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BBWG NOTABLE ACHIEVEMENTS

Inside This Issue

FIRM UPDATE

Letter from the Managing partner ................................1

ADMINISTRATIVE LAW UPDATE

DHCR’s Attempt to Alter One of its Longstanding policies Relating to the processing of MCI Applications Has Been Rejected by the NYS Supreme Court .................................2

LITIGATION UPDATE

Commercial Landlords Beware: Gratuitous Space Used by a Tenant May Become a Rent-Free Addition to the Tenant’s Leased premises .............................3

CO-OP / CONDO CORNER .............................4

NOTABLE ACHIEVEMENTS ................5

CASE OF NOTE ..................5

E D I T O R S

Magda L. Cruz

Aaron Shmulewitz

Kara I. Rakowski

UPDATEJANUARY 2013 | VOLUME 23

Belkin Burden Wenig & Goldman, LLP | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709 Attorney Advertising 1

Belkin Burden Wenig & Goldman, LLP

LETTER FROM THE MANAGING pARTNER

By Howard Wenig

The year 2012 was fi lled with uncertainties and surprises. Who would have thought that a President of the United States could be re-elected with an unemployment rate hovering

around eight percent; or that the great City of New York could be brought to its knees and paralyzed for almost a week by a hurricane and massive fl oods; or that the New York State Legislature could go from being controlled by the Republicans to being controlled by the Democrats to being controlled, once again, by the Republicans, all within the space of one week; or that over three years after the Court of Appeals’ decision in Roberts v. Tishman Speyer Props., L.P., the courts have still not come to any defi nitive conclusion or given any real guidance as to the impact of that decision?

Despite all of these unpredictable events, the good news is that we here at BBWG have broad experience and expertise, which our valued clients can always count on.

Our skills and knowledge in unraveling the complexities of rent regulation are an invaluable resource to our clients in buying, selling and operating real estate. Not only is our Transactional Department experienced in structuring and restructuring transactions and working out loans that are delinquent, our Administrative Law Department is always there to provide due diligence on property purchases so that when our clients are buying properties, they can do so with confi dence and a strong degree of certainty. Our Litigation and Appeals Departments’ competence in all areas of real estate law and property disputes is unmatched in quality and success rates.

We appreciate and are grateful for the confi dence and continued loyalty of our valuable clients and look forward to continue earning that trust in 2013.

Best Wishes For A Healthy, Happy And Prosperous New Year.

F IRM UpDATE

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.

ADMINISTRATIVE LAW UpDATE

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DHCR’S ATTEMpT TO ALTER ONE OF ITS LONGSTANDING pOLICIES RELATING TO THE pROCESSINGOF MCI AppLICATIONS HAS BEEN REJECTED BY THE NYS SUpREME COURT

By Phillip Billet

In an article which appeared in our May 2012 newsletter, we discussed BBWG’s success in preventing the New York State

Division of Housing and Community Renewal (DHCR) from altering one of its longstanding policies relating to the processing of major capital improvement rent increase applications, a change which would have made it more difficult for many building owners to obtain MCI rent increases. BBWG has now successfully defeated DHCR’s attempt to have the New York State Supreme Court endorse the change in policy.

In our May 2012 article, we explained that DHCR had maintained a policy that allowed building-wide MCI rent increases even if defects relating to the improvement were found in a small number of the building’s apartments. DHCR would grant the MCI increase, but exempt from the increase - either permanently or temporarily - those apartments in which the defects were found. This policy had been upheld by the courts.

DHCR attempted to implement a new policy where, if defects relating to the improvement were found in even a small number of the building’s apartments, DHCR would now permanently deny the MCI Application for all apartments at the building. In the case BBWG defended, DHCR permanently revoked an MCI

increase for all apartments in a building, based on defects found in a small percentage of the apartments related to the MCI work.Upon judicial review of that revocation, the New York State Supreme Court rejected DHCR’s change in policy. The Court, noting that DHCR’s prior longstanding policy had been affirmed by the courts, ruled that DHCR’s attempt to alter this policy without setting forth its reasons for MCI doing so was contrary to law.

