BG Newsletter

New York Guaranty Law Struck Down as Unconstitutional

New York City commercial real estate owners have good reason to celebrate this Spring as a COVID-era protection for personal guarantors of commercial leases has been struck down. In a historic win, the New York City’s Guaranty Law was found to be unconstitutional and to violate the Contract Clause of the United States Constitution.

In the decision, issued on March 31, 2023, the United State District Court for the Southern District of New York held that the Guaranty Law-which rendered personal guarantees associated with certain commercial leases unenforceable for the period from March 7, 2020, through June 30, 2021-was unconstitutional and thus unenforceable.

As a result, New York City commercial real estate owners can now sue personal guarantors to recover unpaid rent that accrued during that period. Landlords may have previously written off these sums as uncollectable under the Guaranty Law.

The case was brought by a group of commercial landlords against New York City. The District Court initially granted New York City’s motion to dismiss concluding that they failed to state a claim under the Contracts Clause. The Second Circuit of the U.S. Court of Appeals reversed, in part, and sent the case back down to the District Court to reconsider the Guaranty’s Law constitutionality.

New York City commercial real estate owners should consider whether they would like to pursue personal guarantors to recover any outstanding funds. Please do not hesitate to contact us to discuss next steps if you wish to pursue these claims.

The text of the case, Melendez v. The City of New York, No. 20-CV-5301 (RA) SDNY 3/31/23 is available here.

David B. Rosenbaum

David R. Brody Andrew I. Bart

Update on Commercial Practice

David B. Rosenbaum Joshua Nadelbach

During the past two years the temporary state and local laws imposed a moratorium on evictions, and housing court proceedings moved at a sluggish pace due to the impact of COVID-19 restrictions. Our firm brought many commercial cases in State Supreme

Court as breach of lease and guaranty actions. We were successful in recovering substantial money judgements.

In a recent case, 508 Columbus Properties LLC v. Square to Spare LLC d/b/a Big Gay Agenda LLC (December 14, 2022), the court granted summary judgment on the property owner’s motion and entered a money judgment for rents going back prior to March 2020. The court found the guarantors personally liable for the commercial tenant’s monetary liability and dismissed all their defenses. The Court elaborated on the inapplicability of the tenant’s Guaranty Law defense and the owner’s right to recover money damages from the corporate and individual guarantors.

New York Court of Appeals Ruling on the Draconian Default Formula

The Court of Appeals released an important decision concerning the application of the default formula – in which the lowest rents are utilized as a basis for determining the legal regulated rent –when an owner had deregulated apartments based on DHCR interpretation of the law in effect before its landmark decision in Roberts v. Tishman Speyer Properties L.P.

In Casey v. Whitehouse Estates Inc., the owner deregulated apartments based upon pre-Roberts law, but when it registered rents after Roberts, questions were raised about those rents and their calculation. The lower courts held that the deregulation was improper, the rent history unreliable, and directed that the default formula be used to calculate the base rent and further rents.

In reversing the lower courts, the Court of Appeals reaffirmed its holding in Regina Metropolitan Co. LP v. DHCR that pre-Roberts deregulations

do not constitute an indicia of fraud which would ordinarily allow resort to the default formula. The Court further found that the owner’s registration of the units is not relevant to the calculation of the base date rents and could not be a basis to question the reliability of the base date rents. The case was remanded to determine if the available rent history is sufficient to calculate a base date rent.

This decision is significant because the Court of Appeals has ruled that the default formula should not be used where the rent on the base date can be determined. While Casey involves a J-51 class action, the decision signals that the default formula is only applicable where the base date rent is unavailable and there is a finding of fraud.

The full text of the case is available here: Casey v. Whitehouse Estates Inc.

David B. Cabrera

Housing Court Post-Pandemic: Plagued by Delays

The last time I wrote on the state of the Housing Court was over four years ago; I was not happy with the delays in obtaining trial dates and the length of time in which the judges took to render their decisions. Now I long for those days.

