
    In the Matter of West 90th Street Associates, Petitioner, v. Frederic S. Berman, as Rent and Rehabilitation Administrator of the City of New York, Respondent.
    Supreme Court, Special Term, New York County,
    November 28, 1967.
    
      Fribourg & Fribourg for petitioner. Maurice A. Reichman and Florence R. Zimmerman for respondent.
   Charles G. Tierney, J.

This is a proceeding pursuant to article 78 of the CPLR to review a determination of the City Rent and Rehabilitation Administration which granted in part petitioner’s application for a rent increase pursuant to the 6% net return provision of the rent law.

The issue involved herein is similar in substance to another proceeding before this court between these parties, i.e., whether respondent had any reasonable basis for reducing the valuation base of the property in arriving at the amount of rent increase warranted under the law.

Respondent’s reason herein for computing the valuation base complained of was the fact that petitioner’s predecessor in title acquired the premises for $410,000, part of which price was secured hy a second mortgage of $103,675.00 which the seller simultaneously sold at a discount of $23,675 to a group of investors. Respondent reasons, therefore, that selling the second mortgage for a discount warrants the conclusion that the purchase price was initially inflated and thus the valuation base for purposes of an increase should be reduced by that amount. As indicated in the opinion in the companion proceeding, this argument is supported neither by logic nor by evidence before respondent. This court is not altogether unmindful of the custom and practice in the field of mortgage financing whereby purchasers of second mortgages will not undertake such purchase without obtaining a substantial discount. The holders of such mortgages also receive a consideration in that they do not have to wait for their money for the entire duration of the mortgage period. In addition, the acceptance of a lesser sum than the face value of the mortgage could occur for any number of valid reasons, which have nothing to do with the value of the property as reflected in the purchase price vis-a-vis this petitioner. Since respondent had no evidence before him upon which to reach the conclusion he did, his determination must be considered arbitrary, capricious, unreasonable and contrary to law.

Accordingly the application is granted and the proceeding remanded to respondent with a direction to compute the increases on a valuation base of $410,000.  