Units an Owner Can Recover for Self

The First Department's recent decision in Pultz v. Economakis, N.Y.L.J., Feb. 22, 2007, at 18, col. 1, has garnered a remarkable amount of press coverage for what is a fundamentally unremarkable case. The decision primarily stands for the humble proposition that a court must interpret a statute in accordance with its clear and unambiguous language. Nevertheless, the First Department's steadfast defense of an owner's right to recover one of more apartments for his or her own personal use merits further analysis.

Facts

Alistair and Catherine Economakis own a 15-unit, rent-stabilized building in the East Village. They decided that they would attempt to recover all 15 stabilized apartments so that they could convert the building into a single-family house. They settled with several tenants, and brought Civil Court holdover proceedings against five tenants whose stabilized leases had expired. The owners proceeded under Section 26-511(c)(9)(b) of the Rent Stabilization Law ('RSL'), as implemented by Section 2524.4(a) of the Rent Stabilization Code ('RSC'), which allows an owner to proceed in Civil Court to recover 'one or more dwelling units' for the owner's 'personal use and occupancy.'

Civil Court issued several rulings that seemingly stated the obvious: A statute that allows an owner to recover 'one or more' apartments for owner occupancy allows the owner to recover all of the apartments in a building. Faced with these unfavorable rulings, the remaining five tenants, whose stabilized leases had yet to expire, sought a preliminary injunction in the Supreme Court to prevent the owner from proceeding in Civil Court to evict them. The tenants argued that because the landlord was seeking to recover all of the apartments in the building, the landlord was in essence withdrawing the building from the housing and non-housing rental markets under Section 2524.5(a)(1) of the RSC, such that the owner occupancy provision of the RSC did not apply Section 2524(a)(1) only applies, however, where the owner seeks to withdraw the units based on business use, or due to the presence of substantial violations, factors not present in this case. Notably, the withdrawal section requires DHCR approval before proceeding in Civil Court, whereas the owner occupancy section does not.

The Supreme Court Rulings

Supreme Court Justice Paul G. Feinman granted the tenants a preliminary injunction, holding that ' 'a reading of the RSC which allows a landlord to recover all of the retal premises in a tenement building at one time based on plans to turn the entire building into a private home, would appear to be incompatible with the statute's intent to provide New York City residents with affordable and stable housing.' Justice Faviola A. Soto thereafter granted the tenants a permanent injunction, holding that the owners' plan amounted to a withdrawal from the rental market, thus implicating Section 2524.5(a)(1) and requiring DHCR's prior approval.

The Appellate Division Ruling

The owners appealed to the Appellate Division, First Department. In a unanimous ruling authored by Justice Luis A. Gonzalez, the First Department held that the owners' plan indeed fell under the owner occupancy statute and regulation, which plainly impose no limits on the number of apartments an owner can recover for personal use:

In this case, the clear and unambiguous provisions of both the Rent Stabilization Law and Code permit an owner to recover an unlimited number of stabilized units for personal use and occupancy without DHCR approval, as long as good faith intent to use the residence as a primary residence is established. Rent Stabilization Law ' '26-511(c)(9)(b) provides that any rent stabilization code adopted by DHCR must 'provide[ ] 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 ' ' (emphasis added). Notably, nothing in this subdivision may be read to require DHCR approval before defendants are entitled to recover 'one or more' of a building's apartments for personal use.

The First Department then addressed the tenants' argument that the owners were in fact seeking to withdraw 'any and all' housing accommodations in the building from the housing and non-housing markets, such that Section 2524.5(a) applied:

However, as should be plain from the statutory language, RSC '2524.5 is not triggered merely by the fact that 'any or all' housing accommodations are sought to be recovered. Rather, there must be an attempt to withdraw any and all housing accommodations and that withdrawal must be either for the purpose of conducting the owner's business or because the cost of removing violations filed by government agencies is equal or exceeds the value of the property. The conjunction 'and' cannot be ignored, and once properly considered, it compels the conclusion that if the withdrawal is not for one of the purposes enumerated in subsection (i) or (ii), the section does not apply. Given that there is no allegation in plaintiffs' complaint or anywhere else in the record that defendants seek to withdraw the remaining units for business purposes or because the cost of removing violations is equal to or greater than the property's value, DHCR approval was not required in this case (internal citations omitted).

