Kslm-Columbus Apts. v. Dhcr

• Decision Date: 26 February 2004
• Docket Number: 2080.
• Citation: 6 A.D.3d 28,772 N.Y.S.2d 665,2004 NY Slip Op 01263
• Parties: In the Matter of KSLM-COLUMBUS APARTMENTS, INC., Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent, and WESTGATE TENANTS ASSOCIATION et al., Intervenors-Respondents.
• Court: New York Supreme Court — Appellate Division

6 A.D.3d 28

772 N.Y.S.2d 665

2004 NY Slip Op 01263

In the Matter of KSLM-COLUMBUS APARTMENTS, INC., Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent, and WESTGATE TENANTS ASSOCIATION et al., Intervenors-Respondents.

2080.

Appellate Division of the Supreme Court of the State of New York, First Department.

February 26, 2004.

Rosenberg & Estis, P.C. (Nicholas Kamillatos and Blaine Z. Schwadel of counsel), for appellant.

Eliot Spitzer, Attorney General (Oren L. Zeve and Marion R. Buchbinder of counsel), for respondent.

Himmelstein, McConnell, Gribben, Donoghue & Joseph (Kevin R. McConnell, Mary Traynor, Serge Joseph and William J. Gribben of counsel), for intervenors-respondents.

OPINION OF THE COURT

NARDELLI, J.P.

In this appeal we are called upon to review respondent New York State Division of Housing and Community Renewal's determination that, following petitioner KSLM-Columbus Apartments, Inc.'s exit from the Mitchell-Lama program in March 1998, its housing accommodations, which were constructed prior to 1969, became subject to rent stabilization by virtue of the Rent Stabilization Law of 1969, rather than the Emergency Tenant Protection Act of 1974.

Petitioner KSLM-Columbus Apartments, Inc. (KSLM) is the owner of the residential apartment buildings designated as 160 West 97th Street, 120 West 97th Street and 135 West 96th Street, New York, New York (the buildings). Respondent New York State Division of Housing and Community Renewal (DHCR) is the regulatory agency charged with the responsibility of administering the rent stabilization laws and code (see Matter of Rent Stabilization Assn. of N.Y. City v New York State Div. of Hous. & Community Renewal, 252 AD2d 111, 113 [1998]).

Westgate Housing Corporation (Westgate), a limited profit housing company, originally constructed and financed the buildings through article II of the Private Housing Finance Law, which is commonly referred to as the Mitchell-Lama Law. The Mitchell-Lama Law was enacted in 1955 in order to encourage the development of low- and middle-income housing in blighted areas by offering state and municipal assistance to developers in the form of long-term, low-interest, government-funded loans, real estate tax exemptions and other financial incentives. The developers, in return, agreed to abide by restrictions on rent, profit, disposition of property and tenant selection (see Private Housing Finance Law §§ 11, 20-23, 28, 31, 33; see also Matter of Columbus Park Corp. v Department of Hous. Preservation & Dev., 80 NY2d 19, 23 [1992]).

The Mitchell-Lama Law initially provided that limited profit housing companies were prohibited from withdrawing the property from the program for a period of 35 years, and then only with the consent of the Housing Commissioner. A 1960 amendment to the law, however, provided for the voluntary withdrawal from the program 20 years after the building's occupancy date without the consent of regulatory officials. The amendment, according to Senator MacNeil Mitchell, one of the principal sponsors of the law, was prompted by the Legislature's realization that the 35-year prohibition against voluntary withdrawal, coupled with the additional burden of having to obtain permission to withdraw from housing officials, was a major deterrent to private developers who might otherwise enter the Mitchell-Lama program (see West 95 Hous. Corp. v New York City Dept. of Hous. Preservation & Dev., 2001 WL 664628, 2001 US Dist LEXIS 7784 [SD NY, June 12, 2001], affd 31 Fed Appx 19 [2002]).

Westgate dissolved in March 1979 and was restructured into KSLM, which assumed the rights and obligations, under the Private Housing Finance Law, as the owner and operator of the buildings. KSLM, in March 1998, after participating in the Mitchell-Lama program for more than the requisite 20-year minimum, dissolved as a Private Housing Finance Law limited profit housing company and restructured as a New York business corporation. There is no dispute among the parties that as a result of the March 1998 dissolution, the Private Housing Finance Law no longer governed the buildings and, for the first time, all of the apartments became subject to rent stabilization. It is at this juncture that we must enter the legislative quagmire which encompasses the New York City and New York State rent control laws (see generally City of New York v New York State Div. of Hous. & Community Renewal, 97 NY2d 216, 219 [2001] [describing the rent control laws as a "thicket"]; La Guardia v Cavanaugh, 53 NY2d 67, 70 [1981] [in which the Court opines that its analysis requires it to "make some order of this morass"]; Matter of 89 Christopher v Joy, 35 NY2d 213, 220 [1974] [in which Chief Judge Breitel characterized the "patchwork" of rent-control legislation as "an impenetrable thicket, confusing not only to laymen but to lawyers"]).

