Corporations not entitled to rent stabilization protection.

The Reverend Alan Jenne is the spiritual leader and trustee of a church called "Aquarian Foundation." Reverend Jenne resided with his family in a rent stabilized apartment in Manhattan for 17 years. The lease was held in the name of the church, a religious corporation, organized under the Religious Corporation Law of New York.

The landlord, after all these years, served notice on the tenant that the lease would not be renewed for the reason that Aquarian Foundation does not and cannot maintain the rent stabilized apartment as a primary residence. The landlord thereafter commenced a holdover proceeding to evict the Jenne family and to recover possession of the apartment.

Judge Howard Malatzky of the Civil Court, New York County, dismissed the landlord's petition on the grounds that the notice served by the landlord on the tenant was fatally defective, since the notice categorized the Aquarian Foundation as a "charitable corporation" and not a "religious corporation," its true identification.

The landlord appealed to the Appe1late Term of the Supreme Court, which agreed that the landlord's petition should be dismissed, but on different grounds. The Appellate Term held that since it is clear that the apartment at issue was rented for the benefit of an identifiable individual, the Reverend Jenne, the apartment continued to be protected under rent stabilization.

The landlord then appealed to the Appellate Division. The Appellate Division ruled the judge in the Civil Court, as well as the judges in the Appellate Term, were all in error in dismissing the petition and ordered the petition reinstated, and ordered possession of the apartment to the landlord.

The landlord served the corporation with notice that the lease would not be renewed, since the corporation does not occupy the apartment as its primary residence. The tenant argued that the individual, the Reverend Alan Jenne, should be deemed the primary tenant under the lease and, as a consequence, the Reverend Jenne is entitled to the protection of the rent stabilization law, including the right to a renewal lease in his own name.

The Appellate Division described the issue before it as whether there is any construction of the lease held by the Aquarian Foundation that would permit the individual tenant (Reverend Jenne) to demand its renewal in his own name. The answer had already been decided by the Court of Appeals in the case of Manocherian v. Lennox Hill Hospital (654 N.Y.S. .2d 339), which held that to qualify under the primary residence test, there must be an identifiable individual who has the right to demand a renewal lease.

The court noted that there existed a prior doctrine that a corporation is entitled to a renewal lease where the lease specifies a designated class of individuals (such as the corporation's president, the corporation's officers, etc), but even this doctrine was nullified by the Court of Appeals. The Court of Appeals ruled that for a corporation to enjoy the benefits of rent stabilization, the lease must specify a particular individual (and not a class of individuals) as the occupant, so that no perpetual tenancy would be possible.

While the lease at issue provides that the occupancy of the apartment is limited to "tenant and the immediate family of tenant," the lease does not specify any individual as the occupant. The court further ruled that even though the apartment has been occupied for the last 17 years by Reverend Jenne and his family, there is no assurance that the apartment will not be occupied

by other members of the church at some future time. The certificate of incorporation of the church provides that the church shall remain perpetual. There is no assurance that another trustee will not resume occupancy of the apartment if the Jenne family vacates.

The Appellate Division stated that the interpretation of the lease is subject to the same rules of construction as are applicable to other agreements. Unless grounds exist to rescind or to reform the lease, the rights and obligations of the parties are determined by what the lease says. The lease defines "Tenant" as the Aquarian. Foundation. The protection afforded by the rent stabilization law specifically does not apply to dwelling units not occupied by the tenant as his primary residence. Thus, under the rent stabilization scheme, only the person designated on the lease is entitled to a renewal. Since the apartment is not occupied by the tenant (Aquarian Foundation) as his primary residence, the landlord may recover possession of the apartment.

The Appellate Division then turned its attention to the sufficiency of the notice of ion-renewal. It stated that the appropriate standard for determining if adequate notice is given is one of reasonableness in view of all attendant circumstances. The fact that the landlord misconstrued the tenant's status as charitable foundation rather than a religious corporation does not render the notice unreasonable. The particular corporate form of the church is a matter peculiarly within the knowledge of the tenant. Nor did the tenant allege that it was misled as to the nature of this proceeding; nor did it allege that is was prejudiced in responding to the landlord's petition.

The court ruled that the notice accurately reflected the law of the State of New York, that a corporation, religious or otherwise, cannot be regarded as a primary resident of a rent stabilized apartment. To hold otherwise would be impermissible, infringing upon the constitutionally protected property interests.

The court went on to further note that with respect to the Lennox Hill case, the New York State legislature attempted to confer special rent stabilized protection for apartments occupied by employees of not-for-profit hospitals, but the Court of Appeals nullified this attempt by holding the statute unconstitutional. The Court of Appeals held that the statute would have divested landlords of their reversionary rights to their properties without just compensation and due process.

Finally, the court observed that neither the tenant or the courts below set forth any equitable ground, such as mutual mistake or fraudulent misrepresentation, to warrant reformation of the lease to substitute the Reverend Jenne as the tenant entitled to possession.

It is now crystal clear that a lease held by a corporation affords the corporation no protection under rent stabilization unless the lease identifies a specific individual who will occupy the dwelling unit. Avon Bard Co. V. Aquarian Foundation (688 N.Y.S. 2d 514).

(Edward L. Schiff is a real estate partner of the Manhattan law firm of Hartman & Craven, LLP.)