Landlord & Tenant

Supreme Ct., N.Y. Cty.

(Mendez, J.)

'A member of landlord LLC sought to enjoin tenant from selling, destroying, or removing fixtures and equipment from the premises on or before the expiration of the lease. The court denied the injunction, and awarded tenant a reasonable time to remove trade fixtures, concluding that the lease provision making fixtures the property of the owner did not apply to trade fixtures installed by tenant.

'Plaintiff Aprile, along with three others, formed Men of Invention, LLC to operate a bar restaurant in the subject premises. Aprile was also a member of the landlord LLC. The three-year lease, set to expire on Sept. 14, 2013, provided in paragraph 52 that tenant would, at the expiration of the lease, remove all property from the devised premises. Paragraph 54 provided that all fixtures installed at any time by the tenant “shall become the property of owner and shall remain upon and be surrendered with the demised premises.” Paragraph 56 authorized tenant to install trade fixtures without the consent of the owner. As the expiration of the lease term approached, Aprile brought this action seeking to enjoin removal of the trade fixtures tenant had installed on the premises.

In denying Aprile injunctive relief, the court started by surmising that Aprile was bringing the action in large measure based on an alleged failure of the other three founders of Men of Invention to distribute the profits in accordance with the agreement among the members. Aprile sought the injunction out of fear that if tenant removed the trade fixtures, there would be no assets from which he could recover any judgment he obtained. But the court held first that an unsecured creditor is not generally entitled to a preliminary injunction restraining the debtor from transferring assets until after the creditor obtains a judgment. The court then noted that typically, a tenant is entitled to remove trade fixtures from leased property before tenant leaves, unless the lease provides otherwise.

The court concluded that the subject lease permitted landlord to retain fixtures, but not trade fixtures. Finally, the court held that Aprile lacked standing to obtain injunctive relief or possession of the premises on behalf of landowner, because an individual shareholder does not have standing to obtain a personal recovery for a wrong done to a corporation.' As a result, the court ordered that tenants be permitted two weeks following termination of the lease to remove furniture, equipment, and trade fixtures.

COMMENT

If an improvement to a leasehold is a fixture, absent any contrary language in the lease, the improvement remains property of the landlord at the expiration of the lease term. By contrast, the tenant may remove any improvement that constitutes a trade fixture. Thus, in Shelvin Plaza Associates, LLC v. Wheatley Capital, Inc, 2007 WL 4289255, landlord obtained an injunction preventing tenant from removing glass doors, window treatments and air conditioning unit because the installations were fixtures. Conversely, in Orange County-Poughkeepsie M.S.A. Ltd. Partnership v. Bonte, 301 A.D.2d 583, tenant was entitled to keep the communications tower he erected on the leased premises to facilitate the operations of his wireless communications facility because it was a trade fixture.

When a tenant installs equipment into the leased premises designed to suit tenant's particular operation, courts are likely to construe these improvements as trade fixtures.. Thus, in In re Arista Devices Corp., 94 B.R. 26, the court held that an electronics manufacturer's installation of a central air conditioning system and mezzanine were trade fixtures and not permanent improvements to the leased premises that remain property of the landlord, emphasizing that tenant's electronics manufacturing business required precise climate control and that the mezzanine was used as a cafeteria and storage area for the business. Similarly, in J.K.S.P. Restaurant, Inc. v. Nassau County, 127 A.D.2d 121, when a tenant placed a dining car onto a parcel of leased vacant land, the Second Department rejected landlord's argument that the dining car was a fixture because the dining car was particularly suited to tenant's business and not a general improvement to the property itself. If however equipment installed by a tenant would be equally valuable for subsequent tenants, the court may conclude that the equipment is a fixture. Thus, in Shelvin Plaza Associates, LLC v. Wheatley Capital, Inc, 2007 WL 4289255, the landlord was entitled to keep tenant's copper ceiling tiles, glass doors, closets, window treatments and air conditioning units when the court categorized the improvements as fixtures because they were installed for enhancing the space as part of a common decorative scheme, and, in the case of the air conditioning unit, to provide a more comfortable environment. The court concluded that installations added for the purpose of enhancing the premises itself rather than enhancing tenant's business constitute fixtures.

'

Economic Unfeasibility

'Lamberty v. Papamichael

'NYLJ 9/25/13, p. 21, col. 3

'Supreme Ct., Kings Cty.

