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Volume 10 - Opinions of Counsel SBRPS No. 45

Opinions of Counsel index

Assessments, generally (value) (current use v. highest and best use) - Real Property Tax Law, §§ 302, 305:

In establishing assessments, the assessor must value property in accordance with its current use, rather than its highest and best use. The one exception is for vacant land that is used for no purpose; its value may be based upon highest and best use.

Guidelines have been requested concerning the valuation of real property for assessment purposes, specifically whether current use or highest and best use is the correct method. As explained herein, we believe that the assessor must value property in accordance with its current use, except for certain vacant land.

The statutory standard of assessment is that all real property must be assessed at a uniform percentage of value (Real Property Tax Law, § 305(2)). Section 302 of the RPTL requires that real property be valued for assessment purposes as of its condition and ownership as of the applicable taxable status date. Valuation is determined as of the applicable valuation date (RPTL, § 301).

We have often discussed the meaning of “value” for purposes of real property tax administration, most recently in 10 Op.Counsel SBRPS No. 34, where we stated:

The basic rule of law is that “[t]he ‘market value of real property is the amount which one desiring but not compelled to purchase will pay under ordinary conditions to a seller who desires but is not compelled to sell’ [citations omitted]” (W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 510, 420 N.E.2d 953, 438 N.Y.S.2d 761, 767 (1981); see also, Parklin Operating Corp. v. Miller, 287 N.Y. 126, 38 N.E.2d 465 (1941)).

Within the appraisal profession, a determination of “market value” also implies a valuation of the subject property at its “highest and best use.” As is explained at length hereafter, however, that concept is generally inapposite to valuation for real property tax purposes.

The concept of “highest and best use” has been defined by the appraisal profession as:

That reasonable or probable use that will support the highest present value . . . as of the effective date of the appraisal [or]...that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, and which results in highest land value. . . . It is to be recognized that in cases where a site has existing improvements on it, the highest and best use may very well be determined to be different from existing use (Boyce, Real Estate Appraisal Terminology; American Institute of Real Estate Appraisers, p.107).

Another appraisal authority states, “Land is valued as if vacant and available for its highest and best use. Highest and best use for land is the use that, at the time of the appraisal, is the most profitable likely use” (American Institute of Real Estate Appraisers, The Appraisal of Real Estate, p.43). The standard practice, then, is for appraisal reports to contain an analysis of the parcel’s highest and best use, and for the prediction of value to be based on that use.

However, the New York State courts have not adopted highest and best use as the general standard for tax assessment purposes. In Kalski v. Fitzgerald, 25 A.D.2d 573, 266 N.Y.S.2d 620 (3d Dept., 1966), the court held that current use, not highest and best use, is the proper standard, stating:

Of course it is immaterial that a building is not an adequate improvement in the sense that it does not utilize the land to develop the highest commercial income and the owner is to be assessed on the basis of the building as it existed on the taxable status date (266 N.Y.S.2d at 622).

In Addis Co. v. Srogi, 79 A.D.2d 856, 434 N.Y.S.2d 489 (4th Dept., 1980 mot. lv. to app. den., 53 N.Y.2d 603, 421 N.E.2d 853, 439 N.Y.S.2d 1026 (1980)), the parcel subject to review was improved by two connected buildings used as a retail apparel store. The appraisal experts for both sides agreed that the highest and best use of the property was for conversion to a multi-family dwelling. Nonetheless, the trial court and Appellate Division held that the standard for assessment purposes was “its condition on the taxable status date, without regard to future potentialities or possibilities and may not be assessed on the basis of some use contemplated in the future” (434 N.Y.S.2d at 490). The Fourth Department reiterated its conclusion in Farone & Son, Inc. v. Srogi, 96 A.D.2d 711, 465 N.Y.S.2d 373 (4th Dept., 1983).

This “black-letter law” has been followed throughout the State (see, e.g., BCA-White Plains Lanes, Inc. v. Glaser, 91 A.D.2d 633, 457 N.Y.S.2d 299 (2d Dept., 1982); Adirondack Mountain Reserve v. Bd. of Assessors, 99 A.D.2d 600, 471 N.Y.S.2d 703 (3d Dept., 1984), aff’d, 64 N.Y.2d 727, 475 N.E.2d 115, 485 N.Y.S.2d 744 (1984); General Motors Corp. v. Assessor, Town of Massena, 146 A.D.2d 851, 536 N.Y.S.2d 256 (3d Dept., 1989)). Citing Adirondack, supra, the Third Department said, “The valuation of property is determined by its state as of the taxable date, and may not be assessed on the basis of some future contemplated use” (General Electric Co. v. Macejka, 117 A.D.2d 896, 498 N.Y.S.2d 905, 906 (3d Dept., 1986)).

