Ellwood Realty LLC v NakazweAnnotate this Case
Decided on November 28, 2018
Civil Court of the City of New York, New York County
Ellwood Realty LLC, Petitioners,
Linda Nakazwe, Respondents.
For Petitioner: Kaplain and Duval by Leonard Kaplain
For Respondent: Manhattan Legal Services by Erica Braudy
Jack Stoller, J.
Ellwood Realty LLC, the petitioner in this proceeding ("Petitioner"), commenced this holdover proceeding against Linda Nakazwe, the respondent in this proceeding ("Respondent"), seeking possession of 36 Ellwood Street, Apt. C8, New York, New York ("the subject premises") on the basis that the subject premises is not subject to rent regulation and that Respondent's lease expired. Respondent originally interposed an answer dated January 23, 2017, amended by a decision of the Court dated April 17, 2018, with counterclaims seeking a determination that the Court should set the legal regulated rent at $652.00 and damages resulting from rent overcharge, including treble damages. The Court held a trial of this matter on August 7, 2018, October 3, 2018, and October 5, 2018, and adjourned the matter for post-trial submissions to November 9, 2018.
Petitioner introduced into evidence a history of registrations of the subject premises with the New York State Division of Housing and Community Renewal ("DHCR") pursuant to 9 N.Y.C.R.R. §2528.3 ("the registration history"). The registration history shows a two-year renewal lease for the subject premises commencing on July 1, 2003 with a monthly rent of $652.04 and a preferential rent of $551.20. The registration history then shows a two-year vacancy lease for the subject premises commencing on November 1, 2005 with a monthly rent of $950.00 and a preferential rent of $875.00. The registration history then shows a one-year vacancy lease commencing April 1, 2007 with a legal regulated rent of $1,111.50 and a preferential rent of $900.00 and then a one-year renewal lease commencing on April 1, 2008 with a legal regulated rent of $1,144.84 and an "actual rent paid" during this lease of $927.00 because of a rent reduction order.[FN1]
Petitioner introduced into evidence a two-year lease for the subject premises commencing [*2]on February 1, 2009 with a monthly rent of $975.00 and a "unit charge" of $2,000.00 ("the 2009 lease"). The 2009 lease identifies the subject premises as an "exempt unit." The registration history reflects the 2009 lease, but the registration only has the $975.00 rent as the "actual rent paid" and states the regulatory status of the subject premises as "exempt." Petitioner introduced into evidence an order from DHCR dated May 20, 2009 awarding Petitioner a rent increase on the basis of a building-wide Major Capital Improvement ("MCI") pursuant to 9 N.Y.C.R.R. §2522.4(a) in the amount of $10.20 per room, collectible as of June 1, 2009, which indicates that the subject premises has one room effective June 1, 2008. Petitioner's property manager ("the property manager") testified that the tenant on the 2009 lease vacated the subject premises around July of 2009. Petitioner did not register the subject premises with DHCR after 2009 on the basis that Petitioner held the subject premises out as unregulated.
Petitioner introduced into evidence a one-year lease for the subject premises commencing on August 1, 2009 with a monthly rent of $900.00. The lease states that the "unit charge" is $2,000.00 and that the subject premises is an "exempt unit." Petitioner renewed that tenancy with another one-year lease for that same tenant commencing August 1, 2010 with a monthly rent of $900.00 and a "unit charge" of $2,100.00.
Petitioner introduced into evidence a lease for Respondent at the subject premises commencing September 1, 2011 and expiring August 31, 2012. No rider is attached to the lease. The monthly rent on the lease is $875.00, which the lease characterizes as a "preferential rent" for an "exempt unit." The lease also states that the "unit charge" is $2,000.00. Petitioner introduced into evidence another lease for Respondent at the subject premises commencing on September 1, 2012 and expiring on August 31, 2013 with a "unit charge" of $2,500.00 and a "contract rent" of $900.00; another lease for Respondent at the subject premises commencing on September 1, 2013 and expiring on August 31, 2014 with a "unit charge" of $2,700.00 and a "contract rent" of $925.00; another lease for Respondent at the subject premises commencing on September 1, 2014 and expiring on August 31, 2015 with a "unit charge" of $2,700.00 and a "contract rent" of $975.00; and another lease for Respondent at the subject premises commencing on September 1, 2015 and expiring on August 31, 2016 with a "unit charge" of $2,800.00 and a "contract rent" of $1,025.00.
