Opinion
160291/2015
06-10-2020
Stephen TOWNSEND, Austin Smith, Tamara Romero, Brian McFarland, Leta Margaret Barry and Anthony Baer, Gabriel and Alexis Landes, and Bruce Kolb, Plaintiffs, v. B-U REALTY CORP., Defendant.
Robert J. Anderson, Esq., New York, NY, for plaintiffs. Sidrane, Schwartz-Sidrane, Perinbasekar & Littman, LLP, Rockville Centre, NY (Michael Littman of counsel), for defendant.
Robert J. Anderson, Esq., New York, NY, for plaintiffs.
Sidrane, Schwartz-Sidrane, Perinbasekar & Littman, LLP, Rockville Centre, NY (Michael Littman of counsel), for defendant.
Gerald Lebovits, J.
In this action seeking damages for residential rent overcharges and for a declaratory judgment, plaintiffs Stephen Townsend, Austin Smith, Tamara Romero, Brian McFarland, Leta Margaret Barry and Anthony Baer (together, Barry/Baer), Gabriel and Alexis Landes (together, the Landeses), and Bruce Kolb move, pursuant to CPLR 3212, for summary judgment on the first four causes of action in the complaint against defendant B-U Realty Corp. Plaintiffs also move under CPLR 2307 for the issuance of a judicial subpoena duces tecum upon nonparty New York State Department of Housing and Community Renewal (DHCR).
BACKGROUND
Plaintiffs are the current or former tenants of seven apartments — 7G (Townsend), 7F (Smith), 7B (Romero), 7A (McFarland), 10C (Barry/Baer), 4A (the Landeses) and 3A (Kolb) — in a residential apartment building owned by defendant located at 945 West End Avenue, New York, New York (the Building). Each plaintiff moved into the Building between 2005 and 2014 after executing free market leases with defendant (NY St Cts Elec Filing [NYSCEF] Doc No. 51, affirmation of Robert J. Anderson [Anderson], exhibit C, ¶¶ 6-13, 16). None of plaintiffs' initial or renewal leases stated that their units were rent-stabilized. Nor were they accompanied by rent-stabilization riders.
From 1986 through 2000, the Building received tax abatements as part of the City of New York's J-51 tax program (see Real Property Tax Law § 489 ; Rent Stabilization Law of 1969 [Administrative Code of the City of NY] §§ 11-243 and 11-244; NYSCEF Doc No. 40, Anderson affirmation, exhibit B at 3-14). The Building also received J-51 tax abatements from July 1, 2005 to June 30, 2016, as reflected in the J-51 Benefit History Summary obtained from the New York City Department of Finance website (NYSCEF Doc No. 140, affirmation of Michael Littman [Littman], exhibit C at 2-13).
After receiving an anonymous complaint in 2014, New York State Assemblyman Daniel O'Donnell ("O'Donnell") urged DHCR to investigate whether defendant had failed to offer its tenants rent-stabilized leases despite its receipt of J-51 tax benefits (NYSCEF Doc No. 54, Anderson affirmation, exhibit E at 1-3).
On August 14, 2014, DHCR sent defendant a J-51 Tax Abatement Registration Notice (the DHCR Notice) advising it that as a condition for receiving tax benefits, all apartments in the Building were subject to rent stabilization (NYSCEF Doc No. 55, Anderson affirmation, exhibit F at 1). DHCR noted that its records indicated the Building contained numerous units that had been registered previously with DHCR as rent regulated (id. ). DHCR directed defendant to immediately register these apartments as rent regulated and to provide each tenant with a rent-stabilized lease and a notice advising them that their apartments were rent-stabilized (id. ). O'Donnell informed the Building's residents by letter dated September 17, 2014 (the September 17 Letter) that defendant had been receiving J-51 tax abatements since 2005, and that defendant was required to issue rent-stabilized leases to all tenants (NYSCEF Doc No. 54 at 2).
After receiving the DHCR Notice, defendant filed amended registration statements for apartments 3A, 4A, 7B and 7F on October 27, 2014, and for apartments 7A, 7G and 10C on February 3, 2015, to correctly reflect the rent-stabilized status for each of these units (NYSCEF Doc No. 56, Anderson affirmation, exhibit G at 33). Defendant subsequently filed amended statements revising several of the pre-2014 rent roll reports to show the legal regulated rents for plaintiffs' apartments, as calculated by defendant.
Defendant also offered plaintiffs rent-stabilized leases and refunds of the rent overcharges due to them, if any, as discussed further infra . Plaintiffs have rejected defendant's offers, partially on the ground that the legal regulated rents as calculated by defendant are incorrect. In addition, plaintiffs contend that they recently learned of a violation of the Building's permanent certificate of occupancy (C of O), which shows a total of two apartments on the seventh floor (NYSCEF Doc No. 57, Anderson affirmation, exhibit H at 1). At present, there are four apartments — 7G, 7F, 7B and 7A — on that floor. The seventh floor tenants — Townsend, Austin Smith, Romero, and McFarland — have all refrained from paying rent because of the occupancy violation.
A. Apartment 7G — Townsend
Townsend took up residency in apartment 7G in March 2005 under a sublease agreement with the former tenant, and assumed paying the monthly rent of $4,100 (NYSCEF Doc No. 61, Townsend aff, exhibit ST1 at 1 and 5). On April 14, 2005, Townsend executed a free market lease in his own name with defendant for a one-year term beginning August 1, 2005 (id. at 9). Townsend has executed several non-regulated lease renewals, and remains a tenant of the apartment. The leases show Townsend's monthly rent was $4,200 from August 1, 2005 to July 31, 2006; $4,400 from August 1, 2006 to July 31, 2007; $4,900 from August 1, 2007 to July 31, 2008; $5,096 from August 1, 2008 to June 30, 2012 ; $5,248.80 from July 1, 2012 to June 30, 2013 ; $5,344 from July 1, 2013 to June 30, 2014; and $5,557.76 from July 1, 2014 to June 30, 2015 (NYSCEF Doc No. 41, ¶ 15; NYSCEF Doc No. 61, Townsend aff, exhibit ST1).
Neither Townsend nor defendant have furnished the court with Townsend's renewal leases for 2009 to 2012.
A copy of the lease for this period attached to defendant's opposition shows Townsend's monthly rent was $5,524.88 (NYSCEF Doc No. 143, Bogoni aff, exhibit F at 19).
Townsend avers that he learned his apartment was subject to the Rent Stabilization Law upon receiving the September 17 Letter, and that he ceased paying rent that same month (NYSCEF Doc No. 41, Townsend aff, ¶¶ 12-13). In August 2015, defendant forwarded Townsend a rent stabilized renewal lease beginning December 1, 2015 with monthly rent set at $5,099.96 for one year or $5,201.96 for two years (NYSCEF Doc No. 144, Paul Bogoni [Bogoni] aff, exhibit G at 1). The renewal lease contained a tax benefits rider, which stated that the benefits were expected to expire on June 2016 (id. at 4). Townsend avers that he refused to sign the renewal lease because "[t]he ‘renewals’ were in fact free market leases at my old illegal rent. They did not give me the choice of a one or two year renewal as required by law. They also included an improper J-51 rider" (NYSCEF Doc No. 41, ¶ 14).
Townsend further avers that his apartment and Smith's apartment next door "were illegally created from a larger 9 room unit 7C in the early 1990s without the required construction permits from Department of Buildings, and without the required certification for alteration from DHCR" (NYSCEF Doc No. 41, ¶ 5). Townsend explains that apartment 7C, which had been registered previously with DHCR as a rent-controlled apartment, does not exist in the current configuration of the seventh floor, as evidenced in the Building's front entrance directory (id. at ¶¶ 5 and 20; NYSCEF Doc No. 71, Smith aff, exhibit AS5 at 1).
Townsend maintains that he ceased paying rent in September 2014 because of the alleged occupancy violation (NYSCEF Doc No. 41, ¶ 12). He states that when he learned defendant had obtained a temporary C of O, he offered to pay temporary use and occupancy, but defendant insisted that Townsend pay "our old lease amounts which are clearly illegal" (id. , ¶ 9). Bogoni, one of defendant's officers and the Building's managing agent, confirms that Townsend has paid no rent or use and occupancy since August 2014 (NYSCEF Doc No. 136, Bogoni aff, ¶ 20).
A certified copy of the DHCR records for the Building shows that defendant registered apartment 7G for the first time in 1992. The annual registration rent roll report for that year lists the apartment as "RS" or "Rent Stabilized," with the tenant, "Porter," paying $2,350 in legal regulated rent (NYSCEF Doc No. 56 at 11; NYSCEF Doc No. 62, Townsend aff, exhibit ST2 at 1). Porter remained the rent-stabilized tenant through July 31, 1999, when the last registered rent was $2,884.77 (NYSCEF Doc No. 62 at 4). On July 2, 1999, defendant registered the apartment as "PE" or "Permanently Exempt" due to a high rent vacancy (id. ). Defendant ceased filing registration statements thereafter (id. ).
