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Good Guy Guaranties and Lease Renewals, Extensions, and Modifications

June 1, 2017 - We have finished our submission for the next edition of the New York State Bar Association Commercial Leasing Manual. Below is an excerpt.

VII. LEASE RENEWALS, EXTENSIONS, AND MODIFICATIONS 

The scenario we examine in this section is the following: landlord, tenant, and guarantor have already entered into a lease and a GG Guaranty, respectively. Subsequently the parties agree to another set of terms embodied in either a lease renewal or extension at the expiration of the term, or a lease modification, amending certain rights and obligations of the parties. 

Query: Does the GG Guaranty still bind the guarantor? It depends. 

The Presumption: Courts construe guaranties strictly in favor of private guarantors.  Levine v. Segal, 256 A.D.2d 199, 200 (1st Dept. 1998). If a guaranty is silent as to its effect in light of a renewal or other subsequent agreement between the landlord and tenant, courts will not extend the guaranty’s enforceability beyond the original agreement. Trump Management Inc. v. Tuberman, 163 Misc.2d 921 (Kings Co. Civ. Ct. 1995) citing Gulf Oil Corp. v Buram Realty Co., 11 N.Y. 2d 223 (1962). 

A. SURVIVAL CLAUSES

One way to ensure that the GG Guaranty still binds the guarantor after a subsequent agreement between the landlord and the tenant is to include a survival clause in the original GG Guaranty. We previewed this clause at the top of the course when we covered the anatomy of a GG Guaranty. The following is sample language for a survival clause in its entirety: 

This Guaranty shall be a continuing Guaranty, and the liability of Guarantor hereunder shall in no way be affected, modified or diminished by reason of (a) any assignment, renewal, modification, amendment or extension of the Lease, or (b) any modification or waiver of or change in any terms, covenants and conditions of the Lease, or (c) any extension of time that may be granted by Landlord to Tenant, (d) any consent, release, indulgence or other action, inaction or omission under or in respect of the Lease, or (e) any dealings or transactions or matter or thing occurring between Landlord and Tenant, or (f) any bankruptcy, insolvency, reorganization, liquidation, arrangement, assignment for the benefit of creditors, receivership, trusteeship or similar proceeding affecting Tenant, whether or not notice thereof or of any thereof is given to Guarantor. 

First, note that this is a harsh example of a survival clause because the guaranty even survives an assignment. From the guarantor’s perspective, it does not want to be on the hook even after a new business (and presumably new principals), have taken over. Guarantor should negotiate that upon assignment, a suitable guarantor of equal or greater financial net worth assume the guaranty and release the original guarantor. 

This survival clause errs on the safe side to say the least. The draftsman of this clause was clearly aware of the situations that can arise which may well defeat a GG Guaranty’s survival clause because its language fails to contemplate the contingency at hand.  

The following cases illustrate how (1) a survival clause can fail to keep the guarantor on the hook, and (2) how changes to material terms of a lease may require a showing that guarantor consented to the changes. 

1. New Agreement

In these cases, the operative fact was that the guaranty’s survival clause did not contemplate the kind of arrangement that the landlord and tenant’s subsequent agreement embodied, i.e. the guaranty was inextricably tied to the original lease and its terms.  

Where a guaranty executed in 2000 stated that it would “remain and continue in full force and effect as to any renewal, change or extension of the Lease,” the language was held not to cover an “extension agreement” between landlord and tenant that, inter alia, (1) specifically referred to the 2000 lease as “expired” and, (2) materially altered the terms of the 2000 lease by increasing rent for the tenant, and thus, increasing the risk for the guarantor without his consent. Lo-Ho LLC v. Batista, 62 A.D.3d 558 (1st Dept. 2009).  

Where a guaranty stated that it would “remain and continue in full force and effect as to any renewal, change or extension of the Lease”, and tenant stayed on as a month-to-month tenant after the expiration of the term, the court held that the guaranty no longer applied, because there hadn’t been a renewal or extension of the lease. 665-75 Eleventh Ave. Realty Corp. v. Schlanger, 265 A.D.2d 270 (1st Dept. 1999).  

