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Posted by consigliere on January 25, 2002 at 14:55:10:

This article will appear in the Sunday Real Estate section of The New York Times. Jay Romano has done another excellent job in writing a thorough analysis of the issues involved:

Roommate Overcharges Risk Lease

By JAY ROMANO

Thousands of New York City rent- stabilized tenants who have roommates could be in danger of losing their apartments, landlord-tenant lawyers say, because of a recent ruling by a Manhattan appeals court.

On Dec. 31, 2001, a three-judge panel of the Appellate Term, First Department, upheld an earlier ruling by a Manhattan Housing Court judge who refused to dismiss an eviction action brought by a landlord against a tenant who was alleged to be charging her roommate more than the roommate's proportionate share of the rent. The appellate court agreed that such an overcharge would violate a provision of the Rent Stabilization Code that prohibits tenants from profiteering from their financial arrangements with roommates, and sent the case back to the Housing Court for trial.

Lawyers who represent landlords say the decision appropriately prevents rent-stabilized tenants from profiting from their below-market-rate rents — and, at the same time, protects roommates from paying more than their fair share of the rent. Tenants' lawyers say that the ruling interferes with the private financial relationships of tenants and roommates and could result in landlords aggressively pursuing eviction cases against tenants with roommates.

In fact, the tenants' lawyers say, profiteering is considered a "noncurable" violation of the rent code. Even tenants who are now overcharging their roommates but who are willing to adjust the rent to comply with the law may find that it is too late to do so.

"I believe that there's going to be an emptying of apartments in New York City at a rate we've never seen before," said Darnay Hoffman, the Manhattan lawyer who represented the tenant in the case just decided. "What this means is that even in cases where a roommate is happy paying more than his proportionate share of the rent, the landlord becomes the gatekeeper. It means that the landlord is now in a position to interject himself into the private arrangements of people who are living together. And, worst of all, it's a noncurable violation of the code. That means you don't get a second chance to do it right."

Mr. Hoffman explained that the underpinning of the case was an amendment to the Rent Stabilization Code adopted on Dec. 20, 2000, by the Division of Housing and Community Renewal, the state agency that administers the rent laws.

Prior to that date, he said, there was nothing in the code that prevented tenants in rent-stabilized apartments from charging their legal roommates whatever rent the roommate was willing to pay. The amendment adopted by the agency, however, prohibits tenants in New York City from charging roommates more than the roommate's proportionate share of the rent. (The prohibition does not extend to rent-stabilized tenants elsewhere in the state.)

Under the amendment, Mr. Hoffman said, a roommate's proportionate share of the rent is determined by dividing the legal regulated rent by the number of occupants in the apartment and the number of tenants named on the lease.

For purposes of determining proportionate share, a married couple whose names appear on the lease would be counted as one tenant, and immediate family members of the tenant, along with dependent children of any roommate, would not be counted.

So, for example, the proportionate share of the rent for a roommate who lived with a married couple with a child would be 50 percent. The same proportion would apply to a roommate who lived with a lone tenant or with a lone tenant and the roommate's dependent child.

According to the Appellate Court's written decision — RAM 1 L.L.C. v. Mazzola — Mr. Hoffman's client, Joan E. Mazzola, whose rent-stabilized rent was $1,847.77 a month, was alleged to be charging her roommate, Brian Moro, $2,200 a month. When the landlord learned of the overcharge, it started an eviction action against Ms. Mazzola based upon her alleged violation of section 2525.7(b) of the Rent Stabilization Code, the amendment that prohibits charging a roommate more than a proportionate share of the rent.

Mr. Hoffman then filed a motion to dismiss the case, allowing that for purposes of the motion only, the allegations were true. Judge Larry S. Schachner of the Housing Court denied the motion — a decision that has now been upheld by the Appellate Term — ruling that the eviction action could proceed and that, if the allegations are proved to be true, Ms. Mazzola and her roommate can be evicted from the apartment.

While that alone would be troubling enough for Ms. Mazzola and other tenants who are charging their roommates more than their proportionate share of the rent, what is particularly painful is that violation of the antiprofiteering section of the code is a noncurable violation.

William Neville, a Manhattan lawyer who represented RAM 1 L.L.C., the landlord, explained that most eviction actions brought by landlords against tenants for violations of the terms of the lease were curable violations. If the tenant ceases the action that is causing the violation, he said, the tenant cannot be evicted.

In fact, Mr. Neville said, even in cases where a landlord prevails in an eviction case for violation of the lease, the court typically gives the tenant 10 days to avoid being evicted by curing the violation.

