Richard Altman, Respondent,v.285 West Fourth LLC, Appellant.BriefN.Y.March 22, 2018APL-2017-00054 New York County Clerk’s Index No. 155942/14 Court of Appeals STATE OF NEW YORK RICHARD ALTMAN, Respondent, against 285 WEST FOURTH LLC, Appellant. >> >> AMICUS CURIAE BRIEF ON BEHALF OF RENT STABILIZATION ASSOCIATION OF N.Y.C., INC., COMMUNITY HOUSING IMPROVEMENT PROGRAM, INC., AND REAL ESTATE BOARD OF NEW YORK BELKIN BURDEN WENIG & GOLDMAN, LLP Attorneys for Amici Curiae Rent Stabilization Association of N.Y.C., Inc., Community Housing Improvement Program, Inc., and Real Estate Board of New York 270 Madison Avenue New York, New York 10016 212-867-4466 Of Counsel: Sherwin Belkin Magda L. Cruz Matthew S. Brett Date Completed: February 16, 2018 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................ ii CORPORATE DISCLOSURE STATEMENT .................................... 1 PRELIMINARY STATEMENT .......................................................... 2 STATEMENT OF FACTS ................................................................... 5 POINT I A REINTERPRETATION OF WELL-SETTLED LAW WIDELY RELIED UPON BY OWNERS CANNOT BE USED TO IMPOSE EXTREME DRACONIAN PENALTIES AGAINST OWNERS ............................ 6 The Rent Freeze is Contrary to Law ..................................................... 20 CONCLUSION ..................................................................................... 22 PRINTING SPECIFICATIONS STATEMENT .................................. 23 ii TABLE OF AUTHORITIES Cases 126 W. 25th St. Realty Co. v Chea, 2013 NY Slip Op 51485(U) (App. T. 1 st Dep’t September 9, 2013) .......................10 167 8th Ave LLC v. Leishman, 2012 NY Slip Op 31055(U) (Civ. Ct., N.Y. Co., Kraus, J.H.C., 2012) ..................10 206 W. 104th ST. LLC v. Cohen, 2013 NY Slip Op 51858 (App. T. 1 st Dep’t 2013) .................................................10 233 E. 5 th St. LLC v. Smith, 54 Misc. 3d 79 (App. T. 1 st Dep't 2016), lv. to app. to AD granted, 2017 NY Slip Op 69274 (App. Div. 1 st Dep't, 3/30/17)..............................................................................................................12-13 9037 Realty LLC v. Jaramillo, Civ Ct, Queens, L&T Index No. 51115/16 (5/12/17) ..............................................16 Aimco 322 E. 61 st St., LLC v. Brosius, 50 Misc. 3d 10 (App. T. 1 st Dep’t 2015) ........................................................... 11, 12 Altman v. 285 W. Fourth, LLC, 127 A.D.3d 654 (1 st Dep’t 2015), rearg. or leave to app. to Ct. of App. den., 2015 NY Slip Op. 83701(U) (App. Div. 1 st Dep’t 9/8/15) .............................. passim Altman v. 285 W. Fourth, LLC, 143 A.D.3d 415 (1 st Dep't 2016), leave to app. to Ct. of App. granted, 29 N.Y.3d 903 (2017) .......................... passim Borden v. 400 East 55 th Street Associates, L.P.; Gudz v. Jemrock Realty Company, LLC; Downing v. First Lenox Terrace Associates, 24 N.Y.3d 382 (2014)……………………………………………………………17 Breen v. 330 East 50 th Partners, L.P., 154 A.D.3d 583 (1 st Dep’t 2017) ...................................................................... 14, 16 CJK Real Estate LLC v. McGrath, Civ. Ct., N.Y.Co., L&T 83027/15 (2/14/17) ...........................................................16 iii COB 3420 Broadway, LLC v. Towns, __ A.D.3d __ , 2017 NY Slip Op 09258 (1 st Dep’t, 12/28/17) ...............................15 Dixon v. 105 W. 75th St. LLC, 148 A.D.3d 623 (1st Dep’t 2017) .......................................................... 12, 13, 14,16 Dodd v. 98 Riverside Drive, 2012 N.Y. Slip Op. 31653(U) (S. Ct. N.Y. Co., 6/21/12)………………………...19 Garcia v. D. Camilleri, LLC, 2011 WL 128125 (S. Ct. N.Y.Co.,1/6/11) ...............................................................18 Heights Assoc. v. Bautista, 178 Misc. 2d 669 (App. T. 2d Dep’t 1998) .............................................................20 Jemrock Realty Co., LLC v. Krugman, 13 N.Y.3d 924 (2010) .................................................................................. 10, 12,17 Matter of 18 St. Marks Place Trident LLC v State of New York Div. of Hous. & Community Renewal, 149 A.D.3d 574 (1 st Dep't 2017) ....................................................................... 14, 15 Matter of 300 W. 49th St. Assoc. v. New York State Div. of Hous. and Community Renewal, 212 A.D.2d 250 (1st Dep’t 1995) ............................................................................13 Matter of Boyd v. New York State Div. of Hous. & Community Ren., 23 N.Y.3d 999 (2014), rev’g, 110 A.D.3d 594 (1 st Dep’t 2013) ...................... 17, 18 Oren Apts., LLC v Torres Civ. Ct., Queens County, L&T Index No.67038/16 (4/24/17) ................................15 Roberts v. Tishman Speyer Props., L.P., 62 A.D.3d 71 (1 st Dep't), aff'd, 13 N.Y.3d 270 (2009) ............................ 