Katcher v. Praetorian Realty Corp., 32 N.Y.2d 178 (1973)

The Rent Stabilization Law’s provision allowing for co-operative conversion of rental buildings upon purchase by a statutory minority (35%) of tenants does not violate due process, as it grants a limited right to lease renewal that tenants did not previously possess.

Summary

Tenants challenged the constitutionality of the Rent Stabilization Law (RSL) provision allowing landlords to refuse lease renewals when converting to co-operative ownership, arguing it was triggered by a minority of tenants purchasing shares. The landlord, Praetorian, had filed a co-op conversion plan with the Attorney General, which included vacant apartments in calculating the required 35% tenant purchase threshold. The tenants argued that making their right to renewal leases subject to abrogation by a minority of tenants violated due process and that the Housing and Development Administration (HDA) acted arbitrarily in approving the inclusion of vacant apartments in the 35% calculation. The court upheld the constitutionality of the RSL, finding it granted a new, limited right to lease renewal, and the inclusion of vacant apartments was a valid interpretation of the law.

Facts

Praetorian Realty Corp. filed a co-operative reorganization plan for an apartment building in 1969. The plan required agreements for the purchase of 75% of the shares for effectiveness but allowed Praetorian to declare it effective with only 35% purchase agreements. The Rent Stabilization Law (RSL) became effective in May 1969, controlling the property. The RSL initially required 15% tenant purchase for co-op conversion, later amended to 35%. Praetorian amended its plan, including purchases of apartments that became vacant after the plan was presented to meet the 35% requirement. The Attorney-General accepted this amendment, and Praetorian declared the plan effective in October 1970, including vacant apartments in the calculation.

Procedural History

The tenants initiated an Article 78 proceeding challenging the constitutionality of the RSL and the HDA’s approval of the Industry Code section allowing inclusion of vacant apartments. Special Term dismissed the petition. The Appellate Division affirmed without opinion. The New York Court of Appeals reviewed the case.

Issue(s)

1. Whether section YY51-6.0(c)(9)(a) of the Rent Stabilization Law, allowing for co-operative conversion upon purchase by a minority (35%) of tenants, is unconstitutional as a denial of due process.
2. Whether the City Housing and Development Administration (HDA) acted arbitrarily in approving section 61(4)(a)(ii) of the Industry Code, which allows sponsors to include purchases of vacant apartments in calculating the 35% tenant purchase requirement.

Holding

1. No, because the RSL grants a limited right to lease renewal that tenants did not previously possess; it doesn’t arbitrarily limit a pre-existing right.
2. No, implicitly. The court found the statute constitutional, thus undermining the argument that the HDA’s interpretation was arbitrary because the interpretation was consistent with the law.

Court’s Reasoning

The court modified the order to declare the RSL provision constitutional. The court acknowledged that an Article 78 proceeding is typically not the correct vehicle to challenge the constitutionality of legislative action, but the court converted the proceeding to a declaratory judgment action. The court reasoned that the tenants’ argument failed because they did not have an unlimited right to renewal leases before the RSL. The RSL granted them a limited right, subject to the co-operative conversion exception. The court stated, “The law, thus, does not arbitrarily limit a more extensive right, but, rather, grants to tenants a limited right which they previously did not have.” Therefore, the tenants had no basis for a constitutional challenge. The court did not explicitly address the second issue regarding the HDA’s actions but implicitly affirmed its validity given its ruling on the constitutionality of the overall scheme. The court emphasized that courts should focus on whether a cause of complaint exists and mold the action accordingly, quoting Justice Hopkins: “The true question is whether a cause for complaint has been stated; the form of the action or proceeding can [then] be molded by the court”.