Last month, the Appellate Division, Second Department, issued four decisions[1] in a series of hybrid proceedings challenging local laws in the Town of Riverhead (“Riverhead”). Plaintiff/Petitioner Calverton Manor, LLC (“Calverton Manor”), in connection with a site plan application, sought to annul several resolutions adopted by Defendant/Respondent Riverhead Town Board (“Town Board”). These resolutions: (1) established a new comprehensive plan; (2) implemented a new agricultural protection zoning district (“Agricultural District”); (3) implemented a new rural corridor district (“Rural District”); and (4) enacted a new transfer of development rights law (“TDR Law”). Each of the challenges was based upon the Town Board’s failure to comply with N.Y. General Municipal Law Section 239-m (“Section 239-m”), among other things. In addition, Calverton Manor argued that the “special facts exception” required Riverhead to apply the preceding zoning district laws to its application, rather than the new Agricultural District and Rural District laws.

In these cases, the Court held that some circumstances allow revisions to be made to proposed laws or actions referred to the county planning agency pursuant to Section 239-m even after the referral is made. As the Court analyzed Calverton Manor’s Section 239-m challenges to the various Town Board resolutions, its holdings illustrate the distinction between valid post-referral modifications and invalid modifications which violate Section 239-m and render the entire act void. Additionally, the Court analyzed the special facts exception in light of Riverhead’s treatment of Calverton Manor’s application.

Calverton Manor’s Site Plan Application versus a New Comprehensive Plan

Calverton Manor owns an undeveloped parcel of land (“Property”) in Riverhead and submitted a site plan application in 2001 to construct numerous commercial and residential buildings thereon (“Application”). For approximately two years, Calverton Manor worked with Riverhead on its Application to satisfy the applicable zoning laws in effect at the time. Riverhead, however, had been developing a new comprehensive plan since 1997. The new comprehensive plan sought to protect open space and farmland, while concentrating development into certain specified areas. Riverhead’s new comprehensive plan also proposed eliminating certain permitted uses on the Property that were crucial to the Application.

Calverton Manor submitted the last revised Application in September 2003. The Town Board adopted the new comprehensive plan on November 3, 2003. The new comprehensive plan derailed the Application and development of the Property. Calverton Manor brought its challenges in Suffolk County Supreme Court. Calverton Manor was largely unsuccessful and appealed; the Town Board cross-appealed concerning the special facts exemption.

Amendments Subsequent to a Section 239-m Referral: Embraced in the Original

With respect to Calverton Manor’s Section 239-m challenge to the Town Board’s resolutions enacting the comprehensive plan, the Agricultural District and the Rural District, the trial court denied the petition, dismissed the proceeding and declared theses local laws legal and valid.[2] Section 239-m, in many instances, requires a municipality to submit to the county planning agency a “full statement” of the proposed action. In pertinent part, the trial court found that the Town Board made the appropriate Section 239-m referrals. Calverton Manor appealed and the Second Department affirmed. The Court held that despite changes made to the comprehensive plan, Agricultural District and Rural District after the Town Board referred these local laws to the Suffolk County Planning Commission (“Commission”), the revisions were “embraced within the original referral” such that the Town Board did not fail to refer a full statement of its proposed action.

Calverton Manor also presented a Section 239-m challenge to Riverhead’s new TDR Law. Transfer development rights allow landowners whose development rights have been adversely affected or limited in one place to transfer these rights to another place and build in excess of certain limitations in that other, buildable place. The parcel from which rights are transferred is the “sending parcel” and the parcel to which rights are transferred is the “receiving parcel.” Riverhead’s new TDR Law designated the Property as a “sending parcel” so that development rights could only be transferred away from it, as opposed to towards it.

With respect to this challenge, the trial court also denied Calverton Manor’s Section 239-m challenge to the TDR Law based upon the same rationale. The Second Department, however, reversed the trial court, granted the motion for summary judgment and declared the TDR Law void for failure to comply with Section 239-m. The Town Board’s submission of the TDR Law to the Commission was effectively rejected because it was missing the complete text of the law. The Commission, upon receipt of the proposed law, advised the Town Board by letter that it would not review the TDR Law until it received a complete revised text of the amendment. And, nothing in the record contradicted the Commission’s position that it did not receive a complete text of the law. Therefore, the Court found that the Town Board failed to refer a “full statement” of the proposed TDR Law to the Commission prior to enacting the same in violation of Section 239-m.

The Town Board sought the same “embraced within the original” protection the Court applied to the other local laws. Specifically, the Town Board argued its referral of prior drafts of the TDR Law sufficed Section 239-m and obviated the need for the subsequent referral. The appeals court disagreed. A new referral is not required only if “the particulars of the [changes] were embraced within the original referral.” Unlike the changes made to the comprehensive plan, Agricultural District and Rural District, subsequent to their referrals, the amendments to the TDR Law were not embraced within the referred version.

The TDR Law ultimately passed by the Town Board, among other things, mapped the sending and receiving districts and specified the degree to which density limitations could be exceeded. The prior versions of the TDR Law reserved these details for future consideration. Highlighting the significance of the changes made to the TDR Law post-referral, the Town Board’s own resolution declared that the final TDR Law contained “significant modifications” from the prior versions. In addition, the Town Board even prepared a supplemental generic environmental impact statement over the course of several months to evaluate the changes in the final TDR Law. Accordingly, the Court held that the Town Board failed to comply with Section 239-m, the adoption of the resolution enacting the TDR Law was of no effect and the TDR Law is void and unenforceable.

Special Facts Exception Permits “Grandfathering” Site Plan Applications

In addition to its Section 239-m, Calverton Manor argued “special facts” required that the zoning district laws preceding the Agricultural District and Rural District apply to its Application. Ordinarily, courts apply the current zoning laws in effect when they render decisions. Under the special facts exception, however, courts may apply the law in effect at the time the application was made. This exception applies where the landowner “establishes entitlement as a matter of right to the underlying land use application [and] extensive delay indicative of bad faith….unjustifiable actions by municipal officials…or abuse of administrative procedures.”

