# Appendix — Penn Central Transp. Co. v. New York City

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1978
- **Citation:** 438 U.S. 104

## Text

Tree 5
77-444 | SEP201977
ws _LMICHAEL RODAK, Jf, ‘Anis
IN THE ’
Supreme Court of the United States

OctrosBerR TERM, 1977

PENN CENTRAL TRANSPORTATION CoMPANY, THE NEW
York AND HartemM Rarroap Company, THE 5lst
Street Reatty Corporation, UGP Properties, Inc.,

Appellants,

v.

Tue Crry or New York, et al., Appellees.

On Appeal from the Court of Appeals
of New York

APPENDIX TO JURISDICTIONAL
STATEMENT

DantrEL M. Grippon

JoHn R. Bouton
Covincton & BURLING
888 Sixteenth Street, N.W.
Washington, D.C. 20006
(202) 452-6118

Cart HELMETAG, JR.

F. W. Rover
Suite 3100 IVB Building
1700 Market Street
Philadelphia, Pa. 19103
(215) -3053

Attorneys for Appellants
September, 1977

j
U

INDEX TO APPENDIX

Page
A. Opinion of the New York Court of A s, dated
Pe REET env ndcdicasencasstaces _ séneéee la
B. (1) Opinion of the New York Supreme Cou

Ho

Appellate Division, First Department, dat
od encekesnceeeeseanesos l6a

(2) Order (with Findings of Fact) of the New
York Supreme Court, Appellate Division,
First Department, dated April 7, 1976 ...... 45a

(2) Order of Severance of the New York Supreme
Court, Trial Term, dated January 21,1975 .. 60a

(3) Memorandum Decision of the New York Su-
preme Court, Trial Term, dated January 21,

DD. scsssadheeendnsabakshstnasddeseoecess 6la
(4) Judgment of the New York Supreme Court,

Trial Term dated February 4, 1975 ........ 7la
BD GE BED Si icdvsdcccccccvevesiccseccess 74a

(1) New York City Landmarks Preservation Law,
New York City Charter and Administrative
Ss GE GE oc ccc cccccccscccceccesecs 76a

(2) New York City Zoning Resolutions 74-79
through 74-793, adopted May 22, 1968, as
amended December 4, 1969 ...........0005. 113a

Fifth and Fourteenth Amendments to the United
States Constitution .............ccc cece ee eeees 119a

la
APPENDIX A

STATE OF NEW YORE
COURT OF APPEALS

No. 273
Penn Centra, TraNsporTaTION COMPANY, ET AL.,
and
UGP Properties, Inc., Appellants,
vs.

Tue Crry or New York, er at., Respondents.

Brerrex, Ch. J.:

In broad terms, the problem in this case is determining
the scope of governmental power, within the Constitu-
tion, to preserve, without resorting to eminent domain,
irreplaceable landmarks deemed to be of inestimable so-
cial or cultural significance. In controversy is the consti-
tutionality of regulation which would prohibit appelleuts,
owner and proposed developer of the air rights above
Grand Central Terminal, from constructing an office
building atop the Terminal.

Undisputed is the principle, rooted in the Due Process
Clause of the Constitution, that government may not, by
regulation, deprive a property owner of all reasonable
return on his property. There are two issues neverthe-
less. The first is the extent to which government, when
regulating private property, must assure what is de-
scribed as a reasonable return on that ingredient of prop-
erty value created not so much by the efforts of the
property owner, but instead by the accumulated indirect

2a

social and direct governmental investment in the physi-
cal property, its functions, and its surroundings. The
second issue is whether above-the-surface development
rights, transferable to adjacent sites under the city land-
mark ordinance, may be considered in computing return
on the property when the landmark property and some
of the sites to which the rights may be transferred share
a common owner.

Plaintiffs, Penn Central Transportation Company and
its affiliates, who have a fee interest in Grand Central
Terminal, and UGP Properties, Inc., lessee of the devel-
opment rights over the Terminal, seek a declaration that
the landmark preservation provisions of the Administra-
tive Code of the City of New York, as applied to the
terminal property, are unconstitutional. They also seek
to enjoin defendants, the City of New York and the
City Landmark Preservation Commission, from enforcing
those provisions against the subject property. Trial Term
grarted the requested relief, but a divided Appellate Di-
vision reversed and granted judgment to defendants.
Plaintiffs appeal.

The order of the Appellate Division should be affirmed.
Although government regulation is invalid if it denies
a property owner all reasonable return, there is no con-
stitctional imperative that the return embrace all attri-
butes, ucidental influences, or contributing external fac-
tors derived from the social complex in which the prop-
erty rests. So many of these attributes are not the re-
sult of private effort or investment but of opportunities
for the utilization or exploitation which an organized
society offers to any private enterprise, especially to a
public utility, favored by government and the public.
These, too, constitute a background of massive social and
governmental investment in the organized community
without which the private enterprise could neither exist
nor prosper. It is enough, for the limited purposes of a

3a

landmarking statute, albeit it is also essential, that the
privately created ingredient of property receive a rea-
sonable return. It is that privately created and privately
managed ingredient which is the property on which the
reasonable return is to be based. All else is society’s
contribution by the sweat of its brow and the expenditure
of its funds. To that extent society is also entitled to its
due.

Moreover, in this case, the challenged regulation pro-
vides Penn Central with transferable above-the-surface
development rights which, because they may be attached
to specific parcels of property, some already owned by
Penn Central or its affiliates, may be considered as part
of the owner’s return on the terminal property.

Thus, the regulation does not deprive plaintiffs of
property without due process of law, and should be up-
held as a valid exercise of the police power.

Grand Central Terminal was formally opened to the
public in 1913. Undisputed is its architectural, historical
and cultural significance (for further detail, see opn at
App Div, 50 AD2d 265, 269). On August 2, 1967, in ac-
cordance with the provisions of the New York City Ad-
ministrative Code, the Terminal was designated a land-
mark by the Landmarks Preservation Commission, and
the designation was confirmed by the Board of Estimate
on September 21, 1967 (see Administrative Code of City
of New York, § 207-2.0).

On July 18, 1968, plaintiffs submitted to the Land-
marks Preservation Commission an application for a per-
mit to construct the proposed office building, seeking a
certificate that the work would have no exterior effect
on protected architectural features (Administrative Code,
§ 207-5.0). The request was denied on September 20, 1968.
Then plaintiffs applied to the Commission for a certifi-
cate that the proposed building, even if it would have had an

4a

exterior effect, was appropriate to the site (Administra-
tive Code, § 207-6.0). Three separate alternative pro-
posals, each calling for erection of a substantial office
building atop the Terminal, were submitted. On August
26, 1969, the certificate of appropriateness was denied.
Not involved, because not raised in light of the denial of
a certificate of appropriateness, are the plans for the in-
terior of the Terminal. None of these administrative de-
terminations was ever directly challenged in the courts
(ef. Lutheran Church in America v. City of New York, 35
NY2d 121, 126-128).

Instead, on October 7, 1969, plaintiffs brought this ac-
tion seeking judicial invalidation of the landmark preser-
vation provisions of the Administrative Code as applied
to the Terminal. Plaintiffs also sought damages for a
temporary ‘‘taking’’ of property from the time of orig-
inal designation as a landmark to the time of the re-
quested judicial invalidation. Of course, any so-called
temporary ‘‘taking’’ is more accurately described as a
deprivation of property without due process of law (Fred
F. French Investing Co. v. City of New York, 39 NY2d
587, 593-595, app dsmd US ——).

Trial court found the landmark preservation provi-
sions, as applied, constitutionally deficient, but severed
the question of damages. As noted, the Appellate Divi-
sion, with two dissenters, reversed, and granted judgment
to defendants.

This is not a zoning case. In many ways, the restric-
tions imposed on the use of the property are similar to
zoning restrictions, but the purposes are different, and
in determining whether regulation is reasonable, the
purposes behind the regulation assume considerable sig-
nificance (id., p 596). Zoning restrictions operate to ad-
vance a comprehensive community plan for the common
good. Each property owner in the zone is both benefited
and restricted from exploitation, presumably without dis-

5a

crimination except for permitted continuing non-conforming
uses. The restrictions may be designed to maintain the gen-
eral character of the area, or to assure orderly development,
objectives inuring to the benefit of all, which property
owners acting individually would find difficult or impossible
to achieve (see, e.g., Berenson v. Town of New Castle, 38
NY2d 102, 109-110; Matter of 113 Hillside Ave. Corp. v.
Zaino, 27 N.Y.2d 258, 262-263).

Nor does this case involve landmark regulation of a his-
toric district. Historie district regulation, like zoning
regulation, may be designed to maintain the character,
both economic and esthetic or cultural, of an area (see
Maher v. City of New Orleans, 516 F2d 1051, esp p 1060,
cert den 426 US 905; Opinion of the Justices to the
Senate, 333 Mass 773, 778-780). The difference, generally,
is that zoning does this largely by regulating construc-
tion of new buildings, while historic district regulation
concentrates instead on preventing alteration or demoli-
tion of existing structures. In each case, owners although
burdened by the restrictions also benefit, to some extent,
from the furtherance of a general community plan.

Nor does this case partake of the principles applicable
to a taking in eminent domain. As noted earlier, there
is no taking for which just compensation must be paid.
And it is the concept of just compensation which is so
integrally related to value based on return. Instead,
landmark regulation is a limitation on exploitation of
property, an attribute shared with the classifications of
zoning and historic districting. Yet landmark regulation
is different because the burden of limitation is borne
by a single owner. He may or may not benefit from that
limitation but his neighbors most likely will. In contrast
both an owner and his neighbors benefit to some degree
and in some manner from zoning and historic districting.

Restrictions on alteration of individual landmarks are
not designed to further a general community plan. Land-

6a

mark restrictions are designed to prevent alteration or
demolition of a single piece of property. To this extent,
such restrictions resemble ‘‘discriminatory’’ zoning re-
strictions, properly condemned, affecting properties
singled out in a zoning district for more restrictive or
more liberal zoning limitations (see Udell v. Haas, 21
NY2d 463, 476-478). There is, however, a significant dif-
ference. Discriminatory zoning is condemned because
there is no acceptable reason for singling out one parti-
cular parcel for different and less favorable treatment.
When landmark regulation is involved, there is such a
reason: the cultural, architectural, historical, or social
significance attached to the affected parcel. Even when
regulation is designed to achieve such an acceptable pur-
pose, however, the landowner must be allowed a reason-
able return or equivalent private use of his property (ef.
Fred F. French Investing Co. v. City of New York, 39
NY2d 587, 596, supra). That is, in the case of commercial
property, the owner must be assured of a continued rea-
sonable return on the property.

Reasonable return, however, is an elusive concept, in-
capable of easy definition. For the reasonableness of the
return must be based on the value of the property, and
the value of the property necessarily depends on the re-
turn permitted or available. The inevitable circularity of
reasoning is obvious (see Berger, The Accommodation
Power in Land Use Controversies: A Reply to Professor
Costonis, 76 Col L Rev 799, 818-819). In most landmark
eases, however, it is acceptable to use alternative bases of
valuation, assessed valuation perhaps, as a basis for
determining the reasonableness of return (see Admini-
strative Code, § 207-1.0, subd [v]). At best, the compu-
tation is rough and successful if it is fairly approximate.
In considering reasonable return the owner’s desire to
expand the property physically or functionally affects the
base upon which the return is to be computed. Again,
there may be a circularity of cause and effect.

7a

Grand Central Terminal is no ordinary landmark. It
may be true that no property has economic value in the
absence of the society around it, but how much more true it
is of a railroad terminal, set amid a metropolitan popula-
tion, and entirely dependent on a heavy traffic of travelers
to make it an economically feasible operation. Without
people Grand Central would never have been a successful
railroad terminal, and without the Terminal, a major
transportation center, the proposed building site would be
much less desirable for an office building.

Of course it may be argued that had Grand Central
Terminal never been built, the area would not have de-
veloped as it has. Thus, the argument runs, construction
of the Terminal triggered growth of the area, and cre-
ated much of the terminal property’s current value. In-
deed, the argument has some validity. But, in reality, it
is of little moment which comes first, the Terminal or the
travelers. For it is the interaction of economic influences
in the greatest megalopolis of the western hemisphere—
the Terminal initially drawing people to the area, and
the society developing the area with shops, hotels, office
buildings, and unmatched civic services—that has made
the property so valuable. Neither factor alone accounts
for the increase in the property’s value; both, in tandem,
have contributed to the increase.

Of primary significance, however, is that society as an
organized entity, especially through its government, ra-
ther than as a mere conglomerate of individuals, has cre-
ated much of the value of the terminal property. Although
recent financial troubles and consequent governmental
assistance make the fact more apparent, railroads have
always been a franchised and regulated public utility,
favored monopolies at public expense, subsidy, and with
limited powers of eminent domain, without which their
existence and character would not have been possible (cf.
Ball v. New York Cent. R.R., 229 NY 33, 43; Schaghti-

8a

coke Powder Co. v. Greenwich & J. Ry., 183 NY 306, 316).
Even in the best of times, railroads were dependent on
government-granted monopolies for their rights of way,
government grants for their land, and government as-
sistance for such projects as grade crossing eliminations.
Railroads were given franchises to use city streets with-
out charge, often to the detriment of neighboring resi-
dents and often without leaving the city power to termi-
nate the franchise (cf. Kellinger v. Forty-Second Street
R.R., 50 N.Y. 206, 210, 212; New York Cent. d H.R. R.R. v.

