Bucho Holding Co. v. Temporary State Housing Rent Commission

• Decision Date: 06 July 1962
• Citation: 184 N.E.2d 569,230 N.Y.S.2d 977,11 N.Y.2d 469
• Parties: , 184 N.E.2d 569 BUCHO HOLDING COMPANY, Appellant, v. TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents. VICTORY HOLDING COMPANY, Appellant, v. TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents. Marjorie B. MURPHY, on Behalf of Herself and All Other Tenants Occupying Apartments at 760 North Avenue, New Rochelle, N. Y., Appellant, v. TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents, et al., Defendant.
• Court: New York Court of Appeals Court of Appeals

Page 977

230 N.Y.S.2d 977

11 N.Y.2d 469, 184 N.E.2d 569

BUCHO HOLDING COMPANY, Appellant, v. TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents.

VICTORY HOLDING COMPANY, Appellant, v. TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents.

Marjorie B. MURPHY, on Behalf of Herself and All Other Tenants Occupying Apartments at 760 North Avenue, New Rochelle, N. Y., Appellant,

v.

TEMPORARY STATE HOUSING RENT COMMISSION et al., Respondents,

et al., Defendant.

Court of Appeals of New York.

July 6, 1962.

Albert W. Fribourg, Robert S. Fougner, New York City, and Albert F. Campbell, New Rochelle, for appellants.

Harold Zucker and Harry Michelson, New York City, for Temporary State Housing Rent Commission, respondent.

Louis J. Lefkowitz, Atty. Gen. (Irving Galt, Samuel A. Hirshowitz and Sheldon Raab, New York City, of counsel), in his statutory capacity under section 71 of the Executive Law, Consol.Laws, c. 18.

FULD, Judge.

Upon direct appeals from Special Term orders dismissing the complaints of the three appellants, we are called upon to consider the constitutionality of section 4 of the Emergency Housing Rent Control Law as amended in 1962 (§ 4, subd. (a), as amended by L.1962, ch. 21, § 4), McK.Unconsol.Laws, § 8584, subd. 4(a). ¹ In essence, and insofar as applicable, it provides that the value of rent-controlled residential property, on which the landlord is entitled to a 6% return, is to be fixed by applying 1954 equalization rates to the current assessed valuation of such property. ² The challenged provision revokes the 1961 amendment which had employed equalization rates for 'the most recent year' (L.1961, ch. 337) and restores the formula which had been in use from 1957 to June 30, 1961 (L.1957, ch. 755; L.1959, ch. 695).

Two of the appellants, Bucho and Victory, are landlords, the third, Marjorie Murphy, is a tenant. Each asserts that the change in law adversely affected him the landlords charging that it deprives them of rent increases to which they would otherwise have been entitled, the tenant complaining that it subjects her to more of a rent increase than she would have otherwise had to pay and all claim that such change is unconstitutional.

In its complaint, Bucho alleges that in September, 1961 it filed for an increase based on a 6% return; that the property was assessed at $513,500 and that the 1961 equalization rate for apartment houses in Mount Vernon, where its property is located, was 71%; that, on the basis of equalized assessed value at 1961 rates, it was entitled to an annual increase in rents of $12,023; that the 1954 equalization rate was 95%; and that, on the basis of such rate, its application for an increase was denied.

Victory's complaint alleges that its Hempstead (Long Island) property does not yield a 6% return on its assessed value as equalized by the 1961 village rate for apartments. The appellant was in the process of filing its application for an increase when the administrative freeze order of October 31, 1961 was issued. It would have been entitled to an increase in rents under the 1961 statute, but is not so entitled under the 1962 amendment.

The tenant Murphy's complaint recites that in 1961 her landlord filed for a 6% return on the equalized assessed value; that the assessed value is $347,750; that the 1961 equalization rate for apartment houses in New Rochelle, where the appellant resides, was 103% (treated as 100% under the rent control law); that her landlord was entitled to an annual increase of about $519; that the 1954 equalization rate was 92% and that, on the basis of such rate, the landlord became entitled to an increase of approximately $2,525.

The existence of an emergency justifying continued control of rents in the areas here involved may not, and indeed is not, denied. Accordingly, our inquiry is directed solely to the attack on the constitutionality of the statute insofar as it restores the 1954 equalization rates instead of continuing the 'most recent' rates as a factor in computing the 6% return which the landlord is to receive. The appellants, of course, have no constitutional right to a continuation of any particular 'fair return' formula. (See, e. g., I. L. F. Y. Co. v. Temporary State Housing Rent Comm., 11 N.Y.2d 259, 228 N.Y.S.2d 814, 183 N.E.2d 220; I. L. F. Y. Co. v. Temporary State Housing Rent Comm., 10 N.Y.2d 263, 270, 219 N.Y.S.2d 249, 253, 176 N.E.2d 822, 825, app. dism. 369 U.S. 795, 82 S.Ct. 1155, 8 L.Ed.2d 285; Matter of West's Estate, 289 N.Y. 423, 430-431, 46 N.E.2d 501, 505, 149 A.L.R. 1365.) However, all three appellants contend that the utilization of equalization rates other than the most recent deprives them of equal protection of the laws (U.S.Const., 14th Amdt.; N.Y.Const., art. I, § 11), while the two appellant landlords claim that it also denies them due process of law (U.S.Const., 14th Amdt.; N.Y.Const., art. I, § 6).

