New York Law Review

Tag: subsidized housing

  • Walton v. New York State Urban Development Corporation, 33 N.Y.2d 13 (1973): State Action Doctrine and Tenant Rights

    Walton v. New York State Urban Development Corporation, 33 N.Y.2d 13 (1973)

    When a state agency is significantly involved in a private housing project by leasing apartments and subleasing them to low-income tenants with rental subsidies, the agency’s refusal to renew a tenant’s sublease constitutes state action and cannot be arbitrary or capricious, requiring the tenant to be afforded a hearing.

    Summary

    This case addresses the extent to which a state agency’s actions in a state-assisted private housing project are subject to due process requirements. The New York State Housing Finance Agency leased apartments in a private project and subleased them to low-income tenants like the Waltons, subsidizing their rent. When the agency refused to renew the Waltons’ sublease, they challenged the decision. The Court of Appeals held that the agency’s significant involvement in the project made its refusal a state action, requiring a rational basis and a hearing for the tenant to address the reasons for the denial.

    Facts

    The New York State Housing Finance Agency (the “Agency”) leased 20% of the apartments in a private housing project built under the Mitchell-Lama Act. The Agency then subleased these apartments to low-income tenants at reduced rents. The Agency subsidized the difference between the market rent and the reduced rent paid by the subtenants. The Waltons were subtenants whose three-year sublease was not renewed by the Agency. The Agency stated the non-renewal was at the request of the project owner, but gave no further explanation.

    Procedural History

    The tenants initiated a proceeding challenging the agency’s refusal to renew their sublease. The lower courts upheld the agency’s decision. The case reached the New York Court of Appeals, which reversed the lower court’s decision and remanded the case to the agency for a hearing.

    Issue(s)

    Whether a state agency’s refusal to renew a sublease in a state-assisted private housing project constitutes state action, thereby requiring the agency to provide a rational basis for its decision and afford the tenant a hearing.

    Holding

    Yes, because the State’s involvement in the housing project, through the Agency’s leasing and subleasing activities coupled with rental subsidies, is so intertwined with the project that the Agency’s decision not to renew the sublease constitutes state action and cannot be arbitrary or capricious. Therefore, the tenants are entitled to a hearing.

    Court’s Reasoning

    The court reasoned that the State’s involvement in the housing project was so pervasive that the Agency’s decision not to renew the sublease constituted state action. The court emphasized that the Agency was the direct lessor of the tenants, and the tenants were entitled to the same protections as other individuals subject to State action. The court stated, “It is well established that State action in connection with the granting or withholding of services or interests, even if normally extended by private enterprises not subject to regulation, may not be exercised arbitrarily.” The court distinguished this situation from cases involving direct rentals from the project owner, where the tenants’ rights might be different. The court relied on Burton v. Wilmington Parking Auth. (365 U. S. 715, 725), noting that State action can be found even where direct State operation is not involved but only supportive or interrelated State action is present. The court found the “ingredients of State action are remarkable and multiple, indeed overwhelming” because the State leases the apartments, sets the petitioners’ rent, and makes up the difference between the petitioners’ rent and the State’s. Consequently, the court held that the agency must provide a rational basis for its decision and afford the tenants a limited hearing to explain or negate the purported cause for denial, emphasizing the limited scope of the hearing, requiring only an opportunity to deny or explain.

  • 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.”