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Re: Preferential vs. actual rent -- after that appellate decision

Posted by chelsea on July 25, 2001 at 07:39:16:

In Reply to: Preferential vs. actual rent -- after that appellate decision posted by Callie on July 25, 2001 at 00:11:11:


Below is a 2001 housing Bronx housing court case since Missionary Sisters that parallels your situation pretty closely, with an open-ended preferential rent. (Though not being a lawyer, I'm not sure about the implications of a Bronx trial case to Manhattan.) Here, the judge did not require a stated reason or time limit for the "preferential rent" and said it did not apply for future leases to the tenant. This though even the evicerated RSC states that the initial preferential rent is the base for that tenant. I think tenants can count on an avalanche of these cases, as landlords take advantage of yet another way to evade the rent laws.

You would need to sign the lease and then begin an overcharge action. I would not go to DHCR on this one -- just too anti-tenant. You would need to hire a very sharp tenant lawyer who is willing to challenge this issue in court.

Chelsea

Case Caption:
782 PPS Corp. v. Rodriguez
Issues/Legal Principles:
Tenant is not entitled to continued preferential rent leases, even though this tenant's situation is not similar to the Appellate
Division's recent ruling in Missionary Sisters of the Sacred Heart v. DHCR & Croseri.
Keywords:
preferential rent; stipulation; Jiggetts; arrears
Court:
Civil Housing Court, Bronx County
Judge:
Hon. Heymann
Date:
June 6, 2001
Citation:
NYLJ, page 22, col 4
Referred Statutes:
RSC §2521.2
Summary:
The landlord commenced a nonpayment proceeding against the tenant who had previously been given a preferential rent. The
tenant settled the proceeding by consenting to a judgment for the rent arrears owedžhowever, the arrears were set at the rate
of the legal rent, not the preferential rent. Thereafter the tenant retained counsel who sought to vacate the stipulation on
grounds that the judgment exceeds the legal rent permitted under the Rent Stabilization Code. The judgment was for the
higher rent, as opposed to the preferential rent. The tenant took the position that once a preferential rent was charged, a
landlord was bound to continue charging the tenant a preferential rent (plus guidelines increases) for the duration of this
tenant's tenancy.

The parties' lease stated that tenant would be given a preferential rent unless legal proceedings, including nonpayment
petitions, were commenced, in which case the rent would be at the legal rent and not the preferential rent. Tenant was offered
a renewal lease at the legal rent, not the preferential rent. The court was inclined to find that the landlord was required to
provide the tenant the preferential rent due to the law that states a renewal lease must be on the same terms and conditions
as the prior lease. Additionally, the new Code amendments, effective December 20, 2000, do not categorically state that
preferential rents are limited only for specific terms and need not be renewed. Yet, the Appellate Division recently came out
with a ruling regarding preferential rents in Missionary Sisters of the Sacred Heart v. DHCR & Croseri (See Housing Court
Decisions Archives for May 22, 2001). In that case, the lease specifically informed the tenant of the reason for the rent
concession (economics of the market place) and that the preferential rent was limited to the particular lease term for this very
reason. Thus, the Appellate Division ruled that the Croseri tenant was not entitled to a preferential rent for the duration of that
tenant's tenancy.

By contrast, the court noted in this case the tenant was not informed of a reason for the rent concession and no specific
condition was set forth which would clearly trigger the preferential rent's termination, other than the fact that it would expire at
the end of the term of the renewal lease itself. Nonetheless, the court felt constrained to follow the Appellate Division and
therefore ruled that the tenant was obligated to pay the legal rent and was not entitled to a lease renewal at the preferential
rent rate. Therefore, the stipulation was not vacated, nor was the tenant's request to dismiss the petition granted, except to
the extent that the tenant receives Jiggett's subsidies, which were paid, so the landlord is entitled to a judgment representing
the difference between the legal rent and the amount paid under Jiggetts.


