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Goldstein v. Lipetz

Supreme Court of New York, First Department

May 23, 2017

Shari Lynn Goldstein, Plaintiff-Appellant-Respondent,
Linda Lipetz, Defendant-Respondent-Appellant.

          Kaufman Friedman Plotnicki & Grun, LLP, New York (Howard Grun of counsel), for appellant-respondent.

          Law Offices of Fred L. Seeman, New York (Fred L. Seeman of counsel), for respondent-appellant.

          Tom, J.P., Friedman, Richter, Kapnick, Gesmer, JJ.

         Order, Supreme Court, New York County (Shlomo Hagler, J.), entered July 27, 2015, which denied plaintiff's motion for summary judgment on its first, second and third causes of action and for dismissal of defendant's affirmative defenses and counterclaim, and denied defendant's cross motion for summary judgment dismissing the complaint, modified, on the law, to grant plaintiff's motion, and to declare that plaintiff validly terminated the lease, and otherwise affirmed, without costs.

         The law is clear that a rent-stabilized tenant who sublets her apartment at market rates to realize substantial profits not lawfully available to the landlord, and does so systematically, for a substantial length of time, places herself in jeopardy of having her lease terminated on that ground, with no right to cure (see Gruber v Anastas, 100 A.D.3d 829');">100 A.D.3d 829 [2d Dept 2012]; 220 W. 93rd St., LLC v Stavrolakes, 33 A.D.3d 491');">33 A.D.3d 491');">33 A.D.3d 491');">33 A.D.3d 491 [1st Dept 2006], lv denied 8 N.Y.3d 813');">8 N.Y.3d 813');">8 N.Y.3d 813');">8 N.Y.3d 813 [2007]; Matter of 151-155 Atl. Ave. v Pendry, 308 A.D.2d 543, 543-544 [2d Dept 2003]; BLF Realty Holding Corp. v Kasher, 299 A.D.2d 87, 91 [1st Dept 2002], lv dismissed 100 N.Y.2d 535');">100 N.Y.2d 535 [2003]; Continental Towers Ltd. Partnership v Freuman, 128 Misc.2d 680 [App Term, 1st Dept 1985]). The record before us establishes, as a matter of law, that this is precisely what defendant did with the rent-stabilized cooperative apartment she leased from plaintiff, the trust that holds the unit's appurtenant cooperative shares and its proprietary lease. Accordingly, plaintiff is entitled to summary judgment on its first cause of action (for a declaration that it validly terminated the lease), on its second cause of action (for ejectment), and as to liability on its third cause of action (for recovery of the fair value of the use and occupancy of the apartment since defendant was served with notice of the termination of the lease). We therefore modify the order appealed from to grant plaintiff's motion for such relief.

         Defendant does not dispute that she sublet her apartment to 93 different customers recruited through the Airbnb website, for 338 days spread over a period of 18 months (the first stay began on March 1, 2011, and the last began on August 29, 2012), at nightly rates ($95 for one person, $120 for two) far in excess of her stabilized rent, which was $1, 758.01 per month during the relevant period, equivalent to $57.80 per day [1]. Although a tenant is permitted by Rent Stabilization Code (RSC) (9 NYCRR) § 2525.6(b) to charge a 10% premium for an otherwise lawful sublet of a furnished rent-stabilized apartment, 110% of plaintiff's stabilized rent, on a per-diem basis, was only $63.58. Thus, the $95 per night that she charged single guests was approximately one and a half times the lawful per-diem charge for a sublet, and the $120 she charged couples was nearly twice (approximately 189%) the lawful charge.

         The evidence in the record from the Airbnb website reveals that the blatancy of defendant's commercialization of her apartment was comparable to that of tenants who have been evicted for profiteering in prior cases (see 335-7 LLC v Steele, 53 Misc.3d 150');">53 Misc.3d 150 [A], 2016 NY Slip Op 51689[U] [App Term, 1st Dept 2016]; 42nd & 10th Assoc., LLC v Ikezi, 46 Misc.3d 1219');">46 Misc.3d 1219');">46 Misc.3d 1219');">46 Misc.3d 1219 [A], 2015 NY Slip Op 50124[U] [Civ Ct, NY County 2015], affd 50 Misc.3d 130[A], 2015 NY Slip Op 51915[U] [App Term, 1st Dept 2015]; West 148 LLC v Yonke (11 Misc.3d 40');">11 Misc.3d 40, 41 [App Term, 1st Dept 2006], lv denied 2006 NY Slip Op 73839[U] [1st Dept 2006]; see also Brookford, LLC v Penraat, 47 Misc.3d 723, 725 [Sup Ct, NY County 2014] [granting interim injunction against tenant's Airbnb subletting]). Defendant advertised her apartment on the Airbnb website as "5th Avenue Perfection, " and described the accommodations as follows:

"Large well appointed private bedroom in great downtown location. (Greenwich Village West) Step out onto New York's 5th Ave from posh doorman building located in the best zip code in NYC. Just steps from Washington Sq Park your comfortable room is surprisingly quiet, but then 5th Ave ends at the park just a stones [sic] throw away so traffic is minimal. Flat screen TV[.] Share fully outfitted kitchen and spotless bathroom with 1 other... owner (female)[.] Walk a few short blocks to 2 subway stations (West 4th St or 14th St/Union Sq)[.] Perfect for single or couple. Private Entrance... Elegent [sic] Comfy[.]"

