Landlord & Tenant

Rent-Stabilized Landlord May Not Terminate Section 8 Participation

Rosario v . Diagonal Realty, LLC.

NYLJ 7/3/07, p. 24, col. 1

Court of Appeals

(Opinion by Pigott, J.)

In actions by rent-stabilized tenants for a declaration that their landlords were not entitled to opt out of the federal 'section 8' rent subsidy program, landlords appealed from the Appellate Division's affirmance of Supreme Court's grant of summary judgment to tenants. The Court of Appeals affirmed, holding that federal law did not pre-empt rent stabilization provisions requiring landlords to renew leases 'on the same terms and conditions as the expired lease.'

Section 8 is a federal program that provides housing assistance for low-income families by giving subsidies to landlords who rent to those families. Subject landlord and tenant have participated in the section 8 program for over 30 years. In February 2003, landlord notified the New York City Housing Authority that it no longer wished to participate in the program, refused the rent subsidy, and brought a nonpayment proceeding in Civil Court. Tenant and other similarly situated tenants then brought these actions in Supreme Court seeking declaratory relief. Supreme Court granted summary judgment to tenants, and the Appellate Division affirmed.

In affirming, the Court of Appeals first concluded that acceptance of a section 8 subsidy is a term of the lease, and that under the Rent Stabilization Law, landlord must offer a renewal lease that includes the same terms as the expired lease. 9 NYCRR sec. 2522.5[b]. The court then rejected landlord's pre-emption argument. Landlord had relied upon 42 USC sec. 1437f, which provides that 'during the term of the lease,' a landlord shall not terminate a tenancy except for specified reasons. Landlord had argued that the phrase 'during the term of the lease had been added in 1998 to abrogate what had been called the 'endless lease' rule. Landlords argued that this 1998 amendment was designed to ensure that a landlord could terminate a section 8 lease at the expiration of its term without any cause. The Court of Appeals, however, examined legislative history to conclude that no pre-emption was intended. In particular, the court examined the report of the Senate Committee on Banking, Housing, and Urban Affairs, which indicated that repeal of the endless lease rule would not adversely affect assisted households because 'protections will be continued under State, and local tenant law … ' Moreover, the court noted that HUD had introduced regulations clarifying that the 1998 amendments were not designed to pre-empt state or local laws that prohibit discrimination against a Section 8 voucher holder because of status as a section 8 voucher holder. Having rejected landlords' express pre-emption argument, the court then rejected landlords' implied pre-emption argument, noting that federal law had not attempted to occupy the field of housing law, and that it was possible for a landlord to comply with both state and federal law.

Merger with Affiliated Entity Triggers Landlord's Right to Terminate Lease

Cellular Telephone Co. v. 210 East 86^th Street Corp.

NYLJ 7/5/07, p. 18, col. 1

AppDiv, First Dept

(Opinion by Catterson, J.)

In commercial tenant's action for a declaration that landlord had not validly canceled its lease, landlord appealed from the Supreme Court's denial of its summary judgment motion and grant of tenant's summary judgment motion. The Appellate Division reversed and granted landlord's summary judgment motion, concluding that tenant's merger with an affiliated entity triggered landlord's right to terminate the lease.

Paragraph 49.1(a) of the parties' commercial lease provides that tenant shall not assign or sublet without obtaining prior written consent of owner, and gives owner a right to withhold consent for any reason or for no reason. The same paragraph also provides that transfer or other disposition of more than 25% of the stock of tenant or transfer of more than 25% of the total interest in tenant, shall be deemed an assignment. Paragraph 49.1(b), however, includes an exception: assignment to an 'affiliate, parent, or successor' does not require owner's consent. Paragraph 49.5 of the lease gives the owner a right to cancel the lease in the event of subletting or assignment. That paragraph, however, includes no express exception for assignments to affiliates, parents, or successors.

Before Oct. 26, 2004, tenant was a partnership between two equal entities. On Oct. 27, one of the entities acquired 100% of the tenant, causing the partnership to cease to exist. The acquiring entity became the tenant. Subsequently, the acquiring entity merged into an affiliated entity. Upon the completion of these transfers, landlord sent tenant a notice of its election to cancel the lease, and tenant brought this declaratory judgment action. Supreme Court granted summary judgment to tenant.

