R&E Client Newsletter - January 2022

QUARTERLY NEWSLETTER

733 THIRD AVENUE, NEW YORK, NY 10017 WWW.ROSENBERGESTIS.COM 212-867-6000

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As we embark on a new year, Rosenberg & Estis is powerfully positioned to tackle new industry challenges. It is my distinct pleasure to announce the recent promotion of four R&E attorneys. As of January 1, 2022, Jolie E. Meer and Stefanie M. Graham have been promoted to Members of the Firm, and Richard B. Corde and David Fries have been promoted to Of Counsel.

We are extremely proud of our legal team and support staff for their hard work, achievements, and unwavering commitment to our clients.

In this newsletter, our feature stories address what we believe are two of the most significant topics facing the real estate industry in 2022: The status of the Good Cause Eviction bill, and the Affordable Neighborhoods for New Yorkers (ANNY) Program that Gov. Hochul has proposed to replace 421-a Affordable NY. The real estate industry has endured enormous uncertainty in the past two years, and R&E remains your trusted thought partner to successfully navigate all the legal developments, obstacles, and challenges we may encounter in 2022.

Michael E. Lefkowitz Managing Member

Contents Feature Story 1: Good Cause Eviction

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R&E Member Alexander Lycoyannis has been at the forefront of all developments related to the proposed Good Cause Eviction bill. Read how the bill could impact your residential properties.

Feature Story 2: Gov. Hochul’s 421-a Replacement Program

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Daniel M. Bernstein, Member & Leader of R&E’s Tax Incentives & Affordable Housing Department, provides an overview of Gov. Hochul’s proposed 421-a replacement program, “Affordable Neighborhoods for New Yorkers” or “ANNY”

Recent Publications

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Published works by our attorneys as seen in the New York Law Journal, Law360 and New York Real Estate Journal

Press Releases

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A glimpse at some of the most powerful, industry-wide decisions since the start of 2021

Recent Events R&E was invited to speak on webinar panels hosted by leading real estate groups

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FEATURE STORY

Good Cause Eviction A Summary and Analysis Alexander Lycoyannis Member

R&E EXCLUSIVE FEATURE STORY by Alexander Lycoyannis January 31, 2022

The New York State Legislature is currently considering the “Good Cause Eviction” bill (GCE), a sweeping proposal that would apply to virtually all free-market housing accommodations in New York State except for (1) apartments already subject to rent regulation, and (2) owner-occupied buildings with fewer than four units (together with other very narrow exceptions). The bill would create, in effect, nearly universal rent control, and would essentially eliminate free-market residential apartments and fixed-term leases in New York State.

GCE provides that unless an owner establishes one of several specified grounds for removal, “[n] o landlord shall remove a tenant from any housing accommodation, or attempt such removal or exclusion from possession, notwithstanding that the tenant has no written lease or that the lease or other rental agreement has expired or otherwise terminated. . .”

In other words, the default position in any landlordtenant dispute would be that unless the owner can affirmatively establish “good cause” to evict -- with lease expiration not constituting good cause -- the tenant would be entitled to remain in possession forever. And, even where “good cause” appears to exist, the bill’s language ensures that the resulting litigation to recover possession would be timeconsuming and expensive -- especially in light of the fact that recent legislation affords many New York City

tenants the right to counsel in eviction proceedings (with similar legislation being considered at the state level).

For example, the nonpayment of rent is a “good cause” to seek eviction. On its face, the concept is simple and straightforward enough. However, this basis is modified by the requirement that the unpaid rent not be the result of an “unreasonable” rent increase. What, exactly, is an “unreasonable” rent increase? The bill’s language is silent. The bill declares that a rent increase above 3% or 150% of CPI, whichever is greater, is presumptively unreasonable, but notably does not provide that a rent increase below those amounts is presumptively reasonable.

Thus, the bill permits a tenant to challenge even a 1% or 2% rent increase (or less) as “unreasonable,” which would, in turn, force the owner to spend time and resources justifying any such increase before it could hope to obtain a judgment for the rent owed. And if the rent increase is greater than 3% or 150% of CPI, the owner would bear a heavy burden to overcome the presumption of unreasonableness.

Moreover, even if the owner successfully runs the “unreasonableness” gauntlet, the tenant remains free to challenge any rent increase as having been imposed “for the purpose of circumventing the intent

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of this article,” even though GCE’s “intent” is nowhere defined in the bill’s language. This nebulous standard would surely spark litigation in New York’s already overburdened courts.

New York City usually opting instead to issue short-term rental violations to the owner. Thus, an owner could be faced with a steady stream of government fines for the conduct of a tenant it is powerless to remove.

Add it all up, and owners would be strongly incentivized to simply leave rents at current levels and avoid the time and expense necessary to justify even small rent increases in New York court proceedings. This would lead to the deferral or avoidance of repairs and maintenance, and ultimately the degradation of New York’s rental apartment stock.

Other instances of “good cause” in the bill include nuisance, using the apartment for illegal purposes (such as, for example, drug dealing or prostitution) and refusal of access. In general, however, all “good cause” bases would require discovery and extensive fact-finding, and considerable legal expense, to establish.

Similarly, GCE purports to confer “good cause” if a tenant violates a substantial obligation of the tenancy.

However, here again the tenant can raise a defense that the obligation was “imposed for the purpose of circumventing the intent of this article” -- which would then become a flash point in litigation and divert focus away from the tenant’s wrongful conduct.

GCE’s overall aim appears to be not to give owners a reasonable basis to retake possession of their own property, but to render the prospect of litigating eviction proceedings so onerous, time-consuming and expensive that owners would be incentivized to permit tenants to stay in possession even where “good cause” exists.

The so-called “good causes” to evict contain many other roadblocks and hurdles for owners.

GCE’s backers have sought to reassure the real estate industry that owner’s use is readily available as a “good cause” basis. However, the bill’s language reveals that for buildings with 12 or more units, owner’s use recovery is entirely unavailable. And, in buildings with fewer than 12 units, recovery of a single apartment would only be available if the owner can demonstrate “immediate and compelling necessity” -- a difficult standard to meet which would, again, require significant legal expense with no certainty of success.

On top of the foregoing, the bill would catch far more than prototypical landlord-tenant relationships within its ambit. Rather, the bill’s definitions of “landlord,” “tenant,” “rent” and “housing accommodation” are so broad that they would grant virtually any person in occupancy of real property the right to stay in possession forever, notwithstanding the initial terms on which that person entered the property. To use three examples among many others, (1) a roommate, (2) a college student living in a dormitory, and (3) a weeklong vacation home renter could not be evicted under GCE when their terms of occupancy expire unless “good cause” exists.

“Good cause” also purportedly exists if occupancy by the tenant is in violation of law or causes a violation of law, and the owner is subject to criminal or civil penalties as a result -- but only if a vacate order is issued. This means, for example, that a tenant operating an illegal short-term rental business via Airbnb or similar platforms may continue to do so with impunity for so long as the local municipality does not issue a vacate order -- which is often the case, with

GCE, in short, would permit virtually any occupant, whether a tenant or otherwise, to unilaterally dictate the terms of possession and the duration of occupancy, thus obliterating the concept of a lease or other bilateral agreement to occupy real property. Put another way, an occupant would essentially enjoy the status of owner with none of the attendant responsibilities, while the owner would bear all of the burdens of real estate ownership with almost none of the accompanying

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benefits.

Unsurprisingly, the expectation is that should GCE be enacted, multifamily property values would decrease due to the significant constraints placed on buildings’ cash flow. This would, in turn, hurt tax assessments and thus revenue collected by local governments to fund essential services -- a concern voiced by multiple Senators at the January 7 committee hearing on GCE. In fact, we are already seeing lenders take notice that the Legislature is considering GCE and -- although we understand that the bill does not yet have majority support -- build the possibility of GCE’s enactment into their underwriting analysis. The result is less favorable terms for multifamily property lending than we were seeing before GCE was on the Legislature’s agenda.

Should it become law, GCE would likely be challenged on multiple constitutional grounds.

The United States Supreme Court recently held that a state regulation compelling property owners to permit certain individuals access to real property for three hours per day, 120 days per year was a per se physical taking for which just compensation is required. If requiring such limited access to real property is a physical taking requiring just compensation, then requiring perpetual occupancies and rendering it impossible to remove buildings from the rental market must also be an unconstitutional taking.

In addition, the United States Constitution’s Contract Clause provides that “no state may pass a Law impairing the Obligation of Contracts.” GCE, however, impairs the obligation of contracts in that it impairs a lease or rental agreement for a defined period at the conclusion of which the tenant or occupant must vacate, and instead confers perpetual occupancy rights. While temporary contractual impairments are more likely to be upheld in the face of Contract Clause challenges, the courts view permanent impairments like those occasioned by GCE far more skeptically.

As indicated, our current understanding is that GCE does not yet have majority support in the New York Legislature. Additionally, Governor Hochul has been noncommittal on GCE and has not mentioned it in public appearances. Nevertheless, given that 2022 is an election year and that the bill has a fervent and motivated base of support, we expect an effort to push GCE at some point during the current legislative session. While industry representatives are working to oppose the bill because of its potential deleterious impacts across the real estate industry, we recommend that owners also contact their elected representatives to register opposition to GCE and detail the negative effects it will have on their properties and on New York State more generally.

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NYC Affordable Housing; The End of 421-a and the future of housing incentives Daniel M. Bernstein Member

R&E EXCLUSIVE FEATURE STORY by Daniel M. Bernstein January 31, 2022

New York City needs more housing and more affordable housing. The 421-a property tax exemption program, currently the single most important program for NYC housing production, will expire on June 15, 2022, and is not expected to be renewed. Now is the time to establish a new and improved program to incentivize construction of rental, coop and condominium apartments, on terms that deliver real public benefits (affordable housing, construction jobs, building service jobs) and which offset the considerable expenses of developing housing in NYC (a reasonable property tax exemption), all without requiring any cash outlay by government.

421-a Is Ending Developers of new residential properties in New York should act now to lock in tax incentives provided under the city’s current 421-a program a/k/a The Affordable New York Housing Program or “ANYHP” before they expire on June 15, 2022. NYC needs the uninterrupted residential developments, including critically important affordable housing units, that are incentivized under this program.

421-a of the Real Property Tax Law was first enacted in New York on July 1, 1971, to provide tax exemptions for any new construction on under-utilized or vacant land.

The successful program has promoted the construction

of nearly half of all new residential units built in New York since 2010, and some 200,000 apartments remain affordable today because of the program.

The program has been renewed in various forms several times since it was first established, the last time in 2017 following a 16-month gap which made it nearly impossible for developers to underwrite or build mixedincome housing. The creation of affordable homes by private developers virtually ground to a halt before 421-a was re-enacted as ANYHP with the addition of a benchmark construction labor agreement (for very large projects) for the first time in the program’s history and with a requirement that every project include a significant percentage of affordable units.

Now, ANYHP is about to sunset, and without a renewed version, history could repeat itself at a time of critical need for affordable housing.

