WHEN A LANDLORD CANNOT COLLECT ON AN ILLEGAL RENTAL

In Ader v Guzman 2016 NY Slip Op 00137 Decided on January 13, 2016 Appellate Division, Second Department, the Town Code provided (1) "no owner shall cause, permit or allow the occupancy or use of a dwelling unit as a rental property without a valid rental permit."; (2) "an application for a rental permit shall be filed with the enforcement authority before the term of the rental is to commence."; (3) a valid rental permit shall be a condition precedent to the collection of rent;and (4) the penalties for violating this code include monetary fines or imprisonment.

Under such a fact pattern, the court held:

"....the lease was rendered illegal and unenforceable as a result of his violation of Town Code § 270. "The violation of a statute which is merely malum prohibitum will not necessarily render a contract illegal and unenforceable if that statute does not expressly provide that its violation will deprive the parties of their right to sue under the contract, and the denial of relief is wholly out of proportion to the requirements of public policy" (R.A.C. Group, Inc. v Bd. of Educ., 21 AD3d 243, 248; see Benjamin v Koeppel, 85 NY2d 549, 553; Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127; Simaee v Levi, 22 AD3d 559, 562). Furthermore, "forfeitures by operation of law are disfavored, particularly where a defaulting party seeks to raise illegality as a sword for personal gain rather than a shield for the public good' . . . Allowing parties to avoid their contractual obligation is especially inappropriate where there are regulatory sanctions and statutory penalties in place to redress violations of the law" (Simaee v Levi, 22 AD3d at 562, quoting Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d at 128). The Court of Appeals has observed that, "[w]here the procuring of a license is merely for the purpose of raising revenue it would seem that acts performed without securing a license would be valid. But where the statute looks beyond the question of revenue and has for its purpose the protection of public health or morals or the prevention of fraud, a non-compliance with its terms would affect the legality of the business" (Benjamin v Koeppel, 85 NY2d at 553 [internal quotations marks omitted]; see Village Taxi Corp. v Beltre, 91 AD3d 92, 99-100).

Here, as noted above, although Town Code § 270 is, in part, revenue raising, the overriding concern of the statute is to protect the safety and well-being of occupants of rental properties in the Town of Southampton. Accordingly, under the circumstances of this case, it would be against public policy to permit Guzman to retain the plaintiffs' rental payments and to profit from his wrongdoing (see R.A.C. Group, Inc. v Board of Educ. of City of N.Y., 21 AD3d at 248; Schwartz v Torrenzano, 49 Misc 3d 943, 950-951)."