Breitman v Tax Commn. of the City of N.Y. 2024 NY Slip Op 30440(U) February 9, 2024 Supreme Court, New York County Docket Number: Index No. 255475/2012 Judge: Lori S. Sattler Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001 (U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.255475/2012 STEVEN BREITMAN DBA REB A vs. THE TAX COMMISSION

Motion No. 001 Page 1 of 8 The following e

- filed documents, l isted by NYSCEF document number (Motion 001) 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31 were read on this motion to/for DISCOVERY

. In this tax certiorari proceeding, the Tax Commission of the City of New York and Commissioner of Finance of the City of New York (collectively, “Respondents”) move to compel Steven Breitman dba REB Associates (“Petitioner”) to respond to their June 29, 2023 Request for Informat ion. Petitioner opposes the motion.
Petitioner is the owner of two basement

- level condominium units located in t he Parc
Vendôme apartment complex on the West Side of Manhattan . The two units are designated on the City of New York tax map as New York Cou nty, Block 1047, Lots 1012 and 1020 (“Units”).
T he Units are 447 and 655 square feet, respectively, but Petitioner characterizes them as having 290 and 590 usable square feet. They have no windows , and no direct street or lobby access

. Petitioner also o wn s a laundry room management company, Sebco Laundry, Inc. (“Sebco”) , which manages the Units as laundry rooms for building residents. Petitioner filed Petitions pursuant to Real Property Tax Law (“RPTL”) Article 7 to challenge the assessed value of the
Units for 12 consecutive tax years from 2012/2013 through 202 3 /202 4 . The parties agreed to a



### SUPREME COURT OF THE STATE OF NEW YORK

NEW YORK COUNTY

PRESENT: HON. LORI S. SATTLER PART 02TR Justice

----------------------------------------------------------------- -- -------------- X INDEX NO. 255475/2012
MOTION DATE 08/25/2023
MOTION SEQ. NO. 001

DECISION + ORDER ON MOTION STEVEN BREITMAN DBA REB A Petitioner,

- v - THE TAX COMMISSION OF THE CITY OF NEW YORK, AND THE COMMISSIONER OF FINANCE OF THE CITY OF NEW YORK, Respondent s

.

------------------------------------------------------------------- -- ------------ X INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 2 of 8 Scheduling Order on April 4, 2023 (NYSCEF Doc. No. 5) , in which the y contemplated exchanging discovery demands and responses and thereafter an appraisal exchange date

. Respondents then served a Request for Information , to which Petitioner objected (NYSCEF Doc. No. 12). This motion followed.
RPTL Article 7 proceedings are special proceedings and therefore discovery requires leave of court pursuant to CPLR § 408. “Because discovery tends to prolong a case, and is therefore inconsistent with the summary nature of a special proceeding, discovery is granted only
where it is d emonstrated that there is need for such relief” ( Town of Pleasant Valley v New York State Bd. of Real Prop. Servs. , 253 AD2d 8, 15 [2d Dept 1999]). The trial court has broad discretion in granting or denying disclosure ( id. at 16 ; see also Matter of South Cent. Plaza, Inc. v Village of Spring Valley , 159 AD3d 915 , 916 [2d Dept 2018] ). Notwithstanding the foregoing, in New York City, certain discovery in Article 7 proceedings is directed by § 202.60 of the Uniform Rules for the Supreme Court & the County
Court . Subsection ( c) provides that prior to the filing of a Note of Issue, a petitioner that owns
an income

- producing property must serve on r espondent s a certified statement of the property’s
inco me and expenses for each tax year under review using a specifi c form (“A udit Report
Form ”)

. Petitioner provided Respondents with a n Audit Report Form for each tax year being challenged (NYSCEF Doc. No. 10). He concedes the Units are income

- producing, and accordingly reported monthly income of $1,000 for each year and listed expenses for cleaning, appliances, gas and electrical, water, insurance, taxes, and legal expenses. Petitioner additionally represents that the Units are not leased to a tenant and in stead are

owner
- occupied, insofar as Sebco operates the laundry facilities in the Units and Petitioner owns Sebco (NYSCEF Doc. No. 8, Petitioner’s Counsel’s 6/7/22 Letter at 2; NYSCEF Doc. No. 12, INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 3 of 8 Petitioner’s 6/29/23 Information Request at 8; NYSCEF Doc . No. 28, Petitioner’s Affidavit). Respondents contend that inconsistencies on the Audit Report Forms raise questions as to the existence of a lease, but ultimately their analysis of how the Units should be valued assumes the
Units are indeed owner

