Scott E. Mollen

Loft-Law—Loft Board has Power To Review Settlement Agreements and Exercise Discretion To Reject a Proposed Settlement and Remit Matters for Further Investigation and Adjudication—Loft Law and Rent Stabilization Law May Apply Simultaneously—Loft Law is Not Subject To Waiver by Tenants

A building owner commenced a CPLR Article 78 proceeding to review a New York City Loft Board order, which denied reconsideration of a prior Loft Board order. The loft board appealed from a trial court order and judgment which granted the petition and annulled the two prior board orders.

The owner had been "operating a waste disposal plant on the first floor" of the subject building. The respondents are residential tenants in the building. In approximately March 2014, the tenants filed applications for coverage under Article 7-C of the Multiple Dwelling Law (MDL), with the Loft Board. The owner opposed the applications, arguing that the "hazardous operation was incompatible with residentiary use."

The parties thereafter negotiated a settlement agreement which "purported to permit the tenants to remain in the building as rent stabilized tenants in the absence of a residential certificate of occupancy" (C of O). Pursuant to the agreement, the owner agreed to and had "shut down the paper waste disposal plant." The owner also granted several concessions to the tenants, including "immediately registering all of the apartments with the" NYS Div. of Housing and Community Renewal (DHCR), "to obtain immediate rent stabilization status, which otherwise would have occurred once the tenants were granted Loft Law coverage." The Appellate Division, Second Dep't (court) noted that "[v]irtually all of the concessions granted by the owner to the tenants would be required to obtain a (C of O) and convert the property into rent stabilized residences." Thereafter, the tenants "sought to withdraw their coverage applications with prejudice and made such requests to the Loft Board."

By an order dated Feb. 12, 2015, the loft board rejected the tenants' proposed "withdrawal of their coverage applications on the basis that their continued residency in the building and in the absence of a residential (C of O) was illegal and against public policy." The board referred the coverage applications to the Office of Administrative Trials and Hearings (OATH) for adjudication. The owner sought reconsideration of the board's determination. The board denied the owner's application for reconsideration in July 2015. The owner then commenced the subject Art. 78 proceeding, "seeking to annul the Loft Board's orders." The trial court had granted the owner's petition and annulled the two loft board orders on the grounds that the board's determination lacked a "rational basis and was arbitrary and capricious."

The Appellate Division (court) held that the appeal from the order had to be dismissed, since there was no "appeal as of right from an intermediate order in a proceeding pursuant to CPLR Article 78… and any possibility of direct appeal therefrom terminated with the entry of the judgment in the proceeding…." The court noted that the "issues raised on appeal from the order are brought up for review and have been considered on the appeal from the judgment…."

The court explained that "[s]ection 301 of the (MDL) prohibits the occupancy of a multiple dwelling in whole or in part until the issuance of a residential certificate of occupancy…. The Loft Law… provides an exception thereto by permitting residential use in interim multiple dwellings prior to the issuance of a residential certificate of occupancy…. 'Until the Legislature enacted the Loft Law… the residential occupancy of lofts was illegal pure and simple: The tenants had no right to be there, and the landlords had no right to collect rent….' The Loft Law is designed to integrate 'uncertain and unregulated residential units, converted from commercial use, into the rent stabilization system in a manner which ensures compliance with the (MDL) and various building codes….' The Loft Law was created to regulate the conversion of industrial, manufacturing, and commercial space into residential space. It enables an owner to rent space in a building while the structure is undergoing conversion pursuant to building department, fire department, and other regulatory requirements necessary to obtain a (C of O) for a residential building. The work necessary to legalize a building for residential use is subject to specifically prescribed time periods…, and the loft board is specifically charged with determining interim multiple dwelling status and other issues of coverage, including coverage applications…."

The court opined that the trial court should have "confirmed the Loft Board's determination rejecting the tenants' proposed withdrawal of their coverage applications and remitted the coverage applications to the OATH for judication." It reasoned that the board "had jurisdiction over the coverage applications… and the coverage applications did not become moot upon the tenants' proposed withdrawal with prejudice of the applications." It noted that Title 29 of the Rules of the City of New York "provides that the Loft Board may review settlement agreements and exercise discretion to reject a proposed settlement and remit matters for further investigation and adjudication…. There is nothing in the rule that limits the Loft Board's review of settlement agreements or its authority to re-open and remit a coverage application."

The court further stated that given the "particular circumstances of this matter, registration of the building and the units at issue with the DHCR was insufficient to warrant dismissal of the coverage applications." It also stated that the Loft Law was the "sole means by which the tenants could legally reside in the building before the owner obtains a residential (C of O)… and there is no impediment to the Loft Law and the Rent Stabilization Law applying simultaneously…."

The court found that the loft board had "rationally rejected the tenants' proposed withdrawal of their coverage application on the basis that those portions of the…(agreement) which required the tenants to withdraw their coverage applications violated the Loft Law and were against public policy." The agreement "purported to perpetuate an illegality, because the tenants would remain in the building without Loft Law coverage in contravention of (MDL §301)." Moreover, the tenants "proposed withdrawal had the effect of waiving their Loft Law coverage claims and perpetuating an illegal occupancy with the inherent risks to the general public that the Loft Law was designed to address."

