COLLECTING RENT ON AN ILLEGAL APARTMENT

LISPENARD STUDIO CORP. v. Loeb, 2016 NY Slip Op 30945 - NY: City Court, Civil Court 2016:

"A substantial body of law supports the proposition that MDL §302 rent forfeiture provisions do not apply if the tenant was complicit in the existence and maintenance of an illegal apartment, Zane v. Kellner, 240 A.D.2d 208, 209 (1st Dept. 1997), 58 E. 130th St. LLC v. Mouton, 25 Misc. 3d 509, 511 (Civ. Ct. N.Y. Co. 2009), citing, Zafra v. Sawchuk, N.Y.L.J., Jan. 9, 1995, at 27:2 (App. Term 1st Dept), if the tenants knew that their occupancy was illegal, Zane, supra, 240 A.D.2d at 209, Eli Haddad Corp. v. Cal Redmond Studio, 102 A.D.2d 730 (1st Dept. 1984), Lipkis v. Pikus, 99 Misc.2d 518, 520 (App. Term 1st Dept. 1979), aff'd, 72 A.D.2d 697 (1st Dept 1979), appeal dismissed, 51 N.Y.2d 874 (1980), Dodds v. 1926 Third Ave. Realty Corp., 2011 N.Y. Misc. LEXIS 3921 (S. Ct. N.Y. Co. 2011), if the tenants somehow prevented the legalization, Chatsworth 72nd Street Corp. v. Rigai, 71 Misc. 2d 647, 651 (Civ. Ct. N.Y. Co. 1972), aff'd, 74 Misc.2d 298 (App. Term 1st Dept.), aff'd, 43 A.D.2d 685 (1st Dept. 1973), aff'd on the opinion of the Civil Court of the City of New York, 35 N.Y.2d 984, 895 (1975), First Edition Composite, Inc. v. Wilkson, 177 A.D.2d 297, 299 (1st Dept. 1991), Hornfeld v. Gaare, 130 A.D.2d 398, 400 (1st Dept. 1987), Amdar v. Armenti, N.Y.L.J. June 23, 1994 at 28:4 (App. Term 1st Dept.), or if the subject premises do not pose a threat to the tenant's health and safety. Zane, supra, 240 A.D.2d at 209, Dogwood Residential, LLC v. Stable 49, Ltd., 2016 N.Y. Misc. LEXIS 1362 (S. Ct. N.Y. Co. 2016), citing Beneficial Cap. Corp. v. Richardson, No. 92 Civ. 3785, 1995 US Dist LEXIS 7354 (S.D.N.Y. 1995).

This authority relies upon an "abandon[ment of] a literal application of MDL §302 in favor of allowing equity to control in order to avoid a tenant's unjust enrichment," as one Court put it. B.S.L. One Owners Corp. v. Rubenstein, 159 Misc.2d 903, 908 (Civ. Ct. Richmond Co. 1994). However, a recent Court of Appeals case rejects the abandonment of a literal application of MDL §302. Chazon, LLC v. Maugenest, 19 N.Y.3d 410, 415-16 (2012)("[i]n the absence of compliance, the law's command is quite clear . . . [judicially-carved-out exceptions to MDL §302] may make sense from a practical point of view. But we find nothing . . . to explain how they can be reconciled with the text of the statute. They simply cannot. . . . If that is an undesirable result, the problem is one to be addressed by the Legislature"). The Court's strict application of MDL §302 appears to render the rest of the authority standing for a different result without effect. Accord, 742 Realty LLC v. Zimmer, 46 Misc.3d 1204(A) (Civ. Ct. N.Y. Co. 2014), citing Caldwell v. American Package Company, Inc., 57 AD3d 15, 26, 866 N.Y.S.2d 275 (2nd Dept. 2008).

