Inside This Issue

Congratulations To BBWG Super Lawyers ..........1

ADMINISTRATIVE LAW UPDATE

DHCR’s Attempt to Alter One of Its Longstanding policies Relating to the processing of MCI Applications Is Rejected by the Court ......................2

LITIGATION UPDATE

Tenants’ Cloaking of Their Vacatur Defeated aDaughter’s Succession Claim ..................................3

TRANSACTIONAL UPDATE

Logistics of Letters of Credit .............................4

CASES OF NOTE ................4

NOTABLE ACHIEVEMENTS ................5

CO-OP / CONDO CORNER .........................6, 7

E D I T O R S

Magda L. Cruz

Aaron Shmulewitz

kara I. Rakowski

UPDATEMAY 2012 | VOLUME 18

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

Belkin Burden Wenig & Goldman, LLP

CONGRATULATIONS TO BBWG SUpER LAWYERS

Sherwin Belkin, Howard Wenig, Jeff rey L. Goldman, Aaron Shmulewitz, and Steven Kirkpatrick have been

named “New York Super Lawyers for 2012” by the Th omson Reuters rating service of outstanding lawyers from

more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement.

Craig L. Price and Matthew Brett have been named “2012 New York Rising Stars.”

Craig L. Price Matthew Brett

Sherwin Belkin Howard Wenig Jeff rey L. Goldman

Aaron Shmulewitz Steven Kirkpatrick

ADMINISTRATIVE LAW UpDATE

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DHCR’S ATTEMpT TO ALTER ONE OF ITS LONGSTANDING pOLICIES RELATING TO THE pROCESSING OF MCI AppLICATIONS IS REJECTEDBY THE COURT

By Phillip Billet

BBWG was recently successful in preventing the New York State Division of Housing and Community Renewal

from altering one of its longstanding policies relating to the processing of major capital improvement rent increase applications, a change which would have made it more difficult for many building owners to obtain MCI rent increases.

DHCR has always maintained a policy that allows building-wide MCI rent increases even if defects relating to the improvement are found in a small number of the building’s apartments. DHCR would grant the MCI increase, but exempt from the increase - either permanently or temporarily - those apartments in which the defects were found. This policy had been upheld by the courts, including the State Court of Appeals, which recently upheld a DHCR order that permanently exempted from an MCI increase only those apartments where defects were found.

DHCR was, however, attempting to implement a new policy to provide that when a building owner files an MCI application, and defects relating to the improvement are found in a small number of the building’s apartments, DHCR could deny the MCI application for all apartments at the building.

In the case successfully handled by BBWG, the Supreme Court rejected this change in policy. The case had a protracted history. It involved a building owner who had filed an MCI application in order to increase the rent of each rent-regulated apartment

at its building based upon a comprehensive exterior restoration project that cost over $500,000. During the processing of the MCI application, DHCR inspected various apartments and found water damage within ten of the building’s 108 apartments.

Following its longstanding policy, DHCR granted the MCI application, but ruled that the ten apartments in which leak damage was found would be temporarily exempt from the rent increase until such time as the damage was corrected. Tenants of the non-exempt units filed an administrative appeal, but lost when DHCR’s Deputy Commissioner upheld its policy.

The tenants then commenced an Article 78 proceeding, in which they argued that the entire MCI increase should have been revoked based upon the existence of the leak damage in ten apartments. Upon review of the tenants’ petition, DHCR asked the court to remit the proceeding so it could re-evaluate whether the MCI application should have been granted when defects relating to the MCI were found in certain apartments.

The court granted DHCR’s motion and during the remit, a DHCR inspector re-inspected the ten apartments and reported leak damage in eight of the apartments. Based upon this finding, DHCR issued a revised order in which it revoked the MCI increase for all apartments of the building.

BBWG then commenced an Article 78 proceeding on behalf of the owner, in which we requested judicial review of DHCR’s revocation order. We argued that the revocation of the MCI increase for all apartments, based upon a finding of leak

damage in only a few apartments, was contrary to law and should be annulled.

