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08/06/2003
PETITIONER'S BUILDING is a formerly commercial building that was never subject to the Loft Law. When petitioner first rented out the apartments and issued leases, no certificate of occupancy had been issued. A temporary certificate of occupancy was first issued on Oct. 30, 2002. In petitioner's nonpayment action, respondent tenants claimed, among other things, that petitioner was not entitled to collect any rent for the time prior to the issuance of the first temporary certificate of occupancy. Respondent tenants had failed to deposit rent as required by the court under Real Property Actions and Proceedings Law (RPAPL) §745. Although the court ruled that petitioner could not seek rent for the period prior to Oct. 30, 2002 - because it had volitionally placed tenants in occupancy before applying for a certificate of occupancy - the court ruled that respondent tenants' failure to deposit rent pursuant to RPAPL §745, required that their defenses and counterclaims be dismissed with prejudice.
Judge Pinckney
Clinton Hill Lofts 1, LLC v. Reid - The petitioner herein, Clinton Hill Lofts 1, LLC (hereinafter "Clinton Hill"), is the owner of 227- 241 Taafee Place, Kings County (hereinafter "Subject Premises"). Clinton Hill commenced non- payment proceedings against various tenants in the Subject Premises in November 2002. A number of the petitions seek rent in excess of one year, with five petitions seeking rent going back to August 2001.
By order dated March 27, 2003, this Court granted the respondents' motion for consolidation of twenty-one respondents represented by the same counsel and leave to file amended answers. The order also consolidated two other non-payment proceeding where the respondents were pro-se. One pro-se case has since settled (Johnson / White L&T# 106789/02), while the other is still pending (Gabriel / Robinson L&T #105799/02) and subject to the terms of this order / decision.
Furthermore, subsequent to this Court's decision of March 27, 2003, the Court was informed that one respondent was omitted from the original order to consolidate (Chernick, Pedlow, Johnson, L&T #105806/02, Apt. #101). There has been no opposition to the inclusion of this respondent as a consolidated respondent, and the motion / cross-motion herein specifically address this respondent. Accordingly, this respondent will also be subject to the terms of this decision.
The Court now has before it two motions.
The petitioner has moved pursuant to RPAPL Sections 745(2)(a) and 745(2)(c)(i) for an order striking the respondents' defenses and counterclaims and entry of a final judgment due to respondents' failure to make deposits as directed by this Court.
The respondents have opposed petitioner's motion, and have cross-moved for partial summary judgment on their certificate of occupancy defenses. The respondents' First Defense argues that the petitioner is not entitled to collect any rent for the period of time prior to the issuance of the temporary certificate of occupancy in October 2002. The Second Defense argues that even after the issuance of the temporary certificates of occupancy the petitioner is not entitled to collect rent since the temporary certificates were "contingent upon the landlord retiring pending items within the expiration date" and that the failure to do so has "barred" the petitioner from collecting rents.
Other defenses asserted in the amended answer are more typical of a non-payment proceeding (warranty of habitability, failure to provide basic services, laches) and are not the subject of the summary judgment motion.
Petitioner's Motion under RPAPL 745
On March 5, 2003, at the conclusion of oral argument on respondents' motion to consolidate, the petitioner made an oral application for deposit of use and occupancy pursuant to RPAPL Section 745 since the proceedings had been on the calendar in excess of thirty days. Respondents' counsel initially objected to the application, arguing that the request had to be made in writing. Respondents' counsel further informed the Court that tenants were beginning to deposit rent in an attorney's escrow account that had been established, and that the tenant's association itself was in the process of establishing an account for rent deposits.
RPAPL Section 745, entitled Trial has undergone a series of recent amendments, including a number of amendments in 1997 concerning rent deposits. In relevant portion, RPAPL 745 provides:
2. In the city of New York: (a) In a summary proceeding upon the second of two adjournments at the request of the respondent, or, upon the thirtieth day after the first appearance of the parties in court less any days that the proceeding has been adjourned upon the request of the petitioner, whichever occurs sooner, the court shall direct that the respondent, upon an application by the petitioner, deposit with the court within five days sums of rent or use and occupancy accrued from the date the petition and notice of petition are served upon the respondent, and all sums as they become due for rent and use and occupancy, which may be established without the use of expert testimony, unless the respondent can establish, at an immediate hearing, to the satisfaction of the court that respondent has properly interposed one of the following defenses or established the following grounds: (i) the petitioner is not a proper party to the proceeding pursuant to section seven hundred twenty-one of this article; or (ii) (A) actual eviction, or (B) actual partial eviction, or (C) constructive eviction; and respondent has quit the premises; or (iii) a defense pursuant to section one hundred forty-three-b of the social services law; or (iv) the court lacks jurisdiction...
(c) (i) If the respondent shall fail to comply with the court's directions with respect to direct payment to the petitioner or making a deposit as directed by the court of the full amount of the rent or use and occupancy required to be deposited, the court upon an application by the petitioner shall dismiss without prejudice the defenses and counterclaims interposed by the respondent and grant judgment for petitioner unless respondent has interposed the defense of payment and shows that the amount required to be deposited has previously been paid to the petitioner.