2. Material Terms of the Original Lease Have Changed

A creditor (landlord) and debtor (tenant) cannot materially alter the terms of an agreement that a surety (guarantor) is bound to without the surety’s (guarantor’s) consent.   

Where a modification agreement increased rent, which was a material term, but guarantor could not make a prima facie showing that it did not consent to modification, summary judgment dismissing counts against guarantor was not warranted. Arlona Ltd. Partnership v. The 8th of January Corp., 50 A.D.3d 933 (2nd Dept. 2008); cf. 404 Park Partners, L.P. v. Lerner, 75 A.D.3d 481 (1st Dept. 2010) (reversing trial court’s grant of summary judgment to plaintiff and remanding for trial, where a guarantor did not sign the second guaranty executed with a lease extension and issue of fact remained as to whether he consented).

Where a lease renewal agreement changed a material term of the lease by granting landlord a right to terminate the lease unilaterally, without qualification, in the event of a use violation placed on the premises, the guarantors were discharged of their obligation because they had not consented to the change in their individual capacity. Mangold v. Keip, 177 Misc.2d 953 (App. Term. 1st Dept.  1998).

B. WAIVER OF NOTICE OR RATIFICATION

There are two ways to avoid the issue of showing that a guarantor consented to a “material” change in a lease modification, renewal, or extension. 

1. Guarantor Waives Notice

Where the original guaranty includes a provision in which guarantor expressly waives his right to receive notice of changes to the lease, the guaranty is not extinguished simply because material changes to the lease were made without giving notice to the guarantor. Pamela Equities Corp. v. The Law Suite, L.P., 14 Misc.3d 1217(A) (N.Y. Sup. Ct. 2005). 


2. Ratification of Guaranty

Where guarantors execute a ratification or reaffirmation of the guaranty and acknowledge their assent to any material changes in the terms of the original contract, courts will hold guarantors liable. See e.g., North Hill Funding of New York, LLC v. Maiden & Madison Holdings, LLC, 27 Misc. 3d 1232(A) (N.Y. Sup. Ct. New York County 2010)

EXAMPLE 11 





PRACTICE TIP:  The best practice is to have the guarantor(s) sign a ratification of the guaranty anytime the underlying agreement is in anyway modified, renewed, or extended irrespective of whether you may consider the change to be a “material” term. 

3. Continuing the Guarantor Relationship 

Someone who seemed to be a solid guarantor at the inception of a lease may later fall into insolvency for any number of reasons. E.g. halfway through a five year contract term, if the guarantor faces litigation and is subject to a $1.5 million money judgment that wipes out its assets, obligee will be left holding the bag if the guarantor’s business is the next thing to fold. In that case, you may decide that you will only continue the relationship if the guarantor posts additional security or obtains a letter of credit from a bank.

itkowitz.com


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Why Landlords Lose in Housing Court

On May 3, 2017, Michelle Itkowitz gave a talk at the LandlordsNY Symposium at New World Stages entitled "Why Landlords Lose in Housing Court". This was a good one! 



Long excepts from the material are below. But you really need to click through to the pdf of the materials to see the chart containing the study results


II. MICHELLE’S FOUR-MONTH STUDY OF HOUSING COURT CASES IN NEW YORK CITY

A. Study Assumptions

I read every case that was reported between January 1, 2017 and April 30, 2017 in the following three (3) sources (“the Sources”), which were:

1. Westlaw – in both the “Cases” database and the “Trial Court Orders” database;
2. Vendrome’s “Landlord v. Tenant” Resource; and
3. The New York Law Journal.

