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NYLJ: Prior landlord's criminal acts bar exemption from rent stabilization

Posted by chelsea on November 21, 2000 at 12:44:09:

This is an article from last Friday's New York Law Journal on a case that involves rent stabilization, overcharge, harassment and certificate of occupancy issues. Lines in brackets have corrections to what were errors in rent figures in the published version.

--------------------------------------------------------------------------------------------<

Rent Stabilization Continues,
Despite Repairs Made to Building

By Michael A. Riccardi
New York Law Journal
Friday, November 17, 2000

AN APARTMENT building that has been rehabilitated by its new
owner after intentional destruction had been wrought by the
previous landlord is still subject to the New York City rent
stabilization laws, a Manhattan Housing Court judge has
decided in a case of first impression.

The buyer who rebuilds the property steps into the shoes of the
previous owner, even if the predecessor is responsible for
abusing the building, said Judge Douglas E. Hoffman.

At issue in 446 Realty Company v. Higbie, L&T 105874/98 was
2520.11(e) of the Rent Stabilization Code, which exempts from
rent stabilization coverage buildings that have been "substantially
rehabilitated."

Judge Hoffman observed that neither the Rent Stabilization Code
nor the Rent Stabilization Law expressly define what work
qualifies as substantial rehabilitation. But even if the buyer repairs
extensive and deliberate destruction, it is not entitled to withdraw
the property from rent stabilization laws, the court ruled.

Exemptions from the rent stabilization laws are designed to
encourage the upgrading of building conditions, Judge Hoffman
said. But granting such exemptions to the new landlord would
carry a perverse economic effect, the court reasoned.
If rehabilitation work would result in the lifting of rent
stabilization laws, the price of a seriously run-down property could
reflect the possibility of higher rents. Such an inflation of the
purchase price would create a windfall for sellers who have committed
destructive acts against their own building, the court pointed out.

In 446 Realty, the petitioner purchased an apartment building
at 446 West 19th Street in Manhattan. The property had been the
scene of a campaign by its former owner to drive out his
tenants, who were protected by rent stabilization.
From 1981 to 1983, the former landlord, Thomas Lydon, hired
unsavory characters to harass tenants, set fires, burglarize
apartments and destroy major building systems. The campaign
ultimately led to Mr. Lydon's conviction for criminal
conspiracy.

The present owner, 446 Realty Company, bought the building from
Mr. Lydon and his partners in 1986.

[The new owner performed work including the addition of a
fifth floor, which created two new duplex apartments. This litigation
was touched off in 1994, when the tenant, Janet Higbie, moved into
Apartment 4A, one of the two duplex units, paying a rent of $1,400
per month. The last registered rent had been a stabilized rent of
$138.36 per month in 1986. Lease renewals raised Ms. Higbie's
rent to $1,450 and then $1,675. When the landlord did not offer a
renewal lease in 1998, the tenant stopped paying rent, and the
landlord brought a non-payment action, claiming the unit was
no longer subject to rent regulation.]

The landlord went to court to obtain a judgment that the unit's rent was
no longer regulated by those laws. The landlord said it had substantially
rehabilitated the property and was entitled to an exemption from
rent stabilization. Moreover, it argued that the rehabilitation remedied
criminal conduct by the previous landlord. "The exemption from rent
stabilization was to provide the financial incentive for such work,"
Judge Hoffman said. "If a landlord could eliminate rent regulation through
criminal conduct and wanton destruction of building systems designed
expressly to empty the building of regulated tenants to take advantage of the real
estate market and then claim exemption from rent regulation when the
destroyed systems are repaired ... the beneficent purpose of this
exemption would be turned on its head."

Even though 446 Realty is not Mr. Lydon, who is liable for the
criminal destruction of the building, it is bound by the
conduct of its predecessor, the court said. "[446 Realty] purchased
the building with full actual and constructive knowledge of the
conduct of its immediate predecessor in interest ... ," Judge Hoffman said.
If it were freed from rent stabilization, the building's
value would grow. The anticipation of such growth could inflate the
purchase price and result in a windfall to the predecessor who carried
out the destruction, he said.

"The statute, designed to create affordable, decent housing
in this city, was not created to embrace a windfall to the old or
present landlord based upon intentional criminal destruction of basic
systems in the building," Judge Hoffman said.

The court went on to reject 446 Realty's position that it had
substantially rehabilitated the building, noting that much of
the work it performed on the property was done without a proper permit.
Finally, the court ruled that under the rent stabilization laws,
the rent increase from $1,400 to [ $1,675] was not allowed, and
that the tenant was entitled to reimbursement for charges above
the allowable annual increase under the rent stabilization laws.

The landlord was represented by Charles J. Seigel, of Amsterdam
& Lewinter. The tenant's lawyer was William J. Gribben, of
Himmelstein, McConnell, Gribben & Donoghue.


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