When is a sale not the best evidence of value for tax assessment purposes?

We cannot tell you the number of times municipalities have refused to resolve a pending tax review proceeding due to a subject property sale.

We recently were successful in the Appellate Division, Second Department of the New York State Supreme Court, modifying a trial court’s determination of the value, for property tax assessment purposes, of a golf and country club in Westchester County.

The subject property had been sold by the country club to our clients, who were neither golf course owners nor managers.  Their expertise was in property redevelopment.

The subject property is prime real estate located on the Long Island Sound in a very affluent Westchester community and is zoned residential. Our client ultimately purchased the property for $12 million, after an extensive due diligence period where they met with local (Town and Village) officials regarding the potential development, local residents, zoning attorneys, engineers, etc. One plan was to develop the property as residential, with the intent of incorporating all or a portion of the golf course into the development.

Due to the extremely slow process involved in obtaining approvals, our client retained a golf course management company to operate the club as a golf and country club during the interim period.

Based upon our analysis and our knowledge of the law, we concluded that for tax assessment purposes, the club was to be valued in its existing use and condition, as a golf club, without regard to any future potentialities or possibilities. The Town and Village, on the other hand, were aware of language in older Court decisions stating that a sale of the subject property, unless explained away, was evidence of value of the highest rank.  In their opinion, the “unless explained away language” was limited to certain specific situations, none of which they believed applied to the subject sale.

Our real estate expert, a golf appraiser, valued the property as it existed, as a golf and country club, and arrived at values, without regard to any future development potential, in the $4,800,000 range. The Town and Village chose not to file an appraisal report, but instead chose to rely exclusively on the subject property sale, an arms-length sale, for $12 million.

The trial included testimony from our client concerning their due diligence process and their intention to purchase the property for redevelopment purposes. Our appraiser rejected the subject sale since his value must reflect actual use condition and not future development potential.

The trial court recognized that we overcame the presumption that the assessment was correct and also recognized that our appraiser valued the property based on sound theory. Nevertheless, since three years had elapsed since the purchase and since the property still had not been developed or approved for development, the trial judge concluded the sale reflected only golf and country club value and adopted the $12,000,000 sale price.

On appeal, the panel of four Appellate judges reversed the lower Court and held that, in fact, property must be valued based upon its actual use and condition without regard to future potentialities and possibilities. As a result, despite an arms-length sale between unrelated parties, the sale was not the best evidence of value for these tax assessment review proceedings. The Appellate Court made their own factual determination and found values in the $5,200,000 – $5,400,000 range, down from the trial court’s value of $12 million.

While this decision has great applicability to golf course sales throughout the state. This decision has implications for any subject sale or comparable sale where it reflects more than actual use value.

Should you have a similar situation or have some questions concerning the applicability of the decision or the facts surrounding the decision, we are available to discuss this in greater detail.