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West v. B.C.R.E.-90 West Street, LLC

Supreme Court, New York County

July 19, 2017

William T. West, ELISA BEAGLEY, VERED BEHR, MATTHEW BRADSHAW, BRIDGET CASTER, FREDERICK A. CUCCINIELLO, JOHN FURSTE and SARAH FURSTE, JAMES HARRINGTON and MELISSA HARRINGTON, HIROKO MATSUMOTO, GREGORY MONTAGNA, CHRISTIAN NIELSEN, CHISARAM NKEMERE and CLAIRE SCHLISSEL, PRESTON B. PRICE and ROBERTO DI CUIA, NICHOLAS ORAM, MATTHEW D. ORGERA, MOHAMMED SHARAF, JARED TRUCO and SARAH VOIGT, REGGIE UDUHIRI and APRIL UDUHIRI, RENEE WILLIAMS and MARK WILLIAMS, and KATY YANG and MAI LI, JULIE D'ANCONA, SUNITA DESHRANDE, ADRIENNE EKERN, LIUDMILA FILATOVA, SHEA HOUGLAND, JUAN C. MEALLA and MARIA MEALLA, JEANNE MOORE, GAVIN ROBERT SWEITZER, KETAN VAKIL and ELIZABETH VAKIL, DONNA VALENCIA and MICHELE ORLANDO, NANCY WALL, NORMAN YU and MARK ZAGUSKIN, LUKE O'DOWD, JENNIFER WU, and PETRA KASS, Plaintiffs,
v.
B.C.R.E. - 90 West Street, LLC and LEE ROSEN, Defendants.

          For Plaintiffs: SERGE JOSEPH HIMMELSTEIN, MCCONNELL, GRIBBEN, DONOGHUE & JOSEPH LLP, By: Serge Joseph, Esq.

          For Defendants: JOSEPH P BURDEN, BELKIN BURDEN WENIG & GOLDMAN LLP, By: Joseph P. Burden, Esq.

          Robert R. Reed, J.

         This action concerns the question of whether the provisions of the Rent Stabilization Law governing high rent deregulation apply to apartments which are rent stabilized as a result of the property owner's receipt of tax benefits, pursuant to section 421-g of the Real Property Tax Law (RPTL), and/or low interest mortgage loans, pursuant to the Private Housing Finance Law (PHFL).

         Defendants B.C.R.E - 90 West Street, LLC (B.C.R.E., or the Owner) and Lee Rosen move, pursuant to CPLR 3212, for an order (1) granting defendants summary judgment in their favor on: a) plaintiffs' first, second, third, fourth, fifth and sixth causes of action; b) defendants' first counterclaim declaring that plaintiffs' apartments are deregulated and not subject to rent regulation; c) defendants' second counterclaim and awarding them a money judgment against plaintiffs for attorneys' fees in an amount to be determined by the court; and (2) granting defendant Lee Rosen (Rosen) summary judgment and dismissing the case against him.

         Plaintiffs William T. West (West), et al., cross-move, pursuant to CPLR 3212, for an order: a) granting them partial summary judgment and declaring that their apartments are subject to rent stabilization, that plaintiffs are rent stabilized tenants of their apartments, and that the rents charged for their apartments since the commencement of their tenancies have been and continue to be unlawful; and b) ordering a prompt trial to determine the amount of rent overcharges and other damages, preceded by discovery, if the court deems it necessary.

         Letitia James, the Public Advocate for the City of New York; New York State Senators Daniel L. Squadron, Tony Avella, Martin Malave Dilan, Adriano Espaillat, Jesse Hamilton, Brad Hoylman, Liz Krueger, Kevin S. Parker, Jose Peralta, Bill Perkins, Gustavo Rivera and James Sanders, Jr.; Assemblymembers Deborah J. Glick, Richard N. Gottfried, Rodneyse Bichotte, Marcos Crespo, Pamela Harris, Walter T. Mosley, N. Nick Perry, Diana C. Richardson, Annette Robinson, Linda B. Rosenthal, Rebecca A. Seawright, and Latrice Walker; and New York City Councilmembers Inez Barron, Margaret Chin, Robert Cornegy, Daniel Dromm, Daniel R. Garodnick, Vanessa L. Gibson, Ben Kallos, Annabel Palma, Antonio Reynoso, Ydanis Rodriguez, Deborah Rose, Helen Rosenthal, and Jumaane D. Williams submit a brief amicus curiae in opposition to defendants' motion for summary judgment.

