Three P. Corp. v Town of E. Hampton

[*1] Three P. Corp. v Town of E. Hampton 2006 NY Slip Op 52619(U) [21 Misc 3d 1108(A)] Decided on March 6, 2006 Supreme Court, Suffolk County Bivona, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 6, 2006
Supreme Court, Suffolk County

The Three P. Corp., Petitioner,

against

Town of East Hampton, Respondent.



03/12821



Flower, Medalie & Markowitz, Esqs., Attorneys for Petitioner, 110 Washington Avenue, Holtsville, NY 11742.

Goldstein Goldstein Rikon & Gottlieb, P.C., Attorneys for Respondent, 80 Pine Street, New York, NY 10005.

John C. Bivona, J.

In this condemnation proceeding the Respondent-Town moved for an Order striking the appraisal report of the Claimant. The Court (Lifson, J.) by Order dated January 8, 2004 noted "a degree of discord between the parties over whether the taking by the Town was legitimate or was an attempt to frustrate construction by the claimant on that parcel". That Court framed the issue as follows:

The major bone of contention is recoupment of the enhanced value of the property which occurred due to improvements undertaken after knowledge of the intended condemnation, but before the issuance of the restraining order or the filing of the vesting order.

The final paragraph of said Order prepared the battlefield as follows:

Based on the foregoing, the court concludes that the motion must be granted only to the extent that a triable issue exists as to whether the claimant acted in bad faith in making improvements to the parcel with knowledge of the intended proceedings prior to the loss of enjoyment of his property rights. The claimant is therefore precluded from offering proof of any improvements made in violation of any lawful order and improvements found to have been made in bad faith. The bare allegation that he did not believe the taking was for a bona fide public purpose, absent other circumstances not yet known, is insufficient to negate a finding of bad faith. (underline added) [*2]

The Court at that time made no finding as requested and referred it to the Trial Court.

The issue was tried before this Court on February 8, 9 and concluding on February 28, 2005. Claimant/Petitioner placed seventeen (17) documents and Respondent placed nineteen (19) documents into evidence.

The following witnesses testified:

Howard Morris (Claimant's real estate appraiser) Donald Thomas Sharkey (Chief Building Inspector) Eric Bregman, Esq. (Former Town Attorney) Mary Acquino (Respondent's real estate appraiser) Regine Starr (sole officer and owner of claimant Corporation

Post-Trial Memoranda were submitted by both parties and received prior to the submission date of July 1, 2005.

Title to the real property vested in the Respondent-Town on or about December 19, 2001. The Claimant-Petitioner, Three P. Corp, purchased two (2) sub-standard lots designated on the Suffolk County tax map as District 0300, Section 162, Block 05, Lot 13, 14. Lot 13 was purchased by deed dated November 3, 1999(Exhibit "B"). Lot 14 was purchased by deed dated November 11, 1999 (Exhibit "A"). When combined these substandard lots became a building plot in the Town of East Hampton, hamlet of the Springs, located to the North of the incorporated Village of East Hampton, located within one-half mile of the Town dump.

The testimony established that in October 2000 the owner entered into a contract to build a modest affordable home as depicted on the plans in evidence labeled "Affordable Homes". (Exhibits "C-D")

The Claimant, an experienced builder, filed for and received the necessary permits to build a one family home containing approximately 1,878 square feet. A Town Building Permit was issued October 6, 2000, reflecting an estimated cost of construction of $75,000.00. This calculation was computed by the building inspector after reviewing the plans (Exhibit "I"). A road widening easement was issued (Exhibit "6"). The road was improved in the front of the property by Claimant.

CONDITION OF PROPERTY ON TITLE VESTING

The Claimant through its principal and sole officer Regine Starr, filed a Affidavit (Exhibit "F") in which she recites that the Health Department approval was received in March 2000. In her un-contradicted Affidavit she states that she first learned of a proposed condemnation at the end of October 2000, the same month in which the Building Permit was issued. It is noted that the Permit was never revoked. The Town, as required scheduled a public hearing, held December 14, 2000 (Exhibit "9").