The Town Board sought to dismiss this claim, but the trial court held triable issues of fact existed sufficient to permit the claim to proceed. The Town Board cross-appealed and the Second Department denied its appeal.[3] The Court found that triable issues of fact exist as to whether special facts warranted the application of the prior zoning laws to Calverton Manor’s Application.

The record contained inconsistencies as to whether Calverton Manor’s last revised Application was “complete” in September 2003. On the one hand, evidence in the record showed that Calverton Manor needed to make further revisions before the Application could be deemed completed under Riverhead’s rules. In this scenario, Calverton Manor is not entitled to the exception. On the other hand, evidence also showed that the Town Board determined the Application was “completed” upon submission in September 2003. This latter circumstance indicates the Town Board may have delayed processing the Application in bad faith until the new laws went into effect. Because triable issues of fact exist, summary judgment on this claim was inappropriate.

—ENDNOTES—

[1] Calverton Manor, LLC v. Town of Riverhead, 160 AD3d 829 (2d Dept 2018); Calverton Manor, LLC v. Town of Riverhead, 160 AD3d 833 (2d Dept 2018); Calverton Manor, LLC v. Town of Riverhead, 160 AD3d 838 (2d Dept 2018); Calverton Manor, LLC v. Town of Riverhead, 160 AD3d 842 (2d Dept 2018).

[2] Although these are hybrid proceedings, for the purposes of simplicity, the petition/complaint will be referred to as the petition and the proceeding/action will be referred to as the proceeding.

[3] The Town Board cross-appealed “from so much of the order as did not search the record and award them summary judgment and, in effect, make a declaration in their favor” on Calverton Manor’s special facts exception claim. The Second Department “dismissed” the cross appeal based upon the premise that the Town Board was not entitled to make such an appeal because it was technically not aggrieved. The Court noted that a party is not aggrieved by an order which does not grant relief that the party did not request. Here, apparently, the Town Board did not ask the trial court to award summary judgment on the special exceptions claim. Therefore, it cannot be aggrieved by this aspect of the order and is not entitled to appeal it. Despite having “dismissed” the cross-appeal, the Second Department heard, analyzed and denied the Town Board’s arguments seeking summary judgment on the special facts exception.

It is not uncommon for municipal planning departments to require applicants who are seeking land use approvals involving multiple contiguous parcels to consolidate or merge the properties to form one single larger parcel. Consolidation or merger typically results in a new tax map number, a new single tax bill for the consolidated or merged lots, assurances to the municipality that the otherwise single unconsolidated or non-merged lots will not be individually sold off post land use approvals and that the proposed project which is subject to the land use approvals will be assessed for real property tax purposes as one single improved unit (versus partially improved and partially vacant land).

Consolidation or merger of single parcels into one larger parcel provides for certainty when it comes to ownership of the lands subject to the approvals and provides the municipal assessing unit with certainty as to the use of the lands while imposing a single tax class and assessed value to the overall project.  Consolidation or merger is most often required prior to issuance of a building permit or Certificate of Occupancy.  Consolidation can be set forth as a covenant or condition in a written and signed Declaration of Covenants and Restrictions, which is recorded against the property in the applicable County Clerk’s or County Registers Office.  Similar to any other covenant or restriction, failure to comply with the covenant or restriction to consolidate can result in revocation of the relevant land use approvals.

In a recent Second Department case involving a real property tax assessment dispute, failure by the property owner to consolidate or merge six individual parcels that form the boundaries of a shopping center gave rise to unequal tax assessments among the six parcels, resulting in the exact problem that municipalities try to avoid by requiring consolidation or merger.

In re Blauvelt Mini-Mall, Inc v. Town of Orangetown, as a condition of site plan approval granted in 1992, the Town required that six individually owned parcels be merged into one single parcel forming the boundaries of a proposed shopping center.  Despite the condition, no formal steps were ever taken to effectuate the merger.   The facts of the case do not indicate whether the merger requirement was reduced to a recorded Declaration of Covenants and Restriction with revocation language.

Over the years, although a formal merger was never accomplished, the Town assessed the shopping center as one real property taxable unit by undervaluing five of the parcels while overvaluing the sixth parcel.  This valuation strategy lead to the unequal tax assessments that consolidation or merger seeks to avoid.   What is interesting about this case from a land use perspective is the fact that despite the 1992 Town directive to consolidate or merge the lots, the Appellate Division reversed the trial court holding that directed the merger by stating that  “[n]one of the parties sought merger of the parcels or similar relief, merger of all the parcels at issue into one tax lot is not supported by the record, and merger of all the parcels could be potentially prejudicial to the petitioner.”

Hence, despite all outward appearances by the property owner to use the unconsolidated parcels as one consolidated improved shopping center parcel, failure to take the necessary steps to consolidate, such as transferring all six parcels into one deed, providing one overall property description or metes and bounds instead of six individual metes and bounds, and modifying the official tax maps to reflect one single parcel, the petitioner in this case could potentially benefit from the unequal tax assessments to the detriment of the municipality.  Likewise, even though the Town conditioned site plan approval on consolidation or merger of the lots, failure by the municipality to insure that consolidation actually occurred seems to have resulted in a waiver or estoppel against the municipality, which is not typically applicable to municipalities.

Author note: Although the facts of this case do not indicate the basis for under valuation of five parcels and over valuation of the sixth parcel, it would likely be reasonable that the five undervalued parcels are perhaps being assessed as vacant land containing only parking areas, or open space, while the sixth parcel houses the actual shopping center structure.  If this is the case, petitioner could easily argue that parcels one to five should receive a lower vacant land assessment, while only parcel six should receive a full commercial improved real property assessment.  Allowing this fact pattern to exist provides for uncertainty in tax assessments.

On March 28, 2018, the Babylon Town Board adopted a moratorium on any new land use applications that seek to increase a parcel’s wastewater limits established by the Suffolk County Department of Health Services (“SCDHS”) by utilizing Pine Barrens Credits (“PBC”), which effectively transfer development rights from other parts of Suffolk County to properties within the Town of Babylon.  During the period of the moratorium, the Town plans to study the potential impacts to groundwater from allowing developers to increase development density by acquiring PBCs.

