Court Opinion

ID: 5393419
Source: CourtListenerOpinion
Date Created: 2022-01-08 10:02:38.821307+00
Date Added: 2024-06-11T08:30:19.842192
License: Public Domain

Callahan, J.
(dissenting). The Administrator apparently has construed the provision in paragraph (a) of the statute reading “ not * * * fully compensated by increases in rental income ” to refer only to income from controlled tenants. He also appears to have construed paragraph (e) to contain only general procedural provisions and determined that all of these provisions were not intended to apply to every case in which increases in rent were permissible. Such construction is indicated by the form in which the Administrator adopted paragraph b of subdivision 7 of section 33 of his regulations. That regulation reads as follows: “ b. If, as determined by the Administrator, the landlord has not been fully compensated by increases in the rental income for the controlled housing accommodations sufficient to offset such increases in operating costs as are charged to such controlled housing accommodations the Administrator shall grant an adjustment in the maximum rents in the manner and subject to the provisions of subdivision c. of this paragraph.”
The regulation contains no requirement for the consideration of income from decontrolled accommodations in fixing or apportioning rent increases in hotels. Likewise, in processing the present applications it would appear that the Administrator did not deem it necessary to consider such income. It is this failure to consider that class of income that brings about the present controversy.
To demonstrate what the administrator did in construing the statute and computing the amount of increases warranted, it might be well to take the figures in one concrete case and follow the mathematical computations which he made. In the Katsenstein case, relating to the Hotel Park Crescent, it appears that the costs of operating all rentable space showed an increase of $157,223.38 in the year 1950, the one involved in the application, over the base year 1943. Concededly, part of that increase in cost had been compensated by voluntary increases in income during the same period of years. However, the income from the decontrolled accommodations appears to have risen at a greater rate than that from the controlled accommodations. To equalize this situation the administrator took steps to prorate the increase in income between the two classes of accommodations. He determined that 66.19% of the space in this hotel was eon-*79trolled space and applied that percentage to the figure of $157,223.38 and thus obtained the sum of $88,343.82 as the prorated part of the increased cost required to be supplied by the controlled space. He found that an increased income of $46,890.11 had already been received from controlled space between 1943 and 1950 and decided that the difference of $41,453.71 should be the amount of increased rent to be collected from tenants in the controlled area. As this would have meant a raise in rent in excess of 15%, he reduced the sum to be collected to $34,623.72 or a 15% increase.
It seems to me that such a computation fails to follow that requirement of the statute found in paragraph c directing that due consideration must be given to income received from space not controlled in fixing any increase in rent and in apportioning the same. This requirement is not entirely procedural for it relates to the fixation of increases as well as the apportionment thereof.
It seems useless to argue that the method followed by the Administrator distributed the burden of increases more equitably or avoids subsidies in favor of the controlled tenants. If any express and applicable provisions of the statute require a particular step to be taken in fixing and apportioning increases, the regulations adopted and the method pursued thereunder may not omit that step. The requirement for giving due consideration to the income from the property, including space not controlled, would seem to be a mandatory one. It should not have been omitted in these instances.
In my opinion the Eent Administrator was required by the letter of the statute to deduct from the $157,223.38 of increased cost in the Park Crescent case the total of increased income from the whole of the premises controlled and decontrolled. There appears in the record a figure of $114,427.11 said to represent the increased income from both classes of accommodations. Though this figure has not been approved by the Administrator we may, for the purpose of illustration, use it to compare the result that would be obtained if it was used and the statutory formula was followed. Deducting the total increase of compensatory income, $114,427.11, from the total increased cost of $157,223.38, we find a noncompensated increase in cost of $42,796.27. To this figure the percentage of 56.19 should be applied. The resulting figure of $24,044.22 would represent the increase to be collected from the tenants in the controlled space of the Park Crescent Hotel. By this method of calculation due *80consideration is given to the income received from space not controlled and any increases are allocated as required by the statute.
Of course, the Administrator could adopt any method of calculation, which would follow the mandate of the statute, but he could not ignore such mandate either in adopting his regulation or computing the increase. If he had used some method of adjusting' the burden of the increase in the light of the prior share of increases met by the two classes of tenants after giving due consideration to the income from the decontrolled space, that would have been within his powers. He did not do that but attempted to equalize or prorate without considering income from the decontrolled space.
Not only do I find that the Administrator has disregarded the letter of the statute, but it would seem that the construction followed by him disregards its spirit. The statutory provisions in paragraph (a) that this class of rent increase is to be applicable only when the increase in income is not sufficient to meet increased costs shows by its context that it relates to the whole property and thus indicates a recoupment plan, and not one to secure a fair return on investment. There is a plan in the statute assuring a 4% return on investment. But the present applications were not made under that plan. The method followed by the Administrator would make increases based upon increased costs of operation other than a recoupment plan. It might well result in requiring increased rents from one class of tenants, even though sufficient total income to meet all increases in costs was being obtained from the entire operation. That does not seem to me to be the purpose of the subdivision involved.
It seems to me that there is at least an alternative method of first deducting all increased income from increased costs and fixing the increase of rent for controlled tenants by that percentage of the deficiency represented by the controlled space as against the total space taking the income from noncontrolled space into consideration and such method would result in allocating to the controlled housing accommodations only that portion of the increase properly attributable to such accommodations.
A further point is made by the controlled tenants that the Administrator failed to give due consideration to the rental value of vacant space in the noncontrolled area. In some instances this vacant space represents vacancies in rooms reserved for rental to transient guests. It may well be that the *81vacancies in this class of rooms were in accord with normal experience in respect to the rental of rooms for transients. At least, the Administrator could so find. I do not construe the provision of the statute relating to vacancies to mean that the rental value of all vacant rooms must be added under all circumstances.
In giving due consideration to vacancies the Administrator has the right to make such findings with respect to vaéancies of this nature as the circumstances warrant.
For the reasons indicated, 1 think that the disposition made by Special Term in remitting these matters to the Administrator was correct. I would, however, make a provision in the order of remission authorizing the Administrator to make any increases, which he finds warranted, effective as of the dates when the applications are presented. I see no legal obstacle preventing the Administrator from doing this. To the extent of adding such a provision I vote to modify the orders appealed from and otherwise affirm.
Peck, P. J., and Bbeitel, J., concur with Van Voorhis, J.; Callahan, J., dissents in opinion.
Orders reversed, with costs to the appellant, and the determinations of the State Bent Administrator confirmed.