When Can a Tenant 'Waive' Rent Regulatory Rights?

Section 2520.13 of the Rent Stabilization Code and ' 2200.15 of the Rent Control Regulations generally provide that tenants cannot waive their rights under rent regulation. Notwithstanding, courts have struggled over the years to define when a tenant can, or cannot, waive such rights. The purpose of this article is to analyze existing case law so that practitioners can draft stipulations of settlement that will survive challenges based on “waiver” or “public policy” grounds.

Safe Harbor No. 1: Surrender of Possession

Many stipulations of settlement provide that the rent-regulated tenant will surrender possession of an apartment for money, forgiveness of rent, or some other consideration. Courts have made clear that a tenant's voluntary decision to vacate a rent-regulated apartment outright will generally not run afoul of the anti-waiver rule.

In Veski v. Connors, 2002 WL 1174676 (App. T. 1st Dep't), the tenant, in a foreclosure action, entered into a so-ordered stipulation whereby she agreed to vacate her rent-stabilized apartment. The tenant failed to vacate, and argued in a holdover proceeding that her agreement to do so was an unlawful waiver. Appellate Term disagreed, stating that there had not been “an impermissible waiver of tenant's rights under the Rent Stabilization Law since there is no evidence of bad faith or overreaching and tenant received a substantial financial benefit” (internal citations omitted).

Courts have adopted the same rationale with respect to agreements whereby rent-controlled tenants agree to vacate for consideration. See Merwest Realty Corp. v. Prager, 264 A.D.2d 313, 694 N.Y.S.2d 38 (1st Dep't 1999); Eckstein v. New York University, 270 A.D.2d 208, 705 N.Y.S.2d 51 (1st Dep't 2000), lv. to app. denied 95 N.Y.2d 760, 714 N.Y.S.2d 710 (2000).

Safe Harbor No. 2: The Rent-Regulated Status of the Apartment Is Legitimately in Doubt

A stipulation of settlement “usually ' betokens the recognition of points of strength and points of weakness in each side of the case and the expense and uncertainty of litigation.” 19A N.Y. Jur.2d Compromise, Accord & Release, ' 27. Thus, where the rent-regulated status of an apartment is legitimately in doubt, courts have generally ruled that a tenant's agreement to surrender or compromise those rights does not violate the anti-waiver rule. Put another way, a tenant cannot waive rent regulatory rights where a tribunal has yet to determine that the tenant is rent regulated to begin with.

The First Department of the Appellate Term recently restated this rule in SAP V/Atlas 845 WEA Assocs. NF LLC v. Jannelli, 2010 WL 5469027 (App. T. 1st Dep't). In Jannelli, the tenants entered into a two-attorney, so-ordered stipulation to vacate an apartment that the landlord, pursuant to a 2002 DHCR order declaring the apartment to have been luxury deregulated, believed to be exempt from rent stabilization. At the time the parties entered into the stipulation, the Appellate Division, First Department had already issued its ruling in Roberts v. Tishman Speyer Properties, LP, 62 A.D.3d 71, 874 N.Y.S.2d 97 (1st Dep't 2009), wherein the Appellate Division ruled that luxury deregulation does not attach in buildings receiving J-51 benefits. The Appellate Division, however, had already granted the landlord in Roberts leave to appeal to the Court of Appeals, such that, at the time the stipulation was signed, the ultimate outcome of Roberts was in doubt. After the Court of Appeals affirmed, the tenants sought to vacate the stipulation, asserting that they were rent-stabilized and had impermissibly waived their rights.

Appellate Term disagreed, holding:

Here, tenants failed to demonstrate any basis upon which to disturb the stipulation. Tenants, represented by experienced landlord-tenant counsel, entered the two-attorney, so-ordered stipulation after lengthy negotiations. The stipulation, which did not provide that tenants were waiving any protections of the Rent Stabilization Law or Code, was mutually beneficial to the parties ' landlord was afforded a final judgment and a date-certain by which it would recover possession, while tenants were permitted to remain in occupancy of the apartment (at a rate of use and occupancy identical to the rent they had been paying for the unit) for several additional months.

