BLF Realty Corp. v. Kasher

• Decision Date: 19 September 2002
• Citation: 747 N.Y.S.2d 457,299 A.D.2d 87
• Parties: BLF REALTY HOLDING CORP., Appellant,<BR>v.<BR>STEVEN KASHER, Respondent.
• Court: New York Supreme Court — Appellate Division

299 A.D.2d 87

747 N.Y.S.2d 457

BLF REALTY HOLDING CORP., Appellant,

v.STEVEN KASHER, Respondent.

SULLIVAN, J.

September 19, 2002.

Susan Baumel-Cornicello of counsel (Cornicello & Tendler, LLP, attorneys), for appellant.

Lawrence Maggitti of counsel (Jeffrey S. Ween on the brief; Jeffrey S. Ween & Associates, attorneys), for respondent.

WILLIAMS, P.J., SAXE, BUCKLEY and ELLERIN, JJ., concur.

OPINION OF THE COURT

SULLIVAN, J.

Plaintiff, at all times relevant, has been the owner and landlord of the building at 54 North Moore Street in Manhattan, an interim multiple dwelling (IMD) as defined by article 7-C of the Multiple Dwelling Law (Loft Law) and the Rules and Regulations of the Loft Board contained in title 29 of the Rules of the City of New York. Defendant is a tenant who took occupancy of the sixth-floor loft in the premises pursuant to a written lease dated May 5, 1977 with plaintiff's predecessor in interest. Plaintiff seeks a declaration that defendant has illegally sublet the demised premises, in violation of the Loft Law, at an amount in excess of the legal regulated amount, and that such conduct constitutes a ground for eviction.

Defendant's lease, for a five-year term commencing June 1, 1977 and expiring May 31, 1982, provided for a fifth-year rental at $450 per month. Defendant's tenancy continued thereafter, and his rent increases were set by Loft Board Regulations (29 RCNY) § 2-06 (c) (1) (ii). In April 1990, defendant's rent was $551.22 per month. Under the terms of the lease, defendant could sublet with the landlord's consent, which was not to be unreasonably withheld. Ever since the building was first registered as an IMD, the sixth-floor loft, which contains approximately 2,300 square feet, has been listed as a single unit.

On May 1, 1990, defendant entered into a "Loft Share Agreement" with Suzanna Dent for the "northeast section of the loft," which consists of two thirds of the total space, or approximately 1,500 square feet and, according to defendant, began to share occupancy of the loft with her. Dent thereafter married and exclusively occupied her portion of the loft with her husband, Howard Patlis (collectively referred to hereafter as the subtenants), and their child.

According to plaintiff, defendant constructed separate entrances into the two sections. Plaintiff states that each had its own separate kitchen and bathroom, as well as buzzer and intercommunication system. It is undisputed that the two sections shared one hot water heater and electric meter. Plaintiff also claims that at the time defendant was paying the legally regulated rent of $551.22, he was charging Dent a monthly rental of $1,600 initially and, beginning in May 1992, $1,700.

The relationship between defendant and the subtenants deteriorated and the latter ceased paying rent in June 1994. Defendant served a notice to quit in January 1995. The parties thereafter entered into a settlement agreement dated April 20, 1995, whereby the subtenants were permitted to remain in temporary occupancy and, inter alia, agreed not to initiate an overcharge proceeding against defendant if he complied with the agreement and consented to the commencement of a licensee holdover proceeding against them, which defendant subsequently commenced. As an inducement to vacate, defendant agreed to an incentive payment for an early departure.

Thereafter, in May 1995, the subtenants commenced an action in Supreme Court, New York County, seeking the recovery of $62,000 in rent overcharges between May 1, 1990 and June 30, 1994, as well as treble damages and attorneys' fees.^[1] That action was settled by a stipulation dated September 26, 1995 that incorporated the April 1995 settlement. The subtenants agreed to the entry of a judgment of possession with a stay of execution of the warrant.

On May 3, 1996, plaintiff served defendant with a five-day notice to cure alleging a sublet without the landlord's consent in violation of the Loft Board's regulations and the charging of rent in excess of the legal regulated amount, as well as illegal alterations to the premises. Thereafter, on June 28, 1996, plaintiff served a 30-day notice terminating the tenancy based solely on the illegal rent charged the subtenants. It commenced the instant declaratory judgment action on September 20, 1996. Defendant answered, interposing affirmative defenses including mootness based, apparently, on the subtenants' vacating the premises, that the shared occupancy of defendant's loft was permitted pursuant to Real Property Law § 235-f, and that the statutory and regulatory scheme under the Loft Law made no provision for an eviction based on rent overcharge.