Four months after it received the DHCR Notice, defendant filed registration statements amending the annual rent roll reports for 2006 through 2013 for the apartment (NYSCEF Doc No. 62 at 4-5; NYSCEF Doc No. 56 at 25-37). The revised reports contain the legal regulated rents as calculated by defendant (NYSCEF Doc No. 136, ¶ 21). Together with more recent filings, the DHCR records now show Townsend as the tenant of record and the following in legal rent: $4,200 in 2006; $4,315.50 in 2007; $4,498.91 in 2008; $4,633.88 from 2009 to 2012; $4,807.66 in 2013; $4,903.81 in 2014; and $5,099.96 in 2015 and 2016 (NYSCEF Doc No. 56 at 25-37).
On or about November 19, 2015, defendant offered Townsend a rent overcharge refund of $19,540.49, inclusive of 9% statutory interest from October 2011, and a security deposit refund of $457.80 (NYSCEF Doc No. 136, ¶ 20; NYSCEF Doc No. 145, Bogoni aff, exhibit H at 1). Townsend has not accepted defendant's offer.
B. Apartment 7F — Smith
Smith took up occupancy in apartment 7F under a non-regulated lease for one year beginning July 1, 2012. Together with the two renewal leases, Smith's monthly rent was $3,400 from July 1, 2012 to June 30, 2013; $3,468 from July 1, 2013 to June 30, 2014; and $3,606.72 from July 1, 2014 to June 30, 2015 (NYSCEF Doc No. 67, Smith aff, exhibit AS1).
Smith avers that in 2014, he learned his apartment was subject to the Rent Stabilization Law as a result of defendant's receipt of J-51 benefits (NYSCEF Doc No. 42, Smith aff, ¶¶ 5 and 13). Smith has not paid rent since October 2014 (id. , ¶ 12). In August 2015, defendant offered Smith a renewal lease commencing December 1, 2015 with monthly rent set at $3,579.25 for one year or $3,650.84 for two years (NYSCEF Doc No. 150, Bogoni aff, exhibit M at 1). The proposed lease contained a tax benefits rider advising Smith that the J-51 benefits would expire in June 2016 (id. at 4). Smith states that he rejected defendant's offer of a new lease, in part, because the renewal set an illegal free market rent (NYSCEF Doc No. 42, ¶ 14). Bogoni confirms that Smith has not paid rent or use and occupancy since September 2014 (NYSCEF Doc No. 136, ¶ 27).
Smith states that the illegal subdivision of apartment 7C into apartments 7F and 7G has caused numerous problems related to the gas supply, plumbing, electrical outlets, and circuit breaker panels for all of the apartments on the seventh floor (NYSCEF Doc No. 42, ¶ 19). In addition, Smith avers that "[o]n November 4, 2015, Con Edison shut off the gas at the building when they discovered a gas leak in a line installed by Defendant without a permit" and that "gas was not restored until April 2016" (id. , ¶ 19).
Apartment 7F appears in DHCR's records for the first time in the 1992 rent roll report (NYSCEF Doc No. 56 at 11). The rent-stabilized tenant at that time, "Bothwell," paid $1,500 in rent per month (id. ), and remained the tenant of record through 2003, when the last registered rent was $1,961.60 (id. at 22). Defendant next registered the apartment as permanently exempt due to a high rent vacancy in 2004, and ceased filing annual statements thereafter (id. at 23).
On January 26, 2015, defendant filed registration statements for apartment 7F revising the annual rent roll reports for 2005 through 2013 (NYSCEF Doc No. 56 at 24-32). Together with more recent filings, the DHCR records show the following with regard to apartment 7F:
| Year | Apartment Status | Registered Rent | Tenant |
|---|---|---|---|
| 2005 | PEN | one | None |
| 2006 | RS | $2,800 | Matthiack & Diskin |
| 2007 | RS | $2,900 | Matthiack & Diskin |
| 2008 | RS | $2,900 | Matthiack & Diskin |
| 2009 | V | $2,900 | Vacant |
| 2010 | RS | $2,750 | Wallance |
| 2011 | RS | $2,832.50 | Wallance |
| 2012 | RS | $2,896.23 | Wallance |
| 2013 | RS | $3,374.11 | Smith |
| 2014 | RS | $3,579.25 | Smith |
| 2015 | RS | $3,579.25 | Smith |
| 2016 | RS | $3,606.72 | Smith |
On or about November 19, 2015, defendant offered Smith a rent overcharge refund of $858.47, inclusive 9% statutory interest from July 2012, and a security deposit refund of $27.47 (NYSCEF Doc No. 136, ¶ 27; NYSCEF Doc No. 149, exhibit L at 1). Smith has not accepted defendant's offer.
C. Apartment 7B — Romero
Romero became the tenant of apartment 7B under a one-year non-regulated lease beginning April 1, 2012. Romero's initial and renewal leases show monthly rent was $4,900 from April 1, 2012 to April 1, 2013; $5,000 from April 1, 2013 to March 31, 2014; and $5,200 from April 1, 2014 to March 31, 2015 (NYSCEF Doc No. 91, Romero aff, exhibit TR1).
Romero avers that in 2014, she learned her unit was subject to rent stabilization and learned that the number of apartments on the seventh floor constituted a violation of the Building's C of O (NYSCEF Doc No. 44, Romero aff, ¶¶ 6-7). Romero described experiencing similar electrical and plumbing issues as those described by Smith and further detailed in a report prepared by Rand Engineering and Architecture, DPC (id. , ¶¶ 9-11).
According to the certified DHCR records, defendant registered apartment 7B as rent-stabilized from 1984 until 1999, when defendant registered the unit as permanently exempt due to a high rent vacancy (NYSCEF Doc No. 56 at 2-18). No annual statements were filed thereafter. After receiving the DHCR Notice, defendant filed a statement for the unit for the 2014 rent roll report (id. at 33). Defendant subsequently filed statements amending the annual rent roll reports for 2006 through 2013 (NYSCEF Doc No. 56 at 25-32). The amended DHCR records for apartment 7B now show the following:
| Year | Apartment Status | Registered Rent | Tenant |
|---|---|---|---|
| 2006 | RS | $3,500 | Ronald Rapp |
| 2007 | RS | $3,500 | Ronald Rapp |
| 2008 | RS | $3,500 | Ronald Rapp |
| 2009 | RS | $3,657.50 | Ronald Rapp |
| 2010 | RS | $4,279.28 | Beth Spanier |
| 2011 | RS | $4,375.56 | Beth Spanier |
| 2012 | RS | $4,900 | Romero |
| 2013 | RS | $4,998 | Romero |
| 2014 | RS | $5,197.92 | Romero |
| 2015 | RS | $5,197.92 | Romero |
| 2016 | RS | $5,197.92 | Romero |
Defendant has offered Romero a renewal lease dated August 6, 2015, with monthly rent set at $5,197.92 for one year or $5,301.88 for two years, with the term commencing on December 1, 2015 (NYSCEF Doc No. 153, Bogoni aff, exhibit P at 1). Annexed to the proposed lease is a tax benefits rider stating that the Building's J-51 benefits would expire on June 2016 (id. at 4). On October 25, Romero, through her attorney, rejected defendant's offer based, in part, on the belief that the new monthly rent had been miscalculated (NYSCEF Doc No. 64, Smith aff, exhibit ST4 at 1).
On or about November 19, 2015, defendant offered Romero a rent overcharge refund of $40.57, inclusive of 9% statutory interest from July 2012, and a security deposit refund of $2.08 (NYSCEF Doc No. 136, ¶ 36; NYSCEF Doc No. 154, Bogoni aff, exhibit Q at 1). Romero has not accepted defendant's offer.
D. Apartment 7A — McFarland
McFarland began residing in apartment 7A under a one-year non-regulated lease beginning October 1, 2014, with monthly rent at $4,395 (NYSCEF Doc No. 84, McFarland aff, exhibit BM1 at 1). McFarland avers that he learned the tenants at the Building received a letter from DHCR in August 2014 informing them that "the landlord had failed to file proper registrations, had failed to give many of the tenants proper stabilized leases, and that Apt. 7A was subject to Rent Stabilization due to the ongoing receipt of J-51 benefits by the landlord" (NYSCEF Doc No. 43, McFarland aff, ¶ 4 [b] ). McFarland further avers that he learned "the landlord or his predecessor, had converted two presumably rent controlled apartments on the 7th floor, into four smaller non rent controlled apartments without permits and without informing the DHCR" (id. , ¶ 4 [c] ). McFarland admits has not paid his rent since October 2014 because of the occupancy violation (id. , ¶ 12). Bogoni confirms that McFarland "has only paid $2,197.50 in total, in September 2014, and has never paid any additional rent since he moved in almost (5) years ago" (NYSCEF Doc. No. 136, ¶ 39).
