FILED: NEW YORK COUNTY CLERK 01/08/ :38 PM INDEX NO /2016 NYSCEF DOC. NO. 64 RECEIVED NYSCEF: 01/08/2018

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X X Index No: / 2016 JONATHAN HAYGOOD, Plaintiff, -against- MEMORANDUM OF LAW (Mot. Seq. #002) PRINCE HOLDINGS 2012, LLC, STEVEN CROMAN, HARRIET CROMAN a/k/a HARRIET KAHAN CROMAN, HARRIET KAHAN, OREN GOLDSTEIN, and JANETH DONOVAN, Defendants X X Summary Judgment On a motion for summary judgment, the moving party bears the initial burden of making a prima facie showing of entitlement to judgment as a matter of law after tendering evidence sufficient to eliminate any material issue of fact from the case. See Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853 (1985). The movants bear the initial burden of establishing the cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in its favor, by tender of evidentiary proof in admissible form. Friends of Animals, inc. v. Associated Fur Manufacturers, Inc., 46 NY2d 1065 (1979). Bare conclusory allegations are insufficient to defeat a motion for summary judgment. Ehrlich v American Moninger Greenhouse Mfg. Corp., 26 NY2d 255, 259 (1970); McGahee v. Kennedy, 48 NY2d 832 (1979). Once the moving party establishes its entitlement to judgment through the tender of admissible evidence, the burden shifts to the nonmoving party to raise a triable issue of fact. See Gonzalez v. 98 Mag Leasing, Corp., 95 NY2d 124 (2000); Gern v. Basta, 26 AD3d 807, 808 (AD4, 2006); Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); Zuckerman v. City of New York, 49 NY2d 557 (1980). Defendants have the burden of affirmatively demonstrating the merits of their defense and do not meet its burden by merely noting gaps in the plaintiffs proof. See Totten v. Cumberland Farms, Inc., 57 AD3d 653, 654 (AD2, 2008). Once a party has made a 1 of 12

2 prima facie showing to entitle it to summary judgment, it is incumbent on the opposing party to show by evidentiary facts that the defense is real and can be established on a trial. Indig. v. Finkelstein, 23 NY2d 728 (AD1, 1968); Di Sabato v. Soffes, 9 AD2d 297 (AD1, 1959). "Insufficient evidence is, in the eyes of the law, no evidence." Pollock v. Pollock, 71 NY 137 (1877); Matter of Case, 214 NY 199, 203 (1915). Facts appearing in the movant's papers which the opposing party does not controvert are deemed to be admitted. Sportschannel Associates v. Sterling Mets, L.P., 25 AD3d 314 (AD1, 2006). In this case, the DHCR rent history speaks for itself. That record, together with Defendants' admissions as to what was charged, what was paid, and what riders were provided to Plaintiff, merit judgment in favor of the Plaintiff. As is set forth in the affirmation of Shaina Weissman, annexed hereto, if all of the legal cost additions Defendants assert were added to the 2014 rent, the result would not have allowed Defendants to deregulate the Subject Apartment. Accordingly, the 2015 high rent vacancy deregulation was improper, and Plaintiff was improperly treated as a market rate tenant, and overcharged in his rent. Landlord Has Burden of Proof Overcharges are presumed willful until the landlord proves otherwise, and the burden is on the landlord to prove that the overcharge was not willful. See Maple Street Realty Corp. v. Medina, 3 Misc. 3d 134(A) (AT2, 2004); Tockwotten Associates, LLC v. New York DHCR, 7 AD3d 453 (AD1, 2004); 1097 Holding LLC v. Ballesteros, 19 Misc 3d 1126(A) (Civ. Bronx, 2007) (Treble damages and reasonable attorneys fees awarded). See also Jazilek and Altschuler, inf a. However, it is clear on the documentary evidence, and Defendants' admissions about their expertise, that the overcharges herein were willful. The owner also has the burden of proving that any rent increase claimed are proper. See the discussion in Sheridan Properties, L.LC v. Liefshitz, 17 Misc. 3d 1137(A) (Civ. Bronx, 2007), which notes numerous cases on the burden of proof on several issues relating to rent increases. The Subject Apartments is Rent-Stabilized In this case, a collection of statutes and case law froze the Plaintiff's rent, and prevented high rent deregulation. Plaintiff's apartment is rent-stabilized because it was never properly deregulated. Unfortunately, the unlawfully high rent at the Subject Apartment forced Plaintiff to 2 2 of 12