Thereafter, in the course of motion practice, this action was transferred to the Civil Court pursuant to CPLR 325 (d). The parties moved and cross-moved for summary judgment, defendant arguing that the subtenants were, in fact, his roommates and that they had vacated the premises prior to the commencement of the action. Civil Court granted defendant's motion, finding that because he continued to occupy a portion of the loft no sublet had taken place and that, even if one had taken place, such a sublet was not in violation of the lease, which permitted subletting with the landlord's consent. Moreover, the court found that, unlike rent stabilization or rent control, where rent gouging by a protected tenant constitutes grounds for eviction, a loft tenant is not subject to eviction on such ground. The court refused to read the Loft Board's regulations in pari materia with the Rent Stabilization Law and Code because the Loft Law expressly mandates that the latter are not applicable until after an IMD is legalized, a certificate of occupancy issued and the tenant given a stabilized lease. Plaintiff's cross motion was denied. On appeal, the Appellate Term reversed, holding the transfer invalid because the "Civil Court lacked jurisdiction to adjudicate plaintiff's claims on a complaint for declaratory judgment." (183 Misc 2d 953, 954-955.) The action was thereafter restored to the Supreme Court calendar.

The parties again moved and cross-moved for summary judgment. Supreme Court denied plaintiff's motion, granted defendant's cross motion and dismissed the complaint. The court found an issue of fact as to whether the loft had been subdivided into two units and as to whether Dent and Patlis were defendant's roommates or subtenants, but held that neither issue mattered since, even assuming a sublet, the Rent Stabilization Code provisions permitting eviction for profiteering were not applicable to the Loft Law. The court noted that while the Rent Stabilization Code provisions that allow a landlord to evict on the basis of profiteering had been extended to rent-controlled apartments, these provisions could not be read in pari materia with the Loft Law, which does not provide such a remedy but, instead, allows the subtenant, in a case of overcharge, to sue the prime tenant for treble damages. Plaintiff appeals. We reverse.

There is a significant body of law that denies the protection of rent regulation to tenants who utilize their apartments for commercial exploitation. Rent-stabilized tenants who charge a subtenant more than the legal required rent are subject to lease termination. (See Rent Stabilization Code [9 NYCRR] § 2525.6 [b], [f]; § 2524.3 [h]; Continental Towers Ltd. Partnership v Freuman, 128 Misc 2d 680 [App Term 1st Dept].) Specifically, Rent Stabilization Code § 2525.6(b) prohibits a tenant from charging a subtenant more than the legal rent, plus a 10% surcharge if the apartment is fully furnished. Where the tenant is in violation of this prohibition, Rent Stabilization Code § 2525.6 (f) entitles the owner to terminate the tenancy.^[2] Rent Stabilization Code § 2525.7 (b) also prohibits a stabilized tenant from charging a roommate in excess of the roommate's proportional share of the stabilized rent. Rent profiteering in the latter circumstance may also entitle a landlord to maintain a holdover proceeding against the stabilized tenant. (See RAM 1 LLC v Mazzola, 2001 NY Slip Op 50073[U] [App Term 1st Dept].) Where there has been a substantial surcharge, the tenant cannot cure the lease violation. (Continental Towers Ltd. Partnership v Freuman, 128 Misc 2d at 681.)

In the case of rent control, while a tenant may not accept rent from a subtenant in excess of the lawful rent (see NY City Rent and Eviction Regulations [9 NYCRR] § 2205.1 [a]; City Rent and Rehabilitation Law [Administrative Code of City of NY] § 26-412 [a]), no provision exists entitling the landlord to commence an eviction proceeding for profiteering in such circumstances. Notwithstanding, courts have extended the rule that profiteering tenants who sublease their apartments forfeit their rights and are subject to eviction as tenants of rent-controlled apartments. (See Hurst v Miske, 133 Misc 2d 362.) Applying the holding of Continental Towers Ltd. Partnership v Freuman (128 Misc 2d 680, supra), the Hurst court noted, "This rationale should apply equally if not more to a rent-controlled tenant, who profits from her rental accommodation, since rent-controlled units are more stringently controlled than rent-stabilized units and * * * the rent-controlled tenant derives a higher benefit in rent regulation than that of a rent-stabilized tenant." (Hurst v Miske, 133 Misc 2d at 365.)

While there is no specific provision in the Loft Board's regulations authorizing eviction proceedings on the basis of rent gouging, the same reasoning as in the case of rent control should be applied to loft tenants who engage in similar exploitive conduct. Like the Rent Stabilization and Rent Control Laws, the stated intent of the Loft Law is to protect the public inasmuch as a "serious public emergency exists in the housing of a considerable number of persons in cities having a population of over one million, which emergency has been created by the increasing number of conversions of...