bedbug disclosure law provides more questions

Inside This Issue

ADMINISTRATIVE UPDATE

Bedbug Disclosure Law Provides More Questions Than Answers.................

The Court of Appeals Takes Another Bite Out of the Four Year Rule......

New York State Legislature Amends Multiple Dwelling Law to Regulate Hotel or Transient Use in Class A Multiple Dwellings..........

Your Residential Tenant Files for Bankruptcy on the Eve of Eviction..........

LITIGATION UPDATE

The BBWG Litigation and Appellate Departments Work to Provide Landlord With Possession of Commercial Building and Enforcement of its Contractual Rights..........

TRANSACTIONAL UPDATE

BBWG Represents Private School in Purchase of Connecticut Campus......

CO-OP / CONDO CORNER........................

NOTABLE ACHIEVEMENTS............

CASES AND TRANSACTIONS OF NOTE.............................

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E D I T O R S

Magda L. Cruz

Aaron Shmulewitz

Kara I. Rakowski

UPDATENOVEMBER 2010 | VOLUME 8

Belkin Burden Wenig & Goldman, LLP | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709 Attorney Advertising 1

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BEDBUG DISCLOSURE LAW PROVIDES MORE QUESTIONS THAN ANSWERS


what point is a building or apartment truly infested? How many bedbugs create an apartment infestation?

• The form asks the owner to state whether or not “eradication measures were employed.” What does that mean? An “eradication measure” is not a defined term in the statute or the form. When does a remedial step reach the threshold of constituting an eradication measure? Experienced exterminators cannot even agree on what constitutes a proper eradication measure. Some experts favor heat; some cold; some rely upon bug sniffing beagles; some drill into walls to insert chemicals. At what point do the steps taken by an owner qualify as an eradication measure?

• What happens if the owner says that eradication measures have been taken and the bedbugs return to the apartment or the building? Does this make the owner subject to a potential claim for fraud, or vitiation of the lease that the tenant signed, or damages?

• What liability does the owner have for bedbugs that may be present in a tenant’s apartment where the tenant has failed to advise the owner? The form asks the owner to disclose the bedbug history – not merely the history that the owner is actually aware of. Is an owner in non-compliance for failing to disclose bedbugs that may be present, but are not known to the owner?

By Sherwin Belkin

Several weeks after the enactment of the new bedbug disclosure law, DHCR promulgated a form for owners to use to inform new tenants as to the prior year’s bedbug history in the apartment and the building. DHCR also issued a form by which new tenants could assert

that the owner had failed to comply with the disclosure form. Pursuant to this second form, the owner would then be informed of the complaint and ordered to provide the requisite information.

This all seems simple enough: provide the information to your new tenants and if you fail to do so, DHCR will direct compliance. But, like much of rent regulation, what appears simple actually raises complex substantive and procedural questions.

For example:

• DHCR has opined in a recent Wall Street Journal article that the bedbug disclosure law applies to both regulated and non regulated apartments. But DHCR’s jurisdiction normally applies to rent stabilized and rent controlled units. Why was DHCR asked to issue orders on apartments that have historically been beyond its jurisdiction?

• DHCR also opined in the WSJ that the law applied to owners who rent out their coop or condo units. But how are unit owners to know the bedbug history of the entire building? What obligation do coop or condo boards now owe to unit owners that rent regarding the dissemination of information? What obligation does an individual unit owner have to the board to inform it if bedbugs are present and are remediated?

• The form asks the owner to “set forth the property’s bedbug infestation history.” What does that mean? “Infestation” is not defined in the statute or the form. Webster’s Dictionary defines infestation as being “overrun” with a condition. At

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BEDBUG DISCLOSURE LAW PROVIDES MORE QUESTIONS THAN ANSWERS

• Why are new tenants not asked to reveal if their prior apartment or building had bedbugs? Perhaps the tenant was the cause. Shouldn’t the tenant be asked to disclose his or her bedbug history to the owner?