The court also observed that the Loft Law "is a governmental residential regulatory scheme that is not subject to waiver by the tenant…." However, the it found that the loft board's finding "that the (agreement) in its entirety was unenforceable was without a rational basis and was arbitrary and capricious." The board "should have deemed only those provisions of the…(agreement) that required the tenants to withdraw their coverage applications to be unenforceable."

The court emphasized that stipulations of settlement are favored by courts and "not lightly cast aside." Parties seeking to set aside such a stipulation must show "good cause sufficient to invalidate a contract, such as fraud, overreaching, duress, or mistake…." Additionally, the (agreement) contained a "severability clause," i.e., if any term or condition of the agreement was "determined to be void or unenforceable, the remainder of the agreement" was to "remain in full force and effect." The court held that to deem the entire agreement unenforceable "did not reflect the intent of the parties."

Accordingly, the court held that the trial court should have confirmed the loft board's determination rejecting the tenants' "proposed withdrawal of their coverage applications as against public policy and remitting the coverage applications to the OATH for judication …, confirmed the board's determination that parts of the…(agreement) which required the tenants to withdraw their coverage applications were unenforceable and…annulled so much of the Loft Board's determination as deemed unenforceable the remaining portions of the…agreement."

Matter of Dom Ben Realty Corp. v. New York City Loft Bd., Supreme Court of the State of New York, Appellate Division, 2nd Dept., Index No. 12548/15, decided Nov. 13, 2019, Roman, J.P., Hinds-Radix, Maltese, LaSalle, JJ. All concur.

Landlord-Tenant—Occupant's Succession Claim Based on Emotional Commitment Failed—Close Relationship Not Enough To Show Emotional Commitment Necessary To Establish Non-Traditional Family Relationship

A landlord commenced a holdover proceeding against a respondent (niece) and a co-respondent (aunt), on the ground that the aunt did not renew her lease and the niece's occupancy is derivative of the aunt's rent stabilized tenancy. The aunt no longer maintains the subject apartment (apartment) as her primary residence. The court held a trial on the succession defense.

A building concierge testified that he had seen the respondents regularly "come and go in and out of the building from 2014 to 2017…." He recalled that the aunt had moved out of the apartment in either 2016 or 2017. He had started seeing the niece "every day a few months after he started working in June or July 2014" and he had been informed that the respondent was the aunt's niece.

The niece testified that her aunt had lived in the apartment for many years. She claimed that she had moved into the apartment in "March 2014 because she wanted to start a career in illustration and animation" and wanted to live with her aunt because, inter alia, the aunt was an artist herself.

The apartment had one bedroom. The niece asserted that she slept in the bedroom and the aunt slept in the living room, where there was a bed. The niece testified that she moved her "belongings" into the apartment in mid-2017. She stated that she came to the apartment on Monday nights and stayed through Tuesdays. She went to a house on Long Island (Long Island house) on Wednesday mornings. She further asserted that her aunt used the apartment more frequently on weekends when she spent time with the niece. They allegedly went to "the zoo, museums, movies, shopping, out to eat, or to the beach…."

The niece also testified that she had two bank accounts, one which was only hers and the other was a joint account with the aunt, which she had opened in March 2014 for use with respect to expenses for the apartment, such as "rent, utilities, and groceries." The niece testified that the aunt did not pay rent because of the aunt's financial situation, but that they shared utilities and meal costs. She claimed that the aunt was like a "second mother since her parents moved out of state" and that the aunt had provided "helpful guidance with her art career."

The niece also asserted that the aunt helped the niece "navigate the subway" and that between January 2015 and January 2017, the respondents both slept in the apartment 4 days a week. The niece stated that the aunt had moved out in June 2017 and into the Long Island house. She further alleged that whenever the aunt came to New York, the aunt would contact her, and they would try to get together. They spoke to each other "once a month by phone" and they spent "Valentine's Day, Mother's Day, birthdays, and St. Patrick's Day together" and also allegedly got together for Christmas.

The niece admitted that neither she nor her aunt advised the landlord that the aunt lived in the apartment. The niece also testified that her grandmother had died in 2013 in a nursing home two blocks from the Long Island house. The niece knew that the aunt spent most of her time with the niece's grandmother before the grandmother died. The niece admitted that the aunt "paid the mortgage and cable for the (Long Island house)." The niece also admitted that she and her aunt had "communicated with a lawyer who specialized in landlord/tenant law around the time that (the niece) was thinking about moving to New York and after (the niece) moved into the (apartment)…."

The respondents had opened their joint account "after consultation with the attorney." The niece acknowledged that she had seen her aunt two times a year before moving into the apartment and a few times a year after the aunt had moved out of the premises. The respondents did not vacation together. The niece had not moved "pets" from the Long Island house to the apartment after the niece's grandmother died. She further testified that the aunt would be at the Long Island house on Monday mornings, would come to the apartment on Monday nights, would go to the Long Island house during the day on Wednesdays, and would return to the apartment on Wednesday nights, and would go back to the Long Island house on Friday mornings. Bills from an animal hospital had been sent to the aunt at the Long Island house in March, May, and August of 2015 and July 2016.