In an order dated December 21, 2011, the Supreme Court agreed with BBWG’s arguments, noting that DHCR’s longstanding policy of only exempting the particular apartments with defects from the MCI increase had been affirmed by the courts, and DHCR’s attempt to alter this policy during the pendency of an MCI application without setting forth its reasons for doing so was contrary to law. The Court annulled DHCR’s revocation order as being arbitrary and capricious. (Both DHCR and the building’s tenants’ association have filed Notices of Appeal, indicating their intent to appeal the court’s decision to the Appellate Division, but the appeal has not yet been filed.)

Decisions rendered by government agencies can often be improper or unfair. A building owner that feels aggrieved by such a decision should consult its attorney to determine whether such decision can be successfully challenged, whether on a substantive or a procedural basis.

Phillip Billet (pbillet@bbwg.com) is an associate in BBWG’s Administrative Law Department.

By Noelle Picone

In a recent housing court decision involving a non-primary residence case with a succession defense, M.R.A. Realties,

Inc. v. Peck, the Court granted summary judgment for the Landlord finding that that the Tenants’ daughter could not be entitled to succession as a matter of law. The decision was based largely on the fact that the Tenants hid their departure from the apartment from the Landlord.

Under New York statutory law, in order to succeed to a rent-regulated apartment, a family member has the burden of proving that he or she co-occupied the apartment with the tenant for two years (or one year if the occupant is a senior or disabled) prior to the tenant’s permanent vacatur.

In M.R.A. Realties, Inc., the daughter claimed to have moved into the apartment in 2001. The Tenants conceded that they had not primarily resided in the apartment since June 2004 when they moved to Rhode Island.

The documentary and testimonial evidence elicited during discovery revealed that even after moving to Rhode Island, the Tenants continued to: sign renewal leases through the expiration of the latest renewal lease on May 31, 2010; pay rent with checks in one of the Tenant’s names bearing the apartment as the address in envelopes post-marked in New York City; and, communicate with the Landlord regarding repair and rent refund issues. Also, the Tenants admitted at their depositions that they did not inform the Landlord of their move to Rhode Island and the potential succession claim of their daughter.

The Court found that these actions were designed to, and did successfully, cloak the Tenants’ departure to Rhode Island from the Landlord.

Given the continued connection to the apartment and the cloaking of their move to Rhode Island, the Court found that the Tenants did not “permanently vacate” the apartment until the expiration of the latest renewal lease on May 31, 2010. The daughter’s succession claim then failed, the Court held, as the relevant two year

period must be measured as the two years immediately preceding the expiration of the tenants’ most recent renewal lease (May 2008 to May 2010) when the Tenants admittedly lived in Rhode Island. Thus, the Court concluded, there was no co-occupancy for the requisite two-year period.

The Court’s holding confirms the distinction between the date that a tenant ceases primarily residing in an apartment and the tenant’s permanent vacatur from the apartment. This is a very important distinction in succession cases since the permanent vacatur date sets the relevant time period for purposes of co-occupancy.

A landlord should keep track of what name is on the rent checks and from where the checks are mailed. A landlord who suspects that the tenant has vacated, but a family member is in occupancy, should consult with experienced counsel as to whether there is a basis to recover possession of the apartment.

Noelle Picone (npicone@bbwg.com) is an associate in BBWG’s Litigation Department.

TENANTS’ CLOAkING OF THEIR VACATUR DEFEATED A DAUGHTER’S SUCCESSION CLAIM

LITIGATION UpDATE

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LOGISTICS OF LETTERS OF CREDITTRANSACTIONAL UpDATE

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By Seth A. Liebenstein

In the context of negotiating a commercial lease, it is very common for the landlord to request an

irrevocable letter of credit (“LC”) from a tenant’s lender in lieu of a security deposit. Th e main benefi t for a landlord in making this request would be that, if the tenant ever fi les for bankruptcy, since the LC is actually an agreement between the tenant’s lender and the landlord, the value of the LC would not be subject to the bankruptcy estate, and the landlord’s security should remain unaff ected.

Landlords should make sure that any LC is for a term of not less than one year and provide for automatic renewals. It should also include a provision by which

the landlord receives notice directly from the lender in the event that the LC is not timely renewed by the tenant. Also, the landlord should have the right to draw down—fully or partially—on the LC if the tenant defaults under the lease. Finally, the LC should be issued by and presentable to a local commercial lender.