The property manager testified on cross-examination that Petitioner was able to effectuate a deregulation of the subject premises because of IAI's in late 2008 or maybe early 2009; that he also effectuated IAI's for the subject premises around 2006 or 2007; that he does not think that he obtained any permits from the Department of Buildings; that he effectuated IAI's in twenty-seven apartments in the building in which the subject premises is located ("the Building"); that he understood that IAI's allowed for an increase of one-fortieth the cost of the improvement in 2008, although the size of the Building would now yield an IAI equal to one-sixtieth the cost of the improvement; that he calls different contractors to get different prices when he engages in an IAI; that the contractors usually do not give him a written estimate; that he normally registers the legal rent with DHCR once the rent for an apartment reaches a level permitting deregulation as a round number, like $2,000.00 even if the legal rent after an IAI would exceed that amount; that he effectuated a deregulation of eighteen out of sixty apartments in the Building in 2009; that he provides riders upon deregulation of apartments as of 2014; that he keeps IAI records for four years; and that he could possibly obtain canceled checks from banks depending on how long ago [*3]the check was negotiated.
The property manager testified on redirect examination that when he makes a decision about an IAI for an individual apartment, he first figures out how much it would take to deregulate the apartment, then ascertains whether it would be possible to engage in work on that scale in the apartment, and then ascertains whether the market would bear the rent the renovated apartment could legally obtain; that he does not remember what the IAI's for the subject premises were from 2006 or 2007; that, in 2008 or 2009, he effectuated a renovation of the kitchen and bathroom in the subject premises, entailing an installation of a plumbing lead bend and waste lines, and had the subject premises re-wired; and that, in the kitchen, he caused a replacement of counters, cabinets, appliances.
Respondent testified that she has lived in the subject premises for six years; that the subject premises is a studio apartment; and that the condition of the subject premises caused her to dispute Petitioner's position that Petitioner had renovated the subject premises.
As a rent-stabilized tenant is entitled to a renewal lease upon the expiration of the tenant's lease, N.Y.C. Admin. Code §26-511(c)(4), 9 N.Y.C.R.R. §2523.5(a), a landlord of a rent-stabilized tenant does not have a cause of action to evict a tenant for the expiration of the lease alone. The outcome of Petitioner's cause of action against Respondent therefore turns on the rent regulatory status of the subject premises.
Although Petitioner purported to deregulate the subject premises more than four years before Respondent interposed her answer, any statutory prohibition on consideration of a rent history of a rent-stabilized apartment only applies for purposes of rent overcharge claims, not to determine the rent regulatory status of the apartment. Rosa v. Koscal 59, LLC, 162 AD3d 466, 466 (1st Dept. 2018), H.O. Realty Corp. v. State of NY Div. of Hous. & Community Renewal, 46 AD3d 103, 109 (1st Dept. 2007), East West Renovating Co. v. State of NY Div. of Hous. & Community Renewal, 16 AD3d 166, 167 (1st Dept. 2005), CS 393 LLC v. Eisenberg, 48 Misc 3d 128(A)(App. Term 1st Dept. 2015), 49 E. 74th St., LLC v. Slater, 42 Misc 3d 134(A)(App. Term 1st Dept. 2014).