(ii) In the event that the respondent makes a deposit required by this subdivision but fails to deposit with the court or pay, as the case may be, upon the due date, all rent or use and occupancy which may become due up to the time of the entry of judgment, the court upon an application of the petitioner shall order an immediate trial of the issues raised in the respondent's answer. An "immediate trial" shall mean that no further adjournments of the proceeding without petitioner consent shall be granted, the case shall be assigned by the administrative judge to a trial ready part and such trial shall commence and continue day to day until completed. There shall be no stay granted of such trial without an order to respondent to pay rent or use and occupancy due pursuant to this subdivision and rent or use and occupancy as it becomes due.
(iii) The court shall not extend any time provided for such deposit under this subdivision without the consent of the petitioner.
(iv) Upon the entry of the final judgment in the proceeding such deposits shall be credited against any judgment amount awarded and, without further order of the court, be paid in accordance with the judgment.
(v) The provisions of this paragraph requiring the deposit of rent or use and occupancy as it becomes due shall not be waived by the court...
(e) The provisions of this subdivision shall not be construed as to deprive a respondent of a trial of any defenses or counterclaims in a separate action if such defenses or counterclaims are dismissed without prejudice. (emphasis added)
After hearing argument from both counsel on March 5th, and upon review of the applicable statute - RPAPL Section 745 - the Court directed on the record that rent be deposited from the date of the petition (November 2002) forward (Tape #18516; beginning at Counter #5900). The Court did not issue a written order regarding the deposit of rent, nor did the Court direct that the deposit be made by a date certain. The parties left the courtroom, with respondents' counsel agreeing to send an accounting of rent on deposit within a few days. The oral argument took place on March 5, 2003, a Friday. While the Court anticipated prompt compliance with its direction, a review of the tape from March 5, 2003 does not reveal a specific direction that the deposit be made within one week, March 12th as contained in petitioner's reply affirmation (perhaps petitioner is applying the "five days" language of RPAPL 745(a) to the Court's direction, with March 12th being the fifth business day after March 5th).
Petitioner has now moved under RPAPL 745(2)(c)(i) for an order dismissing the defenses and counterclaims of the respondents, and granting judgment alleging failure to make the required deposit.
RPAPL 745 has survived a constitutional challenge. See Lang v. Pataki, 176 Misc. 2d 676, 674 N.Y.S.2d 903 (N.Y. Sup. Ct. 1998); aff'd 271 A.D.2d 375, 707 N.Y.S.2d 90, (N.Y. App. Div. First Dep't 2000); appeal dismissed 95 N.Y.2d 886 (2000). In affirming Justice Lehner's decision, the Appellate Division stated:
While it is possible that section 745 (2) could be applied in particular cases in a manner that deprives a tenant of due process (see, e.g., Yellen v. Baez, 177 Misc 2d 332; Allmen v. Andre, NYLJ, Apr. 8, 1998, at 30, col 1), the mere possibility does not serve to render the provision invalid on its face (see, Lindsey v. Normet, 405 US 56, 65). Section 745 (2) permits the assertion of all defenses, including the breach of the warranty of habitability, and provides for a prompt determination of the parties' claims (cf., Bell v. Burson, 402 US 535). Only where the tenant seeks an adjournment is the deposit of post-petition rent mandated, a requirement specifically upheld by the United States Supreme Court in Lindsey v. Normet (supra). Plaintiffs, who make no claim that section 745 (2) is unconstitutional as applied to them, fail to make the requisite showing that " 'in any degree and in every conceivable application,' the law suffers wholesale constitutional impairment" (Cohen v. State of New York, 94 NY2d 1, 8 [citation omitted])... Finally, the disadvantaged and most vulnerable tenants are largely exempt from the operation of the statute by the exclusion for recipients of public assistance, senior citizens subject to rent increase exemptions and tenants receiving rent subsidies...
Id at 376.
The Appellate Division has acknowledged that under certain circumstances, the application of RPAPL 745 would be unconstitutional if it deprived a litigant of due process. The Court finds that before it can determine whether the deposit requirement should be applied here, it must be determined whether the petitioner is prohibited under law from collecting rent - that is, the certificate of occupancy issue must be decided. The Court finds that it would deprive the respondents herein of due process to award a judgment for failure to make a deposit under circumstances where the petitioner is prohibited by law from collecting rent.
Certificate of Occupancy
The Subject Premises herein is a former commercial building, renovated and rented out to the respondents as residential units. The building was never subject to provisions of the Loft Law, the interim multiple dwelling provisions of the Multiple Dwelling Law (also referred herein as "MDL"). It is undisputed that at the time the petitioner first rented out the apartments, issued leases, and the tenants took occupancy, no certificate of occupancy had issued. The first temporary certificate of occupancy was issued on October 30, 2002. It has been renewed several times since that date. The non-payment proceedings brought by the petitioner herein seek rent (in all but one proceeding) for a period of time prior to the issuance of the initial temporary certificate of occupancy.