3 vacate at the end of his lease, despite his legal right to a renewal lease. However, the law controlling the status of the Subject Apartment remains the same, and is set forth below. A. General Rent Freezing Provisions A landlord can be estopped from collecting rent increases for at least two reasons. These include failure to provide a rent stabilization rider, which penalty can be prospectively avoided by supplying the rider; failure to return a signed renewal lease; and failure to register the apartment with the DHCR. See RSC , RSC and RSL , respectively. Failure to provide a rent stabilization rider freezes the collectable rent from the inception of the tenancy. See RSC (r); and RSC (a) states that an owner's failure to file proper and timely registrations bar the owner from collecting "any rent in excess of the legal regulated rent in effect on the date of the last preceding registration statement." A registration that is fraudulent, or does not accurately reflect a legal rental rate, is not proper. See RSL (e). Regardless of the facts as to rent payment, if the landlord did not file registration, for whatever reason, rent increases are not permitted. See Jazilek v. chart Holdings, LLC, 72 Ad3d 529 (AD1, 2010) ("A landlord's failure to file a 'proper and timely' annual rent registration statement results in the rent being frozen at the level of the 'legal regulated rent in effect on the date of the last preceding registration statement' (Rent Stabilization Law [Administrative Code of City of NY] [e]; see RSC [a])."). To similar effect is Bradbury, v 342 West 30th Street Corp., 84 AD3d 681 (AD1, 2011), "Where an owner fails to file a "proper and timely" registration, until such registration is filed, the rent is frozen at the legal regulated rent statement." listed in the preceding registration Jazilek also specifically states that, in the absence of registrations, no increases for lease renewals are permitted: "In calculating the amount of the rent overcharges, the motion court correctly declined to apply any periodic or other rent increases." If a purported high rent vacancy deregulation is done properly, the landlord is required to provide the new, market rate tenant with a notice of high rent vacancy deregulation, as required by RSL (b) and RSC (u). See also 1521 Bergen corp., infi-a. Failure to do so results in the same rent freeze. 3 3 of 12

4 B. Landlord May Not Deregulate Unless Prior Tenant's Rent Exceeded Threshold To deregulate apartment based upon high rent vacancy, the vacating tenant's legal rent must exceed the rent threshold. Altman v. West Fourth Street LLC, 127 AD3d 654 (AD1, 2015). Since this Appellate Division decision, there have been numerous other cases following. See, e.g., Hassan v. 8 Centre Realty LLC, Index No /14, 2016 NY Slip Op (NY Civ., 2016) (which discusses in some detail one landlord's building wide scheme to get apartments purportedly deregulated); 1342 Bergen LLC v. Edwards, Index No /14, NYLJ No (NY Civ., 2016), also citing Bradbury, supra; 1521 Bergen Corp. v. Husbands, Index No. L&T /15, NYLJ No (Kings Civ., 2016) (based upon a literal reading of RSC (a)(3)(iii) and citing Altman only as additional support); Gotham City International, Ltd. v. Martinez, Index No /2014 (NY Civ., 2016); SP96-97 St. LLC v. Nartey, 2016 NY Slip Op 30766(U) (NY Civ., 2016); DDEH 124 E. 117 LLC v. Wells, Index No. L&T /2016 (NY Civ., 2016); Cates-Reither v. East 48"' Stret H Owner, LLC, 2017 N.Y. Misc. LEXIS 1496; 2017 NY Slip Op 30809(U), and 9037 Realty LLC v.,jaramillo, Index No. L&T 51115/16 (Queens Civ., 2016). These cases are not only based upon Altman. They cite older cases, and discuss statutory language as well. Despite landlord criticism of Altman, and leave to appeal being granted, it remains good law, controlling in this case. In any event, it is not necessary to look to Altman for this issue. That case only interprets the statute, which controls, and which speaks for itself. The Rent Stabilization Law states that an apartment can be deregulated, "where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand five hundred dollars or more per month." RSL (a). During a vacancy, rent cannot increase to exceed the high rent threshold, because during a vacancy, there is no rent. Rent is set by a tenant and landlord executing a lease. No tenant exists to pay rent in an empty apartment. Until there is a new tenant who signed a rental agreement, the rent level is by definition the last rent agreed to. Until the vacancy lease is signed, and its term (one or two years) and starting date (crucial to determine which rent guidelines board applies to adjust the rent. the amount of rent that can be charged has not been determined. For a vacancy lease the 20% vacancy increase (plus any longevity increase) is adjusted for the difference between the percentage increase for a one-year and two-year renewal 4 4 of 12

