Trust for the Benefit of Goldstein v. Lipetz

Richter and Gesmer, JJ.,

dissent in a memorandum by Gesmer, J., as follows: In my view, the motion court correctly found that there are material issues of fact that precluded it from granting summary judgment as to plaintiff’s complaint, which seeks to evict defendant for unlawfully subletting her rent stabilized apartment, and as to defendant’s second affirmative defense, that plaintiff failed to serve a notice to cure, and her third affirmative defense, that her conduct did not rise to the level of profiteering which would justify her eviction from her long-time home.1 It has long been the rule that the court’s task on a motion for summary judgment is “[i]ssue-*573finding, rather than issue-determination” (Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957] [internal quotation marks omitted]). Therefore, to defeat a summary judgment motion, defendant need only raise triable issues of fact requiring a trial (CPLR 3212 [b]), which I would find she has done.

Plaintiff is the owner and proprietary lessee of an apartment in a building owned by a cooperative corporation, 39 Fifth Avenue Owners Corporation (39 Fifth). Samson Management LLC (Samson) is plaintiff’s current managing agent for the apartment.

Defendant, now 69, has lived in the apartment since 1973 pursuant to a rent stabilized lease. The lease required a tenant wishing to sublet to obtain the landlord’s consent, which shall not be unreasonably withheld. The lease further provides that, where the tenant defaults on this or other lease obligations, the landlord shall serve a notice to cure on the tenant as a predicate to a notice to terminate and eviction proceedings. There is no evidence in the record that defendant ever had a roommate or defaulted on her lease obligations in any way in the 38 years of her tenancy before the events at issue here.

In 2010, defendant was diagnosed with cancer, and, upon disclosing that to her employer, was terminated from her job. After that, she was not able to find another job, and received unemployment insurance. She then underwent six operations, and was unable to work for more than a year. As her financial situation worsened, she realized that, in order to pay her rent, she needed to find a roommate, but she found it difficult to do so.

A friend suggested that she look for a roommate through Airbnb. Concerned that the building might not approve this arrangement, defendant spoke with the building’s property manager who told her that it would “not be a problem” as long as she completed and returned to management the building’s Visitor Advice Notification Form each time she had a guest. The property manager did not tell her to obtain permission from anyone else. The building’s superintendent gave defendant a stack of the forms. The form was headed “39 Fifth Ave. Owners Corp.” and stated at the bottom, “If you have any questions, please contact Barbara Schmidt, Managing Agent... or Mike Blakaj, Superintendent.” Defendant claims that she would not have used Airbnb if the property manager had *574objected to her doing so. Plaintiff does not dispute that defendant sought and obtained the approval of the property manager.

Defendant then listed the apartment on Airbnb in or about February 2011. The online listing set the cost at $95 per night for single persons and $120 per night for couples. Airbnb received a 3% commission on the sums charged. Each guest was screened by Airbnb, which provided a brief biography of each guest to defendant. Defendant reviewed each guest’s biography, and communicated with each potential guest by email before arranging for the guest to stay with her. Defendant continued to use the apartment as her primary residence, and cooked meals for each guest. Each guest shared the entire apartment with her, including the one bathroom and unlimited use of the kitchen. They even watched TV together. Defendant completed the Visitor Advice Notification Form for each guest and gave it to management to notify them of each guest, which plaintiff does not dispute. Defendant testified at her deposition to her belief that Samson was also aware that she had people staying with her from the forms that she completed.

On or about June 12, 2012, the building’s counsel advised plaintiff that defendant had been “illegally sub-subletting the Unit for short-term rentals.” The building served plaintiff with a notice to cure on or about August 29, 2012.

In late July or early August 2012, Barbara Schmidt, who is listed on the Visitor Advice Notification Form as 39 Fifth’s managing agent, went to defendant’s apartment, banged on her door, and told defendant that she was going to have her evicted. Ms. Schmidt was accompanied by the building’s superintendent. Defendant immediately consulted counsel and, promptly thereafter, on or about August 24, 2012, defendant terminated her account at Airbnb.

A rent stabilized tenant is permitted to charge an authorized subtenant 10% above the legal rent if the apartment is rented furnished (9 NYCRR 2525.6 [e]). The primary tenant may also charge a subtenant for expenses such as utility payments (see Cambridge Dev., LLC v Staysna, 68 AD3d 614, 615 [1st Dept 2009] [primary tenant permitted to cure overcharge of subtenant by applying excess to utility payments and future rent]).2 During the relevant period, defendant’s monthly rent was $1,758.01. Defendant’s monthly income from Airbnb exceeded *575$1,933.81 (her legal rent plus 10%) during only eight months: from June through December 2011, and in August 2012. Looked at another way, defendant’s per diem charge of $95 per night for single guests or $120 per night for couples exceeded her rent plus 10% on a per diem basis ($1,933.81/30 = $64.46) by approximately $30 per night for single guests or $55 per night for a couple. The majority’s claim that defendant realized a 72% profit over 18 months is misleading for two reasons. First, those calculations are based on the amount she received above her legal rent, rather than in excess of her rent plus 10%. Second, plaintiff’s and defendant’s charts of the sums received by defendant differ in some respects. It is not clear whether each chart applies sums received to the month in which defendant received them or the month in which each guest stayed in defendant’s home. Accordingly, I would find that the amount of profit defendant may have realized is a question of fact precluding summary judgment.

