Owner without C of O can still sue for rent.

Owner without C of O can still sue for rent

Despite the fact that a New York interim multiple dwelling owner had not yet obtained a residential certificate of occupancy, the Appellate Term recently reversed a decision of the Civil Court in ruling that his efforts to obtain the same entitled him to sue for rent.

When residents in a Manhattan loft space began to withhold rent from the loft owner, an eviction proceeding against the tenants for non-payment of rent was commenced. The area was zoned for manufacturing use, and the residents, who were protected under the Loft Law, argued that the owner failed to meet his obligations to legalize the premises by failing to obtain a certificate of occupancy within the time frame set forth in the statute.

Under the Loft Law, an owner must take reasonable and necessary steps to obtain a residential certificate of occupancy. These steps include applications to various city agencies, many of which are extremely time-consuming. Until these regulatory avenues are exhausted, an owner of a loft building is generally unable to make any alterations or improvements necessary to conform with residential building codes.

The loft owner in this case filed an alteration application in 1983, and the City Planning Commission (CPC) approved the "grandfathering" of the tenants' unit for permitted residential occupancy in 1984. The "grandfathering" was made subject, however, to the owner securing a residential certificate of occupancy. Integral to this process was certification by the CPC that the owner's conversion of the floor area in the loft allowed for a pre-determined preservation of commercial or manufacturing space.

The loft owner thus commenced what would quickly become a virtually endless series of applications to city agencies to obtain a necessary waiver under the zoning resolution. The owner's application was apparently caught in a bureaucratic morass. Submissions to and correspondence between the CPC and the owner were ongoing over the next few years. The CPC ultimately granted permission to the owner to preserve space on portions of his floors, but the particular approval necessitated the submission of new and revised plans, and the process was drawn out even longer.

The loft owner enlisted the law firm of Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P.C. to represent him as he moved ahead with his eviction proceeding after his tenants began to withhold rent. Despite his many efforts, when this case came before the Civil Court, the owner had yet to obtain a residential certificate of occupancy. The Court not only dismissed the owner's non-payment proceeding, but additionally permitted the tenants to sue for rent previously paid where there was no residential certificate of occupancy. In this case, the amount to be refunded would have been approximately $50,000.00.

The owner appealed the decision to the Appellate Term, First Department. In reversing the Civil Court's decision, the Appellate Term held that the proceeding should not be dismissed. The Court held that efforts by the owner to obtain a residential certificate of occupancy raised issues of fact regarding whether reasonable and necessary steps were taken, and that these issues of fact required trial. The owner's eviction proceeding for non-payment of rent was reinstated, while at the same time the tenants' counterclaim for previously paid rent was dismissed. The Court held that there is no provision in the Multiple Dwelling Law for the recovery of back rent voluntarily paid, and that public policy does not require the forfeiture of all rent paid during the period when loft units are in the process of legalization, particularly where "the Commission approved residential use".

In commenting on the case, attorney David R. Brody of Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P.C. said "while previously the Courts and the Loft Board had adhered to a 'brightline standard' for determining compliance with legalization deadlines, this holding essentially states that if a landlord is proceeding to legalization that a 'reasonable and necessary standard' is the appropriate measure of compliance. It also appears that the Loft Board may be following this decision in determining compliance."

David R. Brody, Esq. and Paul N. Gruber, Esq. of FBSA&G represented the loft owner on appeal.