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."

AND MORE ON ILLEGAL APARTMENTS

This was decided on July 12, 2018 - Hayes v. Ramsey, 2018 NY Slip Op 51114 - NY: Appellate Term, 2nd Dept. 2018:

"Insofar as is relevant to this appeal, plaintiff commenced this small claims action to recover, among other things, the sum of $300, representing her security deposit, and $1,200, representing eight weeks of rent which she had paid to defendant for the time in which she had lived in the apartment. Defendant counterclaimed to recover the total sum of $2,680, representing alleged rent arrears and cable bills, but, at trial, she stated that she was withdrawing her counterclaim. Following a nonjury trial, the District Court awarded plaintiff the principal sum of $1,500 and dismissed defendant's counterclaim.

In a small claims action, our review is limited to a determination of whether "substantial justice has . . . been done between the parties according to the rules and principles of substantive law" (UDCA 1807; see UDCA 1804; Ross v Friedman, 269 AD2d 584 [2000]; Williams v Roper, 269 AD2d 125, 126 [2000]). The determination of a trier of fact as to issues of credibility is given substantial deference, as a trial court's opportunity to observe and evaluate the testimony and demeanor of the witnesses affords it a better perspective from which to assess their credibility (see Vizzari v State of New York, 184 AD2d 564 [1992]; Kincade v Kincade, 178 AD2d 510, 511 [1991]). This deference applies with greater force to judgments rendered in the Small Claims Part of the court (see Williams v Roper, 269 AD2d at 126).

A security deposit is presumed to remain the property of the tenant (see General Obligations Law § 7-103 [1]) and must be returned at the conclusion of the tenancy (see Cruz v Diamond, 6 Misc 3d 134[A], 2005 NY Slip Op 50187[U] [App Term, 2d Dept, 9th & 10th Jud Dists 2005]). However, at the trial, plaintiff gave her current address as the premises which she rented from defendant. Consequently, it was error for the District Court to include the $300 security deposit in its award in favor of plaintiff, as plaintiff failed to establish that her tenancy had ended.

The District Court also erred when it included in its award to plaintiff the sum of $1,200, apparently representing eight weeks of rent. The fact that an apartment is rented without a permit does not preclude the recovery of rent, absent a statutory bar to such recovery (see Madden v Juillet, 46 Misc 3d 146[A], 2015 NY Slip Op 50214[U] [App Term, 2d Dept, 9th & 10th Jud Dists 2015]; Sinclair v Ramnarace, 36 Misc 3d 150[A], 2012 NY Slip Op 51671[U] [App Term, 2d Dept, 9th & 10th Jud Dists 2012]; Corbin v Briley, 192 Misc 2d 503, 504 [App Term, 2d Dept, 9th & 10th Jud Dists 2002]). We note that, even where there is a statutory proscription against the recovery of rent by a landlord (see e.g. Multiple Dwelling Law § 325 [2]), rent that was voluntarily paid is not recoverable by a tenant, despite the premises' illegal status (see Candela v Fried, 3 Misc 3d 136[A], 2004 NY Slip Op 50508[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2004] [rents voluntarily paid for period of noncompliance cannot be recovered]; see also Ovalles v Mayer Garage Corp., 8 Misc 3d 137[A], 2005 NY Slip Op 51261[U], *1 [App Term, 1st Dept, 2005] [a tenant cannot "recoup rents already paid"]).

Defendant's contention on appeal that the District Court should have found in her favor on her counterclaim lacks merit as, at trial, she stated that she was withdrawing her counterclaim.
In view of the foregoing, we are of the opinion that the judgment failed to provide the parties with substantial justice according to the rules and principles of substantive law (see UDCA 1804, 1807; Ross v Friedman, 269 AD2d 584; Williams v Roper, 269 AD2d 125, 126)."

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.

ILLEGAL APARTMENTS IN NON-MULTIPLE DWELLINGS

In this case, the Multiple Dwelling Law did not apply yet the apartment lacked a certificate of occupancy. Madden v. Juillet, 2015 NY Slip Op 50214 - NY: Appellate Term, 2nd Dept. 2015:

"In this small claims action, Margaret A. Madden (plaintiff) appeals, on the ground of inadequacy, from a judgment of the District Court, which, after a nonjury trial, awarded her the principal sum of $875 against defendant, the former tenant of the lower level of plaintiff's house, but failed to award plaintiff $1,200 that she had sought for the attorney's fees she had allegedly incurred in bringing a prior nonpayment proceeding against defendant. Defendant cross-appeals from the judgment, arguing that she does not owe the $800 which was awarded to plaintiff for April 2012 rent because the premises was an illegal basement apartment and because plaintiff breached the warranty of habitability.