City of New York, 202 NY 212, 221-224). Through the .

years, Penn Central and its predecessors have benefited
mightily from this assistance. Today, government influ-
ence is even more pervasive, extending even to the real
estate tax exemption enjoyed by Grand Central Terminal
itself (Real Property Tax Law, 4 489-ff).

Government has aided the Terminal in less direct ways,
as well. It is no accident that much of the city’s mass
transportation system converges on Grand Central. Num-
erous subways and bus routes pass through or near the
Terminal. Without the assistance of the city’s transit
system, now municipally owned and subsidized, the prop-
erty, with or without a towering office structure atop it,
would be of considerably decreased value. It is true that
most city property benefits to some extent from public
transportation, but the benefit is peculiary concentrated
and great in the area surrounding Grand Central
Terminal.

Absent this heavy public governmental investment in
the Terminal, the railroads, and connecting transporta-
tion, it is indisputable that the Terminal property would
be worth but a fraction of its current economic value.
Plaintiffs may not now frustrate legitimate and important
social objectives by complaining, in essence, that govern-
ment regulation deprives them of a return on so much of
the investment made not by private interests but by the
people of the city and state through their government. In-

9a

stead, to prevail, plaintiffs must establish that there was
no possibiliy of earning a reasonable return on the pri-
vately contributed ingredient of the property’s value.

To put the matter another way, the massive and in-
distinguishable public, governmental, and private contri-
butions to a landmark like the Grand Central Terminal
are inseparably joint, and for most of its existence, made
both the Terminal and the railroads of which it was an
integral part, a great financial success for generations
of stockholders and bondholders. Their investment has
long been eliminated or impaired by the recent vicissi-
tudes of the Penn Central complex. It is exceedingly
difficult but imperative, nevertheless, to sort out the
merged ingredients and to assess the rights and responsi-
bilities of owner and society. A fair return is to be ac-
corded the owner, but society is to receive its due for its
share in the making of a once great railroad. The his-
torical, cultural, and architectural resource that remains
was neither created solely by the private owner nor sole-
ly by the society in which it was permitted to evolve.

Plaintiffs contend that the Terminal currently operates
at a loss. Even if that be true, it is not of critical im-
portance. What is significant, instead, is whether the
property, managed efficiently, is capable of producing a
reasonable return. If the courts were forced to look to
the property as it is, rather than as it could be, any
inadequacy of managers of property could frustrate any
land use restrictions.

Perhaps of greater importance, the property may be
capable of producing a reasonable return for its owners
even if it can never operate at a profit. For it should
he evident that plaintiffs’ heavy real estate holdings in
the Grand Central area, including hotels and office build-
ings, would lose considerable value and deprive plain-
tiffs of much income, were the Terminal not in operation.

10a

Some of this income must, realistically, be imputed to
the Terminal.

The situation is analogous to that of a flagship store
in a regional shopping center. The flagship store may not
produce enough income to justify its construction or
maintenance, but it may draw enough customers into the
other, smaller stores, to make its operation worthwhile,
and to extract concessions from the owners of the re-
mainder of the center (see G.R.F., Inc. v Board of As-
sessors, 41 NY2d 512, 514). So it is with Grand Central
Terminal. The Terminal acts, in effect, as a magnet for
Penn Central’s other, more profitable, enterprises.

The discussion thus far is in accord with the teachings
cf Lutheran Church in America v City of New York (35
NY2d 121, supra). The Lutheran Church, owner of the
landmark site, established, as plaintiffs here have not,
that economic considerations did not permit maintenance
of the landmark building in its existing form (id., p. 132).
Moreover, the Lutheran Church was a charitable insti-
tution which, over *’ » years, did not and could not reap
the same pecun’’ , benefits of massive governmental in-
vestment enjoyed by the railroads and Grand Central
Terminal. Yet, the regulatory provisions prohibited re-
placement of the landmark building without any new
ameliorative provisions, other than the pre-existing tax-
exemption to which it had always been entitled, to assure
that the property remained capable of usefulness on a
reasonable economic basis. The same problem was reached
and discussed in Matter of Sailors’ Snug Harbor v Platt
(29 AD2d 376, esp p 378). In recognizing the invalidity
of the landmark regulation as applied to Lutheran
Church, however, this court, as had the court in the
Sailors’ Snug Harbor case (supra), declined to strike
down the landmarks preservation provisions of the city
administrative code (id., pp. 131-132). In this case, by
contrast, there has been no showing that the property,

a

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owned not by a charitable enterprise but by an entity exist-
ing to make a profit, is incapable in its economic context
of producing a reasonable return, even if its develop-
ment is limited.

Moreover, plaintiffs have not been wholly deprived of
the development rights above the Terminal. Those rights
have been made transferable to other parcels of land in
the vicinity, at least eight of them owned by Penn Cen-
tral, including the sites of the Biltmore, Commodore,
Barclay, and Roosevelt Hotels.

The many defects in New York City’s program for de-
velopment rights transfers have been detailed elsewhere
(Costonis, The Chicago Plan: Incentive Zoning and the
Preservation of Urban Landmarks, 85 Harv L Rev 574,
585-589). The area to which transfer is permitted is
severely limited, complex procedures are required to ob-
tain a transfer permit, and the program, it has been
said, has the unfortunate consequence of encouraging
large, bulky buildings around landmarks which are
dwarfed by comparison. But the possibility that a better
program could have been devised does not preclude analy-
sis and justification of the existing one in this particular
application.

That several of the potential receiving parcels are
encumbered by long-term leases or currently improved
with suitable buildings does not make the development
rights worthless. The knowledge that at some future time,
when the lease term has run out or the improvements
have lost their utility, a larger building could be con-
structed, should increase the value of the building plot,
at least so long as there is a market demand for new
construction (see Costonis, ‘‘Fair’’ Compensation and
the Accommodation Power: Antidotes for the Taking Im-
passe in Land Use Controversies, 75 Col L Rev 1021,
1067).

12a

Moreover, in this case, construction of new office build-
ings was at least given serious consideration on two of
the available receiving parcels, the sites of the Biltmore
and Roosevelt Hotels. Defendants contend that the al-
ternative sites, and particularly the Biltmore site, are
better suited for office building construction than even
the Terminal site. But that is beside the point. Impor-
tant instead is the availability of receiving parcels, in
common ownership with the landmark site, on which the
development rights, or some of them, could be used. It
is significant, as well, that the challenged regulation per-
mitted splitting of the development rights among several
receiving parcels, to allow optimal use of the rights.

Development rights, once transferred, may not be equiva-
lent in value to development rights on the original site. But
that, alone, does not mean that the substitution of rights
amounts to a deprivation of property without due proc-
ess of law. Land use regulation often diminishes the value
of the property to the landowner. Constitutional stand-
ards, however, are offended only when that diminution
leaves the owner with no reasonable use of the property.
The situation with transferable development rights is
analogous. If the substitute rights received provide rea-
sonable compensation for a landowner forced to relin-
guish development rights on a landmark site, there has
been no deprivation of due process. The compensation
need not be the ‘‘just’’ compensation required in eminent
domain, for there has been no attempt t> take property
(see Fred F. French Investing Co. v City of New York,
39 NY2d 587, 595, supra; ef. Costonis, ‘‘Fair’’ Compen-
sation and the Accomodation Power, 75 Col L Rev 1021,
1061-1070, supra).

The case at bar, like the Fred French case (supra), fits
neatly into this analysis. In Fred French the develop-
ment rights on the original site were quite valuable. The
regulations deprived the original site of any possibility

Pe ee ee ee

we

l3a

of producing a reasonable return, since only park uses
were permitted on the land. And, the transferable de-
velopment rights were left in legal limbo, not readily at-
tachable to any other property, due to a lack of common
ownership of the rights and suitable site for using them.
Hence, plaintiffs were deprived of property without due
process of law. The regulation of Grand Central Termi-
nal, by contrast, permitted productive use of the Termi-
nal site as it had been used for more than half a cen-
tury, as a railroad terminal. In addition, the development
rights were made transferable to numerous sites in the
vicinity of the Terminal, several owned by Penn Cen-
tral, and at least one or two suitable for construction
of office buildings. Since this regulation and substitution
was reasonable, no due process violation resulted.

To recapitulate, a property owner is not absolutely
entitled to receive a return on so much of the property’s
value as was created by social investment. And, even as
to the privately created ingredient of the property’s
value, a plaintiff seeking to show that an otherwise rea-
sonable land use regulation constitutes a deprivation of
due process of law must demonstrate affirmatively that
the regulation eliminates all reasonable return (see Mary
Chess, Inc. v City of Glen Cove, 18 NY2d 205, 209-210;
Shepard v Village of Skaneateles, 300 NY 115, 118).
Piaintiffs in this case have failed to meet that burden.
In none of their analyses do they include the benefits
provided to Penn Central’s varied real estate holdings
by the Terminal’s operation. These real, albeit indirect,
benefits alone might suffice to provide Penn Central with
a reasonable return. But there is more. The development
rights above Grand Central Terminal have been made trans-
ferable, and could be transferred to several sites owned
by Penn Central and suitable for office building construc-
tion. These substitute rights are valuable, and provide sig-
nificant, perhaps ‘‘fair’’, compensation for the loss of rights

l4a

above the Terminal itself. Hence, no constitutional viola-
tion has been established.

In times of easy affluence, preservation of historic
landmarks through use of the eminent domain power
might be desirable, or even required. But when a less
expensive alternative is available, especially when a city
is in financial distress, it should not be foreed to choose
between witnessing the demolition of its glorious past
and mortgaging its hopes for the future. The landmark
preservation provisions of the Administrative Code rep-
resent an effort to take a middle way (Marcus, Mandatory
Development Rights Transfer and the Taking Clause: The
Case of Manhattan’s Tudor City Parks, 24 Buff L Rev 77,
78, 107-110). The statute needs improvement. In some cases
it protects property owners inadequately (Lutheran
Church in America v City of New York, 35 NY2d 121,
supra). But, in its generality and as applied to Grand
Central Terminal, the statute does not deprive plaintiffs
of due process of law.

In concluding the analysis, it is recognized that one
does not pursue a path guided by ample precedent or
wholly developed principles. The area is not merely diffi-
cult; it has at present viewing impenetrable densities. The
last word has not only not been spoken; it has hardly been
envisaged. For this case, and for the cases which may
follow in its wake, deference to the unknown must be
accorded. Moreover, the analysis has not been one which
had been fully developed in the valuable presentations
by counsel either at nisi prius, the Appellate Division, or
in this court. In fairness then, and in order to assure that
the better application of the rule be evolved, if counsel
be so advised, they should be entitled to present at nisi
prius any additional submissions which, in the light of
this opinion, may usefully develop further the factors
discussed. On the present record, however, the result di-
rected by the Appellate Division is correct and in ac-
cordance with the views expressed in this opinion.

en ee ee ee mew er er ard ewer On Swe ne So ire ee

15a

Accordingly, the order of the Appellate Division should
be affirmed, with costs.

co) e @ s @ e @ @ @
Order affirmed, with costs. Opinion by Breitel, Ch.J. All
concur.

Decided June 23, 1977

16a
APPENDIX B
(1)
Supreme Court. Appellate Division. First Department
Dec. 16, 1975

Penn CentTraL TRaNsporTaTION Company et al., Plaintiffs-
Respondents,

Vv.

The City or New York and the Landmarks Preservation
Commission of the City of New York, Defendants-
Appellants.

Before Stevens, P. J., and Markewicu, KuprerMan, Mur-
pHy and Luprano, JJ.

Murpay, Justice.

Defendants have thus far been more successful, at the
appellate level, in repelling a direct frontal attack on the
constitutionality of the New York City Landmarks Preser-
vation Law (New York City Charter and Admin. Code, ch.
8-A) than in applying it to a given factual situation. (Cf.
Lutheran Church v. City of New York, 35 N.Y.2d 121, 359
N.Y.S.2d 7, 316 N.E.2d 305; Mir. of Trustees of Sailors’
Snug Harbor v. Platt, 29 A.D.2d 376, 288 N.Y.S.2d 314.) A
majority of us now feels that the time for its full implemen-
tation has arrived.

The specific issue presented in this case is whether, as
applied to these plaintiffs, the City’s Landmarks Preserva-
tion Law and the action of defendants thereunder with re-
spect to certain property commonly known as the Grand
Central Terminal are unconstitutional. Trial Term re-
sponded affirmatively on the grounds that plaintiffs’ private

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17a

property was taken for public use without just compensa-
tion and that they were deprived of due process and equal
protection of the laws. We disagree.

In recent years, as we have become painfully aware that
‘the frontier’’ has been disappearing and our natural re-
sources are rapidly being depleted, there has been an in-
creasing national growth of interest in preserving irreplace-
able buildings and sites which have historical, aesthetic or
cultural significance.

These changing attitudes now acknowledge that ‘‘ [u]rban
landmarks merit recognition as an imperiled species along-
side the ocelot and the snow leopard. Over fifty per cent of
the 12,000 buildings listed in the Historic American Build-
ings Survey, commenced by the federal government in 1933,
have been razed. The threat to the remainder continues
undiminished as the recent loss of Chicago’s Old Stock Ex-
change and the precarious status of New York’s Grand Cen-
tral Terminal attest. If this trend is not reversed the nation
at its hicentennial in 1976 will mourn the loss of an essential
part of its architectural and cultural heritage rather than
celebrate the visible evidence of its past.’’ (The Chicago
Plan: Incentive Zoning and The Preservation of Urban
Landmarks, 85 Harv.L.Rev. 574-5.)