'(Graham, J.)

Tenants sought an injunction requiring landlord to make repairs and to restore tenants to their apartments after the repairs were completed. The court granted a preliminary injunction, rejecting landlord's economic unfeasibility defense.

In November, 2010, when the subject eight-unit tenement building was owned by landlord's predecessor, the Department of Buildings examined the building and concluded that repairs were needed. Landlord's predecessor prepared plans for joist replacement and masonry repair, and those plans were approved in March 2011. The following month, landlord purchased the building. When landlord asked the tenants to move out to permit joist replacement, and offered to pay each tenant $500 for expenses involved in the temporary move, tenants declined landlord's offer.

Then, in December 2012, the Department of Buildings issued a vacate order, citing defective brick work, a defective chimney, cracks in ceilings and walls, and other difficulties. Tenants then brought this action. Landlord contended that because the costs of restoring the building would exceed the value of the building after renovation, landlord was not required to make the repairs and restore the rent-regulated tenants.

In granting tenants the injunction they sought, the court rejected landlord's contention that the building needed a comprehensive and substantial renovation, which its experts testified would cost $1.4 million. The court concluded that the work done by landlord ' gutting of the building, replacement of all kitchens and bathrooms, together with floors wall, appliances, and fixtures ' was much more extensive than legally required by the vacate order issued by the Department of Buildings. The court credited the testimony of tenants' expert, concluded that repairing floor joists and masonry work would have been sufficient to cancel the city's vacate order. That work, in the court's view would not have been economically unfeasible given the testimony by tenants' valuation expert that if the building were “functionally renovated” it would have a value of $1.4 million in the current real estate market, even with the current tenants, who paid rents ranging from $193 to $600. As a result, the court held that tenants were entitled to be restored to their apartments after completion of the work.

COMMENT

Landlords faced with actions to enforce the duty to keep premises in good repair may invoke economic infeasibility as an affirmative defense. See, e.g., N.Y. Housing Ct. Rules HP Doc. 5 (listing economic infeasibility as affirmative defense available to landlords in tenant initiated actions). The economic unfeasibility defense is premised on the constitutional prohibition against taking public property without just compensation See, e.g., Bernard v. Scharf, 246 A.D.2d 171, rev'd for mootness, 93 N.Y.2d 842 (holding landlord not required to repair building and restore tenants following fire after concluding that ordering repairs would constitute a regulatory taking).

Precisely how much burden a landlord must show to prevail on an economic infeasibility defense remains unclear. When a landlords can show that the cost of repairs would cost more than the building will be worth once it has been repaired, the landlord is likely to prevail For instance, in Bernard v. Scharf, supra, landlord prevailed on the defense when he demonstrated that repairs would cost $4 million and the post-repair value of building would be $1 million. Landlord may also prevail by establishing that the cost of repair far exceeds the building's pre-repair value. For example, in Hous. and Dev. Admin. of City of New York v. Johan Realty, Inc., 93 Misc.2d 698, landlord successfully asserted an economic infeasibility defense in an action to compel it to repair the building and restore tenants after a fire when landlord established that the assessed value of the building was $12,500 while the cost of repairs was between $75,000 and $100,000. Id. at 839.

Courts will not, however, sustain an economic infeasibility defense based on repair costs estimates premised on a scope of repairs beyond what is necessary to make the building habitable. Thus, in 289 Grand Street. v. Wong's Grand Realty Corp., NYLJ 1202547009375, the court rejected landlord's economically infeasible defense when, after a fire, landlord furnished a repair cost estimate based on a scope of repairs that far exceeded what was necessary to make the building habitable, such as installing an elevator and making luxury upgrades in the building. Id. at *18. See also Farrell v. E.G.A. Assoc. Inc., 9 Misc.3d 1118(A) (denying landlord's economic infeasibility defense against tenants' action to compel landlord to stabilize building wall and rejecting estimate for repairs as based on unnecessary rehabilitation work).

'

Corporate Veil

Conason v. Megan Holding, LLC

NYLJ 9/27/13, AppDiv, First Dept.

