Scott E. Mollen

Landlord-Tenant—Rent Stabilization—HPD Had Issued Vacate Order—Tenant HP Proceeding—Court Ordered Restoration of Apartment—Court Rejected Landlord's Defenses That Apartment Was Destroyed by a Fire and Tenancy Had Been Terminated, That a New Unregulated Apartment Had Been Created and That It Was Economically Infeasible To Restore the Apartment—Landlord Cited Expenses To Restore the Apartment, but Failed To Show Value of the Entire Building—Amount of Insurance Proceeds is Irrelevant—Landlord Failed To Show "Birth" of a New Apartment—Repairs "Outweigh the Endurance of a Rent-Stabilized Tenancy During a Vacate Order"

A tenant had commenced a Housing Part proceeding (HP Proceeding) against the respondent landlord and the NYC Dep't of Housing Preservation and Development (HPD), seeking an order requiring a landlord to correct conditions that led to a vacate order having been placed on the tenant's apartment. The tenant had moved to dismiss defenses asserted by the landlord and for summary judgment. The landlord had cross-moved to hold the tenant in contempt.

The tenant is 75 years old, had lived in the apartment since 1984; is protected by the Rent Stabilization Law (RSL); the rent was $750.98; the landlord purchased the building in 1986; the apartment is one of 15 apartments in the building; there was a fire at the premises; HPD placed a partial vacate order on the premises; the vacate order was specific to the subject apartment; the vacate order cited "fire damage to the ceiling, walls and floor" of the apartment, a lack of electricity and broken windows; HPD ordered the landlord to correct the conditions pursuant to NYC Admin. Code (AC) §27-2125(a)(2), and landlord had not corrected the conditions as of the time the tenant's motion had been made.

The court found that the tenant's "service of the pleadings by certified mail, return receipt requested at (landlord's) most recent although outdated registered address" was "sufficient" and granted the tenant's motion to dismiss the landlord's lack of personal jurisdiction affirmative defense.

The landlord claimed that it had not received notices of violation. The court explained that such argument "misapprehends the nature of a tenant-initiated HP proceeding as opposed to an HPD-initiated HP proceeding." The AC requires HPD to serve a notice of violation upon an owner and "a failure to do so can constitute a defense to an HPD-initiated HP proceeding." However, "[i]n a tenant-initiated HP proceeding, …, HPD 's putative failure to serve a notice of violation can constitute a basis for a tenant's cause of action, not a defense to the tenant-initiated proceeding, according to which HPD is a respondent as well." The court stated that the Housing Court "maintains jurisdiction in an HP proceeding over repairs necessary to have a vacate order rescinded."

The landlord blamed the tenant for "causing the fire that precipitated the vacate order" and argued that it could not repair the apartment because the tenant "had failed to vacate possession thereof" and because the tenant had denied the landlord access. The court noted that "[t]he few defenses to an order to correct include lack of standing or jurisdiction, completed repairs, that conditions are not code violations, that a notice of violation is facially insufficient, that the respondent is no longer the owner, and economic infeasibility."

The court stated that it may consider the tenant's "role in the fire, and allegation of denial of access, and/or an allegation of a failure to cooperate with correction of conditions upon a potential motion for contempt or civil penalties." However, the landlord had not stated a "defense to an order to correct as a matter of law." Thus, the court granted the tenant's motion to dismiss those affirmative defenses, without prejudice to any defenses that the landlord may have to any future motion for "civil penalties and/or contempt, without any prejudice to any cause of action or motion (landlord) may seek to bring against (tenant) on those grounds, and without prejudice to any defense and/or opposition (tenant) may have to such a defense or cause of action." The court also stated that the vacate order, "in and itself, did not terminate (tenant's) tenancy."

The landlord also asserted that the fire had destroyed the subject premises and therefore, the tenant's tenancy had effectively been terminated. The landlord cited "smoke damage, water damage, and mold" and alleged that necessary work includes "removal and replacement all ceilings, all walls, floors, and what they call 'attachments' therein." The landlord contended that "when a fire damages a 'building' to the extent that an owner has 'no real choice but to demolish it,' a prior tenancy in such a building ceases to exist."

The court observed that "[s]imilarly, when a fire reduces a 'building' to an 'empty shell' with no windows, collapsed floor joists and stairwells, and an absence of a boiler, copper piping, and other functioning systems, such a fire effectuates an 'effective demolition' of that building that operates to terminate the tenancy's that had been there."

