Jаmes Taylor et al., Respondents, v 72A Realty Associates, L.P., et al., Appellants.
First Department
May 25, 2017
151 AD3d 95 | 53 NYS3d 309
Joel M. Zinberg, New York City, and Murray Shactman, New York City, for appellants.
Law Offices of Sokolski & Zekaria, P.C., New York City (Daphna Zekaria of counsel), for respondents.
GISCHE, J.
There are interlocking complex issues framed by this appeal involving plaintiffs’ claims that the apartment they have continuously rented for the last 16 years (apartment 5M), was improperly removed from rent stabilization. The overarching issue is whether the apartment should be restored to rent stabilization because defendant 72A Realty Associates, L.P. (the owner) deregulated the apartment pursuant to the luxury decontrol laws while it was simultaneously receiving tax incentives under the City’s J-51 program1 (see
Apartment 5M is a two bedroom apartment at 187 East 4th Street in Manhattan. Plaintiff Tamara Jenkins moved into the apartment in Februаry 2000 upon signing a two-year vacancy
“39. Tenant acknowledges that he/she has been informed that the demised apartment is exempt from and not subject to any rent control or rent stabilization laws or regulations (e.g. the NYC Rent Stabilization Law and Code or the Emergency Tenant Protection Act). Paragraph 32 of the printed form of this lease is not applicable and is deemed deleted.”3
Peter Zajonc occupied the apartment before Jenkins. Zajonc was the first rent-stabilized tenant of apartment 5M after it was removed from rent control in 1993. Zajonc filed a fair market rent appeal (FMRA) with DHCR challenging the initial rent-stabilized rent of $1,265 charged by the owner. DHCR denied the FMRA. He continued to reside in the apartment until 1999 when he surrendered it. At that time Zajonc’s rent was $1,464 per month, which was the legal rent registered with DHCR at that time.
Before Jenkins moved in and while the apartment was still vacant, the owner undertook certain improvements to the apartment, including the installation of new thermal break windows; the demolition of walls and construction of a new closet in one bedroom; the removal and installation of new kitchen cabinets and countertops; the installation of new apрliances, including a dishwasher and refrigerator; the installation of a new sink, faucet and floor in the kitchen; the refinishing of all doors; and the installation of new tiles around the plumbing
In setting the rent for the vacant apartment in 2000, the owner sought to take advantage of two increases that were available to it under the rent regulation laws. One increase was simply due to the apartment becoming vacant; that increase, which was equal to 20% of the registered rent, was $292.80.5 The othеr increase was based upon an allowable percentage of the cost of IAIs made to the vacant apartment (
Because the new rent for apartment 5M exceeded $2,000 per month, the owner then decontrolled the apartment, returning it to the free market, on the basis that the permitted rent exceeded the high-rent/vacancy threshold for luxury decontrol (
DHCR’s registration records contain an entry, made in 2000, indicating that the apartment was “exempt” from registration. Although the entry indicates that the reason for the exemption is based upon the apartment being either a coop or condo, this is a clerical error; the exemption was basеd upon luxury
Plaintiffs have renewed their lease several times since taking occupancy. Their renewal lease for the period of March 2013 to February 2014 was at a rent of $3,783 per month. On November 22, 2013, 90 days before the lease was due to expire, the owner offered plaintiffs a rent-stabilized renewal lease (
Supreme Court correctly declared that plaintiffs are rent-stabilized tenants. Contrary to the owner’s argument, the fact that it has now offered plaintiffs a rent-stabilized lease, which only began in March 2014, does not render the issue of plaintiffs’ rent-stabilized status moot. The declaration required in this case is retroactive to the inception of plaintiffs’ tenancy and affects their rights from that point in time to the present.
Before the 2009 Court of Appeals decision in Roberts there was a widespread practice among owners of certain rent-stabilized buildings of taking simultaneous advantage of the luxury decontrol laws while also enrolled in and receiving J-51 tax benefits.6 This practice was premised on DHCR’s 1996 administrative interpretation of these laws. In deciding Roberts, the Court of Appeals rejected DHCR’s interpretation, holding that apartments in buildings receiving J-51 benefits remain
In 2011, this Court decided the issue of retroactivity, holding that Roberts has retroactive application because the Court of Appeals did not establish a new principle of law, it had only construed law that had been in effect for years (Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 [1st Dept 2011]). Although our decision in Gersten was appealed, the appeal was withdrawn in March 2012 (18 NY3d 954 [2012]), making it clear from that point forward that owners had an obligation to retroactively restore affected apartments to rent stabilization and register them (Matter of Park v New York State Div. of Hous. & Community Renewal, 150 AD3d 105, 110 [1st Dept 2017]).