The concept of transferring development rights using PBCs derives from the Long Island Pine Barrens Maritime Reserve Act, which was adopted in 1993 for the purpose of protecting approximately 100,000 acres of the Long Island Pine Barrens located within the towns of Brookhaven, Riverhead and Southampton.  As one method of land preservation, the Act authorizes the creation of a transfer of development rights (“TDR”) program, the specifics of which are set forth in the Central Pine Barrens Comprehensive Land Use Plan (“Plan”).  Under the TDR program, a PBC can be used to transfer the development potential from a parcel of property within the protected Pine Barrens Core Preservation Area (“Core”), or other environmentally-sensitive area identified in the Plan (a “sending parcel”), to a parcel in a designated area outside the Core (a “receiving parcel”).  Upon acceptance of the PBC, the sending parcel’s development rights are transferred to the receiving parcel, which may now be developed more intensely.  For a more detailed discussion of the Pine Barrens TDR program, see John Armentano’s blog post, Pine Barren Credits – There’s Money In Those Trees.

Historically, PBCs have been accepted by several towns and by the SCDHS to permit a new development project, or an expansion or change of use of an existing building, that will result in a wastewater discharge (effluent loading) that exceeds the SCDHS’s allowable sanitary flow rate for parcels that are served by an individual on-site sewerage system (i.e., not connected to a municipal sewer system).  The allowable flow rate for a particular parcel is set forth in Article 6 of the Suffolk County Sanitary Code and is calculated based on the proposed use, and size of the building and the parcel on which it sits, as well as the hydrogeological (groundwater recharge) zone in which the parcel is located.  A PBC may be used to permit additional effluent loading up to a maximum of twice the allowable density.

Following the recent approval of two development projects in North Babylon and Deer Park, the Town has decided to take a closer look at the environmental consequences of allowing for increased density.  According to Richard Groh, the Town’s chief environmental analyst, the Town’s planning and environmental control departments have formed a working group to study the impacts to groundwater that will result from continuing the practice of accepting PBCs to increase development density.  Upon completion of the study, the group will submit its recommendations to the Town Board for consideration.

Early this year, the Supreme Court of New York, Richmond County issued a comprehensive opinion in Galarza v. City of New York, 58 Misc.3d 1210(A), reaffirming and clarifying the nuances of condemnation, takings and just compensation principles as they relate to wetlands restrictions.  The court held that the owner of a 21,000 square-foot vacant lot (“Property”) condemned by the City of New York (“City”) as wetlands was entitled to just compensation in the amount of $669,000, where the fair market value of the undevelopable land was approximately $200,000.

In awarding upwards of 335% of the Property’s apparent value, the court found that the owner was entitled to an incremental increase in just compensation.  This finding was based upon the nature of the wetlands restrictions vis-à-vis takings precedent.  And, it is significant that the court awarded the higher value despite the owner having purchased the Property after it was already designated as wetlands and known to be undevelopable.  This decision follows a late-2017 decision of the Appellate Division in In re New Creek Bluebelt Phase 3 (Baycrest Manor), 156 A.D.3d 163 (2d Dep’t 2017), where the Second Department affirmed, as modified, an increased award as just compensation for wetlands condemnation.

Claimant Ivan Galarza (“Owner”) purchased the Property at a tax lien foreclosure auction in 2003.  At the time the Owner purchased the Property at auction, the Property was already designated as wetlands.  The City later acquired the Property by condemnation as part of its New Creek Bluebelt Phase 4 project.  The Owner and the City both agreed that the wetlands designation precluded the Owner from obtaining a permit to improve the Property and that the highest and best use of the Property, as regulated, would be to remain vacant.  The parties disagreed, however, as to whether the wetlands restrictions constituted a regulatory taking.  The regulatory taking issue is relevant and forms the crux of this entire case because it is precisely the finding of a “reasonable probability of success” in bringing a hypothetical regulatory taking claim to challenge regulations, e.g. wetlands restrictions, that entitles a property owner to the incremental increase in just compensation.

The Threshold Question: Whether the Regulation Is a Background Principle of New York State Law on Property and Nuisance

First, the court addressed the threshold issue of whether the Owner was barred from bringing a takings claim in the first place, because the Owner purchased the Property subject to the wetlands designation.  Relying on Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), Galarza stated that the “logically antecedent inquiry” into a takings claim is whether “the proscribed use was part of the title to begin with.”  Thus, before any owner can claim deprivation of economically beneficial uses of property, courts must first determine whether the right to use the property in the manner prohibited was actually part of the “bundle of rights” acquired with title.

In Lucas, the U.S. Supreme Court held that in order for a regulation not to constitute a taking where it prohibits all economically beneficial use of land, the regulation cannot be newly legislated or decreed, but must inhere in the title itself; the restriction must be a background principle of a state’s law of property and nuisance – already placed upon the ownership of property.  After Lucas, the New York Court of Appeals issued four opinions simultaneously in 1997 known as the “takings quartet.”[1]  These four cases established the “notice rule” in New York, whereby any owner who took title after the enactment of a restriction was barred from challenging the restriction as a taking because the use prohibited was not part of the bundle of rights acquired with title by a buyer.

Almost a decade after Lucas, the U.S. Supreme Court’s decision in Palazzolo v. Rhode Island, 533 U.S. 600 (2001), up-ended New York’s “notice rule.”  The high Court held that a per se notice rule was untenable and altered the nature of property because an owner would be deprived of the right to transfer an interest acquired with title (prior to the regulation).  Moreover, the Court held that simply because an owner acquired property after the enactment of regulations does not transform those regulations into background principles of state law on property and nuisance.

In determining whether New York State’s wetlands restrictions affecting the Property are part of the background principles of New York’s law on property and nuisance, the Galarza court answered in the negative.  Interestingly, the City argued, among other things, that protection of wetlands was grounded in common law and cited to medieval England’s use of wetlands restrictions.  The court noted, however, that these restrictions pre-dated the creation of fee estates and that as individual ownership rights began to take shape, wetlands regulations were abandoned in favor of development.