- occupi ed. Respondents now seek to compel responses to its Request for Information . In particular , Respondents request the production of Sebco’s leases in other buildings where it or Petitioner manage laundry rooms in rented space . Respondents note that Petitio ner voluntarily provided
them with two of Sebco’s leases and express concern that these leases might be “cherry picked.” Respondents also seek production of documents evidencing the income and expenses involved in running a laundry business in the Units. Respondents maintain this information is necessary for it to conduct its appraisal of the Units in accordance with 22 NYCRR § 202.60(g). Petitioner opposes the motion

. He argues that only information related to income derived from the property itself is relevant to this proceeding and m aintains that he has already provided
this information . He argues that the leases previously provided to Respondents were disclosed for purposes of settlement discussions, and that Petitioner is not obligated to exchange leases from other properties. He further contend s that the income and expense information sought
relates to the business rather than the Units and therefore is irrelevant to the Units’ values

. In reply, Respondents maintain that the value of a business is relevant where, as here, the property is not leased to a tenant , because the value that a tenant would pay for a space is related to the income and expense s of operating a business in that space. Respondents further maintain that the distinction between the income produced by a property and the income produced by a business run in a property is irrelevant in the context of residential laundry room leases, p ursuant

to which, according to Respondents, rent paid is often contingent on income generated. INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 4 of 8 Respondents’ Request for Leases For purposes of real property tax assessments, commercial properties are generally valued using a methodology known as the “income capitalization approach,” which calculates the value of a property’s earning power based on the capitalization of its income ( Saratoga Harness Racing v Williams , 91 NY2d 639, 644 [1998] [citations omitted]). The “ comparable lease approach ” is used as a component of the income capitalization approach . It requires an appraiser to determine the market rent of the subject property and then capitalize that rent to determine the proper ty’s overall value ( id. ). When a property is tenant

- occupied, the existing lease might be a basis for determining market rent. However, w hen the property is owner

occupied, and therefore has no lease, estimated market rent “should be determined by analysis of the rent paid for other comparable prope rties and then imputed to the subject property” ( id. ). In this matter, the parties agree that the comparable lease approach is appropriate. In their papers, Respondents state: “For purposes of the income capitalization approach to real property valuatio n, the market rate for owner

- occupied space is determined by analyzing the rents for comparable space” (NYSCEF Doc. No. 30, 4). Likewise, i n a letter to Respondents,
Petitioner’s counsel wrote: “ Laundry rooms are unique spaces that cannot be compared to

r etail/commercial units. Since the subject laundry units are owner occupied, our imputed income analysis is corroborated by the attached redacted Laundry Room Lease between [Sebco] and another building of comparable size and vintage with a comparable numbe r of washers and dryers” (NYSCEF Doc. No. 8, 2). Respondents now contend that Petitioner must identify all residential building laundry

rooms m a n a g e d by Petitioner or his companies in New York City from 2011 to present, identify which are subject to lease agreements, and produce all laundry lease and operating agreements INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 5 of 8 for those properties that are in Manh attan. The Court finds that there is no basis to require Petitioner to produce leases for properties that are not the subject of this proceeding prior to the exchange of appraisals reports

. 22 NYCRR § 202.60 (g), which regulates the exchange and filing
of appraisal reports provides: “[i]f sales, leases or other transactions involving comparable properties are to be relied on, they shall be set forth with sufficient particularity as to permit the transaction to be readily identified

. ” T h e C o u r t h a s h e l d t h a t “ [ a ] major reason for the rule requiring the disclosure of facts and sources materials at the appraisal stage is to allow opposing counsel the opportun ity to effectively prepare for cross

- examination” ( Gullo v Semon , 265 AD2d
656 , 657 [3d Dept 1999] [emphasis added] ). Producing source material, or leases Petitioner m a y

n o t r e l y on in his appraisal, prior to exchange of appraisals is not c ontemplated by 22 NYCRR § 202.60 and is not appropriate. Whether an expert “cherry picks” comparable properties that support one party’s position is an issue to be explored on cross examination at trial. Respondents rely on Saratoga Harness Racing and M atter of Hempstead Country Club v Board of Assessors , 112 AD3d 123 (2d Dept 2013), in which the petitioners’ experts each used leases of comparable properties to value an owner