Since 1966 Congress has passed major new laws further-
ing historic preservation. (See Gray, The Response of Fed-
eral Legislation to Historic Preservation, 36 Law & Cont.
Prob. 314.) The National Historie Preservation Act of 1966
found and declared ‘‘that the historical] and cultural founda-
tions of the Nation should be preserved as a living part of
our community life and development in order to give a
sense of orientation to the American people.’’ (16 U.S.C.
§ 470(b).)

Though ‘‘fraught with trouble’’ (Lutheran Church v. City
of New York, 35 N.Y.2d 121, 131, 359 N.Y.S.2d 7, 15, 316
N.F..2d 305, 311), the preservation of landmarks in urban
areas is of special importance. Great cities have always been

18a

havens for educational and cultural activities. New York’s
rich history is reflective of the great deal of time, money
and talent invested in building its own architectural heri-
tage. Structures such as the Brooklyn Bridge, the Metro-
politan Museum of Art, the New York Publie Library and
Grand Central Terminal are important and irreplaceable
components of the special uniqueness of New York City.
We have already witnessed the demise of the old Metro-
politan Opera House (see Matter of Keystone Assoc. v.
Moerdler, 19 N.Y.2d 78, 278 N.Y.S.2d 185, 224 N.E.2d 700)
and the original Pennsylvania Station. Stripped of its re-
maining historically unique structures, New York City
would be indistinguishable from any other large me-
tropolis.

Following the evolving national trend, New York City, in
1365 provided for landmark preservation by adding Chap-
ter 8-A to its Administrative Code, pursuant to enabling
legislation adopted by the State nine years earlier (former
Gen. City Law, § 20(25-a), now Gen.Mun.Law, § 96-a.) The
Council ‘‘declared as a matter of public policy that the pro-
tection, enhancement, perpetuation and use of improve-
ments of special character or speeial historical or aesthetic
interest or value is a public necessity and is required in the
interest of the health, prosperity, safety and welfare of the
people’’; and established, as the purpose of the chapter,
inter alia: ‘the protection, enhancement and perpetuation
of such improvements and of districts which represent or
reflect elements of the city’s cultural, social, economic, po-
litical and architectural history,’’ the safeguarding of ‘‘the
city’s historic, aesthetic and cultural heritage’’, the foster-
ing of ‘‘civie pride in the beauty and noble accomplishments
of the past,’’ the protection of ‘‘the city’s attractions to
tourists and visitors’’ and the promotion of ‘‘the use of his-
toric districts and landmarks for the education, pleasure
and welfare of the people of the city.’’ (Admin. Code,
§ 205-1.0.)

Briefly stated, the Landmarks Preservation Law provides
for the establishment of a commission which, after a public

«ail

i tienes ab Note

19a

hearing, proposes to the Board of Estimate the designation
of landmark properties and historic districts. The Board
approves, disapproves or modifies the designation after
receipt of a report from the City Planning Commission.
(Id., § 207-2.0.)

Once a landmark is so designated it must be kept ‘‘in good
repair’’ (Id., § 207-10.0) and any alteration, construction or
demolition of an improvement on the site is regulated. (Jd.,
§ 207-4.0.) Comprehensive procedures are provided for
changes. A landmark owner may seek a ‘‘certificate of no
exterior effect’’ or, if there will be such exterior effect, a
‘*certificate of appropriateness.’’ (Id., §§ 207-5.0—207-7.0.)
There is also a procedure for seeking a certificate of appro-
priateness on the ground of insufficient return in the case
of taxpaying commercial properties; and a similar proce-
dure, but a different form of relief, for certain tax exempt
properties used for charitable purposes. (Jd., § 207-8.0.)

Related to the Landmarks Preservation Law are certain
amendments to the New York City Zoning Resolution which
permit the transfer of unused development rights over land-
mark properties located in certain high density areas of
the City to other nearby sites. (Zoning Resolution, Sections
74-79 to 74-793.)

Grand Central Terminal is unquestionably one of New
York City’s best known buildings. Along with the Empire
State Building and the Statue of Liberty, the image of its
facade symbolizes New York City for millions of visitors
and residents. The Terminal as a whole includes a variety
of architectural and engineering elements: railroad tracks
and platforms; space and facilities for marshalling and
handling railroad equipment; passage-ways and ramps af-
fording access to adjacent streets, office buildings and sub-
way stations; and concourses for the use of passengers and
pedestrians passing through the Terminal. The Main Con-

20a

course, probably the Terminal’s most striking feature, isa _

large room 120 x 375 feet, with a ceiling 125 feet high at
its apex.

From its formal opening to the public in 1913 (as a re-
placement for the ‘‘Grand Central Depot’’ built by Cor-
nelius Vanderbilt in 1871) the Terminal has been recognized
not only for its architecture, but as a superb example of
comprehensive urban design. The complete submergence of
all the tracks and a double level track system not only re-
sulted in the accommodation of more trains without the
acquisition of more land, but permitted construction of
revenue-producing buildings on air rights over the railroad
tracks and the development of Park Avenue as one of this
nation’s most prestigious residential communities. (See,
Grand Central Terminal and Rockefeller Center: A His-
torical Critical Estimate of Their Significance, by Fitch
and Waite, published by the New York State Parks and
Recreation Division for Historic Preservation [1974].) To-
day, although somewhat neglected over the years, Grand
Central Terminal still remains a splendid edifice and a ma-
jor part of the cultural and architectural heritage of New
York City.

On August 2, 1967, after a public hearing and over objec-
tion of plaintiff Penn Central Transportation Company
(‘‘Penn Central’’), the Landmarks Preservation Commis-
sion proposed the designation of Grand Central Terminal
as a landmark, predicated on the following findings:

‘*On the basis of a careful consideration of the his-
tory, the architecture and other features of this build-
ing the [Commission] finds that Grand Central Termi-
nal has a special character, special historical and aes-
thetic interest and value as part of the development,
heritage and cultural characteristics of New York City.

‘*The Commission further finds that, among its im-
portant qualities, Grand Central Terminal is a magni-

ee

itis ctteitiss: sn enone. Nt PEP IA i Dee et ARS POOLE Mal omen be Be WAS

2la

ficent example of French Beaux Arts architecture ; that
it is one of the great buildings of America, that it repre-
sents a creative engineering solution of a very difficult
problem, combined with artistic splendor; that as an
American Railroad Station it is unique in quality, dis-
tinction and character; and that this building plays a
significant role in the life and development of New York
City.”’

It is worthy of note, in such connection, that the Amtrak
Improvement Act of 1974 (88 U.S.Stat. 1526), in accordance
with the Congressional declaration that it is national policy
to preserve historic sites, seeks to encourage the preserva-
tion of passenger railroad terminals of special significance
and architectural quality, such as Grand Central Terminal,
by authorizing the Secretary of Transportation to provide
them with financial and other assistance. (49 U.S.C. § 1653.)

Plaintiff Penn Central (including, for the purposes here-
of, its subsidiaries plaintiffs The New York and Harlem
Railroad Company and The 5ist Street Realty Corpora-
tion) is the successor to the New York Central Railroad
Company and the Pennsylvania Railroad. Plaintiff UGP
Properties, Inc. (‘‘UGP’’), which was incorporated after
the landmark designation here in issue, is a wholly-owned
subsidiary of a British company.

Penn Central’s losses over the last several years brought
it to insolvency and bankruptcy. In order to minimize such
losses and provide offsetting revenues, it entered into a
lease with UGP in January, 1968, pursuant to which UGP
was to erect a tower exceeding 50 stories over the Terminal.
UGP undertook to pay to Penn Central $1,000,000 per year
during construction and thereafter an amount that was
guaranteed to equal not less than $3,000,000 annually. In
addition, UGP assumed a portion of Penn Central’s real
estate taxes estimated at $578,500. These rental payments
were to be offset in part by the elimination of approximately

22a

$700,000 te $1,000,000 in net rents presently received from
concessionaires whose space would be occupied by the pro-
posed new building. Commencing in July, 1968, plaintiffs
submitted several building designs prepared by the archi-
tectural firm of Marcel Breuer & Associates to the Land-
marks Commission (called Breuer I, Breuer IT and Breuer
II Revised) and requested an appropriate certificate (of no
exterior effect or of appropriateness). Plaintiffs appear to
have indicated a preference for Breuer II Revised, which
would have preserved the Terminal’s Main Concourse, but
not its famous south facade. On August 29, 1969, a certifi-
cate of appropriateness was denied.

Since Grand Central Terminal receives partial real estate
tax exemption (Real Property Tax Law, 4 489-ff), no fur-
ther administrative remedy, in the form of relief on the
ground of economic hardship, was available to it. (Admin.
Code, § 207-8.0.) The instant action, seeking declaratory
and injunctive relief from the Landmarks Law, on its face
and as applied, as well as compensation for the temporary
taking (between the landmark designation and its expected
judicial invalidation), was commenced. The trial court sev-
ered the cause of action for damages and, as above indi-
cated, entered judgment declaring the Landmarks Law, as
applied to plaintiffs, unconstitutional and permanently en-
joined defendants from acting thereunder to prevent the
construction of a lawful improvement on the terminal site.
For the reasons hereinbelow stated, such determination
should be reversed.

Although the apparent basis for the Trial Judge’s deci-
sion is the found presence of ‘‘such elements as economic
hardship, lack of compensatory alternative to alleviate eco-
nomic hardship, inadequacy of relief by tax rebate, etc.,
ete.’’, the rationale would seem to be stated in the penulti-
mate paragraph of his opinion:

‘*The point of decision here is that the authorities em-
powered to make the designation may do so but only

i) Ren Fs eh res

Se te ae oe ee

23a

at the expense of those who will ultimately have to bear
the cost, the taxpayers.”’

Such language suggests (in accordance with the interpre-
tation by the court below of the holding in Lutheran Church
v. City of New York, supra) that any regulation of private
property to protect landmark values constitutes a compen-
sable taking. Such holding would surely, as the amicus brief
submitted hereon states, ‘‘eviscerate New York’s Land-
marks Preservation Law.’’

While the line between a compensable ‘‘taking’’ and a
noncompensable ‘‘regulation’’ is sometimes difficult to dis-
cern, it nevertheless exists. (See, generally, Sax, Takings
And The Police Power, 74 Yale L.J. 36.)

In Mtr. of Trustees of Sailors’ Snug Harbor v. Platt
(supra, 29 A.D.2d at p. 377, 288 N.Y.S.2d at P. 315), we
upheld the validity of the Landmarks Preservation Law as
‘‘the right, within proper limitations, of the state to place
restrictions on the use to be made by an owner of his own
property for the cultural and aesthetic benefit of the com-
munity * * *.’’ And the Court of Appeals concluded that
we were ‘‘correct in refusing to declare the entire law un-
constitutional on its face.’’ (Lutheran Church v. City of
New York, 35 N.Y.2d 121, 131, 359 N.Y.S.2d 7, 16, 316
N.E.2d 305, 311.)

The sole question to be decided, then, is whether plaintiffs
have satisfactorily established that the law, as applied to
them in this case, imposes such a burden as to constitute a
compensable taking. Put another way, while the exercise of
the police power to regulate the private use of property is
not unlimited, it is for the one attacking such regulation in
any given case to establish that the line separating valid
regulation from confiscation has been breached.

In reaching such determination, consideration must be
given to the importance of the regulation to the public good,

24a

the reasonableness of the regulation in achieving such end
and the effect of the regulation on the economic viability of
the parcel involved. (Goldblatt v. Hempstead, 369 U.S. 590,
82 S.Ct. 987, 8 L.Ed.2d 130.) We believe the first two re-
quirements are met by the clearly stated purpose of the
Landmarks Preservation Law and the unavailability of any
reasonable alternative (short of condemnation) for the
preservation of a landmark.

The remaining issue is the economic impact of the law on
the particular parcel. In Lutheran Church v. City of New
York, 35 N.Y.2d 121, 359 N.Y.S8.2d 7, 316 N.E.2d 305, supra,
the court dealt with a landmark devoted to a charitable use.
Adopting a concept first enunciated by this Court (Matter
of Trustees of Sailors’ Snug Harbor v. Platt, 29 A.D.2d 376,
288 N.Y.S.2d 314, supra) it applied, as the standard: Does
the designation ‘‘prevent or seriously interfere with the
carrying out of the charitable purpose’’? (35 N.Y.2d, at p.
131, 359 N.Y.S.2d, at p. 16, 316 N.E.2d, at p. 311.)

In the instant case, the landmark parcel is not devoted
to a charitable purpose; and no claim is made that it cannot
be used for its prime function—as a railroad terminal. Ac-
cordingly, (and as Lutheran implied), the test to be applied
is the same as in zoning cases, t.e.: Have the plaintiffs dem-
onstrated that the regulation én issue deprives them of all
reasonable beneficial use of their property? (Cf. Williams
v. Town of Oyster Bay, 32 N.Y.2d 78, 343 N.Y.S.2d 118, 295
N.E.2d 788; Adamo v. Babylon, 28 N.Y.2d 982, 323 N.Y.S.2d
839, 272 N.E.2d 338; Salamar Builders Corp. v. Tuttle, 29
N.Y.2d 221, 325 N.Y.S.2d 933, 275 N.E.2d 585.)