I created an Excel spreadsheet (“the Chart”). On the Chart, I noted the following for each case I included in the Study:

1. Date of the case or the report on the case
2. The source of my information
3. Case name and legal citation (where available)
4. The county
5. Whether the case was “won” in Housing Court by:
Landlord
Tenant
Neither; in which case I indicated it was a “draw”
6. Whether I was surprised by the result

I only considered Housing Court cases (residential cases, not commercial); not Supreme Court cases, DHCR cases, Loft Board cases, or cases from any other forum. I only considered residential cases. I only considered cases in the five counties of New York City. There was not one case in any source regarding Richmond County. I considered SRO cases and co-op cases in Housing Court.

I excluded consideration of Housing Authority cases. I excluded consideration of cases where tenants were suing sub-tenants.

I only considered matters with final dispositions in Housing Court. If a motion for summary judgment was denied or if discovery was granted for either side, I did not consider the cases. 

I considered both holdovers and nonpayments.

The cases I considered “draws”, i.e. neither landlord not tenant won, were cases where the tenant won on a technicality and the court concluded its decision with a strong suggestion to the landlord on how to re-file the case properly. There were only two such cases.

B. Primary Source Material

I have created one large pdf with copies of all the cases and/or case synopsis I considered. I do not believe that I am allowed to re-publish material from any of these Sources, because it is not my intellectual property. I will, however, email the pdf of the data to anyone who asks for it.

C. Study Results

The chart is available on the last four pages of this booklet. The results surprised me.

The Chart includes 71 cases.
Tenant won 63 of the 71 cases (89% of the time).
Landlord won 6 of the 71 cases (6% of the time).
There were 2 “draws” (3%).

The boroughs broke down as follows:

Bronx  - 26
Kings – 23
Queens – 15
New York - 15

D. Study Flaws

I do not know how the Sources compile cases. The results of the Study so strongly favor tenants that I have to wonder if there is some reason that tenant victories are more widely reported than landlord victories.

In discussing this project with colleagues, someone suggested that “winning” landlord cases settle more. I am unsure why this would be true. I welcome hearing other people’s theories.

Moreover, if a reader has a decision from this time period that was not reported in the Sources used and would like to contribute it to the Study, I would be glad to include it. 

There is an average of 258,540 new landlord and tenant cases filed in the New York City Civil Court every year. [1]  I looked at a four-month period, one-third of a year. If these 71 cases are all the written decisions in that period, that means that only .082% of all cases result in written decisions. If you sit in a Housing Part on any given morning and observe how many cases are quickly settled, perhaps that figure is not incorrect. But as of this writing, I have no way to know. It seems low to me. 

III. WHY DO LANDLORDS LOSE SO FREQUENTLY IN HOUSING COURT?

This section is purely the author’s opinion. There is nothing scientific in this section. If you do not care to hear my opinion, then just skip to the next section.

Over twenty years ago, when I started in this profession, I had a boss who used to bring in Housing Court cases to his small Court Street law firm. He would tell every landlord-client what a great case they had, that the case was a “slam dunk”[2], that he would kick the tenant’s butt. Then I would be assigned the actual work. I would invariably find that the case was not a “slam dunk”  and I would often soon discover that the case was a loser. I asked my boss, “Why do you tell landlords that their case has a higher chance of winning than it obviously does?” This was his answer, “If you do not tell these landlords what they want to hear, then there are 100 other guys on this very block who will and they will get the work, not us.” Right up through today, I have heard associates of landlord-oriented law firms with this same complaint. 

I decided that when I created my own law firm [3] that I would do nothing short of tell prospective-landlord-clients the truth. I have done exactly that. It has not been easy. For one thing, I am a woman in a male-dominated field. When I started giving landlords bad news about the likelihood of Housing Court litigation achieving their goals, certain people openly questioned whether I was “aggressive” enough because of my gender. 

But I kept telling the truth. And it seems to have paid off. 

I don’t lose a lot. Why? I get asked a lot – what is my secret sauce for great results in Housing Court? Am I smarter than other lawyers? NOPE. Do I have a larger team? NOPE. Did I go to an Ivy League School and receive honors? NOPE and NOPE. Do I work harder than other people? (Probably!) But NOPE. Do I have some insider influence? G-d forbid NOPE! There is NOTHING special about me. So, wait for it…

I win more because I refuse to file losing cases, which means I don’t actually file many cases. There it is, now you know.

