Randall Assoc., LLC v Fylypowcyz
Annotate this CaseDecided on July 6, 2007
Civil Court of the City of New York, New York County
Randall Associates, LLC, Petitioner-Landlord,
against
Robert Fylypowcyz, Respondent-Tenant.
97645/06
Petitioner's Attorney:
Joseph Burden, Esq.
Belkin Burden Wenig
& Goldman, LLP
270 Madison Avenue
New York, New York 10016
Respondent's Attorney:
Fred L. Seeman, Esq.
170 Broadway, Suite 1608
New York, New York 10038
Joseph E. Capella, J.
By notice of motion dated June 8, 2007, the respondent seeks to reargue, (CPLR 2221), this court's earlier decision dated May 23, 2007, which granted the petitioner's request to amend the pleadings. On January 3, 2007, the respondent sought dismissal, (CPLR 3212), of this holdover proceeding on the ground that the petition improperly plead that the subject "premises are exempt from the statutory provisions of Article 7-C because the premises was not occupied for residential use between April 1, 1980 and December 1, 1981." The petitioner opposed and cross moved to amend the petition to read that "the [subject premises] was an IMD, subject to the Loft Law, and was deregulated with a purchase of rights and improvements pursuant to MDL § 286(6) & MDL § 286(12)."[FN1] In opposition to petitioner's cross motion, the respondent argued that the proposed amendment lacked merit because, regardless of the purchase, given that the building contains more than six residential units, the subject unit is eligible for protection under rent stabilization pursuant to the Emergency Tenant Protection Act ("ETPA") of 1974.
The proposed amendment did not change the allegation that the subject unit is exempt from the Loft Law, but merely the basis as to why it is exempt. As the petitioner was not seeking to amend a knowingly false statement regarding the Loft Law status of the subject unit, (MSG Pomp v Baez, 185 AD2d 798 [1st Dept 1992]), and leave to amend should be freely granted, (CPLR 3025(b)), and finding no prejudice or unfair surprise to the respondent, (Masterwear v Bernard, 3 AD3d 305 [1st Dept 2004]), by decision/order dated May 23, 2007, this court granted the petitioner's cross motion to amend and denied the respondent's motion. According to the respondent, inasmuch as section 286(6) and (12) of the Multiple Dwelling Law ("MDL") are not deregulating events, and where as here, the building had six or more residential units, (182 Fifth v Design, 300 AD2d 198 [1st Dept 2002]; VVV Partnership v Moran, 10 Misc 3d 130(A) [App Term 1st Dept 2005]), the proposed amendment lacked merit and the court erred in permitting same. [*2]
Whether rent stabilization protects tenants who convert commercial space in a building that lacks a certificate of occupancy built before 1974 with six or more residential units requires some historical analysis. In 1974, the ETPA made residential units in buildings of six or more units constructed before January 1, 1974, that were not subject to Rent Control, subject to Rent Stabilization. (NYC Adm Code § 26-504; 9 NYCRR § 2520.11.) On December 20, 1979, in the case of Mandel v Pitkowsky, (102 Misc 2d 478), the Appellate Term, First Department, held that commercial loft tenants who had invested substantial sums to convert and occupy their spaces for residential use with the expectation and assurance that the landlord would take the necessary steps to legalize their occupancy were entitled to rent stabilization protection.
The increased number of conversions of commercial and manufacturing loft buildings to residential use without compliance to applicable building codes and local laws regarding housing maintenance standards created a serious public emergency. At the same time, however, given the acute shortage of housing declared by the ETPA, these residential loft tenants would suffer great hardship if required to relocate. In response, the Legislature passed article 7-C of the MDL ("Loft Law") in 1982, which found, inter alia, that as a result of the uncertain status of the tenancies in question, the courts have been increasingly burdened with disputes between landlords and tenants regarding their respective rights and obligations; that illegal and unregulated residential conversions undermine the integrity of local zoning resolutions; and that government intervention is necessary to effectuate legalization, consistent with local zoning resolutions, whereby the rentals from these illegal living arrangements can be reasonably adjusted so that the residential tenants can assist in paying the cost of legalization without being forced to relocate. The Loft Law established a mechanism for the procurement of a residential certificate of occupancy, during which time the loft tenants were covered by rent regulation pursuant to section 286 of the MDL and the Loft Board regulations. Once a residential certificate of occupancy was obtained, the tenants became rent stabilized under the auspices of the New York State Division of Housing and Community Renewal.