5 lease, which changes every October 1". Therefore, the amount that can be charged for a vacancy lease may not be set until the lease terms are set. This is also consistent with the RSL, which provides not that the legal rent will immediately increase upon a vacancy, but rather the amount that may be charged on a vacancy lease. See RSL (5-a). The Emergency Tenant Protection Act ("ETPA") also provides independent guidance. The Subject Apartments are subject to the RSL through the ETPA. It defines high rent deregulation by stating that it does not apply to any housing accommodations with a legal rent of [relevant threshold by year] or more per month... which is or becomes vacant on or before [relevant rent act year]. See ETPA 5(13); NY Admin. Code (a). That means that in order to exempt from the ETPA, the apartment would need to have rent exceeding the deregulation threshold and then become vacant, as Altman holds. This issue is important in this case, since Defendants purported to deregulate the Plaintiff's apartment by an unregistered series of unsubstantiated renovations. Plaintiff's DHCR rent registration history does not show a rent exceeding the high rent decontrol threshold prior to the purported deregulation. Based on that alone, the Plaintiff must prevail. C. "Improvements" "Im As A Deregulation Method Some cases imply the rent may be increased to exceed the legal threshold, allowing a high rent vacancy deregulation, if done properly. See Matter of 18 St. Marks Place v. NYS DHCR Office of Rent Administration, 2017 NY Slip Op Decided (AD1, 2017). There are also separate rent freezing provisions in the DHCR guidelines regarding these renovation increases. These are called Individual Apartment Increases ("IAIs"). The DHCR issued a policy statement for Individual Apartment Improvements, Policy Statement (PS90-10), which was later clarified in Operational Bulletin ("OB2016-1"). A copy of PS90-10 and OB are annexed collectively hereto as Exhibit "J." That Operational Bulletin explains IAI increases, and states that in a building such as the Subject Building, with fewer than 35 units, an IAI taking place after September of 2011, like the Defendants' purported improvements, the increase permitted is 1/40* I/40 of the cost spent. See RSC (a)(1); RSL (c)(13). 5 5 of 12

6 However, there are rules as to how to comply with the improvement guidelines. This prevents tenants from being forced to simply take landlords' word about improvements, and protects tenants from false assertions of renovations. The public policy reasons for requiring transparent compliance with the guidelines are obvious. Operational Bulletin states, "any increase based on an IAI is to be reflected in the next occurring annual registration filing for the Subject Apartment... the item becomes a required service that an owner is required to maintain and to certify annually to DHCR that all required services including the IAI are being maintained." This is to allow tenants to ensure that the improvements are maintained, and if they are not, the "DHCR will freeze the rent and order a roll back of the rent to the prior guidelines rent adjustment including any intervening rent increases for that period until the agency finds the subject service has been restored upon the owner's application." The DHCR Rent registration annexed as Exhibit "E" lists the Apartment Services as refrigerator." "stove, disposal / removal." The Building Services registered are also "bell & buzzer system, trash The Operational Bulletin states on page two that "In IAI items and their total cost are to be included in the rent calculation provided by an owner in the lease rider... For apartments which are deregulated pursuant to high rent-vacancy, a listing of IAIs and their total cost are to be included in the notice of deregulation served on the tenant." Defendants admit that they did not give Plaintiff any such rider. This is explained further in the affirmation of Shaina Weissman. If there is a high rent decontrol as a result of individual apartment improvements, the landlord must furnish a notice to the first market rate tenant. See RSC (u); RSL (b); Tenant Protection Regulation (s); DHCR Fact Sheet #36; Glimmer Five LLC v. Clarke, 46 Misc. 3d 1219(A) (Civ. NY Cty, 2015); and 1521 Bergen Corp. v. Husbands, Index No. L&T /15, NYL J No (Kings Civ., 2016). A copy of this High Rent Deregulation form is annexed hereto as Exhibit "I." This form notice includes calculation lines showing the last registered rent, potential statutory increases, and IAI increases. Like the rent stabilization rider, the IAI section includes boxes for the landlord to check off, showing what was improved, and the total costs for each section improved, so that the calculation is transparent. 6 6 of 12