The court continued:

Moreover, tenants submitted no evidence demonstrating fraud by landlord, or that they entered into the stipulation due to mistake or accident.In this connection, we note that landlord lawfully relied upon the undisturbed 2002 DHCR determination in concluding that the apartment was exempt from all rent regulations, and asserted consistently throughout the dispute that the apartment was not rent stabilized. Moreover, the highly-publicized Roberts litigation was extant during the negotiation process. We reject tenants' argument that the stipulation violated public policy, since, in light of the undisturbed 2002 determination and the myriad issues raised by the Roberts litigation, the regulatory status of the apartment was debatable” (internal citations omitted).

For similar cases, see Kent v. Bedford Apt. Co., 237 A.D.2d 140, 654 N.Y.S.2d 143 (1st Dep't 1997); City Dev. & Mgt., Inc. v. Tirado, 15 Misc.3d 138(A), 841 N.Y.S.2d 217 (App. T. 2nd and 11th Jud. Dists. 2007). In the context of rent control, see Matinzi v. Joy, 60 N.Y.2d 835, 470 N.Y.S.2d 131 (1993).

There are two scenarios in which a court will most likely strike down a stipulation as an unlawful waiver of rent regulatory rights.These are discussed below.

Scenario 1: The 'Super' Rent-Stabilized Tenant

Certain agreements purport to allow a tenant to remain in possession of a rent regulated apartment under a hybrid or diluted form of rent regulation that encourages conduct antithetical to the underlying purposes of rent regulation. For example, in Riverside Syndicate, Inc. v. Munroe, 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008), the tenant remained in occupancy of a rent-stabilized apartment pursuant to an agreement whereby the tenant would pay a blatant rent overcharge in exchange for the landlord's promise not to seek to evict the tenant based on non-primary residence. This agreement, in effect, created a “super” rent-stabilized tenant who (in exchange for paying a rent overcharge) could use his apartment as a pied-'-terre without consequence. The Court of Appeals refused to enforce the agreement, holding that the tenant's waiver of his right to pay a legal rent, coupled with the landlord's waiver of its right to evict the tenant based on non-primary residence, was void as against public policy.

In Georgia Properties, Inc. v. Dalsimer, 39 A.D.3d 332, 835 N.Y.S.2d 41 (1st Dep't 2007), the tenant forfeited rent control status as to one of his two apartments in exchange for the landlord's promise not to seek to luxury deregulate the tenant's other, rent-stabilized apartment. The Appellate Division, for reasons similar to those in Riverside, held that the agreement violated public policy.

The Riverside and Dalsimer cases clearly fall outside of the safe harbors discussed above. In neither case was the status of the apartment legitimately at issue, and in both cases the tenant remained rent-stabilized, albeit with powers that other rent stabilized tenants do not possess.

Scenario 2: Private Deregulation

The second scenario where a court will void an agreement as an unlawful waiver of rent regulatory rights is where the agreement allows the tenant to remain in occupancy of the apartment, but the parties privately agree that the apartment shall be “deregulated.” See Draper v. Georgia Properties, Inc., 94 N.Y.2d 809, 701 N.Y.S.2d 322 (1999); Drucker v. Mauro, 30 A.D.3d 37, 814 N.Y.S.2d 43 (1st Dep't 2006).

The second scenario is essentially the flip side of the first; the rent-regulated status of the apartment is not legitimately in doubt, but here, the tenant remains in occupancy stripped of all rent regulatory rights.

Conclusion

Practitioners, before drafting stipulations involving rent-regulated tenants, should carefully check the facts of the case to determine whether the settlement falls within the permissible or impermissible scenarios set forth above.

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 represented the prevailing owners in Jannelli, Riverside, and Dalsimer.