The Claimant's attorney appeared at the public hearing and noted his client's opposition to the proposal. The Town Board was informed that Claimant "improved Ocean Parkway. We cleared [*3]it, we graded it, stabilized it, put down most of the paving. We've contracted to bring water in at great expense. And reducing from four lots to three lots does impact the cost of the other houses because they now have to cover the cost without the dilution factor." (Exhibit "9" at pg. 16), Thereafter, as developed in testimony through the Chief Building Inspector and the former Town Attorney, conversations occurred, letters were exchanged, a proceeding pursuant to Eminent Domain Procedure Law §207 was commenced by the Claimant, the Town moved for a contempt of Court citation of Claimant and ultimately on July 2, 2001 the principal, Ms. Starr was personally served with a copy of an Order of the Appellate Division, Second Department enjoining her from conveying the property or continuing construction on it.

At the Trial Claimant introduced three (3) 8x10 color glossy photographs showing a cleared site with a partially constructed home and septic system under construction. (Exhibit "3"). Respondent placed in evidence three (3) photographs: Exhibit "N" dated June 29. 2001; Exhibit "O" dated July 2, 2001 and Exhibit "P" dated July 2, 2001, showing the subject construction site and the home under construction with finished roof shingles, pressed wood calls with cut-outs for windows and door supported by wood support structures.

Each party offered the testimony of real estate appraisers. In rebuttal the Claimant offered the testimony of Regine Starr. The Respondent also offered the testimony of David Thomas Sharkey, Chief Building Inspector.

BAD FAITH/MITIGATION OF DAMAGES

The principal issue of concern is the value of the property rights taken by the Respondent under its exercise of the power of Eminent Domain. In this proceeding an additional issue is whether the Claimant, once informed of a potential condemnation proceeding, was obliged to mitigate damages, and when did that duty arise, if at all.

Attached to Exhibit "F" were copies of bills and invoices for labor and materials incurred by the Claimant in the course of construction through July 2, 2001. The out-of-pocket bills total $66,000 (*/-) and do not include the cost of the installation of the foundation. The pouring of the foundation is a bone of contention because it occurred subsequent to the issuance of the temporary injunction issued by the Appellate Division, Second Department. The testimony supports the conclusion that it was inadvertent and not a further bad faith attempt, if any, on the part of the Claimant to build a claim or enhance a damage claim in condemnation. (See In re Briggs Ave., 196 NY 255 (1909). As was stated by the Court In re Mayor of etc., New York, 24 A.D. 7, 49 N.Y.S. 119 (1st Dept., 1897):

From the time of the passage of the act until the commissioners had finally acted, there was, to be sure, a possibility or even a probability that his land would be taken, but this probability imposed no duty upon the city or upon the commissioners to take the land and pay for it, nor did it interfere with the right of La Maida to use the land in any way in which the owner of the property might use it. He was not called upon by reason of that probability to refrain from any act which the owner of the property might do by way of making his land more valuable or better fitted for the purposes for which he had been in the habit of using it. Whatever he might do upon the land [*4]by way of enhancing its value, which any other owner might do, was lawful and proper, and the public authorities could not restrain him it, nor would they be a liberty to say that he was going beyond his legal rights, unless, perhaps, it should appear that, with the certainty that the land was to be used, he was acting in bad faith simply for the purpose of enhancing the damages which he was to receive for it. But nothing of that kind is presented in this case. We have simply the case of a landowner whose land may probably be taken for the public use, who, without regard to that probability, makes improvements upon his land which are proper and fitting for the business in which he is engaged. We see no reason, under such circumstances, why, when the land is finally taken, he should not be entitled to recover whatever the value of it may be at that time.

See also, Frontier Town Properties Inc. V. State, 58 Misc 2d 388, 296 NYS2d 90 (Ct. of Cl., 1968).

The expert appraisal witnesses agreed that the highest and best use (HBV) of the subject property on vesting date was a one family home site. But, while the Claimant attempted to value the land and improvement, Respondent valued the land as vacant land only, giving no recognition to the improvement under construction and imposing a charge of $12,500.00 for demolition of the incomplete structure.

On vesting date the property was a finished building plot ready to go and in the process of metamorphosis from vacant land to finished habitable affordable housing. Until vesting date the property owner carried all expenses of the land including real estate taxes and premises liability.

On a time line analysis the property was acquired in November, 1999. A Building Permit was issued in October of 2000, and the property owner was informed verbally of a potential condemnation in October of 2000. A public hearing was held in December of 2000. An offer is made and rejected in March of 2001, reflecting mixed signals between the parties and reasonably raising valid concerns as to the good or bad faith of each party. Claimant after publication of determination and findings by the Town Board timely commenced a proceeding under Eminent Domain Procedure Law §207 on or about February of 2001. Construction, temporarily halted by Claimant, resumed on May 7 or 8, 2001 with notice to the Town.