(memorandum opinion)

In tenant's action to recover treble damages for a rent overcharge, landlord appealed from Supreme Court's award of summary judgment to tenant. The Appellate Division affirmed, holding that because landlord's actions constituted fraud, the four-year statute of limitations did not apply, and also holding that Supreme Court had properly pierced landlord's corporate veil.

Tenant signed a rent-stabilized lease in 2003 at a monthly rent of $1,800, and subsequently signed renewal leases in 2005 and 2007 at increased rents. After tenant took occupancy in 2003, landlord registered the apartment with DHCR, and asserted in the registration that the monthly rent for the prior tenant was $1,000 per month, and the rent for the tenant before that was $475.24. In 2009, landlord brought a nonpayment proceeding against tenant, who asserted harassment, beach of the warranty of habitability, and rent overcharge, as defenses in the proceeding.

Civil Court found that landlord had fraudulently listed a nonexistent tenant as the prior tenant in order to inflate the rent, but dismissed the rent overcharge claim without prejudice because tenant had not established the amount of the legal regulated rent. That court awarded tenant an abatement on her warranty of habitability claim. Tenant then brought this rent overcharge action in Supreme Court, alleging the same fraud, and offering proof that the lowest rent landlord was collecting for a comparable apartment in the building was $180.92. Supreme Court awarded summary judgment to tenant, rejecting landlord's statute of limitations defense.

In affirming, the Appellate Division first held that in cases where the record reveals significant evidence of fraud, the four-year statute of limitations for rent overcharge claims does not apply. Here, the court concluded that landlord was collaterally estopped to deny fraud because of the finding in the earlier Civil Court nonpayment proceeding. The court then held that Supreme Court had properly pierced the corporate veil because of evidence that landlord's principal habitually transferred funds to and from his individual account, and used personal funds for corporate expenditures, and corporate funds for expenditures by other LLCs.

COMMENT

A court will pierce the veil of a corporate landlord or tenant when evidence establishes that the shareholders abused their complete control over the corporation to denude the corporation of capital from which an adverse party could satisfy claims against the corporation. For instance, in'Flushing Plaza Associates No. 2 v. Albert, 102 A.D.3d 737, the court pierced the veil of a corporate tenant whose sole shareholder stripped the corporation of assets by transferring $29,500 from the corporate account to his personal account. Landlord had obtained a judgment against tenant for unpaid rent, and tenant had made the transfer to its principal just 11 days before judgment was rendered Because the purpose of this transaction was to make landlord's imminent monetary judgment worthless, the Supreme Court held that Dr. Albert should be personally liable. Similarly, in Commercial Sites, Co. v. Prestige Photo Studios, Inc., 272 A.D.2d 360, the Second Department affirmed the lower court's decision to pierce tenant's corporate veil when landlord's evidence showed that the tenant corporation's two shareholders had inadequately capitalized the corporation, had intermingled personal and corporate funds, had failed to keep corporate records, and had improperly used corporate property for other purposes.

However, even where it is clear that a shareholder completely controlled the corporate entity's actions, a court is unlikely to grant pierce the corporate veil if the shareholders did not abuse this control to harm the moving party. For example, in 210 East 86th Street Corp. v. Grasso, 305 A.D.2d 156, the First Department emphasized that the tenant corporation observed formalities with very few, minor record-keeping exceptions; the facts showed that tenant “corporation was no 'dummy' or sham operation.” Although tenant did transfer some funds into the sole shareholder's account, the shareholder reported all of those expenses on his income tax returns.

A claim to pierce landlord's corporate veil may not be necessary where the moving party alleges that the landlord's principal engaged in prohibited discrimination. Thus, in Solomons v. Douglas Elliman LLC, 95 A.D.3d 696, the First Department denied lease applicant's discovery motion in order to assert a claim to pierce landlord's corporate veil
because N.Y. Admin Code ' 8'107[5], an anti-discrimination statute,
vitiates the limited liability protection otherwise afforded to LLC members under Limited Liability Company Law ' 609. Therefore, the lease applicant's motion to compel discovery was denied because there was no need to pierce the corporate veil.'

'

Treble Damages Award

Matter of 1234 Broadway v. DHCR

NYLJ 9/18/13, p. 21, col. 1

Supreme Ct., N.Y. Cty.

(Hunter, J.)

Landlord brought an article 78 proceeding challenging DHCR's denial of its petition for administrative review of a rent overcharge determination. The court denied the petition and dismissed the proceeding, holding that DHCR had not acted arbitrarily in imposing treble damages for a willful overcharge.

