Columbus Park Corp. v. Department of Housing Preservation & Development ( 1991 )

OPINION OF THE COURT

Wallach, J.

This CPLR article 78 proceeding in the nature of mandamus is brought by a Mitchell-Lama limited-profit housing company organized in 1963, and seeks to compel respondent City of New York and its agency in charge of supervising city-sponsored Mitchell-Lama housing, respondent Department of Housing Preservation and Development, to issue a letter of no objection, an administrative permit necessary to clear the way for petitioner’s dissolution as a Mitchell-Lama company and conversion to a private housing cooperative not subject to the Mitchell-Lama Law (Private Housing Finance Law art II). Dismissing the petition, Supreme Court, although critical of respondents’ "laggard approach” and "extreme delay” in their assertion of objections to dissolution, sustained the position belatedly adopted by respondents that certain covenants contained in the original deed to petitioner created a contractual duty to maintain its public status as Mitchell-Lama housing for an additional 20-year period (149 Misc 2d 66), thus depriving petitioner of access to the benefits created by the Private Housing Finance Law. We disagree, reverse the order appealed from, and grant the petition.

Petitioner’s case is based on Private Housing Finance Law § 35 (2). Enacted in 1960, this statute entitles a Mitchell-Lama company that obtained its loan after May 1, 1959, such as petitioner, to withdraw from the Mitchell-Lama program after 20 years without the consent of the city, upon payment of the remaining balance of its mortgage. To be compared is the immediately preceding subdivision (§ 35 [1]), applicable to Mitchell-Lama companies that obtained loans prior to May 1, 1959, which allows withdrawal from the program only after 35 years and then only with the consent of the city. Clearly, the purpose of section 35 (2) was to make participation in the program more attractive to private developers by a reduction of the minimum period of participation in the program and an acceleration of the time for relief from municipal constraints (see, 2550 Olinville Ave. v Crotty, 149 Misc 2d 806, 811-812).

Given a statutory provision that explicitly denies the city the authority to prohibit petitioner’s dissolution as a Mitchell-Lama company after 20 years, it is revealing that the city’s brief mentions this decisive legislation only once, and then only in a footnote that does no more than acknowledge its existence. The city’s case is built upon certain stipulations agreed to by petitioner in the parties’ contract, the land disposition agreement (LDA), which were incorporated into the deed as covenants "running with the land”; these covenants, the city argues without reference to section 35 (2), prohibit petitioner’s dissolution as a Mitchell-Lama company for at least 40 years. The city’s argument appears to be that the covenants constituted an implied, but nonetheless legally cognizable waiver by petitioner of its statutory right to withdraw from the program after 20 years. We do not agree that the covenants on which the city relies can be read to establish such a waiver.

The covenants require petitioner and its successors and assigns, for a period of 40 years, to "devote such land to the uses specified in the Urban Renewal and Project Plans”; prohibit such land from "be[ing] used for any use other than the uses specified therefor in the Urban Renewal and Project Plans * * * or contrary to any limitations or requirements of said Plans”; and prohibit any "change[s]” in the housing project "as set forth in the Urban Renewal and Project Plans * * * without the consent of the City Planning Commission and the Board of Estimate”. The terms "uses specified in the Urban Renewal Plan” and "land use” are defined to "include the land and all building, housing, and other requirements or restrictions of the Urban Renewal Plan pertaining to such land.”

It is immediately apparent that while the meaning of the covenants must be drawn from the urban renewal and project plans, no references to any specific sections of either Plan are to be found in the covenants. This compels the city to undertake what is, in effect, a word search of the urban renewal and project plans for the term "land use” or the word "uses”. Its scan ends up by isolating a sentence of the urban renewal plan requiring that the land purchased by petitioner, designated as Parcel 16, "be used for tax-abated housing at moderate rentals or carrying charges”, in contradistinction to other residential parcels that were to be "used for public housing” or "used for full tax-paying housing”. In addition, the sentence on which the city focuses refers to Map 3, the "Redevelopment Areas Land Use Map”, depicting all of the parcels in the West Side Urban Renewal Area, and describing them as either "Public Housing”, "Tax-Abated Housing at Moderate Rentals or Carrying Charges”, "Full Tax-Paying Housing”, "Commercial”, "Public” or "Semi-Public”.

Petitioner reads the covenants to mean a 40-year commitment only to maintain the multifamily residential character of the building, and to make no changes in the building’s physical characteristics without the consent of the City Planning Commission or Board of Estimate. Thus, petitioner points out that the urban renewal plan was amended in 1979 to delete the word "used” in the sentence relied on by the city, and to substitute therefor the word "developed”, this to make clear that the land was to be developed as middle-income housing, and "used for multi-family residential purposes”, as the urban renewal plan elsewhere states, in contradistinction to the other "use” categories described in the plan—retail-commercial, general office and banking, public and semipublic. Petitioner’s reading accords with experience. It is quite common for deeds in development tracts to contain covenants prohibiting building alterations and restricting the various parcels that comprise the tract to particular, especially residential, uses (see generally, 43 NY Jur 2d, Deeds, §§ 151-223). On the other hand, it is, at best, unconventional to argue, as the city does, that a covenant running with the land was meant to restrict ownership only to persons fitting a particular socioeconomic profile. Indeed, it is doubtful whether a private agreement, as opposed to a statute, imposing such a restriction, would be enforceable (see Shelley v Kraemer, 334 US 1; Barrows v Jackson, 346 US 249). Be that as it may, here a statute does exist restricting ownership to persons of middle-income status, but for a term of only 20 years, not 40 years as urged by the city.

