NY - LANDLORD CAN'T COLLECT RENT IN SMALL CLAIMS COURT WITH ILLEGAL APARTMENT

Here I am assuming there was a prior summary proceeding in L&T Court, the landlord wanted the premises and entered into a stipulation for immediate surrender and hoped to collect rent in a plenary action.

NELSON-TAYLOR v. Brooks, 2025 NY Slip Op 50314 - NY: City Court, Queens Civil Court 2025:

"A small claims trial was conducted wherein the claimant landlord seeks rent owed in the amount of $9,375. There is really no dispute the defendants, tenants in a two-family dwelling, owe the rent sought. The defendants argue they are not required to pay the rent since the dwelling contained an illegal basement apartment which suspended the landlord's right to collect rent from any tenant. The landlord disputed that any illegal residence existed in the basement. The court heard testimony and has reviewed that testimony as well as all the evidence submitted.

On December 1, 2007 the parties entered into a one year lease for a unit located at 246-11 Memphis Avenue in Rosedale, New York. In September 2019 the tenants stopped paying rent and the landlord commenced a landlord-tenant action. The parties entered into a stipulation on February 3, 2020 and the defendants agreed to vacate the premises. The rental arrears, the subject of this action, were severed pursuant to the stipulation agreement. As noted, the defendants argue they cannot be required to pay any rent since the existence of an illegal apartment rendered the premises subject to the Multiple Dwelling Law. This designation required the landlord to obtain a new certificate of occupancy to conform to the change of use within the premises. Without such certificate of occupancy they assert they do not have to pay any rent. The claimant asserts the basement was not used as an additional dwelling and there is no basis for the defendants to withhold rent that is owed.

Conclusions of Law

A review of all the evidence demonstrates the defendants sufficiently established the basement apartment was used as an additional dwelling. The defendants presented testimony as well as supporting documentation in the form of photographs and documents that establish another individual resided in the basement. Thus, the defendants satisfied their burden regarding their defense of nonpayment of rent. However, that does not end the inquiry. The next question that must be addressed is whether an illegal apartment suspends the payment of rent by every tenant of the premises.

Multiple Dwelling Law §301(1) states that no multiple dwelling may be occupied without a valid certificate of occupancy. Further, Multiple Dwelling Law §302(1)(a) and (b) states that if a dwelling is occupied in whole or in part without a certificate of occupancy then "no rent shall be recovered by the owner of such premises for said period" (id). Therefore, if a building does not maintain a valid certificate of occupancy then no rent may be collected from any unit (Caldwell v. American Package Company Inc., 57 AD3d 15, 866 NYS2d 275 [2d Dept., 2008]). However, there is a disagreement whether rent can be collected from a legal apartment in a building that also maintained illegal units for which no certificate of occupancy existed. For example, in De La Cruz v. Miller, 2023 WL 5351006 [Supreme Court Kings County 2023] the court noted that "although the lack of a proper certificate of occupancy for a rent-controlled apartment precludes a landlord from recovering rent or use and occupancy for that apartment, it does not preclude a landlord from recovering rent or use and occupancy for apartments unaffected by the certificate of occupancy violations" (id). Again, in Santiago v. Perez, 1992 NYLJ LEXIS 8800 [Civil Court Queens County 1992] the court held that tenants of a legal unit could not avoid paying rent merely because an illegal unit existed if the tenants of the lawful unit were unaffected by the illegal possession. The court concluded it would be "inequitable" and akin to unjust enrichment to permit the tenants of a lawful unit to avoid rent merely because an apartment unit in the building was illegal. Recently, in Taubes v. Yorkshire House Associates LLC, 2024 WL 1117155 [Supreme Court New York County 2024] the court again held that the tenant of a lawful apartment was required to pay rent where that apartment was unaffected by any certificate of occupancy violations in other portions of the building (see, also, Chan v. Kormendi, 118 Misc 2d 1026, 462 NYS2d 943 [Civil Court Queens County 1983] finding that prohibiting a landlord from receiving rent from a legal apartment because an illegal basements exists is "inequitable" and "grossly injurious" and that "the penalty or sanction should fit the crime" [id]).

