Scott E. Mollen

Landlord-Tenant—Landlord is Liable for Tenant Allowing Transient Use of Apartment—NYC Administrative Code §28-210.3 Does Not Require Intent

A rental apartment building owner (landlord) commenced an Article 78 proceeding against the NYC Department of Buildings (DOB). The landlord had leased an apartment to a tenant from Aug. 1, 2016 to July 31, 2017 (tenant). The lease was a “renewal lease,” which indicated the tenant had rented the apartment for at least a year before Aug. 1, 2016. The lease rider provided that the tenant agreed that it was “illegal for a tenant to rent out this unit for temporary stays, less than 30 days, on Air BNB or other websites.” The rider “essentially requires compliance” with NYC Admin. Code §28-210.3 (statute), which provides:

Except as otherwise provided…dwelling units within (i) a class A multiple dwelling as defined in section 27-2004 of the administrative code, (ii) occupancy group J-2 as described in section 27-265 of the administrative code or (iii) occupancy group R-2 as described in section 310.1.2 of the New York city building code shall be used only for permanent residence purposes…. It shall be unlawful for any person or entity who owns or occupies a multiple dwelling or dwelling unit classified for permanent residence purposes to use or occupy, offer or permit the use or occupancy or to convert for use or occupancy such multiple dwelling or dwelling unit for other than permanent residence purposes. For the purposes of this section a conversion in use of a dwelling unit may occur irrespective of whether any physical changes have been made to such dwelling unit….

The courts noted that other “ancillary building code requirements exist when the building contains transient rental units,” including requirements for “automatic sprinkler units, alarm systems, and ingress and egress access….”

The landlord had received a notice of violation which alleged that the subject apartment had been “converted to transient use in violation of (the statute).” The landlord received other notices of violation involving three ancillary code requirements.

At a hearing before the Office of Administrative Trials and Hearings (OATH), the landlord objected to the hearing and provided evidence supporting its claim that “it was ignorant of the prohibited use.” The hearing officer found that there had been transient use in the apartment and sustained all violations. The landlord was fined $4,600, which represented a “mitigated amount” based on the landlord's “prompt and successful efforts to remedy the problems.”

The hearing officer held that the statute did not require intent. The landlord paid the penalties, but challenged the OATH determination. OATH's appellate unit denied the appeal. OATH noted that the landlord had not challenged the “factual findings but argued that because it was unaware of the prohibited use and it did not 'permit' it within the meaning of (the statute)….” The landlord thereafter commenced the subject Article 78 proceeding.

The landlord argued that it was “unaware that the tenant was renting out her apartment through Airbnb or a similar service and therefore is not culpable for its tenant's violations.”

The salient issue was whether a landlord could be held liable for its tenant's violation of the statute when the landlord lacked knowledge of the violations.

The landlord contended that since the issue was one of “statutory interpretation,” the court should not defer to the agency's interpretation. The landlord argued that courts “must reject determinations by the agency that run counter to the clear wording of a statutory provision …” and the phrase “permits” in the statute “requires knowledge by the landlord of the prohibited use.”

The landlord also noted that the tenant was an “internet operator who leases multiple apartments for sublease to the transient occupancy market” and asserted that she is “well known in landlord-tenant court….” The landlord further argued that given the tenant's “habitual” unlawful conduct, the respondents should focus on the tenant rather the “landlords she had deceived.”

The court explained that “[w]hile as a general rule courts will not defer to administrative agencies in matters of pure statutory interpretation, deference is appropriate where the question is one of specific application of a broad statutory term….” The court stated that “[i]f the record supports the determination and there is a reasonable basis in law for the decision as well, courts should sustain the agency's interpretation of the governing law and its ruling….”

The respondents had argued that Administrative Code §28-301.1 requires landlords to maintain their buildings in a “code compliant manner” and decisional precedent held that landlords are chargeable with constructive notice of violations with respect to apartments that landlords have authority to enter and certain duties are “not delegable.”

The landlord countered that the “plain meaning of the word 'permits' is…clear on its face and mandates dismissal of this proceeding.” Additionally, the respondents argued that their ability to pursue claims against the offending tenant for violations of law “does not detract from their power to proceed against the building owner.” The landlord criticized the practice of “reflexively imposing liability on the owners rather than those tenants who violate the law.”

The court dismissed the petition. It found that the word “permit” is “sufficiently broad to include situations in which a landlord, through its failure to monitor the activities in a building it owns and operates, does not know a tenant is using the space illegally.” The court reasoned that the statute is “not very different from a provision which holds a landlord liable for indirectly allowing an illegal use.”

Courts “have long held that a statute which holds a person liable for having permitted or suffered a certain activity may only be enforced against one who know, or should have known, that the activity was taking place….” “[L]iability attaches when the party has 'knowledge or the opportunity through reasonable diligence to acquire knowledge.'”

