Landlord Can't Earn 8 1/2% of Property's Assessed Value

(Decision submitted by Bruce Levinson of the Manhattan law firm of Rubin, Kalnick & Bailin, P.C., attorneys for the landlord.) Facts: Landlord applied to the DHCR for a certificate of eviction for two rent-controlled tenants, based on undue hardship. Landlord claimed that there was no reasonable possibility that she could realize a net annual return of 8 1/2 percent of the assessed value of the building without evicting these tenants. Landlord had bought the two-apartment building in 1982. She lived in one apartment with her handicapped son. Tenants, both 65 years old, had lived in the second apartment since 1947. Tenants' monthly rent of $45 hadn't been increased since 1955, perhaps because their relatives owned the building before landlord. The DHCR denied landlord's application. In calculating the possible return landlord could get on the building, the DHCR assigned a rental value to the apartment that landlord occupied. It also assigned a higher value to tenants' apartment, claiming that landlord could have collected a higher rent if she'd applied for MBR increases over the years. Landlord appealed, claiming that the DHCR's calculation of building income and expenses was arbitrary. Court: The DHCR acted arbitrarily; landlord couldn't possibly have earned an 8 1/2 percent return under normal operating conditions. Although the DHCR was correct in assigning rental values to the two apartments, the DHCR also should have assigned expense values to the apartments. And the DHCR didn't include landlord's mortgage payments in its calculations. The court sent the case back to the DHCR for a prompt determination of whether landlord or prior owner had financially mismanaged the building.

Lopez v. NYS DHCR: Index No. 29422/92 (4/30/93) (Sup. Ct. Kings; Dowd, J) [21-page document]