448 WEST 54TH STREET CORP v. DOIG MARX (2004)

Petitioner moves by Notice of Motion seeking to strike respondents second and third affirmative defenses upon the ground that respondent is no longer entitled to a preferential rent.   Respondent cross-moves for an order seeking summary judgment as to the second affirmative defense and dismissing the petition on the grounds that it asserts an illegal and improper rent.   The motions are consolidated and decided as follows.

Essential Facts

Petitioner contends that it is no longer obligated to continue respondent's preferential rent.

In October 1992 respondent executed a one (1) year lease with the petitioner.   Attached to the original lease is a Preferential Rent Rider which reads in pertinent part:  “The parties to this lease agree and acknowledge that the tenant will be charged during the Terms of Tenants' occupancy, a preferential rent.   The preferential rent is personal to the tenant named in the lease only and will not inure to the benefit of the Tenant's successor or assigns.”   It is further acknowledged that the October and November rents 2003 were accepted and cashed by the landlord at the preferential rate.   From the inception of the lease to the present the preferential rent rider remained in full force and effect.

In September, 2003, the landlord offered the tenant a renewal lease which, for the first time in the tenancy, calculated the renewal increase based on the legal regulated rent as opposed to the preferential rent.   In doing so, the landlord relied on an amendment to the Rent Stabilization Code regarding preferential rents.   The proposed increase would bring the tenant's rent from $946 per month to $1,385 per month.   The tenant disputed the applicability of the new law and refused to sign the renewal lease because the rent charged was improper.   The landlord then rejected the tenant's tender of rent, purported to “deem” the lease renewed at the higher amount, and brought this nonpayment proceeding.

Applicable Law

Chapter 82 of the Law of 2003 amended the Emergency Tenant Protection Act and the NYC Rent Stabilization Code to provide that:

where the amount of rent charged to and paid by the tenant is less than the legal regulated rent for the housing accommodation, the amount of rent for such housing accommodation which may be charged upon renewal or upon vacancy thereof may, at the option of the owner, be based upon such previously established legal regulated rent, as adjusted by the most recent applicable guidelines increases and other increases authorized by law ․ Chapter 82 of the Laws of 2003, §§ 3, 6.

This amendment codified the holding of Matter of Missionary Sisters of the Sacred Heart v. DHCR, 283 A.D.2d 284, 724 N.Y.S.2d 742 (1st Dep't 2001), in which the Court rejected the DHCR's position that a preferential rent, once granted, becomes the base rent for the entire term of the tenancy, on which all future rent increases are calculated.   The DHCR had relied for its position on Rent Stabilization Code § 2521.2(b), which then provided:

“Where the legal regulated rent is established and a rent lower than the legal regulated rent is charged and paid by the tenant, upon vacancy of such tenant, the legal regulated rent previously established plus the most recent applicable guidelines increases ․ may be charged new tenant.”

In Missionary Sisters, the lease specifically limited the rent concession to the term of the lease.   The Court held that the above cited section of the Code did not “dictate the exclusive point at which the legal regulated rent can be charged if a concession has been granted.”   Relying on Matter of Century Operating Corp. v. Popolizio, 60 N.Y.2d 483, 470 N.Y.S.2d 346, 458 N.E.2d 805 (1983), the Court instead held that the language of the lease, limiting the rent concession to the particular lease term for the specific reason stated, controlled over the agency's interpretation of the regulation.

The DHCR's rigid rule on preferential rents had its genesis in the “Collingwood Rule”, which held that if a tenant paid a rent which was lower than the legal rent, that lower rent became the base rent for all future increases.   Collingwood Estates v. Gribitz, N.Y.L.J., April 24, 1975, p. 17, col. 6 (Sup.Ct.N.Y.Co.).   Apparently, the Conciliation and Appeals Board, the predecessor agency to the DHCR, applied the Collingwood Rule rigidly, prohibited the owner from going back to the legal regulated rent even after the tenant vacated.  (See, Warren A. Estis and Jeffrey Turkel, “Rent Regulations Eight-Year Extension,” N.Y.L.J., July 2, 2003, p. 5, col. 2.) The above-cited section 2521.2(b) of the Code, on which the DHCR relied in Missionary Sisters, permitting the restoration of the legal regulated rent upon vacancy, was a 1987 amendment intended to ameliorate the Collingwood Rule.

 Chapter 82 of the Laws of 2003 “roughly codifies” Missionary Sisters.  Id. It did not alter the terms of the lease at issue here.   In this case, the lease rider states, unequivocally, that “the tenant will be charged, during the term of the tenant's occupancy, a preferential rent.”   The terms of the new law do not even purport to apply to this circumstance.   Aijaz v. Hillside Place, LLC, 3 Misc.3d 754, 774 N.Y.S.2d 662.

