Costanzo v Joseph Rosen Found., Inc.

[*1] Costanzo v Joseph Rosen Found., Inc. 2018 NY Slip Op 28257 Decided on August 22, 2018 Supreme Court, New York County Kotler, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on August 22, 2018
Supreme Court, New York County

Thomas Costanzo & DAPHNE RUBIN-VEGA, Plaintiffs,

against

The Joseph Rosen Foundation, Inc., Defendant.



150904/2017



Plaintiffs: David E Frazer; 15 Maiden Lane Suite 1700, New York, NY 10038; 212-285-1300

Defendant: Lewis Alan Lindenberg; BELKIN BURDEN WENIG & GOLDMAN; 270 MADISON AVE, NEW YORK, NY 10016; (212) 867-4466
Lynn R. Kotler, J.

This action involves a dispute over unit 9F (the "unit") located at 152-25 West 25th Street, New York, NY (the "building"). Plaintiffs reside in the unit and the building is owned by the defendant.

Defendant now moves, pursuant to CPLR § 3212, for a declaration that, inter alia, the unit is not subject to rent stabilization. Defendant further seeks an award for its reasonable costs and attorneys' fees incurred in connection with this action. Plaintiffs oppose the motion and cross-move for a declaration that the unit is subject to, and plaintiffs are protected by, rent stabilization. Plaintiffs further seek summary judgment as to liability on the second cause of action for rent overcharge and setting this matter down for a trial as to damages and an order dismissing the first counterclaim.

Issue has been joined and note of issue has not yet been filed. Therefore, summary judgment relief is available. The court's decision follows.

The relevant facts are not in dispute. The unit is in a building designated a deregulated Interim Multiple Dwelling ("lMD") registered with the New York City Loft Board (the "Loft Board"), pursuant to Article 7-C, Section 281 of the Multiple Dwelling Law (the "Loft Law"). [*2]The building contains six or more residential units and was built before 1974.

Previously, non-party Jeffrey James was the original protected occupant of the unit. Plaintiffs entered into a conditional agreement with James for assignment of his lease and purchase of his improvements pursuant to MDL § 286[6]. Defendant exercised its right to object to the conditional sale. In 1995, defendant's predecessor-in-interest, 152-25 Inc., commenced a nonpayment proceeding against James and plaintiffs, as undertenants, in the Civil Court of the City of New York, New York County, entitled 152-25 Inc. v. James et al., Index No. L & T 8500/95. The parties eventually entered into a so-ordered stipulation of settlement dated January 27, 1997 (the "stipulation"), which settled the nonpayment proceeding.

Paragraph 14 of the stipulation provides in pertinent part as follows:

The waiver of the arrears owed by James, together with the payment of Forty-One Thousand Five Hundred and 00/100 Dollars ($41,500.00) to James shall constitute good and sufficient consideration for the purchase of all claimed rights to the Subject Premises and the fixtures therein.

Paragraph 15 of the stipulation states in pertinent part that

Effective upon signing of this agreement, James waives any claim of protection under the Multiple Dwelling Law, the Loft Law and/or any other applicable law provided that the Landlord complies with its obligations under this agreement.

Further, pursuant to the stipulation, plaintiffs consented to a judgment of possession and were permitted to remain in occupancy on condition of payment of use and occupancy. Plaintiffs, represented by counsel, executed the stipulation acknowledging that their occupancy of the Unit was not subject to the Loft Law or Rent Stabilization Law, to wit:

Said occupancy by [plaintiffs] is not based upon any statutory or other right to occupy the Subject Premises, except as set forth in this agreement, and is not pursuant to any claim that they are protected or covered occupants entitled to the protections afforded protected occupants under and pursuant to the Loft Law and/or the Rent Stabilization Laws or that the Subject Premises is a protected or covered unit under or pursuant to the Loft Law and/or the Rent Stabilization Laws.

Plaintiffs continued to occupy the unit and the stipulation was extended thereafter pursuant to seven separate amendments, with the last one expiring on May 31, 2017. Paragraph 16 of the seventh amendment to the stipulation, further acknowledged that the unit was not subject to rent stabilization:

[Plaintiffs] reconfirm that the Subject Premises is not subject to any rent regulation, including but not limited to Rent Stabilization or is a protected unit pursuant to Article 7C of the Multiple Dwelling Law. Occupants are confirming that they are not protected occupants subject to any rent regulation including but not limit

Plaintiffs contend that "the undisputed facts show that th[e unit] is subject to rent stabilization via the Emergency Tenant Protection Act of 1974 ("ETPA") and the First Department's controlling precedent, Acevedo v The Piano Building LLC, 70 AD3d 124 (1st Dept 2009).

Meanwhile, defendant argues that "the Unit is not eligible to be subject to the ETPA independent of the Loft Law and because the Unit was subject to a MDL §§ 286(12), (6) sale, the Unit will never be subject to the ETPA. Defendant further argues that Acevedo is distinguishable because the building is in a manufacturing zoning district and the unit cannot be legally converted to residential use, but-for the Loft Law.

