United States: Rent Control Laws "Trump" Airbnb "Profiteering"

It was bound to happen:  Internet commerce colliding with arguably conflicting statutory restrictions:  Two recent actions in Supreme Court and Civil Court, New York County, pitted Airbnb against the Rent Control Law – and the law won.

Brookford, LLC v. Penraat, 2014 NY Slip Op 24399 (Sup. Ct. N.Y. Co.) [decided on December 19, 2014] (Edmead, J.)

The Court summarized the facts:

Defendant Noelle Penraat ("defendant"), resides in four-bedroom, rent-controlled duplex apartment on Central Park West (the "Apartment"). Over the past two years, defendant has had 135 short-term rentals, some as short as for three nights, but none exceeding 21 days, facilitated by the use of the website Airbnb (www.Airbnb.com).

Defendant's landlord, Brookfield, LLC ("plaintiff" or "Building Owner"), now moves by order to show cause for a preliminary injunction enjoining defendant from, inter alia, advertising and renting the Apartment to tourists and other visitors for stays of less than 30 days, in violation of [various sections of the] Rent Control Law ("RCL")... Multiple Dwelling Law ("MDL") New York Housing Maintenance Code ("HMC" or "Housing Maintenance Code"); New York City Building Code ("Building Code")...and Building certificate of occupancy ("COO").

Set forth the factual template:

According to the plaintiff's Treasurer, Jacob Haberman, the Building contains 43 apartments occupied by long-term residential tenants and their families. The Building also contains a pre-school, the Twin Parks Montessori School, Park West (the "School"), on the ground floor, which enrolls approximately 175 children, whose ages range from 3 months through 5 years.

The Department of Housing Preservation and Development registration ("HPD") classified the Apartment as "Class A" and the permissible use is as a residential apartment only. The legal rent controlled rent for the Apartment is $4,477.47 per month, of which defendant is responsible for paying $4,193.28; defendant has a Senior Citizen Rent Increase Exemption ("SCRIE"), which freezes her rent and exempts her from rent increases...Plaintiff asserts that a person eligible for SCRIE must, inter alia, rent a rent controlled or rent stabilized apartment and have a combined household income that is $50,000 or less.

Plaintiffs's contentions:

Plaintiff contends that since at least February of 2012, defendant has been renting three of the four bedrooms on a continuous basis to tourists and other transient visitors (collectively, "Guests") for stays of less than 30 days. Defendant advertises her bedrooms on Airbnb, in which she designates the three bedrooms as: (a) "Lovely Small Bedroom in Huge Apartment" (the "Small Bedroom") (which includes a full size bed); (b) "Sunny Bedroom, Central Park View" (the "Sunny Bedroom") (which includes a queen size bed and two large closets); and (c) "Gorgeous master bed/bath on park" (the "Master Bedroom") (which includes a king size bed and private en suite bath).

According to the advertisements, defendant provides fresh linens and towels, toiletries, a hair-dryer, ironing facilities, kitchen, television, air conditioning, heat, ceiling fan, and Wi-Fi Internet. Guests must check-in with defendant at the beginning of their stay at 2:00 p.m. and check-out at the end of their stay by 10:00 a.m. Guests are provided with a key to the Apartment and unfettered access to, from, and within the Building. Defendant also provides Guests with: (a) reservation of the subject room and payment by credit card via Airbnb; (b) a confirmation number for the reservation; (c) a map of New York City; (d) a dolly for luggage; (e) magazines; (f) instructions on locking and unlocking the front door of the Apartment; and (g) listings of websites for discount Broadway tickets.

In exchange, defendant charges a nightly or weekly rate for lodging as follows: $75 per night or $450 per week for the Small Bedroom (and $15 per person per night for any additional person); $100 per night or $600 per week for the Sunny Bedroom (and $25 per additional person per night); and $150 per night or $1,000 per week, for the Master Bedroom. Each bedroom requires a $200.00 security deposit. Plaintiff contends that in the past year, defendant has rented the Apartment to no less than 110 different Guests – complete strangers to both herself and the lawful tenants of the Building. Thus, according to plaintiff, when defendant is successful in renting all three rooms on a weekly basis she collects approximately $8,883.33 per month, far in excess of her rent controlled rent, or approximately $106,599.96 a year. If successful in renting the Apartment year round on a nightly basis, defendant's income totals approximately $118,300 a year.

Plaintiff's argument:

Plaintiff asserts that it has never given defendant permission to operate a commercial enterprise out of the Apartment, and such operation significantly compromises the use, safety, and security of children. Notably, the persons who make up the Landlord live in the Building and are directly affected by defendant's actions.

