Otus v Northside Dev., L.L.C.

[*1] Otus v Northside Dev., L.L.C. 2006 NY Slip Op 51466(U) [12 Misc 3d 1186(A)] Decided on July 25, 2006 Supreme Court, Kings County Saitta, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 25, 2006
Supreme Court, Kings County

Tara Otus, RAY MASTER, ROGER BARR, JANIS SILS AND ROY ZUCKERMAN, Plaintiffs,

against

Northside Development, L.L.C., Defendant.



6494 / 2006

Wayne P. Saitta, J.

The Plaintiffs, RAY MASTER and JANET SILS, (hereinafter "Plaintiffs"), moved pursuant to C.P.L.R. §6301 for a preliminary injunction, staying and enjoining Defendant, NORTHSIDE DEVELOPMENT, L.L.C., (hereinafter "Defendant" or "NORTHSIDE"), and its attorneys, employees, agents, representatives and others acting on their behalf from (1) terminating the tenancies of Plaintiffs in their respective units at the building 83-101 N. 3rd St., Brooklyn, New York, (hereinafter the "building" or "premises"), and (2) taking any measures or steps to enforce Plaintiffs' alleged defaults with respect to said tenancies, including commencing any summary action or other proceeding to take possession of or otherwise affect the possession, use and enjoyment of rights by Plaintiffs, pending resolution of this action.

Defendant cross-moves for summary judgment on the grounds that Defendant is entitled to terminate Plaintiffs' tenancies as a matter of law.

Upon review and consideration of the Plaintiffs' Order to Show Cause dated February 28th, 2006; Affirmation of Emergency of Margaret B. Sandercock, Esq., dated February 27th, 2006, and all exhibits annexed thereto; Affirmation of Plaintiff's counsel, Margaret B. Sandercock, dated February 28th, 2006; Affidavits of Plaintiffs RAY MASTER and JANIS SILS dated February 27th, 2006 and February 24th, 2006, respectively; Defendant's notice of cross motion for summary judgment dated March 28th, 2006, and all exhibits annexed thereto; Affirmation of Defendant's counsel, Harry Shapiro, Esq., dated March 28th, 2006; Affidavit of Aaron Wexler, dated March 28th, 2006; Affirmation in Reply of Margaret B. Sandercock, Esq., dated April 30th, 2006; Affidavits of Plaintiffs RAY MASTER and JANIS SILS dated April 19th, 2006, and April 18th, 2006, respectively; Affirmation in Sur-Reply of Harry Shapiro, Esq., dated May 23rd, 2006; Affidavit of Aaron Wexler dated May 22nd, 2006; all exhibits annexed thereto; all the proceedings had herein and after hearing and argument of counsel and due deliberation thereon, Defendant's cross motion for summary judgment is denied and the Plaintiffs' motion for a preliminary injunction is granted to the extent set forth below.

FACTS

In the underlying action, Plaintiffs seek a declaratory judgment that the building is subject to the Emergency Tenant Protection Act, (hereinafter "ETPA"), thereby protecting Plaintiffs under [*2]the Rent Stabilization Code. Plaintiffs seek compensation for rent overcharges, if any, and seek damages and legal fees for a violation of §349 of the General Business Law and/or as permitted by lease, statute and the Rent Stabilization Code, or as otherwise provided by law. Furthermore, Plaintiffs seek injunctive relief preventing Defendant from terminating their tenancies, from collecting rent from the Plaintiffs until a residential Certificate of Occupancy is obtained, and from collecting rents in excess of the legally regulated rent permitted under the Rent Stabilization Code. The sole remaining Plaintiffs, RAY MASTER and JANET SILS, have resided in their units since 2002, and 1997, respectively. The Defendant is the owner of the premises as set forth in the deed. Aaron Wexler is the Managing Member of NORTHSIDE DEVELOPMENT, L.L.C. and a fee owner of the premises.

