The definition was intended to encompass losses caused from physical damage to the mall, not a decline in business caused by the pandemic, the Orange County Supreme Court ruled Wednesday. The court dismissed the mall's lawsuit seeking a lower taxable value and awarded summary judgment to the municipality of Wallkill, New York.
The Galleria at Crystal Run is an enclosed mall with more than 800,000 square feet of retail space, according to court documents. Its owners entered a 2017 agreement with Wallkill, fixing its market value at $132.7 million for the tax years from 2018 to 2021. The market value would be its value as of July 1 before the beginning of each tax year, which would take effect on March 1 of the tax year.
A provision of the agreement permitted a reduction if the mall "is altered by fire, destruction, related demolition or similar catastrophe," according to court documents.
Galleria challenged the 2020 tax year assessment, saying the pandemic worsened an already deteriorating retail environment at the mall. An executive order from Democratic Gov. Andrew Cuomo closed the mall from March 19 to July 10, and the property was worth "significantly less" as a result, the mall said in arguing that it qualified for a reduction.
However, Wallkill argued that the mall did not qualify for an exemption because its structure had not been altered by fire or destruction, according to court documents. An economic event did not fall under this definition, the municipality said.
The court sided with Wallkill. The exception lowering the tax value was triggered only if the property was altered by "fire, destruction, related demolition or similar catastrophe," the court said. This must involve physical damage to the structure, not to its value, it said.
The court rejected the mall's argument that the pandemic frustrated the purpose of the agreement under New York law. The Galleria claimed that the pandemic caused an unforeseen decline in economic value, which the agreement never took into account.
The court pointed out the agreement had stated the property's value would not be altered unless the average occupancy rate fell below 60% for a continuous 12 months. The event hadn't happened, so the agreement remained, the court said.
The court also sided with the town's argument that the property value remained steady when the mall's value was set on July 1, 2019, and became effective on March 1, 2020. The mall had been open and functioning on March 1, the court said. The pandemic had not yet begun as of July 1, 2019, the date for setting the property's value, the court added.
Legal representatives of the mall did not respond to requests for comment.
Wallkill attorney Andrew Mahony said the agreement had been an ironclad contract that committed the mall to a set value. The court agreed that this was what the parties intended, he said.
The mall is represented by Craig A. Leslie and Daniel Maguire of Phillips Lytle LLP.
The town is represented by Andrew M. Mahony of Jaspan Schlesinger LLP.
The case is In the Matter of Crystal Run Galleria LLC et al. v. Town of Wallkill, 2021 NY Slip Opinion 21006, in the Orange County Supreme Court.
--Editing by Neil Cohen.
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