Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Rent Stabilization—Holdover Proceeding Dismissed—Notice of Termination Defective—Making Profit From Subtenant or Roommate—Roommate Law (RPL §235-f) Does Not Vest A Landlord With a Cause of Action

The plaintiff had commenced a holdover summary proceeding against a rent-stabilized tenant, after terminating the tenancy pursuant to a 10-day notice (notice). The tenant moved for summary judgment, alleging that “the petition fails to state a cause of action and/or that the [notice] is fatally insufficient to serve as a predicate for the underlying proceeding.” The landlord opposed the tenant’s motion and cross moved for discovery. The notice provided, in pertinent part, that the tenant was violating the Rent Stabilization Code (RSC) because:

it has come to the Landlord’s attention that your apartment is occupied by individual(s) other than those set forth in your lease agreement. The Landlord finds that you are in violation of Section 235-f(s) of the Real Property Law, which requires that “the tenant inform the landlord of the name of any occupant within thirty days following the commencement of occupancy by such person or within thirty days following a request by the landlord”…you have refused to provide the names of such individuals, in violation of Section 235-f(5) of the Real Property Law.

….Moreover, upon information and belief, you are renting out rooms in the (sic) subject apartment and collecting rents from persons occupying the rented portions of your apartment. Based upon information and belief, your rental of rooms in the subject premises results in the aggregate total of said rental income collected by you from your sub-tenants represents more than the proportionate share of the space being rented by said sub-tenants. This conduct constitutes profiteering and is in violation of Section 2525.6(b) of the [RSC] for rent stabilized apartments in New York City….”

The court awarded summary judgment to the tenant and dismissed the petition. The notice purports to terminate the tenancy for failure of the tenant to comply with the landlord’s request to provide the names of occupants of the apartment as required by RPL §235(f). Such provision “prohibits unlawful occupancy restrictions for residential premises.” Courts have “held that RPL §235-f was enacted to provide protections for tenants and their roommates and not to provide landlords with an affirmative cause of action to recover possession.” Thus, landlords are not permitted to “usurp its purpose by asserting section 235-f as a cause of action….” Therefore, since RPL §235-f “does not provide petitioner with a basis upon which to terminate respondent’s tenancy paragraph (b) of the Notice….fails to state a cause of action for recovery of the premises.”

The court noted that paragraph (b) of the notice “pre-supposes” that the tenant lives in the apartment with another person. However, paragraph (c) of the notice “purports to terminate [the] tenancy for profiteering from charging ‘sub-tenants’ excessive rents in violation of [RSC] §2525.6(b).” The court explained that “[t]he distinction between roommate and a subtenant is somewhat critical when as here, petitioner alleges respondent’s profiteering as the basis for terminating her tenancy.”

Whether the allegation is that there is a roommate or a subtenant, the court held that the landlord’s claim must fail. “RSC §2525.7(b) prohibits tenants from charging roommates excessive rents.” Such prohibition, “does not extend to permit a landlord to evict a tenant from profiteering from a roommate.” Thus, if the landlord was “truly proceeding on the alternate theory that [tenant] is profiteering from a sublease, the Notice….is inadequate to form the basis of this proceeding.” The court explained that “[a] termination notice must set forth facts upon which the tenancy is being terminated as required by 2524.2(b).”

Thus, the court found that “the [notice] was devoid of any factual information regarding the basis for petitioner’s claim.” Rather, paragraph (c) of the notice “merely states, in a conclusory manner, that respondent is profiteering from a sublease.” Thus, “it may not form the basis for the proceeding.” Accordingly, the court granted the tenant’s motion and dismissed the petition.

418 West 130th St., LLC v. Rawlings, 71596/13, NYLJ 1202651138088, at *1 (Civ., NY, Decided March 28, 2014), Lau, J.

Landlord-Tenant—Bankruptcy—Debtor Claimed That Value of Her Rent-Stabilized Lease Was Exempt From Her Bankruptcy Estate as a “Local Public Assistance Benefit” Within the Meaning of NY Debtor and Creditor Law (DCL) §282(2)—2d Circuit Court of Appeals Certified the Question to the NY Court of Appeals—No NY Court Has Interpreted the Phrase “Local Public Assistance Benefit” In the Context of DCL §282(2)

This decision involved an appeal from a District Court affirmance “of a bankruptcy court’s order striking a debtor’s claim of entitlement to an exemption of property from her estate.” The debtor asserted that “the value of her rent-stabilized lease [lease] was exempt from her bankruptcy estate as a ‘local public assistance benefit’ within the meaning of [DCL] §282(2).” The Bankruptcy and District courts determined that the value of the lease did not “fall within the exemption.” The U.S. Court of Appeals for the Second Circuit Court (court) found that “application of §282(2) to New York’s rent stabilization laws” (RSL) raises a “question of New York State law that is appropriately certified to the New York Court of Appeals.” Therefore, the court certified the question and stayed resolution of the appeal.

