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SARGO v. CITY OF PHILADELPHIA

March 10, 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

The Dorchester is a luxury high rise building located on Rittenhouse Square in Philadelphia. On December 2, 1979, the owner of The Dorchester *fn1" notified tenants that their apartments would be sold as condominium units. Shortly thereafter, it instituted the present action for declaratory and injunctive relief seeking to avoid the restrictions of the condominium conversion Ordinance of the City of Philadelphia, Title 9 Chapter 9-1200 et seq. In its complaint, plaintiff set forth the following three sets of arguments: that the Ordinance did not apply to The Dorchester because it filed a declaration under the Unit Property Act prior to the passage of the Ordinance, that the marketing program at The Dorchester substantially complied with the Ordinance and that the Ordinance violated the Pennsylvania and United States Constitutions. In our February 11, 1980 memorandum we stated the reasons for rejecting the first of these arguments and holding that § 9-1204 applied to The Dorchester. Plaintiff then filed a motion for summary judgment on the ground that it substantially complied with the Ordinance.

 The issue currently before the court is whether alleged deficiencies in plaintiff's marketing program prevent a valid conveyance of condominium units. Plaintiff contends that substantial compliance with the Ordinance is sufficient; it need not precisely meet each requirement. Defendant, on the other hand, insists on strict compliance with each provision of § 9-1204. Pursuant to a written opinion by the City Solicitor on December 18, 1979, the City refuses to issue any permits or Certification Statements needed for a lawful conveyance of the units unless the applicant certifies that he has fully complied with all the provisions of § 9-1204. Our initial task is to choose the appropriate standard for assessing plaintiff's compliance and next to determine whether that standard has been met.

 In Pennsylvania the distinction between strict and substantial compliance arises when courts are required to determine whether a transaction is void for failure to follow a statutory requirement. The degree of compliance necessary often depends upon whether a statutory provision is mandatory or directory. In Fishkin v. Hi-Acres, Inc., 462 Pa. 309, 341 A.2d 95 (1975), the Supreme Court of Pennsylvania stated that noncompliance with directory language creates a "voidable" transaction, while noncompliance with mandatory provisions renders the transaction "void ab initio." Id. at 98, 341 A.2d 95. The Court explained: "Failure to conform to a mandatory procedure renders the activity a nullity. Strict compliance with a directory provision, on the other hand, is not essential to the validity of the transaction or proceeding involved." Id. at 98 n.5, 341 A.2d at 98 (citation omitted). Thus where mandatory language is involved a court will declare a transaction void for failure to comply strictly with a provision. Where directory language is at issue, a court in its discretion may choose not to void the transaction if the statute was substantially followed. *fn2"

 
Whether a particular statute (or provision) is mandatory or directory, does not depend upon its form, but upon the intention of the legislature, to be ascertained from a consideration of the entire act, its nature, its object, and the consequences that would result from construing it one way or the other. Deibert v. Rhodes, 291 Pa. 550, 140 A. 515, 517 (1928) (citations omitted).

 See also, Pleasant Hills Borough v. Carroll, 182 Pa.Super. 102, 106-07, 125 A.2d 466, 469 (1956). "(W)hether a statute is mandatory or not depends on whether the thing directed to be done is the essence of the thing required . . . ." Deibert, 140 A. at 516 (citations omitted). Frequently the type of enactment will provide guidance in selecting the appropriate standard. *fn3" Compare Tausig v. Lawrence, 328 Pa. 408, 197 A. 235 (1937) (strict compliance with a constitutional provision is required) with Fishkin, supra (substantial compliance with corporate statute); Hyde v. Pittsburgh Zoning Board of Adjustment, 403 Pa. 415, 169 A.2d 547 (1961) (substantial compliance with zoning ordinance and building code); Mikita v. Bailey Homes, Inc., 265 Pa. Super. 399, 401 A.2d 1367 (Pa.Super.1979) (substantial compliance with statute regulating appeals from arbitration awards).

 Turning to the Ordinance, the essence of § 9-1204 is that a tenant be given notice that his apartment is scheduled for sale as a condominium unit and that he has the opportunity to purchase his unit. The specific contents of the notice provision serve the purposes of giving the tenant the time and information to make a considered choice whether to purchase and sufficient time to locate another apartment if the decision is made not to buy. Neither the Ordinance nor the legislative history reveals an intention of City Council to declare a sale void for failure to comply precisely with each requirement so long as the tenant is given sufficient time and information to make an informed, reasoned choice. *fn4" While a developer is not free to ignore the provisions of the Ordinance, to deny those tenants and nontenants desiring condominium ownership the opportunity to purchase units in every case where the Ordinance was not strictly followed at times may produce harsh results contrary to the balance of interest City Council sought to achieve. We find it appropriate to follow the doctrine of substantial compliance which focuses the court's attention on the spectrum of equitable considerations including whether plaintiff acted in good faith, whether it complied with the purposes of the Ordinance and whether invalidating the sale would produce inequitable results not intended by City Council.

 From the outset, we wish to emphasize the unique circumstances of this case. Plaintiff commenced its marketing program believing that "conversion" as used in the Ordinance meant filing a declaration under the Unit Property Act. Since the declaration was filed prior to passage of the Ordinance, plaintiff felt the notice provisions of § 9-1204 were not applicable to The Dorchester. In our memorandum of February 11, 1980 we held that notice must be given one year prior to the date a tenant who did not want to purchase must vacate his apartment. On this basis or alternatively under the Pending Ordinance Doctrine, The Dorchester was subject to § 9-1204.