There are cases, indeed, the majority of cases, that hold the exact opposite, namely the failure to maintain a valid certificate of occupancy exempts every tenant from paying rent. Thus, in West 47th Holdings LLC v. Eliyahu, 64 Misc 3d 133(A), 116 NYS3d 843 [Supreme Court Appellate Term First Department 2019]) the landlord subdivided two apartments into four units which required a new certificate of occupancy. The court held that without that new certificate, any occupancy was in violation of Multiple Dwelling Law §301 and consequently no action for the nonpayment of rent was permissible. The court concluded this was true "even if tenant's apartment was not one of the newly created apartments" (id). Again, in 936 TYH RM Bronx LLC v. Brujan, 2022 WL 15524927 [Civil Court Bronx County 2022] an illegal unit existed in the cellar of the premises. The court held that no rent could be collected rent from any tenant "even if the tenant's unit is not the illegal unit" (id, see, also, 1165 Fulton Ave HDFC v. Goings, 65 Misc 3d 1210(A), 119 NYS3d 9 [Civil Court New York County 2019], GMT 3435 Realty LLC v. Hyman, 83 Misc 3d 1287(A), 216 NYS3d 508 [Civil Court Bronx County 2024], GVS Properties LLC v. Vargas, 59 Misc 3d 128(A), 100 NYS3d 609 [Appellate Term First Department 2018], 208 Nimrod Street LLC v. Irizarry, 42 Misc 3d 145(A), 988 NYS2d 526 [Appellate Division Second Department 2014], Kaloedas v. Garcia, 76 Misc 3d 482, 174 NYS3d 194 [City Court Yonkers 2022], 28 Poplar LLC v. Matos, 2023 NYLJ LEXIS 2023 [City Court Yonkers 2023] both interpreting identically worded Multiple Residence Law §302-a).

Considering these conflicting results a review of the statutory definitions that govern these facts will prove helpful. Pursuant to MDL §4(7) a multiple dwelling is defined as "a dwelling that is either rented, leased, let or hired out, to be occupied, or is occupied as the residence or home of three or more families living independently of each other" (id). Where the owner of a legal two-family dwelling converts a basement to a residential unit then the building is classified as a de facto multiple dwelling. Further, "an owner of a de facto multiple dwelling who fails to obtain a proper certificate of occupancy or comply with the registration requirements of the Multiple Dwelling Law cannot recover rent or use and occupancy" (Malden v. Wykoff S.P. LLC, 192 AD3d 1002, 146 NYS3d 143 [2d Dept., 2021], see, also, Shiela Properties Inc., v. A Real Good Plumber Inc., 59 AD3d 424, 874 NYS2d 145 [2d Dept., 2009]). A strained reading of those cases supports the argument that only the tenant of the illegally converted unit need not pay rent but the other tenants must, in fact, pay rent. The natural reading of those cases supports the tenant's argument that no tenant must pay rent if any unit does not conform to the certificate of occupancy. Moreover, Multiple Dwelling Law §301(1) and §302(1)(a) and (b) states that "no rent shall be recovered" for any "dwelling or structure" that is "occupied in whole or in part" without a certificate that "said dwelling conforms in all respects" to the Multiple Dwelling Law (id). That language further supports the assertion that no rent can be collected, even from units that are legal, if some illegality renders the certificate of occupancy invalid in any respect. Concerning arguments this result is unfair or unjust (Chan v. Kormendi, supra) or can perhaps be manipulated by an unscrupulous tenant of a legal apartment to avoid paying rent by facilitating the existence of an illegal apartment (see, The Barring of rent in the Absence of a Certificate of Occupancy-A Rule Still in Much Need of Clarification, by Nativ Winiarsky, New York Law Journal, September 6, 2023) such arguments must properly be raised to the Legislature (see, Chazon LLC v. Maugenest, 19 NY3d 410, 948 NYS3d 571 [2012]). This court cannot ignore the plain reading of the statutes and cases that have followed such plain readings in favor of cases, however reasonable from policy perspectives, that do not adhere to such plain readings of the statutes. This court is bound to conclude that since the dwelling in this case was a de facto multiple dwelling no tenant was required to pay rent. Therefore, the request for rent is consequently denied. Lastly, any request for attorney fees is denied."

WHEN A MULTIPLE DWELLING HAS CLASS 1 VIOLATIONS

936 TYH RM BRONX LLC v. Brujan, 2022 NY Slip Op 33642 - NY: Bronx County Court, Civil Court 2022:

"Respondent's argument is simple. From January 1, 2020 through March 1, 2022, a violation existed for "occupancy contrary to that allowed by" the certificate of occupancy. (see NYSCEF Doc. 13 at p. 10, referencing OATH/ECB Violation #35465505N; see also NYSCEF Doc. 18). According to the respondent, this non-conforming use means petitioner was not in compliance with Multiple Dwelling Law (MDL) § 301. MDL § 301(1) states, in relevant part,

No multiple dwelling shall be occupied in whole or in part until the issuance of a certificate by the department that said dwelling conforms in all respects to the requirements of this chapter, to the building code and rules and to all other applicable law, except that no such certificate shall be required in the case of: (a). Any class B multiple dwelling existing on April, eighteenth, nineteen hundred twenty-nine, for which a certificate occupancy was not required before such date and which no changes or alterations have been made except in compliance with this chapter...