         Plaintiffs are tenants in a 24-story building located at 90 West Street, New York, New York, which is owned by B.C.R.E. and managed by Rosen. The complaint alleges that, in March 2005, the building was converted from commercial to residential use and reopened for occupancy. The complaint further alleges that, in or around March 2005, the Owner applied for and obtained tax benefits for the building under RPTL § 421-g, and, in or about February 2006, secured a low interest mortgage, pursuant to Article XII of the PHFL, offered by the Housing Development Corporation (HDC).

         Plaintiffs assert six causes of action for: 1) a declaration that their apartments are subject to the Rent Stabilization Law and a determination of the amount of legal regulated rent for their respective apartments; 2) a declaration that any leases for subsequent terms offered to plaintiffs are invalid unless they are on forms prescribed by the New York State Division of Housing and Community Renewal (DHCR) and the Rent Stabilization Law; 3) an injunction prohibiting defendants from seeking to terminate or otherwise interfere with plaintiffs' tenancies based upon the expiration of their current leases; 4) an award for rent overcharges, interest, and penalties in relation to such overcharges; 5) injunctive relief pursuant to General Business Law § 349 (h); and 6) attorneys' fees.

         REAL PROPERTY TAX LAW

         In order to encourage private investment for the purpose of revitalizing Lower Manhattan, in 1995, the New York State Legislature enacted RPTL § 421-g, which provides tax abatements and other benefits for residential conversion and redevelopment of obsolete commercial buildings in the area. Section 421-g requires that, in return for the receipt of tax benefits, apartments in buildings receiving the benefits be governed by the Rent Stabilization Law. Section 421-g states, as follows:

"[n]otwithstanding the provisions of any local law for the stabilization of rents in multiple dwellings or the emergency tenant protection act of nineteen seventy-four, the rents of each dwelling unit in an eligible multiple dwelling shall be fully subject to control under such local law, unless exempt under such local law from control by reason of the cooperative or condominium status of the dwelling unit, for the entire period for which the eligible multiple dwelling is receiving benefits pursuant to this section...."

RPTL § 421-g (6). The statute further provides that, after the benefits received by the owner have terminated,

"such rents that would not have been subject to such control but for this subdivision, shall be decontrolled if the landlord has included in each lease and renewal thereof for such unit for the tenant in residence at the time of such decontrol a notice in at least twelve point type informing such tenant that the unit shall become subject to such decontrol upon the expiration of benefits pursuant to this section."

Id.

         At the time plaintiffs entered into their respective leases, none of plaintiffs' apartments were, or are now, being treated as rent stabilized apartments by the Owner, and none of plaintiffs' leases contain a rider or notice pursuant to RPTL §421-g. Plaintiffs contend that, pursuant to both RPTL § 421-g and PHFL § 654-d, their apartments should be treated as rent stabilized by the Owner.

         The Owner argues, however, that in stating that "the rents of each dwelling unit in an eligible multiple dwelling shall be fully subject to control under such local law, " the legislature intended that the apartments would be subject to all provisions of the Rent Stabilization Law. According to the Owner, such provisions include the provisions for high rent deregulation, which, at the time that the Owner bought and converted the building for residential use, provided that vacant apartments with a rent above $2000 would not be subject to rent stabilization. See Administrative Code of the City of NY (Administrative Code) § 26-504.2; Rent Stabilization Code, 9 NYCRR § 2520.11 (r)(4). Defendants further contend that the language regarding the exception in section 421-g, which states that the apartment "shall be fully subject to control under such local law, unless exempt under such local law from control by reason of the cooperative or condominium status of the dwelling unit" (emphasis added), was used purely for clarification, and was not meant to exclude other bases for deregulation, such as luxury deregulation.