If Feb. 21, 2023, is your first court appearance in a landlord/tenant proceeding for which you require a trial, it is not an exaggeration to

expect to wait six months for a trial date, that is if everything goes according to plan! Whether you are commencing a nonpayment or holdover proceeding (nuisance, lease expiration, illegal sublet, illegal short-term use license, etc.), the first court date is uneventful unless your adversary wishes to settle.

No matter the reason for the request for the adjournment, whether to obtain counsel, assignment of counsel, file an answer, or “the dog ate my defenses” (true story), with few exceptions the Court will grant at least a six-week adjournment.

On the adjourned date many things may happen with only one thing that will make the property owner seeking rent or possession of their apartment happy. Other than the possibility of a settlement where both litigants are represented by counsel, you may be given a motion schedule. If there is an issue brought to the attention of the court by tenant’s counsel regarding jurisdiction, dismissal, etc., and they request time to file a motion, the case will be further delayed for two months for argument on the motion. After submission and argument of the motion, it is possible that some judges will not decide the motion for six to 12 months. Again, not an exaggeration.

The Conference Judge may also adjourn the proceeding on the second, third, or fourth time the case is on, for months at a time, after failed attempts at settlement. If a settlement or other resolution cannot be obtained, there are Judges in the Housing Court who will continue to adjourn the proceeding for months, instead of transferring the case to a trial part.

The trial part is where the owner wants to be. The case is conferenced by the trial judge’s court attorneys, and if it is not settled the case is scheduled for a trial date. Unfortunately, the trial judges are so overwhelmed because of the number of unsettled cases entering their parts, it may be more than two or three months before you start the trial. The good news is once you are on trial, the judges either help the litigants settle the case or they make their decision. The problem for participants is the cost and length of time to get there.

Todd I. Nahins

Housing Court Post-Pandemic: Plagued by Delays (cont.)

Speeding Up the Process

Here are several suggestions that could speed up the court process within the framework of the Housing Stability and Tenant Protection Act. Although a summary proceeding must be adjourned for no less than 14 days, the Housing Court should not permit an adjournment past 21 days, unless there are special circumstances. Housing Court judges should render decisions on motions within 45 days after the motions are fully submitted. If the Court needs further time to render decisions, it should notify the parties specifying the estimated date for decisions.

Unless a motion has been served, the Housing Court intake/conference part should not be permitted, without the consent of the parties, to adjourn a case for a third time. Cases that have been adjourned twice without a settlement should be sent to the trial part.

The Legislature must allocate funds for the Office of Court Administration to increase the number of trial parts in Manhattan, Queens, Brooklyn, and the Bronx. I also suggest the Housing Court designate a small owners’ part in all Boroughs, except Staten Island, in which one judge will hear the case from start to finish both conferencing and trying the case, if necessary. Finally, the process of providing low-income tenants with an opportunity to seek counsel must be streamlined.

The pandemic-related budget shortfalls are expected to create additional cuts to funding for Housing Court staff, technology, and courtroom facilities. However, the courts must find creative solutions in order to provide both property owners and tenants access to justice.

This article is republished from the New York Apartment Law Insider.

Cooperative Apartment Corporations Admissions

Landmines Under Consideration by the New York Council

In the first quarter of 2023, the New York City Council introduced three (3) pieces of legislation (Intro 914, Intro 915 and Intro 917) which, if passed, will significantly impact how cooperative apartment sales applications are processed and reviewed. The following is a brief summary of each piece of proposed legislation.

Intro

914

- An apartment corporation will need to maintain a standardized application and a list of requirements regarding a sales application.

- The apartment corporation will have to provide the application and the list of requirements to any prospective purchasers or sellers and shall include instructions as to where and how to submit the requested materials.

- Within ten (10) days of receiving materials from a prospective purchaser, the apartment corporation will have to provide written acknowledgement of the materials received.

- The requirement will apply both to a prospective purchaser’s initial submission and to any subsequent submissions.

