New York Law Review

Tag: Mitchell-Lama

  • Trump Village Section 3, Inc. v. New York City Department of Finance, 22 N.Y.3d 453 (2013): Real Property Transfer Tax and Mitchell-Lama Cooperative Privatization

    22 N.Y.3d 453 (2013)

    A residential housing cooperative corporation’s termination of participation in the Mitchell-Lama program and amendment of its certificate of incorporation as part of its voluntary dissolution and reconstitution as a cooperative corporation governed by the Business Corporation Law does not constitute a taxable transfer under Tax Law § 1201 (b) and section 11-2102 (a) of the Administrative Code of the City of New York.

    Summary

    Trump Village, a Mitchell-Lama cooperative, sought a declaratory judgment that its exit from the Mitchell-Lama program and reconstitution as a Business Corporation Law (BCL) corporation did not trigger the New York City Real Property Transfer Tax (RPTT). The Department of Finance argued that the reconstitution was effectively a conveyance of real property. The Court of Appeals held that amending the certificate of incorporation was not a taxable event because it did not constitute a conveyance of real property from one entity to another. The RPTT applies to deeds transferring real property interests, and the amendment did not meet this definition.

    Facts

    Trump Village Section 3, Inc. was incorporated in 1961 as a Mitchell-Lama cooperative. In 2007, Trump Village, with shareholder approval and state permission, terminated its participation in the Mitchell-Lama program. It amended its certificate of incorporation to reconstitute itself as a corporation under the Business Corporation Law (BCL), removing itself from the restrictions of the Private Housing Finance Law.

    Procedural History

    The New York City Department of Finance issued a Notice of Determination to Trump Village for a tax deficiency exceeding $21 million, asserting that the exit from the Mitchell-Lama program constituted a conveyance subject to RPTT. Trump Village sued, seeking a declaration that the RPTT was inapplicable. The Supreme Court ruled for the Department of Finance. The Appellate Division reversed, granting summary judgment to Trump Village. The Court of Appeals affirmed the Appellate Division.

    Issue(s)

    Whether a taxable transfer pursuant to Tax Law § 1201 (b) and section 11-2102 (a) of the Administrative Code of the City of New York occurs when a residential housing cooperative corporation terminates its participation in the Mitchell-Lama program and amends its certificate of incorporation as part of its voluntary dissolution and reconstitution as a cooperative corporation governed by the Business Corporation Law?

    Holding

    No, because the amendment of the certificate of incorporation to reconstitute the corporation under the Business Corporation Law does not constitute a conveyance or transfer of real property as required to trigger the Real Property Transfer Tax.

    Court’s Reasoning

    The Court of Appeals determined that the RPTT, under section 11-2102 (a) of the Administrative Code, is imposed on each “deed” at the time of delivery. A deed is defined as a document conveying real property or an interest therein. The Court rejected the Department of Finance’s argument that the amendment to the certificate of incorporation qualified as a “deed.” The court emphasized the plain language of the statute requires a conveyance from one entity to another. The court stated that doubts concerning a taxing statute’s scope and application are to be resolved in favor of the taxpayer, citing Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 NY2d 657, 661 (1993).

    Further, the Court reasoned that Trump Village remained the same corporation, merely amending its certificate of incorporation rather than forming a new entity. The Court highlighted that the Private Housing Finance Law provides two options for privatization: conveyance of title or reconstitution via amendment. Trump Village chose the latter. The court dismissed the argument that the amendment radically altered the business, clarifying that the RPTT taxes conveyances, not changes in the corporation’s purpose. The court emphasized that the RPTT would still be collected on the sale of individual apartment shares.

    Finally, the Court distinguished East Midtown Plaza Hous. Co., Inc. v Cuomo, 20 NY3d 161 (2012), noting that it concerned Martin Act disclosure requirements related to shareholder rights and did not support imposing the RPTT in a Mitchell-Lama privatization.

