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Belkin Burden Wenig & Goldman, LLP

E d i t o r s

Magda L. Cruz Aaron Shmulewitz

UPDATE

Kara I. Rakowski

de ce m be r 201 4 | vol u m e 3 3

f i r m U p dat e

Inside This Issue Firm Update The Cold Code Winter...............................1 Update Update on LawSuit Challenging the DHCR 2014 Amendments and Establishment of a Tenant Protection Unit..............2 Transactional Update

By Sherwin Belkin Sherwin Belkin recently spoke at an RSA seminar concerning DHCR’s 2014 Amendments to the Rent Stabilization Code. He concluded his remarks with the following poem:

The Cold Code Winter

Desk-Sharing Agreements: A Landlord’s Guide...........2 litigation Update Mechanic’s Lien Declared Void for Willful Exaggeration via Motion for Summary Judgment.......3 administrative law Update MCI UPDATE – DHCR IMPLEMENTS NEW REQUIREMENTS..........4 transactional Update FAREWELL, ILSA..................4 Co-op | Condo Corner By Aaron Shmulewitz...5 administrative law Update

It was the 8th of January in 2014

The winter was wicked The winds brisk and mean. But the shiver that owners felt Was not from the cold T’was from the amended Rent Stabilization Code.

More than 2 dozen changes

From the last to the first They ranged from the awful to the horrible Each amendment just seemed worse.

Registration was now a minefield A Lease almost a confession of guilt. Some owners wished that their Apartments had never been built.

New Law Requires Leases to Set Forth Sprinkler System Notification.......6

The punishments so frequent The penalties so mind boggling Owners thought: “Maybe treble damages isn’t so badIt could have been public flogging.” Perhaps in the Spring

The Rent Guidelines Board Would serve as a hero When lo and behold It threatened increases of zero.

So 2014 hasn’t been all that much fun — T’ween the Code and small increases Owners feel shunned. But don’t feel downcast or gnash teeth or curse Just go home and pray That 2015 doesn’t get worse. © 2014

transactions of note.............................6 NOTABLE ACHIEVEMENTS..................7

Mr. Belkin (sbelkin@bbwg.com) is one of the founding partners of Belkin Burden Wenig & Goldman, LLP,

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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Update on LawSuit Challenging the DHCR 2014 Amendments and Establishment of a Tenant Protection Unit Matter of Portofino Realty Corp., et al v DHCR, et al, is the lawsuit brought by CHIP, RSA, and various individual owners, challenging the legality of DHCR’s January 2014 antiowner amendments to the Rent Stabilization Code, and the establishment of the Tenant Protection Unit (“TPU”).

Justice Velasquez also granted the owners’ demand for discovery.  This will allow the Plaintiffs to probe into the validity, real genesis, and true underpinnings of DHCR’s Amendments, including the TPU.  The Court allowed discovery pertaining to the TPU under the doctrine of procedural due process.  This is a significant victory.

On October 27, 2014, Hon. Richard Velasquez, Justice of the New York State Supreme Court (Kings County) denied the State’s motion seeking to dismiss the owners’ case.

Plaintiffs are jointly represented by Belkin Burden Wenig & Goldman, LLP (Sherwin Belkin and Magda Cruz) and by Herrick, Feinstein LLP.

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Desk-Sharing Agreements: A Landlord’s Guide By Seth A. Liebenstein Within a commercial lease, a tenant’s assignment and subletting rights are typically specifically def ined w it h t he landlord likely having the right to consent to any assignment or subletting of the premises. Often, a tenant will attempt to negotiate into the lease the right to assign or sublet the premises without the landlord’s consent under certain circumstances, which might include a sale of the tenant’s business, a merger or consolidation of the tenant’s business with another business, or, in some cases, a “desk-sharing” arrangement. A desk-sharing arrangement is common for smaller users such as medical practices or small law firms whereby a portion of the premises is to be utilized by a person or entity other than the tenant but that has a business relationship with the tenant. In the event that a landlord is willing to agree to such a provision within a commercial lease, there are a number of restrictions