Gov. Hochul’s Proposal: Affordable Neighborhoods for New Yorkers (“ANNY”) This Month, Gov. Kathy Hochul proposed legislation to replace the sunsetting program. However, legislators have a history of allowing the 50-year-old incentive for affordable units in new ground-up developments to expire without replacement.

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That’s why Gov. Hochul should be applauded for acting so early in the legislative session to propose replacing 421-a with a proposed version – Affordable Neighborhoods for New Yorkers, or ANNY for short.

ANNY adds a new section 485-w to the city’s Real Property Tax law, replacing and updating aspects of the expiring 421-a program.

ANNY provides critical property tax incentives for residential developers to build affordable housing and does so with several key differences from the expiring 421-a program: For rental projects, compared to the expiring 421-a program, ANNY incorporates deeper affordability requirements with more units affordable at lower rents and income levels and it eliminates affordable rental project options above 90% of NYC’s area median income. ANNY also ties the length of the affordability period to the size of the development – larger rental projects with 30 or more units would be required to maintain affordable units permanently while smaller projects would retain affordable units for 35 years. The new proposal also maintains construction worker pay protections from 421-a and redefines neighborhoods most in need of more affordable housing options as Prime Development Areas (PDAs).

ANNY also contains an option for 100% affordable homeownership projects to receive a property tax benefit -- much more useful than the current 421-a program option for homeownership projects.

Although ANNY is not without issues, Gov. Hochul has advanced a replacement program that promotes deeper affordability while balancing key provisions that justify participation by developers. ANNY asks more of developers than the current program, but it is certainly something that New York developers could rely on to underwrite their new construction projects.

It is vital that Gov. Hochul, the State Legislature and Mayor Eric Adams unite in the effort to replace the expiring 421-a program with incentives for new construction as well as for the conversion of underutilized hotel and office space into new housing.

Without ANNY or a similar program, developers cannot afford to build multi-family rental housing with

a significant below-market, or affordable, component on a scale New York needs to address its housing needs. Developers, along with their lenders and other stakeholders, need certainty to invest, and any gap in the program will undoubtedly disrupt the pipeline of residential projects, starving the city of new housing and new affordable housing at a time when it is struggling to rebound from the worst global crisis in recent history.

The coronavirus pandemic has laid bare the shortcomings of New York’s expensive and highly regulated housing construction environment. The failure to replace the 421-a tax abatement would further exacerbate the crisis. Unless the Legislature wants housing construction to stop after June, a replacement program is needed. Without providing incentives that acknowledge developers’ costs and which ask for a reasonable public benefit (affordable housing and labor considerations), many developers will simply stop purchasing development sites, applying for new building permits or developing new housing.

Next Steps We are still some months away from NYS legislative approval of ANNY, or indeed any other iteration of the current 421-a abatement. In the meantime, the introduction of ANNY offers a glimmer of hope that there will be a viable residential tax incentive program that strikes a balance for both developers and affordable housing advocates.

Reasonable incentives from government can and should be used to spur private developers to build more housing and to help provide just what Gov. Hochul intended: affordable neighborhoods for New Yorkers.

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PUBLICATIONS

Tribunals Split on Effect of Post-‘Roberts’ Conduct In their Rent Stabilization column, Warren Estis and Jeffrey Turkel discuss the questions left open after Roberts v. Tishman Speyer where the Court of Appeals held that apartments in J-51 buildings could not be luxury deregulated while J-51 benefits remained in effect, and how the First Department, Second Department, and DHCR have all answered these questions differently.

In Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270 (2009), the Court of Appeals, reversing DHCR’s long-standing policy, held that apartments in J-51 buildings could not be luxury deregulated while J-51 benefits remained in effect. Roberts left a host of unanswered questions, including whether its ruling should be applied retroactively.

On Aug. 18, 2011, in Gersten v. 56 7th Ave. LLC, 88 AD3d 189 (1st Dept. 2011), the First Department held that Roberts should be retroactively applied. On March 6, 2012, the appeal to the Court of Appeals in Gersten was withdrawn and discontinued. 18 NY3d 954 (2012).

Once the law became clear, the question arose as to how promptly landlords had to register and re-calculate the rents of erroneously deregulated apartments. A secondary question arose as to the appropriate penalty for a landlord’s failure to promptly comply with Roberts and Gersten.

As discussed below, the First Department, Second Department, and DHCR have all answered these questions differently.

First Department Rulings The First Department initially addressed these issues in Kreisler v. B-U Realty Corp., 164 AD3d 1117 (1st Dept 2018), lv dismissed, 32 NY3d 1090 (2018). There, the court ruled:

As seen in the New York Law Journal

By Warren A. Estis and Jeffrey Turkel January 4, 2022

The record reflects evidence of a fraudulent scheme to deregulate plaintiffs’ apartment, as well as other apartments in the building, including evidence of defendants’ failure, while in receipt of J-51 tax benefits, to notify plaintiffs their apartment was protected by rent stabilization laws or to issue them a rent-stabilized lease, and further reflects that defendants only addressed the issue when their conduct, which violated Roberts, came to light in connection with an anonymous complaint, which in turn triggered the involvement of an Assemblyman in 2014.

We reject defendants’ asserted reliance on a ‘pre-Roberts’ framework to justify their actions, given that the wrongdoing here occurred in 2010, after Roberts was decided. (Internal citation omitted).

164 AD3d at 1117.

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supplied).

Kreisler was less than definitive on the issue of post-Roberts conduct. In addition to delay, the landlord therein had already otherwise engaged in an unnamed fraudulent scheme to deregulate the subject apartment.

But shortly after Kreisler, the First Department made its position clear in Nolte v. Bridgestone Assoc., LLC, 167 AD3d 498, 498-99 (1st Dept 2018): The court properly examined the rental history of the subject apartment beyond the four-year statutory limitations period. (CPLR 213‑a) upon finding that defendant was engaged in a fraudulent scheme to deregulate apartments. The record shows that defendant failed to promptly register the apartments and 30 other apartments in the building as rent-stabilized in March 2012, when the applicability of Roberts v. Tishman Speyer Props., L.P., was clear. (Internal citations omitted).

Regina Metro. Co., LLC v. New York State Div. of Hous. & Community Renewal, 35 NY3d 332 (2020), did not alter the First Department’s policy. In Montera v. KMR Amsterdam LLC, 193 AD3d 102 (1st Dept. 2021) the First Department noted that although landlords who erroneously deregulated J-51 apartments before 2012 were given “safe harbor,” “we have not extended this rule to cases decided after Roberts and Gersten. To the contrary, our jurisprudence holds that an owner may not flout the teachings of Roberts.” 193 AD3d at 105.

Notably, in Montera, Justice Judith Gische dissented.

Addressing the Kreisler and Nolte line of cases, Gische wrote that “Regina, with its robust requirements for finding fraud in Roberts overcharge cases has sub silentio overruled this authority.” Id. at 116.

Other cases favorably citing the Kreisler/Nolte/Montera line of authority include Dadisman v. D-Day Realty LP, 2021 WL 2688500 (Sup Ct, NY County); Tribbs v.

326-338 E 100th LLC, 2021 WL 1893189 (Sup Ct, NY County); Aras v. B-U Realty, 2021 WL 3741619 (Sup Ct, NY County); Townsend v. B-U Realty, 67 Misc 3d 1228(A) (Sup Ct, NY County 2020). Notably, in Wijk v.

812 Realty LLC, 2021 WL 305775 (Sup Ct, NY County), Justice Paul A. Goetz observed that “a landlord’s willful noncompliance with its obligation to register apartments as rent-stabilized after 2013 may be evidence demonstrating” a fraudulent scheme to deregulate (emphasis

The First Department cases raise an interesting issue.

The default rent formula is used where a fraudulent scheme to deregulate an apartment “tainted the reliability of the rent on the base date.” Matter of Grimm v.

New York State Div. of Hous. & Community Renewal, 15 NY3d 358, 367. If the landlord’s failure to register post-Regina and Gersten occurred after the base date, such failure could not have possibly “tainted” a base date rent charged years earlier. It remains to be seen whether the Court of Appeals will endorse the First Department’s policy, as restated in Montera.

The Second Department In Gridley v. Turnberry Vil., LLC, 196 AD3d 95 (2d Dept 2021), the Second Department affirmed Supreme Court’s dismissal of a class-action overcharge action, largely because there was no evidence of an actual overcharge. The Second Department cited Nolte for the proposition that “[t]here are instances in which failure to timely register an apartment as rent stabilized could constitute evidence of fraud.” Id. at 102.

The Second Department observed, however, that the owner in Gridley registered the apartment in question after DHCR’s 2016 “blanket notification to landlords of the change in law” regarding J-51 benefits and luxury deregulation. The court concluded that “the late registration of the apartment as rent-stabilized, only after notification by the DHCR of a change in law several years in the making, does not indicate that Turnbury was engaged in a fraudulent scheme to deregulate the apartment.” It may be that in the Second Department, a landlord’s “safe harbor” to register apartments and recalculate rents following Roberts and Gersten extends to 2016, some four years later than the 2012 safe harbor in the First Department.

DHCR DHCR took an even more lenient approach in Matter of Burstein, DHCR Adm. Rev. Dckt. No. IS-4100979RK, issued on June 7, 2021. There, notwithstanding Roberts and Gersten, the landlord did not register the apartment in question as stabilized until 2017. DHCR nonetheless refused to find a fraudulent scheme to deregulate: Continue reading.

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Could NYC’s Guaranty Law Be Struck Down as Unconstitutional?

Warren A. Estis and Alexander Lycoyannis discuss ‘Melendez v. City of New York,’ where a group of New York City owners commenced a district court action for a judgment declaring the Guaranty Law unconstitutional and for an injunction permanently enjoining its enforcement.

In our June 2020 column, we raised various potential infirmities affecting Intro 1932-2020 (the “Guaranty Law”), which, inter alia, prohibited the enforcement of personal guaranties executed in connection with certain commercial leases. Signed into law by Mayor Bill DeBlasio on May 26, 2020, the Guaranty Law (as subsequently renewed and extended) permanently barred the enforcement of guaranties within its scope for the period from March 7, 2020 through and including June 30, 2021.

Among the issues we raised at that time was the Guaranty Law’s potential violation of the U.S. Constitution’s Contracts Clause, which states: “No state shall…pass any…law impairing the obligation of contracts.” U.S. Const. art. I, § 10, cl. 1. Our column concluded: “Given its total suspension of certain guaranty obligations, judicial review of this new law—in which one or more of the above arguments may be considered—seems inevitable.”

Sure enough, soon thereafter the Guaranty Law was challenged in federal court on constitutional grounds.

While the U.S. District Court dismissed the challenge, the U.S. Court of Appeals for the Second Circuit has reversed the dismissal in part, thus raising the distinct possibility that the Guaranty Law could ultimately be struck down and that the obligations shielded from liability under it could become enforceable.

