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Court Discusses Public Policy Concerns Regarding Rent Stablization


A New York Probate Lawyer said this is an action for breach of an illegal oral contract to issue plaintiff a rent-stabilized lease and lease renewals, in perpetuity. The complaint filed in April 2004 asserts a right to a renewal lease under a tenancy created by a purported 1992 verbal agreement with defendant landlord’s principal. Plaintiff allegedly paid $50,000 in consideration of “his understanding and agreement that he would have the right to remain in the apartment for as long as he cared to rent it,” in apparent disregard of whether the apartment was to be used as his primary residence. Defendant alleges that plaintiff maintains his primary residence in Florida.

A New York Estate Litigation Lawyer said that, defendant previously brought a holdover proceeding on non-primary residence grounds, which had been pending in Civil Court for two months when plaintiff commenced this action alleging breach of the parol agreement and seeking specific performance and monetary damages of $500,000. A New York Estate Litigation Lawyer said that, plaintiff’s first cause of action seeks specific performance and a permanent injunction against his eviction. The second and third causes of action allege breach of the 1992 oral agreement and seek monetary damages of $500,000 against defendants, respectively, for failing to offer plaintiff a renewal lease in January 2004 and for refusing to extend the term of the lease. The fourth cause of action seeks recovery of the $50,000 paid by plaintiff in 1992, asserting that such payment constitutes an illegal rent overcharge.

A Westchester County Probate Lawyer said that, in the pending Civil Court holdover proceeding to recover possession of the subject dwelling unit, defendant alleged that plaintiff does not use the premises as his primary residence and, apparently, never has. However denominated, the present action seeks to impose upon defendant the obligation to continue the statutory tenancy indefinitely. Because the right to lease renewal can be adjudicated in the Civil Court proceeding and because it is dispositive of the asserted breach of contract, the complaint was properly dismissed on the ground that there is another action pending.

On appeal, New York Estate Administration Lawyer said that, plaintiff maintains only that his second and third causes of action should not have been dismissed as untimely under the six-year statute of limitations applicable to breach of contract (CPLR 213) because the breach of the purported parol contract occurred when defendant failed to renew the lease in January 2004. However, because the contract bestows a rent regulated lease on an individual who is not qualified for rent stabilization protection in exchange for an illegal payment of $50,000, it is unenforceable in the courts as a matter of public policy; thus, what are denominated in the complaint as plaintiff’s second and third causes of action seek damages that are unrecoverable.

A Suffolk County Probate Lawyer said the issue in this case is whether plaintiff is entitled for damages due to the breach of an oral illegal contract.

The parties do not dispute that plaintiff paid $50,000 for a rent-stabilized apartment that plaintiff was not obligated to maintain as his primary residence. Thus, the contract sought to be enforced by plaintiff is in clear violation of the Rent Stabilization Law and Code in two material respects. First, the payment of $50,000 to obtain the lease constitutes excessive. By waiving the statutory protection against excessive rents, the contract contravenes Rent Stabilization Code (9 NYCRR) § 2520.13, which expressly prohibits a tenant from waiving any benefit bestowed under rent stabilization, rendering it statutorily void and unenforceable as a matter of public policy. Second, the agreement is calculated to evade requirements for obtaining statutory protection, particularly, that the apartment be used as the tenant’s primary residence.

The majority fails to acknowledge the illegality of the agreement, reasoning that because the parties did not seek to rescind or reform the contract,5 the issue is not before us. With respect to enforceability, it is irrelevant that, the parties “freely entered into and acquiesced in [the contract] for more than 10 years,” as the majority asserts. Rather, it is axiomatic that a party cannot seek to recover damages on an agreement that violates public policy and is statutorily prohibited. However, plaintiff entered into the asserted oral agreement of his own volition and, the record suggests, with the advice of counsel, availing himself of the benefit of his bargain for more than a decade. Thus, he is estopped to contest his willing participation in the arrangement.

It is immaterial that neither party previously raised the issue of illegality of the contract. As this Court has noted, “There is a long-standing policy of refusing to assist in the enforcement of agreements that are injurious to the public”. Moreover, plaintiff has not submitted any evidence to prove the terms of his alleged verbal agreement with defendants principal. “The party seeking to enforce a contract bears the burden to establish that a binding agreement was made and to prove the terms of the contract”. The only proof of the agreement between the parties is its part performance. However, plaintiff does not explain how such part performance can be distinguished from adherence to statutory requirements governing the rent-stabilized tenancy so as to be deemed “`”acts of part performance which go along with, relate to, and confirm the agreement”. Finally, plaintiff does not allege that the parol agreement contemplates recovery of extraordinary damages beyond the usual and customary remedy of directing the issuance of a renewal lease.