MDL § 302, in turn, states that in a "dwelling or structure... occupied in whole or in part for human habitation in violation of" § 301, "[n]o rent shall be recovered by the owner...for said period, and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent."

Respondent argues dismissal is required because the rent demand seeks rent petitioner cannot collect in this proceeding.

Petitioner counters that respondent's argument is entirely incorrect because she relies on a misfiled certificate of occupancy to conclude the premises were somehow converted from (2) stories to the current (6) stories. Critically, however, petitioner's opposition concedes the OATH/ECB violation issued on January 3, 2020. (see NYSCEF Doc. 25 at par. 4). Petitioner argues that respondent misinterprets the MDL provisions. Petitioner states the violation is not for respondents' unit, and that the violation [which was in the cellar] did not affect any other legal unit. (id. at par. 6). Indeed, the summons indicates, and the parties agree, that the violation is for an illegal unit in the cellar.^[2]

On a motion to dismiss the complaint pursuant to CPLR § 3211(a)(7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. (Leon v Martinez, 84 NY2d 83, 87 [1994]; Breytman v Olinville Realty, LLC, 54 AD3d 703, 703-704, 864 NYS2d 70 [2nd Dept 2008]). However, where evidentiary material is submitted and considered on a motion to dismiss a pleading pursuant to CPLR § 3211(a)(7), the question becomes whether the proponent of the pleading has a cause of action, not whether the proponent has stated one. (see Guggenheimer v Ginzburg, 43 NY2d 268, 275, 401 NYS2d 182 [1977]). Dismissal is inappropriate unless the movant can show that a purported fact is no fact at all. (see Cajigas v Clean Rite Centers, LLC, 187 AD3d 700, 701, 132 NYS3d 428 [2nd Dept 2020]).

The undisputed OATH/ECB violation requires dismissal of this case.^[3]

When a violation exists for occupancy at odds with the certificate of occupancy, the building, essentially, lacks a certificate of occupancy. (see 12 East 88th LLC v Fox, 72 Misc. 3d 1221(A), *4, 2021 NY Slip Op 50815(U) [Sup Ct, New York County 2021]). No rent may be collected during any period the dwelling's occupancy is at odds with the certificate of occupancy. (see MDL § 302; GVS Properties LLC v Vargas, 172 AD3d 466, 466, 100 NYS3d 230 [1st Dept 2019]; 742 Realty LLC v Zimmer, 46 Misc. 3d 1204(A), *1, 2014 NY Slip Op 51845(U) [Civ Ct, Kings County 2014]).

Petitioner's arguments must fail because rent is barred even if the tenant's unit is not the illegal unit. (see West 47th Holdings LLC v Eliyahu, 64 Misc. 3d 133(A), *1-2, 2019 NY Slip Op 51066(U) [App Term, 1st Dept 2019]; 49 Bleecker, Inc. v Gatien, 157 AD3d 619, 620, 69 NYS3d 863 [1st Dept 2018] ("The owner of a `dwelling or structure ... occupied in whole or in part for human habitation in violation of [§ 301]' may not recover rent for the period during which there is no certificate of occupancy for `such premises'); see also 1165 Fulton Ave. HDFC v Goings, 65 Misc. 3d 1210(A), 2019 NY Slip Op 51567(U) [Civ Ct, Bronx County 2019] (noting the change in how courts in this department apply MDL 302 after the Court of Appeals holding in Chazon LLC v Maugenest (19 NY3d 410, 948 NYS2d 571 [2012]). In Goings, the petitioner argued that the violation for use contrary to the certificate of occupancy involved a room in the basement that had no impact on the tenant's unit. (see 65 Misc. 3d 1210(A), *2). Dismissal was still required. Petitioner here makes the same argument, and the same outcome is required.

The rent demand in this proceeding is clearly defective because it seeks rent petitioner is barred from collecting. A rent demand, of course, must fairly afford the tenant actual notice of the alleged amount due and of the period for which such claim is made. (542 Holding Corp. v Prince Fashions Inc., 46 AD3d 309, 311, 848 NYS2d 37 [1st Dept 2007] citing Schwartz v Weiss—Newell, 87 Misc. 2d 558, 561, 386 NYS2d 191 [Civ Ct, New York County 1976]). A proper rent demand is a prerequisite to maintain a non-payment proceeding. (RPAPL § 711(2); see Vartarian v Brady, 184 Misc. 2d 333, 707 NYS2d 285 [Civ Ct, New York County 1999]; EOM 106-15 217th Corp. v Severine, 62 Misc. 3d 141(A) [App Term, 2nd Dept 2019]).

