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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.  We will update this post when the full video of the event is up.    

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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Deciding Who Should Sign the Lease and Who Should Sign the Guaranty – MICHELLE’S MONDAY MANDAMUS!

January 9, 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:  “Is it legally sufficient to have a guarantor sign a guaranty form only, or is it more binding to have them co-sign on the lease agreement as well?

Answer:  You are mixing apples and oranges.  A lease and a guaranty are two very separate legal documents, with different purposes.  The lease governs the relationship between landlord and tenant.  The guaranty is just that, a guaranty of payment, most usually by a third party -- an extra person, who is not going to live in the apartment but who is on the hook legally for paying the rent if the tenant does not.  The simple answer to your question, therefore, is that having a guarantor also sign the lease doesn’t make the guaranty a better guaranty.  In fact…the irony is that if the guarantor signs the lease personally, then you don’t even need a guaranty because then the guarantor is on the hook personally via the lease – which is the whole purpose of a guaranty!  That may be the direct answer to your question, but next I will ask and answer the question I think you are really asking, or really should be asking. 

Typically, the tenant signs the lease and the guarantor signs the guaranty.  What does this mean for you, as landlord? 

In that case, if the tenant does not pay, then you can sue the guarantor for the money.  You cannot, however, sue the guarantor in Housing Court as part of the summary nonpayment proceeding against the tenant.  You need to sue the guarantor separately in a regular lawsuit.  This is more of a hassle.  A lawsuit against a guarantor in regular court takes more time and costs more money than a Housing Court matter. 

If the guarantor is also a tenant, then you can sue the tenant in Housing Court.  If there is more than one tenant and the lease is properly drawn, then the tenants will be jointly and severally liable, and you can sue any of the tenants for all of the rent.  This sounds good right?  Not so fast!  This is where you need to think.  More tenants on a lease might not be what you, as landlord, want.  If this is a Rent Stabilized situation, then you potentially have more Rent Stabilized tenants.  If there are more people on the lease, then there are more people who can take landlord to court for warranty of habitability allegations. 

You must think about whether you want more tenants on the lease, or whether all you want is a guarantor.  I am kind of assuming that all you want is a guarantor.  If that is the case – then a guaranty does the trick. 




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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Tenant Running a Business from Her Apartment – MICHELLE’S MONDAY MANDAMUS!

December 28, 2016:  This Q&A post originally appeared on the LandlordsNY blog, where Michelle Maratto Itkowitz is the "Legal Expert".
  
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:  We have an IMD [interim multiple dwelling pursuant to the Loft Law].  We are aware that one of the tenants is running a business from her apartment.  Does her use of her apartment as a business violate the Loft Law (or any other law) and if so, is it cause for eviction?  Because of the Loft Law she has an incredibly cheap rent and protection from eviction, yet she's using the space to make money, none of which goes to the landlord.  How could this be?  Thanks in advance.

Answer:

There is nothing in the Loft Law (Multiple Dwelling Law Article 7-C) that specifically prohibits a Loft from being occupied as a business.  Remember, the whole purpose of the Loft Law is that a commercial building is supposed to be moving toward a residential certificate of occupancy.  Many Loft leases actually say that the use is for joint-living-working purposes. 

So, as always, the first place I would need to look in order to thoroughly answer this question is the lease.  The LandlordsNY Lease at § 3(A) of that lease states:

“Tenants shall use the Apartment for living purposes only.”

Even if the tenant’s lease is not so clear, most leases say something like this:

“Government laws and Orders. You will obey and comply (1) with all present and future city, state and federal laws and regulations…”

Then you can perhaps claim that the tenant’s business in the apartment is a violation of laws and regulations.  So next, we have to look at the Zoning Law.

A use that is “accessory” is one that is customarily incidental and subordinate to the primary use of a parcel.  Aim Rent A Car, Inc. v. Zoning Bd. of Appeals of Village of Montebello, 156 A.D.2d 323 (2d Dep't 1989).  In other words, an “accessory” use is ok.