The niece's uncle and aunt's brother had commenced an action against the aunt in Nassau Supreme Court, seeking partition, alleging that the aunt owned the Long Island house as a tenant-in-common with the niece's uncle. A settlement of that case gave the aunt exclusive use of the Long Island house. Correspondence relating to the partition litigation had been addressed to the aunt at the Long Island house and the aunt's bank statements for the months October 2013 through October 2016 were sent to the Long Island house.

The aunt cited voter registration documents, showing that the aunt voted at the apartment in 2014 and 2016. The aunt's tax returns signed in 2016 for the years 2012, 2014, and 2015 listed the apartment as the aunt's address and her tax return for 2016 signed in 2017, listed the Long Island house as the aunt's address. The aunt's New York tax return for 2016 stated that the aunt "did not maintain living quarters in New York City during 2016." Tax forms, such as 1099's or W-2's for the aunt in 2015 and 2016 listed the apartment as her address. Invoices for the aunt's artwork listed the apartment as her address in 2014, 2015, 2016, and 2017.

The niece's driver's license, voter registration, jury duty summons, and certain other documents showed her residency at the apartment. The niece also introduced the aunt's will, executed in June 2017, which left the aunt's entire estate to the niece. Credit card, debit card, and ATM activity indicated that the aunt was often present both in New York City and Long Island, and her time was "somewhat evenly divided."

Further testimony indicated that the niece spent time caring for her grandmother and the respondents spent four days a week in New York and had spent Wednesdays and weekends on Long Island, "in part to feed the animals." The aunt had obtained title to the Long Island house by buying out her uncle. She used a reverse mortgage to fund such purchase and claimed that a mortgage broker insisted that the aunt change her address on her tax returns to list the Long Island house.

The aunt testified that she did not visit the niece in college in Boston before the niece had moved into the apartment, that the respondents did not travel together, that the niece's grandmother lived in a nursing home two blocks from the Long Island house for nine months before the grandmother died, that the aunt gave the nursing home the Long Island house as the aunt's address, that the respondents opened the joint bank account after consulting an attorney, and that the respondents had "no power of attorney or health care proxies executed for one another." The niece was not a representative payee of aunt's social security income. The aunt explained that pets at the Long Island house required treatment by a veterinarian near the Long Island house. She could not bring the pets to the apartment and after the niece's grandmother died, the aunt spent the majority of her time at the Long Island house.

The court explained, inter alia, that "evidence of even a close relationship, by itself, does not suffice to show the kind of emotional commitment that characterizes a non-traditional family relationship." The court opined that the most "glaring evidence" that the respondents lacked "an emotional commitment and interdependence, was that respondents saw each other only two times a year before (niece) moved into the (apartment) and, three years later, saw each other only a few times a year after they represented that (the aunt) moved out of the (apartment)."

The court noted that the respondents had "only talked on the phone once a month after they testified that (the aunt) moved." The court reasoned that a "lifetime relationship of casual personal contact that bookends the three-year interlude according to which respondents assert that they live together belies the kind of emotional commitment and interdependence respondents must prove and furthermore outweighs the probative value of a joint bank account used for limited purposes." Even if the respondents had proven that they had a non-traditional relationship, they still had to prove that "both of them resided with each other for two years prior to (aunt's) permanent vacatur…."

The court acknowledged that the aunt had relocated to Long Island to help take care of the grandmother and that "taking care of an ailing relative does constitute an excusable absence from a rent-stabilized apartment for primary residence purposes." However, following the grandmother's passing, the aunt had maintained a connection with the Long Island house. She left her pets at the Long Island house and spent approximately half of her time at the Long Island house. Rather than selling the Long Island house and divide the proceeds with her siblings, all who owned the Long Island house as tenants-in-common, the aunt had "litigated against the sale of the (Long Island house) so that she could live at the (Long Island house)." She also filed her tax return for 2016 and March 2017, using the Long Island house as her address.

The court viewed such fact as "probative" that the Long Island house was her primary residence. She used the reverse mortgage on Long Island house to achieve the settlement which allowed her to live at the Long Island house. The aunt had also changed her "non-driver's license to reflect the (Long Island house) as her address in August of 2016." The court also cited correspondence in the partition action which utilized the Long Island address.

The court concluded that the "level of connection (the aunt) maintained with the (Long Island house) pre-dating (niece's) occupancy of the (apartment) and continuing through and after the resolution of the litigation with (niece's) uncle, is not consistent with (the aunt's) maintenance of the (apartment) as a primary residence." The court had further noted that the "conduct of a rent stabilized tenant and a successor-claimant after the tenant vacates can be probative of a non-traditional family relationship." Accordingly, the court awarded the landlord a judgment of possession against the niece and the aunt.

92nd Street Venture v. Corbett, Civil Court, New York Co., Case No. 82509/2017, decided November 6, 2019, Stoller, J.

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