The case brought by Mr. Neville's client, however, did not allege that Ms. Mazzola violated the lease, but instead that she violated a section of the Rent Stabilization Code that does not permit a cure — either before or after the case is decided.

"That means that if the trial court accepts our version of the facts" — that Ms. Mazzola was charging her roommate more than his proportionate share of the rent — "then we're entitled to possession and she has no right to cure," Mr. Neville said.

He added that the result is ultimately appropriate since a tenant who is charging a roommate an excessive amount of rent is taking advantage of the protections the rent laws were intended to provide.

"The Rent Stabilization Law was designed to prevent people from paying oppressive rents," Mr. Neville said. "And it does that by limiting the rent a landlord can charge. Given that fact, why should a tenant be allowed to take advantage of the rent laws and gain profits that the owner of the property cannot get?"

He added that while the Rent Stabilization Code does not require a tenant to divulge how much a roommate is being charged, there are various ways a landlord can obtain such information. In some cases, Mr. Neville said, the tenant advertises the apartment and the rent being sought. In others a disgruntled former roommate might provide the information.

Once a landlord has reasonable grounds to believe that a tenant is violating the code, the landlord can start an eviction action. When that happens, the landlord can call the roommate as a witness at the trial and ask him how much rent he is paying to the tenant.

Lucas Ferrara, a Manhattan lawyer who represents both landlords and tenants, said there were legitimate arguments on both sides.

"The amendment to the law was in response to situations where tenants were gaining financial benefits from their regulated status," Mr. Ferrara said.

At the same time, he said, the inflexible manner in which the law defined a roommate's proportionate share of the rent could produce some seemingly unfair results.

For example, Mr. Ferrara said, the law does not account for situations in which the roommate agrees to pay more than his or her proportionate share of the rent because the roommate has the use of more space in the apartment than the tenant.

Mr. Hoffman, who said it was unlikely that he would get the permission necessary to appeal the case to a higher court, said the law could actually end up hurting the roommates it was intended to protect.

"Think about it for a minute," he said. "If the tenant gets evicted, the roommate goes, too."  

Follow Ups:

• Re: Do these code changes apply to rent controlled tenants as well? Lilly 01/26/02 (4)
  • Re: Do these code changes apply to rent controlled tenants as well? consigliere 01/26/02 (3)
    • why RS and not RC? Lilly 01/26/02 (2)
      • Re: why does "overcharging" a roommate apply only to rent stabilized tenants in New York City? consigliere 01/26/02 (1)
        • One shot deal: Lilly 01/26/02 (0)

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Comments:
: This article will appear in the Sunday Real Estate section of The New York Times.  Jay Romano has done another excellent job in writing a thorough analysis of the issues involved:  

: Roommate Overcharges Risk Lease

: By JAY ROMANO

: 
: Thousands of New York City rent- stabilized tenants who have roommates could be in danger of losing their apartments, landlord-tenant lawyers say, because of a recent ruling by a Manhattan appeals court.

: On Dec. 31, 2001, a three-judge panel of the Appellate Term, First Department, upheld an earlier ruling by a Manhattan Housing Court judge who refused to dismiss an eviction action brought by a landlord against a tenant who was alleged to be charging her roommate more than the roommate's proportionate share of the rent. The appellate court agreed that such an overcharge would violate a provision of the Rent Stabilization Code that prohibits tenants from profiteering from their financial arrangements with roommates, and sent the case back to the Housing Court for trial. 

: Lawyers who represent landlords say the decision appropriately prevents rent-stabilized tenants from profiting from their below-market-rate rents — and, at the same time, protects roommates from paying more than their fair share of the rent. Tenants' lawyers say that the ruling interferes with the private financial relationships of tenants and roommates and could result in landlords aggressively pursuing eviction cases against tenants with roommates. 

: In fact, the tenants' lawyers say, profiteering is considered a "noncurable" violation of the rent code. Even tenants who are now overcharging their roommates but who are willing to adjust the rent to comply with the law may find that it is too late to do so.

: "I believe that there's going to be an emptying of apartments in New York City at a rate we've never seen before," said Darnay Hoffman, the Manhattan lawyer who represented the tenant in the case just decided. "What this means is that even in cases where a roommate is happy paying more than his proportionate share of the rent, the landlord becomes the gatekeeper. It means that the landlord is now in a position to interject himself into the private arrangements of people who are living together. And, worst of all, it's a noncurable violation of the code. That means you don't get a second chance to do it right."

: Mr. Hoffman explained that the underpinning of the case was an amendment to the Rent Stabilization Code adopted on Dec. 20, 2000, by the Division of Housing and Community Renewal, the state agency that administers the rent laws.

