Source: http://itkowitzteachingandpublishing.itkowitz.com/
Timestamp: 2019-04-24 00:02:50+00:00

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Last month, Michelle Itkowitz spoke on a panel at a meeting of WARE (Women Attorneys in Real Estate). The meeting was designed to discuss the challenges and opportunities for real estate practitioners in the coming year. Michelle spoke about "Rent Stabilization Due Diligence for Multifamily Properties".
The bulk of this publication is my booklet on Rent Stabilization Due Diligence for NYC Multifamily Buildings, which I just updated for the first time since I created it in 2015. I offer it to you for two reasons. First (and less importantly), it has some interesting legal sections regarding Rent Stabilization. Second, I want to explain the basis of my knowledge, on which I base my predictions for 2019.
When I first wrote this pamphlet in 2015, I was trying so hard to get clients to avail themselves of this Rent Stabilization Due Diligence (“RSDD”) service, which I was certain would be valuable to them. At first, no one understood what I was talking about, “Rent Stabilization Due Diligence? But I already have an engineer inspecting the building…?!” “Rent Stabilization Due Diligence? But seller will not give me copies of the leases…?!” Finally, clients started taking me up on the offer. Since then, I have done about 300 RSDD analysis, for purchasers (pre-contract, during due diligence periods, and after closing), families transitioning buildings between generations, and banks. I have rendered this service for 180 unit projects all the way down to two-unit buildings. What was once a hard-sell engagement, is now ubiquitous in my practice, and, indeed, in the industry. Recently, I am being called on by seller’s counsel, to evaluate the RSDD work of purchasers.
My RSDD work has caused me to review the regulatory status of hundreds of apartments all over New York City – far more than I would normally encounter in my small (6 attorney) landlord and tenant litigation practice. Furthermore, in my litigation practice, I am frequently called upon to evaluate, and then defend or attack (remember I represent as many residential tenants as I do landlords), the regulatory status of apartments. Thus, I have, indeed, noticed trends in this area that are relevant to multifamily real estate.
o Practitioners, such as me, increasingly focus on this area.
o Purchasers of multifamily have gotten so badly burned by this phenomena.
o Many tenants now have the right to free counsel in Housing Court; counsel is more likely to detect an illegal deregulation then a pro-se tenant.
o Life is getting harder all the time. When a tenant is having trouble paying the rent, she starts looking more deeply into her rights.
Tenants have rent regulatory status problems too. How is a tenant to know if their free market tenancy is actually subject to Rent Stabilization? As with all my publications, this booklet has something for tenants as well – see below § Rent Stabilization Coverage Analysis for Tenants.
III. WHY IS IT SO HARD TO TELL IF AN APARTMENT IS SUBJECT TO RENT STABILIZATION?
It is very important to keep in mind that a court or the DHCR can look back as far as they want to determine whether an apartment is subject to Rent Stabilization. While a rent overcharge claim is subject to a four-year look back period, a claim for improper destabilization is not. 72A Realty Associates v. Lucas, 28 Misc.3d 585 (N.Y.City Civ.Ct., 2010), Affirmed as Modified by 72A Realty Associates v. Lucas, 32 Misc.3d 47, (AT1st 2011), Affirmed as Modified by 72A Realty Associates v. Lucas, 101 A.D.3d 401, (1st Dept. 2012); Gersten v. 56 7th Avenue LLC, 88 AD3d 189 (1st Dept. 2013).
On January 16, 2019, Michelle Itkowitz taught an accredited continuing legal education (CLE) program for the Clear Law Institute, entitled "How to Handle Frequent Defaults Under Restaurant Leases". A full link to the materials will be available soon.
