Landlord & Tenant

AppDiv, Second Dept

(Opinion by Spolzino, J.)

In landlord's summary nonpayment proceeding, rent-stabilized tenant appealed from the Appellate Term's reversal of Civil Court's determination permitting tenant to assert a counterclaim that landlord had overcharged tenant based on an unjustified individual apartment improvement (IAI) increase. The Appellate Division reversed and reinstated Civil Court's determination, holding that Civil Court had jurisdiction to hear such counterclaims.

The rent stabilization law permits landlords to increase the rent of a rent-stabilized tenant when the landlord makes an improvement to the tenant's apartment. (9 NYCRR 2522.4[a]). The Division of Housing and Community Renewal (DHCR) will review IAI increases upon the complaint of a tenant who has been charged such an increase, but the Rent Stabilization Code does not require landlord to seek DHCR approval before imposing an IAI increase. In this case, landlord imposed and IAI increase. Tenant did not pay rent, and landlord brought the instant nonpayment proceeding. Tenant asserted, in a defense and counterclaim, that landlord had overcharged tenant by imposing an unjustified IAI increase. Civil Court permitted the counterclaim, found that the IAI increase was without justification, and reduced the judgment for landlord by the amount of the overcharge. The Appellate Term modified Civil Court's determination, holding that DHCR had exclusive original jurisdiction over claims premised on the illegality of IAI increases. As a result, the Appellate Division increased the amount of the monetary award due the landlord, and dismissed the counterclaim without prejudice to assertion of the claim before DHCR. Tenant appealed.

In reversing, the Appellate Division first rejected landlord's broad argument that Civil Court is without jurisdiction to entertain rent overcharge complaints. Landlord had relied on language in the Emergency Tenant Protection Act of 1974 that expressly gives courts outside the City of New York jurisdiction to entertain rent overcharge complaints, while providing no comparable express grant of jurisdiction to courts within the City. The Appellate Division acknowledged the difference in language, but concluded that if the legislature had wanted to deprive Civil Court over authority it otherwise had, the legislature would have done so expressly.

The Appellate Division then rejected landlord's argument that IAI increases were within the exclusive jurisdiction of DHCR. The court noted that the Rent Stabilization Code does not require a landlord to obtain advance approval for IAI increases in the way it does require approval for MCI increases. Hence, the court concluded that DHCR did not have exclusive or primary jurisdiction of rent overcharge complaints based on IAI increases. Moreover, the court noted that to prevent tenant from contesting IAI increases in a summary nonpayment proceeding is inconsistent with proper adjudication of a summary proceeding. The court emphasized that the issue in a nonpayment proceeding is whether tenant paid the required rent ' an issue that cannot be adjudicated without a determination of the proper required rent. Hence, the court remanded to the Appellate Term for consideration of the merits of tenant's rent overcharge claim.

Federal Law Does Not Pre-Empt Rent Stabilization

Rosario v. Diagonal Realty, LLC

NYLJ 9/21/06, p. 34, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action by rent-stabilized tenants to establish that landlord is obligated to continue accepting federal 'Section 8' rent subsidies when they renew their leases, landlord appealed from Supreme Court's declaration that landlord is obligated to consider accepting the subsidies. The Appellate Division affirmed, holding that federal law did not pre-empt the requirement of the Rent Stabilization Code that renewal leases 'be on the same terms and conditions as the expired lease.'

Landlord had accepted federal 'Section 8' subsidies on behalf of rent-stabilized tenant to cover part of tenant's rent obligations. Landlord sought to withdraw from the Section 8 program, pursuant to an amendment of the federal statute designed to permit landlords to withdraw from the program. Tenants then brought this action, contending that the Rent Stabilization Law requires any landlord who had previously accepted Section 8 subsidies to continue to do so. Landlord contended that federal law pre-empted the Rent Stabilization Code provisions. Supreme Court disagreed and declared that landlord was required to continue accepting Section 8 payments.