DISCUSSION

On a motion for summary judgment, the proponent bears the initial burden of setting forth evidentiary facts to prove a prima facie case that would entitle it to judgment in its favor, without the need for a trial (CPLR 3212; Winegrad v. NYU Medical Center, 64 NY2d 851 [1985]; Zuckerman v. City of New York, 49 NY2d 557, 562 [1980]). The party opposing the motion must then come forward with sufficient evidence in admissible form to raise a triable issue of fact (Zuckerman, supra). If the proponent fails to make out its prima facie case for summary judgment, however, then its motion must be denied, regardless of the sufficiency of the opposing papers (Alvarez v. Prospect Hospital, 68 NY2d 320 [1986]; Ayotte v. Gervasio, 81 NY2d 1062 [1993]).

Granting a motion for summary judgment is the functional equivalent of a trial, therefore it is a drastic remedy that should not be granted where there is any doubt as to the existence of a triable issue (Rotuba Extruders v. Ceppos, 46 NY2d 223 [1977]). The court's function on these motions is limited to "issue finding," not "issue determination" (Sillman v. Twentieth Century Fox Film, 3 NY2d 395 [1957]).

The purpose of the Loft Law, which became effective in 1982, was to confer rent-stabilized status on legalized interim multiple dwellings (Walsh v. Salva Realty Corp., 2009 NY Slip Op 31573 [Sup Ct NY Co 2009] [internal citations and quotation omitted.]). It was designed to address the growing number of commercial and manufacturing buildings illegally converted to residential use (MDL § 280). By definition, an IMD in New York City is "any building or structure or portion thereof" which was "occupied for manufacturing, commercial, or warehouse purposes," lacks a certificate of compliance, and as of 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[1]).

MDL § 286 [6] permits a residential tenant of a loft law unit to sell his or her Loft Law rights:

a residential tenant qualified for protection pursuant to this chapter may sell any improvements to the unit made or purchased by him to an incoming tenant provided, however, that the tenant shall first offer the improvements to the owner for an amount equal to their fair market value. Upon purchase of such improvements by the owner, any unit subject to rent regulation solely by reason of this article and not receiving any benefits of real estate tax exemption or tax abatement, shall be exempted from the provisions of this article requiring rent regulation if such building had fewer than six residential units as of the effective date of the act which added this article, or rented at market value subject to subsequent rent regulation if such building had six or more residential units at such time. The loft board shall establish rules and regulations regarding such sale of improvements which shall include provisions that such right to sell improvements may be exercised only once for each unit subject to this article, and that the opportunity for decontrol or market rentals shall not be available to an owner found guilty by the loft board of harassment of tenants.

(Emphasis added).

MDL § 286[12] provides in pertinent part that "[n]o waiver of rights pursuant to this article by a residential occupant qualified for protection pursuant to this article made prior to the effective date of the act which added this article shall be accorded any force or effect; however, [*3]subsequent to the effective date an owner and a residential occupant may agree to the purchase by the owner of such person's rights in a unit."

The court finds that Acevedo is squarely on point. In that case, the plaintiff-tenant was treated by the defendant-owner as an unregulated market rent tenant after the defendant-owner's predecessor-in-interest purchased the Loft Law rights from the tenant's predecessor. The First Department rejected the owner's assertion "that the sale of the Loft Law rights ended the unit's eligibility for rent stabilization", because "zoning expressly allows residential use as of right, and [the subject] apartment can be legalized by the owner filing a certificate of occupancy." In so doing, the First Department declined to follow the Second Department's rulings in Caldwell v American Package Co., Inc., 57 AD3d 15 [2008] and Gloveman Realty Corp. v Jefferys, 18 AD3d 812 [2005]: "[w]e decline to join the Second Department in reading Wolinsky as providing a blanket prohibition barring ETPA coverage of all loft units not subject to the Loft Law, even where the Zoning Resolution permits residential use as of right."

The Acevedo Court reasoned that the owner's position was in contravention to the legistlative intent of the Loft Law. The Loft Law was a stopgap protection to occupants of illegal residential units designed to make those units legal for residential occupancy and bring them within the ambit of rent regulation. Indeed, after a sale of Loft Law rights, an owner can either return the unit to commercial use or legalize it for residential use (MDL §286[12]). There is no dispute that since the unit became deregulated under the Loft Law, the unit has been used for residential purposes. Nor does defendant represent that it will bring the unit into commercial use.

Therefore, in order to exercise the residential use option, MDL § 286[12] provides:

If the unit is to remain residential, the owner remains subject to all the requirements of Article 7-C, and regulations and orders of the Board, including the legalization requirements of Multiple Dwelling Law § 284, except that the unit is no longer subject to rent regulation where coverage under Article 7-C was the sole basis for such rent regulation, provided that there is no finding by the Loft Board of harassment as to any occupant(s) of the unit which has not been terminated pursuant to § 2-02 (d) (2) of the Board's Harassment Regulations. During the period of its IMD status, the IMD unit may be converted to non-residential use, as set forth in § 2-10 (c) (1) of these regulations, except that a harassment finding made after a sale shall not bar conversion of the unit to non-residential use.