I am a small firm and I am my own boss, so I simply refuse to file a case if I don’t feel more than 75% sure that I can win. I will not file a case I think is a loser. NO matter who the client or prospective client is, no matter how much of a legal fee I am passing up.

A fellow landlord-and-tenant attorney (not part of my firm) asked me to take a look at a case for him recently. He asked me, “How can I win this, Michelle?” I replied, “You can’t. It’s a loser.” He asked me, “Well how would you win it?” And I said, “I wouldn’t win it, which is why I wouldn’t file it.” And he literally said this to me, “What kind of lawyer are you? GOOD lawyering is about fighting losing battles.” No…it isn’t. Good lawyering, in this author’s humble opinion, is largely about good ANALYSIS. Why would anyone ever willingly choose to spend money on legal fees and time and energy on a litigation to lose? 

You can’t make this stuff up. Last week I had a settlement – a good settlement – on a case where Legal Aid represented a tenant association[4] . My client had worked hard on the settlement, as did Legal Aid. We had consensus and were ready to sign and begin a new chapter in the building’s history. On the eve of settlement, I got an email from a previously-silent partner in Tennessee, that said the following:

"This settlement agreement is ridiculous. You are giving away the store. I am a lawyer, barred in Tennessee. You need to explain to me why we should enter into this terrible stipulation. If you cannot adequately explain this, I want you to immediately begin a nonpayment case against every tenant in the building. I demand an explanation as to why you think we should waive all this rent."

Yawn. If I had a dime for every email I received like that, then I’d be a rich woman. But I digress… There was a time in my career when I would have felt defensive upon receiving such a missive. Those days, fortunately, are behind me. Instead, this is how I answered:

"Here is your explanation. This isn’t Tennessee…It’s Brooklyn."

"I have adequately and repeatedly explained my reasoning for strongly recommending this settlement in the series of Legal Project Management letters that have formed the Project Charter for this matter. I attach them hereto and refer you to them."

"If, after reviewing that material, you, as a lawyer and a business person, feel that my representation is inadequate - that I am too weak, not clever enough, that there is more to the story – then I urge you to shop around and seek other counsel. This is a critical juncture in this matter. If you really want to go to war with this building, then you need to do so with a lawyer that you trust. That does not seem to be me."

"In any event, I am not willing to initiate these eight cases on your behalf. Those eight cases will be what I call, and I chose my words carefully, “bullshit losing cases”. I do not file bullshit losing cases. There are ethical reasons for me refusing to file bullshit losing cases. There are branding reasons for me refusing to do so. When judges, adversaries, and clients see me coming, I want them to think of me as the woman who wins. There are economic reasons for my aversion to the bullshit losing cases, as well. Clients who are gung-ho in the beginning about bullshit losing cases, tire of paying legal fees as the months turn into years and results are not achieved. Let some other lawyer lose these cases for you. I prefer to exit on an up-note!"

"Let me know what you want to do. But if you are moving into a litigation posture on this matter, I can travel no farther with you on this journey." 

You may recall above that I included a column in the study that I call, “Surprise?” I noted how often a case’s outcome surprised me. Case outcomes in this study surprised me 7% of the time. In other words, I like to think that, given the fact patterns set forth in the 63 losers, that I would not have filed more than 4 or 5 of them, had they come across my desk. But, alas, hindsight is always twenty-twenty.

When you are always in an inferior position, when you spend all day losing, you end up beaten and beleaguered. That goes for landlords and their attorneys. When you stop picking fights you can’t win, you create the space in your business life to arrive at whatever clever, out-of-the-box, and/or mutually beneficial solutions might actually exist. Ryan Holiday, in his book, The Obstacle is the Way, says that “Being trapped is just a position, not a fate. You get out of it by addressing and eliminating each part of that position through small, deliberate actions – not by trying (and failing) to push it away with super human strength.”

