Landlord & Tenant

In modifying, the Appellate Division held that Supreme Court had properly determined that tenant had not made out a prima facie case of rent overcharge. By contrast, the Appellate Division held that tenant had made out a prima facie case that landlord breached the lease by failing to return the security deposit. The court cited evidence that tenant had vacated before termination of the lease term, and held that tenant's failure to return the keys before the expiration of the lease did not show a failure to surrender the premises. The court also rejected landlord's contention that tenant was obligated to notify landlord that he was vacating the apartment. In light of the evidence that tenant had vacated, and the absence of evidence of damages, tenant was entitled to return of the security deposit.

COMMENT

Generally, a landlord may not retain a tenant's security deposit unless a tenant causes a landlord to incur monetary damages resulting from breach of lease or physical damages to the premises beyond ordinary wear and tear. See Finnerty v. Freeman, 176 Misc. 2d 220 (holding that a security deposit remains the property of the tenant absent proof that tenant caused damage beyond ordinary wear and tear) and see Glass v. Janbach Properties, Inc., 73 A.D.2d 106 (holding that a security deposit remains the property of tenant until there has been a default or breach of a covenant of the lease).

When a tenant causes physical damage to the premises beyond ordinary wear, in the absence of evidence that accounts for expenditures for damages, a landlord cannot prevail in retaining a tenant's security deposit. For example, in Holmes v. Worthen, 19 Misc.3d 33, the court held that defendant-landlord was not entitled to retain tenant's $2,200 security deposit because landlord could not produce estimates or paid receipts to prove landlord incurred at least $2,200 in expenses repairing damages to the apartment caused by tenant. Tenant sought to recover the security deposit after vacating the apartment she had rented from landlord for 13 years. Id. By contrast, in Westchester County Supreme Court, 2006 NYLJ LEXIS 5137, the court upheld a stipulation in which landlord was entitled to retain tenant's security deposit because tenant did not present any evidence to rebut landlord's evidence that damages were beyond normal wear and tear. Although tenant's stipulation put tenant in a particularly weak position, the court would have undoubtedly reached the same result in the absence of a stipulation, because at trial, landlord supplemented his testimony of extensive damages with numerous photographs and receipts totaling $20,936 for the costs of materials and labor required to cleanup and repair the premises. Id at 4. See also McCormick v. Maron, 182 Misc. 2d 568 (holding landlord was entitled to retain security deposit because tenant's excessive smoking in the premises resulting in tobacco smoke residue and offensive odor amounted to damages beyond ordinary wear and tear and was a violation of the lease to keep the premises in a condition to prevent health and sanitation problems.)

Additionally, a landlord can retain a tenant's security deposit when a landlord presents evidence that a tenant's breach of lease resulted in monetary damages to landlord. For example, in Assembly Inc. v. Giller, 13 Misc. 542, the court reversed a judgment in which a sub-lessee was awarded return of sub-lessee's security deposit because sub-lessee continued to occupy the premises after a warrant of eviction was issued without paying rent to sub-lessor, causing sub-lessor to incur monetary damages from nonpayment of rent. On the other hand, in La Torre v. Cummings, 42 Misc. 3d 128(A), the court held that landlord was not entitled to retain tenant's security deposit for landlord's monetary loss due to alleged rental arrears after landlord failed to establish that tenant owed any arrears. Tenant established that landlord had been awarded a money judgment in a prior proceeding against tenant for rental arrears, and that tenant's wages were being garnished to satisfy that judgment. Landlord failed to establish that tenant owed any arrears accruing after the prior action. Id.

Landlord Who Received Tax Abatement Not Eligible for Luxury Deregulation Tribeca Equity v. NYC Division of Housing and Community Renewal NYLJ 11/25/16 AppDiv, First Dept. (memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's denial of its high rent deregulation petition, landlord appealed from Supreme Court's denial of the petition and dismissal of the proceeding. The Appellate Division affirmed, holding that the tax abatement landlord had received made the apartment ineligible for high rent deregulation, even after expiration of the abatement.

The subject apartment is located in a building constructed in the early 1990s with the benefit of tax benefits granted pursuant to RPTL section 421-a. As a condition of obtaining those tax benefits, the building became subject to the Rent Stabilization Code. In 2008, landlord notified tenant that, when the building's tax benefits ended in 2009, the apartment would no longer be subject to rent stabilization. Tenant sought and received a “clarification” from DHCR, indicating that the apartment would remain stabilized until tenant vacated. Landlord then filed an application with DHCR seeking a high-rent/high-income deregulation of the apartment. DHCR denied the application, prompting landlord to bring this article 78 proceeding challenging the denial. Supreme Court denied the petition, and landlord appealed.

In affirming, the Appellate Division held that high income deregulation is not available with respect to apartments that became subject to rent stabilization as a result of tax exemptions granted after July 3, 1984, the effective date of RPTL section 421-1(2)(f)(ii).

COMMENT

RPTL 421–a(2)(f)(i) provides that once 421-a tax benefits expire, high rent/high income rent deregulation (luxury decontrol) is available if section 421-a subjected the apartment to rent regulation before July 3, 1984. However, RPTL 421–a (2)(f)(ii) which covers apartments that became subject to RPTL § 421–a (2)(f) after July 3, 1984, includes no comparable provision about luxury decontrol, and provides for decontrol after expiration of tax benefits, only if the tenant vacates, or if the landlord has provided tenant with notice in each lease and lease renewal that the apartment will become decontrolled upon expiration of tax benefits. New York Administrative § 26-504.1, which authorizes luxury decontrol, reinforces the distinction between 421-a(2)(f)(i) units and 421-a(2)(f)(ii) units. Section 26-504.1 provides that if an apartment becomes stabilized by virtue of receiving tax benefits, luxury decontrol is available only if the tax benefits were RPTL 421–a(2)(f)(i) benefits.

