Fordham University School of Law

From the SelectedWorks of Hon. Gerald Lebovits

Spring 2010

The eN w York Loft Law Gerald Lebovits

Available at: https://works.bepress.com/gerald_lebovits/174/ NYSBA SPRING 2010 | VOL. 38 | NO. 2 N.Y. Real Property Law Journal A publication of the Real Property Law Section of the New York State Bar Association

Inside • Enforcing Mortgages and Cooperative • Special District Assessments and the Unit Security Interests Meaning of “Benefi ted Property” • The New York Loft Law • Comparison of Laws Designed to Protect Residential Tenants Against • The Role of the Real Property Law Section Immediate Eviction in Legislation • Relationship of Speedy Service to • N.Y. Rules of Professional Conduct Foreclosure Judgment The New York Loft Law By Gerald Lebovits and Linda Rzesniowiecki

I. Introduction • The 3,545 cases the Loft Board The Loft Law introduced and 6 Nonresidential New York City has decided to date. defi ned a new concept: “interim mul- tiple dwelling.” This concept derives buildings sometimes contain resi- • Proposed legislation to extend from “multiple dwelling,” which dential loft dwellings. Lofts are open, the Loft Law.7 unpartitioned spaces with high M.D.L. § 4(7) defi nes as “a dwell- ceilings in buildings formerly used Lawyers should also read two ing which is either rented, leased, as commercial, manufacturing, or treatises on landlord-tenant law let or hired out, to be occupied, or is warehouse space. with helpful sections on the Loft occupied, as the residence or home Law: Daniel Finkelstein and Lucas of three or more families living 1 The Loft Law of 1982 and cases Ferrara, Landlord and Tenant Practice independently of each other.” The interpreting the Emergency Tenant in New York, Chapter 18 (West 2009); word “interim” was used because 2 Protection Act (“E.T.P.A.”) of 1974 and Hon. Fern Fisher and Andrew the buildings were in the process of offer rights to residential occupants Scherer, Residential Landlord—Tenant becoming multiple dwellings and of certain lofts covered by these Law in New York §§ 6:79–6:119 (West would achieve that status as soon statutes and impose obligations on 2009). as their owners obtained a residen- loft owners. Initially because of the tial CO.10 M.D.L. § 281 applies the needs of artists for live-work space, It is also essential to understand concept “interim multiple dwelling” these laws recognize that the best the rent-stabilization system. The to an entire building (“IMD build- use of former commercial, manufac- courts read the Loft Law and the Rent ing”) or a portion of a building (“IMD turing, and warehouse buildings is Stabilization Law (“R.S.L.”) and Code unit”). The Loft Law applies to IMD 8 residential loft use; that residential (“R.S.C.”) in pari materia. buildings and IMD units.11 occupants who did substantial work to improve the raw, industrial space A building or part of one is an “Initially because of IMD if it passes a four-part test: (1) to make them habitable should be the needs of artists for protected; that residential occupants it was “at any time” occupied for who improved their space should be live-work space, [the “commercial, manufacturing or compensated; that some residential Loft Law…and cases warehouse purposes”; (2) it lacks a occupants of loft buildings without CO issued under M.D.L. § 301 (a type interpreting the E.T.P.A.]… of residential CO); (3) it was occu- residential certifi cates of occupancy recognize that the best (“CO”) might be protected from pied from April 1, 1980, to December eviction without cause and have use of former commercial, 1, 1981 (the “window period”), for the right to continued occupancy at manufacturing, and residential purposes by three or more a regulated rent; and that building families living independently of each warehouse buildings is other; and (4) the building is located owners might be obligated to obtain a residential loft use…” residential CO to legalize the residen- in a zone that allows residential use. tial use. In 1987, the Loft Law was amend- II. The Loft Law This article is intended to famil- ed to include a new subdivision 4 to iarize practitioners with some legal A. Brief Summary section 281. Subdivision 4 eliminated the residential-zoning requirement intricacies pertaining to lofts. The New York State Legislature for IMDs so long as the IMD was resi- promulgated the Loft Law, codifi ed in To understand the Loft Law, it is dentially occupied on May 1, 1987, in the New York State Multiple Dwell- important to read: addition to the April 1, 1980–Decem- ing Law (“M.D.L.”) at §§ 280 through ber 1, 1981 window period. • The Loft Board’s Web site.3 287, on June 21, 1982. The Loft Law applies to all cities of more than one The Loft Law covers buildings • The regulations that implement 9 million in New York State. As a prac- containing three or more units. In the Loft Law.4 tical matter, the only buildings and contrast, a building must have six • Loft Board meeting minutes.5 units the Loft Law covers are in New or more apartments to be covered York City, in the boroughs of Manhat- under the Rent Stabilization Law and • Court cases that interpret the tan, Brooklyn and Queens. Code.12 Loft Law.

NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 21 The Loft Law (1) acknowledges must implement regulations to ef- • “Reconsideration of Determina- that occupants use some nonresiden- fectuate the Loft Law and to resolve tion” (29 R.C.N.Y. § 1-07). tial buildings for residential pur- disputes between owners and resi- • “Appeal from Determination of poses;13 (2) requires owners to make dential occupants. The New York City the Director, or Determination the buildings and the units safe for Civil Court, Housing Part (commonly of a Hearing Offi cer Under Sec- residential uses by complying with called the Housing Court), and the tion 2-04” (29 R.C.N.Y. § 1-07.1). applicable building codes and ulti- Supreme Court have concurrent juris- mately obtaining a residential CO; 14 diction to resolve coverage disputes.22 • “Ex Parte Communications on (3) gives owners the right to collect No statute of limitations applies to Pending Applications” rent from residential occupants, even fi ling a coverage claim in court23 (29 R.C.N.Y. § 1-08). when the building has no residential or with the Loft Board.24 The Loft CO, so long as the owner is complet- Board delegates to administrative law • “Action by the Board on Its ing code-compliance steps under judges from the New York City Offi ce Own Initiative” (29 R.C.N.Y. § the Multiple Dwelling Law within of Administrative Trials and Hearings 1-09). 15 25 specifi ed time periods; (4) gives (“OATH”) its duty to hear disputes. • “Administrative Authority and residential occupants the right to con- The administrative law judges then Correspondence” (29 R.C.N.Y. § tinued occupancy, even though they write reports and recommendations. 1-10). are occupying their units contrary to In one of its monthly meetings, the the building’s CO or to the lease’s use Loft Board will accept or reject the • “Petitioning the Board to Adopt clause;16 (5) regulates the rent;17 (6) proposed order or remand for some Rules” (29 R.C.N.Y. § 1-11). gives residential occupants the right purpose. • “Code Compliance Work” to sell the improvements they made Confusingly, the agency estab- (29 R.C.N.Y. § 2-01). to their units to render them habit- lished to support the Loft Board’s able;18 and (7) provides that buildings • “Harassment” (29 R.C.N.Y. § work is also called the Loft Board.26 will enter into the rent-stabilization 2-02). All references in this article to the system once they obtain a residential Loft Board refer to the agency called CO.19 • “Hardship Applications” the Loft Board, unless otherwise (29 R.C.N.Y. § 2-03). From time to time, legislators indicated. have introduced bills to expand the • “Minimum Housing Mainte- Loft Law by re-defi ning the window C. The Regulations nance Standards” (29 R.C.N.Y. § 2-04). period to cover residential occupants The Loft Board’s regulations who began their residential occupan- are published in Volume 29 of • “Registration” (29 R.C.N.Y. § cy of nonresidential buildings after the Rules of the City of New York 2-05). April 1, 1980 (the beginning of the (“R.C.N.Y.”).27 The regulations are Loft Law’s window period). The Leg- entitled: • “Interim Rent Guidelines” islature has not yet passed these bills. (29 R.C.N.Y. § 2-06). A bill is pending20 that would cover • “Organization and Voting” (29 R.C.N.Y. § 1-01). • “Interim Rent Guidelines II” residential occupants who resided (29 R.C.N.Y. § 2-06.1). in their units 12 consecutive months, • “Rules and Regulations, Method from January 1, 2008 to December 31, of Adoption” (29 R.C.N.Y. § • “Sales of Improvements” 2009. 1-02). (29 R.C.N.Y. § 2-07). B. The Loft Board • “Meetings” (29 R.C.N.Y. § 1-03). • “Coverage and Issues of Status” (29 R.C.N.Y. § 2-08). M.D.L. § 282 established the New • “Minutes and Transcripts” York City Loft Board. The Loft Board (29 R.C.N.Y. § 1-04). • “Subletting and Similar Mat- currently consists of nine members,21 ters” (29 R.C.N.Y. § 2-09). including a chair and members of the • “Public Access to Minutes and following special-interest groups: the Record/Procedures” • “Sales of Rights” (29 R.C.N.Y. § general public; residential occupants; (29 R.C.N.Y. § 1-05). 2-10). owners; and the manufacturing • “Applications to the Board” • “Fees” (29 R.C.N.Y. § 2-11). industry. In practice, the Loft Board (29 R.C.N.Y. § 1-06). also includes a member who repre- • “M.D.L. Section 286(2)(ii) Rent sents the New York City Department • “Limitations on Applications” Adjustments” (29 R.C.N.Y. § of Buildings (“D.O.B.”). The Loft (29 R.C.N.Y. § 1-06.1). 2-12). Board, which meets once a month,

22 NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 D. Renewal Statutes occupant’s complaint.41 The inspec- the improvements52 of a residential 53 The 1982 Loft Law expired on tors will place violations as necessary. occupant. The Loft Board’s fi nding June 21, 1992, and has been renewed A Loft Board enforcement attorney of harassment will remain in effect several times. The most recent may bring an administrative pro- until the landlord fi les an application renewal statute passed on April 23, ceeding against a landlord accused to terminate the harassment fi nd- 2008, and expires on May 31, 2010. of violating the Minimum Housing ing, the landlord proves at a hearing The legislature will likely continue Maintenance Regulations, and own- that landlord is no longer harassing to renew the Loft Law as long as ers may be fi ned as much as $1,000 the residential occupants, and the buildings remain in the Loft Board’s per violation after a hearing before an nine-member Loft Board grants the 42 jurisdiction. A list of the buildings OATH administrative law judge. application to terminate the harass- 54 currently in the Loft Board’s jurisdic- ment fi nding. Landlords seeking to An IMD tenant suffering from terminate a harassment fi nding must tion, approximately 300, can be found lack of services may fi le a diminu- on the Loft Board’s Web site.28 prove that they have ceased engaging tion-of-services application with the in conduct constituting harassment; Loft Board, which will then refer it to E. Registration that they have achieved compliance OATH for a hearing. The IMD tenant with M.D.L. Article 7B; that they have Owners of multiple dwellings, also has the option of fi ling an HP paid all civil penalties to the Loft net lessees, and all agents in actual (Housing Part or repair) proceeding Board; that there is no outstanding control of a multiple dwelling are in Housing Court to compel an owner harassment, and that the building is required to register their buildings 43 to correct violations. properly registered.55 with the New York City’s Depart- ment of Housing Preservation and G. Harassment IMD tenants harassed by their 29 Development (“D.H.P.D.). Similarly, The Loft Board’s regulatory defi - landlords may bring an action in 30 landlords of IMDs are required to nition of harassment44 is almost iden- Supreme Court for an order enjoin- register their buildings with the New tical to the Rent Stabilization Code’s ing the landlord from engaging in 31 York City Loft Board. Failure to reg- defi nition of harassment.45 Both laws harassment.56 Since the New York 32 ister bars recovery of rent. Annual prohibit landlords from disturbing City Council’s enactment of Local renewal registration statements must a residential occupant’s “comfort, Law 7 of 2008,57 tenants—including 33 be fi led before June 30. The annual repose, peace or quiet”46 with the IMD tenants—also have the option 34 fi ling fee is $500 for each IMD unit. intent to encourage the tenant to va- of fi ling a Housing Court proceeding cate the premises or waive any legal alleging harassment. F. Minimum Housing rights. Tenants of apartments subject Maintenance Standards to rent control or rent stabilization H. Sales of Improvements The Loft Board’s Minimum may fi le a harassment application Under M.D.L. § 286(6), residen- 35 Housing Maintenance Regulations with the New York State Division of tial occupants have the right to sell require landlords to provide ten basic Housing and Community Renewal the improvements they made to the services to residential occupants: (D.H.C.R.). Owners found guilty of subject premises. This issue usually (1) water supply and drainage, (2) harassment by the D.H.C.R. may be arises when a residential occupants 36 37 heat, (3) hot water, (4) electricity, fi ned up to $5,000 for each violation.47 wish to vacate their unit. The outgo- (5) gas, (6) smoke detectors, (7) public Aggrieved residential occupants may ing tenant has the option to offer the lighting, (8) entrance door security, fi le a harassment application with the improvements for sale directly to the 38 (9) elevator service, and (10) win- Loft Board, which will then refer it to owner or to offer the improvements 39 dow guards. In addition, landlords OATH for a hearing. A guilty land- for sale to a prospective tenant, some- must provide services specifi ed in the lord may be fi ned up to $1,000 for times referred to as an “incoming ten- lease or rental agreement in effect on each violation.48 ant.” Any offer to sell to an incoming June 21, 1982 (the statute’s effective tenant is subject to the owner’s right The Loft Board’s regulations date), and, in addition, services not to purchase the improvements at fair- entitled “Harassment” contain specifi ed in the lease but which were market value. nonetheless provided as of June 21, several provisions peculiar to IMDs. 1982.40 An owner’s willful violation of the If the owner purchases the code-compliance timetable49 may be improvements, the IMD unit may be Loft Board inspectors—not evidence of harassment,50 actions by deregulated if the unit is subject to D.H.P.D. inspectors, who enforce the third-party nonresidential tenants rent regulation solely under M.D.L. New York City Housing Maintenance “shall be presumed not to constitute Article 7-C (the Loft Law); the unit is Code (H.M.C.)—inspect IMD build- harassment,”51 and owners found not receiving a real-estate tax exemp- ings and units at the Loft Board’s re- guilty of harassment may not decon- tion or abatement; and the subject quest or upon receiving a residential trol an IMD unit after they purchase

NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 23 building contains fewer than six IMD is, the owner makes a “low ball” of- common areas and in IMD units to units. fer), then the Loft Board may deny achieve compliance with Article 7B: the owner’s challenge application in a drawing (e.g., a blueprint) and The statute provides that an own- and also fi nd the owner guilty of in words, referred to as a “narrative er found guilty of harassment may harassment.60 statement.” The owner’s architect not deregulate a unit after purchasing must serve the residential occupants the improvements and that there may According to the Loft Board’s with a copy of the narrative state- be only one sale for each IMD unit— regulations, residential occupants of a ment. Then the Loft Board schedules that is, the incoming tenants may not unit “which has been legalized and is 61 a conference to discuss the proposed sell their improvements to a second registered with” the D.H.C.R. may plan with owners and residential incoming tenant. also sell their improvements, and the occupants, along with their architects owner may deregulate the unit after and attorneys, and gives residential The Loft Board’s regulations set buying them. forth a procedure that the outgoing occupants a deadline to dispute the tenant, the incoming tenant, and the I. Sales of Rights plan. owner must follow.58 The procedure M.D.L. § 286(12) provides that Residential occupants must give begins when the outgoing tenant after the effective date of the Loft access to their unit to the owner, serves the owner with a disclosure Law, “an owner and a residential oc- the owner’s construction crew, and form, providing, among other things, cupant may agree to the purchase by owner’s architect so that the owner the following information: the outgo- the owner of such person’s rights in a can achieve compliance with M.D.L. ing tenant’s intention to relocate; a unit.” A sale of improvements allows Article 7-B. list and description of the improve- an owner to deregulate the unit, but ments; a written copy of the offer to M.D.L. § 284 sets forth deadlines the owner remains obligated to obtain purchase, setting forth all the terms, to complete each of the four code- a residential CO for the unit. A sale of including the price; and the incom- compliance steps for IMD owners rights gives the owner the option of ing tenant’s identity and contact and their architects. If the owner does returning the unit to non-residential information.59 not comply with the deadlines, then use and relieves the owner of the ob- the Loft Board’s enforcement attorney ligation to obtain a residential CO for If the owner is not properly or an aggrieved residential occupant the unit.62 A sale of rights is a deregu- registered with the Loft Board when may fi le an application with the Loft latory event “where coverage under an owner is served with a disclosure Board. The Loft Board will refer this Article 7-C was the sole basis for such form, the Loft Board’s regulations application to OATH for a hearing, rent regulation.”63 When an owner prohibit the owner from challeng- and OATH will issue a report and chooses to use the unit for residential ing the proposed sale between the recommendation that it will submit purposes after the sale of rights and outgoing tenant and the incoming to the nine-member Loft Board. The the unit is subject to coverage under tenant. The Loft Board’s regulations nine-member Loft Board may issue the Emergency Protection Act of 1974 also provide that the owner must fi le an order imposing a civil penalty of (e.g., it is a pre-1974 building con- a Sales Record form with the Loft $1,000 against the owner for each taining more than six units), the unit Board within 30 days after the sale. missed deadline. (The D.O.B. will, remains rent regulated.64 The Loft Board allows an owner however, accept fi lings from owners to challenge a sale on the grounds J. Code-Compliance Work and their architects after the deadline has passed.) that the offer is not a bona fi de M.D.L. § 284 is the heart of the arm’s-length offer; the owner made Loft Law. It requires owners to legal- Each time the Loft Law has been or purchased the improvements of- ize their buildings and the individual renewed, the deadlines associated fered for sale; or the offer exceeds the units for residential use. The Legisla- with the last two code-compliance improvements’ fair-market value. The ture divided the legalization process steps have been extended. The result third ground is the most common into four steps and set deadlines to is a long list of deadlines but higher ground for a challenge. An owner complete each step. The steps are fi l- civil penalties for recalcitrant owners. who objects to the incoming tenant’s ing an alteration application; obtain- In In re Korean Ass’n of N.Y., Inc., Loft suitability must initiate an action on ing an approved alteration permit; Board Order No. 3416 (Mar. 28, 2008), that ground in a court of competent achieving compliance with M.D.L. for example, the Loft Board imposed jurisdiction. Article 7B;65 and taking all necessary a civil penalty against the owner of If an owner challenges a pro- and reasonable action to obtain a resi- a West 24th Street, Manhattan build- posed sale without a good-faith dential certifi cate of occupancy. ing for missing the following 14 deadlines: intention to purchase the improve- The owner’s architect must ments or if the owner’s valuation of describe in two ways the work that the improvements has no reasonable must be performed in the building’s relationship to fair-market value (that