Most guarantors are just as broke as the single-asset restaurant corporation that was the defunct tenant. I do not know why this is, but it has been my frequent observation. I always begin my work on a post-possession guaranty lawsuit by running a credit report on the guarantor. I cannot possibly tell you how often the report produces a long list of judgments that are ahead of my client in time and priority. Sometimes the would-be-debtor owns a family home, with a spouse by the entirety, that is heavily mortgaged. Maybe via a bank account search run by my licensed private investigator, I discover that the would-be-debtor has $212.13 in a bank account somewhere in New Jersey. I fully understand that “someday” the would-be-debtor might have attachable assets. Many things might happen someday. Personally, I question whether a landlord who has just lost a bunch of money on a defaulting restaurant tenant should incur more legal fees to obtain a worthless judgment.
If the guarantors are not broke, the amount owed is not worth pursuing in a New York Court if it is under $100,000.
There is no case worth bringing in a New York City or State Court for less than $100,000. Court is a black hole for resources – time, money, mental energy. You have to go back again and again and again. So, even using a bad, cheap lawyer will eventually stop making economic sense for the less than 6-figure case. Actually, it is especially the bad, cheap lawyer that makes the typical morass even longer and harder.
A money judgment is just a piece of paper unless you can collect on it, and collecting on judgments is very difficult.
Let’s say you pursue the case with all vigor, and win. Now what do you get? You get a judgment, which is a piece of paper, unless you turn the judgment into money. How do you get the judgment debtor to pay the judgment? The answer is longer than what I have said so far. In essence, collecting a judgment is a whole other legal case - a longer and harder one. If you have done business in New York for any length of time, you know I speak the truth.
Recently, I have had several landlord clients who have had defaulting restaurant tenants, where the leases were guaranteed by Foreign Nationals. That, in my opinion, is a useless guaranty.
Unless your guarantor is local and you are certain she has attachable assets, and you feel confident that she will remain local and continue to have such assets, then seeking to get a judgment against a guarantor is often waste of time.
In light of the questionable wisdom of a post-possession collection effort against the guarantors, what utility can a guaranty have?
I like to begin collection efforts against guarantor while the tenant is still in possession and relatively early into the default. This achieves two things.
First, it puts to guarantors on notice that tenant is in default. Sometimes the guarantor is not the restaurant’s principal and would not otherwise know of the default situation. Often enough, this alone gets my landlord client paid.
Second, if the restaurant tenant’s principal is the guarantor, it puts intense pressure on that individual to deal with the situation. Sometimes the restaurant has trouble getting its revenue to where it wants and, as a result, lags behind on the rent. If a landlord has tolerated this for a period of time, the restaurant tenant begins to see landlord as her bank. A complacency that a simple rent demand might not wake tenant’s principal out of. A guarantor lawsuit, however, is a wake-up call.
I have had a lot of success in situations where I simultaneously combine a nonpayment proceeding with a guarantor action, while tenant is still in possession.
For other advice on doing Good Guy litigation successfully, see my recent blog post in the Our Stories blog.
 Black’s Law Dictionary defines a “plenary action” as a “full hearing or trial on the merits, as opposed to a summary proceeding.” When we use that word in New York we are referring to a regular action in Supreme Court, one that includes discovery and where the court is one of original jurisdiction, as opposed to a special summary proceeding for the recovery of real property, pursuant to RPAPL Article 7 and CPLR Art. 4, in a local court of limited jurisdiction.
Here is a link to the Vendome rebroadcast of the program.
Here is a link to the materials prepared for the program.
(a)(1) Owner to give notice. Where an owner or his or her representative seeks access to a dwelling unit, suite of rooms or to a room, under the provisions of §27-2008 in order to make an inspection for the purpose of determining whether such places are in compliance with the provisions of the multiple dwelling law or the administrative code, such owner or representative shall notify the tenants not less than twenty-four hours in advance of such time of inspection.
such owner or representative shall not be required to provide written advance notice, but shall be required to notify the tenant or tenants by such actions as telephone, email, or by knocking on the occupant’s door at a reasonable time when he or she would be expected to be present.