The rent demand seeks rent portions for twenty (20) different months. Petitioner may only collect rent for one (1) of those months (March 2022). Under these circumstances, the case must be dismissed. (see 3463 Third Avenue Realty LLC v Vasquez, 59 Misc. 3d 1224(A), *2, 2018 NY Slip Op 50674(U) [Civ Ct, Bronx County 2018]; see also CPLR 409(b) (requiring summary determination at any stage of the proceeding when no issues of fact are raised)).

CONCLUSION

Based on the foregoing, it is Ordered, judgment shall enter in respondents' favor dismissing the petition.^[4] This constitutes the Decision and Order of the court. It will be posted on NYSCEF.

SO ORDERED.

[1] On information and belief, the matter was not calendared due to a pending ERAP application.

[2] The summons speaks for itself. (see NYSCEF Doc. 25). It is not disputed. Petitioner acknowledges it had to correct the condition and pay a fine. Petitioner may not relitigate the summons/violation here.

[3] The violation is a "Class 1" violation. Class 1 violations are "immediately hazardous": "those where the violating condition(s) poses a threat that severely affects life, health, safety, property, the public interest, or a significant number of persons so as to warrant immediate corrective action..." (see What is an OATH Summons? — Buildings (nyc.gov) [last accessed on October 23, 2022]).

[4] Petitioner's motion is denied as moot."

COLLECTING RENT IN A MULTIPLE DWELLING WITH SERIOUS VIOLATIONS

Here, the violations were not on tenant's apartment yet they were serious violations in the building.

936 TYH RM BRONX LLC v. Brujan, 2022 NY Slip Op 33642 - NY: County Court, Civil Court 2022:

"Respondent's argument is simple. From January 1, 2020 through March 1, 2022, a violation existed for "occupancy contrary to that allowed by" the certificate of occupancy. (see NYSCEF Doc. 13 at p. 10, referencing OATH/ECB Violation #35465505N; see also NYSCEF Doc. 18). According to the respondent, this non-conforming use means petitioner was not in compliance with Multiple Dwelling Law (MDL) § 301. MDL § 301(1) states, in relevant part,

No multiple dwelling shall be occupied in whole or in part until the issuance of a certificate by the department that said dwelling conforms in all respects to the requirements of this chapter, to the building code and rules and to all other applicable law, except that no such certificate shall be required in the case of: (a). Any class B multiple dwelling existing on April, eighteenth, nineteen hundred twenty-nine, for which a certificate occupancy was not required before such date and which no changes or alterations have been made except in compliance with this chapter...

MDL § 302, in turn, states that in a "dwelling or structure... occupied in whole or in part for human habitation in violation of" § 301, "[n]o rent shall be recovered by the owner...for said period, and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent."

Respondent argues dismissal is required because the rent demand seeks rent petitioner cannot collect in this proceeding.

Petitioner counters that respondent's argument is entirely incorrect because she relies on a misfiled certificate of occupancy to conclude the premises were somehow converted from (2) stories to the current (6) stories. Critically, however, petitioner's opposition concedes the OATH/ECB violation issued on January 3, 2020. (see NYSCEF Doc. 25 at par. 4). Petitioner argues that respondent misinterprets the MDL provisions. Petitioner states the violation is not for respondents' unit, and that the violation [which was in the cellar] did not affect any other legal unit. (id. at par. 6). Indeed, the summons indicates, and the parties agree, that the violation is for an illegal unit in the cellar.^[2]

On a motion to dismiss the complaint pursuant to CPLR § 3211(a)(7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. (Leon v Martinez, 84 NY2d 83, 87 [1994]; Breytman v Olinville Realty, LLC, 54 AD3d 703, 703-704, 864 NYS2d 70 [2nd Dept 2008]). However, where evidentiary material is submitted and considered on a motion to dismiss a pleading pursuant to CPLR § 3211(a)(7), the question becomes whether the proponent of the pleading has a cause of action, not whether the proponent has stated one. (see Guggenheimer v Ginzburg, 43 NY2d 268, 275, 401 NYS2d 182 [1977]). Dismissal is inappropriate unless the movant can show that a purported fact is no fact at all. (see Cajigas v Clean Rite Centers, LLC, 187 AD3d 700, 701, 132 NYS3d 428 [2nd Dept 2020]).

