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218 EAST 85th Street, LLC v. Division of Housing and Community Renewal

January 5, 2009

IN THE MATTER OF APPLICATION OF 218 EAST 85TH STREET, LLC, FOR A JUDGMENT PURSUANT TO ARTICLE 78 OF THE CIVIL PRACTICE LAW AND RULES PETITIONER,
v.
DIVISION OF HOUSING AND COMMUNITY RENEWAL, RESPONDENT.



The opinion of the court was delivered by: Marilyn Shafer, 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.

In this article 78 proceeding, the court is called upon to determine whether respondent New York State Division of Housing and Community Renewal (DHCR) erred in interpreting the 2003 amendment to section 26-511 (c) (14) of the Rent Stabilization Law (the 2003 amendment) as not permitting an owner to eliminate a tenant's preferential rent upon renewal of her lease, in light of the language of the parties' preferential rent rider. As discussed below, this court concludes that DHCR rationally determined that the above statutory provision, giving the landlord the option to renew based on either the preferential rent or legal regulated rent, was not intended to obviate the terms of a preferential rent rider to a lease agreement to allow the tenant to pay less.

BACKGROUND

In 1968, Judit Polyak (tenant) became the tenant of a rent stabilized apartment located at 218 East 85th Street, Apt 2R, in Manhattan. Petitioner 218 East 85th Street, LLC is the owner and landlord of the premises and Joseph Stribula is the managing agent. Commencing in 1988, and continuing every other year of her tenancy, the landlord gave the tenant a preferential lease rider in addition to her apartment renewal lease, in which the parties agreed that the tenant would pay a lesser rent notwithstanding the legal registered rent.

In October 2005, however, the owner refused to offer the tenant a lease based upon the same terms and conditions as the previous leases, and instead, offered the tenant a renewal lease based upon the legal regulated rent, asserting rights under the 2003 amendment.

On December 21, 2005, the tenant filed a lease renewal complaint with the DHCR. In Part III of the DHCR form complaint, entitled "Nature of Complaint," the tenant checked off box numbered "6," stating: "The owner refuses to offer me a renewal lease on the same terms and conditions as were contained in my expiring lease. The owner has made changes in the new lease." The tenant notes that she signed and returned the 2006 preferential rent rider initially offered by the owner along with the renewal lease as she has in years past, but that this time, the owner only signed and returned the renewal lease and he failed to return the 2006 preferential rent rider to tenant. Among the attachments to the complaint was a copy of the 2006 preferential rent rider, signed by the tenant on October 2005, but not signed by the owner. The owner responded to the tenant's complaint by asserting that the legal rent was established and that the tenant signed the lease renewal.

By an order dated August 3, 2006, the Rent Administrator issued an order denying the tenant's complaint, finding that pursuant to law, the owner has the option of removing the preferential rent and charging the tenant the full legal rent upon renewing the lease.

On or about September 6, 2006, the tenant filed a Petition for Administrative Review (PAR), appealing the Rent Administrator's August 3, 2006 determination. In support of the PAR, the tenant argued that the clear language of each preferential rent rider throughout the years, coupled with the prior practice and custom between the parties, manifested the intention between the parties and certainly created the expectation of the tenant that the preferential rent would last the life of the tenancy. According to the tenant, nothing in the language of the 2003 amendment permits the owner to disregard the terms of the parties' preferential rent rider. Finally, the tenant argued that her interpretation of the terms is consistent with the owner's conduct in issuing and executing the identical preferential rent rider in 2002 and in 2004, one year after the enactment of the 2003 amendment. The tenant submitted leases from 2002 and 2004 which incorporated the same preferential rent rider terms.

In its answer, the owner once again asserted that the 2003 amendment permits the landlord to renew based on the legal regulated rent notwithstanding the existence of years of executing the preferential rent rider. In addition, the owner argued that the particular preferential rent riders at issue do not state that the tenant will be charged a preferential rent for the duration of the tenancy.

On November 1, 2007, the DHCR Deputy Commissioner Leslie Torres (the Commissioner), issued an order and opinion granting the tenant's PAR. The DHCR opinion held that "a plain reading of the preferential rent rider, which states that (w)hen the tenant moves out, the owner can compute and charge the new rent based on ... (t)he legal registered rent,' clearly indicates that the preferential rent was to continue for the duration of the tenancy and does not, as asserted by the owner, constitute a concession for a specific lease term." The Commissioner noted that the landlord failed to dispute the tenant's contention that the preferential rent rider terms have been included in the tenant's leases since 1988, even after the 2003 amendment in 2004, and noted that the landlord offered a preferential rent rider in 2006 and that the landlord then refused to sign and return a copy of the preferential rent rider to the tenant with the January 2006 renewal lease.

The DHCR relied on section 2522.5 (g) (1) of the Rent Stabilization Code, which it characterized as a "significan(t)" requirement that renewal leases be offered "on the same terms and conditions as the expired lease" (Rosario v Diagonal Realty, LLC, 8 NY3d 755 [2007], cert den., __ US__, 128 S CT 1069). The DHCR ruled that the 2003 amendment of the Rent Stabilization Law does not permit "an owner to terminate a preferential rent" in a situation such as this, where it had "agreed to continue the preferential rent for the duration of the tenancy."

While the DHCR recognized that its interpretation of the 2003 amendment "represents a departure from rulings rendered by DHCR in prior proceedings involving almost identical fact pattern", the Commissioner explained that after consideration of Romero v New York State Div. of Hous. & Community Renewal, 16 Misc 3d 484 (Sup Ct NY County 2007), Matter of Sugihara v New York State Div of Hous & Community Renewal, 13 Misc 3d 1239 (A) 2006 NY Slip Op 52186(u) (Sup Ct, NY County, 2006), and other "recent judicial decisions on this question," it found the DHCR's prior decisions to be "incorrect" and its new analysis of the 2003 amendment, in conjunction with the "same terms and conditions requirement" of rent stabilization, to be preferable.

In November 2007, the instant article 78 proceeding ensued, whereby petitioner asserts that the DHCR decision was affected by errors of law and an abuse of discretion. Specifically, petitioner argues that DHCR failed to adequately explain the reason for its departure from precedent in construing the 2003 amendment, and even if it did had explained this, DHCR's interpretation of the 2003 amendment is "contrary to the plain language of the statute", and finally, that the Commissioner misinterpreted the language of the ...


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