This action is nothing more than a landlord-tenant dispute involving defendant’s obligation to offer plaintiff a renewal lease, which is an issue governed by the Rent Stabilization Law and Code. The Court of Appeals has made clear that “Civil Court has jurisdiction of landlord tenant disputes and when it can decide the dispute, as in this case, it is desirable that it do so”. As Post notes, “If the tenant is unable to obtain complete relief in Civil Court, then the jurisdiction of Supreme Court is still available”. Neither the parties nor the majority offer any reason why the issues raised by this controversy cannot be resolved in the summary proceeding before Civil Court. Since plaintiff asserts no basis for injunctive or declaratory relief available only in Supreme Court, this action is merely an artifice to prevent the dispute from being decided in the designated forum.

Plaintiff’s claim that the oral agreement was breached by the failure to renew (or extend) his lease involves only a single breach of contract. The several alternative remedies of injunction and monetary damages that he seeks all arise from the claim that he is entitled to indefinite renewal of his lease and are not severable. Merely because counsel might draft a complaint to restate a single claim under various theories of contract—and even tort—does not serve to create distinct causes of action, as this Court has repeatedly held.

Plaintiff may assert his purported contract right to renewal of his lease in defense to the holdover proceeding pending in Civil Court. Because the Housing Part must decide whether defendant is obligated to renew plaintiff’s lease, determination of this issue will have collateral estoppel effect. Permitting multiple actions to go forward predicated on the same breach of contract (failure to offer plaintiff a renewal lease) offends the rule that a cause of action may not be split to advance different theories of recovery or to pursue different forms of relief and creates the potential for conflicting rulings on an identical issue.

In view of this analysis, it is unnecessary to reach defendant’s argument that this action is barred by the terms of a 1992 written release, in which plaintiff agreed to hold defendant harmless for any adverse consequences resulting from actions taken by him to obtain the subject leasehold. It need only be observed that the existence of this document hardly strengthens plaintiff’s case for recovery of damages against defendant.

The motion court erroneously dismissed the second and third causes of action, which it stated are based on a purported 1992 agreement, as time-barred. Such causes, however, are based on defendants’ refusal to offer plaintiff a renewal lease when his original lease expired on January 31, 2004. It was this refusal that was the breach that triggered the running of the statute of limitations. Thus, this action, which was commenced some four months later, was timely commenced. The court also finds no merit to defendants’ claim that the March 4, 1992 letter bars the present action.

With regard to the separate dissents, plaintiff has not appealed the dismissal of his first cause of action for specific performance of the alleged 1992 agreement, the same relief sought by the plaintiff in a 2006, appeal dismissed, and an injunction barring defendants from maintaining a holdover proceeding against him on the ground that the apartment is no longer his primary residence. Thus, it is not the subject of this appeal and has been relegated to Civil Court for determination. Nor does he appeal from the dismissal of the fourth cause of action for recovery of an alleged $50,000 illegal rent overcharge. Rather, he limits his appeal to the dismissal of the second and third causes of action. Nevertheless, the dissenters, although agreeing that plaintiff may assert his purported right to a renewal lease in defense of the pending holdover proceeding where the enforceability of the parties’ agreement, an issue raised for the first time on appeal, will be decided, both seek to prejudge the issue.

In any event, even though a violation of public policy may be raised for the first time on appeal and defendants have raised the issue of unenforceability on that ground in their brief, this case is readily distinguishable from the 2006 case since, as already noted, plaintiff’s cause of action for specific performance of the alleged agreement has been relegated to Civil Court for determination and is not the subject of this appeal. There is also no claim that plaintiff obtained anything more than a valid rent stabilized lease and neither party seeks reformation or rescission of the alleged contract, which was freely entered into and acquiesced in for more than 10 years before being finally challenged, as the tenants sought to do in a 2002 case decision. Rather, plaintiff, in his second and third causes of action, is seeking damages for defendants’ refusal to renew or extend his lease of the subject rent stabilized apartment. As noted by this Court, even where a lease is void, a tenant may pursue a claim with respect to profits obtained by a landlord in violation of the Rent Stabilization Law.

Accordingly, the court held that the order of the Supreme Court, New York County, entered August 29, 2005, which insofar as appealed from as limited by the briefs, granted defendants’ motion to dismiss the second and third causes of action for breach of contract, reversed, on the law, without costs, the motion denied and such causes of action reinstated.

It is well-settled law that parties to a fraudulent or illegal transaction who are in pari delicto may not invoke judicial aid to undo the consequences of their illegal acts. Rather, it is axiomatic that a party cannot seek to recover damages on an agreement that violates public policy and is statutorily prohibited. There is a need for the assistance of a New York Estate Litigation Attorney and New York Estate Attorney in order to be acquainted with the rule. Call us at Stephen Bilkis and Associates for free legal advice.

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