E D I T O R S Magda L. Cruz Aaron Shmulewitz Kara I. Rakowski Belkin Burden Wenig & Goldman, LLP UPDATE MARCH / APRIL 2013 VOLUME 24 Inside This Issue TRANSACTIONAL UPDATE PARTY WALLS: Two Walls for the Price of One...1, 2 TRANSACTIONAL UPDATES PARTY WALLS: TWO WALLS FOR THE PRICE OF ONE Co-Op/Condo Tax Abatement Reinstated (Mostly)...1, 2 LITIGATION UPDATE What Owners Need to Know About the Legalization Process Under the New Loft Law...3, 4 It May Not Be Too Late...5 ADMINISTRATIVE LAW UPDATE By Robert Jacobs Disputes often arise regarding the rights of owners of buildings that have common walls with other buildings, known as party walls. Such disputes are common since, in New York City, the use of party walls in constructing adjacent buildings has been in use since the 1800s, if not earlier. A party wall is defined as a wall constructed next to or directly on a property line that serves as structural support for two buildings. It has the advantage of replacing the function of two walls that would otherwise be required to build the buildings and thus, saves on construction costs and maximizes usable floor area without sacrificing stability of the buildings. Often, a party wall agreement is fi led in the land records which sets forth the rights and obligations of the adjoining property owners. However, if there is no such agreement, in the absence of any contractual or statutory provision to the contrary, each owner of a party wall erected partly on the lands of each owns Deregulate Rent Regulated Apartments Through High Income High Rent Deregulation in 2013...5, 6 CASES OF NOTE...7 NOTABLE ACHIEVEMENTS...7 TRANSACTIONAL UPDATES CO-OP/CONDO TAX ABATEMENT REINSTATED (MOSTLY) continued on page 2 WE RE GOING GREEN We are now offering the BBWG Newsletter online. If you would still like to receive a print copy, please contact Larry Tricerri at ltricerri@bbwg.com. By Aaron Shmulewitz In late January, the State legislature passed, and Governor Cuomo signed into law, a bill reinstating the partial real estate tax abatement for New York City co-ops and condominiums under Real Property Tax Law section 467-a. While the reinstatement is retroactive to July 1, 2012, when the current tax year began, the lateness of the hour requires that changes in the law will be deferred (but retroactively) to tax bills for the next tax year, starting July 1, 2013. Most importantly, for the first time, an apartment s entitlement to the abatement will now depend on whether it is the primary residence of its owner. Apartments that are not their owners primary residences will lose half of their abatement (retroactively) for current tax year 2012/13, will lose 75% of their abatement for tax year 2013/14, and will not be entitled to any abatement for tax continued on page 2 Belkin Burden Wenig & Goldman, LLP 270 Madison Avenue New York, NY 10016 Tel 212.867.4466 Fax 212.867.0709 Attorney Advertising 1
TRANSACTIONAL UPDATES PARTY WALLS: TWO WALLS FOR THE PRICE OF ONE continued from page 1 in severalty the part which rests on that owner s side of the line, with an easement of support from the other party. Under New York law, there are essentially four types of party walls: 1. A wall of which the two adjoining owners are tenants in common and thus, have an undivided common interest; 2. A wall divided longitudinally into two strips, with each strip belonging to each of the neighboring owners and, thus, each side of the wall is owned separately; 3. A wall which belongs entirely to one of the adjoining owners, but is subject to an easement or right in the other to have it maintained as a dividing wall between the two buildings; and 4. A wall divided longitudinally into two halves (known as moieties ), each being subject to a cross-easement in favor of the owner of the other. Common law provides that the shared use of the party wall is an essential characteristic. Thus, a wall that merely straddles the boundary line of adjoining properties but supports no beams or building is not a party wall. A party wall is for the common benefit of the contiguous properties, and neither may subject it to use by which the wall will cease to be continuously available for enjoyment by the other. An owner of a building with a party wall, therefore, may extend a party wall vertically as long as the adjoining property s owner s use of the party wall or the building supported thereby is not compromised by the extension. Thus, the load bearing capacity of a party wall must be determined before being used as support to build vertically or suspend heavy mechanical equipment. The load bearing capacity of the foundation supporting the party wall should also be determined before being used to support additional loads. Robert Jacobs (rjacobs@bbwg.com)is a partner in the Transactional and Administrative Law Departments at BBWG. TRANSACTIONAL UPDATES CO-OP/CONDO TAX ABATEMENT REINSTATED (MOSTLY) continued from page 1 year 2014/15. The Department of Finance apparently intends to cross-check all STAR abatement records, income tax returns, and other filings, to ascertain each apartment s primary residency status. Needless to say: (i) the retroactive nature of the benefits (and loss of entitlement) is very likely to result in much erroneous billing, (ii) co-ops containing apartments that are not primary residences will need to un-credit the lost abatement amounts (partially and then wholly) from those apartments, and (iii) co-op and condo boards, and especially managing agents, will be spending significantly more time dealing with the host of practical issues that will flow from the new requirement. Aaron Shmulewitz (ashmulewitz@bbwg.com) is a partner in the Transactional Department and heads the firm s Co-op/Condo practice. 2