• Bedbugs have cropped up throughout the City in a wide array of places. NikeTown was shut down for a weekend. A movie theater was emptied. A Victoria’s Secret store was infested. Why is a disclosure form not mandated on sneakers, theater seats or undergarments? Could it be that there is a selective enforcement of the law against property owners?

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• If an owner discloses the presence of bedbugs, does that constitute an admission to DHCR, HPD, OCE or the courts, potentially creating the basis for a claim for a rent abatement, posting of a violation or more?

So, the simple law and the simple form actually raise endless questions and create potential ramifications far beyond those that appear to have been contemplated. Is there a solution? I suggest that one avenue may be found in the statute itself. The statute refers to disclosure via a form issued “or approved by” DHCR. I suggest that a form that more rigorously defines the terms used,

the obligations of those impacted and limits the potential scope of liabilities and claims to some threshold of rationality may be an effort worth considering.

Sherwin Belkin is a partner in the Firm’s Administrative Law and Appeals Departments. This article previously appeared in the October 2010 New York Housing Journal® of the Community Housing Improvement Program (CHIP) (www.chipnyc.org).


legality of the rent that was being charged for the apartment on the base date.

In Grimm, the tenant of a rent-stabilized apartment filed a rent overcharge complaint with DHCR, in which she alleged that the rent which the apartment owner was charging on the base date was tainted by fraud because six years earlier there had been a seemingly high increase in the rent when a tenant moved out and the apartment was re-rented to Grimm’s predecessor. DHCR’s Rent Administrator dismissed Grimm’s complaint, finding that DHCR was precluded by the Four Year Rule from examining the legality of the rent increase that occurred prior to the base date. DHCR also found that all rents that the apartment owner had charged for the apartment since the base date were lawful.

The Deputy Commissioner affirmed the Rent Administrator’s decision in a PAR proceeding; however, the tenant appealed the Deputy Commissioner’s decision in an “Article 78 proceeding,” and on judicial review, the Supreme Court annulled the Deputy Commissioner’s determination and remanded the proceeding to DHCR in order for DHCR to consider the tenant’s allegations of fraud.

Both DHCR and the apartment owner appealed the Supreme Court’s decision to the Appellate Division, First Department. In an order dated

By Phillip Billet

As most building owners know, the “Four Year Rule,” which is codified at §26-516 of the Rent Stabilization Law, provides that when DHCR adjudicates a rent overcharge

complaint relating to a rent stabilized apartment, it is prohibited from examining the legality of any rent that was being charged for the apartment more than four years prior to the date the complaint was filed. The date that occurred four years prior to the date a rent overcharge complaint is filed is known as the “base date.”

Specifically, the statute provides that “no determination of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed . . . This paragraph shall preclude examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint.”

In the recent decision of Grimm v. New York State Division of Housing and Community Renewal, et al, however, the New York State Court of Appeals took a significant bite out of the four year rule. The majority ruled that when a tenant in a rent overcharge complaint makes a “colorable claim of fraud,” DHCR is obligated to investigate the


THE COURT OF APPEALS TAKES ANOTHER BITE OUT OF THE FOUR YEAR RULE

September 24, 2009, with two justices dissenting, the Appellate Division affirmed the Supreme Court’s order.

DHCR and the apartment owner then asked for permission to appeal the Appellate Division’s order to the Court of Appeals, and permission was granted. However, in a 4-3 decision dated October 19, 2010, the Court of Appeals affirmed the Appellate Division’s order, ruling that where a rent overcharge complaint alleges fraud, “DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent.” The Court concluded that “DHCR acted arbitrarily and capriciously in failing to meet that obligation where there existed substantial indicia of fraud on the record.”