24 NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 Deadlines set forth in the Requirement Authority K. Rent Regulation 1992 renewal statute: M.D.L. § 286(2) regulates the rent October 1, 1992 Alteration Application M.D.L. § 284(1)(ii) that may be charged to a residential 29 R.C.N.Y. § 2-01(a)(5)(i) occupant before the building is legal- October 1, 1993 Alteration permit M.D.L. § 284(1)(ii) ized. This section had required the 29 R.C.N.Y. 2-01(a)(5)(ii) Loft Board to promulgate regulations April 1, 1995 7B compliance M.D.L. § 284(1)(ii) under this section within six months 29 R.C.N.Y. § 2-01(a)(5)(iii) of the Loft Law’s effective date. The October 1, 1995 CO M.D.L. §284(1)(ii) resulting regulation, now published 29 R.C.N.Y. § 2-01(a)(5)(iv) at 29 R.C.N.Y. § 2-06, is often called Loft Board Order No. 1. The fi rst Deadlines set forth in the Requirement Authority reference point in establishing the 1996 renewal statute: rent is either the rental amount set October 1, 1996 Alteration Application M.D.L. § 284(1)(iii) by the lease which was in effect as of 29 R.C.N.Y. § 2-01(a)(6)(i) December 21, 1982 (the regulation’s October 1, 1997 Alteration permit M.D.L. § 284 (1)(iii) effective date), or the last rent “paid 29 R.C.N.Y. § 2-01(a)(6)(ii) and accepted by the owner” as of the April 1, 1999 7B compliance M.D.L. § 284(1)(iii) regulation’s effective date. The owner 29 R.C.N.Y. § 2-01(a)(6)(iii) is then allowed one increase under 29 June 30, 1999 CO M.D.L. § 284(1)(iii) R.C.N.Y. § 2-06(c). 29 R.C.N.Y. § 2-01(a)(7)(i) This increase may be as low as seven percent or as high as thirty- Deadlines set forth in the Requirement Authority 1999 renewal statute: nine percent, depending on the circumstances. Generally speaking, September 1, 1999 Alteration Application M.D.L. § 284(1)(iv) if the last rent increase was recent, 29 R.C.N.Y. § 2-01(a)(7)(iv) the increase will be lower; if the last March 1, 2000 Alteration permit M.D.L. § 284(1)(4) rent increase happened years ago, 29 R.C.N.Y. § 2-02(a)(7)(iii) the increase will be higher. Although May 1, 2002 7B compliance M.D.L. § 284(1)(iv) the Rent Stabilization Law allows 29 R.C.N.Y. §2-01(a)(7)(iii) rent increases every one or two years May 31, 2002 CO M.D.L. § 284(1)(iv) upon a lease renewal, IMD own- 29 R.C.N.Y. § 2-01(a)(7)(iv) ers may increase the rent only upon compliance with a code-compliance Deadlines set forth in the Requirement Authority step. Thus, an owner may obtain a six 2007 renewal statute: percent increase upon fi ling an altera- September 1, 1999 Alteration Application M.D.L. § 284(1)(v) tion application with the D.O.B,67 an 29 R.C.N.Y. § 2-01(a)(8)(i) eight percent increase upon obtaining March 1, 2000 Alteration permit M.D.L. § 284(1)(v) an approved alteration application,68 29 R.C.N.Y. § 2-01(a)(8)(ii) and a six percent increase upon com- plying with M.D.L. Article 7-B.69 The current renewal statute not in compliance with the code- The code-compliance increase requires owners to fi le an alteration compliance timetable. That action, if becomes payable on the regular rent application by September 1, 1999; successful, will result in a court order payment date (e.g., the fi rst day of the obtain a building permit by March 1, requiring the owner to comply with month) in the month following the 2000; achieve M.D.L. Article 7-B com- the law. Disobeying a court order will month in which the code-compliance pliance by May 1, 2010; and obtain a subject an owner to a civil- or crimi- step is achieved.70 This statutory and residential certifi cate of occupancy by nal-contempt proceeding or both. The regulatory scheme is intended to May 31, 2010. contempt proceeding might result in provide owners with an incentive to a jail term. In addition to the threat of civil achieve code compliance as soon as penalties imposed by the nine-mem- Owners not in compliance with possible. The base rent results from ber Loft Board, another enforcement the code-compliance timetable may the rent in effect as of December 21, tool, set forth in M.D.L. § 284, is the not collect rent from residential oc- 1982, plus the Loft Board Order No. specifi c-performance action. Three cupants who do not pay rent for the 1 increase and the statutory code- or more residential occupants may period during which the owner is out compliance rent increases. bring a specifi c-performance action of compliance.66 in Supreme Court against an owner

NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 25 IMD owners are not expected or regulations therefore provide that the tenant’s answer raises a genuine permitted to offer residential occu- the costs will be “indexed annually… issue of material fact, the Loft Board pants renewal leases. In this respect, based upon the average of the annual may ask the owner to fi le additional residential occupants of IMD units percentage change reported in the information or evidence, inspect the are more akin to rent-controlled ten- Dodge Building Cost Index and the premises (this is rarely done), sched- ants than to rent-stabilized tenants: Engineering News-Record Building ule an informal conference, and, if all they are statutory tenants. Cost Index for New York as of Sep- else fails, refer the matter to OATH tember of each year.”72 for a hearing. L. Code-Compliance Rent Adjustments and Entry into Work performed within a specifi c The tenant pays the cost of code Rent Stabilization System IMD unit is allocable to the resi- compliance over the course of 10 dential occupant of that unit. Each years if the owner pays cash for the After the owner complies with residential occupant pays an equal work, or 15 years if the owner fi nanc- M.D.L. Article 7-B, the owner may share of the costs for work outside es the cost of construction. Thus, the apply to the Loft Board, on the Loft the IMD units. Work performed in total cost of code compliance attribut- Board’s offi cial application form, the common areas or in a nonresiden- able to each residential occupant is for rent increases for “all necessary tial unit capable of serving both the divided by 120 or 180 to arrive at a and reasonable costs” associated residential and nonresidential units monthly charge. with code compliance.71 In addition is allocated according to a three-part to submitting the completed Loft Unlike major capital improve- formula that takes the square footage Board’s form, the owner must enclose ment (MCI) rent increases permitted of each unit into consideration. an itemized statement of costs, bills by the Rent Stabilization Law and marked paid, cancelled checks (or The owner may submit to the Code, the code-compliance increase receipts for work performed), con- Loft Board an application that has drops off after 10 or 15 years and is struction contracts, and a certifi ed been pre-certifi ed by an architect, not part of the permanent rent base. copy of a temporary or fi nal residen- who represents that the work has After the owner obtains a fi nal tial certifi cate of occupancy issued by been performed, and by a certifi ed residential CO, the Loft Board issues the D.O.B. If an owner does not apply public accountant, who represents a fi nal rent order. In accordance with for a code-compliance increase within that documentary proof has been M.D.L. § 286(3), the fi nal rent order nine months of obtaining a CO, the submitted for each expenditure and sets the initial legal regulated rent; owner is deemed to have waived that the claimed costs do not exceed requires the owner to offer to the its right to a code-compliance rent the costs set forth in the Loft Board’s residential occupants leases “subject increase. schedule plus indexing. If the ap- to the provisions regarding evictions plication is not pre-certifi ed, the The Loft Board’s regulations and regulation of rent set forth in the Loft Board’s auditor fulfi lls the role include items organized into an emergency tenant protection act of of the certifi ed public accountant 11-category schedule of costs in- 1974”; and requires the owner to reg- but does not inspect the premises tended to include all necessary and ister the building with the D.H.C.R. to ascertain whether the work has reasonable costs of code compli- as a rent-stabilized building. been performed. (Indeed, it would be ance: (1) demolition, (2) masonry, (3) impossible to determine, for example, metals, (4) carpentry, (5) doors and There are three basic components whether plumbing, now hidden be- windows, (6) fi nishes, (7) specialties, to the initial legal regulated rent: the hind the walls, was installed.) 73 (8) equipment, (9) conveying systems “base rent”; the monthly code- compliance rent adjustment (there is (elevators), (10) mechanical, and Once the auditor’s report is a prospective and retroactive compo- (11) electrical. The central part of the complete, the Loft Board serves the nent), if any,74 and a percentage in- form is Part C of the fi ve-part ap- residential occupants with a copy of crease applicable to either a one-year plication form: the schedule of costs. the owner’s application and the resi- lease or a two-year leases established Rent adjustments are not allowed for dential occupants and the owner with by the New York City Rent Guide- curing pre-existing violations or de- a copy of the auditor’s report. The lines Board (R.G.B.). ferred maintenance costs in common residential occupants have 45 days to areas or commercial units. Because fi le an answer. The answer may ques- The R.G.B. meets once a year the allowable cost for many items is tion whether the work was necessary to establish rent increases for rent- defi ned in terms of square footage or and reasonable, criticize the quality of stabilized apartments, rent-stabilized lineal feet, the project’s architect or the work, or question the actual cost. hotel units, and units formerly general contractor is best equipped The residential occupants’ answer subject to the Loft Law. Under the to complete this section of the form. must include corroborating evi- current R.G.B. Order,75 the percentage The cost schedule was composed in dence, such as contractor’s estimates, increases that apply to renewal leases September 1984; the costs set forth are invoices, and architect’s statements. are the same for rent-stabilized apart- now out of date due to infl ation. The If the Loft Board determines that ments and for lofts. In earlier years,