LITIGATION UPDATE WHAT OWNERS NEED TO KNOW ABOUT THE LEGALIZATION PROCESS UNDER THE NEW LOFT LAW By Joseph Burden and Lisa Gallaudet The legalization process of a commercial building eligible to be legalized residentially pursuant to the New Loft Law is complex. Building owners that own buildings eligible for coverage under the New Loft Law should have a basic understanding of the legalization process prior to registering a building with the New York City Loft Board. They should consult experienced counsel before commencing the process. An owner can register their building at any time up until six months from the date all of the regulations implementing the New Loft Law become finalized. To date, all of the regulations have not yet been finalized and therefore no deadline has been set. After this deadline no coverage applications will be accepted and no registrations will be processed. If the owner chooses to register, the Loft Board requires the owner to produce the leases in effect during the Window Period (2008-2009), proof of residency (utility bills, rent ledgers, etc.) for 12 consecutive months during the Window Period, and a $500 check per unit being registered. The owner must serve a copy of the initial registration application on all occupants of the building. What Registration Means for an Owner An owner is entitled to the same rent, including escalations, as set forth in the lease in effect on June 21, 2010 (or if no lease was in effect on June 21, 2010, the most recent rent paid by the occupant and accepted by the owner). The owner can collect rent provided the owner is in compliance with the following deadlines: Alteration Application: March 21, 2011 Permit: June 21, 2011 Article 7-B Compliance: December 21, 2011 Certificate of Occupancy: June 21, 2013 An owner is entitled to rent increases throughout the legalization process. Upon the filing of an alteration application the owner is entitled to a 3% increase in rent, 3% upon the issuance of a work permit and another 4% upon achieving Article 7-B compliance (fire and safety legalization work). The 7-B compliance form or a TCO (temporary certificate of occupancy), must be filed with the Loft Board s office to demonstrate compliance with the deadline. Prior to the Issuance of a Certificate of Occupancy Owners must obtain Loft Board certification prior to the issuance of a work permit from the Department of Buildings. Within 15 days of filing an alteration application at the DOB, the owner must serve the tenants and all other occupants in the building with a Narrative Statement, describing the work to be performed and explaining why it is necessary. The Loft Board will schedule a Narrative Statement Conference where all IMD tenants may attend and voice their objections and/or concerns with the Narrative Statement. The IMD tenants have a forty-five (45) day window to object to the Narrative Statement and file alternate plans with the DOB. IMD tenants have a right to object to any part of the legalization plan that unreasonably interferes with the use and quiet enjoyment of their unit. After complying with the fire and safety provisions of Article 7-B of the Multiple Dwelling Law, the owner is required to take all necessary and reasonable steps to obtain a final certificate of occupancy which reflects the residential occupancy of the IMD units. This involves completing additional work in the building, as well as resolving open job applications and clearing DOB and New York City Environmental Control Board ( ECB ) violations. After a Certificate of Occupancy is Issued Upon the issuance of a final C of O, the owner must make an application to the Loft Board to be removed from the Loft Board s jurisdiction and to set the initial legal rent for each IMD unit by the issuance of a Final Rent Order. Each IMD unit will then become rent stabilized and the Final Rent Order will set forth the base rent for the determination of rent stabilization increases pursuant to the Rent Guidelines Board ( RGB ). The owner will be directed to register each IMD unit with DHCR and HPD. At the time that the owner seeks to be removed from the Loft Board s continued on page 4 3