(d) Hours when access to be permitted. Except as provided in paragraph (3) of subdivision (a) of this section, access to a dwelling unit, suite of rooms, or rooms, shall be limited to the hours between nine antemeridian and five post-meridian, unless otherwise agreed to by the tenant. Access shall not be required on Saturdays, Sundays or legal holidays, unless otherwise agreed to by the tenant, except as provided in paragraph (3) of subdivision (a) of this section.
The interruption in service is expected to begin on ____________________ and to end on ____________________.
La interrupcin en servicio se espera comenzar en ____________________ y terminar en ____________________.
The notice called for is very specific. The notice must be “in writing, dated, and shall contain a statement of the nature of the improvement or repairs to be made…”. The hours access is permitted are between 9:00 am and 5:00 pm on weekdays, excluding holidays.
There is a fourth section of the statute that discusses repairs in public areas, which is beyond the scope of our topic. I leave the full text of that portion of the statute in above anyway.
When the landlord seeks access to a Rent Stabilized unit in New York City for the purpose of an inspection or a showing, tenant must first be afforded at least five days’ advance notice (actually ten, if served by mail) so that the parties may attempt to arrange a mutually convenient appointment.
On October 25th 2018, Michelle Itkowitz spoke on a panel at the LandlordsNY Symposium. The panel was about how it takes a team to properly manage a building, especially in times of crisis. Michelle explained how landlord-and-tenant lawyers should only be a small part of a larger team when it comes to dealing with illegal Airbnb, non-primary residence, or hoarders. Landlords could save themselves a lot in legal fees and get better results in these matters if they involve, at the outset, other expert vendors such as investigators and consultants, who understand and follow the laws and the rules of ethics when it comes to tenants. This panel discussed how mutually beneficial solutions for both landlords and tenants are achieved when the landlord and tenant attorney acts first as a consultant, before acting as a litigator.
Below is an excerpt from the booklet Michelle prepared for the Symposium.
To a hammer, every problem looks like a nail. To a lawyer who spends every day running around Housing Court doing 25 cases at once with carbon-paper stipulations, every problem looks like it can be solved with a summary proceeding (a Housing Court case).
When owners and managers come to lawyers with problems like non-primary residence, illegal Airbnb, and hoarding nuisances, many lawyers first and only response is – the lawsuit!, i.e. litigation. That is the WRONG place to start. The lawyer should begin every engagement not as your advocate, but as a healthy skeptic of your position. The right thing for your lawyer to start with is questioning everything. The lawyer should test the health of the particular tenancy and the strength of the admissible evidence, to see if they can withstand the rigors of litigation.
Landlord: Hi! My tenant in 6A no longer lives in her apartment, so I want to evict her for non-primary residence.
Lawyer: OK the first thing I need is a copy of the full lease chain. I need the original lease, and all renewals, all riders, everything. And the DHCR printout.
Landlord: Well that’s easy. I only have the one lease from six years ago when she moved in.
Lawyer: Wait! What?! You have not been regularly renewing the lease as per the Rent Stabilization law?
Landlord: Well…no… told you she doesn’t really live there anymore! I am kicking her out, silly, why would I give her a lease.
Lawyer: Look – Non-primary residence isn’t a basis for terminating a lease, it’s a bases for NOT RENEWING A LEASE. By law, landlords have to make an offer to renew a Rent Stabilized lease between 90 and 150 days before the end of a lease term (known as the Golub period, after a famous case). During that renewal window, if the tenant is not living in the apartment as his or her primary residence, that’s when you give the tenant the non-renewal notice.
Landlord: OK well let’s just give her that notice now!
Lawyer: How can we? Are in between 90 and 150 days of the end of the lease?
Landlord: No, we are even better, we are 4 years after the last lease expired!
Lawyer: No! That’s NOT “even better”. That’s not the statute, that’s not how the law works. Not even close! You need to be within the 90 to 150 days before the end of a lease. Not four-years after the end of the lease.
Lawyer: OMG the law IS details! And in landlord and tenant law, in particular, details really matter.
Landlord: OK so I messed up, but what if we just send the notice anyway and see if she leaves?
