Valuation of Golf Course in a Tax Assessment Challenge

, New York Law Journal


Michael Rikon
Michael Rikon

It is rare to have an opportunity to write about a decision involving a tax certiorari proceeding. The decision, Matter of Hempstead Country Club v. Board of Assessors, 2013 N.Y. App. Div. LEXIS 7156, a 19-page decision decided Nov. 6, 2013, was authored by Justice Thomas A. Dickerson. I had the benefit of actually being in the Appellate Division, Second Department, to argue another matter and enjoyed listening to oral argument of this appeal. What was involved was a challenge to tax assessments made on 123 acres of property in Nassau County used as a private, not-for-profit golf course.

The consolidated proceedings were tried in Nassau County Supreme Court before Justice Stephen A. Bucaria who granted the petitions awarding reductions in the assessments, 2010 N.Y. Misc. LEXIS 3281 (2010). Bucaria's erudite decision contained a complete discussion of the leading cases in each department which accepted the "assessor's formula" as well as a review of all prior decisions on the valuation of private golf courses.

The parties agreed that the property should be assessed as if it were a for-profit golf course. They also agreed that the income capitalization method of valuation was the proper approach for the purposes of the assessments. Simply put, this approach finds the present value of real property based on its future income by dividing a capitalization rate into the estimated net income.

Although the parties' respective appraisers agreed that the amount of real estate taxes imposed on the property should be taken into account when computing the property's fair market value, they differed on how to do so. The country club's appraiser converted the leases for his comparable properties into gross leases under which the owner, rather than the lessee, is obligated to pay the real estate taxes, and utilized the "assessor's formula" pursuant to which a factor is added to the capitalization rate to account for real estate taxes.

The appellant assessor's appraiser adopted an approach assuming a triple net lease, under which the lessee, not the owner, is obligated to pay real estate taxes. Therefore, the expense of real estate taxes is accounted for in the fair market rent for the property and need not be accounted for in the capitalization rate. Additionally, the assessor's appraiser downwardly adjusted his rent-to-revenue ratio, used in determining the fair market rent for the property, to account for high real estate taxes in the subject location.

The lower court adopted the approach proposed by the country club.


As Dickerson framed the issue on appeal, he noted that the court must decide on the appeal whether the approach advocated by the country club was "fair and non-discriminating," was "acceptable," and resulted in a fair market value assessment of the subject property, or, as argued by appellant, it resulted in improper "double counting." Interestingly, the court noted, "we must make this determination against a background which includes the fact that, in a case decided in 2007, Matter of Mill Riv. Club v. Board of Assessors, 48 AD3d 169 (2d Dept. 2007), a tax certiorari proceeding challenging the assessment of parcels on which a private, not-for-profit golf course was operated, this court approved of the triple net lease approach advocated by the taxing authority in that case and by appellant here." Obviously, the appellant thought that with this precedent it had a reasonable chance of reversal. But precedent does not always predict a judicial result.

Fortunately, some clue to the outcome was present in the excellent brief written by Jon N. Santemma1 who argued the appeal.

Although the decision under review adopted the "assessor's formula," it did not easily define what it was. The definition is found in Senpike Mall v. Assessor of New Hartford, 136 AD2d 19, 22-23 (4th Dept. 1988). In Senpike Mall, the court stated:

[I]n using the income approach for tax certiorari purposes, the proper method is not to deduct the existing real estate taxes as an expense, but instead to use what is called the "assessor's formula" by adding to the capitalization rate a factor which will mathematically account for the proper amount of taxes based upon the income value as computed [citing Master of Commercial Structures v. City of Syracuse, 91 AD2d 1197, lv denied 59 NY2d 606].

The Fourth Department further noted that the "assessor's formula" is appropriate regardless of who pays the tax, and wrote:

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