Opinion
110513/99.
Decided March 30, 2001.
Before the court is a motion by the defendant-landlord Margab Realty LLC for summary judgment dismissing the complaint and for a declaration that the plaintiffs-tenants are not entitled to rent regulated coverage. The plaintiffs who reside at 315 West 35th Street, New York, New York oppose the motion.
Plaintiffs commenced this action against Margab Realty LLC, Tony Marra, Alex Orberg and Dunn Deal of NY, Inc. in 1999 seeking a declaration that their apartments are subject to the Rent Stabilization Law, the Emergency Tenant Protection Act or alternatively the Loft Law.
The building is a commercial loft structure located in a light manufacturing district (M1-5) and lacks a residential certificate of occupancy. The plaintiffs allege that they have continuously occupied their apartments on the 9th, 12th and 14th floors as their primary residence for a number of years going as far back as 1989 and as recently as 1998.
The complaint alleges that defendant Tony Marra is a tenant who resides on the 15th floor of the building. In addition to residing on the 15th floor, Marra was also the lessee of the 14th and 12th floors. Marra entered into these leases with Margab Realty's predecessor-in-interest. The leases have expired. Plaintiffs allege that Marra was the illusory tenant of the 12th floor and that the residents of the 12th floor units are entitled to damages for a rent overcharge. Plaintiffs allege that the prime tenant of the 9th floor is defendant Alex Orberg and/or Dunn Deal of New York, Inc. neither of whom occupied the floor as their primary residences and are illusory tenants.
Orberg and Dunn Deal of New York are in default. The claim of illusory tenancy is not relevant to the issues on this motion. Marra has appeared in the action and supports Margab Realty's motion for summary judgment.
Margab Realty has owned the building since 1996 when it was purchased from one E.B. Morley. According to Albert Nahamies who is a member of Margab Realty, the building was exclusively managed by Martin Markowitz, a former member of Margab Realty, from 1996 through August, 1998. In August, 1998 Markowitz's interest was purchased by Margab Realty and the building is now managed by Nahamies.
Nahamies maintains that once he took over operation of the building he commenced the process to legalize the fifteenth floor, which had previously been designated an Interim Multiple Dwelling "(IMD") by the Loft Board. Nahamies contends that he discovered that the ninth, twelfth and fourteenth floors contained residential units, which violated the certificate of occupancy and the leases only after Markowitz's association with the building was terminated. He states that the landlord did not consent in writing to sublets. I. Does location of the building in a M1-5 zoning district foreclose coverage under the rent laws?
By order dated January 20, 1993 the Loft Board found that the building was an interim multiple dwelling containing one residential unit located on the 15th floor and that Marra was covered under the Loft Law.
In October, 1999 Margab Realty brought summary proceedings against the plaintiffs which were stayed by this court.
Margab Realty contends that as a matter of law plaintiffs are not entitled to coverage under the rent regulations. This argument is premised on the contention that the building is located in an M1-5 zoning district which strictly prohibits residential use. Specifically, the owner points to § 41-00(b) of the Zoning Resolution which states, as follows:
To provide, as far as possible, that such space will be available for use for manufacturing and related activities, and to protect residences by separating them from manufacturing activities and by generally prohibiting the use of such space for new residential development.
Margab Realty maintains that there are only two exceptions to residential development under the Zoning Resolution, neither of which apply. First, the building is located in an area which has been designated as joint living and work space for artists (Soho and Noho) and residential dwelling units (Tribeca). But this building is located in an M1-5 district which prohibits residential use.
Second, Margab Realty contends that MDL § 281(4) permits residential use in a M 1-5 district provided specific statutory criteria are met. It argues that here the criteria of the law are not met. The building is an interim multiple dwelling only with respect to the 15th floor (occupied by defendant Marra). Plaintiffs allege that they came into occupancy between 1989 and 1998. However, there is no allegation in the complaint that the plaintiffs' units were continuously occupied from the window period (April 1, 1980 — December 1, 1981) through May 1, 1987. Therefore, plaintiffs are unable to establish protection under the Loft Law.
Further, Margab maintains that since it cannot legalize the units, it would be improper to permit the plaintiffs to indefinitely occupy the units. Such a ruling could subject the owner to civil and criminal penalties.
Plaintiffs counter that the Zoning Resolution does not necessarily mean that the units are not entitled to rent protection. They assert that there are other residential buildings in the neighborhood and that the Board of Standards and Appeals ("BSA") has routinely granted variances permitting residential conversion of buildings that were previously utilized for industrial purposes.
