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Belkin Burden Wenig & Goldman, LLP

E D I T O R S

magda L. cruz

UPDATE

Aaron shmulewitz Kara i. rakowski

JAnUAry 2014 | vOL U m e 3 0

inside this issue new year message .............1 ADMINISTRATIVE LAW UPDATES Owner success at the tenant protection Unit ...................2 mci increases Above standard increases..............5 TRANSACTIONAL UPDATES the due diligence process for a One to four family home .................................3

This March, Belkin Burden Wenig & Goldman, LLP will celebrate its 25th Anniversary. It is hard to believe it has been 25 years since Sherwin, Joe, Jeff and I decided to start our own firm. We have been fortunate over the years to represent a fantastic group of loyal clients who have stayed with us through good times and bad times, Republican administrations and Democratic administrations. We have also been very lucky to have attracted a talented group of partners and colleagues who have helped our firm grow from the original four

attorneys to almost 50 attorneys and a support staff of more than 40. We now have a multi-faceted practice, representing our clients in everything from the most sophisticated acquisitions to the most basic non-payments, and everything in between. No matter is too small or too large when our clients’ interests are at stake. We remain grateful for your confidence and loyalty and look forward to another 25 years of continued mutual success. Best wishes for a Healthy, Happy and Prosperous New Year. Howard Wenig, Managing Partner

LITIGATION UPDATE Know your tenant ..............5 BBWG IN THE NEWS ........4 BBWG NOTABLE ACHIEVMENTS .................4 CO-OP / CONDO CORNER ............................6 TRANSACTION OF NOTE ...........................7

WE’RE GOING GREEN

effective January 2014, BBwg has discontinued the printed copy of the newsletter. to continue to receive the electronic version of the newsletter, please sign up for our mailing list at www.bbwg.com.

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

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A d m inistrative Law Up dat e

Owner Success at the Tenant Protection Unit appeal, but the threat of adverse findings, followed by yet further proceedings, with potential dire consequences.

By Sherwin Belkin and Diana R. Strasburg When the Tenant Protection Unit (TPU) was created in early 2012, as a distinct unit of the New York State Division of Housing and Community Renewal (DHCR), Governor Cuomo stated that the purpose of TPU would be to “impose strict penalties for failure to comply with [DHCR] orders and New York’s rent laws.” Many owners have already experienced the frightening nature of a TPU audit proceeding. This is not merely another regulatory burden. The “proceeding” (if, indeed, it is a proceeding), threatens prosecution, with severe penalties, predicated upon unstated criteria and unexplained rules. Moreover, the result of an audit is not an order that is subject to

In March 2013, TPU initiated an audit of an owner having deregulated a formerly rent stabilized apartment based, in substantial part, upon individual apartment improvements (IAI). The owner explained to TPU that the tens of thousands of dollars spent in improvements were performed when the subject apartment was vacant, and that the apartment was lawfully deregulated. However, in issuing its “Notice of Audit Determination,” TPU relied solely on the apartment’s 2012 registration, which was registered with the name of a tenant and not as “Vacant,” to disallow all of the IAIs. TPU ordered the owner to reduce the rent of the apartment, issue a refund to the current tenant, and threatened the owner with legal action if the owner did not abide by audit determination within 30 days. The owner requested that BBWG attempt to address and resolve the factual and

legal errors that served as the basis of TPU’s findings in the Notice of Audit Determination. After explaining to TPU that (a) the 2012 registration was not dispositive of occupancy or vacancy at a later date; (b) the owner did not perform gut renovations in an occupied apartment; and (c) by providing detailed rent calculations, TPU determined that the IAIs were sufficiently substantiated, and that no further action was required. Although the TPU did rescind its adverse audit notice, it did so only after making draconian threats. In fact, in making those threats, the TPU did not even advise the owner that a further submission was possible. BBWG elected to make that submission, which was successful; but, again, absent rules of procedure, there is no certainty that in a future case TPU will even consider arguments made subsequent to an adverse audit finding. We remind owners that if you receive notification that TPU is conducting an audit, you must provide TPU with as much documentation as necessary to justify all rent increases. These audits threaten significant sanctions with no right of appeal. Therefore, a full analysis and submission must be made from the outset. Sherwin Belkin (sbelkin@bbwg.com) is a founding partner of BBWG. Diana R. Strasburg (dstrasburg@bbwg.com) is an associate in BBWG’s Administrative Law Department.