  • Murphy v. New York State Division of Housing & Community Renewal, 21 N.Y.3d 649 (2013): Succession Rights and Agency Discretion in Mitchell-Lama Housing

    Murphy v. New York State Division of Housing & Community Renewal, 21 N.Y.3d 649 (2013)

    An administrative agency’s denial of succession rights in Mitchell-Lama housing is arbitrary and capricious when based solely on a technical noncompliance (failure to file an income affidavit) without considering overwhelming evidence of primary residency and the lack of connection between the noncompliance and the applicant’s eligibility.

    Summary

    Paul Murphy sought succession rights to his deceased mother’s Mitchell-Lama apartment, where he had lived since infancy. The DHCR denied his application because his mother failed to file an income affidavit listing him as a co-occupant for one of the two years prior to her vacatur. The Court of Appeals held that DHCR’s decision was arbitrary and capricious, given the extensive evidence of Murphy’s lifelong residency and the lack of any indication that the missing affidavit was related to Murphy’s income or occupancy. The Court emphasized that regulations serve to prevent the dislocation of long-term residents and facilitate affordable housing.

    Facts

    Paul Murphy had resided in a Southbridge Towers apartment, a Mitchell-Lama housing complex, since he was one month old in 1981. In 2000, his parents vacated the apartment. In 2004, Murphy applied for succession rights. Southbridge Towers rejected his application, and DHCR denied his subsequent appeal based on the fact that Murphy’s mother, the tenant-of-record, did not file an annual income affidavit listing Murphy as a co-occupant for 1998, one of the two years preceding her vacatur.

    Procedural History

    Murphy filed a CPLR article 78 petition in Supreme Court challenging DHCR’s determination. Supreme Court denied DHCR’s motion to dismiss, annulled the agency’s decision, and granted Murphy’s succession petition. The Appellate Division affirmed this decision. The Court of Appeals granted DHCR’s motion for leave to appeal.

    Issue(s)

    Whether DHCR’s denial of Murphy’s succession application was arbitrary and capricious, given the extensive evidence of his primary residence and the sole basis for denial being the tenant-of-record’s failure to file an income affidavit listing him as a co-occupant for one of the two relevant years.

    Holding

    Yes, because DHCR’s decision lacked a sound basis in reason and disregarded the overwhelming evidence of Murphy’s primary residence and the lack of a connection between the missing affidavit and his eligibility for succession.

    Court’s Reasoning

    The Court of Appeals emphasized that an administrative agency’s determination must have a rational basis and cannot be arbitrary or capricious. It cited Matter of Peckham v Calogero, 12 NY3d 424, 431 (2009), stating that “[a]n action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts.” The Court acknowledged DHCR’s interest in the timely filing of income affidavits but stated that the principal purpose of such affidavits in the succession context is to provide proof of the applicant’s primary residence. Here, Murphy provided ample evidence of his residency. The Court noted that regulations providing for succession rights serve the important purpose of preventing dislocation of long-term residents. While DHCR is afforded considerable deference in interpreting its own regulations, the Court must scrutinize administrative rules for genuine reasonableness and rationality in the specific context presented. The Court stated, “Courts must scrutinize administrative rules for genuine reasonableness and rationality in the specific context presented by a case” (Kuppersmith v Dowling, 93 NY2d 90, 96 [1999]). Because DHCR did not dispute Murphy’s residency for 32 years, the Court held that relying solely on his mother’s technical noncompliance for a single year to justify evicting him was arbitrary and capricious. The court distinguished this situation from one where the income affidavit was filed, but the applicant’s name was omitted for reasons related to co-occupancy or income. The court emphasized that its holding does not treat a failure to file more leniently than an inaccurate filing, but rather focuses on the reason for the omission and the overwhelming evidence of residency. The dissent is not mentioned explicitly but footnote #1 addresses it, stating that Murphy’s affirmative showing was not limited to “shifting explanations for his mother’s neglect to file.”

  • East Midtown Plaza Housing Co. v. Cuomo, 19 N.Y.3d 164 (2012): Martin Act Applicability to Mitchell-Lama Privatization and Voting Rights

    East Midtown Plaza Housing Co. v. Cuomo, 19 N.Y.3d 164 (2012)

    The Martin Act applies to the proposed privatization of a Mitchell-Lama cooperative apartment complex, and a vote to determine whether the cooperative withdraws from the Mitchell-Lama program must be counted on a per-apartment basis when the certificate of incorporation so specifies.