Tenant occupies a unit in landlord's single-room occupancy building. In 2010, tenant filed an overcharge complaint, contending that landlord had wrongfully raised tenant's rent from $380.09 to $397.16. Landlord based this on Hotel Order 38 of the New York City Rent Guidelines Board, which permits a 4.5% increase in rent-stabilized hotel rents if rent-stabilized tenants occupy at least 85% of all residential units. Tenant contended that fewer than 85% of the units were occupied by rent-stabilized tenants, and that landlord was therefore entitled to no increase.

Tenant's calculation was based on his assertion that 60 or more of the units were vacant at the time. For that conclusion, tenant relied on landlord's previously sworn affidavit indicating that the building contained 325 units, and a prior HPD registration, which indicated that the building had 348 units. When DHCR ordered landlord to submit evidence that the building met the 85% threshold, landlord submitted an affidavit asserting that the building contained 250 units, 213 of which were subject to rent regulation. Later, landlord submitted a rent roll indicating that 216 out of 252 units were subject to rent stabilization.

Landlord never, however, submitted evidence refuting the claim that the building actually included more than 300 units. As a result, DHCR's rent administrator concluded that landlord had engaged in a rent overcharge, and ordered a rent reduction, plus treble damages. DHCR's commissioner denied landlord's petition for administrative review, and landlord then brought this article 78 proceeding.

In denying the petition, the court rejected landlord's argument that DHCR had improperly interpreted Hotel Order 38 by counting vacant units in the denominator for purposes of determining whether 85% of units were occupied by rent-stabilized tenants. The court relied on an explanatory statement issued by the rent guidelines board in conjunction with Hotel Order 38, indicating that all units “whether occupied, vacant, rented to tourists ' ” should be counted in the denominator. Based on that statement, DHCR's interpretation and application of the 85% threshold was rational. The court then held that landlord's argument that any overcharge was not willful was an argument “ without merit” because even when landlord submitted a rent roll for the building, landlord never addressed the number of vacant units in the building.

'

'

Trade Fixtures

Aprile v. Men of Invention

NYLJ 9/25/13, p. 21, col.1

Supreme Ct., N.Y. Cty.

(Mendez, J.)

'A member of landlord LLC sought to enjoin tenant from selling, destroying, or removing fixtures and equipment from the premises on or before the expiration of the lease. The court denied the injunction, and awarded tenant a reasonable time to remove trade fixtures, concluding that the lease provision making fixtures the property of the owner did not apply to trade fixtures installed by tenant.

'Plaintiff Aprile, along with three others, formed Men of Invention, LLC to operate a bar restaurant in the subject premises. Aprile was also a member of the landlord LLC. The three-year lease, set to expire on Sept. 14, 2013, provided in paragraph 52 that tenant would, at the expiration of the lease, remove all property from the devised premises. Paragraph 54 provided that all fixtures installed at any time by the tenant “shall become the property of owner and shall remain upon and be surrendered with the demised premises.” Paragraph 56 authorized tenant to install trade fixtures without the consent of the owner. As the expiration of the lease term approached, Aprile brought this action seeking to enjoin removal of the trade fixtures tenant had installed on the premises.

In denying Aprile injunctive relief, the court started by surmising that Aprile was bringing the action in large measure based on an alleged failure of the other three founders of Men of Invention to distribute the profits in accordance with the agreement among the members. Aprile sought the injunction out of fear that if tenant removed the trade fixtures, there would be no assets from which he could recover any judgment he obtained. But the court held first that an unsecured creditor is not generally entitled to a preliminary injunction restraining the debtor from transferring assets until after the creditor obtains a judgment. The court then noted that typically, a tenant is entitled to remove trade fixtures from leased property before tenant leaves, unless the lease provides otherwise.

The court concluded that the subject lease permitted landlord to retain fixtures, but not trade fixtures. Finally, the court held that Aprile lacked standing to obtain injunctive relief or possession of the premises on behalf of landowner, because an individual shareholder does not have standing to obtain a personal recovery for a wrong done to a corporation.' As a result, the court ordered that tenants be permitted two weeks following termination of the lease to remove furniture, equipment, and trade fixtures.

