3505 BWAY Owner LLC v McNeely

[*1] 3505 BWAY Owner LLC v McNeely 2020 NY Slip Op 20019 Decided on January 27, 2020 Civil Court Of The City Of New York, New York County Capell, 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 January 27, 2020
Civil Court of the City of New York, New York County

3505 BWAY Owner LLC, Petitioner,

against

Amy-Beth McNeely, Respondent.



L & T 51387/19



Attorney for Petitioner:

Rob Marino, Esq.Cullen & Associates, P.C.132 Nassau Street, Suite 1220New York, NY 10038 Attorney for Respondent:Ellery Ireland, Esq.Fishman Law, P.C.305 Broadway - Suite 900New York, NY 10007
Heela D. Capell, J.

Recitation, as required by CPLR § 2219(a), of the papers considered in the review of petitioner's motion to strike respondent's fifth affirmative defense and respondent's cross-motion for discovery.

Papers Numbered

Notice of Motion & Affidavits Annexed 1

Order to Show Cause & Affidavits Annexed

Notice of Cross-Motion and Affidavits Annexed 2, 3

Answering Affidavits

Replying Affidavits 4, 5, 6

Exhibits

Memorandum of law

After submission of the foregoing cited papers, petitioner's motion and respondent's cross-[*2]motion are consolidated for disposition purposes only and decided jointly as follows:

3505 BWAY OWNER, LLC ("Petitioner") commenced this holdover proceeding against Amy-Beth McNeely ("Respondent") based upon the allegation that the unregulated lease between the parties for 3505 Broadway, Apartment 33, New York, NY 10031 ("Premises") expired. Petitioner commenced this proceeding by notice of petition and petition dated January 10, 2019. Respondent served and filed an answer to the proceeding dated February 12, 2019 ("Answer"). The Answer raises six affirmative defenses and three counterclaims.

By decision and order dated May 16, 2019, this court granted Petitioner's motion and dismissed Respondent's retaliatory eviction and harassment counterclaims as Respondent had already interposed those claims in a previous action, Amy-Beth McNeely v 3505 Bway Owner LLC et al, Index Number 656483/18. Petitioner now moves to dismiss Respondent's fifth affirmative defense. The defense states in pertinent part that Petitioner and/or Petitioner's predecessor illegally deregulated the Premises and that the Premises are therefore subject to the Rent Stabilization Law. Respondent cross-moves for discovery with respect to her fifth affirmative defense.

CPLR § 3211(b) provides, "a party may move for judgment dismissing one or more defenses on the ground that a defense is not stated or has no merit." Furthermore, "[s]tatements in a pleading shall be sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action or defense" (CPLR § 3013).

The standard of review on a motion to dismiss an affirmative defense pursuant to CPLR § 3211(b) is akin to that used under CPLR § 3211(a)(7), i.e., whether there is any legal or factual basis for the assertion of the defense (In re Liquidation of Ideal Mut. Ins. Co., 140 AD2d 62, 67 [1st Dept 1988]). In moving to dismiss an affirmative defense pursuant to CPLR § 3211(b), the petitioner bears the burden of establishing that the defense is without merit as a matter of law (534 E. 11th St. Hous. Dev. Fund Corp. v Hendrick, 90 AD3d 541, 541 [1st Dept 2011]). The allegations set forth in the answer must be liberally construed and viewed in the light most favorable to the respondent, who is entitled to the benefit of every reasonable inference (Id., citing 182 Fifth Ave. v Design Dev. Concepts, 300 AD2d 198, 199 [1st Dept 2002]). Further, "the court should not dismiss a defense where there remain questions of fact requiring a trial" (Granite State Ins. Co. v Transatlantic Reins. Co., 132 AD3d 479, 481 [1st Dept 2015], citing 182 Fifth Ave. v Design Dev. Concepts, 300 AD2d at 199).

The parties concede the Premises were subject to New York City Rent Control Law prior to Respondent's tenancy in 2009, and that Respondent was the first tenant in possession of the Premises subsequent to its decontrol. The rent registration for the Premises on file with the New York State Division of Housing and Community Renewal ("DHCR") on October 4, 2019 reflects that the Premises were rent controlled until 2009 (Resp. Sur-Reply Ex. A). The registration lists "Marybeth McNeely" as the rent stabilized tenant of record for the Premises as of November 1, 2009, at a monthly rent amount of $2000.00 (Id).

