McDonald v JBAM TRG Spring, LLC

[*1] McDonald v JBAM TRG Spring, LLC 2018 NY Slip Op 50075(U) Decided on January 23, 2018 Supreme Court, New York County St. George, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 23, 2018
Supreme Court, New York County

Dana McDonald, Plaintiff,

against

JBAM TRG Spring, LLC, Defendant.



152553/2016



For Defendant/movant:

Borah, Goldstein, Altschuler, Nahins & Goidel, P.C.

Craig M. Notte, Esq.

377 Broadway

New York, NY 10013

For Plaintiff:

Fishman Rozen, LLP

Kenneth Rosenfeld

305 Broadway, Suite 900

New York, NY 10007
Carmen Victoria St. George, J.

Currently before the Court is defendant's motion for partial summary judgment, to the extent of declaring that 1) plaintiff's current apartment, apartment 4, was properly deregulated and is not rent-stabilized due to the J-51 tax abatement program, 2) the rent-stabilized status of her prior apartment, apartment 6, does not transfer to her current apartment; 3) dismissal of the portion of the first cause of action which seeks a directive that defendant register apartment 4 with the New York State Division of Housing and Community Renewal (DHCR), and 4) dismissal of the portion of the second cause of action which seeks dismissal of rent overcharge and treble damage claims for the current apartment. In addition, defendant moves to dismiss the related causes of action including those for rent overcharges and treble damages for the current apartment. Plaintiff has withdrawn her third cause of action for reformation of the leases for both apartments, and does not oppose the part of defendant's motion that seeks to amend the answer. [*2]For the reasons below, the Court grants the prong of the motion seeking a declaration that the rent-stabilized status of apartment 6 does not transfer to apartment 4, grants the portion of the motion seeking leave to amend the complaint, and denies the remainder of the motion.

Starting in the 1995/1996 fiscal year, the owner of the building located at 55 Spring Street in Manhattan (the building) — the predecessor-in-interest to defendant, the current owner — was the beneficiary of a J-51 tax abatement.[FN1] The tax abatement concluded on June 30, 2007. While the J-51 abatement was in effect, all the units in the building were subject to rent regulation (Roberts v Tishman Speyer Properties, L.P., 13 NY3d 270 [2009]). After June 30, 2007, the rent-stabilized apartments remained stabilized. The deregulated apartments were once again deregulated, but only if the building provided the requisite notice to these tenants (See 72A Realty Assoc. v Lucas, 101 AD3d 401, 401 [1st Dept 2012]). In Roberts, the Court of Appeals clarified that landlords could not take advantage of the rules governing luxury and vacancy deregulation until after the J-51 benefits expired (See Roberts, 13 NY2d 270). Moreover, the First Department has ruled that the Roberts decision was retroactive (See Gersten v 56 7th Ave. LLC, 88 AD3d 189 [1st Dept 2011]).

Plaintiff moved into the building in 2007. On January 29, 2007, plaintiff signed a lease for apartment 6 in the building. Her original lease as well as all subsequent leases for apartment 6 stated in capital letters at the top of the page: THIS APARTMENT IS NOT SUBJECT TO RENT REGULATION. Both parties agree that this statement was incorrect, as the landlord was receiving J-51 benefits. The lease stated that the market rate for the apartment was $2,347.02 per month but plaintiff would be charged $1850 per month, a "preferential rate." Plaintiff's renewal leases increased her rent incrementally until, in her February 1, 2014 lease, she paid $2200 per month.

Around March 31, 2014, prior to the end date of the February 1, 2014 lease, plaintiff moved from apartment 6 to apartment 4 by agreement of plaintiff and the prior landlord. The lease to apartment 6 also stated: THIS APARTMENT IS NOT SUBJECT TO RENT REGULATION. Plaintiff was charged $2300 per month, which the landlord deemed to be a "preferential rent" — that is, a rent lower than the market rate. Plaintiff signed a rider acknowledging that the amount was less than the deregulated rent of "minimum $2,500.00" and that after the expiration of the lease

the Preferential Rent will end and Owner is entitled to calculate and charge all future rents based upon the legal de-regulated amount of minimum $2,500.00 per month. Specifically, Tenant is aware and agrees that this Preferential Rent is limited and will end upon the termination of the lease on 03-31-2015. Tenant is also aware and agrees that, in the event this lease is renewed, Owner is entitled to charge and collect a rent increase based on the legal de-regulated rent.

