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Be Careful What You Stip For: 'Liggett v. Lewitt Realty LLC'
In June 2024, the Court of Appeals decided Liggett v. Lewitt Realty LLC, — NY3d –, 2024 NY Slip Op 03378 (2024), reversing the Appellate Division, First Judicial Department, and holding that a so-ordered stipulation of settlement entered into by a landlord and future tenant more than two decades ago, to settle a holdover proceeding in March 2000, was void as against public policy, and therefore could not provide a basis in the 2021 action for the landlord to establish that the subject apartment was properly deregulated from rent stabilization decades earlier. The ruling from New York's highest state court, although straightforward on its face, has important implications for both long-existing settlement agreements and when considering drafting future agreements settling disputes in the context of the Rent Stabilization Law.
The case concerned an apartment that was initially subject to rent control, with Edward Brown listed as the rent-controlled tenant in 1984. When Brown died in 1998, with a monthly rent of just $141.23, the landlord commenced a summary holdover proceeding against the surviving occupant, Edward McKinney, who claimed a right to succeed to Brown's rent-controlled tenancy. Generally, when a rent-controlled tenant dies or the apartment becomes vacant, either a permitted family member succeeds to the rent-controlled tenancy, or the apartment is decontrolled and becomes subject to rent stabilization. In the latter case, the initial rent-stabilized legal regulated rent for the apartment is required to be the first market rent agreed to by the landlord and the tenant in a lease agreement, subject to the tenant's right to file a Fair Market Rent Appeal (FMRA) with the Division of Homes and Community Renewal (DHCR) challenging the rent as the actual fair market rent. The right to file a FMRA ensures that the first rent is a fair market rent.
Here, Lew Realty LLC disputed McKinney's right to succeed to Brown's rent-controlled tenancy. To settle the dispute, however, Lew Realty and McKinney agreed that McKinney would take the apartment as the first rent-stabilized tenant, and entered into a March 2000 stipulation settling the holdover proceeding, which was so-ordered by the Civil Court. The stipulation provided that $1,650 per month was the fair market rent for the apartment being removed from rent control, but that McKinney would accept a rent-stabilized lease at the preferential rent rate of $650 per month, which McKinney would pay for the duration of his tenancy, with allowable increases. Critically, the stipulation provided that McKinney agreed "not to challenge the rent," thereby expressly waiving his rights held as the first rent-stabilized tenant to challenge the legal rent in a FMRA, which McKinney had no incentive to challenge in the first instance given his indefinite preferential rent. Lew Realty filed the lease and so-ordered stipulation with DHCR, with proof that it had mailed McKinney a notice of his right to file a FMRA, despite McKinney waiving such right in the stipulation.
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