7 One Court examining a similar situation of purported IAIs during a vacancy, taking an apartment out of rent stabilization, found the landlord's failure to furnish such a notice on a tenant to be dispositive of not only improper deregulation, but a willful scheme to unlawfully deregulate. "Even if the apartment was vacant, defendant was required to provide notice to the next tenant, to enable that tenant to seek DHCR review to determine whether the repairs or improvements justified terminating the rent-stabilized status of the apartment. Rent Stabilization Code, 9 NYCRR (u). Defendant has provided no evidence of such notice. Based on the totality of irregularities discussed above, the court concludes that defendant's actions reflect an attempt to circumvent the Rent Stabilization Law in violation of the public policy of New York that renders the Pascauds' lease void at its inception." Pascaud v. B-U Realty Corp., 2017 N.Y. Misc. LEXIS 2681, (Civ. NY Cty., 2017), citing Thornton v Baron, 5 NY3d 175 (2005) (internal quotations omitted). In this case, Defendants do not allege that such a notice was ever given to the Plaintiff. It is undisputed that Plaintiff was the first purportedly deregulated tenant. Plaintiff alleges in his annexed affidavit that he never received such a notice. Due to the lack of proper riders and lack of registration of services, the Subject Apartment could not have been deregulated by virtue of renovations or other improvements. D. Sufficiency of IAI proof. As noted, a party opposing a motion for summary judgment is required to "lay bare" its proof. See Friends of Family v. Associated Fur Manufactures, 46 NY 2d 1065, 1068 (1979). It has long been clear that the burden is on the owner to establish by proper documentation that the IAIs were actually carried out. Fuentes v Kwik Realty LLC, 2017 NY Slip Op 32195[U], *7 (Sup NY Cty, 2017), citing Matter of 985 Fifth Ave., Inc. v State Div. of Hous. & Community Renewal, 171 AD2d 572, , 567 N.Y.S.2d 657 (AD1, 1991). For purposes of this motion, since the Court will afford all favorable inferences of fact (that do not strain credulity) to the nonmoving party, this affirmation will treat the alleged work as though it was actually done. A landlord claiming an IAI must also establish that the claimed renovations were in fact renovations, and not mere repairs. 7 7 of 12

8 New York Courts have allowed rent increases for actual Individual Apartment Improvements; and not for repairs or decoration. See, e,g., Acevedo v. NYSDHCR, 67 AD3D (" 785 (AD2, 2009) although the petitioner submitted... an abundance of receipts, various invoices, and copies of the fronts of checks, the documentation she provided... was facially insufficient to establish that the claimed gut renovation... was in fact done, or that she had in fact incurred the expenses... petitioner was required to submit a breakdown of the claimed expenses... to distinguish between repairs and renovation." Acevedo, supra, citing Jemrock Realty Co. Llc v. Krugman, 64 AD3d 290, 296 (2009) ("the documentation must be sufficiently specific to enable the DHCR to verify, by cost breakdown, whether some of the work claimed is merely repairs or decorating"); Matter of Ador Realty, LLC v. DHCR, 25 AD3d 128, 138 (2005); Matter of Maya Realty Assoc. v. Holland, 261 AD2d 405, 406 (1999); Matter of Charles Birdoff & Co. v. DHCR, 204 AD2d 630, 631 (1994) ("the owner is required to submit documentation proving each specific improvement," and showing that each of the improvements were beyond ordinary repairs); see also Matter of Eberhart Bros Inc. v. NYC Conciliation and Appeals Bd. (Sup Ct NY Cty, 1984), aff'd 99 AD2d 930. "The documentation must be sufficiently specific to enable the DHCR to verify, by cost breakdown, whether some of the work claimed is merely repairs or decorating." Jemrock, supra at 298. The lower Court in Jemrock gave even more specific instruction, before the Appellate Division affirmed the decision. "Any claimed IAI increase must be supported by adequate documentation, such as cancelled checks contemporaneous with the completion of work, invoice receipt marked paid in full contemporaneous with the completion of the work; signed contract agreement, or the contractor's affidavit or testimony indicating that work was completed and paid in full." Jemrock, 18 Misc. 3d 853 (Sup. NY Cty., 2007). These requirements may seem familiar, as they are outlined in PS90-10 and have been adopted in OB OB explains that since the promulgation of these requirements in PS90-10, "actual processing has shown that more than one type of proof is the norm rather than the exception. Therefore. an owner should submit as many of the four listed forms of proof as the owner is able to provide with the initial submission/answer." 8 8 of 12