Five months after receiving the DHCR notice, defendant filed registration statements revising the rent roll reports for 2005 through 2013 for apartment 7A (NYSCEF Doc No. 56 at 24-33). Together with more recent filings, the DHCR records for apartment 7A show the following:
| Year | Apartment Status | Registered Rent | Tenant |
|---|---|---|---|
| 2005 | RS | $3,580.80 | John Kapon |
| 2006 | RS | $3,777.74 | John Kapon |
| 2007 | RS | $3,777.74 | John Kapon |
| 2008 | RS | $3,994.96 | John Kapon |
| 2009 | RS | $3,994.96 | John Kapon |
| 2010 | V | $3,995 | Vacant |
| 2011 | V | $3,995 | Vacant |
| 2012 | RS | $3,995 | Jordana Kritzer |
| 2013 | RS | $4,144.81 | Jordana Kritzer |
| 2014 | RS | $4,295 | Yasmin Crespi |
| 2015 | RS | $4,395 | McFarland |
| 2016 | RS | $4,395 | McFarland |
In addition, defendant filed a petition for administrative review (PAR) with DHCR in 2017 for an administrative determination of McFarland's legal regulated rent (NYSCEF Doc No. 85, McFarland aff, exhibit BM2 at 1). In an order issued April 10, 2018, DHCR concluded that "the tenant's claims, as relate to the owner's receipt of J-51 benefits and other issues, are being raised in the pending New York Supreme Court proceeding Townsend et al. v. B-U Realty Corp. , Index No. 160291/2015, and that a decision on the legal rent and on other issues shall be rendered in this proceeding" (id. at 4-5).
E. Apartment 10C — Barry/Baer
Barry/Baer took up occupancy in apartment 10C pursuant to a one-year non-regulated lease for a term beginning October 25, 2008. Barry/Baer's initial lease and one-year renewal leases show their monthly rent was $5,050 from October 25, 2008 to October 31, 2009; $4,800 from November 1, 2009 to October 31, 2010; $4,944 from November 1, 2010 to October 31, 2011; $5,092.32 from November 1, 2011 to October 31, 2012; $5,245.79 from November 1, 2012 to October 31, 2013; and $5,455.62 from November 1, 2013 to October 31, 2014 (NYSCEF Doc No. 99, Barry aff, exhibit LB1).
Barry states that "[w]e learned in 2014 that our apartment was subject to Rent Stabilization as a result of Defendant's receipt of J-51 benefits," and that the September 17 Letter from O'Donnell confirmed that the apartment was rent regulated (NYSCEF Doc. 45, Barry aff, ¶¶ 6-7). Barry further states that she and Baer have paid $5,455.62 in monthly rent from November 2013 through February 2019 (id. , ¶ 5).
According to the DHCR records, defendant initially registered apartment 10C in 1984 as a rent-controlled unit (NYSCEF Doc No. 56 at 3). Defendant ceased filing annual statements thereafter, with DHCR listing the unit as exempt due to "RENT CONTROL — REG NOT REQUIRED" in subsequent rent roll reports (NYSCEF Doc No. 100, Barry aff, exhibit LB2 at 3-7). Defendant filed a notice of vacancy decontrol with DHCR on or about September 12, 2005, and that defendant intended to raise the monthly rent from $1,813.75 to $4,500 based on "total rehab. of apartment" (NYSCEF Doc No. 106, Barry aff, exhibit LB8 at 1). Bogoni avers that the tenants who took up occupancy in that unit following the transition from rent control to rent stabilization paid $4,300 per month in rent beginning October 1, 2005 (NYSCEF Doc No. 136, ¶ 59).
Five months after it received the DHCR Notice, defendant filed statements revising the rent roll reports for years 2008 to 2013 for apartment 10C (NYSCEF Doc No. 56 at 27-32). The DHCR records show:
| Year | Apartment Status | Registered Rent | Tenant |
|---|---|---|---|
| 2008 | RS | $4,900 | Sharma and Ogden |
| 2009 | V | $4,900 | Vacant |
| 2010 | RS | $5,050 | Barry and Baer |
| 2011 | RS | $5,050 | Barry and Baer |
| 2012 | RS | $5,092.32 | Barry and Baer |
| 2013 | RS | $5,194.17 | Barry and Baer |
| 2014 | RS | $5,401.94 | Baer |
| 2015 | RS | $5,401.94 | Barry |
| 2016 | RS | $5,401.94 | Barry |
In October 2014, defendant presented Barry/Baer with a two-year lease beginning November 1, 2014, with monthly rent set at $5,605.65 (NYSCEF Doc No. 102, Barry aff, exhibit LB4 at 2). The accompanying tax benefits rider stated that the "[t]he apartment shall remain subject to [the Rent Stabilization Law] until the expiration of the building's tax benefits which are expected to expire on or about June 2016 or the expiration of the applicable provisions of the Rent Stabilization Law, whichever is earlier" (id. at 1 and 8). By email dated November 3, 2014, Barry/Baer's counsel rejected defendant's offer, writing that Barry/Baer would not sign the new lease because "[t]he rent was not legal; the tenants were entitled to, and did not receive, an option of a one- or a two-year lease; and the notice is wrong in that they will continue to remain rent stabilized after the J51 ends" (NYSCEF Doc No. 103, Barry aff, exhibit LB5 at 1). Counsel also intimated that defendant had intentionally charged Barry/Baer an improper rent (id. ).
In August 2015, defendant offered Barry/Baer another renewal lease (NYSCEF Doc No. 45, ¶ 9). Through counsel, Barry/Baer rejected defendant's offer because "[t]he ‘renewal’ rent had no relation to the rent we were paying and was an illegal rent. It also included an improper J-51 rider" (id. ; NYSCEF Doc No. 104, Barry aff, exhibit LB6 at 1).
On or about November 19, 2015, defendant offered Barry/Baer a rent overcharge refund of $2,238.63, inclusive of 9% statutory interest from October 2011, and a security deposit refund of $53.68 (NYSCEF Doc No. 136, ¶ 61; NYSCEF Doc No. 170, Bogoni aff, exhibit GG at 1). Barry/Baer have not accepted defendant's offer.
F. Apartment 4A — The Landeses
The Landeses became the tenants of apartment 4A under a two-year non-regulated lease beginning March 14, 2014 at a monthly rent of $3,360 (NYSCEF Doc No. 116, Gabriel aff, exhibit GL1 at 1). Gabriel avers that he and his family paid $3,360 each month in rent through June 30, 2017, and that they applied their one-month security deposit for the rent due July 2017 (NYSCEF Doc No. 48, Gabriel aff, ¶¶ 3 and 8). The Landeses moved out of the Building in July 2017.
According to the initial registration rent roll report from 1984, the rent-controlled tenant occupying apartment 4A paid $415.67 per month in legal rent (NYSCEF Doc No. 56 at 2). DHCR listed the apartment as "RENT CONTROL — REG NOT REQUIRED" until 1992, when the apartment transitioned from rent control to rent stabilization (NYSCEF Doc No. 117, Gabriel aff, exhibit GL2 at 2). In 2003, defendant registered the apartment as "TE" or "Temporarily Exempt" due to "COMM/PROF (NO C/O)," and in 2004, defendant registered the apartment as permanently exempt due to a high rent vacancy (NYSCEF Doc No. 56 at 22-23).
Two months after receiving the DHCR Notice, defendant filed a registration statement for apartment 4A, listing the unit as rent-stabilized and "Landes" as the tenant of record for the 2014 rent roll report (NYSCEF Doc No. 56 at 33). On June 2, 2015, defendant filed statements revising the registration rent roll reports for 2006 to 2013 (id. at 25-37). Together with other subsequent filings, the DHCR records for apartment 4A state:
| Year | Apartment Status | Registered Rent | Tenant |
|---|---|---|---|
| 2006 | RS | $2,643 | Samuel Manas |
| 2007 | RS | $2,645 | Keith Buhl |
| 2008 | RS | $2,645 | Keith Buhl |
| 2009 | RS | $2,689.83 | Keith Buhl |
| 2010 | RS | $2,689.83 | Keith Buhl |
| 2011 | RS | $2,810.87 | Keith Buhl |
| 2012 | RS | $2,810.87 | Keith Buhl |
| 2013 | RS | $2,923.30 | Keith Buhl |
| 2014 | RS | $3,360 | Landes |
| 2015 | RS | $3,360 | Gabriel Landes |
| 2016 | RS | $3,360 | Gabriel Landes |
In April 2015, defendant forwarded the Landeses a rent-stabilized lease for the apartment (NYSCEF Doc No. 119, Gabriel aff, exhibit GL4 at 1). The substitute lease, retroactive to February 14, 2014, set monthly rent at $3,360 for a two-year lease term (id. at 5). The substitute lease contained a lease rider stating that rent for the prior tenant was $2,923.30 (id. at 11). Gabriel avers that he rejected the substitute lease "[b]ecause the lease was not a proper [s]tabilized lease at the correct rent" (NYSCEF Doc No. 48, Gabriel aff, ¶ 7; NYSCEF Doc No. 120, Gabriel aff, exhibit GL5 at 1-2).
