Farash v. Smith, 59 N.Y.2d 952 (1983)
Evidence of loans and partnership agreements, while relevant, is not determinative of fair market value in property tax assessment cases, particularly when appraisers do not rely on them and other factors influence their terms.
Summary
Farash v. Smith concerns a dispute over real estate tax assessments for two apartment complexes. The petitioner challenged the town’s assessments, arguing they were too high. Both parties presented appraisal evidence valuing the properties lower than the town’s assessment. The trial court reduced the assessments, but the Appellate Division reinstated the town’s figures, placing significant weight on partnership agreements and construction loans. The Court of Appeals reversed, holding that while such evidence is admissible, it’s not entitled to “greatest weight” in determining fair market value, especially when appraisers primarily rely on the capitalization of income method and other factors influenced the loan and partnership terms. The court reinstated the trial court’s reduced assessments.
Facts
Max Farash, acting as an agent for real estate partnerships, challenged the real estate tax assessments on two apartment complexes, Highview Manor I and Highview Manor II, in Perinton, NY. Farash contributed land for the complexes, receiving a 50% partnership interest. Other partners contributed cash, receiving the remaining 50% interest. Construction was financed through loans. The town assessed Highview Manor I for $2,197,250 and Highview Manor II for $1,835,800 for the tax years in question.
Procedural History
The petitioner initiated proceedings under Article 7 of the Real Property Tax Law to review the assessments. A referee heard the case and both sides presented appraisal evidence. The trial court adopted the referee’s findings, reducing the assessments. The Appellate Division reversed, reinstating the town’s original assessments. The case then went to the New York Court of Appeals.
Issue(s)
Whether the Appellate Division erred in reinstating the town’s tax assessments based primarily on partnership agreements and construction loans, rather than giving greater weight to the capitalization of income approach used by both appraisers.
Holding
Yes, because while evidence of loans advanced on property during or near a particular tax status date may be considered, such evidence standing alone is not entitled to “greatest weight” because the reasons behind the terms and amount of the loan may be uncertain and unrelated to market values.
Court’s Reasoning
The Court of Appeals found that the Appellate Division erred in treating the partnership agreements and construction loans as evidence of arm’s length sales entitled to the “greatest weight.” The court reasoned that while such evidence can be considered, it shouldn’t be the primary basis for determining fair market value. “While a court in determining fair market value may consider evidence of loans advanced on property during or near a particular tax status date when reviewing an assessment proceeding…such evidence standing alone is not entitled to ‘greatest weight’ because the reasons behind the terms and amount of the loan may be uncertain and unrelated to market values.” The court noted that building loans reflect anticipated future expenses, and other factors, such as Farash’s reputation as a developer, likely influenced the partners’ contributions. Both parties’ appraisers relied on the capitalization of income approach, making the trial court’s valuation more consistent with the weight of the evidence. The court emphasized that the presumption of valid tax assessments was overcome by the appraisers’ evidence, which indicated values below the assessments. The court stated that it would “exercise our power to choose between the trial court’s findings and the findings of the Appellate Division” to reinstate the trial court’s order.