The Many and Varied Uses of The Arm’s Length Sale
In a case involving a taxpayer’s challenge to its real property tax assessment, the Appellate Division, Third Department’s decision in Matter of Lost Lake Resort, Inc. v. Board of Assessors for the Town of Forestburgh, 222 A.D.3d 1091 (3d Dept. 2023), lv. denied 41 N.Y.3d 909 (2024), marks the first time an appellate court in the State of New York granted a motion for summary judgment applying the well-established arm’s length sale rule to evaluate the assessments of multiple parcels, sold as a single-integrated economic unit in a negotiated market transaction. The court affirmed the trial court’s granting of summary judgment to the petitioners, holding that the arm’s length sale of the property known as the “Lost Lake Resort” was the best evidence of the value of the property as a whole, but also of its component parts.
The Lost Lake Resort property mainly consisted of 2,095 contiguous acres of raw, undeveloped land. Phase I of the project had some partially constructed infrastructure and subdivision approvals for 347 separately assessed individual lots. The entire property was sold in an admitted arm’s length transaction for a total market value of $9,550,000, a significant reduction from the total assessed value of over $19,000,000. The trial court granted the petitioners’ motion for summary judgment, finding that the admitted arm’s length sale in the real-life negotiated market transaction was the best evidence of the total value of the entire property and that the assessments of the individual subdivided parcels must be proportionately reduced to reflect the sale price of the whole.
The decision is significant because it demonstrates that not only was that real-life market transaction the best evidence of the value of the property as a whole, but also that a proportionate reduction of the assessments of the individual subdivided parcels was a rational allocation of value. The decision is also significant because the court determined that the arm’s length sale was not only the best evidence of value of the subject property, but also established how the property would transact in the market, as a single-integrated economic unit instead of as individual subdivided lots. The decision marks a development in the application of the well-established rule that the sale price in a recent negotiated transaction between a willing buyer with no compulsion to buy and a willing seller with no compulsion to sell (ie. the arm’s length sale rule) is the best evidence of value of the subject property for purposes of taxation and assessment.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.
Kara Cavallo is a partner and practices Tax Certiorari, Litigation & Appeals, and Appellate Practice. She can be reached by phone at 845-764-9656 and by email.