G. Apartment 3A — Kolb
Kolb began residing in apartment 3A under a one-year free market lease beginning July 1, 2011. Kolb's initial lease and four renewal leases show that his monthly rent was $3,100 from July 1, 2011 to June 30, 2012; $3,224 from June 1, 2012 to May 31, 2013; $3,304.60 from June 1, 2013 to May 31, 2014; and $3,436.78 from June 1, 2014 to May 31, 2015 (NYSCEF Doc No. 110, Kolb aff, exhibit BK1).
DHCR listed apartment 3A as rent-stabilized in the Building's annual rent roll reports from 1984 to 2006 (NYSCEF Doc No. 56 at 2-25). On June 22, 2007, defendant registered the apartment as permanently exempt due to a high rent vacancy (id. at 26), and ceased filing annual statements thereafter. Since October 27, 2014, defendant has filed registration statements each year for the apartment with Kolb shown as the tenant of record. The annual rent roll reports state that Kolb paid a legal rent of $3,304.60 in 2014 and $3,436.78 for 2015 and 2016 (id. at 33-37).
On May 29, 2015, defendant offered Kolb a one-year lease with monthly rent at $3,371.15 (NYSCEF Doc No. 113, Kolb aff, exhibit BK4 at 1). Kolb's attorney rejected the offer by letter dated June 24, 2015, writing that "this rent is improper and that Mr. Kolb has been overcharged since he moved into the premises" (NYSCEF Doc No. 114, Kolb aff, exhibit BK5 at 1). In addition, the lease did not offer Kolb a one-year or two-year renewal option (id. at 2).
On November 19, 2015, defendant offered Kolb a rent overcharge refund of $966.32, inclusive of $24.98 as a security deposit refund and 9% statutory interest from October 2011 (NYSCEF Doc No. 136, ¶ 57; NYSCEF Doc No. 166, exhibit C at 1). Kolb has not accepted defendant's offer.
PROCEDURAL HISTORY
Plaintiffs commenced this action on October 7, 2015 by filing a summons and complaint, alleging that defendant has treated their apartments as exempt from the Rent Stabilization Law of 1969 (Rent Stabilization Law §§ 26-501 et seq .) from the beginning of their tenancies despite its receipt of J-51 tax benefits (NYSCEF Doc No. 51, Anderson affirmation, exhibit C, ¶¶ 2, 21 and 23). Plaintiffs allege that defendant filed false annual registration statements with DHCR, illegally raised their rents and improperly deregulated their apartments (id. , ¶¶ 22 and 24). Plaintiffs further allege that defendant's conversion of the two seventh-floor apartments into four apartments was illegal because it violates the Multiple Dwelling Law and other state and local statutes (NYSCEF Doc No. 51, ¶ 28).
The first cause of action in the complaint seeks a declaration: (1) that plaintiffs' apartments are subject to the Rent Stabilization Law; (2) that their apartments shall remain rent-stabilized until the first vacancy of such apartment after the J-51 tax benefits expire; (3) determining the legal regulated rents for plaintiffs' apartments; and (4) directing defendant to offer plaintiffs rent-stabilized leases at the legal regulated rents and enjoining defendant from terminating or taking any steps to terminate plaintiffs' tenancies. The second and third causes of action plead rent overcharge claims. The fourth cause of action seeks a judgment in favor of Townsend, Smith, Romero and McFarland declaring that defendant violated the Multiple Dwelling Law by illegally subdividing apartment 7C into two apartments, and that Townsend, Smith, Romero and McFarland shall not pay rent until the occupancy violations are cured. The fifth cause of action seeks an award of damages to Townsend, Smith, Romero and McFarland for the violation of the Building's permanent C of O. The sixth cause of action seeks an award of attorneys' fees pursuant to Real Property Law § 234.
In its answer, defendant admitted that it has received J-51 tax benefits since 2005, and that plaintiffs' apartments are subject to the Rent Stabilization Law for the period during which it received those tax benefits (NYSCEF Doc No. 52, Anderson affirmation, exhibit C1, ¶¶ 18, 20 and 53). Defendant also raised three affirmative defenses, two of which are relevant on this motion, and asserted two counterclaims.
As a second affirmative defense, defendant pleads that plaintiffs cannot recover treble damages when plaintiffs' apartments transitioned from rent control or rent stabilization to unregulated, free market status because defendant reasonably relied on DHCR guidance issued before the decision rendered in Roberts v. Tishman Speyer Props., L.P. (13 NY3d 270 [2009] ) (id. , ¶ 53). The third affirmative defense alleges that defendant has complied with the Rent Stabilization Law offering plaintiffs rent-stabilized leases and refunding the rent overcharges due to them, together with statutory interest and an excess security deposits (id. , ¶¶ 131, 134 and 137).
Defendant's first counterclaim seeks payment of all rent and fair use and occupancy that has accrued during the pendency of this action (id. , ¶ 140). The second counterclaim seeks an award of attorneys' fees pursuant to a provision in the parties' leases along with fees and costs under CPLR 3221. Contemporaneous with service of its answer, defendant served offers to compromise upon plaintiffs (NYSCEF Doc No. 173, Anderson affirmation, exhibit JJ), none of whom have accepted.
Plaintiffs now move for summary judgment on the first four causes of action. Plaintiffs rely on their affidavits and leases, the DHCR records, defendant's rent records, and other exhibits. Defendant, in opposition, presents an affidavit from Bogoni, one of defendant's owners and the Building's managing agent, an affidavit from expert Robert Perosi (Perosi), the updated DHCR records, and defendant's rent ledger, among other exhibits.
DISCUSSION
A party moving for summary judgment "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case" ( Winegrad v. New York Univ. Med. Ctr. , 64 NY2d 851, 853 [1985] ). The motion must be supported by evidence in admissible form (see Zuckerman v. City of New York , 49 NY2d 557, 562 [1980] ), and by the pleadings and other proof such as affidavits, depositions and written admissions (see CPLR 3212 [b] ). The movant's "failure to make a prima facie showing of entitlement to summary judgment requires a denial of the motion, regardless of the sufficiency of the opposing papers" ( William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh , 22 NY3d 470, 475 [2013], citing Vega v. Restani Constr. Corp. , 18 NY3d 499, 503 [2012] ).
A. Plaintiffs' Apartments and the Rent Stabilization Law
The first cause of action seeks a declaration that plaintiffs' apartments are subject to the Rent Stabilization Law. It is settled that "[r]ental units in buildings receiving ... [J-51] exemptions and/or abatements must be registered with the State Division of Housing and Community Renewal (DHCR), and are generally subject to rent stabilization for at least as long as the J-51 benefits are in force" ( Roberts , 13 NY3d at 280, citing 28 RCNY 5-03 [f] [1]; see also Administrative Code § 26-504 [c] ). Even apartments that were not subject to rent regulation become rent-stabilized for the period during which a building receives J-51 tax benefits (see Gersten v. 56 7th Ave. LLC , 88 AD3d 189, 194 [1st Dept 2011], appeal withdrawn 18 NY3d 954 [2012] ).
On this motion, plaintiffs have demonstrated, and defendant has conceded, that their tenancies began during the period within which the Building received J-51 tax abatements. As such, plaintiffs are entitled to a declaration that their apartments are rent-stabilized until the conclusion of the J-51 benefits period, "retroactive to the inception" of their tenancies ( Taylor v. 72A Realty Assoc., L.P. , 151 AD3d 95, 100 [1st Dept 2017], affd as mod sub nom. Matter of Regina Metro. Co., LLC v. New York State Div. of Hous. & Community Renewal , 2020 NY Slip Op 02127 [2020] ).
Next, plaintiffs seek a declaration that their apartments shall remain rent-stabilized after the J-51 benefits period ends based upon defendant's failure to initially treat their units as rent-stabilized. Defendant, in response, argues that plaintiffs are not entitled to such a declaration. Defendant maintains that the J-51 benefits expired in June 2016, and therefore, the apartments are subject to deregulation. Furthermore, defendant contends that prior to the commencement of this action, it furnished each plaintiff with a renewal lease containing a J-51 rider advising them of when the tax benefits would expire.
"[A]n apartment that is subject to rent stabilization before receiving J-51 benefits reverts to its pre-J-51 rent-stabilized status upon the expiration of those benefits [which] includes the right of an owner to seek luxury decontrol in appropriate cases" ( Taylor , 151 AD3d at 101 ). However, where an owner improperly deregulates an apartment while receiving tax benefits, the complaining tenant is entitled to rent-stabilized status for the duration of his or her tenancy (id. ; see also 72A Realty Assoc. v. Lucas , 101 AD3d 401, 401-402 [1st Dept 2012] ).