The undisputed OATH/ECB violation requires dismissal of this case.^[3]

When a violation exists for occupancy at odds with the certificate of occupancy, the building, essentially, lacks a certificate of occupancy. (see 12 East 88th LLC v Fox, 72 Misc. 3d 1221(A), *4, 2021 NY Slip Op 50815(U) [Sup Ct, New York County 2021]). No rent may be collected during any period the dwelling's occupancy is at odds with the certificate of occupancy. (see MDL § 302; GVS Properties LLC v Vargas, 172 AD3d 466, 466, 100 NYS3d 230 [1st Dept 2019]; 742 Realty LLC v Zimmer, 46 Misc. 3d 1204(A), *1, 2014 NY Slip Op 51845(U) [Civ Ct, Kings County 2014]).

Petitioner's arguments must fail because rent is barred even if the tenant's unit is not the illegal unit. (see West 47th Holdings LLC v Eliyahu, 64 Misc. 3d 133(A), *1-2, 2019 NY Slip Op 51066(U) [App Term, 1st Dept 2019]; 49 Bleecker, Inc. v Gatien, 157 AD3d 619, 620, 69 NYS3d 863 [1st Dept 2018] ("The owner of a `dwelling or structure ... occupied in whole or in part for human habitation in violation of [§ 301]' may not recover rent for the period during which there is no certificate of occupancy for `such premises'); see also 1165 Fulton Ave. HDFC v Goings, 65 Misc. 3d 1210(A), 2019 NY Slip Op 51567(U) [Civ Ct, Bronx County 2019] (noting the change in how courts in this department apply MDL 302 after the Court of Appeals holding in Chazon LLC v Maugenest (19 NY3d 410, 948 NYS2d 571 [2012]). In Goings, the petitioner argued that the violation for use contrary to the certificate of occupancy involved a room in the basement that had no impact on the tenant's unit. (see 65 Misc. 3d 1210(A), *2). Dismissal was still required. Petitioner here makes the same argument, and the same outcome is required.

The rent demand in this proceeding is clearly defective because it seeks rent petitioner is barred from collecting. A rent demand, of course, must fairly afford the tenant actual notice of the alleged amount due and of the period for which such claim is made. (542 Holding Corp. v Prince Fashions Inc., 46 AD3d 309, 311, 848 NYS2d 37 [1st Dept 2007] citing Schwartz v Weiss—Newell, 87 Misc. 2d 558, 561, 386 NYS2d 191 [Civ Ct, New York County 1976]). A proper rent demand is a prerequisite to maintain a non-payment proceeding. (RPAPL § 711(2); see Vartarian v Brady, 184 Misc. 2d 333, 707 NYS2d 285 [Civ Ct, New York County 1999]; EOM 106-15 217th Corp. v Severine, 62 Misc. 3d 141(A) [App Term, 2nd Dept 2019]).

The rent demand seeks rent portions for twenty (20) different months. Petitioner may only collect rent for one (1) of those months (March 2022). Under these circumstances, the case must be dismissed. (see 3463 Third Avenue Realty LLC v Vasquez, 59 Misc. 3d 1224(A), *2, 2018 NY Slip Op 50674(U) [Civ Ct, Bronx County 2018]; see also CPLR 409(b) (requiring summary determination at any stage of the proceeding when no issues of fact are raised)).

CONCLUSION

Based on the foregoing, it is Ordered, judgment shall enter in respondents' favor dismissing the petition.^[4] This constitutes the Decision and Order of the court. It will be posted on NYSCEF.

SO ORDERED.

[1] On information and belief, the matter was not calendared due to a pending ERAP application.

[2] The summons speaks for itself. (see NYSCEF Doc. 25). It is not disputed. Petitioner acknowledges it had to correct the condition and pay a fine. Petitioner may not relitigate the summons/violation here.

[3] The violation is a "Class 1" violation. Class 1 violations are "immediately hazardous": "those where the violating condition(s) poses a threat that severely affects life, health, safety, property, the public interest, or a significant number of persons so as to warrant immediate corrective action..." (see What is an OATH Summons? — Buildings (nyc.gov) [last accessed on October 23, 2022]).

[4] Petitioner's motion is denied as moot."

MORE ON RPL 235 BB

As reported earlier, this new provision, which was signed into law on November 29, 2017, requires a valid certificate of occupancy to be disclosed prior to the execution of a rental agreement or lease between a landlord and a tenant, effective immediately upon enactment.

