Colton v. Berman
| Decision Date | 29 December 1967 |
| Citation | 287 N.Y.S.2d 647,21 N.Y.2d 322,234 N.E.2d 679 |
| Court | New York Court of Appeals Court of Appeals |
| Parties | , 234 N.E.2d 679 In the Matter of W. Phillips COLTON, Jr., and Nineteen Other Tenants on Their Own Behalf and on Behalf of Various Tenants Similarly Situated, of Premises, 145 East 74th Street, Borough of Manhattan, Respondents, v. Frederic S. BERMAN, as City Rent and Rehabilitation Administrator, Respondent, and Samuel Greenberg & Co., Intervenor-Appellant. |
Robert S. Fougner, New York City, for appellant.
Stanley J. Mayer, New York City, for W. Phillips Colton, Jr., and others, respondents.
Florence R. Zimmerman and Maurice A. Reichman, New York City, for Frederic S. Berman, as City Rent and Rehabilitation Administrator, respondent.
Landlord, Samuel Greenberg & Co., appeals from an order of the Appellate Division, First Department, in a consolidated proceeding, annulling determinations by the Rent Administrator and remanding the matters to the Rent Administrator for reconsideration. In one of the proceedings tenants had sought to annul a rent increase granted landlord on the basis of a recent purchase price for a residential apartment building. In the other (involving the same building) landlord had sought to annul a directive based on landlord's alleged failure to maintain essential services. The Administrator directed that it install an intercommunication system and referred the rent increase until landlord had contracted for such installation. The proceedings are interrelated because the City Rent and Rehabilitation Law conditions rent increases and other kinds of relief allowed to a landlord on the fact and certification by the landlord of the maintenance of essential services. In the rent increase proceeding landlord had prevailed before the Administrator and Special Term. In the essential services proceeding the Administrator, and therefore the tenants, prevailed at Special Term. The Appellate Division, in reversing both judgments and annulling the administrative determinations, did so by a divided court (27 A.D.2d 928, 279 N.Y.S.2d 455, Per Curiam, two Justices dissenting in an opinion). The Administrator, although only a respondent, supports landlord's position in this court as to result, but disagrees as to some of the grounds urged by landlord.
Although landlord presses its appeal from the essential services aspect of the Appellate Division order, it has bandoned its contentions before that court with respect to the requirement for installation of an intercommunication system and the deferred dating of the rent increase order to enforce the installation and maintenance of certain lobby protection. The strategy is designed to avoid delay by the remand on that issue and the prosecution of a relatively insignificant factual dispute before the Administrator. Instead, it is now ready to abide by the Administrator's determination from which it had appealed to the Appellate Division. This is not an illogical position because, while landlord succeeded in upsetting the administrative order, it did not obtain the peremptory relief it had sought. Tenants still urge that landlord is not entitled to any increase because essential services were not maintained and resist the Administrator's determination granting a rent increase, however conditional.
The principal issue is whether landlord, who contracted to purchase the property in December, 1961 and took title in 1962, may obtain a rent increase based upon net return at the adjusted purchase price for the property of $1,009,000. Tenants dispute the acceptance of the purchase price on the ground that it was not arranged on normal financing. The seller agreed to subordinate the purchase-money mortgage to a prospective refinancing of the nine-year-old, and almost expired, first mortgage up to the amount of $400,000, which was used in part to reduce the purchase-money mortgage. Tenants argue that by this device landlord had not paid as much as 20% Of the purchase price in cash, although the seller received much more than that, namely, 24.75% On the initial transaction and 33 1/3% If the results of the refinancing are included. The corollary issue in the essential services proceeding and underlying the allowance of the rent increase is whether landlord and its predecessors maintained full lobby protection 24 hours a day after the conversion in 1949 to automatic operation of the manual elevators in the building.