Furthermore, where an apartment becomes rent-stabilized because of an owner's receipt of J-51 benefits, the unit "remains stabilized upon the expiration of those benefits, except in two distinct instances: where the stabilized tenant vacates, or where the stabilized tenant had been consistently and properly notified in his [or her] leases that the apartment would become deregulated upon the expiration of tax benefits" (Matter of 73 Warren St., LLC v. State of NY Div. of Hous. & Community Renewal , 96 AD3d 524, 527 [1st Dept 2012] [discussing deregulation procedures when J-51 benefits end as described in Administrative Code § 26-504 (c) ]; Gersten , 88 AD3d at 194 [same] ). The notification requirement found in Rent Stabilization Code (9 NYCRR) § 2520.11 (o) (2) provides that each lease and renewal lease a landlord furnishes a tenant shall include "a notice informing such tenant that the housing accommodation shall become deregulated upon the expiration of the last lease or rental agreement entered into during the tax benefit period, and states the approximate date on which such tax benefit period is scheduled to expire."
The DHCR records show that defendant removed the apartments leased by Townsend (7G), Smith (7F), Romero (7B), Barry/Baer (10C) and the Landeses (4A) from rent regulation due to high rent vacancies prior to June 2005. None of these plaintiffs' initial and renewal leases stated whether their units were rent-stabilized. Likewise, their leases did not contain the requisite notice describing when the J-51 benefits period commenced, the approximate date the benefits were slated to expire, or whether their apartments would be removed from rent regulation when those benefits expired. Thus, under Administrative Code § 26-504 (c), apartments 7G (Townsend), 7F (Smith), 7B (Romero), 7A (McFarland), 10C (Barry/Baer) and 4A (the Landese) shall remain rent-stabilized until the plaintiffs occupying these units vacate them, and these plaintiffs are entitled to a declaration in accordance therewith (see Matter of 73 Warren St., LLC , 96 AD3d at 527 ; East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal , 16 AD3d 166, 167 [1st Dept 2005] [reasoning that an apartment did not become destabilized after the J-51 benefits expired because the owner failed to include the requisite J-51 notice in the tenant's lease]; 254 PAS Prop. LLC v. Gamboa , 16 Misc 3d 131[A], 2007 NY Slip Op 51429[U], *1 [App Term, 1st Dept 2007] [finding that the tenant's apartment remained subject to rent stabilization even though the owner's tax benefits expired because the tenant's lease and renewals did not contain a J-51 notice] ).
As to McFarland, he executed his first lease with defendant on September 2, 2014 (NYSCEF Doc No. 84 at 4). By that time, defendant had already received the DHCR Notice, yet defendant waited nearly one year before offering McFarland a rent-stabilized renewal lease with a J-51 rider (NYSCEF Doc No. 64 at 1). Thus, a declaration in McFarland's favor that apartment 7A shall remain rent-stabilized until McFarland vacates the unit is warranted.
The DHCR records also show that defendant removed apartment 3A (Kolb) from rent regulation in 2007, while defendant was in receipt of J-51 benefits. A review of Kolb's initial and renewal leases shows that he was not offered a rent-stabilized lease, and that the leases did not contain a J-51 rider. As such, Kolb is entitled to a declaration that his apartment shall remain rent-stabilized for the duration of his tenancy based upon defendant's failure to comply with the notice requirements set forth in Rent Stabilization Code (9 NYCRR) § 2520.11 (o) (2), as above (see Matter of 73 Warren St., LLC , 96 AD3d at 527 ). Kolb is entitled to such a declaration for the additional reason that "a landlord receiving the benefit of a J-51 tax abatement may not deregulate any apartment in the building pursuant to the luxury decontrol laws" while those benefits are in effect ( Borden v. 400 E. 55th St Assoc., L.P. , 24 NY3d 382, 390 [2014] ).
Defendant fails to raise a triable issue of fact in opposition. Its belated attempt to comply with the Rent Stabilization Law by offering plaintiffs renewal leases with a J-51 rider is insufficient to demonstrate that it "consistently and properly " advised them of the tax benefit period or if their apartments would become deregulated once those benefits ended (Matter of Warren St., LLC , 96 AD3d at 527 [emphasis added]; Ogando v. Pamela Equities Corp. , 44 AD3d 367, 367 [1st Dept 2007], lv denied 9 NY3d 818 [2008] [granting summary judgment to the defendant landlord because "[d]efendant complied with the requirement to notify the tenants of the expiration of tax benefits"] ).
Defendant's reliance on Real Property Tax Law § 489, which contains language similar to Administrative Code § 26-504 (c), is misplaced. Real Property Tax Law § 489 (7) (b) (2) states in relevant part:
"Any dwelling unit subject to rent regulation on or before the effective date of this subparagraph as a result of receiving a tax exemption or abatement pursuant to this section shall be subject to such regulation until the occurrence of the first vacancy of such unit after such benefits are no longer being received ... or if each lease and renewal thereof for such unit for the tenant in residence at the time of the expiration of the tax benefit period has included a notice ... informing such tenant that the unit shall become subject to deregulation upon the expiration of such tax benefit period ..., such dwelling unit shall be deregulated as of the end of the tax benefit period."
This provision thus "applies only if the tax benefits were received on or before its June 19, 1985 effective date" ( Walsh v. Wusinich , 32 AD3d 743, 744 [1st Dept 2006], rearg denied 2006 NY App Div LEXIS 14694 [1st Dept 2006]). In this action, the J-51 tax benefit period began in 2005. Real Property Tax Law § 489 (7) (b) (2) is inapplicable.
Consequently, plaintiffs are entitled to a declaration that their apartments and their tenancies are subject to the Rent Stabilization Law for the entire period the Building received J-51 tax benefits, and shall remain rent-stabilized until the first vacancy after those benefits expire. Plaintiffs, with the exception of the Landeses, who moved out of the Building in July 2017, are also entitled to receive rent-stabilized leases at the correct legal regulated rents.
To the extent plaintiffs seek an order enjoining defendant from terminating or taking any steps to terminate their tenancies, this facet of the motion is denied. Plaintiffs advance no arguments in support, and it does not appear that defendant has taken any actions to terminate their tenancies (NYSCEF Doc No. 41, ¶ 9).
B. Rent Overcharges and Base Rent
The second and third causes of action seek damages for rent overcharges, including treble damages under Rent Stabilization Code (9 NYCRR) § 2526.1 (a) (1) for defendant's willful rent overcharges. Plaintiffs contend that the base rents for calculating their legal regulated rents and overcharges are unreliable because defendant engaged in a fraudulent scheme to deregulate their apartments. They urge the court to look beyond the statutory four-year look back period applicable to rent overcharge claims and to employ the default formula prescribed in Rent Stabilization Code (9 NYCRR) § 2522.6 to determine their legal rents.
Defendant denies that it fraudulently deregulated plaintiffs' apartments and attributes the erroneous rents to its reliance on DHCR guidelines issued prior to Roberts, which did not preclude high rent vacancy deregulation while a building received J-51 tax benefits, and to "clerical" errors in computing the correct rents (NYSCEF Doc No. 136, ¶¶ 52 and 63). Importantly, defendant observes that only Townsend and Barry/Baer took up occupancy in the Building before 2009. The lack of defendant's fraudulent intent is further evinced by its offer of full refunds to those plaintiffs who had been overcharged. Defendant contends that in the absence of fraud, the court may only look to the four-year period immediately preceding the filing date of this action.
A residential rent overcharge claim "is a fact-based inquiry that relies primarily on objective evidence to determine the lawful rent that should be charged for the premises" (Matter of H.O. Realty Corp. v. State of NY Div. of Hous. & Community Renewal , 46 AD3d 103, 107 [1st Dept 2007] ). Rent overcharge claims are limited by a four-year statute of limitations (see Conason v. Megan Holding, LLC , 25 NY3d 1, 12 [2015], rearg denied 25 NY3d 1193 [2015] ; Thornton v. Baron , 5 NY3d 175, 180 [2005] ). Ordinarily, the base date for purposes of calculating an overcharge of the legal regulated rent is "[t]he date four years prior to the date of the filing of [a] complaint" ( Rent Stabilization Code [9 NYCRR] § 2520.6 [f] [1] ; see also Rent Stabilization Code [9 NYCRR] § 2526.1 [a] [2] ; Matter of Regina Metro. Co., LLC, 2020 NY Slip Op 02127, *2). But, where there is "substantial indicia of fraud," the court may look beyond the statutory four-year lookback period to determine the base date rent ( Matter of Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin. , 15 NY3d 358, 366 [2010] ). The court notes that "neither an increase in rent, standing alone, nor plaintiffs' skepticism about apartment improvements suffice to establish indicia of fraud" ( Butterworth v. 281 St. Nicholas Partners, LLC , 160 AD3d 434, 434 [1st Dept 2018] ).