This Court has also decided the impact that subsequent expiration of J-51 benefits has on the availability of the luxury decontrol laws. We have held that an apartment that is subject to rent stabilization before receiving J-51 benefits reverts to its former pre-J-51 rent-stabilized status upon the expiration of those benefits (Matter of Bramwell v New York State Div. of Hous. & Community Renewal, 147 AD3d 556, 556 [1st Dept 2017], citing Matter of Schiffren v Lawlor, 101 AD3d 456, 457 [1st Dept 2012]). The reversion to pre-J-51 benefit rent regulation includеs the right of an owner to seek luxury decontrol in appropriate cases (Schiffren, 101 AD3d at 457). In 72A Realty Assoc. v Lucas (101 AD3d 401 [1st Dept 2012] [Lucas]), however, a case involving this very same owner and building, we recognized that a tenant in occupancy at the time an apartment was improperly deregulated by a landlord receiving J-51 benefits retains its rent-regulated status for the duration of its tenancy (id. at 401-402). Roberts and Gersten make it clear
The collateral issues raised by this appeal concern the setting of the rent-stabilized rent for the apartment, which implicates the applicable statute of limitations and look back period. The owner argues that there is no basis to look beyond the four-year limitations period applicable to rent overcharge complaints, set forth in the Rent Stabilization Code (
In general, while the regulatory status of an apartment may be challenged at any time during a tenancy, challenges to the level of rent charged must be made within a four-year limitations period (
We recognize that under certain circumstances, especially where a landlord has engaged in fraud in initially setting the rent or in removing an apartment from rent regulation, the court may examine the rental history for an apartment beyond the four-year statutory period allowed by
In moving for summary judgment the owner provided documentation of the actual improvements.7 It also proved that in 2000 these very plaintiffs were aware that the apartment had been removed from rent stabilization pursuant to luxury decontrol. The information was contained in their lease; they were provided with the required rent stabilization notice, further informing them that the apartment was now exempt from rent stabilization because of high-rent/vacancy decontrol, and the exempt status of the apartment was a matter of public record because it was on file with DHCR. The rent charged Zajonc, the previous tenant, was a matter of public record as well because the rent was registered with DHCR. Clеarly, Jenkins knew the condition of the apartment when she first moved in 2000, and that year she had the right to contest the basis for the claimed increases in rent that brought it beyond the $2,000 per month threshold. Plaintiffs were aware of the facts that would have permitted them to mount a challenge to the rent at that time, which challenge could have been for fraud or even on a less onerous standard, for instance, the reasonableness of the costs attributable to the claimed improvemеnts. Moreover, plaintiffs had every incentive to contest the level of rent charged when they first took occupancy, because any successful challenge to the IAIs in 2000 could have potentially brought the rent below the $2,000 luxury decontrol threshold, and the apartment would have remained rent-stabilized even without regard to any issues considered in Roberts.
In response to the owner’s prima facie showing that there was no fraud underlying the IAI rent increases in 2000, plaintiffs failed to raise any issue of fact requiring a trial or further discovery. Although plaintiffs originally alleged that the owner had not made any improvements at all, but only minor repairs to the apartment, they now concede that the owner may have installed “a few appliances and kitchen cabinets.” They still contend, nonetheless, that they need further discovery regarding the condition of the apartment before
A mere allegation of fraud, alone, is insufficient to justify any further discovery (Conason v Megan Holding, LLC, 25 NY3d 1, 16 [2015], citing Matter of Grimm, 15 NY3d at 367) as it would defeat the salutary purpose of the four-year statute of limitations, which is to “alleviate the burden on honest landlords to retain rent records indefinitely” (Thornton, 5 NY3d at 181, citing Gilman, 99 NY2d at 149). As in Boyd (23 NY3d 999), plaintiffs have “failed to set forth suffiсient indicia of fraud” in connection with improvements that were made more than a decade ago (id. at 1000-1001, citing Grimm, 15 NY3d at 366-367). Mere skepticism about the quality of the improvements or how extensive they were is insufficient to require any further inquiry, particularly where, as here, Jenkins was the first tenant to live in the apartment after the improvements were made. Despite having direct knowledge of the condition of the apartment, Jenkins fails to identify or contradict a single improvement the owner claims it mаde. Moreover, she was given sufficient notice of the increases to the rent at or about the time she accepted the lease and moved in so as to trigger any rights she had at the time to contest the improvements.
