Summary
In Popolizio, the building into which the tenant was to move was under construction, and there existed the possibility that the apartment would not be ready at the beginning of the term of the tenancy.
Summary of this case from In re Sacred Heart, v. New York S. Div. HOpinion
Argued November 21, 1983
Decided December 20, 1983
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, SIDNEY H. ASCH, J.
Jeffrey L. Braun, Elizabeth A. Shollenberger, Perry L. Lubov and Susan J. Schwartz for appellant.
Mary Ellen Cronly and Ellis S. Franke for respondent.
In December, 1965, while the Lincoln Towers complex in Manhattan was still incomplete, Maurice Rosenberg signed a three-year lease for an apartment there. His lease included a "modification-of-lease rider" containing a two-month rent concession which he received at the outset of his tenancy. Several lease renewals later, Rosenberg complained to the Conciliation and Appeals Board (CAB), of which respondent is chairman, that the two-month rent concession should, by operation of the Rent Stabilization Law, have carried forward to his subsequent renewal leases and because this was not done he had been overcharged. The CAB ruled in his favor. In an article 78 proceeding brought by appellant, Century Operating Corporation, managing agent of Lincoln Towers, Special Term upheld the CAB determination and the Appellate Division affirmed. Because the CAB's determination was based on a construction of the rider that was without rational basis, we now reverse.
The rider in issue stated that the landlord would not be liable for failure to give possession of the apartment at the commencement of the specified term if building construction had not yet been completed, and further provided: "Tenant shall not be required to pay rent for the two months period commencing on the date on which possession of the apartment is given or the apartment is available for occupancy by Tenant. The installment of rent paid by Tenant upon the execution of the Apartment Lease shall be applied, on a prorated basis, first to the rent for the remainder of the calendar month immediately following such two months period and then towards the rent for the next calendar month (the balance of which rent for said next calendar month after such application shall be paid by Tenant on the first day of said next calendar month), or if such two months period expires on the last day of a calendar month, to the rent for the calendar month which immediately follows such two months period."
Upon passage of the New York City Rent Stabilization Law in May, 1969 (Administrative Code of City of New York, § YY51-1.0 et seq.), Rosenberg's apartment became subject to rent stabilization. Under subdivision b of section YY51-4.0 of the Rent Stabilization Law, all future rent increases were to be computed on the basis of a "base rent" charged on May 31, 1968: here $313. Section 60 of the Code of the Rent Stabilization Association of New York City, Inc. (the Rent Stabilization Code), further required that an owner offer a stabilized tenant a renewal lease on the same terms as the expiring lease, except for the authorized rent increase.
Rosenberg renewed his lease with appellant's predecessor for three successive three-year terms, in February, 1969, 1972 and 1975. On each occasion, the rent in the renewal lease was calculated on the basis of the $313 base rent allowed with increases. Also on each occasion, the renewal lease did not contain the modification-of-lease rider and Rosenberg was not allowed two months' free rent. Rosenberg executed each renewal without protest.
In September, 1976, appellant became managing agent for the Lincoln Towers complex. Shortly after Rosenberg executed his fourth renewal lease for the period February, 1978 to January, 1981, he submitted an overcharge complaint to the CAB. Rosenberg alleged that the proper base rent was not $313, but rather $313 multiplied by 34/36 (to account for the actual number of months in which rent was paid in the original lease), or $295.61, and he averred that, as the rent increases in his renewal leases were all based on the $313 base rent, he had been overcharged. Rosenberg sought both back rent and future adjustments. Appellant responded by contending that the free-rent period in the original lease was a one-time concession intended to attract tenants to the then-unoccupied apartment complex, and therefore could not be employed to reduce Rosenberg's rent.
In October, 1978 the CAB ruled that appellant had violated section 60 of the Rent Stabilization Code by not including a two-month concession in each renewal lease, citing Matter of La Barbera v Housing Dev. Auth. ( 44 A.D.2d 835), and awarded Rosenberg a refund of past rentals paid to appellant for the "free months." Two CAB members dissented from the reasoning of the majority, and one additional member from the result, on the ground that Rosenberg was estopped from asserting his claims by reason of laches.
Appellant then commenced this article 78 proceeding in May, 1980 seeking to set aside the CAB determination as "arbitrary, capricious and erroneous as a matter of law." In September, 1981, Special Term dismissed appellant's petition on the ground that the CAB determination was rationally based and not arbitrary or capricious. The Appellate Division, with one dissent, affirmed in November, 1982, concluding that "although we might have reached a different conclusion, this court may not substitute its judgment for that of the board." (90 A.D.2d, p 732.)
Unquestionably, the modification-of-lease rider, as a condition of the original lease, should by virtue of section 60 of the Rent Stabilization Code be deemed incorporated in Rosenberg's renewal leases. The issue presented is whether that rider, once incorporated, can be construed to require two months' free rent on the occasion of each renewal.