Petitioner asserts that after the rent controlled tenant vacated in 2009, Petitioner lawfully rented the Premises to Respondent at a fair market rate of $2,000.00 per month. As a result, Petitioner was entitled to remove the Premises from both rent control and rent stabilization. Petitioner's position is supported by DHCR Fact Sheet No.6 and RSL § 26-504.2(a). "In NYC, when a tenant moves out of a rent controlled apartment, the apartment becomes decontrolled. If that apartment is in a building built before January 1, 1974, containing six or more units at any [*3]time, it becomes rent stabilized . . . prior to June 14, 2019, when a rent controlled apartment was vacated and the next tenant was charged a rent at or above the deregulation rent threshold, the apartment was exempt from rent regulation" (see Fact Sheet #6, Fair Market Rent Appeals, New York State Division of Housing and Community Renewal, https://hcr.ny.gov/system/files/documents/2019/11/fact-sheet-6.pdf [last updated November, 2019]). According to RSL § 26-504.2(a), now repealed but effective at the time the Premises were deregulated, exempt units included ". . . 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 . . ."

Petitioner maintains that because the rent for the Premises reached $2000.00 in 2009, it was lawfully entitled to treat the Premises as deregulated, rather than subject to rent stabilization. Petitioner concedes that the registration contains an error because it lists Respondent as a rent stabilized tenant in 2009, although the parties understood in 2009 that the Premises were deregulated. Petitioner also attaches to its opposition an Initial Registration Form ("RR-1") its predecessor filed with DHCR when it removed the Premises from rent control (Pet. Opp. Ex. A). However, Petitioner does not have proof that its predecessor served Respondent with the form. Regardless, Petitioner argues that Respondent is statutorily barred from challenging the deregulation of the Premises pursuant to the four year statute of limitations codified in 9 NYCRR 2522.3.

If a landlord removes an apartment from rent control, the landlord is required to file with DHCR and serve the first tenant in possession thereafter with an RR-1 (See DHCR Fact Sheet #6). An RR-1 explains the method by which the landlord decontrolled the unit and informs the tenant of his or her right to file a Fair Market Rent Appeal ("FMRA") challenging the "first rent" (Id). The first tenant in possession of a decontrolled apartment must file a FMRA within 90 days after receiving the RR-1 (9 NYCRR 2522.3). However, even if the landlord fails to serve an RR-1 on the tenant, the FMRA "shall be dismissed where . . . the appeal is filed more than four years after the vacancy which caused the housing accommodation to no longer be subject to the City Rent Law" (9 NYCRR 2522.3[c]; see also Matter of Park v NY State Div. of Hous. & Community Renewal, 150 AD3d 105 [1st Dept 2017] lv denied 30 NY3d 961 [2017]).

In Matter of Park, the court upheld the four year statute of limitations and barred a tenant from filing a FMRA, even though the landlord did not timely serve a RR-1. Rather, in Park the landlord served a RR-1 on the second tenant in possession, nearly seven years after the apartment was last subject to the rent control law. The second tenant filed a FMRA within 90 days after being served with the RR-1. The Appellate Division affirmed DHCR's determination that the statute of limitations barred the tenant from filing a FMRA since more than four years had passed since the apartment had been decontrolled (Id).