26 NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 the percentage increase was lower lized apartment. Owners of former The Wolinsky court explained for loft units.76 A vacancy allowance IMD units may not, however, deregu- that the Loft Law was adopted in applies to rent-stabilized apartments late in this fashion. June 1982 and adopted an “eligibility but not to lofts. period” (April 1, 1980 to December III. E.T.P.A. 1, 1981) that was “closed at the time M. Differences Between Former 86 Before the Loft Law was enacted, of the enactment.” The Legislature IMD Units and Rent-Stabilized residential occupants argued, some- thereby “demonstrated its intent to Apartments times successfully, that the Emergen- provide the benefi ts of the Loft Law It is important to know whether cy Tenant Protection Act (E.T.P.A.) of only to existing residential tenancies a rent-stabilized apartment was for- 1974 protected them from eviction.81 and not to encourage new conver- 87 merly subject to the Loft Law; some One author explained the E.T.P.A. sions of loft space.” Thus, the Wo- exemptions from rent regulation do as follows: “In 1974, the legislature linsky court appeared to shut the door not apply to apartments unless they enacted the Emergency Tenant Pro- on E.T.P.A. coverage for residential became subject to the Rent Stabi- tection Act., which enabled New York occupants who do not qualify for Loft lization Law and Code “solely by City and certain other Municipalities Law coverage. virtue of Article 7-C of the Multiple to regulate apartments completed Some language in Wolinsky gave Dwelling Law.”77 One way to fi nd before January 1, 1974. Emergency hope to tenant advocates. The Court out whether a building was formerly Tenant Protect Act of 1974, §§ 8621 of Appeals referred to the Appel- subject to the Loft Law is to ask the to 8634 (McKinney’s Unconsolidated late Division’s decision on review,88 Loft Board’s Freedom of Information 82 Laws).…” The author continued: which, according to the Court of Ap- Law offi cer. These buildings are not “The Emergency Tenant Protection peals, found that the E.T.P.A. “does listed on the Loft Board’s Web site. Act also brought under New York not extend to tenancies that are illegal City’s Rent Stabilization System all A rent-stabilized apartment that and incapable of becoming legal.”89 housing units in buildings of six of became vacant on or after June 19, Tenants have used this language more units that had been decon- 1997, with a legal regulated rent of to argue that their tenancies are trolled under the Vacancy Decontrol $2,000 or more a month, becomes legal—in accordance with the zoning Law or that had been built between exempt from rent regulation, but resolution—or are capable of becom- March 10, 1969 and January 1, this exemption does not apply to ing legal, if the owner of the building 1974.”83 apartments that became subject to had applied for a zoning variance or the Rent Stabilization Law and Code Since the Loft Law’s passage, if the building were located in a zone “solely by virtue of the Article 7-C residential occupants of nonresiden- where the city was contemplating a of the Multiple Dwelling Law.”78 If tial spaces who did qualify for Loft zoning change. Thus, their tenancies the rent of a rent-stabilized apart- Law coverage sometimes have as- might be subject to protection. ment reaches $2,000 or more and the serted claims that they are covered by Following Wolinsky, the Appel- federally adjusted gross income of the Rent Stabilization Law and Code late Division, First Department, in all persons occupying the apartment by virtue of the E.T.P.A. In Wolinsky v. Duane Thomas, L.L.C. v. Wallin ruled as a primary residence is $175,000 84 Kee Yip Realty Corp., residential oc- that residential occupants may be or more, then D.H.C.R. may issue cupants of a loft building located on subject to E.T.P.A. protection if it an order of deregulation, but, here, Grand Street in Manhattan asserted “appears that the unit is capable of too, this exemption does not apply E.T.P.A. coverage. The building did being legalized.”90 In contrast, the to apartments that became subject to not have a residential CO. According Appellate Division, Second Depart- the Rent Stabilization Law and Code to the New York City Zoning Resolu- ment, in Caldwell v. American Package “solely by virtue of Article 7-C of the tion, the building was in an M1-5B Co., adopted a four-part test, fi nding Multiple Dwelling Law.”79 zone, which allows light manufac- E.T.P.A. coverage only where (1) the turing use and use for joint living- Owners of rent-stabilized apart- owner knew of and acquiesced in the work quarters for artists. However, ments often achieve deregulation by residential conversion; (2) the conver- the residential occupants were not waiting for a vacancy and imposing sion was undertaken at the residen- artists. The residential occupants a vacancy increase permitted by the tial occupants’ expense; (3) zoning entered into commercial leases with current R.G.B. Order; by making permitted residential occupancy (in the owner commencing in July 1997. improvements to the apartment and other words, the occupancy was ca- They took occupancy of raw loft then increasing the rent by an amount pable of becoming legalized); and (4) space and converted the space to equal to one-fortieth of the cost of the after the residential occupants had as- residential use at their own expense. improvements;80 or by doing both serted their E.T.P.A. claim, the owner The Wolinsky court declined to extend these things. In this manner, the rent nonetheless took steps to convert the E.T.P.A. coverage to “these illegally will reach $2,000 more quickly and premises to residential use.91 converted lofts.”85 result in deregulating the rent-stabi-

NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 27 One year later, in South Elev- the Loft Board. The “legislative history” 25. Before 1996, the nine-member Loft Board enth Street Tenants Association v. behind the Board’s regulations can be delegated its duty to hear disputes to 92 found in the minutes of the Board’s hearing offi cers under the direct employ Dov Land, the owner’s motion for meetings. of the agency called the Loft Board. summary judgment was denied 6. Cases decided after 1996 are available 26. The Loft Board is located on the second because the tenants presented suffi - at New York Law School: CityADMIN fl oor of 100 Gold Street, New York, N.Y. cient documentary proof of ability to Library, http://www.nyls.edu/centers/ Its telephone number is (212) 566-5663. meet the four-prong test announced harlan_scholar_centers/center_for_new_ 27. The regulations are found at in Caldwell, thereby raising issues of york_city_law/cityadmin_library (last http://24.97.137.100/nyc under the visited Feb. 6, 2010). Cases decided before fact precluding the grant of summary heading “Rules of the City of New York.” 1996 are available by making a Freedom The rules are under Title 29. judgment to the owner. of Information Law request to the Loft Board or by consulting Treiman’s Loft 28. In 1983, 914 buildings were in the Loft Following Caldwell, the landlord- Board Reporter. Board’s jurisdiction, and about currently tenant bar recognized that to estab- 300 remain so. The 614 buildings that are 7. See A03715, A05667, A06368, S05881, no longer in the Loft Board’s jurisdiction lish E.T.P.A. protection, the stan- available at http://assembly.state.ny.us/ (because they have obtained their dards differ in the First and Second leg/?by=k&qs=loft. residential COs) are not listed on the Loft Departments, sometimes leading to 8. See, e.g., Axelrod v. French, 148 Misc. 2d 42, Board’s Web site. 45, 559 N.Y.S.2d 918, 920 (N.Y. Civ. Ct., dissonant results for loft tenants in 29. N.Y. MULT. DWELL. LAW § 325 (McKinney 93 N.Y. Co. 1990), modifi ed, 154 Misc. 2d 310, 2001). Manhattan and Brooklyn. The law 594, 594 N.Y.S.2d 518 (Sup. Ct., App. T. in this area continues to develop. 1st Dep’t 1992). 30. The regulations defi ne “landlord” as “the owner of an interim multiple dwelling, 9. N.Y. MULT. DWELL. LAW § 281 (McKinney IV. Conclusion the lessee of a whole building part of Supp. 2010). which is an interim multiple dwelling, Any attorney handling a matter 10. See discussion infra Section II. J on the or the agent or other person having regarding a nonresidential building owner’s obligation to obtain a residential control of such dwelling.” New York, CO. N.Y., R.C.N.Y. tit. 29, ch. 2 § 2-04 (), WL would do well to investigate whether 29 RCNY § 2-04(a) (N.Y. Leg. Publ’g Co. 11. The regulations promulgated under there are residential occupancies. If 2008). the Loft Law defi ne “multiple dwelling the attorney discovers a residential unit” and “IMD unit” at New York, N.Y., 31. N.Y. MULT. DWELL. LAW § 284(2); 29 occupancy, various laws and agencies R.C.N.Y. tit. 29, ch. 2 § 2-07(a) (N.Y. Legal R.C.N.Y. § 2-05(b). Publ’g Co. 2008), WL 29 RCNY § 2-07(a). might offer the occupant labyrinthine 32. N.Y. MULT. DWELL. § 325(2). protections in that maze we call New 12. New York, N.Y., Admin. Code tit. 26, ch. 33. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § York landlord-tenant law. 4, § 26-504(a) (West, Westlaw through L. 2-05(b)(8); 29 R.C.N.Y. § 2-05(b)(8). 2008, ch. 652 and Local Law 51 of 2008); 91 Fifth Ave. Corp. v. New York City Loft 34. Id. § 2-05(b)(10). Endnotes Bd., 249 A.D.2d 248, 249, 672 N.Y.S.2d 35. Id. § 2-04. 301, 302 (1st Dep’t 1998). 1. N.Y. Mult. Dwell. LAW §§ 280–287 36. The minimum temperature requirements (McKinney Supp. 2010) (terminating May 13. N.Y. MULT. DWELL. LAW § 280. are the same as those set forth in the New 31, 2010 pursuant to L.1982, c. 349, § 3). 14. Id. § 284. York City Housing Maintenance Code (H.M.C.). See New York, N.Y., Admin. 2. N.Y. UNCONSOL. Laws §§ 8621–8634 15. Id. § 285(1). Code tit. 27, ch. 2, N.Y.C. Admin. Code § (McKinney 2007). The cases include 16. Id. § 286(1). 27-2029 (N.Y. Leg. Publ’g Co. 2008). Caldwell v. American Package Co., 57 A.D.3d 15, 866 N.Y.S.2d 275 (1st Dep’t 17. Id. § 286(2). 37. The temperature requirements are the Duane Thomas L.L.C. v. Wallin same as those set forth in the H.M.C. 2008); , 35 18. Id. § 286(6). A.D.3d 232, 826 N.Y.S.2d 221 (1st Dep’t New York, N.Y. Admin. Code tit. 27, ch. 2006); and Mandel v. Pitkowsky, 102 Misc. 19. Id. § 286(3). 2, § 27-2031, N.Y.C. Admin. Code § 27- 2d 478, 425 N.Y.S.2d 926 (Sup. Ct., App. 20. S05881, A05667, 232nd Sess. (2009). 2031. T. 1st Dep’t 1979), aff’d on opinion below, 38. Elevator service must be provided only 76 A.D.2d 807, 429 N.Y.S.2d 550 (1st 21. N.Y. MULT. DWELL. LAW § 282 provides to the extent that the service is legal. NEW Dep’t 1980), overruled on other grounds, that the Loft Board may consist of four to nine members. YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § 2-04(b) Czerwinski v. Hayes, 8 Misc. 3d 89, 799 (9) (N.Y. Leg. Publ’g Co. 2008). Many N.Y.S.2d 349 (Sup. Ct., App. T. 1st Dep’t 22. Tan Holding Corp. v. Wallace, 178 Misc. 2d nonresidential buildings have elevators 2005). 900, 903, 683 N.Y.S.2d 414, 416 (N.Y. Civ. that are not legal for noncommercial- 3. New York City Loft Board, http://www. Ct., N.Y. Co. 1998), rev’d on other grounds, passenger use. 187 Misc. 2d 687, 724 N.Y.S.2d 260 (Sup. nyc.gov/html/loft/html/home/home. 39. Id. § 2-04(b)(8). shtm (last visited Feb. 6, 2010). Ct., App. T. 1st Dep’t 2001). 40. Id. § 2-04(c). 4. New York, N.Y., R.C.N.Y. tit. 29, ch. 1 §§ 23. See 180 Varick St. Corp. v. Center for 1-01–1-11 and ch. 2, §§ 2-01– 2-12. (N.Y. Entrepreneurial Mgmt., N.Y. L.J., Sept. 16, 41. Id. § 2-04(e)(2). 1998, at 22, col. 3 (N.Y.C. Civ. Ct., N.Y. Legal Publ’g Co. 2008), WL 29 RCNY §§ 42. Id. § 2-04(e)(4). 1-01, et seq. Co.). 43. N.Y.C. Admin. Code § 27-2115(h) 24. The Loft Board adopted a statute of 5. Minutes from October 2009 to the present authorizes occupants suffering from lack limitations at some point but later are posted on the Loft Board’s Web site. of services to bring an HP proceeding in repealed it. Earlier minutes are available by making Housing Court. IMD tenants may also a Freedom of Information Law request to