According to the Justification provision in the Senate Bill S6636 - Details:

"Some tenants may assume that when a landlord is offering a place to rent, that those housing accommodations are safe and up to code. However, that isn't necessarily the case. In fact, some landlords are seeking additional profits by allowing more tenants into a house or building than would otherwise be allowed. For example, a landlord may take a two-family house, which was once only home to two families, and instead make illegal conversions inside the two-family house such that five or six families are living there. These illegal conversions present not only the obvious concerns of the safety of those individuals living there, but they also cause our neighborhoods and schools to become overcrowded because our city planners are assuming that a two-family house only has two families in it, and not five or six. This bill would protect tenants by requiring landlords to disclose whether a certificate of occupancy is on file, if the building is required to have one, for the property being rented and that it is valid. Alternatively, landlords could provide a copy of the certificate of occupancy to the tenants."

MORE ON ILLEGAL APARTMENTS

Governor Andrew Cuomo signed a new piece of legislation into law this past December to curb illegal conversions in buildings with three or fewer dwelling units.

"Real Property (RPP) Section 235-BB Certificates of occupancy; required disclosure to tenant

1. Prior to executing a residential lease or rental agreement with a tenant, the owner of real property consisting of three or fewer rental units shall provide conspicuous notice in bold face type as to whether a certificate of occupancy, if such certificate is required by law, is currently valid for the dwelling unit subject to the lease or rental agreement. Owners who provide the tenant with an actual copy of the valid certificate of occupancy shall be deemed to have complied with the requirements of this subdivision.

2. Any agreement by a lessee or tenant of premises for dwelling purposes waiving or modifying his or her rights as set forth in this section shall be void as contrary to public policy."

The law makes no mention of any penalty should a landlord fail to comply.

MULTIPLE DWELLING LAW AND ILLEGAL APARTMENTS

New York Multiple Dwelling Law § 302 provides in part:

"1. a. If any dwelling or structure be occupied in whole or in part for human habitation in violation of section three hundred one , during such unlawful occupation any bond or note secured by a mortgage upon said dwelling or structure, or the lot upon which it stands, may be declared due at the option of the mortgagee.

b. No rent shall be recovered by the owner of such premises for said period, and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent. "

In Lispenard Studio Corp. v. Loeb, 2016 NY Slip Op 30945 - NY: City Court, Civil Court 2016, this was addressed by the court:

"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.

Petitioner argues that Respondents are still commercial tenants in part and that Petitioner still has a cause of action against them for commercial rent, an argument that does not effectively address Respondents' motion, as Housing Court does not have subject matter jurisdiction over disputes over commercial premises. 54-56 Mgt. Corp. v. Birmingham, 13 Misc.3d 1207(A)(Civ. Ct. N.Y. Co. 2006).^[4]

Whatever iniquity an application of MDL §302 visits upon Petitioner, the record on this motion practice suggests that Respondents fulfilled their obligations by the end of 2012 and yet a temporary certificate of occupancy did not expire until November of 2014, raising the possibility that Petitioner may be the party responsible for the current status of the certificate of occupancy after all. For what it's worth, Petitioner's secretary avers in support of Petitioner's motion that Respondents "continued in their failure to remedy the violative conditions, up to and including the date of this affidavit," which was February 24, 2016. Petitioner's secretary's averment indicates a dispute between the parties as to which party is culpable for the lack of a fire protection plan, a requirement that DOB may have imposed as a result of delays, maybe incurred by Respondents, in completing the work otherwise necessary to obtain a certificate of occupancy. Given the applicability of MDL §302 to this matter, the Court does not reach this issue and makes no findings herein except to note that a dismissal of a cause of action for maintenance/rent does not preclude or prejudice other causes of action and/or defenses the parties may have against one another in a plenary action."

WHAT CAN HAPPEN WHEN A HOME LACKS A CERTIFICATE OF OCCUPANCY

Town of N. E. v Vitiello, 2018 NY Slip Op 01497, Decided on March 7, 2018, Appellate Division, Second Department:

"The defendants constructed a residence on property they owned in the Town of North East. Following the denial of an application for a certificate of occupancy, the defendants applied to the Town of North East Zoning Board of Appeals (hereinafter the ZBA) for a variance to allow the issuance of a certificate of occupancy for the residence without meeting certain requirements regarding direct access to, or road frontage on, a public street. By decision dated April 28, 2005, the ZBA granted the variance subject to specified conditions. The defendants did not challenge that decision. Thereafter the plaintiff commenced this action to enjoin the defendants from occupying or otherwise using the residence until such time as a certificate of occupancy was issued. The Supreme Court, inter alia, granted judgment in favor of the plaintiff, and the defendants appeal.