LITIGATION UPDATE WHAT OWNERS NEED TO KNOW ABOUT THE LEGALIZATION PROCESS UNDER THE NEW LOFT LAW continued from page 3 jurisdiction, it must indicate whether or not it waives its right to seek a portion of the cost of legalization from the IMD tenants. If the owner seeks to recover its Cost of Compliance Increases from the IMD tenants it will delay the issuance of the Final Rent Order and the building will remain under the Loft Board s jurisdiction until the Final Rent Order is issued. An owner must apply for Cost of Compliance Increases within nine months after the owner has obtained a certificate of occupancy. This is a very lengthy process and the building will remain in the Loft Board s jurisdiction until it is resolved. However, the owner will be able to recoup a portion of the costs necessary to achieve a final C of O by amortizing the approved costs as rent increases for 10 years. (Unlike MCIs, the Loft Law Cost of Compliance Increases do not become part of the base rent and drop off after 10 years.) Deregulation of IMD Units Prior to Removal from the Loft Board s Jurisdiction and the Future Effect After Removal Prior to removal from the Loft Board s jurisdiction, there are several ways to deregulate an IMD unit: 1. Sale of Rights pursuant to MDL 286(12) a. An owner can purchase an IMD tenant s rights under the Loft Law. The tenant agrees to vacate the unit for a sum of money and sells his/ her rights under the Loft Law to the owner. Upon the filing of an agreement and a sale of rights form with the Loft Board, the unit is rent deregulated while under the Loft Board s jurisdiction. b. The unit remains an IMD unit and still must be legalized residentially under the Loft Board rules and regulations, unless the owner files intent to covert to commercial use upon the filing of the Agreement and Sale of Rights Form. If the owner converts the unit to commercial use, the Loft Board will schedule an inspection of the unit to ensure that all of the residential fixtures have been removed from the unit prior to signing off on the amendment to the plans with DOB. c. Once the IMD unit is deregulated, the owner can charge market rent. 2. Sale of Improvements pursuant to MDL 286(6) a. Similar to the Sale of Rights in buildings with fewer than six residential units, an owner can purchase the improvements an IMD tenant made to the IMD unit and it will remove the IMD unit from rent regulation. For a building with more than six units, the owner can increase the rent to market levels, then the unit will go back into rent regulation. b. The agreement and a Sale of Improvements form must be filed with the Loft Board within thirty days of the date of the sale. c. The unit remains an IMD, but is not subject to rent regulation. It still must be legalized for residential use. 3. Abandonment and subsequent conversion to commercial use a. If an IMD tenant voluntarily vacates an IMD unit (or dies), the owner can file an abandonment application within one year from the date the owner had reason to know the IMD tenant vacated. b. The IMD unit will remain subject to legalization requirements, but it will not be subject to rent regulation while under the Loft Board s jurisdiction. Joseph Burden (jburden@bbwg.com) is a partner and co-heads the Litigation Department. Lisa Gallaudet (lgallaudet@bbwg.com) is an associate in the Litigation Department, specializing in Loft Law matters. 4
LITIGATION UPDATE IT MAY NOT BE TOO LATE By Jeffrey L. Goldman A recent decision by the Appellate Term, First Department has given owners a second chance where a renewal lease offer is inadvertently made. The Rent Stabilization Code requires owners to offer rent stabilized tenants a renewal lease between 90 and 150 days prior to the expiration of the lease. Unlike the law governing contracts in which an offer can be revoked prior to acceptance, the courts have held that a renewal lease offer is binding once offered and cannot be revoked during the 60 day window period even if an owner learns that the tenant is not occupying the apartment as his or her primary residence. In FS 41-45 Tiemann Place LLC v. Estrella, the Appellate Term reversed the lower court and denied a tenant s motion for summary judgment dismissing the petition where the owner claimed to have mistakenly or inadvertently mailed to a tenant a renewal lease offer after which the landlord promptly withdrew the offer and subsequently and timely served a combined notice of non-renewal and termination based upon non-primary residence. Although the offer was mistaken or inadvertent based upon a back office employee of an owner s large and complex clerical operation, the court noted that a renewal of a rent stabilized lease should not be reduced to a matter of gamesmanship, seduction and artifice or be made to hinge on gotcha litigation tactics. Whether a renewal lease offer is inadvertently made before an owner intends upon serving a non-renewal notice, or even after a non-renewal notice is served, speak with legal counsel immediately so that a prompt determination can be made as to how best to proceed. In some instances, the error can be rectified without the owner forfeiting its ability to terminate the tenancy and recover possession. Jeffrey L. Goldman (jgoldman@bbwg.com) is a partner and co-heads the Litigation Department of the Firm. ADMINISTRATIVE LAW UPDATE DEREGULATE RENT REGULATED APARTMENTS THROUGH HIGH INCOME HIGH RENT DEREGULATION IN 2013 By Joshua G. Losardo Rent regulated apartments with a legal or