The Housing Stability and Tenant Protection Act of 2019 (L 2019, ch 36) (HSTPA), enacted June 14, 2019, amended CPLR 213-a to provide for a six-year statute of limitations for rent overcharge claims. In Matter of Regina Metro. Co., LLC (2020 NY Slip Op 02127, *23), the Court of Appeals determined that the new six-year limitations period shall not be applied retroactively.
In this instance, there is substantial indicia of fraud for the court to consider the entire rent history for plaintiffs' apartments to determine the proper base rents (see Altschuler v. Jobman 478/480 LLC , 135 AD3d 439, 440 [1st Dept 2016], lv dismissed 28 NY3d 945 [2016], lv denied 29 NY3d 903 [2017] ). Evidence of other suits involving the same landlord for similar wrongdoing at the same building is "probative of a fraudulent scheme to deregulate" ( Kreisler v. B-U Realty Corp. , 164 AD3d 1117, 1117 [1st Dept 2018], lv dismissed 32 NY3d 1090 [2018], citing Pascaud v. B-U Realty Corp. , 2017 NY Slip Op 31482[U] [Sup Ct, NY County 2017] ). It is undisputed that defendant is engaged in several lawsuits brought by other tenants of the Building pursuing damages on similar grounds as those raised in this action. Likewise, a landlord's failure to promptly register its apartments as rent-stabilized when the applicability of Roberts was clear in March 2012, as was the case here, serves as proof of a fraudulent scheme to deregulate (see Nolte v. Bridgestone Assoc. , LLC, 167 AD3d 498, 498 [1st Dept 2018] ).
Where "base date rent [was] the product of a fraudulent scheme to deregulate the apartment," the court may apply the default formula in Rent Stabilization Code (9 NYCRR) § 2522.6 (b) to determine the appropriate base rent ( Kreisler , 164 AD3d at 1118 ; see generally Thornton , 5 NY3d at 181 [2005] [concluding that use of the default formula to set legal rent is appropriate where rent records are unreliable] ). In describing the default formula, the Court explained:
"The default formula provides for the base date to be established at the lowest of 1) the lowest registered rent for a comparable apartment in the building at the time the complaining tenant moved in, 2) the complaining tenant's initial rent reduced by a certain percentage, 3) the last registered rent paid by the prior tenant within the lookback period, or 4) if none of those is appropriate, an amount set by DHCR based on its relevant data"
( Simpson v. 16-26 E. 105, LLC , 176 AD3d 418, 419 [1st Dept 2019], citing Rent Stabilization Code [9 NYCRR] §§ 2522.6 [b] [3] and 2526.1 [g] ). In view of defendant's failure to treat plaintiffs' apartments as rent-stabilized, coupled with its failure to timely and accurately report the rents paid by the prior tenants of those apartments, application of the default formula to fix plaintiffs' legal regulated rents is proper.
Furthermore, defendant's own rent records and the rents recorded in the DHCR records are far from reliable. As discussed above, Rent Stabilization Code (9 NYCRR) § 2528.3 requires a landlord to file an annual registration containing the current rent for each apartment. Defendant, though, neglected to register the apartments as rent-stabilized when it began receiving J-51 benefits in 2005, and it waited nearly five months after receiving the DHCR Notice to file statements for several of the apartments in this action. Moreover, the legal rents in those revised statements reflected defendant's own calculations, but critically, plaintiffs have produced documents calling into question the accuracy of defendant's calculations.
For instance, defendant admits that the rent charged to Smith on his first lease was not a legal rent (NYSCEF Doc No. 136, ¶ 24). Bogoni avers that Smith paid $3,400 in monthly rent from July 1, 2012 to June 30, 2013, when the monthly rent should have been $3,374.11 (id. ). Bogoni further avers that "Matthiack and Diskin," the first rent-stabilized tenants in apartment 7F after defendant began receiving J-51 benefits, "had a legal rent of $2,650.00," that defendant legally deregulated the apartment on October 31, 2005, and that Matthiack and Diskin paid $2,896.23 on their last lease (id. , ¶¶ 24-25). However, defendant's rent history chart for apartment 7F indicates that Matthias and Diskin paid $2,800 when they began their tenancy, and $2,900 when they vacated the unit in November 2008 (NYSCEF Doc No. 147, Bogoni aff, exhibit J at 1). Defendant's rent history chart lists "Elizabeth Montori" as the next tenant from November 1, 2004 to October 31, 2005 (id. ), yet the 2005 rent roll report indicates that defendant registered the apartment as permanently exempt due to a high rent vacancy (NYSCEF Doc No. 56 at 2).
Regarding apartment 7B (Romero), the DHCR records do not accurately reflect the rents prior tenants paid. The 1997 rent roll report states that "S. Gelfan" (Gelfan) paid $1,041.90 in monthly rent on a two-year lease from through July 31, 1997 (NYSCEF Doc No. 56 at 16). For the 1998 rent roll report, defendant registered a new tenant, "W. Lowenthal" (Lowenthal), who paid a legal rent of $2,080 (NYSCEF Doc No. 56 at 17). However, according to a stipulation of settlement signed February 28, 1998 in a Housing Court proceeding brought against Gelfan as "tenant" and Lowenthal as "undertenant," Gelfan and Lowenthal agreed to pay defendant rent or use and occupancy of $1,041.93 per month through June 1998 (NYSCEF Doc No. 95, Romero aff, exhibit TR5 at 1-2). This amount differs significantly from the legal rent defendant had registered with DHCR for Lowenthal's tenancy, and supports plaintiffs' claim that defendant intentionally filed false registration statements (see Bradbury v. 342 W. 30th St. Corp. , 84 AD3d 681, 684 [1st Dept 2011] ).
Ronald Rapp and Victoria Strange, who succeeded Gelfan and Lowenthal, took possession of apartment 7B under a two-year lease beginning January 1, 1999 (see B-U Realty Corp. v. Rapp , 4 Misc 3d 131[A], 2004 NY Slip Op 50705[U], *2 [App Term, 1st Dept 2004], lv denied 2005 NY App Div LEXIS 654 [1st Dept 2005]). When defendant brought a holdover proceeding against them, they raised a rent overcharge claim as an affirmative defense ( B-U Realty Corp. , 2004 NY Slip Op 50705[U], *1). The Appellate Term, First Department affirmed the denial of defendant's motion to dismiss this defense, noting that Gelfan's averment that she had paid $1,041.90 in monthly rent "refutes those entries [in the 1998 registration statement] and calls into question whether such a lease was executed" ( B-U Realty Corp. , 2004 NY Slip Op 50705[U], *2).
Beth Spanier (Spanier), the tenant immediately preceding Romero, paid $4,700 per month from March 10, 2010 to February 28, 2011, and $4,841 per month from March 1, 2011 to February 28, 2012 (NYSCEF Doc No. 7, Romero aff, exhibit at 1 and 5). Defendant, though, reported the legal rent to DHCR for these same periods as $4,279.28 and $4,375.56, respectively (NYSCEF Doc No. 56 at 29-30).
As to apartment 10C (Barry/Baer), defendant admits it removed the apartment from rent control in September 2005, and that it improperly treated Barry/Baer as free market tenants (NYSCEF Doc No. 136, ¶¶ 59-60). Defendant claims that it miscalculated the monthly rent on Barry/Baer's third lease, and that it has recorded the correct rent amounts in the DHCR registrations (id. , ¶ 61). Barry, though, avers that during pre-trial discovery in this action, defendant exchanged a copy of a lease she and Baer purportedly signed for a two-year term beginning October 25, 2009 with monthly rent at $5,050 (NYSCEF Doc No. 108, exhibit L10 at 1). Barry states that this lease "was never offered to, accepted by, or executed by us [and] [t]he rent does not correspond to the amounts we paid at the time, but instead to the incorrect, higher amounts contained in Defendant's DHCR filings" (NYSCEF Doc No. 45, ¶ 14).
Regarding apartment 4A (the Landeses), defendant filed an amended registration statement on June 2, 2015 identifying "Samuel Manas" (Manas) as the tenant paying $2,643 per month from October 1, 2004 to October 1, 2006 (NYSCEF Doc No. 56 at 25). A copy of Manas's lease states that it actually covered the period from "10/1/02 — 10/1/04 rehab. 640.75 and ending on 6/30/06" with monthly rent set at "$2002.25 10-01-04 $2643.00" (NYSCEF Doc No. 159, Bogoni aff, exhibit V at 1). This information mirrors the information in defendant's rent history chart for this unit (NYSCEF Doc No. 158, Bogoni aff, exhibit U at 1). The chart also shows improvements costing $25,630 and $2,850 were performed between 2002 and 2006 (id. ). However, Keith Buhl (Buhl), the tenant, immediately preceding the Landeses, avers that he, not Manas, resided in apartment 4A from 2002 through 2014 (NYSCEF Doc No. 46, Buhl aff, ¶ 2). This failure to accurately report Buhl as the tenant of record supports plaintiffs' assertion that defendant intentionally filed false registration statements with DHCR (see Bradbury , 84 AD3d at 684 ). In addition, the monthly rents set in Buhl's leases and in the DHCR records differ. According to Buhl's leases, his monthly rent was $1,850 from November 1, 2002 to October 31, 2004; $2,000 from 2004 to 2006 ; $2,145 from November 1, 2006 to October 31, 2008; $2,245 from November 1, 2008 to October 31, 2012; and $2,357.25 from November 1, 2010 to October 31, 2014 (NYSCEF Doc No. 46, Buhl aff, ¶ 2; NYSCEF Doc Nos. 122 to 125, Buhl aff, exhibits AGL to EGL).