The respondents raise two separate defenses concerning the certificate of occupancy. The First Defense argues that the petitioner is prohibited from collecting rent pursuant to Multiple Dwelling Law 302 for the period of time the tenants were in occupancy with no certificate of occupancy having been issued. The Second Defense argues that even after the issuance of the temporary certificates of occupancy the petitioner is prohibited from collecting rent since the temporary certificates were "contingent upon the landlord retiring pending items within the expiration date" and that the failure to do so has "barred" the petitioner from collecting rents.
Section 301 of the Multiple Dwelling Law, entitled "Certificate of Compliance or Occupancy" provides in part:
1. 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...
2. Except as above provided, no dwelling constructed as or altered or converted into a multiple dwelling after April eighteenth, nineteen hundred twenty-nine, shall be occupied in whole or in part until the issuance of a certificate of compliance or occupancy... 4. The head of the department may, on the request of the owner or his certified agent, issue a temporary certificate of compliance or occupancy for a multiple dwelling or a section or a part thereof for a period of ninety days or less, provided that such certificate shall bear the endorsement that the dwelling has been inspected by the department and complies with all the requirements of this chapter, and that such temporary occupancy will not jeopardize life, health or property. Such temporary certificate may be renewed at the discretion of the head of the department for similar periods but shall not extend, together with such renewals, beyond a total period of two years from the date of its original issuance. 5. A certificate, a record in the department, or a statement signed by the head of the department that a certificate has been issued, may be relied upon by every person who in good faith purchases a multiple dwelling or who in good faith lends money upon the security of a mortgage covering such a dwelling. Whenever any person has so relied upon such a certificate, no claim that such dwelling had not, prior to the issuance of such certificate, conformed in all respects to the provisions of this chapter shall be made against such person or against the interest of such person in a multiple dwelling to which such a certificate applies or concerning which such a statement has been issued. (emphasis added)
Section 302 of the Multiple Dwelling Law, entitled "Unlawful Occupancy" 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. (emphasis added)
Temporary Certificate of Occupancy
Multiple Dwelling Law 301(4) expressly provides that a temporary certificate of occupancy may be issued after a building has been "been inspected by the department and complies with all the requirements of this chapter, and that such temporary occupancy will not jeopardize life, health or property."
A temporary certificate of occupancy by its very terms allows the premises to be occupied. Accordingly, the rent restrictions contained in MDL 302 are not applicable. For this Court to rule that MDL 302 prohibits the collection of rent under these circumstances, it would amount to a collateral attack on the Department of Buildings determination that occupancy is now permitted. Therefore, in effect, the respondent is arguing that occupancy should still be prohibited since the temporary certificate of occupancy contains "pending items". If the respondents believe that these pending items should prohibit occupancy, then their remedy is to challenge the temporary certificates of occupancy in an appropriate forum.
Accordingly, that portion of respondents' motion seeking partial summary judgment on its Second Defense is denied. To the extent the failure to satisfy the pending items have impacted on the respondents' occupancy, this defense is preserved in other defenses contained in respondents' amended answer.
Collection of Rent Prior to the Issuance of the Temporary Certificate ofOccupancy
While there is sizeable caselaw on the issue of rent collection in the absence of a certificate of occupancy, neither the Court nor distinguished counsel have been able to locate a case directly on point.
In general, courts have been uniform in strictly construing MDL 302 and enforcing the prohibition against the collection of rent in the absence of a certificate of occupancy. Most situations either involve a legal two-family house being used as an unlawful de-facto multiple dwelling (where the prohibition against rent collection is strictly enforced) or a loft situation where the interim multiple dwelling provisions of Multiple Dwelling Law 285 apply (where rent may be collected in the absence of a certificate of occupancy as long as the landlord is taking appropriate steps to legalize the property).
The factual situation herein is not disputed.
The first temporary certificate of occupancy did not issue until October 30, 2002. Prior to that date, the petitioner began to rent the apartments for immediate occupancy. While the respondents herein have various initial occupancy dates, the petitioner seeks rent against five separate respondents for a period beginning August 2001 - more than one year before the issuance of the first temporary certificate of occupancy.
In support of their position, the respondents rely on the clear wording of the statute and the caselaw developed over the years prohibiting the collection of rent.
Petitioner argues that this case is different since a certificate of occupancy was eventually issued. Thus, petitioner argues that the cases involving de-facto multiple dwellings are not controlling since in those cases the landlord was never able to obtain a certificate of occupancy. The petitioner relies by analogy on the cases involving interim multiple dwellings, and very strongly on the case of Montague Terrace Assocs. v. Feuerer, 191 Misc. 2d 18, 740 N.Y.S.2d 553 (AT 2nd Dept. 2001).
In Montague Terrace, the Appellate Term, Second Department was presented with a situation where the petitioner had not registered the premises as a multiple dwelling with the New York City Department of Housing Preservation and Development at the time the non-payment proceeding was commenced. Pursuant to the provisions of the Housing Maintenance Code and Multiple Dwelling Law 325, and the applicable appellate caselaw at the time, the lower court dismissed the non-payment proceeding. The Appellate Term in Montague Terrace overruled its earlier 1980 decision and specifically held that "upon registering, an owner is entitled to recover the rents which accrued during the period of noncompliance and can recover possession based on such nonpayment." Petitioner argues that by analogy, once an owner obtains a certificate of occupancy it should also be able to "recover rents which accrued during the period of non- compliance".