Contrary to plaintiffs’ arguments, the owner’s business records provided in this case are admissible under a hearsay exception and are properly considered on the owner’s motion for summary judgment (
Equally unavailing is plaintiffs’ reliance on Jemrock Realty Co., LLC v Krugman (13 NY3d 924 [2010]) for their contention that discovery is required. Jemrock does not, as plaintiffs argue, mandate that a hearing must be held each and every time a tenant challenges improvements. Jemrock actually clarifies that there is no inflexible rule of proof or requirement that
Since we have decided that the increases in rent attributable to the vacancy and improvements were legally permissible, it follows that the owner was justified in raising the rent by the designated percentage of those amounts at the inception of Jenkins’s tenancy. The rent in 2000, with permissible increases could have been $2,215.38, a sum that is more than what Jenkins was actually charged for rent in the initial vacancy lease made as of February 2000. The initial rent, which exceeded $2,000 per month, was still permissible even though the apartment was still subject to rent stabilization. We have previously recognized that a rent-stabilized tenant in a building receiving J-51 benefits can be charged rent in excess of the vacancy threshold, while still retaining the other benefits of stabilization, including the right to renewal leases and capped increases (Matter of Park v New York State Div. of Hous. & Community Renewal, 150 AD3d 105, 111 [1st Dept 2017]).
While there is no evidence of fraud by the owner in setting plaintiffs’ initial rent in 2000, and the base date for setting the rent is February 21, 2010 (cf. Grimm, 15 NY3d 358), the owner’s motion for summary judgment was properly denied. The owner is still required to prove what the legally regulated rent was on the basе date (Grimm at 365, citing
Although the owner filed retroactive DHCR registrations in 2014, these registrations do not establish that the 2010 rent it charged plaintiffs was in accordance with the applicable rent stabilization guidelines. These registrations were filed less than four years before the filing of plaintiffs’ complaint and they are only retroactive to 2009. They do not address the period of time after Jenkins’s initial lease through 2009. Thus, they are subject to dispute. We have recognized that in a Roberts situation where an owner had discontinued DHCR rent registrations based upon a justifiable belief that the apartment was not subject to rent regulation, it should not be penalized by rolling the rent back to the last registered rent (Park, 150 AD3d at 113, citing Jazilek v Abart Holdings, LLC, 72 AD3d 529, 531 [1st Dept 2010]). However, on the other hand, an owner cannot use the lack of registration or misapprehension of the law as a sword to establish a rent that clearly bears no relation to the appropriate parameters of rent regulation.
The timing of these retroactive registrations may play a role in this case on the issue of willfulness. We have recognized that at least by March 2012 the law clearly required the retroactive return of apartments like these to rent regulation (Park, 150 AD3d at 110). In the Lucas decision involving this very owner and the same building (101 AD3d 401), we made it clear
Accordingly, the order of the Supreme Court, New York County (Jennifer G. Schecter, J.), entered January 29, 2016, which, to the extent appealed from, denied defendants’ motion for summary judgment insofar as it sought dismissal of the complaint as against the owner, аnd granted plaintiffs’ cross motion for summary judgment declaring that apartment 5M is rent-stabilized, should be modified, on the law, solely to declare that the increases made to the rent-stabilized rent in 2000, based upon IAIs before plaintiffs took occupancy, were legally permissible, and otherwise affirmed, without costs.
Tom, J.P., Richter and Gesmer, JJ., concur.
Order, Supreme Court, New York County, entered January 29, 2016, modified, on the law, solely to declare that the increases made to the rent-stabilized rent in 2000, based upon IAIs before plaintiffs took occupancy, were legally permissible, and otherwise affirmed, without costs.