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The Probability of Change

While property in a condemnation proceeding is valued s of a specific date, reflecting its status and condition at that time, it does not mean that situation is frozen. As we said in In the Matter of County of Suffolk v. Firester, 37 NY2d 649, 376 NYS2d 458 (1975); “It is axiomatic that, in determining fair market value, the condemnees are entitled to have the appraisal based on the highest and best available use of the property, irrespective of whether they are so using it (Keator v. State of New York, 23 NY2d 937, 339, 296 NYS2d 767, 769, 244 NE2d 248, 249; St. Agnes Cemetery v. State of New York, 3 NY2d 37, 41, 163 NYS2d 655, 658-659, 143 NE2d 377, 379-380; Hazard Lewis Farms v. State of New York, 1 AD2d 923, 924 149 NYS2d 658, 661; Sparkill Reality Corp. v. State of New York, 254 App. Div. 78, 82 4 NYS2d 679, 682, aff’d . 279 N.Y. 656, 18 NE2d.

However, as was stated in West Senece Central High School District v. the State of New York,

It is well settled that (a) use which is no more than a speculative or hypothetical arrangement in the mind of the claimant may not be accepted as the basis for an award (Matter of City of New York (Shorefront High School-Rudnick), 25 NY2d 146, 149, 303 NYS2d 47, 50 250 NE2d 333, 334). There must be a reasonable probability that the asserted highest and best use could or would have been made within the reasonably near future (Matter of City of New York (Wilson), 21 AD 2d 652, 653, 249 NYS2d 811, aff’d, 16 NY2d 814, 263 NYS2d 9, 210 NE2d 361) Matter of City of New York, (Broadway Cary Corp.), 34 NY2d, 535, 536, 354 NYS2d 100, 101, 309 NE2d 870, 871).

Probability of Change

But the probability of a change in use as the predicate of a valuation of the property is not the only consideration. Anything that the real estate market would consider and pay a premium for should be taken into account in valuing the property. That is not to say that the fact that there might be such a change means that the value is what it would be if that change were an accomplished fact, but rather what additional price the market would pay over and above its present condition for the fact of the probability of a change. As was said in Marks v. State of New York, 152 AD2d 930, 544 NYS2d 395 (4th Dept., 1989);

It is well settled that property is to be valued as it exists on the date of taking and that an increment is to be added to reflect the potential use (Matter of County of Suffolk (Firester), 37 NY2d 649; Lierre v. State of New York, 39 AD2d 980, 333 NYS2d 266; Hewitt v. State of New York, 18 AD2d 1128, 239 NYS2d 522).

Highest and best use is not the only concept where this probability of a change is recognized as a value-adding concept. Use is governed by zoning restrictions. Thus the first cousin to the concept is that while a property’s use may be restricted by applicable zoning, if there is a reasonable probability, by reference to extrinsic circumstances, that the zoning restrictions might be relaxed or changed, whether by a zone change or variance, or even by court action, that circumstance must be considered as affecting value. (Masten v. State of New York, 11 AD2d 370, 206 NYS2d 672, aff’d. 9 NY2d 796, 215 NYS2d 508, l75 NE2d 166; Matter of Town of Islip (Hamlet of Sayville), 49 NY2d 354, 426 NYS2d 220 (1980); Harwood v. State of New York, 112 AD2d 741, 492 NYS2d 236 (4th Dept., 1985); Dittimer v. State of New York ___ AD2d ___, 590, NYS2d 275 (2d Dept. 1992). The valuation in such circumstances is not what the value would be if the zoning were changed, but what the market would pay as an increment to value as currently zoned for the probability of securing such a change, taking into an account the time, cost and risks of securing such a change (City of New York v. Nelkin, 51 NY2d 921, 434 NYS2d 98 (1980); Knight v. State of New York, 36 AD2d 574, 317 NYS2d 800 (4th Dept., 1971).

Value-Affecting Fact

But highest and best use and zoning are not the only areas where the probability of a change in an existing status is to be considered in valuating the property. The examples are so many that one can synthesize the cases by saying that if there was a reasonable probability of securing a change it became a value-affecting fact, whether positively or negatively. We give some examples.

In Matter of the City of New York (149th Avenue), New York Law Journal, Oct. 20, 1971, p. 17 cols. 6 and 7 (Tessler, J., Sup. Ct. Queens Co.) the Court found that there was a reasonable probability of the adjacent upland owner securing title to the lands in the bed of a former creek, which no longer existed, since the proof was that the City had been granting such deeds.

In In re City of New York (J.H.S. 47, Friedman), 40 AD2d 597, 335 NYS2d 945 (1st Dept., 1972) a developer, in the midst of an assemblage to build a nursing home, was stopped short of his full assemblage by the condemnation proceeding. The court valued the property on the basis of a reasonable probability that he would have completed his assemblage.

In Schwartz v. State of New York, 72 AD2d 490, 426 NYS2d 100 (3rd Dept., 1980) the court valued the property on the basis of a reasonable probability that there would be a waiver of a restrictive covenant affecting the use of the property.

In Campbell v. State of New York, 39 AD2d 615, 331 NYS2d 75, aff’d. 32 NY2d 952 the court valued the property, long used pursuant to a revocable license, on the basis of the reasonable probability of the continuation of the non revocation of that license (see also Rochester Poster Advertising Co. v. State of New York, 11 NY2d 1036; Queensboro Farm Products Inc. v. State of New York, 5 NY2d 977, 184 NYS2d 844, aff’g., 5 AD 2d 967, 171 NYS2d 646; Breezemont Park Inc. v. State of New York, 39 AD2d 793, 332 NYS2d 202.

In Zasppavigna v. State of New York, ___ AD2d ___, 588 NYS2d 585 (2d Dept., 1992) the court held that, having received preliminary approval for this subdivision plan, it was reasonably probable that the owner would receive final approval and the land would be used as a residential subdivision. In Petit v. Central School District, No. 1, 355 NYS2d 947 (Sup. Ct., Suffolk Co, Lazar, J.) the court held it was proper to value the land based in its joinder with other property, with the value based on the probability, not as an accomplished fact.

In Walker v. State of New York, 33 NY2d 450, 354 NYS2d 626 (1974) the court found the property should be valued based on the reasonable probability that the property owner could have purchased a right of way across a former railroad right of way.

In Bero v. State of New York, 33 AD2d 88, 305 NYS2d 309 (3d Dept., 1969) it was held that value of the property could be proved based upon the reasonable probability of securing a permit to mine gravel from the banks of an adjoining river.

In Erie Lackawanna Railway Co. v. State of New York, 38 AD2d 463, 330 NYS2d 700 (4th Dept., 1972), the court held that, although a railroad held title under the Railway Act of 1850 under which it received only a permanent easement for railway purposes during the continuance of its corporate existence and on abandonment the title reverted back to the original owners, the possibility of the abandonment was so remote and speculative that the possibility of the reverter had no value and the entire award went to the railroad.

Thus it is clear that if you can prove the reasonable probability of any change in a property’s status within a reasonable time and if the market will recognize a value in that change, it is a factor to be considered in valuing the property.

Reprinted with permission from the April 22, 1993 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.