    Summary

    East Midtown Plaza, a Mitchell-Lama cooperative, sought to privatize. The Attorney General required the filing of a cooperative offering plan under the Martin Act and mandated a per-apartment vote, based on the certificate of incorporation. East Midtown challenged this, arguing the Martin Act didn’t apply and the vote should be per share under Business Corporation Law. The Court of Appeals held that the Martin Act does apply because privatization constitutes a new offering of securities due to substantial changes in shareholder rights, including the ability to sell at market rates. The court further held that the vote was correctly counted on a per-apartment basis due to the cooperative’s certificate of incorporation. This decision ensures that shareholders are fully informed about the risks and benefits of privatization and protects the voting rights established in the cooperative’s governing documents.

    Facts

    East Midtown Plaza, a 746-unit Mitchell-Lama cooperative, sought to withdraw from the program. A 2004 vote favored privatization on a per-share basis but not per-apartment. The Attorney General required a cooperative offering plan under the Martin Act and mandated a per-apartment vote based on the certificate of incorporation. A revised 2008 plan avoided a physical exchange of shares, but a 2009 vote mirrored the 2004 result. East Midtown sought to declare the plan effective based on a per-share count, which the Attorney General rejected.

    Procedural History

    East Midtown filed an Article 78 proceeding to compel the Attorney General to accept the privatization plan and recognize the per-share vote. Supreme Court denied the petition. The Appellate Division affirmed. The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the Martin Act (General Business Law art 23-A) applies to the privatization of a Mitchell-Lama cooperative apartment complex.

    2. Whether the shareholder vote to privatize East Midtown should be counted on a one-vote-per-apartment basis or a one-vote-per-share basis.

    Holding

    1. Yes, because the privatization of East Midtown’s cooperative apartment complex results in substantial changes to the nature of its shareholders’ interests, constituting an “offering or sale” of securities under the Martin Act.

    2. Yes, because East Midtown’s certificate of incorporation expressly provides that its shareholders “shall be entitled to one vote at any and all meetings of stockholders for any and all purposes regardless of the number of shares held by such holder, except as otherwise provided by statute,” and the Business Corporation Law does not mandate a different method of vote calculation in this context.

    Court’s Reasoning

    The Court reasoned that the Martin Act, aimed at preventing fraudulent securities practices, should be liberally construed. Citing federal precedents, the court emphasized that changes in the rights of existing securities holders can amount to a “purchase or sale” if there is a “significant change in the nature of the investment or in the investment risks as to amount to a new investment” (Gelles v TDA Indus., Inc., 44 F.3d 102, 104 [2d Cir 1994]). Privatization enables residents to sell shares at market rates, a significant change from the Mitchell-Lama program where resale prices are capped. The court dismissed the argument distinguishing the 2004 and 2008 plans as elevating form over substance, stating, “the end result under either proposal is the same—privatization and market value resale potential.”

    Regarding the voting rights, the Court noted that Business Corporation Law § 612(a) establishes a default rule of one vote per share “unless otherwise provided in the certificate of incorporation.” East Midtown’s certificate explicitly provided for one vote per apartment. The Court rejected East Midtown’s argument that Business Corporation Law § 1001 mandated a per-share vote, reasoning that § 1001 focuses on *who* can authorize dissolution, not *how* the votes are weighted. “In substance, the one-vote-per-apartment rule set forth in East Midtown’s certificate of incorporation entitles the holder of shares to one vote at stockholder meetings.” The Court also found that an HPD regulation requiring two-thirds approval of outstanding shares was compatible with the certificate of incorporation’s voting method.