10,12,17,19 Sessler v. New York State Division of Hous. & Comm. Renewal, 282 A.D.2d 262, 722 N.Y.S.2d 864 (1 st Dep’t 2001) ..............................................20 iv Statutes CPLR §213-a ............................................................................................................17 N.Y.C. Loc. L. 1997, No. 13……………………………………………………….8 Rent Act of 2015 (Ch. 20, Laws of 2015)………………………………………….9 Rent Regulation Reform Act of 1997 (Ch. 116, Laws of 1997) (“1997 RRRA”) ...................................................... passim Rent Stabilization Law §26-504.2(a) .............................................................. passim Rent Stabilization Law §26-511(c)(5-a) .......................................................... 2, 6, 9 Rent Stabilization Law §26-511(c)(14) .......................................................... 2, 9, 14 Rent Stabilization Law §26-516(a) ................................................................... 17, 20 Rent Stabilization Law § 26-517(e) .........................................................................20 Rules Rent Stabilization Code (9 NYCRR) § 2520.6(e) ...................................................11 Rent Stabilization Code § 2520.6(f) ........................................................................17 Rent Stabilization Code § 2520.11(r)(3)……………………………………….9, 11 Rent Stabilization Code § 2520.11(r)(4) ..............................................................9, 11 Rent Stabilization Code § 2526.1(a)(2)…………………………………………...17 Rent Stabilization Code §2526.1(a)(3)(i)………..………………………………..20 Rent Stabilization Code § 2528.4(a) ........................................................................20 Other Brett, M., “Post-Vacancy Deregulation in the Aftermath of Altman”, http://www.newyorklawjournal.com/id=1202745379262/PostVacancy- Deregulation-in-the-Aftermath-of-Altman?slreturn=20160708174613....................3 v Estis, W. & Jeffrey Turkel, “The Altman Conundrum”, http://www.rosenbergestis.com/New-York-Law-Journal-Articles/070011607- Rosenberg.pdf............................................................................................................3 Finkelstein, D. & Lucas A. Ferrara, Landlord and Tenant Practice in New York § 11:109 at 11-60 (West's NY Prac. Series, vol. F, 2005)………………………………………………………………...7 Governor's Memorandum, Bill Jacket, 1997 N.Y. Laws, ch. 116………………7-8 Knakal, R., “Multifamily Headwinds Explained”, https://commercialobserver.com/2016/03/multifamily-headwinds-explained/........3 New York City Rent Guidelines Board, Changes to the Rent Stabilized Housing Stock in NYC in 2015 (http://nycrgb.org/downloads/research/pdf_reports/changes2016.pdf)...................16 "Summary of Provisions," Bill Jacket, 1997 N.Y. Laws, ch. 116………………….8 Tempey, N., “Could Your Apartment Become Rent Stabilized? A High-Stakes Court Case Could Make 100,000 Apartments Regulated Again,” Brick Underground, Oct. 2, 2017, https://brickunderground.com/rent/altman- appeals-court-rent-stabilization…………………………………………………….4 MCRUZ/1404.0032/2105742 1 CORPORATE DISCLOSURE STATEMENT Rent Stabilization Association of N.Y.C., Inc. is a membership organization. It has no parents or subsidiaries. Its affiliates are: Realty Systems of America, Inc.; RSA Mortgage Brokerage, Inc.; and RSA Insurance Agency, Inc. Community Housing Improvement Program, Inc., is a membership organization, with no parents, subsidiaries or affiliates. The Real Estate Board of New York is a trade association, with no parents or subsidiaries. Its affiliates are: REBNY Foundation, Inc.; Taxpayers For An Affordable New York, Inc.; Taxpayers For An Affordable New York PAC; Real Estate Board of New York PAC; Putting New Yorkers To Work, Inc.; and Jobs For New York, Inc. 2 PRELIMINARY STATEMENT Rent Stabilization Association of New York City, Inc. (“RSA”), Community Housing Improvement Program, Inc. (“CHIP”), and the Real Estate Board of New York (“REBNY”) (“Amici”), jointly submit the within amici curiae brief to bring to this Court’s attention real estate industry-wide concerns with respect to the Orders of the Appellate Division, First Department entered on April 28, 2015 (“Altman I”) and October 4, 2016 (“Altman II”) on appeal by defendant, 285 West Fourth LLC (“Owner’), in this action. The First Department in Altman I 1 reinterpreted long-standing provisions of the Rent Stabilization Law [§§ 26-504.2 (a), 26-511(c)(5-a), and 26-511(c)(14)] concerning the rights of owners to add statutory vacancy allowances and other lawful rent increases to vacancy leases, resulting in the lawful deregulation of high rent apartments. This reinterpretation was a complete and unanticipated departure from prior administrative and court rulings, without the expected analysis that would be present in a significant disruption of stare decisis. On remand, the Supreme Court (Katz, M., J.) in Altman II 2 used a punitive methodology to establish a new legal rent for an apartment that, for over ten years, was exempted from rent regulation pursuant to unambiguous statutory 1 Altman v. 285 W. Fourth, LLC, 127 A.D.3d 654 (1 st Dep’t 2015), rearg. or leave to app to Ct. of App. den., 2015 NY Slip Op. 83701(U) (App. Div. 1 st Dep’t 9/8/15). 