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03/23/78 LOUVILLE F. NILES & ANOTHER v. BOSTON RENT

March 23, 1978

LOUVILLE F. NILES & ANOTHER, TRUSTEES, & ANOTHER
v.
BOSTON RENT CONTROL ADMINISTRATOR & OTHERS (AND A COMPANION CASE *FN1



Suffolk. Two civil actions commenced in the Housing Court of the City of Boston on October 1, 1975, and December 4, 1975, respectively. The cases were heard by Daher, J.

Hale, C.j., Armstrong, & Brown, JJ.

SYLLABUS BY THE COURT

Rent Control. Boston. Municipal Corporations, Rent control. Jurisdiction, Rent control. Administrative Officer. Practice, Civil, Appeal. Words, "Fair net operating income."

The opinion of the court was delivered by: Brown

Discussion of the standard of judicial review applicable to rent control determinations. [140-141]

Neither St. 1970, c. 842, nor the Federal or State Constitution requires that rents be determined on the basis of a reasonable return on the fair market value of the property; the correct standard is "fair net operating income" or "fair return on investment." [141-146]

In a proceeding for review of a decision of the Boston rent control administrator an owner failed to establish that a rent adjustment did not provide a fair net operating income. [146-147]

A rent adjustment by the Boston rent control administrator made on the basis of a reasonable return on the fair market value of the property in question was invalid for failure of the administrator to comply with a regulation adopted by him under the authority of St. 1970, c. 872, § 5; the return on value standard could not be upheld as an interpretive gloss on the administrative regulation where the interpretation had been adopted merely as the administrative response to a lower court decision later held to be invalid. [148-150]

In a rent adjustment proceeding by the Boston rent control administrator, the administrator's decision to waive one of his own procedural regulations by dispensing with the requirement of certain financial information from the property owner was not subject to judicial review, where the tenants were not deprived thereby of any due process or other rights. [150]

Where the governing statute set no period within which appeals from decisions of the Boston rent control administrator must be filed the administrator was without authority to fix such a period by regulation, and the time allowed is a "reasonable time . . . determined from the facts and circumstances" of each case; a petition for review filed by tenants twenty-nine days after notice of the administrator's decision was timely. [151]

In a proceeding for review of a decision by the Boston rent control administrator, questions fully litigated in the Housing Court without objection by the owners were properly before this court on appeal, notwithstanding the tenants' failure to raise them at the hearing before the administrator. [151-152]

These cases arise out of two rent adjustments ordered by the Boston rent control administrator (administrator) in August, 1975, and November, 1975, respectively, for Westbrook Village, an apartment complex.

The August, 1975, adjustment increased the rents at Westbrook Village to a gross maximum level of $946,236 annually. The tenants appealed from that decision to the Housing Court of the City of Boston, arguing that the administrator had not followed his own regulations. A Judge of the Housing Court upheld that adjustment, and the trustees (owner) and the tenants now appeal from the judgment.

In November, 1975, the administrator ordered the gross maximum annual rent for Westbrook Village reduced to $796,392, following his receipt of information (1) that the real estate taxes on a vacant adjacent parcel of land had been included in the operating expenses of the apartment complex which the administrator had considered in arriving at his August adjustment, and (2) that the owner had received substantial real estate tax abatements. The owner appealed to the Housing Court, the gravamen of its complaint being that the November adjustment did not permit it a fair return on the fair market value of its property and that such a return is required by St. 1970, c. 842, and the Constitutions of both the Commonwealth and the United States. The Housing Court Judge found the administrator's decision to be null and void. The administrator and the tenants appealed from that judgment. The owner filed a cross appeal.

As the appeals raise questions concerning the methods used by the administrator to adjust rents, we shall first describe the procedures followed by the administrator in setting rents. We shall then discuss the two appeals separately, dealing first with the November adjustment and then with the August adjustment.

The rent control statute, St. 1970, c. 842, § 6, rolled rents for controlled units *fn2 back to the rents charged six months prior to the acceptance of the act by the municipality, except where rents had been adjusted under prior rent control acts. *fn3 It further provided that the administrator or board should make such adjustments of those rents as might be necessary to assure that rents would be set at levels which would yield a "fair net operating income" to owners. Chapter 842, § 7(b), set out various factors which were to be considered, among others, in determining whether a rent level would provide a "fair net operating income."

Boston rent control administration Regulation 6, adopted by the administrator pursuant to authority under c. 842, § 5, sets out the procedure to be used in adjusting rents. Regulation 6 provides essentially a cost pass-through method for determining rents. Section 5 of Regulation 6 sets out the specific presumption that rents charged for December, 1971, yielded a fair net operating income. This presumption may be overcome by evidence tending to show that the rents charged for December, 1971, yielded more or less than a fair net operating income. Section 4 of Regulation 6 sets out various factors which are then to be considered in adjusting rents. These factors parallel those set out in c. 842, § 7(b).

In addition to the calculation under Regulation 6, the administrator began the practice, following a decision by the Housing Court of the City of Boston requiring a fair return on fair market value, *fn4 of also performing an analysis based on that standard as a check on the other calculation, on the theory that a fair return on fair market value is required by c. 842's requirement of a fair net ...


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