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Posted by TenantNet on October 16, 1998 at 09:44:47:

In Reply to: NEWS FLASH - Rent Stabiliztion Rules Apply to Tenants Who Rent From Coop Sponsors... posted by MikeW on October 16, 1998 at 09:39:31:

: ... even if tenant wasn't a renter at the time of conversion.
: This is a new precident out of Brooklyn court.
: See today's NY Times metro section.

October 16, 1998
Ruling Broadens Protection for Renter in a Co-op
New York Times
By DENNIS HEVESI

In a decision that could affect the status of unsold co-op and condominium apartments throughout New York State, a housing court judge in Brooklyn has ruled that a tenant who rented an apartment from a sponsor after a conversion was entitled to the same protection against eviction as tenants who were living there at the time of the conversion.

While the ruling's effect is limited for now to the Brooklyn case, some lawyers are worried that it might set a precedent upsetting a standard assumption of the co-op and condominium market: that the sponsor can refuse to renew the lease of a tenant who sublets after a conversion.

The ruling, if upheld, would sharply curtail sponsors' ability to end the tenancy of such renters, preventing co-ops and condominiums from completing conversions while forcing sponsors to keep apartments vacant until they are sold.

"This has the potential of preventing the completion of literally thousands of conversions," said Jim Samson, a lawyer representing about 90 co-op boards in the city. "It would create major economic turmoil in the co-op community."

Stuart Saft, chairman of the Council of New York Cooperatives, concurred. "This case affects every unsold apartment in the city," he said. "It immediately affects all the apartments which the sponsor rented after the conversion, and it will affect every apartment that presently has a rent-regulated tenant as those tenants vacate their apartments.

"When they leave," Saft said, "the sponsor has to decide whether to sell or deal with giving a new tenant the right to stay forever."

According to Martin Oestreicher, deputy commissioner of the city's Department of Finance, there are at least 420,000 co-op and condominium units in the city, of which about 100,000 are now held by sponsors.

The ruling, in Paikoff v. Harris, was handed down by Judge Marc Finkelstein of Civil Court on Aug. 31. It involved a six-unit co-op, sponsored by Barry Paikoff, at 534 Sixth Avenue in Park Slope.

The tenant, Emil Harris, rented a sponsor-held apartment five years after the 1992 conversion. When the lease expired, Paikoff started eviction proceedings. But Harris refused to leave, claiming that he should be considered a "nonpurchasing tenant" under the Martin Act, the state law governing the rights of co-op and condominium tenants. Rent control and rent stabilization are governed by other regulations.

Essentially, tenants protected by the Martin Act cannot be evicted except for good cause, like failing to pay rent, and cannot be subjected to "unconscionable rent increases." The act allows rent-regulated tenants already in the building to retain that status, but does not spell out rent formulas.

Before Judge Finkelstein's decision, it was assumed that only tenants already occupying an apartment during a conversion were protected. People renting after conversion -- either from a tenant-shareholder or a "holder of unsold shares," like the sponsor -- were considered unprotected.

But the judge ruled that the Martin Act applies to any tenant renting from someone other than a "purchaser under the plan." He also ruled that while tenant-shareholders are indeed purchasers under the plan, a holder of unsold shares, like the sponsor, is not -- contrary to a long-held industry assumption that had never been tested in court.

"If the Legislature intended that a holder of unsold shares should be considered a purchaser under the plan," Judge Finkelstein wrote, "the legislation should have contained a provision to that effect."

He also quoted a submission from the State Attorney General's office, which contended that a sponsor is not a purchaser under the plan, and, therefore, "a tenant who rents a vacant unit after the plan's effective date from a sponsor or holder of unsold shares is a nonpurchasing tenant," protected by the Martin Act. On that basis, Judge Finkelstein denied the eviction.

No decision on whether to appeal had been made, said Rand Levin, the sponsor's lawyer. "My view," he said, "is that there is a wealth of legislative history suggesting that the intent of the statute was only to protect tenants in possession at the time of a conversion."

Harris's lawyer, Ronald Languedoc of Brooklyn Legal Services, called the ruling well reasoned and "clearly reflecting the language of the statute." Harris, asked if he was aware that his case could set a precedent, said: "I'm very proud of that. Maybe it will give people in my situation a means of stability."

But real estate lawyers said they were concerned.

"Assuming that it's affirmed on appeal, and that's questionable," Saft said, "it means the sponsor may not be able to sell the apartment in the future because the tenant can't be evicted. From the co-op's point of view, it's good news and bad news. The good news is that it's more likely now that sponsors will sell apartments that become vacant. The bad news is that every tenant who rented after the conversion may have the right to remain permanently."

Samson, the co-op board lawyer, said he feared that the ruling would give sponsors an excuse to hold on to their apartments and continue collecting free-market rents.

"While it will scare most sponsors so they won't rent," Samson said, "there is also a group of sponsors who converted buildings with no intention of selling all the units. They simply sold the minimum and are holding the rest for the sole purpose of avoiding rent regulation and renting them out at free-market rents."

Likening those sponsors to Br'er Rabbit manipulatively pleading, "Please don't throw me in the briar patch," Samson said those sponsors, in truth, "don't want to sell."

"If they are told they can't evict," he said, "then they are protected from having to sell, and they are able to keep charging extraordinarily high and unregulated rents."

