Real Estate Law

NO EVICTION OF TENANTS UNDERGOING CONVERSION

While the interests of landlords and tenants frequently diverge, the relationship can get quite contentious when the former decide to  convert existing residential structures into condominiums or cooperatives. Owners often have a financial incentive to evict existing tenants so that the units can be sold at market rates, while tenants would prefer to remain in their apartments to avoid the cost and inconvenience of having to move. They also seek an opportunity to become “owners” themselves, hoping to profit from purchasing their units at “insider” prices.

According to a recent New York County Civil Court decision there are an array of protections available to tenants in buildings undergoing a conversion.

In 322 West 57th Owners LLC v. Penhurst Productions, the owner wanted to convert his rental building into a condominium and submitted an “offering plan” to the New York State Department of Law for formal review. In furtherance of that process, and in order to prepare the units for sale to the general public, the owner refused to renew the leases of some twenty-three unregulated tenants who resided in the building.

When these tenants refused to vacate, the owner commenced summary holdover proceedings in the New York County Civil Court to remove them from the premises on the grounds that their leases had expired. The tenants asked that the court dismiss these cases because of the protections afforded them by the “Martin Act.”

The Martin Act -- part of New York’s General Business Law -- regulates the conversion of buildings to cooperative or condominium ownership, and has three main steps:

1. the owner must submit a plan for filing with the Attorney General and distribute this plan to the current building tenants;
2. the Attorney General reviews the plan and accepts it for filing, thus allowing the owner to enter into purchase contracts for the units; and
3. once the owner has obtained the requisite number of contracts, the plan is declared effective by the Attorney General.

In “non-eviction” conversion plans, all “tenants in occupancy” on the date the Attorney General accepts the plan for filing hold an “exclusive right to purchase” and may not be evicted on the expiration of their tenancies, and, are further protected against unconscionable rent increases. Here, the tenants argued that as “tenants in occupancy,” the owner could only evict them for non-payment of rent or other “good cause.”

Finding that these tenants were in actual possession and occupying their units at the time the conversion plan was accepted for filing, the Civil Court concluded that the tenants qualified for the Martin Act’s protection and dismissed the 23 proceedings.

According to news reports, 322 West 57th Owners LLC will next be converting these dismissals into an appeal. So, stay tuned.

For a copy of the New York County Civil Court’s decision, please use this link: 322 West 57th Owners LLC v. Penhurst Productions

From Real Estate Law Blog posted 2007-04-18.