: I have been living in an RS apartment in Manhattan for quite a few years, and I rented it in the early Nineties. I have had a "preferential rent" for that entire time, and the registered rent was somewhat higher. Well, I just received my renewal lease, and it says I have to pay the much higher rent.

: Now, I've been following the posts on this board and realize there is an Appellate court case on the subject (Missionary Sisters vs. Crosini). However, that case applied to a specific situation where the lease specifically said the rent was being increased for a short period. In my case, in recent years it was just stated as "preferential rent" with NO separate agreement. There was a separate agreement some years ago, calling the lower rent a "special inducement," but that was only once, years ago.

: The decision seems to say that it only applies to situations where there is an agreement for a limited, temporary preferential rent.

: Specifically, the court said:

: "Rather, Section 2521.2(b) provides guidance in those situations where no written agreement controls and/or where the rent concession is open-ended or where the tenant, and possibly the landlord also, are unaware the rent being charged is not the maximum allowable. It was not intended, however, to obviate the terms of a lease agreement where both the landlord and the tenant are aware that the rent charged could, legally, be higher, but agree, for a limited period, under a specific set of circumstances, to allow the tenant to pay less."
: The ruling goes on in a similar vein later on. I have the full text copied below.

: I think the key word here is "open-ended." Mine is definitely open ended, I think. No written agreement in years!

: So my questions are as follows:
: 1. Do I have a shot at asking for a lower rent?
: 2. How do I do that? What form do I file with the DHCR? Do I sign the lease and file for an overcharge; do I say I didnt get a valid lease?
: and lastly:
: 3. Should I do anything now at all? Should I wait until the Court of Appeals rules? How much time do I have to contest this thing?

: Any thoughts on the above would be appreciated. Thanks!
: The full text of the case is copied below:

:
: Judgment, Supreme Court, New York County (Sheila Abdus-Salaam, J.), entered April 10, 2000, which dismissed this CPLR Article 78 proceeding to annul the determination of respondent New York State Division of Housing and Community Renewal ("DHCR"), dated July 1, 1998, denying petitioner-owner's application for an order directing that the rent in a renewal lease be based upon the legal regulated rent rather than the preferential rent actually paid by the tenant, reversed, on the law, without costs, the petition granted and the matter remanded to the DHCR for further proceedings in accordance herewith. Appeal from order, same court and Justice, entered on or about April 10, 2000, which directed entry of the aforesaid judgment, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
: Petitioner Missionary Sisters of the Sacred Heart, Ill. ("Missionary Sisters" or "landlord") is the owner of the residential building designated as 222 East 19th Street, New York, New York. Respondent Alessandro Croseri ("tenant") is the rent-stabilized tenant of Apartment 12D.
: On April 28, 1994, the Missionary Sisters and Croseri entered into a lease for a two-year term which commenced on May 1, 1994. The lease provided that the monthly rent for the apartment was $1,448.14, but that Croseri was to pay a preferential rent of $1,379.77. The parties also executed a "Preferential Rent Rider" which provided, in pertinent part:
: THE PARTIES TO THIS LEASE AGREE AND ACKNOWLEDGE THAT THE TENANT WILL BE CHARGED, DURING THE TERM OF MAY 1, 1994 THRU APRIL 31, 1996 (sic) A PREFERENTIAL RENT OF $1,379.77 PER MONTH . . . IT IS ACKNOWLEDGED THAT THIS PREFERENCE IS GRANTED TO THE TENANT ALESSANDRO CROSERI BECAUSE OF THE PRESENT ECONOMICALLY DEPRESSED MARKET. (emphasis added)
: On or about March 25, 1996, the Missionary Sisters and Croseri entered into a renewal lease for a term of one year commencing on May 1, 1996. The renewal noted that the legal rent was now $1,477.10, but that a preferential rate of $1,408.37 would be charged. In addition, the parties again executed a "Preferential Rent Rider" which, for the purposes of this appeal, was identical to the first rider.
: Prior to the expiration of the first renewal lease, the Missionary Sisters tendered a second renewal lease at the legal regulated rent without the rent concession. Croseri refused to execute the renewal without the concession and, as a result, the Missionary Sisters commenced an administrative proceeding before the DHCR to determine whether Croseri could be charged the legal regulated rent. The DHCR records indicate that Croseri also filed a complaint with the agency requesting a determination as to what constituted the appropriate rent.
: By order dated September 26, 1997, the DHCR Rent Administrator denied the Missionary Sisters' application on the ground that "renewal leases are based on preferential rent until the tenant moves out." The Missionary Sisters thereafter filed a petition for administrative review, which was denied by decision and order dated July 1, 1998. In his decision, the Deputy Commissioner initially cited Section 2521.2(b) [FN1] of the Rent Stabilization Code and then found, based thereon, that "[o]nly after the tenant that is charged a rent lower than the legal regulated rent vacates, may the legal regulated rent be used as a basis for adjustments."
: FN1. The decision actually misstates the section relied upon as 2521.3(b), which addresses a building's classification as a hotel vis-a-vis maid and linen service.

