Opinion
020382/1999.
Decided September 16, 2009.
HERMAN, KATZ CANGEMI, LLP, Attorneys for Petitioner, Garden City, NY.
ROBERT F. QUINLAN, ESQ., Attorney for Respondents, Islip, NY.
The issue presented is whether the real property of Petitioner was properly assessed based upon the fact that the subject property was classified as non-homestead pursuant to RPTL Article 19. The determination as to assessment is contingent upon whether the corporate entity should be assessed as a cooperative or homeowners' association. The Respondents argue that W.O.R.C. is a homeowners' association and the units can be valued as single-family homes. Petitioner argues that the property should be valued on the income approach because it is a cooperative, while Respondents contend that the property should be valued on the market approach.
BACKGROUND HISTORY
Petitioner brought this special proceeding in the nature of certiorari pursuant to RPTL Article 7. W.O.R.C. Realty Corporation (WORC) is the owner of 239.2 acres, of which 150 acres are covered by a covenant running with the land prohibiting development. The property is a gated seasonal residential community located in Oakdale, New York. The Petitioner also owns a boat slip marina, roadways, a bridge, three (3) swimming pools, beach front, wetlands and the real property contains 283 cottages.
The 283 cottage owners are members of the West Oak Recreation Corporation (West Oak). WORC is a subsidiary corporation of West Oak. The membership corporation is the sole shareholder of WORC and oversees the operating budget collection, housekeeping and generally the day-to-day maintenance of the property. WORC pays the taxes and is therefore the Petitioner in this case. West Oak was created under the Membership Corporation Law in 1945, which is the predecessor statute for the Not-For-Profit Corporation Law. Its Certificate of Incorporation reflects that it is organized to provide facilities for the enjoyment of its members. There are no realty sales, only the purchase of stock.
In 1982 there was an agreement between the Town of Islip and WORC, restricting the occupancy and recreational uses covering 89 acres. The remaining 150 acres were to remain undeveloped. The agreement recognizes the right of WORC to file grievances and petitions to challenge real property tax assessments.
The subject property functions as an integrated residential community, governed by membership approval by the Membership Committee of the Board of Directors of both corporate entities and the regulations and by-laws of the corporate community. Overnight occupancy is limited from April 1 through and including November 30 of each calendar year.
STANDING
Significant time was spent in the early portion of the Trial on the issue of standing. According to the testimony, it is evident that there is an intimate relationship between the two (2) corporate entities, WORC and West Oak. In two (2) reported Decisions in which WORC was the named Petitioner the Court analyzed at length the by-laws of West Oak. The Court concluded that WORC was a wholly owned subsidiary of West Oak and thus, an aggrieved party, [ W.O.R.C. Realty Corp. v. Board of Assessors et al., 283 AD2d 509, 724 NYS2d 867 (2nd Dept., 2001); W.O.R.C. Realty Corp. v. Carr, 177 Misc 2d 148, 676 NYS2d 436 (Sup Ct. Suffolk Co., 1998)].
Two (2) witnesses called by Respondents under subpoena, Michael Messi, Esq. and Deborah Farr, testified with respect to the interaction of the two (2) corporate entities, with one corporation being responsible for the "fun and games" activities and the other corporation owning and managing the real estate . The testimony was that anyone in either corporation had access to the files of each corporation.
Upon the filing of the Petition for each year at issue, the Town did not file an Answer as authorized under RPTL § 712 (1.) During the Trial of all pending years the Town raised the issue of standing, charging that WORC was not the proper party because WEST OAK is the fee owner.
The issue of standing is an attack upon the subject matter jurisdiction of the Court. Here, Respondents question whether WORC is the proper party. A further question is whether WORC is an aggrieved person. If not a proper person or party, there can be no genuine controversy, Davidson Pipe Supply Co., Inc., v. Wyoming County Industrial Development Agency, 85 NY2d 281, 624 NYS2d 92 (1995) Davidson Pipe Supply Co., Inc., supra, involved an IDA loan, where the Court concluded that the plaintiff, Davidson, was involved in the controversy, and thus was the real party in interest, possessing a justiciable interest in the controversy. The Court, in analyzing the relationship created as part of the loan agreement with IDA, reiterated its finding in Matter of Erie County Indus. Dev. v. Roberts, 94 AD2d 532, 465 NYS2d 301 aff'd on opn below 63 NY2d 810, 482 NYS2d 267 (1995) that:
The economic benefits and burdens of ownership are reserved to the company and the agency serves only as a conduit for the tax benefits provided by such an arrangement . The agency's role is strictly that of an intermediary to insure that private parties qualify for tax exemptions; it assumes no risk of loss and has no opportunity to gain.
