Matter of Taylor OATH Index No. 2051/11 (Sept. 9, 2011)* [Loft Bd. Dkt. No. TR-0816; 280 Nevins Street, Brooklyn, N.Y.]

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1 Matter of Taylor OATH Index No. 2051/11 (Sept. 9, 2011)* [Loft Bd. Dkt. No. TR-0816; 280 Nevins Street, Brooklyn, N.Y.] Loft tenants sought protected occupancy status under the 2010 amendments to the Loft Law. Rights and improvements to the unit occupied by applicants were purchased by building s owner from a previous tenant. ALJ recommends that tenants application for coverage insofar as rent regulation by the Loft Board is concerned be denied, holding that the 2010 amendments did not operate to alter the Loft Board s previous interpretation that a sale of rights and improvements removes a unit from rent regulation. ALJ notes, however, that the unit is still subject to all other provisions of the Loft Law. *Case settled before Loft Board issued Loft Board Order. NEW YORK CITY OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS In the Matter of AMY TAYLOR AND RYAN FRANCINI Petitioners REPORT AND RECOMMENDATION INGRID M. ADDISON, Administrative Law Judge This case concerns an application filed with the Loft Board on September 24, 2010, by petitioners Amy Taylor and Ryan Francini, residential occupants of unit 29 at 280 Nevins Street, Brooklyn, New York, an interim multiple dwelling ( IMD ). Petitioners seek protected occupancy status pursuant to section 281(5) of the Multiple Dwelling Law ( MDL ) (ALJ Ex. 1). Respondent Chazon, LLC, owner of the premises, filed an answer on November 22, 2010 (ALJ Ex. 2). The Loft Board transferred the matter to this tribunal on March 28, Following a conference on May 2, the trial, originally scheduled for May 13, was adjourned to June 1 at respondent s request with no objection from petitioners. On June 1, both parties submitted documentary evidence, and after some initial dispute as to whether petitioners are tenants or subtenants of the IMD unit that they occupy, they agreed to

2 - 2 - submit briefs and have the matter decided on the papers. Briefs were filed on June 30, Replies were filed on July 18, For the following reasons, petitioners application for protected occupancy status as it relates to rent regulation should be denied. The unit, however, is still subject to all other Loft Law requirements. BACKGROUND In 1993, the Loft Board, pursuant to an application brought by tenants of the subject building under the 1987 amendments to the Loft Law, declared the building to be an IMD, with 12 residential units. See Matter of 280 Nevins Street Tenants Assoc., Loft Bd. Order No. 1441, 14 Loft Bd. Rptr. 137 (Apr. 28, 1993). The Board also found that unit 29 1 was covered under the Loft Law and that Ben Izett, its occupant, qualified for protection under Article 7-C of the MDL. In March 2003, Mr. Izett sold his rights and improvements in the unit to respondent pursuant to sections 286(6) and (12) of the MDL. The sale agreement was executed on March 26, 2003, for $45,000, of which $35,000 was to be paid immediately upon execution. The remainder was held in escrow, to be paid to Mr. Izett upon his surrender of the space. Respondent registered the sale with the Loft Board on April 2, Under the agreement, the owner also waived rent for January through April If Mr. Izett continued to occupy the unit after that, the owner would collect a monthly rent of $800 from him for the period May 2003 until March 31, 2004, when he was expected to surrender the unit (Resp. Ex. D). If Mr. Izett failed to surrender the unit to the landlord on or before March 31, 2004, the agreement provided that he would be liable to respondent for the use and occupancy of the unit at a rate of $4,000 per month, which could be deducted from the $10,000 being held in escrow. The agreement further provided that: Tenant understand[s] and acknowledges that upon the signing of this Agreement, Tenant is and will no longer be a protected tenant under Article 7-C of the Multiple Dwelling Law having voluntarily relinquished all such protection. In May 2004, respondent leased unit 29 and part of unit 28 to Mr. Izett, for the period May 1, 2004 to April 30, 2005, at $900 per month (Resp. Ex. D). In a rider to the lease, the 1 Unit 29 was identified in the Loft Board Order as unit 2-9. See, Loft Bd. Order No. 1441, 14 Loft Bd. Rptr. 137, 143 (Apr. 28, 1993).

