Just Compensation? Not if We Can Help It

A business may be firmly rooted in a neighborhood. It might be quite successful and profitable. It could be a family enterprise which has had multi-generational owners and workers. Then comes that fateful day when the property is included in a condemnation proceeding; a forced sale which was hardly solicited. Years of goodwill go out the window, for goodwill is not compensable in New York, or most other states. Then comes the inevitable eviction to obtain vacant possession of the premises. Most established businesses will find it a challenge to survive in a new location.

So what else can a condemnor do? Well they can try to prevent the former owner from receiving any compensation for its trade fixtures. Mind you, most of the projects today are bought for private developers who receive huge public subsidies for their arenas, shopping malls and luxury housing projects, all of which are hardly public purposes. These are all projects that make well-connected developers a lot of money.

So it is somewhat unseemly that a condemnor would seek to deny a trade fixture claimant just compensation for the taking of its trade fixtures. But this happens, time and time again, when the condemning authority raises the specter of the “unit rule.”

New York has long established law requiring compensation for trade fixtures, whether owned by a tenant or a landlord. In the recent case of Mazur Brothers, Inc. v. State of New York[1] the Court summed up New York’s law, stating,

A government appropriation of real property encompasses the land and everything annexed thereto, whether classified as buildings or as fixtures (see Matter of City of New York [Kaiser Woodcraft Corp.], 11 NY3d 353, 359 [2008]). “Under the trade-fixture rule, a claimant is entitled to compensation for trade fixtures it has a right under its lease to remove, but chooses not to remove” (Matter of Village of Port Chester, 42 AD3d 465, 466-467 [2007]; see Marraro v State of New York, 12 NY2d 285, 292-293 [1963]; Whitehall Corners v State of New York, 210 AD2d 398, 399-400 [1994]). Trade fixtures owned by a tenant are valued separately from the realty (see Matter of West Bushwick Urban Renewal Area Phase 2, 69 AD3d 176, 184 [2009]), generally as specialty property, based upon reproduction cost less depreciation, which is also referred to as “sound value” (Matter of City of New York [Kaiser Woodcraft Corp.], 11 NY3d at 356).

In an attempt to avoid this separate, constitutionally required just compensation award, the unsustainable application of the unit rule is argued by condemnors. In a recent matter on appeal, the condemnor argued, “the unit rule requires that land and all improvements must be valued as a single unit and thereby avoids duplication of compensation.” It advances this egregious statement by continuing, “[t]he principle is obvious. When a condemnor takes property, the amount of compensation to be paid should be the same whether there is a single owner or there are multiple parties with interests in the property.”

But the condemnor’s argument is one hundred percent opposite to the well-established law of the State of New York. In 1962, the Court of Appeals firmly rejected the Unit Rule in Marraro v State of New York[2]. But even before Marraro, the Unit Rule was never followed in this state.[3]

In Marraro, Judge Van Voorhis stated, “[a]n appropriation of land by the State, unless qualified when made, is an appropriation of all that is annexed to the land, whether classified as buildings or as fixtures, and the value of the fixtures must be included in determining the total value of the property so appropriated.[4] They are part of the realty so long as they remain fixtures. Matter of Wilcox, 165 App. Div. 197, 200, 12 NY 285, at 292. The Court held that the tenants were entitled to their separate trade fixture awards which were not to be carved out of the award to the landlord. As the concurring opinion by Judge Fuld makes clear, a prior Court of Appeals decision, Matter of City of New York (Allen Street) established that if fixtures are owned by the tenant, he is entitled to an award for them “not because the fixtures added to the value of the leasehold, but because they belonged to him and their value enters into the value of what the City has taken.”[5]

Over the years there have been many attempts to avoid separate payment to trade fixture claimants and to fee owner landlords. None have ever been upheld because it would be contrary to Marraro to do so.[6] Courts have been somewhat over zealous in their protection of the public treasury and must realize that any award is to be reimbursed by the developer.

There are two exceptions to the general rule requiring separate fee and fixture awards. First, a condemnor is not required to pay a separate trade fixture award when there is a “special purpose” property and the tenant uses the landlord’s trade fixtures during the term of the tenancy.[7]  Second, a condemnor is not required to pay a separate trade fixture award when trade fixtures are inconsistent with the highest and best use of the property and there is identical ownership of the fee and trade fixture.[8]

Isn’t it time to put an end to this misguided unlawful attempt to deprive a former owner of just compensation?


[1] 97 AD3d 826, 828-29 (2d Dept. 2012)

[2] 12 NY2d 285 (1963). 

[3] United States v New York, 165 F2d 526 (2d Cir. Ct. 1948).

[4] Jackson v State of New York, 212 NY 34 (1916).

[5] 256 N.Y. 236, 249.

[6] See L.B. Oil Co. v. State of New York, 81 AD2d 856 (2d Dept. 1981), aff’d 54 NY2d 964 (1981); Whitehall Corners v. State of New York, 210 AD2d 398 (2d Dept. 1994).

[7] Matter of New York State Urban Dev. Corp. (Movieplex 42, Inc.), 61 AD3d 421 (1st Dept. 2009).

[8] Matter of Bushwick Urban Renewal Area, Phase 2, 69 AD3d 176 (2d Dept. 2009).


Posted in Condemnation Procedures, Leases, New York, Offer & Compensation, Trade fixtures
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