2Altman v. 285 W. Fourth, LLC, 143 A.D.3d 415 (1 st Dep’t 2016), leave to app. to Ct. of App. granted, 29 N.Y.3d 903 (2017). 3 and regulatory law and unanimous holdings by the courts and DHCR. The Owner was subjected to draconian penalties for doing nothing more than following prior precedent. Prior to the First Department’s reinterpretation, it was well-settled that the Rent Stabilization Law allowed owners to deregulate a stabilized apartment when it was or became vacant and lawful adjustments made during and/or as a result of the vacancy caused the new legal rent in a vacancy lease to exceed the statutory threshold for high rent vacancy deregulation. However, in direct conflict with the legislative text, intent and history of the RSL provisions (as repeatedly interpreted by a phalanx of decisions by the courts and by the New York State Division of Housing and Community Renewal [“DHCR”]), the First Department in Altman I held that the owner could not deregulate unless the vacated tenant’s legal rent, before any allowances or increases were added, was over the statutory threshold for high rent deregulation. The First Department’s ruling in Altman I caused extensive disruption and uncertainty in the rent regulated housing community. 3 The Court’s ruling 3 Knakal, R., “Multifamily Headwinds Explained”, https://commercialobserver.com/2016/03/multifamily-headwinds-explained/; Brett, M., “Post- Vacancy Deregulation in the Aftermath of Altman”, http://www.newyorklawjournal.com/id=1202745379262/PostVacancy-Deregulation-in-the- Aftermath-of-Altman?slreturn=20160708174613; Estis, W. & Jeffrey Turkel, “The Altman Conundrum”, http://www.rosenbergestis.com/New-York-Law-Journal-Articles/070011607- Rosenberg.pdf. 4 resurrected a construction of RSL §26-504.2(a) that the Rent Regulation Reform Act of 1997 (“1997 RRRA”) had expressly limited to a discrete time period, occurring before the passage of 1997 RRRA. However, with respect to vacancies occurring after the effective date of 1997 RRRA, like the vacancy at bar, high rent vacancy deregulation turned on post-vacancy rent adjustments to the legal regulated rent, thereby incentivizing greater investment in housing following vacancies. In the years since the passage of 1997 RRRA, tens of thousands of apartments have been high rent vacancy deregulated pursuant to post-vacancy rent adjustments. The holding in Altman I potentially upends the tenancies of those apartments believed to have been lawfully deregulated in reliance upon the changes made to the rent laws under the 1997 RRRA. 4 In general, although all overcharges are presumed to be willful, the RSL permits owners to rebut that presumption. RSL §26-516(a). Amici submit that a good faith adherence to a pre-existing, broadly applied, interpretation of law is a valid rebuttal to any overcharge resulting from the Altman I ruling. On remand, the Supreme Court ignored the Owner’s evidence of non-willfulness, and summarily awarded plaintiff the extraordinary sum of $165,363.80 (the 4 Tempey, N., “Could Your Apartment Become Rent Stabilized? A High-Stakes Court Case Could Make 100,000 Apartments Regulated Again,” Brick Underground, Oct. 2, 2017 (https://brickunderground.com/rent/altman-appeals-court-rent-stabilization). 5 “Judgment”). The Supreme Court reduced the rent, which the plaintiff had been paying under his lease, to the amount paid by the predecessor rent stabilized tenant eleven (11) years earlier and imposed treble damages, a rent freeze, pre-judgment interest, and attorneys’ fees. This draconian Judgment did not make any finding that the Owner had willfully overcharged plaintiff. The Appellate Division erroneously affirmed this Judgment in Altman II. Amici respectfully submit that there is no legal basis for the application of any punitive measures where the legal rent of an apartment is re-established as a result of a novel reinterpretation of long-standing law. There can be no plausible reason why owners caught up in this vexing quagmire of reinterpretations of widely considered well-settled law must be punished so severely. Altman I was sufficiently unsettling to owners and prospective owners of rent regulated housing. The Supreme Court’s Judgment, as affirmed by Altman II, compounded the injury. Amici respectfully submit that Altman I and Altman II must be reversed. In the alternative, no penalties should be imposed when a new legal rent is established on account of an unforeseen reinterpretation of law. STATEMENT OF FACTS This amici curiae brief adopts and fully incorporates the facts as recited in the main brief of the Owner. 