As seen in the New York Law Journal

By Warren A. Estis and Alexander Lycoyannis November 30, 2021

In Melendez et al. v. City of New York et al., a group of New York City owners commenced an action in the U.S. District Court for the Southern District of New York for a judgment declaring unconstitutional the Guaranty Law and for an injunction permanently enjoining its enforcement. On Nov. 30, 2020, the District Court (1) granted the defendants’ motion to dismiss the plaintiffs’ amended complaint in its entirety for failure to state a claim, and (2) denied the plaintiffs’ motion for preliminary injunctive and declaratory relief without review.

See Melendez v. City of New York, 503 F Supp 3d 13 (SD NY 2020), affd in part, vacated in part, revd in part, 16 F4th 992 (2d Cir 2021).

In evaluating a Contracts Clause claim, courts assess whether the challenged law (1) substantially impairs the plaintiff’s contract rights, (2) advances a significant and legitimate public purpose, and (3) constitutes a reason-

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able and appropriate means to advance that public purpose. See Sveen v. Melin, 138 S Ct 1815, 1821-1822 (2018). The District Court concluded that dismissal was warranted because (1) while the plaintiffs plausibly alleged a substantial impairment of their contract rights, the Guaranty Law (2) advanced a significant and legitimate public purpose and (3) was an appropriate and reasonable means to advance that public purpose. See Melendez, 503 F Supp 3d at 31-36.

they may be able to return and relaunch or create a new thriving business in our neighborhoods,” and (2) legislative text stating that the Guaranty Law served to minimize “economic and social damage caused to the city” by the COVID-19 pandemic, which “will be greatly exacerbated and will be significantly worse than if these businesses are able to temporarily close and return or, failing that, to close later, gradually, and not all at once.”

Melendez at 86-87.

However, in an Oct. 28, 2021 opinion by Circuit Judge Reena Raggi and joined by Circuit Judge Jose Cabranes, with Circuit Judge Susan Carney filing a separate opinion concurring in part and dissenting in part, the Second Circuit (while affirming the dismissal of certain amendments to the tenant harassment laws) reversed the District Court’s dismissal of the plaintiffs’ Contracts Clause challenge to the Guaranty Law, vacated the denial of preliminary injunctive and declaratory relief, and remanded the case to the District Court.

Melendez v. City of New York, 16 F4th 992 (2d Cir 2021). [1] (Please note that page citations hereafter will be to the copy of the decision available on the Second Circuit’s website; as of this writing, page citations to the officially reported decision are unavailable.)

However, while agreeing with the District Court’s conclusions regarding the first two steps of the Contracts Clause analysis, the Second Circuit “[did] not reach the same conclusion at the last step.” Melendez at 47. The court identified five factors leading to its conclusion that the Guaranty Law was not an appropriate and reasonable means to advance the law’s stated purpose.

The Second Circuit agreed with the District Court that the Guaranty Law substantially impairs owners’ rights: “Under the Guaranty Law, if a tenant fails to pay rent owed for any time between March 7, 2020, and June 30, 2021, the landlord can never seek to recover those amounts from the guarantor. Not during the pandemic period. Not after the emergency declaration is withdrawn. Not ever. This substantially undermines the landlord’s contractual bargain, interferes with his reasonable expectations, and prevents him from safeguarding or ever reinstating rights to which he was entitled during a sixteen-month period.” Melendez at 80.

The Second Circuit also agreed with the District Court that the Guaranty Law advanced a significant and legitimate public purpose. The court found decisive (1) the April 29, 2020 statement of Councilmember Carlina Rivera, who explained that she sponsored Intro 1932 in order to “ensure that business owners, should they be forced to walk away or temporarily shutter their stores, through no fault of their own,” are able to do so “without facing personal liability, ensuring that one day

Not a Temporary or Limited Contract Impairment. The court held that unlike in cases where laws survive Contracts Clause challenges, the Guaranty Law does not effect a “temporary” or “limited” impairment of contract.

Rather, “for rent arrears arising during th[e Guaranty Law’s] almost sixteen-month period, the Guaranty Law does not simply defer a landlord’s ability to enforce a personal guaranty; it forever extinguishes it.” Melendez at 24.

Guarantors Achieve Full Relief Without Furthering Guaranty Law’s Public Purpose. The court also held that—at least at the pleadings stage—it could not conclude that the Guaranty Law “is an appropriate means for achieving its professed public purpose: to help shuttered small businesses survive the pandemic so that they can reopen after the emergency, ensuring functioning neighborhoods throughout the city.” Melendez at 95. The court found that the benefits afforded to guarantors did not line up with such purpose: The problem with concluding that the Guaranty Law is an appropriate means to serve this public purpose is that the law does not condition the relief it affords on guarantors owning shuttered businesses or, even if they do, on their ever reopening those businesses.

Rather, guarantors receive the full relief afforded by the Guaranty Law even if they never reopen (or intend to reopen) their businesses.

Continue reading.

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Rent Concession Cases: The Score So Far Starting in 2020, tenants of various 421a buildings throughout the city where rent concessions have been granted have commenced putative class action litigation asserting that the initial legal regulated rent for each of their apartments is not the lease rent, but is the “net effective rent.” To date, the tenants’ efforts have met with mixed success.

In their Rent Regulation column Warren Estis and Jeffrey Turkel analyze five decisions rendered on the subject.

Suppose a landlord renting up a new 421-a building gives an incoming tenant a two-month rent concession during the fourth and fifth months of an initial two-year lease. The monthly rent recited in the lease is $3,000 per month. Over the course of the 24 months, the tenant will pay a total of $66,000.

The question then arises as to what is the initial legal regulated rent for the apartment. RSC §2521.1(g) states in its entirety: The initial legal regulated rent for a housing accommodation constructed pursuant to section 421-a of the Real Property Tax Law shall be the initial adjusted monthly rent charged and paid but not higher than the rent approved by HPD pursuant to such section for the housing accommodation or the lawful rent charged and paid on April 1, 1984, whichever is later.

For the landlord in our hypothetical, the calculation of the initial stabilized rent is simple: it is the $3,000 rent the tenant was actually charged and paid. For some tenant advocates, however, the issue is more complex.

They claim that the $66,000 the tenant will pay over the two-year lease term, when divided evenly by 24 months, yields an initial stabilized rent of $2,750. They further assert that, to the extent that the landlord has taken subsequent increases over the claimed $3,000 initial rent, tenant has been overcharged and defrauded.

The stakes, at least for landlords, are substantial. In the hypothetical, a $2,750 initial rent is an 8.33% reduction over the $3,000 rent set forth the lease. If the landlord granted that rent concession throughout the building, an 8.33% reduction in the building’s cash flow would be disastrous.

As seen in the New York Law Journal

By Warren A. Estis and Jeffrey Turkel November 2, 2021

Starting in 2020, tenants of various 421-a buildings throughout the city wherein rent concessions have been granted have commenced putative class action litigation asserting that the initial legal regulated rent for each of their apartments is not the lease rent, but is the “net effective rent,” i.e., the total rent actually paid over the lease term, divided by the number of months in that term.

To date, the tenants’ efforts have met with mixed suc-

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cess. The five decisions rendered to date are analyzed below. In the interest of full disclosure, co-author Jeffrey Turkel represents amici curie RSA, CHIP and REBNY in the Chernett, Flynn, and Marantz decisions discussed below.

The concession under consideration, fixed as it was to the giving of possession and assumption of occupancy in the uncertainty of building completion, cannot be construed to carry forward to renewal leases.

60 NY2d at 488-89.

‘Chernett’ The first case decided was Chernett v. Spruce 1209, LLC, 2021 WL 1253807 (Sup. Ct. New York County).

There, the tenants of 1209 DeKalb Avenue in Brooklyn, a 421-a building, commenced a class action claiming that the landlord had engaged in fraudulent scheme to evade the Rent Stabilization Law by registering as the initial stabilized rent the lease rent, rather than the “net effective rent.” They also argued that the rent concession was merely a disguised preferential rent, and that the “net effective rent” figure should govern all future increases with respect to any tenant who received the concession.

The landlord moved to dismiss, raising two primary arguments. The landlord first cited Matter of Century Operating Corp. v. Popolizio, 60 NY2d 483 (1983), where the complaining tenant alleged that the two-month rent concession in his initial lease should be carried forward in each renewal. The Court of Appeals rejected that argument, focusing on the actual language of the rent concession rider itself: The explicit terms of the rider, including that the tenant ‘shall not be required to pay rent for the two months period commencing on the date on which possession of the apartment is given or the apartment is available for occupancy’, limit the rent concession to the commencement of the original vacancy lease. The terms ‘possession…is given’ and ‘available occupancy’ have no rational relation to a renewal lease, where the tenant is already in possession and occupancy of the apartment.

The rider must be read ‘in the light of the circumstances existing at its making’ (Becker v. Frasse & Co., 255 NY10, 14), and examination of the language of the rider as a whole confirms that the two-month rent concession is tied to the other rider provisions concerning the possibility that building construction would not be complete by the beginning of the specified term. *

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The landlord also focused on DHCR’s Fact Sheet #40 (rev. January 2014), wherein DHCR wrote: Concessions There are two types of rent concessions. One is a concession for specific months, as for example, where the lease provides that the tenant will not have to pay rent for one or more specified months during the lease term.

This type of concession is not considered a preferential rent.

The other type is a prorated concession, where the dollar value of the rent-free month(s) is prorated over the entire term of the lease and not tied to a specific month or months. A prorated concession is really the same as a preferential rent and will be treated in the same manner.

In Chernett, Supreme Court (Bluth, J.) denied the landlord’s motion to dismiss and rejected the landlord’s reliance on both DHCR Fact Sheet #40 and Popolizio: The Court…questions the utility of [DHCR Fact Sheet #40] to the instant circumstances–there is no reason offered for why these two types of concessions should be treated differently when, in practice, they are functionally the same exact thing. *

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In Popolizio, the Court of Appeals rejected a tenant’s claim that a two-month rent concession should apply to the calculation of his rent for subsequent leases for his rent-stabilized apartment where the concession was given for construction. That case does not compel dismissal of the instant action; this is not a situation where plaintiffs allege there was a one-time concession for construction. Rather, plaintiffs point to the suspected use of construction concessions long after construction was completed.

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Where Are the Landlords and Tenants of New York City Headed?

Unquestionably, a simple criminal charge for a minor offense should not permit a landlord to utilize that fact to discriminate against a prospective tenant. But there is a difference between nonviolent petty offenses and felonious assault or rape.

Recently, a highly respected adversary of mine reposted an article entitled “Landlords Hate Rent Control Because It’s Good for the Rest of Us.” After reading it, all I could do was to shake my head.

For me, that title reflects an oversimplification of a very complex problem and underscores (if not perpetuates) a common myth: that there can be no such thing as a good landlord/tenant relationship. It seems that I am always reading about efforts to hamstring owners’ abilities to improve their property or, God forbid, increase their rent rolls.

In fact, some of the more recent “radical” rent regulations (e.g., the complete overhaul of the laws pertaining to individual apartment improvements and the resulting limitation of rent increases a landlord can obtain) have had negative consequences for landlords and tenants alike. As a result of that change, many owners are unable to afford to effectuate improvements to their apartments (because of the elimination of their ability to recover the cost of the improvement). The result is that this contributes to a decline in the quality of the existing housing stock.