maximum monthly rent of $2,500 or more, in buildings not receiving tax benefits, may be petitioned for High Income Rent Deregulation ( Luxury Deregulation ) this year. Luxury Deregulation is an administrative proceeding commenced at the New York State Housing and Community Renewal ( HCR formerly DHCR ), and may result in the deregulation of a rent regulated apartment. There are two (2) requirements which must be met for HCR to issue an order of deregulation based upon Luxury Deregulation ; (1) the legal rent must be $2,500 or more per month, and (2) the tenant s annual Federal Adjusted household income as reported on New York state tax returns, (i.e., the income of all persons occupying an apartment as a primary residence on other than a temporary basis), must have exceeded $200,000 in both 2011 and 2012. BBWG recommends that owners file for Luxury Deregulation against all rent regulated apartments (both rent stabilized and rent controlled), if the apartment s legal or maximum rent is $2,500 or more. When reviewing rent rolls, owners should also consider including apartments which will reach the $2,500 monthly rent level for the first time on or before May 1. It does not matter if a tenant is paying a preferential rent of less than $2,500, as long as the apartment s legal or maximum rent is $2,500 or more on or before May 1. An owner may also combine the legal rent of different apartments rented by the same family in order to reach the $2,500 threshold. Owners who have previously filed Luxury Deregulation proceedings should review whether HCR has already determined whether an apartment s household 2011 income met the $200,000 level. If HCR has already determined that 2011 income was below $200,000, calendar to file for Luxury Deregulation again in 2014. continued on page 6 5
ADMINISTRATIVE LAW UPDATE DEREGULATE RENT REGULATED APARTMENTS THROUGH HIGH INCOME HIGH RENT DEREGULATION IN 2013 continued from page 5 Timing is important when preparing Luxury Deregulation petitions. On or before May 1, an owner must serve an Income Certification Form ( ICF ) upon an apartment with a legal or maximum rent of $2,500 or more (the ICF cannot be served until the apartment s rent is $2,500 or more). The ICF requires tenants to answer whether their household s annual income (defined by the Rent Stabilization Code as the Federal adjusted gross income as reported on a N.Y.S. income tax return), exceeded $200,000 in 2011 and 2012. The ICF also requires tenants to identify all persons occupying their apartment. On or before June 30, owners must file a Petition by Owner for High Income Rent Deregulation with HCR for each tenant the owner seeks to deregulate. The owner s High Income Rent Deregulation Petition requests that HCR do one of the following: Issue an order deregulating an apartment based upon a tenant s admission that the total annual household income exceeded $200,000; or Seek verification of the tenant s answer because the owner contests it; or Seek verification of a tenant s household income because a tenant failed to properly answer the ICF. If an owner seeks verification of a tenant s answer in the ICF, HCR will, with the cooperation of the New York State Department of Taxation and Finance, determine whether a tenant s Federal Adjusted annual household income was above or below $200,000 in both years preceding the year that the owner s petition is filed. If it is determined that the household income is $200,000 or more, HCR will issue an Order of Deregulation, thereby removing the apartment from rent regulation. Generally, the verification process takes one year to eighteen (18) months from filing the petition to receiving an order from HCR. Joshua G. Losardo (jlosardo@bbwg.com) is a partner in BBWG s Administrative Law and Bankruptcy Departments. 6
CASES OF NOTE HOWARD WENIG, MAGDA L. CRUZ and ROBERT T. HOLLAND, partners of the firm, successfully represented a foreclosing mortgagee in an appeal before the Appellate Division, First Department. Law intern, SARA ZUCKER, assisted on the brief. The appellate court reversed the Supreme Court, Bronx County and granted summary judgment to the mortgagee, enabling it to foreclose a construction loan. The appellate court found that the mortgagee had established its prima facie entitlement to a judgment of foreclosure by proffering evidence of the defendants failure to pay the outstanding monies due under the loan documents. Significantly, the appellate court found that the defendants failed to raise any triable issue of fact even though they claimed that the mortgage was unenforceable because the obligor on the mortgage note was a different entity from the owner and mortgagor of the mortgaged property, that the mortgagee had failed to advance the full amount of the construction loan, and thus had allegedly caused or contributed to the defendants default under the loan documents, and that there was a dispute regarding the total amount due to the mortgagee under the loan documents. These claims were not substantiated and did not pose legitimate defenses to the foreclosure action. The matter was remanded for the Supreme Court to