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SARGO v. CITY OF PHILADELPHIA

UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF PENNSYLVANIA, CIVIL DIVISION


February 11, 1980

SARGO, II, INC. t/a The Dorchester on Rittenhouse Square Partners
v.
The CITY OF PHILADELPHIA

The opinion of the court was delivered by: MCGLYNN

MEMORANDUM OF DECISION

This diversity action for the first time requires a court to interpret the recently adopted condominium conversion ordinance of the City of Philadelphia, Title 9 Chapter 9-1200 et seq. The controversy arises out of the refusal of the City to issue use permits and certificates to any owner wishing to sell condominium units unless that owner certifies that he has complied with the condominium conversion ordinance. Since under 21 P.S. § 611 et seq. a use permit must be obtained before selling real property in Pennsylvania, the City's refusal to issue permits may prevent the sale of condominium units or create a substantial cloud on the title. If an owner has not given notice of conversion to his tenants pursuant to the Ordinance, he will not receive the use permits needed to sell the units. In this suit the owner of The Dorchester, a property located at 226 West Rittenhouse Square in Philadelphia, seeks a declaration that the Ordinance may not be enforced against it and that the permits should be issued. In an order dated February 1, 1980, I held that § 9-1204 of the Ordinance applies to the conversion of The Dorchester. This memorandum provides the factual basis and reasons for that order.

 In addition to raising various state and federal grounds, plaintiff contends that because the declaration submitting The Dorchester to the provisions of the Unit Property Act, 68 P.S. § 700.101 et seq., was recorded prior to enactment of the City Ordinance, the Ordinance does not apply to The Dorchester. *fn1" The City asserts that The Dorchester must comply with the provisions of § 9-1204 regulating unfair conversion practices since that part of the Ordinance was pending when the declaration was filed, and no license has yet been issued. The City does not seek to enforce the moratorium provisions of the Ordinance, § 9-1206. Because The Dorchester had already commenced its sales promotion program and thus desired prompt resolution of the dispute, the court agreed to consider initially the limited question of whether § 9-1204, establishing inter alia, the contents of the notice to be sent to the tenants, could be applied to The Dorchester. The parties agreed that if this issue was decided adversely to plaintiff, the court would subsequently consider the other grounds.

 A.

 Plaintiff asserts that the language of § 9-1204 reveals City Council's intention to apply its provisions only to buildings which had not converted to condominiums prior to enactment of the Ordinance on September 27, 1979. Section 9-1204(1)(a) provides that the conversion shall be unlawful unless the tenant has been notified in writing "of the owner's intention to convert to a condominium by a date certain specified therein, which notice shall be delivered one year prior to the date of the scheduled conversion." According to plaintiff, conversion occurs with the recording of the declaration pursuant to the Unit Property Act. Under this view, "the owner of a previously converted condominium cannot give prior notice of an intention to convert when conversion already has been accomplished." Plaintiff's Memorandum of Law at 10-11 (emphasis in original). Although plaintiff recognizes that the "pending ordinance doctrine" may at times deny any benefit to a party who rushed to procure a permit before an anticipated change in the law occurred, it would confine that doctrine to zoning laws. The City, on the other hand, disagrees with plaintiff's view of the intent of the Council, and would extend the pending ordinance doctrine to condominium conversion requirements.

  Developed to restrict the ability of property owners to commence non-conforming uses while amendments to zoning ordinances were pending, the pending ordinance doctrine prohibits a property owner from hastily procuring a valid building permit prior to the enactment of the ordinance. "(A) building permit may be refused if at the time of application there is pending an amendment to a zoning ordinance which would prohibit the use of the land for which the permit is sought." Boron Oil Co. v. Kimple, 445 Pa. 327, 329, 284 A.2d 744, 746 (1971) (citations omitted). Moreover, even a validly issued building permit may be revoked in the interest of fairness when the landowner raced to obtain the permit before a proposed change was made in the zoning ordinance. Penn Township v. Yecko Brothers, 420 Pa. 386, 217 A.2d 171, cert. denied, 385 U.S. 826, 87 S. Ct. 60, 17 L. Ed. 2d 63 (1966).

 Because the Supreme Court of Pennsylvania has not addressed the question of whether the pending ordinance doctrine applies to ordinances other than zoning, in this diversity action we can only attempt to predict how the Supreme Court of Pennsylvania would rule if confronted with the issue. Most probably, the doctrine would apply.

 First, the state legislature has established a similar enforcement mechanism, i. e., the use permit procedure, to insure compliance with both zoning and housing ordinances. The use permits verify "the zoning classification and the legality of the existing use of the property to be sold", 21 P.S. § 613(a), as well as "whether there exists any notice of an uncorrected violation of housing, building, safety or fire ordinances." 21 P.S. § 613(b). The state legislature thus revealed the strong public interest in a seller's compliance with these ordinances. The pending ordinance doctrine is partly based on a balance between the interest of a municipality in effecting a change in its zoning laws and the interest of the individual property owner in being free from lengthy restraints upon the use of his property. See Boron Oil, 445 Pa. at 332, 284 A.2d 744 (determining when an ordinance becomes pending). The similar municipal interests in zoning and housing and the comparable enforcement mechanism support a similar policy balance and an extension of the pending ordinance doctrine.

 Secondly, the process required to enact or change zoning or condominium ordinances can be lengthy and in both cases substantial and permanent injury to the public interest may occur in the interim. Just as racing to establish a nonconforming prior use may permanently hamper control of land use, so racing to convert to a condominium may frustrate attempts to prevent rapid displacement of tenants or ill-considered decisions to purchase. If a building owner could avoid the provisions of a new condominium ordinance simply by filing a declaration in anticipation of the change, the City Council's attempt to minimize the subsequent dislocation would be futile. Both condominium and zoning ordinances would be furthered by limiting a landowner's ability to change his position in anticipation of the passage of the ordinance.

