520 East 81st Street Associates v. Lenox Hill Hosp.

• Decision Date: 10 May 1990
• Citation: 157 A.D.2d 138,555 N.Y.S.2d 697
• Parties: ST STREET ASSOCIATES, a New York General Partnership, Plaintiff-Appellant, v. LENOX HILL HOSPITAL, a New York Not-For-Profit Corporation, M. Hederman, M. McCarthy, N. Fraser, N. Ward, Defendants-Respondents, and J. Polecki, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 697

555 N.Y.S.2d 697

157 A.D.2d 138

520 EAST 81ST STREET ASSOCIATES, a New York General Partnership, Plaintiff-Appellant, v.LENOX HILL HOSPITAL, a New York Not-For-Profit CorporationM. Hederman, M. McCarthy, N. Fraser, N. WardDefendants-Respondents and J. Polecki, et al., Defendants.

Supreme Court, Appellate Division First Department.

May 10, 1990.

Gary M. Rosenberg, of counsel(William J. Robbins and Susan R. Lipp and Sherrie A. Taylor, with him on the brief, Rosenberg & Estis, P.C., New York City, attorneys), for plaintiff-appellant.

Edmund F. Wolk, New York City, for defendant-respondent Lenox Hill Hosp.

Carol S. Keenan, of counsel(Ruben Klein, P.C., and Ronald A. Zumbrun, Edward J. Connor, Jr. and R.S. Radford, attorneys) on behalf of Pacific Legal Foundation, as amicus curiae.

Before SULLIVAN, J.P., and ROSS, MILONAS, SMITH and RUBIN, JJ.

SULLIVAN, Justice.

This appeal involves the issue of who, if anyone, is entitled to renewal leases with respect to 39 apartments owned by 520 East 81st Street Associates(Associates) and leased to Lenox Hill Hospital, a New York not-for-profit acute-care, teaching hospital, which subleases these apartments to nurses or other Lenox Hill employees.Underlying this issue is Associates' challenge to the constitutionality of Chapter 940, Laws of 1984, which amended existing law and specifically provided an exception to the non-primary residence exemption in the Rent Stabilization Law where a not-for-profit hospital is the lease's named tenant.Chapter 940 also supplemented an exemption in Real Property Law sec. 226-b by providing that a not-for-profit hospital could sublet a rent stabilized apartment to its affiliated personnel without the landlord's consent.

A brief summary of the law prior to its enactment is essential to a full appreciation of the significance of Chapter 940, Laws of 1984.Chapter 373, Laws of 1971, which amended the State Enabling Act for rent control and rent stabilization, originally provided an exemption from the New York City Rent Control and Rent Stabilization Laws for "housing accomodations not occupied by the tenant in possession as his primary residence".This same language was also used in section 5(a)(11) of the Emergency Tenant Protection Act of 1974[ETPA](L.1974, ch. 576, sec. 4), which exempted newly stabilized units.The phrase "tenant in possession" was considered broad enough to include a subtenant.Thus, if the subtenant in possession was a primary resident of the apartment, the exemption was inapplicable.

Section 41 of the Omnibus Housing Act of 1983 [OHA-83](L.1983, ch. 403)amendedsubdivision (a) of section YY51-3.0 (renumbered 26-504[a][1][f] of the Administrative Code to provide an exemption from the Rent Stabilization Law for dwelling units "not occupied by the tenant, not including subtenants or occupants, as his primary residence, as determined by a court of competent jurisdiction."Thus, the scope of the term "tenant" was expressly restricted so as to exclude subtenants or occupants.For the purpose of determining the issue of primary residence, it was now the named tenant who had to occupy the apartment as a primary residence.No longer could he obtain the benefits of rent stabilization, including a renewal lease, because the subtenant occupied the apartment as a primary residence.OHA-83 also eliminated constructive tenancies where a corporation was the named tenant.

Section 1 of Chapter 940, Laws of 1984 amended the non-primary residence section of the Rent Stabilization Law (Administrative Codesec. YY51-3.0[a][1][f][renumbered 26-504(a)(1)(f) ] to add that, for purposes of that clause, "where a housing accommodation is rented to a not-for-profit hospital for residential use, affiliated subtenants authorized to use such accommodations by such hospital shall be deemed to be tenants."Section 3 of Chapter 940 amended the ETPA to add the same language (Unconsolidated Laws sec. 8625[a][11].Thus, in determining the issue of non-primary residence, Chapter 940 provided, in contradistinction to OHA-83, that the relevant residence is the primary residence of the nurse authorized to use the subject apartment.

