Although the rights and laws of loft law owners are being debated in the halls of the legislature as we write, no field of law has seen a greater slowing in development than Loft Law landlord-tenant rights. However, that does not change the fact that there have been such developments, both legislatively and in the common law. Like mainstream landlord-tenant law, Loft Law saw a significant legislative change just months prior to the revelation of the Coronavirus. To this was added another set of statutory changes in 2021, actually during the pandemic, and a handful of cases decided during that same time period.
Legislative Changes—The 2019 Law
Like for mainstream landlord-tenant law, the more dramatic statutory enactment was in 2019, but, predictably, it has taken the entire period since for case law construing it to be reported in the major research systems. While undoubtedly there is more such material in the pipeline, the cases that have already come down clarify some important points in the new legislation.
Some points, however, require no clarification. The amended Multiple Dwelling Law (MDL) §281(5)(b) now says, “A party opposing coverage pursuant to this subdivision shall bear the burden of proving the exception to coverage set forth in subparagraph (ii) of this paragraph.” Thus, under this new provision, the owner explicitly has the burden of proof that a unit is not covered by the Loft Law. This writes into the law what had existed in real life when these questions were being tried before the agencies.
It used to be that the owner was treated as if it has the burden of proof to get out of the system. This change makes sure that the owner has just that burden. In this regard, it makes Loft Law more like rent stabilization law has been since 1987: The owner of a dwelling unit where rent stabilization coverage might apply, also has for purposes of rent stabilization law, the burden of proving that the unit is for some reason exempt from coverage. (See Rent Stabilization Code §2520.11). Under this new provision of the law, in both Loft Law and in Rent Stabilization, the owner now has the burden to prove that such laws do not apply to the questioned unit.
In a major development, the in the same statute, the Legislature abolished Multiple Dwelling Law §282-a(1) which had created a deadline for the filing of applications with the Loft Board to register units as subject to the Loft Law. This abolition of filing deadlines works together with the addition in the same enactment of additional portions of the city where the Loft Law now applies.
The 2019 also sets a deadline requiring that owners “shall file an alteration application … for units that became subject to this article pursuant to the chapter of the laws of two thousand nineteen that amended this paragraph within nine months from such effective date.” Together with this deadline, the new law requires that owners “shall take all reasonable and necessary action to obtain an approved alteration permit … for units that became subject to this article pursuant to the chapter of the laws of two thousand nineteen that amended this paragraph within twelve months from such effective date.”
This provision might appear innocuous on its face, but it is actually a provision that effectively guarantees that owners not collect rent from loft units for the years that it takes to bring the building into compliance as an ordinary building with a residential certificate of occupancy.
The provision that works together with this one to ensure that rent is never collected in the interim is Multiple Dwelling Law §285(1) that states, “(T)he owner of an interim multiple dwelling may recover rent payable from residential occupants qualified for the protection of this article…, and maintain an action or proceeding for possession of such premises for non-payment of rent, provided that he is in compliance with this article.”
However, with these deadlines set so tightly, there is a near perfect guaranty that no owner will ever be in compliance with the owner’s obligations under the article and therefore the tenant will, prior to full legalization of the building, never be forced to pay rent. (See discussion of the Loft Law’s failings in Chazon, LLC v. Maugenest, 19 N.Y.3d 410, 971 N.E.2d 852, 948 N.Y.S.2d 571 (2012))
The net effect of this provision with the other provisions is to create additional swaths of the city where tenants live rent free for years. The Court of Appeals, in discussing similar provisions, has stated that those who disagree with this will have to find their remedy with the state Legislature. (Chazon, LLC v. Maugenest, supra) Indeed, the Legislature did speak, apparently finding that there were not enough tenants living rent free.
The 2021 Law
In 2021, just as the Civil Court was in the throes of being non-functional for proceedings brought by landlords and remained open almost exclusively for proceedings brought by tenants against landlords for enforcement of the various housing codes, principally the Housing Maintenance Code, the Legislature added to the Housing Part’s job description, proceedings to enforce a new provision of the Multiple Dwelling Law §282-a(2), making it “unlawful for any owner to interrupt, deny, or discontinue essential services, or to impair the habitability of an interim multiple dwelling unit or building.”