Earlier, in the Matter of Dairylea Cooperative, Inc. v. Walkley, 38 NY2d 6, 377 NYS2d 451 (1975)the Court of Appeals had articulated that if a party is able to show that (1) an administrative action would harm the party, and (2) the party's interest was arguably within the zone of interest to be protected by the statute, the party would have standing to sue. But, it appears that the mere economic interest in the outcome alone will not confer standing.
In Society of the Plastics Industry, Inc. v. County of Suffolk, 77 NY2d 761, 570 NYS2d 778 (1991), the Association's claim of standing failed for lack of an interest falling within the recognized zone of interest. There, the defendant-County had enacted "the Plastics Law" and the plaintiff challenged the local legislation under SEQRA. Plaintiff was a nationwide trade organization. On a motion for summary judgment Special Term denied defendant's application, concluding that the plaintiff had standing, because the litigation involved an "issue of vital public concern" Society of the Plastics Industry, Inc. v. County of Suffolk, supra @ 768.
As noted by the Court of Appeals, the Appellate Division had not addressed the question of standing. Initially, the Court of Appeals in Society of the Plastics Industry, Inc. v. County of Suffolk, supra determined that justiciability is an issue of standing; and standing as a threshold determination, rests in part on policy considerations, that a party should be granted access to the Courts to adjudicate the merits of a particular dispute that satisfies other justiciability criteria. The Court of Appeals concluded, however, that an issue of vital public concern does not in and of itself confer standing, emphasizing that the common law requirement is now one of injury in fact, Society of the Plastics Industry, Inc. v. County of Suffolk, supra @ 772. The party must have some "concrete interest".
As enunciated by the Court "[t]he zone of interest test, tying the in-fact injury asserted to the governmental act challenged, circumscribes the universe of persons who may challenge administrative action. Simply stated, a party must show that the in-fact injury of which it complains . . . falls within the zone of interest or concerns sought to be promoted or protected by the statutory provision under which the agency has acted (cit. om.)" Society of the Plastics Industry, Inc. v. County of Suffolk, supra @ 772. Furthermore, the Court noted that for purposes of standing, a plaintiff must show that it would suffer an injury that in some way differs from that of the public at large and these principles apply whether the plaintiff is one person or an association, @ 774-775.
Here, the assessment at issue.
In this special proceedings the membership is tithed on an annual basis for the real property tax imposed when multiplying the assessment at issue by tax rates for each taxing jurisdiction. The membership is charged fees, so that they suffer an in-fact injury within the zone of interest, to cover the payment of the real estate taxes. Therefore, as members of the corporate entity, WORC, they have standing and the corporation in turn has standing to bring the litigation.
In light of the foregoing the Court is hard pressed to understand why Respondents pressed the issue during Trial, particularly in light of the holding of the Appellate Division, Second Department, in WORC Realty Corp. v Board of Assessors of the Town of Islip, 238 AD2d 509 (2nd Dept. 2001). There, the Court ruled that the WORC is an aggrieved party entitled to bring this proceeding to review a tax assessment of the real property at issue for the tax year 1993-1994, as its pecuniary interests are or may be adversely affected by an illegal assessment.
BURDEN OF PROOF In Frontier Park v. Assessor of Town of Babylon, 293 AD2d 608, 741 NYS2d 96 (2002) the Court stated:
A property valuation by a tax assessor is presumptively valid unless the petitioner comes forward with substantial evidence to demonstrate the existence of "valid and credible dispute regarding valuation" (Matter of FMC Corp. v. Unmack, 92 NY2d 179, 188). In making the threshold determination as to whether a valid dispute exists concerning the property's valuation, "the ultimate strength, credibility or persuasiveness of Petitioner's arguments are not germane", and "the weight to be given to either party's evidence is not a relevant consideration at this juncture" ( id. at 188). Rather in determining whether the substantial evidence standard has been satisfied, the relevant inquiry is whether the documentary and testimonial evidence offered by the petitioner is based on "sound theory and objective data" (Matter of Commerce Holding Corp. v. Board of Assessors of Town of Babylon, 88 NY2d 724, 732).
