Zabolotsky v Morningside Realty LLC

[*1] Zabolotsky v Morningside Realty LLC 2013 NY Slip Op 51627(U) Decided on October 1, 2013 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 1, 2013
Supreme Court, Kings County

Alla Zabolotsky & YEFIM ZABOLOTSKY, Plaintiffs,

against

Morningside Realty LLC and 3094 BRIGHTON LLC, Defendants.



32439/08



Plaintiff Attorney: Rappaport, Hertz, Cherson & Rosenthal, P.C., 118-35 Queens Blvd., 9th Fl., Forest Hills, NY 11375

Defendant Attorney: The Price Law Firm, 220 Fifth Avenue, Suite 1301, New York, NY 10001

David I. Schmidt, J.

Upon the foregoing papers, the court is presented with a framed issue for trial,[FN1] regarding application of the Rent Stabilization Code and Law (RSL) to the rental apartment occupied by plaintiffs Alla and Yefim Zabolotsky. Plaintiffs contend that defendants Morningside Realty LLC (Morningside) and 3094 Brighton LLC (Brighton), their current and previous landlords, respectively, over-charged them in violation of the RSL, and seek recovery of the alleged overcharges, plus the imposition of treble damages under the RSL.

Undisputed Facts And Procedural History

This action involves rental apartment 3C (Unit 3C), in the residential apartment building located at 3094 Brighton 5th Street in Brooklyn, New York (the Building), which is presently registered with the New York State Division of Housing and Community Renewal (DHCR) as a rent stabilized apartment subject to the RSL.

Gerstman's Sale Of Unit 3C

Shirley Gerstman (Gerstman) owned Unit 3C until she sold her interest therein to Brighton by bargain and sale deed, dated October 30, 1998, and Contract of Sale, dated June 18, 1998 (the Sales Contract).

Paragraph 20 of the Sales Contract, entitled "Premises to be subject to special leases," provides that "[p]urchaser agrees to enter into a lease for Apartment 3C with Shirley Gerstman granting Shirley Gerstman a tenancy commencing at the Closing Date for a term equal to her life plus one month at a fixed rent of $258 per month. . . . In the case of Shirley Gerstman, the lease will [*2]terminate if she vacates the apartment prior to her death." Paragraph 20 of the Sales Contract also provides that "[e]xecution of these leases shall be a condition precedent to Sellers' obligation to close under this contract." Paragraph 21(M) of the Sales Contract states that "[t]o the best of Sellers' knowledge DHCR and rent stabilization forms have been filed, as required" (emphasis added).

The Gerstman Lease

In accordance with the terms of the Sales Contract, Brighton and Gerstman contemporaneously entered into a lease for Unit 3C on the standard rent stabilization lease form, dated October 30, 1998 (the Gerstman Lease). Brighton duly registered the Gerstman Lease with the DHCR, as specifically required under the Sales Contract. The Gerstman Lease was recorded simultaneously with the Sales Contract in the Kings County City Register's Office on March 30, 1999.

The Gerstman Lease specifically states in the header at the top of the first page "ATTACHED RIDER SETS FORTH RIGHTS AND OBLIGATIONS OF TENANTS AND LANDLORDS UNDER THE RENT STABILIZATION LAW" (emphasis added). The Gerstman Lease also provides that its term is for "the lifetime of Tenant, Shirley" with rent fixed in the amount of $258.00 per month "for the entire term of the lease." Paragraph 4 of the Gerstman Lease, entitled "RENT ADJUSTMENTS" provides that "[t]his Lease is for a Rent Stabilized apartment,"[FN2] and the remainder of the form language is stricken to exclude rent adjustments (emphasis added). The parties inserted a type-written sentence at the conclusion of paragraph 4 of the Gerstman Lease, explicitly providing that "[t]he Landlord agrees to waive any increases of rent or other payments granted by the authorized agency or pursuant to any code, law or regulation" (emphasis added). Paragraph 11 of the Gerstman Lease also required Gerstman, among other things, to "obey and comply (1) with all present and future city, state and federal laws and regulations, including the Rent Stabilization Code and Law, which affect the Building or the Apartment . . ." (emphasis added).