Section 2520.13 of the Rent Stabilization Code and ' 2200.15 of the Rent Control Regulations generally provide that tenants cannot waive their rights under rent regulation. Notwithstanding, courts have struggled over the years to define when a tenant can, or cannot, waive such rights. The purpose of this article is to analyze existing case law so that practitioners can draft stipulations of settlement that will survive challenges based on “waiver” or “public policy” grounds.

Safe Harbor No. 1: Surrender of Possession

Many stipulations of settlement provide that the rent-regulated tenant will surrender possession of an apartment for money, forgiveness of rent, or some other consideration. Courts have made clear that a tenant's voluntary decision to vacate a rent-regulated apartment outright will generally not run afoul of the anti-waiver rule.

In Veski v. Connors, 2002 WL 1174676 (App. T. 1st Dep't), the tenant, in a foreclosure action, entered into a so-ordered stipulation whereby she agreed to vacate her rent-stabilized apartment. The tenant failed to vacate, and argued in a holdover proceeding that her agreement to do so was an unlawful waiver. Appellate Term disagreed, stating that there had not been “an impermissible waiver of tenant's rights under the Rent Stabilization Law since there is no evidence of bad faith or overreaching and tenant received a substantial financial benefit” (internal citations omitted).

Courts have adopted the same rationale with respect to agreements whereby rent-controlled tenants agree to vacate for consideration. See Merwest Realty Corp. v. Prager , 264 A.D.2d 313, 694 N.Y.S.2d 38 (1st Dep't 1999); Eckstein v. New York University , 270 A.D.2d 208, 705 N.Y.S.2d 51 (1st Dep't 2000), lv. to app. denied 95 N.Y.2d 760, 714 N.Y.S.2d 710 (2000).

Safe Harbor No. 2: The Rent-Regulated Status of the Apartment Is Legitimately in Doubt

A stipulation of settlement “usually ' betokens the recognition of points of strength and points of weakness in each side of the case and the expense and uncertainty of litigation.” 19A N.Y. Jur.2d Compromise, Accord & Release, ' 27. Thus, where the rent-regulated status of an apartment is legitimately in doubt, courts have generally ruled that a tenant's agreement to surrender or compromise those rights does not violate the anti-waiver rule. Put another way, a tenant cannot waive rent regulatory rights where a tribunal has yet to determine that the tenant is rent regulated to begin with.

The First Department of the Appellate Term recently restated this rule in SAP V/Atlas 845 WEA Assocs. NF LLC v. Jannelli, 2010 WL 5469027 (App. T. 1st Dep't). In Jannelli, the tenants entered into a two-attorney, so-ordered stipulation to vacate an apartment that the landlord, pursuant to a 2002 DHCR order declaring the apartment to have been luxury deregulated, believed to be exempt from rent stabilization. At the time the parties entered into the stipulation, the Appellate Division, First Department had already issued its ruling in Roberts v. Tishman Speyer Properties, LP , 62 A.D.3d 71, 874 N.Y.S.2d 97 (1st Dep't 2009), wherein the Appellate Division ruled that luxury deregulation does not attach in buildings receiving J-51 benefits. The Appellate Division, however, had already granted the landlord in Roberts leave to appeal to the Court of Appeals, such that, at the time the stipulation was signed, the ultimate outcome of Roberts was in doubt. After the Court of Appeals affirmed, the tenants sought to vacate the stipulation, asserting that they were rent-stabilized and had impermissibly waived their rights.

Appellate Term disagreed, holding:

Here, tenants failed to demonstrate any basis upon which to disturb the stipulation. Tenants, represented by experienced landlord-tenant counsel, entered the two-attorney, so-ordered stipulation after lengthy negotiations. The stipulation, which did not provide that tenants were waiving any protections of the Rent Stabilization Law or Code, was mutually beneficial to the parties ' landlord was afforded a final judgment and a date-certain by which it would recover possession, while tenants were permitted to remain in occupancy of the apartment (at a rate of use and occupancy identical to the rent they had been paying for the unit) for several additional months.

