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On April 26, 2018, a unanimous Court of Appeals held that apartments vacated between 1997 and 2011 will be considered luxury deregulated where the legal regulated rent was $2,000 or more at the time the incoming tenant moved in. The court reversed the First Department, which had held that such apartments would not be deregulated unless the rent was $2,000 or more at the time the outgoing tenant vacated. As has been widely reported, this was a major victory for the real estate industry.
This article will discuss the various impacts of the Altman decision.
|Rent regulatory disputes often turn political; a court will frequently ignore or expand statutory language to achieve a desired outcome based on its views of tenant protection, affordable housing, or property rights. The Court of Appeals' ruling in Altman, however, was apolitical.
The court analyzed the case as one of pure statutory construction. The tenant in Altman had argued that the first and second clauses in RSL §26-504.2(a) were identical, and that both barred luxury deregulation unless the rent was $2,000 or more at the time the outgoing tenant vacated. The Court of Appeals held that the second clause, added in 1997 and preceded by the word “or,” had to mean something different than the first, ruling that the second clause permitted deregulation where the rent reached $2,000 or more “after the tenants' vacancy” (italics in original). The court further observed that the legislative history, which “could not be clearer,” supported its interpretation.
In so ruling, the court ignored arguments based on gentrification, affordable housing, and the need to limit luxury deregulation.
|In Altman, Richard Altman was a subtenant occupying the apartment in question when, pursuant to a three-way stipulation, the tenant of record vacated and the landlord gave Altman a lease in his own name.
Throughout the appeal, Altman argued that the irrespective of any statutory interpretation, there could be no vacancy deregulation because there had been no vacancy. According to Altman, a vacancy only occurs where an apartment is devoid of tenants; here, Altman continuously occupied the apartment, first as a subtenant and then as the tenant of record.
Had the court agreed with the tenant, it could have avoided the entire issue of when the rent had to reach $2,000 in order to effectuate deregulation. Instead, the court rejected this argument as “without merit” and proceeded to interpret the statute.
|Following the First Department's 2015 decision in Altman, many tenants raised Altman-type arguments before DHCR, Civil Court, and Supreme Court. Once the Court of Appeals granted leave in Altman in March 2017, tribunals began to hold these cases in abeyance.
Those cases will now be decided (see, e.g., 233 E. 5th St., LLC v Smith, 75 NYS3d 908 [1st Dept. 2018]), settled, or withdrawn. Prevailing owners may seek attorneys' fees, and tenants who erroneously claimed stabilization status may find that their leases will not be renewed. Tenants who paid a lower rent, or no rent at all, may now owe their landlords tens of thousands of dollars, as does the tenant in Altman.
|Altman involved the interpretation of the second clause in RSL §26-504.2(a), which applies to apartments that were vacant on or after June 19, 1997 and on or before June 24, 2011. That clause provided for deregulation where the apartment became vacant “with” a legal rent of $2,000 or more. In its decision, the Court of Appeals explicitly declined to address language added to the statute pursuant to the Rent Act of 2015, which governs apartments that became vacant on or after June 30, 2015.
But what about apartments vacated on or after June 25, 2011 and on or before June 30, 2015? Those apartments are governed by another clause in RSL §26-504.2(a), added to the statute pursuant to the Rent Act of 2011. That clause deregulates apartments vacant between those two dates “with a legal regulated rent of $2,500 or more per month at any time on or after the effective date of the Rent Act of 2011.” Because that language is similar to the language in the second clause, and quite different from the language in the first clause, the Altman rule will likely be extended to apartments vacated between 2011 and 2015.
|After the First Department ruled in the tenant's favor in 2015, Altman was sent to Supreme Court to determine damages. In Altman II (145 AD3d 415 [1st Dept. 2016]), the First Department affirmed Supreme Court's imposition of treble damages and a rent freeze. Many believed that this was a draconian result given that the landlord's 2005 deregulation of the apartment was consistent with pre-Altman authority.
Once the Court of Appeals ruled that the apartment was properly deregulated and that there had been no overcharge, it had no occasion to revisit Altman II. Notwithstanding, both Altman I and Altman II were reversed.
|Between 2015, when the First Department decided Altman, and 2018, when the Court of Appeals reversed, buyers and sellers of rent regulated buildings frequently clashed as to what these buildings were worth. If Altman were affirmed, the existing rent roll could decrease and there was a potential for damages and treble damages.
That problem has now been solved, as at least with respect to buildings with apartments that were vacated before 2011. While many other factors affect the value of a building, uncertainty as to the outcome in Altman is no longer one of them.
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Jeffrey Turkel, a member of this newsletter's Board of Editors, is a member of the Manhattan real estate law firm of Rosenberg Estis, P.C. Mr. Turkel represented the prevailing owner in Altman v 285 W. Fourth Street LLC.
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