COMMENT

If an improvement to a leasehold is a fixture, absent any contrary language in the lease, the improvement remains property of the landlord at the expiration of the lease term. By contrast, the tenant may remove any improvement that constitutes a trade fixture. Thus, in Shelvin Plaza Associates, LLC v. Wheatley Capital, Inc, 2007 WL 4289255, landlord obtained an injunction preventing tenant from removing glass doors, window treatments and air conditioning unit because the installations were fixtures. Conversely, in Orange County-Poughkeepsie M.S.A. Ltd. Partnership v. Bonte, 301 A.D.2d 583, tenant was entitled to keep the communications tower he erected on the leased premises to facilitate the operations of his wireless communications facility because it was a trade fixture.

When a tenant installs equipment into the leased premises designed to suit tenant's particular operation, courts are likely to construe these improvements as trade fixtures.. Thus, in In re Arista Devices Corp., 94 B.R. 26, the court held that an electronics manufacturer's installation of a central air conditioning system and mezzanine were trade fixtures and not permanent improvements to the leased premises that remain property of the landlord, emphasizing that tenant's electronics manufacturing business required precise climate control and that the mezzanine was used as a cafeteria and storage area for the business. Similarly, in J.K.S.P. Restaurant, Inc. v. Nassau County, 127 A.D.2d 121, when a tenant placed a dining car onto a parcel of leased vacant land, the Second Department rejected landlord's argument that the dining car was a fixture because the dining car was particularly suited to tenant's business and not a general improvement to the property itself. If however equipment installed by a tenant would be equally valuable for subsequent tenants, the court may conclude that the equipment is a fixture. Thus, in Shelvin Plaza Associates, LLC v. Wheatley Capital, Inc, 2007 WL 4289255, the landlord was entitled to keep tenant's copper ceiling tiles, glass doors, closets, window treatments and air conditioning units when the court categorized the improvements as fixtures because they were installed for enhancing the space as part of a common decorative scheme, and, in the case of the air conditioning unit, to provide a more comfortable environment. The court concluded that installations added for the purpose of enhancing the premises itself rather than enhancing tenant's business constitute fixtures.

'

Economic Unfeasibility

'Lamberty v. Papamichael

'NYLJ 9/25/13, p. 21, col. 3

'Supreme Ct., Kings Cty.

'(Graham, J.)

Tenants sought an injunction requiring landlord to make repairs and to restore tenants to their apartments after the repairs were completed. The court granted a preliminary injunction, rejecting landlord's economic unfeasibility defense.

In November, 2010, when the subject eight-unit tenement building was owned by landlord's predecessor, the Department of Buildings examined the building and concluded that repairs were needed. Landlord's predecessor prepared plans for joist replacement and masonry repair, and those plans were approved in March 2011. The following month, landlord purchased the building. When landlord asked the tenants to move out to permit joist replacement, and offered to pay each tenant $500 for expenses involved in the temporary move, tenants declined landlord's offer.

Then, in December 2012, the Department of Buildings issued a vacate order, citing defective brick work, a defective chimney, cracks in ceilings and walls, and other difficulties. Tenants then brought this action. Landlord contended that because the costs of restoring the building would exceed the value of the building after renovation, landlord was not required to make the repairs and restore the rent-regulated tenants.

In granting tenants the injunction they sought, the court rejected landlord's contention that the building needed a comprehensive and substantial renovation, which its experts testified would cost $1.4 million. The court concluded that the work done by landlord ' gutting of the building, replacement of all kitchens and bathrooms, together with floors wall, appliances, and fixtures ' was much more extensive than legally required by the vacate order issued by the Department of Buildings. The court credited the testimony of tenants' expert, concluded that repairing floor joists and masonry work would have been sufficient to cancel the city's vacate order. That work, in the court's view would not have been economically unfeasible given the testimony by tenants' valuation expert that if the building were “functionally renovated” it would have a value of $1.4 million in the current real estate market, even with the current tenants, who paid rents ranging from $193 to $600. As a result, the court held that tenants were entitled to be restored to their apartments after completion of the work.