3 - 3 - parties agreed to the landlord s retention of $1, and $900 from the $10,000 escrow funds, for rent arrears through April 30, 2004, and rent for May 2004, respectively. Mr. Izett was issued a check for the balance of $7, on May 1, 2004 (Resp. Ex. D). No evidence was provided as to when Mr. Izett vacated unit 29. However, Ms. Taylor testified that through her uncle, who knew Mr. Izett, she has resided in unit 29 continuously since May The parties stipulated to Ms. Taylor s period of occupancy of the unit. Therefore, I find it reasonable to conclude that Mr. Izett vacated the premises upon the termination of his lease at the end of April In February 2007, Mr. Schwartz, one of respondent s principals, received an notification from Susan Izett, Ben Izett s wife, that Mr. Izett had died the previous month. Ms. Izett further wrote that: In any case regarding the apartment at 280 [N]evins [S]treet, as his wife I would like to accept the terms of the lease for 02/01/07 01/31/07 (sic) at $1500 per month. I ve already informed Amy Taylor who should be sending you the [F]ebruary rent immediately. (Resp. Ex. B). In a letter dated November 1, 2008, Ms. Taylor notified Mr. Schwartz that her boyfriend, Ryan Francini, would be moving in with her that month (Resp. Ex. A). The parties stipulated that Mr. Francini has resided at the unit from November 2008 through the present. Respondent did not contest that it received rent payments directly from Ms. Taylor and Mr. Francini. Posthearing, petitioner submitted copies of some of the monthly rent check payments to respondent which I marked collectively as Petitioner s Exhibit 2. For 2007, the monthly payments were $1,500. For 2008 and 2009, they were $1,800. Most of the checks were issued by Ms. Taylor, who occupied the unit long before Mr. Francini. In 2009, respondent accepted five checks from Mr. Francini, each representing a portion of the respective month s rent. Four of the checks were for $900 each, and one was for $574. Ms. Taylor paid the remaining portion. On June 1, 2010, Mr. Francini wrote to Mr. Schwartz requesting that the lease be passed from Ms. Izett to our names. His letter alluded to a prior conversation with Mr. Schwartz, and indicated that he and Ms. Taylor were agreeing to a rent increase to $1,900 (Resp. Ex. C). In June 2010, the Loft Law was amended to add section 281(5), which, among other things, expanded the window period under which residential units may qualify for coverage as

4 - 4 - IMDs. Mult. Dwell. Law 281(5) (Lexis 2011). Consistent therewith, the Loft Board amended section 2-08 of its rules to establish the criteria for Article 7-C coverage. Loft Bd. Notice of Adoption of Final Rule, 29 RCNY 2-08 Pub. City Record (Mar. 17, 2011). MDL 281(5) provided that a residential unit may qualify for coverage under Article 7-C if it was occupied by a family living independently for residential purposes during a period of twelve consecutive months between January 1, 2008 through December 31, RCNY 2-08(a)(4)(G)(iii) (2011). Petitioners seek rent-regulation 2 under the 2010 amendments. ANALYSIS There is no dispute that petitioners occupied unit 29 during the window period established by the 2010 amendments to the Loft Law. The issue to be determined is whether those amendments operate to nullify the effect of the landlord s purchase of the rights and improvements in the unit pursuant to MDL sections 286(6) and (12). Respondent contends that its purchase of Mr. Izett s improvements and rights operated to deregulate the unit. Respondent further claims that petitioners are subtenants with no independent possessory interest in the unit, and are therefore ineligible for Loft Law coverage. Applicants Status There is inconclusive evidence in the record to substantiate respondent s claim that petitioners are subtenants. After selling his rights and improvements to unit 29 in 2003, Mr. Izett continued to occupy the unit for almost two years, first, pursuant to the sales agreement, then, pursuant to the one-year lease which he executed with respondent in 2004, and which expired at the end of April Respondent provided no firm evidence that, after April 2005, any lease existed with Mr. Izett. Therefore, when Mr. Izett vacated the unit in April 2005, any rights he may have had as a tenant most likely ended. Ms. Izett s to respondent after her husband s death in 2007, offering to renew the lease to the unit, is perplexing because there is no proof that there was a lease to renew. The does not appear to be either a sublease or an assignment, as suggested by the attorneys. Furthermore, there is no proof that Ms. Izett ever 2 In its application to the Loft Board, petitioners frame the issue as one of coverage. But it is clear from their brief, that what they actually seek is rent-regulation.

