Landlord & Tenant

In affirming, the Appellate Division conceded that in each case, the apartments had been removed from regulation by a prior owner. Current landlord, however, did not show that the prior owner failed to provide relevant records, or that landlord relied on statements made by the prior owner. The court noted that in an earlier stage of the litigation, landlord provided evidence about individual apartments, demonstrating that it had records relating to apartment renovations, records it presumably received from the prior owner. Because landlord failed to rebut the presumption of willfulness, tenants were entitled to treble damages.

Comment

When a tenant establishes a rent overcharge traceable to the actions of a prior owner, 9 NYCRR 2526.1 [f] [2] establishes that the current owner is liable for those overcharges and any penalties. Current landlord can avoid treble damages on those overcharges only if current landlord can prove, by a preponderance of evidence, that the overcharge was "not willful."

The Rent Stabilization Code explicitly exempts a current landlord from treble damages on overcharges traceable to a predecessor when the current landlord had no relationship with the prior owner and purchased at a judicial sale where no rent records were provided. 9 NYCRR 2526.1(f)(2)(i).

In other circumstances, landlord have generally been unable to rebut the presumption of willfulness. For example, in E. 163rd St. LLC v DHCR, 4 Misc 3d 169, the court held that the current landlord could not avoid treble damages even though the tenant was overcharged based on information given by the previous owner and the current landlord had provided tenant with a credit for the collected overcharge. The court emphasized that landlord had not offered any proof of its efforts to procure the rent history of the apartment.

Round Hill Mgt. v. Higgins, 177 A.D.2d 256, represents an exception in which the court excused landlord from treble damages where landlord demonstrated that the rent records landlord received from its predecessor were incomplete, and the rent collected on the subject apartment was equal to or lower than the rent charged for all of ten identical apartments in the complex, and well below the market rate. In those circumstances, the court concluded that it was irrational to characterize landlord's overcharge as willful.

*****

Landlord Substantiated Individual Apartment Improvements

DiLorenzo v. Windermere Owners LLC NYLJ 6/17/19, p. 18, col. 3 AppDiv, First Dept. (3-2 decision; Opinion by Kahn, J; dissenting opinion by Singh, J.)

In tenant's rent overcharge proceeding, landlord appealed from Supreme Court's judgment restoring the apartment to rent stabilization and awarding tenant treble damages for the overcharge. A divided Appellate Division reversed, holding that landlord had adequately substantiated its individual apartment improvements.

The subject apartment was registered as rent stabilized through June 18, 2009, and the registered rent at that time was $1450.70. Prior landlord then renovated the apartment, including general contracting, plumbing, and electrical work. In September 2009, prior landlord rented the apartment to tenant at monthly rent of $2300. The following year, prior landlord filed a registration statement indicating that the apartment was permanently exempt from rent regulation because of high rent vacancy. Tenant renewed the lease for an additional year at a rent of $2415. Then, in November 2010, prior owner sold the building to current landlord. In August 2011, tenant filed the current complaint, alleging that the apartment had been improperly removed from rent regulation, and sought treble damages for willful overcharge. After a nonjury trial, Supreme Court awarded judgment to tenant, concluding that landlord had not substantiated its claim that it had spent $82,015.27 on improvements to the apartment. (The parties stipulated that landlord would have had to have expended $21,972 on the apartment to be entitled to the rent increase landlord charged tenant). Landlord appealed.

In reversing, the Appellate Division conducted a de novo assessment of whether the weight of the evidence supported the trial court's determination. The Appellate Division majority concluded that because Supreme Court's determination did not rest on the credibility of witnesses, there was less reason to defer to the trial court's fact finding. In evaluating the evidence, the Appellate Division majority focused on a $63,097 check paid to the general contractor shortly after prior owner had received a $60,000 invoice for improvements to the apartment (among other invoices). The majority also focused on payment of $16,365.27 in invoices to the now-deceased plumber for work done in the apartment, and on 2016 photographs submitted by tenant showing work that appeared to have been done recently. In light of this evidence, the court concluded that landlord had adequately supported individual apartment improvements that justified increases in rent that qualified the apartment for removal from rent regulation. Justice Singh, dissenting for himself and Justice Kapnick, contended that the majority had usurped Supreme Court's authority to make factual findings, and had improperly placed the burden of proof on tenant.

*****

Vacatur of Stipulation for Use and Occupancy Overturned

255 Butler Associates LLC v. 255 Butler, LLC NYLJ 6/7/19, p. 28, col. 4 AppDiv, Second Dept. (memorandum opinion)

In tenant's action for declaratory and injunctive relief, landlord appealed from Supreme Court's order modifying a so-ordered stipulation to relieve tenant from the obligation to pay use and occupancy pending resolution of the parties' dispute. The Appellate Division reversed and reinstated the obligation to pay $111,041.66 each month as required by the original stipulation.

In 2013, landlord leased the subject property to tenant for a 49-year term for a total rent exceeding $130 million. The lease required tenant to diligently pursue conversion of the vacant building into commercial property. In July 2015, landlord served tenant with notice of defaults under the lease, and subsequently with a notice of termination. In September 2015, tenant brought this action for declaratory and injunctive relief, and sought a Yellowstone injunction. In November 2015, the parties, represented by counsel, entered into a stipulation, without prejudice to either party, requiring tenant to pay landlord $111,041.66 per month in use and occupancy, in addition to real estate taxes, pending resolution of the dispute. More than a year later, tenant moved to modify the stipulation to eliminate the monthly payments, contending that because of the notice of default, tenant could derive no value from the lease. Supreme Court agreed and modified the stipulation to eliminate the payment of use and occupancy.

