Landlord & Tenant

In affirming, the Appellate Term first concluded that Civil Court had improperly invoked res judicata in these cases because the dismissal of the prior proceedings was not on the merits of whether the apartments were exempt from rent stabilization, but rather dealt with defects in the nonrenewal notices landlord had sent. Reaching the merits, however, the Appellate Term held that the statutory exemption was not intended to allow a for-profit landlord to evict an educational or charitable institution. Instead, the court concluded that the exemption was intended to exempt apartments only when the needs of the educational or charitable institution would be furthered by having access to unregulated housing for staff or students as long as the tenants' affiliation with the educational or charitable institution remained in effect. As a result, the subject apartments remained subject to rent stabilization, and landlord was not entitled to evict Iris House.

COMMENT

Section 2520.11(f) of the Rent Stabilization Code exempts from regulation apartments owned by government-funded non-profit organizations when the organization rents those apartments to affiliated individuals. The exemption permits a non-profit landlord, such as a public hospital or school, to rent the apartments to students, nurses, or other staff without binding the landlord to issue lease renewals or to maintain stabilized rent. The exemption does not apply to tenants who resided in the subject property prior to the non-profit's acquisition of the property. For example, in Common Ground Community Housing Development Fund v. Fulgoni, 591 N.Y.S.2d 934 (1992), the court held that a non-profit that acquired title to the Times Square Hotel using $28 million of government funding could not evict a tenant who had been protected by rent stabilization prior to the non-profit institution's acquisition of the property.

The statute does not apply to a lease between a private landlord and a not-for-profit tenant. In 520 East 81st Street Associates v. Lenox Hill Hospital et al., 38 N.Y.2d 525 (1976), the Court of Appeals affirmed a judgment dismissing commercial landlord's summary eviction proceeding against hospital employees, observing that “the proviso in section 5 of [the Emergency Tenant Protection Act of 1974], if it is at all relevant, refers to accommodations provided, that is, let, by a hospital as landlord or sublandlord in relation to its tenants or subtenants, and not to the hospital as tenant or subtenant in relation to a real estate entrepreneur landlord or sublandlord.”

The Court of Appeals has held that the taking clause of the federal Constitution protects a private landlord against a not-for-profit tenant who asserts the right to renew a rent stabilized lease in perpetuity. In Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385 (1994), the court declared unconstitutional a provision of the rent-stabilization law that attempted to give not-for-profit hospitals an unlimited right to sublet rent-stabilized apartments to affiliated employees without forfeiting rent-stabilization status. The court held that the statute did not advance a legitimate state interest because, rather than addressing a general state housing concern, the statute “preserv[ed] a valuable perk for some of [the hospital's] health care workers.” Id. at 396. The court also emphasized that, by giving a perpetual renewal right to the hospital, the challenged statute constituted “a regulatory wresting away” of landlord's reversionary property interests. Id. at 397.

No Statutory Exemption from Rent Stabilization When Tenant Is an Educational or Charitable Institution
2363 ACP Pineapple, LLC v. Iris House
NYLJ 2/24/17, p. 23, col. 1
AppTerm, First Dept.
(memorandum opinion)

In landlord's consolidated holdover proceedings against the charitable institution leasing four residential apartments, landlord appealed from Civil Court's dismissal of the proceeding. The Appellate Term affirmed, holding that the apartments were not exempt from rent stabilization.

Iris House is the tenant of record of four apartments on Adam Clayton Powell Boulevard in Manhattan. The apartments are occupied by individuals affiliated with Iris House. Landlord brought these holdover proceedings, contending that the apartments are exempt from rent stabilization under section 2520.11(f) of the Rent Stabilization Code. Civil Court dismissed the proceedings on res judicata grounds, contending that landlord's earlier nonprimary residence proceedings with respect to these apartments barred the instant holdover proceedings. Landlord appealed.

In affirming, the Appellate Term first concluded that Civil Court had improperly invoked res judicata in these cases because the dismissal of the prior proceedings was not on the merits of whether the apartments were exempt from rent stabilization, but rather dealt with defects in the nonrenewal notices landlord had sent. Reaching the merits, however, the Appellate Term held that the statutory exemption was not intended to allow a for-profit landlord to evict an educational or charitable institution. Instead, the court concluded that the exemption was intended to exempt apartments only when the needs of the educational or charitable institution would be furthered by having access to unregulated housing for staff or students as long as the tenants' affiliation with the educational or charitable institution remained in effect. As a result, the subject apartments remained subject to rent stabilization, and landlord was not entitled to evict Iris House.

COMMENT

Section 2520.11(f) of the Rent Stabilization Code exempts from regulation apartments owned by government-funded non-profit organizations when the organization rents those apartments to affiliated individuals. The exemption permits a non-profit landlord, such as a public hospital or school, to rent the apartments to students, nurses, or other staff without binding the landlord to issue lease renewals or to maintain stabilized rent. The exemption does not apply to tenants who resided in the subject property prior to the non-profit's acquisition of the property. For example, in Common Ground Community Housing Development Fund v. Fulgoni, 591 N.Y.S.2d 934 (1992), the court held that a non-profit that acquired title to the Times Square Hotel using $28 million of government funding could not evict a tenant who had been protected by rent stabilization prior to the non-profit institution's acquisition of the property.

The statute does not apply to a lease between a private landlord and a not-for-profit tenant. In 520 East 81st Street Associates v. Lenox Hill Hospital et al., 38 N.Y.2d 525 (1976), the Court of Appeals affirmed a judgment dismissing commercial landlord's summary eviction proceeding against hospital employees, observing that “the proviso in section 5 of [the Emergency Tenant Protection Act of 1974], if it is at all relevant, refers to accommodations provided, that is, let, by a hospital as landlord or sublandlord in relation to its tenants or subtenants, and not to the hospital as tenant or subtenant in relation to a real estate entrepreneur landlord or sublandlord.”

The Court of Appeals has held that the taking clause of the federal Constitution protects a private landlord against a not-for-profit tenant who asserts the right to renew a rent stabilized lease in perpetuity. In Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385 (1994), the court declared unconstitutional a provision of the rent-stabilization law that attempted to give not-for-profit hospitals an unlimited right to sublet rent-stabilized apartments to affiliated employees without forfeiting rent-stabilization status. The court held that the statute did not advance a legitimate state interest because, rather than addressing a general state housing concern, the statute “preserv[ed] a valuable perk for some of [the hospital's] health care workers.” Id. at 396. The court also emphasized that, by giving a perpetual renewal right to the hospital, the challenged statute constituted “a regulatory wresting away” of landlord's reversionary property interests. Id. at 397.