Plaintiffs assert that even if the units are illegal, the apartments may still be entitled to rent stabilization status ( 840 West End Ave. v. Zurkowski, NYLJ 2/21/1991 (App Term 1st Dept); Ten Be or Not Ten Be v. Dibbs, NYLJ, 6/12/1985 (App Term 1st Dept), aff'd 117 AD2d 1028 (1st Dept 1986). The burden is on the owner to establish that it cannot remedy the illegal use without evicting the tenants.
The court's analysis begins with a recent Appellate Term case, Tan Holding Corp. v. Wallace, January 16, 2001, (App Term 1st Dept), which was decided after this motion was submitted. In Tan Holding, the tenants were living in loft units pursuant to expired commercial leases in a building also located in an M1-5 district. The landlord knew and acquiesced in the tenants living in the loft units despite the limitation in the leases that the premises were to be utilized for office or studio use.
The landlord brought a summary holdover proceeding seeking to evict the tenants. The Housing Court granted the tenants' motion for summary judgment holding that the loft units were subject to rent stabilization protection.
The Appellate Term reversed finding that summary judgment should not have been granted. However, it rejected the landlord's argument that there is an absolute exclusion from rent stabilization protection based merely on the zoning classification. The Court stated:
The assertion that residential use is prohibited because the building is situated in a "light manufacturing district" (M1-5) does not, without more evidence, definitively resolve whether the residential use or joint living/working use of the lofts dating back to 1981 would qualify as a permitted use under the applicable Zoning Resolutions — even if new residential development is now excluded in the district. These questions are unanswered in the record and preclude summary determination at this stage of the proceedings.
Consistent with Tan Holding, supra, this court finds that the Zoning Resolution does not create an absolute bar to rent regulation. On this record there is an issue of fact as to whether residential use is permitted, notwithstanding the zoning prohibition. Margab Realty makes a conclusory statement that the elements necessary to grant a variance under Zoning Resolution § 72-20 cannot be met. However, one of the criteria considered by the BSA is whether a variance will alter the essential character of the neighborhood. If plaintiffs are correct and variances have been granted within the neighborhood permitting residential conversions, another conversion may not be found to change the character of the neighborhood.
II. Are residential units that are not covered by the Loft Law subject to the Emergency Tenant Protection Act ("EPTA")?
Next, Margab Realty asserts that the EPTA or the Rent Stabilization Law does not provide a basis for coverage because the building has been found to be an IMD and is governed exclusively by the Loft Law. It argues that once the 15th floor IMD unit has been legalized, which includes obtaining a residential certificate of occupancy and final rent order by the Loft Board, only the 15th floor unit will receive the protections of the Rent Stabilization Law.
Margab Realty argues that in promulgating the Loft Law the Legislature narrowed the reach of the EPTA. It asserts that MDL § 286(13) limits EPTA protection to residential tenants who are covered by the Loft Law. Since the plaintiffs do not qualify as loft tenants, their non-IMD units are not entitled to protection under the EPTA.
MDL § 286(13) provides as follows: The applicability of the emergency tenant protection act of nineteen seventy-four to buildings occupied by residential tenants qualified for protection pursuant to this article shall be subject to a declaration of emergency by the local legislative body.
The owner also contends that the Rent Stabilization Law does not apply as the building contained fewer than six units on January 1, 1974. Furthermore, plaintiffs' creation of seven units on the 9th, 12th, and 14th floors between 1989 and 1998 does not remove the building from the jurisdiction of the Loft Board and confer protection under the RSL ( 129 East 56th Street Corp. v. Harrison, 122 Misc 2d 799 (App Term 1st Dept 1984); Buhagiar v. DHCR, NYLJ 11/3/99 (Sup Ct NY Co.).
Plaintiffs respond that the units which are not subject to Loft Law coverage are entitled to protection under the EPTA. They argue that the building, which contains six or more residential units, created with the landlord's knowledge and acquiescence, is subject to Rent Stabilization (§ 5 of the EPTA; Wilson v. One Ten Duane Street Realty Co., 123 AD2d 198 (1st Dept 1987); Tracto Equipment Corp. v. White, NYLJ, March 21, 1997 (App. Term 2d 11th Jud. Districts).