The balance of this booklet is filled with the small and deliberate actions, that if taken before initiating a landlord and tenant case, could have either alerted the landlords in the 63 losing cases to the weaknesses of their positions, causing them to stand down, and/or could have helped them to ameliorate those problems before going to court with a losing case. In short, Landlords need to educate themselves and be far more discerning and proactive in the Housing Court space. 

Endnotes
[1]  http://www.courts.state.ny.us/COURTS/nyc/civil/statistics.shtml
[2] There is no such thing.
[3] Itkowitz PLLC is MY law firm, I am the 95% owner.
[4] Irrelevant details changed to protect the innocent!

[END OF MATERIALS EXCERPT]

Here is a picture of us at the Symposium!





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Cameras in Landlord and Tenant Cases - Michelle's L&T CLE for Lorman

On April 25, 2017, Michelle Itkowitz taught a continuing legal education class for Lorman Education Services entitled, "Fundamentals of New York Landlord and Tenant Law". Michelle loves working with Lorman, she taught her first CLE ever for then, almost 20 years ago, back when you had to do CLE live at the Javits Center. We have all come a long way since then!

Below is an excerpt of the materials from the program. Michelle wrote a whole new section on cameras in landlord and tenant cases.


VII. CAMERAS

A. Why cameras?

There are certain cases that I refuse to bring on behalf of a landlord-client if the client has not properly installed cameras outside of the subject apartment. These include: 

non-primary residence cases
illegal sublet cases
illegal short-term sublet cases (like Airbnb)
succession rights cases, and 
many types of nuisance cases.

Such cases are almost un-winnable without a camera. 

Let us consider a non-primary residence case, for example. In the Rent Stabilized context, a tenant must reside in his or her apartment as his or her primary residence. Therefore, the first thing that a landlord needs to prove in a non-primary residence case is that the tenant is NOT there. How could a landlord prove that the tenant is not there? The following is a sample colloquy between a lawyer and a landlord-client on this topic.

Landlord:  The tenant in B5 no longer lives in the apartment as his primary residence. 
Lawyer:  How do you know that tenant does not live in the subject apartment anymore?
Landlord:  Because he isn’t there.
Lawyer:  I heard you say that already. But how do you know? What is the source of your knowledge?
Landlord:  The super.
Lawyer:  The super lives on the same floor as the tenant and is home all day long?
Landlord:  No the super doesn’t live on tenant’s floor and he is obviously out and about all day.
Lawyer:  The super lives in the building at least?
Landlord:  No, the super lives in another building.
Lawyer:  OK, so the super attends to only the tenant’s building?
Landlord:  No, the super cares for ten buildings, tenant’s building is one of the ten.
Lawyer:  So, if the super works 40 hours per week, and tenant’s building is one of ten, at best he or she spends about 4 hours per week in tenant’s building?
Landlord:  I don’t know; maybe more.
Lawyer:  So what is the super (who is already a biased witness because he is testifying on behalf of his employer) going to testify to, that in the four hours per week that he is in the building he never sees tenant around?
Landlord:  Something like that, I guess.
Lawyer:  Then you lose. Because tenant will come in and testify that she lives in the apartment, and you have not done anything significant to discredit her.
Landlord:  Well a private investigator got me a printout that shows that someone with the same name as tenant owns a house in the Catskill Mountains.
Lawyer:  What name is that?
Landlord:  “John Smith”.
Lawyer:  That is a very common name. Does anything else in the report connect tenant to that address?
Landlord:  No.
Lawyer:  Even if Tenant John Smith of Apt. B5 does own that house in the Catskill Mountains, what are you going to do when Smith says this is just a summer home he only goes to occasionally and he rents it out to others for investment purposes? 
Landlord:  Well, I just know tenant doesn’t live there. I just know it.
Lawyer:  Does the super ever see anyone else coming and going from the subject apartment?
Landlord:  No.
Lawyer:  Has the tenant had any repairs done in the apartment recently?
Landlord: 18 months ago he complained of a leak and we went in and fixed it.
Lawyer:  Well that suggests to me that tenant lives there. 
Landlord:  I just know tenant doesn’t live there. I just know it.
Lawyer:  Your psychic knowledge or strong hunch is NOT admissible evidence. You need ADMISSIBLE PROOF in a court.