There have been several recent Appellate Term decisions since Montague Terrace involving certificates of occupancy and the prohibition of rent collection.
In Hutchinson v. Greski and Tombros, 2002 NY Slip Op 40352U; 2002 N.Y. Misc. LEXIS 1060 (AT 2nd Dept. 2002) the Appellate Term noted that the subject premises was a de-facto multiple dwelling that was not registered as a multiple dwelling and did not have a proper certificate of occupancy. The Court ruled that since:
the building did not have a proper certificate of occupancy permitting its use as a multiple dwelling, rent accruing during the period of noncompliance is abated (Multiple Dwelling Law §302[b]; see, Jalinos v. Ramkalup, 255 A.D.2d 293, 679 N.Y.S.2d 419; 99 Commercial St., Inc. v. Llewellyn, 240 A.D.2d 481, 658 N.Y.S.2d 130; 483; Guarino v. Timares, 196 Misc 414, 94 N.Y.S.2d 262; Schwarzkopf v. Buccafusca, 98 N.Y.S.2d 42; cf., 9 Montague Terrace Assocs. v. Feuerer, 191 Misc. 2d 18, 740 N.Y.S.2d 553 [lack of registration, by itself, does not, once there has been compliance, bar recovery of rent accruing during period of noncompliance]).
The "cf" before the Montague Terrace reference indicates that the reference to that decision is intended for a "comparison", where "contrasted, analogous or explanatory views or statements may be found". Black's Law Dictionary, Revised Fourth Edition. In Hutchinson, the Appellate Term specifically highlighted Montague Terrace with the explanation that a lack of registration, by itself, would not prohibit recovery of rent for the period of non-compliance once the property was properly registered. The Court did not state that in the event the landlord ever obtained a certificate of occupancy that it would be able to retroactively collect rent. In fact, the Appellate Term specifically stated that during the period of non-compliance with regard to a proper certificate of occupancy "rent accruing during the period of noncompliance is abated" (emphasis added). This position is consistent with the Appellate Division, Second Department's decision in 99 Commercial Street, Inc. v. Llewellyn, 240 A.D.2d 481 (2nd Dept. 1997).
Another Appellate Term decision since Montague Terrace involving a certificate of occupancy is Nii v. Quinn, 2003 N.Y.Misc. Lexis 459 (AT 2nd Dept. 2003). In Nii, the landlord commenced a residential holdover proceeding against a tenant who was occupying a commercial storefront as a residential apartment. There was no certificate of occupancy permitting a residential use of the storefront, though apparently the building was an otherwise registered multiple dwelling with a proper certificate of occupancy. The tenant stipulated to a judgment of possession, payment of ongoing use and occupancy and a monetary judgment apparently for past due use and occupancy.
The Appellate Term vacated "the stipulation of settlement to the extent of striking the provisions thereof relating to the tenant's payment of use and occupancy, and landlord's entitlement to enter a money judgment"; it affirmed the entry of a possessory judgment. The Appellate Term ruled that under "the circumstances, tenant's residential use of a commercial storefront premises therein, in violation of the certificate of occupancy, bars recovery of rent due under the lease and of use and occupancy after the lease expired".
In dicta, the Appellate Term once again referenced Montague Terrace for comparison, stating that the landlord in Nii "has not obtained, nor manifested efforts to obtain, a conforming certificate of occupancy". Furthermore, it noted that "cases permitting landlord to collect rent or use and occupancy absent a conforming certificate of occupancy generally do so on landlord's proof of substantial conformity to Code standards and condition such payments on landlord's actual procurement of the requisite certificate (e.g. Zane v. Kellner, 240 A.D.2d 208, 209, 658 N.Y.S.2d 289 (First Dept. 1997); Lipkis v. Pikus, 99 Misc 2d 518, 521, 416 N.Y.S.2d 694 [App Term, 1st Dept], affd 72 A.D.2d 697, 421 N.Y.S.2d 825)."
Both Zane and Lipkis involved loft spaces subject to the interim multiple dwelling provisions of the Multiple Dwelling Law. The Appellate Division in Zane directed that use and occupancy payments be made "until such time as plaintiff obtains a certificate of occupancy in compliance with the Multiple Dwelling Law and / or the Interim Multiple Dwelling Law (Multiple Dwelling Law art 7-C)".
The prohibition against the collection of rent absent a proper certificate of occupancy was reiterated in the very recent decision of Meaders v. Jones, NYLJ 6/30/03, 32:1 (AT 2nd Dept. 2003). Meaders involved a legal two family building being used as a three-family de-facto multiple dwelling. The tenant in the lower court had entered into a stipulation providing for a judgment of possession and a monetary judgment / payment of use and occupancy. The tenant moved to vacate the stipulation on the grounds that occupancy of the premises violated the certificate of occupancy, and the lower court denied the respondent's motion. The Appellate Term upheld the enforcement of the possessory judgment, but struck "the terms of the stipulation of settlement relating to tenant's payment of rent and use and occupancy and providing for the entry of a money judgment based thereon..." citing MDL 302(1)(b); Hutchison v. Greski, (supra); 99 Commercial St. v. Llewellyn, (supra); and Nii v. Quinn, (supra).