The court continued:

Moreover, tenants submitted no evidence demonstrating fraud by landlord, or that they entered into the stipulation due to mistake or accident.In this connection, we note that landlord lawfully relied upon the undisturbed 2002 DHCR determination in concluding that the apartment was exempt from all rent regulations, and asserted consistently throughout the dispute that the apartment was not rent stabilized. Moreover, the highly-publicized Roberts litigation was extant during the negotiation process. We reject tenants' argument that the stipulation violated public policy, since, in light of the undisturbed 2002 determination and the myriad issues raised by the Roberts litigation, the regulatory status of the apartment was debatable” (internal citations omitted).

For similar cases, see Kent v. Bedford Apt. Co. , 237 A.D.2d 140, 654 N.Y.S.2d 143 (1st Dep't 1997); City Dev. & Mgt., Inc. v. Tirado , 15 Misc.3d 138(A), 841 N.Y.S.2d 217 (App. T. 2nd and 11th Jud. Dists. 2007). In the context of rent control, see Matinzi v. Joy , 60 N.Y.2d 835, 470 N.Y.S.2d 131 (1993).

There are two scenarios in which a court will most likely strike down a stipulation as an unlawful waiver of rent regulatory rights.These are discussed below.

Scenario 1: The 'Super' Rent-Stabilized Tenant

Certain agreements purport to allow a tenant to remain in possession of a rent regulated apartment under a hybrid or diluted form of rent regulation that encourages conduct antithetical to the underlying purposes of rent regulation. For example, in Riverside Syndicate, Inc. v. Munroe , 10 N.Y.3d 18, 853 N.Y.S.2d 263 (2008), the tenant remained in occupancy of a rent-stabilized apartment pursuant to an agreement whereby the tenant would pay a blatant rent overcharge in exchange for the landlord's promise not to seek to evict the tenant based on non-primary residence. This agreement, in effect, created a “super” rent-stabilized tenant who (in exchange for paying a rent overcharge) could use his apartment as a pied-'-terre without consequence. The Court of Appeals refused to enforce the agreement, holding that the tenant's waiver of his right to pay a legal rent, coupled with the landlord's waiver of its right to evict the tenant based on non-primary residence, was void as against public policy.

In Georgia Properties, Inc. v. Dalsimer , 39 A.D.3d 332, 835 N.Y.S.2d 41 (1st Dep't 2007), the tenant forfeited rent control status as to one of his two apartments in exchange for the landlord's promise not to seek to luxury deregulate the tenant's other, rent-stabilized apartment. The Appellate Division, for reasons similar to those in Riverside, held that the agreement violated public policy.

The Riverside and Dalsimer cases clearly fall outside of the safe harbors discussed above. In neither case was the status of the apartment legitimately at issue, and in both cases the tenant remained rent-stabilized, albeit with powers that other rent stabilized tenants do not possess.

Scenario 2: Private Deregulation

The second scenario where a court will void an agreement as an unlawful waiver of rent regulatory rights is where the agreement allows the tenant to remain in occupancy of the apartment, but the parties privately agree that the apartment shall be “deregulated.” See Draper v. Georgia Properties, Inc. , 94 N.Y.2d 809, 701 N.Y.S.2d 322 (1999); Drucker v. Mauro , 30 A.D.3d 37, 814 N.Y.S.2d 43 (1st Dep't 2006).

The second scenario is essentially the flip side of the first; the rent-regulated status of the apartment is not legitimately in doubt, but here, the tenant remains in occupancy stripped of all rent regulatory rights.

Conclusion

Practitioners, before drafting stipulations involving rent-regulated tenants, should carefully check the facts of the case to determine whether the settlement falls within the permissible or impermissible scenarios set forth above.

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 represented the prevailing owners in Jannelli, Riverside, and Dalsimer.