In re Alibel Corp. , 136 N.Y.S.2d 344 ( 1954 )

Callahan, J.

(dissenting in part). The only question on this appeal is whether an examination before trial as to income received and expenses paid by the landlord should be limited to the period prior to the return date of a petition for a rent increase in business property.

The petition alleged increased expenses for the year ensuing the date of application. Landlord later sought to withdraw that allegation.

Examination before trial has been ordered as to both income and expenses subsequent to the date of application.

In my opinion the examination at least as to income should be limited to sums received up to the date of the application.

The statutory scheme (see Business Rent Law, § 4, subd. 1; L. 1945, ch. 314, as amd. by L. 1954, ch. 447) contemplates the fixation of reasonable rents as of the date of application rather than the date of trial (Matter of Flatto [Sandler], 279 App. Div. 714; Matter of 161 Columbus Ave. Corp. [Varob], 279 App. Div. 1002; Matter of Cara Realty Corp. [Katz], 282 App. Div. 700).

An 8% return is allowed after meeting the costs of maintenance and operation of the property, including taxes. The statute calls for the service of a bill of particulars setting forth the income from the property during the preceding year, including the rental charged each tenant. The bill must also set forth the costs of maintenance and operation of the building or other rental area during the preceding year.

While the statute does not require the court to accept the precise sums spent in the prior year, actual experience must be given great weight. The amounts expended must be given due consideration where not unreasonable, arbitrary or capricious. Due consideration may also be given to nonrecurring items and an appropriate apportionment made (Schack v. Handel, 271 App. Div. 1).

Because expense items are subject to the considerations thus indicated, proof is sometimes admissible as to subsequent expenses insofar as the same may throw light on these matters.

Income, however, has less flexibility. Actual income at the date of application computed on a yearly basis would control (Matter of Court Square Bldg. v. City of New York, 298 N. Y. 380, 388). Exception might be made, if it appear that the landlord designedly avoided obtaining higher income or charged less than the fair value for self-occupied space. Bent received after the date of application would throw no light on these issues of genuineness with respect to income. Therefore, there is no need nor would it be proper to inquire into the subsequent rents by examination before trial.

If subsequent income could be considered on an application like the present, it might well be that a petition for an increase would be denied because some tenants, after the return date of the petition, voluntarily paid increased rents. Such a denial would be wholly unjustified. Therefore, it would only tend to confuse the issues to examine into subsequent receipts, which are not material or necessary.

Cases such as Matter of Stabler (Knox Studios) (275 App. Div. 799) which involved expense fixed and becoming a charge before the return date of the petition, are not relevant. In fact, none of the cases cited by the majority appear to relate to examinations before trial, and none expressly hold that subsequent income is material to a determination fixing a rent increase. Thus, Matter of Cara Realty Corp. (Katz) (282 App. Div. 700, supra) and Matter of Fifth Madison Corp. (Gilden) (276 App. Div. 831, affd. 301 N. Y. 722) both held that income is to be determined as of the date' of the commencement of the proceeding. In Matter of Court & Remsen Bldg. Corp. (Arthur Arnow, Inc.) (280 App. Div. 793) the Appellate Division, Second Department, merely held that neither party was aggrieved so as to warrant reversal on appeal where proof had been received of subsequent income and expense, and one offset the other.

If examinations before trial are to be approved in rent increase applications, which are intended to lie summary in nature, at least they should be limited to matters material and necessary to the issues involved (Civ. Prac. Act, § 288).

I vote to modify the order appealed from to limit the examination as to income to the date of application for an increase.

Peck, P. J., and Botein, J., concur with Breitel, J.; Callahan, J., dissents in part, in opinion in which Cohn, J., concurs.

Order affirmed, with $20 costs and disbursements to the respondents. The date for the examination to proceed shall be fixed in the order which, of course, xvill proceed in accordance with the opinion herein. Settle order on notice.