As to the argument on due process grounds, it should first be pointed out that the allegations of the complaints provide no basis for holding that the 1962 legislation effects a confiscatory result. There is no sufficient recital and of course no showing$'-that the appellant landlords are limited to an unreasonably low return on their investments. There is certainly no constitutional compulsion that there be a return of 6% even on market value. The 6% rate was undoubtedly thought by the Legislature to be 'fair and equitable', but it does not follow that a lesser rate would be deemed confiscatory and, consequently, constitutionally impermissible. (See, e. g., Denver Union Stock Yard Co. v. United States, 304 U.S. 470, 483, 58 S.Ct. 990, 82 L.Ed. 1469; Banton v. Belt Line Ry., 268 U.S. 413, 423, 45 S.Ct. 534, 69 L.Ed. 1020.) Indeed, in Teeval Co. v. McGoldrick, 304 N.Y. 859, 109 N.E.2d 720, we held that a 4% return on residential property did not offend against constitutional guarantees or requirements. Even if it be assumed that the appellant landlords are precluded from receiving a 6% return on market value by the use of 1954 equalization rates, since there is no suggestion that the return which they are allowed is so low as to be unreasonable, there is neither basis nor jurisdiction for invalidating the statute on that ground.

Nor does the legislation before us offend due process on the ground that it is an unreasonable exercise of the police power bearing no reasonable relationship to a legitimate legislative purpose. The Legislature found it necessary to provide for residential rent control in order to 'prevent exactions of unjust, unreasonable and oppressive rents' which would result in 'uncertainty, hardship and dislocation' (Emergency Housing Rent Control Law, § 1 (L.1946, ch. 274, § 1, as amended McK.Unconsol.Laws § 8581)). The prevention of these evils is clearly a valid legislative purpose. (See, e. g., Bowles v. Willingham, 321 U.S. 503, 64 S.Ct. 641, 88 L.Ed. 892; Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865; Teeval Co. v, Stern, 301 N.Y. 346, 93 N.E.2d 884, cert. den. 340 U.S. 876, 71 S.Ct. 122, 95 L.Ed. 637; People ex rel. Durham Realty Corp. v. La Fetra, 230 N.Y. 429, 130 N.E. 601, 16 A.L.R. 152, app. dism. 257 U.S. 665, 42 S.Ct. 47, 66 L.Ed. 424.) And the legislative history of the statutory provision here challenged amply attests to the reasonableness of its relationship to this legitimate legislative end.

As noted previously, from 1957 to June 30, 1961, 1954 equalization rates were employed in computing the value of a landlord's property for rent control purposes. In 1961 the Legislature, for the first time in the history of rent control, decided to adopt a forthcoming schedule of equalization rates without first having had an opportunity to study them. Chapter 337 of the Laws of 1961 discontinued the use of the earlier 1954 equalization rates and substituted a requirement that assessed value be adjusted by the 'most recent' equalization rate available. The statute was enacted on April 6, 1961. The new equalization rates, however, were not announced until June. As Governor Rockefeller later noted in January, 1962-the legislative action, necessarily taken without detailed information as to the specific impact of the new equalization rates, was based upon an assumption that the use of current rates would effect fair and equitable results. (See Report of New York State Temporary Commission to Study Rents and Rental Conditions, dated March 28, 1962 (N.Y.Legis.Doc., 1962, No. 15), p. 13.)

The new (1961) rates reflected a sharp drop from those of 1954 and it became obvious, to cull from the 1962 Report of the New York State Temporary Commission to Study Rents and Rental Conditions (N.Y.Legis.Doc., 1962, No. 15, p. 13), that their impact 'would have a drastic or undesirable effect upon the maximum rents of a substantial number of controlled tenants.' ³ In view of this unexpected result, the Governor directed the Rent Administrator to study the impact of the new law and he also announced that no action would be taken on applications for increases based on 1961 equalization rates pending outcome of that study. Subsequently, the Governor recommended the reinstatement of 1954 equalization rates and the Legislature passed the statute now under attack.

In the light of this legislative history, it is apparent that the Legislature was faced, or so it could reasonably have concluded (see, e. g. Wiggins v. Town of Somers, 4 N.Y.2d 215, 219, 173 N.Y.S.2d 579, 582, 149 N.E.2d 869, 871; Matter of Stubbe v. Adamson, 220 N.Y. 459, 469, 116 N.E. 372, 375), with the immediate danger of 'serious threats to the public health, safety and general welfare' which would result from the 'disruptive practices and abnormal conditions' produced by the mass rent increases which would follow if the 'most recent' equalization rates were applied to current assessments (L.1962, ch. 21, § 1, subd. 2, McK. Unconsol.Laws, § 8602). Unquestionably, the protection of the public against...