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Follow Ups:

• Re: Decision in New York Law Journal Mark Smith 10/17/98 (1)
  • Re: Decision in New York Law Journal Jenny Lawyer 10/17/98 (0)

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Comments:
: : ... even if tenant wasn't a renter at the time of conversion.
: : This is a new precident out of Brooklyn court.
: : See today's NY Times metro section.

: October 16, 1998
: Ruling Broadens Protection for Renter in a Co-op
: New York Times
: By DENNIS HEVESI

: In a decision that could affect the status of unsold co-op and condominium apartments throughout New York State, a housing court judge in Brooklyn has ruled that a tenant who rented an apartment from a sponsor after a conversion was entitled to the same protection against eviction as tenants who were living there at the time of the conversion.

: While the ruling's effect is limited for now to the Brooklyn case, some lawyers are worried that it might set a precedent upsetting a standard assumption of the co-op and condominium market: that the sponsor can refuse to renew the lease of a tenant who sublets after a conversion.

: The ruling, if upheld, would sharply curtail sponsors' ability to end the tenancy of such renters, preventing co-ops and condominiums from completing conversions while forcing sponsors to keep apartments vacant until they are sold.

: "This has the potential of preventing the completion of literally thousands of conversions," said Jim Samson, a lawyer representing about 90 co-op boards in the city. "It would create major economic turmoil in the co-op community."

: Stuart Saft, chairman of the Council of New York Cooperatives, concurred. "This case affects every unsold apartment in the city," he said. "It immediately affects all the apartments which the sponsor rented after the conversion, and it will affect every apartment that presently has a rent-regulated tenant as those tenants vacate their apartments.

: "When they leave," Saft said, "the sponsor has to decide whether to sell or deal with giving a new tenant the right to stay forever."

: According to Martin Oestreicher, deputy commissioner of the city's Department of Finance, there are at least 420,000 co-op and condominium units in the city, of which about 100,000 are now held by sponsors.

: The ruling, in Paikoff v. Harris, was handed down by Judge Marc Finkelstein of Civil Court on Aug. 31. It involved a six-unit co-op, sponsored by Barry Paikoff, at 534 Sixth Avenue in Park Slope.

: The tenant, Emil Harris, rented a sponsor-held apartment five years after the 1992 conversion. When the lease expired, Paikoff started eviction proceedings. But Harris refused to leave, claiming that he should be considered a "nonpurchasing tenant" under the Martin Act, the state law governing the rights of co-op and condominium tenants. Rent control and rent stabilization are governed by other regulations.

: Essentially, tenants protected by the Martin Act cannot be evicted except for good cause, like failing to pay rent, and cannot be subjected to "unconscionable rent increases." The act allows rent-regulated tenants already in the building to retain that status, but does not spell out rent formulas.

: Before Judge Finkelstein's decision, it was assumed that only tenants already occupying an apartment during a conversion were protected. People renting after conversion -- either from a tenant-shareholder or a "holder of unsold shares," like the sponsor -- were considered unprotected.

: But the judge ruled that the Martin Act applies to any tenant renting from someone other than a "purchaser under the plan." He also ruled that while tenant-shareholders are indeed purchasers under the plan, a holder of unsold shares, like the sponsor, is not -- contrary to a long-held industry assumption that had never been tested in court.

: "If the Legislature intended that a holder of unsold shares should be considered a purchaser under the plan," Judge Finkelstein wrote, "the legislation should have contained a provision to that effect."

: He also quoted a submission from the State Attorney General's office, which contended that a sponsor is not a purchaser under the plan, and, therefore, "a tenant who rents a vacant unit after the plan's effective date from a sponsor or holder of unsold shares is a nonpurchasing tenant," protected by the Martin Act. On that basis, Judge Finkelstein denied the eviction.

: No decision on whether to appeal had been made, said Rand Levin, the sponsor's lawyer. "My view," he said, "is that there is a wealth of legislative history suggesting that the intent of the statute was only to protect tenants in possession at the time of a conversion."

: Harris's lawyer, Ronald Languedoc of Brooklyn Legal Services, called the ruling well reasoned and "clearly reflecting the language of the statute." Harris, asked if he was aware that his case could set a precedent, said: "I'm very proud of that. Maybe it will give people in my situation a means of stability."

: But real estate lawyers said they were concerned.

: "Assuming that it's affirmed on appeal, and that's questionable," Saft said, "it means the sponsor may not be able to sell the apartment in the future because the tenant can't be evicted. From the co-op's point of view, it's good news and bad news. The good news is that it's more likely now that sponsors will sell apartments that become vacant. The bad news is that every tenant who rented after the conversion may have the right to remain permanently."

: Samson, the co-op board lawyer, said he feared that the ruling would give sponsors an excuse to hold on to their apartments and continue collecting free-market rents.

: "While it will scare most sponsors so they won't rent," Samson said, "there is also a group of sponsors who converted buildings with no intention of selling all the units. They simply sold the minimum and are holding the rest for the sole purpose of avoiding rent regulation and renting them out at free-market rents."

: Likening those sponsors to Br'er Rabbit manipulatively pleading, "Please don't throw me in the briar patch," Samson said those sponsors, in truth, "don't want to sell."

: "If they are told they can't evict," he said, "then they are protected from having to sell, and they are able to keep charging extraordinarily high and unregulated rents."

: =========


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