In addition, the Galarza court distinguished the Palazzolo decision issued by Rhode Island Superior Court after remand from the U.S. Supreme Court.  The Superior Court found that wetlands designations were part of the background principles of Rhode Island’s state law.  Conversely, the Galarza decision found that “[w]hile development of wetlands constitutes a nuisance under Rhode Island law, development of wetlands was not a nuisance under New York law.”  The court chronicled the filling and draining of wetlands and the history and treatment of land development in the City from its inception until the 1970s, at which time conserving wetlands became a concern.  “Given this history, it is clear the New York wetlands regulations did not simply make explicit a prohibition on activity that was always unlawful, and therefore the wetlands regulations are not part of New York property and nuisance law.”

The Galarza court also distinguished a 2016 Second Department ruling in Monroe Eqs. LLC v. State of New York, 145 A.D.3d 680, which held watershed regulations constituted background principles of New York law.  Unlike wetlands regulations, watershed regulations prohibit a nuisance by preventing poisoning and pollution of water supplies and drinking water.  Based upon this analysis, the court found the Owner in Galarza was not barred from bringing a takings claim.

The Regulatory Takings Analysis: Per Se, Partial or Not at All

After having found the Owner’s regulatory taking claims were not barred, the court proceeded to the crux of the case: whether there was a reasonable probability that the wetlands regulations constituted a regulatory taking.  If not, the Owner’s just compensation is limited to the value of the Property as regulated.  If so, then the Owner is entitled to an incremental increase in value as just compensation, i.e. the value of the land as restricted plus an increment.  The increment reflects the premium a hypothetical buyer would pay for the Property in light of the probable success on a takings challenge.  (In other words, the Property would be worth more and, thus, entitled to greater value as just compensation for condemnation.)  To show a reasonable probability of success on a takings claim, the claimant must demonstrate that the regulation renders the property “unsuitable for any economic or private use, and destroy[s] all but a bare residue of its value.”

To determine whether there was a reasonable probability of a successful regulatory takings claim, the court considered Lucas, Tahoe-Sierra Preserv. Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002) and Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978).  Under Lucas, a regulation constitutes a taking per se “only in the extraordinary circumstance where no economically beneficial use of the land is permitted and the regulations have extinguished all of the property’s value.”  In this scenario, no further analysis is necessary.  Galarza highlighted the distinction between “economic use” (returns from actual use or development) and a “property’s value” (market value as regulated or otherwise), but noted that Lucas used these terms interchangeably.  Later, the U.S. Supreme Court clarified Lucas in Tahoe-Sierra : “compensation is required when a regulation deprives the owner of all economically beneficial uses of his land…[and] is limited to the extraordinary circumstance when no productive or economic beneficial use of land is permitted.”  Anything short of 100% loss of value is not a regulatory taking per se and requires additional analysis by the factors enumerated in Penn Central.

Specifically in Galarza, the Property had value as regulated because there is a market for wetlands in Staten Island (discussed below), but the Property had no economic beneficial use.  The court considered two other cases in this respect, namely Lost Tree Vill. Corp. v. United States, 787 F.3d 1111 (Fed. Cir. 2015), and Florida Rock Indus., Inc. v. United States, 18 F.3d 1560 (Fed. Cir. 1994), to determine whether having value without any beneficial or economic use(s) precludes a taking per se.  The court in Lost Tree, on the one hand, held that residual non-economic value (i.e. market value) does not preclude a per se taking because there are no longer any underlying economic uses and the market value (selling the property) is not an underlying economic use.  Florida Rock, on the other hand, held that the value of property as a speculative investment is a proper consideration and that the associated market value precludes finding per se taking.[2]

The court in Galarza agreed with Florida Rock, holding that there is an established market for wetlands in Staten Island (for reasons that are not entirely clear) and that these parcels are bought and sold with an expectation that the restrictions may eventually be changed, waived or modified, or that the parcels might be sold at a profit.  Regardless of the motives and intentions, this market exists for parcels without permissible uses and this market must be considered in the takings analysis.  The Property was found to have a market value of $200,000.  Accordingly, because the Property has value in this market, the wetlands designation does not deprive the Property of all of its economic value (although it does deprive economic use entirely).  Therefore, it cannot qualify as a regulatory taking per se under Lucas.

Having failed to meet the Lucas test, the court then turned to a partial regulatory takings analysis under Penn Central.  This analysis is an “ad hoc, factual inquiry” and considers three factors: (1) the regulations’ economic impact upon the claimant, (2) the extent of interference with “reasonable” investment-backed expectations and (3) the character of the regulation as governmental action.

Penn Central Test Part 1: Economic Impact

First, in evaluating the economic impact, courts must compare the value that the regulation has taken from the property with the value that remains with the property.  Here, the court analyzed precedent set by four previous Second Department cases in wetlands taking cases (ranging from 1984 through 2017).[3]  Based upon these cases, the Galarza court found there was a reasonable probability of a successful regulatory takings challenge where regulations deprived the claimant of all rewarding uses of the property, e.g. development prohibition, and reduced the property’s value upwards of 80-90%.

In contrast, the court cited two other Second Department cases: Adrian v. Town of Yorktown, 83 A.D.3d 746 (2d Dep’t 2011), and Putnam County Nat’l Bank v. City of New York, 37 A.D.3d 575 (2d Dep’t 2007).  In Adrian, the court did not find a regulatory taking where the property value was reduced by a 64% reduction and the claimant sold the 15-acre parcel for $3,600,000, although contended it was worth $10,000,000.  In Putnam County Nat’l Bank, the court also did not find a regulatory taking.  There, watershed regulations reduced the value by 80%, and although the claimant was denied a building permit for a 36-lot subdivision because a sewer could not be built within the watershed, approval was granted for an alternative 17-lot subdivision.  The property was ultimately sold for $1,400,000.  That court found this realization was a “reasonable return”, and the economic impact of the watershed restrictions was not sufficient to constitute a taking.

Here, after various arguments and evidence presented by the parties, the court found the Property to have the following set of values: $200,000 as regulated and undeveloped and $1,701,000 as fully developed.  The court also found that it would cost $469,507 to develop the Property and, when the costs are deducted from the fully developed value ($1,701,000 less $469,507), the value of the return would be $1,231,493.  The difference, then, between the regulated value ($200,000) and the developed value, after costs ($1,231,493), is $1,031,493.  This figure is 84% of the fully developed value.  Another way to view the calculation is that the regulated value ($200,000) is 16% of the fully developed value.  Accordingly, the regulations reduce the Property’s value by 84%.