The Gerstman Lease recites the "Apartment," "Address" and "Tenant" on page 6, and expressly provides "Life Tenancy - Life of Shirley Gerstman" under the heading "Expires." The rider to the Gerstman Lease further provides that the Gerstman Lease is "personal" to Gerstman for as long as she resided in Unit 3C,[FN3] and that the Gerstman Lease is inapplicable to Gerstman's "heirs, successors or assigns."

Gerstman continuously resided in Unit 3C until her death on February 2, 2005.

The Zabolotsky Lease

Alla and Yefim Zabolotsky subsequently rented Unit 3C in February 2006, and paid Brighton an initial monthly rent of $1,400.00 pursuant to a one-year, rent stabilized lease, dated January 5, 2006 (the Zabolotsky Lease). Brighton duly registered the Zabolotsky Lease with the DHCR.

In January 2008, Brighton conveyed its ownership interest in the Building to Morningside, the present owner and landlord of the Building. The Zabolotskys renewed their lease for Unit 3C with Morningside twice during their tenancy (1) as of February 2007, the Zabolotsky Lease required monthly rental payments of $1,501.50, and (2) as of November 2008, the Zabolotsky Lease required monthly rental payments of $1,629.13.

The Instant Action

The Zabolotskys commenced this action against their former and present landlords, Brighton and Morningside, in December 2008, challenging their monthly rental payments since 2006. More specifically, the Zabolotskys aver that defendants overcharged them during their entire tenancy in [*3]contravention of the RSL.

Morningside appeared in this action, and denied the allegations in the complaint. Brighton failed to appear in this action, and is presently in default.

Contentions Of The Parties

The crux of the parties' dispute is whether Unit 3C became rent stabilized in 1998, before plaintiffs' tenancy, or whether plaintiffs were the first rent stabilized tenants of Unit 3C. Plaintiffs seek reimbursement of rent overcharges and the imposition of treble damages if Gerstman's tenancy, and the base rent derived therefrom, are subject to the RSL. Defendant, on the other hand, contends that the RSL was inapplicable before 2006 because record evidence proves that Gerstman was an owner with a life estate, and not a tenant.

Specifically, plaintiffs argue that Gerstman was the first rent stabilized tenant of Unit 3C from her October 30, 1998 sale of Unit 3C until her death on February 2, 2005. Consequently, plaintiffs' claim that their subsequent tenancy of Unit 3C was already subject to the RSL, including incremental rent increases, with an initial base rent equal to Gerstman's fixed rent. Plaintiffs contend that "their rent should be rolled back to $258/month," which is the "last ascertainable rent stabilized rent" because their current rent is "not justifiable."

Plaintiffs aver that "[t]he Gerstman tenancy had to have been a rent stabilized tenancy" because Gerstman previously "lived in the subject unit as an owner." As plaintiffs explain, "[w]hen Gerstman went from being an owner to a tenant pursuant to the terms of a written lease the subject unit went from being owner occupied' pursuant to rent stabilization to occupied by a rent stabilized tenant." Plaintiffs reason that Unit 3C "has to be rent stabilized because the subject building has the requisite number of [sic] apartments, was built after the correct year, and has all of the other indicia of rent stabilization."

Plaintiffs further contend that "[t]he only dispute between the parties is as to rent that the Defendants were permitted to charge the Plaintiffs," and that "[t]he crux of Plaintiffs' argument is that the Defendants were not entitled to charge the Plaintiffs a first rent' when they took possession of the subject unit because the prior occupant was a rent stabilized tenant." Plaintiffs seek to recover the allegedly "dramatic and grotesque" rent overcharges that they paid defendants during their tenancy, and the imposition of treble damages.

Plaintiffs contend that if Unit 3C was subject to the RSL before their 2006 tenancy, they have sustained substantial monetary damages, since their initial monthly rent should have been $304.44 (or 18% more than Gerstman's $258.00 fixed rent). Specifically, plaintiffs contend that they were initially overcharged $1,142 ($1,400.00 - $258) per month under the Zabolotsky Lease, and that their rental payments from February 2006 to August 2013 represent $93,501.75 worth of overcharges, which is trebled to $280,505.25 under the RSL.