Petitioner argues that Hutchinson stands for the proposition that "the prohibition" against rent collection under MDL 302 "is strictly enforced only where the premises must also be registered as a multiple dwelling and that once there is such registration, the owner can collect for any period of non-compliance". Petitioner further argues that the language of Nii extends Montague Terrace (removal of rent collection prohibitions for late MDR registrations) to situations where the certificate of occupancy is issued well after the landlord permits a tenant to take occupancy.
There is a distinction between the failure to file an annual informational administrative form and the failure to obtain a certificate of occupancy. The MDR registration form is a simple two-page document intended to update HPD's records with current information regarding ownership / management of multiple dwellings. There are no inspections associated with the filing of this form which would concern the life, health and safety of the tenants occupying the property.
A certificate of occupancy, in contrast, is the very document issued by the City of New York at the end of a strict, inspectorial process that is designed to ensure that no tenant takes occupancy until the designated space is determined to be safe. The prohibition against the collection of rent in the absence of a certificate of occupancy is designed to ensure that owners do not place tenants in occupancy of a premises that is unsafe and unfit for occupancy.
In Broome Realty Corp. v. China Printing Do., Inc., 157 Misc.2d 572 (N.Y. Civ. Ct. 1993) a temporary certificate of occupancy expired for the premises occupied by a commercial tenant. A new temporary certificate of occupancy was issued nearly eight months later. The issue before the court was whether the landlord was entitled to collect the rent during the period where no certificate of occupancy was in effect. The court ruled that the landlord was prohibited from the collection of rent for that period of time:
Multiple Dwelling Law §302 contains no exemption, toll, or relation back provision for an owner who files for a certificate of occupancy that is subsequently issued months later. The Legislature has allocated to the owner the responsibility of applying for, and actually obtaining, a new certificate if a prior certificate is only temporary. Buildings Department approval is neither ministerial nor guaranteed. The review process is intended to assure that the occupancy and space are legal and safe...
Whether the City or petitioner unjustifiably failed to comply with the above- referenced procedure, and why a new certificate was not issued until almost eight months after the application was submitted, are questions not properly before this court. However, it is clear that the issuance of a new certificate of occupancy does not relate back to the date of the application, even when it was filed before the expiration of the existing certificate ... The result-the forfeiture of nearly eight months' rent-does seem disproportionately harsh under the unusual circumstances presented here. Respondent was continuously in possession, doing business by using the space for its benefit, apparently unimpeded by the lapsed certificate of occupancy. Nevertheless, the language of Multiple Dwelling Law §302 (1) (b) is clear and unambiguous, obviating the need for judicial interpretation. (McKinney's Cons Laws of NY, Book 1, Statutes §76; see, Mathurin v. Jackson, NYLJ, Dec. 12, 1990, at 23, col 2 [Civ Ct, NY County] [court should not question wisdom of the Legislature, particularly when its intent is unambiguously stated in the statute].) Indeed, a close reading of the statute indicates that it is not limited to penalizing the rental of legally unsuitable space for residential occupancy. Rather, when Multiple Dwelling Law §§301 and 302 are read in pari materia, it is evident the statutory scheme was intended even more broadly: By applying to all space in multiple dwellings-residential and nonresidential-the statute deters an owner from renting unsafe or inappropriate space and from permitting illegal or improper uses. In order to do so, it requires that the owner seek and obtain prior approval via the certificate of occupancy process.
Id at 574 - 576. (emphasis added)
See also 99 Commercial Street, Inc. v. Llewellyn, 240 AD2d 481 (2nd Dept. 1997) where the Appellate Division Second Department referenced Broome Realty in holding:
While the absence of the certificate of occupancy does not bar the plaintiff from recovering possession of the premises (see, Aponte v. Santiago, 165 Misc 2d 968), it does in fact preclude the plaintiff from recovering payment for use and occupancy during the time for which no certificate of occupancy was issued for the subject premises (see, Multiple Dwelling Law §302; Broome Realty Corp. v. China Print. Co., 157 Misc 2d 572).
Id at 483.
Petitioner further relies on the case of Chatsworth 72nd Street Corp. v, Rigai, 71 Misc.2d 647, (Civ. Ct. NY Co. 1972); aff'd 74 Misc.2d 298 (App. Term 1st Dept. 1973); aff'd 43 AD2d 685 (1st Dept. 1973); aff'd 35 NY2d 584 (1975), and the language contained therein.