Logistically speaking, during the course of a lease negotiation, getting a LC in place before or simultaneously with the lease execution is not always easy. Lenders do not necessarily work on the same accelerated schedule that is typical of a commercial lease negotiation. One of the ways to increase the likelihood of having a LC in place in a timely manner is to have the potential tenant ask its lender for its form LC at the start of the lease negotiation. Alternatively, the landlord can provide the tenant with an acceptable specimen for the tenant to

provide to its lender. Either way, it will start the process sooner and any potential negotiation between the landlord and the tenant’s lender can occur during the lease negotiation.

Alternatively, if the lease negotiation concludes and an original LC is not yet in place, the landlord can accept a cash security deposit in lieu of the LC, to act as a “placeholder” until the tenant can deliver the original LC. In such a circumstance, the landlord should deposit the cash security as it would any security deposit. Upon delivery of the original LC, the landlord can return the cash security to the tenant.

Seth A. Liebenstein (sliebenstein@bbwg.com) is an associate in BBWG’s Transactional Department, whose practice concentrates on leasing.

JOSEPH BU R DEN, co -head of BBWG’s L it ig at ion Depa r tment , repre sented a n Upper Ea s t Side co -op in

compel l ing a ne ighbor ing co -op to a f ford acce s s to it s premi se s to enable nece s sa r y ex ter ior repa i r s to be

made to ou r c l ient ’s bu i ld ing. The Cour t a l so ru led that ou r c l ient wa s not obl ig ated to pay a ny l ic ense

fee , leg a l f ee s or other a mount s to it s ne ighbor.

OR IE SH A PIRO, a pa r tner in BBWG’s Admin i s t r at ive L aw Depa r tment , repre sented a n owner in w inn ing

a n ECB appea l over tu rn ing a n admin i s t r at ive l aw judge ’s de terminat ion that re s ident ia l occupa nc y of

c e l l a r apa r tment s cont ravened the bu i ld ing ’s c er t i f ic ate of occupa nc y.

ROBERT JACOBS a nd LEW IS A . L INDENBERG, pa r tner s in BBWG’s Tra nsac t iona l a nd L it ig at ion

Depa r tment s , re spec t ive ly, repre sented the owner of t he h i s tor ic Capitol Theat re in Por t Che s ter on the

le a s ing of t he t heat re to a noted event operator. The t r a nsac t ion had numerous mov ing pa r t s , requ i r ing

BBWG to addre s s i s sue s involv ing the New York St ate L iquor Author it y, t he loc a l munic ipa l it y, corporate

re s t ruc tu r ing , pa rk ing requ i rement s a nd h i s tor ic pre ser vat ion.

CASES OF NOTE

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Managing partner HOWARD WENIG responded to an inquiry in the Sunday Real Estate Section of the New York Times on March 4 regarding the rights and obligations of tenants in a building that is the subject of a mortgage foreclosure. On March 11, the Sunday Real Estate Section of the New York Times turned to MARTIN MELTZER, a partner in BBWG’s Litigation Department, to answer an inquiry concerning an owner’s ability to enforce rent payment by an institutionalized tenant.

SHERWIN BELKIN, a partner in BBWG’s Administrative Law and Appeals Departments, was featured in articles that appeared in the March 8 edition of Real Estate Weekly and in the April 23 online editions of Th e Real Deal and Crain’s New York Business, and was also interviewed on WPIX-TV News that same evening, regarding the constitutionality of the City’s rent regulatory laws in the context of the owner’s petition for review by the United States Supreme Court in the Harmon case.

MR. BELKIN was also a panelist at a seminar sponsored by Community Housing Improvement Program (CHIP) as part of the Buildings NY Trade Show on May 3 at the Javits Center on “Taking Control of the DHCR Process”; MR. BELKIN discussed “Recent Developments: Fraudulent Schemes, MCI Policy and Deemed Leases.”

MR. BELKIN is also speaking at Th e Brownstone Revival Coalition regarding the rights of owners of rent regulated properties to recover possession of apartments for personal use, on May 17 at Dorot. For more information go to www.townhouseexperts.com.