The presumption assigned to the validity of the assessment is a rebuttable presumption. The presumption is rebutted when "substantial evidence" to the contrary is submitted. It has been deemed to be a lesser, if not minimal standard, requiring less than "clear and convincing evidence". It is lower than proof by "a preponderance of the evidence", less than "overwhelming evidence", and certainly beneath the level of "evidence beyond a reasonable doubt", FMC Corp., v. Unmack, 92 NY2d 179, 677 NYS2d 269 (1998).
The Petitioner taxpayer met its initial burden and rebutted the presumption of the validity of the assessment of the Town by submitting the appraisal of Michael Haberman, using the appropriate and accepted methodologies of income capitalization and the cost approach. The market data approach was inappropriate, since the property was unimproved to the extent that the cottages located on the realty were personal property. In part, circumstantially this is evidenced by the fact that the property was assessed as one parcel and not as individual lots, subdivided. In fact, the property had not been formally subdivided ( RPL § 335). The property was improved with a clubhouse, or administration offices, recreational facilities and a marina.
COOPERATIVE CORPORATION V. HOMEOWNERS' ASSOCIATION
The focus of the dispute of the parties is whether WORC is a residential subdivision/homeowners' association or a cooperative corporation which comes under the ambit of RPTL § 581(4).
The parties offered the testimony of several qualified practitioners in the field of law, with an expertise focused on cooperative ventures. Respondents offered the testimony of Barry Warren, Esq., a recognized expert on real property. He opined that the property did not function as a cooperative but rather as a homeowners' association for the following reasons:
1. The land is a stock corporation;
2. The cottage owners are not Petitioner's shareholders;
3. West Oak is the sole shareholder in WORC;
4. The shareholder is no entitled to occupy the property;
5. When transferring the property, no transfer tax was paid;
6. The cottage owners do not deduct from their income tax a portion of the real estate tax paid;
7. Neither the Certificate of Incorporation, nor the by-laws, expressly state that the subject property is a "cooperative" as required by Cooperative Corporation Law.
Walter Goldsmith, Esq., testified on behalf of Petitioner. He is a former Assistant Attorney General who practiced in this area of law, and is now a commentator in McKinney's Real Property Law (Vol. 49). He opined that this is a de facto "cooperative", although not expressly stated, for the following reasons:
1. Petitioner is organized primarily for providing housing accommodations to its members as required by RPTL § 581(4);
2. The residents have membership certificates in lieu of stock.
The Court recognizes that Petitioner does not fit neatly in the "cooperative" or "homeowners' association" category. It is in effect a hybrid; however, the Court concludes that it should be treated as a cooperative in that Petitioner provides "housing accommodations to its . . . members and which is, or is to be, operated for the benefit of the persons or families who are entitled to occupancy by reason of . . . membership . . .", see RPTL § 581 (4).
Of note, is also the fact that the subject property has a single assessment and tax bill. In addition, like a "cooperative", Petitioner can evict. It also has control over who can occupy the unit through an approval process. Much like a "cooperative" board, transfers of property need to be approved. Finally, Petitioner prohibits subleasing.
METHODOLOGY OF APPRAISERS
Both appraisers who testified and their organizations enjoy stellar reputations in the real estate and legal communities.
In approaching the analysis of the subject property an appraiser is faced with an acreage parcel of waterfront land on which are located a recreational beach and a marina containing approximately 189 boat slips. As previously explained, the property is a collection of cottages and year-round residences. It is not a property on which sits a structure containing separate residential units; it does not contain a conventional multiple dwelling; it is not a series of attached multiple residences. An analysis of the operation of the corporations and a physical inspection of the property can support a conclusion that the property may be analyzed as a multiple residence in which membership in the corporation entitles the members to occupy lots on the corporate sketch and maintain individual units.