More recently, the Appellate Division, First Department, considered a case where the property owner had purchased six parcels improved by residential walk-up apartments, some with street level retail space. The City of New York argued that they should be valued as an “assemblage” which had a higher value based on potential conversion. The Appellate Division emphatically rejected this assertion (Estate of Goldman v. Commissioner of Finance, 203 A.D.2d 20, 609 N.Y.S.2d 241 (1st Dept., 1994), mot. lv. app. den., 83 N.Y.2d 759, 639 N.E.2d 754, 616 N.Y.S.2d 14 (1994)).

In another case involving the issue of highest and best use, Justice Rossetti, in Supreme Court, Nassau County, noted that when a parcel is improved and has a current valuable use which is inconsistent with potential future use, the consideration of potential uses is inconsistent with the statutory directive that property be valued based on its existing condition (New Country Club of Garden City v. Bd. of Assessors, Supreme Court, Nassau County, Index No. 12696/88, June 4, 1991). The parcel under consideration in New Country Club was a golf course, which had been valued for assessment purposes in accordance with its value for residential development. The Court found that this was inappropriate and that, since the property was improved by the golf course, its use as such had value, albeit not as great a value as might be realized for other uses. The salient point made in the decision is that the assessor is directed by section 302 of the RPTL to assess each parcel annually and that should a change in use be effected, the assessor will have the opportunity to make an adjustment in the assessed value, if appropriate, at the time of that change in use (see, Matter of Allied Stores v. Finance Administrator, 76 A.D.2d 835, 428 N.Y.S.2d 316 (2d Dept., 1980)). The court contrasted the case of a parcel subject to condemnation pursuant to the Eminent Domain Procedure Law where the owner will be compensated for his loss in value only once. In such cases, the court said it is appropriate to value the property taking into consideration potential future uses (see, Pollack v. Bd of Assessors, 62 A.D.2d 1019, 403 N.Y.S.2d 762 (2d Dept., 1978)). This is in contrast to an assessment, which, as discussed previously, may be adjusted annually. {1}

Yet another example of the reluctance of the courts to ascribe higher values to property based on development potential is found in the case of City of Rochester v. Assessor of Town of Conesus, 136 A.D.2d 881, 524 N.Y.S.2d 940 (4th Dept., 1988). There the City challenged assessments of its property on the shores of one of its reservoirs. The respondent assessing unit argued that the highest and best use of the property should be based on its development potential as lakefront property. The Appellate Division rejected this contention, finding that there was no indication that the City intended to sell the property and that its highest and best use was as a watershed.

The issue of agricultural land is somewhat problematic. In one older case, it was found proper to value farm land by considering its potential for residential development (People ex rel. Town of Hempstead v. Tax Commissioners, 163 App.Div. 803, 149 N.Y.S. 239 (3d Dept., 1914)). {2}  In more recent cases, the aforecited Justice Rossetti has held that agricultural or horticultural use is to be distinguished from the case of idle, vacant land and that land put to such uses must be valued accordingly, irrespective of whether farming is the highest and best use of such property (Czuchman v. Bd. of Assessors, Supreme Court, Nassau County, Rossetti, J., 12/14/92, n.o.r.; Hicks Nurseries v. Bd of Assessors, Supreme Court, Nassau County, Rossetti, J., 4/8/93, n.o.r.).

The one apparent exception to the rule is in the case of vacant and unimproved land. There, if it is found that the land has no current existing use beyond that of its potential sale for a further use, there is nothing improper in establishing its assessed value by considering its market value as enhanced by potential uses (Weingarten v. Town of Ossining, 85 A.D.2d 697, 445 N.Y.S.2d 480 (2d Dept., 1981)).

Based upon the foregoing, we conclude that for purposes of real property tax assessments, property must be valued based upon its current use, not its highest and best use, except in the case of vacant land which is idle and put to no use whatsoever. In such latter case, the property may be valued on the basis of its highest and best use.

March 6, 1996

{1}  The Court of Appeals confirmed this distinction between valuation in condemnation and valuation in tax certiorari cases in Allied Corporation v. Town of Camillus, 80 N.Y.2d 351, 604 N.E.2d 1348, 590 N.Y.S.2d 417 (1992), rearg. den., 81 N.Y.2d 784, 610 N.E.2d 393, 594 N.Y.S.2d 720 (1993). The Court noted that “[t]he relevant consideration in assessment cases is the property’s value on the taxable status date - not its future use or value or the intentions of the owner” (80 N.Y.2d at 360, 590 N.Y.S.2d at 422).

{2}  This decision and assessment practices pursuant to it may explain the conundrum of the legislative findings in the original enactment of the Agricultural Districts Law (Agriculture and Markets Law, Art. 25-AA). Section 300 thereof, as first enacted (L.1971, c.479), referred to “urban pressure” on agricultural land and “stimulate[d] land speculation” as justification for partial tax exemptions for viable agricultural land. Yet, if assessors were applying the current use standard in assessing viable agricultural lands, the assessments should not have reflected the values of farmland otherwise inflated by pressures to develop the same for non-farm purposes and/or the influence of speculative investments in neighboring properties (but see, Karlin Farms v. Board of Assessors, 197 A.D.2d 32, 609 N.Y.S.2d 933 (2d Dept., 1994)).