Here, the offending tenant had leased the apartment for more than a year before the landlord received the subject notice of violation and the landlord had “ample time to discover the illegal use.” The court was not persuaded that the respondents should have pursued the tenants because she is a “notorious figure in landlord-tenant courts.” The court noted that such argument “hurts petitioner's position….” If the tenant's business were so “established, petitioner could with reasonable diligence discovered her intent to sublet her apartment to transient users.”

Moreover, the “statutory purpose, which is to curb transient use of apartments in residential buildings and preserve the availability of permanent housing, is not harmed by the imposition of liability on the landlord.” The Statute permits respondents to pursue the tenant and to also pursue the landlord and in essence, “adds a weapon to respondents' arsenal.”

Additionally, the size of the penalty is “discretionary” and it may “depend upon the landlord's cooperation when it becomes aware that the tenant is renting an apartment to transient sublessees.” Here, OATH imposed sanctions of only $4,600.00, when the law permitted penalties of up to $1,000 a day. The court believed that the owners' liability for penalties even “when it lacks knowledge,” “encourages owners' proactive efforts to know what is occurring in their buildings, to assure compliance with the Administrative Code, and to discover and correct immediately hazardous violations promptly.”

The court noted that the landlord has “more access to information of an improper use in the building it owns than respondents…have, and thus it is practical for respondents to shift a portion of the burden to landlords to discover and cure any illegal uses in their buildings.” Finally, as to whether the respondents' practice unfairly targets landlords, the court stated that such issues are “better addressed, if at all, by the Legislature.”

Matter of JNPJ Tenth Ave. LLC v. Dep't of Bldgs, Supreme Court, New York Co., Case No. 100268/2018, decided Jan. 16, 2019, St. George, J.

Land Use—Preliminary Injunction to Enjoin Ongoing Construction Denied—Failure to Exhaust Administrative Remedies—De facto Writ of Mandamus—Petitioners Argued Building Will be Completed by the Time the BSA Reaches a Decision—The Petitions Did Not Involve a “Pure Question of Law”—Cellar and Subcellar Space

Petitioners commenced a hybrid Article 78/plenary action seeking declaratory and injunctive relief. They sought to annul a building permit (permit) and preliminary enjoin construction of a Target store (store). Petitioners claimed that the construction violated “Zoning Resolution (ZR) §§31099, 31-11, and 32-15.” The New York City Dept. of Buildings (DOB), the developers and Target Corporation “opposed a motion and filed a cross-motion to dismiss the petition pursuant to CPLR §3211.”

The developers are building a two-story commercial building, with cellar and sub-cellar space in a neighborhood that is zoned R6, with a C1-3 overlay. In the subject zone, “retail stores are permitted if they fall under Use Group 6, which limits the size of the stores to 10,000 square feet of 'floor area' per establishment….” The store would occupy space “both above ground and in the cellar space….”

The petitioners submitted a complaint to the DOB, contending that the store would violate the zoning laws. Although the developers acknowledge that the store is within Use Group 6, when the square footage of the cellar space is included, the store will occupy more than 20,000 square feet. The petitioners argued that the store does not fall under Use Group 6, but comes under Use Group 10, which permits larger stores, but is “not a permitted Use Group in the area under the zoning law….” The respondents countered that floor space for purposes of zoning regulations does not include “subterranean space, so that Target's Use Group 6 classification is proper….”

The DOB had revoked the original permit. It thereafter issued a new permit after the developers submitted a revised design. The revised plan provided that each commercial space in the main two floors of the building will be less than 10,000 square feet, “but with the basement space incorporated, the… store still totals over 20,000 square feet.” The petitioners had appealed the issuance of the new permit to New York City Board of Standards and Appeals (BSA).

A BSA hearing was scheduled for March 2019. The petitioners argued that “judicial intervention is necessary despite the pending BSA hearing.” The petitioners argued the question of whether the plans for the store “violate applicable zoning laws is a pure question of law” and the court “should issue a declaratory judgment without deferring the matter to the BSA.”

The court held that the petitioners had failed to exhaust their administrative remedies and therefore, their Article 78 claim “is premature….” The city charter “grants the BSA authority to review DOB interpretations of zoning resolutions and permit decisions including 'any order, requirement, decision or determination of the commissioner of building'” Additionally, the ZR specifies that the BSA has “jurisdiction to review any DOB decision 'over the use… of buildings or other structures.'” ZR §7-11.

The petitioners also argued that they should not have to exhaust administrative remedies before bringing this petition, since the case will “likely be rendered moot if construction on the building is completed.” The court noted that completion of a building has not always rendered a matter completely moot or academic. Parkview Associates v. City of New York, 71 N.Y.2d 274 (1988). The court further noted that a future appeal by the petitioners will “unlikely” be dismissed for mootness, since they have sought injunctive relief prior to completion.

Here, the petitioners had sought injunctive relief at all stages. Moreover, since the respondents argued that completion did not mean the issues would be moot, they cannot later argue mootness when the building is finished, since that would be a “disingenuous tactic amounting to a dishonest abuse of the court system.”

