Realty Law Digest

, New York Law Journal

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Scott E. Mollen
Scott E. Mollen

Landlord-Tenant—Court Rejects Defense That Repair of Building Would Be Economically Infeasible—Owners' Valuation Expert Lacked Knowledge of Actual Building Expenses and Used Capitalization Rates That Seemed Arbitrary and Speculative and Failed to Address Whether Anticipated Tenant Turnover Would Lead to Higher Rents

Tenants brought an order to show cause, seeking a temporary restraining order and a preliminary injunction against the owners of their eight-unit building. The tenants sought an order requiring that the owners "make…repairs required by the [NYC Department of Buildings] and eliminate hazardous conditions that led to the issuance of a Peremptory Vacate Order ('vacate order') against the subject property." They also sought an order directing that the tenants "be restored to their…apartments after the vacate order has been removed." The owners countered that repair of the building "would be economically infeasible."

A hearing was held. The owners had purchased the building in April 2011, at a time when the building required repairs. The Buildings Department had inspected the building in November 2010 and found that repairs were needed. A predecessor owner had arranged for "architectural plans to be prepared" for "joist replacement" and "masonry repairs." The plans were approved in March 2011, just prior to the current owners' (owners) purchase of the property. The owners had requested that the tenants voluntarily vacate their apartments for 30 days "to allow for the joists to be repaired and/or replaced." The owner had offered the tenants $500 each for expenses related to the temporary move. The tenants had declined the offer.

The Buildings Department had inspected the building prior to the issuance of a vacate order on Dec. 28, 2012. The department found that there was a failure to maintain the building "in compliant manner… Defective brick work through entire building. Brickwork is loose and in danger of failing at exposure #4, Chimney at rooftop is defective and falling apart. There are cracks in the ceiling and walls in some of the apartments throughout entire building. Repair and replace. Make all necessary repairs…." A Dec. 17, 2012 Buildings Department report noted "masonry defects and recommended shoring of…wood joists…." The tenants included low income elderly individuals who had testified that they could not pay a "market" rent and could not find stable housing accommodations since being displaced. The rents at the subject building "were all low rents ranging from $193 to $600."

The tenants' engineer projected that $177,200 would cover replacement of every joist and allow for the necessary brickwork to be replaced. The engineer testified that the scope of necessary repairs was much more extensive than that described by the tenants' expert. The owners' structural engineer testified that "there were significant structural issues involving the main beam of the building and the structural integrity of the staircase…." The owners' general contractor estimated the total cost, including "fees, permits, construction costs, demolition expenses, finishes, appliances) sprinkler systems and electrical systems for which he estimated a projected cost of $1.4 million dollars…."

The tenants' appraiser had estimated that "a 'functional renovation' of the building would lead to the building having a value of $1.4 million dollars" even with the low rent roll. The tenants' appraiser used a comparable sales methodology which reflected the "strong real estate market in the area." The owners' valuation expert testified that the proper analysis was an income-based approach and based upon the low rent roll, the property would be valued at $500,000-$600,000.

The owners further argued that the vacate order had been issued "without any culpability on their part" and the cost of restoration may "far outweigh any profit or gain that might be generated by the building."

The court found that an injunction was needed "to preserve the status quo and prevent [the tenants] from becoming permanently displaced." In attempting to establish the economic infeasibility defense, the owners had "adopted an all-out approach in claiming that the required renovation…involves a total reconstruction." The building, as envisioned by the owners' experts, would be "a completely new and modernized apartment building." The owners, in essence, claimed that the vacate order required that "the entire building be rebuilt."

An owners' expert had testified that "the building was in such poor condition that the cost of the renovation would trigger compliance with the 1968 Building Code," i.e., the renovation would require "installation of completely new systems and finishes and fire rated enclosures." The owners' expert asserted that the necessary work would require "the filing of an 'Alt 1' permit due to the projected costs of the renovation exceeding 60 percent of the appraised value. This filing would necessitate completely new electrical systems, sprinkler systems, handicap accessibility, plumbing systems as well as the architectural and engineering costs and other sundry costs." The costs were projected to reach $1.4 million.

The court noted that under Admin. Code §27-120, "less arduous renovations are permitted as long as the 'general safety and public welfare are not compromised.'" Moreover, the owner was required by the Buildings Department "to stabilize the building and not required to perform a complete rehabilitation…." In essence, the owners were choosing to do a gut renovation which was "much more extensive" than "was legally required by the [Buildings Department]" and the owners "did so for their own elective purposes."

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