State of New York
Supreme Court : County of Monroe

- against -
CHARLES SCHWAB,
as Assessor of the Town of Greece,
and THE BOARD OF ASSESSMENT REVIEW
OF THE TOWN OF GREECE,
Respondents,

For a review of a tax assessment under
Article 7 of the Real Property Tax Law
_______________________________

This opinion is uncorrected and is subject to revision in the official Reports

ANDREW V. SIRACUSE, J.

Both parties to this tax certiorari proceeding have raised objections to the referee's report. Petitioner Natapow Realty Corporation owns Imperial North Apartments in the town of Greece. The four petitions consolidated here seek review of taxes for that property during the years 1996-1999. On October 4, 2001, pursuant to a reference from this court, Frank A. Aloi, Esq., presented a report recommending that the 1999 assessment be confirmed but that the other assessments be reduced.

Petitioner does not oppose the recommendation regarding the 1999 assessment but asks the court for a further reduction in assessed value, objecting to three details with respect to the other years. Natapow contests two deductions from expenses of $20,000 each which were taken by the referee after having accepted all or almost all of the petitioner's evidence on the relevant items. It also asserts that the referee improperly disallowed certain Pure Waters (sewage) charges which were based on water usage instead of assessed value.

Respondents do not dispute the petitioner's assertion that the Pure Waters charges were usage-based and thus deductible as expenses. (During oral argument the respondents' attorney explicitly admitted this.) They claim, instead, that these charges were deducted as expenses and a portion of them was then deducted a second time, resulting in a "double dip". Respondents submit that the referee properly reduced the expenses to correct for this, and also maintain that the two $20,000 deductions from expenses were proper and were fully supported in the record.

Respondents differ from the referee, however, in the valuation method used. Mr. Aloi made use primarily of the income approach, rejecting comparable sales. Respondents claim that this was an error. It was compounded, in their view, by the referee's refusal to reopen testimony before the report was delivered to accept evidence of the sale of an apartment complex next to the subject property.

The court has reviewed the transcript of the two days of testimony before the referee, along with the appraisal reports and the submissions made by the parties. The respondent is correct in its arguments concerning the Pure Waters charge. There is no evidence anywhere in the record to substantiate the respondents' claim that the Pure Waters and/or water charges are inflated; the Pure Waters charges are taken directly from the tax bill and do not contain any water charges, and respondents' expert did not show what portion of the water charges themselves duplicated the Pure Waters expense.

Contrary to the explanation urged by the respondents, the referee had not reduced the claimed sum to eliminate a double dip. He disallowed a portion of it because he stated that he could not determine if the charges were usage-based. Since this issue is now conclusively settled by the concession made by counsel--and is, moreover, well supported by the tax bills themselves--this expense amount should be restored in full.

The respondents' argument on the method of valuation is not compelling. The court begins with the fundamental principle that evidence of comparable sales is favored in setting assessments, as the overall price arrived at by freely contracting parties in a competitive marketplace is the best evidence of value; indeed it is the definition of market or exchange value. Nor is such evidence to be rejected lightly even in the case of commercial property. The petitioner would have the court hold that the income method is to be used for all commercial developments, but neither logic nor case law commands such an inflexible rule.

The law is, instead, that the choice of valuation method for commercial property is left to the sound discretion of the finder of fact. For properties such as the present one the income approach offers many advantages. Unlike the market for residential property, where intangible factors are common, the traffic in commercial property is driven by cold calculations of income potential and expense projections. The appraiser thus has the advantage of duplicating the buyers' decision making process.

For large rental complexes the comparable sales approach itself has difficulties. The number of sales is rarely large enough to present a statistically valid sample, as such properties are much fewer in number than single-family houses. The complexes are also sufficiently different that the major problem in all sales comparisons--the question of exactly how comparable one property is with another--becomes almost insurmountable.