In 1946, the New York State Legislature enacted the Emergency Housing Rent Control Law (L 1946, ch 274) in response to a critical housing shortage caused, primarily, by the return of a large number of veterans following the end of the Second World War, and in anticipation of the lifting of federal housing controls which were in place during the war (see La Guardia v Cavanaugh, supra at 71).

The Rent Stabilization Law was enacted by the New York City Council in 1969 (see Administrative Code of City of NY § 26-501 et seq.) as the result of a continuing housing shortage and the need to regulate buildings previously omitted from the rent control laws. The Rent Stabilization Law (the RSL) was designed to encourage future housing construction by permitting owners to implement reasonable rent increases; to prevent the exaction of "unjust, unreasonable and oppressive rents"; and to "forestall profiteering, speculation and other disruptive practices" (RSL § 26-501; see also Matter of Missionary Sisters of Sacred Heart, Ill. v New York State Div. of Hous. & Community Renewal, 283 AD2d 284, 287 [2001]; Matter of 300 W. 49th St. Assoc. v New York State Div. of Hous. & Community Renewal, 212 AD2d 250, 254 [1995]). The RSL applied, in pertinent part, to:

"Class A multiple dwellings not owned as a cooperative or as a condominium ... containing six or more dwelling units which:

"(1) were completed after February first, nineteen hundred forty-seven, except dwelling units (a) owned or leased by, or financed by loans from, a public agency or public benefit corporation, (b) subject to rent regulation under the private housing finance law or any other state law" (RSL § 26-504 [a] [1] [a], [b] [emphasis added]).

Thus, the buildings in question herein would have been captured into the rent stabilization system pursuant to the RSL had they not been specifically exempt from that law due to their status under the Private Housing Finance Law.

In 1971, the State Legislature, in an effort the DHCR characterizes as an "experiment with free-market controls," and which was later vilified in a State Assembly debate as having caused "outrageous damage," enacted the Vacancy Decontrol Law (L 1971, ch 371), which liberated newly vacated apartments from rent regulation, notwithstanding whether the apartments had previously been subject to rent control or rent stabilization.

The "experiment," however, was short-lived and in 1974, the State Legislature, once again recognizing the need for rent regulation due to an "acute shortage of housing accommodations caused by continued high demand," and that tenants "are being charged excessive and unwarranted rents and rent increases" (McKinnney's Uncons Laws of NY § 8622 EL 1974, ch 576, sec 4, § 2]), enacted the Emergency Tenant Protection Act ([the ETPA] L 1974, ch 576, § 4 [Uncons Laws § 8621 et seq.]). In La Guardia v Cavanaugh (supra at 74-75), the Court of Appeals described the ETPA "not [as] a rent and eviction regulating law," but as "an enabling act, which empowered New York City ... to extend rent stabilization." In order for the ETPA to apply to New York City housing, however, it was necessary for the New York City Council to declare a housing emergency in its jurisdiction (id. at 75). The City Council so acted in June 1974.

The question at the heart of this appeal is whether the provisions of the ETPA, or only those of the original RSL, apply to the apartments herein once KSLM opted out of the Mitchell-Lama program.

Upon KSLM's dissolution as a Private Housing Finance Law limited profit housing company and its reformation as a New York business corporation, it was required to comply with the initial rent regulation requirements delineated in Rent Stabilization Code (RSC) (9 NYCRR) § 2521.1 (j). That section mandates that for occupied apartments, "the initial legal regulated rent shall be the rent charged to and paid by the tenant in occupancy on the date such regulation ends." For vacant apartments, the "rent shall be the most recent rent approved by the supervising agency, which shall be subject to all increases permitted by law and this Code." (Id.)

An owner, generally, may seek adjustments to the initial base rent by way of either of two mechanisms: RSC § 2522.4 (b) and (c), which evaluate "hardship" by basing increases on the relationship between the annual rent and a calculation of either the annual net income or the annual operating expenses of the building; or RSL § 26-513 (a), which was enacted simultaneously with the ETPA, and which provides, in relevant part:

"The tenant or owner of a housing accommodation made subject to this law by the emergency tenant protection act of nineteen seventy-four may, within sixty days of the local effective date of this section or the commencement of the first tenancy thereafter, whichever is later, file with the commissioner an application for adjustment of the initial legal regulated rent for such housing accommodation. The rent commissioner may adjust such initial legal regulated rent upon a finding that the presence of unique or...