Respondent argues that she is not barred by the statute of limitations articulated in 9 NYCRR 2522.3 because she is challenging the rent regulated status of the Premises rather than the first rent charged after the Premises were decontrolled. Respondent relies on (Gersten v 56 7th Ave, LLC, 88 AD3d 189 [1st Dept 2011] and E. W. Renovating Co. v NY State Div. of Hous. & Community Renewal, 16 AD3d 166 [1st Dept 2005]) in which the Appellate Division held that the court may look beyond the statute of limitations for rent overcharge complaints to determine a challenge to the rent regulated status of an apartment (see also 2701 Grand Assn LLC v Morel, 31 NYS3d 924 [App Term 1st Dept 2016]; Aimco 322 E. 61st St., LLC v Brosius, [*4]21 NYS3d 803 (App Term 1st Dept 2015]). Indeed, this court relied on those cases and awarded discovery to tenants who posited a challenge to the rent regulatory status of an apartment, although such discovery would otherwise be barred by the overcharge statute of limitations (see e.g. 87th St. Realty v Mulholland, 62 Misc 3d 213 [Civ Ct, New York County 2018], Audubon Realty v. Michel, 2018 NYLJ LEXIS 2763 [Civ Ct, New York County 2018], 3440 Broadway BCR LLC v Greenfield, 64 Misc 3d 1217[A], [Civ Ct, New York County 2019]). The question is whether this court may apply those cases here, disregard the statute of limitations for challenges to first rents, and permit Respondent to challenge the rent regulated status of the Premises ten years after they were decontrolled.

Although given an opportunity to do so, neither side provided this court with a case directly on point. Furthermore, the cases cited by Respondent do not apply here because they do not involve apartments that were simultaneously decontrolled and deregulated, a key factor in this proceeding. (Gersten, 88 AD3d 189, E. W. Renovating, 16 AD3d 166, Morel, 31 NYS3d 924, Brosius, 21 NYS3d 803). However, in answering this question, both 9 NYCRR 2522.3 and DHCR Fact Sheet #6 are instructive. Fact Sheet #6 provides that a landlord can defend a first rent by establishing that the rent did not exceed that of comparable apartments in the building when the tenant moved in, or that it reached the first rent by applying Individual Apartment Improvements ("IAI") and New York City Rent Guidelines Board ("RGB") increases. Fact Sheet #6 explains how DHCR may determine a FMRA, which method is also codified in 9 NYCRR 2522.3:

In determining a FMRA, consideration will be given not only to the applicable guidelines promulgated for such purposes by the Rent Guidelines Board, but also rents prevailing for substantially similar ("comparable") accommodations located in the same general area as the subject building on the date the complaining tenant moved into the subject apartment. A "comparable" apartment may be either a rent stabilized or an unregulated unit. The number of rooms in the "comparable" apartment may not exceed the number of rooms in the subject apartment. The rent for a rent stabilized "comparable" apartment will be considered only if it is unchallenged (no challenge to its rent is pending before the DHCR). The fair market rent will generally be established at the greater of the Special Guidelines component promulgated by the Rent Guidelines Board and the highest registered rent for a comparable rent stabilized apartment in the subject building on the date the complainant moved in, plus lawful increases for individual apartment improvements.

Here, the Petitioner not only decontrolled the Premises after the last rent controlled tenant vacated, but simultaneously deregulated the Premises pursuant to the luxury deregulation provision in effect at the time, now repealed RSL § 26-504.2(a). Therefore, Respondent cannot challenge the rent regulated status of the Premises other than by challenging the legality of the first rent which qualified the Premises for deregulation. The only means by which to challenge the first rent is to prove that the rent exceeded the higher of either comparable rents or RGB increases plus IAI's, which is the exact process of a FMRA (Id). Although Respondent claims she is challenging the rent regulatory status of the Premises in her fifth affirmative defense, in substance, she is requesting a FMRA.

The Housing Stability and Tenant Protection Act of 2019, enacted on June 14, 2019, ("HSTPA"), was a comprehensive and detail oriented overhaul of the landlord-tenant laws, and was enacted "in order to prevent uncertainty, potential hardship and dislocation of tenants . . ." [*5](HSTPA, § 1, part D, § 1). HSTPA enlarged the statute of limitations with respect to overcharge claims. The statute also follows East West and Gersten with respect to overcharge claims in that it authorizes the court to examine "all available rent history which is reasonably necessary" to determine the legal regulated rent and investigate overcharges, including, "any rent registration or other records filed with the state division of housing and community renewal, or any other state, municipal or federal agency, regardless of the date to which the information on such registration refers" (NYC Administrative Code §26-516[h], Gersten, 88 AD3d 189, E. W. Renovating, 16 AD3d 166). However, HSTPA did not alter the statute of limitations with respect to filing a FMRA.