In Aijaz, the tenant sued for a rent overcharge based on prior lease renewals that were calculated on the legal rent rather than preferential rent.   The court dismissed the landlord's affirmative defense that Chapter 82 of the Laws of 2003 permitted the landlord to abandon the preferential rent in a lease renewal, in favor of the legal regulated rent holding that the law did not apply to a preferential rent that was given for consideration and contracted for the entire duration of the tenancy.

Clearly, with the abrogation of the Collingwood Rule in Missionary Sisters and Chapter 82 of the Laws of 2003, when a lease specifically limits the rent concession to the term of the lease, the landlord may charge the legal regulated rent, with any increases, upon renewal of the lease.   Whether that is the case if the lease is silent on the term of the preference is an issue not addressed here, since here the lease specifically grants the preference for the entire term of the tenant's occupancy.

Here, the application of Chapter 82 to the tenant's lease would substantially and severely impair the contract by depriving the tenant of the benefit of the bargain on the most central term of any lease-the amount of rent to be paid.   The tenant, in entering the lease, relied on the promise of a preferential rent for the duration of the tenancy, and was entitled to and did order his personal and business affairs according to his need for an affordable apartment with reasonably stable and predictable rent increases.  (See 19th Street Associates v. State of New York, 79 N.Y.2d 434, 443, 583 N.Y.S.2d 811, 593 N.E.2d 265).

Laws regulating landlord-tenant relations, particularly to the extent that they limit the amount of rent a landlord may charge, have long been upheld as valid exercises of the State's police power. See, generally, Dawson v. Higgins, 197 A.D.2d 127, 610 N.Y.S.2d 200 (1st Dep't 1994), app. dism., 83 N.Y.2d 996, 616 N.Y.S.2d 476, 640 N.E.2d 143 (1994), cert. den., 513 U.S. 1077, 115 S.Ct. 724, 130 L.Ed.2d 629 (1995).   The Emergency Tenant Protection Act and the Rent Stabilization Law and Code were enacted in response to housing shortages that constituted, and continue to constitute, a serious public emergency.  Id., 197 A.D.2d at 133, 610 N.Y.S.2d 200;  Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385, 388, 618 N.Y.S.2d 857, 643 N.E.2d 479 (1994), cert. den., 514 U.S. 1109, 115 S.Ct. 1961, 1962, 131 L.Ed.2d 853 (1995).

“The regulation of this field has been maintained ‘to prevent uncertainty, hardship and dislocation’, and to ‘forestall profiteering, speculation and other disruptive practices'.”

Permitting landlords to abandon contractual preferential rents, at their sole option, does not in any way advance the underlying purposes of the ETPA and the Rent Stabilization Law and Code, which were designed to prevent uncertainty and hardship, and to forestall profiteering, speculation and other disruptive practices.   On the contrary, to permit the landlord to abandon the rent preference mid-tenancy, causing a rent increase 10 times that allowed under the applicable rent guidelines, would defeat the purposes of the ETPA and the Rent Stabilization Law and Code.

 Although the tenant's lease provides, at paragraph 4, that “the rent herein shall be adjusted up or down during the Lease term, including retroactively, to conform to the Rent Guidelines increases,” the preferential rent rider prevails over this clause.  “It is a well-established rule of construction that the written or typewritten portions of an agreement represent an express manifestation of the parties' actual intentions and take precedence over any inconsistent provisions in the printed form.”  Cale Development Co., Inc. v. Conciliation and Appeals Board, 94 A.D.2d 229, 463 N.Y.S.2d 814 (1st Dep't 1983).

It is clear from the above discussion that the wording in the Preferential Rent Rider is controlling and must be enforced according to its terms.   The wording contained therein is neither restrictive nor conditional.   For better than 10 years the parties acknowledged their intent and respective obligations by complying with the rider agreement.   Petitioner's unilateral change of position predicted in Chapter 82 of the Laws of 2003 (supra) is simply lacking in merit.   To conclude other wise would then allow the petitioner to walk away from its contractual obligation without redress.

Conclusion

Accordingly, petitioner's motion to strike respondent's second and third affirmative defenses is denied.   Respondent's cross-motion for summary judgment on its second affirmative defense is granted.   Petitioner is directed to provide respondent with a stabilized renewal lease based upon the preferential rent rider and applicable rent guideline increase in effect within 30 days from entry of this order.   That portion of respondent's motion seeking dismissal of the instant proceeding is denied without prejudice with leave to renew upon petitioner's failure to comply with the foregoing.

This constitutes the decision and order of the court.

ANTHONY J. FIORELLA, J.