In language possibly designed to placate the scathing memorandum of the three dissenting judges, the majority explained that a complaining tenant had to do more than just simply utter the word “fraud” in order to get around the Four Year Rule. The majority stated that:

[G]enerally, an increase in rent alone will not be sufficient to establish a “colorable claim of fraud,” and a mere allegation of fraud alone, without more, will not be sufficient to require DHCR to inquire further. What is required is evidence of a landlord’s fraudulent deregulation scheme to remove an apartment from the

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Notable Achievements

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SHERWIN BELKIN, a par tner in BBWG’s Adminis t rat ive Law and Appeal s Depar tments , responded to an inquiry in the October 17 Sunday Real Estate Sect ion of the New York Times regarding the parameters that govern the potent ia l change in s tatus of a rent-control led apar tment upon i t s becoming vacant .

JOSEPH BURDEN, co-head of BBWG’s Li t igat ion Depar tment , responded to an inquiry in the October 10 Sunday Real Estate Sect ion of the New York Times regarding the c i rcumstances under which a f ree-market tenant can replace a roommate .

MAGDA CRUZ, a par tner in BBWG’s Appeal s and Li t igat ion Depar tments , and MARTIN MELTZER, a par tner in BBWG’s Li t igat ion Depar tment , were on the panel of speakers a t the New York County Lawyers’ Associat ion October 28, 2010 Continuing Lega l Educat ion seminar co-sponsored by the Community Housing Improvement Program (CHIP). MS. CRUZ spoke on appel la te dec i s ions concerning the enforcement of s t ipulat ions of se t t lement in non-payment proceedings . Mr. Meltzer d i scussed i s sues surrounding the draf t ing of such s t ipulat ions in Housing Court .

CRAIG L. PRICE, a par tner in BBWG’s Transact ional Depar tment , and JAMIE B. CHAPMAN, an assoc iate in the Depar tment , authored an ar t ic le ent i t led “Ass ignment of Mortgages : Money in Your Pocket ,” which appeared in the October, 2010 edi t ion of The Mann Repor t . MR. PRICE a l so par t ic ipated as a facul ty member on t ransact ional rea l e s tate law for the New York Res ident ia l Specia l i s t (NYRS) course he ld at REBNY on September 20. NYRS i s a REBNY “Board Cer t i f ied” des ignat ion that i s awarded to top brokers who have success fu l ly completed a spec ia l course of s tudies des igned to provide addit ional educat ion in rea l e s tate brokerage , law, e thics , market ing and f inance .

ALYSSA D. SANDMAN, an assoc iate in BBWG’s Adminis t rat ive Law Depar tment , authored an ar t ic le ent i t led “Hidden C of O Items Can Cost Big ,” dea l ing with new enforcement e f for t s by the Depar tment of Bui ld ings that create a need by co-ops and condominiums to obta in cer t i f icates of no harassment where Class B unit s appear on the Cer t i f icate of Occupancy, which appeared in the September, 2010 edi t ion of The Cooperator .

L IT IGATION UPDATE

THE BBWG LITIGATION AND APPELLATE DEPARTMENTS WORK TO PROVIDE LANDLORD WITH POSSESSION OF COMMERCIAL BUILDING AND ENFORCEMENT OF ITS CONTRACTUAL RIGHTS

By Lewis Lindenberg and Robert Jacobs

In hard economic times, upholding trial level victories is more important than ever as a favorable outcome in a lower court can go up in smoke on appeal. Notably, BBWG’s Appellate Department has been increasingly successful in upholding favorable decisions at the trial level, as well as overturning erroneous decisions by the courts and agencies.

In a notable victory, Litigation partners, Lewis Lindenberg and Jeffrey Levine, were successful in obtaining possession on a summary judgment motion at the trial level against a net lessee of an entire building on Madison Avenue in Manhattan. The tenant was the net lessee of one of two adjoining buildings owned by a BBWG client, which buildings had some common building systems. The tenant, in an amendment to its lease, had covenanted to separate the heating and sprinkler systems that were interconnected between the buildings.

