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Volume 3 - Opinions of Counsel SBEA No. 93

Opinions of Counsel index

Enforcement of delinquent taxes (in rem foreclosure) (effect on rights of “power agreement”) - Real Property Tax Law, § 1136:

The lien of an unpaid city tax extends to and affects all interests of a delinquent taxpayer in and to the parcel, and a judgment foreclosing a lien divests the owner of title and of all rights which are inseparable from the parcel. A foreclosure would not divest an owner of rights which are personal to him rather than appurtenant to the land.

We have received an inquiry concerning the enforcement of the payment of unpaid city taxes by an action in rem; specifically, we are asked whether the lien of real property taxes extends to a “Power Agreement” pertaining to the real property which has generated the taxes in question.

Section 1136 of the Real Property Tax Law pertains to the effect of a judgment in an action in rem for the foreclosure of a tax lien. It is quite clear from the language of that section, and the decision in the case of City of New Rochelle v. Stevens, 271 App. Div. 977, 68 N.Y.S.2d 31, aff’d, 297 N.Y. 533, 74 N.E.2d 469, that the lien of an unpaid city tax extends to and affects all interests of a delinquent taxpayer in and to the parcel, and that the judgment foreclosing the lien divests the owner of title and of all rights which are inseparable from the parcel. The question here appears to be whether the rights created by the “Power Agreement” are inseparable from the delinquent taxpayer’s parcel.

As we understand the “Power Agreement” enclosed with this letter, the grantor previously conveyed certain lands, along with the right to draw water from the grantor’s canal to use upon said lands, to Mr. “A” and Mr. “B” (as evidenced by indentures dated April 1, 1862 and January 10, 1876). In the agreement in question (dated May 1, 1916) the grantees were the successors in interest to Mr. “A” and Mr. “B”. This “Power Agreement” recites that the water power to which the grantees were entitled by the two prior indentures could be put to a more economical use if electric energy were generated therefrom; therefore, the grantees authorized the grantor to generate such energy at its plant in the city from the water to which the grantees were entitled, and the grantees were expressly permitted to take certain amounts of that electric energy to operate mills and machinery on the grantees’ land. The use of any surplus of electric energy generated by use of said water power in excess of the requirements of the grantees was granted to the grantor.

In a recent case, Clove Lakes Service Corp. v. Greif Brothers, 74 Misc.2d 1036, 346 N.Y.S.2d 668, the court considered the issue of the legal effect of a judgment of foreclosure “in rem” upon an easement. A deed from the grantor to the grantee contained express language creating an easement of way in the nature of a railroad spur over the grantor’s land. The property had always been assessed at an amount which reflected the enhanced value attached to it by reason of the easement of way existing in its favor as the dominant estate; the servient estate conversely, reflected a diminution in value. The court said (at p. 670):

It is well settled that an “In Rem” foreclosure of a tax lien cannot affect property other than that assessed and covered by the lien . . . [t]he easement which was assessed as enhanced value to the dominant estate, and whose value was deducted from the assessed value of the servient estate by reason of diminution in value resulting from the burden of servitude, was not extinguished by such foreclosure but survives.

This, in effect, means that the easement continues to exist despite the change in title. This same rule was stated earlier in such cases as Town of Harrison v. Campagna, 193 Misc. 239, 81 N.Y.S.2d 257, aff’d, 274 App. Div. 898, 83 N.Y.S.2d 236, and Belott v. State of New York, 65 Misc.2d 1067, 259 N.Y.S.2d 379. However, in each of these cases, the servient estate was the estate being foreclosed. Although it is not clear from this letter, it appears that the city is seeking to foreclose a tax lien on the grantees’ property, i.e., the dominant estate. Unfortunately there appear to be few cases, if any, involving the foreclosure of the dominant estate. However, in Smith v. The Mayor, 68 N.Y. 552, the Court of Appeals (in dictum), said (at p. 557) that “one who purchases land at a tax sale must take all the easements and incidents attached to or pertaining to the land. If he purchases a mill he obtains with his purchase the water and right to flow, and other incidents pertaining to the mill . . .”. Therefore, it would appear that the easement survives whichever estate is being foreclosed.