         Defendant's listing on the Airbnb website also provided (1) links for making reservations, (2) "check-in" and "check-out" times, (3) the financial penalty for untimely cancellation, and (4) reviews from numerous past guests.

         Turning her rent-stabilized apartment into a single-unit tourist hotel in this fashion enabled defendant to earn substantial profits, far in excess of the legally permissible 10% premium [2]. After Airbnb (to which the subtenants paid the rent) deducted its fees, the subletting generated total income of $33, 592.00 for defendant. The stabilized rent she paid for the same 338 days (based on the aforementioned per-diem figure of $57.80) was only $19, 536.40. Thus, defendant realized a 72% profit from her subletting - about seven times the 10% premium permitted for otherwise lawful sublets of furnished rent-stabilized apartments. Had defendant limited herself to the 10% premium permitted by the RSC, her aggregate revenue would have been $21, 490.04 - about $12, 000 less than her actual revenue of $33, 592.00. Taking into account the lawful 10% premium (and ignoring the fact that the apartment was shared), defendant overcharged her 93 subtenants, in aggregate, by approximately 56%. [3]

         Initially, we are unanimous in rejecting defendant's primary argument on this appeal, in which she contends that the 93 transient, short-term, paying guests she hosted over a year and a half were "roommates" within the purview of Real Property Law § 235-f and RSC 2525.7. Contrary to the view of Supreme Court, the record establishes that defendant's "guests" were, as a matter of law, subtenants, and this matter is therefore governed by RSC 2525.6 (see Stavrolakes, 33 A.D.3d at 491 [occupancy of a rent-controlled apartment "by numerous persons between 2001 and 2005 - especially short-term transient students at illegal rents - was in the nature of subletting rather than taking in roommates"]). Accordingly, defendant's first and fourth affirmative defenses, both based on her claim that her guests were "roommates, " are unavailing.

         As her third affirmative defense, defendant alleges that plaintiff is not entitled to relief because her subletting was "de minimis[, ] short term and insubstantial, " a contention that she has repeated in her motion papers and on this appeal. In this regard, defendant asserts in her appellate brief that her subletting was "insubstantial when viewed in the context of a forty (40) year tenancy." The dissent takes the position that defendant has raised a triable issue as to whether the subletting was of substantial duration. The implication of this analysis, in which whether the unlawful conduct was of sufficient duration to be considered material is determined by comparison to the total length of the tenancy, has the effect of rendering lawful for a longstanding tenant the exact same conduct that would be unlawful for a tenant who has a shorter history in his or her apartment. The dissent offers no support for its assumption that the relevant legal provisions were enacted with an intent to discriminate in this fashion between tenants based on the lengths of their tenancies. In our view, subletting of an apartment at an excessive rental rate for 338 days over a year and a half, or for 11 out of 18 months, has taken place on a sustained basis, not intermittently, and for a substantial period of time, and thus constitutes unlawful profiteering, regardless of the duration of the tenancy before the unlawful conduct began. Indeed, the Appellate Term recently affirmed the eviction of a tenant who had sublet her rent-stabilized apartment through Airbnb for "at least 120 nights in a 14 month period" (Steele, 53 Misc.3d 150[A], 2016 NY Slip Op 51689[U], *1) - less than half the number of nights defendant sublet her apartment, over a roughly comparable period of time (see also Continental Towers, 128 Misc.2d at 681 [the tenant was evicted for having entered into an arrangement to sublet his apartment at an excessive rate for six months, although the subtenant apparently vacated the premises before the term of the sublease had expired]). [4]

         Defendant also argues that her profiteering was "insubstantial" because her Airbnb income did not exceed her legal regulated rent plus 10% during several months of the subletting. We find the point unavailing. Defendant sublet her apartment on a daily basis and, perforce, she had less Airbnb revenue in months during which her apartment was sublet for fewer days. To determine defendant's profit from the subletting, her income from the subletting should be compared to the share of her rent attributable to the days she was actually hosting a subtenant in the apartment, not to her rent for the entire month during which the subletting occurred.