When the tenant failed to perform the work, the owner served a notice of default in contemplation of the commencement of a holdover proceeding in landlord-tenant court. Prior to the expiration of the default period under the notice, the tenant obtained a stay from the Supreme Court by commencing a so-called “Yellowstone Action.” A “Yellowstone Action” stays the running of a notice of cure pending certain relief by the Supreme Court, which, in contrast to the landlord-tenant court, has injunctive powers to prevent a tenancy from being terminated. In the Yellowstone Action, the tenant claimed that it was ready, willing and able to perform the necessary work, but needed more time to separate the building systems. Owner contended from the outset that the tenant was not prepared to bear the expense nor obtain the required resources to complete the work and sought the injunction be denied. The owner continually pushed the court, ultimately brought on a motion for summary judgment, which was granted by the Supreme Court and vacated the Yellowstone injunction paving the way for the owner to recover possession of the entire building.

The tenant appealed to the Appellate Division, which is the second highest appellate court in the state. BBWG’s Appellate Department responded to the tenant’s appeal. In a cogent decision, the Appellate Division upheld the

ruling of the lower court and affirmed the judgment in favor of the owner.

Thereafter, the owner sought possession in the commercial part of the Civil Court and prevailed in obtaining a judgment of possession based on the Supreme Court decision. The Civil Court also awarded landlord use and occupancy and attorneys’ fees. The fair market value of the use and occupancy was based upon tenant’s cumulative rents with its subtenant, equal to six times the rent previously received by the owner directly from its tenant.

In view of the difficult economic climate and the cost of litigation, sustaining victories are more important than ever. In the first instance, it is necessary to not only win on the owner’s behalf, but create an impeccable record on appeal, so as to provide the appellate courts with the materials necessary to preserve the win obtained at the lower court level. The foregoing is only one of many recent instances where BBWG’s Appellate Department was successful in sustaining a favorable decision for a BBWG client in the lower court.

Lewis Lindenberg ([email protected]) is a partner in the Firm’s Litigation Department and Robert Jacobs ([email protected]) is a partner in the Firm’s Appeals Department.

Notable Achievements

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protections of rent stabilization.

How much evidence of “a deregulation scheme” is not clear. Thus, it is likely that DHCR will now be inundated with: (a) rent overcharge complaints, in which tenants will attempt to allege a “colorable claim of fraud;” and (b) PARs appealing DHCR orders which dismissed allegations of fraud and found no illegal overcharge during the four year period preceding the complaint. In response to each complaint or PAR making an allegation of “fraud,” DHCR will be required to determine whether the tenant had in fact, made a “colorable claim of fraud” requiring further investigation into the rental history.

This inundation of complaints and PARs, coupled with DHCR’s obligation under Grimm, will likely have two consequences. First, the amount of time it will take DHCR to process a rent overcharge

complaint or a PAR will be drastically increased. The situation will be further exacerbated by the retirement of a number of long-time DHCR employees, and DHCR not having any apparent plans to replace them. Second, owners will be required in such proceedings to submit evidence surrounding the circumstances by which they arrived at base date rents. In many cases, such evidence may no longer exist if, in reliance on the Four Year Rule, the owner discarded records or did not request records from a predecessor owner, which predate the complaint by more than four years.

In light of the Grimm decision, we strongly urge owners not to dispose of rental records, including leases, rent registration statements with proof of service and proof of renovations; and to perform much more extensive due diligence when purchasing a rent regulated building. Owners must be prepared to justify, in as much detail as possible, all rent increases collected, even those

collected prior to the base date of a rent overcharge complaint.

Phillip Billet is an associate in the Firm’s Administrative Law Department.

(i.e., obtain a Class B Certificate of Occupancy). However, the vast majority of buildings are not eligible for the two-year moratorium. In order to qualify for legalization, the building must: (a) have had 51% or higher transient occupancy on January 1, 2009; (b) have been used as a hotel or for transient use on December 15, 1961; (c) be of fireproof construction; (d) have two means of egress for each residential unit; (e) have operational exit signs and a fire alarm system as required for hotels on January 1, 2009; and (f ) be registered with the Department of Buildings within six months of the effective date of the legislation. Included in the registration requirements is the submission of a certification signed and sealed by an architect or licensed engineer that verifies that each unit meets the fire and safety requirements stated above. In the event that the Owner fails to obtain the new Certificate of Occupancy within the two-year time period, plus granted extensions, if any, then the law requires that all transient use discontinue.