         In support of their contention, defendants note that two other provisions of the RPTL (sections 421-a and 489), which link rent stabilization protections for apartments covered by tax benefits under those statutes, contain the same "notwithstanding" and "exempt" language. Defendants contend, however, that the only reason that high rent deregulation does not apply to section 421-a and 489 tax benefits is that such deregulation is expressly prohibited by Rent Stabilization Code § 26-504.2 (a), which states that the high rent deregulation provision does not apply to housing accommodations that become subject to rent stabilization pursuant to RPTL § 421-a or 489. Defendants contend that because Rent Stabilization Code § 26-504.2 does not mention section 421-g, the provision at issue here, high rent deregulation applies to housing receiving section 421-g tax benefits. Although recognizing that when Rent Stabilization Code § 26-504.2 (a) was added to the Code, section 421-g had not yet been enacted, defendants contend that the Legislature could have added section 421-g at a later date, when other provisions were added to the Rent Stabilization Code, but did not do so. Defendants quote the court in Brusco v Armstrong (191 Misc.2d 272, 274 [App Term, 1st Dept 2001]) for the proposition that, "[w]hen the Legislature has specified the cases to which its enactment shall apply, and has failed to specify other particular cases, it is fair to conclude that the exclusion was intended." However, as the Court of Appeals stated in Roberts v Tishman Speyer Props., L.P. (13 N.Y.3d 270, 287 [2009][internal quotation marks and citations omitted]), "[l]egislative inactivity is inherently ambiguous and affords the most dubious foundation for drawing positive inferences."

         As Justice Edmead recently stated in holding that high rent deregulation does not apply to buildings receiving section 421-g benefits, defendants' argument

"is untenable, because, if adopted it would render the introductory '[n]otwithstanding' phrase, which defendant ignores, superfluous. That phrase clearly refers to provisions in the [Rent Stabilization Law] and the Emergency Tenant Protection Act of 1974, such as the high rent and high income decontrol provisions enacted in the Rent Regulation Reform Act of 1993 (RSL § 26-504.3), that are contrary to the regulation of rent."

Kuzmich v 50 Murray St. Acquisition LLC, 2017 NY Slip Op 31416(U), *3 (Sup Ct, NY County, July 3, 2017).

         Defendants further contend that the difference in the legislative treatment of the tax abatement under sections 421-a, 421-g, and the J-51 program creates an ambiguity, justifying the reliance on legislative history to clarify the intent of the Legislature in its drafting of section 421-g. Defendants argue that the legislative history establishes that the Legislature intended that high rent deregulation would apply to buildings receiving section 421-g benefits. They rely particularly on a letter from then Mayor Rudolph Giuliani, dated August 16, 1995, read into the record by Senator Leibell, and the response of Senator Joseph Bruno, dated August 31, 1995. The Giuliani letter states, in pertinent part:

"The City's intention has always been that dwelling units in property receiving benefits under the residential conversion program (bill section 14) and the mixed-use program (bill section 15) would be subject to rent stabilization to the same extent as, but to no greater extent than, other rent regulated property. Any provision of law that generally exempts any housing accommodation from rent stabilization would apply as well to dwelling units in property receiving benefits under the aforementioned programs. Thus, the provisions of the Rent Regulation Reform Act of 1993 that provide for the exclusion of high rent accommodation and for high income rent decontrol would apply to property receiving benefits under the programs created by the Lower Manhattan legislation. Any future amendments to the rent stabilization law would also apply to these properties.
"The City agencies responsible for administering the residential conversion and mixed-use programs will promulgate rules that reflect our intention to apply the rent stabilization law as a whole, including any provisions that exempt housing accommodations from rent ...

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