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Volume 8 - Opinions of Counsel SBEA No. 61

Opinions of Counsel index

Special franchise assessment (prior occupancy rule) - Real Property Tax Law, § 102(17); Transportation Corporations Law, §§ 11, 27:

Where a municipality accepts a dedication of streets subject to an easement granted to a utility, which has previously installed equipment, such as mains, pipes and wires, in, on or under those streets, that equipment does not become tangible property of a special franchise by virtue of such acceptance.

It has been said that “[t]o constitute a special franchise, two elements must be present, the element of physical property in, upon or above a street, public place or public waters and a grant from the State of the right to construct, maintain or operate the same. If either the tangible or intangible is missing, there can be no special franchise. . .” (People ex rel. N.Y. Cent. R. Co. v. State Tax Commission, 264 App.Div. 80, 35 N.Y.S.2d 77, at 80 (3d Dept. 1942)). We have been asked whether utility property, such as mains, pipes and wires, placed in, on or under private streets in a real estate development or subdivision, prior to the dedication of the streets, becomes tangible property of special franchise following municipal acceptance. For the reasons which follow, it is our opinion that this property is not assessable by the State Board as special franchise. However, except for cable television lines (see, RPTL, § 102(12)(i)), this property would be real property (see, e.g., RPTL, § 102(12)(d), (e)), to be assessed by the local assessor (RPTL, § 102(3)).

In People ex rel. N.Y.C.R.R. Co. v. Woodbury, 203 N.Y. 167, 96 N.E. 431 (1911), the Court of Appeals first articulated the “prior occupancy” rule. As framed by the Court, the question presented was: “whether the [special franchise] statute applies to a crossing made by the construction of a new street across a railroad after it has acquired its right of way, built its road and was in full enjoyment of every privilege needed for effective operations” (id., at 176). The Court held that the special franchise provisions did not apply to this property, and this rule has been adhered to in all subsequent cases in which the issue was considered. The law is perhaps best summarized by the Appellate Division in People ex rel. L.I.R.R. Co. v. State Board of Tax Com’rs, 148 App.Div. 751, 133 N.Y.S. 348 (2d Dept. 1912), aff’d 207 N.Y. 683, 101 N.E. 1117 (1913):

When a railroad is maintaining and operating its road upon its own right of way, and what is done therein is done by virtue of the ownership of the soil or of some interest therein, even although [sic] this right of way may be included within parallel lines upon either side thereof, constituting the boundaries of a street or highway, this right is not a special franchise, subject to taxation (133 N.Y.S., at 351).

The issue of prior occupancy has only been raised in cases concerning railroad property; however, in our opinion, nothing precludes application of the rule to other types of property commonly identified with special franchise. That is, the authority and manner by which telephone or electric companies, for example, obtain permission to place their equipment on private property is indistinguishable from that of the railroad companies of the relevant case law with respect to the prior occupancy rule.

The statutory authority under which the railroads obtained their prior occupancies is found in the Railroad Law (see, e.g., §§ 8(2); 17, 170). Any railroad corporation may acquire “[a]ll real property required. . .for the purposes of its incorporation or for any purpose stated in this chapter” (Railroad Law, § 17 {*}). Furthermore, a railroad corporation is empowered to acquire title by condemnation where it “is unable to agree for the purchase of any such real property, or of any right, interest or easement therein” (id.). Similar authority is provided in the Transportation Corporations Law to gas and electric corporations (§ 11(3)), telegraph and telephone corporations (§ 27) and cable television corporations (§ 27 as construed in Harper v. City of Kingston, 17 Misc.2d 627, 188 N.Y.S.2d 577 (Sup.Ct., Albany Co. 1959); see also, Hoffman v. Capitol Cablevision Systems, Inc., 82 Misc.2d 896, 372 N.Y.S.2d 482 (Sup.Ct., Albany Co. 1975), aff’d 52 A.D.2d 313, 383 N.Y.S.2d 674 (3d Dept. 1975)).

We understand that it is the general practice of developers of residential subdivisions to give easements to the various utilities in order that they may install transmission lines, i.e., electric, gas or telephone. At the time these easements are granted, the subdivision including its streets is privately owned; no dedication of public rights of way has been made. Later, all lots conveyed from the developer to new homeowners in the subdivision are made subject to these easements and, further, the town generally refers to the easements in its acceptance of the developer’s dedication of the streets and other public areas, if any. Subsequently, the town does not grant franchises to the companies whose property now occupies the public way. {**}   Nor are any necessary. As the Court of Appeals said in the Woodbury case:

When the relator or its predecessor acquired its right of way, whether in fee or not is unimportant, it had the right to use it without the grant of any further privilege from the state. It was its own property, acquired by the condemnation or purchase of land or an interest therein from private owners, with no grant from the state. . . . As the relator owned its right of way it had all it could get and all that it needed. No grant of a special franchise was necessary and never became necessary, for it built its road on its own private right of way . . . (203 N.Y., at 178).

Accordingly, it is our opinion that pursuant to the “prior occupancy” rule, utility property installed in a private road or right of way, which private thoroughfare subsequently is dedicated to and accepted by a municipality subject to the utility’s easement, does not become tangible property of a special franchise upon municipal acceptance.

November 21, 1985

{*The quoted language was in effect at all times during the decision the “prior occupancy” rule cases. In 1964, the “purpose” clause was amended substituting “construction maintenance and accommodation of its railroad” therefor. This change was designed to clarify that the condemnation power shall be limited strictly to railroad purposes and functions (1964 Report of Joint Legislative Committee on Revision of Corporation Law, Appendix 15).

{**}  This situation is to be distinguished from one where no easement or any other interest is obtained prior to the dedication. In this event, despite the unlawful occupation of the street, the existence of a special franchise is implied and the property owner is estopped from denying that it has a franchise to maintain its property in public places (see, 1 Op.Counsel SBEA No. 38 and authorities there cited).