F. H. Smith Co. v. Verzi

VAN ORSDEL, Associate Justice. This appeal is from an order of the rent commission fixing the. rental rates on a number of apartments in the Clifton apartment house m this city. The order of the commission is challenged chiefly upon the ground that it is confiscatory and therefore void. The undisputed testimony fixed the cost of reproduction of the building at 50 cents per cubic foot, or $1,845,500. The evidence as to the value of the ground varied between $2.50 per foot and $2.75 per foot. The minimum price of $2.50 per square foot "fixes a value of $407,-762.50. Adding to this an architect’s fee of 6 per cent, on the cost of the building, $110,730, and eliminating other items in relation to expenses of placing first and second mortgages on the property, we have a valuation upon a reproductive basis of $2,363,992.50. On this tht testimony shows a gross annual rental income of $201,894, from which there should be deducted, for operating expenses insurance, taxes, commission for collection of rents, depreciation, and obsolescence, $198,-506.10 leaving a net annual income to the owner of $3,387.90. Inasmuch as these figures are not contested, and are the only evidence offered on the matter of valuation, they are binding upon us in determining the question of whether or not the rates fixed are confiscatory. The reductions made upon the 13 apartments, under consideration, varied from $5 per month to $10 per month each. If the question of whether or not the finding amounted to confiscation were a close one, we would adhere to our former ruling in Moore & Hill, Inc., v. Marshall, 52 App. D. C. 326, 286 Fed. 990, and sustain the order of the commission, on the ground that no proof had been offered showing the present market value of the property, which is the real basis upon which final determination should be made. . But deducting from the reproduction value of the building 3 per cent, annually for depreciation and 1% Per cent, annually for obsolescence, the rates established by the proof, for the period since the building was constructed, we still have a net income left so grossly inadequate to furnish a fair return that in any view of the case the [340] order establishes confiscation. We do not intimate that this method of valuation furnishes a basis which, in future proceedings with reference to this property, would be final and operate to exclude proof of present market value. It is adopted here, for the reason above stated, only in the absence of more specific proof of market value. There is another feature, however, upon which the order must be set aside. Instead of fixing the rates upon the 13 apartments adjudicated with reference to the value of the entire property in the proportion which they bear to that value, they were arbitrarily fixed with reference to the rental value of each individual apartment. The whole proceeding before the commission is so completely adverse to the rules announced, in Karrick v. Cantrill et al., 51 App. D. C. 176, 277 Fed. 578, that nothing remains for us but to vacate the order and direct a rehearing. In this case, as in others that we have considered, the rent commission made a personal inspection of the premises and so certify in their order; but no statement is made of the basis upon which they ■reached their conclusions, or anything from which the court may determine the basis of their determination. This we have held to be essential, if the commission’s investigation is to be considered in establishing a just basis o'f valuation. It further appears in the order as follows: “Prior to the bearing of said cases the rent commission fixed and determined the fair and .reasonable rents of apartments in said apartment bouse upon complaints of tenants.” Then followed a list of the 13 apartments upon which the rents were adjusted, together with a statement in each instance of the existing rental rate with the amount of reduction and the rate ordered. This is ■a remarkable proceeding. The order of the rent commission is reversed, with costs, and the cause is remanded for further proceedings not inconsistent with this ■opinion. Motion for rehearing denied June 28, 1923.