Niles v. Boston Rent Control Adm'r

Citation6 Mass.App.Ct. 135,374 N.E.2d 296
PartiesLouville F. NILES, et al., trustees, et al. v. BOSTON RENT CONTROL ADMINISTRATOR et al. (and a companion case). 1
Decision Date23 March 1978
CourtAppeals Court of Massachusetts

Mark L. Snyder, Boston, for Boston Rent Control Administrator.

Saul A. Schapiro, Cambridge, for Benjamin Cohen and others.

Mitchel S. Ross, Boston (Kenneth S. May, Boston, with him), for Louville F. Niles and another, trustees, and another.

Before HALE, C. J., and ARMSTRONG and BROWN, JJ.

BROWN, Justice.

These cases arise out of two rent adjustments ordered by the Boston rent control administrator (administrator) in August, 1975, and November, 1975, respectively, for Westbrook Village, an apartment complex.

The August, 1975, adjustment increased the rents at Westbrook Village to a gross maximum level of $946,236 annually. The tenants appealed from that decision to the Housing Court of the City of Boston, arguing that the administrator had not followed his own regulations. A judge of the Housing Court upheld that adjustment, and the trustees (owner) and the tenants now appeal from the judgment.

In November, 1975, the administrator ordered the gross maximum annual rent for Westbrook Village reduced to $796,392, following his receipt of information (1) that the real estate taxes on a vacant adjacent parcel of land had been included in the operating expenses of the apartment complex which the administrator had considered in arriving at his August adjustment, and (2) that the owner had received substantial real estate tax abatements. The owner appealed to the Housing Court, the gravamen of its complaint being that the November adjustment did not permit it a fair return on the fair market value of its property and that such a return is required by St.1970, c. 842, and the Constitutions of both the Commonwealth and the United States. The Housing Court judge found the administrator's decision to be null and void. The administrator and the tenants appealed from that judgment. The owner filed a cross appeal.

As the appeals raise questions concerning the methods used by the administrator to adjust rents, we shall first describe the procedures followed by the administrator in setting rents. We shall then discuss the two appeals separately, dealing first with the November adjustment and then with the August adjustment.

The rent control statute, St.1970, c. 842, § 6, rolled rents for controlled units 2 back to the rents charged six months prior to the acceptance of the act by the municipality, except where rents had been adjusted under prior rent control acts. 3 It further provided that the administrator or board should make such adjustments of those rents as might be necessary to assure that rents would be set at levels which would yield a "fair net operating income" to owners. Chapter 842, § 7(b), set out various factors which were to be considered, among others, in determining whether a rent level would provide a "fair net operating income."

Boston rent control administration Regulation 6, adopted by the administrator pursuant to authority under c. 842, § 5, sets out the procedure to be used in adjusting rents. Regulation 6 provides essentially a cost pass-through method for determining rents. Section 5 of Regulation 6 sets out the specific presumption that rents charged for December, 1971, yielded a fair net operating income. This presumption may be overcome by evidence tending to show that the rents charged for December, 1971, yielded more or less than a fair net operating income. Section 4 of Regulation 6 sets out various factors which are then to be considered in adjusting rents. These factors parallel those set out in c. 842, § 7(b).

In addition to the calculation under Regulation 6, the administrator began the practice, following a decision by the Housing Court of the City of Boston requiring a fair return on fair market value, 4 of also performing an analysis based on that standard as a check on the other calculation, on the theory that a fair return on fair market value is required by c. 842's requirement of a fair net operating income. 5 The practice of using such a criterion has not been incorporated into any regulation.

In the August, 1975, rent adjustment the administrator first calculated the rent level under Regulation 6, which yielded a gross maximum annual rent level of $876,191. The presumption that the December, 1971, rents yielded a fair net operating income was not questioned by the owner or by the tenants. Under the policy described above, the administrator did a second calculation in which the gross rents were multiplied by a factor of 5.5 to determine a fair market value; a return of 7.5% On that value was then determined. This computation yielded an annual rent level of $946,236. This amount, which was higher than that determined under Regulation 6, was approved as the maximum annual rent level for Westbrook Village.