The statement in the referenced article, that “if anything, landlords underestimate the threat of rent control,” underscores the depth of the misconception. In fact, a study by the Brookings Institute (a nonprofit public policy organization base in DC, whose “mission is to conduct in-depth research that leads to new ideas for solving problems facing society at the local, national and global level”) concluded as follows:

As seen in the New York Law Journal

By Bradley S. Silverbush October 26, 2021

“Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire. A point of future research would be to de-

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sign an optimal social insurance program to insure renters against large rent increases.”

be some legitimate rationale for seeking such a change in the law.

As an attorney who represents owners, cooperative corporations, and yes, tenants, too, I can attest to that which you already know, and that is that there are no simple solutions; the issues are complex. But the suggestion that application of doctrines intended to further restrict owners’ rights will somehow solve those problems fails to take into account the complexities and realities of the situation. Indeed, basic economics confirms that it is impossible for landlords to continue to provide services (let alone incur the required expenses associated with actually improving their buildings) without sufficient income to do so. While rent regulations are intended to provide affordable rental housing, it is apparent that overly strict regulations contribute to the decay of housing stock because of the very situation described; if owners cannot recoup the cost of the investment required for improvements, where does that leave any of us?

I imagine that if one is a prospective tenant who had a minor non-violent brush with the law ages ago, the proposal sounds reasonable and reassuring because a prospective landlord cannot use that alleged infraction of the law to deny one’s application. But, if you are the parent of a young child, wouldn’t you want to feel safe in the knowledge that the landlord conducted a background check before renting the next-door apartment to some convicted rapist or serial killer? After all, isn’t that part of the point behind the NYS Division of Criminal Justice Services (“DCJS”) Sex Offender Registry?

How is it that the current legislative efforts do not seem to grasp these basic economic considerations? The answer appears to suggest that the prevailing ideology bears no relationship to reality.

Case in point? The New York City Council’s proposal known as the “Fair Chance for Housing Act,” a Local Law to amend the Administrative Code of the City of New York, in relation to prohibiting housing discrimination on the basis of arrest or criminal record. The bill, Intro No. 2047, would prohibit housing discrimination in rentals, leases, subleases, or occupancy agreements in New York City, on the basis of arrest or criminal record.

Landlords and real estate brokers would be prohibited from inquiring about criminal record information at any stage in the lease application process.

The NYC Commission on Human Rights has updated their website to reflect a similar provision added to the New York City Human Rights Laws by Local Law 4 of 2021 (effective July 29, 2021); this bill prohibits employers from asking on application forms whether the applicant has a criminal record or any open criminal cases. In like fashion, Intro No. 2047 seeks to compel landlords to waive any right they may have had to conduct a criminal background check. There may certainly

Remember “Megan’s Law?” Named after seven-yearold Megan Kanka, Megan’s Law required convicted sex offenders to register with the state and provided parents and other concerned members of the community with access to “lifesaving information.” In fact, the DCJS is responsible for maintaining the New York State Sex Offender Registry, under which registered sex offenders are assigned a risk level by judge after a court hearing: Level 1 (low risk of re-offense); Level 2 (medium risk of re-offense), and Level 3 (high risk of re-offense). While only Level 2 and Level 3 sex offenders are included in their online directory, did you know that the state’s NY-ALERT system can notify you whenever a Level 2 or Level 3 sex offender listed in the online directory moves, and you can even sign up for alerts! The NY-ALERT system includes the following types of notifications: “severe weather, transportation, AMBER and missing children, consumer protection, public health and sex offender re-location.”

If NYS passed legislation to require sex offenders to be registered and provided a data base for anyone to track their location, they must have thought it a good thing.

Should the NYC Council forbid an owner from making a similar inquiry in connection with a lease application?

Under current NYS law, a sex offender who is under parole or probation supervision may be limited from living within 1,000 feet of a school or other facility caring for children.

Continue reading.

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The Extension of NY’s Eviction Moratorium: An Analysis In their Landlord-Tenant column, Warren Estis and Alexander Lycoyannis discuss the extension of New York’s eviction moratorium which includes a provision for owners to challenge tenants’ assertions of COVIDrelated financial hardship.

On Sept. 2, 2021, Governor Kathy Hochul signed into law an extension of New York’s commercial and residential eviction moratoriums through Jan. 15, 2022 (the “moratorium extension”). The moratorium extension features a new mechanism by which owners can challenge tenants’ assertions of COVID-related financial hardship, which was added to comply with a recent U.S Supreme Court ruling.

On paper, this procedure gives owners a new path forward in many eviction proceedings; however, it remains to be seen whether, as a result, an appreciable number of eviction proceedings actually move forward between now and early next year.

The moratorium extension essentially continues the statutory scheme that was in place through Aug. 31 (see our April 7, 2021 column, “Eviction Moratoriums: A Legislative Update”). As before, the applicable hardship declaration form (whether commercial or residential) must be included with every written notice required to be served prior to the commencement of an eviction proceeding as well as with every initiating pleading served upon a tenant.

In order to commence an eviction proceeding, an owner must file an affidavit of service demonstrating that it served a hardship declaration and attesting that either (1) at the time of the filing, the owner did not receive a completed hardship declaration from the tenant, or (2) the tenant returned the completed hardship declaration but is intentionally damaging the property or engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others, with a specific description of the behavior alleged.

As seen in the New York Law Journal

By Warren A. Estis and Alexander Lycoyannis October 5, 2021

Now, however, the moratorium extension adds another basis for an owner to commence an eviction proceeding where the tenant returns a hardship declaration: where the owner “believes in good faith that the hardship certified in the hardship declaration does not exist.”

As a general matter, where a tenant returns a signed hardship declaration, the eviction proceeding will be stayed until Jan. 15, 2022, which stay will continue “unless the court finds the [tenant’s] hardship claim invalid.” An owner can challenge a tenant’s hardship

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declaration by making a motion on notice “attesting a good faith belief that the [tenant] has not experienced a hardship,” whereupon “the court shall grant a hearing to determine whether to find the respondent’s or defendant’s hardship claim invalid” (emphasis supplied).

In other words, an owner making the required attestation is now entitled to a hearing to test the tenant’s hardship claims. This new right is a direct result of the recent ruling in Chrysafis et al. v Marks, 594 U.S. ____ (2021), in which the U.S. Supreme Court held that a tenant’s ability to stay eviction proceedings by unilaterally declaring a COVID hardship violated owners’ due process rights.

In the residential context, the moratorium extension defines “hardship” very broadly as either: “(a) an inability to pay rent or other financial obligations due in full pursuant to a lease or rental agreement or obtain alternative suitable permanent housing due to one or more of the following reasons where public assistance, including unemployment insurance, pandemic unemployment assistance, disability insurance, or paid family leave, does not fully make up for the loss of household income or increase expenses: (i) a significant loss of household income during the COVID-19 pandemic; or (ii) increase in necessary out-of-pocket expenses related to performance of essential work or related to health impacts during the COVID-19 pandemic; or (iii) childcare responsibilities or responsibilities to care for an elderly, disabled, or sick family member during the COVID-19 pandemic have negatively affected the ability of the tenant or a household member to obtain meaningful employment or earn income; or (iv) increased necessary out-of-pocket expenses; or (v) moving expenses and related difficulty in securing alternative housing make it a hardship to relocate to another residence during the COVID-19 pandemic; or (vi) other circumstances related to the COVID-19 pandemic have significantly reduced household income or

significantly increased expenses;” —or— “(b) an inability to vacate the premises and move into new permanent housing because doing so would pose a significant risk of severe illness or death from COVID-19 that a tenant or household member would face due to being over the age of sixty-five, having a disability or having an underlying medical condition, which may include but is not limited to being immunocompromised.”

A “hardship” alleged by a commercial tenant under the moratorium extension exists where: “[it] is unable to pay the rent in full or other financial obligations under the lease in full or obtain an alternative suitable commercial property because of one or more of the following reasons and any public assistance the business has received since the start of the COVID-19 pandemic has not fully made up for the business’s loss of revenue or increased expenses: Significant loss of revenue during the COVID-19 pandemic; or Significant increase in necessary expenses related to providing personal protective equipment to employees or purchasing and installing other protective equipment to prevent the transmission of COVID-19 within the business; or Moving expenses and difficulty in securing an alternative commercial property make it a hardship for the business to relocate to another location during the COVID-19 pandemic.”

If the court finds the tenant’s hardship claim valid after a hearing, the court shall grant or continue the stay through Jan. 15, 2022. In residential eviction proceedings, the court is also required to “direct, if the respondent appears to be eligible and has not yet applied, that the parties apply to the [Emergency Rental Assistance Program [ERAP]], so long as [ERAP is] accepting applications.”

If the court finds the tenant’s hardship claim invalid after the hearing, “the proceedings shall continue to a determination on the merits.”

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What Happens When an Apartment Is Vacant On the Base Date?

The base date rent for purposes of determining a rent overcharge complaint is generally the rent charged to the tenant on the date four years prior to the tenant’s overcharge claim. But what happens if the apartment was temporarily exempt or vacant on the base date? The answer to this has taken various twists and turns, including a new twist introduced in Connors v. Kushner Companies, which Warren Estis and Jeffrey Turkel discuss here in their Rent Stabilization column.

The base date rent for purposes of determining a rent overcharge complaint under the pre-HSTPA version of the RSL is generally the rent charged to and paid by the tenant on the date four years prior to the tenant’s overcharge claim. But what happens if the apartment was temporarily exempt or vacant on the base date?

The answer to this question has taken various twists and turns over the years, including a new twist introduced in Connors v. Kushner Companies, LLC, 2021 WL 3468142 (Sup Ct, Kings County, August 6, 2021), which is discussed below.

DHCR’s Initial Policy As of 1997, RSL §26-516(a) provided as follows: …no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be used 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 fouryear period preceding the filing of a complaint pursuant to this subdivision.

Because the statute did not state what happens when an apartment is vacant or temporarily exempt on the base date, DHCR stepped into the breach. In an Oct. 14, 1998 prior opinion letter, DHCR’s counsel wrote:

As seen in the New York Law Journal

By Warren A. Estis and Jeffrey Turkel August 31, 2021

With reference to the ‘renovated’ unit, you state that the unit was last rented through March 31, 1992 at $700 per month. Thereafter, it has been registered as exempt due to owner occupancy. Where the period of temporary exemption has been four years or more, a ‘first rent,’ negotiated between owner and tenant, subject to subsequent guidelines and other lawful increases (in compliance with registration requirements), would be recognized by DHCR. The former rent, statutory vacancy increase, and cost of new equipment and improvements are not relevant.

Based on a ‘first rent’ of $2,000 or more per month, the apartment would be considered deregulated under high-rent vacancy decontrol. Because of the length of the period of temporary exemption, DHCR would be precluded, in the event of an overcharge complaint filed

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by the new tenant, from examining the rental history prior thereto. Rent Stabilization Law Section 26-516a, as amended by the Rent Regulation Reform Act of 1997, ‘RRRA-97,’ precludes examination by the DHCR of the rental history of the housing accommodation for the period prior to four years preceding the filing of an overcharge complaint. (italics supplied).

