Can an Owner Recover an Entire Building for Personal Use?

New York City's rent stabilization law has long permitted a building's owner to recover possession of an apartment when the owner seeks to use the apartment as a primary residence for himself or members of his immediate family. Suppose, however, an owner seeks to convert an entire apartment building to single-family use. May the owner refuse to renew the leases of multiple rent-stabilized tenants? In a decision certain to be appealed, a Manhattan Supreme Court justice has held that the answer is no ' unless the landlord seeks and obtains approval from the Division of Housing and Community Renewal (DHCR).

The Pultz Case

In Pultz v. Economakis (NYLJ 3/21/06, p. 19, col. 3), the landlords owned a 5-story, 15-unit tenement on East Third Street in Manhattan. They recovered five of the units, and then served notices of non-renewal on the remaining tenants, alleging that they planned to devote the entire building to their personal use as a private residence. The tenants responded by bringing an action for a judgment declaring that the landlords' plan to recover the entire building for personal use violates the Rent Stabilization Law and Code. Last June, a Supreme Court justice granted tenants a preliminary injunction. Pultz v. Economakis, 8 Misc2d 1022A. In the most recent development in the case, another Supreme Court justice denied landlords' summary judgment motion, holding that landlords' attempt to recover possession of the entire building was governed by section 2524.5 of the Rent Stabilization Code, which requires approval of DHCR before a landlord withdraws units from the rental market, rather than section 2524.4, which enumerates grounds for refusal to renew leases without order of the DHCR.

The Statute

The Rent Stabilization Law (section 26-511 of the New York City Administrative Code) authorized the Division of Housing and Community Renewal to adopt a rent stabilization code, subject to enumerated statutory conditions. One of those conditions is that the code 'provides that an owner shall not refuse to renew a lease except ' (b) where he or she seeks to recover possession of one or more dwelling units for his or her own personal use and occupancy as his or her primary residence in the city of New York and/or for the use and occupancy of a member of his or her immediate family as his or her primary residence in the city of New York ' ' (NYC Admin Code, sec 26-511(c)(9)(b) [emphasis added].

Section 2524.4 of the Rent Stabilization Code implements the statutory grant of authority. In authorizing an owner to deny a renewal lease when the owner seeks to recover possession of a housing accommodation for personal use, the Rent Stabilization Code, like the Rent Stabilization Law, contemplates recover of multiple units. The Code, like the Rent Stabilization Law, provides that when a building has multiple owners, only one of the individual owners may recover possession for personal use, but the Code nevertheless authorizes that one owner 'to recover possession of one or more dwelling units for personal use and occupancy.' 9 NYCRR sec. 2524.4(a)(3).

Section 2524.4 of the Rent Stabilization Code does not require a landlord to obtain a permit from DHCR before recovering dwelling units for personal use. The provision stands in stark contrast to section 2524.5(a), which permits an owner to refuse a renewal lease when the owner 'has established to the satisfaction of the DHCR … that he or she seeks in good faith to withdraw any or all housing accommodations from both the housing and nonhousing rental market.' This provision is applicable, however, only if the owner meets one of two criteria: the owner must establish either that he or she requires the units for 'his or her own use in connection with a business which he or she owns and operates' or that substantial violations make the premises dangerous to the tenants and that the cost of removing the violations exceed the assessed value of the structure. (9 NYCRR sec. 2524.5(a)(1) [emphasis added]). Hence, the express words of section 2524.5 make it clear that the provision (and its requirement of DHCR consent) does not apply in cases where the owner seeks to recover possession for personal use and occupancy.

The court in the Pultz case evinced concern that permitting an owner to recover an entire building for personal use would exacerbate the 'emergency' described in the Rent Stabilization Law. Neither the statute nor the Rent Stabilization Code is blind to the potential effects of attempts by owners to obtain possession for personal use, and both the statute and the Code include a number of protections against abuse. Thus, no proceeding can be brought against a tenant who is 62 or older, or has a disability that prevents the tenant from engaging in substantial gainful employment. When the building has more than one owner, only one of the owners can bring proceedings. Once the owner acquires possession for personal use, the owner cannot then re-let the premises to any person (other than the original tenant, on the same terms as the original lease), for a period of 3 years after recovering possession. If the owner violates this provision, owner forfeits the right to increases in residential rents for all units in the building. The inclusion of these protections ' and the corresponding exclusion of any limitation on the number of units an owner can recover ' suggest strongly that neither the statute nor the regulations were intended to preclude an owner from recovering an entire building for personal use.