- Within forty-five (45) days after the apartment corporation first receives any of the information or documents contained in the list, the apartment corporation will have to inform a prospective purchaser whether its consent to the sale is granted unconditionally, conditionally, or whether the consent to the sale is denied.

- By agreement with the prospective purchaser, the time for determination may be extended, but not by more than fourteen (14) days.

- In recognition of the summer months, the legislation gives some latitude to boards during the months of July and August. However, the apartment corporation must provide in its by-laws that the board does not normally meet during the summer months.

- If a board of directors fails to timely act, a prospective purchaser may treat the failure to respond as a denial of consent.

- If an application is incomplete, the time for review by the board of directors does not run until the additional materials are received and the file is complete.

Eric M. Goidel

Jeanette Chang

Cooperative Apartment Corporations Admissions

Landmines Under Consideration by the New York Council

Intro 915

This bill would require that where a prospective purchaser is disapproved, the apartment corporation is required to provide the prospective purchaser with a written statement of every reason for withholding consent. The statement would have to set forth each reason with specificity, including identifying each element of the prospective purchaser’s application which was found to be deficient, and how the application failed to meet any specific policies, standards or requirements, and the source of any negative information relied upon by the apartment corporation. The statement would also have to set forth the number of applications received by the apartment corporation for the period three (3) years prior to the date of submission of the application being rejected, continuing through and including the date of the statement. The statement would also have to set forth the number of applications for which the apartment corporation withheld consent and the number of applications for which the apartment corporation did not make any decision. The statement would have to be certified by an officer of the apartment corporation. There would be significant penalties for either an untimely statement or the failure to make a statement. Whatever was contained in the statement would be all that an apartment corporation could assert as grounds in the event of the commencement of an action by a rejected

prospective purchaser in either state court or before an administrative agency such as the Human Rights Commission.

Intro 917

This legislation would require that an apartment corporation provide financial disclosure, upon request by a prospective purchaser including at a minimum:

i. The assets and liabilities of the apartment corporation, including current cash flow, debt and operating expenses.

ii. Any capital improvements underway or planned and the cost of such improvements.

iii. The amount in any reserve fund.

iv. The most recent budget or a statement that the apartment corporation does not prepare a budget.

In all situations there will be monetary penalties for noncompliance. But, more significantly, the net effect of the passage of any of these bills would be to increase the burden on boards of directors and managing agents in the admissions process, as well as create a fast track for rejected prospective purchasers to commence discrimination proceedings. With respect to financial disclosure, I can envision a situation in which a shareholder down the road attempts to fight the payment of an assessment claiming that the board of directors was aware of plans to perform a capital project but failed to disclose the project to the prospective purchaser or that the cost of a capital project went significantly over projected costs.

New FDNY E-Bike Safety Regulations

Late last year, the FDNY promulgated a bulletin on E-Bike Safety. A copy of the Bulletin is available here. The E-Bike Bulletin must be distributed to all renters of multifamily apartment buildings and residents of buildings owned as cooperatives and condominiums by first class mail, email or electronic notification no later than April 30, 2023. The Bulletin must be resent every three years. The Bulletin must also be given to all new tenants and subtenants at lease signing, and to all building employees. There is required record keeping including copies of the notice and proof of mailing. In March 2023, the New York City Council voted on a legislative package strengthening the rules relating to the fire safety of e-bikes and the lithium batteries that power them.

Intro. 663-A restricts the sale or lease of e-bikes. Intro. 772-A requires the FDNY to submit reports on the fire risks associated with the batteries.

Intro. 752 restricts the reconditioning of lithium-ion batteries.

Intro. 749-A requires the FDNY to publish educational information on e-bike safety.

Unfortunately, the City Council failed to tackle the important question of whether e-bikes should be banned from buildings. Recognizing the safety issues a Landlord is free to make its own determination. This should even apply to Rent Stabilized buildings, where the presence of e-bikes is not a required service, but rather a possible accommodation.

Please contact us if you would like to discuss e-bike safety and rules in your cooperative, condominium or rental building.