However, the Legislature made no corresponding amendment to the section of the Civil Court Act (Part 110) erecting the Housing Part and describing its jurisdiction. However, for reasons we shall discuss, just what has been added to the Housing Part’s job is unclear. Some of these new provisions are completely foreign to the kinds of things the Housing Part normally does and may not even lie in the Housing Part at all.
While this new enactment specifies an “action or proceeding” which shall include the Housing Part, that part is not generally a place for plenary actions. Thus, since it is under the rubric of “in a court of competent jurisdiction,” this is a reference at least to Supreme Court where one can, as previously, bring a plenary action for an injunction or for damages. (NYS Constitution Art. VI, §7(b) gives the State Supreme Court jurisdiction over all “new classes of actions and proceedings.”) Presumably, the Legislature meant the Housing Part only to hear “proceedings” (CPLR Article 4) with regard to lofts, but this statute does not give any description to the “proceeding” at all, but only to the grounds for the proceeding. Does one seek an order to correct in these proceedings? An award of damages? Even an injunction?
The most likely source of authority for finding shape to this proceeding is New York City Civil Court Act §110(c) which empowers the Housing Part “regardless of the relief originally sought by a party the court may recommend or employ any remedy, program, procedure or sanction authorized by law for the enforcement of housing standards, if it believes they will be more effective to accomplish compliance or to protect and promote the public interest.” Courts could find this as a source of authority to take the normal “HP Proceeding” as a method for enforcing a loft tenant’s rights against interruption of essential services or impairment of habitability.
The problem, however, in this approach, is that while “essential services” are readily enough defined in the context of loft law, and are spelled out in 29 NYCRR § 2-04(b) where the Loft Board Regulations call them “basic services.” Baer v. 400 South 2nd Street Realties, LP, 71 Misc.3d 1125, specifically notes that the housing standards for lofts differ from those for apartments. However, once the apartment transitions to a fully legalized apartment, the normal apartment standards will apply.
“Habitability,” however, is a different issue. The Housing Part has power to enforce “housing standards” and there is nothing “standard” about habitability. As the Court of Appeals said in Park West Mgt. Corp. v. Mitchell, 47 N.Y.2d 316, 391 N.E.2d 1288, 418 N.Y.S.2d 310 (1979), “Naturally, it is a patent impossibility to attempt to document every instance in which the warranty of habitability could be breached.” Yet, that is what “standards” do. They set forth the yardstick against which circumstances are measured. Standards do not have to “document every instance,” but they do have to create a measure by which every instance can be evaluated.
Habitability does not satisfy that standard and therefore does not form the basis for a cause of action in the housing part, although it will remain a defense or counterclaim in summary proceedings brought there. (RPAPL §743). In order to sue for habitability issues, a loft tenant will have to commence the suit either in the Civil Court if for money damages within the Court’s jurisdiction or in Supreme Court where the tenant also has the option of suing for an injunction.
Note that we are not discussing the warranty of habitability, which is generally irrelevant to Loft Law. “Habitability” standing alone refers to the ability of space to sustain residential human life; The “Warranty of Habitability,” on the other hand, refers to contracting to confer such life sustaining capability on a space. The statutory warranty is Real Property Law §235-b which deems the warranty into “every written or oral lease or rental agreement for residential premises.” Loft Law units generally, where they had leases, had commercial leases. But this new enactment looks past the form of the lease and guarantees habitability, regardless of how the tenant came into possession of the premises.
Judicial Developments—‘Callen’ and ‘Dom Ben’
As the Court of Appeals reminded the legal community in Kass v. Kass, 91 N.Y.2D 554 (1998), fundamental to New York law is the concept that “parties are free to chart their own procedural course.” In Callen v. Loft Board, 181 A.D.3d 39 (1st Dept. 2020) the landlord and the tenants had arrived at a settlement of their claims where, effectively, the building would come into legalization outside of the aegis of the Loft Board. The Loft Board itself rejected that settlement and came to a decision that would, in effect, compel the parties to keep litigating with each other.
This, the First Department in Callen disapproved, pointing out that proceeding before the Loft Board is not the only way to legalize a building and, in fact, never was. Proceedings before the Loft Board are notoriously lengthy and expensive. Parties cannot be blamed for wanting to circumvent that process. Kass v. Kass reminds us that New York allows that freedom, but the Loft Board forgot it. However, the Appellate Division clearly reminded the Loft Board that they are not the last word in legalizing buildings for residential occupancy.