6 POINT I A REINTERPRETATION OF WELL-SETTLED LAW WIDELY RELIED UPON BY OWNERS CANNOT BE USED TO IMPOSE EXTREME DRACONIAN PENALTIES AGAINST OWNERS The First Department’s Order in Altman I, interpreted and applied a central provision of the Rent Stabilization Law -- RSL § 26-504.2(a) concerning high rent vacancy deregulation – in a way that is contrary to the text and intent of that statute, as amended by the Rent Regulation Reform Act of 1997 (“1997 RRRA”). Specifically, Altman I ruled that the vacancy lease allowance, provided under RSL § 26-511(c) (5-a) [which allows an owner to lawfully increase the legal regulated rent by twenty (20%) percent when an incoming tenant chooses to execute a two-year vacancy lease] “could not effectuate a deregulation of the apartment since the rent at the time of the tenant’s vacatur did not exceed $2,000…” 127 A.D.3d at 655. In so ruling, Altman I misinterpreted the words and intent of RSL §26-504.2(a), as amended by the 1997 RRRA, which expressly provide that the rent of the vacating tenant, by itself, is not the operative rent for determining high rent vacancy deregulation of the successor tenancy where the vacancy occurs after the effective date of the 1997 RRRA. Rather, it is the vacating tenant’s rent plus, inter alia, lawful vacancy increases, which dictate whether a successor tenancy will be exempt from the RSL. As one notable commentator explained: 7 In New York City, rent-stabilized units that became vacant between April 1, 1997, and June 18, 1997, could be deregulated only if they were renting for $2,000 prior to vacancy. Under the Rent Regulation Reform Act of 1997, units ... that were vacant on or after June 19, 1997, may be deregulated if the rent after vacancy reaches the $2,000 threshold through the application of rent-guidelines vacancy increases, a vacancy bonus, and/or individual apartment increases. Daniel Finkelstein & Lucas A. Ferrara, Landlord and Tenant Practice in New York § 11:109 at 11-60 (West's NY Prac. Series, vol. F, 2005) (emphasis supplied). The language and intent of the 1997 RRRA – specifically, sec.15 of that Act – amended RSL §26-504.2(a) to allow for high rent vacancy deregulation where the legal rent exceeds $2,000 for the incoming tenant by virtue of statutory vacancy increases, individual apartment increases (“IAIs”), or any combination thereof. This is made clear in the Governor’s Memorandum on the passage of 1997 RRRA, which explains: The City Council's amendment had the effect of preventing rent increases that ordinarily take place after a vacancy--such as vacancy allowances and increases attributable to apartment improvements--from being considered in determining whether the $2,000 threshold was reached. … The bill's amendments to luxury decontrol apply to apartments vacant on or after the bill's effective date. Accordingly, the status of luxury apartments vacated and re-rented between the effective date of the City Council legislation (April 1, 1997) and this bill's effective date will continue to be governed by 8 the more restrictive local provisions, … . 5 Governor’s Bill Jacket, 1997 N.Y. Laws, ch. 116 (emphasis supplied). The “Summary of Provisions” included with the 1997 RRRA bill, also provided the following, in pertinent part: Also repealed from luxury decontrol is a requirement recently added by the New York City Council 6 prohibiting rent increases attributable to a vacancy allowance or capital improvement to be considered in determining whether the $2,000 threshold was exceeded. Legislative Bill Jacket, 1997 N.Y. Laws, ch. 116. In Altman I, the Court did not take into account the significant amendment made by the 1997 RRRA, which reads as follows: Rent Stabilization Law §26-504.2: Exclusion of High Rent Accommodations: a. “Housing accommodations” shall not include: any housing accommodation which becomes vacant on or after April first, nineteen hundred ninety-seven and before the effective date of the rent act of 2011 and where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand dollars or more per month; or, for any housing accommodation which is or becomes vacant on or after the effective date of the rent regulation reform act of 5 The subject apartment, based upon its rental history, is governed by the more expansive 1997 RRRA deregulation provisions, not the City Council’s earlier enactment, N.Y.C. Loc. L. 1997, No. 13, because the apartment was vacated in 2005, after the passage of the 1997 RRRA. 6 N.Y.C. Loc. L. 1997, No. 13, supra. 9 1997 and before the effective date of the rent act of 2011 with a legal regulated rent of two thousand dollars or more per month. (Emphasis supplied. See also, Rent Stabilization Code § 2520.11[r][3] and [4].) Rent Stabilization Law §26-511(c)(5-a) authorizes a vacancy allowance: c. A code shall not be adopted hereunder unless it appears to the division of housing and community renewal that such code: *** (5-a) provides that, notwithstanding any provision of this chapter, the legal regulated rent for any vacancy lease entered into after the effective date of this paragraph shall be…[t]he previous legal regulated rent for such housing accommodation…increased by the following: (i) if the vacancy lease is for a term of two years, twenty percent of the previous legal regulated rent; (Emphasis supplied.) Rent Stabilization Law §26-511(c)(14), further provides, in pertinent part: . . . Where, subsequent to vacancy, such legal regulated rent, as adjusted by the most recent applicable guidelines increases and any other increases authorized by law is two thousand dollars or more per month, 7 such housing accommodation shall be excluded from the provisions of this law pursuant to section 26-504.2 of this chapter. 