Bartis v. Harbor Tech, LLC

• Decision Date: 28 December 2016
• Citation: 147 A.D.3d 51,45 N.Y.S.3d 116,2016 N.Y. Slip Op. 08831
• Parties: Jason BARTIS, etc., et al., appellants, v. HARBOR TECH, LLC, respondent.
• Court: New York Supreme Court — Appellate Division

147 A.D.3d 51
45 N.Y.S.3d 116
2016 N.Y. Slip Op. 08831

Jason BARTIS, etc., et al., appellants,
v.
HARBOR TECH, LLC, respondent.

Supreme Court, Appellate Division, Second Department, New York.

Dec. 28, 2016.

45 N.Y.S.3d 117

Jack L. Lester, New York, N.Y., for appellants.

Wolf Haldenstein Adler Freeman & Herz, LLP, New York, N.Y. (Michael Liskow and Alexander H. Schmidt of counsel), for respondent.

WILLIAM F. MASTRO, J.P., CHERYL E. CHAMBERS, THOMAS A. DICKERSON, and FRANCESCA E. CONNOLLY, JJ.

DICKERSON, J.

147 A.D.3d 52

Introduction

Under section 5(a)(5) of the Emergency Tenant Protection Act of 1974, "housing accommodations" in buildings completed or "substantially rehabilitated as family units" on or after January 1, 1974, are exempt from rent stabilization rules (Emergency Tenant Protection Act of 1974 [ETPA] § 5[a][5] [McKinney's Uncons Laws of N.Y. § 8625(a)(5) ] [L 1974, ch 576, sec 5(a)(5) as amended] ). On this appeal, we determine that housing accommodations in a building that was converted from a completely commercial building to a completely residential building after January 1, 1974, are exempt pursuant to this provision.

45 N.Y.S.3d 118

Factual and Procedural Background

This putative class action concerns a building complex located at 14 Verona Street, 5 Delevan Street, and 19 Delevan Street in the Red Hook neighborhood of Brooklyn. Between

147 A.D.3d 53

1924 and 1999, the complex, which consists of several interconnected buildings, was used as a commercial warehouse by the Monarch Luggage Company. The Monarch Luggage Company vacated the premises in August 1999, and on September 19, 1999, the defendant purchased the buildings and the real property.

According to the affidavit of the defendant's manager, Eugene Mendlowits, after the defendant purchased the premises in 1999, the defendant spent approximately $3.5 million "constructing and/or rehabilitating" the complex in order to transform it from commercial to residential use. This work was performed in two phases. During Phase I, which took place between November 1999 and July 2000, the defendant subdivided the previously open floor plan in one wing of the complex in order to create 40 1,000–square–foot commercial loft units. According to Mendlowits, the defendant constructed all of the interior walls that separated the individual units, installed new interior doors and intercoms for each of the 40 units, and installed windows, bathrooms, kitchens, and a refrigerator in each of the units, although stoves were not provided. As part of the Phase I work, the defendant also created brand new plumbing, heating, electrical, ventilation, gas supply, and sprinkler systems. Beginning in July 2000, the defendant began to rent these 40 units out to tenants via commercial leases. Most, if not all, of these units were initially used as artist workplaces.

Meanwhile, in April 2000, the defendant applied to the New York City Planning Commission to rezone the lots on which the complex was located from M1–1, which allows light industrial uses, to R6, which allows residential apartment buildings. On February 20, 2002, the New York City Planning Commission adopted a resolution rezoning the lots on which the complex was located from M1–1 to R6. After the adoption of this resolution, the defendant began to offer residential leases instead of commercial leases to new and renewing tenants.

Between September 2000 and September 2002, the defendant performed Phase II of its construction and rehabilitation of the complex, during which time the defendant built an additional 60 1,000–square–foot loft units in the remainder of the complex in the same manner that it had constructed the initial 40 units. According to Mendlowits, during Phases I and II of the project, the defendant replaced all of the systems in the complex except for the interior stairways and the sewer waste line that led from the complex to the street.