In 2000, DHCR codified this policy in RSC §2526.1(a) (3)(iii). That section, in effect until January of 2014, stated in relevant part: Where a housing accommodation is vacant or temporarily exempt from regulation pursuant to section 2520.11 of this Title on the base date, the legal regulated rent shall be the rent agreed to by the owner and the first rent stabilized tenant taking occupancy after such vacancy or temporary exemption, and reserved in a lease or rental agreement… (italics supplied).

The words “first rent stabilized tenant” in the regulation, as discussed below, would later prove highly significant.

In accord with its 1998 prior opinion letter, DHCR began issuing orders holding that where an apartment was vacant or temporarily exempt on the base date, the apartment would be deemed deregulated where the rent charged to the first tenant thereafter exceeded the statutory threshold. DHCR issued its first such order on Jan. 15, 2003, which was thereafter challenged in PetitSmith v. New York State Div. of Hous. & Community Renewal, Sup Ct, NY County Index No. 104795/03 [n.o.r.].

In Petit-Smith, the apartment was vacant on the base date, and the incoming tenant paid a market rent of $2,050 per month. Citing RSC §2526.1(a)(3)(iii), DHCR ruled that the apartment was luxury deregulated. In an Oct. 7, 2003 decision, Justice Sheila Abdus-Salaam, thereafter an Associate Judge of the Court of Appeals, affirmed DHCR’s ruling in all respects.

Code provides in pertinent part that where a housing accommodation is vacant on the base date, the legal regulated rent shall be the rent agreed to by the owner and the first rent stabilized tenant taking occupancy after such vacancy, and reserved in a lease or rental agreement.

In the instant case, the record reflects that the tenant filed the subject complaint on December 23, 2002 so that the base date is December 23, 1998. The record, including the affidavit from prior occupant Collora, reflects that the subject apartment was vacant on the base rent date. The record further reflects that the tenant herein was the first tenant to occupy the subject apartment after Collora vacated. Accordingly, the legal rent is the first rent charged the tenant herein or $2,500.00. Since that amount is over $2,000.00, the Rent Administrator correctly concluded that the subject apartment is exempt from rent regulation pursuant to Section 2520.11(r)(4) of the Rent Stabilization Code. (italics supplied).

DHCR thereafter issued several similar orders, the last being Matter of Montesinos, DHCR Adm. Rev. Dckt.

No. XG-410078-RT, issued Jan. 22, 2000.

The Courts Intervene In 2012, the First Department overruled DHCR’s policy in Gordon v. 305 Riverside Drive Corp., 93 AD3d 590 (1st Dept 2012). The court held that although RSC 2526.1(a)(3)(iii) authorized a landlord to charge a ‘first rent’ to the incoming tenant after four or more years of vacancy or temporary exemption, the regulation, contrary to DHCR’s interpretation, required that the apartment remain stabilized:

DHCR next implemented this policy in Matter of Bryk, DHCR Adm. Rev. Dckt. No. RK-210057-RT, issued Dec. 29, 2003:

Defendant argues that even if the base date is March 11, 2006, the legal regulated rent should still be $3,095 because the apartment was vacant on that date. In support, defendant points to Rent Stabilization Code (9 NYCRR) section 2526.1(a)(3) (iii), which provides that ‘[w]here the housing accommodation is vacant… on the base date, the legal regulated rent shall be the rent agreed to by the owner and the first rent-stabilized tenant taking occupancy after such vacancy…, and reserved in a lease or rental agreement.’

Section 2526.1(a)(3)(iii) of the Rent Stabilization

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C-PACE positioned for widespread use in NYC as environmental regulation deadlines approach

A landmark $89 million Commercial Property Assessed Clean Energy (C-PACE) loan–the first in New York City and the largest ever completed–may well signal a significant uptick in this form of financing.

The NYC Accelerator, which administers the city’s C-PACE program, is helping Nightingale Properties and Wafra Capital Partners fund energy efficiency upgrades for most of the 1.2 million s/f former Citibank building at 111 Wall St. Since debuting in California in 2007, the once-obscure, low-interest, 10- to 30-year C-PACE loan structure, which property owners pay back via annual property tax assessments, has grown to support more than $800 million in projects as of 2019. Such financing assists building owners in covering the upfront costs for energy efficiency and renewable energy upgrades.

C-PACE loans are poised to catch on in New York City as building owners seek to meet a growing number of regulatory benchmarks. Under Local Law 97, one of 10 bills in the city’s sweeping 2019 Climate Mobilization Act, the owners of more than 50,000 of the city’s larger buildings face multi-million-dollar fines if they don’t meet stringent carbon cap requirements beginning in 2024.

Like LL97, New York State’s Climate Leadership and Community Protection Act, also enacted in 2019 and dubbed the most ambitious climate law in America, has a long list of mandates. Among them is a statewide requirement to reduce greenhouse gases by 85% by 2050 compared with 1990 levels.

As seen in the New York Real Estate Journal

By Stefanie M. Graham August 24, 2021

C-PACE loans are a likely mechanism to help city building owners achieve compliance. The improvements to the 25-story 111 Wall St. tower, including new HVAC, mechanical, electrical and plumbing systems, will allow the 53-year-old building’s owner to avoid $750,000 per year in LL97 fines alone, according to the mayor’s office. The retrofit is also expected to save $2.5 million in annual energy costs.

C-PACE is not a federal program. State and local

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governments pass legislation enabling various flexible residential and commercial PACE financing deals, with some programs run by local governments and others administered by third parties, and the programs have a variety of eligible technologies and Savings to Investment Ratio (SIR) and Loan to Value (LTV) requirements.

Thirty-seven states and Washington, D.C. have enabled C-PACE deals since 2007 when Berkley, California’s City Council pioneered the legal structure so homeowners could pay for solar systems over 20 years with an assessment charge on their tax bills.

But C-PACE programs are only actively used by building owners in 26 states and D.C. In New York City, the 111 Wall St. C-PACE deal was the first since the city enabled the loans in 2019, and few know that New York’s Legislature created its first iteration of C-PACE in 2009.

Several types of financing can back C-PACE, including debt or loans (the most common), leases and other arrangements. There is some debate over whether or not these loans can be treated as off-balance sheet operating expenses given their status as property tax assessments.

Another open question: Will senior lenders get on board? C-PACE financing takes priority over senior lenders, and getting their consent can be challenging.

But lenders and other real estate players are increasingly likely to use C-PACE as they realize its benefits.

C-PACE can be layered with various forms of economic development financing, including historic and new market tax credits. C-PACE interest rates, typically around 5 to 6%, make the loans exponentially cheaper than mezzanine financing, and C-PACE payments cannot be accelerated by defaults.

With a seemingly endless list of potential commercial and industrial clients, C-PACE could grow far larger than EB-5 financing, the post-recession cash-for-visa

program that facilitated projects like Hudson Yards and Atlantic Yards. Those wondering about C-PACE’s potential in New York need only look to the example set at 111 Wall Street.

Rosenberg & Estis, one of New York City’s leading real estate law firms, facilitated the 111 Wall St. C-PACE funding on behalf of the building’s owners.

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Leasing to Cannabis Businesses As commercial rent defaults significantly increase due to the COVID-19 pandemic, practitioners reviewing the default provisions in their clients’ commercial leases must ask themselves a crucial question: Does the provision set out a conditional limitation or a condition subsequent?

The answer to this arcane question—which can trip up even experienced attorneys—will determine the forum in which an owner can recover possession.

On March 31, 2021, Governor Andrew Cuomo signed into law the “Marihuana[1] Regulation and Taxation Act” (MRTA), which legalizes recreational marijuana use in New York State. Cannabis businesses could begin to open as soon as next year, as the new Office of Cannabis Management issues licenses and promulgates rules.

Of course, most or all of these new businesses will need to lease commercial space in order to operate— and undoubtedly, many real estate owners are eager to meet this new demand, especially in light of the toll the COVID pandemic and the shift to online shopping have taken on bricks-and-mortar retail assets. However, owners and prospective cannabis businesses have many legal issues and questions to consider before entering into lease agreements.

Notwithstanding the passage of MRTA, marijuana remains illegal under federal law pursuant to the Controlled Substances Act of 1970 (CSA). The CSA provides that it is unlawful to knowingly open, lease, rent or maintain any space for the purposes of manufacturing, distributing or using any controlled substances, including marijuana (CSA, 21 USC §856). The Supremacy Clause of the U.S. Constitution establishes that when state and federal law conflict, federal law—in this case, the CSA—controls (US Constitution, article VI, clause 2).

As seen in New York Law Journal

By Warren A. Estis and Alexander Lycoyannis August 3, 2021

Thus, a state’s legalization of marijuana cannot prevent the federal government, if it so chooses, from enforcing CSA violations in that state (see Gonzales v. Raich, 545 US 1 [2005] [upholding application of CSA provisions criminalizing manufacture, distribution, or possession of marijuana to growers and users of marijuana for medical purposes in compliance with California’s Compassionate Use Act, which authorized limited medicinal marijuana use]).

Accordingly, given that leases to cannabis retailers and the transactions occurring therein remain illegal under federal law, does that mean MRTA is illusory? Hardly.

Notwithstanding such illegality, the federal government

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over several presidential administrations has refrained from aggressively enforcing the CSA with respect to cannabis-related transactions, resulting in the growth of the cannabis industry in states where it has been legalized.

Nevertheless, unless and until the CSA is amended or superseded, a level of legal uncertainty will always exist concerning leases to cannabis retailers in New York. Thus, forward-looking practitioners should plan for the possibility that federal enforcement priorities could change due to unforeseen circumstances or if 2024 brings a new presidential administration with a different philosophy on the subject.

A primary risk to both landlords and tenants of operating a cannabis business is the possibility of civil (or, less likely, criminal) forfeiture pursuant to 21 USC §881. The statutory scheme permits the federal seizure of, among other things, monies traceable to illegal drug activity and any real property used in conjunction therewith. Notably, civil forfeiture of real property does not require that the government prove the landowner is guilty of any crime. Rather, the federal government files an in rem complaint against the real property, and the initial warrant for the property merely requires the government to allege specific facts supporting a substantial connection between the property and the crime alleged (see e.g. United States v. One Parcel of Prop. Located at 5 Reynolds Lane, Waterford, Conn., 895 F Supp 2d 305, 315 [D Conn 2012] [summary judgment granted to federal government on civil forfeiture claim where owners essentially conceded manufacture of marijuana on their property]). Notably, “in rem actions by the United States to forfeit real property used in a drug violation are commonplace and nation-wide” (895 F Supp 2d at 314).

However, federal law enforcement policy relating to marijuana began to change within the last decade. The “Cole Memorandum,” issued in 2013 under the Obama administration, advised federal prosecutors to refrain from enforcing marijuana-related CSA violations in states that had legalized cannabis. [See Memorandum

from James M. Cole, Deputy Att’y Gen., U.S. Dep’t of Justice, on Guidance Regarding Marijuana Enforcement (Aug. 29, 2013), available at //www.justice.gov/ iso/opa/resources/3052013829132756857467.pdf.]