In Dom Ben Realty Corp. v. Loft Board, 177 A.D.3d 731 (2nd Dept. 2019), the Second Department took the opposite direction from the First Department in Callen, setting up a clear departmental split ripe for resolution by the Court of Appeals. Clear in Dom Ben is the traditional deference we see to administrative agencies in Article 78 jurisprudence. The essence of this difference appears in the statement, “There is nothing in that rule that limits the Loft Board’s review of settlement agreements or its authority to re-open and remit a coverage application.”
The key to the conflict in the two cases is in Dom Ben’s observation, “The Loft Law provides the sole means by which the tenants could legally reside in the building before the owner obtains a residential certificate of occupancy.” While that might be true in theory, the previously discussed design of the Loft Law to keep the Owner out of compliance with the Loft Law weakens this argument. Ostensibly, Loft Law is about giving occupants safety in a building not up to the safety standards of residential housing, but if that were really the Legislature’s goal, the law would be designed for genuinely rapid achievement of a residential certificate of occupancy. The history of its implementation shows the precise opposite. (Chazon, LLC v. Maugenest, supra. It now falls to the Court of Appeals to answer whether tenants and owners can stipulate their way out of Loft Board supervision.
In Aurora Assocs. LLC v. Locatelli, 184 A.D.3d 436 (1st Dept. 2020) the First Department highlighted the limited effect of purchasing improvements in a loft. On its face, it might appear that MDL §286(6) removes a unit for rent stabilization for units where the owner has purchased the improvements from the loft tenant. However, there is the qualifying phrase, “Upon purchase of such improvements by the owner, any unit subject to rent regulation solely by reason of this article and not receiving any benefits of real estate tax exemption or tax abatement, shall be exempted from the provisions of this article requiring rent regulation…” The question was whether the building having previously been a factory or warehouse was the qualifying fact for loft regulation as being “solely by reason.”
However, Aurora answers that question by stating that any building built prior to 1974, regardless of whether it was built as a residence or a factory is, when it has six or more units used residentially, comes under rent stabilization, in spite of the sale of improvements. Thus, Aurora puts the apartment in full rent stabilization and limits the rent accordingly.
Aurora relies on Costanzo v. Joseph Rosen Foundation, Inc., 178 A.D.3d 501 (1st Dept. 2019) which explains the idea of “solely by reason of this article.” In Costanzo, there is also a refusal by the First Department to accept a stipulation of the parties. While this would seem to be at odds with Callen, one has to note that in the stipulation there was a complete waiver of both Loft Law regulation and Rent Stabilization. And that is simply too far. In Callen, the parties accept Rent Stabilization. Waiver completely outside of rent regulation which would otherwise be applicable is simply too much. (RSC §2520.13)
In Leonard Street Properties Group, Ltd. v. DHCR, 178 A.D.3d 92 (1st Dept. 2019) the court wrestled with the fact that Loft Law is not Rent Stabilization Law, even though the former is meant to be a path to the latter. In the particular facts of the case, there was a defunct elevator that rent stabilization law would normally allow a landlord to eliminate. However, loft law does not allow for such elimination of services. (Matter of 29 John St. Tenants’ Assoc., OATH Index No.1982/96). What then to do about a building that had completed the transition to rent stabilization after completing the loft law legalization process? DHCR interpreted its own regulations to mean that the loft law requirement does in fact project into rent stabilization.
The DHCR acknowledged that the continuation of the elevator would not have been required in a building that started as an apartment house and had never come under Loft Law jurisdiction. However, the DHCR held that where the building came to rent stabilization through first having passed through the Loft Board, the stricter requirement, that of requiring the elevator would apply. The court, for its part, exercised the usual deference to the agencies in Article 78 analysis and upheld the DHCR’s decision. (See, for example, Nazor v. Loft Board, 179 A.D.3D 609. (1st Dept. 2020)
The period of the pandemic has been one of small volume in judicial decisions generally, but important ones, nonetheless, including setting up a conflict between the First and Second Department requiring resolution from the Court of Appeals. The Legislature has been busy as well, continually moving to make matters more difficult for owners while stumbling over the legislative language causing confusion that requires clarification. We do not place all of the blame on the Legislature. We practitioners and bar associations need to set up a new system where we are being sent the draft bills so we can comment before they become law, saving future problems.
Adam Leitman Bailey is the founding partner and Dov Treiman is the landlord-tenant managing partner of Adam Leitman Bailey, P.C.