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June 20, 2014

Case of First Impression: Tax Certiorari Petition Dismissed Due to Appraisal Deficiencies Dealing with Capitalization Rate Formula

New York's highest court recently took a fresh look at Uniform Rule 202.59(g)(2). In doing so, it reversed the Appellate Division, Fourth Department, finding the Petitioner failed to rebut the presumption of validity of the tax assessments by substantial evidence. Bd. of Mgrs. of French Oaks Condominium v. Town of Amherst, 2014 N.Y. Slip. Op. 02971 (May 1, 2014). More specifically, the Court determined that the Petitioner's appraisal failed to provide sufficient and objective proof to support the appraiser's determination of the capitalization rate used in the income approach to value.

Petitioner, the Board of Managers ("Petitioner") of a residential complex in the Town of Amherst, New York, brought a Real Property Tax Law ("RPTL") Article 7 proceeding challenging the Town of Amherst's tax assessment. At trial, both parties relied primarily upon the income capitalization methodology to establish fair market value. In determining the capitalization rate, Petitioner's appraiser derived the net operating income of certain allegedly comparable properties from "forecast financials", but failed to either specify the sources of his figures or provide the documentation he relied upon. Ultimately, the appraiser settled on a "median" capitalization rate, proceeding to compute fair market value by dividing the net operating income by that capitalization rate.

A hearing was conducted before a referee, who recommended denial of the Town's motion to dismiss the petition and a finding that Petitioner's proof established a prima facie case. The Referee further recommended that Petitioner established, by a preponderance of the evidence, that the property was over assessed. The Supreme Court, Erie County adopted the Referee's recommending findings and conclusions of law. The Town appealed to the Appellate Division, Fourth Department, which affirmed, but two Justices dissented. The Town appealed, as of right, to the Court of Appeals. See NY CPLR 5601.

The Court of Appeals reversed, holding that Petitioner failed to establish a prima facie case by substantial evidence, primarily because Petitioner's appraiser admitted he relied upon information derived from his personal, but unverifiable knowledge. That is, there was no confirmable data in his report to support his analysis. Thus, the Court found Petitioner's "proposed capitalization rate [was not supported] with objective data necessary to substantiate the component calculation" pursuant to the requirements of Rule 202.59(g)(2). The Court dismissed the petition.

It should be noted that this detailed and heightened review of Petitioner appraisal reports for compliance with Rule 202.59 in "run of the mill" commercial proceedings has increased of recent vintage. As such, taxpayers should pay close attention, as the prima facie bar for Petitioners in RPTL cases may, again, be increasing, necessitating inclusion of additional supporting material and greater scrutiny of appraisals before filing.1

For more information about the subject of this alert, contact Karla M. Corpus at or any member of our Real Property Tax & Condemnation Practice Area.

1See also Bove v. Town of Schodack, 2014 N.Y. App. LEXIS 2301, wherein the Third Department struck the petitioner's appraisal for failure to proffer sufficient back up data under Uniform Rule 201.59(g)(2).


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