The urban renewal plan was a comprehensive plan of land development and improvement for a 20-block area of the Upper West Side of Manhattan. It was part of this Plan to develop Parcel 16 as a middle-income, multifamily residence, but there is simply no evidence that it was the planners’ overall conception to freeze the socioeconomic make-up of the West Side for 40 years. It is not as if every parcel comprising the renewal area contained similar 40-year covenants. Nor is it as if petitioner received any specific benefit or consideration in exchange for relinquishing its right to withdraw from the program after 20 years.

It is well settled that the policy of the law is to favor the free and unobstructed use of realty, and that covenants restricting the use of property are strictly construed against those seeking to enforce them; furthermore the required level of proof for enforcement is the clear and convincing, as opposed to a mere preponderance, standard (Huggins v Castle Estates, 36 NY2d 427, 430). Moreover, a waiver, by definition, is the intentional relinquishment of a known right—it must be clear, unequivocal and deliberate (City of New York v State of New York, 40 NY2d 659, 669; Matter of Civil Serv. Employees Assn. v Newman, 88 AD2d 685-686, affd 61 NY2d 1001). The covenants here, drafted by the city, and subject to the familiar construction rule of contra proferentem, must be characterized as something less than clear, what with their blanket incorporation of the urban renewal and project plans without specific crossreferences, and their nonlimiting definitions of the terms "uses specified in the Urban Renewal Plan” and "land use”. This is not to suggest that the only way to have effected a waiver of the time limitation set forth in Private Housing Finance Law § 35 (2) would have been to state specifically that it was being waived; but surely, had the parties intended a change from the statutory scheme as significant as that urged by the city, language more explicitly indicating that petitioner was to remain in the Mitchell-Lama program for 40 years would have been used. "[Wjhere the language used in a restrictive covenant is equally capable of two interpretations, the less restrictive interpretation must be adopted” (Sunrise Plaza Assocs. v International Summit Equities Corp., 152 AD2d 561). All of the references to the Mitchell-Lama Law found in the LDA, and there are many, do not in any manner limit the applicability of that law, and thus can only be read to acknowledge and incorporate the part of it which gives petitioner the right to dissolve after 20 years.

Two other circumstances point to the conclusion that petitioner did not waive its statutory right to withdraw from the Mitchell-Lama program after 20 years. First, petitioner’s exemption from municipal real estate taxes was originally approved for a period of no longer than 30 years, after which there would have been no incentive for it to remain a Mitchell-Lama company. While it is true that in 1978 petitioner’s tax exemption was extended to a maximum of 50 years, that circumstance could hardly affect the meaning of the covenant language as the parties understood it 14 years earlier when the LDA was signed. Petitioner also points out that under 42 USC § 1452 (a), the maximum period of time that its mortgage could be outstanding was 40 years; thus, petitioner appropriately urges that the 40-year period was included in the LDA not to conform with the over-all land development scheme laid out in the urban renewal plan, but rather "to conform with the Capital Grant Contract and for the purpose of ensuring the repayment of the borrowed moneys.”

Second, respondents at first endorsed petitioner’s proposed conversion to private ownership, and did not change their position until very late in the process, virtually "on the brink of closing”, the "thirteenth hour”, as petitioner puts it. This long period of acquiescence, during which petitioner busily prepared its red herring and offering plan, obtained a bank commitment, and secured the support and votes of 92% of the owner occupants (nonpurchasers are to be covered by the Rent Stabilization Law), itself renders respondents’ expansive reading of the covenants suspect.

Finally, we would suggest that the city’s speculations as to the windfall profits which may accrue to petitioner’s benefit if its petition is granted are of little or no relevance to the merits of the controversy. For example, the reference to the $405,000 value of the two highest priced apartments in petitioner’s "red herring” (uncritically adopted by the dissent) bears no relation to present realities. That valuation is expressly dependent upon the qualification of the new condominium corporation under section 216 of the Internal Revenue Code (26 USC). It is undisputed that currently such qualification is unavailable, inasmuch as more than 20% of the condo’s income will be derived from nonshareholder sources such as commercial rents. Accordingly, the purchase price (and presumed value) of these two apartments in the table, applicable under these circumstances (where the shareholders do not qualify for the usual cooperative maintenance tax deductions), is under $200,000.

Furthermore, a feature of this plan of dissolution includes the right of any present shareholder in the Mitchell-Lama corporation to a statutory appraisal of his shares under the Business Corporation Law (§ 623). If real estate market conditions do present a windfall opportunity, it may eventuate that this will accrue to individual apartment tenants now in place. It may also be worth noting that this plan also includes a high flip tax, obviously to discourage profiteering.

Accordingly, the order and judgment (one paper) of Supreme Court, New York County (Bruce McM. Wright, J.), entered on December 12, 1990, which dismissed the petition, is reversed, on the law, and the petition granted, without costs.