The salient issue was “whether the value inherent in a New York City tenant’s rent-stabilized lease as a consequence of the protections afforded by New York’s Rent Stabilization Code (‘RSC’),…, make the lease, or some portion of its value, exempt from the tenant’s bankruptcy estate as a ‘local public assistance benefit’ within the meaning of New York Debtor and Creditor Law (DCL) §282(2).” The court concluded that the New York Court of Appeals was “better positioned to resolve this unsettled issue of New York law.”

The debtor, who had occupied her rent-stabilized apartment since the mid-1970′s, had sought relief under Chapter 7 of the Bankruptcy Code. During the bankruptcy proceedings, she “continued to pay her rent and has remained current on her lease obligations.” In her bankruptcy filing, “she listed her….lease on Schedule G as a standard unexpired lease.” Thereafter, the landlord approached the trustee and offered to buy the tenant’s interest in the lease. When the trustee advised the tenant that he planned to accept the offer, the tenant “amended her filing to list the value of her lease on Schedule B as personal property exempt from the bankruptcy estate under DCL §282(2) as a ‘local public assistance benefit.’”

The trustee moved to strike the tenant’s claim of exemption. The Bankruptcy Court granted the motion on the grounds that RSL protections “did not qualify as a ‘local public assistance benefit.’” The Bankruptcy Court noted that “‘all of the items listed in section 282(2),’ such as social security, disability, and unemployment benefits, ‘are payments of one sort or another that a debtor has the right to receive or in which the debtor has an interest.’” The Bankruptcy Court held that “the ‘benefit of paying below market rent….is a quirk of the regulatory scheme in the New York housing market, not an individual entitlement’ comparable to the other items in §282(2).” The District Court affirmed the Bankruptcy Court, finding that it was unnecessary to determine “whether the exempt benefits were limited only to payments to a debtor, because ‘the value in securing a lawful termination of the rent-stabilized lease’….is a collateral consequence of the regulatory scheme and not a ‘local public assistance benefit.’” The District Court also cited the absence of evidence that “the legislature had ‘intended to confer upon the tenant a public assistance benefit consisting of the value of terminating the rent-stabilization regime.’”

Section 522(b) of the Bankruptcy Code permits the debtor to exempt certain specified property from the bankruptcy estate….Section 522(d) of the Code provides a list of categories of property that a debtor may exempt. However, the code also permits states,…, to create their own lists of exemptions as an alternative to the exemptions found in Section 522(d). “New York has ‘opted out’ of the federal exemption scheme,….choosing instead to provide its own exclusive set of permissible exemptions for debtors domiciled in the state”….Under New York law, a debtor may exempt, among other things, her “right to receive or….interest in….a social security benefit, unemployment compensation or a local public assistance benefit.”

The issue before the court was “whether the [RSL] regime provides such a benefit.” The New York Court of Appeals had previously explained that “the [RSL] was created ‘to ameliorate,…, the….housing emergency in the City of New York’ by ‘protect[ing] dwellers who could not compete in an overheated rental market, through no fault of their own.’” The RSL governs “‘the initial rent, restrict rent increases, mandate lease renewal, and, upon the tenant’s vacating of the premises, allows the tenancy to pass statutorily to certain members of the tenant’s household,’ if certain conditions are met.” The court noted that, “[u]nder the RSC, these terms substantially favor tenants, requiring lease renewal in almost all circumstances, and affording strong anti-eviction protections.” The grounds for eviction under the RSC “are limited, and do not mention a debtor’s bankruptcy.”

The tenant contended “that this constellation of protections adds ‘value’ to a rent stabilized lease above the value of a market rate lease, and….the….value of these protections amounts to an exempt ‘local public assistance benefit’” under DCL §282(2).”

Bankruptcy trustees may “assume or reject any….unexpired lease of the debtor” and “a rent-stabilized tenancy is the product of a ‘lease’ under federal law.” Thus, the rent-stabilized lease “would appear to be covered by §365, but see B.N. Realty Assocs. v. Lichtenstein, 238 B.R. 249,….(S.D.N.Y. 1999),” which quoted a “Bankruptcy Court’s conclusion that rent-stabilized leases fell within an exception to §365….” However, that case was resolved on other grounds. An amicus brief in that case argued that “the inability of a creditor to reach the value of the debtor’s rent stabilized apartment outside of bankruptcy bars the trustee from assuming the lease….”

The court further noted that “New York cases have assumed that a trustee possesses the authority under….§365 to assume or reject a rent-stabilized debtor’s lease and have discussed the effect of a rejection.” Moreover, “several bankruptcy courts have held that a trustee’s authority under §365 extends to rent-stabilized leases.” The court therefore stated that there is authority “(albeit limited)” “for the proposition that a rent-stabilized debtor’s lease may be assumed and assigned by the trustee pursuant to….§365(a).”

On this appeal, the court had to “consider an additional and….different issue: May a rent-stabilized tenant prevent the assumption and assignment of his or her lease by claiming that the lease (or its value) is a ‘local public assistance benefit’ exempt from the bankruptcy estate?” The trustee essentially argued that “his assumption and assignment of the lease eliminate the protections afforded under the RSC and, therefore,….he may sell the lease to the landlord for the value that exists in the elimination of those protections.” The tenant countered that “the lease (or its value) is a ‘local public assistance benefit’ because the value of the lease….is traceable to the protections afforded to her under the RSC.”