7 The threshold has been raised over the years, such that at the present time it is $2,700. Under the Rent Act of 2015 (L. 2015, ch. 20), commencing January 1, 2016, and annually thereafter, the threshold is adjusted by the one-year renewal lease guideline percentage increase issued the prior year by the Rent Guidelines Board. For purposes of this appeal, however, the relevant threshold is $2,000, which was the threshold amount in effect at the time plaintiff executed a vacancy lease in 2005. 10 (Emphasis supplied.) This Court, lower courts, and DHCR have consistently applied these RSL and RSC provisions, as amended by the 1997 RRRA, to permit high rent vacancy deregulation where the vacating tenant’s rent is increased by lawful vacancy allowances, adjustments, and other rent increases, resulting in the new rent in the incoming tenant’s vacancy lease being over the statutory threshold for high rent vacancy deregulation. See, Jemrock Realty Co., LLC v. Krugman, 13 N.Y.3d 924 (2010); Roberts v. Tishman Speyer Props. L.P., 62 A.D.3d 71, 77 (1 st Dep’t), aff’d, 13 N.Y.3d 270, 281 (2009) (“the high-rent or luxury decontrol provisions of the RRRA, as amended in 1997, now exclude housing accommodations from the scope of the RSL when either: the legal regulated rent is $2,000 or more and the combined household income exceeds $175,000 for two consecutive years [RSL § 26-504.1] or the tenant vacates the apartment and the legal rent, plus vacancy increase allowances and increases permitted for landlord improvements, is $2,000 or more [RSL §§ 26-504.2, 26-511(c)(5-a)] ”); 206 W. 104th ST. LLC v. Cohen, 2013 NY Slip Op 51858 (App. T. 1 st Dep’t 2013) (“The apartment improvement increase, together with the vacancy and longevity increases, increased the legal rent above the $2,000 deregulation threshold [see Rent Stabilization Code (9 NYCRR) § 2520.11(r)(4)].”); 126 W. 25th St. Realty Co. v. Chea, 2013 NY Slip Op 51485(U) (App. T. 1 st Dep’t, Sept. 9, 2013) (“The 11 record evidence shows that when appellant initially took possession as a subtenant in November 2002, the lawful monthly rent of the stabilized apartment, together with the vacancy increase to which petitioner-landlord's predecessor would have been entitled had it leased the apartment directly to appellant, was in excess of $2,000, which would have allowed for luxury decontrol of the apartment and removal from rent stabilization upon the execution of a lease with a new tenant.”). See also, 167 8th Ave LLC v. Leishman, 2012 NY Slip Op 31055(U) (Civ. Ct., N.Y. Co., Kraus, J.H.C., 2012) (“Pursuant to § 26-504.2 of the Rent Stabilization Law, and § 2520.11[r][4] of the Rent Stabilization Code, an apartment will no longer be subject to Rent Stabilization if it has become vacant after 1997 and has a legal regulated rent of two thousand dollars or more per month. Legal regulated rent, as defined by the Rent Stabilization Code § 2520.6(e), is the rent charged on the base date plus subsequent lawful increases and adjustments.”). Altman I failed to adhere to these express provisions and judicial precedents in concluding that the apartment had not been properly deregulated in 2005, when plaintiff’s vacancy lease had a rent that was over the $2,000 threshold for high rent vacancy deregulation when the lawful 20% vacancy increase was added to the vacating tenant’s last legal rent ($1,829.49). Altman I resurrected the former construction of RSL §26-504.2(a) that had been expressly limited by the 12 1997 RRRA to apply to vacancies occurring prior to the effective date of the 1997 RRRA. See RSC § 2520.11(r)(3) and (r)(4). The Appellate Term in Aimco 322 E. 61 st St., LLC v. Brosius, 50 Misc. 3d 10 (App. T. 1 st Dep’t 2015), recognized that Altman I was irreconcilable with the dual independent grounds for high rent vacancy deregulation found in RSL §26-504.2(a) and RSC § 2520.11(r)(3) and (r)(4). Aimco concluded that Altman I appeared to be relying solely on “RSL’s first statutory basis for high rent deregulation, that is, at the time the tenant vacated...the legal regulated rent was two thousand dollars or more a month.” 