DANIEL ALTMAN, a partner in BBWG’s Transactional Department, was quoted in the March edition of the National Real Estate Investor.

AARON SHMULEWITZ, head of BBWG’s co-op/condo practice, was quoted in an article in the on-line edition of Th e Real Dealon March 8 regarding a suit brought by a condominium to enjoin prostitution in an apartment. In the April edition of Th e Real Deal, MR. SHMULEWITZ was quoted in an article discussing the increased incidence of litigation over quality of life complaints in co-ops and condominiums. MR. SHMULEWITZ was also quoted in an article in AM New York on April 19 on the growing number of co-ops and condominiums considering adopting smoking bans, and also responded to an inquiry in the Sunday Real Estate Section of the New York Times on April 22 discussing the rights of a co-op shareholder with regard to a neighbor creating excessive noise.

MAGDA L. CRUZ, a partner in BBWG’s Appeals Department, appeared as a panelist at a continuing legal education seminar sponsored by Th e Association of the Bar of the City of New York on April 12, on “Succession Rights and the Marriage Equality Act”. MS. CRUZ was also quoted in articles in the New York Law Journal (April 4) and Real Estate Weekly (April 11) concerning the victory by the owners of Tribeca’s Independence Plaza North to retain its status as exempt from rent stabilization after exiting the Mitchell-Lama private housing program.

LEWIS A. LINDENBERG, a partner in BBWG’s Litigation Department, appeared as a guest lecturer on March 16 before the Judges of Kings County Civil Court, presenting a program on recent developments in commercial landlord/tenant and summary proceedings.

DAVID M. SKALLER, a partner in BBWG’s Litigation Department, authored an article that appeared in Real Estate Weekly on March 28, entitled “Inheriting Mom’s Regulated Apartment? Not So Fast, Say Courts.”

CRAIG L. PRICE, a partner in BBWG’s Transactional Department, authored an article entitled “Electronic Recording Comes to New York”, which appeared in the April edition of Th e Mann Report.

ORIE SHAPIRO and PHILIP BILLET, a partner and an associate, respectively, in BBWG’s Administrative Law Department, authored an article entitled “BBWG Employs An Innovative Procedural Defense to Vacate a Fine Imposed on a Property Owner”, which also appeared in the April edition of Th e Mann Report.

BBWG NOTABLE ACHIEVEMENTS

CASES OF NOTE

CO-OP LIABLE FOR CHILD’S INJURY FROM LEAD PAINT IN

APARTMENT

Essilfieobeng v. Ahyiai, Appellate Division, 1st Dept.

COMMENT | The Court rejected the co-op’s argument that only

the shareholder of the apartment could be liable.

CO-OP NOT LIABLE FOR DAMAGE FROM OVERFLOWING

ROOF WATER TANK

American International Insurance Company v. A. Steinman

Plumbing & Heating Corp., Appellate Division, 1st Dept.

COMMENT | In this subrogation action, the Court held that

the co-op had no knowledge of a defect in the tank or overflow

alarm system.

ATTORNEY GENERAL’S DECISION DIRECTING RETURN OF

DEPOSIT TO PURCHASER FOR SPONSOR’S FAILURE TO

CLOSE UPHELD, NOT ARBITRARY OR CAPRICIOUS

In re Madison Park Owner LLC v. Schneiderman, Appellate

Division, 1st Dept.

SELLER CAN SUE CO-OP FOR ALLEGED DISCRIMINATORY

TURNDOWN OF PURCHASER

Stalker v. Stewart Tenants Corporation, Appellate Division, 1st Dept.

COMMENT | The Court stressed the broad remedial goals of

anti-discrimination laws in allowing the seller to assert that the

purchaser had suffered from age discrimination.

FORECLOSING LENDER ON CO-OP LOAN CAN EVICT

FORMER SHAREHOLDER WHO DEFAULTED, UNDER RPAPL

Emigrant Mortgage Company v. Greenberg, District Court

Nassau County

COMMENT | The Court recognized the hybrid real/personal

property aspects of a co-op interest, allowing eviction under the

statute that governs real property.