Around April 1, 2015, when plaintiff signed her renewal lease, the prior landlord raised the rent on apartment 4 by $1200, to the alleged market rent of $3500. Plaintiff signed the lease [*3]but also investigated the situation. She learned that despite the language on her leases for apartment 6, the apartment had been subject to rent stabilization while she lived in that apartment because when she signed the lease the unit was stabilized due to the prior building owner's receipt of J-51 tax benefits.[FN2]

In addition, plaintiff believes that apartment 4, in which she now resides, was never properly decontrolled so it, too, is subject to rent regulation. According to defendant, the last person to rent the current apartment, Sarah Van Dyke, signed her final lease around June 7, 2004, for a rent of $1,969.27. The lease also indicated that Ms. Van Dyke was vacating the apartment on July 15, 2004. It notes that as of April 1, 2005, the prior landlord improperly listed the apartment as permanently exempt from rent stabilization due to the purported high rent vacancy; in fact, the building still received J-51 benefits so rent stabilization still applied. After Ms. Van Dyke's departure, defendant's predecessor executed a lease with Sara Lander Felder for $2,323.74 from August 1, 2005 to July 31, 2006. A rider indicated that the apartment was not rent-stabilized and the landlord applied a preferential rent — that is, a rent lower than that allowed by law. The next renter, Romy Silver, signed a lease for August 1, 2006 to July 31, 2007. Although this lease was executed while the entire building was rent-stabilized, it also stated that rent stabilization did not apply. The rent under this lease was $2,100.00. This lease was renewed for August 1, 2008 until July 31, 2009, at which point the rent was raised to $2,500.00. The rent on the subsequent leases, the last one of which ended on July 31, 2015, remained $2,500.00. It was then that plaintiff moved into apartment 4.

Accordingly, plaintiff commenced this action challenging the rent she has paid on both apartments. She named the new owner of the building, JBAM TRG Spring, LLC, as defendant.[FN3] As is relevant here, portions of the complaint ask for relief with respect to apartment 4. The complaint seeks a declaration that the apartment is rent-stabilized and a direction to defendant to provide her with a rent-stabilized lease. In addition, it seeks a permanent injunction which prevents defendant from deregulating the apartment while plaintiff remains its tenant, and she seeks damages for the alleged overcharges, including treble damages.

In support of its current motion, defendant relies on Administrative Code § 26-504.2, which excludes from rent stabilization "any housing accommodation which is or becomes vacant on or after the effective date of the rent regulation reform act of 1997 and before the effective date of the rent act of 2011, with a legal regulated rent of two thousand dollars or more per month . . . ." It also cites Rent Stabilization Law § 26-504 (c), which specifically applies to J-51 buildings and states, as is relevant here, that upon the expiration of the J-51 benefits, apartments remain stabilized "until the occurrence of the first vacancy" (also citing Administrative Code § 26-504.2). It acknowledges that the prior owner improperly registered apartment 4 as "permanently exempt" from regulation in April 2005 while it was receiving J-51 benefits, but states this is of no import because when the apartment became vacant in 2009, the legal rent had reached $2,254.23 and thus it was properly decontrolled at that time.