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Transactional Up dat e

The Due Diligence Process for a One to Four Family Home

By Craig L. Price & Nicki Neidich In last month’s newsletter, we discussed due diligence that purchasers should be doing prior to signing a contract to purchase a cooperative or condominium unit. As we discussed, most of that investigation is on paper, such as reading the history and operational materials of the building. In contrast, when purchasing a one to four family home, the due diligence process contains both physical and legal aspects. When purchasing a freestanding house, prospective purchasers should work with a collection of professionals who are dedicated to ensuring that the purchaser is aware of all of the potential issues with the physical structure. By having the most information available, the parties are most effectively able to fairly negotiate the terms of the contract, including the purchase price, and any exit strategies that should exist.

The physical inspection process involves hiring, at the least, an engineer and a home inspector. If the purchaser plans to do any remodeling, an architect and any relevant contractors should be brought in as well. Such professionals are licensed by the State and make meaningful reports and observations on the physical structure. This data is crucial to determine if the purchaser truly wants to consummate the transaction. While such reports constitute additional upfront costs, obtaining a thorough inspection prior to closing can result in savings of thousands of dollars post closing.

prior owner.)

The next inquiry involves determining if there are any tenants or occupants living on the property. If so, a purchaser would need to determine as a threshold matter if the tenants are in possession under “market” or “statutory” lease agreements. If necessary, we will involve attorneys in our administrative law department to provide a complete report on the status of the each tenancy, including if any official complaints exist with the Division of Homes and Community Renewal. (Please note that even if a tenancy is not subject to rent regulation, a purchaser would still have to honor the terms of the lease or other agreement between the tenant and

Finally, the due diligence will include researching the property on the various governing agency databases of the municipality. This includes verifying that the dwelling has a valid certificate of occupancy for the intended use, determining if the premises has any violations or open permits of record so that they may be removed or closed, and ascertaining if the property is currently subject to a mortgage.

Next, purchasers should conduct an investigation of title. A comprehensive review includes inspecting the chain of title, conducting a survey and assessing the physical structures, paths or other encroachments on the property. The title investigation, both physical and legal in nature, is crucial to ensuring that the purchaser will receive marketable title at the closing as well as determining any potential ongoing expenses or obligations that may be inherited based on existing agreements of record.

Purchasing a one to four family home can be challenging yet rewarding. Owning a unique piece of property in New York is a significant accomplishment, and purchasers should take the above steps in order to ensure that they know everything that they could possibly know about the property prior to closing. If you would like further information about the due diligence process, please feel free to contact Craig L. Price at cprice@bbwg.com or Nicki Neidich at nneidich@bbwg.com. Craig L. Price is a partner and Nicki M. Neidich is an associate in BBWG’s Transactional Department.

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BBwg in the news JEFFREY GOLDMAN, co-head of BBWG’s Litigation Department, was quoted in the New York Post, Daily News, The Real Deal, CNN.com, Law360.com and other media outlets, with regard to the filing of the firm’s responses on behalf of client Donald Trump in a suit brought against Trump University by the New York State Attorney General’s office. MAGDA CRUZ, a partner in BBWG’s Appeals Department, authored an article that appeared in the December edition of New York Housing Journal (published by the Community Housing Improvement Program) entitled: “The Four-Year Anniversary of Roberts: Where Are We Now?”

CRAIG L. PRICE, a partner in BBWG’s Transactional Department, was the Profile of the Week in the December 11 Deals & Dealmakers feature of Real Estate Weekly: http://www.rew-online.com/2013/12/12/price-trades-abagel-shop-counter-for-corner-office-as-firms-youngest-partner/?preview=true

CORINA STREEKMANN, a partner in BBWG’s Litigation Department, authored an article entitled: “When It Comes to Rent Regulation Reform, say Uncle,” which appeared in the November 19 edition of Real Estate Weekly.

BBwg nOtABLe Achievments ROBERT JACOBS, head of BBWG’s land use practice, was a featured panelist in a program presented by the Association of the Bar of the City of New York on December 9, entitled: “Development Rights and Wrongs: The Do’s & Don’ts of Zoning Lot Mergers & Development Rights Transfers in New York City.”