:
: The Missionary Sisters subsequently commenced the within Article 78 proceeding by Notice of Petition and Petition dated July 1, 1999 challenging the DHCR's final determination. The IAS court, by decision dated January 6, 2000, denied the petition and held, inter alia:
: While this court might have reached a different conclusion than did the DHCR regarding whether the lower rent was to be limited to each lease period, and not continued for this tenant indefinitely, respondent's view of the lease provisions in the context of the Rent Stabilization Law and the rent Stabilization Code is 'determinatively persuasive' . . . (citation omitted).
: We disagree.
: The DHCR's final determination, which denied the Missionary Sisters' appeal, turned solely on the agency's reading and application of Section 2521.2(b) of the Rent Stabilization Code ("RSC"), which provides:
: Where the legal regulated rent is established and a rent lower than the legal regulated rent is charged and paid by the tenant, upon vacancy of such tenant, the legal regulated rent previously established plus the most recent applicable guidelines increases, plus such other rent increases as are authorized pursuant to Section 2522.4 of this Title (Adjustment of Legal Regulated Rent), may be charged a new tenant.
: It is settled that where the interpretation of a statute involves a specialized "'knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom,' the courts should defer to the administrative agency's interpretation unless irrational or unreasonable" (Matter of Dworman v New York State Div. of Hous. and Comm. Renewal, 94 NY2d 359, 371; quoting Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459). In contrast, where the question is one of pure statutory interpretation and analysis, there is little basis to rely on the special competence or expertise of the administrative agency and its interpretive regulations are to be accorded much less weight (Matter of Dworman v New York State Div. of Hous. and Comm. Renewal, supra, at 371; Kurcsics v Merchants Mut. Ins. Co., supra, at 459; Matter of Eastern Pork Prods. v New York State Div. of Hous. and Comm. Renewal, 187 AD2d 320, 323).
: In our view, as opposed to the interpretation set forth by the DHCR, the above-cited provision does not dictate the exclusive point at which the legal regulated rent can be charged if a concession has been granted, and there is nothing in its terms which indicates such a restriction was intended. Rather, Section 2521.2(b) provides guidance in those situations where no written agreement controls and/or where the rent concession is open-ended or where the tenant, and possibly the landlord also, are unaware the rent being charged is not the maximum allowable. It was not intended, however, to obviate the terms of a lease agreement where both the landlord and the tenant are aware that the rent charged could, legally, be higher, but agree, for a limited period, under a specific set of circumstances, to allow the tenant to pay less.
: The Legislature initially enacted laws providing for rent control and, later, rent stabilization in response to a critical housing shortage following the Second World War (Rent Stabilization Assn. of N.Y.C. v Higgins, 83 NY2d 156, 164-165, cert denied 512 US 1213). The Rent Stabilization Law, enacted in 1969, was designed to encourage future housing construction by allowing owners to charge reasonable rent increases, as well as to prevent the exaction of "unjust, unreasonable and oppressive rents" and to "forestall profiteering, speculation and other disruptive practices" in the housing market (see, Administrative Code of the City of New York §26-501; 300 West 49th St. Assocs. v New York State Div. of Hous. and Comm. Renewal, 212 AD2d 250, 254). Section 2520.13 of the Rent Stabilization Code provides, in pertinent part, that "[a]n agreement by the tenant to waive the benefit of any provision of the RSL or this Code is void . . ."
