate of return on the property owner’s money had there been no delay in payment.” The Court directed the Court of Claims to determine and apply the appropriate rate of return on the 1985 sale proceeds over the nine-year taking period. It noted that the statutory interest rate would be presumptively reasonable unless the claimant could prove a higher prevailing market rate. The Court distinguished this situation from cases where the property’s best use was as rental property, where compensation is typically based on lost rental value and any diminution in value. The ruling provides a practical guide for determining damages when a regulatory taking prevents a planned sale, underscoring the importance of considering the property owner’s intended use and lost investment opportunities.

  • Whalen v. Lefkowitz, 36 N.Y.2d 75 (1975): Scope of Attorney General’s Duty in Condominium Conversion Filings

    Whalen v. Lefkowitz, 36 N.Y.2d 75 (1975)

    The Attorney General’s role in reviewing condominium conversion filings is primarily informational, focused on ensuring completeness of disclosure rather than guaranteeing the truthfulness or accuracy of the representations made by the sponsor.

    Summary

    A tenant in a rent-controlled apartment sought to annul the Attorney General’s acceptance of a condominium conversion plan for the Parkchester complex. The tenant argued that the conversion would dilute the negotiating power of rent-controlled tenants. The Court of Appeals held that the Attorney General’s duty under General Business Law § 352-e is limited to ensuring that offering plans provide potential investors with an adequate basis for judgment by disclosing all material facts. The Attorney General is not required to conduct a detailed investigation into the truthfulness of the representations made in the plan.

    Facts

    Petitioner, a tenant in a rent-controlled apartment in the Parkchester complex, challenged the Attorney General’s acceptance for filing of a condominium conversion plan. The north quadrant of Parkchester contained 3,985 residential apartments, with 3,623 being rent controlled, including the petitioner’s. The sponsor chose not to utilize the Rent, Eviction and Rehabilitation Regulations, meaning tenants could not be evicted except for lease violations. The petitioner argued the conversion would negatively impact rent-controlled tenants by reducing their collective negotiating power.

    Procedural History

    The petitioner initiated a proceeding to review and annul the Attorney General’s acceptance of the offering plan. The Attorney General moved to dismiss the proceeding. Special Term’s conclusion, that the Attorney General needed a hearing concerning potential misrepresentations, was appealed.

    Issue(s)

    Whether the Attorney General, under General Business Law § 352-e, has a duty to investigate the truthfulness and accuracy of representations made in a condominium conversion offering plan, or if the duty is limited to ensuring the completeness of the information provided.

    Holding

    No, because the Attorney General’s duty under General Business Law § 352-e is primarily informational, focused on ensuring that the offering plan provides potential investors with an adequate basis for judgment by disclosing all material facts, rather than guaranteeing the truthfulness or accuracy of the representations made by the sponsor.

    Court’s Reasoning

    The court reasoned that the filing requirement under General Business Law § 352-e aims to give potential investors enough information to make informed decisions. Citing Matter of Greenthal & Co. v. Lefkowitz, 32 N.Y.2d 457, 462, the court emphasized that the Attorney General is not obliged to conduct a detailed investigation into the truthfulness of all representations in the statement. The statute itself requires a disclaimer in sales literature stating that filing does not constitute approval by the Department of Law or the Attorney General. The court clarified that the term “deficiencies” in § 352-e(2) refers to lacking information required in paragraph (b) of subdivision 1, rather than false or inaccurate items. While the Attorney General has discretion to inquire into the application, there was no need for a hearing regarding misrepresentation of tax assessments, the engineer’s report, or necessary repairs. The court also noted that the proceeding presented a question of common interest, making class action treatment appropriate. The court affirmed the order without costs.