The Case Law

Moreover, the smattering of case law that has previously addressed the issue has determined that an owner is entitled to recover multiple apartments for personal use. See, eg, Axelrod v. Duffin, 154 Misc2d 310 (Appellate Term holds landlord is entitled to possession of two units for personal use); see also Proctor v. Barns, 2002 N.Y. Misc LEXIS 622 (Appellate Term awards landlord possession of additional unit as part of an ultimate 'plan to utilize the brownstone building as a one-family residence'). Once it is established that an owner can recover two units for personal use, there appears to be little statutory basis for prohibiting the owner from recovering ten units for personal use.

In other cases, judicial concerns about abuse of the owner-occupancy provision has focused on the good faith of the owner in asserting an intention to devote the subject apartment to personal use. Thus, in Smilow v. Ulrich, 11 Misc3d 179, decided this past December, the court held that the tenant was entitled to ample disclosure to ascertain whether the petitioning owner had a good-faith intention of recovering the subject apartment for his personal use. In Smilow, as in Pultz, landlord asserted an intention to devote the entire building to a single-family home. The Smilow court, however, never questioned an owner's right to recover an entire building for residential purposes; the question for the Smilow court was simply whether landlord had a good faith intention to use the recovered premises in accordance with his assertions.

Conclusion

The decision in the Pultz case appears inconsistent with the current statute and regulations. Both landlords and tenants would be better served if the confusion engendered by the case is quickly resolved on appeal, or by amendment of the statute or regulations. Costly litigation over the issue serves neither group, and creates great uncertainty both for tenants and for prospective purchasers deciding whether to purchase buildings for personal use.

Stewart E. Sterk is Editor-in-Chief of this newsletter.

New York City's rent stabilization law has long permitted a building's owner to recover possession of an apartment when the owner seeks to use the apartment as a primary residence for himself or members of his immediate family. Suppose, however, an owner seeks to convert an entire apartment building to single-family use. May the owner refuse to renew the leases of multiple rent-stabilized tenants? In a decision certain to be appealed, a Manhattan Supreme Court justice has held that the answer is no ' unless the landlord seeks and obtains approval from the Division of Housing and Community Renewal (DHCR).

The Pultz Case

In Pultz v. Economakis (NYLJ 3/21/06, p. 19, col. 3), the landlords owned a 5-story, 15-unit tenement on East Third Street in Manhattan. They recovered five of the units, and then served notices of non-renewal on the remaining tenants, alleging that they planned to devote the entire building to their personal use as a private residence. The tenants responded by bringing an action for a judgment declaring that the landlords' plan to recover the entire building for personal use violates the Rent Stabilization Law and Code. Last June, a Supreme Court justice granted tenants a preliminary injunction. Pultz v. Economakis, 8 Misc2d 1022A. In the most recent development in the case, another Supreme Court justice denied landlords' summary judgment motion, holding that landlords' attempt to recover possession of the entire building was governed by section 2524.5 of the Rent Stabilization Code, which requires approval of DHCR before a landlord withdraws units from the rental market, rather than section 2524.4, which enumerates grounds for refusal to renew leases without order of the DHCR.

The Statute

The Rent Stabilization Law (section 26-511 of the New York City Administrative Code) authorized the Division of Housing and Community Renewal to adopt a rent stabilization code, subject to enumerated statutory conditions. One of those conditions is that the code 'provides that an owner shall not refuse to renew a lease except ' (b) where he or she seeks to recover possession of one or more dwelling units for his or her own personal use and occupancy as his or her primary residence in the city of New York and/or for the use and occupancy of a member of his or her immediate family as his or her primary residence in the city of New York ' ' (NYC Admin Code, sec 26-511(c)(9)(b) [emphasis added].