In Chatsworth, the tenant occupied a basement apartment of the subject premises that did not have a certificate of occupancy, and asserted the prohibition against rent collection pursuant to MDL 302 in defense of landlord's non-payment proceeding. The tenant's had previously sought a ruling on their rent control status, and the District Rent Director found that the apartments were indeed subject to rent control and set the rent at $1.00 per month. The landlord challenged this decision, and the Rent Commissioner affirmed that the tenants were protected by rent control but re-established the original rent at the level they had paid when they first took occupancy. The landlord thereafter commenced non-payment proceedings based on the re-established rent.
The court found that the landlord was not prohibited from collecting rent, stating:
...that the rent office order is controlling. As the Appellate Term for this Department said just a few weeks ago (746 Realty Corp. v. Stevens, N. Y. L. J., Aug. 30, 1972, p. 2, col. 1): "The order of the City Rent and Rehabilitation Administration may not be attacked collaterally; its orders are binding in a summary proceeding (Jadam Associates, Inc. v. Latimer, N. Y. L. J., Dec. 31, 1969, leave to appeal denied by App. Div., N. Y. L. J., March 20, 1970; Ament v. Cohen, 16 A D 2d 824; Bishop v. 339 Lexington Ave. Corp., 40 Misc 2d 769, affd. 43 Misc 2d 692)." The State Legislature has provided a means of reviewing rent office orders - by article 78 proceeding in the Supreme Court. Landlord followed that method in this very case, and the Supreme Court order of remand, together with the resulting rent office order, is fully binding on this court. Tenants have exactly the same recourse; if they choose not to exercise it, the impact of the illegal occupancy on this renting has been settled, and is res judicata.
Id at 651.
The court went on to state in dicta that even in the absence of the order from the Rent Commissioner, it would rule the same way and find that MDL 302 would not prohibit the collection of rent under the circumstances of that case. In his affirmation in opposition petitioner's counsel argues that "contrary to respondent's claim, Chatsworth is not limited to the situation where a tenant prevents the landlord from complying with the MDL. As stated by Justice Shainswit, 'The sanctions imposed by section 302 presuppose a certificate of occupancy denied because of volitional illegality' ".
Petitioner thereafter supports his argument with three lengthy paragraphs from Justice Shainswit's decision. The Court notes that the first paragraph cited by the petitioner is provided with an omission, indicated by the standard "..." inserted in its place. The first paragraph, if cited in full by petitioner's counsel, would read as follows (with the portion omitted by petitioner highlighted in bold):
The sanctions imposed by section 302 presuppose a certificate of occupancy denied because of volitional illegality. They were designed as a tool to stimulate the conversion of unsafe and substandard dwellings into proper and legal ones. Where tenants themselves have prevented the carrying out of the legislative objective, it flies in the face, not only of common sense, but of every maxim of statutory construction, that tenants should be allowed to profit from their own actions. It has long been the rule that the courts will not adhere even to the apparent letter of a statute, where doing so would defeat the manifest purpose of that statute, particularly where such a construction would work either injustice or an absurdity.
Id at 651.
The split Appellate Term affirmed the lower court, finding that "the issue whether landlord could recover rent from tenants was litigated before the Rent Commission and decided adversely against tenants. They instituted no CPLR article 78 proceeding to review his order. Consequently, his order is res judicata on the issue (citations omitted) and could not be collaterally attacked in this summary proceeding" at 74 Misc.2d 298, 299.
The Appellate Division (in another split decision) affirmed in a short order referencing both the Appellate Term decision and the order of the lower court, and the Court of Appeals affirmed in a one line decision referencing the order of the lower court.
There is no allegation herein that the respondents had done anything to prevent or delay the issuance of a certificate of occupancy. Petitioner does not allege that the respondents were even aware prior to taking occupancy that there was no certificate of occupancy for the premises. In fact, the respondents have submitted affidavits averring that they were unaware at the time they took occupancy that the building lacked a certificate of occupancy - a claim not challenged by petitioner.
While petitioner may have been taking steps to obtain the certificate of occupancy, it was the petitioner that made the economic decision to lease the apartments and allow occupancy prior to the issuance of the certificate of occupancy. In effect, the petitioner placed tenants in occupancy of a building well over one year before the City had issued its approval that it was safe for occupancy. That the City may have been approving plans as submitted during the construction process is not persuasive - a sign-off that plumbing lines were properly installed is not indicative that the building is now safe for tenants and their families to live and sleep.
In effect, the petitioner argues that once the certificate of occupancy was issued, everything became "all right" and it should be able to collect the rent from day one - even if day one is over one year earlier. The Court respectfully disagrees. To do so would sanction a deliberate, economic decision by the petitioner to place tenants in occupancy in a building not yet declared safe for occupancy by the City. Unlike the MDR administrative registration requirements, compliance with a certificate of occupancy can often be a matter of life or death.
Under petitioner's theory, an owner could place tenants in a dangerous shell of a building with no plumbing or electricity and thereafter perform renovations around the occupant until a certificate of occupancy was finally issued a year later - and thereafter collect rent for the entire period of occupancy from that tenant if not previously paid. Failure to strictly enforce the rent collection prohibitions under the circumstances herein would severely weaken a powerful incentive for landlords to make sure that a building is safe before permitting occupancy.