147 A.D.3d 54

The defendant obtained a temporary certificate of occupancy for 98 dwelling units on January 31, 2005, and a final certificate of occupancy for 100 dwelling units effective December 30, 2005.

The Complaint

In April 2013, 35 named plaintiffs commenced this putative class action lawsuit against the defendant on behalf of themselves and on behalf of hundreds of similarly situated current and former tenants of the complex. The first cause of action sought a judgment declaring that the plaintiffs' apartments were subject to rent stabilization pursuant to the ETPA and an injunction directing the defendant to revise all leases in accordance with the rent stabilization rules. The second cause of action sought to recover damages for "promissory estoppel," based on allegations that the plaintiffs did not assert their rights under the rent stabilization rules because of the

45 N.Y.S.3d 119

defendant's "promises" to them that the units they rented were not subject to rent regulation. The third cause of action sought to recover damages and equitable relief based upon "illegality" and "mistake of contract" as a result of the fact that the plaintiffs' leases contained "illegal, false and/or mistaken" provisions stating that the plaintiffs' units were not subject to rent regulation. The fourth cause of action alleged that the defendant violated General Business Law § 349 as a result of its conduct in advertising the apartments as unregulated and entering into leases with the plaintiffs that provided that the apartments were not subject to rent regulation. The fifth cause of action alleged that the defendant had breached the implied warranty of habitability by, inter alia, failing to provide basic services including proper heat, mold amelioration, elevator service, water penetration abatement, garbage disposal, plumbing, and ventilation. The sixth cause of action alleged that the defendant violated General Obligations Law article 7 by commingling the plaintiffs' security deposits with its own funds. The seventh cause of action sought to recover attorney's fees, costs, and disbursements.

The Plaintiffs' Motion

The plaintiffs moved for summary judgment declaring that their apartments are subject to rent stabilization and for class action certification pursuant to CPLR article 9. In support of their motion, the plaintiffs argued that they were entitled to the protection of the rent stabilization rules because the building complex was constructed prior to 1974, was issued a

147 A.D.3d 55

residential certificate of occupancy, and contained more than six units. The plaintiffs further contended that the complex did not qualify for the substantial rehabilitation exemption provided by EPTA § 5(a)(5) because 75% of its building-wide and apartment systems had not been replaced as required by Rent Stabilization Code § 2520.11. To demonstrate that the complex had not been substantially renovated within the meaning of Rent Stabilization Code § 2520.11, the plaintiffs relied upon the affidavit of Brenda Bello, a registered architect who inspected the complex in 2013 along with Ari Kamo, a professional engineer. In her affidavit, Bello stated that she and Kamo had concluded, based on their inspection, that only 2 of 17 listed building-wide and individual housing accommodation systems had been rehabilitated or replaced in accordance with relevant building codes. Additional evidence submitted in support of the motion included the temporary certificate of occupancy dated January 31, 2005, and the final certificate of occupancy effective December 30, 2005.

The Defendant's Opposition and Cross Motion

In addition to opposing the plaintiff's motion, the defendant cross-moved for summary judgment, in effect, declaring that the plaintiffs' apartments are not subject to rent stabilization and for summary judgment dismissing the second through fourth causes of action and so much of the first cause of action as sought injunctive relief. The defendants maintained that the requirement that 75% of building-wide and apartment systems be replaced in order for there to be a finding of substantial rehabilitation was inapplicable where, as here, a building complex was converted from purely commercial space to residential use. The defendants further contended that, in any event, the work performed to convert the complex to residential use satisfied the 75% requirement. In support of its cross motion, the defendant submitted, among other things, the affidavit of its manager Eugene Mendlowits, discussed above. The defendant also submitted two prior determinations of the Deputy Commissioner

45 N.Y.S.3d 120

of the New York State Division of Housing and Community Renewal (hereinafter the DHCR), in which the DHCR found that two other buildings that had been converted from commercial to residential use after...