Transitional Housing Arrangements Are Not Illusory Tenancies

In a 3-1 decision dated June 29, 2022, containing a vigorous dissent, the majority both affirmed a lower court ruling that occupants entering into possession pursuant to transitional housing agreements are not tenants with standing to claim rent stabilized rights and that such transitional housing agreements are not, per se, illusory subtenancy schemes designed to extract rents beyond the legal regulated rents.

By way of brief background, the New York City Department of Homeless Services (DHS) entered into a contract with certain service providers (Service Provider) to provide transitional housing and services to homeless individuals and families pursuant to the Neighborhood Based Cluster Transitional Residence Program (Cluster Program). Pursuant to this contract, the Service Provider provided services to the homeless individuals and families, including food services, child care services, and health services. Thereafter, the Service Provider entered into a Transitional Cluster Lease Agreement with an outside agency which provided that a certain number of apartment units were to be made available to homeless families and individuals in buildings owned by the defendant-owners (Owners). DHS would refer homeless families and individuals to the Service Provider, and they would then be placed in these units. Rent was paid by the Service Provider from the monies received from DHS pursuant to their contract.