New York Law Review

Tag: valuation methods

  • Great Atlantic & Pacific Tea Co., Inc. v. Kiernan, 42 N.Y.2d 904 (1977): Use of Nationwide Percentage Lease Rates in Property Valuation

    Great Atlantic & Pacific Tea Co., Inc. v. Kiernan, 42 N.Y.2d 904 (1977)

    The valuation of assessed property is a question of fact, and determinations of value affirmed by the Appellate Division will be upheld unless there is an error of law or a lack of evidentiary support, even where statistical data like nationwide percentage lease rates are given controlling significance.

    Summary

    Great Atlantic & Pacific Tea Co. (A&P) challenged the property tax assessment of its property. The case reached the New York Court of Appeals after the lower courts affirmed the assessment based largely on A&P’s expert’s valuation method, which utilized nationwide abstracts of percentage lease rates. The Court of Appeals affirmed, holding that the valuation was supported by evidence and that the use of such data, even with controlling significance, did not constitute an error of law, especially given the trial court’s rejection of the taxing authority’s comparable evidence. This case clarifies that industry-accepted statistical data can be a valid basis for property valuation, even if it plays a significant role in the final assessment.

    Facts

    The Great Atlantic & Pacific Tea Co. (A&P) challenged the property tax assessment of its property.
    A&P’s expert appraiser used a method that incorporated nationwide abstracts of percentage lease rates to calculate income for valuation purposes.
    The expert testified that this statistical data was widely relied upon in the shopping center trade.
    The trial court rejected the comparable evidence introduced by the taxing authority.

    Procedural History

    The case originated in a lower court (Special Term) where the initial valuation was determined.
    The Appellate Division affirmed the Special Term’s determination of value.
    The case was then appealed to the New York Court of Appeals.
    The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the Appellate Division erred as a matter of law in affirming a property valuation based primarily on nationwide abstracts of percentage lease rates, when such data was given controlling significance.

    Holding

    Yes, because the valuation of assessed property is essentially a question of fact, and the determination was supported by evidence widely relied upon in the shopping center trade. The fact that the data was given controlling significance does not establish an error of law, especially where the trial court rejected the taxing authority’s evidence.

    Court’s Reasoning

    The Court of Appeals emphasized that property valuation is primarily a factual determination. It cited Grant Co. v. Srogi, 52 NY2d 496, 510, stating that valuations affirmed by the Appellate Division must be upheld unless there is an error of law or a lack of evidentiary support.
    The court found that Special Term’s determination was supported by the record, as it relied on A&P’s expert’s appraisal method, which used nationwide percentage lease rates. The expert testified that this data is widely used in the shopping center industry.
    The Court referenced Matter of Woolworth Co. v Commissioner of Taxation & Assessment of City of Plattsburgh, 45 Misc 2d 701, noting that such data may be considered in determining value.
    The court addressed the argument that the data was given “controlling significance,” stating that this alone does not establish an error of law. This was particularly true because the trial court had rejected the comparable evidence presented by the taxing authority, offering “articulated and acceptable reasons” for doing so.
    The decision underscores the importance of factual findings in property valuation cases and the deference given to lower court decisions when supported by evidence and free from legal errors. This case provides precedent for using industry-standard statistical data in property valuation, even when such data plays a significant role in the final assessment.

  • Korvettes, Inc. v. Tax Commission of the City of New York, 45 N.Y.2d 840 (1978): Valuing Non-Specialty Buildings Using Income Approach

    Korvettes, Inc. v. Tax Commission of the City of New York, 45 N.Y.2d 840 (1978)

    When valuing a non-specialty building for tax assessment purposes, the income capitalization approach is appropriate, and the reproduction cost less depreciation method should only be used as a ceiling, not to adjust the value upwards unless there is a demonstrated economic basis for such an adjustment.

    Summary

    This case concerns the proper valuation method for a department store in White Plains for tax assessment. The Tax Commission argued that the reproduction cost less depreciation method should be used to increase the value derived from the income approach (based on 3% of gross sales). The Court of Appeals affirmed the lower court’s decision, holding that since the building was not a specialty and the city failed to demonstrate a legitimate economic theory for upward adjustment based on reproduction cost, the income approach was properly used with reproduction cost serving only as a maximum valuation limit. The court distinguished this case from situations involving “flagship” stores.

    Facts

    Korvettes operated a freestanding department store in downtown White Plains. The Tax Commission assessed the property’s value for tax purposes. Korvettes challenged the assessment, arguing it was too high. The primary dispute centered on the appropriate valuation method.

    Procedural History

    Special Term determined the building was not a specialty property and used an income approach to valuation, capped by the depreciated reproduction cost. The Appellate Division affirmed this decision, finding substantial evidence to support the determination that the building was not a specialty. The City of New York appealed to the Court of Appeals, arguing that the cost approach should have been used to adjust the value upwards.

    Issue(s)

    Whether the Tax Commission erred in its valuation method by not adjusting the value upwards based on reproduction cost less depreciation, despite using an income approach and the building not being a specialty.

    Holding

    No, because the building was not a specialty, and the city did not demonstrate a legitimate economic theory to justify upward adjustment of the value based on reproduction cost.

    Court’s Reasoning

    The Court of Appeals held that the Appellate Division’s affirmation of Special Term’s finding that the building was not a specialty was supported by substantial evidence, and therefore, it could not be reversed. The court acknowledged the city’s argument that reproduction cost should adjust the value upwards, citing G.R.F., Inc. v Board of Assessors of County of Nassau. However, the court distinguished this case because it did not involve a “flagship” store, but rather a freestanding department store. More importantly, the city failed to demonstrate a legitimate economic theory justifying the adjustment for which it contended. The court emphasized that the cost approach could influence valuation by setting a maximum, but not necessarily by increasing the value derived from the income approach unless a clear economic justification exists. As the court noted, the city didn’t provide sufficient evidence to support the upward adjustment: “Moreover, the city did not demonstrate the legitimacy as a matter of economic theory of the adjustment for which it contends”. The absence of such a demonstration led the court to uphold the use of the income approach, constrained by the depreciated reproduction cost as an upper limit.