Panel Finds Owners of SRO Hotels Can Continue Renting to Tou

[TenantNet]

Panel Finds Owners of SRO Hotels Can Continue Renting to Tourists
Noeleen G. Walder
01-30-2009
NY Law Journal

Owners of three Upper West Side single-room occupancy hotels can continue their "longstanding practice" of renting units to tourists for short-term stays, a state appeals court held yesterday.

Reversing a Manhattan judge's finding that New York City was entitled to a preliminary injunction to halt the practice, the Appellate Division, First Department, unanimously ruled in City of New York v. 330 Continental LLC, 3423, that stays of less than 30 days in the three buildings do not amount to a violation of local zoning laws or the buildings' certificates of occupancy.

The First Department decision will be published Wednesday.

Writing for the panel, Justice David Friedman concluded, "While the City's evidence demonstrates - indeed defendants readily admit - that a significant number of units in each building are (and have been for many decades) rented to tourists for periods of less than 30 days, the City made no showing that most of the units in any of the buildings are rented for such short-term occupancy."

In a statement, Gabriel Taussig, chief of the New York City Law Department's Administrative Law Division, said the city is "disappointed" by the ruling, and continues to have "deep concerns about the illegal use of buildings."

"We intend to continue prosecuting the matter aggressively" and "anticipate that we will ultimately prevail," he added.

The buildings at the center of the dispute - which include the Continental, the Montroyal, and the Pennington - are located at 330 W. 95th St., 315 W. 94th St., and 316 W. 95th St., respectively. All told, the seven-story single-room occupancy (SRO) buildings contain 591 units.

By definition, an SRO unit can have either a kitchen or bath, but not both.

While owners and managers of these buildings, which are located in an area zoned for general residential use, rent some of the SRO units to permanent tenants, other units are advertised on Web sites such as Orbitz.com and Yahoo Travel and rented to tourists for short-term stays.

The city contended that stays of less than 30 days constituted "transient occupancy" and violated New York City's 1961 zoning resolution prohibiting "transient hotels" used "primarily for transient occupancy" from being situated within a general residential district. By contrast, the zoning law defines apartment hotels as buildings in which the units "are used primarily for permanent occupancy."

The city also maintained that short-term stays are illegal since the buildings had been designated as Class A multiple dwellings, which must be "occupied as a rule for permanent residence purposes." It asked Acting Supreme Court Justice Michael D. Stallman (See Profile) to put an end to rentals lasting less than 30 days.

On Oct. 29, 2007, Justice Stallman granted the city's motion for a preliminary injunction, and held that as of Jan. 8, 2008, the three buildings could no longer be used as transient hotels, save for units already occupied on that date (NYLJ, Nov. 1, 2007).

'Vagueness and Ambiguity'

Noting that units in the buildings had been rented out to short-term lodgers since at least the 1940s, the First Department disagreed that the city had demonstrated a likelihood that it would ultimately prove that violations of the zoning laws or certificate of occupancy amounted to a public nuisance.

"This is because, even if it is assumed that an occupancy of less than 30 days is transient for purposes of the [Multiple Dwelling Law] and the [Zoning Resolution], the City failed to demonstrate that most of the units in any of the buildings are rented for such short-term occupancy," Justice Friedman wrote.

"Under the plain meaning of the MDL and the ZR, the use of a significant portion of a class A apartment hotel for transient occupancy (however defined) is permissible so long as it remains true that the building is occupied, as a rule, for permanent residence purposes (MDL '4[8][a]) and that the building is used primarily for permanent occupancy (ZR '12-10)," he added.

In finding that the city had failed to make its case for a preliminary injunction, the panel also cited the "vagueness and ambiguity" of the zoning and multiple dwelling laws at issue.

"[T]he words transient and permanent are not defined in either the MDL or the ZR. Thus, even if all transient occupancy of the subject buildings were unlawful (as the City claims), it would not be clear where an injunction should draw the line between permitted and proscribed occupancies," Justice Friedman wrote.

However, the panel held that Justice Stallman was correct to deny defendant's motion to dismiss certain causes of action of the city's complaint.

"While the City failed to establish an entitlement to a preliminary injunction against such use of the buildings, it cannot be said, as a matter of law, that there is no state of facts the City could prove that would establish a right to ultimate relief based on . . . the alleged failure to use the buildings primarily . . . or as a rule . . . for permanent occupancy," the panel concluded.

Justices Richard T. Andrias (See
Profile), John T. Buckley (See
Profile), James M. Catterson (See
Profile) and Rolando T. Acosta (See Profile) joined the panel, which heard arguments on April 1,
2008.

David M. Satnick and Helen Gavaris of Loeb & Loeb and Menachem J. Kastner of Cozen O'Connor represented the defendants other than the Montroyal.

Mr. Satnick said the First Department decision was "100 percent correct." In light of the "current economic turmoil," owners of SRO hotels should be permitted to rent units to tourists, a practice which "generates tremendous income for the city by way of taxes," he added.

Scott E. Mollen and John P. Sheridan of Herrick, Feinstein and Robert H. Freilich of Los Angeles-based Miller and Barondess served as attorneys for 315 Montroyal LLC. Mr. Mollen called the ruling "extremely important for not only owners of SRO hotels" but the city's tourist industry, particularly in light of the "acute shortage of affordable hotel rooms in the city."

Senior Counsels Deborah A. Brenner and Barry P. Schwartz handled the appeal for the New York City Law Department.