Penn Central Test Part 2: Extent of Interference with Expectations

Penn Central’s second factor is the extent of interference with investment-backed expectations.  Initially, courts must determine whose expectation to use.  In the regulatory takings context, the expectation of the owner is used because it is his or her land that suffers from the restraint.  To determine just compensation in the condemnation context, the expectation of the hypothetical buyer is used because this perspective determines the owner’s realization upon a sale.

Considering the hypothetical buyer’s expectations, the court must view the reasonableness of the expectation as an objective test: whether the regulation embodied a background principle of New York property and nuisance law.  This is the same consideration in determining whether a regulatory claiming is barred at the outset.  Essentially, it is unreasonable to expect to use property in such a manner prohibited as a background principle of law.  Finding guidance from the U.S. Supreme Court in Palazzolo, Galarza concluded it is reasonable to expect to utilize property as if the regulations did not exist – unless the regulations are background principles, the analysis cannot begin by limiting expectations to only those uses allowed by the regulation if the regulation is not a background principle.

As noted above, the Staten Island wetlands market exists and contemplates that regulations may be changed, waived or modified in favor of future development.  The court here ultimately determined it is not unreasonable for a hypothetical buyer to expect to develop the Property at some future date because, among other things, the wetlands restrictions are not background principles of law.  Accordingly, because any development was totally prohibited by the wetlands designations, then the regulations substantially interfered with reasonable expectations to develop the Property.

Penn Central Test Part 3: Character of the Regulation

The third factor under Penn Central is the character of the regulation.  Courts consider whether it amounts to a physical invasion or, instead, merely affects property interests.  Additionally, courts consider “reciprocity of advantage,” i.e. whether the regulation is part of a general scheme that provides some benefit to the regulated parcel, like a comprehensive zoning plan.  The singling-out of a parcel with a disproportionate burden is indicative of a taking.  The Galarza court found that while wetlands restrictions provide a benefit to the public in general, their burden falls disproportionately on a small group of owners, especially those whose entire parcels are classified as wetlands (as opposed to portions of parcels or parcels that are wetlands adjacent).  Here, the wetlands regulations approach a physical taking because they prohibit development entirely and force the Owner to leave the Property vacant.

Concluding Penn Central

In concluding its Penn Central analysis, Galarza found: (1) the wetlands regulations diminished the value of the Property by 84%, (2) interfered with the reasonable expectations of the Owner or a hypothetical buyer to develop the Property and (3) the character of the regulations is disproportionately burdensome and prohibits all economic use of the Property.  Moreover, the court found that the diminution of value was so great and the prohibitive character so invasive that, even if a hypothetical buyer did not have an expectation to develop, the regulations themselves “nearly approximate a physical appropriation as to constitute a taking under a Penn Central analysis.”

Therefore, the court held just compensation valuation must include the regulated value plus the incremental value to reflect the hypothetical buyer’s likelihood of successfully challenging the wetlands regulations as a regulatory taking.  This increment is a portion of the difference of the valuation over-and-above the regulated value.  Here, the regulated value was $200,000 and the developed value, after costs was $1,231,493; the difference between these figures is $1,031,493, and the increment is a portion of this difference.  (The Owner already receives the regulated, fair-market value as just compensation, so this value is not included in increment calculation).

In determining the actual incremental value, courts consider the time, effort and expense in “de-regulating” the affected land, including without limitation exhausting administrative remedies, prosecuting the takings challenge and the financial cost of “carrying” the affected property.  Here, the court found that the deregulation costs would be $391,882 and deducted these costs from $1,031,493, resulting in a “present day value” figure of $639,611.  The present day value figure must be discounted for inflation and opportunity costs, among other things.  The court determined that the present day value after the applied discount was $469,380 – and this is the incremental value to be applied.  Finally, the court completed its calculation for its award of just compensation: it added the regulated value ($200,000) together with the increment ($469,380), resulting in an award of $669,380 (rounded to $669,000).

—ENDNOTES—

[1] The four cases are as follows: Gazza v. New York State Dep’t of Envt’l Conserv., 89 N.Y.2d 603 (1997), Basile v. Town of Southampton, 89 N.Y.2d 974 (1997), Anello v. Zoning Bd. of Appeals, 89 N.Y.2d 535 (1997), and Kim v. City of New York, 90 N.Y.2d 1 (1997).  Gazza and Basile addressed wetlands restrictions.In determining the actual incremental value, courts consider the time, effort and expense in “de-regulating” the affected land, including without limitation exhausting administrative remedies, prosecuting the takings challenge and the financial cost of “carrying” the affected property.  Here, the court found that the deregulation costs would be $391,882 and deducted these costs from $1,031,493, resulting in a “present day value” figure of $639,611.  The present day value figure must be discounted for inflation and opportunity costs, among other things.  The court determined that the present day value after the applied discount was $469,380 – and this is the incremental value to be applied.  Finally, the court completed its calculation for its award of just compensation: it added the regulated value ($200,000) together with the increment ($469,380), resulting in an award of $669,380 (rounded to $669,000).

[2] The court addressed the nuances of speculation:

The cases that hold that one cannot consider speculative uses in valuing property in condemnation cases refer to non-current uses where it is not probable that the property would be put to such a use in the reasonable near future.  This is different from investors who speculate in property by purchasing it on the possibility of expectation that it will increase in value at some point in the future.  In this [latter] sense, speculative purchases represent investment backed expectation.

In addition, the court noted that dollars are fungible and that the land-speculation market provides owners with monetary compensation the same way as any other market.  Moreover, the key inquiry for purposes of just compensation for condemnation is whether there was a reasonable probability of successfully bringing a takings challenge as of the date of vesting – not whether any expectations of future value might be met.

[3] The cases are as follows: Chase Manhattan Bank v. State of New York, 103 A.D.2d 211 (2d Dep’t 1984), Baycrest Manor, Matter of New Creek Bluebelt, Phase 4 (Paolella), 122 A.D.3d 859 (2d Dep’t 2014), and Friedenburg v. State of New York, 3 A.D.3d 86 (2d Dep’t 2003).