A picture (or a video) is worth a thousand words, or a thousand guesses and speculations.

Cameras are cheaper than legal fees. If a landlord is not willing to pay for cameras, he is not going to be willing to pay legal fees for a protracted trial that landlord is likely to lose. 

B. How to do cameras correctly.

Cameras should be set up by a professional licensed private investigations and/or security firm. The more experience the company has with this type of work, the better. 

First, the camera must be set up so that it does NOT look into the tenant’s apartment when the door is opened, thus invading tenant’s privacy. See more about that below.

The camera must be set up so that it gets a clear view of the subject apartment, but not so that multiple apartments are under surveillance, because then there will be a lot of unnecessary footage to review.

The camera should be motion activated; otherwise, it will be difficult to review all the footage.

Landlord’s counsel needs to work closely with the surveillance camera technologists to streamline both the technical and legal process involved with utilizing cameras, or the evidence obtained from the cameras might not be admissible. A videotape must be “authenticated” before it can be used as evidence in a court proceeding. Testimony from someone who has knowledge of the circumstances and who actually reviewed the footage is usually sufficient.   

I strongly prefer that the same person:

install the camera;
maintain the camera (i.e. changes its batteries);
retrieves the data card from the camera and take it to where it will be stored;
superintend the storage system;
review the footage; and 
produces a detailed log of what each incident reveals. 

This person is your witness in court!

Landlord’s counsel can see why attending to the details of this type of thing BEFORE a case gets started is vital to bringing a healthy case. Tenant’s counsel can also see how useful it is when landlord’s counsel leaves this important evidentiary work unattended to until trial. 

C. Cameras Legality

Courts in New York have ruled that tenants have an expectation of privacy inside their apartment behind the closed entry door. Otero v. Houston Street Owners Corp., 2012 WL 692037 (Sup. Ct. NY. Co.); see also People v. Mercado, 68 N.Y.2d 874 (1986) (“Once the door is closed, an individual is entitled to assume that while inside he or she will not be viewed by others”).

On the other hand, New York courts have found that residents in multi-family buildings lack a reasonable expectation of privacy in the building’s common areas, such as lobbies, stairwells and hallways because it is accessible to other persons.  People v. Funches, 89 N.Y.2d 1005, 1007 (1997). 


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Preventing Airbnb and Other Illegal Short-Term Subleasing in Co-ops -- a Panel for Argo University of Boards

On February 21, 2017, Michelle Maratto Itkowitz was proud to be on a panel with leading industry experts in the NYC Co-Op space at "Argo University for Boards", a unique training program created by Argo Management to bring high quality content and learning to NYC Co-Op leadership on the topics that matter most to them.

The panel was on Preventing Airbnb and Other Short-Term Illegal Subleasing in Co-ops.  
Click here to watch a preview of this panel.  

Michelle updated her materials, entitled "Short-term Illegal Sublets in NYC Apartments - Prevention, Detection, and Remedies", to add mention of a few new cases, such as PWV Acquisition v. Poole, 2017 WL 550196 (Sup. Ct. NY Cty. 2017).  Here, the special referee found that, in 2014, the tenant made $32,603 in income from Airbnb-ing her Rent Stabilized apartment.  Her rent was $12,511.32 that year.  The court found profiteering!  The interesting twist in Pooole was that tenant tried to mount this defense – had I known that I would lose my Rent Stabilized apartment over this, I would not have done it.  The court said that this didn’t make a difference, and the tenant was evicted.  