Plaintiffs’ burden, in such connection, is to establish that
they are incapable of obtaining a reasonable return from
Grand Central Terminal operations, not that they are not
receiving it. (Cf. Salamar Builders Corp. v. Tuttle, 29
N.Y.2d 221, 325 N.Y.S.2d 933, 275 N.E.2d 585, supra; Ste-
vens v. Town of Huntington, 20 N.Y.2d 352, 283 N.Y.S.2d
16, 229 N.E.2d 591; Arverne Bay Construction Co. v.

ee De ee ee ee ee ee ae ee ES. Ree Sener T t Sat Cor ene eTOCs ee aero

25a

Thatcher, 278 N.Y. 222, 15 N.%.2d 587.) In our view, such
burden has not been met.

To support the claim that it is actually sustaining a loss
from Terminal operations, Penn Central submitted a
‘Statement of Revenues and Costs’’ for the years 1969 and
1971. These statements, which were prepared for the instant
litigation, improperly attribute a considerable amount of
railroad operating expenses (and some taxes) to their real
estate operations. For example, the expense items included
‘‘Station Master and Staff’’, ‘‘Information Clerks’’ and
‘“Gate Usher’. Such huge cost items (for 1971) as ‘‘main-
tenance, repairs and service plant operation’’ ($1,141,679),
‘‘eleaning’’ ($632,753), ‘‘policing’’ ($438,566), ‘*materials
and supplies’ ($69,692), and ‘‘utilities’’ ($660,710) were
related to the entire terminal operation and not segregated
as between the railroad and real estate portions thereof.

Moreover, and to compound the error, no rental value
whatsoever was imputed to the vast space in the Terminal
devoted to railroad purposes. (Cf. Matter of Seagram &
Sons v. Tax Comm. of City of N. Y., 14 N.Y.2d 314, 251
N.Y.S.2d 460, 200 N.E.2d 447.) Since Penn Central is in the
passenger railroad business it, of necessity, must have a
terminal (including trackage, platforms, concourse, waiting
rooms, ramps, ticket windows and public amenities) for
such service. The reasonable rental value of such space
cannot properly be omitted from any meaningful analysis
of the property’s capacity to yield a reasonable return.

Obviously, if the entire expense of operating a railroad
terminal is offset only by non-railroad rents generated by
the commercial and concession use thereof, even the most
profitable terminal] will show a ‘‘deficit’’.

Additionally, on the record before us, plaintiffs have
failed satisfactorily to show (a) an inability to increase the
Terminal’s commercial income by transforming vacant or
under-utilized space to revenue-producing use, or (b) that

26a

unused development rights over the Terminal could not
have been profitably transferred to one or more nearby
sites (see, New York City Zoning Resolution, Sec. 74-79 et
seq.), or (c) that Penn Central’s agreements with the Me-
tropolitan Transportation Authority and the Connecticut
Transportation Authority provide a basis for invalidating
the Terminal’s landmark designation.

Finally, the assertion that the Landmarks Preservation
Law unconstitutionally discriminates against Penn Central
because, as the recipient of partial tax exemption, it is in-
eligible for statutory hardship relief, has already been dis-
posed of by us. On an analogous claim in a comparable
situation we hold ‘‘that this does not render the statute un-
constitutional. It must be interpreted as giving power to
the commission to provide relief in the situation covered by
the statute, but not restricting the court from so doing in
others.’’ (Mtr. of Sailors’ Snug Harbor v. Platt, 29 A.D.2d
376, p. 378, 288 N.Y.S.2d 314, p. 316, supra.)

To summarize, in view of the nationwide ‘‘burgeoning
awareness that our heritage and culture are treasured na-
tional assets’’ (Maher v. City of New Orleans, 5 Cir., 516
F.2d 1051, 1060), New York City’s Landmarks Preservation
Law is a valid exercise of its police power. The need to
preserve structures worthy of landmark status is beyond
dispute; and the propriety of the landmark designation
accorded Grand Central Terminal is essentially unchal-
lenged.

Plaintiffs’ burden of proving the statute unconstitutional,
as applied to them, is exceedingly heavy (Cf. /.L.F.Y. Co.
v. City Rent and R. Admin., 11 N.Y.2d 480, 230 N.Y.S.2d
986, 184 N.E.2d 575; Wasmuth v. Allen, 14 N.Y.2d 391, 252
N.Y.S.2d 65, 200 N.E.2d 756); and, on the instant record,
has not been met. At best, they have shown that they have
been deprived of the property’s most profitable use. But
that is not the constitutional test. (Goldblatt v. Town of
Hempstead, 369 U.S. 590, 82 S.Ct. 987, 8 L.Ed.2d 130;

Pee See eo ee es ~

ee a

ee ee

ae wtteen o~

27a

United States v. Central Eureka Mining Co., 357 U.S. 155,
77 S.Ct. 1097, 2 L.Ed.2d 1228.)

The validity of the Landmarks Preservation Law, as
applied to Grand Central Terminal, does not depend on a
showing that the landmark parcel will be undiminished in
any degree by the regulation’s restrictions; only that it will
not ‘‘deprive the individual property owner ‘of all beneficial
use of his property’ * * *.’’ (Salamar Builders Corp. v.
Tuttle, 29 N.Y.2d 221, at p. 225, 325 N.Y.S.2d 933, at p. 937,
275 N.E.2d 585, at p. 588, supra.)

In short, ‘‘[pJlaintiffs have shown hardship but not con-
fiscation.’’ (Mary Chess, Inc. v. City of Glen Cove, 18
N.Y.2d 205, 210, 273 N.Y.S.2d 46, 49, 219 N.E.2d 406, 409.)
But such hardship, in the proper exercise of the City’s
police power, must be subordinated to the public weal, since
such regulatory auihority is not only ‘‘the least iimitable of
all the powers of government’’ (Matter of Engelsher v.
Jacobs, 5 N.Y.2d 370, 373, 184 N.Y.S.2d 640, 642, 157 N.E.2d
626, 627, cert. den., 360 U.S. 902, 79 S.Ct. 1286, 3 L.Ed.2d
1255), but it ‘‘is not to be limited to guarding the physical
or material interests of the citizen. His moral, intellectual,
and spiritual needs may also be considered. The eagle is
preserved, not for its use, but for its beauty.’’ (Barrett v.
State, 220 N.Y. 423, 428, 116 N.E. 99, 101.)

In light of the foregoing, the order and judgment of Su-
preme Court, New York County, entered, respectively, on
January 21, 1975 and February 4, 1975, and all findings
of fact and declarations of law inconsistent herewith, should
be reversed, on the law and the facts, said order, judgment
and findings vacated, and judgment entered declaring that
plaintiffs have failed to establish that the New York City
Landmarks Preservation Law is unconstitutional as applied
to them, with costs.

Order and judgment, Supreme Court, New York County,
entered on January 21, 1975 and February 4, 1975, and all

28a

findings of fact and declarations of law inconsistent with
the Opinion of this Court, reversed, on the law and the facts,
said order, judgment and findings vacated, and judgment
directed to be entered declaring that plaintiffs have failed
to establish that the New York City Landmarks Preserva-
tion Law is unconstitutional as applied to them. AppeHants
shall recover of respondents $60 costs and disbursements
of these appeals.

All coneur, except Markewicn and Lupino, JJ., who
dissent in an Opinion by Lupt1ano, J.

Settle order on notice providing, inter alia, for new find-
ings of fact consistent with the Opinion of this Court.

Luprano, Justice (dissenting) :

The historical, aesthetic and cultural significance of
Grand Central Terminal is not disputed. Similarly, the con-
tribution of the Terminal to the uniqueness of New York
City is not subject to polemics. Thus, the designation of
Grand Central Terminal as a Landmark under the Land-
marks Law of New York City is easily countenanced. How-
ever, the sole issue to be decided on this appeal is, as aptly
phrased by Justice Murphy: ‘‘ whether plaintiffs have satis-
factorily established that the law, as applied to them in
this case, imposes such a burden as to constitute a compen-
sable taking’’. Such issue narrows down to the impact of the
Landmarks Preservation Law on the particular parcel.

Plaintiff Penn Central Transportation Company (‘‘ Penn
Central’’) has a three-hundred year lease for the Terminal.
Plaintiff The New York and Harlem Railroad Company is
95% owned by the Trustees of Penn Central and is the
owner of the fee. The 51st Street Realty Corporation is also
a subsidiary of the Penn Central. Subsequent to the desig-
nation of the Terminal as a Landmark, agreements were
entered into between Penn Central and UGP Properties,

—

|
:
)
:
;

29a

Inc. (‘‘UGP’’) under date of January 22, 1968, whereby
UGP was to erect an office building, in keeping with ap-
plicable zoning laws, in and above that part of the Terminal
space now occupied by the waiting room and shops along
42nd Street. UGP engaged the renowned firm of Marcel
Breuer & Associates to prepare architectural designs. That
firm, winner of many awards for architectural distinction
(e. g., awards for the Whitney Museum and the H.U.D.
Headquarters Building in Washington, D.C.), designed a
high-quality building in compliance with the zoning laws
which would not alter the Main Concourse or any other
part of the Terminal actually used in railroad operations,
would provide ample access for pedestrians and, most sig-
nificantly, would preserve the facade of the Terminal build-
ing (Breuer Plan I). In providing for office building space
rising above the present Terminal frontage on 42nd Street
and set back some 30 feet from the facade of the present
building, this plan constituted a present-day application of
a principle which had been embodied in the original plans
for the present Terminal building. The original plans called
for an office building to be erected over the present facade
in essentially the same location as is proposed in Breuer
Plan I. The difference is that, in keeping with current build-
ing capabilities and practices, the Breuer I design calls for
a considerably taller building of more modern design. The
removal of certain shops and advertising signs on 42nd
Street and the creation of a pedestrian arcade, as envisioned
by this plan, was recognized by the Landmarks Commission
as considerably enhancing, ‘‘if sensitively handled, . . . the
exterior of Grand Central Terminal by providing a quieter
and more dignified base to support the monumental columns
that rise from the ramp level. Since the suggested changes
in the street level entrances would unquestionably improve
pedestrian access to the Terminal and to the subway, these
proposals might well be acceptable as a means of perpetuat-
ing the use of the Landmark and of protecting its main
exterior architectural features’’. However, Breuer Plan I

30a

was twice rejected by the Commission on applications for a
Certificate ~ No Exterior Effect (Admin.Code § 207-5.0)
and for a Certificate of Appropriateness (Admin.Code
§ 207-6.0) respectively. The Commission in response to the
‘‘applicant’s claim that the Pan Am Building has already
destroyed the silhouette of the south facade and that the
proposed tower, with its granite facing, would either pro-
vide a better background or that one more tower could not
do further damage’’ opined that the ‘‘great mass of the
Breuer I tower right on top of the Terminal facade tee
would reduce the Landmark itself to the status of a curios-
ity’’. An alternative design which came to be known as
Breuer II Revised was also submitted. The major difference
between the two plans is that Breuer II Revised does not
preserve the south facade of the Terminal building. A Cer-
tificate of Appropriateness was similarly denied for Breuer
II Revised.

At this point, after denial of a Certificate of No Exterior
Effect and a Certificate of Appropriateness, owners of land-
marks generally would have had available an important
administrative remedy: an application for relief (including
ultimately the lifting of the landmark restrictions) on the
ground of economic hardship. Such relief is denied with
respect to the Terminal and its site, however, because this
part of the law is so drawn as to exclude from its applica-
bility property having partial real estate tax exemption un-
der § 489-ff of the Real Property Tax Law, relating to com-
muter railroad real property (Admin.Code § 207-8.0a[2]).
Property exempt under Section 489-ff is one of the few
types as to which the Landmarks Law withholds relief and
the Terminal is the only 489-ff property which has been
designated a Landmark.

As a consequence, plaintiffs commenced the instant action
for declaratory judgment which resulted in a judgment of
the Supreme Court, New York County (Saypol, J.) declar-
ing that the Landmarks Law of the City of New York and

3la

the actions taken pursuant thereto by the Landmarks Pres-
ervation Commission as applied to Grand Central Terminal
and its site (a) constitute a taking of private property for
public use without compensation, and (b) deny to plaintiffs
due process of law and the equal protection of the laws.
Trial Term in its memorandum decision quoted at length
from the supplemental report of former Associate Judge
John Van Voorhis of our Court of Appeals, serving as Spe-
cial Master in the reorganization proceedings involving The
New York, New Haven and Hartford Railroad Company in
the United States District Court for the District of Con-

necticut. The following excerpt from that report is particu-
larly relevant:

‘*There is, of course, a precedent for this structure in
the Pan-American Building located about 200 feet to
the north. Whether the opposition to its construction
will succeed is not presently known, but it would seem
to me, that the probabilities are in its favor. The Grand
Central Station is not proposed to be removed. [cita-
tion] It is doubtful that the City could insist upon its
being maintained at Penn Central’s expense as a me-
morial to the golden age of railroading. The building,
as it is, is expensive to maintain, and even under the
broad scope of the police power in modern times it is
doubtful that it can be so constricted without there bhe-
ing a taking without payment of just compensation as
required by the state and federal constitutions. This is
particularly true in view of the similarity and close
proximity to the Pan-Am Building which, it might be
argued, could constitute discrimination denying the
equal protection of the law.’’