The tenants argue that (1) this adjustment was invalid because it was in violation of Regulation 6; (2) the decision was not supported by substantial evidence; and (3) the administrator should have rejected Westbrook Village's initial application for a rent increase because the application did not contain all the information required by Boston rent control administration Regulation 3.

The reduction in the maximum rent level ordered in November, 1975, was made under the Regulation 6 cost pass-through method, by deducting the now disallowed amounts which had previously been allowed as expenses. In this adjustment also, the presumption that the rent level in December, 1971, yielded a fair net operating income was not rebutted. In addition to the Regulation 6 calculation, the administrator also did a return on value analysis, using three times the assessed value of the property as the fair market value. Because this calculation yielded a lower amount than the Regulation 6 method, the amount yielded by the latter was approved as the maximum gross rent level.

Contending that it was entitled to a fair return on the fair market value of the property and that this adjustment did not permit such, the owner, who had introduced expert testimony as to the fair market value of the property and a fair rate of return, appealed from the administrator's decision to the Housing Court. The Housing Court ruled (1) that Regulation 6 was valid on its face and not confiscatory and (2) that confiscation had not been proved. However, following M. E. Goldberg Trust vs. Boston Rent Control Adm. (supra note 4) and relying on the decision in Zussman v. Rent Control Bd. of Brookline, --- Mass.App. --- a, 343 N.E.2d 889 (1976), Id., --- Mass. --- b, 359 N.E.2d 29 (1976), the judge found that, in light of the expert testimony, "the (r)ent (c)ontrol (a)dministration (r)ecord (was) inadequate" to support the decision, and remanded the case for additional evidence and findings on the question of fair market value and a fair rate of return. After the administrator made such findings, but did not hold a new hearing, the Housing Court judge declared the rent adjustment null and void, leaving the rents at the previous (higher) level. It is this judgment from which the administrator and the tenants now appeal.

I. November, 1975, Rent Adjustment.
A. Standard of Review.

In reviewing rent control determinations, the proper role of the court "is not to take evidence afresh and decide for itself what rent is to be fixed, but is rather to decide whether the (administrator's) decision was supported by the facts before (him) and was legally justified." Sherman v. Rent Control Bd. of Brookline, 367 Mass. 1, 10, 323 N.E.2d 730, 735 (1975). "(J)udicial review of facts in rent control cases does not extend to the taking of evidence de novo." Zussman v. Rent Control Bd. of Brookline, --- Mass. ---, --- c, 359 N.E.2d 29, 32 (1976).

We are also guided by the principle suggested by Justice Wilkins in his concurring opinion in the Zussman case with regard to the proper handling of successive appeals of a rent control decision where confiscation is alleged. Justice Wilkins points out that in dealing with facts and findings in an agency record, each court should be entitled to its own judgment, since "(e)ach court is conducting an analysis of the same agency record, and there is no reason why the first court's view should be given any special weight. . . . It would be peculiar if appellate courts were compelled to give greater weight to the independent views of the trial judge than the trial judge himself had to extend to the agency presumed to be the qualified expert on the subject in issue." Id., --- Mass. at --- - --- d, 359 N.E.2d at 35.

The owner argues that this court should limit its review of the decision below to a consideration of whether the Housing Court judge applied the correct standard in his review of the administrator's decision and further argues that, for that reason, the Housing Court's decision that the November determination was not supported by substantial evidence should stand. It cites in support of this position a line of Federal cases and also the comment by the Supreme Judicial Court in Zussman v. Rent Control Bd. of Brookline, --- Mass. at --- e, 359 N.E.2d 29, 33, that it was "not inclined to dispute" the finding of the trial judge that the figure used by the board for the value of the property "falls within the range of what may be regarded as reasonable under the circumstances."

However, we conclude that although the Housing Court judge followed the proper standard of review of the facts, he did not apply the correct legal standard. With regard to the form of review of lower court decisions in cases such as this, we believe that the owner is reading the Supreme Judicial Court's comment more broadly than intended, because in the same case that court also overturned the finding by a Superior Court judge that the rent board's decision was...

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