Moreover, a decision recently came down in the Steele case, which was on appeal.  Landlord sued to evict a Rent Stabilized tenant for unlawful subletting of her apartment and profiteering. The court ruled for landlord. Tenant appealed and lost. At trial, landlord showed that tenant: (1) listed the apartment on the Airbnb website at a nightly rate starting at $215 plus other charges; (2) provided linens, towels, wifi, TV, and housekeeping service; (3) had rented the apartment at least 120 nights in a 14-month period, with groups as large as seven adults staying up to 10 days and paying $375 per night; and (4) had reported Airbnb rental income on tax returns for 2009 and 2010 while deducting apartment expenses against that income. The trial court properly found that tenant’s conduct constituted subletting, profiteering, and commercialization of the premises. This was an incurable violation of the Rent Stabilization Law.  335-7 LLC v. Steele 53 Misc.3d 150(A), 2016 NY Slip Op 51689(U) (App. T. 1 Dept.; 11/29/16) LVT Number: #27371.

The short-term illegal sublet area continues to evolved so stay tuned!


Michelle Itkowitz, Julie Zuraw, Tarshia Champagne, Lindsay Garroway

itkowitz.com

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Owner’s Use Proceedings – MICHELLE’S MONDAY MANDAMUS!

January 30, 2017:  This Q&A post originally appeared on the LandlordsNY blog, where Michelle Maratto Itkowitz is the "Legal Expert".

Hi, Michelle here.  I am the LandlordsNY “Legal Expert”.  My goal is to post in the blog all of the questions I get from LandlordsNY members (keeping the member anonymous) and my answers thereto, when I think that such questions and answers would be of interest to other people.  Let me know if this is helpful.  These questions are excellent, keep them coming.

Question:  “I own a multifamily building. My apartments are Rent Stabilized. The building is owned by a limited liability company where I am the sole member.  I would like to give one of those apartments to my son. It is my understanding that an owner of a building can vacate a stabilized apartment if the tenant is under 62. It is also my understanding that an apartment cannot be vacated if the building is owned by an LLC because of multiple names under the corporation.  If I am the only shareholder of the LLC, can I take possession of an apartment?  If not, do I have any other options?

Answer:

In New York City, an individual owner of a building may recover one or more Rent Stabilized units for his own use of that of his family.  New York City Administrative Code § 26-511(c)(9)(b); 9 NYCRR § 2524.4(a)(3).  Note that this procedure cannot be utilized if a building is owned by a corporation or a limited liability company.  THIS PROCEDURE CAN ONLY BE UTILIZED IF THE BUILDING IS OWNED BY AN INDIVIDUAL.  You will need to transfer the building into your own name.  Speak to your transactional lawyer and your insurance agent about this. 

In order to recover a unit for owner’s use, the landlord must demonstrate a “good faith” intention to occupy the apartment for personal or familial use.   New York City regulations further require that the unit constitute the owner’s or the immediate family member’s “primary residence in the City of New York.” 

Understand that the Court WILL very likely grant tenant a deposition of you and your son.  If your son is married, his spouse’s deposition will also be ordered.  Your son and his spouse will have to testify, under oath, at a deposition and at trial, that they want to live in the apartment.  They will also have to produce many paper records to back up their story.  For example, if your son claims he wants to live in the apartment because it is closer to his college, he will have to produce records proving he is enrolled at the college. 

“Disclosure is routinely granted in owner’s use cases...”  Smilow v. Ulrich 11 Misc.3d 179, 182 (NY Cty. Civ. Ct. 2005).  Courts have upheld the depositions of non-party witnesses.  See 65 Central Park West, Inc. v. Greenwald, 127 Misc.2d 547, 551 (N.Y.Co. 1985) (tenant’s doctor deposed).

In other words – you absolutely CANNOT play around with this stuff.  If you are asserting owner’s use you better be able to back it up.  If your son owns and lives in an 8,000 s.f. mansion in Great Neck with his three kids, then it will be hard to convince the court that he wants a Rent Stabilized apartment if the unit is a studio.  Moreover, you, your son, his spouse, etc. need to testify consistently with one another

Some very brief examples follow, and are included to demonstrate how very fact specific these cases are. 