  • KSLM-Columbus Apartments, Inc. v. New York State Division of Housing and Community Renewal, 5 N.Y.3d 303 (2005): Determining Rent Stabilization Law Applicability After Mitchell-Lama Withdrawal

    KSLM-Columbus Apartments, Inc. v. New York State Division of Housing and Community Renewal, 5 N.Y.3d 303 (2005)

    When a building exits the Mitchell-Lama program, apartments continuously inhabited since before July 1, 1971, are subject to rent stabilization under the Rent Stabilization Law of 1969 (RSL), while apartments that had a vacancy on or after July 1, 1971, are subject to stabilization under the Emergency Tenant Protection Act of 1974 (ETPA).

    Summary

    KSLM-Columbus Apartments withdrew its buildings from the Mitchell-Lama program and sought “unique or peculiar” rent adjustments under the ETPA. The DHCR denied the application, stating the buildings became subject to the RSL, not the ETPA, upon exiting Mitchell-Lama. The court addressed whether apartments continuously inhabited since before July 1, 1971 are subject to stabilization under the RSL, and apartments with a vacancy on or after July 1, 1971 are subject to the ETPA. The Court of Appeals held that apartments continuously inhabited since before July 1, 1971 are indeed subject to rent stabilization under the RSL of 1969. However, apartments that experienced a vacancy on or after July 1, 1971 are governed by the ETPA.

    Facts

    Westgate Housing Corporation (predecessor to KSLM) constructed three buildings in Manhattan in 1967-1968 under the Mitchell-Lama Law, offering financial incentives for low- and middle-income housing development in exchange for rent and profit regulations. Tenants began occupying the buildings in 1968. Westgate restructured into KSLM in 1979. In March 1998, KSLM withdrew the buildings from the Mitchell-Lama program, making them subject to rent stabilization. The existing rents became the “initial regulated rent.” KSLM began paying full real estate taxes and market-rate interest.

    Procedural History

    KSLM applied to DHCR for rent adjustments under the ETPA. The DHCR Rent Administrator denied KSLM’s applications, stating eligibility required subjection to the RSL via the ETPA, not directly. The Deputy Commissioner denied KSLM’s petitions for administrative review. KSLM filed a CPLR article 78 proceeding. Supreme Court denied the petition; the Appellate Division reversed, stating the ETPA covered properties exempted from the Rent Stabilization Law. The Court of Appeals granted DHCR and intervenors leave to appeal.

    Issue(s)

    1. Whether buildings previously constructed and operated pursuant to the Mitchell-Lama program are made subject to the Rent Stabilization Law of 1969 by the RSL itself after withdrawal from the Mitchell-Lama program.
    2. Whether buildings previously constructed and operated pursuant to the Mitchell-Lama program are made subject to rent stabilization by the Emergency Tenant Protection Act of 1974 after withdrawal from the Mitchell-Lama program.

    Holding

    1. Yes, because the Rent Stabilization Law of 1969 (RSL) applies to buildings that were previously exempt from rent regulation under the Private Housing Finance Law (Mitchell-Lama) once that exemption ends, for apartments continuously inhabited since before July 1, 1971.
    2. Yes, because the Emergency Tenant Protection Act of 1974 (ETPA) applies to apartments that had a vacancy on or after July 1, 1971, in buildings that were previously under the Mitchell-Lama program.

    Court’s Reasoning

    The court determined the issue was one of statutory construction, not deference to DHCR, as it involved legislative intent. The court rejected KSLM’s argument that the 1969 RSL wouldn’t apply without the 1974 ETPA. The 1969 RSL regulated Class A multiple dwellings, except those under the Private Housing Finance Law. Once the Mitchell-Lama exemption ended, the buildings became subject to the RSL. The court stated, “It is clear that it was the intent of the Legislature that Mitchell-Lama buildings remain in the rent stabilization system after Private Housing Finance Law withdrawal.” The ETPA was enacted to include housing that had never been rent-regulated or had been decontrolled, while these buildings were already under the RSL system when the ETPA was enacted. The court also rejected KSLM’s argument that the Urstadt Law prevented former Mitchell-Lama apartments from reverting to rent stabilization, finding the Urstadt Law intended to prevent new tightening of rent regulation after 1971, not to prevent the expiration of an existing exemption from rent stabilization. The court found that because of the Vacancy Decontrol Law (VDL), apartments vacant on or after July 1, 1971, are subject to the ETPA, as amended in 1974, which states that “housing accommodations which became vacant on or after July first, nineteen hundred seventy-one or which hereafter become vacant shall be subject to the provisions of the emergency tenant protection act of nineteen [hundred] seventy-four.” The court distinguished Matter of Zeitlin v New York City Conciliation & Appeals Bd., stating that the choice in this case was between the RSL and the ETPA, while in Zeitlin, the choice was between no regulation and the ETPA. The DHCR’s argument that the RSL was suspended due to the Private Housing Finance Law was deemed inconsistent. Therefore, the court concluded that the KSLM apartments vacated on or after July 1, 1971, are subject to the ETPA, and KSLM may apply for rent adjustments under RSL § 26-513(a).