Also of particular relevance are the following findings of
fact enunciated by Trial Term:

**9. The Terminal is deteriorating at a substantial rate.
The condition of the Terminal was such that repairs

32a

and maintenance work costing approximately $1,278,-
135 were necessary in June 1972... .25. The Terminal
site is a valuable location for an office building. It is in
the heart of a commercial area occupied mainly by
high-rise commercial structures such as office buildings
and hotels... . 31. 1f construction of Brewer I had com-
menced in 1968, the City could have received substan-
tially increased property taxes from commencement of
construction.’’ (Emphasis supplied).

After further finding that the proposed venture would have
been successful and that substantial sums would have ac-
crued to the respective plaintiffs, Trial Term found:

‘*36. For the years 1967 to 1971, the cost to Penn Cen-
tral of operating the Terminal building itself, exclusive
of purely railroad operations, exceeded the revenues
received from concessionaires and tenants in the Termi-
nal. 37. The net deficit to Penn Central from operating
the Terminal was $1,165,470 in 1969 and $1,902,467 in
1971. 38. As of June 1, 1972, the Metropolitan Trans-
portation Authority leased the Terminal and, together
with the Connecticut Transportation Authority, re-
ceives all revenues from tenants and concessionaires
in it (with the exception of any rent Penn Central would
receive under its lease with UGP) and has assumed all
costs of operating the Termimal. Penn Central is obli-
gated to pay these agencies $4,500,000 a year for the
next five years and $2,000,000 thereafter. The Metro-
politan Transportation Authority received partial re-
imbursement for these costs from the City.’’

In light of the agreement which Penn Central found neces-
sary to make with the MTA and CTA and of the mainte-
nance and operating expenses of the terminal far exceed-
ing actual revenues therefrom, it is averred that the denial
of the opportunity to profit from the proposed development
leaves Penn Central in a position where it cannot make

33a

any return on the Terminal. Put another way, it is plain-
tiffs’ contention that the application of the Landmarks
Law to this parcel in the manner described above, effectively
deprives them of the reasonable beneficial use of their prop-
erty and thus amounts to a taking. It is aptly observed in
Lutheran Church v. City of New York, 35 N.Y.2d 121, 131,
359 N.Y.S.2d 7, 16, 316 N.E.2d 305, 311 (1974) that ‘‘(t)he
landmark preservation problem has received considerable
comment the net effect of which is general agreement that
attempts to designate individual landmarks in high eco-
nomic development areas is fraught with trouble (see, espe-
cially, Costonis, The Chicago Plan: Incentive Zoning And
The Preservation of Urban Landmarks, 85 Harv.L.Rev.
074; Wolf, The Landmark Problem in New York, 22 Intra-
mural L.Rev. of N.Y.U. 99).’’ Although title and use remain
in the record owner, Lutheran Church, supra recognized
that in a particular case the Landmarks Law may operate
to so severely restrict free use as to be confiscatory. Essen-
tially this is the manner in which Trial Term viewed the
problem presented by the instant action.

The majority cite specific instances in which plaintiffs are
alleged to have erred in attempting to carry the burden of
proving a net operating deficit. First, it is asserted that the
‘‘Statement of Revenues and Costs’’ for the years 1969 and
1971 improperly attribute a considerable amount of railroad
operating expenses to their real estate operations. Certain
substantial cost items for 1971, such as ‘‘maintenance, re-
pairs and service plant operation’’, ‘‘cleaning”’, ‘‘policing’’,
‘*materials and supplies’’ and ‘‘utilities’’, are criticized for
being presented as related to the entire Terminal operation
rather than segregated as between the railroad and real
estate portions thereof. Patently, the tenants and conces-
sionaires who provide the gross revenues of the Terminal
are there because the Terminal is an active railroad station
and provides a nexus with public transportation via subway
and bus, thus insuring the daily passage of thousands of

34a

people. Pragmatically, these tenants and concessionaires
can be attracted and retained if the building is operated as
a railroad station and is maintained, cleaned, repaired and
policed in all its parts. There is, therefore, a basis for claim-
ing that the expense of operating and maintaining the build-
ing is a proper expense in ascertaining the profitability or
unprofitability of its operation. The insubstantial nature of
the criticisms of the ‘‘Statement of Revenues and Costs’’ is
evident because excluding all items the defendants, the City
of New York and the Landmarks Preservation Commis-
sion, claim should be excluded ony reduces the deficit from
$1,902,467 to $1,089,672. That alone serves to establish the
economic burden borne by the Terminal. Further, though
difficult to apportion, it may not be gainsaid that the value
of the ‘‘real estate’’ aspect of the Terminal is dependent
upon the maintenance of the Terminal as an area which will
be visited for purposes other than transportation.

It is next claimed that plaintiffs’ failure to impute a
rental value to the vast space in the Terminal devoted to
railroad purposes is an error vitiating plaintiffs’ analysis
of the property’s capacity to yield a reasonable return. As
to this contention, the plain answer is that the defendants’
reliance on Matter of Seagram & Sons v. Tax Comm., 14
N.Y.2d 314, 251 N.Y.S.2d 460, 200 N.E.2d 447 (1964) is mis-
placed. This case dealt not with income from a building, but
with the determination of its appraisal value on the capital-
ization-of-rents method. Obviously, under those circum-
stances, rent had to be imputed to owner-occupied space in
order to have something to capitalize for that portion of the
building. That, of course, is not the case here which is con-
cerned with whether the owner is making any return from
his use of his property. Indeed, the Landmarks Law itself
in defining ‘‘reasonable return’’ states that for such pur-
poses ‘‘(n)et annual return shall be the amount by which
the earned income yielded by the improvement parcel during
a test year exceeds the operating expenses of such parcel
during such year .. .’’ (Admin.Code § 207-1.0v[3][a}).
(Emphasis supplied). As a matter of economic analysis, the

35a

argument treats the Terminal as if someone had made a
gift of it to Penn Central. The fact is that Penn Central paid
its own money for the Terminal and to the extent it has been
‘‘saved’’ money for Terminal rental, it has lost the interest
it would have made if it had never built the Terminal or had
sold it. These figures of rent and interest on the value of
the property are economic equivalents (See La Porte v.
State of New York, 6 N.Y.2d 1, 7, 187 N.Y.8.2d 737, 741, 159
N.E.2d 540, 542 [1959], appeal dismissed, 361 U.S. 116, 80
S.Ct. 207, 4 L.Ed2d 154 [1959]; Albany Country Club v.
State of New York, 37 Misc.2d 134, 144, 235 N.Y.S.2d 684,
694 [Ct. Claims 1962), modified on other grounds, 19 A.D.
2d 199, 241 N.Y.S.2d 604 [3rd Dept., 1963], affd., 13 N.Y.2d
1085, 246 N.Y.S.2d 407, 196 N.E.2d 62 [1963]). Further, it
has been held that the imputation of rent does not create
income from property as the term is defined by the Internal
Revenue Code (Harper v. Granger, 99 F.Supp. 216 [W.D.
Pa.1951]). In passing, note is taken of plaintiffs’ point that
it is ironic to have the argument made in this case that the
present Terminal should be assigned an enormous rental
value because of the rental vaues for comparable space in
mid-Manhattan. Rental values are high in that area in the
context of the owners’ freedom within the zoning laws to
develop their property in profitable ways. At issue here is
the application of the Landmarks Law in such manner as to
deprive the Terminal of such value. It may well be argued
that no one woud pay substantial rentals for a lease of the
Terminal when told that the only use to which he can put it
is an unprofitable railroading use. In this sense the value
which defendants would have the Court attribute to the
property is precisely the value that they have taken away
from it.

Next, it is maintained that plaintiffs have failed to satis-
factorily show an inability to increase the Terminal’s com-
mercial income by transferring vacant or under-utilized
space to revenue producing use. In this context it appears
that Penn Central has been assiduous in attempting to in-

36a

crease its Terminal income. Indeed, the commercialization
of the Terminal had reached such a point that one of the
things discussed in the proceedings before the Landmarks
Commission was the desirability of eliminating some of the
concessions which have disfigured the building. The simple
assertion that there is room for development of additional
office space, stores or recreational facilities is highly specu-
lative. As to existing leases, there is nothing to suggest that
they were not negotiated at arm’s length. As to additional
development, it is worthy of note that a proposed bowling
alley in place of the waiting room failed of approval by the
Public Service Commission. Also, a proposed mall failed of
accomplishment because of its impingement upon trackage.

Defendants next assert that the claimed hardship based
on deferred maintenance expenses, attributable to the Land-
marks Law provision (Admin.Code § 207-10.0) requiring
Penn Central to maintain the Landmark is spurious. This
assertion is seemingly premised on the argument that the
Landmarks Law mandates no more than that required by
ordinary prudent management for the preservation of the
investment. Maintenance is a prerogative of management.
To transform that prerogative into a duty is to clearly les-
sen Penn Central’s estate. It is as though a lien is asserted
against the property in the amount necessary to maintain
the Terminal and it mandates expenditures whether or not
justified by the operating statement. Otherwise stated, own-
ership entitles one to destroy as well as to preserve. Sub-
ject to the law of nuisance, inter alia, the vehicle of destruc-
tion may be neglect. To require maintenance or improve-
ments may be an idea whose time has come, but it may not
be required solely of Landmarks, and not in the context of
additional burdens or restrictions upon the parcel which on
a pragmatic, economic and financial Lasis cannot be com-
plied with. Though not here in issue, notice may be taken of
the fact that criminal penalties attach to the failure to main-
tain a Landmark.

37a

It is further asserted by defendants that the agreements
with the MTA and the CTA referred to above, were im-
properly found by Trial Term to impose a loss in that Penn
Central must pay additional sums to those agencies. Review
of the historical background of those agreements impels the
conclusion that defendants’ contention is without merit. Ap-
proximately two years prior to any agreement with the
MTA, Penn Central acquired all the assets of the New
Haven Railroad, specifically including all the New Haven’s
interest in the off-Terminal (Park Avenue) properties. For
this interest Penn Central was charged more than $28,000,-
000. At the same time, Penn Central became responsible for
all the operations and operating deficits of the New Haven.
Therefore, when Penn Central and the MTA negotiated
their agrements, the New Haven was in essence a mere cor-
porate shell. There were no assets of the New Haven to
which the MTA could ‘‘succeed’’ and the MTA in fact ac-
quired nothing from the New Haven. Defendants, though
acknowledging that all revenue inures to the benefit of the
MTA and that all costs are borne by the MTA, aver that the
$2,000,000 credit against expenses incurred is in reality a

sum due the MTA as the successor in interest to the New -

Haven. During the time when the New Haven still held an
interest in the off-Terminal properties and their revenues,
these revenues had been applied towards off-setting the op
erating deficits of the Terminal and, if any excess remained,
the New Haven asserted a claim to a share of the excess. It
was thought equitable for Penn Central to contribute
towards the operating deficits of the Terminal an amount
roughly equivalent to the part of the off-Terminal revenues
which had formerly been applied towards New Haven’s
share of the Terminal expenses. Penn Central’s acquisition
of the part of the off-Terminal revenues which was ‘‘not ex-
cess’? was accompanied by its assumption of the very ex-
penses (formerly the obligations of the New Haven) against
which the non-excess revenues had been applied. No benefit
was derived from the simultaneous acquisition of a debit

38a

and a credit in equal amounts. Thus, the credit of $2,000,000
provided by Penn Central to the MTA did not come out of
the assets of the New Haven to which the MTA had suc-
ceeded and the agreements between Penn Central and the
MTA delineate that this credit is to come out of Penn Cen-
tral’s own assets and is specifically applied towards oper-
ating expenses of the Terminal.

The other credit of $2.5 Million per year for five years
required to be provided by Penn Central in connection with
the operation for MTA’s account of the Harlem-Hudson
Division is not related to the Terminal. The operating agree-
ments were not entered into for the benefit of Penn Central,
but for the purpose of maintaining commuter service. While
Penn Central may have been able to meet operating defi-
cits, it may also have been able to discontinue commuter
service. The $2.5 Million credit was the price it paid for
withdrawal from commuter service. Viewed in this context,
the credit is chargeable not to the operation of the Termi-
nal, but to the Penn Central itself. However, this does not
alter the fact that the several agreements leave Penn Cen-
tral with no possible source of return from the Terminal,
save development rights.