Chapter 940(sec. 4) also amended section 10-a of the ETPA of 1974(Unconsolidated Laws sec. 8630-a) to afford not-for-profit hospitals the right to sublet the apartments to affiliated nurses, pursuant to Real Property Law sec. 226-b, without requiring the landlord's consent and without requiring that the hospital itself maintain these apartments as its primary residence.By contrast, tenants other than not-for-profit hospitals such as Lenox Hill have the right to sublet for only two out of every four years.Moreover, those tenants must, on request, provide the landlord with detailed information in connection with any request to sublet.The amendment also provided for a 15% vacancy surcharge if the landlord fails to receive "within the seven year period prior to the commencement date of such renewal lease any vacancy increases or vacancy surcharges allocable to the said housing accommodation."

Between 1968 and 1970, and pursuant to a series of leases relating to each specific apartment, which were subsequently renewed at their respective expirations, Associates rented the subject apartments to Lenox Hill.All of the apartments became subject to two renewal leases, both dated March 9, 1982, for a term commencing August 1, 1982 and expiring July 31, 1985.Pursuant to its housing program, Lenox Hill uses the apartments for affiliated personnel, who are primarily, if not exclusively, nurses.Indeed, a rider attached to the aforesaid renewal leases states, "The demised premises are to be occupied by EMPLOYEES OF LENOX HILL HOSPITAL ONLY, OCCUPANCY TO BE LIMITED TO ONE (1) EMPLOYEE IN A STUDIO AND TWO (2) EMPLOYEES IN ONE (1) BEDROOM APARTMENTS ONLY."The availability of such inexpensive housing allows Lenox Hill to attract nurses and other employees, and also permits it to pay these employees less than it would otherwise have to if the employees themselves were required to go into the market to obtain housing.Thus, by these rentals, Lenox Hill is able to avoid having to make a capital investment in housing.

The subject building has now been converted to a condominium form of ownership, as to which, even for occupied condominium apartments, based on the expectancy that they will eventually become vacant, there is a resale market.In essence, the buyer is purchasing a reversionary interest.Studio apartments, which are generally occupied by a more transient type, are proportionately more valuable than larger apartments because of the greater likelihood that they will become vacant.

There has been a substantial turnover in the nurse subtenants occupying these apartments.On August 1, 1982, the commencement date of the last renewal leases, 37 of the 39 apartments were occupied and two were vacant.As of April 3, 1985, the last day of the 120-150 day window period prior to the July 31, 1985 expiration of the last renewal leases for serving notice of the landlord's intention not to offer a renewal lease (see, Rent Stabilization Code sec. 60), only 26 of the 37 nurses in occupancy at the commencement of the leases remained.During that approximately 32-month period, eleven of the original subtenants had vacated and the two previously vacant apartments had become occupied.Thus, during the term of the last renewal leases, there was a turnover in one-third of the apartments.After the expiration of the two leases on July 31, 1985, Associates refused to offer renewal leases to Lenox Hill.Instead, it commenced the instant declaratory judgment action.

In its complaint, Associates sought a declaration that Lenox Hill was not entitled to renewal leases and that only nurses who continually occupied their apartments since the August 1, 1982 commencement of the most recent renewal leases and who remained in occupancy 120 days prior to the expiration of those leases were entitled to renewal leases.After joinder of issue, Associates moved for partial summary judgment so declaring and also for a declaration that in any apartment in which there had been a turnover, i.e., the nurse in occupancy at the commencement of the most recent renewal lease was no longer in occupancy, the apartment was not maintained as a primary residence and no one was entitled to an offer of renewal.Associates argued that any other interpretation of Chapter 940, Laws of 1984, would totally deprive it of an economically valuable reversionary interest and lead to an unconstitutional taking without just compensation.Lenox Hill cross-moved for summary judgment dismissing the complaint and for summary judgment on its first, second and third counterclaims seeking declarations, inter alia, that it was entitled to lease renewals.

In denying Associates' motion in its entirety and granting Lenox Hill's cross-motion for summary judgment, the IAS court held that "it is Lenox Hill, the named tenant on the expired renewal leases, which is entitled to renewal leases for the subject apartments...."(520 E. 81st Street Associates v. Lenox Hill Hospital, 142 Misc.2d 723, 726, 538 N.Y.S.2d 129.)The court found that its interpretation was consistent with "the legislative history and statutory language of Chapter 940, [which makes it] clear that the not-for profit hospital is the tenant sought to be protected by the corrective legislation."Citing CPLR sec. 1012(b)andExecutive Law sec. 71, the court refused to consider Associates' constitutionality argument "because the Attorney General has not been notified that the constitutionality of the statute was in issue."The court, however, indicated that in any event the argument "seems to be wholly meritless."We disagree.

In refusing to consider Associates' constitutionality argument, the IAS court disregarded the provisions of both CPLR sec. 1012(b)andExecutive Law sec. 71, which require that,...