Landlord & Tenant

Court of Appeals

(6-1 decision; majority opinion by Ciparick, J; dissenting opinion by Read, J.)

In an action by commercial tenant for an abatement of rent resulting from a partial actual eviction, tenant appealed from the Appellate Division's determination that tenant had not established damages. The Court of Appeals affirmed, holding that a commercial tenant is not entitled to a total rent abatement for a trifling intrusion into its demised space.

In 1998, landlord leased two floors in its retail and office building to tenant for an 18-year term. Tenant operates a multiplex movie theater on the premises. The lease allows landlord to enter the demised premises to make repairs and improvements, and provides that tenant will not be entitled to a rent abatement during the time the work is in progress. It also provides that tenant is not entitled to an allowance of diminished rental value arising from making of repairs or improvements. In 2002, landlord installed cross-bracing between support columns on tenant's floors in preparation for adding two floors to the building. The cross-bracing occupied 12 square feet of the leased premises, whose total area was between 15,000 and 19,000 square feet. Tenant then brought this action, seeking an injunction preventing landlord from doing further work in the premises, and directing landlord to remove the cross-bracing. Tenant also sought a total abatement of rent. Supreme Court enjoined landlord from doing additional work in the premises, but dismissed the rent abatement claim, concluding that the de minimis taking did not justify a rent abatement. The Appellate Division modified, rejecting a de minimis exception, but concluded that tenant should be entitled to actual damages, not a total rent abatement. On remand, Supreme Court held that tenant had failed to establish any actual damages, and made no award. The Appellate Division affirmed, and the Court of Appeals granted leave to appeal.

In affirming, the Court of Appeals acknowledged the long-standing rule that in cases of partial actual eviction, tenant is entitled to a total rent abatement because landlord is not entitled to apportion its own wrong. But the court held that when landlord's intrusion into the demised premises is of a trifling amount, the “draconian” remedy of total rent abatement is not justified. With a de minimis intrusion, neither damages nor injunctive relief is warranted. Judge Read, dissenting, argued that the majority was overruling established precedent for no good reason, emphasizing that the landlord could have protected itself by contracting out of the common-law rule permitting rent abatement in cases of partial actual eviction.

DHCR Has Discretion to Exempt Apartments from MCI Increases

Matter of Terrace Court, LLC v. New York State Division of Housing and Community Renewal

NYLJ 2/15/12, p. 23, col. 1

Court of Appeals

(Opinion by Graffeo, J; concurring opinion by Smith, J.)

In landlord's article 78 proceeding challenging DHCR's permanent exemption of five apartments from a rent increase for major capital improvements (MCIs), landlord appealed from a divided Appellate Division's affirmance of Supreme Court's denial of the petition and dismissal of the proceeding. The Court of Appeals affirmed, holding that DHCR has discretion to exempt apartments permanently in appropriate circumstances.

Landlord spent $1.2 million on improvements to its apartment building, which included 91 apartments, 37 of them rent-regulated. After completing the improvements, which involved pointing work and replacement of masonry, lintels and parapets, landlord applied to DHCR for an MCI with respect to the rent-regulated units. Some tenants objected, contending that the construction work had resulted in leakage, causing walls to blister, crack, and stain. Landlord contended that the work had been properly completed, and that the leakage was unrelated to the repair work. Based on DHCR's subsequent inspection of the apartments, the rent administrator granted the MCI, raising rents by $40.20 per room, but permanently exempted the five affected apartments. DHCR denied landlord's petition for administrative review, and landlord brought this article 78 proceeding. Supreme Court denied the petition, and a divided Appellate Division affirmed.

In affirming, the Court of Appeals rejected landlord's argument that DHCR was bound by its own established policy of providing temporary suspensions, not permanent exemptions, of MCI increases when repairs are necessary. The Court of Appeals agreed with the general proposition that agencies are required to follow their own precedent, and to provide a justification for any change in established rules, but held that in situations like this one, DHCR had made prior determinations involving permanent exemptions. Moreover, the court rejected landlord's contention that the Rent Stabilization Code precluded permanent exemptions when repairs are necessary, relying on the principle that an agency's interpretation of its own regulations are entitled to deference. The court found that it was reasonable for the agency to conclude that the five apartments did not benefit from the MCI project, and that they should be excluded from contributing to that project. Judge Smith, concurring, agreed that deference was due the agency's decision, but noted that DHCR's decisions made it difficult to determine what principles the agency used to determine when exemptions should be permanent and when they should be temporary.

