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DAVID QUOTED IN NEW YORK TIMES ARTICLE ON COMMUNAL RENTALS

The New York Times Real Estate section recently featured an article on an increasingly common feature of the “sharing economy,” http://www.nytimes.com/2015/08/02/realestate/the-millennial-commune.html: communal apartments where the landlord rents out individual rooms rather than the entire apartment. These arrangements, while convenient for some tenants and lucrative for landlords, seemingly violate long-standing City rules against creation of new single-room occupancy units a/k/a “SRO’s.” Any tenant renting a room in such a unit runs the risk of being vacated by the NYC Department of Buildings based on illegal occupancy.


Terrible Primary Residence Decision Regarding Tax Returns

The Appellate Division, First Department, has just issued a major new decision with potentially disastrous results for rent-regulated tenants who file inaccurate tax returns or other documents in which they represent their residence as somewhere other than their apartment. In Ansonia Associates LP v. Unwin, the tenant filed federal tax returns in which she took a 100% business deduction for her rent even though she actually resided in the apartment. The court ruled that, as the tax returns were filed under penalty of perjury, the tenant was now prohibited from claiming that the apartment was her residence.

This case has potentially seismic implications for primary residence cases, especially those involving live-work lofts or apartments where tenants carry on home occupations. If you are deducting 100% [or other disproportionate share] of the rent on your taxes, you should amend your returns immediately.

Beyond this, the decision may implicate tenants who file tax returns from their weekend homes or who take a homestead exemption in another state, most commonly Florida. It is also not inconceivable that this could be extended to representations on mortgage documents, which are also signed under penalties of perjury. It is common for tenants financing a second home to unthinkingly take out a “primary residence” mortgage in order to secure a lower rate. That is, they sign under penalty of perjury that the house will be their primary residence. In light of Unwin, this now may put rent-regulated apartments at risk. The same could apply to the even more mundane practice of saving on auto insurance by registering the car at the upstate house when, in reality, it is garaged in the city.

The message the court is sending is unmistakable: tenants who are benefiting from rent regulation must be scrupulously honest. Tenants who try to have it both ways – to take advantage of the rent laws while also simultaneously benefiting from a claim to live elsewhere – are putting their actual homes in peril.


July 7, 2015


Legislature Reopens Loft Law Application Period

After a chaotic legislative session, the legislature amended §282-a of the Loft Law to reinstate the application period. This erases the prior application deadline of March 11, 2014. Now, loft tenants have until June 2017 to file coverage applications.

Tenants, however, should not delay filing. To establish coverage tenants still must prove occupancy during the “window period,” January 1, 2008 through December 31, 2009.  Unless the tenant applying for coverage was living in the apartment at the time, it is going to mean tracking down the window period tenants. Given that 2008 is now seven years, finding those tenants — and hoping they have relevant documentation from the window period — is becoming increasingly difficult with the passage of time. Waiting another two years will only make this quest more difficult.

 

June 30, 2015

 


COURT OF APPEALS FURTHER MUDDIES THE WATER ON THE “FOUR-YEAR RULE” FOR RENT OVERCHARGES INVOLVING FRAUD

The “Rent Regulation Reform [sic] Act of 1997” was a travesty for rent-stabilized tenants, removing or curtailing many rights. One of the worst elements of the law was implementation of the “four-year rule.” See Civil Practice Law and Rules §213-a. This new statute purported to impose a “hard” statute of limitations for rent overcharge claims. Previously, the law had been construed to limit a tenant’s recovery for a rent overcharge to the most recent four years but a tenant could go back in time as far as she needed in order to prove a rent overcharge. The RRRA, however, precluded the Division of Housing and Community Renewal or courts from even examining the rent history more than four years prior to the date the tenant filed the complaint. Thus, if a landlord collected an unlawful increase he would be forever shielded from any claim – and be able to continue collecting illegal rents – as long as it was not challenged within four years.

As if often the case with new laws, once cases started to work their way through the courts, judges found that literal application of the law would result in manifest injustice, especially since if a landlord managed to get a rent over $2000 per month [now, $2500], the apartment was subject to possible deregulation. That is, landlords were using the four-year rule to improperly remove apartments from rent regulation. The result was judicial pushback against strict application of the four-year rule.

The leading case was Thorton v. Baron, 5 NY3d 175 (2005), a case involving an illusory tenancy scheme in which a landlord and prime tenant colluded to remove an apartment from stabilization and overcharge the subtenants. The Court of Appeals found that this constituted fraud and, although the first overcharge occurred more than four years before the case commenced, the subtenant – who was really the legitimate tenant – could challenge the rent under the “default formula.” The latter is a procedure established by DHCR to set the rent when the rent history is “unreliable,” as it was in Thorton owing to the landlord’s fraudulent effort to raise the rent over $2000 per month and, hence, deregulated the unit. Thorton thus opened the door to challenges to the four-year rule if there were some indicia of fraud. [Side note: the victimized subtenants in Thorton were Cindi Lauper and her husband.]