Where a town seeks to enforce its building and zoning laws, it is entitled to a permanent injunction upon demonstrating that the party sought to be enjoined is acting in violation of the applicable provisions of local law (see Town Law §§ 135, 268; Hasson v S.B.J. Assoc., LLC, 117 AD3d 904, 905; Town of Brookhaven v Mascia, 38 AD3d 758, 759). Here, the plaintiff established its entitlement to a permanent injunction, where the evidence at trial demonstrated that the ZBA granted the defendants a variance to allow the issuance of a certificate of occupancy subject to specified conditions, and that the defendants failed to satisfy those conditions. In particular, a certificate of occupancy had not been issued, and the defendants were occupying the residence in [*2]violation of sections of the Town Code of the Town of North East which required the issuance of a certificate of occupancy before any building or structure may be used or occupied (see Town Code of the Town of North East former §§ 38-10, 98-60)."

ILLEGAL COMMERCIAL LEASES

JACK KELLY PARTNERS LLC v. ZEGELSTEIN, 2014 NY Slip Op 33673 - NY: Supreme Court 2014:

"It is well settled that a mere lack of certificate of occupancy for the use contemplated by a lease agreement does not absolve a tenant from its obligation to pay rent and justify abandonment of the demised premises, nor does the lack of conforming certificate of occupancy alone cause the lease to be void for illegality or result in a failure of consideration (see 56-70 58th St. Holding Corp. v Fedders-Quigan Corp., 5 NY2d 557 [1959]; Jordache Enters. v Gettinger Assoc., 176 AD2d 616 [1st Dept 1991]; see also Silver v Moe's Pizza, 121 AD2d 376 [2d Dept 1986]; Cutler-Hammer, Inc. v One Lincoln Assoc., 79 AD2d 512 [1st Dept 1980]; Shawkat v Malak, 38 Misc 3d 52, 54 [NY App Term 2013]). The cases are also legion in which the courts held that even if the certificate of occupancy and zoning regulations preclude the tenant from using the premises for the purpose specified in the lease, this does not absolve the tenant of its obligation to pay rent for the period of time when the tenant has occupied the premises, including where the landlord made no representation concerning the certificate of occupancy for the intended use under the lease (see e.g. Phillips & Huyler Assoc. v Flynn, 225 AD2d 475 [1st Dept 1996]; Only Props., LLC v Cavlak, 30 Misc 3d 129[A], 2010 NY Slip Op 52300[U] [NY Sup App Term 2010]; All Metro Corp. v Fit Laundromat, 13 Misc 3d 131[A], 2006 NY Slip Op 51858[U] [NY Sup Ct App Term 2006]). Therefore, the Court finds that plaintiff's argument that the lease is illegal for want of a conforming certificate of occupancy must fail. Plaintiff's argument regarding the failure of consideration is also unavailing for the reasons stated below.

Plaintiff asserts that there exists no support in the documentary evidence submitted which placed on plaintiff the obligation to take affirmative steps to revise or alter the certificate of occupancy. In response, defendants point out to paragraph 57(D) of the lease and the 2009 Order. In the 2009 Order, the Court already determined^[1] that paragraph 57(D)^[2] places the responsibility on plaintiff to seek a change of the certificate of occupancy for the demised premises, which is part of the certificate of occupancy for the entire building (Sava Affirm., exhibit J).

Notwithstanding the foregoing, plaintiff avers that nowhere in the lease is an affirmative obligation placed on plaintiff to procure a certificate of occupancy. Plaintiff argues further that to the extent that any ambiguity as to the meaning of the lease provisions can be found, such ambiguity must be resolved against the landlord, who drafted the lease. These arguments are defeated by the plain language of paragraph 65 of the lease agreement, which provides that "[the] Lease shall be deemed to have been jointly prepared by both the Landlord and Tenant and any ambiguities or uncertainties herein shall not be construed for or against either of them" (Sava Affirm., exhibit R, at page 18 of 21) (see also Madison Ave. Leasehold, LLC v Madison Bentley Assoc. LLC, 8 NY3d 59, 66 [2006] [a commercial lease should be enforced according to its terms when parties set down their agreement in a clear, complete document and extrinsic and parol evidence is not admissible to create an ambiguity]; Farrell Lines v City of New York, 30 NY2d 76, 165 [1972] ["(a)n agreement of lease possesses no peculiar sancity requiring the application of rules of construction different from those applicable to an ordinary contract"] [internal quotes omitted]).