The First Department also rejected the tenants' claim, adopted by Justices Feinman and Soto, that recovering 15 units is somehow contrary to the intent of the RSL and Code:

In essence, plaintiffs' argument is that an express right granted to owners under the Rent Stabilization Law and Code ' the right to recover 'one or more dwelling units' for personal use without DHCR approval ' should not be recognized in this case because the recovery of all of the units in the building would undermine the rent stabilization system. We disagree because the Legislature has determined that an owner's need to recover units for personal use and occupancy as a primary residence is a legitimate exception to the rent stabilization scheme. Plaintiffs' argument that a restriction on the number of units that may be recovered for personal use is more consistent with the rent stabilization scheme is more appropriate directed to the State Legislature.

The tenants had argued that the owners had no real intention of turning the building into a single-family home, and merely sought to vacate the building and flip it, or convert it to condominiums. The tenants observed that although RSC Section 2524.4(q)(5) requires an owner to use the premises as stated for three years, the penalty for failing to do so ' the forfeiture of rent regulatory increases throughout the building for a three-year period ' was no penalty at all where the building would no longer contain rent-regulated units. The First Department responded by stating that 'any argument concerning the inadequacy of the statutory penalty is one for the Legislature.' The court further held that the most important statutory protection for tenants, and one that ensured that owners seeking to recover multiple apartments could not blithely abuse the system, was the requirement that the owner establish his or her good-faith intention to use all of the recovered units as his or her primary residence:

This requirement ensures that the court will scrutinize the defendants' plan to determine whether it is genuine and, conversely, it provides the tenants with an opportunity to argue, as they do here, that the number of apartments sought or the defendants' lack of present occupancy cast doubt on their honest intentions. At this juncture, however, none of these arguments can deprive the owner of the right to bring these owner occupancy proceedings.

In the author's opinion, the most important aspect of Pultz v. Economakis is the first Department's view than an owner's right to evict a tenant in order to ive in the owner's own building was not antithetical to the RSL, or a 'loophole,' but was in fact part of the fabric of the statute itself:

To the extent Judges Feinman and Soto may have relied on the public policy underlying the Rent Stabilization Law to preserve the supply of regulated housing in New York City ' they overlooked that the same legislative body also enacted a provision expressly permitting an owner to recover dwelling units for personal use and occupancy, and did so without imposing any limitation on the number of units that may be recovered.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a partner in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He, along with Todd A. Rose of Rose & Rose, represented the prevailing owner in Pultz v. Economakis.

The First Department's recent decision in Pultz v. Economakis, N.Y.L.J., Feb. 22, 2007, at 18, col. 1, has garnered a remarkable amount of press coverage for what is a fundamentally unremarkable case. The decision primarily stands for the humble proposition that a court must interpret a statute in accordance with its clear and unambiguous language. Nevertheless, the First Department's steadfast defense of an owner's right to recover one of more apartments for his or her own personal use merits further analysis.

Facts

Alistair and Catherine Economakis own a 15-unit, rent-stabilized building in the East Village. They decided that they would attempt to recover all 15 stabilized apartments so that they could convert the building into a single-family house. They settled with several tenants, and brought Civil Court holdover proceedings against five tenants whose stabilized leases had expired. The owners proceeded under Section 26-511(c)(9)(b) of the Rent Stabilization Law ('RSL'), as implemented by Section 2524.4(a) of the Rent Stabilization Code ('RSC'), which allows an owner to proceed in Civil Court to recover 'one or more dwelling units' for the owner's 'personal use and occupancy.'

Civil Court issued several rulings that seemingly stated the obvious: A statute that allows an owner to recover 'one or more' apartments for owner occupancy allows the owner to recover all of the apartments in a building. Faced with these unfavorable rulings, the remaining five tenants, whose stabilized leases had yet to expire, sought a preliminary injunction in the Supreme Court to prevent the owner from proceeding in Civil Court to evict them. The tenants argued that because the landlord was seeking to recover all of the apartments in the building, the landlord was in essence withdrawing the building from the housing and non-housing rental markets under Section 2524.5(a)(1) of the RSC, such that the owner occupancy provision of the RSC did not apply Section 2524(a)(1) only applies, however, where the owner seeks to withdraw the units based on business use, or due to the presence of substantial violations, factors not present in this case. Notably, the withdrawal section requires DHCR approval before proceeding in Civil Court, whereas the owner occupancy section does not.

The Supreme Court Rulings

Supreme Court Justice Paul G. Feinman granted the tenants a preliminary injunction, holding that ' 'a reading of the RSC which allows a landlord to recover all of the retal premises in a tenement building at one time based on plans to turn the entire building into a private home, would appear to be incompatible with the statute's intent to provide New York City residents with affordable and stable housing.' Justice Faviola A. Soto thereafter granted the tenants a permanent injunction, holding that the owners' plan amounted to a withdrawal from the rental market, thus implicating Section 2524.5(a)(1) and requiring DHCR's prior approval.