In the signing memorandum for the bill, Governor Paterson noted that the sponsors sought to prevent the use of buildings that were intended for permanent dwellings from being operated as “illegal” hotels. The Governor also noted that the Mayor’s Office, in supporting the bill, contended that transient use “pose[s] fire hazards, remove[s] affordable housing from the market and create[s] unfair competition for law-abiding hotels.” The


NEW YORK STATE LEGISLATURE AMENDS MULTIPLE DWELLING LAW TO REGULATE HOTEL OR TRANSIENT USE IN CLASS A MULTIPLE DWELLINGS

By S. Stewart Smith

On July 23, 2010, Governor David A. Paterson signed into law a bill prohibiting transient use in any building classified as a “class A” Multiple Dwelling. The bill, which was sponsored by Senator Liz Krueger and Assemblyman

Richard Gottfried, both from Manhattan, was intended to crack down on “illegal hotels” that have proliferated throughout New York City.

The new law, which is effective May 1, 2011, prohibits the renting of even a single unit in a Class A building, whether it be a Class A hotel or an apartment building, for less than 30 days. Only Class B buildings are exempt from the provisions of the new law. The law even prohibits an individual tenant from subletting his or her unit for less than 30 days. However, individuals occupying the unit with the permanent tenant, such as roommates, boarders or guests, are not subject to the 30 day rule. Additionally, incidental or occasional occupancy such as when the permanent tenant is on vacation or away for medical treatment is allowed for less than a 30 day term, provided that no payment is received for the use of the unit.

The law affords two years, with limited extensions for cause, for a small number of buildings to legalize

Governor expressed concern for owners that “had a good faith basis to believe their uses were legal prior to the bill’s passage,” such as SRO buildings, bed-and-breakfasts, and not-for-profit providers of services for mentally ill. The Governor also correctly noted that “landowners or community organizations that invested significant funds to promote certain uses that were legal” prior to passage of the bill, would be adversely affected by the new legislation.

Owners of Class A buildings that have units which are being rented on a transient basis should consult with an architect and attorney to determine whether the building is eligible for legalization as transient use.

S. Stewart Smith is an associate in BBWG’s Administrative Law Department.

THE COURT OF APPEALS...continued from page 2


JOSEPH BURDEN, co-chair of BBWG’s Litigation Department, and DAVID BRAND, an associate in the department, successfully defended against an action brought by an owner to vacate a 99-year commercial store lease. The owner had alleged that the lease was in violation of the Not-for-Profit Corporations Law and violated the Rule Against Perpetuities. The Court held that the owner’s suit was barred by the statute of limitations, the lease did not violate the Rule Against Perpetuities since it was for a finite period of years, and, since the lease did not constitute all or substantially all of the not-for-profit corporation’s assets, it did not require Court approval.

MR. BURDEN and MR. BRAND also successfully defeated a motion by a co-op to dismiss a cause of action brought by Lenox Hill Hospital as proprietary lessee in the co-op. The hospital, which owned six apartments in the building, had been placing medical residents in its apartments uninterrupted for over 30 years until the co-op attempted to deny this right on the alleged ground that such practice constituted subletting in violation of the co-op’s proprietary lease. The Court ruled that since the medical residents entered into occupancy agreements with the hospital incident to their employment, which agreements limited their rights in the apartments, the practice did not create a landlord-tenant relationship between them and the hospital and, therefore, did not constitute subletting in violation of the proprietary lease.