The vexing question since Thorton has been: what constitutes fraud? In Matter of Grimm, 15 NY3d 358 (2010),  the court found evidence of fraud where the landlord increased the rent from $579 to $1450 without explanation and the landlord required the tenants to perform their own improvements in return for not charging an even higher rent. Yet in Matter of Boyd, 23 NY3d 999 (2014), the Court of Appeals reversed the Appellate Division and found insufficient evidence of fraud where between July 2004 and October 2004 the “legal” rent jumped from $572 to $1750 based upon a dubious claim that the landlord spent nearly $40,000 in improvements.

The outcomes in Grimm and Boyd were difficult to reconcile. The court recently had another opportunity to address the intersection of fraud and the four-year rule in Conanson v. Meghan Holding LLC, 2015 NY Slip Op 01553 (2015), but has only succeeded in further muddying the waters. In Conanson, there was overwhelming evidence of fraud developed in a prior Housing Court proceeding. There was, for example, an undisputed finding that the landlord had simply fabricated a lease to justify an interim rent increase – known as “laundering” the rent. Not surprisingly, the court ruled for the tenant and allowed her to rely on rent history beyond the four-year period to prove her overcharge.

What’s frustrating about Conanson, however, is that the court refused to establish a reliable rule for future cases, saying only there was enough evidence in that case. The court noted that a “generalized” claim of fraud is not enough to permit consideration of rent history beyond the four-year period, but that a “colorable” claim of fraud is. The difference between these two terms is far from clear. Trying to reconcile Grimm and Conanson, where there was sufficient evidence of fraud, with Boyd, where there wasn’t, is difficult. The only rule that can be divined is that the tenant must have something more than an unexplained or unreasonable rent increase. In Grimm, the landlord coupled an unexplained rent increase with the bizarre requirement that the tenants do their own improvements. In Conanson, the tenants had a concededly fabricated lease to go with the rent increase. In Boyd, the tenants had only an unexplained and seemingly unjustifiable rent increase, but nothing tangibly indicating fraud. The problem with this distinction is that tenants are frequently in no position to gather tangible proof of fraud before bringing their claims. So, while the tenant may have won in Conanson, it remains to be seen if the case will ultimately be a boon to tenants.

March 2, 2015


COURT OF APPEALS CLARIFIES ATTORNEY’S FEES ISSUE

In advising a tenant involved in a Housing Court proceeding, one of the most important considerations is attorney’s fees. It’s not only how much the tenant’s fees will be, but whether or not she is entitled to collect fees if she wins or, conversely, if she would have to pay the landlord’s fees if she loses. While, we’d all like to believe that the outcome of cases are based on the law and justice, in reality many cases are settled based on a party’s financial exposure. Whether a tenant would be liable for her landlord’s legal fees if she loses, or vice versa, could be a determinative factor in how, or whether, to proceed in a particular case. Thus, it is critical to be able to counsel a client on the risk of attorney’s fees.

In many cases, however, this has been difficult to do in recent years due to a string of contradictory cases issued by the appellate courts. Except for certain statutory claims such as rent overcharges, a party’s entitlement to legal fees is determined by the lease. Many residential leases have a clause requiring a tenant to pay the landlord’s fees in the event the tenant breaches the lease. Real Property Law §234 provides that wherever a lease has such a provision it is deemed reciprocal and the tenant is entitled to fees if the landlord sues but the tenant wins. The idea is to “level the playing field” between landlord and tenant and discourage frivolous cases by causing the landlord to consider the risk of having to pay the tenant’s fees. See Duell v Condon, 84 NY2d 773 (1995).

Several popular form residential leases have odd language that, read narrowly, seemingly entitled the landlord to recover only legal fees associated with re-renting an apartment if the lease were cancelled as opposed to fees directly incurred in litigation:

If this Lease is cancelled, or Landlord takes back the Apartment, the following takes place:

. . .

Any rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes under this Lease. Landlord’s expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs.

