Thursday, July 7, 2011

Landlords May Not Collect Rent From Loft Law Tenants During Legalization

       After a long hiatus, I am returning to my idle blog.  To my loyal readers, I hope you haven't abandoned me.

       As I have previously discussed, the New York City Loft Law was enacted to remedy hazardous, illegal residential occupancies of commercial units by requiring landlords to obtain certificates of occupancy for such residential use.  The statute, Multiple Dwelling Law Article 7-C (the "Loft Law"), encourages landlords to expeditiously legalize such units by limiting their right to collect rent from tenants who are subject to the Loft Law.  MDL Section 302 (1) (b) thus provides:

"No rent shall be recovered by the owner of such premises for said period [i.e., the  legalization period], and no action or special proceeding shall be maintained therefore, or for possession of said premises for nonpayment of such rent."

       While MDL Sec. 302 (1) (b)'s language sounds unforgiving to landlords, its apparent blanket prohibition is not without exception.  MDL Secs. 284 (1) and 285 provide that landlords of buildings subject to the Loft Law (known as "interim multiple dwellings") may be permitted to collect rent during the legalization process despite the lack of a certificate of occupancy if they comply with certain applicable legalization timetables.  

       Without getting into too much detail, there has been much litigation over this statutory scheme, particularly where both the landlord and the tenants have alleged that the other has impeded the legalization process.

       In the recent case Jo-Fra Props., Inc. v. Leland Bobbe, --- N.Y.S.2d ---, 2010 WL 5113189, N.Y.L.J., Dec. 23, 2010, at 35, col. 1 (1st Dep't, 2010), the Appellate Division, First Department had the opportunity to revisit this statutory scheme.  In Jo-Fra, the landlord brought an ejectment action against Loft Law covered tenants of several buildings it owned on West 28th Street in Manhattan.  The landlord also sought alleged past due use and occupancy from the tenants and attorney's fees.  The tenants moved to dismiss the use and occupancy claim by summary judgment arguing that the landlord was barred from collecting use and occupancy pursuant to MDL Secs. 302 and 285 (1) because it had not completed legalization of the building within the timetables set forth under the Loft Law.

      On the landlord's appeal of the lower court's dismissal of its use and occupancy claim, the Appellate Division, First Department unanimously affirmed.  The Court found that during the 20-year period from 1984, when one the buildings was first registered with the Loft Board, until 2004, the landlord had not performed any of the required steps for legalizing the building.  While the tenants of the unregistered buildings did not file an application for coverage until 2004, and the landlord did not register the unregistered buildings until 2007, the Court held that there was no factual dispute that all of the buildings were at all times covered under the Loft Law, despite the lack of registration.

      The Appellate Division, First Department, went on to reiterate the long standing, well established requirement under the Loft Law that landlords are only permitted to collect rent from covered tenants during the legalization despite the lack of a certificate of occupancy if they comply with MDL Sec. 284 legalization timetables.  The fact that the owner had belatedly taken steps to legalize the building that did not meet MDL Sec. 284's deadlines, and that several of the buildings were not registered until 2007, was no basis to relieve the landlord of the strict rent collection prohibition.  As the Court stated, the Loft Law is not permissive in nature; it places a mandatory obligation upon a owner to legalize the building within the statutory timeframe upon pain of rent forfeiture.

     Thanks for reading.  Be well, and always know your rights.

     

17 comments:

  1. But can an owner eject the tenant for not paying rent that is not collectible because the owner has not complied with Multiple Dwelling Law 285(1)?

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  2. Anonymous,

    Good question. On its face, the statute, MDL Section 302 (b), appears to address your question directly in stating: “No rent shall be recovered by the owner of such premises for said period [i.e., while lacking a c/o permitting residential occupancy], and no action or special proceeding shall be maintained thereof, or for possession of said premises for nonpayment of rent.”

    While the above language seems to unequivocally prohibit eviction of a tenant for nonpayment of rent due to the lack of a certificate of occupancy, some courts have reached a different conclusion. See Le Sannom Bldg. Corp. v. Lassen, 173 A.D.2d 249, 569 N.Y.S. 2d 451 (1st Dep’t 1991) and Chazon, LLC v. Maugenest, 81 A.D.3d 769, 916 N.Y.S.2d 815 (2d Dep’t, 2011). This humble attorney would argue that those two cases should be limited to their particular facts, given the explicit language of the statute. Notwithstanding the courts’ apparent departure from the explicit language used by the legislature in MDL Section 302 (b), such holding undermines the purpose of the Loft Law. In that regard, rent forfeiture serves as a means of compelling a landlord to comply with its legalization obligations. If rent forfeiture is not available as a means of compelling compliance, landlords will always elect to avoid legalizing. In effect, the holding in those decisions renders MDL Section 302 (b) meaningless. Two outcomes flow from those holdings: either (1) tenants will try to utilize it as a means of compelling compliance, in which circumstance the landlord will certainly elect to seek eviction rather than legalize; or, (2) tenants will be forced to continue paying rent and the landlord will have no incentive to legalize. In both circumstances, the purpose of the statute (to compel legalization) is undermined. I certainly hope that a reversal of these decisions will come soon.