DANIEL ALTMAN, CRAIG L. PRICE, ROBERT JACOBS and ALLAN GOSDIN of BBWG’s Transact ional Depar tment completed a sophis t icated t ransact ion–over the course of a one-week per iod–in which BBWG’s c l ient contracted to purchase a major i ty interes t in an LLC where the c l ient owns the remaining minor i ty interes t in the LLC; the LLC owns four res ident ia l bui ld ings in the Bronx, conta ining 260 res ident ia l apar tments and e ight commercia l uni t s . BBWG’s team was instrumenta l in negot iat ing a “f l ip” of the contract to purchase the major i ty interes t in the LLC at a prof i t , a s wel l a s draf ted and negot iated an amended and res tated operat ing agreement and ass ignment documents , and obta ined the lender’s approval so that the purchaser could complete the t ransact ion pr ior to the c los ing deadl ine .

MR. ALTMAN and MR. GOSDIN also represented an active developer in the acquisition of three parcels of land, including a building with a commercial tenant and vacant land, in the East Village. Given the overwhelming interest in the property, BBWG’s team was instrumental in performing its due diligence, completing the contract negotiations, and closing the transaction with an out-of-state seller and counsel all within a three-week period.

MR. ALTMAN and HOWARD WENIG also represented a professional services firm in the negotiation and build-out of a 17,500 square foot office lease on Madison Avenue. The term of the lease was for 15 years and the transaction was valued at approximately $12 million.

CRAIG INGBER of BBWG’s Transactional Department represented an institutional investor in the purchase of two multifamily properties in Brooklyn with an aggregate value of more than $20 million, and in the purchase of a mixed-use multifamily property in Harlem valued in excess of $10 million. MR. INGBER also represented an individual investor in the purchase of a landmarked development property in Brooklyn Heights, and, separately, the owner in the refinancing of three commercial properties in Brooklyn.

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TRANSACTIONAL UPDATE

BBWG REPRESENTS PRIVATE SCHOOL IN PURCHASE OF CONNECTICUT CAMPUS

BBWG, through its Connecticut office, is pleased to announce its representation of The Winston Preparatory School, a New York educational corporation, in the acquisition of a new campus in a rural section of Norwalk, Connecticut.

The School is a private college preparatory school with educational facilities on the West Side of Manhattan.

The Connecticut campus consists of over 13 acres on two large contiguous parcels, including a pond. The campus currently has seven buildings with room for dormitories, additional classrooms, a gymnasium and athletic fields.

The School had been renting the property from the owner and was offered the opportunity to make its temporary home permanent. The transaction was approximately 10 months in the making and involved a complex loan workout between the owner, its mortgagee, and the School. The loan was restructured and assumed by the School with a principal of the seller being released from a loan guarantee.

This transaction represents one of BBWG’s

many recent transactions outside New York City. Robert A. Jacobs, a partner in BBWG’s Transactional Department, represented the School with assistance from Craig Ingber, another partner in the Department.

CASES AND TRANSACTIONS OF NOTE

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CO-OP ENTITLED TO INJUNCTION AGAINST OPERATOR OF NEARBY ROOFTOP BAR FOR NOISE NUISANCE 61 W. 62 Owners Corp. v. CGM EMP LLC Appellate Division, 1st Dept.

COMMENT | The Court reached its holding despite the fact that there were no violations of record involving the noise. The Court emphasized the equities, based on detailed record keeping by residents of the noise and its effect on them.

CONDO UNIT OWNER NOT ENTITLED TO INJUNCTION AGAINST BAR IN HIS BUILDING PLAYING MUSIC TOO LOUDLY, DUE TO QUESTIONS OF FACT

Kahona Beach LLC v. Santa Ana Restaurant Corp. Supreme Court, New York County

COMMENT | In contrast to the above case, this Court emphasized the largely unsubstantiated allegations by the unit owner, and characterized them as involving de minimis instances scattered over time; the Court also noted the remediation efforts apparently taken by the bar, and the bar’s responsiveness to the resident’s complaints.