Although the Trump administration nominally rescinded the Cole Memorandum, Attorney General William Barr stated that the U.S. Justice Department “operat[ed] under my general guidance that I’m accepting the Cole Memorandum for now” (Original Investments, LLC v.

Oklahoma, CIV-20-820-F, 2021 WL 2295514, at *5 [WD Okla June 4, 2021]).

Under the Biden administration, Attorney General Merrick Garland has pointedly stated that “I do not think it the best use of the Department’s limited resources to pursue prosecutions of those who are complying with the laws in states that have legalized and are effectively regulating marijuana” (Responses to Questions for the Record to Judge Merrick Garland, Nominee to be U.S. Attorney General, //www.judiciary.senate.gov/ imo/media/doc/QFR%20Responses%202-28.pdf [last accessed Jul. 30, 2021]).

Thus, while the permissive federal policy likely means that New York cannabis businesses can operate without fear of federal prosecution for the time being, careful practitioners should plan for the possibility that the CSA will once again be strictly enforced as written.

Indeed, courts are “bound to follow the law as written and may not depart therefrom based on enforcement decisions made by the executive branch” (In re Way To Grow, Inc., 597 BR 111, 133 [Bankr D Colo 2018], affd 610 BR 338 [D Colo 2019]).

An especially punitive feature of federal forfeiture law is that “in a forfeiture proceeding under section 881(a)(7), property in its entirety is forfeitable even if only a portion of it was used for illegal purposes” (United States v.

Land and Bldg. at 2 Burditt St., Everett, Mass., 924 F2d 383, 385 [1st Cir 1991]). Specifically, the federal government, on a proper showing, is authorized to seize Continue reading.

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Rosenberg & Estis, P.C. Obtains $50 Million Settlement For Developer Through Mediation

Featuring Michael C. Castellon January 13, 2022

Michael C. Castellon of Rosenberg & Estis, P.C., a premier New York City real estate law firm with an award-winning Litigation and Construction Department, recently mediated an action pending in the Supreme Court of New York, on behalf of a developer client, against the surety of a general contractor, obtaining a settlement payment to the developer in excess of $50 million.

The developer contracted with the general contractor to construct a multi-story, mixed-use retail and residential project, and the contractor filed for bankruptcy prior to completing the work. The surety had issued a performance bond for the amount of the construction contract. After filing suit and conducting mediation, the developer obtained a payment from the surety in excess of the penal sum of the bond, minus contract balance and minus the amounts spent by the surety on construction completion.

The settlement was achieved within six months after the filing of a summons and complaint against the surety.

“While it is common for some developers to not require (and therefore not incur) the upfront costs of performance and payment bonds, this is an example in which having the bonds saved the developer many millions of dollars in losses it otherwise would have

incurred,” said Mr. Castellon. “Unfortunately, in the past couple of years, there have been many contractor defaults in which there were no performance bonds, leaving the developer with little or no recourse against the contractor.”

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Rosenberg & Estis, P.C. Secures Appellate Division Win For Owner Against Tenant Seeking Attorneys’ Fees

Featuring Jeffrey Turkel January 3, 2022

Rosenberg & Estis, P.C., prevailed Tuesday before the Appellate Division, First Department of the New York State Supreme Court in a dispute over whether a residential landlord was responsible for a tenant’s attorneys’ fees arising from a DHCR luxury deregulation proceeding that eventually reached the Court of Appeals The Appellate Division unanimously ruled that Brookford LLC, owner of an Upper West Side apartment building, was not responsible for tenant Margaret Schuette’s attorneys’ fees in a rent regulation case in which she prevailed. Jeffrey Turkel, a member of Rosenberg & Estis, P.C., represented Brookford, the defendant-respondent, in the case against Schuette, the plaintiff-appellant.

Justices Rolando Acosta, Judith Gische, David Friedman and Tanya Kennedy unanimously upheld a Jan. 10, 2020 decision by Justice Kathryn Freed of the State Supreme Court of New York County. The case stemmed from Brookford’s 2006 effort to deregulate Schuette’s rent via an administrative proceeding before the State Division of Housing and Community Renewal.

Schuette successfully challenged Brookford’s petition for a high-income-related rent deregulation, by arguing that DHCR could not consider her husband’s income because he had moved into an assisted living facility

in March 2005 – prior to the April 2006 issuance of her income certification form. The Court adopted Schuette’s argument that in a high-income luxury deregulation case the tenant gets to decide what percentage of jointly filed income should count toward the luxury deregulation income threshold.

The State Supreme Court of New York County denied Brookford’s challenge and dismissed the proceeding, and both the Appellate Division and the Court of Appeals affirmed DHCR’s denial of the property owner’s rent deregulation petition. In March 2019, Schuette commenced an instant action seeking to recover reasonable attorneys’ fees in an amount to be determined at trial but for no less than $150,000.00, along with costs and interest for defending herself in the underlying proceeding.

The Appellate Division on Tuesday unanimously upheld Justice Freed’s January 2020 decision that Schuette cannot recover the attorneys’ fees she expended during the DHCR rent deregulation proceeding, subsequent Article 78 proceedings and appeals. Freed found that it is well-established, pursuant to Section 234 of Real Property Law, that “a tenant may not recover such fees in administrative proceedings or proceedings brought pursuant to Article 78.”

The Appellate Division agreed, opining that “well-

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established precedent holds that DHCR proceedings such as the one that [the] defendant commenced here, do not trigger the reciprocal provisions of RPL 234 because ‘[a]n administrative proceeding is not an action,’” and the Court “has repeatedly interpreted the words ‘in any action or summary proceeding’ in RPL 234 not to include administrative proceedings.”

“Rosenberg & Estis is committed to defending landlords from all manner of frivolous claims, including instances in which tenants wrongly seek to be compensated for attorneys’ fees,” Turkel said. “Important precedents such as the one upheld by the Appellate Division help ensure the fair treatment of landlords and other parties.”

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Rosenberg & Estis, P.C. Names Two New Members, Promotes Two Attorneys To Of Counsel Leading NYC real estate law firm positions for continued growth Featuring Jolie Meer, Stefanie M. Graham, Richard B. Corde and David Fries December 13, 2021

Rosenberg and Estis, P.C., a leading New York City real estate law firm, has announced a series of personnel changes to best meet the growing legal needs of its diverse client roster. The firm has named two new members while promoting two attorneys to of counsel.

“We are extraordinarily fortunate to have a team of talented attorneys to support New York City’s real estate industry at a time of increasingly complex legal requirements,” said Rosenberg & Estis managing member Michael Lefkowitz. “The skill of these attorneys is an asset to our clients and we congratulate them all on their new positions.”

Jolie Meer, who joined Rosenberg & Estis in 2007, serving as co-chair of the firm’s leasing subgroup, has risen from of counsel to member in the firm’s Transactional Department. Meer’s practice concentrates on commercial real estate law, with an emphasis on leasing, acquisitions, dispositions, and financing.

Meer earned a bachelor’s degree from Cornell University in 2002 and completed a J.D. at Benjamin N. Cardozo School of Law at Yeshiva University in 2005. Named to the Crain’s New York’s list of Rising Legal Stars in 2020 and to the New York Super Lawyers Rising Stars List in 2014-15, Meer is regularly

requested by the firm’s top transactional clients for work on especially complex matters. Her list of past client services includes working on a wide range of office and retail leases, including representing the landlord on the retail leases at VIA57West, Frank57West and EOS and helping the ground lessee of the Bank of America Tower in New York City secure $1.3 billion in permanent financing via an unprecedented mix of Liberty Bond and CMBS debt, which were combined in a single mortgage instrument.

Stefanie Graham, who joined Rosenberg & Estis in 2013, has been promoted from of counsel to a member in the firm’s Transactional Department. Her practice involves all aspects of commercial real estate, including representing owners, lenders, developers, managers, landlords and tenants in acquisitions, dispositions, development, financing and leasing.

Prior to joining Rosenberg & Estis, Graham served as an associate with Walsh Markus McDougal & DeBellis, LLP. She holds a bachelor’s degree from Fordham University, earned in 2005, and a J.D. cum laude, which she completed in 2010 at New York Law School.

Among other notable work, Graham helped Nightingale Properties and Wafra Capital Partners secure $89 million, via a Commercial Property Assessed Clean Energy loan, to fund energy efficiency upgrades at 111 Wall Street. The C-PACE loan was the first in

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New York City and the largest in U.S. history. She was also among a team who represented The Durst Organization in the refinancing of the One Bryant Park tower. The deal combined a $950 million commercial mortgage-backed securities loan from Bank of America and $650 million worth of public-assisted financing that dates to a decade ago.

Richard Corde, who joined the firm in 2016, has risen from associate to of counsel in the firm’s Litigation Department. Corde’s practice involves complex commercial and residential lease disputes, construction litigation, Article 881 proceedings, coop/condo law, and appeals. He also has extensive experience drafting and negotiating construction contracts and license agreements. Corde regularly appears in state and federal court on behalf of a broad range of clients, including real estate developers, property owners, commercial tenants, cooperatives, and nonprofit organizations.

David Fries, who joined the firm in 2014, has been promoted from associate to of counsel in the firm’s Transactional Department. Fries focuses on commercial real estate and financing transactions, mezzanine finance, joint ventures and partnerships.

Fries received a bachelor’s degree in political science in 2011 from Washington University in St. Louis and earned his J.D. from Benjamin N. Cardozo School of Law at Yeshiva University in 2014, where he was an associate notes editor of the Cardozo Public Law, Policy and Ethics Journal. Among his notable clients, Fries has represented the Quinlan Development Group as it acquired, financed and developed a number of rental and condo projects and The Durst Organization in acquisition and financing work for the giant Queens Plaza Park residential development in Long Island City.

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Appellate Panel Finds Brooklyn Court Wrongly Dismissed Landlord’s Petition Relating To A Newly Created Duplex Apartment Featuring Jeffrey Turkel November 9, 2021

Rosenberg & Estis, P.C. has prevailed before the Appellate Term, Second Department of New York State Supreme Court, arguing that Housing Court wrongly dismissed a landlord’s non-payment petition.

Jeffrey Turkel, a member of Rosenberg & Estis, argued the case, 222 Stanhope II, LLC v. Chris Bagamery, on behalf of the petitioner-appellant, which owns and rents out the three-story, six-unit apartment building at 222 Stanhope St. in Bushwick, Brooklyn.

Justices David Elliot, Michelle Weston and DonnaMarie Golia unanimously reversed a King’s County Housing Court judge’s order and reinstated the landlord’s petition against Bagamery, the tenantrespondent. The justices remitted the case to Brooklyn Housing Court for a new trial.

The case centers on the trial court’s June 2019 amended order dismissing the property owner’s attempt to recoup $51,466 in back rent in a summary nonpayment proceeding initiated by the landlord in 2016.

That ruling stemmed from a June 2018 decision by Judge Kevin McClanahan, who rejected the landlord’s argument that the duplex apartment in question was not rent stabilized.