In reversing, the Appellate Division noted that paragraph 49.5 of the lease was unambiguous: the owner had a right to cancel upon a transfer or assignment. The court acknowledged that because the transfer was between related entities, tenant did not need owner's consent to assign the lease under paragraph 49.1, but conclude that the right to cancel operated 'whether or not such transfer or assignment required the Owner's consent.' The court emphasized that the lease was prepared by sophisticated business entities, and relied on the presumption that in such cases, the written instrument manifests the true intention of the parties.

 

Stipulation Cannot Confer Rent-Stabilized Status

546 West 156^th Street HDFC v. Smalls

NYLJ 7/2/07, p. 18, col. 1

AppDiv, First Dept

(Tom, J.)

In landlord's nonpayment proceeding, landlord appealed from the Appellate Term's reversal of a Civil Court order denying tenant's motion to dismiss the petition. The Appellate Division reversed and reinstated the petition, holding that a stipulation between the parties could not confer rent-stabilized status on an apartment that was not subject to the statutory scheme.

Landlord, a housing development fund company incorporated under the Private Housing Finance Law, purchased the subject building from the City of New York in 1989 in a tax foreclosure proceeding. Landlord covenanted with the city to operate the building as a project for low-income families. Tenant occupied an apartment in the building at the time landlord acquired the building, but took occupancy of her current apartment in 1994. In 1996, landlord brought a nonpayment proceeding, and identified the apartment as a rent-stabilized unit. The proceeding was resolved when tenant paid rent arrears and the parties stipulated that tenant would take occupancy pursuant to a rent stabilized lease effective Nov. 1, 1996. Pursuant to the stipulation, landlord registered the apartment as a rent-stabilized unit. Six years later, in 2002, landlord brought the current nonpayment proceeding. This time, the petition asserted that the tenancy is exempt from the Rent Stabilization Law because the unit is located in a building owned by a co-operative corporation. Tenant alleged an overcharge and a breach of the warranty of habitability, but moved for dismissal of the petition on the ground that ' contrary to the assertion in the petition ' the apartment was subject to rent stabilization. Tenant contended that petitions that misstate the rent regulatory status of the premises should be dismissed. Civil Court denied the motion to dismiss because the premises are exempt from rent stabilization, but the Appellate Term reversed and dismissed the petition. Landlord appealed.

In reversing, the Appellate Division emphasized that parties cannot create a statutory tenancy by contract. Because rent stabilization is a creature of the legislature, the parties may not evade the provisions governing the tenancy, thus frustrating legislative intent. Hence, tenant was not entitled to rely on the prior stipulation as a basis for dismissing the petition.

 

Tenant Evicted in Non-Primary Residence Proceeding

Carmine Limited v. Gordon

NYLJ 6/18/07, p. 27, col. 3

AppDiv, First Dept

(memorandum opinion)

In landlord's non-primary residence proceeding against tenant, landlord appealed from the Appellate Term's affirmance of Civil Court's dismissal of the proceeding. The Appellate Division reversed and awarded landlord a judgment of possession, holding that landlord had carried its burden of demonstrating that tenant was not using the subject apartment as her primary residence.

Tenant moved into the 450 square-foot one-bedroom apartment in 1978 when she was single. Her husband moved into the apartment in 1982, and the couple had a son in 1988. In 1991, tenant and her husband signed a lease for an apartment in Stuyvesant Town, and they signed renewal leases for that apartment through 2001. Also in the record was a letter from tenant's husband to a vice president at Metropolitan Life (where husband was employed) thanking him for his assistance in procuring the Stuyvesant Town apartment, and noting that raising a son in the walk-up apartment had been 'interesting.' The landlord also presented the couple's tax returns, which listed the Stuyvesant Town apartment as their address, a bank statement addressed to both spouses at the Stuyvesant Town address, and Con Ed bills for the 450 square-foot apartment showing virtually no electrical usage for months at a time. In addition, landlord established that there was no cable service in the apartment, and offered a neighbor who indicated that he had never seen anyone enter or leave the apartment for nearly a year and a half. Tenant took the position that her primary residence was in the subject apartment, that the marriage was a rocky one and that the parties often lived apart. Crediting tenant's testimony, Civil Court and the Appellate Term concluded that landlord had not carried its burden of disproving that tenant's primary residence was in the subject apartment.