5 - 5 - resided in the unit or had any rights beyond those which her husband had at his death. Because there is no proof that Mr. Izett s tenancy extended beyond April 2005, or that Ms. Izett inherited any rights in the unit, neither of the Izetts could convey any tenancy rights to Ms. Taylor or Mr. Francini, either by a sublease or by an assignment. There is no dispute that Ms. Taylor took occupancy of unit 29 in May 2005, and that Mr. Francini moved in, in November Nor is there any dispute that respondent accepted rent payments directly from both of them. Thus, the evidence is sufficient for me to find that a month-to-month tenancy was created in May 2005, when respondent first accepted rent from Ms. Taylor. Matter of 40 West 14th Street Tenants Committee, Loft Board Order No. 1554, 13 Loft Bd. Rptr. 332, 348 (May 4, 1994) (finding that the owner consented to an occupant s statutory tenancy when he was on notice of the occupancy, dealt directly with the occupant, and accepted rent checks directly from the occupant). Accordingly, as tenants in occupancy with the consent of the owner, petitioners are qualified for protection under the Loft Law. See 29 RCNY 2-09(b)(1) (Lexis 2010). 3 To determine the protections to which petitioners are entitled, it is necessary to discuss the effect of Mr. Izett s 2003 sale of rights and improvements to the unit which petitioners currently occupy. Sale of Rights and Improvements The Loft Law permits a covered IMD occupant to sell any improvements that the occupant made to the unit, so long as they are first offered to the landlord/owner. Upon the purchase of such improvements, the unit: [S]hall be exempted from the provisions of this article requiring rent regulation if such building had fewer than six residential units as of the effective date of the act which added this article, or rent at market value subject to subsequent rent regulation if such building had six or more residential units at such time. Mult. Dwell. Law 286(6) (Lexis 2011). The Loft Board s Rule incorporating MDL section 286(6) provides that: [U]pon consummation of the purchase by the owner... any unit subject to rent regulation solely by reason of Article 7-C of the MDL, and not receiving any benefits of real estate tax exemption or tax abatement, shall be subject to subsequent rent regulation 3 Except as otherwise provided herein, the occupant qualified for protection under Article 7-C shall be the residential occupant in possession of a residential unit, covered as part of an IMD.

6 - 6 - after being rented at market value, if such building had six or more residential units on June 21, 1982 or on July 27, RCNY 2-07(f)(5) (Lexis 2010). Additionally, the rule provides that [t]his right to sell may be exercised only once for each IMD unit. 29 RCNY 2-07(f)(1). A landlord/owner may also purchase the rights to a covered unit from a tenant, pursuant to MDL section 286(12). Under the Loft Board s Rules, if the unit remains residential after the sale of rights, the owner remains subject to all the requirements of Article 7-C, and regulations and orders of the Board except that the unit is no longer subject to rent regulation where coverage under Article 7-C was the sole basis for such rent regulation. 29 RCNY 2-10(c)(2) (Lexis 2010). Once a sale of rights has occurred, the rules specify that the unit may not be the subject of another sale pursuant to 286(12). 29 RCNY 2-10(e). The Loft Board has interpreted sections 286(12) and 2-10(c) to mean that sales of both rights and improvements remove units from rent regulation under the Loft Law. See Bennett v. Hawthorne Village, LLC, 56 A.D.3d 706, 709 (2d Dep t 2008) ( The former owner s purchase of the rights and improvements in Bennett s loft unit exempted the unit from the provisions of the Loft Law providing for rent regulation ); Swing v. NYC Loft Board, 180 A.D.2d 529, 530 (1st Dep t 1992) (finding sale of fixtures pursuant to MDL 286(6) entitl[ed] the landlord to decontrol ); Walsh v. Salva Realty Corp., 2009 N.Y. Slip Op 31573U at *12 (Sup. Ct. N.Y. Co. July 13, 2009) ( the effect of the sale of both the fixtures and rights pursuant to Multiple Dwelling Law 286(6) and (12) of apartment 5B, freed the loft from rent regulation and allowed the owner to rent the loft at a monthly rent that was at or above the level of vacancy rental decontrol ); 19 W. 36th Holding Corp. v. Parker, 193 Misc. 2d 519, 522 (Civ. Ct. N.Y. Co. 2002) ( Concerning the effect of a sale of rights pursuant to Multiple Dwelling Law 286(12) of a unit that was at one time an IMD, both the Loft Board and the DHCR have found that such an event is a deregulating event and the unit after such sale is no longer subject to rent regulation ). See also Matter of Brown, Loft Bd. Order No (Feb. 16, 2006); Matter of Canal Venture, Inc., Loft Bd. Docket No. LE-0379, Report & Rec. at 5-6 (Mar. 14, 2005), adopted, Loft Bd. Order No (Mar. 17, 2005); Matter of Justin Tower, LLP., Loft Bd. Docket No. LE-0386, Report & Rec. at 6 (Mar. 11, 2005), adopted, Loft Bd. Order No (Mar. 17, 2005). If the unit that was the subject of a sale of rights continues to be residential, the owner remains subject to all the other requirements of the Loft Law, including legalization timelines

