DON LW LLC, Petitioner, v. Carolin HERRERA, Respondent.
Petitioner commenced this residential nonpayment proceeding on or about February 25, 2019, seeking rent it alleged became due for Apartment No.4E, a rent stabilized apartment located at 1345 Southern Boulevard, Bronx, New York. The petition alleges that the monthly rent is $1,425 and seeks $2,240.74 in rent arrears as follows: $919 for both January 2019 and February 2019 as well as a balance of $402.74 for December 2018.
Upon Respondent's initial failure to appear, Petitioner was awarded a default judgment against Respondent. Respondent subsequently obtained counsel and moved to vacate the default judgment. By decision and order dated October 30, 2019, the Court granted Respondent's motion based on its conclusion that a determination on the merits was needed to ascertain the appropriate rent for the apartment considering the unique facts of the case as well as the different rent programs involved in assisting Respondent. The Court also directed that Respondent file an answer and set the matter down for trial.
Following the date of the order, Respondent interposed an answer asserting several defenses and counterclaims. The proceeding was then transferred to the Expediter and referred to this part for trial. Prior to the date of the trial, Respondent moved by order to show cause (“OSC”) for an order granting her partial summary judgment. This Court declined to sign the OSC citing delays and the need for resolution of the issues at the imminent trial which had been scheduled a month prior to the OSC. After conference with the Court on the date scheduled for trial, this Court granted the parties leave to submit memoranda of law in support of their respective positions, in lieu of trial, for the Court to decide the issue in this proceeding, which involves a question of law, essentially for the Court to make a summary judgment determination (see CPLR § 3212)1 .
As stated above, the facts in this proceeding are not in dispute and the issue before the Court is purely a question of law. But, a recitation of the most relevant facts for the purposes of the Court's application of the law is warranted. Respondent, a recipient of the Living in Communities (“LINC”) rent subsidy program administered by the Human Resources Administration (“HRA”), moved into the subject apartment pursuant to a one year rent stabilized lease in June 2018. The lease called for a preferential monthly rent of $769.36. Along with the lease, the parties executed a lease rider and Petitioner executed a landlord statement of understanding and LINC lease rider pursuant to which Petitioner agreed not to charge Respondent rent in excess of the rent provided in the lease (see 20 of the LINC rider). In addition to the LINC restrictions and the apartment being subject to rent stabilization, rent setting for the apartment is further governed by regulatory agreements pursuant to the City of New York's Low Income Housing Tax Credit Program which provides for the recalculation of the rent subject to approval by the Department of Housing Preservation and Development (“HPD”) in the event of rehabilitation work at the building. Then, in December 2018, six months into Respondent's tenancy, Petitioner increased Respondent's monthly rent to $963 pursuant to a rent order dated November 27, 2018 issued by HPD and the parties executed a lease to that effect. The eventuality of the change in the rent structure is a process referred to as “restructuring” in the regulatory documents and is provided for in the initial apartment lease rider executed by the parties in June 2018, and the December 2018 lease executed by the parties following rehabilitation work at the building reflects this intended possibility.
In support of her claim that the monthly rent should be the amount contained in the initial lease between the parties as reflected in the LINC rider, Respondent argues that the new lease executed by the parties which provides for a higher monthly rent contradicts the terms of the initial lease, the lease rider, the LINC rider and landlord statement of understanding as well as the controlling regulatory agreements. Respondent contends that courts have consistently enforced agreements in which a preferential rent is offered and have disallowed the revocation of preferential rents in tenancies entered into pursuant to the LINC program. In addition, Respondent argues that the Urstadt Law does not invalidate the LINC lease rider executed by the parties despite the recent holding of the Appellate Division, First Department, because Petitioner was not compelled to execute the rider which limits the increase of the rent upon renewal and cites to lower court decisions that have addressed the issue of the enforceability of LINC riders.
In opposition, Petitioner argues that the rent setting order issued by HPD controls because the increases are permitted by the Private Housing Finance Law (“PHFL”) and both the lease and lease rider executed by the parties provide for a lease modification following the completion of rehabilitation work performed at the building. Petitioner contends that to permit the LINC rider to restrict the rent Petitioner can charge pursuant to an order from HPD would bar landlords from undertaking substantial rehabilitation projects for buildings in need of rehabilitation. In addition, Petitioner argues that enforcing the terms of the LINC rider would violate the Urstadt Law which is intended to check attempts by the City of New York to expand buildings subject to rent regulation.
The regulatory agreement of June 23, 1997 between Petitioner's predecessor in interest and the City of New York acting through HPD provides that the property was conveyed to then Petitioner sponsor and that it was to be rehabilitated under HPD's Neighborhood Redevelopment Program (“NRP”) as an Urban Development Action Area Project. Facilitation of the project was to be financed by a construction loan issued by HPD which required that Petitioner's predecessor agree to the restrictions contained in the regulatory agreement (see Exhibit B). The agreement provides that upon completion of rehabilitation work, as determined by HPD, the sponsor shall register the rents set forth in rent orders issued by HPD pursuant to Article 8 of the PHFL for each unit, in accordance with the Rent Stabilization Code (“RSC”). The rent or rents so registered shall be deemed the initial legal regulated RSC rents, notwithstanding that rents are registered at the time of the city conveyance (see § 4A, p.4). The agreement also provides that registered rents shall be as set forth in Schedule C of the agreement to include a lower legal rent and higher legal rent. Despite all the above, the agreement further provides that any increase in rents is subject to the provisions of outstanding leases (see Schedule D § 5).