In reversing, the Appellate Division emphasized the evidence of negligible electric usage in the apartment, and concluded that tenant had not provided a satisfactory explanation for that usage. Moreover, the court also drew an adverse evidence from tenant's failure to call her 15-year-old son to testify in support of her position. Finally, the court emphasized that the wife was in effect claiming a right to two rent-stabilized apartments as her primary residence ' something she was not entitled to do.

Misrepresentation of Fact Justifies Vacatur of Consent Judgment

142 Fulton LLC v. Hegarty

NYLJ 6/25/07, p. 34, col. 3

AppDiv, First Dept

(memorandum opinion)

In loft landlord's ejectment action, landlord appealed from the Supreme Court's grant of tenants' motion to vacate a ten-year-old consent judgment entered pursuant to a stipulation between the parties. The Appellate Division affirmed, holding that because the consent judgment was obtained by a misrepresentation of material fact, the court properly vacated the judgment.

In 1996, tenants sought to obtain renewal leases for their respective lofts, which had been illegally converted to residential use. Tenants contended that the apartments were subject either to the Rent Stabilization Law or the Loft Law. Landlord was unwilling to offer renewal leases until landlord had obtained a declaration that the apartments were unregulated. To resolve the dispute, the parties entered into a stipulation, representing falsely that the building had been substantially rehabilitated after 1974, and that tenants had not completed that substantial rehabilitation. The parties then obtained a consent judgment based on that stipulation, and the judgment provided for the parties to enter into ten-year leases providing for increases equal to those provided by the Rent Guidelines Board. The consent judgment also provided that tenants would vacate the apartments at the expiration of the ten-year term. When the term expired, landlord brought this ejectment action.

In upholding the Supreme Court's grant of tenants' motion to vacate the stipulation, the Appellate Division noted the court's inherent power to vacate orders and judgments obtained by fraud or misrepresentation. The Appellate Division also held that the Supreme Court had properly found that the lofts could possibly be legalized and thus that they might be subject to rent stabilization.

Rent-Stabilized Landlord May Not Terminate Section 8 Participation

Rosario v . Diagonal Realty, LLC.

NYLJ 7/3/07, p. 24, col. 1

Court of Appeals

(Opinion by Pigott, J.)

In actions by rent-stabilized tenants for a declaration that their landlords were not entitled to opt out of the federal 'section 8' rent subsidy program, landlords appealed from the Appellate Division's affirmance of Supreme Court's grant of summary judgment to tenants. The Court of Appeals affirmed, holding that federal law did not pre-empt rent stabilization provisions requiring landlords to renew leases 'on the same terms and conditions as the expired lease.'

Section 8 is a federal program that provides housing assistance for low-income families by giving subsidies to landlords who rent to those families. Subject landlord and tenant have participated in the section 8 program for over 30 years. In February 2003, landlord notified the New York City Housing Authority that it no longer wished to participate in the program, refused the rent subsidy, and brought a nonpayment proceeding in Civil Court. Tenant and other similarly situated tenants then brought these actions in Supreme Court seeking declaratory relief. Supreme Court granted summary judgment to tenants, and the Appellate Division affirmed.

In affirming, the Court of Appeals first concluded that acceptance of a section 8 subsidy is a term of the lease, and that under the Rent Stabilization Law, landlord must offer a renewal lease that includes the same terms as the expired lease. 9 NYCRR sec. 2522.5[b]. The court then rejected landlord's pre-emption argument. Landlord had relied upon 42 USC sec. 1437f, which provides that 'during the term of the lease,' a landlord shall not terminate a tenancy except for specified reasons. Landlord had argued that the phrase 'during the term of the lease had been added in 1998 to abrogate what had been called the 'endless lease' rule. Landlords argued that this 1998 amendment was designed to ensure that a landlord could terminate a section 8 lease at the expiration of its term without any cause. The Court of Appeals, however, examined legislative history to conclude that no pre-emption was intended. In particular, the court examined the report of the Senate Committee on Banking, Housing, and Urban Affairs, which indicated that repeal of the endless lease rule would not adversely affect assisted households because 'protections will be continued under State, and local tenant law … ' Moreover, the court noted that HUD had introduced regulations clarifying that the 1998 amendments were not designed to pre-empt state or local laws that prohibit discrimination against a Section 8 voucher holder because of status as a section 8 voucher holder. Having rejected landlords' express pre-emption argument, the court then rejected landlords' implied pre-emption argument, noting that federal law had not attempted to occupy the field of housing law, and that it was possible for a landlord to comply with both state and federal law.