9 And, in cases such as this one where the landlord claims to have done a lot of work, OB states, "When challenged about an IAI, such as in an overcharge proceeding, an owner must submit evidence of the cost incurred for that particular item. Therefore, where an owner is seeking a rent increase for more than one item of work, a lump sum bill may not suffice." The evidence that Defendants tendered in this case falls seriously short of meeting the above standards. Here, Defendants have offered a "contract" that has no itemization of repairs at all. It is a form guideline for renovations taking place in many apartments at the Subject Building, with a lump-sum filled in for the Subject Apartm.ent. Per OB and the case law leading up to it, this is insufficient documentation. The contractors guidelines are accompanied by checks showing payment, but these are also nonitemized, and correspond only to various percentage payments of the lump-sum. They do not state the building or apartment, though they appear to match the payment authorizations included with them. As the affirmation sets forth, the contractors guidelines include items that (1) cannot apply to the Subject Apartment, such as guidelines for a balcony which the Subject Apartment does not have, and (2) includes items that legally do not count toward IAI rent increases, per OB The lump sum typed in, and paid out in percentages, does not allow the Court to separate the legal costs from the improper ones, to determine which costs could actually apply to a legal rent increase. It is the landlords burden to provide the court with sufficient proof, and they have not done so. Accordingly, the Landlord is not entitled to benefit from a rent increase based upon those documents. E. No IAI Increase For MCI Work Even if the Court gives the Landlord the benefit of their asserted calculation, it does not increase the base rent enough to reach the threshold. As the IAI chart (Exhibit " G") shows, the only way that the Landlord is able to calculate a rent increase meeting the threshold to 1/19* deregulate, is to use of a building-wide-wide electrical renovation. However, this cannot legally be done to obtain an IAI increase. Aside from the wealth of IAI case law and guidelines set forth above, prohibiting division of a lump sum, there is also case 9 9 of 12

10 law requiring that these sorts of rent increases be done as Major Capital Improvement ("MCI") rent increases. An MCI increase is a rent increase for all tenants of a rent regulated building, based upon a calculation of the cost of renovation work that inures a benefit to all tenants of the building. The general rules of an MCI are set forth in RSL An IAI increase, by contrast, is a rent increase for one apartment, based upon a calculation of the cost of renovation work done in only that apartment. This is discussed in some detail, above. There are several crucial differences in the way these rent increase mechanisms work. Most importantly, perhaps, is that the RSC does not require the DHCR's prior approval for an IAI increase, but it does require such prior approval with respect to an MCI increase. Compare RSC (a)(1) with RSC (a)(2); see also H/iggins, supra; Global Management v. Richards, 152 Misc.2d 759 (AT 2 & 11, 1992). "It was an administrative determination by the DHCR that increases for individual apartment improvements, unlike major capital improvements which involve the whole building, be self-effectuating, without the involvement and approval of the DHCR in the first instance." 2505 Bedford Réalty Co. v Woodson, 152 Misc 2d 897, 899 (Civ. Kings County, 1992). Due to this MCI requirement, tenants have the opportunity to contest an MCI proposal, approval of the MCI is not guaranteed-the DHCR may request further proof about the improvements from the landlord. Allowing a landlord to simply divide up building-wide work and claim an IAI increase would allow landlords to circumvent the Rent Stabilization Code, and avoid legally mandated DHCR oversight. Additionally, regardless of an MCI job's cost, an MCI rent increase is limited to 6% of the base rent. See RSL (6); (6-a); Bryant Avenue Tenants Association v. Koch, 84 NY.2d 960, 620 N.Y.S.2d 825 (1994) By contrast, there is no such limit to an IAI increase. This is an obvious incentive for landlords to try to circumvent the MCI restrictions to claim an IA1. Here, as set forth in the affirmation, Defendants have attempted to work around the MCI requirements by calling it an IAI increase, and have sought more than the MCI limit of a 6% increase. Plaintiff does not dispute that the electrical work was done-plaintiff â has no personal knowledge either way. However, if there was a building-wide electrical improvement, of 12