On January 24, 2018 the Appellate Division, Second Department affirmed in part, and reversed in part, a trial court order granting Defendant, Bay Ridge Methodist’s counterclaim that certain cladding and a drip edge (a system used to deflect water) installed by the Plaintiff, David S. Kimball, along a party wall shared by the parties constituted a trespass.  See, Kimball v. Bay Ridge United Methodist Church, 2017-03575, Jan. 24, 2018.

In upholding the trespass, the Court stated that Kimball “failed to raise a triable issue of fact regarding whether the cladding and drip edge encroached onto the [Church’s} property.”  As such, the trial court’s trespass finding against Kimball, in favor of the Church, was upheld. However, the trial court’s finding that the trespass must be removed was reversed.

In reversing, the Court stated that “RPAPL 871(1) provides that an ‘action may be maintained by the owner of any legal estate in land for an injunction directing the removal of a structure encroaching on such land.  Nothing herein contained shall be construed as limiting the power of the court in such an action to award damages in an appropriate case in lieu of an injunction or to render such other judgments as the facts may justify.'” (emphasis added)

Finding that the Church failed to demonstrate the absence of any triable issues of fact concerning whether the balance of equities weighed in its favor, the Appellate Division vacated the injunction directing Kimball to remove the cladding and drip edge from the shared wall holding that “[i]n order to obtain injunctive relief pursuant to RPAPL 871(1), a party is ‘required to demonstrate not only the existence of [an] encroachment, but that the benefit to be gained by compelling its removal would outweigh the harm that world result.”

Consequently, since the Church did not prove that the benefit gained by the Church in compelling Kimball to remove the cladding and drip edge would outweigh the harm that would result to Kimball if removed, the Court remitted the matter back to the Supreme Court, Kings County for further proceedings.

Under RPAPL 871(1), and upon the trespass finding, the party trespassed upon became the party with the burden to prove that the benefit of removal of the trespass outweighed the harm to the trespassing party.  It is not enough for injunctive relief that a trespass exists.  The trespassed upon party is tasked with the burden to prove that its damages outweigh those damages that the trespassing party may incur upon removal.

It is interesting to note that, RPAPL 871(2) specifically states that “[t]his section shall not be deemed to repeal or modify any existing statute or local law relating to encroaching structures.”  It would be interesting to know whether a common law trespass claim was asserted in this action, or whether another statute or local law was available that could have resulted in a different and more favorable outcome for the Church.

On January 18,  2018, the Appellate Division, Second Department, upheld a decision denying an application for a religious real property tax exemption on the grounds that the property owner’s use of the main structure as a dormitory and living quarters for 20 students ran contrary to the one family dwelling Certificate of Occupancy issued for the premises and thus violated the Town of Ramapo’s zoning laws.  See, Congregation Ateres Yisroel v Town of Ramapo, 2014-09194.  

In Congregation Ateres Yisroel, plaintiff claimed and received a religious real property tax exemption for the years 2008-2011.  In 2012, plaintiff sought to renew its religious tax exemption by submitting a renewal application stating that no changes had been made to the property’s ownership or use from 2011 to 2012.    The Town denied the request on the grounds that plaintiff erected two trailers on the premises without seeking permits or approvals and that plaintiff used the main structure to house 20 students in dormitory style living quarters all in contravention to a 1954 Certificate of Occupancy stating the premises is certified as a “one family dwelling.”

Without any discussion or analysis of whether the students being housed at the property were engaged in conduct of a religious nature, the Second Department, agreed with the trial court that use of the premises for dormitory style living contravenes the “one family dwelling” Certificate of Occupancy and as a result, denial of the religious real property tax exemption was upheld.

Now, this decision is not particularly shocking or even interesting for that matter.  However, this decision caught my attention because not long ago, we published a blog post entitled “Court Supports an Expansive View of What Constitutes a Religious Use.”  In that post, the Third Department reinstated a decision of the City of Albany’s Zoning Board holding that a church’s partnership with a not-for-profit entity to house 14 homeless individuals at the church parsonage was a permissible use for a house of worship.  The Court agreed that assisting the homeless is consistent with the mission and actions of a house of worship.   See, Matter of Sullivan v Board of Zoning Appeals of City of Albany.

Although Sullivan did not involve a real property tax exemption, it is quite likely that the house of worship in the Sullivan case continues to receive a religious real property tax exemption despite the fact that the church is housing 14 homeless people in a single family zoning district.  To the contrary, Congregation Ateres Yisroel’s lost its religious real property tax exemption based on its use of its premises to house 20 students.  Both religious uses are in single family zoning districts, and both religious uses are housing multiple people.

The question perhaps becomes – Why is sheltering the homeless more in line with a religious purpose than housing 20 students?  The facts in Congregation Ateres Yisroel are silent as to why the students were being housed at the property and whether their housing was in furtherance of a religious purpose.  If Congregation Ateres Yisroel could establish that the student housing had some connection to its religious purpose, perhaps the result of this case would be different.    At a minimum, we may have a possible split in the Departments as to what types of uses constitute “religious uses” and where and how do we draw the line?   Perhaps our next update on this topic will be the result of a decision by our State’s highest court.  Tune in each Monday for the latest news.

A fierce legal battle is currently being waged between preservationists and the City of New York (“City”) over a parcel of land in Manhattan’s Upper East Side, known as Marx Brothers Playground.  The parcel, which is located between 96th and 97th Streets on Second Avenue, is named after legendary comics Groucho, Harpo, Chico, Gummo and Zeppo Marx, who were raised at nearby 179 East 93rd Street.  The 1.5-acre public recreation area was created in 1947, and currently contains soccer and baseball fields.  The portion of the site where the playground was located is temporarily being used by the Metropolitan Transit Authority as a staging area for the construction of the Second Avenue Subway.  The entire site is slated for redevelopment by a private developer, who plans to construct a high-rise, mixed-use building containing more than 1,200 apartments, three schools and commercial space.