In their Complaint, Plaintiffs allege Defendant, through its agents, knowingly leased the premises to Plaintiffs for the purposes of residential use. Plaintiffs further allege that although they signed commercial leases, their apartments were converted to residential use before they took occupancy and that the broker who showed one of the apartments represented that it was a residential unit. Although Defendant's attorney asserts that Plaintiffs illegally converted their units, Defendant fails to offer proof from anyone with personal knowledge to contest Plaintiffs' position that the apartments were converted before Plaintiffs took occupancy. Defendant maintains the Plaintiffs are month to month tenants who entered into commercial leases, which have expired.

Finally, Plaintiffs represent each received a "red herring" regarding an"insider" price for their residential unit as a tenant in occupancy from Defendant as part of his plan to convert the building to condominiums. Plaintiffs received the red herring prior to receiving a Notice of Termination, which would extinguish Plaintiffs' right to the "insider" price as tenants in occupancy.

It is conceded by both parties that the Plaintiffs' units are not covered by the Loft Law and that the building is zoned to allow residential use as of right.

ARGUMENTS

Plaintiffs' claim they are entitled to protection under the ETPA. They assert that the Court of Appeals decision in Wolinsky v. Kee Yip Realty Corp., 2 NY3d 487, 2004 NY Slip Op 04436, does not preclude protection under the ETPA, because the subject building can be used for residential purposes, as of right, pursuant to the NYC Zoning Resolution.

Plaintiffs further argue that as Rent Stabilized tenants, they are entitled to renewal leases which would entitled them to continued occupancy. Plaintiffs acknowledge they are not entitled to purchase their units until a conversion plan has been accepted by the state. However, they argue because the Defendant refuses to recognize Plaintiffs as tenants protected under the Rent Stabilization Code, they are being improperly denied the right to remain in occupancy, and also denied the opportunity to purchase their units as tenants in occupancy once an offering plan is accepted. Plaintiffs assert the Defendant has a duty to act in a manner so as not to displace the Plaintiffs as existing tenants in the building during a conversion. Therefore Plaintiffs seek equitable relief to prevent their being evicted which would also prevent their losing the right to purchase their units should the building be converted.

Defendant contends that Plaintiffs have failed to make out a case for injunctive relief, stating Plaintiffs are neither entitled to Rent Stabilization protection nor do they have any right to purchase their units by virtue of having received a "red herring".

Defendant also cross-moves for summary judgment on the grounds that Plaintiffs are month to month tenants following the expiration of commercial leases, and thereby are not protected by the [*3]Rent Stabilization Code. Defendant argues the Wolinsky decision bars the protections of the ETPA to conversions not covered by the Loft Law, even in situations where zoning regulations do not preclude conversion to residential use. Defendant cites Gloveman Realty Corp. v. Jefferys, 18 AD3d 812, 795 NYS2d 462, (2nd Dept. 2005), wherein the tenants were denied ETPA protection on appeal, even though their building was located on a lot on which residential use was allowed.

Defendant further claims no rights are conveyed to Plaintiff by the filing of a preliminary "red herring" pending actual acceptance for filing by the Office of the Attorney General for the State of New York. Defendant states Plaintiffs are not entitled to continued tenancy and therefore are not now, nor will they be, entitled to an "insider" price.

ANALYSIS

I. THE ORDER TO SHOW CAUSE SEEKING A PRELIMINARY INJUNCTION SHOULD BE GRANTED IN PART, ENJOINING DEFENDANTS FROM INITIATING ANY HOLDOVERS FOR THE RECOVERY OF POSSESSION OF THE SUBJECT UNITS

A. The Preliminary Injunction Should be Granted In Part Because the Necessary Showing Has Been Made

Plaintiffs seek a preliminary injunction pending the outcome of the underlying cause of action. Where the Court determines (1) that the moving party is likely to prevail on the merits, (2) absent a preliminary injunction the moving party will be irreparably harmed, and (3) the balancing of the equities is in the moving party's favor, the court may grant injunctive relief to the moving party. CPLR §6301; Coinmach Corp. v. Alley Pond Owners Corp. 2006 NY Slip Op 469; 2006 NY App. Div. Lexis 724 (2d Dept. 2006); First Franklin Sq. Assoc., LLC v. Franklin Sq. Prop. Account, 15 AD3d 529, 532-33. Here the Court finds the Plaintiffs have met their burden.