It is undisputed that plaintiff never served a notice to cure on defendant. On or about October 4, 2012, plaintiff served defendant with a notice of termination.

The Rent Stabilization Code requires a landlord’s consent to sublet (9 NYCRR 2525.6 [e]), and prohibits a tenant from charging a subtenant more than the legal rent plus a 10% surcharge if the premises is fully furnished (9 NYCRR 2525.6 [b]). Where a tenant violates these provisions, the landlord may terminate the tenancy (9 NYCRR 2525.6 [f]). Where a holdover proceeding is based on a claim that the tenant has defaulted under the subleasing provisions of the lease, in addition to any right to cure provided in the lease itself, the tenant is entitled to a 10-day stay of the warrant of eviction in order to cure the default (RPAPL 753 [4]).

However, where the tenant’s conduct rises to the level of profiteering, courts have found such conduct not subject to cure, since “[t]he integrity of the rent stabilization scheme is obviously undermined if tenants, who themselves are the beneficiaries of regulated rentals, are free to sublease their apartments at market levels and thereby collect the profits which are denied the main landlord” (Continental Towers Ltd. Partnership v Freuman, 128 Misc 2d 680, 681 [App Term, 1st Dept 1985]). There is no consistent legal definition of the term “profiteering” in this context. Since tenants who overcharge subtenants are sometimes permitted to cure, “profiteering” does not mean just making a profit. Rather, as the dictionary definition of the term implies, profiteering involves making an “excessive” profit (Oxford English Dictionary [2017], profiteer*576ing). Cases in which a rent stabilized tenant is evicted for unlawful profiteering generally involve tenants who charge two or more times the legal regulated rent3 (Continental Towers at 681; see also 42nd & 10th Assoc. LLC v Ikezi, 46 Misc 3d 1219[A], 2015 NY Slip Op 50124[U] [Civ Ct, NY County 2015], affd 50 Misc 3d 130[A], 2015 NY Slip Op 51915[U] [App Term, 1st Dept 2015]; 30-40 Assoc. Corp. v Cuervo, 16 Misc 3d 127[A], 2007 NY Slip Op 51232 [U] [App Term, 1st Dept 2007]; West 148 LLC v Yonke, 11 Misc 3d 40 [App Term, 1st Dept 2006], lv denied 2006 NY Slip Op 73839[U] [1st Dept 2006]), and whose conduct offends their rent stabilized lease in other ways as well, such as inducing the landlord’s consent by lying about the rent to be charged (Continental Towers, 128 Misc 2d at 681), using the premises from the inception of the lease as a “hotel” and rarely, if ever, as a primary residence for the primary tenant’s own use (42nd & 10th Assoc., 2015 NY Slip Op 50124[U]), or having business cards printed up listing the premises as a “bed and breakfast” (West 148 LLC, 11 Misc 3d at 41).

Conversely, a rent stabilized tenant who overcharges a subtenant is not subject to eviction where her conduct does not rise to the level of profiteering and she has cured (Cambridge Dev., 68 AD3d at 615; Ariel Assoc. v Brown, 271 AD2d 369 [1st Dept 2000], lv dismissed 95 NY2d 844 [2000]; Central Park W. Realty v Stocker, 1 Misc 3d 137[A], 2004 NY Slip Op 50058[U] [App Term, 1st Dept 2004]). Courts have so held even where the tenant did not obtain the landlord’s consent prior to subletting (672 Ninth Ave. LLC v Burbach, 14 Misc 3d 1236[A], 2007 NY Slip Op 50321 [U] [Civ Ct, NY County 2007]; 2328 UNIAVE Corp. v Beheler, 2003 NY Slip Op 51135[U] [Civ Ct, Bronx County 2003]). Such cases usually involve long-term tenants whose sublease period was short relative to the length of their tenancy (Cambridge Dev., LLC, 68 AD3d at 615 [16-year tenant sublet for five months]; Ariel Assoc. v Brown, 271 AD2d at 370 [20-year tenant sublet for three summers over four years];4 Central Park West Realty, LLC, 2004 NY Slip Op 50058 [U] [“long term” tenant sublet for one month]; 672 Ninth Ave. LLC, 2007 NY Slip Op 50321 [U] [14-year tenant sublet for 21 months]). In such cases, courts have exercised their discretion *577to permanently stay the warrant of eviction. Whether the trial court should do so depends on the totality of the factual circumstances of each case, including the length of the tenancy, the tenant’s conduct prior to the default complained of, and the circumstances and severity of the default (see 326-330 E. 35th St. Assoc. v Sofizade, 191 Misc 2d 329 [App Term, 1st Dept 2002]). These cases create a test which, applied to this case, I would find precludes the grant of summary judgment.

