Levinson v. 390 West End Associates, L.L.C.

• Citation: 802 N.Y.S.2d 659,22 A.D.3d 397,2005 NY Slip Op 07845
• Decision Date: 25 October 2005
• Docket Number: 6176.,6176A.
• Parties: JORDAN LEVINSON, Respondent, v. 390 WEST END ASSOCIATES, L.L.C., Appellant.
• Court: New York Supreme Court Appellate Division

22 A.D.3d 397

802 N.Y.S.2d 659

2005 NY Slip Op 07845

JORDAN LEVINSON, Respondent, v. 390 WEST END ASSOCIATES, L.L.C., Appellant.

6176.

6176A.

Appellate Division of the Supreme Court of the State of New York, First Department.

October 25, 2005.

Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered June 16, 2004, which, to the extent appealed from, remanded the issue of plaintiff's initial legal stabilized rent to the Division of Housing and Community Renewal (DHCR) for determination in accordance with DHCR's default formula, granted plaintiff's motion for leave to amend the complaint to assert an eighth cause of action, denied defendant's cross motion insofar as it sought payments for past use and occupancy of the subject apartment, and granted such cross motion insofar as it sought payments for future use and occupancy to the extent of directing plaintiff to pay defendant $903.31 per month commencing July 1, 2004, unanimously modified, on the law, the facts and in the exercise of discretion, to deny plaintiff's motion for leave to amend the complaint, and to grant defendant's cross motion for use and occupancy payments to the extent of directing plaintiff, within 20 days of service of a copy of this order with notice of entry thereof, to post a bond in the amount of $38,220.48 as security for his potential liability for past use and occupancy (at the rate of $1,061.68 per month) during the 36-month period from July 1, 2001 to June 30, 2004, and, prospectively, to pay use and occupancy for months beginning after the date of this order at the rate of $1,061.68 per month, all without prejudice to either party's position concerning the legal stabilized rent at the present or any future time, and otherwise affirmed, without costs. Appeal from order, same court and Justice, entered September 20, 2004, which denied defendant's motion for reargument or modification of the order entered June 16, 2004, unanimously dismissed, without costs, as academic, in view of the disposition of the appeal from the order entered June 16, 2004.

Plaintiff Levinson has been the tenant of apartment 7KS, a two-bedroom unit in defendant landlord's building at 390 West End Avenue in Manhattan, since July 1, 1991, pursuant to a two-year lease of that date and two-year renewals executed in 1993, 1995, 1997 and 1999. Because the tenancy prior to Levinson's had been rent-controlled, Levinson's tenancy was required to be rent-stabilized if he used the apartment as his primary residence. Levinson's lease, however, provided that he did not intend to use the apartment as a primary residence, and that the apartment would therefore be exempt from rent stabilization during his tenancy. Accordingly, Levinson's initial rent was set at a rate in excess of what was permissible under the Rent Stabilization Code.¹ In addition, Levinson consented to have a declaratory judgment entered against him stating that the apartment was not his primary residence and would be exempt from rent stabilization during his tenancy. Such a consent judgment was entered in the Supreme Court, New York County, in April 1991.

As both sides now concede, the recitations in the lease and consent judgment that Levinson did not intend to use the apartment as his primary residence were false. In fact, Levinson has continuously used the apartment as his primary residence since the commencement of his tenancy. According to Levinson, landlord demanded that he agree to the avoidance of rent stabilization (and also that he pay a $30,000 "key money" fee) as a condition to having the apartment leased to him. It is undisputed that Levinson entered into the lease and consent judgment with the advice of counsel.

In 2001, landlord reopened the 1991 declaratory judgment action, seeking to vacate the consent judgment that had been entered therein. As both sides agreed that their statements in the lease and papers supporting the consent judgment that the apartment would not be used as a primary residence were false, and that Levinson's agreement not to use the apartment as a primary residence was in any event void as contrary to public policy (see Draper v. Georgia Props., 94 NY2d 809 [1999]), Supreme Court (Diane A. Lebedeff, J.) rendered an order vacating the consent judgment in May 2001, and dismissed the action. Justice Lebedeff declined to determine the lawful rent, since that issue (which, the court observed, could be determined in proceedings before the DHCR) was "not raised by the pleadings."