Buhl has not furnished the court with a copy of the lease in effect for this period.
Defendant's contention that this court should dismiss the rent overcharge claims and refer them to DHCR lacks merit. While DHCR has primary jurisdiction over residential rent overcharge claims (see Olsen v. Stellar W. 110, LLC , 96 AD3d 440, 441-442 [1st Dept 2012], lv dismissed 20 NY3d 1000 [2013] ), the "Supreme Court has concurrent jurisdiction with DHCR with respect to overcharge claims" ( Downing v. First Lenox Terrace Assoc. , 107 AD3d 86, 88 [1st Dept 2013], affd sub nom. Borden v. 400 E. 55th St Assoc., L.P. , 24 NY3d 382 [2014] ; see also Administrative Code § 26-516 [a] [2], as amended by L 2019, ch 36). Thus, rent overcharge claims may be heard in this court (see Kreisler , 164 AD3d at 1117 ).
Additionally, as discussed above, DHCR's decision partially granting defendant's PAR against McFarland expressly referenced this litigation, and amended the rent administrator's order "to reflect the fact that the tenant's claims, as relate to the owner's receipt of J-51 benefits and other issues, are being raised in the pending New York Supreme Court proceeding ... and that a decision on the legal rent and on other issues shall be rendered in this proceeding" (NYSCEF Doc No. 85 at 3-4).
Defendant's next contention, that the in pari delicto doctrine bars plaintiffs' claims, is equally unpersuasive. "The doctrine of in pari delicto mandates that the courts will not intercede to resolve a dispute between two wrongdoers" ( Kirschner v. KPMG LLP , 15 NY3d 446, 464 [2010] ; Abright v. Shapiro , 214 AD2d 496, 496-497 [1st Dept 1995] ). "Traditional agency principles play an important role in an in pari delicto analysis" ( Kirschner , 15 NY3d at 465 ). As such, an agent's act performed within the scope of its authority is presumptively imputed to its principal (id. ). An adverse interest exception to presumptive imputation, though, arises "where the agent has totally abandoned his principal's interests and [is] acting entirely for his own or another's purposes" ( New Greenwich Litig. Trustee, LLC v. Citco Fund Servs. (Europe) B.V. , 145 AD3d 16, 23 [1st Dept 2016], lv denied 29 NY3d 917 [2017] [internal quotation marks and citation and emphasis omitted] ).
While defendant did not plead the in pari delicto doctrine as an affirmative defense (see CPLR 3018 [b] ), "an unpleaded affirmative defense may be invoked to defeat a summary judgment motion" ( Preferred Capital v. PBK, Inc. , 309 AD2d 1168, 1168 [4th Dept 2003] ). Nevertheless, defendant has not sufficiently demonstrated the merits of the defense. Defendant alleges that it was the victim of a fraud perpetrated by Steven Dym (Dym), the CEO of defendant's former building manager, Gabriel Management Corp. (GMC). GMC was the entity responsible for calculating rents and offering leases to tenants at the Building. Bogoni avers that Dym "embezzled more than $180,000 in his last year, from the Owner of the subject building," and that Dym murdered his wife and daughter before committing suicide in 2017 (NYSCEF Doc No. 136, ¶ 8). Defendant, though, has not substantiated Bogoni's assertions with documentary evidence, such as a building management agreement and accounting and bank records. The only documentary evidence offered in support establishes that Dym may have embezzled funds from the owners of other apartment buildings, not defendant. In addition, the vacancy decontrol report for apartment 10C names Bogoni, not GMC, as the Building's managing agent, and thus contradicts Bogoni's averments.
Defendant's argument that it reasonably relied on DHCR's pre-Roberts guidance in setting rents has been rejected previously (see Kreisler , 164 AD3d at 1118 ; Altschuler , 135 AD3d at 440 ). The Court of Appeals decided Roberts in 2009, and defendant has not accounted for its actions following the date of that decision. Similarly, defendant has not explained the months of inactivity following its receipt of the DHCR Notice. The affidavits submitted by plaintiffs on this motion uniformly state that defendant failed to promptly offer them renewal leases with J-51 riders, and in McFarland's case, defendant failed to offer him a rent-stabilized first lease. Defendant waited a further five months to update the registration records for several of the apartments.
Plaintiffs also seek a declaration that they are entitled to rent-stabilized leases at the appropriate legal rents. As discussed above, plaintiffs have met their burden of demonstrating that their apartments shall remain rent-stabilized until the first vacancy of each unit. Therefore, plaintiffs, with the exception of the Landeses, who vacated apartment 4A in July 2017, are entitled to rent-stabilized leases at the correct legal regulated rents. However, before defendant may offer these plaintiffs rent-stabilized leases, a determination of the legal regulated rents and the amount of rent overcharges, if any, must be made. The calculation of the appropriate base rents and rent overcharges shall be referred to a Special Referee to hear and report.
Plaintiffs also seek treble damages on the ground that the rent overcharges were willful. Once an overcharge has been established, it is "presumed [that the owner] acted badly and the burden is placed upon it to establish by a preponderance of the credible evidence that it did not know the rent it was charging was unlawful" (Matter of H.O. Realty Corp. , 46 AD3d at 107 ; accord Draper v. Georgia Props. , 230 AD2d 455, 460 [1st Dept 1997], appeal dismissed 91 NY2d 849 [1997], affd 94 NY2d 809 [1998] ). Unless an owner establishes by a preponderance of the evidence that the overcharge was not willful, then the complaining tenant may recover treble damages (see Crockett v. 351 St. Nicholas Ave. LLC , 179 AD3d 486, 487 [1st Dept 2020] ; Draper , 230 AD2d 455-460 ).
Here, because the rent overcharges, if any, have not yet been established, it would be premature to conclude that the overcharges were willful. To the extent the Special Referee determines that the rents charged to plaintiffs exceeded what was legally permissible, then the Special Referee shall also hear and report on the issue of whether the affected plaintiffs are entitled to recover treble damages.
C. The Subpoena to DHCR
Plaintiffs move for the issuance of a subpoena duces tecum to DHCR for the production of certified copies of all documents necessary to ascertain the proper base rent. CPLR 2307 provides that the court may issue "[a] subpoena duces tecum to be served upon a ... department ... of the state ... requiring the production of any books, papers or other things, shall be issued by a justice of the supreme court." The statute further states that "[u]nless the court orders otherwise, a motion for such subpoena shall be made on at least one day's notice to the library, department, bureau or officer having custody of the book, document or other thing and the adverse party."
Although the records maintained by DHCR are relevant to this action, the court has not dispensed with the procedural requirement that plaintiff give at least one day's notice to DHCR of its application for a subpoena (see People v. Simone , 92 Misc 2d 306, 310 [Sup Ct, Bronx County 1977], affd 71 AD2d 554 [1st Dept 1979] ). Accordingly, this part of plaintiffs' motion is denied without prejudice to renewal.
D. The Multiple Dwelling Law
The fourth cause of action is predicated upon an alleged violation of the Multiple Dwelling Law. Townsend, Smith, Romero and McFarland argue that defendant illegally divided apartment 7C, which had been registered as a rent-controlled unit, into apartments 7G and 7F without filing an alteration application with DOB. These plaintiffs admit that defendant has largely corrected the electrical and plumbing problems in their apartments, but the Building still lacks a valid C of O. Defendant obtained a temporary C of O for the Building, but it expired on February 3, 2019 (NYSCEF Doc No. 60, Anderson affirmation, exhibit K at 1). Thus, these plaintiffs submit they are entitled to a declaration that defendant is prohibited from collecting rent from them while there was an outstanding occupancy violation.
Defendant counters with an affidavit from Perosi, the principal of a firm with expertise as building consultants and expediters (NYSCEF Doc No. 137, Perosi aff, ¶ 2). After examining the records maintained by DHCR, DOB, and the New York City Department of Housing Preservation and Development for the Building, Perosi concluded that he had "no reason to believe that any work was done illegally" (id. , ¶ 8). Defendant adds that the temporary certificate of occupancy expired on May 26, 2019, not February 3, 2019 as plaintiffs have claimed.