: Surely, requiring a tenant to pay less than the full legal rent, no matter for how short a term, cannot possibly violate any public policy prohibiting the exaction of "unjust, unreasonable and oppressive rents," especially where the tenant is aware of the concession and the limitation on its duration. Moreover, requiring the tenant to pay a temporarily discounted rent cannot be said to constitute a waiver of a benefit provided by the Code. To hold, as did the DHCR, that any and all agreed upon limited concessions are, in fact, not limited at all but survive to the termination of the tenancy will serve no other purpose but to foreclose any informed landlord from providing such a limited preference, whether such preference inures solely to the benefit of the tenant, or to both the tenant and landlord.
: The DHCR, in an apparent attempt to buttress its rulings, now argues on appeal, inter alia, that the aforecited cases addressing statutory interpretation do not apply because "[t]he facts of the case at bar reveal that no issue of legislative intent of a statute exists. The issue is the interpretation of the terms of a lease between the parties . . ." (emphasis added), and that the mutual intent of the parties controls. The DHCR also places heavy reliance on a theory it sets forth as the "Collingwood principle." These issues, of course, were never raised, much less addressed, in the DHCR's final determination.
: Judicial review of the propriety of any administrative determination is limited to the grounds invoked by the agency in making its determination (Matter of Montauk Improvement v Proccacino, 41 NY2d 913; Matter of 72A Realty Assocs. v New York City Envir. Control Bd., 275 AD2d 284). The Court of Appeals has further opined that:
: '[a] reviewing court, in dealing with a determination . . . which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency. If those grounds are inadequate or improper, the court is powerless to affirm the administrative action by substituting what it considers to be a more adequate or proper basis . . .' (emphasis added)
: (Matter of Scherbyn v Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 NY2d 753, 758, citing Matter of Montauk Improvement, supra).
: In our view, having reached the conclusion that the Rent Stabilization Code provision which formed the sole basis for the DHCR determination has no application to the facts herein, the analysis should end. Notwithstanding the foregoing, we do not agree that an ambiguity exists in the rider.
: It is well established that the interpretation of the provisions of a lease is governed by the same rules of construction applicable to other agreements (Star Nissan, Inc. v Frishwasser, 253 AD2d 491, 492; New York Overnight Partners, L.P. v Gordon, 217 AD2d 20, 24, affd, 88 NY2d 716; Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211, 217). Where the intent of the parties is clear and unambiguous from the language employed on the face of the contract, the courts may not resort to extrinsic evidence (W.W.W. Assocs. v Giancontieri, 77 NY2d 157, 162; Doherty v New York Tel. Co., 202 AD2d 627, 628) and the interpretation of the agreement is a matter of law solely reserved for the court (W.W.W. Assocs. v Giancontieri, supra, at 162; New York Overnight Partners, L.P. v Gordon, supra, at 24-25; Star Nissan, Inc. v Frishwasser, supra, at 492). Further, when interpreting a writing, the court should "adopt an interpretation which gives meaning to every provision of a contract" (Muzak Corp. v Hotel Taft Corp., 1 NY2d 42, 46; see also, Two Guys v S.F.R. Realty Assocs., 63 NY2d 396, 403; W.W.W. Assocs. v Giancontieri, supra, at 162).
: In this matter, the lease, and the renewal in similar language, as previously noted, provide, inter alia:
: THE PARTIES TO THIS LEASE AGREE AND ACKNOWLEDGE THAT THE TENANT WILL BE CHARGED, DURING THE TERM OF MAY 1, 1994 THRU APRIL 31, 1996 (sic) A PREFERENTIAL RENT OF $1,379.77 PER MONTH . . . IT IS ACKNOWLEDGED THAT THIS PREFERENCE IS GRANTED TO THE TENANT ALESSANDRO CROSERI BECAUSE OF THE PRESENT ECONOMICALLY DEPRESSED MARKET. (emphasis added)
