Seawall Associates v. City of New York

• Decision Date: 23 November 1987
• Docket Number: No. 2,No. 1,No. 3,1,2,3
• Parties: SEAWALL ASSOCIATES, 459 West 43rd Street Corp., Eastern Pork Products Company, Durst Partners, Sutton East Associates-86, The Channel Club and Anbe Realty Co., Plaintiffs, v. The CITY OF NEW YORK, Edward I. Koch, in his capacity as Mayor of the City of New York, Paul A. Crotty, in his capacity as Commissioner of the Department of Housing Preservation and Development of the City of New York, and Charles Smith, in his capacity as Commissioner of the Department of Buildings of the City of New York, Defendants, and Richard Wilkerson, Edgar Ferrell, Frank Alicia, Tom Williams, Danny Sogliuzzo, Nicholas Tallerico and the Coalition for The Homeless, Defendants-Intervenors. ActionEASTERN PORK PRODUCTS COMPANY, 459 West 43rd Street Corp., Jambod Enterprises, Inc., Mygatt/Perry, Felix Ziade and Rocco Imperial, Plaintiffs, v. The CITY OF NEW YORK, et al. ActionTESTAMENTUM, Plaintiff, v. The CITY OF NEW YORK, et al., Defendants. Action
• Court: New York Supreme Court

Page 353

523 N.Y.S.2d 353

138 Misc.2d 96

SEAWALL ASSOCIATES, 459 West 43rd Street Corp., Eastern Pork

Products Company, Durst Partners, Sutton East

Associates-86, The Channel Club and Anbe

Realty Co., Plaintiffs, v. The CITY OF NEW YORK, Edward I. Koch, in his capacity as

Mayor of the City of New York, Paul A. Crotty, in his

capacity as Commissioner of the Department of Housing

Preservation and Development of the City of New York, and

Charles Smith, in his capacity as Commissioner of the

Department of Buildings of the City of New York, Defendants,

and

Richard Wilkerson, Edgar Ferrell, Frank Alicia, Tom

Williams, Danny Sogliuzzo, Nicholas Tallerico and

the Coalition for The Homeless,

Defendants-Intervenors. Action No. 1.

EASTERN PORK PRODUCTS COMPANY, 459 West 43rd Street Corp.,

Jambod Enterprises, Inc., Mygatt/Perry, Felix

Ziade and Rocco Imperial, Plaintiffs, v. The CITY OF NEW YORK, et al. Action No. 2.

TESTAMENTUM, Plaintiff, v. The CITY OF NEW YORK, et al., Defendants. Action No. 3.

Supreme Court, New York County,

IAS Part 21.

Nov. 23, 1987.

Shea & Gould (Sheldon D. Camhy, Kevin B. McGrath, Claudia A. Wagner, George G. Nelson, of counsel), and Dershowitz & Eiger P.C. (Nathan Z. Dershowitz, of counsel), and Rosenberg & Estis P.C. (Franklin R. Kaiman, of counsel), and Shapiro, Mortman Schwartz & Greene (Marvin L. Schwartz, of counsel), and Paskus Gordon & Mandel (Philip H. Schaeffer, Alan M. Goldston, Jane D. Connolly, of counsel), White & Case (Philip H. Schaeffer, Jane D. Connolly of counsel), New York City, for plaintiffs in Action Nos. 1 and 2

Burns, Kennedy, Schilling & O'Shea (Edmund J. Burns, Maria Scorcia, of counsel), New York City, for plaintiffs Action No. 3.

Peter L. Zimroth, Corp. Counsel, (Gabriel Taussig, Albert Frederick, of counsel), New York City, for defendants.

Mitchell S. Bernard, Norman Siegel, New York Civil Liberties Union, Robert M. Hayes, Mitchell S. Bernard, Norman Siegel, Robert M. Hayes, Coalition for the Homeless, Saralee Evans, West Side SRO, Law Project, Wayne Hawley, MFY Legal Services, East Side SRO Law Project, New York City, for proposed intervenors and amicus curiae on this motion.

INTRODUCTION

DAVID B. SAXE, Justice.

Once again, owners of buildings containing single-room occupancy units ("SRO's"), ¹ challenge legislation which attempts to lessen the growth of the homeless population in the City of New York by prohibiting the conversion, alteration or demolition of privately owned SRO buildings. ²

The issue that I must decide is whether the buy-out, replacement and hardship exemptions contained in this new legislation, Local Laws, 1987, No. 9 of City of New York, ³ cure the constitutional infirmities of its predecessor, Local Law 22, which I invalidated in Seawall Associates v. The City of New York, et al., 134 Misc.2d 187, 510 N.Y.S.2d 435 ("Seawall I").

