This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONSTITUTIONAL LAW -- Gifts and Loans (consideration paid for the purchase of property)
REAL PROPERTY -- Acquisition Generally (consideration paid) -- Purchases (consideration paid); (obtaining appraisals)
NEW YORK CONSTITUTION, ARTICLE VIII, §1; GENERAL MUNICIPAL LAW, §247; VILLAGE LAW, §1-102(1): When purchasing real property, a village board of trustees has a fiduciary duty to acquire the property by bona fide purchase upon the most beneficial terms, including price, in the public interest.
This is in reply to your inquiry concerning a village which embraces the entire territory of a town and operates principally as a village (see Village Law, Article 17). You indicate that the village/town board of trustees is considering the purchase of a certain parcel of unimproved real property within the village/town and the development rights of an adjoining parcel owned by the same party in order to preserve the parcels as open space within the village/town. You also indicate that the board of trustees engaged the services of an appraiser before entering into negotiations with the owner. Finally, you indicate that, after extensive negotiations, the board and the owner have arrived at a purchase price which the board believes is fair, but which exceeds the appraiser's estimate of the market value of the parcel. You ask whether under these circumstances the village/town may pay more than the appraised value for property it wishes to acquire.
Initially, we note that we are assuming that the village/town is proposing to acquire the parcel and development rights pursuant to section 247 of the General Municipal Law. Section 247 declares the acquisition of interests or rights in real property for the preservation of open spaces and areas to be a public purpose for which public funds may be expended. That section authorizes any county, city, town or village, after due notice and public hearing, to acquire by purchase, gift, grant, bequest, devise, lease or otherwise, the fee or any lesser interest, development right, easement, covenant or other contractual right to land within the municipality necessary for the preservation of open spaces and areas. In the case of a village, the cost of acquisition may be incurred wholly at the expense of the village, at the expense of the owners of the lands benefited, or partly at the expense of such owners and partly at the expense of the village at large as a local improvement in the manner provided by Article 22 of the Village Law.
Although section 247 requires notice and hearing prior to an acquisition, neither section 247 nor Village Law, §1-102(1), which provides general authorization for a village to acquire real property, sets forth any procedures for determining the amount which a village may pay for the purchase of real property (cf. Eminent Domain Procedure Law, Articles 3, 5 and 6 relative to real property acquired by condemnation). Further, General Municipal Law, §103, which contains competitive bidding requirements for purchases by political subdivisions, has no application to purchases of real property by a municipality. It is well settled that such purchases do not constitute "purchase contracts" within the meaning and intent of the competitive bidding requirements of General Municipal Law, §103 and, therefore, are not subject to the competitive bidding requirements of that statute (Albion Indus. Center v Town of Albion, 62 AD2d 478, 405 NYS2d 521, citing 19 Opns St Comp, 1963, pp 120, 280, and 11 Opns St Comp, 1955, p 39; see also Davies v Mayor, 83 NY 207).
In the absence of a statutory procedure for determining what a municipality may pay to purchase real property, the price is a matter of negotiation between the seller and the village (see Glass v City of Binghamton, 6 AD2d 944, 176 NYS2d 18; see also Sinram-Marins v New York City, 74 NY2d 13, 544 NYS2d 119). With respect to negotiated sales of municipal real property, the courts in this State have indicated that a sale will not be permitted to stand if the consideration is so grossly inadequate as to indicate that the transaction was not a bona fide sale but rather a gift in violation of Article VIII, §1 of the State Constitution (see Grand Realty v City of White Plains, 125 AD2d 639, 510 NYS2d 172; Matter of Ross v Wilson, 284 AD 522, 132 NYS2d 760, revd on other grnds 308 NY 605; Devitt v Heimbach, 109 Misc 2d 463, 440 NYS2d 465; see also 1982 Opns St Comp, No. 82-111, p 140). The courts have further stated that, in negotiating a private sale of municipal real property, municipal officials have a fiduciary duty to secure the best price obtainable or the most beneficial terms in the public interest (see, e.g., Ross v Wilson, 308 NY 605; Merritt Meridian Const. Corp. v Gallagher, 96 AD2d 933, 466 NYS2d 381). We believe that the courts would impose similar standards upon municipal officials in negotiating the purchase of real property. Therefore, it is our opinion that the village board when purchasing real property has a fiduciary duty to acquire the property by bona fide purchase upon the most beneficial terms and conditions, including price, in the public interest and not in an arbitrary or capricious manner (see also Winkler v Summers, 51 Hun 636, 5 NYS 723; 1988 Opns St Comp No. 88-35, p 65).
To fulfill its fiduciary duty, a village board of trustees must take appropriate measures to ensure that the purchase price negotiated is upon the most beneficial terms (see Ross, supra; Merritt, supra). In determining the reasonableness of the price to be paid, for example, the board may obtain an independent appraisal of the real property (see 1973 Opns St Comp No. 73-889, unreported). In fact, under most circumstances involving purchases of property of substantial value, it may be beneficial and proper for the village board to seek the advice and assistance of two or more appraisers. Since no appraisal can establish value with absolute precision, the use of two appraisals for substantial purchases should better enable the municipality to establish the value of the property and to substantiate the purchase price ultimately paid .
Although we believe that a municipality should generally obtain two appraisals for substantial purchases of real estate, we recognize that there will be circumstances where the governing board reasonably determines not to seek multiple appraisals. For example, the cost of the additional appraisal(s) may be excessive in comparison to the proposed purchase price or the board may be confident in the reliability of the single appraisal because there has been a recent sale of the same property which supports that appraised value. In any event, in fulfilling its fiduciary duty, the board must critically evaluate all appraisals obtained.
In the instant situation, the village has obtained a single appraisal and proposes to purchase the property and development rights at an amount in excess of the appraised value. In our view, while the mere fact that the village will be paying in excess of the appraised value would not preclude the board from demonstrating that it has fulfilled its fiduciary duty to its taxpayers, the board must still be able to show that the price is on terms most beneficial to the taxpayers. It may be possible to accomplish this by, among other things, showing that the price was the result of good faith negotiations between the parties and that there was no reasonable expectation that the use of eminent domain procedures would enable the village to acquire the property at a lesser cost. However, whether the purchase price negotiated in this instance will result in a purchase upon the most beneficial terms in the public interest consistent with the board's fiduciary duty is a question of fact (see Grand Realty, supra) which cannot be determined by this Office (see, e.g., 1982 Opns St Comp No. 82-111, p 140; 23 Opns St Comp, 1967, p 589).
January 30, 1990
Robert A. Spolzino, Esq., Village Attorney
Village/Town of Mount Kisco