Thereafter, on August 6, 2012, DHCR filed a “motion to renew and/or reargue,” in which it tried to convince the Supreme Court that it should reconsider its ruling, based upon a decision issued by the New York State Court of Appeals in Terrace Court v. DHCR. However, in Terrace Court, the Court of Appeals did not support an across-the-board revocation of an MCI application. Rather, the Court of Appeals

in Terrace Court held that when DHCR processes MCI applications and finds defects relating to the MCI work in a small percentage of the building’s apartments, DHCR may permanently exempt from the MCI increase only those apartments which were found to have defects.

BBWG opposed DHCR’s motion, arguing that the ruling in Terrace Court did not warrant reversal of the Supreme Court’s order because it did not authorize DHCR to abrogate its longstanding policy, but merely affirmed one facet of the policy - i.e., that DHCR may permanently exempt apartments at a building from an MCI increase, but only those apartments in which defects are found.

In an order dated September 20, 2012, the Supreme Court agreed with BBWG, noting that the annulment of DHCR’s order was based upon “the deficiency in DHCR’s record in failing to set forth its reasons for altering its prior stated course.”

Thus, DHCR was prohibited from altering its prior established policy without prior notice and setting forth its reasoning behind the change.

DHCR and the tenants association have filed motions seeking to extend their time to appeal the Court’s ruling to the Appellate Division. However, to date Appellate Division has not ruled in their motions.

Phillip Billet (pbillet@bbwg.com) is an associate

in BBWG’s Administrative Law Department.

BBWG has successfully defeated the New

York State Division of Housing and Community

Renewal’s attempt to have the New York State Supreme Court endorse

a change in policy which would have made

it more difficult for many building owners

to obtain MCI rent increases.

L IT IGATION UpDATE

COMMERCIAL LANDLORDS BEWARE: GRATUITOUS SpACE USED BY A TENANT MAY BECOME A RENT-FREE ADDITION TO THE TENANT’S LEASED pREMISES

By Jeffrey Levine

Commercial tenants often request permission from their landlords to utilize a basement or other unused space in the building in which

the tenants have retail, office or other leased premises. A commercial tenant may desire the additional space for storage of equipment, supplies or goods being sold or for some other use associated with the tenant’s operation of its business in the building. As innocuous as such a request may seem, a landlord’s consent to its tenant’s use of additional space may ultimately result in significant financial loss or hardship to the landlord, where permission to use the space is granted without first executing a

lease modification, license agreement or other writing formalizing the arrangement between the parties. By consenting to the tenant’s use of additional space, many landlords have fallen prey to the legal theory of an “appurtenance.” Simply stated, an appurtenance is a space that is not leased to a tenant but is utilized by a tenant for a period of time, with a landlord’s permission and knowledge, for a purpose that is necessary in connection with the tenant’s use of its leased premises. An example of such necessary use may be frozen food storage in connection with a restaurant operation or storage of inventory in connection with a retail operation. After a tenant has used the additional space for a period of time, litigation may ensue over the landlord’s and tenant’s claim of right to

such space. Unfortunately for a landlord, once a court determines that a space used by a tenant is necessary for its business and constitutes an appurtenance to the tenant’s leased premises, the appurtenant space will be treated as an addition to the tenant’s leased premises and the tenant will not be required to pay rent for its use of the appurtenant space. Further, the appurtenant space will be treated as part of the leased premises until the expiration of the term of the lease to which it is appurtenant.

A landlord can avoid this severe consequence simply by treating the tenant’s request to use the additional space as a request to amend its lease or a request for a license to use the additional space. The landlord can then consider the legal and financial ramifications of permitting the use of the additional space and make an informed decision as to how to respond to the tenant’s request with the proper protections being implemented (i.e., either a written lease amendment, a license agreement or other agreement memorializing the arrangement). A landlord confronted with a request by its tenant for use of additional space should consult its attorneys before permitting the use of any additional space in order to avoid the potentially severe consequences resulting from the unintended creation of an appurtenance.