The majority view the plaintiffs as having failed to sat-
isfactorily show that unused development rights over the
Terminal could not have been profitably transferred to one
or more nearby sites (see, New York City Zoning Resolu-
tion, Sees. 74-79, et seq.). The Transfer Resolutions author-
ize the City Planning Commission to grant special permits,
if certain conditions are met, allowing the transfer of devel-
opment rights from a landmark site to adjacent sites. As
originally enacted, they neither provided compensation nor
significantly mitigated : plaintiffs’ harm. Defendants ac-
knowledged that development rights are not ipso facto
equated with compensation when the Zoning Resolution was
amended in 1969 to expand the number of sites that could
receive transfers of development rights from the Terminal

39a

site. Moreover, as defendants themselves note, the process
of transfer is fraught with obstacles. The City Pianning
Commission and the Board of Estimate must approve.
Neighbors may resort to the courts to protest the erection
in their vicinity of a structure which does not comport with
the Zoning Resolution. For these and numerous other rea-
sons it is difficult to assign a monetary value to the transfer
rights. However, not content with merely asserting the gen-
eral value of transfer rights, defendants detail the economic
benefit to be derived from a transfer to the Biltmore Hotel
site. This, of course, requires the demolition of the Biltmore
Hotel, a viable profit-making entity and ignores the fact
that the vast square footage could not be transferred to any
adjacent site, unless the Biltmore site was to be occupied
by a 103-story structure. In the context of this discussion,
it ill-behooves defendants to in effect control the deploy-
ment of the Penn Central’s financial resources and usurp
its management prerogative. In light of the substantial costs
that may attend the transfer of development rights because
the Landmark owner must submit a program for continuing
maintenance of the Landmark as part of his application for

the special permit, the value of the development rights are
less attractive.

It is, therefore, concluded on the record herein that plain-
tiffs have sustained their burden of demonstrating that the
Terminal site, as restricted, is incapable of producing a
reasonable economic return. Concededly the operation of
the Terminal represents an economic hardship. Conjecture
that Penn Central could have ‘‘done better’’ may not oper-
ate as a talisman in the resolution of this matter. It is only
required that Penn Central do the best it can. The possible
transfer of development rights cannot be viewed under the
circumstances herein as offsetting the restrictions placed on
the Terminal site. The benefits to both the City and the citi-
zenry to be derived from the designation of the Terminal
as a Landmark are self-evident. Yet in the manner of its

40a

application as delineated above, lies the inequity of this
particular case. The Terminal is to be preserved in its pris-
tine state for the benefit of all and the bill for this is pre-
sented solely to Penn Central. Assuming the Terminal is
and represents all that defendants claim (an assumption
easily indulged in), the relevant considerations and circum-
stances may well warrant resort to the power of eminent
domain as an appropriate solution. If for cogent reasons
resort to such power is not feasible, defendants may have
to forego this particular objective. In this connection, it
should be noted that Breuer I appears to be more suited to
a compromise of the rival interests of defendants and of
plaintiffs. Further, if the power of eminent domain is
deemed here inappropriate, society is left with an inchoate
right.

At this point the following lengthy excerpt from the Court
of Appeals opinion in Forster v. Scott, 136 N.Y. 577, 583-
585, 32 N.E. 976, 977 (1893) is most apt:

‘‘The constitutional guarantees against the appropria-
tion of private property for public use, except upon
just compensation, as well as that against depriving
the owner of its enjoyment and possession without due
process of law, have been the subject of much judicial
discussion in the manifold aspects in which the ques-
tions have been presented in the numerous cases... .
The validity of a law is to be determined by its purpose
and its reasonable and practical effect and operation,
though enacted under the guise of some general power,
which the legislature may lawfully exercise, but which
may be and frequently is used in such a manner as to
encroach, by design or otherwise, upon the positive
restraints of the Constitution. What the legislature
cannot do directly, it cannot do indirectly, as the Con-
stitution guards as effectively against insidious ap-
proaches as an open and direct attack. Whenever a law
deprives the owner of the beneficial use and free enjoy-

4la

ment of his property, or imposes restraints upon such
use and enjoyment, that materially affect its value,
without legal process or compensation, it deprives him
of his property, within the meaning of the Constitu-
tion. All that is beneficial in property arises from its
use and the fruits of that use, and whatever deprives a
person of them deprives him of all that is desirable or
valuable in the title and possession. It is not necessary,
in order to render a statute obnoxious to the restraints
of the Constitution, that it must in terms or in effect,
authorize an actual physical taking of the property or
the thing itself, so long as it affects its free use and en-
joyment, or the power of disposition at the will of the
owner. Though the police and other powers of govern-
ment may sometimes incidentally affect property
rights, according to established usages and recognized
principles familiar to courts yet even these powers are
not without limitations, as they can be exercised only
to promote the public good, and are always subject to
judicial scrutiny. (Citations. )

‘*As the plaintiff in the case at bar was virtually de-
prived of the right to build upon his lot by the statute
in question, and as this circumstance obviously im-
paired its value and interfered with his power of dis-
position, it was to that extent void as to him, and
created no encumbrance upon it.’’

Manifestly, the competing meritorious interests of the
City and the Landmarks Preservation Commission in seek-
ing to preserve the historical, aesthetic and cultural heritage
represented by Grand Central Terminal and the interest of
Penn Central as owner in the free use of its property un-
burdened by restrictions imposed by the former under cir-
cumstances and in such manner as to be confiscatory in
nature, must be reconciled, It is submitted that given the
present economic conditions prevalent in New York City
and, indeed in the United States, given the financial situa-
tion of Penn Central with due regard for the reasonable

42a

efforts on the part of management to obtain an adequate
return on the property at issue, and given the grandeur of
the Terminal, somewhat faded in the physical sense but
fully vital from an historical and cultural perspective,
Breuer I represented a patently good faith effort to do
homage to the Terminal within the ambit of its Landmark
designation, and at the same time to recognize the preroga-
tive of private ownership and the economic necessities of
this commercial parcel.

In the Amici Curiae brief submitted on behalf of the Com-
mittee to Save Grand Central Station, et al., it is stated
that ‘‘(r)egulation for the purpose of the preservation of
. . . [landmarks] has been upheld in all states where the
matter has been tested in court’’, citing in support of this
proposition the following: City of New Orleans v. Levy,
223 La. 14, 64 So.2d 798 (1953); Opinion of the Justices to
the Senate, 333 Mass. 773, 128 N.E.2d 557 (1955) ; Opinion
of the Justices to the Senate, 333 Mass. 783, 128 N.E.2d 563
(1955) ; City of Santa Fe v. Gamble-Skogmo, Inc., 73 N.M.
410, 389 P.2d 13 (1964); Town of Deering ex rel. Bittenben-
der v. Tibbetts, 105 N.H. 481, 202 A.2d 232 (1964); Rebman
v. City of Springfield, 111 Ill.App.2d 430, 250 N.E.2d 282
(1969) ; Bohannan v. City of San Diego, 30 Cal.App.3d 416,
106 Cal.Rptr. 333 (Ct.App. 4th Dist., 1973). A reading of
these cases indicates that, with one exception, each case
was concerned with the preservation ot a district, not an
individual parcel. This is so analogous to zoning that the
statutory scheme is oft referred to as zoning. The one ex-
ception was a prohibition against the erection of any build-
ing within 14 mile of the town common unless the plans
were approved (Town of Deering ex rel. Btttenbender v.
Tibbetts, supra). Again, hardly the sort of taking here
present. We refer again to the Court of Appeals decision
in Lutheran Church v. City of New York, supra, wherein
it was observed in the able opinion, per Gabrielli, J. that
zoning regulation is different than, and not to be equated

43a

with, Landmarks Preservation. Nevertheless, the Court pro-
ceeded to demonstrate that even zoning is void if confisca-
tory. Further, it is confiscatory if it may fairly be stated
that the regulation serves to add property remaining in pri-
vate hands to the government’s resources. Citing Forster v.
Scott, supra, the Court also noted that a statute which af-
fects the free use and enjoyment of property or the power
of disposition at the will of the owner is ‘‘obnoxious to the
restraints of the constitution’’ (Lutheran Church v. City
of New York, supra, 35 N.Y.2d at p. 130, 359 N.Y.S.2d at p.
15, 316 N.E.2d at p. 311). ‘‘What has occurred here, how-
ever, where the commission is attempting to force plaintiff
to retain its property as is, without any sort of relief or ade-
quate compensation, is nothing short of a naked taking’’
(Lutheran Church v. City of New York, supra, at p. 132, 359
N.Y.S.2d at p. 16, 316 N.E.2d at p. 312.) (Emphasis sup-
plied). It thus appears that Mr. Justice Saypol correctly
analyzed the .pinion of the Court of Appeals and that se-
vere criticism of the Justice in this respect by defendants
is unwarranted. Of particular note is the fact that in Luth-
eran Church, the landowner wished to demolish the mansion
which had been designated a Landmark and to accomplish
this parpose it was necessary to have the ‘‘landmark desig-
nation’”’ itself removed. It was ‘‘ uncontested that the exist-
ing building [was] totally inadequate for [the landowner’s]
legitimate needs and must be replaced if [the landowner]
is to be able freely and economically to use the premises
especially as it appears that adjoining structures have been
integrated with [the landowner’s] operation’’ (Lutheran
Church v. City of New York, supra, at 132, 359 N.Y.S.2d at
17, 316 N.E.2d at 312). However, the declaratory judgment
action initiated by plaintiffs herein has its inception not in
a desire to demolish the landmark, but rather to alter it;
that is, to use it in a manner which will insure a reasonable
economic return while preserving the Landmark in a feasi-
ble and consonant manner. To phrase it another way: plain-
tiffs desire to build an office tower over the Landmark and

44a

not to remove the Landmark and replace it with such office
tower. Consequently, the declaratory relief afforded by the
Supreme Court must be viewed as not removing the ‘‘land-
mark designation’’ from the Terminal, but rather perceived
as holding that the manner of applying such designation as
above delineated, constitutes a taking of plaintiffs’ private
property for public use without just compensation. It is
beyond cavil that if defendants, especially the Landmarks
Preservation Commission, acted favorably in respect of any
of the plaintiffs’ applications seeking to construct the tower,
the instant action would not have been maintained. By vir-
tue of the fact that plaintiffs retained an outstanding archi-
tect firm and even submitted Breuer I which retains the
famed south facade of the Terminal, their good faith in com-
ing to terms with the landmark designation has been ex-
hibited. The presence of the Pan Am building and the fact
that the original plans for the present Terminal envisioned
an office tower over such Terminal militate in persuasive
fashion against the defendants’ intransigent position. In
this context, such rigid application of the Landmarks Law
designation may well be self-defeating. Self-defeating not
only because it calls into question the propriety of such law,
but also because the individuals who designed, built, indeed
underwrote the great structures now deemed worthy of des-
ignation as Landmark, undoubtedly did so for a variety of
reasons, among which was their intention to profit there-
from. It is not reasonable to assume that if the result of
structural distinctiveness is to be a lessening of the entre-
preneurial estate, there may well be no structures to desig-
nate as Landmarks in the years to come?

Defendants’ claim that Trial Term erred in declaring that
the Landmarks Law as applied to plaintiffs denies them the
equal protection of the laws. It will be recalled that Penn
Central is precluded from seeking relief available to others
because of its receipt of a partial real estate tax exemption.
The statutory scheme, without explanation therefor, treats
differently three classes of landmark owners. Penn Central

Aetidr bt

45a

is relegated to that category which cannot obtain relief from
the Landmarks Law. Moreover, as demonstrated by plain-
tiffs, there is neither a common thread nor a commor sense
segregation of classes of property. It is this feature which
denies to plaintiffs the equal protection of the laws. The
power of classification cannot be arbitrarily exercised. The
distinctions made must have some reasonable basis ( Rosen-
thal v. New York, 226 U.S. 260, 33 S.Ct. 27, 57 L.Ed. 212
[1912]; Cf. Brown v. Board of Trustees, 303 N.Y. 484, 104
N.E.2d 866 [1952}).

The remaining contentions raised by defendants have
been considered and found to be without merit. Accordingly,
the order and judgment of the Supreme Court, New York
County (Saypol, J.), entered respectively on January 21,
1975 and February 4, 1975 declaring that the Landmarks
Law of New York City and the actions taken pursuant there-
to by the Landmarks Preservation Commission as hereto-
fore applied to Grand Central Terminal and its site (a)
constitute a taking of private property for public use with-
out compensation and (b) deny to plaintiffs due process of
law and the equal protection of the laws, should be affirmed,
with costs and disbursements.

MaRKEWICH, J., concurs.

(2)

Order (with Findings of Fact) of the New York Supreme Court,
| Appellate Division

(Filed April 7, 1976)

At a term of the Appellate Division of the Supreme Court
of the State of New York, held in and for the First Judicial
Department, in the County of New York, on the 7th day of
April, 1976.

PRESENT:

Hon. Harold A. Stevens, Presiding Justice.

46a

Hon. Arthur Markewich, Hon. Theodore R. Kupferman,
Hon. Francis T. Murphy, Jr., Hon. Vincent R. Lupiano,
Justices.

(Caption OmITTeD in PRINTING)

The defendants-appellants the City of New York and the
Landmarks Preservation Commission of the City of New
York having appealed from an order of the Supreme Court,
New York County (Saypol, J.), entered on or about Janu-
ary 21, 1975, severing plaintiffs’ causes of action for com-
pensation from their causes of action for declaratory and
equitable relief, and from a judgment of said Court entered
on or about February 4, 1975, adjudging that certain actions
of the defendants constitute a taking of private property
without just compensation and enjoining defendants from
taking said action; and said appeal having duly come on to
be heard before this Court, and having been argued by Ms.
Nina G. Goldstein, of counsel for the defendant-appellants,
and by Mr. John E. F. Wood, of counsel for the plaintiffs-
respondents; and due deliberation having been had thereon;
and upon the opinion of this Court by Mr. Justice Murphy
filed herein and made a part hereof ; with two of the Justices
dissenting upon an opinion by Mr. Justice Lupiano, and
upon the findings of fact made by this Court herein; it is
hereby

OrperRED and ApJupcep that the order and judgment of
Supreme Court, New York County (Saypol, J.) entered,
respectively, on January 21, 1975 and February 4, 1975, here
appealed from, be and the same hereby are reversed, on the
law and the facts, with costs; and it is further

OrpeRED and ApJunpceEp that all declarations of law by the
Supreme Court, New York County, accompanying the judg-
ment appealed from be and the same hereby are reversed,
on the law and the facts; and it is further

OrpERED and ApJvupcep that all the findings of fact made
by the Supreme Court, New York County, accompanying

47a

the judgment appealed from, inconsistent with the new find-
ings of fact set forth in the opinion of this Court, be and the
same hereby are reversed, and this Court in lieu thereof
makes the following new findings of fact:

1. In recent years, there has been an increasing national
growth of interest in preserving irreplaceable buildings and
sites which have historical, aesthetic or cultural significance.