At issue was the landlord’s major renovation of two railroad flats 1R and 1L, which fully transformed the

units into duplex apartments. The property owner finished the building’s cellar for recreational uses, divided it in half, added a half-bath to each side and connected each of the two first-floor apartments to the finished cellar space via individual private stairways.

The landlord contends that 1R became exempt from rent stabilization because the improvements created an apartment that did not previously exist. Because the duplex’s initial rent was $3,000 – higher than the thenderegulation threshold – the apartment was no longer stabilized.

For its part, the Appellate Court reversed the Housing Court for holding that, as a matter of law, the addition of a finished cellar space and a half-bath to a first-floor railroad flat could never create a new apartment under the state Division of Housing and Community Renewal policy. The landlord argued that its substantial altering of the apartment floor plan’s outer perimeter walls fit DHCR’s criteria to lift rent constraints.

The Appellate Term held that because the landlord established at trial its prima facie case that the duplex apartment had been newly created, and the tenant initially leased it at a rent above the deregulatory threshold, the landlord had accurately described the duplex as exempt from rent stabilization in its nonpayment petition.

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“The Appellate Court found that the Housing Court demonstrably erred in failing to fairly consider the property owner’s case on its merits,” Turkel said.

“Long-standing state policy permits, clear case law defines and ample evidence supports the landlord’s case to charge a new deregulated, market-rate rent for an apartment that is converted into a duplex by the addition of finished cellar space. Rosenberg & Estis is proud of its track record staunchly defending property owners’ rights.”

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Second Circuit Court Guaranty Law Challenge – Rosenberg & Estis, P.C. Amicus Brief Arguments Embraced

By Appeals Court Judges Featuring Jeffrey Turkel November 9, 2021

Rosenberg & Estis, P.C. hailed a new decision by the Second U.S. Circuit Court of Appeals in Manhattan that ordered a district court judge to reconsider the constitutionality of a New York City law releasing commercial lease guarantors from rent obligations during the pandemic.

Jeffrey Turkel, a member of Rosenberg & Estis, crafted an amicus curiae brief supporting the landlords, who were the plaintiffs/appellants in the case, Melendez et al. v. City of New York et al.

Turkel wrote the brief on behalf of the Rent Stabilization Association of N.Y.C. Inc. and the Community Housing Improvement Program. In a split decision, Judges Reena Raggi and José Cabranes ruled the district court should reexamine the landlords’ contention that the City’s 2020 Guaranty Law violates constitutional protections against government interference with private contracts.

The Second Circuit remanded the case to U.S. District Judge Ronnie Abrams, who originally upheld the Guaranty Law’s constitutionality in November 2020.

Judges Raggi and Cabranes found that the landlords had raised “serious concerns” that the City’s legislation is not “reasonable and appropriate.”

“The New York City Council hastily passed the

Guaranty Law without investigating its necessity or how it functioned, including who it helped and harmed,” Turkel said. “The Second Circuit rightly found that the District Court gave very short shrift to the landlords’ valid arguments regarding the law’s many serious issues, including its devastating and permanent overreach.”

The underlying case dates to July 2020, when a group of landlords and their affiliates sued the City, Mayor Bill de Blasio and other city officials in U.S. District Court for the Southern District of New York.

Signed by Mayor de Blasio in May 2020, the Guaranty Law aimed to promote the public good by mitigating the financial challenges faced by commercial tenants and their guarantors due to the pandemic.

The legislation covered (1) tenants that were required to stop serving food or beverages on their premises; (2) retailers subject to closure and in-person restrictions; and (3) those forced to cease operations entirely, including gyms, movie theaters and personal care businesses like barbershops.

Turkel’s amicus brief argued the City’s law was a drastic overreach because it completely absolved commercial guarantors from rent payments for the period between March 7, 2020 and June 30, 2021,

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regardless of their ability to pay.

The brief emphasized that individual guarantors are critical to financially backstop commercial leases, offering landlords legal means that can be swifter, simpler and more effective than suing the commercial tenant.

Turkel argued that eliminating personal liability substantially impaired landlords’ contractual bargain with guarantors. Judges Raggi and Cabranes agreed, finding the city’s argument that landlords could still seek unpaid rent by other means was neither practically nor legally persuasive.

The judges ordered Judge Abrams to apply a fivepart test to gauge the Guaranty Law’s proportionality, including whether it was sufficiently limited, such as by being temporary, rather than being unnecessarily broad, such as by being permanent.

The judges also called for Judge Abrams to consider whether the City sufficiently studied the law’s appropriateness based on the City Council’s underlying assumptions, including that owner-guarantors are mostly individuals who would be financially ruined if required to pay rent arrears.

Additionally, Judges Raggi and Cabranes instructed Judge Abrams to weigh whether the law unduly saddled landlords with the pandemic’s financial burdens; if the law was narrowly tailored to those in financial trouble; and whether landlords also had a fair opportunity to receive financial relief.

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Rosenberg & Estis, P.C. Wins Major Reversal: Equinox Required To Pay More Than $750,000 In Back Rent, $340,000 Per Month For Rent Featuring Howard W. Kingsley October 7, 2021

Rosenberg & Estis, P.C. (“R&E”), a premier New York City real estate law firm with an award-winning Litigation Department, on appeal, successfully required Equinox to pay more than $750,000 in back rent and $340,000 monthly going forward for its use and occupancy at Zero Bond Street in Noho. Howard W. Kingsley, a member with the firm, represented the landlord, Bond Immobilien LP. During the COVID-19 pandemic, the landlord accommodated Equinox’s request to defer the payment of rent on 30,000 square feet of space pursuant to an agreement by which Equinox would not have to pay any rent through the end of August 2020. Starting in September 2020, Equinox was required to pay half of the monthly fixed rent plus additional percentages as the City lifted the capacity restrictions, gradually requiring the tenant to pay 100% of the rent due.

Unfortunately, Equinox reneged by failing to pay the amount due, including the gradual increases, even though the tenant was operating the gym. In August of this year, the landlord filed suit seeking the more than $2.5 million in rent that was deferred and the monthly shortfall. At that time, the landlord also asked Supreme Court to award the landlord interim relief by requiring the tenant to timely pay the full amount of rent due each month because the tenant was using and occupying the space.

Supreme Court rejected the landlord’s motion “out of hand” and would not even permit the landlord to argue its position. Accordingly, the landlord moved the Appellate Division, First Department, to require Equinox to pay “rent/use and occupancy in the amount of (a) $150,000 for the month of August 2021, (b) $300,000 for the months of September and October 2021, and (c) $340,500 on the first day of each month thereafter pendente lite until further order of the Court.” On October 5, 2021, the Appellate Division granted such relief “The Appellate Division sent a very strong message to commercial tenants that they cannot avoid paying rent while using and occupying the leased space and litigating their defenses,” said Howard W. Kingsley. “Equinox, like many other commercial tenants, continues to assert frivolous impossibility of performance, frustration of purpose and other defenses although they have been routinely rejected by the Courts.”

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Rosenberg & Estis, P.c. Upholds Property Owner’s Right To Take Over 545 Madison Avenue Following Thor Eviction Case Confirms Tenant Waiver of Statutory Right to Redeem

Featuring Michael A. Pensabene and Peter B. Kane September 21, 2021

Rosenberg & Estis, P.C. prevailed Wednesday in State Supreme Court in New York County in a case of first impression, successfully arguing that a Manhattan commercial property owner needed only a ground lessee to waive its statutory right to redeem a lease terminated after default. The ruling affirms that a ground lessee’s waiver constitutes a waiver of the leasehold mortgagee’s statutory right to redeem that lease.

Michael A. Pensabene, a member of the firm’s Litigation Department, together with Peter Kane, of counsel, represented the landlord, Joseph E. Marx Company, Inc. (Marx Realty), owner of 545 Madison Avenue, before Justice Andrea Masley. The case was commenced by lender Wells Fargo Bank N.A. seeking a judgment declaring that Wells Fargo had a right to redeem the leasehold interest in the 17-story, 139,540-square-foot office and retail tower at the southeast corner of Madison Avenue and 55th Street, owned by Marx Realty.

On July 11, 2019, Marx Realty notified then-tenant Thor Equities, the Manhattan real estate development, leasing and management firm, that it owed $554,583 in unpaid rent on top of $1.6 million in back property taxes for a lease of the entire property. Marx obtained a September 12, 2019 civil court judgement against Thor, awarding Marx possession of the tower. Local

authorities successfully evicted Thor on October 15, 2019.

Well Fargo’s standing in the case dates to 2014, when Wells took over Thor’s $30 million CMBS loan, first issued by Barclays in 2014, which Thor secured with its ground lease for 545 Madison Avenue. In the recently decided case, Wells argued that, as a lender under Section 763 of New York State Real Property Actions and Proceedings Law, the bank had the statutory right to redeem Thor’s lease for up to a year following Thor’s October 15, 2019 eviction.

Wells sought the court’s declaration that it had a right to redeem the lease, despite not noticing Marx of its intention to exercise that right. Marx counterargued that Wells was not entitled to exercise a right to redeem the lease pursuant to RPAPL Section 763 because Thor waived both its right under its lease and that of its lender. The case turned on the language of RPAPL Section 763. In relevant part, it prescribes that a lessee’s judgment creditor has up to a year to notice intent to redeem a lease following an eviction warrant “unless by the terms of the lease the lessee shall have waived his (emphasis added) right to redeem.”

Wells maintained that “his” referred to the lender. Wells, in turn, construed the statute to mean the creditor’s one-year right of redemption remained intact because

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lender had not waived its right. The court held that, regardless of the male pronoun “his,” RPAPL Section 763 “unambiguously prohibits” a lender or mortgagee of a leasehold from exercising redemption rights if the tenant waives its right to redeem under the Lease.

Additionally, the court found that Wells could not selectively interpret the statute’s wording, and courts are obligated to effectuate a legislature’s intent with a law and to seek to construe the whole of a statute.

Since evicting Thor in late 2019, Marx publicly announced and completed $24 million in renovations at 545 Madison Avenue, including a new lobby, the creation of 20,000 square feet of prebuilt office suites on the building’s third and 14th floors and 5,000 square feet of amenities.

“This case of first impression confirms that what has long been practiced when drafting leases is proper in that a waiver of the statutory right of redemption from a tenant alone is sufficient to protect a landlord,” Pensabene said. “This important decision reinforces the rights of landlords and, in this case, preserves the sweat equity and ingenuity that Marx put into the property, which has transformed the building to create highly attractive, contemporary office spaces.”

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Rosenberg & Estis Obtains Contempt Finding Against Corporate Tenant That Failed To Pay Use And Occupancy Court Vacates Yellowstone Injunction, Dismisses Tenant Complaint, Featuring Warren A. Estis, Norman Flitt and Alex M. Estis August 6, 2021

Rosenberg & Estis, P.C., has secured a major victory over a corporate tenant that defaulted in the payment of rent, commencing a lawsuit, in conjunction with a motion for a Yellowstone injunction, after receiving a notice of default from the landlord.