The Zoning Resolution of the City of New York § 12-10 (“ZR 10-12”) has this to say about carrying on an occupation inside one’s apartment:

“(a) A "home occupation" is an accessory use which:

(1)          is clearly incidental to or secondary to the residential use of a dwelling unit…;
(2)          is carried on within a dwelling unit…by one or more occupants of such dwelling unit, except that, in connection with the practice of a profession, one person not residing in such dwelling unit…may be employed; and
(3)          occupies not more than 25 percent of the total floor area of such dwelling unit…and in no event more than 500 square feet of floor area.

(b) In connection with the operation of a home occupation, it shall not be permitted:

(1) to sell articles produced elsewhere than on the premises;
(2) to have exterior displays, or a display of goods visible from the outside;
(3) to store materials or products outside of a principal…building;
(4) to display, in an R1 or R2 District, a nameplate or other sign except as permitted in connection with the practice of a profession;
(5) to make external structural alterations which are not customary for residences; or
(6) to produce offensive noise, vibration, smoke, dust or other particulate matter, odorous matter, heat, humidity, glare, or other objectionable effects.

(c) Home occupations include, but are not limited to:

fine arts studios
professional offices
teaching of not more than four pupils simultaneously, or, in the case of musical instruction, of not more than a single pupil at a time.

(d) However, home occupations shall not include:

advertising or public relations agencies
barber shops
beauty parlors
commercial stables or kennels
depilatory, electrolysis or similar offices
interior decorators' offices or workshops
ophthalmic dispensing pharmacy
real estate or insurance offices
stockbrokers' offices
veterinary medicine.”

In Mason v. Department of Buildings of City of New York, 307 A.D.2d 94 (1st Dep’t 2003), the Court upheld a finding by the DOB that a tenant’s renting out of an apartment as a commercial recording studio was an invalid home occupation use of the property. 

In Prospect Park Southwest (a Board of Standards and Appeals decision), the occupant of the premises ran a business called AIM Strategies, “in the front portion of her home performing work as an organization development consultant.  The building in question was a three-story building and the home office was situated in a room off the front entry of the house.  The office contained three desks, one was used by an employee.”  The occupant testified that she used, “the office to research, design and develop materials for her company but did not see clients there.”  At issue was whether her use of the premises violates the Zoning Resolution or is a, “permissible home occupation accessory use.”  The City argued that the tenant was, “not operating a permissible home occupation because her office occupies more space than is permitted under the Zoning resolution, and because ‘organizational development consultant’ is not a permissible profession under the Zoning Resolution.”  Ultimately, after a seventeen (17) page decision, the Board of Standards and Appeals found that the use WAS permissible. 

So, assuming that there is not a lease clause allowing tenant to use the loft unit as a business, and assuming there is a lease clause that at least prohibits violating laws and regulations, then the questions to consider are as follows:

  • Does the tenant have more than one employee?
  • Does the business occupy not more than 25 percent of the total floor area of the dwelling unit…and in no event more than 500 square feet of floor area?
  • Does the business do any of the things prohibited (see above), for example -- sell articles produced elsewhere than on the premises; produce offensive noise, vibration, smoke, dust or other particulate matter, odorous matter, heat, humidity, glare, or other objectionable effects.
  • Is the business one of the kind prohibited (see above), for example -- depilatory, electrolysis or similar office or a real estate or insurance office?



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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Defending Tenants Being Sued for Illegal Airbnb and Other Short-Term Sublets in Their Apartments

On December 20, 2016, Michelle taught a Live Webinar Continuing Legal Education program for Lorman Education Services entitled: "Short-Term Illegal Sublets in NY MultiFamily Buildings: Prevention, Detection, Remedies".  Here is a sample of the materials from that program, in which Michelle added a new section to her usual repertoire on this topic -- "Airbnb -- From a Tenant's Defense Perspective":









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