The Loft Law uses the term "interim multiple dwellings" ("IMD"), which it defines as any building or structure or portion thereof which (i) at any time was occupied for manufacturing, commercial, or warehouse purposes, (ii) lacks a certificate of occupancy, and (iii) on December 1, 1981, was occupied for residential purposes since April 1, 1980, as the residence or home of any three or more families living independently of one another. (MDL § 281.)[FN2] To a large extent, the Loft Law codified the Appellate Term's equitable holding in Mandel, in that it gave rent stabilized status to loft tenants who had invested substantial sums to convert their space to residential use with the expectation that the landlord would legalize their occupancy.
Despite passage of the Loft Law, debate continued as to whether rent stabilization under ETPA protects tenants who convert commercial space in an IMD built before 1974 with six or more residential units. In J & M v Lim, (Sup Ct, NY County, Nov. 15, 1991, Sherman, J., Index No. 1198/91, affd 191 AD2d 345 [1st Dept 1993]), rent stabilization was denied to illegal [*3]residential tenants of eight cubicles on a floor in an IMD that had only a commercial certificate of occupancy. In Tracto v White, (NYLJ, Mar. 21, 1997, at 36, col 4 [App Term, 2d Dept]), rent stabilization was granted to tenants who converted commercial space to residential use when the landlord knew and approved of the conversion and the lease expressly indicated an intention to create residential living space. Tracto relied on the pre-Loft Law Mandel, and what appeared to be a split between the First and Second Departments, was eloquently harmonized in 315 Berry v Huang, (6 Misc 3d 1007(A) [Civ Ct, Kings County 2003]). In 315 Berry, the court found that J & M applies if the loft units are incapable of legalization, (see e.g., Tan Holding v Wallace, 187 Misc 2d 687 [App Term, 1st Dept 2001] [permanent coverage under a rent regulatory scheme should not attach to dwelling units which have not been legalized or are incapable of being legalized]), and Tracto applies if the units can be legalized. If the loft unit is capable of legalization, 315 Berry extended rent stabilization under the ETPA to residential occupants of commercial property if the owner knew of or acquiesced in the tenants' conversion to residential use. (E.g. Metzendorf v 130, 132 AD2d 262 [1st Dept 1987]; Wilson v One, 123 AD2d 198 [1st Dept 1987]; Korean v Katsukawa, NYLJ, May 23, 2001, at 20, col 2 [Civ Ct, NY County]; 111 on 11 Realty, 189 Misc 2d at 395 [citing Mandel, Metzendorf, and Tracto].)
As noted by the Court of Appeals in Wolinsky v Kee Yip, (2 NY3d 487 [2004]), the ETPA and the Loft Law must be read together. Wolinsky involved a building contained six residential loft apartments in which the local zoning prohibited residential use/certificate of occupancy, thereby making residential occupancy of the commercial loft units illegal, and incapable of legalization. According to the Court of Appeals, the Loft Law was not intended to undermine legitimate municipal zoning prerogatives, and if the prior-enacted ETPA already protected illegal residential conversions of manufacturing space, significant portions of the Loft Law would have been unnecessary. "Thus, although such illegal conversions are not expressly exempted from ETPA coverage, it is evident that the Legislature did not view the ETPA as safeguarding the interests of the loft pioneers.'" (Id. at 493.)
Further complicating this entire issue is the "buy out" provisions of the Loft Law. Pursuant to section 286(6) of the Loft Law, a residential tenant qualified for Loft Law protection may sell any improvements he/she made in the loft unit to the owner. Upon the owner's purchase of same, any unit subject to rent regulation solely by reason of the Loft Law [FN3] is exempt from the rent regulation requirements of the Loft Law if it rented at "market value subject to subsequent rent regulation if such building had six or more residential units at such time." And pursuant to section 286(12), such a purchase agreement between an owner and a residential occupant is enforceable only if made after June 21, 1982. The incentive for an owner to enter into a buy out agreement is the ability to subsequently lease the unit at arms length for market value rent, unhindered by any controlling regulation. (Brynhilldur v NYC Loft Board, 161 AD2d 337 [1st Dept 1990].)