Although City Parks Department’s leaf logo adorns the site, the property is officially classified as a “jointly operated playground” or “JOP” because it was established under the joint jurisdiction of both the Parks Department and Department of Education, which operates an adjacent vocational high school.  Typically, a JOP is used by the students of the adjacent school during the school day, and the general public outside of school hours.

In an effort to stop the proposed project, preservationists recently commenced an Article 78 proceeding, entitled Carnegie Hill Neighbors, Inc. v. City of New York (Index No. 161375/20017). The preservationists claim, among other things, that Marx Brothers Playground is parkland and, as such, cannot be conveyed by the City to a private developer without State legislation authorizing the termination of its use as a park and its transfer from the City.  Other opponents of the project fear that the redevelopment of the playground will create a slippery slope that will lead to private developers targeting other City-owned recreation facilities.  City officials, on the other hand, insist that the space is a playground, as its name suggests, and not parkland.  They also point out that the City plans to relocate and replace the playground elsewhere on the block.

What appears to be a minor matter of semantics is actually crucial to the outcome of the dispute.  That is because under the State’s public trust doctrine, parks cannot be “alienated” or used for an extended period for non-park purposes without State legislative approval.  The City claims that there is no similar requirement for playgrounds.  A parcel of land may constitute parkland either by express dedication, such as by deed or legislative enactment, or by implied dedication, such as by a continuous use of the property as a public park or recreation area.  Once land is dedicated to parkland use, the dedication is irrevocable absent specific State legislative approval.

The public trust doctrine can trace its roots to the nearly century-old case of Williams v. Gallatin, 229 NY 248 (1920), when a taxpayer sought to enjoin the City’s Commissioner of Parks from leasing the Central Park Arsenal Building to the Safety Institute of America, arguing that the transaction was “foreign to park purposes.” In prohibiting the lease, the Court of Appeals found that a park was a recreational pleasure area set aside to promote public health and welfare and, as such, “no objects, however worthy…which have no connection with park purposes, should be permitted to encroach upon [parkland] without legislative authority plainly conferred.” The Court stated that the legislative will was that Central Park “should be kept open as a public park ought to be and not be turned over by the commissioner of parks to other uses. It must be kept free from intrusion of every kind which would interfere in any degree with its complete use for this end.”

Prior to the filing of the lawsuit, the City Council and State Legislature had apparently determined that Marx Brothers Playground was, in fact, parkland, because the City Council submitted a “Home Rule Request” to the State Legislature seeking authority to “alienate” or discontinue its use as parkland.  The Legislature quickly acted on the request and passed bills (A. 8419/S. 6721) entitled “[a]n Act in relation to authorizing discontinuance of the use as parkland of the land in the City of New York commonly known as the Marx Brothers Playground.”  Opponents of the City’s plan appealed to the Governor to veto the legislation.  Governor Cuomo eventually signed the legislation, but he attached a “chapter amendment” in the form of a memorandum that ordered Rose Harvey, Commissioner of the State Department of Parks, Recreation, and Historic Preservation, to “investigate all of the property’s historical records, uses, and any other factor relevant to the land’s designation.”

As a result of this unusual move by the Governor, the City must now wait for Commissioner Harvey’s assessment before it can proceed with its plans.  It will also have to wait for the pending lawsuit to play out in the Supreme Court.

It is well established that zoning codes and regulations are in derogation of property owners’ rights in and to the use of their property. Zoning restricts the use of land which was otherwise free of restrictions.  An owner’s rights in use of land are among the oldest and enjoy the most protection under common law and state and federal constitutions. Therefore, the courts of New York have regularly and consistently held that (1) any such codes and regulations must be strictly construed and (2) any ambiguity must be construed against the municipality and in favor of the property owner:

“Since zoning regulations are in derogation of the common law, they must be strictly construed against the municipality which has enacted and seeks to enforce them. Any ambiguity in the language used in such regulations must be resolved in favor of the property owner.”

Because of the heightened scrutiny of zoning regulations for ambiguity, they are difficult to draft and often subject to litigation – which can get deep into the weeds of statutory construction and even grammar. For example, where a zoning code required site plan review for “any new construction or any addition thereto in excess of 2000 sq. ft.,” the Zoning Board found that the limitation of 2,000 sq. ft. applied only to “any addition” and not to “any new construction.” The Third Department reversed, in part because there was no comma between “thereto” and “in excess of.” Your high school English (or Latin) teacher would rejoice at the deconstructive analysis.

Other examples: Does prohibition of car storage prohibit a parking garage, where there is no definition of “storage” in the code? (Answer = No; parking garage is OK) Is a code validly applied which does not allow an owner to “store” a boat in the front yard, where there is, again, no definition of how long a boat must be in the front yard to be deemed to be “stored” there? (Answer = Code not valid because of ambiguity.) Can a code require building permits for all construction “other than ordinary repairs that are not structural?” (Answer = No; code invalidly applied because there was no definition of what constitutes “ordinary” or “not structural” repairs.) Is a helicopter pad an “airport” which is defined as a landing area that is used “regularly?” (Answer = Yes; it was used frequently enough to be deemed “regular.”)

A recent code amendment in an East End municipality requires that driveway gates must have a “setback to the street” of no less than 20 feet or 40 feet (depending on lot size). What is the “street?” The paved roadway? The lot line dividing the private property from the municipality’s right-of-way for the road? The difference could be 10 or 15 feet or more of unpaved verge or shoulder between the pavement and the lot line.

The difficulty in drafting is highlighted by these cases which pit the purportedly “obvious” reading of the code against the rule of strict construction – resolving any ambiguity in favor of the property owner. The burden on the municipality is especially acute where municipal officials come up with different interpretations. The statute is certainly vague and ambiguous when reasonable municipal minds differ – when “reasonable enforcement officers could come to different conclusions” – and they actually did.

Moreover, the New York courts have rejected the argument that Zoning Boards have the authority to remove the ambiguity by choosing the interpretation that the Board prefers. Rather, the courts recognize that while a board’s interpretation is entitled to deference in most situations, where the statute is ambiguous the question becomes a matter of law and the usual deference does not apply.