However, an easement, in its strict sense, “is a liberty, privilege or advantage in land without profit existing distinct from ownership of the soil” (Pierce v. Keator 70 N.Y. 419, 421). The right to enter upon the lands of another for a purpose such as taking waters that have been artificially accumulated as in wells, or cisterns, or to derive a profit from the product of the land is called the right of a “profit a prendre”. The right of the grantees to draw electricity from the water on the grantor’s lands may be such a profit. Such rights “. . . are not considered easements in the strict sense of the term, although they are generally treated under the same heads and governed by the same rules . . .” (Nellis v. Munson, 108 N.Y. 453, 459, 15 N.E. 739) (emphasis added). Thus, if the grantees have either an easement or a profit in the grantor’s land, the rules governing the effect of a foreclosure on such easement or profit are the same.

Should it be determined that this “Power Agreement” created a profit in favor of the grantees, it would then be necessary to distinguish between a profit “appurtenant” and a profit “in gross” in order to decide whether the taxpayer may separately convey the rights created by the “Power Agreement” apart from his interest in the land.

If a profit a prendre is held and enjoyed by a party distinct from any ownership of lands or dominant tenements, it is then regarded as held and enjoyed “in gross” (Saratoga State Waters Corp. v. Pratt, 227 N.Y. 429, 125 N.E. 834) and can be enjoyed without reference to use on any particular lands (Loch Sheldrake Associates v. Evans, 306 N.Y. 297, 118 N.E.2d 444). The right of a profit a prendre “in gross” is assignable and inheritable since it takes on the character of an estate in the land itself rather than that of a proper easement in or out of the land, which is merely an interest therein. Such right can be conveyed apart from any land “since it is enjoyed without reference to use on any particular lands”.

Such is not the case, however, in regard to a profit “appurtenant”. A profit “appurtenant” “. . . cannot exist independent of its connection with another tenement, and therefore cannot be aliened or conveyed except by a conveyance, as an appurtenant of the dominant estate” (Nellis v. Munson, 108 N.Y. 453, 459, 15 N.E. 739; see also, Huntington v. Asher, 96 N.Y. 604, and Chautauqua Co. Fed. of Sportsmens Club v. Caflisch, 15 App. Div.2d 260, 222 N.Y.S.2d 835). Such a profit “appurtenant” generally results when the right involves the use and occupation of the dominant estate, is necessary and essential to that use, and directly concerns the mode of occupying the dominant estate as contemplated by the vendor and vendee.

Thus, should it be determined that the “Power Agreement” created a profit “in gross” in favor of the grantees, the taxpayer could convey the rights created by that agreement without conveying his interest in the land. In such a case the foreclosure by the City would not include the rights to the power agreement since such rights are personal to the grantees. On the other hand, if the “Power Agreement” created a profit “appurtenant”, the taxpayer would have to convey the land and the power rights together (in fact, in such case the power rights would pass with conveyance of the land without specific mention in the deed of such rights, Huntington v. Asher, supra). In that case, the foreclosure would include the real property parcel and the power rights as well.

In our opinion, the application of the law to the facts presented indicates that this “Power Agreement” created a profit “appurtenant” in favor of the grantees. This is further evidenced by the fact that the parties themselves apparently intended that the agreement would create rights “appurtenant” to the lands deeded to the grantees (e.g., in their recitals, the parties continually referred to the rights as “appurtenant to” and “inseparable from” the land of the grantees). Accordingly, we would conclude that the rights provided for by the “Power Agreement” are inseparable from the land, and that such rights cannot be conveyed separate and apart from the land. The parcel subject to the city’s in rem action will include the rights of the “Power Agreement”.

January 28, 1974