: Thus, the agreements, by their own terms, set forth the legally allowable rent that could have been charged under the Rent Stabilization Code; the concession, or preferential rent that would be charged; the specific term for which the discounted rent would apply; and the clearly defined reason why the lower rent was offered. There is nothing in either the lease or the renewal that might in any way indicate the concession or preference was indefinite, rather, it was specifically tied to economic conditions prevailing at the time the lease was executed, and was to apply for that particular lease term. We perceive of no reading of the leases, or ambiguity in their terms, which might lead the tenant, or the DHCR, to conclude that the preference was to survive recovery after the economically depressed market recovered.
: Further, we find the holding of the Court of Appeals in Matter of Century Operating Corporation v Popolizio (60 NY2d 483) to be controlling. In Popolizio, the building into which the tenant was to move was under construction, and there existed the possibility that the apartment would not be ready at the beginning of the term of the tenancy. To mitigate this possibility, the landlord agreed to waive the rent obligation for the first two months of the lease. The New York City Conciliation and Appeals Board (the "CAB"), the DHCR's predecessor agency, found that the two-month rent concession should be continued indefinitely in all renewal leases. The Court of Appeals, however, rejected the CAB determination as arbitrary and capricious in that it was "without sound basis in reason, and in disregard of the terms of the contract and the facts in this action." (id. at 488) In reaching its decision, the Court of Appeals noted that:
: [t]he explicit terms of the rider, including that the tenant 'shall not be required to pay rent for the two months period commencing on the date on which possession of the apartment is given or the apartment is available for occupancy', limit the rent concession to the commencement of the original vacancy lease. The terms 'possession *** is given' and 'available for occupancy' have no rational relation to a renewal lease, where the tenant already is in possession and occupancy of the apartment. (id. at 488).
: The Court of Appeals also held that "on the question of the meaning to be given to a contractual term or condition once incorporated in a renewal lease, the parties' intent is, as always, a touchstone of contract construction." (emphasis added) (id. at 489).
: In Popolizio, the rent concession was granted because of conditions which existed in the building at the time the lease was executed, i.e., delayed construction, whereas in this matter, the rent concession was granted due to conditions which existed outside the building, i.e., an economically depressed market. In both matters, the tenant was expressly informed of the basis for the rent concession and we find, as did the Court of Appeals in Popolizio (at 488), that after an "examination of the language of the rider as a whole," the rent concession in this matter is limited to the particular lease term for the specific reason stated.
: Lastly, the DHCR relies upon the "Collingwood Rule," which was apparently set forth in Collingwood Estates v Gribitz, NYLJ, April 24, 1975, page 17, column 6 (Sup. Ct., N.Y. Co., Fine, J.), and which provides that the rent which a tenant pays controls, not what might have been charged, thereby guaranteeing that the tenant will not be responsible for a rent increase greater than the percentage authorized by the New York City Rent Guidelines Board. We find this argument is also unavailing as it ignores, or attempts to circumvent, the holding of the Court of Appeals in Matter of Century Operating Corporation v Popolizio, supra, which indicates that the parties' intent clearly manifested in a written agreement controls in situations such as this.
: All concur except Ellerin and Rubin, JJ. who dissent in a memorandum by Rubin, J. as follows:
: DISSENTING OPINION