7 - 7 - and filings. 29 RCNY 2-10(c)(2); Walsh, 2009 N.Y. Slip Op 31573U at *8 ( Under the Loft Board Rules, where there is a sale of rights by a tenant in an IMD unit, and the unit remains residential, the owner remains subject to all requirements of the Loft Law and the Loft Board, except that the Unit is no longer subject to rent regulation where coverage under Article 7-C of [the Loft Law] was the sole basis for such rent regulation ); Matter of Moran, OATH Index No. 2016/00 at (Feb. 2, 2002), adopted, Loft Bd. Order No (Apr. 18, 2002) ( Clearly, a unit may be covered for legalization purposes, yet be deregulated for rent purposes.... a sale of fixtures under Multiple Dwelling Law 286(6), or a sale of rights pursuant to 286(12)... can take a unit out of rent regulation status without eliminating it as a covered unit for legalization purposes. ). In sum, the legal consequence of a sale of rights and improvements to an IMD unit is the lifting of rent regulation under Article 7-C. The 2010 Amendments to the Loft Law There is nothing in the 2010 amendments to suggest that the legislative purpose behind their enactment was to re-regulate existing IMD units that have been rent deregulated. To the contrary, the legislative history of the 2010 amendments demonstrates that the legislature s intent was to cover units that had never previously been covered by the Loft Law. The Senate Introducer s Memo on the bill states that the amendments would not alter the present law. Senate Introducer s Memo in Support, Bill Jacket, L. 2010, Ch A critical analysis of the amendments states that their impact would be to expand[] the current Loft Law to include approximately 300 buildings or about 3600 additional units that were not covered by the original Loft Law Majority Counsel and Program, June 7, 2010, Bill Jacket, L. 2010, Ch. 135 (emphasis added). See also Annotated Calendar, June 8, 2010 Bill Jacket, L. 2010, Ch. 135 ( This bill would extend tenant protections and other provisions under the current loft law to many units that were converted after This legislation expands the current Loft Law to include approximately buildings or about 3600 additional units that were left out of the original Loft Law ) (emphasis added); Loft Law Expansion and Extender Talking Points, Bill Jacket, L. 2010, Ch 135 ( [This bill] will protect thousands of tenants by extending Loft Law coverage to many units which were converted after 1987 for residential purposes. ) (emphasis added). The Court of Appeals has stressed that interpretation of a statute should be governed by