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that a landlord should try to make sure are in the lease so as to maximize control over use of the premises. First, the landlord should ensure that the portion of the premises being used by the desk-sharer is limited – typically no more than 10% at any given time. Second, the landlord should ensure that the agreement between the tenant and the desk-sharer contains specific language that extinguishes the desk-sharer’s right to occupy the premises in the event that the tenant’s lease is terminated or expires. Third, the agreement should contain specific language that the desksharer is subject and subordinate to, and must comply with, all provisions of the lease. Fourth, the desk-sharer shall not be permitted to erect any demising walls so as to necessitate a separate entrance or separate access to any public corridors of the building. Fifth, the landlord should be given a complete list of all desk-sharers as well as their contact information prior to their taking occupancy in the

premises. In addition, a landlord may want to consider a requirement that the desk-sharer maintain insurance coverage in accordance with the insurance provisions of the lease, naming the landlord, any managing agent, and any mortgagee as additional insureds. However, perhaps the most important provision for a landlord to require when allowing a tenant to enter into such an arrangement is that in no event shall the use of any portion of the premises by a desk-sharer be deemed to create any right, title or interest in or to the premises for such desk-sharer, except a license which shall cease and expire automatically without notice upon the expiration or termination of the lease. Landlords permitting desk-sharing arrangements can make commercial space more attractive to tenants. By following a few simple guidelines, landlords can feel comfortable in knowing that they are protected from any potential misuse or abuse of the premises by such non-tenant desk-sharers. Seth A. Liebenstein is a partner in BBWG’s Transactional Department, and can be reached at sliebenstein@bbwg.com.


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Mechanic’s Lien Declared Void for Willful Exaggeration via Motion for Summary Judgment By Scott Loffredo A private mechanic’s lien is a type of lien filed by a contractor, subcontractor, laborer, or supplier of materials (“lienholder”) upon the real property of another. The mechanic’s lien acts as security for payment by the owner of the real property (“owner”) for the price or value of work performed by the lienholder and/or materials provided in the erection or repair of a building. Practically, a mechanic’s lien allows unpaid lienholders to expeditiously file and foreclose upon improved real property to allow the lienholder to recover the costs of its labor and materials. A mechanic’s lien must be properly filed with the clerk’s office of the county in which the real property is located and served upon the owner of the property. A lawsuit to foreclose upon the lien must be commenced within one (1) year after the filing of the lien unless this time is otherwise extended by a court of competent jurisdiction. New York State Lien Law Art. 9 requires a notice of mechanic’s lien to contain detailed information about the lienor, owner and nature of work. The notice must be verified by the lienor or his agent. Once a lien is filed, an owner may (i) bond and discharge the lien as of record; (ii) demand a verified, itemized statement setting forth the items of labor and/or material and the value thereof which make up the amount for which the lienholder claims a lien, and the terms of the contract under which such items were furnished; (iii) move to vacate the lien

based on a facial challenge to the lien (for example, a lienholder’s failure to include all information required by Article 9); (iv) move to vacate the lien based upon a lienholder’s “willful exaggeration” of the lien (which precludes the re-filing of the lien and leaves the lienholder liable for the exaggerated amount and attorneys’ fees to owner). In order to vacate a lien based upon a lienholder’s “willful exaggeration,” there must be “conclusive” factual evidence of an exaggerated claim. In an action by a lienholder to foreclose upon real property, the Supreme Court New York County, in LMF-RS Contr., Inc. v. Kaljic, 2013 NY Slip Op 32352(U) (N.Y. Co. Sup. Ct.) summarily vacated

the mechanic’s lien based on it being conclusively exaggerated. In the action, lienholder had submitted an itemized statement to owner and owner’s tenant breaking down its alleged $295,000 lien amount. The statement evidenced the lien contained a multitude of charges/ claims (including “personal loans”) other than those for goods or services. The lienholder admitted in affidavits that despite having verified its lien, no actual contract or agreement was ever entered into for their services. When given the opportunity to explain the admitted willful exaggeration set forth in its lien, lienholder cited an “honest miscalculation” without any detailed explanation. In the face of lienholder’s admissions, the court found the lien to be more than a “mere miscalculation” but rather a “conclusive willful exaggeration” and vacated the lien as willfully exaggerated. This decision is currently being appealed to the Appellate Division First Department. New York Courts consider the ability to file a mechanic’s lien a privilege. It is not a device to demand sums not owed or to wrongfully encumber property. If you have had a mechanic’s lien filed against your property and would like to review your options, BBWG can assist you. Read more: http://www newyorklawjournal.com/ id=1202623205565/LMFRS ContractingvKaljic-6529762012#ixzz3EXGkG1gh Scott Loffredo (sloffredo@bbwg.com)is an associate in BBWG’s Litigation Department.