TENANT SUIT TO BAR CELLPHONE TOWER DISMISSED, AS

PRE-EMPTED BY FEDERAL LAW

Stanley v. Amalithone Realty, Inc., Appellate Division, 1st Dept.

COMMENT | The suit, against the owner of a neighboring

building, alleged excessive radio frequency radiation, but the

Court found that emissions were within permitted Federal limits.

CO-OP CAN BE SUED BY FAIR HOUSING ORGANIZATION;

CO-OP RULE REQUIRING PURCHASER TO SUBMIT

REFERENCES FROM EXISTING SHAREHOLDERS HAS

RACIALLY DISCRIMINATORY EFFECT

Fair Housing Justice Center, Inc. v. Edgewater Park Owners

Cooperative, Inc., United States District Court, Southern

District of New York

COMMENT | White testers hired by the organization had the

existing-references rule minimized or bent; black testers were

told that the rule was an absolute bar to even applying.

Co-op | Condo CornerBy Aaron Shmulewitz

Aaron Shmulewitz heads the Firm’s co-op/condo practice, consisting of more than 300 co-op and condo Boards throughout the City, as well as sponsors of condominium conversions, and numerous purchasers and sellers of co-op and condo apartments, buildings, residences and other properties. If you would like to discuss any of the cases in this article or other related matter, you can reach Aaron at 212-867-4466 or ashmulewitz@bbwg.com.

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ILSA ALLOWS PURCHASERS TO RESCIND CONDO

PURCHASE CONTRACTS BECAUSE CONTRACTS DIDN’T

CONTAIN TAX LOT NUMBERS FOR UNITS

Rai v. WB IMICO Lexington Fee, LLC, United States District

Court, Southern District of New York

COMMENT | This decision is a further example of how creative

plaintiffs’ attorneys have learned to take advantage of a statute

that was plainly not intended to apply to such transactions in

the New York City market.

PARTITION SALE DENIED FOR CO-OP APARTMENT

OWNED BY MAN AND HIS MISTRESS

Bogoni v. Gomez, Supreme Court, New York County

COMMENT | The Court held that an evidentiary hearing was

required on the mistress’ claims that the apartment was in a

constructive trust for her and the couple’s child.

CO-OP ENJOINED FROM STOPPING SHAREHOLDER

ALTERATIONS AND TERMINATING PRE-EXISTING

ROOFTOP LICENSE DUE TO MONETARY DISPUTES

Binday v. Eleven Riverside Drive Corp., Supreme Court, New

York County

CONDO JUSTIFIED IN BARRING COMMERCIAL UNIT LEASE

TO 7-11 BECAUSE PROSPECTIVE COOKING IN STORE

WOULD VIOLATE CONDO’S BYLAWS

The Big Four LLC v. The Bond Street Lofts Condominium,

Appellate Division, 1st Dept.

COMMENT | However, the Court held that the condo was not

entitled to reimbursement of its attorneys’ fees in the suit

because the Commercial Unit Owner was not in default.

CO-OP CAN HOLD PUBLIC SALE OF APARTMENTS OWNED

BY INVESTOR WHO WAS DELINQUENT ON PAYMENT OF

SUBLETTING FEES

Lombard v. Station Square Inn Apartments Corp., Appellate

Division, 2nd Dept.

COMMENT | The co-op was ruled to be a secured party simply

by virtue of the standard lien legend on the back of the share

certificates, and in the offering plan. The investor had failed to

move to stop the sale until after the date of termination of the

proprietary leases.

CONDO AND BOARD MEMBERS CAN BE PERSONALLY

SUED BY PARKING OPERATOR FOR TRESPASS AND

MISAPPROPRIATION OF PROPERTY

GPS Global Parking Solutions, LLC v. 151 West 17th Street

Condominium, Appellate Division, 1st Dept.

COMMENT | The decision cited allegations of intentional

bad faith conduct by Board members in directing the condo’s

employees to interfere with parking on the lot, and the Court

held that such actions are not protected by the business

judgment rule. Needless to say, if Board members direct any

such activity, they do so at their own peril.

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.

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