However, here, the landlord failed to address "the fact that the apartment is only one of fifteen apartments in the building." The landlord had not alleged that the building was an "empty shell" without "functioning systems." The vacate order was inapplicable to other apartments in the building, "compelling that conclusion that other apartments in the building are fit for occupancy."

The court noted that if in fact what exists in the tenant's apartment, after repairs, is really a "new" apartment, the landlord would have a "colorable argument." The tenant is protected by RSL and "to show the birth of a 'new' 'unregulated apartment in the same location, as a prior rent-stabilized apartment, an owner must show a substantial move and change of the perimeter walls to the extent that the previous apartment essentially ceases to exist, such as when an owner converts a single two-bedroom apartment into two studio apartments, or conversely, two smaller units into a single larger unit." "Similarly, an extension of an apartment into new construction on a rooftop reconfigures an apartment to the extent of rendering it 'new.'" Here, the landlord failed to allege "the dimensions of whatever would exist in the same place as the subject premises after repairs would be any different from the subject premises nor that its use would be for a purpose other than a residential apartment."

The court concluded that if the landlord only showed that the apartment required "replacement of walls, floors, ceiling, and attachments," the landlord failed to show "that the building would undergo a 'demolition' of the scale necessary to effectively terminate (tenant's) tenancy, nor does a (landlord) show that a 'new' apartment would replace the subject premises." Thus, the court held that the landlord failed to demonstrate "an extent of repairs necessary to outweigh the endurance of a rent-stabilized tenancy during a vacate order."

With respect to the economic infeasibility defense, the landlord introduced an estimate of $520,230.97 to correct the existing conditions. Landlord was going to receive only $382,000 from its insurance. Since the tenant's rent-stabilized rent was $750.98, the landlord argued that it could not recover the cost of restoring the apartment "to habitability on any reasonable time horizon."

The Housing Maintenance Code does not embody an economic infeasibility defense. That defense arose from case law "as an exercise of equitable discretion." "An owner states such a defense if it can prove that the cost to repair a building exceeds it value after the repairs." The landlord had focused on the subject apartment itself, "rather than the building." However, "relevant authority addresses an economic infeasibility defense with reference to the value of a 'building,' not an individual apartment in a building." The court held that the landlord failed to establish an economic infeasibility defense because the record lacked proof of the current value of the "entire building."

In evaluating economic infeasibility defenses, courts look to "factors such as the actual or assessed value of the premises, current offers for the property, the tax assessment of the building, and the financial operating statement of the premises, including the rent roll … measures which do not apply to an individual rental unit as opposed to a building as a whole."

The court further stated that "a regulatory burden on one part of the property does not leave the property economically idle if the owner retains an ability to engage a development or business on some other part of the property." The subject building "generates building-wide rental income and incurs building-wide operations and maintenance costs. The appropriate measure of an economic infeasibility defense is not the income-generating potential of one apartment as against that one apartment's operational or maintenance cost, but the value of the entire property against the costs of repairs." Since the landlord failed to allege a comparison of the costs of "lifting a vacate order against the value of the building, (landlord) did not make a showing sufficient to defeat (tenant's) summary judgment motion."

The court also found that the amount of available insurance proceeds was irrelevant since the landlord's "unilateral decision on the amount of insurance it chose to carry could not determine the required scope of repairs. Any other conclusion encourages underinsurance."

Since nobody disputed "the existence of the vacate order," the petitioner is the tenant of the subject apartment, the landlord is the owner of the subject apartment and the court had jurisdiction pursuant to NYC Civil Court Act §110, the court directed that the landlord correct the conditions necessary to lift the vacate order by a specified date. The court's order was without prejudice and any defenses that the landlord may assert if the tenant makes a motion-based on the landlord's failure to comply with such order. The court's decision was also without prejudice to any defenses the landlord may have to such motion and without prejudice to any claim that the landlord may have against the tenant. The court's order was also without prejudice to any motion the landlord may make to extend the time to comply with the order, which extension may be granted upon "good cause shown" and without prejudice to any opposition or defense to any such motion.

Since the tenant obtained an order to correct in this HP proceeding, the tenant was deemed to be the prevailing party and the court granted the tenant's motion to dismiss the landlord's counter claim seeking a judgment for the landlord's legal fees.

Vargas v. 112 Suffolk St. Apt. Corp., Civil Court, New York Co., Case No. HP 1465/2019, decided Jan. 28, 2020, Stoller, J.