Eric M. Goidel

Prohibited Building List: Short-Term Rentals

You may not be aware that Local Law 18, otherwise known as the Short-Term Rental Registration Law, is in effect! The law permits building owners to block residents from registering as hosts for short-term rentals. Specifically, the law requires legal residents of apartments (occupants who reside in apartments for longer than 30 days) to undergo a stringent registration process with New York City Mayor’s Office of Special Enforcement (“OSE”) before they can advertise their apartments on platforms like Airbnb and VRBO for short-term rentals (defined as renting an apartment for less than 30 days).

As of March 6, 2023, property owners can register their residential properties on a prohibited short-term rental buildings list with OSE. Crain’s New York Business reports that as of March 9, 2023, OSE has already received 1,474 applications for the prohibited buildings list.

To register for the prohibited building list, property owners, cooperative boards, and condominium boards must certify that leases and other occupancy agreements for dwelling units within their buildings prohibit short-term rentals. This registration will certainly have implications for owner liability for illegal short-term rentals.

Please contact us if you would like assistance in the process of registering your building as a building that does not permit short-term rentals or assistance in reviewing your leases, and drafting lease riders prohibiting building residents from registering their apartments as short-term rental hosts.

Sarah Fiona Phillips

Phoebe Dossett

What’s New at DHCR?

David B. Cabrera

Promises! Promises! As of today, DHCR has not published the Final Rent Stabilization Code. If you would like to discuss how the proposed changes may impact your portfolio, please contact David Cabrera.

New Lease Forms and Riders

The following DHCR documents have been revised to reflect Section 610 of the Private Housing Finance Law(“PHFL”). The new renewal lease forms and riders must be used for all rent stabilized tenants regardless of whether they are subject to the PHFL:

- New York City Lease Rider

- Emergency Tenant Protection Act (“ETPA”) Standard Lease Addenda for Rent Stabilized Tenants

- Rent Stabilized and ETPA renewal lease forms

These documents now reflect Section 610 of the PHFL, which requires the form RA-LR3 to be attached to all leases when a state or municipal agency or other statutorily designated party issues and approves of a regulatory agreement that establishes actual rents higher than legal rents and a government program provides rental assistance for the subject apartment.

New FOIL Request Form

In addition, DHCR has updated Operational Bulletin 2023-1 “Procedures for Requests for Records Access, Freedom of Information Law (FOIL) Requests and Subpoenas” and the form “Request for Records Access” (Freedom of Information Act “FOIL”) has been modified to include information pertaining to electronic portals and addresses to be used for the submission and delivery of records.

Proposed Changes to the Loft Law

David R. Brody

At the end of last year, The New York City Loft Board held a hearing on proposed changes to the Loft Board Rules and Regulations, which had not been revised in almost a decade. I submitted comments on the proposed rules. The comments focus

on the proposed changes to the legalization process which will effectively lengthen the legalization process and the proposed changes to the regulations which add the term "Responsible Party" as a party somehow different from "owner" and “landlord” in the Loft Board regulations. The proposed regulations appear to permit a "Responsible Party" to file legalization plans although the City Building Code

does not. The full text of the comments can be found here

The proposed regulations were adopted effective April 3, 2023, and include “responsible party” language. The major impact of the revisions is with respect to the 2019 amendment of the Loft Law. Administrative changes include requiring quarterly filings, stating progress towards legislation, regardless of whether an owner has obtained building permits for legalization.

Webinar: Resolving Complex Building Violations

(Available on Demand)

In February, the firm co-sponsored a webinar with NYCLA on resolving building violations at the OATH, The NYC Loft Board, in Housing Court, due diligence, and drafting provisions addressing violations in contracts of sales.

The speakers were:

David R. Brody, Esq.

Stephen C. Shulman, Esq.

Sarah F. Phillips, Esq.

Michael R. Nerenberg, Esq.

The program was moderated by David Cabrera and produced by Robin Bernstein

Contact marketing at marketing@borahgoldstein.com if you would like to view the webinar and would like a copy of the materials.

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 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.