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Taylor v. 72A Realty Associates, L.P.

Supreme Court of New York, First Department

May 25, 2017

James Taylor, et al., Plaintiffs-Respondents,
72A Realty Associates, L.P., et al., Defendants-Appellants.

         Defendants appeal from the order of the Supreme Court, New York County (Jennifer G. Schecter, J.), entered January 29, 2016, which, to the extent appealed from, denied their motion for summary judgment insofar as it sought dismissal of the complaint as against the Owner, and granted plaintiffs' cross motion for summary judgment declaring that apartment 5M is rent-stabilized.

          Joel M. Zinberg, New York, and Murray Shactman, New York, for appellants.

          Law Offices of Sokolski & Zekaria, P.C., New York (Daphna Zekaria of counsel), for respondents.

          Peter Tom, J.P., Rosalyn H. Richter, Judith J. Gische, Ellen Gesmer, JJ.


          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 program [1] (see Administrative Code § 11-243). There can be little dispute that following Roberts v Tishman Speyer Props., L.P., (13 N.Y.3d 270');">13 N.Y.3d 270 [2009]) and its progeny applying Roberts retroactively (Gersten v 56 7th Ave. LLC, 88 A.D.3d 189, 198 [1st Dept 2011]) the subject apartment must be returned to rent stabilization as of 2000, when the Owner first treated the apartment as exempt. The thornier issues implicated by returning the apartment to rent stabilization concern the setting of the stabilized rent, the base date for, and the statute of limitations applicable to, the setting of such rent, and the possible imposition of treble damages and attorney fees. We agree with Supreme Court that plaintiffs are entitled to a declaration that the apartment was and still is subject to rent stabilization and that they are the rent-stabilized tenants thereof. We also agree with Supreme Court that the issues of the legal rent, as well as the issues of possible overcharge, treble damages and attorneys fees cannot be resolved on a motion for summary judgment. We disagree with Supreme Court only insofar as it held that the increases made to the rent-stabilized rent in 2000, based upon individual apartment improvements (IAIs) before the plaintiffs took occupancy, are subject to challenge on this record.

         Apartment 5M is a two bedroom apartment at 187 East 4th Street in Manhattan. Plaintiff Tamara Jenkins moved into the apartment in February 2000 upon signing a two-year vacancy lease at a monthly rent of $2, 200 [2]. The lease consisted of an altered, standard, printed rent-stabilized lease. The words "RENT STABILIZATION" were crossed out in the heading of the lease as was the entirety of paragraph 32, pertaining to "[r]ent regulations." There was a separate rider that contained the following notice:

"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 appliances, 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 work and new closet shelving. Janet Zinberg, [4] the current managing agent, provided business records she claims were maintained in the Owner's files by her now deceased father, the managing agent at the relevant time. The records include bills, statements and invoices from contractors, service providers and suppliers, either marked paid, or supported by cancelled checks proving payment. Ms. Zinberg contends the records support the Owner's claim that it spent $18, 343.07 in improvements to the apartment before Jenkins moved in.

         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 other increase was based upon an allowable percentage of the cost of IAIs made to the vacant apartment (Rent Stabilization Law of 1969 [Administrative Code] [RSL] § 26-511[c][13]; Rent Stabilization Code [9 NYCRR] [RSC] § 2522.4[a][1]). In this case 1/40th of the improvements, or the sum of $458.58, was added on to the registered rent ($1, 464). The two increases, taken together, increased the rent to $2, 215.38 per month.

         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 (RSL § 26-504.2[a]). Despite the building's enrollment in the J-51 tax abatement program in 2000, the Owner believed it could rely on the luxury decontrol laws to return the apartment to the free market. This was consistent with DHCR's interpretation of the relevant laws and regulations at that time (Roberts, 13 N.Y.3d at 281). The Owner's belief that it could rely on the luxury decontrol laws while simultaneously receiving J-51 benefits, however, proved to be erroneous for the reasons articulated in Roberts (13 N.Y.3d at 286).

         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 based upon luxury decontrol. At or about the time Jenkins accepted the first lease, the Owner filed a rent registration form (an RR-2A) with DHCR, stating that apartment 5M was permanently exempt from annual rent registration due to "[h]igh [r]ent [v]acancy." The Owner's records show that a copy of this filing was mailed to Jenkins in August 2001. Jenkins did not challenge the rent increases at that time.

         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 (RSC § 2523.5[a]). Plaintiffs signed a two-year renewal lease at a rent of $4, 076.18 per month. On March 24, 2014, shortly after plaintiffs commenced this action, the Owner first filed annual rent registrations for years 2009 through 2013. Each of these filings lists a "legal regulated rent" that is higher than what the Owner charged under plaintiffs' renewal leases and the ...

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