11 Defendants are legally required to go through the MCI process, obtain DHCR approval, and increase the rent that way if the apphcation is allowed. It is illegal to claim an IAI for a portion of work that qualifies as an MCI. See RSC $2522.4(a)(l). As a matter of law, Defendants are not entitled to use this in their rent IAI increase calculation. As explained in the affirmation of Shaina Weissman, and in the annexed IAI chart, without the illegal MCI work-around cost, Defendants did not reach the deregulation threshold, and the high rent vacancy registration was improper. How To Set The Rent The Altman Court stated that in determining the legal regulated rent, the Supreme Court properly disregarded the rent charged four years before the filing of the complaint and looked to the last rent properly registered with the Division of Housing and Community Renewal. The most recent proper and timely registration amount controls, and that the rent is frozen at this amount i.e., there is no vacancy increases and there are no periodic rent increases for renewals during the time the apartment was not properly and timely registered. There is a wealth of controlling case law that so holds. See Jazilek v. A bart Holdings, LLC, 72 Ad3d 529 (AD1, 2010), Altschuler v. Jobman, 135 AD3d 439 (AD I, 2016), and Bradbury v. 342 West 40' Street Corp, 84 AD3d 681 (AD1, 2011). In l342 Bergen LLC v, Edwards, supra, the Court applied the last proper registration, without regard for the passage of four years from the registration date. In Bradbury v. 342 West 30' Street Corp, supra, the Court held, "Because defendant failed to file proper statements in 2002 and 2003, and because the record does not show that any such proper statements were subsequently filed, defendant was barred from collecting any rent in excess of the last registered rent, i.e., the $ rent listed in the 2001 registration." properly This makes a great deal of sense. It is a pragmatic solution that relies on registrations that are not subject to forgery, alteration or loss. It also treats the undefined term "rental history" as meaning the legal rent. Altschuler v. Jobman, 135 AD3d 439 (AD1 201~6, ~ was~ decided several months prior to AltrIzan, and is also instructive. The Appellate Division found it was proper to look back. more than four years because of the landlord's fraud. The Altschuler case was decided on a motion for of 12

12 summary judgment, as we are asking the Court to do here, and awarded treble damages: "[The] Supreme Court also properly awarded treble damages, because defendant failed to establish, by a preponderance of the evidence, that the overcharge was not willful" and "A trial is not required, as there are no undisputed facts or unresolved issues." ConcInsion The law is clear as to several rules that determine the facts of this case. The high rent vacancy registered is impossible under the law. Accordingly, it is null and void, as is the following "exempt" registration. Plaintiff was still rent stabilized during his tenancy. If a tenant is rent stabilized, and Defendants failed to give him a rent stabilization rider, the rent is frozen at the last properly registered rate. If Defendants register rent that is incorrect, rent is frozen at the last proper registration rate. Defendants could not deregulate an apartment unless the vacating tenant paid a rent higher than the deregulation threshold. Defendants could not deregulate based upon the temporary exemption, as an apartment reverts to stabilization after such a temporary exemption. If Defendants deregulate and fail to provide the proper rider to the first deregulated tenant, rent is frozen at the last properly registered rate. The Defendants in this case failed to follow more than one of these rules. As a result, Plaintiff is entitled to summary as to the First Cause of Action on liability, and damages to be determined by the Court or a special referee in accordance therewith. Dated: New York, NY January 8, 2018 Yours, &c. Grimble & LoGuidice, LLC Attorneys for Plaintiff 217 Broadway, Suite 304 New York, NY (212) of 12