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MCI UPDATE – DHCR IMPLEMENTS NEW REQUIREMENTS two-year statute of limitations for filing a specific MCI should take aggressive steps to obtain the required violation clearance affidavits and begin the process of removing any lead-based violations. The HPD violations are easily accessed by visiting HPD’s web site.

By Paul Kazanecki DHCR has recently implemented some significant changes to how Major Capital Improvement (“MCI”) applications are processed. The changes affect buildings with open Class “C” NYC Housing Preservation and Development (“HPD”) violations. If a building has an open Class “C” HPD violation, DHCR is now requiring owners to submit violation clearance affidavits from a professional engineer or a registered architect with their MCI application. The affidavit must attest to the fact that the “C” violations have been physically removed and/or rectified. However, if the “C” violations are leadbased paint violations, the DHCR will not accept the professional’s affidavit. Instead, DHCR will require that the lead-based paint violations be actually expunged from HPD’s records. Due to the length of time it takes to expunge lead-based paint violations from the HPD database, the DHCR will accept an MCI application with lead-based

In addition, it is extremely important that owners maintain updated HPD registrations. HPD will not inspect lead-based paint violations for removal if the HPD registration is not current. violations if an owner submits proof that the process of clearing the violations is in progress. It is suggested that owners submit as much proof as possible in an affidavit from a professional consultant that the removal is in progress. It is anticipated that the DHCR will revisit these MCI applications in several months and request a status update on any lead-based paint violation. The failure to submit violation clearance affidavits with the initial MCI application will result in the rejection of the MCI application with the opportunity to re-file the application within sixty (60) days. Owners with

Also, owners contemplating filing MCI applications should search the NYC Department of Buildings’ Building Information System for any immediate hazardous violations as these violations may be raised by the tenants in response to the owner’s application. The existence of such violations will delay the processing of the application and may result in an adverse determination by DHCR. Paul Kazanecki (pkazanecki@bbwg.com) is a paralegal in BBWG’s Administrative Law Department. Mr. Kazanecki assists property owners in the preparation of MCI applications to DHCR.

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FAREWELL, ILSA By Aaron Shmulewitz On September 26, 2014, President Obama signed into law H.R. 2600 (Public Law 113-167), to amend the Federal Interstate Land Sales Act (“ILSA”) so as to exempt condominiums from its registration requirements. The former registration requirements in ILSA, and most New York City condominium offerings’ failure to comply, had been discovered and used by creative attorneys to void 4

purchase agreements for many new condo apartments during the post-2008 downturn, and quickly became a bane to developers. The recent amendment to ILSA shuts that escape route; it becomes effective March 26, 2015. Aaron Shmulewitz (ashmulewitz@bbwg.com) heads the firm’s Co-op/ Condo practice.


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).

QUESTIONS OF FACT PRECLUDE SUMMARY JUDGMENT IN SUIT OVER CO-OWNERSHIP, OCCUPANCY OF CO-OP

Lauersen v. Antonopolous Appellate Division, 1st Department

Hurley v. Watanabe Supreme Court, New York County COMMENT | All other claims against the sponsor, and all claims against its principals, were dismissed.

