Belkin Burden Wenig & Goldman, LLP EDITORS Magda L. Cruz UPDATE Aaron Shmulewitz Kara I. Rakowski DECEMBER 2015 | VOLUME 33 LITIGATION UPDATE INSIDE THIS ISSUE LITIGATION UPDATE NEW HOPE IN ALTMAN’S AFTERMATH NEW HOPE IN ALTMAN’S AFTERMATH .......................1 ADMINISTRATIVE LAW UPDATE DEREGULATE RENT REGULATED APARTMENTS THROUGH HIGH INCOME HIGH RENT DEREGULATION IN 2016...............................5 CO-OP | CONDO CORNER BY AARON SHMULEWITZ ...6 ADMINISTRATIVE By Matthew S. Brett stem the Altman tide. Specifically, the Appellate LAW UPDATE Term, First Department (a court below the NEW YORK CITY On the morning of Tuesday, Appellate Division) issued a decision on November PROMULGATES NEW April 28, 2015, the Appellate 12, 2015 in the case of Aimco 322 East 61st Street, LAWS AFFECTING TENANT Division, First Department LLC v. Brosius in which the court refused to apply the holding of Altman. The case was notable in BUYOUT PRACTICES ..........8 quietly released over 40 decisions. At the top of the that the Appellate Term was explicitly rejecting TRANSACTIONS alphabetical list released by the Appellate the application of a higher court precedent. This OF NOTE.............................8 Division was Altman v 285 W. Fourth, LLC—a is a rare, but not unprecedented event whereby a case that seemed to crater the landscape of high court indicates that a case decided by the higher NOTABLE rent luxury deregulation as it existed prior to the court is simply wrong. ACHIEVEMENTS .................9 Rent Act of 2015. Distilled down to its simplest form, Altman was a decision that eliminated post- Aimco came on the heels of a decision from the vacancy deregulation (deregulating an apartment DHCR in July 2015 (Matter of Terrance Trainer) after it became vacant by lawfully raising the post- that rejected Altman —at least by implication. I vacancy rent above the deregulation threshold). I am hopeful that this trend will continue and will will discuss the possible implications of Altman restore the means of high rent deregulation as it later in this article. was applied prior to Altman. But first, I am cautiously optimistic to report some Specifically, prior toAltman , it was well settled positive developments on the horizon that could that in order to deregulate a rent stabilized Belkin Burden Wenig & Goldman, LLP | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709 Attorney Advertising 1 apartment based upon high rent an year lease or a slightly smaller owner could avail itself of two options: increase for a one year lease. As such, Option B was a popular and Option A: Outgoing tenant’s widespread means of deregulation. rent is over $2,000.00 (or $2,500 Notably, the DHCR and the Courts pursuant to the Rent Act of routinely approve of this means of 2011), apartment is deregulated deregulation. In fact, there have been upon vacancy. estimates that tens of thousands of apartments have been deregulated in this Option B: Outgoing tenant’s manner. rent is below $2,000.00 (or $2,500 pursuant to the Rent Act But everything seemed to have changed of 2011), but certain increases when the Appellate Division rendered are taken during the vacancy its decision in Altman. The Appellate and rent is lawfully raised above Division held: $2,000. The motion court erred in Option B has always been particularly dismissing plaintiff’s complaint, attractive to owners. That is because and declaring that the even if an apartment has a legal rent apartment is not subject to the that is below the deregulation threshold, Rent Stabilization Law (see after a vacancy is obtained, an owner Administrative Code of City of could apply a number of lawful increases NY § 26-504.2 [a]). Although to the legal rent and bring it over the defendant was entitled to a vacancy deregulation threshold. Then, the next increase of 20% following the tenant would be deregulated even if departure of the tenant of record, the actual market rent was below the the increase could not effectuate a increased legal rent. deregulation of the apartment since the rent at the time of the tenant’s Generally speaking there are three types vacatur did not exceed $2,000 of increases that could be taken after a (see Administrative Code §§ 26- vacancy: 504.2, 26-511[c] [5-a]; Roberts v Tishman Speyer Props., L.P., 62 1. A longevity increase of 0.6 % AD3d 71, 77 [1st Dept 2009], per year if the prior tenant affd 13 NY3d 270, 280 [2009]). was in possession of the apartment for eight years or The underlined language indicates more; that only Option A is a proper means 2. Individual apartment increases of deregulation. This was particularly whereby the owner was able distressing to owners for a number of to add 1/40th or 1/60th reasons. First, there is no explanation in (depending on the time period Altman as to how the Appellate Division and size of the building) of reached their decision. In one fell swoop the cost of improvements to it seemed to eliminate a commonly the legal rent; and practiced and legally codified means of deregulation. 