Lawyer: I don’t file cases that are defective. That is against the code for attorney ethics and its bad business for me and you. If I file the case and she gets a lawyer and they counter-sue you for something, then I can’t just discontinue. Also, you could end up paying the tenant’s legal fees. And in the time it takes to litigate the losing case, you could have renewed the lease properly and be headed for the next Golub period.
Landlord: Ok so you are suggesting that I renew her lease!? I want to get rid of her and you are telling me to give her a lease. You are all mixed up, Michelle.
Lawyer: Sometimes the only way out is through, and you have to go through the proper steps to get to where you need to be in these cases. Here, without a lease renewal in place, you can’t do the right termination of tenancy. Let’s send the tenant a renewal offer. Make the one-year option a zero percent increase no matter what the Rent Guidelines Board says, and perhaps the tenant will take only a one-year lease. Then, while we wait, you can install a camera and collect solid evidence that the tenant is not there.
If your lawyer does not check the lease renewal, you could initiate a whole case, only to lose it on a technicality (a determination it would take about six months to get). In that case, you then need to renew the lease (which takes another three months). And wait for the lease (probably renewed for two years) to expire before bringing another non-primary residence case, assuming the tenant has not moved back in permanently by the next renewal window. If your lawyer discovered the problem before initiating the case, there would be better ways to handle the situation. Offering the tenant a proper, defensible renewal with no funny business might result in the tenant taking the one-year (lower increase) renewal. In this instance, the case is delayed by a year, but it is better than losing the three years in the previous example and it also gives you plenty of time to garner camera evidence before the next termination opportunity in 8 months.
 See also 160 Eagle St. v. Butler, 2017 NY Misc Lexis 4260 (NYC Civ. Ct. Kings Cty. 2017).
You Don't Need to Chase Your Previous Landlord to Get a Rent Abatement - Get the Abatement from the Building's New Owner!
September 30, 2018: This Q&A post originally appeared on the Tenant Learning Platform blog, where Michelle Maratto Itkowitz is an instructor and guest blogger.
I’m a tenant of a Rent Stabilized apartment in Brooklyn. The building was just sold and now I have a new landlord. The previous landlord of this building, however, was very bad.
I wish that I had sued my old landlord while he was still around. I want to find my previous landlord and go after that company for breach of warranty of habitability (i.e. no stove, gas turned off, bed bugs, broken flooring in apartment, no door chain etc.) and for a rent overcharge.
How do I sue my previous landlord?
You do not have to sue your previous landlord! Pursue those claims against your current landlord. It does not matter that the bad acts were committed by the previous landlord. Those claims – warranty of habitability and rent overcharge – they “travel with the land”. In other words, when the new owner bought the building, it bought the old owner’s liabilities.
If the old owner owed you a rent abatement for a breach of the warranty of habitability, then the new owner now owes you the same abatement. Dunbar Owner LLC v. Jones, 54 Misc.3d 134(A) (App. T. 1 Dept.; 1/25/17). If the old owner overcharged you, then it’s the new owner’s responsibility to pay you back the overcharge. Rent Stabilization Code § 2526.1 and Rent Stabilization Law § 26-516.
The law evolved this way so that tenants don’t need to chase previous landlords. Anyway, most buildings are owned by single-asset limited liability companies – the LLC is set up for the sole purpose of owning the building. Once the closing happens, the LLC (the previous landlord) has no assets for you to collect from anyway. That’s why you need to bring your claims against the current owner of the building.
Thank you for this question. Finally, I am obligated to say that this answer is for general informational purposes only, does not constitute legal advice, and does not create an attorney and client relationship between you and I or between you and the Tenant Learning Platform.
The Tenant Learning Platform delivers on-demand, online classes for NYC tenants on specific legal topics, to help tenants prevent and solve problems concerning their apartments, without a lawyer. TLP's first two class offerings are: How To Do Airbnb Legally In Your NYC Apartment and The Laws About Painting Your NYC Apartment. Michelle Itkowitz is delighted to be an instructor on TLP and a guest blogger.

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