Petitioner argues that Phillips & Huyler Assocs. v. Flynn, 225 A.D.2d 475 (1st Dept. 1996) compels a different result, insofar as it holds that application of MDL §302 could unjustly enrich a tenant. However, not only does this ruling pre-date Chazon, LLC, supra, 19 N.Y.3d at 410, not only does this ruling come from a Court lower than the Court in Chazon, LLC, supra, 19 N.Y.3d at 410, but this ruling favors the position of a commercial landlord, not a residential landlord. MDL §302 evinces a limited application to residential tenants. 455 Second Ave. LLC v. NY Sch. of Dog Grooming, Inc., 37 Misc.3d 933, 936 (Civ. Ct. N.Y. Co. 2012).

Another argument against application of MDL §302 to this proceeding is that the parties have contracted that Respondents were the parties responsible for legalizing their occupancy of the subject premises. Contracts between cooperatives and shareholders valid, Kenneth D. Laub & Co. v. Bear Stearns Cos., 262 A.D.2d 36 (1st Dept. 1999), and indeed, include elements of self-determination not found in leases for apartments in privately-owned buildings, as shareholders devise by policy themselves through a board of directors elected by them. 930 Fifth Corp. v. King, 71 Misc.2d 359, 364 (App. Term 1st 1972).^[3] However, the default proposition is that a cooperative, rather than an individual shareholder, bears responsibility for obtaining a residential certificate of occupancy. O'Flaherty v. Schwimmer, 158 Misc.2d 420, 424-425 (S. Ct. N.Y. Co. 1993)(Tom, J.), unanimously affirmed for the reasons stated, 208 A.D.2d 425 (1st Dept. 1994). The proposition that the parties can shift this responsibility rests upon the premise that a tenant's rights as defined by MDL §302 are waivable when, in fact, authority holds that they are not waivable. Dawkins v. Ruff, 10 Misc.3d 88, 89 (App. Term 2nd Dept. 2005), BFN Realty Assocs. v. Cora, 8 Misc.3d 139(A) (App. Term 2nd Dept. 2005), Willoughby Assocs. v. Dance-Lonesome, 2003 N.Y. Misc. LEXIS 822 (App. Term 2nd Dept. 2003).

Petitioner argues that Respondents' hands are "unclean" such as to preclude the relief Respondents seek, relief that Petitioner characterizes as equitable. Petitioner's reasoning is backwards. It is Petitioner that is seeking an equitable relief from the dictates of MDL §302. See B.S.L. One Owners Corp., supra, 159 Misc.2d at 903. The Court of Appeals rejected an "equitable" approach to MDL §302 insofar as it found the statute inconsistent with concerns of unjust enrichment. Chazon, LLC, supra, 19 N.Y.3d at 416.

Chazon, LLC, supra, 19 N.Y.3d at 410, applies MDL §302 to a landlord who has not complied with the legalization schedules set pursuant to MDL §281 et seq., commonly known as the Loft Law. A broad remedial purpose of the Loft Law was to confer rent-stabilized status on legalized interim multiple dwellings. Tan Holding Corp. v. Wallace, 187 Misc.2d 687, 688 (App. Term 1st Dept. 2001), Walsh v. Salva Realty Corp., 2009 N.Y. Misc. LEXIS 6056, 7-8 (S. Ct. N.Y. Co. 2009). As cooperatives cannot be subject to the Rent Stabilization Law, 9 N.Y.C.R.R. §2520.11(1), Loft Law coverage does not apply to owner-occupied cooperatives such as the subject premises, Tri-Land Properties, Inc. v. 115 West 28th St. Corp., 267 A.D.2d 142 (1st Dept. 1999), raising a question about the factual distinction between this matter and the facts of Chazon, LLC, supra, 19 N.Y.3d at 410. However, the Court in Chazon, LLC, supra, 19 N.Y.3d at 410 interpreted MDL §302 on its plain language, employing a canon of interpretation that does not depend on the particular facts of the case. Nothing in the text of MDL §302 restricts such an interpretation solely to a landlord of a property subject to the Loft Law and, indeed, MDL §302 pre-dates the Loft Law."