Merger with Affiliated Entity Triggers Landlord's Right to Terminate Lease

Cellular Telephone Co. v. 210 East 86^th Street Corp.

NYLJ 7/5/07, p. 18, col. 1

AppDiv, First Dept

(Opinion by Catterson, J.)

In commercial tenant's action for a declaration that landlord had not validly canceled its lease, landlord appealed from the Supreme Court's denial of its summary judgment motion and grant of tenant's summary judgment motion. The Appellate Division reversed and granted landlord's summary judgment motion, concluding that tenant's merger with an affiliated entity triggered landlord's right to terminate the lease.

Paragraph 49.1(a) of the parties' commercial lease provides that tenant shall not assign or sublet without obtaining prior written consent of owner, and gives owner a right to withhold consent for any reason or for no reason. The same paragraph also provides that transfer or other disposition of more than 25% of the stock of tenant or transfer of more than 25% of the total interest in tenant, shall be deemed an assignment. Paragraph 49.1(b), however, includes an exception: assignment to an 'affiliate, parent, or successor' does not require owner's consent. Paragraph 49.5 of the lease gives the owner a right to cancel the lease in the event of subletting or assignment. That paragraph, however, includes no express exception for assignments to affiliates, parents, or successors.

Before Oct. 26, 2004, tenant was a partnership between two equal entities. On Oct. 27, one of the entities acquired 100% of the tenant, causing the partnership to cease to exist. The acquiring entity became the tenant. Subsequently, the acquiring entity merged into an affiliated entity. Upon the completion of these transfers, landlord sent tenant a notice of its election to cancel the lease, and tenant brought this declaratory judgment action. Supreme Court granted summary judgment to tenant.

In reversing, the Appellate Division noted that paragraph 49.5 of the lease was unambiguous: the owner had a right to cancel upon a transfer or assignment. The court acknowledged that because the transfer was between related entities, tenant did not need owner's consent to assign the lease under paragraph 49.1, but conclude that the right to cancel operated 'whether or not such transfer or assignment required the Owner's consent.' The court emphasized that the lease was prepared by sophisticated business entities, and relied on the presumption that in such cases, the written instrument manifests the true intention of the parties.

 

Stipulation Cannot Confer Rent-Stabilized Status

546 West 156^th Street HDFC v. Smalls

NYLJ 7/2/07, p. 18, col. 1

AppDiv, First Dept

(Tom, J.)

In landlord's nonpayment proceeding, landlord appealed from the Appellate Term's reversal of a Civil Court order denying tenant's motion to dismiss the petition. The Appellate Division reversed and reinstated the petition, holding that a stipulation between the parties could not confer rent-stabilized status on an apartment that was not subject to the statutory scheme.

Landlord, a housing development fund company incorporated under the Private Housing Finance Law, purchased the subject building from the City of New York in 1989 in a tax foreclosure proceeding. Landlord covenanted with the city to operate the building as a project for low-income families. Tenant occupied an apartment in the building at the time landlord acquired the building, but took occupancy of her current apartment in 1994. In 1996, landlord brought a nonpayment proceeding, and identified the apartment as a rent-stabilized unit. The proceeding was resolved when tenant paid rent arrears and the parties stipulated that tenant would take occupancy pursuant to a rent stabilized lease effective Nov. 1, 1996. Pursuant to the stipulation, landlord registered the apartment as a rent-stabilized unit. Six years later, in 2002, landlord brought the current nonpayment proceeding. This time, the petition asserted that the tenancy is exempt from the Rent Stabilization Law because the unit is located in a building owned by a co-operative corporation. Tenant alleged an overcharge and a breach of the warranty of habitability, but moved for dismissal of the petition on the ground that ' contrary to the assertion in the petition ' the apartment was subject to rent stabilization. Tenant contended that petitions that misstate the rent regulatory status of the premises should be dismissed. Civil Court denied the motion to dismiss because the premises are exempt from rent stabilization, but the Appellate Term reversed and dismissed the petition. Landlord appealed.