: Prior to that date, he said, there was nothing in the code that prevented tenants in rent-stabilized apartments from charging their legal roommates whatever rent the roommate was willing to pay. The amendment adopted by the agency, however, prohibits tenants in New York City from charging roommates more than the roommate's proportionate share of the rent. (The prohibition does not extend to rent-stabilized tenants elsewhere in the state.)

: Under the amendment, Mr. Hoffman said, a roommate's proportionate share of the rent is determined by dividing the legal regulated rent by the number of occupants in the apartment and the number of tenants named on the lease.

: For purposes of determining proportionate share, a married couple whose names appear on the lease would be counted as one tenant, and immediate family members of the tenant, along with dependent children of any roommate, would not be counted. 

: So, for example, the proportionate share of the rent for a roommate who lived with a married couple with a child would be 50 percent. The same proportion would apply to a roommate who lived with a lone tenant or with a lone tenant and the roommate's dependent child.

: According to the Appellate Court's written decision — RAM 1 L.L.C. v. Mazzola — Mr. Hoffman's client, Joan E. Mazzola, whose rent-stabilized rent was $1,847.77 a month, was alleged to be charging her roommate, Brian Moro, $2,200 a month. When the landlord learned of the overcharge, it started an eviction action against Ms. Mazzola based upon her alleged violation of section 2525.7(b) of the Rent Stabilization Code, the amendment that prohibits charging a roommate more than a proportionate share of the rent.

: Mr. Hoffman then filed a motion to dismiss the case, allowing that for purposes of the motion only, the allegations were true. Judge Larry S. Schachner of the Housing Court denied the motion — a decision that has now been upheld by the Appellate Term — ruling that the eviction action could proceed and that, if the allegations are proved to be true, Ms. Mazzola and her roommate can be evicted from the apartment.

: While that alone would be troubling enough for Ms. Mazzola and other tenants who are charging their roommates more than their proportionate share of the rent, what is particularly painful is that violation of the antiprofiteering section of the code is a noncurable violation.

: William Neville, a Manhattan lawyer who represented RAM 1 L.L.C., the landlord, explained that most eviction actions brought by landlords against tenants for violations of the terms of the lease were curable violations. If the tenant ceases the action that is causing the violation, he said, the tenant cannot be evicted.

: In fact, Mr. Neville said, even in cases where a landlord prevails in an eviction case for violation of the lease, the court typically gives the tenant 10 days to avoid being evicted by curing the violation.

: The case brought by Mr. Neville's client, however, did not allege that Ms. Mazzola violated the lease, but instead that she violated a section of the Rent Stabilization Code that does not permit a cure — either before or after the case is decided.

: "That means that if the trial court accepts our version of the facts" — that Ms. Mazzola was charging her roommate more than his proportionate share of the rent — "then we're entitled to possession and she has no right to cure," Mr. Neville said.

: He added that the result is ultimately appropriate since a tenant who is charging a roommate an excessive amount of rent is taking advantage of the protections the rent laws were intended to provide.

: "The Rent Stabilization Law was designed to prevent people from paying oppressive rents," Mr. Neville said. "And it does that by limiting the rent a landlord can charge. Given that fact, why should a tenant be allowed to take advantage of the rent laws and gain profits that the owner of the property cannot get?"

: He added that while the Rent Stabilization Code does not require a tenant to divulge how much a roommate is being charged, there are various ways a landlord can obtain such information. In some cases, Mr. Neville said, the tenant advertises the apartment and the rent being sought. In others a disgruntled former roommate might provide the information.

: Once a landlord has reasonable grounds to believe that a tenant is violating the code, the landlord can start an eviction action. When that happens, the landlord can call the roommate as a witness at the trial and ask him how much rent he is paying to the tenant. 

: Lucas Ferrara, a Manhattan lawyer who represents both landlords and tenants, said there were legitimate arguments on both sides.

: "The amendment to the law was in response to situations where tenants were gaining financial benefits from their regulated status," Mr. Ferrara said.

: At the same time, he said, the inflexible manner in which the law defined a roommate's proportionate share of the rent could produce some seemingly unfair results.

: For example, Mr. Ferrara said, the law does not account for situations in which the roommate agrees to pay more than his or her proportionate share of the rent because the roommate has the use of more space in the apartment than the tenant.

: Mr. Hoffman, who said it was unlikely that he would get the permission necessary to appeal the case to a higher court, said the law could actually end up hurting the roommates it was intended to protect.

: "Think about it for a minute," he said. "If the tenant gets evicted, the roommate goes, too."   
:   


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