The most recent lease that Petitioner concedes was subject to Rent Stabilization for the subject premises was the one-year lease commencing on April 1, 2008 with a rent of $1,144.84. A two-year vacancy lease commencing February 1, 2009 followed. On a two-year vacancy lease, Petitioner would have been entitled to a rent increase of twenty percent over the previous rent. 9 N.Y.C.R.R. §2522.8(a)(1). A twenty percent increase over $1,144.84 would be $1,373.81. In order to deregulate the subject premises, Petitioner would have needed to legally raise the rent to $2,000.00 so long as the subject premises was vacant before June 24, 2011. N.Y.C. Admin. Code §26-504.2(a). The difference between $2,000.00 and $1,373.81 is $626.19. Insofar as Petitioner would have been able to increase the rent by one-fortieth of the cost of IAI's, N.Y.C. Admin. Code §26-511(c)(13), 9 N.Y.C.R.R. §2522.4(a)(4), Petitioner would have had to have spent $25,047.60, or forty times $626.19 in order to legally deregulate the subject premises.
Petitioner bears the burden of proving an IAI. Matter of Rockaway One Co., LLC v. Wiggins, 35 AD3d 36, 42-43 (2nd Dept. 2006), 461 Cent. Park W. Co., LLC v. Wang, 12 Misc 3d 135(A)(App. Term 1st Dept. 2006), appeal withdrawn, 2007 NY App. Div. LEXIS 7256 (1st Dept. 2007). The property manager did not have a clear memory of work that was done in the subject premises, and Petitioner had no documentary evidence, like canceled checks, invoices, [*4]estimates, or work proposals, supporting its position that it had engaged in IAI's. Petitioner has therefore failed to meet its burden of proving that it effectuated an IAI to the subject premises. See Altschuler v. Jobman 478/480, LLC., 135 AD3d 439, 440 (1st Dept. 2016), leave to appeal denied, 29 NY3d 903 (2017)(sworn statement unsupported by bills from a contractor, an agreement for work to be performed in an apartment, or records of payments is insufficient to prove IAI's); Stulz v. 305 Riverside Corp., 150 AD3d 558, 558-559 (1st Dept. 2017)(a construction contract, cancelled checks, and the testimony of a contractor substantiates IAI's), Taylor v. 72A Realty Assoc., L.P., 151 AD3d 95, 104 (1st Dept. 2017)(records including itemized bills from contractors and record of payment, such as cancelled checks validate an IAI). Accordingly, Petitioner has not met its burden of proving that the subject premises is exempt from the Rent Stabilization Law.
As the subject premises remained rent-stabilized, the Rent Stabilization Code requires Petitioner to have registered the subject premises with DHCR. 9 N.Y.C.R.R. §2528.3. Petitioner did not do so. Accordingly, Petitioner may not increase the legal rent more than the amount stated above, N.Y.C. Admin. Code §26-517(e), which is less than $2,000.00. As the legal rent never exceeded the statutory deregulatory threshold, then, subject premises therefore is rent-stabilized. Petitioner therefore has no cause of action to evict Respondent for an expiration of her lease and the Court therefore dismisses Petitioner's cause of action for possession against Respondent with prejudice.
The Court next considers Respondent's counterclaim concerning rent overcharge. Unlike the rent-regulatory status, the Court may only consider rent increases in the four years before the interposition of the counterclaim in calculating an overcharge, CPLR §213-a, unless Petitioner engaged in a fraudulent scheme to deregulate the subject premises. Matter of Grimm v State of New York Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 366 (2010), Thornton v. Baron, 5 NY3d 175 (2005). Respondent asserts that Petitioner impermissibly increased the rent for the subject premises more than four years before Respondent interposed her counterclaim. Respondent therefore bears the burden of proving that Petitioner engaged in a fraudulent scheme to deregulate the subject premises. Grady v. Hessert Realty L.P., 2018 NY Slip Op. 31398(U), ¶¶ 8-9 (S. Ct. NY Co.), 1290 Ocean Realty LLC v. Massena, 46 Misc 3d 1223(A)(Civ. Ct. Kings Co. 2015), citing Garcia v. N.Y.-Presbyt. Hosp., 114 AD3d 615 (1st Dept. 2014).
