Court Opinion

ID: 3625416
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:06:08.358993+00
Date Added: 2024-06-11T13:15:00.736933
License: Public Domain

The Commercial Rent Law sets up in different sections two distinct procedures for determining and computing the amount of rent which a landlord of commercial space is entitled to receive during the war-created emergency (L. 1945, ch. 3, § 2, subd. [e]; § 4; McKinney's Unconsol. Laws, § 8522, subd. [e]; § 8524), one for the purpose of determining the *Page 249 
"emergency rent" (§ 2, subd. [e]), and the other for the purpose of ascertaining the "reasonable rent", a rent, the statute specifies, "exceeding in amount the emergency rent" (§ 4). The two procedures — as well as the elements to be considered under each — are obviously not meant to be interchangeable, dealing as they do with entirely different aspects of the commercial rent control problem.
In spite of the patent attempt by the Legislature to make the distinction plain, the lower courts have, in a proceeding under section 2 (e) to fix the emergency rent, imported and assimilated into that section the formula and the standards set up in section 4. In approving that procedure, this court is not, I very much fear, paying sufficient heed to the fact that the Legislature has defined the section 4 reasonable rent as one "exceeding" in amount the section 2 (e) emergency rent. In consequence, the "emergency rent" has been fixed at an amount which is equivalent to 115% of the concededly larger "reasonable rent".
Analysis of the statute illumines the error. Section 2 (e) allows a landlord to collect an "emergency rent", arrived at by taking the rent charged for the premises on the freeze date, March 1, 1943, and adding to it 15%. The determination of an emergency rent is thus a mere mathematical computation. To take care of those instances in which the premises were not used or rented for commercial purposes on that date — with the result that no specific rental charge is available — the same section provides that the emergency rent be fixed at 15% above an estimated figure, which is called the "reasonable rent" for the premises. Parenthetically, it is the use of the word "reasonable" therein that is responsible for the confusion that has arisen. This section 2 (e) reasonable rent is to be computed by looking to the rent charged on the freeze date for the most nearly comparable space "in the same building" or, where that is impossible, as it true here, by referring to "other satisfactory evidence."
Nothing in section 2 (e) tells us, it is true, what is to constitute such "other satisfactory evidence" of reasonable value. But it is clear, from the statute's design, its structure and its language, that the phrase refers to such evidence as will tend to establish the actual market value of the rented space as *Page 250 
of March 1, 1943. That was a date when — section 1 of the statutes indicates — competitive conditions and free bargaining were still reflected in the rental market, and when rents were presumably neither unjust nor oppressive. The Legislature evidently believed that such figures afforded a valid basing point for emergency rent, but, cognizant of the general increase in price levels between the freeze date and the date of the statute's enactment in 1945, it went on to provide that 15% was to be added to either the reserved rental, or to the figure approximating that amount, namely, the reasonable rent. The figure thus derived, the emergency rent, was to be allowed without regard to the landlord's peculiar circumstances and costs or to the income from his property. It was neither designed to reflect the landlord's needs nor to assure him any minimal return on his investment.
Then, desirous of alleviating hardship when the "emergency rent" as thus computed operated unfairly in particular cases because of greatly and disproportionately increased costs of operation, the Legislature wrote section 4 into the statute. (SeeMatter of Fifth Madison Corp. [New York Tel. Co.], 297 N.Y. 155,161.) The basic scheme of that section was to permit the landlord a fair net return — presumptively, 6% — on his investment, by taking into account his own individual problems, such as costs of operation and of maintenance, taxes and mortgage debts. That this is true — that the reasonable rent of section 4 is to reflect a return on investment and not the market rentalvalue of the premises — is readily ascertainable from the language of the section itself. In so many words, it provides that, upon proper showing, a landlord may obtain a "reasonable rent", a rent "exceeding in amount the emergency rent" fixed under section 2 (e), i.e., one designed to assure him a "reasonable return." Thus, section 4 declares that "A rent, exceeding in amount the emergency rent, may * * * be fixed * * * by the supreme court. The rent to be so fixed shall be a reasonable rent based on the fair rental value of the tenant's commercial space as of the date the application to the supreme court * * * is made. In the determination of the amount of such reasonable rent: (a) due consideration shall be given to the cost of maintenance and operation of the entire property * * * taxes * * * and to the kind, *Page 251 
quality and quantity of services furnished * * *. A net annual return of six per centum on the fair value of the entire property including the land plus two per centum of principal for amortization * * * shall be presumed to be a reasonable return."
