
    In the Matter of Warren Ackerman et al., Respondents, against Robert C. Weaver, as State Rent Administrator, et al., Appellants. In the Matter of Realty Management, Inc., Appellant, against Robert C. Weaver, as State Rent Administrator, Respondent, and Warren Ackerman et al., Intervenors-Respondents.
    Argued May 14, 1959;
    decided July 8, 1959.
    
      
      Jacob B. Ward and Nathan Keller for Robert C. Weaver, appellant in the first above-entitled proceeding.
    I. The commission’s grant of rent adjustments in the case at bar conformed with the purpose and intent of the act and regulations. (Matter of Cozzi v. McGoldrick, 307 N. Y. 748, 283 App. Div. 702; Matter of Florell Equities v. Weaver, 2 A D 2d 542, 2 N Y 2d 982; Matter of De Varco v. McGoldrick, 281 App. Div. 955.) II. Calculation of allowable net annual return on sale price valuation base was neither arbitrary nor capricious. (Matter of Kaufmann v. Abrams, 286 App. Div. 998.) III. The commission properly held applicant eligible for the relief afforded by the 6% net annual return provision. IV. The Administrator’s determination that the rent adjustment granted must be effective as of the Local Rent Administrator’s erroneous denial of landlord’s application was entirely proper and in accord with settled case law. (Levy v. 1165 Park Ave. Corp., 305 N. Y. 607; Matter of Neulist v. Weaver, 2 A D 2d 530, 2 N Y 2d 889; Matter of Linsky v. Weaver, 2 A D 2d 837.)
    
      Orrin G. Judd, Robert 8. Fougner, Eugene J. Morris and Christopher J. Taylor for Realty Management, Inc., appellant in both proceedings.
    I. The landlord of property is entitled to a 6% return on the valuation as determined by a bona fide sale, whether the landlord be a lessee or an owner. (Matter of Wile v. McGoldrick, 286 App. Div. 826; Matter of Florell Equities v. Weaver, 2 N Y 2d 982; Wasservogel v. Meyerowitz, 300 N. Y. 125; Matter of De Varco v. McGoldrick, 281 App. Div. 955; Matter of Mara v. McGoldrick, 307 N. Y. 856; Matter of Kaufmann v. Abrams, 286 App. Div. 998; Matter of 340 East 57th St. Corp. v. Weaver, 3 Misc 2d 356, 2 A D 2d 678, 2 N Y 2d 799; Matter of Palley v. Temporary State Housing Rent Comm., 1 A D 2d 877; Gilligan v. Tishman Realty & Constr. Co., 306 N. Y. 974.) II. The commission erred in refusing to allow management costs at owner-management rates. III. There is no merit to respondents’ contention that the landlord failed to maintain essential services. (Matter of Kerbs v. State Rent Administrator, 7 A D 2d 839.)
    
      Lewis M. Isaacs, Jr., and Murray Schwarts for respondents in the first above-entitled proceeding and for intervenorsrespondents in the second above-entitled proceeding.
    I. The Appellate Division properly held that a lessee “as circumstanced here ” may not procure a rent increase based on sale price paid for the fee by another long after the lease was made. (Matter of Kaplan v. McGoldrick, 198 Misc. 440; Matter of De Varco v. Temporary State Rent Comm., 281 App. Div. 955; Matter of Abrams v. McGoldrick, 282 App. Div. 192; Matter of Davis v. McGoldrick, 3 Misc 2d 830; Matter of Monk v. Finkelstein, 194 Misc. 241, 275 App. Div. 905, 302 N. Y. 575; Matter of First Terrace Gardens v. McGoldrick, 1 N Y 2d 1; Matter of Cupo v. McGoldrick, 278 App. Div. 108.) II. Even if a lessee were entitled to rely on sale price, sale price here, because of the special circumstances existing at the time, did not reflect the value of the property and should not be used as a basis for calculating rents. (Matter of Arnold, 114 App. Div. 244; People ex rel. Stewart v. Feitner, 95 App. Div. 481; People ex rel. Four Park Ave. Corp. v. Lilly, 267 App. Div. 102; Matter of Empire State Bldg. Corp. v. Boyland, 1 Misc 2d 518, 1 A D 2d 770; People ex rel. Phipps Estate v. Mills, 277 App. Div. 1105.) III. If the Administrator erred in finding that lessee could not net $75,000 in six months, then his finding that the property returned only $93,000 was necessarily erroneous too. IV. Even if an increase in rents were allowable it should not have been ordered effective to a date earlier than the one on which the Administrator found essential services to have been restored. (Matter of Macan Estates v. McGoldrick, 281 App. Div. 810, 305 N. Y. 876; Levy v. 1165 Park Ave. Corp., 305 N. Y. 607; Matter of Neulist v. Weaver, 2 N Y 2d 889; Matter of Linsky v. Weaver, 2 A D 2d 837.) V. An application for a rent increase filed “blind” by an agent for an undisclosed principal three times identified differently is in any case defective and should have been denied forthwith. VI. There was no error in refusing to include the excess management fees and legal expenses requested by Realty.
    