COMMENT

Landlords faced with actions to enforce the duty to keep premises in good repair may invoke economic infeasibility as an affirmative defense. See, e.g., N.Y. Housing Ct. Rules HP Doc. 5 (listing economic infeasibility as affirmative defense available to landlords in tenant initiated actions). The economic unfeasibility defense is premised on the constitutional prohibition against taking public property without just compensation See, e.g., Bernard v. Scharf, 246 A.D.2d 171, rev ' d for mootness, 93 N.Y.2d 842 (holding landlord not required to repair building and restore tenants following fire after concluding that ordering repairs would constitute a regulatory taking).

Precisely how much burden a landlord must show to prevail on an economic infeasibility defense remains unclear. When a landlords can show that the cost of repairs would cost more than the building will be worth once it has been repaired, the landlord is likely to prevail For instance, in Bernard v. Scharf, supra, landlord prevailed on the defense when he demonstrated that repairs would cost $4 million and the post-repair value of building would be $1 million. Landlord may also prevail by establishing that the cost of repair far exceeds the building's pre-repair value. For example, in Hous. and Dev. Admin. of City of New York v. Johan Realty, Inc., 93 Misc.2d 698, landlord successfully asserted an economic infeasibility defense in an action to compel it to repair the building and restore tenants after a fire when landlord established that the assessed value of the building was $12,500 while the cost of repairs was between $75,000 and $100,000. Id. at 839.

Courts will not, however, sustain an economic infeasibility defense based on repair costs estimates premised on a scope of repairs beyond what is necessary to make the building habitable. Thus, in 289 Grand Street. v. Wong's Grand Realty Corp., NYLJ 1202547009375, the court rejected landlord's economically infeasible defense when, after a fire, landlord furnished a repair cost estimate based on a scope of repairs that far exceeded what was necessary to make the building habitable, such as installing an elevator and making luxury upgrades in the building. Id. at *18. See also Farrell v. E.G.A. Assoc. Inc., 9 Misc.3d 1118(A) (denying landlord's economic infeasibility defense against tenants' action to compel landlord to stabilize building wall and rejecting estimate for repairs as based on unnecessary rehabilitation work).

'

Corporate Veil

Conason v. Megan Holding, LLC

NYLJ 9/27/13, AppDiv, First Dept.

(memorandum opinion)

In tenant's action to recover treble damages for a rent overcharge, landlord appealed from Supreme Court's award of summary judgment to tenant. The Appellate Division affirmed, holding that because landlord's actions constituted fraud, the four-year statute of limitations did not apply, and also holding that Supreme Court had properly pierced landlord's corporate veil.

Tenant signed a rent-stabilized lease in 2003 at a monthly rent of $1,800, and subsequently signed renewal leases in 2005 and 2007 at increased rents. After tenant took occupancy in 2003, landlord registered the apartment with DHCR, and asserted in the registration that the monthly rent for the prior tenant was $1,000 per month, and the rent for the tenant before that was $475.24. In 2009, landlord brought a nonpayment proceeding against tenant, who asserted harassment, beach of the warranty of habitability, and rent overcharge, as defenses in the proceeding.

Civil Court found that landlord had fraudulently listed a nonexistent tenant as the prior tenant in order to inflate the rent, but dismissed the rent overcharge claim without prejudice because tenant had not established the amount of the legal regulated rent. That court awarded tenant an abatement on her warranty of habitability claim. Tenant then brought this rent overcharge action in Supreme Court, alleging the same fraud, and offering proof that the lowest rent landlord was collecting for a comparable apartment in the building was $180.92. Supreme Court awarded summary judgment to tenant, rejecting landlord's statute of limitations defense.

In affirming, the Appellate Division first held that in cases where the record reveals significant evidence of fraud, the four-year statute of limitations for rent overcharge claims does not apply. Here, the court concluded that landlord was collaterally estopped to deny fraud because of the finding in the earlier Civil Court nonpayment proceeding. The court then held that Supreme Court had properly pierced the corporate veil because of evidence that landlord's principal habitually transferred funds to and from his individual account, and used personal funds for corporate expenditures, and corporate funds for expenditures by other LLCs.

