New York Law Review

Tag: land valuation

  • Smith v. State, 35 N.Y.2d 453 (1974): Interpreting ‘Farm Crossing’ for Potential Land Use

    Smith v. State, 35 N.Y.2d 453 (1974)

    When a railroad right-of-way has been appropriated by the state, the potential use of adjacent land should be considered in determining its value if there is a reasonable probability that access could be obtained, even if the potential use extends beyond traditional agricultural purposes.

    Summary

    This case concerns the interpretation of “farm crossing” in the context of land appropriation by the state. The claimants owned landlocked properties due to a former railroad right-of-way. The central issue was whether the “farm crossing” access could be expanded to include potential industrial use when assessing the land’s value after the state’s appropriation of the right-of-way. The Court of Appeals held that if there was a reasonable probability the claimants could have obtained unrestricted access for industrial development, the land’s potential for such use should be considered when determining its value.

    Facts

    The claimants owned adjacent properties bounded by a former railroad right-of-way. Access to their properties was provided by two farm crossings, one by deed reservation and the other by statute. The railroad ceased operations in 1958, and the tracks were removed in 1962. On December 21, 1962, the State appropriated the right-of-way, effectively landlocking the claimants’ properties. Appropriation maps were filed later, but the compensation was stipulated to be determined as of the date of the de facto appropriation.

    Procedural History

    The Court of Claims determined that the claimants had a reasonable likelihood of purchasing the right-of-way from the railroad for access. Therefore, they valued the properties as acreage with industrial potential and added an increment to the fair market value. The Appellate Division affirmed, stating that a farm crossing should include any crossing useful to the landowner and that the railroad would have been compelled to provide a crossing suitable for industrial purposes if the properties had been developed that way.

    Issue(s)

    Whether the Appellate Division erred in affirming the increment allowance by deciding that the “farm crossing” could be expanded to include access for potential industrial use when determining the value of the land after appropriation.

    Holding

    Yes, because where a railroad has ceased operating and the right-of-way has been appropriated by the State, the potential use of the land should be considered in determining value if a reasonable probability of adequate access is established by competent proof.

    Court’s Reasoning

    The court reasoned that a strict interpretation of “farm crossing” as solely for agricultural purposes would unduly restrict the use of adjoining land, especially when the railroad has ceased operations. While early cases and the Railroad Law focused on agricultural needs, the court acknowledged that the statute intended to protect landowners’ rights to use their land profitably. The court cited Buffalo Stone & Cement Co. v. Delaware, Lackawanna & Western R. R. Co., 130 N.Y. 152, 159, stating, “The statute does not limit the right of adjoining owners to crossings solely for agricultural purposes, but they may be ordered to enable owners to remove the natural products of the land, like stone and minerals.” The court emphasized the language “whenever and wherever reasonably necessary for the use of the owners and occupants of the adjoining lands.” It held that if a reasonable probability exists that claimants might have purchased and the railroad would have sold a crossing adequate for industrial development, then the potential for industrial use should be considered when valuing the land. The court emphasized that this determination was fact-specific, based on the evidence presented by the claimants. The court affirmed the lower courts’ findings that such a reasonable probability existed in this case, justifying the increment for potential industrial use. The court also noted Syracuse Ready-Mix Concrete Co. v. State of New York (43 A D 2d 800) where it was held that the term farm crossing should be construed as including any crossing useful to the adjoining owner.

  • Arlen of Nanuet, Inc. v. State, 26 N.Y.2d 346 (1970): Valuation of Vacant Land in Eminent Domain

    26 N.Y.2d 346 (1970)

    In eminent domain proceedings, the market value of vacant land should not be based solely on the capitalization of income expected from buildings and improvements that have not yet been financed or constructed on the date of taking.

    Summary

    This case addresses the proper method for valuing vacant land in an eminent domain proceeding when the land is subject to a lease contemplating future development. The Court of Appeals held that it was improper to determine the value of vacant land based solely on the capitalization of income expected from buildings not yet constructed. While executory leases and agreements may be considered, they should not be treated as an income flow already in existence. The court emphasized that valuation must be based on the situation existing on the day of the taking, considering comparable sales and ground rentals in the area.

    Facts

    The State appropriated 16 acres of vacant land, which was part of a 26.78-acre parcel suitable for a shopping center. The fee owners had leased the land to a tenant who intended to sublease it to E.J. Korvette, Inc., for the construction of a retail store, supermarket, and parking area. Subleases were in place. However, no construction had begun on the property as of the date of the taking. The tenant had secured a lease for adjacent property as a contingency.

    Procedural History

    The Court of Claims awarded $702,610 to the fee owners and $875,000 to the tenant, valuing the land based on a capitalization of income method, i.e., the potential rent from the planned buildings. The Appellate Division affirmed the award to the fee owners but reduced the tenant’s award to $525,000. The State appealed, arguing that the valuation method was improper.

    Issue(s)

    1. Whether it is permissible to fix the market value of vacant land, solely on the basis of capitalization of income expected to be realized from buildings and other extensive improvements not yet financed or begun.
    2. Whether the courts below followed the settled procedure in valuing real property in which a tenant may have a leasehold interest that survives the taking.

    Holding

    1. No, because valuing vacant land based solely on the capitalization of future, unrealized income from planned but unbuilt structures is speculative and does not reflect the property’s actual condition on the date of the taking.
    2. No, because the courts did not first value the unencumbered fee and then determine the tenant’s interest based on the difference between the rental value and the ground rent.

    Court’s Reasoning

    The Court of Appeals reversed, holding that valuing the land based on the capitalization of rents from structures not yet begun was erroneous. The court emphasized that the value must be determined as of the day of the taking, and the potential income from future construction is too speculative. The court cited Levin v. State of New York, emphasizing that while executory leases can be given some weight, it is incorrect to treat them as representing an existing income stream.

    The court also noted the lower court erred in valuing the tenant’s leasehold interest. It reiterated the established procedure of first valuing the unencumbered fee and then determining the tenant’s interest based on whether the rental value of the land exceeds the rent reserved in the ground lease. Capitalizing the rent from the subleases to Korvette was improper because it reflected the tenant’s speculative investment and did not accurately reflect the value of the vacant land.

    The court stated, “To sanction the capitalization of income method adopted below would be to overturn the long-established and wise rule, reflected in our Levin decision (13 Y 2d 87, supra). It would be a serious departure from principle, and most unsound, to announce that fair compensation is to be determined not as of the day of taking but, instead, as of the time of trial, whenever that might happen to be.”

    The dissenting opinion, while agreeing the tenant’s award was excessive, argued that the near certainty of the project proceeding should allow for consideration of the income potential, but also acknowledged that the tenant’s entrepreneurial efforts should be factored out of the valuation.