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Appeals Court decision deals a blow to corporate rent stabilized tenancies.

A Manhattan Appeals Court has ordered the eviction of Lenox Hill Hospital from 15 rent stabilized apartments it had been subletting to its nurses at 420 East 79th Street, effectively ending over 20 years of litigation in the case.

The decision, Manocherian v. Lenox Hill Hospital, will also result in Lenox Hill's eviction from 30 more teat stabilized apartments at another East Side apartment house at 520 East 81st Street.

The Lenox Hill rental case has been heard three times by the New York State Court of Appeals since 1976. The decision handed down last week by the Appellate Division removes the Lenox Hill corporate occupancy from 15 apartments in the Manocherian building at 420 East 79th Street and also removes the nurses from occupancy. The case has a parallel with a Peter Sharpe building, said Jeffrey Turkel, a partner with Rosenberg & Estis, P.C., who has been handling both matters. There are 30 apartments affected in that building.

But the decision has implications far beyond Lenox Hill's tenancy, according to Gary M. Rosenberg, managing partner of Rosenberg & Estis. "The Court held that any corporate tenant whose lease does not designate a specific, named individual as the occupant can be evicted," Rosenberg said. "Many rent stabilized apartments rented by corporations will be affected by this decision."

What the Appellate decision does clarify, Turkel said, is the rules for corporate occupancy. No longer can a lease be written just to ABC Corp. for its president, which would end up being a continual successive occupancy by every corporate president. The leases for corporations will now have to actually name the person and say, for instance, ABC Corp. for its president, Joe Smith.

While Lenox Hill can seek permission to appeal from the State Court of Appeals, Turkel said with this new 5-0 decision, it is unlikely to be granted. "It ends 20 years of litigation," he said.

Since the 1970s, 520 East 81st Street Associates, and later, the Manocherian family, have been attempting to evict Lenox Hill from two Manhattan apartment buildings on the grounds that the Hospital, as the named tenant in leases for over 50 apartments, was not a primary tenant under the Rent Stabilization Law.

In 1984, just as Lenox Hill was in danger of losing these apartments, Lenox Hill persuaded the New York State Legislature to pass a special statute which exempted the Hospital from primary residence and subletting restrictions under the Rent Stabilization Law, effectively giving Lenox Hill a perpetual tenancy in the buildings.

Ten years later, in an earlier decision in the Manocherian case, the New York State of Appeals struck down that statute as an unconstitutional "taking" of private property, according to the Rosenberg & Estis lawyers, who added that this was the first time in the 50 year history of rent regulation that a tenant protection provision had been defeated on constitutional grounds. The Court of Appeals then remanded the case to the New York County Supreme Court for further proceedings.

On remand, according to court papers, Lenox Hill argued that notwithstanding the death of its special statute, the Hospital was independently entitled to possession of the apartments under the so-called "Cale doctrine." In the Cale case, decided by the Court of Appeals in 1984, generally held that corporations were entitled to the benefits of the Rent Stabilization Law if the lease in question named a specific individual as the intended occupant. Subsequent cases extended the Cale doctrine to those instances where no specific occupant was named.

In a 1996 ruling in the remanded Manocherian case, Supreme Court Justice Walter Schackman refused the grant Lenox Hill possession of the apartments. Two months later, however, Justice Schackman accepted Lenox Hill's alternative claim that if possession could not be granted to the Hospital, the nurse sub-tenants should be given rent stabilized leases in their own names.

The Manocherian family appealed. The Appellate Division first ruled that Lenox Hill itself was not entitled to the apartments. The Court held that a rent stabilized corporate tenancy was only permissible where the corporate lease named a specific intended occupant of the apartment. When that person died or vacated, the tenancy would end.

If the lease merely referred to occupancy by an unnamed corporate "president," for example, the tenancy could last indefinitely as each successive president moved in and out. The Court ruled that this was just the kind of perpetual tenancy that the Court of Appeals had earlier rejected in its 1994 decision in Manocherian.

Reversing Justice Schackman, the Appellate Division next held that the nurse sub-tenants were not entitled to rent stabilized leases in their own names. The Court observed that the Rent Stabilization Law, now stripped of the special statute which was passed for Lenox Hill's benefit, specifically prohibited sub-tenants from obtaining renewal rights.

"This is a major victory for owners throughout the City," said Turkel. "Any landlord who has a lease with a corporate tenant which does not specifically name an intended occupant can recover that apartment."

"If you are an owner and have a corporate rent stabilized tenant, check the occupancy clause of their lease carefully," said Rosenberg. "You may be in for a pleasant surprise."
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Title Annotation:Manhattan Appeals Court's decision on Manocherian v. Lenox Hill Hospital
Publication:Real Estate Weekly
Date:Feb 26, 1997
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