Davis v. Waterside Housing Co., Inc.

• Decision Date: 24 September 1999
• Citation: 701 N.Y.S.2d 260
• Parties: 1999 N.Y. Slip Op. 99,581 Norma T. DAVIS et al., Individually and as Officers of Waterside Tenants Association, for and on behalf of the residents of Waterside Plaza, Plaintiffs, v. WATERSIDE HOUSING COMPANY, INC., et al., Defendants.
• Court: New York Supreme Court

Page 260

701 N.Y.S.2d 260

1999 N.Y. Slip Op. 99,581

Norma T. DAVIS et al., Individually and as Officers of Waterside Tenants Association, for and on behalf of the residents of Waterside Plaza, Plaintiffs, v. WATERSIDE HOUSING COMPANY, INC., et al., Defendants.

Supreme Court, New York County, New York.

Sept. 24, 1999.

Marcus Rosenberg & Diamond, L.L.P., New York City (David Rosenberg of counsel), for plaintiffs.

Seward & Kissel, L.L.P., New York City (Dale C. Christensen, Jr., of counsel), for Waterside Housing Company, Inc., and others, defendants.

Marcia Hirsch, New York City, for New York State Division of Housing and Community Renewal, defendant.

PAULA J. OMANSKY, J.

In this declaratory judgment action to determine the legal status of a Mitchell-Lama project, plaintiffs, Norma T. Davis, Steven Smollens and Kathleen Fish, suing individually, and as officers of Waterside Tenants Association ("WTA") for and on behalf of the residents of Waterside Plaza, move for a preliminary injunction, enjoining defendant New York State Division of Housing and Community Renewal ("DHCR") from processing the application filed by co-defendants Waterside Housing Company, Inc. ("WHC"), Waterside Redevelopment Company, L.P. ("WRC"), North Waterside Redevelopment Company, L.P., ("NWRC"), and Aquarius Management Corp. ("Aquarius," collectively the "Waterside defendants").

The Waterside defendants cross-move, pursuant to CPLR 3211(a)(4), to dismiss the amended complaint on the grounds that the court does not have subject matter jurisdiction and that there are prior administrative proceedings pending involving the same parties, the same premises, and the same issues raised in this declaratory judgment action.

STATUTORY SCHEME

The Mitchell-Lama program is designed to encourage the private development of low- and middle-income housing in areas where such affordable housing cannot State-financed Mitchell-Lama projects are supervised by the DHCR and are governed by the New York Codes, Rules, and Regulations (9 NYCRR part 1700 et seq.). Buildings financed by loans issued by the City of New York (the "City") are supervised by HPD (Private Housing Finance Law § 2 ) and are governed by the Regulations and Rules of the City of New York (RCNY, vol. 10, title 28, chapter 3).

readily be provided by the ordinary unaided operation of private enterprise (Private Housing Finance Law § 11). The Mitchell-Lama program encourages private investment in housing by offering to developers long-term, low-interest government mortgage loans, and real estate tax abatements. In addition to State and City financing, Mitchell-Lama buildings are entitled to receive Federal interest subsidies which reduce the effective interest on governmental mortgages to 1%. In return for these financial benefits, developers agree to regulations severely limiting profits, rents, tenant selection, and the transfer of property (Private Housing Finance Law §§ 20 to 23, 28, 31 and 38).

Rents in Mitchell-Lama housing are established on a project-by-project basis by that project's management and are subject to the approval of the supervising governmental agency (Scherer, Residential Landlord-Tenant Law in New York [1997], § 6:3, citing 9 NYCRR 1727-4.2[a] and 28 RCNY § 3-03[b] ). These rents are calculated to cover operation, maintenance, and debt service costs of the particular project. Tenants or cooperative shareholders whose family income exceeds the maximum eligibility amount are required to pay surcharges above the standard rent or maintenance (Private Housing Finance Law § 31(3); 9 NYCRR 1727-4.2, 4.3).

Section 35 of the Private Housing Finance Law provides for the voluntary dissolution, also known as a "buy out," of the limited-profit housing company owning the property (Brightwater Towers Assocs. v. New York State Division of Housing and Community Renewal, NYLJ, Nov. 6, 1991, at 23, col. 4 [Sup. Ct., Kings County] [J. Vaccaro], affd. as modified on other grounds 212 A.D.2d 603, 622 N.Y.S.2d 548 [2d Dept.1995] ).

Specifically that section provides that limited-profit housing companies which received loans under the Mitchell-Lama program after May 1, 1959, were entitled to leave the program after 20 years of the building's "occupancy date," provided that the company paid the balance of the mortgage loans and all other expense incurred in the dissolution (Brightwater Towers Assocs. v. New York State Division of Housing and Community Renewal, supra; see, Private Housing Finance Law § 96 ). Section 12(3) of the Private Housing Finance Law uses the term "occupancy date" to mean "[t]he date defined in the contract between a company and municipality or the state, as the case may be, as the date upon which the project is to be deemed ready for occupancy, or if term is not defined in such contract, the date of issuance of the temporary certificate of occupancy."

