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In two recent decisions, the Appellate Term, First Department, ruled that unregulated tenants were not entitled to purchase their units, or remain in occupancy, where the sponsor/landlord had already commenced lease expiration holdover proceedings against them prior to the date the attorney general had accepted condominium offering plans for filing. The two decisions, MH Residential 1, LLC v. Barrett 1 and 322 West 57th Owner, LLC v. Penhurst Prods. Inc., 2 represent a major victory for cooperative and condominium sponsors. ‘Penhurst’ The sponsor/landlord in Penhurst (hereinafter, the “sponsor”) submitted a non-eviction condominium offering plan to the attorney general in June of 2005 in connection with its efforts to convert The Sheffield, a luxury apartment building located on West 57th Street in Manhattan. The attorney general accepted the plan for filing on June 22, 2006. Between March 2006 and the date of acceptance, the sponsor commenced 23 so-called “no cause” holdover proceedings against residential tenants at The Sheffield (hereinafter, the “respondents”) whose unregulated leases had expired. The sponsor asserted that once leases ended, the respondents (who had no option to renew) had to vacate. The respondents, in turn, moved to dismiss the holdovers on the ground that the respondents were protected against eviction, and were eligible to purchase their units, under General Business Law (“GBL”) §352-eeee, known as the Martin Act. GBL §352-eeee(2)(ii) provides that other than for cause, “[n]o eviction proceedings will be commenced at any time against non-purchasing tenants for failure to purchase or any other reason applicable to expiration of tenancy.” In addition, GBL §352-eeee(2)(i) allows “tenants in occupancy” to purchase their apartments. The right to purchase vests as of the date the attorney general accepts the plan for filing. On the vesting date, the 23 respondents in Penhurst were certainly in occupancy, but their leases had expired and holdover proceedings had been commenced. The question thus arose as to whether the respondents qualified as “tenants in occupancy” under the Martin Act and thus had the right to purchase. In March of 2007, New York City Housing Court Judge David B. Cohen ruled that the respondents were indeed protected by the Martin Act, and dismissed all 23 holdover proceedings. 3 Judge Cohen wrote: The fact that a holdover proceeding has been commenced against an individual to recover possession does not prevent the occupant from being accorded the status of ‘tenant in occupancy’ and hence entitled to purchase the shares allocated to the premises under a conversion plan. ***

[T]he critical factor in determining the status of the respondents herein as of the date of acceptance of the plan by the attorney general, is whether a final judgment and warrant of eviction has been issued, since ‘as a matter of law, the landlord-tenant relationship [is] not extinguished until the issuance of the warrant.’ In the absence of a judicial determination of the propriety of the landlord’s rejection of the tenancy or subtenancy, the legality of the tenancy in question ‘must be presumed.’ Here, all respondents were bona fide tenants with existing leases at the time the proposed offering plan was submitted to the Attorney General and distributed to the tenants in June 2005, and at no time was it alleged that respondents had breached the obligations under their leaseholds. Subsequent to the submission, and prior to the acceptance of, the plan by the Attorney General, the petitioner notified respondents that it would not be renewing their leases, and commenced these summary holdover proceedings to recover possession of the subject apartments. During the pendency of these proceedings, on June 22, 2006, the Attorney General accepted the offering plan. There has been neither the surrender of the premises by the respondents, nor has a final judgment of possession or warrant of eviction been issued.

***

Accordingly, respondents herein are ‘tenants in occupancy’ of the premises and are entitled to the protections of the Martin Act (internal citations omitted).4

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