Courts have rejected the argument that, because all of the tax benefits statutes have similar goals, other tax benefit statutes should be construed to include the luxury decontrol provision of section 421-a(2)(f)(i). In 73 Warren Street, LLC, 96 AD3d 524,the First Department, relying on the language of section 26-504.1, held that apartments in buildings that had received J-51 benefits were not subject to luxury decontrol, even after expiration of the tax benefits. The court declined to accept landlord's argument that all tax benefit statutes should be construed in pari materia, noting first, section 26-504.1's express language differentiating between 421-a(2)(f)(i) from other tax benefit schemes, and second, the different focus of different tax benefit schemes: 421-a benefits were primarily extended for new residential construction, while J-51 benefits were available for rehabilitation.

Questions of Fact About Single-Family House Exemption from the FHA Klyczek v. Shannon NYLJ 12/7/16, p. 21, col. 2 U.S. Dist Ct., NDNY (Suddaby, J.)

In former tenant's action against former landlord for a violation of the Fair Housing Act, landlord moved to dismiss the amended complaint or, in the alternative, for summary judgment. The court denied the motion, concluding that questions of fact remained about whether the premises qualified for the single-family house exemption from the Fair Housing Act.

Tenant rented the subject apartment from landlord in October 2014, pursuant to a month-to-month lease. The apartment covered the first floor of a two-story house. The second floor was vacant throughout tenant's occupation. In April 2015, tenant was prescribed a service dog as part of his treatment plan for PTSD. Landlord notified tenant that dogs were not permitted under the lease, but tenant advised landlord that the dog was medically necessary. At tenant's request, landlord spoke with the President of WNY Heroes, who explained that the Fair Housing Act required landlord to make reasonable accommodations to a disabled tenant. Landlord then informed tenant that she would be selling the premises, and that he would have to leave in order to accommodate the sale.

Subsequently, tenant offered to buy the building for cash, at which point landlord removed the “for sale” sign, and informed tenant that he would have to leave the premises because she had rented the apartment as a furnished apartment to another tenant. Tenant then brought this action alleging a Fair Housing Act violation. The court dismissed tenant's original complaint because the complaint did not plausibly allege that the house was a multi-family house. Tenant then amended the complaint to allege that the house was a two-family dwelling. Landlord then moved to dismiss the amended complaint. Landlord also sought summary judgment if the court were to deny the motion to dismiss.

In denying landlord's motion to dismiss, the court rejected landlord's argument that whether a house qualifies as a single-family dwelling for purposes of the Fair Housing Act should be determined solely based on the house's use. Landlord had emphasized that throughout the tenancy, tenant was the only occupant of the house, and had argued that the house therefore qualified for the statutory exemption for single-family houses. (The exemption is subject to exceptions if: 1) a broker is used for sale or rental; or 2) the owner owns more than three single-family houses at the same time). The court, however, concluded that whether a house qualifies as a single-family house for purposes of the Fair Housing Act depends on a variety of factors, some of which point, in this case, to a conclusion that the house was not a single-family house. The court noted in particular that the house was designed as a two-family house and was described as a multi-family house in public records and in landlord's own real estate listing. The court also noted that the apartment was in the process of renovation during tenant's tenancy. In light of these factors, the court concluded that questions of fact precluded the motion to dismiss and a motion for summary judgment.

Yellowstone Application Does Not Require Proof That Violations Have Been Cured Taptap LLC v. 558 Seventh Avenue Corp. NYLJ 11/2/16, p. 27, col. 6 AppDiv, First Dept. (memorandum opinion)

In commercial tenant's action for a declaration that landlord's notices of default and cancellation were nullities, tenant appealed from Supreme Court's denial of a Yellowstone injunction and dismissal of the complaint. The Appellate Division modified to reinstate the complaint and to remand for consideration of the timeliness of tenant's Yellowstone application.

On April 3, 2015, landlord served a 15-day notice of default on tenant, citing five open violations with respect to the commercial space. On April 22, after the cure period had expired, landlord served a three-day notice of cancellation, advising tenant that tenant continued to violate the lease by failing to remove the conditions that had led to the filing of violations against the building. The notice terminated the lease effective April 25, 2015. On May 13, landlord brought a summary holdover proceeding in Civil Court to seek tenant's eviction. Five days later, tenant brought the current action in Supreme Court seeking a declaration that landlord's notices were nullities because the violations were not material breaches and because tenant had undertaken to remove the violations. On June 2, tenant sought a Yellowstone injunction seeking to toll the landlord's 15-day notice, and to stay termination pursuant to the notice of cancellation. Supreme Court dismissed tenant's action without prejudice, holding that dismissal would be lifted if tenant presented documentary evidence establishing cure of the violations issued by the department of Buildings and compliance with lease provisions. Tenant appealed.

The Appellate Division held that Supreme Court improperly dismissed tenant's action sua sponte. The court also held that tenant was not obligated to present evidence establishing that the violations had been cured as a precondition to reopening the action. The court therefore reinstated the complaint and remanded to consider whether, under the circumstances, tenant's application for a Yellowstone injunction had been timely filed.