Defendant submits a copy of the rent registration rolls the prior landlord filed with DHCR to show that the rent was deregulated properly. As it relates to apartment 4, the report shows the following:

YEARAPARTMENT STATUSLEGAL RENT

1985RS50

1986RS650.00

1987RS698.35

1988RS813.58

1989RS984.00

1990RS984.00

1991RS1000.00

1992RS1000.00

1993RS875.00

1994RS875.00

1995RS886.16

1996RS886.16

1997RS903.00

1998VA1450.00

1999VA1700.00

2000RS1750.00

2001RS1785.00

2002RS1856.00

2003RS1930.00

2004RS1969.00

2005PE

In the chart above, "VA" stands for vacancy increase. Under the law, the landlord is permitted to raise the rent 20% in its next lease after the apartment becomes vacant (Rent Stabilization Code 2522.8 [a]; see Altman v 285 West Fourth, LLC, 127 AD3d 654, 655 [1s Dept 2015]). "PE" stands for permanently exempt — here, due to high rent vacancy deregulation. Defendant agrees that because the building accepted J-51 benefits in 2005, the marking was in error and it should have remained rent stabilized. Nevertheless, the apartment is not listed on the roll of rent regulated apartments after 2005. Defendant argues the improper deregulation of apartment 4 and its removal from the rolls is irrelevant because the apartment should have, and was, properly deregulated due to high rent/vacancy deregulation in 2009, at the time of the first lease following the cessation of J-51 benefits (See Park v New York State Div. of Housing and Community Renewal, 150 AD3d 105, 112-13 [1st Dept 2017]). Defendant insists that upon the relinquishment of her rent-stabilized apartment, apartment 4, plaintiff did not acquire the right to a rent-stabilized lease in apartment 6.

In response, plaintiff reiterates her rental history in both apartments. She points out that all her leases for apartment 6 falsely stated the apartment was not subject to rent stabilization. She states that the prior landlord enticed her to move to apartment 4 by offering her a preferential rent that was $100.00 lower than her rent in apartment 6. She states that the purpose of this inducement was to take her out of rent stabilization and raise her rent to $3500 the following year. Plaintiff argues that her rent-stabilized status therefore should transfer to the new [*4]apartment (citing Matter of Capone v Weaver, 6 NY2d 307 [1959] [Capone], 91 Real Estate Assoc. LLC v Eskin, 46 Misc 3d 40 [App. T. 1st Dept 2014] [Eskin], and OLR LBCE LP v Trottman, 42 Misc 3d 1227 [A], 2014 NY Slip Op 50238 [U], [Civ. Ct. NY County 2014] [Trottman]). She says that the predecessor landlord's clear bad faith makes such remedy permissible. Citing Gordon v 305 Riverside Corp. (93 AD3d 590, 592 [1st Dept 2012]), she argues that her request for declaratory relief with respect to apartment 4 must stand.

In her memorandum of law in opposition to this motion, moreover, plaintiff challenges defendant's position that apartment 4 was properly declared to be deregulated. She points out that the rent rolls that defendant submitted in support of its motion are riddled with irregularities. The vacancy-increase from $903.88 per month in 1997 to $1450 per month in 1998 is far greater than the 20% increase allowable under the law. In addition, several of the leases for apartment 4 improperly stated the apartment was not subject to rent stabilization. Plaintiff states that defendant played with the numbers after the purported vacancy regulation by listing market rate rents substantially higher than the purported preferential rents. She cites 72A Realty Assoc. v Lucas (101 AD3d 401, 402 [1st Dept 2012]) for the proposition that even after the expiration of J-51 benefits, an apartment continues to be rent-stabilized — for the duration of the tenancy of the tenant in the apartment at the time of the deregulation — if it was improperly deregulated. In such circumstances, the apartment remains rent-stabilized for the duration of the tenancy (See also Taylor v 72A Realty Assoc., L.P., 151 AD3d 95, 101 [1st Dept 2017]).[FN4] Plaintiff argues also that her lease or one of the prior tenants' leases should have contained the notice required in Administrative Code 26-504.2 (b) (citing Matter of Grimm v State of NY Division of Housing and Community Renewal, 15 NY3d 358 [2010], and Altschuler v Jobman 478/480, LLC. 135 AD3d 439 [1st Dept 2016]), and under the prevailing law the apartment cannot be deregulated throughout the course of her tenancy (See, e.g., Stulz v 305 Riverside Corp., 150 AD3d 558, 558 [1st Dept 2017]).