·         Pennella v. Joy, 79 A.D.2d 606, (2d Dep’t 1980) (Landlord did not prove good faith intent when there were five other empty apartments in six-unit building.)

·         Horsford v. Bacott, 5 Misc. 3d 132(A), (App. Term 2004) aff’d, 32 A.D.3d 310, (1st Dep’t 2006) (“A finding of a lack of good faith is not mandated by either the claimed availability of another apartment in the building or any prior discord between the parties.”)

·         Gussow v. Hornblower, 4 Misc. 3d 131(A), (App. Term 1st dept. 2004) (“A finding of lack of good faith is not mandated by either the claimed availability of the apartment or any prior discord between the parties. Nor is it fatal to the landlord’s otherwise persuasive owner use claim that at the time of trial her daughter-in-law was not actively pursuing her stated plan to attend business school—one of the factors specified in the underlying notice of nonrenewal in support of the landlord’s possessory claim. ‘Absolute synchronicity’ between the trial evidence and the allegations set out in a predicate notice is not required.”)

·         Raffo v. McIntosh, 3 Misc. 3d 127(A), (App. Term 1st dept. 2004) (”Landlord’s claim that a second bedroom in tenants’ apartment is required to provide for a ‘live-in’ caretaker for the parents was negated by evidence that a back room in the parents’ own apartment—of the same or larger dimension—is equally suitable or adaptable for that purpose.”)

·         Matter of Bath, DHCR Admin. Rev. Dckt. No. JK910174RT (5/30/96) (Landlord demonstrated requisite immediate and compelling necessity and good faith when landlord’s 21-year-old son slept on pull-out bed in landlord’s dining room, was in the process of starting his own business, and only tenant’s apartment had expiring lease with rent that the son could afford.)

You CAN do an owner’s use proceeding if the tenant is over 62.  But unless the tenant is offered “equivalent or superior housing at the same or lower stabilized rent in a closely proximate area,” a landlord may not recover a unit for owner occupancy when the New York City Rent Stabilized tenant or the tenant’s spouse: is 62 years of age or older or suffers from an anatomical, physiological, or psychological impairment.  New York City Administrative Code § 26-511(c)(9)(b); 9 NYCRR § 2524.4(a)(2).  There is no owner-occupancy exemption for New York City Rent Stabilized tenants on the basis of long-term occupancy.

What landlords do sometimes to get these cases settled is they buy a co-op apartment in the neighborhood of the building and move the tenant, who is 62 or older, in to the co-op.  The co-op is an investment which may well appreciate.  Landlord has to be careful, however, of board requirements and sublet policies in the co-op. 

For purposes of owner occupancy, an "anatomical, physiological, or psychological impairment" is defined as an impairment, other than addiction to alcohol, gambling, or controlled substances, demonstrable by standard diagnostic techniques and which is expected to be permanent and to prevent the tenant from engaging in substantial, gainful employment.  New York City Administrative Code § 26-408(b)(1); 9 NYCRR § 2523.5(b)(4). 

Once you win the case and your son moves in, he must stay there for three years, or else you can be penalized.  If an owner refuses to renew a tenant’s lease pursuant to RSC 2524.4(a), for occupancy by owner or owner’s family, and if owner fails to utilize the housing accommodation for the purpose intended after the tenant vacates or to continue in occupancy for a period of three years, then penalties are imposed upon landlord pursuant to RSC 2524.4(a)(5). 

Moreover, when your son leaves, the apartment will return to Rent Stabilization.  Owner’s Use is only a temporary exemption.  You still have to registered the apartment at DHCR while your son lives there as “temporarily exempt”. 



Thank you for this question.  Finally, I am obligated to say that this answer is for general informational purposes only, does not constitute legal advice, and does not create an attorney and client relationship between us or between you and LandlordsNY. 

Let me know if you need anything else.

Michelle Maratto Itkowitz
Itkowitz PLLC
26 Broadway, 21st Floor
New York, New York 10004
(646) 822-1805


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