The Town took no action to stay the construction or revoke the Building Permit until on or about June 28, 2001 when the Appellate Division, Second Department acted. On July 2, 2001 the permit was revoked and on July 18, 2001 the Appellate Division decided and dismissed the Eminent Domain Procedure Law §207 proceeding.

The Town argues that the property owner acquired the land for the sum of approximately $39,000.00. In actuality the owner paid $42,000.00 in 1999. The owner/Petitioner at Trial claims damages or value of $317,500.00. The Town submits a value report of $99,000.00 as of December 19, 2001, amended at trial to reflect added value for the road improvement of $9,000.00 for a total of $108,000.00. As noted, the Condemnor's value conclusion is penalized $12,500.00 for demolition of the structure under construction.

Before addressing the land values and the value of the real estate, the issue of bad faith must be addressed. That issue was advanced by the Town, arguing that the improvements were made in bad faith. The Town has the burden of proof.

As established at Trial the Claimant through its principal and sole officer is an active builder in the township. She had fifteen (15) to forty (40) contracts in construction during the time frame above outlined.

Once served with an Order of the Court all construction ceased except for the error of the concrete sub-contractor. Were there discussions between the parties focused on a proposed condemnation? Yes. Nevertheless, it is with service of the Order of the Appellate Division, Second Department in the Eminent Domain Procedure Law §207 petition that some degree of concrete reliable notice was delivered to the property owner. The Claimant was then in a position to see a definable remedy and an identifiable form of relief for expenses incurred should the condemnation once threatened proceed. Upon the filing of the Petition to vest title with the Lis Pendens filed (Eminent Domain Procedure Law §402) title was clouded and the rights of ownership were fractured.

Based on the evidence and the credible testimony the Court concludes that the shell constructed was not created as an act of bad faith, intended to inflate a claim in this condemnation.

Accordingly, Respondent's motion to strike the appraisal report of Claimant-Petitioner is denied.

VALUATION

Both appraisers agree on the zoning of the subject property as residential "B". Each agrees that the area of the subject property is 18,000 square feet. At Trial the parties stipulated to the vesting date for valuation purposes of December 19, 2001. Claimant's appraiser describes the subject property as partially improved. The Town's appraiser describes it as vacant. In appraising the subject property each appraiser employed the comparable sales method comparing similar vacant land properties to the subject.

Claimant's appraiser also compared finished home sales of the subject to develop a finished total value of the subject property. In his sales comparison approach he adjusted sales numbered "4" and "5" for an in ground pool condition. The subject did not have an in ground pool. At the time of title vesting the structure had been framed, and closed with a roof in the process of installation. All of the improved sales numbered "4" through "7" were adjusted for full and half bath differences, when compared to the subject property. The subject was not burdened with a completed residential dwelling for which a properly issued Certificate of Occupancy existed. He also adjusted for physical characteristics without further elaboration in his adjustment analysis explanation as the adjustments related to the subject's actual condition on vesting date. Yet, he reached a value opinion of $410,000.00 (unreconciled). [*5]

He also developed a cost approach methodology for the purpose of adding the value of the vacant land to the value of the improvement, if any, the total of which should reflect the loss to the Claimant. In his cost approach he developed a vacant land value of $197,000.00, relying upon three (3) adjusted vacant land sales. Instead of valuing the partially completed structure, demolished by the Condemnor after title vesting and before on-site inspection was accomplished by the Claimant's appraiser, the appraiser in his report switched to a market sales comparison or comparable sales study (as if fully improved) to develop an adjusted value of this subject as an improved residential property, valued in his opinion at $414,000.00.

In this latter approach he estimated the cost of construction and then deducted the cost of thematerial and labor necessary to complete the structure from the estimated value of the cost of the completed structure. While making reference to the Marshall & Swift Cost Valuation Service (Exhibit "1" at pg. 31), he also spoke with Ms. Starr and other builders. Of significance is his failure to bring his notes to Court and his inability to identify builders with whom he spoke in developing his cost data. Furthermore, he never identified the Claimant or Ms. Starr as one of the significant affordable housing builders in the area. There is testimony and documentary evidence establishing the success and reputation of the Claimant as a builder (Exhibit "F").