In affirming, the Appellate Division started by noting that the federal statute did not expressly pre-empt the Rent Stabilization Code. The court then found no implied pre-emption, because it is not impossible to comply with both the federal statute and the Rent Stabilization Code. The court noted that the expiring leases included 'the HUD-prescribed tenancy addendum' which requires landlord to accept Section 8 benefits. Since that addendum is a material provision of the lease (particularly because tenants could not afford the apartment without Section 8 benefits), the rent stabilization code requires landlord to offer the same terms in the renewal lease.

COMMENT

Prior to a 1998 amendment to the federal Housing Act, landlords participating in the Section 8 voucher program were subject to two rules, one which required landlords to offer subsidized renewal leases to assisted tenants and another which prohibited landlords from leasing to one subsidized tenant while refusing to lease to other subsidized tenants. H.R. Conf. Rep. 104-353. These rules, called the 'endless lease rule' and 'take-one take-all rule,' were intended to combat discrimination and ensure continued affordable housing for low-income tenants. S. Rep. 105-21. However, Congress found that the rules discouraged private landlords from participating in the program by compelling them to accept and perpetually lease to tenants with whom they may not have otherwise chosen to enter into agreement. 144 Cong. Rec. S11833-02. The amendment eliminated both of these rules, permitting landlords to offer standard market leases to previously assisted tenants at the end of their leases. 42 U.S.C. ' 1437f(d)(1)(B)(ii); S. Rep. 104-195. Landlords have argued that the amendment preempts the New York state rent stabilization law requirement that landlords offer renewal leases to their tenants 'on the same material terms' as their original lease, a requirement which frustrates the amendment's purpose of making the voucher system more like the private marketplace. R.S.C. ' 2522.5 (g) (1).

Courts in Westchester County have agreed with the landlords' contention that the federal amendment preempts the state law requirements. In Pelham v. Formisano, 5 Misc.3d 695, the court held that a tenant, whose landlord notified her several months in advance that he would not accept Section 8 subsidies under the tenant's renewal lease and who agreed to the renewal lease but paid only the amount above the subsidy price, was responsible for the full amount of the stabilized rent. The court found that through the elimination of the endless lease requirement, Congress intended to provide landlords with the option to end their relationship with the federal Section 8 program and not to interfere with the relationship between the landlord and tenant. The court found that both the federal amendment and the state rent stabilization laws could be satisfied, as the landlord may choose to remain in the program and then must offer the tenant a rent stabilized lease. See also, 30 Eastchester, LLC v. Healey, 2002 N.Y. Slip Op. 40066(U) (holding that because voluntary landlord participation is a keystone of the Section 8 program, landlords must be as free to opt out of the program as they are to opt in).

Trial courts in New York City, on the other hand, have held lease provisions regarding the receipt of Section 8 subsidies to be material to the lease, which, pursuant to state law, must be included renewal leases. In Kouznetski v. Verga Associates, N.Y.L.J., July 10, 2002, pp. 29, col. 2 (Sup. Ct., Kings Co.), the court held that since the tenant's initial lease included a provision requiring the acceptance of section 8 subsidies, the landlord's successor was bound to include such a provision in renewal leases. The court determined that the federal law's legislative scheme was not intended to preempt state laws regarding rent regulation, which aim to protect tenants' rights. Further, in Bran-Trav Development, LLC v. Matus, N.Y.L.J., Aug. 11, 2004, the court compelled the landlord to accept Section 8 subsidies for a tenant who had received subsidies since the inception of his tenancy even though there was no expression provision regarding the subsidies in his original lease. The court found that repeal of the 'endless lease' provision of the federal law was intended to permit landlords to terminate unregulated leases with Section 8 subsidies as they could terminate any other unregulated lease at the end of the lease term, but was not intended to affect the tenant's protections under rent stabilization laws. Rosario, the state's first appellate court to address the pre-emption issue in relation to the 1998 Amendment, takes a similar position, and requires landlords to continue accepting Section 8 subsidies on behalf of tenants with rent stabilized leases.