    Thanks for your question. Be well,

    Michael P. Kozek

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  3. I hope that reversal will come soon, also. I am Maugenest in the above-mentioned Chazon v. Maugenest. My case will be heard by the NY Court of Appeals on May 1. Please cross your fingers for me, and Loft Law tenants - as, indeed, if the decision is left to stand, it undermines the purpose of the Loft Law. The NY Court of Appeals only grants right to appeal to a very small percentage of cases presented (I heard 4%).

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    1. I hope so too, my landlord has filed suit against us in Kings County State Supreme and has cited Chazon V. Maugenest in his complaint to support his cause of action for ejectment from our loft.

      Very scary.

      Ms. Maugenest, how is it that your cross motion was defective? Thanks,

      Paul

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  4. Hi Paul,
    I am not familiar with legal terms as far as my cross motion being defective. All I know is that the letter of the Loft Law was not being considered when the decisions against me were made. Kings County is where I reside, also. I am very sorry that my case is now being used to eject other tenants. Hopefully, a positive turn will happen in time for you. My case will be presented May 1 to the NY Court of Appeals, give a couple of months for the decision. And let's stay positive! All the best, Margaret

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  5. Margaret and Paul,

    It is undoubtedly true that the Court of Appeals' decision in Chazon will have substantial effects upon landlord-tenant relations, and not only for Loft Law tenants. We have already begun to see cases being brought under the strict interpretation of the Chazon decision that ejectment is available for any nonpayment of rent--i.e., despite whatever defenses the tenant may have to the claim for rent (such as breach of the warranty of habitability under Real Property Law Sec. 235-b and rent forfeiture due to lack of a certificate of occupancy under MDL 302), the nonpayment of rent results in an automatic elimination of the tenant's rights to occupy the apartment (be it under a lease or statute). This interpretation of the Chazon decision, as advanced by landlords' attorneys, runs afoul of the basic principle that nonpayment of rent is not a basis for automatic termination of the tenancy because tenants would therefore be discouraged from withholding their rent in order to compel their landlord to correct illegal conditions in the building or premises. I feel confident that the Court of Appeals will see that the Appellate Division, Second Department's decision is wrong.

    Thanks for your comments. Be well,

    Michael

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  6. Margaret MaugenestJune 7, 2012 at 6:38 PM

    GOOD NEWS to Loft Law Tenants. As Michael predicted, the Court of Appeals did reverse the Appellate Division's order today. A sigh of relief...

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    1. I read the decision and am glad for it, and glad that it was unanimous and unequivocal. And also that it comes in time to effect the outcome of our case!

      I also watched the video of the oral arguments, and thought the appellant's attorney did a good job.

      Congratulations Margaret, and thanks Micheal for the blog.

      Paul

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  7. Margaret,

    Many congratulations on your successful appeal. You should know that your bravery and resilience in this fight will have widespread affects for Loft tenants in New York City. They, as well as the Loft tenant advocates, owe you a great debt of gratitude. For my part, let me say thank you.

    Be well,

    Michael

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  8. frustrated friend of a screwed building ownerJune 12, 2012 at 1:57 PM

    For the life of me I can't understand how anyone could justify not paying rent while living in a building that someone else pays the taxes and upkeep. This is so sad....

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    1. Frustrated,

      You must realize that your friend has complete control over this situation. If your friend owns a Loft Law covered building, your friend may collect rent if he/she is in compliance with the law. If your friend fails to comply, the penalty is rent forfeiture. Perhaps in your view this is an inequitable penalty for failing to comply--but bear in mind that if your friend is refusing to comply, your friend is allowing its residential tenants to live in hazardous circumstances without any regard for the tenants' health and safety. The legislature correctly determined that the only effective means of compelling landlords to comply with their legalization obligations and to remove the hazardous situation is rent forfeiture. For Loft Law tenants out there, this is the only effective means of enforcing their rights, as has been long demonstrated by the countless number of landlords who have obstinately refused to legalize their buildings in accordance with the Loft Law.

      Thank you for your comment. Be well,

      Michael

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    2. Good luck and best wishes with your case, Paul!

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  9. PS And thank you, Michael, for your congratulations on the appeal win. Feels great to have won, especially as it was such an uphill battle. That it can help Loft tenants and their advocates is fantastic!

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  10. This is great news. Let us say a Loft slum lord faced with a complete rebellion of his slave tenants stop paying rent. He stops paying his NYC Loft Board fee July 1. 20,500. 41 Units. In Second Department. Another owner steps in. Or he gets rehabilitated. Brings building up to full comliance. Ressidential C.O. Proper residential lease's. Can he then sue or seek ejectment for rent due prior and up to code compliance
    and C.O. residential?

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  11. Hi,
    I am a sub-sub-tenant in a loft that is going through loft low legalization and would like to find out the status of things.

    How would I do this?

    I am paying rent to a sub-tenant but do not know if they are paying the rent to anyone else or if they are quietly pocketing the money while not paying rent due to the building not having a COP.

    Any advice on how to begin this search would be great. The building is 19 Hope Street and is a collection of 6 lofts some of which the main tenants and sub-tenants have been in litigation for a while.

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  12. A lot of thanks,
    Really this one is very interesting information for us and certainly people will get benefit by this.
    Certificate Legalization

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  13. Every landlords would be the one to collect the rent. In a business renting out your property this is a must!

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