A brief recounting of the legislative history is necessary. Since 1985 the New York City Council has enacted several local laws designed to halt the decline of SRO housing. In July 1986, the City Council by enacting Local Law 22 ⁴ extended the moratorium initiated by Local Law 59 which prevented the demolition or alteration of most SRO buildings. ⁵ However, Local Law 22 in addition to providing for a moratorium on the alteration, conversion or demolition of SRO buildings also imposed an affirmative obligation upon SRO owners to rent these units and ⁶ to maintain them in habitable condition. In addition, if the units were in disrepair, owners would be required to renovate them. ⁷ Local Law 22 applied only to privately owned buildings. Those buildings owned in rem by the City of New York were exempt from the requirements of this law. ⁸

When Local Law 22 was enacted, certain SRO building owners sought a preliminary injunction staying the enforcement of the law. The plaintiffs argued that Local Law 22 violated their constitutional right to due process of law and sought to enjoin its enforcement. In Seawall I, supra, I held that the anti-warehousing regulations contained in Local Law 22 were "unreasonable and arbitrary" frustrating "plaintiffs' property rights without due process of law." I also found that Local Law 22 took away all development rights of property owners by requiring that they invest thousands of dollars to rehabilitate the SRO units. Moreover, I noted that it was constitutionally suspect "to require owners to be in a business in which they had no intention, expertise or expectation of being involved in." Therefore, I granted a preliminary injunction preventing enforcement or implementation of those aspects of the law which required SRO owners to invest substantial amounts of money to rehabilitate their units and to rent them to tenants. The granting of this relief was premised upon a violation of due process rights of SRO owners amounting to irreparable injury.

On February 2, 1987 the City Council enacted a new law, Local Law 1. ⁹ Thereafter, several amendments to that law were approved and on March 5, 1987 the provisions of Local Law 1, as amended, were enacted as Local Law 9 of 1987. ¹⁰ Local Law 1 continued the moratorium prohibiting conversions, alterations or demolition of SRO dwellings for a period of 5 years with extensions of additional 5-year terms. ¹¹ It also contained a provision requiring, as of May 1, 1987, all SRO owners to make these units habitable and to rent them to bona-fide tenants. ¹² An owner was presumed to be in violation of the anti-warehousing provisions if the unit was not occupied by a bona-fide tenant for a period of 30 days or longer. The anti-warehousing provisions did not apply to: (1) SRO units with 24 or less units, (2) units which had been declared unsafe; (3) owners who had obtained special permits; (4) any hotel which during the 12-month period commencing January 1, 1984 had 90% or more of its dwelling units occupied for less than 30 consecutive days by one occupant The differences between Local Law 22 and the law under challenge, Local Law 9, is primarily in three areas: (1) the addition of a cash buy-out provision; (2) the obligation of SRO owners to create replacement housing; and, (3) a hardship "escape" provision. The law still contains the anti-warehousing provisions which I previously held to be unconstitutional.

and in which there were no units subject to rent stabilization; (5) SRO owners who arranged for buy-outs; or (6) SRO owners who applied for a reduction in the buy-out amount or took advantage of the replacement provisions. ¹³

THE BUY-OUT EXEMPTION

Local Law 9 currently provides that an SRO owner has the option of either paying $45,000.00 per SRO unit or "such other amount which the Commissioner of Housing Preservation and Development determines by regulation would equal the cost of creating a dwelling unit ... to replace such single room occupancy dwelling unit, in order to be exempt from the moratorium." The funds are to be collected and administered by a newly created SRO Development Fund. These monies are to be used to preserve, acquire and develop low and moderate income housing throughout New York City. Local Law 9 changes the buy-out exemption contained in Local Law 1, by providing that where 50% or more of SRO units are occupied as of January 20, 1987 the owner "shall be required to provide for a replacement approved by the Commissioner." ¹⁴ (emphasis added). This mandatory replacement plan also requires "either for the sale or net lease of the multiple dwelling containing such dwelling units to a not-for-profit organization or for such other form of transfer of ownership, management or possession of such multiple dwelling approved by [the] Commissioner." ¹⁵

THE REPLACEMENT EXEMPTION

The replacement multiple dwelling "shall include but not be limited to a single-room occupancy multiple dwelling. In the event that an existing multiple dwelling is acquired for the purpose of providing replacement units, such multiple dwelling shall be located in the same or adjacent community board in which the single-room occupancy multiple dwelling which is to be altered, converted or demolished is located." ¹⁶ Replacement may be achieved by the acquisition of a multiple dwelling, the substantial rehabilitation of existing dwelling units or by the creation of dwelling units by construction of new multiple dwellings.

THE HARDSHIP EXEMPTION

The amount of the payment required ($45,000.00 per unit) or the number of dwelling units provided may be reduced in whole or in part by the Commissioner of Housing Preservation and Development if the owner shows that the property yields a reasonable rate of return. ¹⁷ The SRO owner would have to establish at an administrative hearing that there is "no reasonable possibility" of making "a reasonable rate of return." (Administrative Code of City of New York § 198.2[d][4][b][i].) Reasonable rate of return is defined as "a net annual return of 8 1/2% of the assessed value of the subject property without recourse to the alteration, conversion or demolition prohibited by [this law.]" ¹⁸ In order to claim this exemption, the SRO owner must not have intentionally mismanaged the property thereby impairing its ability to earn a reasonable rate of return.[ ¹⁹

In fact, since all the parties seek dispositive legal relief, I will treat the plaintiffs' The underlying complaints which form the basis for declaratory and injunctive relief all assert the same arguments regarding the alleged invalidity of Local Law 9. Plaintiffs contend that (1) the City failed to consider the environmental impact of Local Law 9 on existing population concentrations and its non-compliance with the State Environmental Quality Review Act ("SEQRA"), the City Environmental Quality Review Act ("CEQR") and the Environmental Conservation Law ("ECL"); and (2) Local Law 9 is an unlawful tax and is arbitrary, confiscatory and in violation of the due process and takings clauses of the United States and New York State Constitution.

motions as seeking...