COMMENT

A court will pierce the veil of a corporate landlord or tenant when evidence establishes that the shareholders abused their complete control over the corporation to denude the corporation of capital from which an adverse party could satisfy claims against the corporation. For instance, in' Flushing Plaza Associates No. 2 v. Albert, 102 A.D.3d 737, the court pierced the veil of a corporate tenant whose sole shareholder stripped the corporation of assets by transferring $29,500 from the corporate account to his personal account. Landlord had obtained a judgment against tenant for unpaid rent, and tenant had made the transfer to its principal just 11 days before judgment was rendered Because the purpose of this transaction was to make landlord's imminent monetary judgment worthless, the Supreme Court held that Dr. Albert should be personally liable. Similarly, in Commercial Sites, Co. v. Prestige Photo Studios, Inc., 272 A.D.2d 360, the Second Department affirmed the lower court's decision to pierce tenant's corporate veil when landlord's evidence showed that the tenant corporation's two shareholders had inadequately capitalized the corporation, had intermingled personal and corporate funds, had failed to keep corporate records, and had improperly used corporate property for other purposes.

However, even where it is clear that a shareholder completely controlled the corporate entity's actions, a court is unlikely to grant pierce the corporate veil if the shareholders did not abuse this control to harm the moving party. For example, in 210 East 86th Street Corp. v. Grasso, 305 A.D.2d 156, the First Department emphasized that the tenant corporation observed formalities with very few, minor record-keeping exceptions; the facts showed that tenant “corporation was no 'dummy' or sham operation.” Although tenant did transfer some funds into the sole shareholder's account, the shareholder reported all of those expenses on his income tax returns.

A claim to pierce landlord's corporate veil may not be necessary where the moving party alleges that the landlord's principal engaged in prohibited discrimination. Thus, in Solomons v. Douglas Elliman LLC, 95 A.D.3d 696, the First Department denied lease applicant's discovery motion in order to assert a claim to pierce landlord's corporate veil
because N.Y. Admin Code ' 8'107[5], an anti-discrimination statute,
vitiates the limited liability protection otherwise afforded to LLC members under Limited Liability Company Law ' 609. Therefore, the lease applicant's motion to compel discovery was denied because there was no need to pierce the corporate veil.'

'

Treble Damages Award

Matter of 1234 Broadway v. DHCR

NYLJ 9/18/13, p. 21, col. 1

Supreme Ct., N.Y. Cty.

(Hunter, J.)

Landlord brought an article 78 proceeding challenging DHCR's denial of its petition for administrative review of a rent overcharge determination. The court denied the petition and dismissed the proceeding, holding that DHCR had not acted arbitrarily in imposing treble damages for a willful overcharge.

Tenant occupies a unit in landlord's single-room occupancy building. In 2010, tenant filed an overcharge complaint, contending that landlord had wrongfully raised tenant's rent from $380.09 to $397.16. Landlord based this on Hotel Order 38 of the New York City Rent Guidelines Board, which permits a 4.5% increase in rent-stabilized hotel rents if rent-stabilized tenants occupy at least 85% of all residential units. Tenant contended that fewer than 85% of the units were occupied by rent-stabilized tenants, and that landlord was therefore entitled to no increase.

Tenant's calculation was based on his assertion that 60 or more of the units were vacant at the time. For that conclusion, tenant relied on landlord's previously sworn affidavit indicating that the building contained 325 units, and a prior HPD registration, which indicated that the building had 348 units. When DHCR ordered landlord to submit evidence that the building met the 85% threshold, landlord submitted an affidavit asserting that the building contained 250 units, 213 of which were subject to rent regulation. Later, landlord submitted a rent roll indicating that 216 out of 252 units were subject to rent stabilization.

Landlord never, however, submitted evidence refuting the claim that the building actually included more than 300 units. As a result, DHCR's rent administrator concluded that landlord had engaged in a rent overcharge, and ordered a rent reduction, plus treble damages. DHCR's commissioner denied landlord's petition for administrative review, and landlord then brought this article 78 proceeding.

In denying the petition, the court rejected landlord's argument that DHCR had improperly interpreted Hotel Order 38 by counting vacant units in the denominator for purposes of determining whether 85% of units were occupied by rent-stabilized tenants. The court relied on an explanatory statement issued by the rent guidelines board in conjunction with Hotel Order 38, indicating that all units “whether occupied, vacant, rented to tourists ' ” should be counted in the denominator. Based on that statement, DHCR's interpretation and application of the 85% threshold was rational. The court then held that landlord's argument that any overcharge was not willful was an argument “ without merit” because even when landlord submitted a rent roll for the building, landlord never addressed the number of vacant units in the building.

'

'