2. Urban landmarks are now acknowledged to merit rec-
ognition as ‘‘an imperiled species.’’ If destruction of such
landmarks continues at its present pace, by 1976 the nation
will have lost an essential part of its architectural and cul-
tural heritage.

3. The preservation of landmarks in urban areas is of
special importance. Grand Central Terminal is an important
and irreplaceable component of the special uniqueness of
New York City. It is unquestionably one of New York City’s
best known buildings. Along with the Empire State Building
and the Statue of Liberty, the image of its facade symbolizes
New York City for millions of visitors and residents.

4. From its formal opening to the public in 1913 (as a
replacement for the ‘‘Grand Central Depot’’ built by Cor-
nelius Vanderbilt in 1871) the Terminal has been recognized
not only for its architecture, but as a superb example of
comprehensive urban design.

5. The need to preserve structures worthy of landmark
status is beyond dispute; and the propriety of the landmark
designation accorded Grand Central Terminal is essentially
unchallenged.

6. Plaintiff Penn Central is the successor to the New
York Central Railroad Company and the Pennsylvania Rail-
road. For purposes herein, ‘‘Penn Central’’ includes its
subsidiaries plaintiffs The New York and Harlem Railroad
Company and The 51st Street Realty Corporation. Plaintiff
UGP Properties, Inc. (‘‘UGP’’) was incorporated after the

48a

landmark designation here in issue; it is a wholly owned
subsidiary of a British Company.

7. Penn Central’s losses over the last several years
brought it to insolvency and bankruptcy. In order to mini-
mize such losses and provide offsetting revenues, it entered
into a lease with UGP in January, 1968, pursuant to which
UGP was to erect a tower exceeding 50 stories over the
Terminal. UGP undertook to pay to Penn Central $1,000,000
per year during construction and thereafter an amount that
was guaranteed to equal not less than $3,000,000 annually.
In addition, UGP assumed a portion of Penn Central’s real
estate taxes estimated at $578,500. These rental payments
were to be offset in part by the elimination of approximately
$700,000 to $1,000,000 in net rents presently received from
eoncessionairies whose space would be occupied by the pro-
posed new building.

8. Commencing in July, 1968, plaintiffs submitted to the
Landmarks Commission several building designs prepared
by the architectural firm of Marcel Breuer & Associates
(called Breuer I, Breuer II and Breuer II Revised) and
requested an appropriate certificate (of no exterior effect
or of appropriateness). Plaintiffs have indicated a prefer-
ence for Breuer II Revised, which would have preserved the
Terminal’s Main Concourse, but not its famous south fa-
cade. On August 26, 1969, a certificate of appropriateness
was denied.

9. Grand Central Terminal receives partial real estate
tax exemption pursuant to Real Property Tax Law, § 489 ff.

10. The landmark parcel at issue is not devoted to a
charitable purpose; and no claim is made that it cannot be
used for its prime function—as a railroad terminal.

11. Plaintiffs failed to meet their burden of establishing
that they are incapable of obtaining a reasonable return
from Grand Central Terminal operations.

49a

12. To support the claim that it is actually sustaining a
loss from Terminal operations, Penn Central submitted a
‘Statement of Revenues and Costs’’ for the years 1969
and 1971. These statements, which were prepared for the
instant litigation, improperly attribute a considerable
amount of railroad operating expenses (and some taxes) to
their real estate operations. For example, the expense items
included ‘‘Station Master and Staff’’, ‘‘Information
Clerks’’ and ‘‘Gate Usher’’. Such huge cost items (for
1971) as ‘‘maintenance, repairs and service plant opera- |
tion’’ ($1,141,679), ‘‘cleaning’’ ($632,753), ‘‘policing”’
( $438,566), **materials and supplies’’ ($69,692), and ‘‘utili-
ties” ($660,710) were related to the entire terminal opera-
tion and not segregated as between the railroad and real
estate portions thereof.

13. No rental value whatsoever was imputed to the vast
space in the terminal devoted to railroad purposes. Since
Penn Central is in the passenger railroad business it, of
necessity, must have a terminal (including trackage, plat-
forms, concourse, waiting rooms, ramps, ticket windows and
public amenities) for such service. The reasonable rental
value of such space was improperly omitted.

14. Plaintiffs have failed to show that they are unable to
increase the Terminal’s commercial income by transforming
vacant or under utilized space to revenue producing use.

15. Plaintiffs have failed to show that unused develop-

ment rights over the terminal could not have been profitably
transferred to one or more nearby sites.

16. Plaintiffs have failed to show that Penn Central’s
agreements with the Metropolitan Transportation Author-
ity and the Connecticut Transportation Authority provide

a basis for invalidating the Terminal’s landmark designa-
tion.

17. On the instant record, plaintiffs have failed to meet
their burden of proving that the City’s Landmarks Law is
unconstitutional as applied to them.

50a

18. On the instant record, plaintiffs have failed to meet
their burden of demonstrating that the regulation in issue
deprives them of all reasonable beneficial use of their prop-
erty.

And it is further

Orperep, Apsupcep and Dectarep that plaintiffs have
failed to establish that the New York City Landmarks Pres-
ervation Law is unconstitutional as applied to them; and it
is further ,

OrpereD that the Clerk of the County of New York is
directed to enter judgment in favor of the defendants-appel-
lants as herein provided, with $60 costs and disbursements
of this appeal.

ENTER:

F. T. M.

Justice

dla
APPENDIX C
(1)
Findings of Fact and Declarations of Law of the New York

Supreme Court, Trial Term

At a Trial Term, Part XII, of the Supreme Court of the
State of New York, held in and for the County of New York
at the Courthouse thereof, on the 29 day of May, 1974.

Present: Hon. Irvine H. Saypot, Justice.

Penn Centra Transportation Company et al., Plaintiff s-
Respondents,

Vv.

The Crry or New York and the Landmarks Preservation
Commission of the City of New York, Defendants-
Appellants.

Finpincs or Fact
The Court hereby finds as follows:

GENERAL

1. Plaintiff Penn Central Transportation Company
(‘‘Penn Central’’) is a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania with
a general office at 466 Lexington Avenue, New York, New
York. It is the successor to The New York Central Railroad
Company and the Pennsylvania Railroad Company, which
were merged as of February 1, 1968.

2. Penn Central was declared bankrupt on June 21, 1970
and has remained bankrupt since that time.

3. Plaintiff The New York and Harlem Railroad Com-
pany (‘‘The New York and Harlem’’) is, and has been at

52a

all times relevant to this action, a corporation organized
and existing under the laws of the State of New York with
approximately 95% of its stock owned by the Trustees of
Penn Central and with a general office at 466 Lexington
Avenue, New York, New York.

4. Plaintiff The 51st Street Realty Corporation is, and
has been at all times relevant to this action, an indirectly
wholly owned subsidiary corporation of Penn Central, or-
ganized and existing under the laws of the State of New
York with a general office at 466 Lexington Avenue, New
York, New York.

5. Plaintiff UGP Properties, Inc. (‘‘UGP”’’) is, and has
been at all times since its formation on December 5, 1967,
a corporation organized and existing under the laws of the
State of New York.

6. Defendant The City of New York (the ‘‘City’’) is a
municipal corporation of the State of New York.

7. Defendant The Landmarks Preservation Commission
of the City of New York (the ‘‘ Landmarks Commission’’)
was established as a commission of the City pursuant to
Local Law 46 of the City for the year 1965, which amended
the Charter and the Administrative Code of the City so as
to add to each of them a new Chapter 8-A.

8. Grand Central Termina! (the ‘‘Terminal’’) was con-
structed in the early 1900’s aud opened to the public in 1913.
It is located in the Borough of Manhattan. The building
faces on Forty-Second Street to its south and is bounded on
the west by Vanderbilt Avenue at street level. On the east,
it adjoins the Commodore Hotel at street level. Above street
level it is bounded on its south, east and west by the Park
Avenue overhead roadway. To its north, the Terminal is
bounded by the Pan Am Building. It is and always has been
used in the interstate and intrastate carriage of railroad
passengers.

53a

9. The Terminal is deteriorating at a substantial rate.
The condition of the Terminal was such that repairs and
maintenance work costing approximately $1,278,135 were
necessary in June, 1972.

10. The Terminal was originally intended to be a combi-
nation railroad terminal and office building. The original
plan for the Terminal provided for a 20-story office tower to
be constructed on top of the present Terminal and columns
were built into the Terminal, which are still in place today,
whose purpose is to support such a tower.

11. The land on which the Terminal stands (the ‘‘ Termi-
nal site’’) is designated in the Tax Map of the City as
Block 1280, Lot 1, Borough of Manhattan.

12. The Terminal and the Terminal site have received
partial tax exemption amounting to $11,083,489 since the
early 1960’s under Section 489ff of the Real Property Tax
Law of the State of New York.

13. On August 2, 1967, over Penn Central’s objection, the
Terminal was designated a Landmark and the Terminal
site a Landmark site by the Landmarks Commission.

OWNERSHIP AND LEASEHOLD INTERESTS IN THE
TERMINAL PROPERTY

14. The ownership and leasehold interests in the Termi-
nal and the Terminal site, held by the respective plaintiffs,
are, and have been at all times relevant to this action,
unless otherwise noted, as follows:

(a) The New York and Hariem Railroad Company
owns the fee;

(b) Penn Central has a lease, expiring in the year
2274 A.D. from The New York and Harlem Railroad
Company;

(c) UGP entered into a lease, dated as of January
22, 1968, with The 51st Street Realty Corporation (the

54a

‘‘Lease’’) which, at that time, had a grant of term of
the Terminal and the Terminal site from Penn Central.
The 5ist Street Realty Corporation assigned all of its
interest in the Lease, the Terminal and the Terminal
site to Penn Central and The New York and Harlem on
July 21, 1969.

15. The Lease was the result of arms-length negotiations
and is for a term of 50 years after its commencement date
with UGP having an option to renew for an additional 25
years thereafter. Under the Lease, UGP is to construct and
operate a multi-story office building on the southerly portion
of the Terminal site.

Brever I, II anv II Revisep

16. UGP retained the architectural firm of Marcel Breuer
& Associates in February, 1968, to design an office building
for the Terminal site.

17. By June, 1968, Marcel Breuer & Associates completed
the first schematic plans, Breuer I for an office building
with 55 office floors which would rise above the Terminal
and would preserve the exterior of the Terminal.

18. On July 18, 1968, plaintiffs submitted proposed build-
ing plans for Breuer I to the Landinarks Commission and
applied for a Certificate of No Exterior Effect permitting
its construction. These plans were also filed with the De-
partment of Buildings of The City of New York to obtain
zoning approval. The application was denied by the Land-
marks Commission on September 20, 1968.

19. Mareel Breuer & Associates following negotiations
and discussions between the parties thereafter designed
Breuer II, a building with 53 office floors which would have
necessitated replacing part of the exterior of the Terminal.

20. On January 20, 1969, plaintiffs applied to the Land-
marks Commission for a Certificate of Appropriateness,

55a

under Section 207-6.0 of the Landmarks Law, permitting
construction of either Breuer I or Brewer II.

21. Because of the plaintiffs’ concern that the possible
adverse effect of Breuer II on the City’s easement rights
in the elevated roadway surrounding the perimeter of the
Terminal might be used as a basis for the refusal of a per-
mit to build Breuer II, Marcel Breuer & Associates designed
Breuer II Revised which plaintiffs submitted in place of
Breuer JI. Breuer II Revised was substantially similar to
Breuer II, except that it would not encroach upon the ele-
vated roadway. During the course of the proceedings, plain-
tiffs expressed a preference for Breuer II as revised over
Breuer I.

22. Plaintiffs’ application for a Certificate of Appro-
priateness was denied as to both Breuer I and II Revised
on August 26, 1969.

23. Breuer II would be 254 feet southerly from the ad-
joining Pan Am Building; Breuer I and II Revised would
be approximately 225 feet southerly from the Pan Am
Building.

24. If Marcel Breuer & Associates had begun work on
the plans for Breuer II and II Revised at the time that
schematic plans for Breuer I were prepared, schematic
plans for Breuer II and II Revised could have been com-
pleted by June, 1968.

Harm TO PLAINTIFFS

25. The Terminal site is a valuable location for an office
building. It is in the heart of a commercial area occupied
mainly by high-rise commercial structures such as office
buildings and hotels. Any of the plaintiffs’ proposed strue-
tures over the Terminal site would be directly above a trans-
portation hub of commuter, railroad and subway lines, with

ready access internally by occupants of the building to such
facilities.