In a recent Zoning Board case, the same beneficial owners had a residence on one lot and a tennis court, without a home, on another immediately adjacent lot. There was no dispute that the tennis court was a valid subordinate use to the adjacent residence. However, the municipality would not approve a certificate of occupancy for the tennis court because there was no residence on the court property. There was no direct prohibition in the zoning code of an accessory use on a lot without a principal use. The municipality relied solely and entirely on the code’s definition of accessory use as:

“A subordinate use, building or structure customarily incidental to and located on the same lot occupied by the main use, building or structure. The term . . .”accessory structure” may include a . . . tennis court. . . .” (Emphasis added)

The owners sought relief in two separate ways. First, they argued for an interpretation that the code did not require that the tennis court and the dwelling be on the same lot because the word “customarily” modified both “incidental to” and “located on the same lot.” Therefore, an accessory structure is defined as only customarily located on the same lot as the main use. “Customarily” does not mean “always” or “required.” At the very least, the code was ambiguous on this point and, they argued, could not be used by the municipality to deny the owners the right to maintain the tennis court on the lot by itself.

The owners also sought a variance to allow the stand-alone tennis court in the event that the Zoning Board rejected their ambiguity argument. The Zoning Board rejected the argument that the ambiguity of the code section made it unenforceable, finding that they had regularly interpreted the code against the owners’ position. However, the Zoning Board granted the variance allowing the tennis court to exist without a main use on the same lot. A court might have overturned the Board’s contention that it had the right to interpret the ambiguous language in favor of the municipality, since that issue is a matter of law and the interpretation must be in favor of the property owner. But the bottom line is that the applicants got their tennis court and probably don’t care that it was by variance and not by voiding or interpreting an ambiguous code provision – and an Article 78 was averted.

And therein lies the point of this blog: The “ambiguity” rule can be difficult for applicants because courts can, and do, find that the code is not so ambiguous after all. On the other hand, zoning and planning Boards – and, especially, their counsel – know that the “ambiguity” rule is deep-rooted in New York law and that the courts do not hesitate to apply the rule as a matter of law, without deference to the boards. The bottom line is that making a legitimate “ambiguity rule” argument at the municipal board level can be successful in itself, but it is perhaps most important as a prod to the board to grant a variance or site plan or other municipal approval.

A not-so-clear code provision can be very helpful in obtaining a municipal approval!

 

 

 

 

Last week we wrote about a United States Supreme Court case Murr v. Wisconsin and its impact locally. Since that post, the Petitioner, Donna Murr, contacted the author to provide us with an update to her family’s situation.

After the Supreme Court decision in June, legislation was introduced in both the Wisconsin State Senate and the Wisconsin State Assembly. This legislation – among other things – sought to prohibit a state, county, town or village agency from merging a substandard lot with another lot without the consent of the affected property owner.

We are pleased to report that the Wisconsin State Assembly and Senate both passed the legislation in early November, and on November 27, 2017 Governor Scott Walker – with Donna Murr by his side – signed the bill into law. As a result, the Murr’s lots can be developed separately. As Ms. Murr noted in her email “We spent 10 years in the courts and 4 months in the Wisconsin legislature! Crazy right?”

On another note, Aram Terchunian of First Costal Corporation contacted the author and provided a note of caution. Mr. Terchurian rightly pointed out that Tidal Wetlands – Land Use Regulations contains an automatic merger provision for substandard lots. Indeed, at 6 CRR-NY 661.6 (b) the regulation addresses lots within the wetland jurisdiction that are substandard. Under §661.6 (a)(5) the minimum lot area for lots connected to a community sewage system is 20,000 square feet, and 40,000 square feet is required for lots not connected to a community sewage system. According to the Regulations, substandard lots as defined above “in the same ownership may be treated together as one lot”.

So know that while a property might not merge because of zoning regulations, it may merge because of wetland regulations.

Thank you to both Donna and Aram for their contributions to this blog.

Week to week we blog about recent developments in the land use arena, which typically arise in the civil context.  This week, we thought a recent “criminal” case decided by the Supreme Court, Appellate Term, Second Department, was not only particularly interesting, but also, the topic of illegal rental permits is one that many land use practitioners grapple with multiple times during their legal careers.

On October 26, 2017, the Appellate Term decided People v Makrides, 2017 NY Slip Op 51442 (U).  In Makrides, the Village Code Enforcement Officer alleged that on August 20, 2014, he visited property located on Beach Street.  The door was answered by an individual who identified himself as a renter and of no relation to the owner, Marie Makrides, with Beach Street Properties.   Based on a further review of rental permit records, and the lack thereof, the Code Enforcement Officer issued an Information alleging that Makrides was in violation of Village Code Section 205-4, failure to obtain a rental occupancy permit.

The Code Enforcement Officer visited the property again on November 5, 2014; except for the testimony of the alleged renter, the Code Enforcement Officer found the property to again be in violation of  the rental occupancy permit ordinance.

Makrides’ attorney moved to dismiss the accusatory instruments for facial insufficiency (CPL 100.15; 100.40).  Specifically, it was argued that the accusatory instruments “failed to contain facts of an evidentiary nature . . . and that they” were improperly based upon hearsay allegations. The Justice Court denied the motion.

After a non-jury trial, the Court found Makrides to be in violation of the rental permit ordinance and fined her $5,000.00 for each charge.  Makrides appealed.

The Appellate Term reversed both convictions, finding that facial insufficiency is a nonwaivable jurisdictional prerequisite to a criminal prosecution (CPL 100.40).  Finding that the statement made by the renter to be hearsay, and not supported by a deposition, it was an error for the Justice Court to rely on said testimony.  The testimony of the renter is clearly an out of court statement introduced in court for the truth of the matter at hand, to wit; classic hearsay testimony.

Consequently, the Appellate Term held that without said hearsay testimony, the Informations alleging that the defendant failed to obtain a rental occupancy permit –  without saying why it was necessary for her to obtain one – failed to contain “factual allegations . . .  through nonhearsay allegations . . . of the offense charged and defendant’s commission thereof.”

Abiding by principles of judicial restraint, the Court declined to make a further finding that the Port Jefferson Village Rental Permit Ordinance was unconstitutional.  It did, however, require the Village to remit, if paid, the combined $10,000.00 fine to the defendant.