The parties dispute whether Respondent met her burden. However, even assuming arguendo that the Court considered the rent history for more than four years before Respondent interposed her answer, Respondent has not proven as overcharge, as demonstrated by the following calculations:
Respondent argues that the first illegal increase occurred with a two-year vacancy lease commencing in November of 2005 with a purported legal regulated rent of $950.00, increased from a prior rent of $652.04. As noted above, Petitioner would have been entitled to a rent increase of twenty percent over the previous rent on two-year vacancy lease. 9 N.Y.C.R.R. §2522.8(a)(1). A twenty percent increase over $652.04 is $782.45. Respondent argues that Petitioner's failure to register such a rent instead of the rent Petitioner actually did register, Petitioner failed to comply with the registration requirement of 9 N.Y.C.R.R. §2528.3 and therefore may not collect any rent increase above the previous rent of $652.04. However, [*5]Petitioner actually did register the rent from the November 2005 lease with a rent of $950.00 in compliance with the requirement of 9 N.Y.C.R.R. §2528.3 that a landlord register the "current rent." Respondent's real cause of action is the amount of the increase, not a defect in registration. As Petitioner had been in compliance with 9 N.Y.C.R.R. §2528.3, the rent is not frozen at $652.04.
After the lease commencing on November of 2005, the registration history shows a one-year vacancy lease commencing on April 1, 2007. On a one-year vacancy lease, Petitioner was entitled to a rent increase of twenty percent less the difference between an increase for a one-year and a two-year renewal applicable to the previous lease. N.Y.C. Admin. Code §26-511(c)(5-a), 9 N.Y.C.R.R. §2522.8(a)(2). Lirakis v. 180 Seventh Ave. Assocs., LLC, 12 Misc 3d 1173(A) (Civ. Ct. NY Co. 2006). Under N.Y.C. Admin. Code §26-510(b), the Rent Guidelines Board ("RGB)" establishes rent adjustments for the units subject to Rent Stabilization. The difference between one- and two-year lease renewal for the lease previous to April of 2007, i.e., the lease commencing November of 2005, was 2.75%. RGB Order 37. Twenty percent less 2.75% is 17.25%. An increase of 17.25% over $782.45 is $917.42.
The registration history shows that a one-year renewal lease commencing April of 2008 ensued. Petitioner was entitled to an increase of 3% on a one-year renewal at that time. RGB Order 39. A 3% increase over $917.42 is $944.94. The 2009 lease, a two-year vacancy lease, followed, which would have entitled Petitioner to a twenty percent increase. 9 N.Y.C.R.R. §2522.8(a)(1). A twenty percent increase over $944.94 is $1,133.93. While Petitioner did register the 2009 lease, Petitioner did not register subsequent leases. Petitioner's failure to file a timely annual rent registration would bar it from collecting any rent in excess of $1,133.93. N.Y.C. Admin. Code §26-517(e).
As noted above, while all the parties' leases confusingly contain amount for both "rent" (either a "preferential rent" or a "contract rent"), and a higher "unit charge," none of the amounts for Respondent's "rent" ever exceeded $1,133.93 nor does any evidence in the record show that Respondent ever paid a monthly rent higher than that amount. A landlord of a rent-stabilized tenant may not demand or receive any rent in excess of the legal regulated rent, 9 N.Y.C.R.R. §2525.1, and this record does not show that Petitioner "demanded or received" any "rent" in excess of $1,133.93. Respondent therefore has no cause of action for rent overcharge based upon the review of the pre-four-year history of the subject premises. The Court therefore does not reach the dispute between Respondent and Petitioner over whether to examine the history of the subject premises for more than four years as moot. See Fashion Training Co. v. Fulton County Elec. Contractors, 142 AD2d 465, 468 (3rd Dept. 1989)(Courts are constrained to make determinations on the narrowest ground possible).
As Respondent does not otherwise prove an amount that would be a legal rent for Respondent, the Court dismisses Respondent's first, second, and third counterclaims, without prejudice to Respondent's causes of action and Petitioner's defenses before the appropriate tribunal with regard to the legal regulated rent.
The parties are directed to pick up their exhibits within thirty days or they will either be sent to the parties or destroyed at the Court's discretion in compliance with DRP-185.
This constitutes the decision and order of this Court.
Dated: November 28, 2018
New York, New York
HON. JACK STOLLER
Footnote 1: Pursuant to 9 N.Y.C.R.R. §2523.4.