Section 2524.4 of the Rent Stabilization Code implements the statutory grant of authority. In authorizing an owner to deny a renewal lease when the owner seeks to recover possession of a housing accommodation for personal use, the Rent Stabilization Code, like the Rent Stabilization Law, contemplates recover of multiple units. The Code, like the Rent Stabilization Law, provides that when a building has multiple owners, only one of the individual owners may recover possession for personal use, but the Code nevertheless authorizes that one owner 'to recover possession of one or more dwelling units for personal use and occupancy.' 9 NYCRR sec. 2524.4(a)(3).

Section 2524.4 of the Rent Stabilization Code does not require a landlord to obtain a permit from DHCR before recovering dwelling units for personal use. The provision stands in stark contrast to section 2524.5(a), which permits an owner to refuse a renewal lease when the owner 'has established to the satisfaction of the DHCR … that he or she seeks in good faith to withdraw any or all housing accommodations from both the housing and nonhousing rental market.' This provision is applicable, however, only if the owner meets one of two criteria: the owner must establish either that he or she requires the units for 'his or her own use in connection with a business which he or she owns and operates' or that substantial violations make the premises dangerous to the tenants and that the cost of removing the violations exceed the assessed value of the structure. (9 NYCRR sec. 2524.5(a)(1) [emphasis added]). Hence, the express words of section 2524.5 make it clear that the provision (and its requirement of DHCR consent) does not apply in cases where the owner seeks to recover possession for personal use and occupancy.

The court in the Pultz case evinced concern that permitting an owner to recover an entire building for personal use would exacerbate the 'emergency' described in the Rent Stabilization Law. Neither the statute nor the Rent Stabilization Code is blind to the potential effects of attempts by owners to obtain possession for personal use, and both the statute and the Code include a number of protections against abuse. Thus, no proceeding can be brought against a tenant who is 62 or older, or has a disability that prevents the tenant from engaging in substantial gainful employment. When the building has more than one owner, only one of the owners can bring proceedings. Once the owner acquires possession for personal use, the owner cannot then re-let the premises to any person (other than the original tenant, on the same terms as the original lease), for a period of 3 years after recovering possession. If the owner violates this provision, owner forfeits the right to increases in residential rents for all units in the building. The inclusion of these protections ' and the corresponding exclusion of any limitation on the number of units an owner can recover ' suggest strongly that neither the statute nor the regulations were intended to preclude an owner from recovering an entire building for personal use.

The Case Law

Moreover, the smattering of case law that has previously addressed the issue has determined that an owner is entitled to recover multiple apartments for personal use. See, eg, Axelrod v. Duffin , 154 Misc2d 310 (Appellate Term holds landlord is entitled to possession of two units for personal use); see also Proctor v. Barns, 2002 N.Y. Misc LEXIS 622 (Appellate Term awards landlord possession of additional unit as part of an ultimate 'plan to utilize the brownstone building as a one-family residence'). Once it is established that an owner can recover two units for personal use, there appears to be little statutory basis for prohibiting the owner from recovering ten units for personal use.

In other cases, judicial concerns about abuse of the owner-occupancy provision has focused on the good faith of the owner in asserting an intention to devote the subject apartment to personal use. Thus, in Smilow v. Ulrich , 11 Misc3d 179, decided this past December, the court held that the tenant was entitled to ample disclosure to ascertain whether the petitioning owner had a good-faith intention of recovering the subject apartment for his personal use. In Smilow, as in Pultz, landlord asserted an intention to devote the entire building to a single-family home. The Smilow court, however, never questioned an owner's right to recover an entire building for residential purposes; the question for the Smilow court was simply whether landlord had a good faith intention to use the recovered premises in accordance with his assertions.

Conclusion

The decision in the Pultz case appears inconsistent with the current statute and regulations. Both landlords and tenants would be better served if the confusion engendered by the case is quickly resolved on appeal, or by amendment of the statute or regulations. Costly litigation over the issue serves neither group, and creates great uncertainty both for tenants and for prospective purchasers deciding whether to purchase buildings for personal use.

Stewart E. Sterk is Editor-in-Chief of this newsletter.