Since the new laws expressly and clearly provide that the court may examine rent histories beyond the statute of limitations in overcharge claims, but not for FMRAs, the Court must draw an "irrefutable inference" that the Legislature intended to omit or exclude FMRAs from its "lookback" provisions (Myers v Schneiderman, 30 NY3d 1, 12 [2017], Matter of Shannon, 25 NY3d 345, 352 (2015), Matter of Raynor v Landmark Chrysler, 18 NY3d 48, 56 [2011], Town of Riverhead v NY State Bd. of Real Prop. Servs., 5 NY3d 36, 42-43 [2005]). Therefore, the statute of limitations for filing a FMRA must be enforced here and bars Respondent from challenging the rent regulatory status of the Premises.[FN1]

Respondent argues that regardless, the Premises were not properly deregulated because the DHCR Rent Registration lists her as a rent stabilized tenant in 2009. However, Respondent acknowledges that she signed a "Deregulation Rider for First Unregulated Tenant" ("Rider") when she signed the original lease for the Premises. (Resp. Aff. Ex. B). (See RSL § 26-504.2[b] and RSC § 2522.5[c][3]). The Rider provides "this apartment is not regulated under the rent control or rent stabilization laws of New York State because the legal rent was or became $2000 or more on vacancy...this information may be verified by contacting the lessor or the New York State Division of Housing and Community Renewal..." (Id). The Rider explains that the rent increased to $2000.00 or more based upon improvements performed to the Premises in addition to a vacancy. (Id). Therefore Respondent was informed and conceded in writing that the Premises were deregulated prior to her moving into the Premises.

Respondent argues that unlike an RR-1, the Rider does not state the prior Maximum Base Rent ("MBR") for the Premises, describe what improvements, if any, were made to the Premises, nor explain that Respondent has the right to file a FMRA. Indeed, Petitioner asserts it was not able to obtain proof of service of the RR-1 on Respondent. However, the prior owner filed a proper form RR-1 and "Owner's Report of Vacancy Decontrol for a New York City Apartment Subject to Rent Control" ("Report of Vacancy Decontrol") with DHCR in 2009. In the Report of Vacancy Decontrol, DHCR concluded that "the described housing accommodations are not subject to rent control." (Pet. Opp. Ex. A). Accordingly, it was accepted by Petitioner's predecessor, Respondent and DHCR that the Premises were not subject to rent control when Respondent moved into the Premises.

In 430 Realty Co. LLC v Heftler, the court determined that an error on a rent registration was de minimis and did not affect the actual rent regulated status of an apartment where the owner and tenant had understood that the apartment was deregulated. In Heftler, as here, a rider [*6]to the original lease specified that the apartment was deregulated, however, the registration on file with DHCR erroneously listed the apartment as rent stabilized. Finding that the apartment was deregulated, the Heftler court stated: "No fair reading...can result in any other interpretation...and the tenant[] could not have been prejudiced or misled by this registration especially in light of the original lease rider which unequivocally states petitioner's intention to exempt the unit from rent regulation based upon the legal rent exceeding $2000 per month" (430 Realty Co., L.L.C. v Heftler, 185 Misc 2d 450, 459 [Civ Ct, New York County 2000] See also Ruiz v Chwatt Assoc., 247 AD2d 308 [1st Dept 1998] [rent stabilization coverage is a matter of statutory right and cannot be created by waiver or estoppel]). Here, as in Heftler, the error on the rent registration is de minimis and does not support Respondent's challenge to the rent regulatory status of the Premises.

Accordingly, the Petitioner's motion is granted and Respondent's fifth affirmative defense is dismissed. The cross-motion, which seeks discovery based on the dismissed fifth affirmative defense, is denied as moot. The proceeding is adjourned to March 5, 2020 at 10:30 A.M. for trial.

This constitutes the decision and order of the court.

Dated: New York, New York

_____________________________

January 27, 2020

HON. HEELA D. CAPELL

J.H.C. Footnotes

Footnote 1:The court notes that DHCR has exclusive jurisdiction over FMRAs (240 W. 98th St. Assocs. v Ungar, N.Y.L.J., July 8, 1998, at 30:4 [App Term 1st Dept]).