Multiple Dwelling Law § 301 (1) provides, in part, that "[n]o multiple dwelling shall be occupied in whole or in part until the issuance of a certificate by the department that said dwelling conforms in all respects to the requirements of this chapter, to the building code and rules and to all other applicable law." Multiple Dwelling Law § 302 (1), entitled "Unlawful occupation," provides, in relevant part:
"a. If any dwelling or structure be occupied in whole or in part for human habitation in violation of section three hundred one, during such unlawful occupation any bond or note secured by a mortgage upon said dwelling or structure, or the lot upon which it stands, may be declared due at the option of the mortgagee.
b. No rent shall be recovered by the owner of such premises for said period, and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent."
Thus, under the Multiple Dwelling Law, an owner cannot collect rent for the period during which its building lacks a valid C of O (see Matter of GVS Props. LLC v. Vargas , 172 AD3d 466, 466 [1st Dept 2019] ; West 48th Holdings LLC v. Eliyahu , 64 Misc 3d 133[A], 2019 NY Slip Op 51066[U], *2 [App Term, 1st Dept 2019] ). Likewise, an owner cannot recover use and occupancy from a tenant in the absence of a proper C of O (see Sheila Props., Inc. v. A Real Good Plumber, Inc. , 59 AD3d 424, 426 [2d Dept 2009] ).
As applied herein, Townsend, Smith, Romero and McFarland have demonstrated that the Building lacked a valid C of O for the four apartments on the seventh floor, and that defendant may not collect rent or use and occupancy for the periods during which the C of O was invalid or improper. Defendant fails to raise a triable issue of fact in opposition as Perosi's affidavit lacks probative value.
First, Perosi avers that "sometime between 1947 in [sic] 1951, the two additional apartments on the seventh floor were constructed, along with all the other floors where the former apartments were gigantic as the City was coming out of the Great Depression" (NYSCEF Doc No. 137, ¶¶ 3-4). He further avers that "[t]he entire building was split, from A apartments and B apartments to A, B, C & D apartments, or, as on the 7th Floor, A, B, G & F" (id. , ¶ 4). Perosi, though, does not annex to his affidavit any of the documents on which he predicated his opinion. As such, his assertions are entirely speculative (see Diaz v. New York Downtown Hosp. , 99 NY2d 542, 544 [2002] ).
Second, the annual registration statements defendant filed with DHCR do not support Perosi's conclusion that the seventh floor conversion resulted in the creation of apartments 7A, 7B, 7F and 7G (see Reif v. Nagy , 175 AD3d 107, 125 [1st Dept 2019] [concluding that the "experts' speculations are unsupported by the evidence in the record and are insufficient to defeat summary judgment"] ). The initial registration rent roll report from 1984 lists only apartments 7A, 7B and 7C (NYSCEF Doc No. 56 at 2), with apartments 7G and 7F appearing in the annual reports filed after 1992. Defendant has not reconciled these discrepancies in the DHCR records.
Additionally, Perosi's statement that "it is as likely as not that the Dept. of Buildings simply omitted the 7th floor work from the C of O and that all of the apartments in the Building were legally changed to four apartments per floor" (NYSCEF Doc No. 137, ¶ 7) is wholly speculative and conclusory (see Reif , 175 AD3d at 124 ). Perosi states he located "a plumbing application [that] had been made back then which I believe authorized this work and allowed the Owner at that time to add kitchens to the North-side apartments" (NYSCEF Doc No. 137, ¶ 5). He adds that "I could not find the actual plumbing application, but do know the work was approved as without an approval the C of O would not have been changed. I cannot tell if the approved work included the 7th floor, but have no reason to believe that it did not" (id. , ¶ 6). These statements are entirely speculative, and do not set forth an adequate, factual basis for his opinion.
Nor has defendant demonstrated that the temporary certificate of occupancy was in effect through May 26, 2019. The temporary certificate bearing no. 1221749676T002 upon which defendant relies reflects that it was in effect from February 25, 2019 to May 26, 2019 (NYSCEF Doc No. 177, Bogoni aff, exhibit NN at 1), whereas the temporary certificate proffered by plaintiffs bearing no. 1221749676T001 shows that it was in effect from November 5, 2018 to February 3, 2019 (NYSCEF Doc No. 60 at 1). Defendant has not accounted for this 22-day gap, nor has it furnished the court with a recently issued permanent or temporary certificate.
Moreover, contrary to defendant's assertion, defendant cannot recover rent or use and occupancy from McFarland or Romero (see West 48th Holdings LLC , 2019 NY Slip Op 51066[U], *2 [reasoning that a landlord's nonpayment petition was barred where the landlord had subdivided two apartments into four without securing a new certificate of occupancy, "even if [the respondent] tenant's apartment was not one of the newly created apartments] ). Hence, Townsend, Smith, Romero and McFarland are entitled to a declaration that defendant cannot collect rent or use and occupancy for the period during which there was no valid permanent or temporary certificate of occupancy for the seventh floor. These four plaintiffs, though, may not recover their past rent payments made when the C of O was invalid or incorrect, as " Section 302 of the Multiple Dwelling Law, which is penal in nature and is to be strictly construed, does not by its terms provide for the recovery of rent previously paid for use and occupancy" ( Goho Equities v. Weiss , 149 Misc 2d 628, 631 [App Term, 1st Dept 1991] ).
Accordingly, it is
ORDERED that the branch of plaintiffs' motion for summary judgment on the first cause of action is granted to the extent that plaintiffs are entitled to a judgment declaring that their apartments and their tenancies and leases are subject to the Rent Stabilization Law, and that their apartments shall remain rent-stabilized until plaintiffs vacate them; and it is further
ADJUDGED and DECLARED that the apartments of plaintiffs Stephen Townsend (apartment 7G), Austin Smith (apartment 7F), Tamara Romero (apartment 7B), Brian McFarland (apartment 7A), Leta Margaret Barry and Anthony Baer (apartment 10C), Gabriel and Alexis Landes (apartment 4A), and Bruce Kolb (apartment 3A) in the residential apartment building located at 945 West End Avenue, New York, New York, and their tenancies and leases are all subject to the protections of the Rent Stabilization Law, and that their apartments shall remain rent-stabilized until plaintiffs vacate their apartments; and it is further
ORDERED that the branch of plaintiffs' motion on the first cause of action for an order determining plaintiffs' legal regulated rents and compelling defendant B-U Realty Corp. to furnish them with rent-stabilized leases at the legal regulated rents is referred to a Special Referee to hear and report; and it is further
ORDERED that the part of plaintiffs' motion on the first cause of action for an order enjoining defendant from taking any actions to terminate their tenancies is denied with leave to renew upon an appropriate showing that defendant has taken affirmative steps to terminate their tenancies; and it is further
ORDERED that the part of plaintiffs' motion for summary judgment on the second and third causes of action seeking damages for rent overcharges and treble damages, if any, is referred to a Special Referee to hear and report; and it is further
ORDERED that the part of plaintiffs' motion seeking the issuance of judicial subpoena to the New York State Department of Housing and Community Renewal is denied without prejudice to renewal; and it is further
ORDERED that the part of plaintiffs' motion for summary judgment on the fourth cause of action is granted to the extent of declaring that plaintiffs Stephen Townsend, Austin Smith, Tamara Romero, and Brian McFarland are not obligated to pay defendant monthly rent for the periods during which the residential apartment building located at 945 West End Avenue, New York, New York lacked a valid permanent or temporary certificate of occupancy; and it is further
ADJUDGED and DECLARED that plaintiffs Stephen Townsend, Austin Smith, Tamara Romero, and Brian McFarland are not obligated to pay defendant monthly rent for the periods during which the residential apartment building located at 945 West End Avenue, New York, New York lacked a valid permanent or temporary certificate of occupancy; and it is further
ORDERED that a Judicial Hearing Officer (JHO) or Special Referee shall be designated to hear and report to this court on the following individual issues of fact, which are hereby submitted to the JHO/Special Referee for such purpose:
(1) the legal regulated rents for each plaintiff's apartment using the default formula prescribed in Rent Stabilization Code (9 NYCRR) § 2522.6 ; and
(2) the legal regulated rents to be charged on each plaintiff's rent-stabilized lease; and
(3) whether plaintiffs are entitled to rent overcharge refunds, and the amount of each rent overcharge; and
(4) whether any rent overcharges that occurred were willful, whether plaintiffs are entitled to treble damages, and the amount of treble damages, if any; and it is further
ORDERED that the powers of the JHO/Special Referee shall not be limited beyond the limitations set forth in the CPLR; and it is further
ORDERED that that plaintiffs shall serve a copy of this order with notice of its entry on all parties and on the Special Referee Clerk in the General Clerk's Office (60 Centre Street, Room 119, 646-386-3028 or spref@nycourts.gov), who is directed to place this matter on the calendar of the Special Referee's Part for the earliest convenient date; and it is further
ORDERED that, unless otherwise directed by this court in any Order that may be issued together with this Order of Reference to Hear and Report, the issues presented in any motion identified in the first through fifth decretal paragraphs hereof shall be held in abeyance pending submission of the Report of the JHO/Special Referee and the determination of this court thereon.