56a

26. In 1968 there was a favorable office rental market in
favor of landlords in the Grand Central area. Rental activ-
ity for space in an office building on the Terminal site would
have started on the basis of architects’ plans beginning in
June, 1968. Construction of the building would have been
completed within three to three and one-half years there-
after.

27. Plaintiffs were prepared to undertake renting and
commencement of construction of an office building on the
Terminal site in 1968, but were precluded from proceeding
because of the defendants’ refusal to permit this.

28. Diesel Construction Company, builder of the Pan Am
Building, was retained in early 1968 by UGP to construct a
building on the Terminal site.

29. Collins, Tuttle & Company, engaged in the sale, rental
and management of real estate, was retained by UGP in
December, 1967, to rent, obtain financing and as consultant
for a building on the Terminal site. Collins, Tuttle & Com-
pany began a renting and financing program in early 1968.
At that time Collins, Tuttle & Company solicited prospective
tenants primarily to lease the space in Breuer I, principally
on a single floor occupancy basis, for terme of 20 to 30 years,
but these activities were halted due to defendants’ denial
of a Certificate of No Exterior Effect. Investors financing
the building at a favorable interest rate were likewise solic-

ited, but their participation was deferred for the same
reason.

30. The total cost of Breuer I would have been $108,554,-
‘+1, ineluding construction costs of $82,344,400; Breuer II
would have cost $196,541,730, of which $77,306,500 would
have been construction costs; and Breuer II Revised would
have cost $108,486,444, of which $79,365,000 would have
been construction costs.

31. If construction of Breuer I had commenced in 1968,
the City would have received substantially increased prop-
erty taxes upon commencement of construction.

57a

32. Under the Lease, Penn Central is to receive $1,000,000
per year during the construction of a building by UGP on
the Terminal site. Upon completion, Penn Central is to re-
ceive an annual rent of $1.10 per square foot of net rentable
space, exclusive of ground floor space, plus $400,000, plus
5% of the gross income, with a guaranteed minimum of
$3,000,000 per year. Upon completion of construction Penn
Central would have received an annual rent of up to $3,738,-
977 from Breuer I.

33. As additional compensation to Penn Central, UGP is
to pay under the Lease all taxes on the Terminal site con-
sidered as unimproved from the time UGP is permitted to
construct a building. From June, 1968, through July, 1972,
these taxes totaled $1,372,530. UGP is also to pay all taxes
on the Terminal (the building) within the area demised to
it, thereby reducing the amount of taxes that Penn Central
would have to pay on the Terminal.

34. UGP expected to receive a yearly cash flow of at least
$2,839,131 from Breuer I upon its completion, $3,325,620
from Breuer II and $3,181,702 from Brewer II Revised. By
the end of the first five years, UGP’s anticipated aggregate
profit would have been $20,495,655 from Breuer I, $22,928,-
100 from Breuer II and $22,208,510 from Breuer IT Revised.

35. Due to defendants’ actions preventing plaintiffs from
constructing a building on the Terminal site, Penn Central
and The New York and Harlem Railroad Company have
been deprived of the rent they would have received from
UGP and the taxes UGP would have assumed ; and UGP has
been deprived of the profit it would have made from such a
building.

36. For the years 1967 to 1971, the cost to Penn Central
of operating the Terminal building itself, exclusive of
purely railroad operations, exceeded the revenues received
from concessionaires and tenants in the Terminal.

58a

37. The net deficit to Penn Central from operating the
Terminal was $1,165,470 in 1969 and $1,902,467 in 1971.

38. As of June 1, 1972, the Metropolitan Transportation
Authority leased the Terminal and, together with the Con-
necticut Transportation Authority, receives all revenues
from tenants and concessionaires in it (with the exception
of any rent Penn Central would receive under its lease with
UGP) and has assumed all costs of operating the Terminal.
Penn Central is obligated t> pay these agencies $4,500,000 a
year for the next five years and $2,000,000 thereafter. The
Metropolitan Transportation Authority received partial re-
imbursement for these costs from the City.

TRANSFER OF DeveLopMENT Ricuts (Arr Riauts)
Zontnc Reso.utions 74-79 Turoven 74-793

39. Zoning Resolutions 74-79 through 74-793 (the ‘‘ Trans-
fer Resolutions’’) contemplated compensatory relief for
owners of landmarks, including long-term lessees such as
UGP, for the taking caused by the designation of such
properties as landmarks.

40. As originally en.ected in May, 1968, the Transfer
Resolutions neither provided compensation to plaintiffs nor
minimized the harm suffered by plaintiffs due to the desig-
nation of the Terminal as a landmark.

41. The pertinent Transfer Resolutions as last amended
in December 1969, although affording increased trausfer
rights from the Terminal site to other properties owned by
Penn Central, do not provide compensation to plaintiffs or
minimize the harm suffered by plaintiffs due to the desig-
nation of the Terminal as a landmark.

42. The property principally suggested for the transfer
of development rights is the present site of the Biltmore
Hotel. Development rights could not be economically trans-
ferred to the Biltmore site because:

59a

(1) The Biltmore Hotel is and has been a profitable
operation.

(2) A building on the Biltmore site could not have
been profitable because (a) the ground rent required of
UGP by Penn Central for a lease of the Biltmore site
was $2,000,000 a year more than in the Terminal lease,
and (b) there would have been increased costs of con-
struction, financing, taxes and building operation.

(3) Rents from an office building on the Biltmore
site would be significantly lower than from one on the
Terminal site which is a superior location.

DecLaRATIONS OF Law
It is hereby concluded and declared that:

1. The Landmarks Law as applied to plaintiffs, and the
actions of defendants, constitute a taking of plaintiffs’ pri-
vate property for public use without just compensation, in
violation of the Constitution of the United States, Amend-
ments V and XIV, and the Constitution of the State of New
York, Article I, Section 7.

2. The Landmarks Law as applied to plaintiffs, and the
actions of defendants, deprive plaintiffs of the equal pro-
tection of the laws, in violation of the Constitution of the
United States, Amendment XIV, and the Constitution of
the State of New York, Article I, Section 1).

3. The Landmarks Law as applied to plaintiffs, and the
actions of defendants, deprive plaintiffs of their property
without due process of law, in violation of the Constitution
of the United States, Amendment XIV, and the Constitu-
tion of the State of New York, Article I, Section 6.

4. There is no provision of the Landmarks Law which
affords relief to the plaintiffs, with respect to the Terminal
or the Terminal site, against the economic hardship which

60a

they have suffered as a result of the defendants’ actions
under the Landmarks Law. Although Section 207-8.0 of the
Landmarks Law affords such relief to landmark owners
generally (including ultimately the lifting of landmark re-
strictions) upon a showing of economic hardship, the provi-
sions of Section 207-8.0a(2) deny such relief to the plain-
tiffs, whether by way of certificate of appropriateness,
notice to proceed or otherwise, because the Terminal and
the Terminal site are partially exempted from taxation
under Section 489ff of the Real Property Tax Law.

ENTER:

Irvine H. Saypou
Irving H. Saypol, J.S.C.

(2)

Order of Severance of the New York Supreme Court,
Trial Term

At a Trial Term, Part XII, of the Supreme Court of the
State of New York, held in and for the County of New

York at the Courthouse thereof, on the 12 day of January,
1975.

Present: Hon. Irvine H. Saypon, Justice.

(Caption OMITTED IN PRINTING)

Pursuant to CPLR Rule 5012, it is ordered that plain-
tiffs’ causes of action for compensation for the taking of
their property are severed from their causes of action for
declaratory and equitable relief, that jurisdiction of the
causes of action for compensation is reserved in this Court,
and that decision with respect to the right to compensation
and the amount of compensation, if any, is deferred pending
completion of appellate review of the final judgment to be
entered herein upon the causes of action for declaratory and

6la

equitable relief or expiration of the time for such review
without an appeal having been taken, or until further order
of this Court.

Enter:
Irvine H. Saypou
Irving H. Saypol, J.S.C.
Filed
Jan 21 1975

New York
County Clerk’s Office

(3)

Memorandum Decision of the New York Supreme Court,
Trial Term

SUPREME COURT
New York County
TriaL TermM—Part XII
(Caption Omitrep In Printine)

Saypoi, J.:

This is an action for declaratory judgment. In addition
to the admitted allegations of the complaint and the facts
found as indicated in the accompanying marked findings,
presentation here is greatly facilitated in the following
excerpted recitals from the supplemental report of former
Associate Judge John Van Voorhis of our Court of Ap-
peals serving as special master in related debtor reor-
ganization proceedings in the United States District
Court, District of Connecticut.

62a

Plaintiff Penn Central Transportation Company (Penn
Central) controls co-plaintiff New York and Harlem Rail-
road which owns the fee of Grand Central Terminal lo-
cated on 42nd Street in the heart of Manhattan in one of
the most valuable commercial areas in the world, sur-
rounded by multi-story office buildings and similar struc-
tures. Penn Central has a 300-year lease from New York
and Harlem Railroad. Penn Central’s wholly owned sub-
sidiary, co-plaintiff 51st Street Realty Corporation, has a
grant from Penn Central for a term co-terminous with a
lease from 5lst Street Realty Corporation to co-plaintiff
UGP Properties Inc., the latter under its lease undertak-
ing to erect and operate a multi-story office building over
the Terminal. When the Terminal was erected the plan
and construction of its foundation contemplated the fu-
ture super-imposition of twenty stories over the Termi-
nal. In this background, the following is from Judge
Van Voorhis’ report:

‘*IN THE
UNITED STATES DISTRICT COURT

For tHe District or CONNECTICUT

In Proceedings for the Reorganization of a Railroad
No. 30226
‘ In the Matter of

Tut New York, New Haven anv Hartrorp
talLnoaD ComMPaNny,
Debtor

SuppLeMENTAL Report or SprcraL Master Respectine
Desror’s Rieut, Trrte or INTEREST IN THE GRAND
CrentrraL TERMINAL PROPERTIES

63a

This report, as authorized June 25, 1968 at New
Haven, by the United States District Court for the
District of Connecticut, Honorable Robert P. Ander-
sou, United States Circuit Judge, sitting by designa-
tion, supplements the report previously submitted by
me as Special Master under date of June 17, 1968.

The most important development since April 19,
1965, * * * has been the lease agreement between a
Penn-Central subsidiary and a corporation known as
UGP Properties, Inc. of the air rights above the Grand
Central Terminal building for the construction of a
proposed fifty-five story office building planned (ac-
cording to a press release mentioned by Penn-Cen-
tral’s counsel) to have 1.9 million square feet of
office space. The lease agreement is in evidence,
marked BH 1, A, B, C, and provides for the pay-
ment of 1 million dollars annual rent for four years
and thereafter at a $1.10 per square foot of net rent-
able space, exclusive of ground floor space, which
may from time to time exist in the new building plus
$400,000 per annum all payable monthly in [6075]
advance. The term of the lease is 50 years. The
tenant agrees to pay the taxes and an additional per-
centage rent of 5 per cent of gross income which,
plus the flat rent, is guaranteed to be not less than 3
million dollars per year commencing not later than
four years after the commencement date of the lease.
It was conceded that the plans for this proposed
building, designed to float over the Terminal building,
comply with the existing regulations of the City
Planning Commission and the zoning regulations.
This lease was, to be sure, delivered to the tenant
subject to a letter providing that if the tenant has
used its best efforts ‘to obtain a certificate of ap-
propriateness or notice to proceed from the Land-

64a

marks Preservation Commission* and has failed
after appropriate order of the Supreme Court of the
State of New York and provided, further, that there
exists an outstanding designation by the Landmarks
Preservation Commission of Grand Central Terminal
as a landmark, Tenant and said Sublandlord shall
have the right to rescind Lease and Sublease, respec-
tively, by giving to Landlord ten days’ written no-
tice of such intention’, and in exerting its ‘best ef-
forts’ the tenant is required to file an application
with the Landmarks Preservation Commission prior
to August 1, 1968 and to bring an action or proceed-
ing through counsel approved by the landlord against
any adverse ruling by the Landmarks Preservation
Commission. The landlord is given the right to res-
cind the lease if the tenant has not obtained this re-
sult by January 1, 1970 [extended by agreement of
the parties until July 1, 1975) and upon any rescision
[sie] of the lease the tenant is required to assign to
the landlord its interest in any action or proceeding
pending in the New York Courts relating to the ap-
plication of the Landmarks Preservation Commission
or relating to the designation of Grand Central Term.
inal as a landmark or pertaining to any rights or
entities under the statute pursuant to which Grand
Central Terminal is designated a landlord [land-
mark]. In event of adverse decision the landlord is au-
thorized to appeal and the tenant is required to co-
operate with the landlord in all matters pertaining
to any such action or proceeding. When asked at the
hearings whether Penn-Central had abandoned this
project, the answer was unqualifiedly ‘No’. Counsel
for Penn-Central informed the Court on May 8, 1968,
in the earlier hearings that an Article 78 proceeding

65a

{this plenary action for declaratory judgment in-
stead) has been commenced by Central to contest the
designation of Grand Central Station as a landmark,
and that that this suit includes a test of the consti-
tutionality of the Landmarks Preservation Act which
is subdivision 25-a of the General City Law providing
that cities are empowered :

‘To provide, for places, buildings, structures,
works of art, and other objects having a

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_2575%3A02. Public record. Not legal advice.