Furthermore, defendants made no covenant in the lease agreement to procure a conforming certificate of occupancy, or obtain a zoning variance, and plaintiff enjoyed undisturbed right to possession of the demised premises (see Silver, 121 AD2d at 377-378, citing 56-70 58th St. Holding Corp. v Fedders-Quigan Corp., 5 NY2d 557 [1959]; cf. Multiple Dwelling Law § 302[1][b]; Kosher Konvenience, Inc. v Ferguson Realty Corp., 171 AD2d 650 [2d Dept 1991]). Moreover, the terms of the lease do not condition plaintiff's promise to pay the rent on either explicit or implied covenant that defendants have a proper certificate of occupancy for the demised premises (see Raner v Godberg, 244 NY 438 [1927]). In the 2009 Order, this Court held that the lease clearly delivered the premises in "as is" condition and paragraph 57(C) of the lease, should have placed plaintiff on notice to check the certificate of occupancy, and applicable laws, codes, and zoning regulations (Sava Affirm., exhibit J, at page 3).

Paragraph 57(C) provides that:

Landlord makes no representations that the use to be made of the Demised Premises, as specified herein, is consistent with permitted uses under the existing certificate of occupancy issue[d] for the Building. In the event that such use is inconsistent with said certificate of occupancy and further, that the Department of Buildings or other governmental agency having jurisdiction, issues a violation based on such inconsistent use, this Lease, shall be terminable by Landlord in accordance with the provisions for notice set forth herein, on thirty (30) days' prior written notice to Tenant (Sava Affirm., exhibit R, at page 12 of 21).

As defendants correctly contend, paragraph 57(C) of the lease contains disclaimer of warranty that the contracted for use of the premises, as strictly specified in the lease, is consistent with the permitted uses under the existing certificate of occupancy for the demised premises (see Sava Affirm., exhibit R, at page 12 of 21). Based on this language of the lease, defendants argue, that plaintiff's claim of fraud and misrepresentation is deficient and cannot sustain the cause of action for rescission. Once again, in the 2009 Order, this Court found that the documentary evidence conclusively established a defense, as a matter of law, to plaintiff's claim that the landlord breached an alleged promise that the premises may be legally used and occupied as a commercial space, and to plaintiff's claim that defendants falsely represented that the premises could be used for commercial purpose (Sava Affirm., exhibit R, at page 3). "Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance upon these contrary oral representations" (Danann Realty Corp. v Harris, 5 NY2d 317, 320-321 [1951]).

FROM TITLE GUARANTEE - NYC LETTERS OF NO OBJECTION

"It is becoming more and more common for purchasers, attorneys, and lenders to require more than just a note stating that a property built prior to 1938 without a Certificate of Occupancy can legally be used as intended. The NYC Department of Buildings typically did not require a certificate of Occupancy before January 1, 1938 to confirm the legal use of the property. In cases where parties in a real estate transaction are worried about the legality of the current usage of the property that was built prior to 1938, the DOB issues a Letter of No Objection (LNO). This is a letter directly from the DOB stating that they have no objection to the current usage of the property and a New Certificate of Occupancy is not required.   Properties built before 1938 in Harlem and Upper Manhattan, as well areas in Brooklyn, have seen a tremendous increase in value over the past ten years. This trend has also increased the need for LNO's issued by the DOB. Because of this, the City has formalized the process; however, it is still rather time consuming and expensive.  The cost to gather all the documents together and submit the request to the city can be close to $1500.00 and take anywhere from 3-6 months to obtain. At TGI, Title Guarantee Inc., we have the experience and the process to help obtain these LNO's in an efficient and timely manner. Here is a sample LNO application form: LNO APPLICATION FORM   WHY LETTERS OF NO OBJECTION ARE IMPORTANT   When investing a million dollars in a property, built prior to 1938, that you believe is a legal three family residential dwelling, it is important to obtain substantial proof that your intended use of the property is legal. A tax classification can give you an idea of how usage of property is viewed by the city but the Department of Finance and the Department of Buildings may not always have their records in order and they may not be able to confirm. Obtaining LNO's from the DOB will give you legal confirmation that your property in question can legally be used as intended.   You might be interested to know you can get obtain a LNO for a property that has an existing Certificate of Occupancy. For example, let's say the property has a Certificate of Occupancy stating the property is a two family dwelling.  Currently it is being used as a one family dwelling.  You can submit for a LNO where the DOB states they do not object to the usage of the property as a one family. It should be noted that if there is any increase in usage to an existing Certificate of Occupancy, such as going from a two family to a three family dwelling, usually requires a submission of plans to the DOB.   For More information on why and how to obtain a LNO, please give us a call.

Sincerely, James D. Gavrity, CEO TGI, Title Guarantee Inc. JGavrity@titleguarantee.com TitleGuarantee.com 212-776-9211

"