Defendant Morningside avers that Unit 3C was not subject to the RSL until plaintiffs' 2006 tenancy because Gerstman was granted a "life estate," and not a rent stabilized life tenancy. Morningside argues that this court's findings should "turn upon the construction" of the Gerstman Lease and the Gerstman Sales Contract, which "reserved a life estate" for Gerstman. According to Morningside, "[i]n construing th[e] [Gerstman Lease] as a whole it is clear and unequivocal that Brighton agreed to Gerstman's life tenancy and bargained away its right to enter into a landlord tenant relationship as a condition of its purchase of the apartment building."

In short, Morningside contends that the Gerstman Lease did not create a leasehold interest or tenancy in favor of Gerstman, and was, therefore, not governed by the RSL. Instead, Morningside claims that the Gerstman Lease "created an ownership" in Unit 3C. Morningside reasons that Gerstman's "ownership interest did not terminate with the sale [of Unit 3C]" because Gerstman continuously resided in Unit 3C for the remainder of her life without vacating the subject property.

Discussion[*4]

Undisputed and unambiguous documentary evidence in the record and New York law warrant a finding that the Gerstman Lease granted Gerstman a life tenancy in Unit 3C subject to the RSL. For the reasons discussed below, plaintiffs are entitled to a rent adjustment and recovery of the rental overcharges that plaintiffs paid defendants during their tenancy.

RSL 26-512 (a) makes it unlawful to charge any rent in excess of the legal regulated rent in a rent stabilized apartment. Under the RSL, the legal regulated rent for purposes of determining an overcharge "shall be deemed to be the rent charged on the base date, plus in each case any subsequent lawful increases and adjustments" (RSL 2506.1 [a] [3]). The base date is defined by the RSL as the date four years prior to the filing of an overcharge complaint (see Thornton v Baron, 5 NY3d 175 [2005]).

The legal regulated base rent under the RSL is established by considering the previous tenant's legal regulated rent, vacancy and renewal Rent Guidelines Board (RGB) increases, long-term occupancy increases, and individual apartment increases, if any, pursuant to RSL 2522.8. Under this statute, a new lease entered into after a prior rent stabilized tenant has vacated may be increased by 20% for a two-year vacancy lease or, for a one-year vacancy lease, by 20% minus the difference between the RGB percentage renewal lease increase for one- and two-year leases for that year (id.).

Here, unambiguous record evidence clearly reflects that the parties' intended to grant Gerstman, the previous tenant of Unit 3C, a life tenancy for a rent stabilized apartment. Specific provisions in the Gerstman Lease,[FN4] the Sales Contract and DHCR's rent roll report for the relevant time period,[FN5] reflect that Gerstman sold her ownership interest in Unit 3C to Brighton in consideration for a rent stabilized life tenancy in Unit 3C.

Significantly, the Gerstman Lease references the RSL in multiple provisions, including the capitalized heading at the top of page one of the Gerstman Lease, which states that "ATTACHED RIDER SETS FORTH RIGHTS AND OBLIGATIONS OF TENANTS AND LANDLORDS UNDER THE RENT STABILIZATION LAW" (emphasis added). Paragraph 11 of the Gerstman Lease similarly provides that "[Gerstman] will obey and comply (1) with all present and future city, state and federal laws and regulations, including the Rent Stabilization Code and Law, which affect the Building or the Apartment . . ." (emphasis added).

A further indication of the parties' clearly expressed intent that the RSL applied to Gerstman's tenancy are their handwritten changes to the form text in the Gerstman Lease. Tellingly, the parties changed the form language in paragraph 4 of the Gerstman Lease from "if this Lease is for a Rent Stabilized apartment . . ." to "This Lease is for a Rent Stabilized apartment," by affirmatively striking out the word "if" and capitalizing the letter "t" in the word "this." In addition to striking the provision regarding rent adjustments in paragraph 4, the parties typed in additional language at the end of paragraph 4 of the Gerstman Lease expressly providing that "[t]he Landlord agrees to waive any increases of rent or other payments granted by the authorized agency or pursuant to any code, law or regulation" (emphasis added). In this context, it is clear that the "authorized agency" referenced therein is the DHCR, with which Brighton admittedly registered the Gerstman Lease after execution. The only plausible reason for the parties' alterations to the standard rent stabilization lease form is to memorialize their intention that Gerstman's tenancy be subject to the RSL.Consistent with the foregoing is the plain language in the Sales Contract, pursuant to which Gerstman sold Unit 3C to Brighton. Thus, paragraph 21(M) of the Sales Contract explicitly states [*5]that "[t]o the best of Sellers' knowledge DHCR and rent stabilization forms have been filed, as required" (emphasis added). The DHCR's annual registration history for Unit 3C reflects that defendants duly registered Unit 3C as rent stabilized during Gerstman's tenancy, as required under the Sales Contract. Indeed, the DHCR's registration history reflects that defendants registered Unit 3C as a rent stabilized apartment in 2004, the relevant time period used to determine the applicable base rent under the RSL upon plaintiffs' 2006 occupancy (i.e., four years before plaintiffs filed their 2008 overcharge complaint).