In reversing, the Appellate Division emphasized that parties cannot create a statutory tenancy by contract. Because rent stabilization is a creature of the legislature, the parties may not evade the provisions governing the tenancy, thus frustrating legislative intent. Hence, tenant was not entitled to rely on the prior stipulation as a basis for dismissing the petition.

 

Tenant Evicted in Non-Primary Residence Proceeding

Carmine Limited v. Gordon

NYLJ 6/18/07, p. 27, col. 3

AppDiv, First Dept

(memorandum opinion)

In landlord's non-primary residence proceeding against tenant, landlord appealed from the Appellate Term's affirmance of Civil Court's dismissal of the proceeding. The Appellate Division reversed and awarded landlord a judgment of possession, holding that landlord had carried its burden of demonstrating that tenant was not using the subject apartment as her primary residence.

Tenant moved into the 450 square-foot one-bedroom apartment in 1978 when she was single. Her husband moved into the apartment in 1982, and the couple had a son in 1988. In 1991, tenant and her husband signed a lease for an apartment in Stuyvesant Town, and they signed renewal leases for that apartment through 2001. Also in the record was a letter from tenant's husband to a vice president at Metropolitan Life (where husband was employed) thanking him for his assistance in procuring the Stuyvesant Town apartment, and noting that raising a son in the walk-up apartment had been 'interesting.' The landlord also presented the couple's tax returns, which listed the Stuyvesant Town apartment as their address, a bank statement addressed to both spouses at the Stuyvesant Town address, and Con Ed bills for the 450 square-foot apartment showing virtually no electrical usage for months at a time. In addition, landlord established that there was no cable service in the apartment, and offered a neighbor who indicated that he had never seen anyone enter or leave the apartment for nearly a year and a half. Tenant took the position that her primary residence was in the subject apartment, that the marriage was a rocky one and that the parties often lived apart. Crediting tenant's testimony, Civil Court and the Appellate Term concluded that landlord had not carried its burden of disproving that tenant's primary residence was in the subject apartment.

In reversing, the Appellate Division emphasized the evidence of negligible electric usage in the apartment, and concluded that tenant had not provided a satisfactory explanation for that usage. Moreover, the court also drew an adverse evidence from tenant's failure to call her 15-year-old son to testify in support of her position. Finally, the court emphasized that the wife was in effect claiming a right to two rent-stabilized apartments as her primary residence ' something she was not entitled to do.

Misrepresentation of Fact Justifies Vacatur of Consent Judgment

142 Fulton LLC v. Hegarty

NYLJ 6/25/07, p. 34, col. 3

AppDiv, First Dept

(memorandum opinion)

In loft landlord's ejectment action, landlord appealed from the Supreme Court's grant of tenants' motion to vacate a ten-year-old consent judgment entered pursuant to a stipulation between the parties. The Appellate Division affirmed, holding that because the consent judgment was obtained by a misrepresentation of material fact, the court properly vacated the judgment.

In 1996, tenants sought to obtain renewal leases for their respective lofts, which had been illegally converted to residential use. Tenants contended that the apartments were subject either to the Rent Stabilization Law or the Loft Law. Landlord was unwilling to offer renewal leases until landlord had obtained a declaration that the apartments were unregulated. To resolve the dispute, the parties entered into a stipulation, representing falsely that the building had been substantially rehabilitated after 1974, and that tenants had not completed that substantial rehabilitation. The parties then obtained a consent judgment based on that stipulation, and the judgment provided for the parties to enter into ten-year leases providing for increases equal to those provided by the Rent Guidelines Board. The consent judgment also provided that tenants would vacate the apartments at the expiration of the ten-year term. When the term expired, landlord brought this ejectment action.

In upholding the Supreme Court's grant of tenants' motion to vacate the stipulation, the Appellate Division noted the court's inherent power to vacate orders and judgments obtained by fraud or misrepresentation. The Appellate Division also held that the Supreme Court had properly found that the lofts could possibly be legalized and thus that they might be subject to rent stabilization.