1.The Moving Party is Likely to Prevail on the Merits

Plaintiffs state they are likely to prevail on their claim that they are covered by the ETPA because the building contains more than six residential units and was built before 1974. They allege Wolinsky v. Kee Yip Realty Corp., 2 NY3d 487, 2004 NY Slip Op 04436, does not preclude the relief sought. In Wolinsky, the Court of Appeals declined to extend the protections of the ETPA to the Appellants holding, the "tenants' illegal conversions did not fall under the ambit of the ETPA". 2 NY3d 487, 2004 NY Slip Op. 04436. The Court reasoned that despite the ETPA's inclusionary intent, "the statute was not intended to foster future illegal conversions or undermine legitimate municipal zoning perogatives". 2 NY3d 487, 493, 2004 NY Slip Op. 04436. In Wolinsky, the Appellants rented commercial units and converted them for residential use in violation of the Zoning Resolution. Id. At bar, it is undisputed that the building is in a mixed use district which permits residential use as of right.

Defendant cites the Appellate Division decision in Gloveman Realty Corp. v. Jefferys, 18 AD3d 812, 795 NYS2d 462, (2nd Dept. 2005), in support of its position. The Court in Gloveman, citing Wolinsky, also stated, the "illegal conversions are not entitled to the protections of the ETPA". However, the Gloveman decision neither states in what manner the conversions were illegal, nor which statute, ordinance or regulation the conversions violated. Defendant argues that since Gloveman involved a building where residential use was not precluded by the Zoning [*4]Resolution, that decision should be read broadly to deny ETPA coverage to conversions even where the Zoning Resolution permits residential use as of right. However, in its decision in Gloveman, the Appellate Division did not explicitly discuss whether the conversions in question could be made legal under the existing Zoning Resolution. Rather, that Court simply concluded, these "illegal conversions are not entitled to the protections of the ETPA". 18 AD3d 812, 795 NYS2d 462.

In Wolinsky, the Court of Appeals specifically based it refusal to extend ETPA protections on the fact that the conversions in question could not be made to conform with the Zoning Resolution. Its rationale was that either the City, by changing the zoning, or the Legislature, by expanding Loft Law protections, could "make residential loft units like the tenants' legal or capable of being legalized, if such a change were deemed necessary or desirable." 2 NY3d 487, 2004 NY Slip Op. 04436.

This court declines to read into the decision in Gloveman a blanket prohibition barring ETPA coverage to all conversions, even where the Zoning Resolution permits residential use as of right, absent any explicit statement to that effect by the Appellate Division. To do so would be to deny meaning or effect to that part of the Wolinsky decision which relied upon the impossibility of conforming with the Zoning Resolution as its basis for denying ETPA coverage. Where zoning expressly allows residential use as of right, and apartments can be legalized by the owner filing a Certificate of Occupancy, there is no rationale under Wolinsky to foreclose ETPA coverage.

Finally, the facts in the present case are distinguishable from those in Gloveman. In this case the conversions to residential use predated Plaintiffs' tenancies. Further they not only are permitted by the Zoning Resolution, but there is no alleged violation of any statute or regulation relating to occupancy other than a failure to obtain a Certificate of Occupancy which conforms to the building's use, which is exclusively in the Defendant's control. Also, in this case the Defendant has commenced the process of converting the building into condominiums. Defendant will have to obtain a residential Certificate of Occupancy as part of its conversion plan before it can be approved. 13 NCYRR 18.2 (c)(4)(iii)(C-2).