Both appraisers attempted to adjust for factors such as location, the smaller unit size, and the unusual predominance of one-bedroom apartments in the subject property. Both agreed that this complex was at an economic disadvantage compared to similar ones, but neither could quantify the disadvantage accurately. For this reason above all, the comparable sales figures were more speculative than they would be in most other cases. The referee acted well within his discretion in preferring the income approach, and from the report it is clear that he weighed all these issues before deciding this. The court agrees with his decision, and agrees as well that the information regarding the subsequent sale of the adjacent property was properly excluded. Although the location of the two are obviously comparable, the other factors listed above made the sale figures less probative than respondents assert. The income method of evaluation was correctly adopted in this proceeding.

The referee's report does not provide a basis, however, for the two $20,000 deductions from expenses. In the matter of payroll, the referee concluded:

While general payroll may not on this record be higher than the norm, is petitioner nonetheless expensing more than is reasonable for all management functions (on-site, and off)? There does appear to be some overlap in the subject years between off-site management (5%), and on-site (2 full-time superintendents, and one or more apartments devoted to their use). It is therefore the Referee's conclusion that the on-site management expense should be decreased by $20,000, representing part of one superintendent's salary, and a portion of the rent expense for one 1-bedroom apartment allocated to the superintendents (Report, 14)

It is the same with the replacement and repair reserves. The respondents argued that repair and maintenance expenses were inflated by including items such a roof repair, which should have been covered by a replacement reserve. The referee did not agree with this contention, but he went on to state:

[T]he petitioner appears to have deferred (whether intentionally or not) certain repairs and replacements into the time frame of this litigation, with the result that the replacement reserves added by Mr. Giannotti [the petitioner's appraiser] to the certified income and expense statement are overstated to in effect eventually catch up with the deferred repairs and replacement expense. To adjust for this circumstance, the Referee will adjust the replacement reserve downward by $20,000, in each of the years in question (16).

The only evidence that would appear to support this decision is that the complex roof was left with minimal maintenance until shortly before the period in question. Thereafter, the owners spent considerable sums on its repair.

The referee did not find these expenses unreasonable. Instead, he reduced the $63,000 replacement reserve in the petitioner's appraisal. This figure, however, was based on the replacement costs of a number of items with different economic lives, of which the flat roof was only one. The total capitalized sum was $964,022; roof expenses (aside from the mansard "roof") came to $107,00, and represented only $8,912 out of the $63,000 reserve. There was no evidence that the reserve figure was inaccurately calculated, and the referee's decision to reduce it by one-third was unfounded.

The referee apparently concluded, instead, that by doing so he would compensate for an improper inflation of expenses for the years 1996-1998. The reduction is not justifiable on that interpretation either. Even if the roof repairs were deferred until 1996, thus inflating this item of expense, the income and expense statements would not be questionable unless the aggregate maintenance charge for the period were shown to be similarly higher than usual. They were not, and for a simple reason: monies spent on the roof in one year could be spent on the parking lot or the air conditioning the next. If anything, the evidence shows that Natapow "deferred" repairs simply by paying attention to the part of the complex that was giving the most trouble.

The record does not support a finding that general repair costs were deferred into the subject years. Nor does it provide a basis for the referee's decision to set the supposed inflation at $20,000 instead of another figure. As with the maintenance expense, the referee could equally have chosen $15,000 or $25,000 for each figure; $20,000 seems to be an estimate. The court, with all respect due the learned referee, must reject both reductions as speculative.

The petitioner's motion is granted, and the respondents' cross motion is denied. No costs are payable. Counsel for the petitioner may prepare the order. In addition, both counsel are invited to comment on the referee's statement of fees within 30 days of the date of this decision.

DATED: Rochester, New York

December 10, 2001

Andrew V. Siracuse, J.S.C.

This opinion is not available for publication in any official or unofficial reports, except the New York Law Journal, without the approval of the State Reporter or the Committee on Opinions (22 NYCRR 7300.1)

Design © 1997 Michael Steinberg. No copyright subsists in the decision texts, which are government documents.

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