 Because the Ordinance was susceptible to differing interpretations and plaintiff expended considerable resources in reliance upon its interpretation, it would be inequitable to impose a harsh remedy upon plaintiff. Plaintiff took significant steps to comply with the Ordinance in its initial notice despite the absence of an authoritative ruling that the Ordinance applied. *fn5" The same considerations would not pertain to an owner issuing notice subsequent to our February 11, 1980 opinion, and if presented with that case we might view deficiencies in the notice in a different light. Nevertheless, because plaintiff took significant steps to comply with the Ordinance in its initial notice despite the absence of an authoritative ruling that the Ordinance was applicable, plaintiff may properly seek equitable relief.

 We next turn to the specific provisions of § 9-1204 of the Ordinance, set forth in full as an appendix to this opinion, to assess the extent of compliance and the relative hardship in now demanding strict compliance. As required by §§ 9-1204(1)(a) and (3), the tenant was sent a notice that condominium units would be sold at The Dorchester. The notice was delivered on December 2, 1979 and provided each tenant with the option of remaining in his apartment under the same terms and conditions until December 31, 1980. Although the term "date of the scheduled conversion" is undefined in the Ordinance, we find that notice one year prior to the date a tenant who has not purchased must vacate his apartment satisfies the requirement. Plaintiff did not, however, send the notice certified mail, return receipt requested. Nevertheless, since there is no assertion that tenants failed to actually receive the notice or were prejudiced by this omission, plaintiff substantially complied with this provision. See, e.g., Mikita v. Bailey Homes Inc., supra; Mertz v. Lakatos, 33 Pa.Cmwlth. 230, 381 A.2d 497 (1978).

 Section 9-1204(1)(b) affords each tenant the right to purchase his unit at a specified price during the first six months of the notice period. Rather than affording each tenant the exclusive right to purchase for six months, plaintiff's notice gave each tenant the exclusive right to purchase at a ten percent discount for the first two months, coupled with a right of first refusal for 30 days following any offer made by an outside purchaser during the succeeding two months. Elderly or disabled tenants might, under certain circumstances, continue to rent for up to two years. Recognizing that its notice fell short of the Ordinance's requirements, plaintiff now proposes to notify individually each tenant that his right to purchase is extended to June 2, 1980, i. e., six months after the original notice and to specify the price by stating the cost in dollars. In addition, plaintiff will not show the unit until the expiration of this period or the execution of a written waiver as provided in the Ordinance.

 Stating with specificity the total amount due on settlement in accordance with § 9-1204(c) requires information not available to plaintiff. Listed in the December 2 notice was a statement tabulated by unit including the price, the percentage interest assigned, the estimated monthly taxes and the estimated monthly condominium assessment. Items such as mortgage fees and other fees of lenders allegedly could not be approximated until the purchaser secured financing. In a letter to the court, plaintiff's attorney set forth precisely which further elements plaintiff is capable of providing to tenants. See Appendix B. Absent any evidence that more information could be provided, we find plaintiff's notice as supplemented substantially complies with § 9-1204(1) (c).

 Despite the requirements of § 9-1204(1)(d), plaintiff's notice did not contain any information concerning payments for repairs or utilities during the last three years. Although plaintiff asserts in an affidavit that because it recently purchased the property it does not have exclusive possession of this data, it also states that it provided certain financial information to The Dorchester Residents' Committee. Sheridan Affidavit at P 6. Disclosure to a committee partially meets the Ordinance's concerns but it may not provide each resident with the information he needs to determine his potential financial obligations. If plaintiff possesses or has access to data concerning expenditures which it is under no legal obligation to keep confidential, it must disclose that information in its notice to the tenants in the form specified in the Ordinance. If disclosure is not possible, plaintiff must state in its supplemental notice to the tenants that the Residents' Committee has seen the list of expenses and the reasons plaintiff may not disclose to the tenants the information it provided to the Residents' Committee.

 The requirements of § 1204(e) were satisfied by the December 2, 1979 notice in the section entitled "Condominium Operating Budget." Plaintiff has agreed to comply with §§ 1204(3)-(7).

 Section 9-1204(f) requires specific information concerning the structural components of the property, the expected useful life of each item and the estimated cost of replacement. The initial engineering report issued as part of the December 2, 1979 notice did not substantially comply with this provision because the dates of construction, expected useful life, and replacement costs were not set forth. The report did cover the current condition of most of the structure. The Dorchester Residents' Committee in cooperation with plaintiff conducted a second engineering study which more closely approximated the requirements. For many, though not all structural items, the useful life and replacement costs were set forth. Even with this additional study we might not find substantial compliance since some of the required data omitted may be relevant to making an informed decision. Plaintiff has, however, inserted into each agreement of sale a two year warranty on the structural portion of the building. While a close question is presented, in light of the two reports and the warranty we find that plaintiff has substantially satisfied City Council's concern that tenants have adequate information on the structural integrity of the building and expected replacement costs.

 APPENDIX A

 § 9-1204. Unfair Conversion Practices.

 (1) It shall be unlawful for any owner, landlord, agent or other person operating or managing a multiple occupancy dwelling to convert said premises to a condominium, or to terminate a lease with a tenant or to make, alter, amend or modify any term or condition of any existing lease or arrangement of tenancy with a tenant for the purpose of converting the said premises to a condominium, unless

 (a) the tenant has been notified in writing by Certified mail, return receipt requested, 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.

 (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 ...


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