Despite the buy out of a prior tenant, an owner who knowingly permitted a subsequent tenant to convert commercial space to residential use would find that the unit may still become subject to rent regulation if the local zoning permitted residential use. (315 Berry v Hanson, 39 AD3d 656 [2nd Dept 2007]; 315 Berry v Hudnall, 11 Misc 3d 138(A) [App Term 2nd and 11th Jud [*4]Dists 2005].) This now brings us full circle to the respondent's argument that the proposed amendment lacks merit. According to the respondent, section 286(6) and (12) do not apply and do not deregulate [FN4] a building with six or more units. However, section 286(6) does address buildings containing six or more units by exempting a loft unit from the rent regulation requirements of the Loft Law if it rented at "market value subject to subsequent rent regulation if such building had six or more residential units at such time." The respondent also cites 182 Fifth v Design, (751 NYS2d 739 {300 AD2d 198} [1st Dept 2002]), and VVV Partnership v Moran, (10 Misc 3d 130(A) [App Term, 1st Dept 2005]), to support his position. In 182 Fifth, the First Department used pre-Loft Mandel to affirm the decision by Justice DeGrasse, (NYLJ, Dec. 12, 2001, at 18, col 2 [Sup Ct, NY County]), to deny a CPLR 3211(b) motion to strike a rent stabilization defense regarding a loft unit previously bought out under MDL § 286(12). Despite the parties' commercial lease, the respondent in 182 Fifth alleged that he renovated the unit for residential use in a building constructed prior to 1974 with six or more residential units. It is unclear from the decision whether the unit was used for non-residential purposes after the sale of rights and whether local zoning permitted residential use.
In VVV Partnership, the Appellate Term, First Department, relying on 182 Fifth, held that notwithstanding the owner's buy out of a prior tenant's rights, and independent of the Loft Law, rent stabilization protection under the ETPA applied since the loft unit remained residential after the buy out and the building contained six or more residential units. It is unclear whether VVV Partnership attempts to expand pre-Loft Law Mandel and reject Tan Holding v Wallace (187 Misc 2d 687 [App Term, 1st Dept 2001]), which provided that permanent coverage under rent stabilization should not attach to dwelling units which have not been legalized or are incapable of being legalized. Moreover, this court cannot overlook the Court of Appeals' concern in Wolinsky, which itself involved six residential loft apartments, of undermining legitimate municipal zoning prerogatives. The respondent's suggestion that the ETPA provides an underlying basis for rent regulation of illegally converted loft units in commercial buildings containing six or more such units, regardless of the time frame or any commercial zoning regulations, would run afoul of Wolinsky and Tan Holding. Neither 182 Fifth nor VVV Partnership disclosed whether local zoning prohibited residential use/certificate of occupancy. Also, neither decision helps to reconcile the application of rent regulation under ETPA, independent of the Loft Law, where the sole basis for permitting illegal residential use is the Loft Law, and where reading the ETPA and the Loft Law together, such illegal use appears to be exempt from the ETPA. (Wolinsky v Kee Yip, 2 NY3d 487, supra .) Therefore, it cannot be said that regardless of any buy out or local zoning prohibition against residential use, a building containing six or more residential loft units is subject to rent stabilization under the ETPA.
As for this court's earlier decision dated May 23, 2007, a party seeking leave to amend must demonstrate the merit of the proposed pleading by alleging sufficient facts to establish a prima facie cause of action in the proposed amended pleading. (Peretich v City of NY, 263 AD2d 410 [1st Dept 1999].) The party opposing a motion to amend must overcome a presumption of validity in favor of the moving party, and the merit of the proposed amendment must be sustained unless the alleged insufficiency or lack of merit is clear and free from doubt. [*5](Id. at 411.) According to the petitioner, besides the purchase of rights and improvements agreement originally executed by it and the prior tenant on July 16, 1996, local zoning prohibited residential use. Given the analysis set forth above, this court finds that the petitioner's initial application to amend had merit, and the respondent's instant motion to reargue is denied accordingly.
This constitutes the decision and order of this court, copies of which are being mailed by the court to the parties, and the proceeding is adjourned to August 7, 2007, 9:30 AM, Part A, room 523, for settlement or trial.
____7/6/07______________/S/_________________
DateJudge, Housing Court
Petitioner's Attorney:
Joseph Burden, Esq.
Belkin Burden Wenig
& Goldman, LLP
270 Madison Avenue
New York, New York 10016
Respondent's Attorney:
Fred L. Seeman, Esq.
170 Broadway, Suite 1608
New York, New York 10038
Footnotes
Footnote 1: The petitioner produced proof that on December 18, 2006, a purchase of rights and improvements agreement originally executed by the petitioner and the prior tenant on July 16, 1996, was filed with the Loft Board, which exempted the unit from the Loft Law.
Footnote 2: The Loft Law, as adopted in 1982, only applied to units in zoning districts that permitted residential use. On July 27, 1987, it was amended to include residential units occupied from April 1, 1980 through May 1, 1987, even though residential use was not permitted by local zoning regulations.
Footnote 3: And not receiving any benefits of real estate tax exemption or tax abatement.
Footnote 4: The term "deregulate" assumes that the unit was subject to ETPA at the time of purchase.
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