appoint a Referee to compute the amount due on the mortgage and to report whether the mortgaged property should be sold in one parcel. JEFFREY LEVINE, a partner in the Litigation Department, obtained a court order directing a commercial tenant to pay use and occupancy during a pending Civil Court non-payment proceeding and, thereafter, upon the tenant s failure to pay the court-ordered use and occupancy, an order directing the issuance of a warrant of eviction. In that case, the court, upon the tenant s request for an adjournment of the trial, granted the adjournment and directed the tenant to pay one month s use and occupancy to the landlord by a specified date. The tenant failed to make the required payment, and, as a result of that failure to pay, on the ensuing trial date, MR. LEVINE asked the court to dismiss the tenant s defenses in the case, to award the landlord a possessory judgment, and to direct the issuance of a warrant of eviction. The court granted MR. LEVINE S request and dismissed all of the tenant s defenses, awarded the landlord a judgment of possession and directed the issuance of a warrant of eviction. The court also directed the case to proceed to trial solely for a determination as to the amount of rent and additional rent owed by the tenant. This demonstrates how a landlord may be awarded a warrant of eviction based solely upon a tenant s failure to make a court-ordered payment of one month s use and occupancy, and the importance of aggressively opposing applications for adjournments and making appropriate requests for use and occupancy payments. BBWG NOTABLE ACHIEVEMENTS SHERWIN BELKIN, a partner in BBWG s Administrative Law and Appeals Departments, spoke at a December 20 Board meeting of the Community Housing Improvement Program (CHIP), addressing two recent post-roberts decisions by the Appellate Division. MR. BELKIN was also quoted in a January 17 on-line article in Law360.com, discussing a new City law governing owners repair obligations, and another one on February 22 regarding companies that illegally rent market apartments for short-term stays. MR. BELKIN also spoke to an audience of townhouse owners at a meeting of the Brownstone Revival Coalition on bringing owner occupancy cases against rent regulated tenants who occupy apartments in townhouses. The video can be viewed at http://www.townhouseexperts.com/videodetail.asp?videoid=18. DANIEL T. ALTMAN, head of the firm s Transactional Department, was quoted in a January 11 on-line article in Law360.com, discussing reasons for the trend of higher prices for City apartments. AARON SHMULEWITZ, head of BBWG s co-op/condo practice, responded to inquiries in the on-line Q&A feature of the Sunday New York Times Real Estate Section regarding co-op Boards practices in reviewing applicants finances (December 14) and a co-op s rights to recoup unbilled prior electrical charges from a shareholder (December 30). MR. SHMULEWITZ was also quoted in the Sunday (2/17/13) New York Times Real Estate article entitled: Sun City It s Not concerning the issues faced by co-op and condo boards in buildings with increasingly aging residents. DAVID SKALLER, a partner in BBWG s Litigation Department, was a panelist at a February 13 seminar sponsored by the Rent Stabilization Association on Property Insurance for Apartment Buildings: Learning from Sandy. MR. SKALLER is also the vice-chairman of the advisory committee for a program to be held on March 11, entitled Housing Court at 40: Controversies, Challenges and Prospects for the Future, co-sponsored by the Furman Center for Real Estate and Urban Policy, the Housing Court Judges Association, and the Association of the Bar of the City of New York. ROBERT JACOBS, a partner in BBWG s Transactional and Appeals Departments, was quoted in a February 1 on-line article in Law360.com, on Post-Sandy Zoning Relief: 1st Step in Climate-Proofing NYC. MR. JACOBS was also quoted in the Sunday (2/24/13) New York Times Real Estate section on light easements and air rights in The Great Air Race. MAGDA L. CRUZ, a partner in BBWG s Appeals Department, authored an article in the January 2013 edition of RSA Reporter: Two PostRoberts decisions: Two Very Different Results for Past Participation in J-51 Program. 7
Belkin Burden Wenig & Goldman, LLP 270 Madison Avenue New York, NY 10016 www.bbwg.com New York Office 270 Madison Avenue New York, NY 10016 Tel 212.867.4466 Fax 212.867.0709 Connecticut Office 495 Post Road East, 2nd Floor Westport, CT 06880 Tel 203.227.1534 Fax 203.227.6044 Please Note: This newsletter is intended for informational purposes only and should not be construed as providing legal advice. This newsletter provides only a brief summary of complex legal issues. The applicability of any or all of the issues described in this newsletter is dependent upon your particular facts and circumstances. Prior results do not guarantee a similar outcome. Accordingly, prior to attempting to utilize or implement any of the suggestions provided in this newsletter, you should consult with your attorney. This newsletter is considered Attorney Advertising under New York State court rules.