MARTIN HEISTEIN, head of BBWG’s Administrative Law Department, gave a lecture to managing agents on a general overview of rent regulation, at the office of Thor Equities on November 20.

CRAIG L. PRICE, a partner in BBWG’s Transactional Department, was a panelist for: REBNY’s New York Residential Specialists course on November 18; a program entitled “Five Disaster Loan Closings—-Finding Solutions at the Table” sponsored by Gibraltar Private Bank on November 21; and a brokers’ program entitled “Hot Topics in the Current Real Estate Market” sponsored by Douglas Elliman on December 5. SETH A. LIEBENSTEIN, a member of BBWG’s Transactional Department, was elevated to partner, effective January 1, 2014.

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L ITIGATION Update

Know Your Tenant By Brian Y. Epstein As rental properties grow in size, tenant rosters expand and family compositions change, Owners and Managing Agents are often faced with the difficult task of making sure that the adult lease signatories accurately reflect the actual, physical legal occupants of an apartment. In a recent case handled by this Firm with a decision pending, an Owner and Managing Agent were named in a suit arising out of a familial dispute over the occupancy of a rent regulated apartment. Several years after the commencement of the tenancy (and prior to our client’s ownership and management of the property), tenant’s purported spouse was added to the lease upon the presentation of a marriage certificate. The certificate was later determined to be a fraudulent document. Thereafter, the initial tenant of record was incarcerated for twenty-five years, with the incarceration never disclosed to Owner as the renewal leases continued to be executed in the name of the initial tenant. Approximately seven years prior to the initial tenant’s release from prison, the purported spouse vacated the apartment, attempting

to leave the rent regulated apartment to their daughter and grandchild while the initial tenant remained in prison. Upon his release from prison, the initial tenant sought to return to the apartment and was denied access by his daughter who was in physical possession. The Owner never consented to or approved the transfer of the tenancy from the initial tenant or his purported spouse to their daughter. The initial tenant subsequently sought a declaratory judgment that he was and remained the lawful tenant of record of the apartment and further sought damages against the Owner arising from the initial tenant’s inability to regain possession of the apartment upon his release from prison. Had the changes in tenancy not been predicated upon a fraudulent document or had Owner been contemporaneously made aware of the changes in occupancy arising from the incarceration, Owner may have been able to commence suit to recover possession instead of defending itself and incurring attorneys’ fees and face a damage award as a named defendant. Many times, Owners and Managing Agents will ask what they can do to avoid being drawn into familial occupancy disputes as described above. First, it is recommended

practice for Owners and Managing Agents directly involved with leasing to take a copy of the driver’s license for all named tenants and occupants of an apartment so that a baseline photograph and signature are available in the file. Thereafter, persons in charge of lease renewals and the maintenance of tenant lease files should routinely examine renewal documents when they are executed and returned to be sure no additional signatories have been added and/or to make sure that the signatures on the renewals match earlier executed lease documents. Furthermore, building staff, as the on-site eyes and ears of the Owner, are yet another line of resistance in identifying changes in occupancy of an apartment that may not match the lease and renewals. It is extremely important for the Owner, Managing Agent and/or building staff to identify, at the earliest possible stage, a change in occupancy of the apartment. Once a change in occupancy is identified, the Owner, Managing Agent and/or building staff should gather and retain, at the earliest possible stage, all evidence of the changes in the use and occupancy of the apartment with particular attention to future litigation. Brian Y. Epstein (bepstein@bbwg.com) is a partner in BBWG’s Litigation Department.