Overcharging Tenant May Not Escape Liability

Gboizo .v Division of Housing And Community Renewal (DHCR)

NYLJ 9/27/06, p. 22, col. 1

Supreme Ct., N.Y. Cty

(Lehner, J.)

In rent-stabilized tenant's article 78 proceeding challenging DHCR's determination that tenant was not entitled to prove a lack of willfulness in overcharging a subtenant, DHCR moved for reargument of the court's declaration that the Rent Stabilization Code provision denying tenant that right was invalid. The court granted DHCR's reargument motion, recalled its prior determination, and dismissed the petition.

Tenant sublet the subject rent-stabilized apartment at a rent higher than permitted by the rent stabilization regulations. Tenant contended that he did so in the mistaken belief that a co-operative conversion plan had been filed, exempting the apartment from rent stabilization regulation. DHCR determined that the subtenant was entitled to recover the overcharge, together with treble damages, citing section 2525.6(b) of the Rent Stabilization Code, which provides that when a tenant violates the provisions of the Code, the subtenant is entitled to treble damages. When tenant brought this article 78 proceeding challenging DHCR's determination, Supreme Court granted the petition, concluding that there was no statutory authority for section 2525.6(b) of the Code. DHCR moved for reargument.

In granting reargument, the court relied on section 26-511c(12) of the Rent Stabilization Law, which, like section 2525.6(b) of the Rent Stabilization Code, provides that in the event of an overcharge by tenant, 'subtenant shall be entitled to damages of three times the overcharge.' The statute makes no provision entitling tenant to demonstrate that the overcharge was not willful ' unlike the comparable statutory provision dealing with overcharges by landlord. Moreover, the court noted a rationale for the different treatment: the amount chargeable by landlord is complicated, leaving room for innocent mistakes, while tenants typically need not resort to complicated formulas to determine how much rent they can charge. As a result, errors are less likely to be innocent. In light of the statute and the rationale, the court concluded that DHCR had properly rejected tenant's argument. Hence, the court dismissed the petition.

Unjustified Individual Apartment Improvement Increase

Matter of Rockaway One Co., LLC v. Wiggins

NYLJ 10/05/06, p. 22, col. 1

AppDiv, Second Dept

(Opinion by Spolzino, J.)

In landlord's summary nonpayment proceeding, rent-stabilized tenant appealed from the Appellate Term's reversal of Civil Court's determination permitting tenant to assert a counterclaim that landlord had overcharged tenant based on an unjustified individual apartment improvement (IAI) increase. The Appellate Division reversed and reinstated Civil Court's determination, holding that Civil Court had jurisdiction to hear such counterclaims.

The rent stabilization law permits landlords to increase the rent of a rent-stabilized tenant when the landlord makes an improvement to the tenant's apartment. (9 NYCRR 2522.4[a]). The Division of Housing and Community Renewal (DHCR) will review IAI increases upon the complaint of a tenant who has been charged such an increase, but the Rent Stabilization Code does not require landlord to seek DHCR approval before imposing an IAI increase. In this case, landlord imposed and IAI increase. Tenant did not pay rent, and landlord brought the instant nonpayment proceeding. Tenant asserted, in a defense and counterclaim, that landlord had overcharged tenant by imposing an unjustified IAI increase. Civil Court permitted the counterclaim, found that the IAI increase was without justification, and reduced the judgment for landlord by the amount of the overcharge. The Appellate Term modified Civil Court's determination, holding that DHCR had exclusive original jurisdiction over claims premised on the illegality of IAI increases. As a result, the Appellate Division increased the amount of the monetary award due the landlord, and dismissed the counterclaim without prejudice to assertion of the claim before DHCR. Tenant appealed.

In reversing, the Appellate Division first rejected landlord's broad argument that Civil Court is without jurisdiction to entertain rent overcharge complaints. Landlord had relied on language in the Emergency Tenant Protection Act of 1974 that expressly gives courts outside the City of New York jurisdiction to entertain rent overcharge complaints, while providing no comparable express grant of jurisdiction to courts within the City. The Appellate Division acknowledged the difference in language, but concluded that if the legislature had wanted to deprive Civil Court over authority it otherwise had, the legislature would have done so expressly.

