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Heller Realty v. New York State Div. of Housing and Community Renewal

Supreme Court of New York, New York County

July 15, 2013

In the Matter of the Application of HELLER REALTY, Petitioner,
v.
NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent, For a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules, and Toni Levi, Intervenor-Respondent. No. 102833/12.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Jeffrey Turkel, Esq., Rosenberg & Estis, P.C., Toni Levi, New York, for Plaintiff.

Aida P. Reyes, Esq., Gary R. Connor, Esq., NYSDOHCR, New York, for respondent.

ALICE SCHLESINGER, J.

The issue in this case is whether respondent New York State Division of Housing and Community Renewal (DHCR) properly determined the effective date of a rent increase it granted to the owner based on certain major capital improvements (MCI) completed at the building. The petitioner here is the managing agent for the holder of unsold shares appurtenant to seven apartments in the building, a cooperative located at 105 West 73rd Street in Manhattan. Three of the seven affected apartments are subject to the Rent Stabilization Law of 1969 and four are subject to the New York City Rent and Rehabilitation Law, commonly known as Rent Control, but only the effective date for the four rent-controlled tenants is challenged here. The petition, which seeks to make the rent increase retroactive to November 1, 2006, is opposed by DHCR and the intervening rent-controlled tenant Toni Levi, both of whom assert that the agency correctly set an effective date of May 1, 2012. While the issue is narrow, the additional rent increase sought by petitioner amounts to a substantial sum of money for the mostly senior citizen tenants.

Background Facts

On or about October 6, 2003, petitioner filed an application with DHCR seeking an MCI rent increase in the amount of $53.68 per room, per month, in perpetuity, for seven rent-regulated apartments at the building. The subject improvements completed in September 2002 consisted of exterior restoration work at a cost of $600,101.06 and related engineering fees totaling $49,212.62. (Admin Return, A-1) [1]. The agency's Administrative Return, which documents the proceedings, begins with various requests by DHCR's District Rent Administrator (DRA) for information from the owner, objections to the MCI by the tenants, and various comments by the owner (A-2 through A-15).

The first exchange relevant to the issues here appears in the Return at A-16. Of particular significance there is the August 19, 2004 notice from the DRA to the owner indicating that the owner had failed to reply to a July 21 notice and giving the owner one final opportunity to reply. The notice lists seven specific questions, six of which relate to the building's status as a cooperative, whether the sponsor had paid for any part of the improvements, whether reserve funds had been used for payment, whether the cooperative shareholders had been charged a special assessment for the MCI work, and whether the sponsor had made any representations in the offering plan about payments for the work.

The DRA's inquiry was indisputably appropriate in light of two facts: the copies of the checks submitted by the owner as proof of payment were from an account entitled " 105 West 73rd Owners Corp. Reserve Fund" ; and rent regulations expressly prohibit the award of an MCI rent increase " to the extent that, after a plan for the conversion of a building to cooperative or condominium ownership is declared effective, such improvement is paid for out of the cash reserve fund of the cooperative corporation...." Rent Stabilization Code § 2522.4(a)(9).

Also noteworthy is the fact that the application was filed by Heller Realty, which is the managing agent for the holder of the unsold shares allocable to the apartments and not the actual owner. All the contracts for the MCI work are in the name of 105 West 73rd Owners Corp., which apparently is the cooperative corporation that owns the entire building, and that entity's name is on all the checks issued for payment here; the legal owner of the unsold shares who is seeking the rent increase here is not separately identified. However, to be consistent with the terminology used by DHCR, this Court will refer to the agent Heller Realty as " the owner."

Although well aware of the significance of the reserve fund issue, the owner responded to the DRA's request for additional information with only a brief letter dated September 9, 2004, signed by a legal assistant at counsel's firm. The letter simply stated in conclusory fashion that: the sponsor did not pay for the improvements or commit in the plan to pay for them; " Reserve funds were not used to pay for the improvements during the initial offering phase or after the plan was declared effective," no amount was credited against the reserve fund; no special assessment was charged to the shareholders for the work; and the sponsor did not indicate in the plan that it would bear the full cost of the work. (A-16). No details were provided. It was later confirmed that the plan had been declared effective in March of 1989. (A-22).

What followed was the submission of objections from various tenants and the owner's response. The only comment relevant here was the assertion by various tenants that the sponsor had agreed to make certain improvements when seeking approval of the plan, but the owner claimed in response that the tenants had not pointed to any such written agreement in the plan. Beyond that, the proceeding was delayed by the owner's filing of a request for records under the Freedom of Information Law and its repeated requests for extensions of time to supply certain information requested by the DRA regarding the contract, room count, and other issues. (A-23 to A-49). The only additional piece of evidence offered relevant to the dispute here was bank statements from the owner confirming that payment for the improvements had been made from an account entitled " 105 West 73rd Owners Corp Reserve Fund." (A-46).

The DRA issued its Order Denying MCI Rent Increase on October 10, 2006. (A-50). Consistent with RSC § 2522.4(a)(9) quoted above (at p .3), the stated basis was:

THE MCI IMPROVEMENTS WERE PAID FOR WITH MONEY FROM THE COOP RESERVE FUND. THE COPIES OF CANCELED CHECKS AND BANK STATEMENTS SUBMITTED ...


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