8 - 8 - consideration of the legislative purposes. See Abood & Motors Insurance Corp. v. Hospital Ambulance Service Inc., 30 N.Y.2d 295, 298 (1972) ( In construing statutory provisions, the purpose of the statute and the objectives sought to be accomplished by the Legislature must be borne in mind ); Rankin v. Shanker, 23 N.Y.2d 111, 114 (1968) ( a primary command to the judiciary in the interpretation of statutes is to ascertain and effectuate the purpose of the Legislature ). See also Lower Manhattan Loft Tenants v. NYC Loft Bd., 66 N.Y.2d 298, (1985) (noting that effectuation of the Legislature s purpose should be the primary guide ). Nothing in the history of the 2010 amendments supports that the legislature intended to reregulate existing IMD units that have been rent deregulated. Moreover, neither of the two cases relied upon by petitioners support their arguments as to the interpretation to be given to the 2010 amendments. In Acevedo v. The Piano Building, LLC, 70 A.D.3d 124, 127 (1st Dep t 2009), where the unit in question had been removed from rent regulation under the Loft Law by virtue of a sale of rights, the First Department held that a sale of rights under the Loft Law affected rent regulation under the Loft Law but did not affect rent regulation under the Emergency Tenant Protection Act ( ETPA ). Id. at 127. Likewise, in 315 Berry Street Corp. v. Hanson Fine Arts, 39 A.D.3d 656 (2d Dep t 2007), the Second Department determined that a loft, which had been removed from Loft Law rent regulation by virtue of a sale of rights and improvements, was subject to the rent regulations of the ETPA and the New York City Rent Stabilization Law and Code. See also Duane Thomas LLC v. Wallin, 35 A.D.3d 232 (1st Dep t 2006) (finding that although unit was not covered by Loft Law it may be subject of rent stabilization); 182 Fifth Avenue, LLC v. Design Development Concepts, Inc., 300 A.D.2d 198, 199 (1st Dep t 2002) (finding that the eligibility of the subject loft units for protection under rent stabilization pursuant to the Emergency Tenant Protection Act of 1974 is adequately alleged, notwithstanding the sale of Loft Law rights by a prior tenant. ). These cases illustrate that IMD units removed from rent regulation under the Loft Law may be subject to subsequent rent regulation under a different law, but they do not support petitioners claim for reregulation under the 2010 amendments, a claim which is clearly at odds with the legislative intent of the 2010 amendments, as well as the Loft Board s requirements for one-time sales. The Loft Board s rules unambiguously state that For any sale pursuant to 286(12), the unit subject to such sale may not be the subject of another sale pursuant to 286(12); nor may such unit be the subject of a subsequent sale of improvements pursuant to 286(6) of the MDL.

9 RCNY 2-10(e) (Lexis 2010). In accordance therewith, the Board has consistently treated a sale of rights and improvements as binding on future tenants. See Matter of Schwartz, Loft Bd. Order No (Sept. 20, 2007) (finding three units no longer subject to rent regulation under the Loft Law as the former occupants had sold their rights pursuant to MDL 268(12)); Matter of Brown, Loft Bd. Order No (Feb. 16, 2006) ( The Tenant is not entitled to the protection of Article 7-C rent regulation because the [unit] was the subject of a sale of rights agreement between the previous tenant and the Owner ); Matter of Block, OATH Index No. 434/98 at 9 (Mar. 11, 1998), adopted, Loft Bd. Order No (May 28, 1998) ( The sale of rights by the prior covered tenant removed the unit from rent regulation by the Loft Board ); see also Randall Assoc., LLC v. Fylypowcyz, 2007 N.Y. Slip Op 51325U at *3 (Civ. Ct. N.Y. Co. 2007) ( The incentive for an owner to enter into a buy out agreement is the ability to subsequently lease the unit at arms length for market value rent, unhindered by controlling regulation ). Neither section 286(6) nor 286(12) has been changed by the 2010 amendments, which is yet further indication that the Legislature did not intend by the 2010 amendments to re-regulate previously deregulated units. Accordingly, Mr. Izett s sale of rights to respondent should be given full force and effect. In sum, by virtue of Mr. Izett s sale of rights and improvements to respondent, rent regulation of unit 29 was lifted. However, the unit continues to be covered under the Loft Law, and the owner remains subject to the law s requirements, including legalization timelines and filings. 29 RCNY 2-10(c)(2). RECOMMENDATION For the foregoing reasons, I find that petitioners are not entitled to rent regulation of unit 29, which was previously rent deregulated under the Loft Law. Therefore, their application should be denied. September 9, 2011 Ingrid M. Addison Administrative Law Judge

10 SUBMITTED TO: ROBERT D. LiMANDRI Chairperson APPEARANCES: MARGARET B. SANDERCOCK, ESQ. Attorney for Petitioner TENENBAUM & BERGER LLP Attorneys for Respondent BY: DAVID BERGER, ESQ.