Landlord & Tenant

Permanent Exemption from MCI Increase Entitled to Deference

In re Terrace Court, LLC v. DHCR

NYLJ 12/30/10, AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by Nardelli, J.)

In landlord's article 78 proceeding challenging DHCR's grant of a permanent exemption to five tenants from a major capital improvement increase, landlord appealed from Supreme Court's denial of the petition and dismissal of the proceeding. A divided Appellate Division affirmed, holding that DHCR's determination was entitled to deference.

Landlord owns a landmarked 91-unit apartment building on Riverside Drive in Manhattan. Landlord obtained approval from the Landmarks Preservation Commission and the Building Department to do pointing work and replace lintels, masonry and parapets, and spent $1.2 million completing the repairs. Landlord then applied to DHCR for a major capital improvement increase (MCI) amounting to $42.58 per room per month. A number of tenants complained about the effectiveness of the work, and DHCR sent an inspector to the building, who found that five apartments displayed some state of wall disrepair. In only two of the apartments could the inspector detect actual wetness. DHCR then granted an MCI increase to landlord in the amount of $40.20 per room, but permanently exempted the five apartments inspected by DHCR. Landlord filed a petition for administrative review (PAR), contending that DHCR had exceeded its authority by permanently exempting the apartments rather than giving landlord an opportunity to cure any defects. (Landlord also challenged DHCR's conclusion that the moisture problem persisted). DHCR denied the PAR, and landlord brought this article 78 proceeding. Supreme Court denied the petition, concluding that DHCR had not abused its discretion in granting the permanent exemption. Landlord appealed.

In affirming, the Appellate Division majority held that the agency was entitled to deference for its determination to grant the permanent exemptions. The majority rejected landlord's contention that DHCR's options were limited to denying the exemption altogether or granting the exemption after giving landlord an opportunity to cure with respect to the subject apartments.

Justice Nardelli, dissenting for himself and Justice Friedman, contended that there was no rational basis for DHCR's determination. He argued that because the improvement was a building-wide improvement, there was no justification for exempting the five apartments once repairs are satisfactorily made. Moreover, the dissent noted that DHCR's determination conflicted with its own prior practice of exempting apartments only until such time as the owner satisfactorily corrects problems.

Non-Compliant Loft Landlord Has No Right to Collect Use and Occupancy

Jo-Fra Properties, Inc. v. Bobbe

NYLJ 12/23/10

AppDiv, First Dept.

(Opinion by Saxe, J.)

In loft landlord's action for use and occupancy, ejectment, and counsel fees, both landlord and tenants appealed from Supreme Court's judgment, which had granted tenants summary judgment dismissing the use and occupancy claims, but awarded landlord summary judgment on its claim for attorneys fees on the remaining claims. The Appellate Division modified to deny landlord's summary judgment claims on the attorneys' fees claims, and otherwise affirmed, holding that landlord's delays in bringing the loft buildings into compliance resulted in landlord's loss of the right to collect use and occupancy.

In 1977, corporate landlord acquired five buildings on West 28th Street in Manhattan. Beginning in the 1970s, residential tenants began to occupy the buildings' lofts, albeit pursuant to leases that specified that the premises were not for residential use. In 1978, when the Department of Buildings issued violations for the illegal residential use of some of the lofts, landlord sent those tenants form letters directing them to end their violations, but took no other steps. Landlord registered one of the five buildings with the Loft Board in 1984, two years after enactment of the Loft Law, but took no steps with regard to the other four buildings until 2004, when tenants filed an application for coverage under the Multiple Dwelling Law, article 7-C. After litigation, the parties stipulated that tenants would withdraw their application and landlord would register the buildings as interim multiple dwellings. Landlord did so, and, in 2008, took steps to begin bringing the buildings into compliance with the Loft Law. In 2008, tenants filed rent overcharge complaints with the Loft Board for the years 2004-2008. In the same year, the fire department issued violations based on storage by tenants of personal property in hallways and staircases. Landlord then notified tenants to cease use of the these areas, and then served 10-day notices of termination based on failure to cure violations. Then, in October 2008, landlord brought this action seeking use and occupancy arrears, ejectment, and counsel fees. Supreme Court granted summary judgment dismissing landlord's use and occupancy claims, and granted landlord summary judgment on its claim for attorneys' fees in connection with its claims based on the fire department violations. Both sides appealed.

In affirming the dismissal of landlord's use and occupancy claims, the court relied on the Loft Law, which prevents landlords from collecting rent from residential tenants without a proper certificate of occupancy unless landlord has complied with the statute's legalization timetables. In this case, landlord had not complied with those timetables. The court rejected landlord's argument that it was impossible to comply with the timetables because tenanst had not sought coverage under the Loft Law until 1994. The court noted that the Loft Law imposed a mandatory obligation on landlord to seek legalization, placing a burden on the owner even if tenant did not seek coverage. The court also rejected landlord's fairness argument, noting that even if the current legislation does not permit extensions for landlords seeking to comply with the Loft Law, the landlord had only itself to blame for failure to bring its buildings into compliance years earlier. Finally, the court modified Supreme Court's award of attorneys' fees to landlord on its claims for improper use of the hallways and stairways, emphasizing that there had not yet been any factual finding that tenants' use of the common areas constituted a violation of their leases, so that landlord has not yet established a right to attorneys' fees.