         Although she has not pleaded this as an affirmative defense, and barely touches on the point in her appellate briefs, defendant also appears to contend that plaintiff had knowledge of, and gave consent to, her subletting. Here again, the dissent is persuaded that there are issues to be determined at trial, including (1) "whether defendant acted with the knowledge of Samson [Management LLC], her landlord's agent, " (2) "whether defendant obtained the consent of the building's managing agent, " and (3) "whether the managing agent [of the building] had apparent authority to act for plaintiff." However, as more fully explained below, the record contains no admissible evidence that Samson, plaintiff's agent, ever knew of defendant's subletting before it was advised of the practice in the summer of 2012 - more than a year after the subletting began - by the cooperative corporation's managing agent (which threatened to terminate plaintiff's proprietary lease if the subletting continued). Nor does any admissible evidence give rise to a triable issue as to whether defendant's alleged notice of her subletting to the cooperative corporation's managing agent was "binding" upon plaintiff.

         Defendant's claim that plaintiff had notice of the subletting is based entirely on her contention that, before she listed the apartment with Airbnb, she told an unidentified employee of the cooperative's building manager about the plan, who told her that it would not be a problem as long as she provided the building staff with a completed visitor notification form for each guest [5]. However, any notice defendant provided to the building manager, an agent of the cooperative corporation, is a complete red herring, because her landlord - plaintiff in this action - was not the cooperative corporation but the holder of the proprietary lease for her apartment and the owner of the shares in the cooperative corporation appurtenant to that unit. Neither defendant nor the dissent identifies any admissible evidence that could support an inference that the cooperative corporation's building manager had actual or apparent authority to act for plaintiff or that the building manager (assuming that, as defendant claims, she gave the building manager advance notice of her plan to receive guests through Airbnb) notified plaintiff of the subletting at any time before an attorney for the cooperative corporation sent plaintiff a letter, in June 2012, demanding that the subletting be brought to a halt.

         In assessing defendant's claims that plaintiff somehow had notice of her subletting, it is critical to bear in mind that the record establishes that plaintiff and the cooperative corporation were represented by different property management companies. As previously noted, plaintiff's agent was Samson, the company that signed defendant's renewal lease and sent her correspondence concerning the apartment, and to which defendant made her rent checks payable [6]. The agent for the cooperative corporation, on the other hand, apparently was a company known as Lawrence Properties, as evidenced on a Department of Housing Preservation and Development building registration summary report for 39 Fifth Avenue, dated January 22, 2015, which is part of the record. In addition, Barbara Schmidt, the person listed as the building's managing agent on the visitor advice notification forms that defendant completed for her guests, is identified as an affiliate of Lawrence Properties in the June 2012 letter from the cooperative's counsel to plaintiff demanding the cessation of defendant's subletting [7]. Again, the record is utterly bereft of any basis for treating notice to the cooperative's managing agent as notice to plaintiff, or for deeming the acts of the cooperative's managing agent to have been authorized by, or binding upon, plaintiff.

         While defendant testified at her deposition that "Sampson [sic] Management [plaintiff's agent] knew" about her subletting, this statement by defendant, about the state of mind of a person or persons other than herself, has no foundation whatsoever and therefore does not constitute admissible evidence. Defendant did not testify at her deposition, nor did she state in her affidavit, that she ever notified any employee of Samson, either in writing or orally, of her Airbnb subletting. When asked at her deposition how she believed that Samson came to know of the subletting, defendant referred to the visitor advice notification forms that she had supplied to the building staff. There is no evidence in the record, however, that these forms were transmitted to Samson [8]. Defendant, having failed to notify plaintiff's agent of her plan to book paying guests through Airbnb, cannot use her own unfounded speculation to create a triable issue as to what plaintiff's agent knew about her use of the apartment. Further, there is no evidence that plaintiff had given her any reason to believe that employees of the building's managing agent were also plaintiff's agents. [9]

         Contrary to the dissent's view, there is no issue as to whether defendant "has cured or can cure." The decisions of this Court and the Second Department cited in the first paragraph of our discussion establish that, once substantial profiteering has been established, the tenant is subject to eviction without any right to cure, as a matter of law (see also Steele, 53 Misc.3d 150');">53 Misc.3d 150[A], 2016 NY Slip Op 51689[U], *1; Ikezi, 50 Misc.3d 130[A], 2015 NY Slip Op 50124[U], *6; Brookford, 47 Misc.3d at 743-745; 30-40 Assoc. Corp. v Cuervo, 16 Misc.3d 127');">16 Misc.3d 127');">16 Misc.3d 127');">16 Misc.3d 127 [A], 2007 NY Slip Op 51232[U] [App Term, 1st Dept 2007]). As the Appellate Term stated in Continental Towers,

"The integrity of the rent stabilization scheme is obviously undermined if tenants, who themselves are the beneficiaries of regulated rentals, are free to sublease their apartments at market levels and thereby collect the profits which are denied the main landlord.... The tenant was commercializing with the apartment in a manner which defrauded his landlord as well as his subtenant. This practice, which the Rent Stabilization Law was designed to prevent, is not to be condoned by ...

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