In reversing, the Appellate Division emphasized that tenant bore the burden of establishing that a so-ordered stipulation should be vacated. The court then emphasized that even if the lease had no value to tenant, the leased property had considerable market value to landlord – the amount a prospective tenant would pay to landlord for the lease. Because the property retained considerable fair market value, tenant was not entitled to upset the stipulation previously entered into with advice of counsel. Moreover, the court noted that if the court ultimately ruled in tenant's favor, tenant might be able to recover damages to recover any losses resulting from landlord's breach, including a refund or rent credit.

*****

Occupant's Deception Waived Succession Rights

186 Norfolk LLC v. Euvin NYLJ 6/11/19, p. 22, col. 1 AppTerm, First Dept. (memorandum opinion)

In landlord's action to deny succession rights to the current occupant of a rent-stabilized apartment, occupant appealed from Civil Court's denial of succession rights. The Appellate Term affirmed, holding that occupant had waived any claim to succession rights through a long-term pattern of deception.

Occupant's ex-wife held a lease to the rent-stabilized apartment. Neither occupant nor his ex-wife informed landlord that they divorced in 1987 and that the ex-wife vacated and moved to Florida in the early 1990s. Occupant signed his ex-wife's name to renewal leases, money orders for rent payments, and apartment work orders for years after his ex-wife moved out. In August 2013, ex-wife informed landlord that she was vacating the apartment she had lived in with her husband since about 1980, and occupant supplied landlord with a copy of his marriage certificate, long after the parties were legally divorced and living separately. On this record, Civil Court concluded that occupant had waived any claim to succession rights. Occupant appealed.

In affirming, the Appellate Term noted that succession rights remain inchoate until a judicial determination, and that the law assumes a timely assertion of succession rights. In this case, the long-term ruse employed by tenant and occupant represented a departure from the ordinary course and prejudiced landlord in prosecution of its eviction claim because the 25 years of deception prevented landlord from making a contemporaneous investigation of the emotional and financial underpinnings of a non-traditional family member claim.

*****

Building Contained Six Units; Subject to Rent Stabilization

Beverly Holding NY LLC v. Blackwood NYLJ 6/11/19, p. 26, col. 5 AppTerm, 2nd, 11th and 13th Districts (memorandum opinion)

In a summary holdover proceeding brought by landlord's predecessor, landlord appealed from Civil Court's dismissal of the petition after a nonjury trial. The Appellate Term affirmed, holding that the subject building included six apartments, conferring rent stabilization protection on tenant.

When landlord's predecessor brought this action, the petition alleged that tenant' s apartment was not subject to rent regulation because the building contained fewer than six residential units. All parties agreed that the building included at least five residential units. At trial, landlord's predecessor contended that the ground floor included a commercial storage unit; tenant contended that the ground floor unit had been used as a residential dwelling by at least two prior tenants. Civil Court awarded judgment to tenant, concluding that the ground floor unit was a residential unit. Landlord appealed.

In affirming, the Appellate Term credited the testimony of tenant and tenant's lawyer that the disputed unit contained a kitchen, a bathroom, and a bed, together with the numerous photographs admitted into evidence. By contrast, landlord's predecessor's witness lacked personal knowledge of the apartment layout, and landlord's predecessor had, in a prior proceeding against a tenant of the disputed unit, stated that the apartment had been rented for residential purposes. The court then noted that once a building's owner alters the building to contain six or more residential units, all of the units become subject to rent stabilization. As a result, tenant can be evicted only upon the grounds set forth in the rent stabilization code.

*****

Setting Rent for Unit First Decontrolled In 1954

West 88A LLC v. Jane Doe NYLJ 6/27/19, p. 29, col. 5 AppTerm, First Dept. (memorandum opinion)

In landlord's holdover proceeding, landlord appealed from Civil Court's order denying landlord possession and directing tenant to file a fair market rent appeal to establish the stabilized rent for the apartment. The Appellate Division modified to dismiss tenant's overcharge counterclaims, holding that tenant was entitled to rent stabilization protection, but also holding that the rent charged by landlord was the legal regulated rent.

The subject apartment was subject to rent control until 1954, when the Klopper family, the prior owner of the building, took occupancy of the apartment. Upon enactment of the Emergency Tenant Protection Act of 1974, the apartment became subject to rent stabilization, but was temporarily exempt because it was still occupied by the Klopper family. Current owner bought the building in 2013 and allowed Klopper to remain for several months at a monthly rental of $3,500. When Klopper left, landlord rented the apartment to current tenant for $3,600 per month. After the expiration of tenant's one-year lease and termination of her month-to-month tenancy, landlord brought this holder proceeding. Tenant counterclaimed for a rent overcharge, contending that the apartment was subject to rent stabilization. Civil Court concluded that tenant was entitled to rent stabilization protection, and directed tenant to file a fair market rent appeal to establish the regulated rent for the apartment. Landlord appealed.

In modifying, the Appellate Term first agreed with Civil Court that the apartment was stabilized. The court noted that the exemption for owner occupancy was temporary owner, and expired when the apartment was no longer occupied by the building owner. The court noted that when landlord rented to current tenant, landlord never served tenant with notice of high rent deregulation. But the court also noted that tenant was not entitled to a fair market rent appeal because the apartment was not subject to rent control on Dec. 31, 1973, having been decontrolled almost 20 years earlier. Because the Rent Stabilization Code makes no provision for setting the initial rent of an apartment decontrolled in 1954 and first rented as a stabilized apartment more than 50 years later, the rent charged and collected from the tenant became the legal regulated rent.