Generally, if the housing company elects to remove a property from Mitchell-Lama regulation, the premises, by operation of law, become subject to the jurisdiction of the Rent Stabilization Law and Code (Brightwater Towers Assocs. v. New York State Division of Housing and Community Renewal, supra, citing Administrative Code of the City of New York § 26-504[a][b]; 9 NYCRR 2502.11[c] ). In a footnote in the Brightwater Towers decision, Justice Vaccaro noted, inter alia, that section 2520.11 of the Rent Stabilization Code provides, in pertinent part, that

This Code shall apply to all or any class or classes of housing accommodation made subject to regulation pursuant to the RSL or any other provision of law, except the following housing accommodations for so long as they maintain the status indicated below:

* * *

(c) housing accommodations for which rentals are fixed by the DHCR or HPD.... However, housing accommodations in buildings completed or substantially rehabilitated prior to January 1, 1974, and whose rentals were previously regulated under the PHFL (Private Housing Finance Law) or any other state or federal law, other than the RSL or the City Rent Law, shall become subject to the ETPA (Emergency Tenant Protection Act), the RSL, and this Code upon the termination of such regulation.

(Brightwater Towers Assocs. v. New York State Division of Housing and Community Renewal, supra, quoting 9 NYCRR 2520.11[c] ). The Court in the Brightwater Towers case also relied on a document entitled Advisory Opinion No. 1, which was issued by the Commissioner of DHCR on April 24, 1986. In Advisory Opinion No. 1, the Commissioner of DHCR informed both owners and tenants participating in Mitchell-Lama projects "that upon the effective date of dissolution, projects formerly governed by the [Private Housing Finance Law] would be subject to the rent stabilization laws" (Brightwater Towers Assocs. v. New York State Division of Housing and Community Renewal, supra; see also, Scherer, Residential Landlord-Tenant Law in New York, supra, § 6:16).

The Rent Stabilization Code, however, generally excludes "housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January 1, 1974" (9 NYCRR 2520.11[e] ). Neither the Rent Stabilization Code nor Advisory Opinion No. 1 addresses the status of Mitchell-Lama buildings "completed or substantially rehabilitated after January 1, 1974."

FACTS

Waterside is a Mitchell-Lama residential housing development comprised of six buildings known as, and located at 10, 15, 20, 25, 30, and 35 Waterside Plaza, New York, New York. Numbers 15 and 35 Waterside Plaza are non-residential buildings.

According to the Waterside defendants, "North Waterside" is a separate residential development and is comprised of a single building located at 40 Waterside Plaza, New York, New York. Like Waterside, North Waterside is a Mitchell-Lama housing development.

Waterside and North Waterside (collectively, the "Waterside Plaza complex") were constructed in the early to mid 1970s, on a platform adjacent to and over the East River. Together, Waterside and North Waterside form a mixed development, consisting of townhouses and four residential towers. In addition, residents of the Waterside Plaza complex enjoy shops and various other project facilities including a gym, pool and clubhouse.

The entire development was financed by a loan from the City of New York and is supervised by HPD. Waterside receives a partial real property tax exemption in the form of reduced "additional rent" under its ground lease with the City of New York. One of the towers, 40 Waterside Plaza, also benefits from a Federal "section 236" mortgage interest reduction subsidy. The Waterside Plaza complex has never been subject to the jurisdiction of DHCR.

A permanent Certificate of Occupancy for all the buildings in the Waterside Plaza complex was issued on August 30, 1976. Before then, temporary Certificates of Occupancy for two residential buildings were issued prior to January 1, 1974; one, on August 30, 1973, for 10 Waterside Plaza; the other, on October 31, 1973, for 20 Waterside Plaza. The construction of the remaining buildings of the residential portion of the Waterside Plaza complex was completed after January 1975. All of the buildings were fully leased by 1975.

In March 2, 1998, the Waterside defendants sent a letter to HPD and the residents of 40 Waterside Plaza, announcing the landlord's intention to dissolve WHC and to transfer building 40 to a new entity.

The HPD application stated that all of the apartments located at the Waterside Plaza complex would be decontrolled and that rents would be raised to market levels.

In February, 1999, NWRC and WHC notified Deborah Van Amerongen, Director of Housing of HUD's New York State Office, of their intention to prepay their North Waterside Mortgage. Simultaneously, NWRC and WHC notified the residents of North Waterside of their pending application before HUD. This notice warned tenants that the owners intended to "remove North Waterside from...