COMMENT

The Rent Stabilization Code provides that owners of rent-regulated apartments are entitled to rent increases based on MCIs that benefit tenants directly or indirectly. See Rent Stabilization Code ' 2522.4(a)(2)(i). Neither the Rent Stabilization Law nor the Rent Stabilization Code expressly indicates what remedy is available in situations where the MCI itself adversely impacts certain tenants. The code provides that DHCR should not grant the MCI if the owner is not maintaining all required services, but may grant the MCI “upon condition that such services will be restored within a reasonable time.” See Rent Stabilization Code ' 2522.4(a)(13). The question is whether this provision, which suggests temporary suspensions rather than permanent exemptions as a remedy, applies to services related to the MCI itself, or only to services unrelated to the MCI.

In Langham Mansions, LLC v. DHCR, 76 A.D.3d 855, the court overturned DHCR's grant of a permanent exemption to tenants when DHCR found minor defects in newly installed windows. The court did not, however, rely on the statutory language, but instead concluded that “simple common sense” dictates suspension rather than permanent revocation of an increase because revocation removes the incentive for landlord to make repairs. The court also concluded that suspension was consistent with the policy articulated by DHCR in earlier cases.

Without mentioning Langham, the Court of Appeals in Terrace Court implicitly rejected the finding in Langham that DHCR had a policy of suspending rent increases where the MCI was partly defective. Instead, the court found that DHCR had given both suspensions and exemptions in cases of partly defective MCIs. The court framed its decision as a reiteration of prior decisions upholding as “rational” case-by-case determinations made by DHCR without clear criteria. (See Peckham v Calogero, 12 N.Y.3d 424 where the court found that lacking a precise definition of “demolition,” DHCR's case-by-case determinations without explicit criteria explaining its determinations were rational). In Terrace Court, the court found that although DHCR did not articulate the reasons for ordering revocations in some cases and suspensions in others, the different treatment could rationally be based on the presence or absence of good faith by the landlord in promptly fixing MCI defects.

No Total Rent Abatement for Trivial Intrusion

Eastside Exhibition Corp. v. 210 East 86th Street Corp.

NYLJ 2/22/12, p. 23, col. 3

Court of Appeals

(6-1 decision; majority opinion by Ciparick, J; dissenting opinion by Read, J.)

In an action by commercial tenant for an abatement of rent resulting from a partial actual eviction, tenant appealed from the Appellate Division's determination that tenant had not established damages. The Court of Appeals affirmed, holding that a commercial tenant is not entitled to a total rent abatement for a trifling intrusion into its demised space.

In 1998, landlord leased two floors in its retail and office building to tenant for an 18-year term. Tenant operates a multiplex movie theater on the premises. The lease allows landlord to enter the demised premises to make repairs and improvements, and provides that tenant will not be entitled to a rent abatement during the time the work is in progress. It also provides that tenant is not entitled to an allowance of diminished rental value arising from making of repairs or improvements. In 2002, landlord installed cross-bracing between support columns on tenant's floors in preparation for adding two floors to the building. The cross-bracing occupied 12 square feet of the leased premises, whose total area was between 15,000 and 19,000 square feet. Tenant then brought this action, seeking an injunction preventing landlord from doing further work in the premises, and directing landlord to remove the cross-bracing. Tenant also sought a total abatement of rent. Supreme Court enjoined landlord from doing additional work in the premises, but dismissed the rent abatement claim, concluding that the de minimis taking did not justify a rent abatement. The Appellate Division modified, rejecting a de minimis exception, but concluded that tenant should be entitled to actual damages, not a total rent abatement. On remand, Supreme Court held that tenant had failed to establish any actual damages, and made no award. The Appellate Division affirmed, and the Court of Appeals granted leave to appeal.

In affirming, the Court of Appeals acknowledged the long-standing rule that in cases of partial actual eviction, tenant is entitled to a total rent abatement because landlord is not entitled to apportion its own wrong. But the court held that when landlord's intrusion into the demised premises is of a trifling amount, the “draconian” remedy of total rent abatement is not justified. With a de minimis intrusion, neither damages nor injunctive relief is warranted. Judge Read, dissenting, argued that the majority was overruling established precedent for no good reason, emphasizing that the landlord could have protected itself by contracting out of the common-law rule permitting rent abatement in cases of partial actual eviction.