While both sides argue whether there was substantial evidence to support the Administrator's determinations, the proper test is whether there is a rational basis for the administrative orders, the review not being of determinations made after quasi-judicial hearings required by statute or law. True, the Administrative Code requires the agency to 'accord a reasonable opportunity to be heard * * * to the tenant and the landlord', but it does not require that an evidentiary hearing precede the valuation determination. Under CPLR 7803 (subd. 4) the substantial evidence test applies only where a hearing has been held and evidence taken 'pursuant to direction by law'. Thus, under both the Administrative Code and the CPLR, review is limited to establishing whether the determination was 'in accordance with law * * * arbitrary or capricious' (Administrative Code of City of New York, § Y51--5.0, subd. g, par. (6); § Y51--9.0, subd. b; see CPLR 7803, subd. 3; Matter of Fink v. Cole, 1 N.Y.2d 48, 52--53, 150 N.Y.S.2d 175, 177--179, 133 N.E.2d 691, 693--694; Matter of Going v. Kennedy, 5 A.D.2d 173, 176, 170 N.Y.S.2d 234, 237, affd. 5 N.Y.2d 900, 183 N.Y.S.2d 81, 156 N.E.2d 711; Chung Tiam Fook v. Herman, 212 N.Y.S.2d 939, 941 (Sup.Ct., Kings County, 1961); 1 N.Y.Jur., Administrative Law, § 178, pp. 594--595).
On any view, however, landlord properly argues that the scope of review involves only questions of law and that the Appellate Division was without power to reverse on the facts, as it did (e.g., Matter of Humphrey v. State Ins. Fund, 298 N.Y. 327, 332, 83 N.E.2d 539, 541). Significantly, in this case, the Appellate Division reversed on the law and the facts. The majority said, moreover, that 'The determination herein is devoid of findings which would reconcile the terms of the financing with the statutory norms and the maintenance of essential services.'
Landlord agreed in December, 1961 to purchase the property consisting of 38 apartments and 4 stores for $1,010,000 as follows:
330
(1) Subject to first mortgage paying 3 3/4% interest
maturing July 31, 1962 ................................. $223,450.73
(2) Subject to second mortgage due November 1
1962 ..................................................... 58,712.50
(3) Purchase-money mortgage, $100,000 payable
August 1, 1965, and regular amortization from
February 1, 1966, and retirement in full
February 1, 1968 ........................................ 477,836.77
(4) Cash .................................................. 250,000.00
-------------
$1,010,000.00
In July, 1962 the first mortgage was refinanced with a savings bank in the sum of $400,000 and, by virtue of the subordination clause in the purchase-money mortgage, the new mortgage was a first lien. From the proceeds, the prior first mortgagee was paid off ($225,545.58) as was the second mortgage ($57,962.50). The balance of $116,491.92 was retained by landlord except that $50,000 of it was used to pay the seller on account of the purchase-money mortgage principal in exchange for a three-year extension of the due date on that mortgage.
The assessed valuation of the property for 1963--1964 and 1964--1965 was $610,000. At the time of the purchase it had been $525,000 and in the following year had risen to $560,000. It is conceded that the building is a luxury-type apartment residence in a select neighborhood at 145 East 74th Street in Manhattan. The rents average $35 per room, under existing controls, a rate which landlord contends is considerably lower than comparable properties under statutory rent controls. This last fact is not seriously disputed by tenants but evidently considered by them to be irrelevant.
On February 27, 1964 landlord filed its application requesting a 6% Return based on the purchase price of $1,010,000 (later adjusted in a minor detail to $1,009,000). The application was filed just two years after the acquisition by landlord. The statute requires such a waiting period to deter sales solely for the purpose of obtaining increases in controlled rents (Administrative Code, § Y51--5.0, g, (1), (a), (2), (ii)). Almost a year later, on February 3, 1965, the Administrator's Valuation Committee accepted the price of $1,009,000. Tenants, in the meantime, applied for a rent reduction grounded upon the claim that landlord had permitted an intercommunication system to fall into disuse and had discontinued 24-hour lobby protection and doorman service.
On February 17, 1965 an informal joint hearing was held covering both the rent increase proceeding and tenants' application for a rent reduction based on landlord's alleged failure to maintain essential services. After various further proceedings, administrative orders were issued sustaining landlord's application and granting tenants' application to the extent of conditioning the certification of essential services on installation of an intercommunication system and the resumption of part-time doorman service from 3:00 p.m. to 4:00 p.m. and from 5:00 p.m. to 11:00 p.m. throughout the year. Under the statute essential services must be certified to have been maintained if landlord is to receive a rent increase of any character (Administrative Code, § Y51--5.0, g, (5), (b)).
Before the administrative agency at the district level, on protest proceedings, and before the courts, tenants have urged that the assessed ...
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