RIGHT TO PURCHASE

Turning to the issue of whether Plaintiffs have any vested right to purchase the units at an insider price as the result of their receipt of a "red herring", we conclude they do not as a matter of law. Katz v. Frost Equities Co., 121 AD2d 300, 503 NYS2d 758 (1st Dept. 1986), as well as Ganson v. Goldfader, 148 Misc 2d 608, 561 NYS2d 366. However, this court cannot determine at this point whether the Plaintiffs have the right to the "insider" price in a condominium conversion without settling the issue as to Plaintiffs' right to continued tenancy. Only bona fide tenants in occupancy on the date the Attorney General accepts a plan for cooperative conversion for filing are afforded the exclusive right to purchase their apartments upon the conversion of a residential apartment building to a cooperative status, and thus the date of acceptance by the Attorney General is the critical date to determine who has the right to purchase.

McKinney's General Business Law § 352-eeee, subd. 2(d)(ix).

Since Plaintiffs' right to preferential treatment in a condominium conversion in this case will turn [*5]upon whether or not they are entitled to protection under the ETPA and will be in possession when a conversion plan is accepted, this issue must await a determination as to Plaintiffs' rights to protection as statutory tenants.

2. Absent A Preliminary Injunction the Moving Party Will Be Irreparably Harmed

In the absence of the relief sought, Plaintiffs will be irreparably harmed. Defendant served each Plaintiff with a Notice of Termination. Defendant asserts that Housing Court is the appropriate forum in which to adjudicate this matter. However, as a court of general jurisdiction, Supreme Court has jurisdiction to hear these issues. This court regularly hears cases such as these, as the two recent decisions by fellow jurists of Supreme Court, Kings County, submitted by Defendant's counsel, illustrate.

Not only are the Plaintiffs at risk of being displaced from their homes, they also risk losing the right to purchase if they are out of possession on the date the conversion plan is accepted.

D. The Balancing of the Equities is in the Moving Party's Favor

Plaintiffs rented what they understood to be residential units. Other tenants in the building had been and were using their units for residential purposes, and certain units had been shown by a broker who held them out for residential use. The conversion of the subject units from non-residential to residential use took place prior to the Plaintiffs' taking occupancy.

On the papers submitted it is clear that, Defendant knew or should have known Plaintiffs occupied their units as residential tenants. At bar, the Plaintiffs' tenancies neither conflict with the Zoning Resolution, nor have any allegations been raised that the building code prevents the building from being used for residential purposes. Aside from the Defendant's failure to obtain a Certificate of Occupancy to conform to the change of use, the tenancies are legal.

Defendant accepted rent for years while the units were openly being used residentially, despite failing to obtain a Certificate of Occupancy for the residential use. Defendant cites no impediment to obtaining a residential certificate and in fact will have to obtain a residential certificate to complete its condominium conversion. 13 NCYRR 18.2 (c)(4)(iii)(C-2). Defendant now seeks to deprive the Plaintiffs from any of the benefits which are afforded other occupants of multiple dwelling units, at the same time it is converting the building to residential condominium use. The equities in this situation weigh in the favor of the Plaintiffs.

For the foregoing reasons, the court finds that the Plaintiffs have met their burden for injunctive relief .

As such the court finds that the Plaintiffs are entitled to a preliminary injunction to the extent of staying and enjoining Defendant from (1) terminating the tenancies of Plaintiffs in their respective units at the building 83-101 N. 3rd St., Brooklyn, New York (the "building" or "premises"), and (2) taking any measures or steps to enforce Plaintiffs' alleged defaults with respect to said tenancies, including commencing any action or summary proceeding to take possession of or otherwise affect the possession, use and enjoyment of rights by Plaintiffs, pending resolution of this action. As discussed above, Plaintiffs have demonstrated a likelihood of success on their claim to ETPA coverage and therefore Defendant's cross motion for summary judgment must be denied.

WHEREFORE, the Court grants Plaintiffs' motion for a preliminary injunction, to the extent [*6]indicated and denies Defendant's motion for summary judgment. This shall constitute the decision and order of this Court.

E N T E R ,

_____________________________

WAYNE P. SAITTA, J.S.C.