Jeffrey Levine (jlevine@bbwg.com) is a partner in

BBWG’s Litigation Department.

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CO-OP SHAREHOLDER NOT ENTITLED TO PRE-JUDGMENT AWARD OF ATTORNEY FEES

Goldstone v. Gracie Terrace Apartment Corporation Supreme Court, New York County

COMMENT | In a dispute that has been ongoing for many years, the Court held that a fee award was premature, since only 3 of 14 causes of action had been adjudicated to date.

PLAINTIFF’S INABILITY TO SHOW CONTINUED PRESENCE OF ICE, AND SPECIFIC LOCATION OF FALL, WARRANTS DISMISSAL OF SLIP CASE AGAINST TWO ADJOINING BUILDINGS

Habib v. 116 Central Park South Condominium Supreme Court, New York County

PURCHASE OF ADJOINING APARTMENTS BY HUSBAND AND WIFE, SEPARATELY BUT SIMULTANEOUSLY, TRIGGERS MANSION TAX

Sacks v. Tax Appeals Tribunal Appellate Division, 3rd Department

COMMENT | The apartments were formerly combined, and the purchase price checks were drawn on the same joint checking account, simultaneously.

CO-OP FORCED TO PAY LARGE SETTLEMENT, ACCEPT ASSISTANCE PETS, TO SETTLE DISABILITY DISCRIMINATION CLAIM BY SHAREHOLDER WHO HAD BEEN DENIED CONSENT TO ASSISTANCE PET

United States v. Woodbury Gardens Redevelopment Company Owners Corporation United States District Court, Eastern District of New York

COMMENT | The co-op was also ordered to have mandatory training/education program for employees. In making its initial decision to deny consent, the co-op had failed to recognize how disability and assistance pet claims are often a “third rail.”

BROKER ENTITLED TO COMMISSION ON CO-OP SALE, NOT A DUAL AGENT MERELY BECAUSE IT SHOWED BUYER OTHER APARTMENTS

Douglas Elliman, LLC v. Tretter Court of Appeals

COMMENT | In a case involving what is a common practice in the City co-op/condo marketplace, the Court noted that the broker had done what the seller had hired it to do—find a buyer.

CONDO AND PURCHASERS CANNOT SUE SPONSOR’S ARCHITECT FOR CONSTRUCTION DEFECTS; MOST CLAIMS AGAINST SPONSOR AND PRINCIPALS DISMISSED TOO

The Board of Managers of The 231 Norman Avenue Condominium v. 231 Norman Avenue Property Development, LLC Supreme Court, Kings County

COMMENT | This case continued the recent trend of limiting condominiums’ rights to pursue sponsor-related defendants; only the Board’s claims for breach of contract, fraud and breach of fiduciary duty were allowed to survive dismissal.

RECONSTITUTION OF MITCHELL-LAMA CO-OP TO PRIVATE CO-OP DOES NOT TRIGGER RPT LIABILITY

Trump Village Section 3 Inc. v. City of New York Appellate Division, 2nd Department

COMMENT | Very creatively, the City had sought a transfer tax of $21 million arising from the mere reconstitution.

CO-OP CAN SUE SPONSOR FOR CONSTRUCTION DEFECTS

Sherbrooke Smithtown Owners Corp. v. Merson Supreme Court, Suffolk County

COMMENT | The Court held that the co-op’s claims were not duplicative of claims that could only be brought by the Attorney General under the Martin Act; questions of fact precluded summary judgment to the sponsor.

PURCHASER (OF BUILDING) THAT FAILED TO CLOSE ON TIME OF ESSENCE DATE FORFEITS DEPOSIT

Donerail Corporation N.V. v. 405 Park LLC Appellate Division, 1st Department

COMMENT | The decision implied that the purchaser had asserted pretextual reasons in a declining market.

CONDO BOARD VALIDLY IMPOSED FINES AND FEES FOR BREACHES OF HOUSE RULES

Cave v. Riverbend Homeowners Association, Inc. Appellate Division, 2nd Department

COMMENT | The Board’s actions were upheld under the business judgment rule.