Because of the fact specific nature of this inquiry, allegations that a tenant engaged in rent profiteering should generally be decided at a plenary trial, and not on summary judgment (13775 Realty, LLC v Foglino, 51 Misc 3d 126[A], 2016 NY Slip Op 50335[U] [App Term, 1st Dept 2016]; 335-7 LLC v Steele, 43 Misc 3d 144[A], 2014 NY Slip Op 50891 [U] [App Term, 1st Dept 2014]). Here, I would find that there is a question of fact as to whether defendant engaged in profiteering, or rather used Airbnb to enable herself to continue to live in her long time home, which would not be inconsistent with the purposes of the Rent Stabilization Law.5 Moreover, it is clear on this record that defendant engaged in the practice of subletting for a short time (338 days over 18 months) relative to the length of her tenancy (43 years). There is other evidence in the record as well that demonstrates that she did not turn her apartment into a commercial enterprise, including that she asked permission from the managing agent before establishing her Airbnb account, reviewed the biographies of each guest and communicated with each before permitting them to stay in her apartment, resided in the apartment with each of her guests, gave management notice of each guest, and terminated her Airbnb account upon learning that there was any objection to her conduct and before being served with the notice of termination.6 In my view, the majority’s insistence that defendant’s actions in this case constitute profiteering “as a matter of law” fails to take full account of the case law in this area, and the ways in which the facts of this case, as alleged by defendant, differ in significant respects from the facts in cases where profiteering was found.

Therefore, I would find that defendant has raised at least the following factual issues precluding summary judgment: (1) whether defendant overcharged her subtenants, and, if so, in *578what amounts; (2) whether defendant acted with the knowledge of Samson, her landlord’s agent, as defendant testified at her deposition; (3) whether defendant obtained the consent of the building’s managing agent; (4) whether the managing agent had apparent authority to act for plaintiff;7 (5) whether defendant’s conduct rises to the level of profiteering requiring termination of her 43-year tenancy; and (6) if it does not, whether defendant has cured or can cure, including by refunding the amount of any overcharge to subtenants found to have been overcharged.8 Accordingly, I would find that the motion court appropriately denied summary judgment as to plaintiff’s complaint and defendant’s second and third affirmative defenses.

. I concur with the majority that defendant’s rental of her rent-stabilized apartment to guests for brief stays does not constitute a roommate situation *573(see 220 W. 93rd St., LLC v Stavrolakes, 33 AD3d 491 [1st Dept 2006], lv denied 8 NY3d 813 [2007]), and that her “guests” were subtenants under the Rent Stabilization Code (see 9 NYCRR 2525.6).

. While the record shows that defendant incurred expenses for utilities, household supplies and groceries, and that she argued before the motion court that the sums charged were also intended to pay for her labor in cooking and cleaning for guests, she did not make these arguments on appeal, and, therefore, they are not properly before us.

. The only authority cited by the majority for its statement that the defendant may only charge her guests for their proportional share of the rent relates solely to roommates and is not applicable here.

. The Appellate Division opinion refers to “summer subletting,” but the trial court opinion found that the tenant sublet for three summers over four years (Ariel Assoc. v Brown, NYLJ, Sept. 18, 1997 at 4, col 6 [App Term 1st Dept 1997]).

. Among the purposes of the Rent Stabilization Law is to prevent the “uprooting [of] long-time city residents from their communities” (Administrative Code of City of NY § 26-501).

. I do not concede, as the majority claims, that defendant’s conduct created a “single-unit tourist hotel.”

. The majority urges that the landlord was not aware of defendant’s actions. I view this as yet another factual question precluding summary judgment. Defendant testified at her deposition that plaintiff knew about her roommates from the visitor logs that she completed and gave to the building staff. I would further find that there is also a question of fact as to whether defendant obtained consent from the building’s managing agent, as defendant also testified she did, and, if so, whether the managing agent had actual or apparent authority to bind the landlord. There is no evidence that defendant ever had any direct communication with an individual representing plaintiff in the four decades of her tenancy. The only evidence of defendant’s dealings with plaintiff’s managing agent are the managing agent’s signature on her renewal leases, her rent checks sent to the managing agent, and three pieces of correspondence about rent and a renewal lease between 2003 and 2012. Furthermore, it was Barbara Schmidt, the managing agent for 39 Fifth, not plaintiff, who first advised defendant that she was at risk of eviction, suggesting that building staff, at least on some occasions, behaved as if it were an intermediary between defendant and plaintiff. In any event, as discussed above, a tenant who sublets without consent of the landlord is not necessarily subject to eviction on this basis.

. I disagree with my colleagues in the majority that any overcharges collected “could not practicably be refunded,” since there is no basis in the record for such a finding.