The CAB's interpretation of the modification-of-lease rider is arbitrary and capricious in that it is without sound basis in reason, and in disregard of the terms of the contract and the facts in this action. ( Matter of Pell v Board of Educ., 34 N.Y.2d 222, 231.) The explicit terms of the rider, including that the tenant "shall not be required to pay rent for the two months period commencing on the date on which possession of the apartment is given or the apartment is available for occupancy", limit the rent concession to the commencement of the original vacancy lease. The terms "possession * * * is given" and "available for occupancy" have no rational relation to a renewal lease, where the tenant already is in possession and occupancy of the apartment. The rider must be read "in the light of the circumstances existing at its making" ( Becker v Frasse Co., 255 N.Y. 10, 14), and examination of the language of the rider as a whole confirms that the two-month rent concession is tied to the other rider provisions concerning the possibility that building construction would not be complete by the beginning of the specified term. The provision for proration of the free rent in case the period would not begin on the first day of a calendar month applies peculiarly to the initial vacancy lease, when the building was not yet available for occupancy, and would have no meaning in the context of renewal leases.
Respondent suggests that the parties' intent, and therefore principles of contract construction, are irrelevant in cases of leases subject to rent stabilization, citing Matter of East 56th Plaza v New York City Conciliation Appeals Bd. ( 56 N.Y.2d 544). In Matter of East 56th Plaza, we held that, since section 60 of the Rent Stabilization Code requires that terms and conditions of expiring leases be incorporated in renewal leases, the fact that a landlord may not have intended to incorporate a term or condition is immaterial. Here it is undisputed that the modification-of-lease rider was incorporated in Rosenberg's renewal lease. But on the question of the meaning to be given to a contractual term or condition once incorporated in a renewal lease, the parties' intent is, as always, a touchstone of contract construction.
Matter of La Barbera v Housing Dev. Auth. ( 44 A.D.2d 835, supra), cited by the CAB in support of its determination and by respondent for the proposition that rent concessions in original leases are perforce carried over into renewal leases by the Rent Stabilization Code, does not support the CAB's result here. In that case, a lease term providing that the tenant would pay no rent "for January of each year" was, once incorporated in a renewal lease by virtue of section 60 of the Rent Stabilization Code, properly construed to provide a rent concession in January for years under renewal leases as well. The concession under consideration, fixed as it was to the giving of possession and assumption of occupancy in the uncertainty of building completion, cannot be construed to carry forward to renewal leases.
The CAB's determination, therefore, is without rational basis and must be annulled. ( Matter of Swalbach v State Liq. Auth., 7 N.Y.2d 518, 522.) Accordingly, the order of the Appellate Division should be reversed, with costs, and appellant's petition to set aside the CAB's determination should be granted.
Judges JASEN, JONES and MEYER concur with Judge KAYE; Judge SIMONS dissents and votes to affirm in a separate opinion in which Chief Judge COOKE and Judge WACHTLER concur.
Order reversed, with costs, and petition granted.
The order of the Appellate Division should be affirmed. The majority has substituted its judgment for that of the agency charged with administering the rent control laws contrary to familiar rules limiting the scope of the courts' review of administrative determinations.
The New York City Conciliation and Appeals Board (CAB) is the administrative body charged with the responsibility of interpreting the provisions of leases and applying the rent stabilization laws to them (see Rent Stabilization Law [Administrative Code of City of New York], § YY51-6.0). The Code of the Rent Stabilization Association of New York City, Inc. (Rent Stabilization Code), was adopted to implement that law and pursuant to section 60 of it, the landlord of rent-stabilized premises is required to offer a tenant a renewal lease on the same terms as the expiring lease except for authorized rent increases. Applying that provision, the Conciliation and Appeals Board determined the rent applicable to the leasehold in this case by reference to a statutorily fixed base rent, i.e., the rent chargeable May 31, 1968, and ordered the landlord to renew the lease for the term commencing in 1978 on the same terms. Finding that the lease in existence in 1968 granted two months' free rent at the commencement of the term, the board ordered renewal of the tenant's lease on the same terms.
The CAB is the agency empowered to construe the provisions of the Rent Stabilization Law and the courts are obliged to accord due weight to its decisions ( Fresh Meadows Assoc. v New York City Conciliation Appeals Bd., 55 A.D.2d 559, 560, affd 42 N.Y.2d 925). Consequently, the CAB's determination interpreting the lease terms and section 60 of the Rent Stabilization Code must be upheld by the court if it has support in the record, a reasonable basis in law, and is not arbitrary or capricious ( Matter of Park East Land Corp. v Finkelstein, 299 N.Y. 70, 75). It is not for the courts to search out the appropriate interpretation of these provisions, for once a rational basis for the administrative agency's determination is exposed, the judicial function is exhausted.
Here the CAB concluded that section 60 of the code requires that an owner renew a lease on the same conditions as the expiring lease, including a concession of free rent for the first two months of the lease term. This construction of section 60 has a reasonable basis in law because it is founded upon the literal wording of the statute which explicitly requires renewals on identical terms. Further, the CAB's decision to view the rider containing the renewal as part of the lease agreement has a rational basis, notwithstanding the fact that it spoke of the giving of possession and assumption of occupancy. The rider was physically annexed to the lease and, as the majority concede, must be considered a part thereof. Interpretation of the instrument's terms was a matter for the agency's expertness (see Matter of David v New York City Conciliation Appeals Bd., 59 N.Y.2d 714; Matter of Park East Land Corp. v Finkelstein, supra), and inasmuch as the construction placed upon them was not irrational, the court must abide by it. A contrary rule would produce needless additional litigation and force this court to second-guess administrative disputes.