The Appellate Division then rejected landlord's argument that IAI increases were within the exclusive jurisdiction of DHCR. The court noted that the Rent Stabilization Code does not require a landlord to obtain advance approval for IAI increases in the way it does require approval for MCI increases. Hence, the court concluded that DHCR did not have exclusive or primary jurisdiction of rent overcharge complaints based on IAI increases. Moreover, the court noted that to prevent tenant from contesting IAI increases in a summary nonpayment proceeding is inconsistent with proper adjudication of a summary proceeding. The court emphasized that the issue in a nonpayment proceeding is whether tenant paid the required rent ' an issue that cannot be adjudicated without a determination of the proper required rent. Hence, the court remanded to the Appellate Term for consideration of the merits of tenant's rent overcharge claim.

Federal Law Does Not Pre-Empt Rent Stabilization

Rosario v. Diagonal Realty, LLC

NYLJ 9/21/06, p. 34, col. 1

AppDiv, First Dept

(memorandum opinion)

In an action by rent-stabilized tenants to establish that landlord is obligated to continue accepting federal 'Section 8' rent subsidies when they renew their leases, landlord appealed from Supreme Court's declaration that landlord is obligated to consider accepting the subsidies. The Appellate Division affirmed, holding that federal law did not pre-empt the requirement of the Rent Stabilization Code that renewal leases 'be on the same terms and conditions as the expired lease.'

Landlord had accepted federal 'Section 8' subsidies on behalf of rent-stabilized tenant to cover part of tenant's rent obligations. Landlord sought to withdraw from the Section 8 program, pursuant to an amendment of the federal statute designed to permit landlords to withdraw from the program. Tenants then brought this action, contending that the Rent Stabilization Law requires any landlord who had previously accepted Section 8 subsidies to continue to do so. Landlord contended that federal law pre-empted the Rent Stabilization Code provisions. Supreme Court disagreed and declared that landlord was required to continue accepting Section 8 payments.

In affirming, the Appellate Division started by noting that the federal statute did not expressly pre-empt the Rent Stabilization Code. The court then found no implied pre-emption, because it is not impossible to comply with both the federal statute and the Rent Stabilization Code. The court noted that the expiring leases included 'the HUD-prescribed tenancy addendum' which requires landlord to accept Section 8 benefits. Since that addendum is a material provision of the lease (particularly because tenants could not afford the apartment without Section 8 benefits), the rent stabilization code requires landlord to offer the same terms in the renewal lease.

COMMENT

Prior to a 1998 amendment to the federal Housing Act, landlords participating in the Section 8 voucher program were subject to two rules, one which required landlords to offer subsidized renewal leases to assisted tenants and another which prohibited landlords from leasing to one subsidized tenant while refusing to lease to other subsidized tenants. H.R. Conf. Rep. 104-353. These rules, called the 'endless lease rule' and 'take-one take-all rule,' were intended to combat discrimination and ensure continued affordable housing for low-income tenants. S. Rep. 105-21. However, Congress found that the rules discouraged private landlords from participating in the program by compelling them to accept and perpetually lease to tenants with whom they may not have otherwise chosen to enter into agreement. 144 Cong. Rec. S11833-02. The amendment eliminated both of these rules, permitting landlords to offer standard market leases to previously assisted tenants at the end of their leases. 42 U.S.C. ' 1437f(d)(1)(B)(ii); S. Rep. 104-195. Landlords have argued that the amendment preempts the New York state rent stabilization law requirement that landlords offer renewal leases to their tenants 'on the same material terms' as their original lease, a requirement which frustrates the amendment's purpose of making the voucher system more like the private marketplace. R.S.C. ' 2522.5 (g) (1).