The court stated that even if it declined to order the building be torn down, the petitioners would not necessarily be prejudiced. The petitioners' claim involved that “use of the building for a large variety store, not the structure itself….” Thus, the petitioners “will still have a claim ripe for adjudication even if the building is fully standing.”

The court opined that the petitioners' motion to annul the permit “amounts to a de facto request for writ mandamus.” Mandamus is a “drastic remedy that should only be employed in certain emergency” situations and it may not be used to “force the performance of a discretionary act, but rather only purely ministerial acts to which a clear legal right exists….”

The court stated that the petitioners “are all but asking the court to issue a writ of mandamus against the DOB and compel them to revoke the permit issued to Respondents.” However, the decision whether to issue a permit “is not a nondiscretionary matter, but rather one that the DOB made within its discretion based on its interpretation of the zoning regulations.” The court noted that even if the DOB's interpretation is incorrect, “nothing suggest petitionsers have established a legal right that would compel this Court to force a revocation of DOB permits.”

The court emphasized that the administrative agency “whose decision making would be ripe for judicial review here is the BSA, not the DOB, and as the BSA has not yet issued their ruling, the Article 78 preceding is premature and thus dismissed.” The court also denied the petitioners' request for a declaratory judgment that the proposed use of the property violates relevant zoning laws, on the grounds that these “multiple questions of fact involved in petitionsers' claim.” The mere presence of factual disputes in a complaint does not bar a court from considering a motion for a declaratory judgment. However, when the entire complaint “hinges on questions of fact, declaratory judgment is not appropriate.”

The court emphasized that “there are several issues of fact that must be addressed to determine respondent's compliance with zoning laws” and the court would be assuming the role of “fact finder were it to declare as a matter of law that respondent's planned use of the property violates the applicable zoning statutes.”

The court further stated that the BSA will focus on whether the store should be classified as Use Group 6 or Use Group 10 and whether permissible “floor area” may or may not include subterranean space. The court explained that these are not “questions of law, but rather fact-specific inquiries that the BSA is best situated to address.” The court noted that Appellate Division precedent made it “clear that the BSA may only be bypassed for judicial review when 'the expertise of the BSA is not involved and has no relevancy to the case at bar.'”

The court explained that the BSA “has the proper expertise and knowledge, more so than the court. This is not a question of statutory interpretation but rather fact-based application of the zoning regulations. The language of the zoning resolution is unambiguous and clear on its face, and it therefore requires not judicial review but rather an assessment of an expert in the subject field.”

The court then found that the petitioners failed to demonstrate likelihood of success on the merits, noting that they “face an uphill battle in essentially every argument they put forth in their petition, as they have failed to exhaust administrative remedies.” The court also noted that the petitioners' mootness claim was an insufficient “excuse” for the prematurity of their petition. Although the petitioners may ultimately prevail, it was unclear that they would succeed on the merits at this stage of the proceeding.

The court also found that the petitioners failed to demonstrate irreparable harm if construction proceeds. The court explained that “[t]ypically, a party moving to enjoin construction work must have some sort of right or property interest that will be adversely affected unless the construction immediately ceases….” Here, the future use of the building was the issue, not the construction of the building itself. The building “dimensionally, comports with all applicable zoning regulations.”

The court rejected the argument that there is no possible use for the building other than for a variety store such as Target. The court characterized such argument as “factually dubious” and even if it's true, “it has not harmful implications for petitioners.” The court reasoned that if the developers cannot find a suitable replacement tenant “that is purely their loss and of no consequence to the petitionsers.”

With respect to the balancing of the equities, the court found that the petitioners will not suffer irreparable harm even if construction is completed. On the other hand, the respondents “would undoubtably suffer if the preliminary junction were granted. Construction on the property is underway, with a targeted completion date of December 2019… An injunction puts the developer's financing at risk, and they have indeed already failed to obtain a loan from one lender because of the ongoing litigation. Developers also currently employ approximately 70 construction workers who will be laid off if construction stops. Additionally, Developers contend that they will subject to a variety of costs and fees if construction cannot proceed, including expenses of backfilling the existing foundation that has been excavated for the building. Given that petitionsers have not established a concrete harm they will suffer if the injunction is not granted, the balancing of equities clearly tips toward respondents.”

Finally, the court observed that the BSA is “best suited to resolve this dispute” and BSA decisions are reviewable by “certiorari” to the court. Thereafter, an appeal to the Appellate Division is available. Since the petitioners will have “several more bites at the apple as they seek to prevent the alleged improper use of this property,” the court found “no compelling reason to grant injunctive relief at this junction.” Accordingly, the court denied the motions for preliminary injunction, annulment of the building permit and a declaratory judgment and dismissed the petition.

Queens Neighborhood United v. N.Y.C. Dep't of Bldgs, Supreme Court, New York Co., Case No. 101700/2018, decided Jan. 23, 2019, Edmead, J.

 Scott E. Mollen is a partner at Herrick, Feinstein.