DHCR Has Discretion to Exempt Apartments from MCI Increases

Matter of Terrace Court, LLC v. New York State Division of Housing and Community Renewal

NYLJ 2/15/12, p. 23, col. 1

Court of Appeals

(Opinion by Graffeo, J; concurring opinion by Smith, J.)

In landlord's article 78 proceeding challenging DHCR's permanent exemption of five apartments from a rent increase for major capital improvements (MCIs), landlord appealed from a divided Appellate Division's affirmance of Supreme Court's denial of the petition and dismissal of the proceeding. The Court of Appeals affirmed, holding that DHCR has discretion to exempt apartments permanently in appropriate circumstances.

Landlord spent $1.2 million on improvements to its apartment building, which included 91 apartments, 37 of them rent-regulated. After completing the improvements, which involved pointing work and replacement of masonry, lintels and parapets, landlord applied to DHCR for an MCI with respect to the rent-regulated units. Some tenants objected, contending that the construction work had resulted in leakage, causing walls to blister, crack, and stain. Landlord contended that the work had been properly completed, and that the leakage was unrelated to the repair work. Based on DHCR's subsequent inspection of the apartments, the rent administrator granted the MCI, raising rents by $40.20 per room, but permanently exempted the five affected apartments. DHCR denied landlord's petition for administrative review, and landlord brought this article 78 proceeding. Supreme Court denied the petition, and a divided Appellate Division affirmed.

In affirming, the Court of Appeals rejected landlord's argument that DHCR was bound by its own established policy of providing temporary suspensions, not permanent exemptions, of MCI increases when repairs are necessary. The Court of Appeals agreed with the general proposition that agencies are required to follow their own precedent, and to provide a justification for any change in established rules, but held that in situations like this one, DHCR had made prior determinations involving permanent exemptions. Moreover, the court rejected landlord's contention that the Rent Stabilization Code precluded permanent exemptions when repairs are necessary, relying on the principle that an agency's interpretation of its own regulations are entitled to deference. The court found that it was reasonable for the agency to conclude that the five apartments did not benefit from the MCI project, and that they should be excluded from contributing to that project. Judge Smith, concurring, agreed that deference was due the agency's decision, but noted that DHCR's decisions made it difficult to determine what principles the agency used to determine when exemptions should be permanent and when they should be temporary.

COMMENT

The Rent Stabilization Code provides that owners of rent-regulated apartments are entitled to rent increases based on MCIs that benefit tenants directly or indirectly. See Rent Stabilization Code ' 2522.4(a)(2)(i). Neither the Rent Stabilization Law nor the Rent Stabilization Code expressly indicates what remedy is available in situations where the MCI itself adversely impacts certain tenants. The code provides that DHCR should not grant the MCI if the owner is not maintaining all required services, but may grant the MCI “upon condition that such services will be restored within a reasonable time.” See Rent Stabilization Code ' 2522.4(a)(13). The question is whether this provision, which suggests temporary suspensions rather than permanent exemptions as a remedy, applies to services related to the MCI itself, or only to services unrelated to the MCI.

In Langham Mansions, LLC v. DHCR, 76 A.D.3d 855, the court overturned DHCR's grant of a permanent exemption to tenants when DHCR found minor defects in newly installed windows. The court did not, however, rely on the statutory language, but instead concluded that “simple common sense” dictates suspension rather than permanent revocation of an increase because revocation removes the incentive for landlord to make repairs. The court also concluded that suspension was consistent with the policy articulated by DHCR in earlier cases.

Without mentioning Langham, the Court of Appeals in Terrace Court implicitly rejected the finding in Langham that DHCR had a policy of suspending rent increases where the MCI was partly defective. Instead, the court found that DHCR had given both suspensions and exemptions in cases of partly defective MCIs. The court framed its decision as a reiteration of prior decisions upholding as “rational” case-by-case determinations made by DHCR without clear criteria. (See Peckham v Calogero, 12 N.Y.3d 424 where the court found that lacking a precise definition of “demolition,” DHCR's case-by-case determinations without explicit criteria explaining its determinations were rational). In Terrace Court, the court found that although DHCR did not articulate the reasons for ordering revocations in some cases and suspensions in others, the different treatment could rationally be based on the presence or absence of good faith by the landlord in promptly fixing MCI defects.