In February 2002, Levinson commenced the instant action seeking, among other relief, a declaration that the legal stabilized rent for the premises as of that time was the same as the last rent paid by the prior tenant in 1991 (which rent, the parties now agree, was $903.31 per month).² Levinson also sought to recover past rent overcharges. Landlord answered the complaint and asserted counterclaims essentially seeking to validate the rents Levinson had been paying under his renewal leases through June 2001, and to require Levinson either to accept renewal leases increasing his previous rent in accordance with rent stabilization guidelines or, alternatively, to vacate the apartment. Landlord's theory apparently was that Levinson's challenge to any of the rents he had been paying since 1991 was barred by the applicable four-year statute of limitations (Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-516 [a], as amended by the Rent Regulation Reform Act of 1997 [RRRA] [L 1997, ch 116, § 33]; see also CPLR 213-a, as amended by RRRA § 34). Since Levinson had ceased paying rent upon the expiration of his 1999 renewal lease on June 30, 2001, landlord also sought to recover unpaid rent for the period since July 1, 2001, and payments for use and occupancy of the apartment during the pendency of the action.

After joinder of issue in this action, Levinson moved for (among other relief) summary judgment on the issue of the legal rent. In the alternative, Levinson sought a hearing for the purpose of determining the legal rent in accordance with a certain default formula that DHCR had devised for use in such cases. In a prior case involving a different apartment in the same building, entitled Thornton v. Baron, Supreme Court, New York County, had ruled that this default formula (the Thornton formula) should be used to determine the legal rent for an apartment for which landlord had used a scheme similar to the one employed here to avoid rent stabilization.³ This result was later affirmed by this Court and, subsequently, by the Court of Appeals (see Thornton v. Baron, 4 AD3d 258 [2004], affd 5 NY3d 175 [2005]).

In the June 2004 order appealed from, Supreme Court denied Levinson's motion insofar as it sought a final determination of the issue of legal rent. Insofar as the motion sought a hearing to determine the legal rent issue, the court granted the motion only to the extent of remanding that issue to the DHCR for application of the Thornton formula. On this appeal, landlord asks us to strike the language in Supreme Court's order directing DHCR to apply the Thornton formula. We decline to do so.

The Court of Appeals' affirmance of our decision in Thornton confirms that the Thornton formula ("the lowest rent charged for a rent-stabilized apartment with the same number of rooms in the same building on the relevant base date" ) should be used to determine the base rent in an overcharge case where, as here, no valid rent registration statement was on file as of the base date.⁴ Consistent with the aforementioned four-year statute of limitations, the base date as of which the Thornton formula should be applied is on or about February 15, 1998, four years prior to the commencement of this action.

We are not persuaded by landlord's efforts to distinguish Thornton. Here, as in Thornton, a default formula must be used to determine the current legal rent, since it is conceded that the rent actually charged on the base date was unlawful, and the statute of limitations does not permit us to use any rental history prior to the base date in setting the current legal rent (see Thornton, 5 NY3d at 180). Contrary to landlord's contention, notwithstanding that Levinson (unlike the Thornton tenant) is the first rent-stabilized tenant, the adjustment of Levinson's rent is not governed by the provisions applicable to a fair market rent appeal (FMRA) (Rent Stabilization Code [RSC] [9 NYCRR] § 2522.3), because Levinson's time in which to bring an FMRA expired four years after his tenancy began (see RSC § 2522.3 [c] [2]).⁵ Also without merit is landlord's argument that the default formula of RSC § 2522.6 (b), rather than the Thornton formula, should be used. As the Court of Appeals noted in rejecting landlord's proposal to use the RSC § 2522.6 (b) formula in Thornton, that provision "by its plain terms" makes its default formula applicable only where the current owner acquired the property since the base date through a judicial sale, bankruptcy proceedings, or a mortgage foreclosure (5 NY3d at 181 n 5).⁶ Finally, the absence of an "illusory tenancy" from the instant case does not...