Courts in Westchester County have agreed with the landlords' contention that the federal amendment preempts the state law requirements. In Pelham v. Formisano, 5 Misc.3d 695, the court held that a tenant, whose landlord notified her several months in advance that he would not accept Section 8 subsidies under the tenant's renewal lease and who agreed to the renewal lease but paid only the amount above the subsidy price, was responsible for the full amount of the stabilized rent. The court found that through the elimination of the endless lease requirement, Congress intended to provide landlords with the option to end their relationship with the federal Section 8 program and not to interfere with the relationship between the landlord and tenant. The court found that both the federal amendment and the state rent stabilization laws could be satisfied, as the landlord may choose to remain in the program and then must offer the tenant a rent stabilized lease. See also, 30 Eastchester, LLC v. Healey, 2002 N.Y. Slip Op. 40066(U) (holding that because voluntary landlord participation is a keystone of the Section 8 program, landlords must be as free to opt out of the program as they are to opt in).

Trial courts in New York City, on the other hand, have held lease provisions regarding the receipt of Section 8 subsidies to be material to the lease, which, pursuant to state law, must be included renewal leases. In Kouznetski v. Verga Associates, N.Y.L.J., July 10, 2002, pp. 29, col. 2 (Sup. Ct., Kings Co.), the court held that since the tenant's initial lease included a provision requiring the acceptance of section 8 subsidies, the landlord's successor was bound to include such a provision in renewal leases. The court determined that the federal law's legislative scheme was not intended to preempt state laws regarding rent regulation, which aim to protect tenants' rights. Further, in Bran-Trav Development, LLC v. Matus, N.Y.L.J., Aug. 11, 2004, the court compelled the landlord to accept Section 8 subsidies for a tenant who had received subsidies since the inception of his tenancy even though there was no expression provision regarding the subsidies in his original lease. The court found that repeal of the 'endless lease' provision of the federal law was intended to permit landlords to terminate unregulated leases with Section 8 subsidies as they could terminate any other unregulated lease at the end of the lease term, but was not intended to affect the tenant's protections under rent stabilization laws. Rosario, the state's first appellate court to address the pre-emption issue in relation to the 1998 Amendment, takes a similar position, and requires landlords to continue accepting Section 8 subsidies on behalf of tenants with rent stabilized leases.

Overcharging Tenant May Not Escape Liability

Gboizo .v Division of Housing And Community Renewal (DHCR)

NYLJ 9/27/06, p. 22, col. 1

Supreme Ct., N.Y. Cty

(Lehner, J.)

In rent-stabilized tenant's article 78 proceeding challenging DHCR's determination that tenant was not entitled to prove a lack of willfulness in overcharging a subtenant, DHCR moved for reargument of the court's declaration that the Rent Stabilization Code provision denying tenant that right was invalid. The court granted DHCR's reargument motion, recalled its prior determination, and dismissed the petition.

Tenant sublet the subject rent-stabilized apartment at a rent higher than permitted by the rent stabilization regulations. Tenant contended that he did so in the mistaken belief that a co-operative conversion plan had been filed, exempting the apartment from rent stabilization regulation. DHCR determined that the subtenant was entitled to recover the overcharge, together with treble damages, citing section 2525.6(b) of the Rent Stabilization Code, which provides that when a tenant violates the provisions of the Code, the subtenant is entitled to treble damages. When tenant brought this article 78 proceeding challenging DHCR's determination, Supreme Court granted the petition, concluding that there was no statutory authority for section 2525.6(b) of the Code. DHCR moved for reargument.

In granting reargument, the court relied on section 26-511c(12) of the Rent Stabilization Law, which, like section 2525.6(b) of the Rent Stabilization Code, provides that in the event of an overcharge by tenant, 'subtenant shall be entitled to damages of three times the overcharge.' The statute makes no provision entitling tenant to demonstrate that the overcharge was not willful ' unlike the comparable statutory provision dealing with overcharges by landlord. Moreover, the court noted a rationale for the different treatment: the amount chargeable by landlord is complicated, leaving room for innocent mistakes, while tenants typically need not resort to complicated formulas to determine how much rent they can charge. As a result, errors are less likely to be innocent. In light of the statute and the rationale, the court concluded that DHCR had properly rejected tenant's argument. Hence, the court dismissed the petition.