The Appellate Division Ruling

The owners appealed to the Appellate Division, First Department. In a unanimous ruling authored by Justice Luis A. Gonzalez, the First Department held that the owners' plan indeed fell under the owner occupancy statute and regulation, which plainly impose no limits on the number of apartments an owner can recover for personal use:

In this case, the clear and unambiguous provisions of both the Rent Stabilization Law and Code permit an owner to recover an unlimited number of stabilized units for personal use and occupancy without DHCR approval, as long as good faith intent to use the residence as a primary residence is established. Rent Stabilization Law ' '26-511(c)(9)(b) provides that any rent stabilization code adopted by DHCR must 'provide[ ] 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 ' ' (emphasis added). Notably, nothing in this subdivision may be read to require DHCR approval before defendants are entitled to recover 'one or more' of a building's apartments for personal use.

The First Department then addressed the tenants' argument that the owners were in fact seeking to withdraw 'any and all' housing accommodations in the building from the housing and non-housing markets, such that Section 2524.5(a) applied:

However, as should be plain from the statutory language, RSC '2524.5 is not triggered merely by the fact that 'any or all' housing accommodations are sought to be recovered. Rather, there must be an attempt to withdraw any and all housing accommodations and that withdrawal must be either for the purpose of conducting the owner's business or because the cost of removing violations filed by government agencies is equal or exceeds the value of the property. The conjunction 'and' cannot be ignored, and once properly considered, it compels the conclusion that if the withdrawal is not for one of the purposes enumerated in subsection (i) or (ii), the section does not apply. Given that there is no allegation in plaintiffs' complaint or anywhere else in the record that defendants seek to withdraw the remaining units for business purposes or because the cost of removing violations is equal to or greater than the property's value, DHCR approval was not required in this case (internal citations omitted).

The First Department also rejected the tenants' claim, adopted by Justices Feinman and Soto, that recovering 15 units is somehow contrary to the intent of the RSL and Code:

In essence, plaintiffs' argument is that an express right granted to owners under the Rent Stabilization Law and Code ' the right to recover 'one or more dwelling units' for personal use without DHCR approval ' should not be recognized in this case because the recovery of all of the units in the building would undermine the rent stabilization system. We disagree because the Legislature has determined that an owner's need to recover units for personal use and occupancy as a primary residence is a legitimate exception to the rent stabilization scheme. Plaintiffs' argument that a restriction on the number of units that may be recovered for personal use is more consistent with the rent stabilization scheme is more appropriate directed to the State Legislature.

The tenants had argued that the owners had no real intention of turning the building into a single-family home, and merely sought to vacate the building and flip it, or convert it to condominiums. The tenants observed that although RSC Section 2524.4(q)(5) requires an owner to use the premises as stated for three years, the penalty for failing to do so ' the forfeiture of rent regulatory increases throughout the building for a three-year period ' was no penalty at all where the building would no longer contain rent-regulated units. The First Department responded by stating that 'any argument concerning the inadequacy of the statutory penalty is one for the Legislature.' The court further held that the most important statutory protection for tenants, and one that ensured that owners seeking to recover multiple apartments could not blithely abuse the system, was the requirement that the owner establish his or her good-faith intention to use all of the recovered units as his or her primary residence:

This requirement ensures that the court will scrutinize the defendants' plan to determine whether it is genuine and, conversely, it provides the tenants with an opportunity to argue, as they do here, that the number of apartments sought or the defendants' lack of present occupancy cast doubt on their honest intentions. At this juncture, however, none of these arguments can deprive the owner of the right to bring these owner occupancy proceedings.

In the author's opinion, the most important aspect of Pultz v. Economakis is the first Department's view than an owner's right to evict a tenant in order to ive in the owner's own building was not antithetical to the RSL, or a 'loophole,' but was in fact part of the fabric of the statute itself:

To the extent Judges Feinman and Soto may have relied on the public policy underlying the Rent Stabilization Law to preserve the supply of regulated housing in New York City ' they overlooked that the same legislative body also enacted a provision expressly permitting an owner to recover dwelling units for personal use and occupancy, and did so without imposing any limitation on the number of units that may be recovered.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a partner in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He, along with Todd A. Rose of Rose & Rose, represented the prevailing owner in Pultz v. Economakis.