50 Misc.3d at 11-12. The Appellate Term then proceeded to discuss the two clauses of RSL §26-504.2(a): [W]e note that Rent Stabilization Law (RSL) (Administrative Code of City of NY) § 26-504.2(a) contains two statutory bases for high rent deregulation, the second of which is if the housing accommodation "is or becomes vacant . . . with a legal regulated rent of two thousand dollars or more per month" (emphasis added). In addition, increases in rent for post-vacancy improvements count "to bring the legal rent above the luxury decontrol threshold" (Jemrock Realty Co., LLC v Krugman, 13 NY3d 924, 926, 922 N.E.2d 870, 895 N.Y.S.2d 284 [2010]; see also, Roberts v Tishman Speyer Props., L.P., 62 AD3d 71, 78, 874 N.Y.S.2d 97 [2009] [high rent deregulation when "the tenant vacates the apartment and the legal rent, plus vacancy increase allowances and increases permitted for landlord improvements, is $2,000 or more"], aff’d 13 NY3d 270, 281, 918 N.E.2d 900, 890 N.Y.S.2d 388 [2009] ["post- 13 vacancy improvements [] count toward the $2,000 per month rent threshold [L 97, ch 116]" for high rent deregulation]; cf. Altman v 285 W. Fourth, LLC, 127 AD3d 654, 8 N.Y.S.3d 295 [2015] [relying solely on RSL § 26-504.2[a]'s first statutory basis for high rent deregulation, that is, "at the time the tenant vacated . . . the legal regulated rent was two thousand dollars or more a month"]). 50 Misc.3d at 11-12. The Appellate Term’s well-reasoned decision in Aimco was not the only decision which rejected or narrowly construed Altman I. See also, 233 E. 5 th St. LLC v. Smith, 54 Misc.3d 79 (App. T. 1 st Dep’t 2016), lv. to app. granted, 2017 NY Slip Op 69274 (App. Div. 1 st Dep’t, 3/30/17) 8 (holding, inter alia, that “a single sentence” in Altman I should not be read “so broadly as to effectuate a sea change in nearly two decades of settled statutory and decisional law – that allowed an owner to deregulate an apartment after a vacancy, if the legal rent plus any lawful increases and adjustments to the rent, such as the vacancy allowance, exceeded $2,000 [citation omitted] – particularly given the absence of any expressed intention by the Altman Court to do so”). The First Department has issued a number of decisions since Altman I, that apply RSL §§ 26-504(a) and 26-511(c)(14). However, they do not follow the holding of Altman I; offering compelling evidence that Altman I was nothing short 8 The appeal in 233 E. 5 th St. LLC v. Smith, supra, is currently noticed for argument at the Appellate Division, First Department on February 27, 2018. 14 of a judicial outlier. Instead, they conclude that, pursuant to those statutes, high rent vacancy deregulation can occur when lawful increases are added to an outgoing tenant’s rent and the new rent goes over the deregulation threshold. Most recently, in COB 3420 Broadway, LLC v. Towns, __ A.D.3d __ , 2017 NY Slip Op 09258 (1 st Dep’t, 12/28/17), the First Department held that: Upon vacancy of the apartment by the previous rent controlled tenant, the rent reached the $2,000 deregulation threshold due to a combination of vacancy and individual apartment improvement increases that were not challenged (see Matter of 18 St. Marks Place Trident LLC v. State of New York Div. of Hous. & Community Renewal, Off of Rent Admin., 149 A.D.3d 574 [1 st Dep’t 2017]; but see, Altman v. 285 v. 285 W. Fourth, LLC, 127 A.D.3d 654 [1 st Dep’t 2015]). Thus, the apartment qualified for exemption from rent stabilization, … . In COB, the Court expressly declined to follow the Altman I interpretation of RSL §26-504.2(a). Cited in COB was Matter of 18 St. Marks Place Trident LLC v. New York State Div. of Hous. and Community Renewal, 149 A.D.3d 574 (1st Dep’t 2017). There, too, the First Department distanced itself from Altman I. The Court approved lawful post-vacancy rent adjustments for individual apartment improvements (see RSC §2522.4[a][4]), which when added to the out-going tenant’s rent, together with the statutory 20% vacancy allowance, caused the legal rent of the apartment to go over the deregulation threshold. In contrast to Altman I, 15 the Court in Matter of 18 St. Marks Place Trident LLC, expressly acknowledged the second clause in RSL §26-504.2(a) as authorizing the deregulation of the apartment for the incoming tenant. The amounts recited in the opinion make this clear: [T]he legal regulated rent for the apartment is $2,035.13 per month ($1,264.48 for rent prior to the vacancy, plus $202.31 for the vacancy increase, plus $568.34 for improvements), which is above the $2,000 threshold for deregulation (see Rent Stabilization Law [Administrative Code of City of NY] §26-504.2[a]). 149 A.D.3d at 575. In Breen v. 330 East 50 th Partners, L.P., 154 A.D.3d 583 (1 st Dep’t 2017), the First Department, again, found an apartment “not rent-stabilized” predicated upon, inter alia, vacancy increases, which caused the new rent to exceed the deregulation threshold. The Breen Court cited Matter of 18 St. Marks Place Trident LLC, as precedential authority for this high rent vacancy deregulation conclusion. See also, Oren Apts., LLC v Torres (Civ. Ct., Queens Co., L&T Index No. 67038/16, issued April 24, 2017), which also relied upon Matter of 18 St. Marks Place Trident LLC in order to decline to follow Altman I and, instead hold that “[i]n light of this decision [Matter of 18 St. Marks Place Trident LLC], the mere fact that respondent’s predecessor’s last registered rent was less than $2,000.00 does not prove that her apartment is subject to rent stabilization.” 