- occupied property. T h os e decisions resulted
from appeals after trial and held that the comparable lease approach wa s a valid and acceptable
valuation method under the circumstances . They do not address whether the leases relied upon , or additional leases not relied upon, were produced in discovery before the experts rendered their reports. T h e C o u r t t h e r e f o r e f i n d s t h a t i t i s n o t a p p r o p r i a t e t o r e q u i r e a p e t i t i o n e r c h a l l e n g i n g a
t a x a s s e s s m e n t o f a n o w n e r
- o c c u p i e d , i n c o m e
- p r o d u c i n g p r o p e r t y t o p r o d u c e l e a s e s f r o m o t h e r
p r o p e r t i e s p r i o r t o t h e e x c h a n g e o f a p p r a i s a l r e p o r t s
. Accordingly, Respondents’ motion to compel production of leases is denied. INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 6 of 8 Respondents’ Request for Income and Expenses Information With respect to additional information regarding the laundry business’s income and

expenses, Respondents ’ information request sought, inter alia , “historical year

- by

- year annual income of the laundry machines , ” usage statistics , financial and profit loss s tatements , and all

expenses for the laundry machines for the relevant period. Respondents argue that 22 NYCRR § 202.60 requires Petitioner to address incomplete or overly general statements made in an Audit Report Form , and that , pursuant to CPLR §§ 408 and 3101 , Petitioner should be directed to comply as the information is material and necessary to the valuation of the Units.
In opposition , Petitioner maintains he has complied with the requirements of 22 NYCRR § 202.60 (c) by completing Audit Report Form s and responding to Respondents’ subsequent requests made before the parties entered into a Scheduling Order. Petitioner further argues that the information is not material and necessary to the valuation of the subject property, as the information sought is income and expens e information of the laundry business being operat ed in the Units as opposed to income and expense information of the Units themselves. 22 NYCRR § 202.60(c) requires tax certiorari petitioners to complete an Audit Report Form for each tax year only when the s ubject property is income

- producing. “ ‘[ I ] ncome producing’ applies only to income produced directly by the real estate and not to income generated by a commercial business thereon” ( White Plains Property Co rp. v Tax Assessor of
White Plains , 58 AD 2 d 653, 654 [2d Dept 1997]). To that end, 22 NYCRR § 202.60(c) f urther provides that “an owner

- occupied business property shall be considered income

- producing as determined by the amount reasonably allocable for rent

. . . .”
The Court finds that 22 NYCRR § 202.60 (c) does not require Petitioner to produce the requested incom e and expense information and that Respondents have not demonstrated that INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 7 of 8 there is a need for the discovery such that Respondents’ relief should be granted pursuant to CPLR § 408. Th e comparable lease approach, which Respondents maintain should be used,

r equires an appraiser to estimate market rent by analyzing rent paid for comparable properties ( Saratoga Horse Racing , 91 NY2d at 644) . Petitioner’s business income and expenses are not relevant to that analysis. Respondents further argue that the income and expenses of the business are needed for
their valuation because Petitioner’s net income from the business would inform an estimate of market rent, and in turn the Units’ value. Respondents rely on Matter of Mill River Club v Board of Assessors , 48 AD 3d 169, 171 [2d Dept 2007]), in which the Court acknowledged that the purchase price of an income

- producing property would “depend on the net income the property will likely produce inasmuch as the purchase price represents the present worth of anticipated future benefits” (internal quotations marks and citations omitted). The subject property in that proceeding was four contiguous parcels of land totaling 123 acres in Nassau County. Petitioner owned and operated a private country club and golf course on these parcels and on five
additional acres which i t leased from the State of New York. The experts in that proceeding agreed that the golf course’s revenue should be estimated as part of their appraisals ( id. at 172)

. Mill River Club is factually distinguishable from t h i s matter , which involves the valu ation of two laundry rooms in the basement of a New York City condominium

. M o r e o v e r , i t d o e s n o t h o l d

t h a t p e t i t i o n e r s l i k e t h e o n e i n t h e i n s t a n t p r o c e e d i n g a r e r e q u i r e d to produce income and expense
information for b u s i n e s s e s t h e y o p e r a t e f r o m t h e i r p r o p e r t i e s
. Accordingly, for the reasons set forth herein, it is hereby: ORDERED that the motion is denied in its entirety; and it is further INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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Motion No. 001 Page 8 of 8 ORDERED that appraisals shall be exchanged on February 2 2 , 2024 at 2:30 pm at 60 Centre Street, Room 212 ; and it is further ORDERED that counsel shall appear for a settlement conference on March 4 , 2024 at 2:30 pm via Teams.
This constitutes the Decision and Order of the Court.

2/ 9 /2024 $SIG$ DATE LORI S. SATTLER, J.S.C.
CHECK ONE: CASE DISPOSED X NON - FINAL DISPOSITION GRANTED X DENIED GRANTED IN PART OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE INDEX NO. 255475/2012 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 02/09/2024

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