In reply, defendant states that there is no allegation of fraud with respect to apartment 4, where plaintiff currently resides. Citing Rent Stabilization Law § 26504 (c), it argues a J-51 notice was not required because that rider is necessary only when an apartment is regulated solely because of the building's receipt of J-51 tax benefits. It argues that because plaintiff asked to move to another apartment, the rent-stabilized status of apartment 6 does not transfer. It reiterates that apartment 4 was properly deregulated. It acknowledges the irregularities in the rent registration roll — i.e., the rent increase of almost $550.00 in 1998, and of $300.00 in 1999 — but states that any overcharge allegations are time-barred and that the irregularities do not raise a colorable claim of fraud. It points out that at other points the rent increases complied with the legal guidelines.[FN5]

Discussion

/i>

Under the facts of this case, the Court denies the motion for summary judgment to the extent that it seeks a declaration that apartment 4 was properly deregulated. For evidentiary support, defendant primarily relies on the rent registration rolls for the apartment. The rent registration rolls are not dispositive, as it is the landlord who files the information, and there is no guarantee that the information is accurate (See Bradbury v 342 West 30th Street Corp., 84 AD3d 681 [1st Dept 2011]; e.g., Bradbury v 342 West 30th St. Corp., 84 AD3d 681, 683 [1st Dept 2011]). Indeed, defendant itself acknowledges that some of the information in the rolls are erroneous. Significant, too, as plaintiff points out, the rent history in the DHCR registration rolls is suspect. There is no explanation for the irregularities plaintiff has noted. The leases that defendant submits do not resolve the issue as they, too, rely on the apartment's prior rent history.

In addition, defendant's legal argument — that the apartment was properly destabilized — lacks merit. For one thing, given the facts at hand, the rent registration rolls for the apartment, and the prior landlord's history with plaintiff, there remain issues of fact as to whether this is accurate. Although the J—51 benefits expired prior to plaintiff's tenancy in apartment 4, this is not dispositive of the apartment's status. The determination that a tenancy is rent-stabilized may be "premised on the apartment having been improperly deregulated as of the time that the tenant took occupancy" (72A Realty Assocs. v. Lucas, 101 AD3d 401, 402 [1st Dept 2012]). As it is not clear the apartment was properly deregulated, the Court does not dismiss the portion of the first cause of action that seeks a directive that apartment 4 be registered with the DHCR.

In addition, the Court denies the portion of the motion that seeks to limit damages, dismissing claims of overcharge and treble damages. Despite defendant's protests to the contrary, there is a colorable claim of fraud. Defendant's argument that the prior landlord reasonably relied on DHCR's prior guidelines is not dispositive, as there is no evidence that the prior landlord undertook to correct the rent after Roberts and Gersten. Moreover, the leases the prior landlord issued with respect to both apartments contained false information — in particular, that the units were not subject to rent stabilization. The prior landlord did not remove this statement after Roberts. Accordingly, "[f]urther inquiry . . . is required to determine whether the overcharge was not willful, but rather the result of reasonable reliance on a DHCR regulation" (Id. at 403).[FN6]

The Court grants the portion of the motion seeking a declaration that the rent-stabilized status of apartment 6 does not transfer to apartment 4. The cases plaintiff cites in support of her contrary position — Capone (6 NY2d 307 [1959]), Eskin (46 Misc 3d 40, 41 [App. T. 1st Dept 2014]), and Trottman, 42 Misc 3d 1227 [A], 2014 NY Slip Op 50238 [U], [Civ. Ct. NY County 2014]) — all involve situations in which the move occurred solely to accommodate the landlord. Here, plaintiff concedes, and the evidence shows, that she wanted to move to another apartment [*5]in the building and the landlord accommodated her request.[FN7] As "the exchange of apartments [was] wholly voluntary, the exemption . . . operate[s] in favor of the landlord" (Capone, 6 NY2d at 310 [transferring stabilized status where the move was not wholly voluntary]). Thus, and regardless of whether the landlord wanted and benefitted from the move, the principle articulated in Capone does not apply (See also Trottman, 42 Misc 3d 1227 [A], 2014 WL 702125, at *4 n 3). Plaintiff presents no other legal support for her position.