Co-op | Condo CornerBy Aaron Shmulewitz

Aaron Shmulewitz heads the Firm’s co-op/condo practice, consisting of more than 300 co-op and condo boards throughout the City, as well as sponsors of condominium conversions, and numerous purchasers and sellers of co-op and condo apartments, buildings, residences and other properties. If you would like to discuss any of the cases in this article or other related matter, you can reach Aaron at 212-867-4466 or ashmulewitz@bbwg.com.

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The November 2012 edit ion of The RSA Reporter reported on an October 23 seminar sponsored by the Rent Stabi l izat ion Associat ion, “Roberts v. Tishman Speyer : Three Years Later,” in which SHERW IN BELK IN, a partner in BBWG’s Administrat ive Law and Appea ls Departments, was a panel ist. MR. BELK IN provided an overview of the state of the law prior to the Roberts decision, the ru l ing by the Court of Appea ls, and the many quest ions that were lef t to the courts and legislature to resolve.

A A RON SHMULEW ITZ, head of BBWG’s co-op/condo pract ice, was quoted in an art icle in the Sunday Real Estate Section of the New York Times on November 29 regarding issues regarding f inancing of co-op apartments in sma l l bui ldings.

JOSEPH BUR DEN, co-head of BBWG’s Lit igat ion Department, was quoted in the December 10 edit ion of Metro on the state of the law governing landlord and tenant rights and obligat ions in bui ldings whose services were interrupted by Superstorm Sandy.

STEV EN K IR K PATR ICK, a partner in BBWG’s Lit igat ion Department, was quoted in the December 7 edit ions of The Brooklyn Daily Eagle, The Brooklyn Paper and DNAinfo.com with regard to a lawsuit in which MR. K IR K PATR ICK represents a group of Carrol l Gardens residents suing the City to stop the opening of an excessively la rge homeless shelter.

M AT THEW BR ET T, a partner in BBWG’s Lit igat ion Department, was quoted in the November 29 edit ion of The Daily News with regard to a lawsuit in which MR. BR ET T represents a Battery Park City condominium seek ing to evict an unauthorized dog.

M AGDA CRUZ, K A R A R A KOWSK I and LISA SEGA L, Appea ls, Administrat ive Law and Transact ions partners, were featured in the cover story entit led Women in Real Estate in the December 11 edit ion of The Commercial Observer.

M A RTIN J. HEISTEIN, head of BBWG’s Administrat ive Law Department, was a featured speaker at a seminar held on December 13, entit led “The New Face of the DHCR (and a Roberts) Update.” The seminar was sponsored by the Community Housing Improvement Program (CHIP), a property owners’ trade organizat ion.

BBWG NOTABLE ACHIEVEMENTS

CASE OF NOTE

The interplay of luxury deregulat ion of stabi l ized housing and part icipat ion in the J-51 tax program has been

an issue of concern for owners of such housing since the 2009 rul ing by the Court of Appea ls in Roberts v.

Tishman Speyer Props ., L .P. A posit ive development in this a rea occurred on December 11, 2012, when the

Appel late Division, First Department held that past receipt of J-51 benef it s in bui ldings that were stabi l ized,

regardless of those benef it s, did not bar luxury deregulat ion of high rent apartments occupied by high income

tenants. The case, Matter of Schif f ren v. Lawlor, was successfu l ly argued by M AGDA L . CRUZ, a partner in

BBWG’s Appea ls Department. Partner SHERW IN BELK IN, and associate A LE X A ENGL A NDER, joined

Ms. Cruz on the winning appel late brief.

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.

www.bbwg.com

New York Offi ce | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709

Connecticut Offi ce | 495 Post Road East, 2nd Floor | Westport, CT 06880 | Tel 203 .227 .1534 | Fax 203 .227 .6044

Belkin Burden Wenig & Goldman, LLP270 Madison Avenue | New York, NY 10016