COMMERCIAL CONDO UNIT OWNER’S TRESPASS SUIT OVER BUILDING PIPES AND DUCTS THROUGH UNIT DISMISSED

Olympic Funding, LLC v. Ladies Mile Inc. Supreme Court, New York County

COMMENT | The Court observed that the plaintiff was a sophisticated real estate investor that knew that the pipes and ducts traversed the unit when it signed the purchase agreement, thereby constituting at least implicit consent to the complained-of trespass.

CONDO SPONSOR ENTITLED TO KEEP DEPOSIT ON PURCHASER BREACH, DESPITE PURCHASER CLAIM THAT PURCHASE “OPTION AGREEMENT” VIOLATED RULE AGAINST PERPETUITIES

Rozina v. Casa 74th Development LLC Supreme Court, New York County

COMMENT | The Court rejected this most recent creative application of the ancient Rule Against Perpetuities, a concept that has bedeviled attorneys for hundreds of years.

SELLER’S SUIT AGAINST BUYER’S ATTORNEY FOR DEFAMATION AND SLANDER OF TITLE ARISING FROM STATEMENTS MADE AT ABORTED CLOSING DISMISSED BASED ON QUALIFIED PRIVILEGE AND OTHER GROUNDS

Weiss v. Lowenberg Supreme Court, New York County

COMMENT | While one should generally be careful with his/her statements about an adversary or client, the concept of qualified privilege exists to protect statements made in the context of litigations, transactions and other settings regarding a matter of concern to those participating.

Co-op | Condo CornerBy Aaron Shmulewitz

Aaron Shmulewitz heads the firm’s Co-op/Condo practice. Aaron represents more than 300 cooperative and condominium boards throughout the City, as well as sponsors of cooperative and condominium conversions, and numerous purchasers and sellers of cooperative and condominium apartments, buildings, residences and other properties. Some recent noteworthy court decisions in this practice area are discussed below. If you would like to discuss any of the cases in this article or other related matters, you can reach Aaron at 212.867.4466 or ([email protected]).

PURCHASER OF NEW CONSTRUCTION CO-OP NOT OBLIGATED TO CLOSE, AND DEPOSIT IS NOT AT RISK, IF REGULAR ELEVATOR SERVICE AND OTHER UTILITIES AND SERVICES ARE NOT CONSISTENTLY AVAILABLE

Campbell v. Mark Hotel Sponsor, LLC. U.S. District Court, Southern District of New York

COMMENT | The Court so held, despite the fact that a temporary certificate of occupancy had been issued covering the apartment, which was the stated condition of the purchase contract.

UNREGULATED TENANTS WHOSE LEASES EXPIRED PRIOR TO FILING OF CONDO CONVERSION “BLACKBOOK” ARE NOT DEEMED “TENANTS IN OCCUPANCY,” AND ARE NOT ENTITLED TO PROTECTIONS OF MARTIN ACT MH Residential 1, LLC v. Barrett Appellate Division, 1st Dept. COMMENT | The ruling means that these tenants can be forced to vacate, or pay substantially higher rents in order to remain, since the expiration of their leases ended their tenant status.

REJECTED CO-OP PURCHASER ENTITLED TO REFUND OF DEPOSIT BECAUSE SELLER’S MERE ALLEGATION OF PURCHASER’S BAD FAITH SUBMISSION OF BOARD PACKAGE FAILED TO RAISE FACTUAL ISSUE

Jangana v. Cogan Appellate Division, 1st Dept.

COMMENT | The Board’s rejection was apparently based on the purchaser’s finances. Significantly, the Court held that the purchaser was not obligated to reduce his financing per the Board’s condition, if the purchase contract didn’t require such reduction in response to any such condition.

DEFECTIVE SHOWER DOOR IS RESPONSIBILITY OF SHAREHOLDER; CO-OP NOT LIABLE FOR PERSONAL INJURIES SUFFERED WHEN IT SHATTERED

Nussbaum v. 150 West End Avenue Owners Corp. Appellate Division, 1st Dept.