And while there is nothing in the record to suggest that the respondents herein took occupancy under those types of extreme conditions, the Court will note that by letter dated December 6, 2001 (exhibit BB of respondents' cross-motion) the tenants in occupancy raised concerns over such building wide safety issues as electrical service, the fire hose / sprinkler systems not being operative, smoke detectors and the ventilation system. Furthermore, an agenda prepared by the petitioner for a meeting with the tenants on March 6, 2002 acknowledges "over 70" work order requests, and that the building is ready to receive "all Certifications any day". The agenda also includes a notation that all "systems are working properly with reasonably expected shutdowns or breakdowns" (exhibit I of respondents' cross-motion - bold emphasis added by Court).
This is not a case where the respondents prevented the issuance of the certificate of occupancy, or where a valid certificate of occupancy existed prior to occupancy but either lapsed or had to be re-issued due to a minor alteration / technical problem. Nor did the petitioner herein rely upon any representation by the City that occupancy would be allowed. It would appear that the first request for a temporary certificate of occupancy was not even made until April 2002, nine months after allowing the first tenants to take occupancy (exhibit J of respondents' cross- motion). The petitioner simply took it upon itself to rent out the apartments, knowing that there was no certificate of occupancy and the implications regarding rent collection - the rent demands herein (some seeking in excess of one years rent) were served less than one week after the issuance of the certificate of occupancy. It was petitioner's choice to place tenants in occupancy before even applying for a certificate of occupancy - a decision that was certainly volitional.
On a further note, the Court notes that the respondents' affidavits state that they first learned about the lack of a certificate of occupancy when they were unable to obtain insurance due to the absence of a valid certificate. While not in the record before the Court on this motion, this certainly raises serious concerns regarding a building owner's insurance coverage and the protection afforded its tenants if an owner allows occupancy absent a proper certificate of occupancy.
Accordingly, the Court will grant the respondents' motion for partial summary judgment on the First Defense and will strike any demand for rent prior to the issuance of the temporary certificate of occupancy on October 30, 2002.
Duplex Apartments on FirstFloor / Cellar Level
One final certificate of occupancy issue remains. There are two apartments that are duplexes, apartments 101 and 102. An internal staircase within these two apartments provide access to space on the first floor and the cellar level. The temporary certificate of occupancy permits occupancy and residency on the first floor (seven apartments allowed), but the cellar level occupancy is limited. The following uses are listed for the cellar level under the column "Description of Use": boiler room, storage, accessory parking, laundry.
The respondents argue that the petitioner is prohibited from collecting rent as a matter of law for these two apartments even after the issuance of the temporary certificate of occupancy since it does not allow occupancy of the cellar for living space.
Both respondents submit affidavits averring that there were informed by Sofia Valiotis, the representative from petitioner (and the signatory on the lease on behalf of petitioner) that the apartments were duplexes, and that the basement space would be finished with a bathroom and heating system. The respondents assert that numerous conversations took place with identified employees of petitioner, and that at all times the petitioner was aware that the lower floor would be used for living purposes. The leases that were entered into do not specify the use of separate floors, and simply states that the "apartment must be used only as a private apartment to live in as the primary residence of the Tenant and for no other reason". It does not address any separate use for the basement portion of the apartment, and does not designate its use as storage only.
The respondents also aver that petitioner placed "storage" signs on the outside of the lower level entrance doors prior to the inspection by the Department of Buildings.
The petitioner does not submit a single affidavit to refute the alleged representations made by its employees. Work orders and complaints made by the respondents in these two apartments certainly put the petitioner on notice that the respondents intended to use the basement area as a "living" portion of the apartment. Not once did petitioner demand that the respondents use the basement portion for storage only (until a recent letter from petitioner's counsel after the issue was raised in court)
Petitioner merely argues that the terms of the written lease are controlling, and since the lease contains a merger clause, any outside oral representations are not binding. It further argues that the lease (paragraph 22) requires that the tenant "must, at Tenant's expense, promptly comply with all laws, orders, rules, requests, and directions, of all governmental authorities...". Therefore, petitioner argues that the respondents must comply with the temporary certificate of occupancy and use the basement / cellar level for storage only.
Petitioner's merger clause argument is not persuasive, since the lease does not restrict the use of the lower level to storage only. It identifies the subject premises simply as the apartment, and specifically states that the apartment is to be used as the residence of the tenants. The lease reflects the intention of the parties at the time the lease was signed that the entire apartment would be used as the residence - no distinction is made between the first level and lower level.
Paragraph 22 of the lease certainly requires that the tenant comply with "all applicable laws" as argued in petitioner's affirmation in opposition, and might very well restrict respondents' future use of the premises. The Court does note the irony of petitioner demanding that the respondents use the basement space for storage only in conformance with the temporary certificate where petitioner itself allowed full occupancy for over one year before even obtaining any certificate of occupancy.
However, the temporary certificate of occupancy does allow occupancy of the first floor portion of the apartment, and the Court has ruled above that petitioner is not prohibited as a matter of law from collecting rent once the temporary certificate had issued.