Warren A. Estis and Norman Flitt, members, and Alex M. Estis, associate, with Rosenberg & Estis, represented 1001 Sixth Associates, ABS Partners Real Estate, LLC in the case. The court granted Rosenberg & Estis’ contempt motion against the tenant and its motion for a money judgment for arrearages.

To avoid lease termination, Corporate Suites 12, LLC, sought and obtained a Yellowstone injunction that was conditioned on the tenant posting a bond to secure the tenant’s substantial arrearages. Separately, Rosenberg & Estis independently secured an order requiring the tenant to continue to pay monthly use and occupancy during the pendency of the injunction.

The Court issued the Yellowstone injunction based on representations by the corporate tenant’s principal and its attorney that the tenant was ready, willing and able to meet its monetary obligations, and that the principal would go so far as to guaranty compliance. The Court relied on these representations in issuing the injunction.

The tenant first failed to post the required undertaking by the deadline imposed by the Court, which resulted in

the landlord’s service of a notice of termination of lease.

The tenant then failed to pay use and occupancy, which resulted in Rosenberg & Estis filing a contempt motion against the tenant seeking, in addition to the contempt finding, a money judgment for the arrearages and a dismissal of the tenant’s complaint. The Court granted both requests.

The Court’s (Joel M. Cohen, Justice) decision, rendered on August 5, 2021, in “Corporate Suites 12, LLC v. 1001 Sixth Associates, ABS Partners Real Estate, LLC,” NY County Clerk’s Index No. 657315/2020, confirmed the Court’s reliance on the tenant’s representations as to its ability to comply with the conditions on which the Yellowstone motion was granted, including continuing to pay ongoing use and occupancy.

The Court also noted that the tenant simply violated the order without first moving to modify its requirements.

This obvious disregard for the Court’s authority was yet another basis for the finding of civil contempt as against the corporate tenant. The Court also vacated the Yellowstone injunction, dismissed the tenant’s complaint and directed payment of the arrearages and ordered the settlement of an order, in which Rosenberg & Estis intends to provide for the immediate issuance of a judgment of ejectment, thereby recovering possession.

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“Justice Cohen recognized the importance of being truthful in representing the facts to a court, which is especially important when the representations are related to the tenant’s willingness and ability to cure the alleged lease violations, which is one of the essential elements to prove for a Yellowstone injunction to issue,” said Warren A. Estis. “The Court also rejected the tenant’s purported ‘hardship’ claims based on the COVID-19 pandemic, and it was all around a good day for the landlord.”

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Rosenberg & Estis Secures Decisive Victory In Rent Dispute With The Gap And Old Navy Defeats COVID-Related Defenses, Recovers $24 Million Featuring Warren A. Estis, Norman Flitt and Alex M. Estis August 5, 2021

Rosenberg & Estis, P.C. has successfully obtained summary judgment against The Gap Inc. and Old Navy LLC in an action commenced by The Gap and Old Navy seeking, among other things, to terminate their long-term leases at their flagship stores in the heart of Times Square and avoid payment of millions of dollars of both past-due and current rent to their landlord, 4445 Broadway Leasing Co., LLC. The case was pending before Justice Debra A. James in Supreme Court, New York County (Index No. 652549/2020). Judge James rejected all of the tenants’ defenses and dismissed their complaint in its entirety.

Warren A. Estis and Norman Flitt, members, and Alex M. Estis, associate, with Rosenberg & Estis, represented 44-45 Broadway Leasing Co., LLC in the case.

Throughout the case, which was commenced in June 2020, when the tenants filed their summons and complaint and moved contemporaneously for a Yellowstone injunction, the Rosenberg & Estis team has successfully advanced the Landlord’s interests.

First, when the tenants moved for a Yellowstone injunction, Rosenberg & Estis succeeded in conditioning that injunction on the tenants posting a bond in excess of $5.8 million to cover then-existing

arrears of rent. The Court also directed that the tenants deposit ongoing use and occupancy, at rates equivalent to 90% of the rental rates reserved under the respective leases, into court each month during the pendency of the case. Rosenberg & Estis appealed that determination and successfully obtained an order from the Appellate Division, First Department that ordered those payments to be paid directly to Landlord.

Rosenberg & Estis then prevailed on a motion to release the funds that had previously been deposited for use and occupancy, plus accrued interest, to Landlord.

Landlord also moved for summary judgment to dismiss the tenants’ causes of action, which the tenants asserted in reliance on COVID-19-related defenses, such as impossibility, frustration of purpose, failure of consideration and whether the COVID-19 pandemic qualified as a “casualty” under the Leases. The tenants made these claims in the hopes of avoiding their substantial rent obligations during the pandemic and went so far as to argue that their leases had terminated in March 2020 as a result of the closure orders.

All of the tenants’ claims and defenses were rejected by the Court, resulting in the dismissal of the complaint and an order directing the immediate release to Landlord of the bond of approximately $5.8 million that the tenants had posted previously to secure

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arrearages, and any other funds deposited by the tenants for use and occupancy. The tenants were also held liable for the Landlord’s attorneys’ fees and the remaining 10% of the rent that had previously been discounted when the Yellowstone motion was issued.

As a result, the Landlord was entitled to apply for the release of approximately $24 million remaining on deposit in Court, plus accrued interest.

“It is really gratifying for courts to recognize when commercial tenants are misusing the COVID pandemic to avoid their obligations under long-term leases,” said Warren A. Estis. “This case will stand as an important precedent for commercial landlords and should put to rest similar baseless claims by other commercial tenants based on these COVID defenses.”

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EVENTS

RECENT EVENTS

EVENTS

ROSENBERG & ESTIS, P.C. NYC PROPERTY TAX REFORM WEBINAR

ALEXANDER LYCOYANNIS TESTIFIES AGAINST GOOD CAUSE EVICTION BILL

Bejamin M. Williams, 01.13.21

Alexander Lycoyannis, 01.07.22

Benjamin M. Williams, head of R&E’s property tax group, presented a NYC Property Tax Reform Webinar addressing 2022 NYC property tax reform recommendations, as outlined in our recent client email alert from January 6.

As a follow-up to our Good Cause Eviction email update from December 27, Alexander Lycoyannis, Litigation Member, testified against the proposed Good Cause Eviction bill at the Senate Committee Hearing on January 7, 2022. R&E will be monitoring GCE’s prospects in the Legislature very closely. In the interim, please reach out to your attorney at Rosenberg & Estis, P.C. with any questions about how GCE could affect your properties.

Click here to watch the recording.

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EVENTS

RECENT EVENTS

CLE: ESSENTIAL ISSUES IN ESTATE PLANNING FOR NON-ESTATE PLANNING Theodore J. Metzger, 12.15.21

Drawing on over 30 years’ experience in the trust and estates field, Ted Metzger presents a freewheeling overview of estate-planning essentials, touching on the goals of different types of clients at various points in their lives, the numerous ways assets may be gifted or bequeathed, estate and gift tax planning for those with relatively large estates as well as lifetime issues such as dealing with clients or family members with disabilities.

Ted also describes common estate planning documents and their functions, including a Will, Health Care Proxy, Medical Directive, Durable Power of Attorney, Living Trust, Life Insurance Trust and other tax planning trusts.

Click here to watch the recording.

NYC AFFORDABLE HOUSING WEBINAR Daniel M. Bernstein, 12.07.21

Daniel M. Bernstein, leader of R&E’s Tax Incentives & Affordable Housing Department, presented a webinar to share critical information from HPD that may allow residential projects to vest for the 421-a property tax exemption. The deadline for projects to vest for the current 421-a property tax exemption program is June 15, 2022 and is rapidly approaching.

Click here to watch the recording.

EVENTS

ROSENBERG & ESTIS, P.C. WELCOME BACK HOLIDAY PARTY

COMMERCIAL L/T ISSUES IN BANKRUPTCY A YEAR INTO THE PANDEMIC

Rosenberg & Estis, 12.02.21

John D. Giampolo, 11.30.21

Rosenberg & Estis, P.C. was thrilled to welcome back our team with a holiday party held at Charlie Palmer Steak, Bank of America Tower. The gathering represents a step toward normalcy following the pandemic, and we are so looking forward to being back in the office together with a hybrid schedule starting in 2022. While there were many great shots to choose from, please see pictured from left to right: Caroline F. Corley (Litigation Associate), Kenneth W. Eng (Litigation Associate), Ethan R. Cohen (Litigation Of Counsel), Elizabeth M. Brown (Litigation Associate), Anthony J. Virga (Litigation Of Counsel), Devin P. Kosar (Litigation Of Counsel) and Alexander Lycoyannis (Litigation Member).

John D. Giampolo presented what has changed for commercial landlords since the COVID-19 pandemic began. The CLE included a discussion of changes to relevant bankruptcy laws as well as how commercial landlords can better prepare for and protect their rights in connection with tenant bankruptcies.

Click here to watch the recording.

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EVENTS

RECENT EVENTS

NYC PROPERTY TAX WEBINAR PRESENTED BY BENJAMIN WILLIAMS

LUNCH-AND-LEARN WITH BAYVIEW ASSET MANAGEMENT, LLC

Bejamin M. Williams, 11.22.21

Michael E. Lefkowitz and Stefanie M. Graham, 11.02.21

Benjamin M. Williams, head of R&E’s property tax group, presented a NYC Property Tax Webinar that addressed topics including but not limited to:

R&E would like to thank our guests Fred Lee and Woolsey McKernon from Bayview Asset Management, LLC for leading the discussion yesterday along with R&E attorneys, Michael Lefkowitz and Stefanie Graham on how to incorporate C-PACE financing into a capital stack along with the process involved in closing a C-PACE financing, including the required coordination and negotiation between C-PACE lender, mortgage lender and any mezzanine lender. We believe C-PACE financing will be a very useful tool moving forward and our attorneys are ready to advise our clients of such resource.

• Property assessments and valuation in the age of COVID - What’s special about January 5th?

• New mayor, City Council, governor, Tax Commission president, Department of Finance commissioner - So what?

• Increases and decreases in tax rates, decreases in interest rates • Who got tax reduction offers and settlements in 2020 and 2021?

Click here to watch the recording.

EVENTS

IR GLOBAL ‘10 YEAR CELEBRATION’ & ANNUAL CONFERENCE Michael E. Lefkowitz and Richard L. Sussman, 10.25.21

Rosenberg & Estis, P.C. was thrilled to sponsor IR Global at it’s annual conference in London, the first in-person gathering since the start of covid-19. Pictured above, left to right, are Richard L. Sussman and Michael E. Lefkowitz in front of R&E’s headline sponsor banner.

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Rosenberg & Estis, P.C. 733 Third Avenue New York, NY 10017 T. 212 867 6000 www.rosenbergestis.com

This is published by the law firm Rosenberg & Estis, P.C. It is not intended to provide legal advice or opinion. Such advice may only be given when related to specific fact situations that Rosenberg & Estis, P.C. has accepted an engagement as counsel to address. ©2022 Rosenberg & Estis, P.C. | ATTORNEY ADVERTISING