Long Island Foundation for Educ. and Jewish Research, Inc. v. Michael

• Decision Date: 28 November 1983
• Citation: 97 A.D.2d 843,469 N.Y.S.2d 85
• Parties: In the Matter of LONG ISLAND FOUNDATION FOR EDUCATION AND JEWISH RESEARCH INC., Appellant, v. Phillip MICHAEL, as Commissioner of Finance of the City of New York, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 85

469 N.Y.S.2d 85

97 A.D.2d 843

In the Matter of LONG ISLAND FOUNDATION FOR EDUCATION AND JEWISH RESEARCH INC., Appellant, v. Phillip MICHAEL, as Commissioner of Finance of the City of New York, et al., Respondents.

Supreme Court, Appellate Division Second Department.

Nov. 28, 1983.

Postel & Rosenberg, New York City (Sanford Postel, New York City and Jody N. Gerber, Brooklyn, of counsel), for appellant.

Frederick A.O. Schwarz, Jr., Corp. Counsel, New York City (Leonard Olarsch and Judith R. Greenwald, Asst. Corp. Counsels, New York City, of counsel), for respondents.

Before MOLLEN, P.J., and GULOTTA, BROWN and BOYERS, JJ.

MEMORANDUM BY THE COURT.

In a proceeding pursuant to CPLR article 78 to review a determination of the respondent Tax Commission, dated July 28, 1982, which denied petitioner's application for exemption from real property taxes (the application having been made on the ground that the petitioner is a charitable organization under the provisions of the Real Property Tax Law), petitioner appeals from an judgment of the Supreme Court, Queens County, dated July 29, 1982, which dismissed the proceeding.

Judgment affirmed, without costs or disbursements.

Petitioner bore the burden of establishing entitlement to exemption from real property taxation (Matter of F.O.R. Holding, Co. v. Board of Assessors of Town of Clarkstown, 45 A.D.2d 875, 357 N.Y.S.2d 875, app. dsmd. 35 N.Y.2d 959, 365 N.Y.S.2d 177, 324 N.E.2d 556). In our opinion petitioner failed to meet that burden.

Petitioner, the Long Island Foundation for Education and Jewish Research Inc., was incorporated on December 6, 1973 pursuant to the Not-For-Profit Corporation Law. Its original certificate of incorporation lists its purposes. The opening paragraph of the "purpose clause" states "[t]o promote the educational, cultural and social welfare of the Jewish community in Long Island, New York, and the community in general". An amendment (dated June 29, 1978 and filed February 9, 1979) to its certificate of incorporation adds the following purpose: "To establish and maintain a residential care facility for adults of either short or long term care * * * for the aged".

On January 1, 1979, petitioner acquired the subject property from S.S. & K. Realty Corp., which, prior thereto, had been in use as a proprietary (for-profit) home for adults, known as Far Rockaway Manor.

The deed to the property was in reality conveyed to petitioner by Marvin Steinhauser, Irwin Steinhauser and Nat Rosenwasser. These individuals were the sole stockholders of S.S. & K. Realty Corp., the business corporation which owned the property prior to delivery of the deed. These individuals were also partners in Far Rockaway Manor Associates which leased the property from S.S. & K. for the purpose of operating the proprietary (for-profit) home for adults thereon. On October 5, 1978, three months prior to the transfer of title to petitioner, the property was the subject of a tax review hearing (over-valuation trial). In that proceeding, involving the tax years 1974/1975-1978/1979, two opposing real estate experts submitted written appraisals concerning the market value of the property during the 1978/1979 tax year and for four years prior thereto. Utilizing the cost approach, S.S. & K.'s appraiser valued the property at $915,000 for each of the years under review. The city's expert in that proceeding valued the property at more than $4,045,000 for 1974/1975 and, $4,510,000 for 1975/1976-1978/1979. The city's expert's valuation was on an income-producing basis. In addition, at the hearing, Marvin Steinhauser, one of the former owners, testified that the property was in receivership. In the tax certiorari proceeding, Special Term reduced the total assessment of $1,456,000 for 1974/1975 to $966,000 and reduced the total annual assessment of $1,675,000 for 1975/1976-1978/1979 to $1,005,000. On appeal we reversed the judgment and granted a new trial for reasons not directly relevant herein. (Matter of S.S. & K. Realty Corp. v. Finance Admin. of City of N.Y., 82 A.D.2d 808, 439 N.Y.S.2d 207).