Permanent Exemption from MCI Increase Entitled to Deference

In re Terrace Court, LLC v. DHCR

NYLJ 12/30/10, AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by Nardelli, J.)

In landlord's article 78 proceeding challenging DHCR's grant of a permanent exemption to five tenants from a major capital improvement increase, landlord appealed from Supreme Court's denial of the petition and dismissal of the proceeding. A divided Appellate Division affirmed, holding that DHCR's determination was entitled to deference.

Landlord owns a landmarked 91-unit apartment building on Riverside Drive in Manhattan. Landlord obtained approval from the Landmarks Preservation Commission and the Building Department to do pointing work and replace lintels, masonry and parapets, and spent $1.2 million completing the repairs. Landlord then applied to DHCR for a major capital improvement increase (MCI) amounting to $42.58 per room per month. A number of tenants complained about the effectiveness of the work, and DHCR sent an inspector to the building, who found that five apartments displayed some state of wall disrepair. In only two of the apartments could the inspector detect actual wetness. DHCR then granted an MCI increase to landlord in the amount of $40.20 per room, but permanently exempted the five apartments inspected by DHCR. Landlord filed a petition for administrative review (PAR), contending that DHCR had exceeded its authority by permanently exempting the apartments rather than giving landlord an opportunity to cure any defects. (Landlord also challenged DHCR's conclusion that the moisture problem persisted). DHCR denied the PAR, and landlord brought this article 78 proceeding. Supreme Court denied the petition, concluding that DHCR had not abused its discretion in granting the permanent exemption. Landlord appealed.

In affirming, the Appellate Division majority held that the agency was entitled to deference for its determination to grant the permanent exemptions. The majority rejected landlord's contention that DHCR's options were limited to denying the exemption altogether or granting the exemption after giving landlord an opportunity to cure with respect to the subject apartments.

Justice Nardelli, dissenting for himself and Justice Friedman, contended that there was no rational basis for DHCR's determination. He argued that because the improvement was a building-wide improvement, there was no justification for exempting the five apartments once repairs are satisfactorily made. Moreover, the dissent noted that DHCR's determination conflicted with its own prior practice of exempting apartments only until such time as the owner satisfactorily corrects problems.

Non-Compliant Loft Landlord Has No Right to Collect Use and Occupancy

Jo-Fra Properties, Inc. v. Bobbe

NYLJ 12/23/10

AppDiv, First Dept.

(Opinion by Saxe, J.)

In loft landlord's action for use and occupancy, ejectment, and counsel fees, both landlord and tenants appealed from Supreme Court's judgment, which had granted tenants summary judgment dismissing the use and occupancy claims, but awarded landlord summary judgment on its claim for attorneys fees on the remaining claims. The Appellate Division modified to deny landlord's summary judgment claims on the attorneys' fees claims, and otherwise affirmed, holding that landlord's delays in bringing the loft buildings into compliance resulted in landlord's loss of the right to collect use and occupancy.

In 1977, corporate landlord acquired five buildings on West 28th Street in Manhattan. Beginning in the 1970s, residential tenants began to occupy the buildings' lofts, albeit pursuant to leases that specified that the premises were not for residential use. In 1978, when the Department of Buildings issued violations for the illegal residential use of some of the lofts, landlord sent those tenants form letters directing them to end their violations, but took no other steps. Landlord registered one of the five buildings with the Loft Board in 1984, two years after enactment of the Loft Law, but took no steps with regard to the other four buildings until 2004, when tenants filed an application for coverage under the Multiple Dwelling Law, article 7-C. After litigation, the parties stipulated that tenants would withdraw their application and landlord would register the buildings as interim multiple dwellings. Landlord did so, and, in 2008, took steps to begin bringing the buildings into compliance with the Loft Law. In 2008, tenants filed rent overcharge complaints with the Loft Board for the years 2004-2008. In the same year, the fire department issued violations based on storage by tenants of personal property in hallways and staircases. Landlord then notified tenants to cease use of the these areas, and then served 10-day notices of termination based on failure to cure violations. Then, in October 2008, landlord brought this action seeking use and occupancy arrears, ejectment, and counsel fees. Supreme Court granted summary judgment dismissing landlord's use and occupancy claims, and granted landlord summary judgment on its claim for attorneys' fees in connection with its claims based on the fire department violations. Both sides appealed.

In affirming the dismissal of landlord's use and occupancy claims, the court relied on the Loft Law, which prevents landlords from collecting rent from residential tenants without a proper certificate of occupancy unless landlord has complied with the statute's legalization timetables. In this case, landlord had not complied with those timetables. The court rejected landlord's argument that it was impossible to comply with the timetables because tenanst had not sought coverage under the Loft Law until 1994. The court noted that the Loft Law imposed a mandatory obligation on landlord to seek legalization, placing a burden on the owner even if tenant did not seek coverage. The court also rejected landlord's fairness argument, noting that even if the current legislation does not permit extensions for landlords seeking to comply with the Loft Law, the landlord had only itself to blame for failure to bring its buildings into compliance years earlier. Finally, the court modified Supreme Court's award of attorneys' fees to landlord on its claims for improper use of the hallways and stairways, emphasizing that there had not yet been any factual finding that tenants' use of the common areas constituted a violation of their leases, so that landlord has not yet established a right to attorneys' fees.