It impresses me as self-evident that the basic and vital differences between the standards prescribed by section 2 (e) and those prescribed by section 4 preclude resort to the latter's "net annual return" formula in a proceeding to determine emergency rent under section 2 (e). Such a process would in no wise assure a rental based, as section 2(e) contemplates and requires, on the freely-bargained rental rates prevailing on the freeze date, plus 15%, and, indeed, to employ the same might well yield the highly anomalous and unfair result of permitting the landlord to obtain as emergency rent — under section 2 (e) — an amount 15% higher than he could possibly have obtained as reasonable rent under section 4, which by definition is to exceed the emergency rent. It would require the court to start with a greater figure and add thereto in order to reach a smaller figure.
Mere statement demonstrates the impropriety of that procedure and the use of a few equations points it up beyond dispute. If the section 2 reasonable rent equals "RR[2]", and its emergency rent equals "ER", then, under section 2 (e),
RR[2] + 15% = ER.
And, if the section 4 reasonable rent equals "RR[4]", and the increase necessary to insure the landlord's desired fair return (designated as reasonable rent), equals "X", then, under section 4,
ER + X = RR[4].
Now, in the case before us — wherein we are seeking "ER" — the courts below have taken "RR[4]" and added to it 15%. What has been done is graphically reflected by the following equation:
ER = RR[4] (which equals ER + X) + 15%.
It requires no mathematician, no logician, to recognize that there must be a flaw in the process which produces such a result. The reasoning employed disregards the legislative design and plan embodied in section 4. It overlooks the definition of reasonable rent in that section as a figure "exceeding in amount the *Page 252 
emergency rent" and incorrectly uses that figure as the core and foundation in computing the emergency rent under section 2. But it does not stop there; it then compounds the error by adding 15% more to the already oversized starting sum. Such a result, it is plain, was and can be achieved only by misconstruing the statute's language, only by upsetting the Legislature's design.
It is no answer that the courts below applied the formula under section 4 as of March 1, 1943, rather than as of the date of the application. March, 1943, was deep within the war period; operating expenses, taxes, and other costs may have been as inflated and abnormal on that date as they were on the date of petitioner's application. The vice involved in using the section 4 formula in any manner, in connection with a section 2 (e) proceeding to fix the emergency rent, is that, although the statute permits but 15% to be added to the March 1, 1943 reasonable rent, use of that formula will frequently yield a figure in excess of that.
For these reasons, the criteria and formula contained in section 4 cannot correctly be used and received as "other satisfactory evidence" of March 1, 1943 rental values in a proceeding brought under section 2 (e). To put it shortly, the data which section 4 refers to are no more applicable in computing the section 2 reasonable rental value of the premises on March 1, 1943, than they are indicative of the rent actually reserved in a lease in force on that date.
The "other satisfactory evidence", contemplated by section 2, may, of course, be furnished in a number of ways — and I but suggest expert testimony as to prevailing rates for equal amount of space in similar neighborhoods and comparable buildings. Such evidence, and other facts bearing on the issue of market value on the freeze date, would undoubtedly come forth if another hearing were to be held.
In my judgment, the order of the Appellate Division should be reversed and the matter should be remitted to Special Term for a determination of the "emergency rent" upon the basis of criteria which are proper under subdivision (e) of section 2 of the Commercial Rent Law.
CONWAY, DYE and BROMLEY, JJ., concur with LEWIS, J.; FULD, J., dissents in opinion in which LOUGHRAN, Ch. J., and DESMOND, J., concur.
Ordered accordingly. *Page 253