(Emphasis added.)

The Acevedo Court noted that the "sole basis for such rent regulation" contained in MDL § 286 [12] necessarily implies that a former Loft Law unit may be covered by rent stabilization because "[t]he only other 'such rent regulation' is ETPA" (Acevedo at 128). This interpretation is in harmony with the broad scope of the ETPA, which offers protection to any housing accommodation not expressly excluded therein (Salvati v Eimicke, 72 NY2d 784, 787 [1988] [the ETPA is "inclusive, rather than exclusive" and, as such, sweeps within rent stabilization "all housing accommodations which it does not expressly exempt"];see also Ruskin v. Miller, 172 AD2d 164 [1st Dept 1991]).

The ETPA applies to residential units in buildings of six or more units constructed before January 1, 1974 that were not subject to rent control (NYC Adm Code § 26-504; 9 NYCRR § 2520.11). 9 NYCRR § 2520.11 provides that the ETPA applies "to all or any class or classes of housing accommodations . except "

(q) housing accommodations which would otherwise be subject to rent regulation solely [*4]by reason of the provisions of article 7-C of the MDL requiring rent regulation, but which are exempted from such provisions pursuant to section 286(6) and 286(12) of the MDL;

As plaintiffs' counsel points out, units that are subject to rent regulation solely pursuant to the Loft Law are lofts in buildings containing fewer than six units and lacking any regulation-triggering tax abatements. Here, the unit is in a building containing more than six units and defendant does not contend that the building lacks regulation-triggering tax abatements. Therefore, the Loft Law is not the sole basis for rent regulation of the unit. Reading the relevant provisions of the Loft Law and ETPA together, the court must find that the unit is subject to rent stabilization.

The Acevedo Court distinguished Wolinsky v. Kee Yip Realty Corp. (2 NY3d 487 [2004]) from the case before it, expressly stating that "Wolinsky stands for nothing more than the proposition that illegal loft units are not entitled to rent stabilization treatment when the unit is incapable of being legalized." Defendant next argues that Acevedo is distinguishable because the building is located in an M1-6 zone, and therefore the unit cannot be legalized for residential use as of right. Defendant has provided the affidavit of Laurence Dalfino, a registered architect, who attempts to explain the significance of the building's M1-6 zoning status. Dalfino cites New York City Zoning Resolution 42-133, claiming that based thereupon, M1-6 zones do not permit residential use as of right. ZR 42-133 provides in relevant part that "no new No.dwelling units# shall be permitted" in an M1-6 district except in the rectangle formed by West 23rd Street, Fifth Avenue, West 31st Street and Eighth Avenue."

However, as plaintiffs' counsel points out, Dalfino omitted the second paragraph of this provision, which provides as follows:

Such #dwelling units# shall comply with the requirements of Sections 15-024 or 15-22, where applicable and with Section 15-23. For the purposes of Article 7C of the New York State Multiple Dwelling Law, such a determination of #residential# occupancy on September 1, 1980, shall be deemed to permit #residential use# as-of-right for such #dwelling units#.

Since there is no dispute that the unit was determined residentially occupied as of September 1, 1980, ZR 42-133 expressly provides for residential use as of right. Therefore, defendant has failed to establish that the unit is not capable of being legalized for residential occupancy.

Based on the foregoing, the court finds that following James' sale of rights under MDL § 286 [12], the unit was and remains subject to rent stabilization via the ETPA. Accordingly, defendant's motion is denied, and the cross-motion is granted to the extent that plaintiffs are entitled to a declaration that the unit is subject to rent stabilization.

Since the unit is subject to rent stabilization, the balance of the cross-motion must also be granted. The owner of a rent stabilized unit must register the rents with the NYS Division of Housing and Community Renewal (see NYC Admin.Code § 26-517; NYCRR § 2528.1) and it is undisputed that defendant did not. The legal regulated rent and permitted rent increases remain to be determined. Therefore, plaintiffs have established entitlement to summary judgment on defendant's liability for rent overcharge.

Plaintiffs also seek summary judgment dismissing defendant's counterclaim, which is for attorney's fees pursuant to the parties' lease agreement in the event defendant prevails in this action. In light of the court's decision herein, the counterclaim must be dismissed.

[*5]CONCLUSION

In accordance herewith, it is hereby:

ORDERED that defendant's motion is denied and plaintiff's cross-motion is granted in its entirety; and it is further

ORDERED and DECLARED that unit 9F located at 152-25 West 25th Street, New York, NY is subject to, and plaintiffs are protected by, rent stabilization; and it is further

ORDERED that plaintiffs are entitled to summary judgment as to liability on the second cause of action for rent overcharge, with damages to be determined at trial; and it is further

ORDERED that defendant's counterclaim is dismissed.

Any requested relief not expressly addressed herein has nonetheless been considered and is hereby expressly rejected and this constitutes the decision and order of the court.

So Ordered:

Dated: August 22, 2018

New York, New York

_______________________

Hon. Lynn R. Kotler, J.S.C.