: RUBIN, J. (dissenting)
: The tenant, Alessandro Croseri, took occupancy of a rent-stabilized apartment pursuant to a vacancy lease (Rent Stabilization Code [RSC] [9 NYCRR parts 2520-2530] §2520.6[g]) dated April 28, 1994. A rider to the lease, denominated a "Preferential Rate Rider," acknowledges that the legal regulated rent (RSC §2520.6[f]) is $1448.14, but provides that the tenant is being charged a "preferential rent" of $1379.77 during the term commencing May 1, 1994 and expiring April 31, [sic] 1996 due to the "present economically depressed market." A renewal lease (RSC §2520.6[h]), executed by the parties for the term May 1, 1996 through April 30, 1997, incorporates a similar rider, providing for a "preferential rent" of $1408.37.
: At the time of the next renewal, the owner tendered a lease without the preferential rent rider, requiring the tenant to pay the "actual rent" without any concession. The tenant commenced an administrative proceeding before respondent Division of Housing and Community Renewal (DHCR), claiming that the renewal rent should be based upon the rent actually paid, even if the legally collectible rent is higher. Thereafter, the landlord filed a request for an administrative determination that the renewal lease should be predicated upon the legal regulated rent. However, the Rent Administrator issued an administrative order finding, in part, that Rent Stabilization Code §2521.2(b) permits the legal regulated rent to be reinstated only after the tenant vacates the premises and a new tenant is offered a vacancy lease. That regulation provides: "Where the legal regulated rent is established and a rent lower than the legal regulated rent is charged and paid by the tenant, upon vacancy of such tenant, the legal regulated rent previously established plus the most recent applicable guidelines increases, plus such other rent increases as are authorized pursuant to section 2522.4 of this Title (Adjustment of Legal Regulated Rent), may be charged a new tenant."
: Upon denial of its Petition for Administrative Review (RSC §2510), the landlord commenced this proceeding pursuant to CPLR article 78 (RSC § 2507.9). Supreme Court dismissed the petition on the ground that, although reasonable minds might differ as to the mandate of Rent Stabilization Code § 2521.2(b), DHCR's determination is not irrational.
: DHCR's interpretation of statutes and regulations subject to its administration is entitled to great deference (Matter of Salvati v Eimicke, 72 NY2d 784, 791, rearg denied 73 NY2d 995; Matter of Howard v Wyman, 28 NY2d 434, 438). That the landlord may not have intended to incorporate the rider into future leases is not dispositive in view of the requirement to provide a renewal lease "on the same terms and conditions as the expired lease" (RSC §2522.5[g]; Matter of Century Operating Corp. v Popolizio, 60 NY2d 483, 489). As the terms of the rider do not apply "peculiarly to the initial vacancy lease" (id.), it cannot be said that the agency's construction of the regulation is "unreasonable or irrational" (Matter of Salvati v Eimicke, supra, at 791; see also, Matter of Gaines v New York State Div. of Hous. and Community Renewal, 90 NY2d 545, 551), and its determination should therefore be upheld.
: Even considering the matter de novo, we would reach the same conclusion. Matter of Century Operating Corp. v Popolizio (supra), relied upon by the landlord and the majority, is factually distinguishable. In that case, a rider to the initial vacancy lease granted a concession of two months' rent "tied to the other rider provisions concerning the possibility that building construction would not be complete by the beginning of the specified term" (supra, at 488-489). As the Court of Appeals noted (at 489), the concession provision "applies peculiarly to the initial vacancy lease, when the building was not yet available for occupancy, and would have no meaning in the context of renewal leases." Thus, there is no question that the concession resulted from the landlord's inability to assure the tenant that construction of the premises (Lincoln Towers) would be complete and that the tenant could therefore assume occupancy on the inception date of the lease.
: In the instant proceeding, by contrast, the reduced rent is designated "a preferential rent," limited to the tenant and not extending to his successors. It is the owner's position that the lease grants it the option to remove the preferential rent if, in its determination, market conditions are no longer "depressed." The lease does not express the tenant's agreement to this procedure, and nothing in the Rent Stabilization Law grants a landlord the right to make such a unilateral determination.
: Accordingly, the judgment should be affirmed.
: THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
: ENTERED: MAY 22, 2001
: N.Y.A.D. 1 Dept. 2001.
: Matter of Missionary Sisters of the Sacred Heart v N.Y. State Division of Housing and Community Renewal
: END OF DOCUMENT



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