 Finally, because plaintiff seeks equitable relief the court must determine if it has acted fairly. The criteria established under the pending ordinance doctrine expressly relate to the fairness of the landowner's activity in seeking to avoid application of a pending ordinance. Thus, they seem to be the standards a Pennsylvania court would most likely employ. *fn2"

  Having decided that the present case falls within the scope of the pending ordinance doctrine, we now must explore whether in light of that doctrine § 9-1204 of the Ordinance applies to The Dorchester. In our prior discussion we found that the ordinance when read in conjunction with the pre-existing use permit certification procedure imposed an approval requirement for condominium conversions similar to a zoning permit. In deciding prior to the time of sale whether to issue the use permit, the City must determine whether the Ordinance's notice requirements have been satisfied. Under the pending ordinance doctrine, the approval may be denied on the basis of the law pending at the time the declaration was recorded. See Boron Oil Co., supra. Even if we deem the date of the request for approval to be the time of the filing of the declaration, the condominium ordinance was pending and its requirements must therefore be satisfied. *fn3"

 Putting aside the application for a use permit, we focus upon another line of cases under the pending ordinance doctrine pertaining to reliance on a validly issued building permit. Plaintiff contends that filing the condominium declaration was the crucial event with no other approval required. Assuming arguendo that filing the declaration is the equivalent of obtaining a building permit, plaintiff still cannot meet the doctrine's requirements. In Penn Township v. Yecko Brothers, 420 Pa. 386, 390-91, 217 A.2d 171, cert. denied, 385 U.S. 826, 87 S. Ct. 60, 17 L. Ed. 2d 63 (1966), the Supreme Court of Pennsylvania ruled that a property owner has a vested right in a building permit only if the following conditions are satisfied:

 

(1) that he has obtained a valid building permit under the old zoning ordinance, (2) that he got it in good faith that is to say without "racing" to get it before a proposed change was made in the zoning ordinance and (3) that in good faith he spent money or incurred liabilities in reliance on his building permit . . . .

 The second part of the rule is plaintiff's chief obstacle. As part of the agreement of sale for The Dorchester, plaintiff (the purchaser) required the seller to file the declaration submitting the property to the Unit Property Act. The Agreement forbid plaintiff from selling any units prior to settlement. Since immediate sale of units was not contemplated, we infer from this sequence of events that the prime reason plaintiff required the prior owner to file the declaration was to obtain the benefits of the filing before the pending ordinance passed City Council. This is precisely the "race" that the pending ordinance doctrine was designed to avoid. Consequently, the law to be applied is the City Council ordinance pending at the time the declaration was filed.

 B.

 Although the parties have framed the issue as the retrospective application of the Ordinance, when the Ordinance is closely scrutinized, many of its requirements have prospective application to The Dorchester. Plaintiff contends that the retrospectivity question arises because the Ordinance requires that notice be given "one year prior to the date of the scheduled conversion." But "conversion" is not defined in the Ordinance or in the Unit Property Act. *fn4" Even if we assume that recording the declaration converts the property to a condominium under the Unit Property Act, we are unconvinced upon review of the Ordinance that "conversion" was meant in this technical sense. Indeed, the provisions of the notice requirement itself relate primarily to the sale of units rather than to the filing of the declaration.

 For example, at this time the chief dispute between the City and plaintiff concerns compliance with § 9-1204(1)(b) which states as follows:

 

It shall be unlawful for any owner . . . to convert said premises to a condominium . . . unless . . . (b) the notice of intention to convert contains a statement informing the tenant then in possession of his or her exclusive right to purchase their unit at a specified price during the first 6 months of the notice period. During the right-to-purchase period, the owner or his agent cannot show the unit to other prospective buyers unless the tenant has in writing waived the right to purchase.

 Interpreting this provision to require that the tenant's right to purchase his unit commences one year before the property may be submitted to the provisions of the Unit Property Act would be anomalous. The owner's right to convey units in a building is based upon the enabling statute (the Unit Property Act) and cannot precede the recording of the declaration. *fn5" A "right to purchase" period cannot predate the right to convey units. Thus the Ordinance's language itself provides some evidence that City Council sought to regulate the sale of units rather than the submission of the property to the Act. *fn6"

 When the statutory language is susceptible to differing interpretations, the purposes of the statute may provide guidance. See 1 Pa.C.S.A. § 1921 (1979 Supp.). That the sale of units rather than the recordation of the declaration was the subject of legislative concern is apparent from the legislative findings. Sections 9-1201(3), (4) provide:

 

(3) The cost of purchasing a unit, in many cases, is far greater than paying the monthly rental fee for the unit and it is often extremely difficult for the tenant to get his or her finances in order quickly enough to determine whether purchasing their unit is economically feasible.

 

(4) This situation can lead to the displacement or eviction of tenants, many of them elderly who have lived in their rental units for years with the intention of making their unit their permanent residences.

 Regardless of whether the building is a condominium, unless units are sold the purchase or dislocation problems forseen by City Council will not come to pass. The one year prior notice requirement seems designed to give tenants a year before they can be forced out of their apartments. For the first six months of that year they are given the right to purchase their apartment. In the present case, the sales program did not commence until after September 27, 1979 (the date the Ordinance was enacted) and thus, the notice provisions are being applied prospectively to the sale of units at The Dorchester.


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