Plaintiff argues that she is entitled to a rent-stabilized lease for apartment 4 throughout her tenancy because of the lack of notice provided to her or a prior tenant once the building's J-51 benefits came to an end. This argument is based on a misapplication of the prevailing law. For one thing, as defendant claims, the notice is necessary when the apartment is question was subject to rent-stabilization solely because of the J-51 benefits. It is unnecessary to notify a tenant when the status quo does not change. For another, any failure to provide such notice applies to the tenant in residence when the status of the apartment changes due to the expiration of J-51 benefits. Plaintiff has provided no support for the proposition that this notice must be provided to future tenants as well.

Plaintiff has discontinued the third cause of action for reformation of the lease, so the motion is moot with respect to that cause of action. The parties also have asserted arguments that are not part of this motion. The parties also have argued at length about the rent in apartment 6, where plaintiff initially resided, for example, but the motion before the Court seeks relief with respect to the claims about apartment 4. Further, though plaintiff does not oppose the motion to amend, she argues the merits of the statute of limitations defense as it relates to apartments 4 and 6. As plaintiff does not oppose the motion, however, the court does not consider these arguments. The parties also do not argue for any relief with respect to the remaining causes of action. Therefore, it is

ORDERED that the portion of the motion seeking a declaration that the rent stabilized status of apartment 6 does not transfer to apartment 4; and it is accordingly

DECLARED that the rent stabilized status of apartment 6 does not transfer to apartment 4; and it is further

ORDERED that the portion of the motion seeking leave to amend is granted without opposition; and it is further

ORDERED that the amended answer and counterclaims in the proposed form filed as Exhibit C, NYSCEF document 15, shall be deemed served upon service of a copy of this order with notice of entry thereof; and it is further

ORDERED that plaintiff shall serve an answer to the amended counterclaims or otherwise respond thereto within 20 days from the date of such service; and it is further

ORDERED that counsel are directed to appear for a preliminary conference in Room 308, 80 Centre Street, on March 8, 2018, at 2:15 p.m.

Dated: January 23, 2018

ENTER:

____________________________________

CARMEN VICTORIA ST. GEORGE, J.S.C. Footnotes

Footnote 1:J-51 benefits, set forth in New York City Administrative Code (Administrative Code) § 11-243 [d] [2], affords tax abatements to building owners while they undertake qualifying multiple dwelling renovations (Gersten v 56 7th Ave. LLC, 88 AD3d 189, 194 [1st Dept 2011]).

Footnote 2:The current motion does not relate to this portion of the lawsuit, though both parties discuss the issue in other contexts and, at times, get to the merits.

Footnote 3:JBAM took over the ownership of the building on June 25, 2015, after plaintiff signed the $3500 a month lease for apartment 4.

Footnote 4:The court also noted that the improper deregulation is a "continuous circumstance" for statute of limitations purposes (72A Realty, 101 AD3d at 402).

Footnote 5:It further challenges plaintiff's argument that any fraud or misrepresentation with respect to apartment 6, her prior apartment, is relevant to her claims with respect to apartment 4. It argues that the prior landlord was not guilty of fraud because it followed the guidelines as they were understood prior to the Roberts decision.

Footnote 6:Where there is evidence of fraud, the Court may look at the rental history beyond the four-year limitations period to establish the proper rent for the unit (Grimm v. DHCR, 15 NY3d 358, 362 [2010]). In addition, under Rent Stabilization Code § 2526.1(a)(3)(iii), "where a housing accommodation is vacant or temporarily exempt from regulation on the base date, the legal regulated rent is the "prior legal regulated rent" plus any authorized increases and adjustments" (Esplanade 94 LLC v. Pavella, 57 Misc 3d 75, 75 [App. T 1st Dept 2017]). For this reason, too, the prior history may be relevant.

Footnote 7:Plaintiff's opposition papers to some extent suggest that she did not have conversations with defendant's affiants in which she stated that she wished to move. The fact that she wished to move, however, is not in dispute.