28 NYSBA N.Y. Real Property Law Journal | Spring 2010 | Vol. 38 | No. 2 bring HP proceedings. See, e.g., Doukas v. 62. Id. § 2-10(c)(1). 80. N.Y.C.R.R. tit. 9, ch. VIII, R.S.C. § 2522.4(a)(1). Pravda Brothers Realty Co., N.Y.L.J., July 63. Id. § 2-10(c)(2). 26, 1995, at 22, col. 4 (N.Y.C. Civ. Ct., N.Y. 81. Mandel v. Pitkowsky, 102 Misc. 2d 478, 64. Acevedo v. Piano Building, L.L.C., 2009 WL Co.). 480–81, 425 N.Y.S.2d 926, 928 (Sup. Ct., 4672663, 2009 N.Y. Slip Op. 09168, N.Y. App. T. 1st Dep’t 1994). 44. Id. § 2-02(b). L.J., Dec. 15, 2009, at 37, col. 3 (1st Dep’t); 45. N.Y.C.R.R. tit. 9, ch. VIII, § 2525.5 (2008). 315 Berry St. Corp. v. Hanson Fine Arts, 39 82. Andrew Scherer, Residential Landlord- A.D.3d 656, 835 N.Y.S.2d 261 (2d Dep’t Tenant Law in New York, §§ 6:79–6:119 46. Id.; NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, 2007). (West 2009–2010 ed.). § 2-02(b) (N.Y. Leg. Publ’g Co. 2008). 65. NY MULT. DWELL Art. 7B consists of §§ 83. Id. at § 4:11. 47. Emergency Tenant Protection Act 275–279. Section 277 is essentially a (E.T.P.A.) of 1974 § 12.a.(3)(ii), N.Y. 84. 2 N.Y.3d 487, 812 N.E.2d 302, 779 building code that architects must follow UNCONSOL. Law § 8632a(3)((ii) (McKinney N.Y.S.2d 812 (2004). when renovating a loft building for 2007). residential use. 85. Id. at 493, 812 N.E.2d at 305, 779 N.Y.S.2d 48. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § at 815. 66. NY MULT. DWELL § 285 (McKinney Supp. 2-02(d)(ii). 2010). 86. Id. at 492, 812 N.E.2d at 304, 779 N.Y.S.2d 49. See Section II.J. for a discussion of the at 814. 67. Id. § 286(2)(ii). code-compliance timetable. 87. Id. at 492–93, 812 N.E.2d at 304, 779 68. Id. 50. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § N.Y.S.2d at 814. 2-02(c)(6)(iii) . 69. Id. 88. See Wolinsky I, 302 A.D.2d at 328, 756 51. Id. § 2-09(c)(6)(ii); see, e.g., In re Application 70. Id. § 286(2)(iv). N.Y.S.2d at 515. of Latin, No. Loft Board Order #2555 71. Id. § 286(3); 29 R.C.N.Y. § 2-01(i)(2). 89. Wolinsky II, 2 N.Y.3d at 491, 812 N.E.2d at (N.Y.C. Loft Bd. July 20, 2000), available 303, 779 N.Y.S.2d at 813. at http://archive.citylaw.org/loft/ 72. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § arch2000/LBO-2555.pdf, aff’d on recon., 2-01(j) (N.Y. Leg. Publ’g Co. 2008). 90. 35 A.D.3d 232, 233, 826 N.Y.S.2d 221, 222 (1st Dep’t 2006). No. Loft Board Order #2747 (N.Y.C. Loft 73. The “base rent” includes the rent in effect Bd. July 30, 2002), available at http:// as of Dec. 21, 1982, the Loft Board Order 91. See generally 57 A.D.3d 15, 866 N.Y.S.2d archive.citylaw.org/loft/arch2002/LBO- #1 rent increase, and the code-compliance 275 (2d Dep’t 2008). 2747.pdf. increases (six percent, eight percent, and 92. 59 A.D.3d 426, 872 N.Y.S.2d 514 (2d Dep’t 52. See Section II.H. for a discussion of sales six percent). 2009). of improvements. 74. An owner may waive its right to a code- 93. See, e.g., Warren A. Estis & William J. 53. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § compliance rent adjustment. NEW YORK, Robbins, Courts Differ on Rights of Tenants 2-02(c)(3) (N.Y. Leg. Publ’g Co. 2008). N.Y., R.C.N.Y. tit. 29, ch. 2, § 2-09(i)(2)(vi). in Illegal Lofts, N.Y. L.J., Dec. 3, 2008, at 5, 54. Id. § 2-02(d)(2)(i). 75. 2009 Apartment and Loft Order #41 col. 2. (N.Y.C. Rent Guidelines Bd. June 55. Id. 23, 2009), available at http://www. 56. N.Y. REAL PROP. Law Real Property Law § housingnyc.com/downloads/ Gerald Lebovits is a judge of the 235-d (McKinney 2006). guidelines/orders/AptOrder41.pdf. New York City Civil Court, Hous- 57. Local Law 7 of 2008 amended various 76. 2002 Apartment and Loft Order #34. ing Part, and an adjunct professor at H.M.C. sections and added new sections (N.Y.C. Rent Guidelines Bd. June St. John’s University School of Law regarding harassment. See N.Y.C. Admin. 28, 2002), available at http://www. and Columbia Law School. Linda Code §§ 27-2004(a)(48), 27-2115(h)(1), 27- housingnyc.com/html/guidelines/ 2115(h)(2), 27-2115(m)(1), 27-2115(m)(2), orders/order34.html. Rzesniowiecki, formerly the New 27-2115(m)(3), 27-2115(n), and 27-2120(b). 77. N.Y.C.R.R. tit. 9, ch. VIII, R.S.C. §§ York City Loft Board’s Director of 58. See NEW YORK, N.Y., R.C.N.Y. tit. 29, § 2520.11(r)(5)(ii) and 2520.11(s)(2)(ii). A Hearings, is an attorney in private 2-07 (N.Y. Leg. Publ’g Co. 2008). unit is subject to the Rent Stabilization practice. The authors thank Marga- Code by virtue of Multiple Dwelling Law 59. Id § 2-07(f)(2). ret B. Sandercock, Esq., of Goodfarb Article 7-B only if the unit is located in a 60. See Section II.G. for a discussion of building containing fewer than six units. & Sandercock, L.L.P., Jane C. Weiss, harassment and civil penalties. Esq., and Janet Ruth Price, Esq., for 78. Id. § 2520.11(r)(5)(ii). 61. NEW YORK, N.Y., R.C.N.Y. tit. 29, ch. 2, § their editorial assistance. 79. Id. 2-07(f)(1) (N.Y. Leg. Publ’g Co.).

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