On June 14, 2019 (the “Effective Date”), the Housing Stability & Tenant Protection Act (“HSTPA”) became effective and dramatically impacted New York City real estate. Three years later, many questions still remain about the HSTPA. One of the main unresolved questions involves when and how a Court or administrative agency should apply the HSTPA. There have only been a few cases which have shed some light on the subject, including the recently decided Karpen v. Andrade No. 2022-50373 (N.Y. App. Term Apr. 22, 2022).
Karpen v. Andrade
In Karpen, the Appellate Term (the “2nd Department”) held that the HSTPA could not be applied to a holdover proceeding to evict tenants based on owner’s use, where the case was still pending on the Effective Date. The 2nd Department thereby overturned the
Civil Court (the “Lower Court”) decision to dismiss the owner’s case. The primary basis for the 2nd Department’s holding was that the Lower Court had improperly applied the HSTPA retroactively to a proceeding commenced prior to the Effective Date and, as a result, the case had been improperly dismissed. Other Courts have held the same in cases pending on appeal. However, unlike those cases, the issues in Karpen had never been determined as of the Effective Date and the case was then pending with the Lower Court, not on appeal. Background: Karpen v. Castro In the underlying case, Karpen v. Castro 66 Misc. 3d 362 (N.Y. Civ. Ct. 2019), the owner (“Owner”) served a Notice of NonRenewal to the tenants (“Tenants”) of three apartments (the “Apartments”) located within the same building in Brooklyn in June, 2018 (the “Underlying Case”).
In October, 2018, Owner subsequently commenced three holdover proceedings to evict the Tenants based on owner’s use. The proceedings were then consolidated before the Tenants moved to dismiss pursuant to CPLR § 3211(a)(7), for failure to state a cause of action. Owner opposed on the basis that the HSTPA and its applicability to the proceeding were unconstitutional. The importance of Owner’s position is largely tied to the ways in which the HSTPA changed the criteria for evicting tenants based on owner’s use.
Owner’s Use Proceedings and the HSTPA
Prior to the Effective Date, an owner could gain possession of an apartment if the owner or his/her immediate family planned to use the apartment as their primary residence. In Karpen, based on such criteria, Owner sought to regain possession of the Apartments in order to convert the Apartments into two duplexes. The families of Owner’s two adult children planned to use the duplexes, respectively, as their primary residence. However, the HSTPA went into effect while the Underlying Case was still pending, but before a determination was rendered by the Lower Court or any governmental agency.
Under Part I, Section 5 of the HSTPA, a stricter standard is imposed for owner’s use, whereby an owner is now required to demonstrate an “immediate and compelling necessity” to regain possession. In the Underlying Case, the Lower Court applied the new, stricter standards of the HSTPA, despite Owner having initiated the proceeding before the Effective Date, and the Lower Court concluded that Owner had failed to demonstrate an immediate and compelling necessity and dismissed Owner’s case.
Retroactive Application of the HSTPA
There is significant ongoing litigation at the Federal level regarding the constitutionality of applying the HSTPA retroactively to proceedings which were pending as of the Effective Date. However, Karpen is not the only State Court case which has held that the HSTPA could not be applied retroactively to a proceeding pending on the Effective Date. (See: IMO Regina Metropolitan Co., LLC v. NYS Div. of Housing & Comm. Renewal, Raden v. W7879 LLC, Taylor v. 72A Realty Assoc. LP, and Reich v. Belnord Partners LLC, 2020 NY Slip Op 02127 (2020), finding that the retroactive application of Part F of the HSTPA regarding fraud was improper where it would impair an owner’s substantive rights in a rent overcharge proceeding which was pending at the appellate level on the Effective Date; see also: Harris v. Israel, 2021 N.Y. Slip Op. 796 (February 9, 2021) in connection with Part I of the HSTPA.)
The Regina Metro and Harris decisions were significant. However, the 2nd Department’s holding in Karpen could be even more impactful because it took things a step further—the Court held that retroactive application of the HSTPA was improper in a lower court proceeding pending on the Effective Date, where a decision had never been rendered – as opposed to just cases pending on appeal.
Impact of Karpen on Major Capital Improvement Applications
At the administrative level, we have seen the New York State Division of Housing and Community Renewal (“DHCR”) retroactively apply the HSTPA to many owners’ applications for rent increases/ adjustments based on Major Capital Improvements (“MCI’s”) which were filed and still pending on the Effective Date. Prior to Karpen, DHCR began to distinguish MCI applications from other proceedings, finding that the HSTPA applied to MCI applications that were filed but still pending on the Effective Date. DHCR’s rationale was that: (i) a pending application did not constitute a “proceeding”, unlike an appeal or Petition for Administrative Review (“PAR”), and (ii) retroactive application of the HSTPA to an MCI application did not impair substantive rights of the owner, unlike those in connection with rent overcharge and other proceedings. (See: Richmond Hill 108 LLC: DHCR Adm. Rev. Docket No. JO130043RO (10/29/21).) However, Karpen could now change that.
Conclusion
The effects of the Karpen decision, and whether it will be applied by DHCR in administrative proceedings such as those involving MCI applications, are still uncertain. However, it appears to be a step in the right direction for New York City real estate. City real estate owners should contact attorneys in BBG’s Administrative Law Department to discuss the retroactive application of the HSTPA, as well as their other administrative law questions.
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Should you have any questions, please do not hesitate to contact your BBG attorney of record or email us at info@bbgllp.com.