CONDO SPONSOR CANNOT ENJOIN RELEASE OF DEPOSITS BACK TO RESCINDING APARTMENT PURCHASERS FOLLOWING ATTORNEY GENERAL DECISION TO ALLOW RESCISSION BASED ON TYPO IN OFFERING PLAN CRP/Extell Parcel I, LP v. Cuomo, U.S. Court of Appeals, Second Circuit

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YOUR RESIDENTIAL TENANT FILES FOR BANKRUPTCY ON THE EVE OF EVICTION

By Joshua Losardo and Jordi Fernandez

Owners who have obtained a judgment of possession against a residential tenant in a summary non-payment proceeding, and who would ordinarily be able to evict the tenant based on the failure to satisfy the judgment, can be obstructed from proceeding with an eviction when the tenant files for bankruptcy.

Owners should be aware however, that there are times when an eviction cannot be stopped by the tenant, even if a tenant files a bankruptcy before the eviction takes place.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“Reform Act”) modified certain provisions of the U.S. Bankruptcy Code, including situations where a debtor is party to a residential lease and the debtor’s landlord obtained a judgment of possession prior to the debtor’s bankruptcy filing. In such situations, the automatic bankruptcy stay no longer prevents the commencement or continuation of an eviction or ejectment proceeding unless the debtor makes certain certifications in the debtor’s bankruptcy petition.

The debtor must, under penalty of perjury, certify that under non bankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor-tenant would be permitted to cure the entire monetary default that gave rise to the judgment of possession.

The debtor is also required to deposit with the clerk of the bankruptcy court “any rent that would become due during the 30 day period after the filing of the bankruptcy petition.” This deposit

must be made to the court clerk within one (1) business day of the debtor-tenant’s filing for bankruptcy.

If a residential debtor-tenant fails to complete the certification, the clerk of the Bankruptcy Court must issue a Notice of Non-Compliance based upon U.S. Bankruptcy Code §362(b)(22), which states the following:

The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay –

(22) Subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment of possession of such property against the debtor.

(Emphasis added).

U.S. Bankruptcy Code §362(l) states the following:

Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor filed with the petition and serves upon the lessor a certification under penalty of perjury that

(a) under non bankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and

(b) the debtor (or an adult dependent on the debtor) has deposited with the clerk of the court, any rent that would become due during the 30 day period after the filing of the bankruptcy petition.

* * *

(4) if the debtor, … indicates on the petition that there was a judgment for possession of the residential rental property in which the debtor resides and does not file a certification under paragraph (1) or (2) –

(A) subsection (b)(22) shall apply immediately upon failure to file such certification and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(B) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under subsection (b)(22).

(Emphasis added).

At BBWG, we insist on advocating for the immediate entry of a judgment of possession in all nonpayment proceedings. By proceeding in such a manner, owners are not always prejudiced if a tenant files for bankruptcy after the judgment is entered.

Where a judgment of possession issues prior to a debtor filing for bankruptcy, and the debtor does not (a) file a certification stating that the entire monetary default that the judgment of possession is based upon may be cured or (b) deposit the rent due for the first thirty (30) days following the commencement date of the bankruptcy proceeding with the clerk of the Bankruptcy Court, the automatic stay will not apply against the judgment or the owner’s enforcement proceedings. The owner will be able to proceed with the eviction of the tenant.

Joshua Losardo is a partner in the Firm’s Administra-tive Law and Bankruptcy Departments. Jordi Fernandez is an associate in the Firm’s Litigation Department. Both handle bankruptcy matters on behalf of BBWG clients.

Please Note: This newsletter is intended for informational purposes only and should not be construed as providing legal advice. This newsletter provides only a brief summary

of complex legal issues. The applicability of any or all of the issues described in this newsletter is dependent upon your particular facts and circumstances. Prior results do not

guarantee a similar outcome. Accordingly, prior to attempting to utilize or implement any of the suggestions provided in this newsletter, you should consult with your attorney.

This newsletter is considered “Attorney Advertising” under New York State court rules.

www.bbwg.com

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