COMMENT | This was a dispute over a $1 acquisition 25 years prior. CO-OP’S DIRECTORS CAN BE SUED FOR TORTIOUSLY INDUCING SHAREHOLDER’S TESTING COMPANY TO DELIVER TEST RESULTS TO BOARD INSTEAD OF TO SHAREHOLDER

Gochberg v. Sovereign Apartments, Inc. Department

Appellate Division, 1st

COMMENT | The Court indicated that the business judgment rule might not be available as a defense, if bad faith was shown. CONDO DEFECTS SUIT AGAINST SPONSOR DISMISSED BECAUSE SUIT WAS NEVER AUTHORIZED BY FULL BOARD VOTE AS REQUIRED BY BYLAWS

The Board of Managers of The Clermont Greene Condominium v. Vanderbilt Mansions, LLC Supreme Court, Kings County CONDO CAN BRING EVICTION PROCEEDING AGAINST UNAUTHORIZED TENANTS INSTEAD OF UNIT OWNER, REGARDLESS OF WHAT THEIR OCCUPANCY AGREEMENT IS CALLED

The Board of Managers of The J Condominium v. Tornabene Civil Court, Kings County COMMENT | The Court held that specific bylaw provisions authorized the Condominium to bring the proceeding, and that the terms “lease” and “license” were immaterial for these purposes. CO-OP CAN EVICT SHAREHOLDERS UNDER PULLMAN FAILURE TO GRANT ACCESS FOR WATERPROOFING REPAIRS

FOR

Gordon v. 476 Broadway Realty Corp. Supreme Court, New York County COMMENT | The Court held that the co-op followed its own procedures; the Court refused to question the Board’s decisions under the business judgment rule. CO-OP’S FAILURE TO PROVE AMOUNT OF ITS ANNUAL EXPENSES, AND SHAREHOLDER’S PRECISE SHARE THEREOF, WARRANTS DISMISSAL OF NON-PAYMENT PROCEEDING AGAINST DELINQUENT SHAREHOLDER

300 East 85th Housing Corp. v. Dropkin Civil Court, New York County COMMENT | This is an incredibly important decision; anecdotally, it seems like the vast majority of co-ops also fail to comply with this apparent trial requirement. CONDO APARTMENT BUYER CAN SUE SPONSOR FOR DAMAGES FOR DELAY IN CLOSING, BUT NOT FOR LOSS OF FAVORABLE INTEREST RATE

CONDO BOARD CAN INSTALL BACKFLOW PREVENTER WITHIN GARAGE UNIT AGAINST GARAGE UNIT OWNER’S WISHES

Board of Managers of The 411 East 53rd Street Condominium v. Perlbinder Supreme Court, New York County COMMENT | The Court held that questions of fact precluded summary judgment on the issue of who’s responsible for repairs to floors within the garage unit. BROKER NOT LIABLE TO RENTAL TENANT FOR PRESENCE OF BATS IN APARTMENT

Katehis v. Sovereign Associates, Inc. Supreme Court, New York County COMMENT | While not involving a co-op or condo, this case is still instructive. The Court emphasized that the tenant had inspected the apartment and signed an “AS IS” statement, and that the broker had no knowledge of the bats. CONDO BOARD AND MECHANICS LIENOR AWARDED LARGE AMOUNTS FOR LIENS AND INTEREST OWED, IN LIGHT OF FRIVOLOUS LITIGATION BY PURPORTED UNIT OWNER AND AFFILIATES

Board of Managers of 542 LaGuardia Place Condominium v. Decofin LLC et al. Supreme Court, New York County DECEDENT’S SON FAILS TO UNDO JOINT OWNERSHIP OF CO-OP BY DECEDENT AND PARAMOUR

In Re Gorban Surrogates Court, Richmond County COMMENT | The Court held that the son had failed to prove fraud or undue influence in the establishment of the joint tenancy upon purchase. CONDO LIEN SUBORDINATE TO SECOND MORTGAGE PREVIOUSLY CONSOLIDATED WITH FIRST MORTGAGE

Plotch v. Citibank, N.A. Appellate Division, 2nd Department RENTAL TENANT WITH NO CURRENT DISABILITY CANNOT CLAIM LANDLORD FAILED TO MAKE REASONABLE ACCOMODATION IN REFUSING TO ALLOW HIM TO KEEP DOG DESPITE NO-PET RULE

New York State Division of Human Rights v. 111 East 88th Partners Supreme Court, New York County COMMENT | The DHR was not permitted to offer evidence of disability, since the tenant’s own doctor indicated no current disability (despite past history of disability.)