While Morningside recognizes that this framed issue turns on the construction of the Gerstman Lease and the Sales Contract, it contends that those unambiguous documents "establish" that Brighton "reserved a life estate for Shirley Gerstman so that she could continue in possession of [Unit 3C] . . ." Without citing any legal authority, Morningside reasons that "[b]ecause a life tenancy is the equivalent of a life estate and a life estate is a form of ownership, the provisions of the [RSL] are inapplicable." Thus, Morningside admits that the Gerstman Lease and the Sales Contract unambiguously granted Gerstman a life tenancy in Unit 3C, yet asserts that a life tenancy automatically gives rise to a life estate outside the purview of the RSL, by operation of law.

Contrary to Morningside's contentions, the Appellate Division, Third Department has held that a transfer of property by deed reserving grantor the right "as long as she shall live, to occupy the house" conferred the right of occupancy for life, but did not establish a life estate (see Matter of Bartholomew v. Horan, 37 AD2d 643 [1971]). Furthermore, New York courts have upheld agreements providing for preferential rent for the life of a tenancy under the RSL (see, e.g., Colonnade Mgt., LLC v Warner, 11 Misc 3d 52, 53 [App Term 2006] [holding that 2003 amendment to RSL did not preclude parties from agreeing to preferential rent for life of tenancy]). As one court noted, "while lease renewals in perpetuity are not favored, renewal clauses conferring perpetual rights will be upheld if the intent of the parties is clearly expressed in the lease" (DeSantis v Kessler, 83 AD2d 766, 766 [1981]).

Conclusion

This court concludes that unambiguous record evidence clearly memorialized the parties' intent that Gerstman was granted a life tenancy governed under the RSL. Accordingly, the court awards judgment to plaintiffs in the amount of $93,501.75, representing the overcharges that plaintiffs paid during the tenancy, plus recovery of interest from the commencement of plaintiffs' tenancy in February 2006. However, plaintiffs' demand for treble damages, pursuant to RSL 2606.1 (a) (1), is denied because they are unwarranted under the facts and circumstances presented here.

The foregoing constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C . Footnotes

Footnote 1:The parties stipulated to waive a bench trial in favor of a framed issue trial on submission based on: (1) the parties' respective trial memoranda; (2) the parties' Trial Stipulation of undisputed facts; and (3) the transcript of the parties' June 26, 2013 court appearance, at which the parties presented their stipulated facts and legal arguments to the court.

Footnote 2:The face of the document reflects that the parties changed the form language in paragraph 4 in handwriting from "if this Lease is for a Rent Stabilized apartment . . ." to "This Lease is for a Rent Stabilized apartment."

Footnote 3:Although the Rider is entitled "RIDER TO LEASE TO APARTMENT 3B," this was an obvious typographical error, since the parties do not dispute that Gerstman resided in Unit 3C, or that the rider to the Gerstman Lease relates to Unit 3C.

Footnote 4:The Appellate Division, Second Department has held that the interpretation of a lease agreement is governed by general rules of contract construction, and is, therefore, interpreted in accordance with the unambiguous intent of the parties "as it may be discerned from the four corners of the document" (Fox Paper v Schwarzman, 168 AD2d 604, 605 [1990]).

Footnote 5:As previously discussed, the base rent under the RSL is determined by referencing the monthly rent charged for the subject apartment four years prior to the filing of an overcharge complaint. Here, the operative date is 2004, since plaintiffs commenced this action in 2008.