16 In yet another post-Altman I decision, Dixon v. 105 W. 75th St. LLC, 148 A.D.3d 623 (1st Dep’t 2017), the First Department held that when an owner performs extensive renovations to a vacated apartment, the owner can increase the legal rent via lawful rent adjustments for individual apartment improvements and thereby surpass the deregulation threshold for the incoming tenant. While principally a case involving a dispute over the scope of the renovation and the documentation submitted to substantiate the cost, the Court pointedly noted that: Even if a landlord does not perform the type of alterations necessary to charge a “first rent,” 9 it may escape rent regulation if it expends enough money renovating the apartment such that one-fortieth of the expenditure, added to the last regulated rent, brings the rent above the $2,000 threshold. 148 A.D.3d at 627-29 (emphasis supplied). In reaching this conclusion in Dixon, the First Department plainly relied on the second clause of RSL §26-504.2(a). Contrary to Altman I, the Dixon Court declared the apartment to be vacancy deregulated. The significance of the four (4) First Department decisions in COB, 18 St. Marks Place Trident LLC, Breen and Dixon, is that these decisions, together 9 “First rent” refers to an alternate form of deregulation, where, post-vacancy, an apartment is substantially rehabilitated to change its outer dimensions in order to create an apartment that did not previously exist [see Matter of 300 W. 49th St. Assoc. v. New York State Div. of Hous. and Community Renewal, 212 A.D.2d 250, 253 (1st Dep’t 1995)]. In Dixon, the Court found that the apartment qualified for deregulation under RSL §§ 26-504(a) and 26-511(c)(14), as well as pursuant to the “first rent” doctrine. 17 with the other post-Altman I lower court decisions, 10 correctly construed the whole text and legislative intent of RSL §26-504.2(a). Consequently, because over the past two decades, more than 147,000 apartments have been vacancy deregulated in reliance upon the changes effectuated by the 1997 RRRA 11 – Altman I placed the deregulated status of tens of thousands of apartments throughout New York City into serious question. This uncertainty was compounded by the sudden exposure to substantial rent overcharge, treble damages, and registration penalties. We respectfully submit that Altman I is wrong. However, even were this Court to uphold Altman I, it must reverse Altman II. There is no legal justification for upholding such an onerous post-remand final Judgment. In other circumstances when the Court has reinterpreted the rent law after years of contrary DHCR regulation, practice, and reliance, courts have eschewed the imposition of penalties. This Court sent a clear message to that effect in two decisions following its landmark holding in Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270 (2009). 10 See, also, 9037 Realty LLC. v. Jaramillo, Civ. Ct., Queens Co., L&T Index No. 51115/16, issued May 12, 2017; and CJK Real Estate LLC v. McGrath, Civ. Ct., N.Y. Co., L&T 83027/15, issued February 14, 2017. 11 New York City Rent Guidelines Board, Changes to the Rent Stabilized Housing Stock in NYC in 2015 (http://nycrgb.org/downloads/research/pdf_reports/changes2016.pdf, at p. 6) reports that “Since 1994, at least 147,457 units were registered with the DHCR as being deregulated due to High-Rent Vacancy Deregulation, .. .” (Note omitted.) 18 In Roberts, the Appellate Division (62 A.D.3d 71 [1 st Dep’t 2009]) and this Court, supra, held that DHCR and the courts had misinterpreted the luxury deregulation provisions of the Rent Stabilization Law for over 15 years to allow owners to deregulate while receiving J-51 tax benefits. Confronting the significant rent-setting problem that this massive re-regulation caused, this Court indicated in a subsequent decision that owners who had relied, in good faith, on the pre-existing interpretation and application of the RSL to deregulate units, would not be subject to draconian penalties for overcharges resulting from the difference between the market rents long charged and new stabilized rents yet to be determined. See, Borden v. 400 East 55 th Street Associates, L.P.; Gudz v. Jemrock Realty Company, LLC; Downing v. First Lenox Terrace Associates, 24 N.Y.3d 382, 398 (2014) (“… treble damages would be unavailable to the tenants because a finding of willfulness is generally not applicable to cases arising in the aftermath of Roberts”). See also, Matter of Boyd v. New York State Div. of Hous. & Community Ren., 23 N.Y.3d 999 (2014), rev’g, 110 A.D.3d 594 (1 st Dep’t 2013) (in determining a legal regulated rent dispute in a post-Roberts scenario, the court should adhere to the four year statute of limitations in the CPLR and RSL). This Court, in Borden, supra, expressed the view that willful misconduct on the part of owners who deregulated apartments in the context of the pre-Roberts regulatory landscape should not be presumed. “For Roberts cases, 19 defendants followed the Division of Housing and Community Renewal’s own guidance when deregulating the units, so there is little possibility of a finding of willfulness (citations omitted).” 