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Posted by nyhawk on May 31, 2001 at 14:00:39:

In Reply to: Landlords May Cut Rent Temporarily posted by nyhawk on May 31, 2001 at 06:35:35:

Landlords May Cut Rent Temporarily

By Michael A. Riccardi
New York Law Journal
May 23, 2001

Landlords may temporarily decrease rent under the Rent Stabilization Law and still use the legal regulated rent as a basis for future increases, the Appellate Division, First Department, ruled yesterday.

In a 3-2 unsigned opinion, the panel said a landlord's decision to grant a "preferential rent" to a tenant is not a waiver of the legally allowable rent.

But the dissenters, led by Justice Israel Rubin, argued that the Rent Stabilization Law does not empower a landlord to unilaterally designate a rent reduction as "preferential" in order to preserve the basis for future increases when the tenants renew their lease.

In Application of Missionary Sisters, 2341-2341A, the owners of an apartment building located at 222 E. 19th Street, a religious order called the Missionary Sisters of the Sacred Heart, asked for a rent increase upon renewal of a lease with its tenant, Alessandro Croseri.

The state Division of Housing and Community Renewal rejected the application for the increase, saying it was greater than the percentage allowed under the Rent Stabilization Law.

Manhattan Supreme Court Justice Sheila Abdus-Salaam dismissed the Article 78 petition in which the Missionary Sisters asked for the increase, but the First Department panel reversed her ruling, holding that the landlord was entitled to use the market rent as the basis for the requested increase.

In the First Department majority were Justices Eugene L. Nardelli, Milton L. Williams and Alfred D. Lerner.

The dispute over the proper basis for the increase stemmed from the landlord's decision to grant a "preferential rent" below the legally allowable rental value of the apartment.

In a two-year agreement beginning May 1, 1994, the lease provided that the legal rent was $1,448 per month, but granted to Mr. Croseri a "preferential rent" of $1,379 per month.

The lease declared that the landlord was extending the "preferential rent . . . because of the present economically depressed market."

A renewal lease between the Missionary Sisters and Mr. Croseri extended the preferential rent for one more year. The lease quoted the legal rent at $1,477 per month, and the preferential rent to be paid by the tenant was $1,408.

In 1997, the landlord tendered a renewal lease at the legal regulated rent, but Mr. Croseri refused to accept it. The Division of Housing and Community Renewal agreed with Mr. Croseri's position that "renewal leases should be based on the preferential rent until the tenant moves out."

The Missionary Sisters, however, argued that the lease terms preserved its right to make increases based on the allowable rent under the statute.

Landlord's Right

The majority said that the "preferential rent" was an advantage granted to the tenant by the landlord, and was consistent with the policy underlying the Rent Stabilization Law.

"Surely, requiring a tenant to pay less than the full legal rent, no matter for how short a term, cannot possibly violate any public policy prohibiting the exaction of 'unjust, unreasonable and oppressive rents,' especially where the tenant is aware of the concession and the limitation on its duration," the panel said in its opinion.

The majority said that the Legislature placed no restriction on the grant of concessions and contemplated no waiver of the legal regulated rent when a concession was granted.

Moreover, the parties agreed not only on the preferential rent in the lease, but the landlord in that lease disclosed the legal rent allowable.

Dissenting Opinion

The dissenters, led by Justice Rubin, said that the majority was granting landlords too much leeway in diverging from the legal regulated rent.

The rent reduction granted by the landlord to Mr. Croseri, the dissenters said, was designated a "preferential rent" by the landlord unilaterally.

The preference, moreover, was justified in the lease as a response to market conditions, which in turn were defined solely by the landlord.

"It is the owner's position that the lease grants it the option to remove the preferential rent if, in its determination, market conditions are no longer 'depressed,'" Justice Rubin wrote. "[N]othing in the Rent Stabilization Law grants a landlord the right to make such a unilateral determination."

The dissenters agreed with the Division of Housing and Community Renewal in its reading of the Rent Stabilization Law. The reduction granted to Mr. Croseri should serve as the basis for future increases to him, they said. The legal regulated rent should be reinstated only when Mr. Croseri abandons his tenancy.

Justice Rubin was joined by Justice Betty Weinberg Ellerin in dissent.

The Missionary Sisters were represented by Patrick K. Munson of Kucker & Bruh in New York. Michael B. Rosenblatt, counsel to the State Division of Housing and Community Renewal, handled the case for the agency.

Date Received: May 22, 2001

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