As has been noted, on January 1, 1979, petitioner acquired the subject property by deed from S.S. & K. Realty Corp., a business corporation, for $8,020,962.20 in mortgage obligations. They were as follows:

(1) A mortgage, dated January 13, 1978, between S.S. & K. Realty Corp. as mortgagor and Martin Zuckerbrod and Harry S. Taubenfeld (petitioner's attorneys) as mortgagees, in the principal sum of $75,000;

(2) A mortgage, dated May 31, 1978, between S.S. & K. Realty Corp. as mortgagor and The Manhattan Savings Bank as mortgagee in the principal sum of $4,332,408.93;

(3) A mortgage, dated July 31, 1978, between S.S. & K. Realty Corp. as mortgagor and Long Island Lighting Company as mortgagee in the principal sum or $309,003.78; and

(4) A purchase money mortgage, dated December 28, 1978, between petitioner as mortgagor and the three sole stockholders of S.S. & K. Realty Corp. as mortgagees in the principal sum of $3,303,559.49.

The mortgage to Manhattan Savings Bank in the principal sum of $4,332,408.93, assumed by petitioner on its purchase from S.S. & K., contained the following clause and obligation:

"27. The Mortgagor agrees that the management of the facility on subject premises has been under the control of Irwin Steinhauser, Marvin Steinhauser Nat Rosenwasser and this factor plus the continuance of such management is a material inducement to the Mortgagee in agreeing to make this mortgage loan and the Mortgagor agrees the Mortgagee shall have the option to declare the mortgage indebtedness due and payable within 30 days after prior written notice in the event the facility on the premises ceases to be managed by and/or the management thereof is not directly and effectively controlled by the said Irwin Steinhauser, Marvin Steinhauser, Nat Rosenwasser and or the executors, administrators, legatees or devisees of any one or more of them in the event of the death of any one of them. Further, the Mortgagee shall have the option to declare the mortgage indebtedness due and payable within 30 days after prior written notice, if the aforesaid persons, without the prior written consent of the Mortgagee, sell, transfer, convey their interest in the facility to an entity not controlled directly and effectively by the aforesaid persons or the survivor or survivors of them. The Mortgagee agrees its consent to the sale, transfer or conveyance or change in management mentioned in the previous sentence will not be unreasonably withheld. Mortgagor agrees the Mortgagee shall have the right to enforce collection of the indebtedness in accordance with the terms of this mortgage including the right of foreclosure in the event of the breach of the covenants in this paragraph."

Upon acquiring the property, petitioner renamed the facility the Hebrew Living Center and continued to operate it as a residential care facility for adults.

On October 1, 1979, petitioner entered into a consolidated mortgage agreement with The Manhattan Savings Bank. The bank authorized and consented to the management of the facility by a specified management organization (acronym COW) but further provided:

"The Mortgagor acknowledges that it has been in serious default in required payments under the mortgage indebtedness prior to the execution of the additional mortgage loan made by Mortgagee to Mortgagor simultaneously with the execution of this agreement. The Mortgagor and the Mortgagee have entered into this agreement to allow the Mortgagor time to clear the defaults and to permit management of the mortgaged property efficiently and profitably and Mortgagor agrees to faithfully perform the covenants of this agreement including those relating to the monetary aspects of maintenance and operating expenses." (Emphasis supplied.)

The petitioner's financial statements for the year ending December 31, 1979, show income from room and board but does not show any charitable contributions. The following were listed as interest expenses:

                "Financing Expenses
                -------------------------------
                    "Interest -- First Mortgage  436,027.78
                     ________                    198,213.56  634,241.34"
                                                 ----------  ------------
                

Respondents' answer in this article 78 proceeding asserts:

"petitioner is conducted to secure to its mortgagees a distribution of any profits petitioner might realize from the operation of the property, tax-free, by treating earned profits as a deductible mortgage expense on petitioner's books."

The transcript of the hearing held on June 25, 1980, before the Tax Commission, reveals that the rates petitioner then charged the residents for room and board were $436 to $550 per month; the variance between those figures depended not on economic need but whether there was single occupancy or double occupancy and the size of the room; a person relatively well off would be admitted but would not be required to pay more, the rates being "standard"; 85 to 90% of the residents receive S.S.I. benefits. With respect to that 85 to 90% the transcript states:

"MR. POSTEL: [counsel for petitioner]: * * *

"As far as S.S.I. goes, they give a...