In his cost approach, relying on a cost manual Marshall & Swift Cost Valuation Service, Claimant's appraiser adopted those values and calculated a value for a finished residential dwelling minus the estimated cost of completion which he calculated at $92,500.00, representing items not yet completed. He then reconciled the two (2) approaches to value:

cost approach: $322,500.00

sales approach-as if completed: $317,500.00

In allocating the damages he allocated $197,000.00 to the land and $120,500.00 to the improvements.

For his final conclusion of value he selected $317,500.00, based upon his sales comparison approach, all reported in his written appraisal report in evidence.

Respondent at Trial moved to strike the appraisal of the Claimant because the appraiser lacked experience as a builder, and had not conferred with an architect or engineer. Nor, had Claimant filed an engineer's report or an architect's report as part of the value claim.

Conflicting testimony was given by both parties as to the value of the incomplete improvement. Mr. Sharkey (Town Chief Building Inspector) estimated the cost at $75,000.00 for the completed structure, based on a chart. The principal officer and sole stockholder of the corporate Claimant, Ms. Starr, produced invoices as attachments to her Exhibit "F" in evidence of approximately $66,000.00, representing materials and labor invested at the site. The Court is mindful of the canceled contract for the subject property as improved with a Certificate of Occupancy executed at $250,000.00. The Court is further aware that the contract was canceled by the purchaser before [*6]title vested.

The cost approach is generally employed in a valuation proceeding where the property is deemed a special-purpose property (In re Suffolk County, 47 NY2d 507, 419 NYS2d 52 [1979]). The subject property does not meet the criteria of a special-purpose property as established by the Court of Appeals. Yet, the property on vesting date was not vacant land; it was partially improved.

The Condemnor appraised the subject property as if vacant at $99,000.00 (as amended at Trial). Claimant appraised as if vacant the subject property at $197,500.00. In reviewing vacant land sales number "2" of the Claimant that property was inadequately adjusted for location at minus ten (10%) percent.

The Court selects an adjustment of minus twenty-five (25%) percent due to the close proximity of the subject property to the Town dump. Claimant's vacant comparable sale number "3" because it had beach rights was inadequately adjusted at minus five (5%) percent. The Court selects minus ten (10%) percent, recognizing that the subject is near the Incorporated Village of Easthampton, but some distance from the water. Thus, each of the sales referenced were adjusted to reflect these aspects of those sales as they related to the subject property.

As adjusted the values of the comparable sales are adjusted as follows:

Sale No. 1 - $200,000.00

Sale #

2 - $177,750.00

Sale #

3 - $185,000.00

The Court selects a value of $187,500.00 as a reconciled value for the land as vacant on title vesting date.

Given the peculiar but not unique circumstances of the subject property with respect to the condition in which it existed on title vesting date, reflecting the existence of a partially completed structure, constructed on a road installed by the Claimant with the necessary approvals of the Town as the condemning authority, as well as all permits necessary to commence construction, it is noted that the Claimant's expert relied upon the Marshall & Swift Cost Manual to develop a value for the "hoped for" completed affordable housing dwelling unit.

Generally, the Appellate Court has rejected the use of the cost manuals as a basis for valuation analysis (Northville Industries Corp. v. Town of Riverhead, 143 AD2d 135, 531 NYS2d 592 [2nd Dept.,19881 where the Court noted that the appraiser was neither an architect, engineer or builder; Tennessee Gas Pipeline Co. v. Town of Sharon Board of Assessors, 298 AD2d 758, 749 NYS2d 106 [3rd Dept., 2002]). In the case at bar its use is not inappropriate since the property is [*7]not unique and the appraiser's opinion as to cost is diminished only as to weight and not admissibility. (See S.S. & K. Realty Corp. v. Finance Administration of New York, 82 AD2d 808, 439 NYS2d 207 [2nd Dept., 1981]); also see, Federal Rules of Evidence §703. Since the structure was not complete, the best evidence offered were copies of the out-of-pocket expenses for labor and materials expended by Claimant as appended to Exhibit "F" in evidence, reflecting costs of approximately $66,000.00 which the Court adopts.

Based upon the foregoing, the damages sustained are $187,500.00 and $66,000.00 for a total $253,500. All other issues not herein discussed are deemed denied.

Petitioner is directed to Settle JUDGMENT on notice to Respondent.

The foregoing constitutes the DECISION of this Court.

JOHN C. BIVONA JSC.