A d m inistr ative Law Up dat e

MCI INCREASES ABOVE STANDARD INCREASES By Paul Kazanecki If an owner performs a Major Capital Improvement (“MCI”) and the MCI application is approved by the DHCR, the collection of the MCI increases are limited to 6% per annum for Rent Stabilized units and 15% per annum for Rent Controlled tenants. For example, if the MCI approved is 12% of the tenant’s rent, an owner would be required to phase in the

MCI over a two-year period for the Rent Stabilized unit, namely 6% the first year and an additional 6% the second year. If the unit is Rent Controlled, the owner would be able to collect the full MCI approved since the increase is less than 15%. These MCI increases, which become part of the legal base rent, would be in addition to the standard guideline increases for renewal leases for the Rent Stabilized units and authorized Maximum Collectible Rent

(“MCR”) increases for Rent Controlled units. Investment in MCIs is, therefore, a way to increase the rental revenue of a regulated building. Paul Kazanecki (pkazanecki@bbwg.com) is a legal assistant in BBWG’s Administrative Law Department with extensive experience in many forms of administrative applications before various City and State agencies, including MCI applications before DHCR.

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Co-op | Condo Corner By 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).

CONDO BOARD CAN INCREASE COMMON CHARGES TO COVER COSTS OF DEFENDING LITIGATION Board of Managers of The Lenox Grand Condominium v. DSW Lenox LLC Appellate Division, 1st Department COMMENT | The Court correctly saw through the imaginative argument by the litigious Unit Owner, redolent of chutzpah. QUESTIONS OF FACT AS TO WHETHER SPONSOR OR CONDO BOARD RESPONSIBLE FOR WIRING THAT CAUSED FIRE PRECLUDES SUMMARY JUDGMENT FOR EITHER TO DISMISS SUIT Onetti v. The Gatsby Condominium Appellate Division, 1st Department CONDO ENTITLED TO SUMMARY JUDGMENT AGAINST DELINQUENT UNIT OWNER FOR UNPAID COMMON CHARGES, AS WELL AS LATE CHARGES, INTEREST AND LEGAL FEES AS PRESCRIBED IN BYLAWS Board of Managers of Central Park Place Condominium v. Potoschnig Appellate Division, 1st Department COMMENT | The holding does not seem surprising, but the lower court had somehow ruled against the Condominium. NYS DIVISION OF HUMAN RIGHTS CAN REVERSE ITSELF PROCEDURALLY AND REINSTATE COMPLAINT FOR DISABILITY DISCRIMINATION BY CO-OP DUE TO SHAREHOLDER’S UNAUTHORIZED DOG East River Housing Corp. v. DHR Supreme Court, New York County COMMENT | The effect of this ruling is unclear, since a few weeks earlier, a separate Court had declined to stay execution of an eviction warrant by the co-op against the shareholder.

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QUESTIONS OF FACT PRECLUDE SUMMARY JUDGMENT IN SUIT OVER ERRONEOUS CREDIT AT COOP PURCHASE CLOSING Springer v. 121 Varick Twelfth Floor, LLC Appellate Division, 1st Department COMMENT | This litigation—-including an appeal-—was over a $30,000 error. Query how much was spent in legal fees to this inconclusive juncture. CONDO CONSTRUCTION-DEFECTS SUIT AGAINST SPONSOR SURVIVES DISMISSAL; SPONSOR CANNOT COMPEL BOARD TO ARBITRATE; BOARD’S CLAIMS AGAINST SPONSOR’S PRINCIPALS DISMISSED; MOST CLAIMS AGAINST SPONSOR’S ARCHITECT SURVIVE DISMISSAL Caton Court Condominium v. Caton Development et al. Supreme Court, Kings County COMMENT | Many of the claims were permitted to survive because the defendants did not attach all required exhibits to their dismissal motion papers. CO-OP NOT LIABLE FOR MAINTENANCE WORKER

INJURIES

TO

HVAC

Sobenis v. Harridge House Associates of 1984 Appellate Division, 2nd Department COMMENT | In holding that the co-op was not statutorily strictly liable under the Labor Law, the Court held that this was simply routine maintenance, and the co-op had no control over the manner of work.


trAnsActiOn Of nOte DANIEL ALTMAN, ALLISON LISSNER and ALLAN GOSDIN represented the borrower in a $94 million mortgage refinancing on a Manhattan student housing complex with Wells Fargo Bank.

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Belkin Burden Wenig & Goldman, LLP 270 Madison Avenue | New York, NY 10016

www.bbwg.com

New York Office | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709 Connecticut Office | 495 Post Road East, 2nd Floor | Westport, CT 06880 | Tel 203 .227 .1534 | Fax 203 .227 .6044 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.

BBWG January 2014 Newsletter  
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