In our view, the District Court properly declined to award plaintiff the attorney's fees she sought, as plaintiff failed to prove that she had paid the fees. In any event, in view of the mixed outcome of the prior nonpayment proceeding—plaintiff had sued defendant for $2,400 and had been awarded only $800—it cannot be said that plaintiff was the prevailing party in that proceeding (see e.g. Mosesson v 288/98 W. End Terrace Corp., 294 AD2d 283 [2002]).

Contrary to defendant's contention, the absence of a certificate of occupancy for the lower-level apartment does not bar the recovery of rent (see Sinclair v Ramnarace, 36 Misc 3d 150[A], 2012 NY Slip Op 51671[U] [App Term, 9th & 10th Jud Dists 2012]; Pickering v Chappe, 29 Misc 3d 6 [App Term, 2d, 11th & 13th Jud Dists 2010]; Schweighofer v Straub, 23 Misc 3d 132[A], 2009 NY Slip Op 50730[U] [App Term, 9th & 10th Jud Dists 2009]; Corbin v Briley, 192 Misc 2d 503 [App Term, 9th & 10th Jud Dists 2002]; Tuzel v Reilert, NYLJ, Dec. 3, 1996 [App Term, 9th & 10th Jud Dists])."

NOTE: This was an appeal from a plenary action and not a special proceeding landlord/tenant action.

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."

CAN RENT BE COLLECTED FOR AN ILLEGAL APARTMENT?

Madden v. Juillet, 2015 NY Slip Op 50214 - NY: Appellate Term, 2nd Dept. 2015

"....Defendant cross-appeals from the judgment, arguing that she does not owe the $800 which was awarded to plaintiff for April 2012 rent because the premises was an illegal basement apartment and because plaintiff breached the warranty of habitability.

.......

Contrary to defendant's contention, the absence of a certificate of occupancy for the lower-level apartment does not bar the recovery of rent (see Sinclair v Ramnarace, 36 Misc 3d 150[A], 2012 NY Slip Op 51671[U] [App Term, 9th & 10th Jud Dists 2012]; Pickering v Chappe, 29 Misc 3d 6 [App Term, 2d, 11th & 13th Jud Dists 2010]; Schweighofer v Straub, 23 Misc 3d 132[A], 2009 NY Slip Op 50730[U] [App Term, 9th & 10th Jud Dists 2009]; Corbin v Briley, 192 Misc 2d 503 [App Term, 9th & 10th Jud Dists 2002]; Tuzel v Reilert, NYLJ, Dec. 3, 1996 [App Term, 9th & 10th Jud Dists])."

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."

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)."

BASEMENT APARTMENTS?

Headline in today's Newsday "North Hempstead may ease New Cassel code restricting basements":

http://www.newsday.com/long-island/nassau/north-hempstead-considering-possible-housing-code-changes-for-new-cassel-1.10637592

But this appears to be not an "OK" for basement apartments but a permission to expand basements for the owner's exclusive use only.

ON AFFORDABLE HOUSING

As Newsday's series on Zombie Homes turns to illegal housing, if one was "reading the signs", it would appear that the underlying problem is affordable housing.

In that respect, Long Island and New York City is in a similar situation. See: http://peoplesworld.org/new-york-city-facing-the-crisis-of-affordable-housing/

RENTING OUT APARTMENTS IN NASSAU COUNTY

As we now know all too well, many Americans are struggling to make their mortgage payments, while others are in desperate need of affordable housing. Enter the so-called mother-in-law apartment, which can fix both issues: Homeowners can fetch extra cash and in the process provide decent, below-market rentals. But can you convert your basement to an apartment? Each town has it's own code but many are similar to the Town of Hempstead's which only permit a single family home to be converted to a two family home under the following conditions: a) a permit is issued and plans approved and b) the second unit is used by a parent, child or sibling of the homeowner or the owner of the house is a senior citizen and obtains a special two-family senior citizen residence permit. If you don't follow the rules of your town, etc., it is an illegal apartment. Besides the danger of being fined by your local building department and the inability to collect rent in a non-payment proceeding (you cannot sue in court for rent of an illegal apartment), your insurance policy may be in danger (certainly an issue when people are injured on your property, there is a fire, etc.) as the insurer may disclaim coverage and your mortgage company may claim a default. In a recent landlord and tenant case, I spoke to the Town of Hempstead Building Department and they stated that under no circumstances, will they grant a permit for a basement apartment. You should note that the rules appear to permit the letting by a family of one (1) or more rooms to not more than two (2) boarders, roomers or lodgers, provided, however, that every room in such apartment shall have free and unobstructed access to each required exit. The applicable statute in the Town of Hempstead is Chapter 88: HOUSING AND REHABILITATION CODE.