  • Matter of City of New York (Neptune Ave.), 28 N.Y.2d 146 (1971): Condemnation Award Based on Probable Subsidized Use

    Matter of City of New York (Neptune Ave.), 28 N.Y.2d 146 (1971)

    A condemnation award can be based on the fair market value of property considering its highest and best use as a site for subsidized housing (e.g., a Mitchell-Lama project) if there is a reasonable probability that such a subsidy would have been granted and the project constructed but for the condemnation.

    Summary

    This case addresses whether the possibility of obtaining a Mitchell-Lama subsidy (a New York State program fostering low-cost housing) can be considered when determining the highest and best use of land taken by condemnation. The Court of Appeals held that it can, provided there is a reasonable probability that the subsidy would have been granted and the project constructed. However, because the claimants in this case failed to adequately demonstrate the likelihood of securing a Mitchell-Lama subsidy, the court reversed the lower court’s award and remanded the case for new findings.

    Facts

    The City of New York condemned vacant land in Brooklyn for a high school. The land was divided into three pieces and near a subway station, stores, and schools. Across the street was Harway Terrace, a Mitchell-Lama high-rise housing project built in 1961. The claimants’ experts argued the highest and best use of the property was as a site for a high-rise apartment building, valuing it at $3.25-$3.35 per square foot. The city’s expert said the highest and best use was for one and two-family dwellings, valuing it at $0.75-$1.50 per square foot. The city’s expert also noted that an apartment building could only be built if a Mitchell-Lama subsidy was obtained.

    Procedural History

    The trial court awarded the claimants $2.90 per square foot without a written opinion. The Appellate Division unanimously affirmed this decision. The City of New York then appealed to the New York Court of Appeals.

    Issue(s)

    Whether the possibility of obtaining a Mitchell-Lama subsidy can be considered in determining the highest and best use of land taken by condemnation, and thus in calculating the condemnation award.

    Holding

    No, because the claimants failed to adequately demonstrate a reasonable probability that a Mitchell-Lama subsidy would have been granted.

    Court’s Reasoning

    The court stated that a condemnation award should be determined based on the fair market value of the property in its highest and best use, often determined by comparable sales. It emphasized that the asserted highest and best use must be reasonably probable in the near future, not speculative. The court acknowledged that governmental activity, such as zoning variances, can be considered if obtaining such variances is reasonably probable, citing Masten v. State of New York, 11 A.D.2d 370, affd. 9 N.Y.2d 796. The court reasoned that while sales of other Mitchell-Lama project sites indicated a market for subsidized housing and the possibility of securing a subsidy, the claimants failed to provide sufficient evidence demonstrating the reasonable probability of obtaining a Mitchell-Lama subsidy for the subject property. Specifically, the court noted the “total absence in the record of any evidence concerning the chances of success or failure in obtaining a Mitchell-Lama subsidy.”
    As the court stated, “Without such proof, the award cannot stand.” The court emphasized that while the claimants’ expert testified to some plans to purchase the land as a Mitchell-Lama site, the extent of these plans was not adequately explained, and there was no evidence adequately establishing the likelihood of securing a subsidy. The court concluded, “The absence of evidence adequately establishing the likelihood of securing a subsidy makes it impossible to say that there was a reasonable probability that a Mitchell-Lama subsidy could have been obtained to develop this property as a profitable high-rise apartment building site.”