This had become known as the “Bunny Realty” language, after the first appellate case to address legal fees under this provision. Bunny Realty Corp. v. Miller, 180 Ad2d 460 (1st Dep’t 1992). Over the past few years, the appellate courts had split on the construction of this peculiar language. The First Department, which covers Manhattan and the Bronx, said the language did not trigger a tenant’s right to fees under RPL §234. Oxford Towers Co. v. Wagner, LLC, 58 AD3d 422 (1st Dep’t 2009). The Second Department, which covers Brooklyn and Queens, went the opposite way. Cassamento v. Juaregui, 88 AD3d 235 (2d Dep’t 2001). There were also a series of lower court opinions in which the judges contorted themselves into the legal equivalent of a pretzel to apply these conflicting decisions to the facts of specific cases. Given the confusing – and confused – legal landscape, it was difficult to provide clients with the Bunny Realty a reliable assessment of their ability to collect, or obligation to pay, legal fees.

In Graham Court Owner’s Corp. v. Taylor, 2015 NY Slip Op 01482 (2015), the Court of Appeals resolved the conflict and concluded that the Bunny Realty language does trigger a tenant’s entitlement to legal fees. Of course, the flip side of this holding is that landlords are now clearly entitled to fees if they prevail in a Housing Court case against a tenant with Bunny Realty language. Nevertheless, it is now possible to counsel clients with greater certainty as to the financial benefits – and risks – of pursuing litigation.

 

February 26, 2015

 


LOFT BOARD UNEXPECTEDLY RESTRICTS DEFINITION OF “PROTECTED OCCUPANT”

It has always been one of the bedrock principles of the Loft Law that the law protects “occupants,” not just tenants. That is, if an individual could prove that they were in actual residential possession on the effective date of the law – June 21, 2010 for the 2010 amendments codified at Multiple Dwelling Law §281(5) – then he or she was protected under the law, whether they were a tenant, a subtenant, a roommate or other status. This has now changed.

In a series of three cases, including David’s case, Various Tenants of 357 Bowery, the Loft Board ruled that, if the tenant of record was in possession on the effective date, then any other occupants – including the tenant’s spouse or life partner – are not protected [though they may have succession rights if the tenant vacates]. As pointed out by Loft Board Tenant Represented Chuck Delaney in his dissent, this ruling upends twenty years or more or established Loft Board precedent.

Loft tenants and occupants with pending Loft Board coverage applications should consult their attorney about the possible impact of this holding on their cases.

January 30, 2015


New York Times FEATURES DAVID’S CLIENTS AND THEIR ATTEMPT TO COPE WITH THE LUXURY RENOVATION OF THEIR SOHO BUILDING

It’s an increasingly common story throughout New York: a previously forgotten neighborhood becomes trendy. then the developers move in and the rent-regulated tenants must deal with the inconvenience and disruption of “luxury renovation,” which is often little more than thinly disguised harassment. Probably the first neighborhood to experience this upheaval was SoHo in the 80’s. Now, a generation later, it is still going on, as the few remaining middle-class tenants fight to preserve the quiet enjoyment of their homes amidst developers’ voracious profit-taking, as exemplified by the plight of David’s clients, Michele Varian and Brad Roberts, in the New York Times

This story, thankfully, has a happy ending as David fought for Michele and Brad to get their home back after living for months with a gaping hole in their floor and exposure to potentially toxic construction dust.

 


DAVID WINS ANOTHER LOFT LAW TRIAL

In Matter of Wassman, after a nine-day trial, Administrative Law Judge Alessandra Zorgniotti found that David’s clients were protected by the Loft Law. In this case, in order to prevail David had to prove that a third unit in the building was residentially occupied by the deceased owner. The current owner claimed that the prior owner had lived in the basement and not his fully outfitted fourth-floor apartment. As a result of David’s efforts,  including a successful cross-examination of the landlord’s witnesses, Judge Zorgniotti found the claim to be incredible while also rejecting the landlord’s attempted character assassination of his clients.


DAVID WINS LOFT LAW PROTECTION FOR PART-TIME RESIDENT

In this case, David’s clients, a married couple and their adult niece, moved into the loft in 2007. They converted it to residential use at their own expense, spending many thousands of dollars. Although the niece continued to reside in the loft through the present, the couple moved to Maine where they purchased and operated a restaurant. It was, however, undisputed that they kept their property in the loft and returned often to stay for a few days at a time.

Judge Ingrid Addison held that, although the loft was no longer the couple’s primary residence, they were entitled to protected occupancy status. Judge Addison affirmed the long-standing rule that to be protected an occupant need not be a primary resident, but merely a resident.  Note, however, that once found protected, a Loft Law tenant who does not occupy the loft as his or her primary residence may be subject to eviction.


DAVID NAMED “SUPER LAWYER” FOR THIRD YEAR IN A ROW

David has been recognized again as one of the top real estate attorneys in New York by the legal publisher Thomas Reuters. The listing is here.