24 N.Y.3d at 398. The Supreme Court in Garcia v. D. Camilleri, LLC, 2011 WL 128125 (S. Ct. N.Y.Co.,1/6/11) (York, J.), also rejected the tenant’s strident calls to penalize the owner for having rented his apartment pursuant to a market lease while the owner also received J-51 tax benefits. The Supreme Court opined that such action was not per se fraud because: [I]f this landlord was merely following DHCR precedent, acting under the color of law, it would be difficult to see its actions as fraudulent. Just like the tenants in Borden, Boyd, and Garcia, plaintiff asserted a claim for rent overcharge based on the re-regulation of the subject apartment due to Altman I’s departure from well-settled law. Like countless property owners and managers in similar circumstances, Owner and its predecessor relied upon long- standing interpretations of the high rent vacancy deregulation statute when it executed a market lease with plaintiff in 2005. This market lease, or the failure to register the apartment with DHCR, were not a knowing or deliberate evasion of the Rent Stabilization Law or evidence of a fraudulent scheme to deregulate the apartment. Nor were the rents charged to plaintiff willful overcharges. 20 Accordingly, Altman II’s punitive rent-setting formula and imposition of treble damages against Owner was erroneous. The Rent Freeze is Contrary to Law There was no legal basis to impose a 10-year rent freeze due to the absence of rent registrations during the period Owner believed, in good faith, that the subject apartment was lawfully deregulated. Failing to register an apartment with DHCR does not ipso facto entitle a tenant to a rent freeze. Dodd v. 98 Riverside Drive, 2012 N.Y. Slip Op. 31653(U) (S. Ct. N.Y. Co., 6/21/12) (Gische, J.S.C.), recognized the inherent unfairness of punishing someone for failing to do something that was not legally required at the time: Fixing the rent stabilized rent in hindsight pursuant to the failure to register provisions of the RSL, under these circumstances, would be unduly punitive for what was action otherwise taken in good faith, relying upon the agency’s own interpretation of the law. Moreover, failure to register does not negate an owner’s right under RSC § 2526.1(a)(3)(i), to lawful rent increases, adjustments, and surcharges for purposes of calculating the legal rent. Lack of registration is a completely curable event. RSL § 26-517(e) and RSC § 2528.4(a) provide that filing a late annual rent registration to correct an omission or error allows an owner to collect RGB guideline increases with no penalties, so long as the late registrations reflect lawful 21 increases. Furthermore, RSC § 2528.4(a), states that late registrations are accepted by DHCR with no penalty. Thus, in Sessler v. New York State Division of Hous. & Comm. Renewal, 282 A.D.2d 262 (1 st Dep’t 2001), the First Department affirmed DHCR’s dismissal of the tenant’s overcharge complaint where the owner late-filed all relevant registrations. See also, Heights Assoc. v. Bautista, 178 Misc. 2d 669 (App. T. 2d Dep’t 1998) (holding that RSL § 26-516[a][i] is not intended to bar rent increases on account of a missing or incorrect registration). Accordingly, pursuant to the RSL, RSC, DHCR rulings, and applicable case law, the absence of past registrations should not have prevented increases or adjustments from accruing for the subject apartment, and, should Altman I not be reversed, they must be included in any new legal regulated rent calculation. CONCLUSION WHEREFORE, RSA, CHIP, and REBNY, as amici curiae, respectfully request that the Order of the Appellate Division, First Department, entered on April 28, 2015, and the final Order, entered on October 4, 2016, be reversed in their entirety; or, alternatively, that the punitive penalties imposed in the final Order, be vacated, with such other and further relief as deemed just and proper by this Court. Dated: New York, New York February 16, 2018 BELKIN BURDEN WENIG & GOLDMAN, LLP Attorneys for Amici Curiae RSA, CHIP, and REBNY 270 Madison Avenue New York, NY 10016 (212) 867-4466 By:. Ntagda L. Cruz Sherwin Belkin Magda L. Cruz Matthew S. Brett Of Counsel 22 CERTIFICATE OF COMPLIANCE Pursuant to 22 NYCRR § 500.13(c) The foregoing brief was prepared on a computer using the word processing program, Microsoft Word 2016 MSO. A proportional typeface was used, as follows: Name of typeface: Times New Roman Point size: Line spacing: 14 (except footnotes are point size 12) Double (except block quotes are single space) The total number of words in the brief, inclusive of footnotes, but exclusive of pages containing the corporate disclosure statement, the table of contents, table of authorities, proof of service, and this Statement, is 4,812. Dated: February 16, 2018 BELKIN BURDEN WENIG & GOLDMAN LLP Attorneys for Petitioner-Landlord-Respondent 270 Madison Avenue New York, New York 10016 (212) 867-4466 By: Mag< :, Esq. 23