      Jacob B. Ward and Nathan Heller for respondent in the second above-entitled proceeding.
    I. Appellant is not before this court pursuant to any of the provisions of section 588 of the Civil Practice Act. Its appeal as of right should not lie. II. The Administrator properly limited the management expense allowance to the costs actually incurred by the lessee-operator of the property.
   Feoessel, J.

We disagree with the Appellate Division that the appellant as agent for the landlord may not obtain a rent increase on the ground that the rental income from the property yields a net annual return of less than 6% of the valuation of the property (State Residential Rent Law [L. 1946, ch. 274, as amd.], § 4, subd. 4, par. [a], cl. [1]; State Rent and Eviction Regulations, § 33, subd. 5). The fact that the property is being operated under a lease by which the owner derives from its lessee greater than a 6% return is not material.

It is undisputed that the property itself — to which the statute refers — is earning less than such percentage. The statute contemplates that tenants will be required to pay a reasonable rent. It does not intend them to benefit from an advantageous arrangement which the owner makes with a lessee (Matter of Wile v. McGoldrick, 286 App. Div. 826, motion for leave to appeal denied 309 N. Y. 1033). We find no statutory requirement that an applicant for a rent increase must have invested capital in the property, nor do we think there is any warrant for reading such a requirement into the statute.

Placing the statute in its proper perspective, it is clear that the Rent Administrator properly used the bona fide sale price as a basis for valuation, notwithstanding that the lessee was not a party to such sale. In mandating the use of bona fide sale price, the Legislature was not concerned with questions of investment, but simply recognized that such price provided “ a more accurate reflection of value” (L. 1957, ch. 755; N. Y. Legis. Annual, 1957, p. 264). Nor does the existence of the cancelable lease here constitute a “ special circumstance ” under the statute which would require the Rent Administrator to disregard the sale price.

With regard to the question of essential services, the Rent Administrator determined in accordance with the applicable statute (State Residential Rent Law, § 4, subd. 4, par. [d]) that the landlord was maintaining essential services “as of the date of the issuance of the order adjusting the maximum rent ”, and granted an increase effective as of the date of the local administrator’s erroneous order (Matter of Neulist v. Weaver, 2 N Y 2d 889). While he no doubt has discretion to deny retroactivity in a case where services were seriously deficient, this was not such a case, as his findings indicate.

In the landlord’s proceeding, the court, on its own motion, dismisses the landlord’s appeal upon the ground that it may not be taken as of right. We treat its application, however, as a motion for leave to appeal, as requested by the landlord, and, as so treated, deny the motion.

The order appealed from in the tenants’ proceeding should be reversed, without costs, and the order of Special Term reinstated. The appeal by the landlord as of right in its proceeding should be dismissed. Treating the landlord’s application as a motion for leave to appeal, the motion should be denied, without costs. (See 6 N Y 2d 707, 885.)

Desmond, J. (dissenting).

I dissent and vote to affirm. The amendment here construed (State Residential Rent Law [L. 1946, ch. 274, as amd.], § 4, subd. 4, par. [a]) had — and could have—no purpose except to provide to the property owner a net 6% return on the fair value of his ownership interest. This property, however, is being operated under a whole-building lease which concededly gives the owner more than that 6% return. Thus, the whole purpose of the statute has already been satisfied. Any increase of the rents paid by the apartment tenants to the lessee of the building will give the latter a windfall, based on a purely literal construction of the words of the statute — an application which is at war with the legislative purpose.

Chief Judge Conway and Judges Van Voobhis and Bubke concur with Judge Fboessel; Judge Desmond dissents in an opinion in which Judge Dye concurs; Judge Fuld taking no part.

Order reversed, without costs, and matter remitted to Special Term for further proceedings in accordance with the opinion herein.  