That area of the subject property not restricted by the open space covenant, earlier negotiated as between the corporate entity, WORC and the Town of Islip, contains an internal road network, a bridge and a collection of one family structures. The structures are the personal property of the members, and not the corporate entity. Thus, there is no factual basis for concluding that the property functions as a residential subdivision. A comparable sales methodology is not appropriate in attempting to develop a value for the subject property.
Instead, the Court views the use of the income approach and the discounted cash flow analysis as appropriate methodologies for the estimate of value of the subject property for all the years under review. The appraiser offered by Petitioner underwent heated, detailed, skilled and probing cross-examination. In his development of the income for the property, the appraiser resorted to income taken from off-site comparable properties. "Comparable rentals are located in residential or mixed-use non-gated neighborhoods. They are free standing, all season single-family dwellings, with building areas of 400ñ to 1000ñ square feet and three to six rooms". (See, Exhibit "1" at page 51).
He developed a series of adjustments to the rentals reported for the comparable properties, developing a median rental of $227.50/room/month. He concluded that at taxable status date March 1, 1992 the economic rental was $225.00/room/month. For the period of March 1, 1993, March 1, 1994, and March 1, 1995 the appropriate rental was $215.00. For taxable status date March 1, 1996 he developed a comparable rental of $225.00. For 1997 he developed a comparable rental of $235.00. For taxable status date March 1, 1998 he developed a rental of $245.00. On March 1, 1999 he developed a rental of $260.00. On March 1, 2000 a rental of $270.00 was developed. For March 1, 2001 he used $300.00 per room per month. For March 1, 2002 he employed $330.00. For March 1, 2003 he relied on $365.00 and for March 2004 he utilized $400.00 per room per month. His potential gross income was applied for the eight months available for seasonal overnight occupancy.
He separately appraised the marina. He noted that the marina was shallow and lacking many features found in comparable, competing commercial marinas. Therefore, he did not rely on the use of comparable slip rentals. He developed a range of values for the marina reflecting effective gross income values for each year under review, ranging from $2,319,865.00 for the period January 1, 1990 to $4,120,348.00 as of January 1, 2004.
But, in considering the several errors and discrepancies developed by cross-examination, when reviewing each of the comparable rentals, the Court has adjusted the selected rental income annually upwards by ten percent (10%). The Court accepts the valuation of the marina values as found by Petitioner's expert for each year under review.
In analyzing the expenses reviewed by Petitioner's expert the Court accepts the conclusions reached by him.
Next to be considered are the composite capitalization rates selected for each year under review by Petitioner's expert. The Court accepts the rates. The rates were based upon valid significant evidentiary testimony, which withstood the scrutiny of cross-examination.
In further support of his opinion Petitioner's expert employed a cooperative approach discounted potential cash flow analysis beginning at page 69 of his report in evidence (Exhibit "1"). That analysis assumed the property being placed on the market for sale to determine what a purchaser would pay as of each taxable status date for the right to purchase the entire complex in its condition and use, and then sell the individual subject units over a period of time. Given the condition and circumstances of the subject property on each of the taxable status dates at issue, it is a far-fetched hypothetical. The Court has not relied on this approach.
Respondents placed in evidence their appraisal, Exhibit "FFF". The appraiser evaluated this property as a "239ñ acre bay front parcel improved with 283 attached residences, several community buildings, and a marina, used as a gated seasonal residential community known as the West Oak Recreation Club Inc. The residences generally contain 4-5 rooms, 2 bedrooms, full bath, and the maximum allowable gross living area which is 800 square feet plus a 200 square foot, roofed enclosed porch". The appraiser employed an average gross living area of the dwellings of 700 square feet and a room count of 4.75 rooms. He recognized that the waterfront property and marina are owned by WORC, a subsidiary of West Oak. West Oak collects annual dues which cover maintenance fees, real estate taxes as well as other assessments for several projects, payroll and operational expenses. He relied upon the sales comparison approach as the best approach to estimate the value of the cottages. He rejected the income approach because the by-laws do not tolerate such an appraisal analysis. The Court notes that the cottages are personal property, personal to the members and not realty owned by the corporation. Accordingly, the Court discounts said methodology.