The EPTA was promulgated to provide more expansive substantive protection to tenants than what was given under the Rent Stabilization Law ( Matter of Rushkin v. Miller, 172 AD2d 164 (1st Dept 1991)). The statute applies to any housing accommodation except those specifically excluded ( see Salvoti v. Eimicke, 72 NY2d 784 (1988)). It does not contain an exemption for non-IMD units. The argument that the Legislature specifically narrowed the applicability of the EPTA to residential tenants covered by the Loft Law is not persuasive. MDL § 286(13) extends protection of the EPTA "to residential tenants qualified for protection" under the Loft Law. This might imply a limitation on coverage. However, at the time the Loft Law was passed, it was settled law that the EPTA applied to all residentially occupied commercial lofts as well ( Mandel v. Pitkowsky, 102 Misc 2d 478 (App Term 1st Dept 1979, aff'd 76 AD2d 807 (1st Dept 1980)). Accordingly, had the Legislature intended to exclude non-IMD units, the EPTA wold have been explicitly amended creating a further exemption.
Furthermore, a line of cases starting from Wilson, supra specifically recognize that the EPTA extends rent stabilization protection to loft units that were not covered by the Loft Law. In Wilson the Appellate Division found coverage despite the fact that there were seven units in the building after 1979, well after the 1974 enactment date of the statute.
More recently, in Tan Holding, supra, the Appellate Term relying on Wilson, noted as follows:
The broad remedial purpose of the Loft Law is to confer rent stabilized status on legalized interim multiple dwellings (see, Matter of 91 Fifth Avenue Corp., 249 AD2d 248; Multiple Dwelling Law § 286 [13]). But this does not, as landlord argues, necessarily negate ETPA coverage for qualifying buildings which, for whatever reason, did not undergo the conversion process set forth in Article 7-A. ( Wilson v. One Ten Duane Street Realty Co., 123 AD2d 198). As noted by Civil Court, the EPTA is `inclusive' and may provide regulation for `all housing accommodations which it does not expressly except, including previously unregulated accommodations' ( Mother of Salvoti v. Eimicke, 72 NY2d 784, 791).
Finally, the Appellate Term 2nd and 11th Districts in Tracto Equipment Corp. v. White, supra, held that a non-IMD unit in an IMD building was covered by the Rent Stabilization Law.
Margab Realty attempts to distinguish these cases on the ground that the plaintiffs here, unlike the tenants in Tan Holding and in Tracto Equipment Corp. v. White, came into possession surreptitiously and without its consent and also that the plaintiffs did not substantially rehabilitate their units.
These arguments simply raise disputed issues of fact. The plaintiffs maintain in sworn affidavits that Markowitz, who formerly managed the building and EB Morley, the prior landlord of the building and their employees, had knowledge of and acquiesced in the conversion and residential use of the units. Margab Realty's present management denies having knowledge of these events. However, the current owner cannot blind itself to what transpired under its watch, as well as the alleged residential use of the building while it was operated by the previous owner. An issue of fact is therefore raised as to whether Margab Realty acquiesced in the residential use of the units ( see UBO Realty v. Mollica, 257 AD2d 460 (1st Dept 1999)).
III. Substantial Rehabilitation
Alternatively, Margab Realty argues that the building is exempt from the EPTA because it was substantially rehabilitated after 1974 (Unconsolidated Laws § 8625(a)(5). It maintains that the rehabilitation was not performed by the plaintiffs and they should not be permitted to benefit from the rehabilitation done by others.
Plaintiffs assert that the substantial rehabilitation exemption does not apply. They argue that the purpose of the exemption is to increase the number of habitable family units. A residential certificate of occupancy is an assurance that the units are habitable. Since the owner has not obtained a certificate of occupancy, it is not entitled to the exemption.
Second, the plaintiffs assert that they expended substantial sums of money to remodel their units for living purposes and Margab Realty and its predecessor did not pay for the conversion.
There is some support for the plaintiffs' position that a certificate of occupancy is necessary in order for the landlord to obtain the benefit of the exemption ( see DHCR Operational Bulletin 95-2). However, the EPTA does not specifically impose this requirement.
A factual issue is raised as to whether the renovations made to the units constituted a substantial rehabilitation within the meaning of the EPTA ( see Matter of Eastern Park Products v. DHCR, 187 AD2d 320 (1st Dept 1992). Also there is a question here as to whether the costs were substantially borne by the tenants as well as what, if anything, the owner and its predecessor did to substantially rehabilitate the units.
For these reasons the motion by Margab Realty for summary judgment is denied. The parties are directed to appear in Part 16 (60 Centre Street, room 222) on April 25, 2001 at 9:30 a.m. for a compliance conference.
This decision constitutes the order of the court.