As practitioners who have represented amici the Rent Stabilization Association of NYC, Inc., the Community Housing Improvement Program and the Real Estate Board of New York in Altman v. 285 W. Fourth, LLC, 127 AD3d 654 (1st Dept. 2015), and the successful owner in the recent Appellate Term, First Department, decision in 233 East 5th Street LLC v. Smith, 2016 NY Slip Op 26404 (Dec. 8, 2016), we were especially interested in Warren A. Estis and Jeffrey Turkel’s Jan. 4 article, “The ‘Altman’ Conundrum (Continued).”

While the article is an important update in the area of high rent deregulation, we think it misses the mark in its description of the Rent Act of 2011, as well as the import of 233 East 5th Street LLC and the interplay between that decision and Altman. The authors describe the Rent Act of 2011 as if there is an inconsistency (or in this case a conundrum) within the language of RSL Section 26-504.2 as amended in June 2011. Respectfully, there is no confusion or internal conflict.

The authors use the phrase “will only” in explaining the text of statute, and thereby convey the sense that the two means of high rent deregulation (rent threshold met at the time of vacancy by the outgoing rent stabilized tenant or rent threshold met at the time of the incoming tenant) are mutually exclusive. However, the phrase “will only” never appears in the text of RSL Section 26-504.2 and should not be imputed in light of the disjunctive “or” that separates the two means of deregulation set forth in the section.

As the Appellate Term explained in 233 East 5th Street, when seeking to deregulate a rent stabilized unit based upon high rent deregulation, an owner has two distinct options under the Rent Act of 2011:

Option A: Outgoing tenant’s rent is over $2,000; or

Option B. Outgoing tenant’s rent is below $2,000, but certain increases are taken after vacancy and rent is raised above $2,000.

These two options are clearly set forth in the text of the statute and stem from the legislative history. When high rent deregulation was first enacted in 1993 an apartment could be deregulated when the legal rent exceeded $2,000 per month. Thereafter, the New York City Council sought to amend the Rent Stabilization Law to provide that deregulation would only occur “where at the time the tenant vacated such housing accommodation the legal regulated was two thousand dollars or more per month …” This was April 1, 1997.

However, on June 19, 1997, the Legislature repealed the City Council’s amendment prospectively and Gov. George Pataki concurrently issued a memorandum which stated:

Also repealed is a provision recently added by the N.Y. City Council that only allows consideration of the apartment’s rent level at the time of the vacancy. The City Council’s amendment had the effect of preventing rent increases that ordinarily take place after a vacancy—such as vacancy allowances and increases attributable to apartment improvements—from being considered in determining whether the $2,000 threshold was reached.

The two distinct and independent means of deregulation were explicitly codified in the DHCR’s Rent Stabilization Code and applied by the agency and the courts in a plethora of decisions. The Rent Act of 2011 simply continued these two means of deregulation. Thus, there was no confusion and the matter only became an issue when the Appellate Division rendered its 2015 decision in Altman. As the article points out, the court in Altman cited only to the first means of deregulation. Although the Altman court did cite Roberts v. Tishman Speyer Props., 62 AD3d 71 (1st Dept. 2009), it did not cite the portion of Roberts that explicitly recognized the second means of deregulation.

The uncertainty reigned until the Appellate Term issued 233 East 5th Street and reiterated that there exists two means of deregulation. On its face, it appears that 233 East 5th Street is at odds with Altman. But the Appellate Term aptly notes:

In this regard, we do not interpret the contents of a single sentence in the decision in Altman v 285 W. Fourth, LLC, 127 AD3d 654 (2015) so broadly as to effectuate a sea change in nearly two decades of settled statutory and decisional law—that allowed an owner to deregulate an apartment after a vacancy, if the legal rent plus any lawful increases and adjustments to the rent, such as the vacancy allowance, exceeded $2,000 (see Aimco 322 E. 61st St., LLC v Brosius, 50 Misc 3d at 11-12)—particularly given the absence of any expressed intention by the Altman court to do so.

Respectfully, the Appellate Term in 233 East 5th Street was simply interpreting Altman in the context of an established legislative history, as well as settled statutory and decisional law—a well-established and longstanding tradition by lower appellate courts.

Finally, the landlord in Altman will seek leave to appeal the final judgment from the Court of Appeals, and the tenant in 233 East 5th Street has moved for leave to appeal to the Appellate Division.

Matthew Brett and Magda Cruz
The writers are partners at Belkin Burden Wenig & Goldman