Tudor Arms Apartments v. Shaffer

• Decision Date: 10 November 1948
• Docket Number: 4.
• Parties: TUDOR ARMS APARTMENTS et al. v. SHAFFER et al.
• Court: Maryland Court of Appeals

62 A.2d 346

191 Md. 342

TUDOR ARMS APARTMENTS et al. v. SHAFFER et al.

No. 4.

Court of Appeals of Maryland

November 10, 1948

Appeal from Circuit Court No. 2 of Baltimore City; E. Paul Mason Judge.

Suit by Wilson Shaffer and others against the Tudor Arms Apartments and others involving the rights of apartment house tenants to resist eviction under the provisions of the Federal Housing and Rent Act of 1947. From a decree for the plaintiffs, the defendants appeal.

Decree reversed and case remanded.

S Ralph Warnken, of Baltimore (Clayton A. Dietrich, of Baltimore on the brief), for appellants.

George M. Brady and Thomas H. Hedrick, both of Baltimore, for appellees.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, and HENDERSON, JJ.

HENDERSON Judge.

This appeal is from a declaratory decree of the Circuit Court No 2 of Baltimore City, dated February 3, 1948, in a case involving the rights of tenants of the Tudor Arms Apartments, Inc., to resist eviction under the provisions of the Federal Houssing and Rent Act of 1947, 50 U.S.C.A.Appendix, § 1881 et seq.

The apartment house in question, located on the southwest corner of University Parkway and Tudor Arms Avenue in Baltimore City, contains 48 separate apartment units. In December, 1946, it was sold to certain parties who decided to operate it upon the so-called 'Co-operative' plan. Briefly stated, the plan contemplated the formation of a new corporation, all of the authorized capital stock of which was ultimately to be issued to and owned by purchasers of apartment units, the number of shares issued to each purchaser representing the capital value placed upon the particular apartment unit, according to its floor space and location. The purchasers of each unit were also to receive a proprietary lease thereof, for the term of one year renewable indefinitely at the option of the lessee, unless terminated by the lessor corporation for cause. The stock and lease are inseparable and their transfer or assignment is restricted in that the assignee must be approved by the stockholders, or the Board of Directors elected by them. The purchaser is obligated to pay 40% of the capital value initially, of which 2% is put in a reserve fund, and the balance of the price is payable in installments, and applied to the amortization of mortgages upon the property, taxes, maintenance and similar purposes.

The co-operative plan became effective on October 1, 1947. At that time all of the issued shares of the corporate defendant were in the hands of the promoters, but the plan contemplated that as apartment units were sold, shares would be provided by the promoters according to a definite schedule, so that eventually all of the authorized stock would be held by purchaser-owners of the apartments. It appears that as of January, 1948, a majority of the shares were in the hands of such purchasers.

Many of the tenants in the apartment house, holding leases from month to month from the former landlord, objected to the plan, and refused to purchase stock in the new enterprise. They formed a protective association and began this suit in August, 1947, contending that they are protected from annoyance and threatened eviction from the apartment units presently occupied by them, under the provisions of the Federal Housing and Rent Act.

The Housing and Rent Act of 1947 became effective July 1, 1947. It denied recovery of possession of housing accomodations by a landlord, notwithstanding the fact that the tenant had no lease or that his lease had expired, so long as the tenant continued to pay rent, unless the tenant was violating certain obligations of his tenancy, other than obligations to pay rent higher than the rent permitted under the Act or to surrender possession. By section 1899(a)(2) an exception was made in case the landlord was seeking in good faith to recover possession of such housing accommodations for his immediate and personal use and occupancy. By section 1899(a)(3) there was a further exception in case 'the landlord has in good faith contracted in writing to sell the housing accommodations to a purchaser for the immediate and personal use and occupancy as housing accommodations by such purchaser.' 'Housing accommodations' is defined in section 1892 to mean 'any building, structure, or part thereof * * * including houses, apartments * * * used for living or dwelling purposes * * *.'

The question presented is whether purchasers of stock in the co-operative, with the right to possession of particular apartment units under proprietary lease, are purchasers of housing accommodations within the meaning of the Act. The learned Chancellor held that they were not, relying principally upon the fact that the proprietary lease is called a lease and contains many of the clauses customarily found in ordinary leases, and that the amount paid for the stock actually is payment for occupancy of the accommodations. He also stressed the point that title to the property was technically in the corporation and not in the individual stockholders. We think, however, that the solution cannot turn upon the form of the transaction. It is true that the plan is somewhat novel in this State, and that its obvious purpose is to effect a change of occupants, in the event that the present tenants decline to purchase stock in the enterprise. But on the other hand, the essence of the transaction is that in exchange for a capital investment, a prospective purchaser will obtain a right, under the proprietary lease, to occupy a particular unit for an indefinite period, during good behaviour. When all the stock is disposed of, the promoters will be out of the picture and the management will be in the hands of the stockholders. These are some of the most important indicia of ownership. It could hardly be contended that the sale of a house to a group as tenants in common, would not be within the exception. From the nature of the subject matter, ownership under a co-operative plan must take the form of rights incident to stock ownership or membership in a corporation. The substantial nature of those rights, rather than the form of the transaction must be considered. We think the language of the Act is open to construction and the solution must be sought by the application of the usual rulse of construction, with due regard to the history of the legislation, in order to ascertain the intention of Congress.

Restrictions against evicting tenants from housing accommodations were first imposed by the Emergency Price Control Act of 1942, 50 U.S.C.A.Appendix, § 901 et seq. Authority to establish maximum rents was given to the Office of Price Administration, commonly known as O.P.A Eviction proceedings could not be brought under local law, except upon receipt of a certificate of eviction from the Federal agency. § 6(b)(2) of the regulations adopted under that Act authorized the issuance of a certificate where the housing accommodations were sold. On February 17, 1945, a special regulations,§ 6(b)(3) was adopted providing that in case of a co-operative apartment house corporation formed after that date, no certificate of eviction should be issued 'unless at the time of the issuance of the certificate stock in the co-operative has been purchased by persons who are then tenants of at least 80% of the dwelling units in the structure or premises and are entitled by...