Section 800 of the PHFL provides that the statute was enacted because of the existence of substandard and insanitary areas and neighborhoods characterized by undermaintained and deteriorating housing accommodations and under-utilized non-residential buildings and under-utilized vacant land and the existence in such municipalities of diminishing and a seriously inadequate supply of safe and sanitary dwelling accommodations particularly for persons of low income. As such, in order to promote the preservation and rehabilitation of such housing accommodations, the creation of new housing accommodations by the conversion of under-utilized non-residential property into multiple dwellings provision should be made for a municipality to attract private investment for such purposes by utilizing funds to effect the required rehabilitation.
In achieving this purpose, the NRP “conveyed clusters of occupied and vacant city-owned buildings throughout the city to selected community based non-profit organizations for rehabilitation and operation as rental housing. Non-profit organizations applied to participate in the NRP through a competitive Request for Qualifications (RFQ) process. Sponsors were selected on the basis of previous ownership and management experience, financial qualifications and social services capacity. Once the properties were sold to the non-profit, rehabilitation was financed by [HPD] through a combination of City and federal funds at a cost of approximately $120,000 per unit, and equity was generated through the sale of Low Income Housing Tax Credits (LIHTC)” (furmancenter.org/coredata/directory/entry/neighborhood-redevelopment-program).
And, § 804 of the PHFL provides that upon completion of the rehabilitation of an existing multiple dwelling, aided by a participation loan made pursuant to this article, the agency shall establish the initial rent for each dwelling unit within the rehabilitated dwelling.
The PHFL further provides that notwithstanding the provisions of, or any regulation promulgated pursuant to, the emergency housing rent control law, the local emergency housing rent control act, the emergency tenant protection act of nineteen seventy-four, or any local law enacted pursuant thereto, upon completion of the rehabilitation of a multiple dwelling which is aided by a loan made pursuant to this article, the supervising agency, may as an alternative to permissible rental adjustments under such laws and regulations, adjust the rent for each rental dwelling unit within the multiple dwelling (§ 452  ). Section 2521.1 (d) of the RSC reinforces this provision of the PHFL and provides that notwithstanding the provisions of any outstanding lease or other rental agreement, the initial legal regulated rent for a housing accommodation in a multiple dwelling for which a loan is made under the PHFL shall be the initial rent established pursuant to such law.
Both Petitioner and Respondent rely on the decision of the Appellate Division, First Department, in Alston v. Starrett City, Inc. (161 AD3d 37 [1st Dept 2018]) for their respective positions. However, Alston is not entirely relevant here. Instead, the holding of the Appellate Term, 1st Department in Atsiki Realty LLC v. Munoz (48 Misc 3d 33 [App Term, 1st Dept 2015) is more instructive. The lower court in Munoz was faced with whether an order issued by HPD superseded a previously issued rent reduction order issued by the Division of Housing and Community Renewal (“DHCR”) (see Atsiki Realty LLC v. Munoz, 42 Misc 3d 714 [Civ Ct, NY County 2013]). In affirming the order of the lower court, the Appellate Term rejected the landlord's argument on the ground that it had not raised the issue at the administrative level. But the Appellate Term also found that the HPD order did not establish “initial rent” and held that “while HPD is required to ‘establish the initial rent’ pursuant to loans made under the auspices of articles VIII, XI and XV of the PHFL, where, as here, the loan is made pursuant to PHFL article VIII-A, HPD is only authorized to make ‘rent adjustments’ ” (internal quotation marks and citation omitted).
The lower court decisions relied upon by Respondent are not directly on point either. In both Cliffside Props. LLC v. Ortiz, 2019 NYLJ Lexis 381 (Civ Ct, Bronx County 2019) and Scott v. Vega, 2019 NYLJ Lexis 2321(Civ Ct, Bronx County 2019), the terms of the LINC riders were held to be enforceable on the ground that there was no compulsory acceptance of the conditions contained in the LINC riders at issue. Neither Ortiz nor Vega involved a rent order issued by HPD setting the amount of the monthly rent juxtaposed against the terms of a LINC rider which limits the amount of rent Petitioner may seek.
Following the Court's review of the parties' arguments and submissions, this Court finds that Petitioner, at least for the period of the initial lease term, is limited to seeking rent at the rate reserved in the LINC rider. To the extent that the LINC rider also requires Petitioner to issue renewals based on the reserved monthly rent, Petitioner is bound by those terms. However, both the LINC rider and the landlord statement of understanding at issue here do not seem to require that Petitioner do so as these documents often do. Under these circumstances, upon renewal, Petitioner may seek to charge rent at the rate provided in the HPD order, either the lower legal rent or higher legal rent established by the order taking into account the implications of the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”) on the rent Petitioner may charge going forward (emphasis added).
Based on the foregoing, partial summary judgment is granted in Respondent's favor such that Petitioner may not seek rent in excess of the rent reserved in the initial lease between the parties as outlined above.
As stipulated and as established by the evidence submitted in support of its rent claim, Petitioner is entitled to a judgment of possession in the amount of $2,493.78 which represents all rent due through January 2020 2 . This order is without prejudice to any rent which may have accrued since then. The judgment and warrant of eviction shall issue once the Court resumes all normal operations, all stays on evictions have been lifted and Petitioner has complied with court directives, administrative orders and laws in effect at the time of its application. Execution shall be following service of a notice of eviction as required by law, with the earliest execution date to be determined at that time.
This constitutes the decision and order of the Court.
1. Pursuant to a stipulation dated January 30, 2020, the parties agreed that the sole issue to be determined by the Court is whether the LINC rider or the HPD Rent Order and the subsequent lease/rider are determinative of what Respondent's rent should be.
2. See 1i of the January 30, 2020 stipulation.
Christel F. Garland, J.
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