The court opined that resolution of these issues “may implicate other questions of New York law, including whether a tenant’s rights under the RSC are property or personal rights.” The court noted that “[n]o New York cases directly address these contentions” and that “New York courts addressing the interaction of the Bankruptcy Code and the RSC have indicated that the rejection of a rent-stabilized lease by the trustee does not void or terminate the lease, and does not eliminate the protections of the RSC.” However, such decisions did “not address the assumption and assignment of a lease and, thus, do not resolve this appeal.”

Moreover, “[n]o New York courts have interpreted the phrase ‘local public assistance benefit’ in the context of DCL §282(2).” Two bankruptcy court decisions had permitted “the assumption and assignment of rent-stabilized leases or rights similar to RSC protections, with the consequent elimination of tenant protections….” However, neither decision addressed a request for an exemption under DCL §282(2).

The court concluded that “[g]iven the significance of these issues to landlords and tenants, as well as the complete absence of authority concerning the impact of DCL §282(2) on rent stabilized leases, it should not attempt to resolve these issues without first obtaining the views of the New York Court of Appeals.” Thus, the court certified to the Court of Appeals the question of “[w]hether a debtor-tenant possesses a property interest in the protected value of her rent-stabilized lease that may be exempted from her bankruptcy estate pursuant to [DCL] Section 282(2) as a ‘local public assistance benefit?’” If the New York Court of Appeals accepts the case, it may “reformulate or expand the certified question as it deems appropriate.” The court did not intend “to limit the scope of the analysis by the Court of Appeals.”

Santiago-Monteverde v. Pereira, 12-4131-bk, NYLJ 1202649199911, at *1 (2d Cir., Decided March 31, 2014). Before: Sack, B.D. Parker, and Raggi, C.JJ. Decision by B.D. Parker, C.J.

Residential Landlord-Tenant—Summary Nonpayment Proceeding—Defective Predicate Rent Demand—Stale Rent—Discrepancies Between Rent Demand and Monthly Rent Statement Indicate Petition Did Not Include Good Faith Sum of Rent Allegedly Due

A landlord commenced a summary residential nonpayment proceeding by service of a notice of petition and petition. The tenant asserted defenses and counterclaims. The tenant thereafter filed a motion to dismiss pursuant to CPLR §3211(a)(7), alleging that the landlord had failed to state a cause of action, the landlord relied on a “defective predicate rent demand” and the landlord had asserted a claim for “stale rent.”

The tenant argued that the landlord had “failed to properly apply earmarked rent payment and the predicate rent demand is defective as it fails to set forth a reliable statement of rents due.” The tenant contended that the landlord sought rent dating back almost five years and “such is an improper demand for stale rent.” The landlord argued that $22,653.90 is owed through Dec. 31, 2013 at $1,278.18 a month and the tenant had been paying $954.49 for “a long time thinking she had a DRIE [Disability Rent Increase Exemption] and the landlord had been giving the tenant a credit for the difference.” The landlord asserted that he had stated a cause of action and laches was inapplicable since he had not discovered that the tenant in fact “lacked a DRIE until on or about March 15, 2013.”

Additionally, the landlord argued that the tenant had failed to tender rent payments for the period July 2012 through August 2013 and is $17,516.18 in arrears. The tenant provided copies of checks made payable to the landlord for June 2012 through June 2013, all deposited by the landlord before the date of the five day notice and subsequent petition. The tenant further asserted that the landlord’s management company had advised her to make the rent payments and each check had been accepted and duly credited to her account.

The court explained, inter alia, that “[a]t a minimum the landlord or his agent should clearly inform the tenant of the particular period for which a rent payment is allegedly in default and of the approximate, good faith sum of rent assertedly due for each period.” “Here, the discrepancies between the rent demand and [tenant's] monthly rent statement and proofs offered by [tenant] indicate that the petition does not include a good faith sum of rent alleged to be due.”

The petitioner had made monthly payments of $954.49 for 12 of the 14 months included on the petition. The petition stated that the tenant owed “$1,191.73 monthly for the period July 2012 through October 2012 and $1,278.18 monthly for the period November 2012 through August 2013 and does not reflect any credit given for the $954.49 [tenant] had tendered monthly for 12 of those months and which [the landlord] accepted.”

The court found that the “discrepancies between the ledgers and the rent demand do not clearly inform the tenant of a good faith sum due for the period in question.” Additionally, the petition included “August 2013, which was not included in the rent demand and is an additional basis to dismiss the petition.” Accordingly, the court dismissed the petition.

The court did not reach the tenant’s other arguments. Finally, the court stated that the landlord had “an obligation to monitor [tenant's] DRIE and its failure to do so here would have unduly prejudiced [tenant].”

Sixth Avenue Terrace Assoc. v. Langley, LT 252042/13, NYLJ 1202653274133, at *1 (Civ., NY, Decided March 25, 2014), Levy, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.