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New Law Requires Leases to Set Forth Sprinkler System Notification By Martin Heistein On August 5, 2014, New York Governor Andrew Cuomo signed into law legislation that requires all residential leases entered into, on or after December 3, 2014, to contain a notice in boldface type as to the existence or non-existence of a sprinkler system in the leased premises. If there is already a sprinkler system in place, the notice must contain language setting forth the date as to when the system was last maintained and inspected. Section 231-a of the New York Real Property Law applies to all residential leases in New York State - both rent regulated and market rate units. Last month, DHCR updated the rent-stabilized lease

renewal form to include this f ire sprinkler notice language (Form RTP-8 or RTP-8ETPA). The sprinkler language is required to be used after December 3, 2014. We urge all rent-stabilized renewals being offered at this time to use this new DHCR form. Similar language should be set forth in all new vacancy leases, entered into on or after December 3, 2014, as well as all leases for non-regulated apartments. The information must be provided to each tenant upon the signing of a vacancy lease. A copy of these new forms can be obtained from any of the attorneys in BBW&G’s Administrative Law Department or by downloading the forms from DHCR’s website.  Martin Heistein (mheistein@bbwg.com) is a partner of the Firm and is the Chairperson of the Administrative Law Department.

transactions of note Howard Wenig and Craig L. Price, partners in the firm’s Transactional Department, handled mortgage refinancings of two Brooklyn Heights apartment buildings, a commercial property in Midtown West, and a package of apartment buildings on the Upper West Side. Mr. Price also represented the seller of a $20 million Greenwich Village townhouse and the borrower on a refinancing of a commercial property on Madison Avenue.

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NOTABLE ACHIEVEMENTS Sherwin Belkin, a partner in the firm’s Administrative Law and Appeals Departments, was a panelist at a September 18 seminar sponsored by the Rent Stabilization Association on “Managing Rent Regulated Property: Update 2014,” analyzing this year’s amendments to the Rent Stabilization Code; Mr. Belkin’s remarks were also reported in the October edition of RSA Reporter. Mr. Belkin was also a panelist at the November 13 Massey Knakal Multifamily Summit & Operations Academy seminar entitled “The Sweet Smell Of Success.” Aaron Shmulewitz, a partner who heads the firm’s Co-op and Condo practice, was quoted in an article in the NY Times on September 14, entitled: “Elderly New Yorkers, Here for the Duration.” Mr. Shmulewitz noted some of the issues that boards confront with elderly residents. Martin Heistein, head of BBWG’s Administrative Law Department, lectured at a September 9 seminar co-sponsored by CHIP (Community Housing Improvement Program) and the New York County Lawyers Association, presenting a general overview of MCI issues and the DHCR application process. Craig L. Price, a partner in the firm’s Transactional Department, was quoted in the September 10 edition of Real Estate Weekly in an article entitled “Brokers Struggle To Pick Sides,” and also in an article on law360.com that same day entitled “NYC’s $1M Parking Spot Shows Appetite For Luxury.” Mr. Price also lectured at a new broker training course conducted by Urban Compass on September 4, and was a presenter at the October 15 “Real Estate Round-Up” sponsored by REBNY on the issue of assignments of mortgage. Robert A. Jacobs, a partner in BBWG’s Transactional Department, will be co-chairing a Continuing Legal Education seminar at the NYC Bar Association on December 8 entitled: “Development Rights & Wrongs: Zoning Lot Mergers & Development Rights Transfers in New York City.” Matthew Brett, a partner in BBWG’s Litigation Department, had a letter to the editor published in the October 10 edition of The New York Law Journal, discussing inconsistent rulings in appellate decisions by the Appellate Term, 2nd Department, affecting cases involving family member succession claims. Jeffrey Goldman, a partner in BBWG’s Litigation Department, was quoted in the NY Daily News, NY Post, Real Deal, and Reuters News, following a second recent decision by the NY County Supreme Court in the action by the NYS Attorney General Eric Schneiderman against BBWG clients, Donald Trump, Trump Organization, and TEI. Seth J. Bell, an associate in the firm’s Transactional Department, was a panelist at a September 22 seminar co-sponsored by OneTitle National Guaranty Company and aptsandlofts.com entitled “Complex Deals 2014.”

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

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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.

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BBWG December 2014 Newsletter  
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