No Certificate of Occupancy? No Problem!

November 2, 2022New York Law Journal

Andrew B. Freedland and Deborah Koplovitz wrote an article for the New York Law Journal's Condominium and Cooperative column discussing how in many ways, shareholders in a residential cooperative corporation, who are issued a proprietary lease or occupancy agreement to permit them to reside within their apartments, are very similar to ordinary residential tenants. However, a recent case by the Appellate Division, Second Department, has reinforced one important distinction between a residential rental tenant, and a shareholder in a cooperative corporation.

New York’s Multiple Dwelling Law §4(7) defines a "multiple dwelling" as a "dwelling which is either rented, leased, let or hired out, to be occupied, or is occupied as the residence or home of three or more families living independently of each other."

Multiple Dwelling Law §286(1) states: "[i]t shall not be a ground for an action or proceeding to recover possession of a unit occupied by a residential occupant qualified for the protection of this article that the occupancy of the unit is illegal or in violation of provisions of the tenant's lease or rental agreement because a residential certificate of occupancy has not been issued for the building, or because residential occupancy is not permitted by the lease or rental agreement."

Multiple Dwelling Law §§302(1)(a) and (b) provide that if a multiple dwelling is occupied without a certificate of occupancy, "[n]o rent shall be recovered by the owner of such premises for said period, and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent."

Read together, Multiple Dwelling Law §§301 and 302 have historically precluded "an owner from recovering rent from tenants of a multiple dwelling which lacks a valid certificate of occupancy." Parkchester Pres. Co. LP v. Vargas, 69 N.Y.S.3d 456, 457 (N.Y. Civ. Ct. 2017) accord Jalinos v. Ramkalup, 255 A.D.2d 293, 294 (2d Dept. 1998).

But do these lines of cases apply equally to a shareholder in a residential cooperative corporation?

The Appellate Division, Second Department, in Grassfield v. JUPT, 174 N.Y.S.3d 458 (2d Dept. 2022), was recently called upon to consider whether there was a likelihood of success on the merits in conjunction with the shareholder’s (and his non-shareholder-spouse's) request for a preliminary injunction, precluding the cooperative housing corporation from seeking to evict them from their fourth-floor home at 429 South 5th Street, Brooklyn, N.Y., due to non-payment of rent, on the grounds that the building did not obtain a certificate of Occupancy to permit residential occupancy.

The facts related to their complaint are as follows. After Mr. Grassfield allegedly withheld in excess of $50,000 in monthly maintenance claimed to have been owed by his coop—which amount was for assessments and fees associated with architectural, professional and legal fees legalizing the building for residential occupancy—the cooperative corporation served a "Notice to Cure" demanding that Mr. Grassfield pay the arrears. Instead of making the payments, as demanded, Mr. Grassfield and his wife filed suit, claiming that because there was no Certificate of Occupancy for his apartment, the Multiple Dwelling Law precluded the cooperative from enforcing his payment obligations, and seeking to evict him and his wife.

The Supreme Court denied the plaintiff’s request for a preliminary injunction, and the Grassfield court affirmed, concluding that the term “residential occupant” found in Multiple Dwelling Law §286 was not meant to encompass shareholders in a residential cooperative corporation, who are "essentially owner-occupants." Grassfield, 174 N.Y.S.3d at 458. (This is not a surprising conclusion since Multiple Dwelling Law §286(8) provides that "[c]ooperative and condominium units occupied by owners or tenant-shareholders shall not be subject to rent regulation pursuant to this article." (emphasis added).) Therefore, the Grassfield court held, the plaintiff-shareholder was not entitled to protection under Multiple Dwelling Law §302(1). Id., citing to, inter alia, Tri-Land Props. v. 115 W. 28th St., 267 A.D.2d 142 (1st Dept. 1999) (no stay of eviction of a shareholder pending resolution of the shareholder’s application for eligibility under the Loft Law, because a shareholder of a cooperative corporation is not a tenant for purposes of Loft Law). (Although not mentioned by the Supreme Court or on appeal, Grassfield appears to have argued that his obligations to his cooperative, as well as his rights, are distinct from those of his wife's, Jennifer Sterns, who is not a shareholder, and who had filed a "protected occupancy application" with the New York City Loft Board after the coop apparently amended its registration to omit her as a protected occupant.)

Before Grassfield, most cases construing the difference between "residential occupant" and "owner-occupant" have been in the context of Loft Law issues like the facts in Tri-Land Props. See, e.g., First Edition Composite v. Wilkson, 177 A.D.2d 297, 298 (1st Dept. 1991) (explaining that "[t]he term "residential occupant" was adopted by the legislature for purposes of Multiple Dwelling Law §286 because "tenant" was too narrow a term in the context of multiple dwellings).

The Grassfield court's conclusion, though it was only in the context of a motion for a preliminary injunction, may nevertheless serve to continue to close the door to other shareholders’ attempts to avoid payment obligations to their residential cooperative corporations by claiming that there is no certificate of occupancy. This is particularly so since it appears that Multiple Dwelling Law §286(8) excludes cooperative and condominium units occupied by owners or tenant-shareholders from any rental waiver.

This is discussed in the full analysis that originally appeared in the November 2, 2022 publication of the New York Law Journal. Access may require a subscription.

For more information on condominium and cooperative law matters, please contact:

Andrew B. Freedland at +1 212 592 1623 or [email protected]