Based on the appraisal of Petitioner's expert, the spreadsheet hereinafter set forth demonstrates the correlation of value indicating the change in the adjusted gross income, the impact of which reflects the new assessed valuation. Subtracting the new assessed valuation from the final assessed valuation for each year under review demonstrates the reductions this Court finds for each taxable status state.
1992
OVERASSESSMENT
$ 643,004.00
Potential Gross Income $2,685,845.00 Effective Gross Income $2,564,032.00 NOI $1,764,832.00 Indicated Value $12,625,781.00 Actual AV $3,884,042.00 Indicated AV $3,241,038.001993
Potential Gross Income $2,567,123.00 Effective Gross Income $2,450,724.00 NOI $1,639,750.00 Indicated Value $11,449,168.00 Actual AV $3,887,042.00 Indicated AV $3,369,490.00 OVERASSESSMENT $ 517,552.00
1994
Potential Gross Income $2,567,136.00 Effective Gross Income $2,450,737.00 NOI $1,621,166.00 Indicated Value $11,106,159.00 Actual AV $3,890,292.00 Indicated AV $3,278,538.00 OVERASSESSMENT $ 611,754.00
1995
Potential Gross Income $2,567,030.00 Effective Gross Income $2,450,631.00 NOI $1,601,470.00 Indicated Value $11,463,636.00 Actual AV $3,906,522.00 Indicated AV $3,339,357.00 OVERASSESSMENT $ 567,165.00
1996
Potential Gross Income $2,685,845.00 Effective Gross Income $2,564,032.00 NOI $1,691,808.00 Indicated Value $12,043,910.00 Actual AV $3,905,147.00 Indicated AV $3,473,464.00 OVERASSESSMENT $ 431,683.00
1997
Potential Gross Income $2,805,040.00 Effective Gross Income $2,677,813.00 NOI $1,778,268.00 Indicated Value $12,559,277.00 Actual AV $3,920,827.00 Indicated AV $3,605,768.00 OVERASSESSMENT $ 315,059.00
1998
Potential Gross Income $2,924,080.00 Effective Gross Income $2,791,438.00 NOI $1,870,056.00 Indicated Value $13,111,239.00 Actual AV $3,930,697.00 Indicated AV $3,648,858.00 OVERASSESSMENT $ 281,839.00
1999
Potential Gross Income $3,103,343.00 Effective Gross Income $2,962,581.00 NOI $2,012,411.00 Indicated Value $14,369,232.00 Actual AV $3,960,001.00 Indicated AV $3,651,222.00 OVERASSESSMENT $ 308,779.00
2000
Potential Gross Income $3,222,450.00 Effective Gross Income $3,076,275.00 NOI $2,097,743.00 Indicated Value $15,218,681.00 Actual AV $3,991,438.00 Indicated AV $3,533,778.00 OVERASSESSMENT $ 457,660.00
2001
Potential Gross Income $3,579,343.00 Effective Gross Income $3,416,926.00 NOI $2,399,314.00 Indicated Value $17,636,827.00 Actual AV $4,007,169.00 Indicated AV $3,689,624.00 OVERASSESSMENT $ 317,545.00
2002
Potential Gross Income $3,936,458.00 Effective Gross Income $3,757,799.00 NOI $2,701,453.00 Indicated Value $20,311,677.00 Actual AV $4,018,968.00 Indicated AV $3,611,416.00 OVERASSESSMENT $ 407,552.00
2003
Potential Gross Income $4,353,711.00 Effective Gross Income $4,156,103.00 NOI $3,062,597.00 Indicated Value $23,471,773.00 Actual AV $4,035,773.00 Indicated AV $3,661,597.00 OVERASSESSMENT $ 374,176.00
2004
Potential Gross Income $4,770,596.00 Effective Gross Income $4,554,040.00 NOI $3,417,923.00 Indicated Value $26,501,690.00 Actual AV $4,069,782.00 Indicated AV $3,662,534.00 OVERASSESSMENT $ 407,248.00
Based on the foregoing, the Court directs the Assessor to correct the assessment roll for each year under review, reflecting the new assessed value as found by the Court.
Any issue not herein decided, raised by motion or application during the Trial, is denied.
The foregoing constitutes the Decision of the Court. Petitioner is directed to settle Judgment on or before October 30, 2009.