3. A vacancy increase of 20% if the next tenant signed a two This is especially confounding since 2 the very citations used by the Appellate vacated such housing accommodation Division in the above excerpted the legal regulated was two thousand paragraph explicitly state the contrary. dollars or more per month ... ” This was For example, the Court cited Roberts v April 1, 1997. Tishman Speyer Props., L.P. However, in Roberts, the Appellate Division actually However, on June 19, 1997, the State held: Legislature reenacted Rent Stabilization and ostensibly overruled the City The high-rent or luxury decontrol Council’s amendments prospectively. provisions of the RRRA, as Specifically, the 1997 law preserved the amended in 1997, now exclude City Council’s deregulation method housing accommodations from for the period between April 1, 1997 the scope of the RSL when and June 19, 1997, but also stated that either: the legal regulated rent is a deregulation could occur when an $2,000 or more and the combined apartment became vacant after June 19, household income exceeds 1997 and had a legal regulated rent of $175,000 for two consecutive over $2,000.00 per month. The new law years (RSL § 26-504.1) or the used the phrase “with a legal regulated tenant vacates the apartment and rent.” The Legislative history made it the legal rent, plus vacancy increase clear that post vacancy deregulation allowances and increases permitted could occur when after a vacancy occurs for landlord improvements, is the rent is raised over $2,000.00 (in 2011 $2,000 or more (RSL §§ 26- the threshold was raised to $2,500.00 504.2, 26-511[c] [5-a]). per month). [Emphasis supplied]. The Appellate This was explicitly codified in the Division cited Roberts for the exact DHCR’s Rent Stabilization Code and opposite of what Roberts actually held. applied by the agency in countless decisions. As indicated previously, it was Second, the Appellate Division seemed also the most commonly understood to have ignored not only the legislative (and practiced) method of deregulation. history of deregulation but also the That is until Altman was issued. explicit statutory language of the Rent Stabilization Law and the Rent Inasmuch as many believed that the Stabilization Code. Specifically, high Appellate Division may have overlooked rent deregulation was first enacted by the the explicit text of the law, various real New York State Legislature in 1993. estate groups (including RSA, CHIP and REBNY), with the assistance of BBWG, At the time, an apartment could be submitted an affidavit in support of a deregulated when the legal rent exceeded motion to reargue and/or for leave to $2,000 per month. There was a perceived appeal to the Court of Appeals. The ambiguity in the law and as it was up for motion was denied on September 7, renewal by the Legislature in the spring 2015. As of now, the matter will be of 1997, the New York City Council tried to completion at the trial level and decided to take matters into its own hands ultimately the matter will be appealed and amended the Rent Stabilization Law again. Hopefully, at the end of the day, to provide that deregulation would only the Court of Appeals will revisit this occur “where at the time the tenant issue and restore the previously, almost 3 universally, accepted interpretation of (Administrative Code of City § 26-404.2[a]’s first statutory the deregulation provisions. of NY) § 26-404.2(a) contains basis for high rent deregulation, two statutory bases for high rent that is, “at the time the tenant However, in the interim there were two deregulation, the second of which vacated ... the legal regulated developments that seem to indicate a is if the housing accommodation rent was two thousand dollars or judicial and administrative departure “is or becomes vacant ... with more a month”]). from Altman. The first development a legal regulated rent of two emerged from the DHCR, when on thousand dollars or more per The Appellate Term recognized the two July 28, 2015, Deputy Commissioner month” (emphasis added). means of deregulation we referred to Woody Pascal issued an Order and previously (Option A and Option B). Opinion Denying a Tenant’s Petition The Court also recognized the Court for Administrative Review in the Matter of Appeals decision in Jemrock while of Terrance Trainer, DHCR Adm. Rev. “There is no explanation contrasting Altman with disapproval Docket No. BQ-410001-RK (7/28/15) (“relying solely on RSL § 26-404.2[a]’s that held: in Altman as to how first statutory basis for high rent the Appellate Division deregulation, that is, ‘at the time the The Rent Administrator’s order reached its decision.