This is analogous to situations where occupancy of a portion of a building is prohibited by the certificate of occupancy, but occupancy of a tenant's apartment in the same building is allowed. In those cases, courts have found that there is no strict prohibition against the collection of rent from the unaffected tenant. Here, occupancy of only a portion of the respondent's apartment is prohibited, but a portion is also allowed.
Under these circumstances, the Court declines to award the respondents of these two apartments partial summary judgment.
The petitioner is not prohibited as a matter of law from collecting rent for the first floor space once the temporary certificate issued. The amount of rent to be collected, given the additional defenses these respondents would have, is to be determined at trial.
Failure to Deposit Rent
Having found that the petitioner is not prohibited by law from seeking rent beginning with the issuance of temporary certificate of occupancy, the Court now returns to the petitioner's motion for judgment pursuant to RPAPL 745(2)(c)(i).
RPAPL 745(2)(c) has two provisions - (i)and (ii). Petitioner has moved under (i), not (ii). The distinction is important, since the ramifications of non-compliance with subsection (i) are different (dismissal of defenses and counterclaims, entry of judgment) than subsection (ii) (immediate trial, no further adjournments).
The first issue the Court must decide is the "full amount of the rent or use and occupancy required to be deposited" as directed by the Court on March 5, 2003. The Court clearly directed the deposit of rent from the date of the petition, November 2002 through March 2003 - a total of five months. Thus, respondents' counsel is incorrect in arguing that subsection (i) pertains only to those situations where no deposit was made at all. The Court directed that the five months be deposited - thus, any deposit short of five months would result in the respondent being in default of the Court's direction and thereby being subject to the ramifications of subsection (i) as opposed to subsection (ii).
As to the timeframe for the deposits, the Court did not establish a specific deadline for the deposits on March 5th, nor did petitioner request such a specific date notwithstanding the "five days" provision of RPAPL 745(2)(a). Notwithstanding an absence of a specific March 12th deadline as argued by the petitioner, the respondents were not in full compliance as of the date the petitioner's motion was argued - nor were they even in full compliance after being given a further opportunity to update the accounting after oral argument. The respondents were certainly aware by that time that a failure to deposit from November 2002 could result in RPAPL 745(2)(c)(i) ramifications.
The Court is faced with a unique factual situation. There are twenty-two individual respondents represented by counsel. As of the most recent accounting submitted in this motion, eleven respondents have made full deposits of rent through and including May 2003. Nine respondents have made partial deposits (one respondent paid through April 2003, with the other eight respondents having deposited a total of one to four months rent thereby falling short of the required five months deposit). Two other respondents have failed to deposit any rent.
The Appellate Division noted that under a particular circumstance, RPAPL 745 could be applied in a manner that would deprive a tenant of due process. The Court finds it would violate the due process of those respondents in full compliance if they were to be subject to the repercussions of subsection (i) due to the default of other respondents.
While consolidated by order of this Court given the common issues of law and fact, the twenty- two individual respondents would be subject to separate judgments and orders at the outcome of the litigation. The Court noted that any subsequent trial "may be conducted in a manner as determined by the trial judge". Having ruled on the certificate of occupancy issues, the individual respondents retain their other defenses, including warranty of habitability. While some of the alleged conditions overlap (building wide issues) others are apartment specific requiring separate determinations. Since each respondent is subject to a separate judgment / order, the "consolidation" of these cases does not preclude individual treatment under RPAPL 745(2)(c)(i).
Having ruled that the petitioner is not prohibited by law from seeking rent from the time of the temporary certificate of occupancy, the Court finds that awarding a judgment under RPAPL 745 would not deprive the defaulting respondents of due process. The legislature specifically provided that a failure to deposit would result in the dismissal of defenses and counterclaims without prejudice. The certificate of occupancy defense went to the very heart of whether the petitioner was prohibited from even seeking the rent - and the Court found that due process required that this defense be adjudicated. The other defenses do not rise to such a level.
Accordingly, the Court will grant petitioner's motion to the following extent. The Court will award a judgment in favor of petitioner against the ten individual respondents who have failed to deposit the five months rent as directed by this Court on March 5, 2003 (see breakdown below). The judgment will cover rent for the period of November 2002 through March 2003, unless an earlier time period is provided indicating that the respondent had vacated the premises and turned over the keys by that date. The Court will dismiss the defenses and counterclaims of these ten respondents without prejudice.
Furthermore, the pro-se respondents in Gabriel / Robinson (L&T# 105799/02) failed to deposit any payment of rent as directed by the Court, either into the court itself or into an attorney escrow account that petitioner's counsel offered to establish. The pro-se respondents were present on March 5th, and at a subsequent conference date, and were aware of the Court's direction. Accordingly, a judgment will be entered against them for their failure to make the required deposit.
Judgment will be entered against the following respondents, in the amount indicated:
Issuance of warrant is stayed five days from the date of service of this order with notice of entry.
Conclusion
As to the twelve remaining respondents in compliance with the deposit requirement, the proceeding will be restored to the calendar in Part F, Room 612 on August 21, 2003, 9:30 for assignment to a trial part.
This constitutes the decision and order of this Court.