On July 21, 2014, plaintiff served defendant with a Thirty (30) Day Notice of Termination (the "Notice of Termination") which stated, inter alia, that defendant has violated substantial obligations of her tenancy in that she is operating an illegal hotel and/or bed and breakfast in violation of the [enumerated] rules and regulations. The Notice of Termination requires defendant to vacate the Apartment on or before August 31, 2014.

In support of injunctive relief, plaintiff argues that it is likely to succeed on the merits of its claim that defendant has substantially violated the obligations of her tenancy by utilizing her residential apartment for business purposes, and commercializing and profiteering from her operation of an illegal hotel and/or bed and breakfast out of the Apartment over a period of years in violation of RCL § 26-408(a)(1) and 9 NYCRR § 2204.2(a)(1). Plaintiff argues that defendant's use of her Apartment undermines the very purpose of these rules, and constitutes a substantial and incurable violation of her obligations as a rent controlled tenant of the Premises. Defendant's guests are not roommates or subletters, but clients who are part of her highly organized and apparently successful hotel business. And, by renting to transient occupants for stays of less than 30 days, defendant's use violates MDL § 4.8a, HMC § 27-2004.a.8(a), Building Code § 310.1.2 (Group R-2), and the COO for the Building.

It is also argued that defendant's actions materially change the character of the residential Building and unnecessarily compromises the safety and security of the Building's tenants and their children. The Building Owner's 13 family members, ranging in ages from under 6 years old to over 80 years old (grandchildren, children and grandparents) all live in the Building and are faced with the constant threat to their life and safety from the Guests. Michael Whitman ("Whitman"), the tenant in Apartment 3S (directly below defendant's Apartment), attests that his family (which includes his wife and two minor children) is "confronted at time with elevators with groups of tourists and transients who are not residents of the building on a constant basis... The [tourists and transients] can be noisy and disturb the otherwise quiet and safe environment within this family Building."...Whitman "live[s] in fear for the safety of" his family, "who are forced to interact with a stream of strangers in our Building"...Plaintiff's doorman, Maurice Sedacey (the "Doorman") states that the Guests would "check-in with [him] at the front door of the Building at or near 2:00 p.m. as they would at any hotel"... He logs their names in order to "track the comings and goings of visitors to the Building"...The Doorman attests that defendant "instructed" him to allow the Guests, whose stays are "always less than 30 days," "unfettered access to the Building after they check-in and during their stay with Defendant."...Plaintiff argues that the tenants of the Building should not be subjected to a steady stream of strangers coming and going throughout the Building.

Plaintiff's arguments in support of the relief sought:

[A]s a Class A dwelling, the Apartment is not properly equipped with the proper fire safety protections required of hotels in the City of New York, and presents a danger to the public health, safety, and welfare. In July 2010, MDL 4.8 was amended to prohibit the rental of any unit in Class A multiple dwellings for less than 30 days, prevent tenants looking to rent out residential units "from circumventing the strict fire and safety standards applicable to hotels," and to protect the rights of permanent occupants who "must endure the inconvenience of hotel occupancy in their buildings." Class A multiple dwellings are not required to and do not meet the strict safety requirements of hotels and, when illegally used as transient hotels, create a safety issue for transients who are likely unaware that they are staying in rooms offered in violation of the law.

Thus, a preliminary injunction is warranted in order to restrain defendant from operating her illegal hotel, by which defendant continuously invites a steady stream of strangers into the Building and endangers the lives and safety of both the Guests and tenants of the Building.

And, plaintiff argues, the balance of the equities weigh in its favor. The only purported injury that defendant may suffer is the suspension of operation of her illegal hotel and/or bed and breakfast, which can be compensated by money damages. If a preliminary injunction is not granted, plaintiff, the Building and its occupants will be subjected to life and safety risks created by defendant's continued use of the Building and Apartment as a transient hotel.

Defendant's counter-argument:

[The temporary restraining order] is overbroad in that it precludes activities that are legal and permissible and is unwarranted.

There is no likelihood of success on the merits. First, the predicate notice is void, as it is directed at defendant instead of her father, Jacob Penraat, who plaintiff has acknowledged in DHCR filings and monthly bills, as the tenant of record. Plaintiff cannot hold an occupant responsible as if the occupant were a tenant while simultaneously asserting that the occupant is not a tenant.

Further, plaintiff failed to serve a notice to cure prior to the 30-day notice of termination in accordance with the lease. Nor has plaintiff specified what particular conduct cannot be cured. Without a notice to cure, there is nothing defendant can do other than abandon her rights and vacate her home. Thus, the action is improperly commenced.

Moreover, the alleged conduct is not illegal under MDL § 4.8 and the Adm. Code, which was amended on July 16, 2010 (the "amendment") to make clear that there is nothing illegal about a tenant or other permanent resident renting out a room in the apartment that the individual occupies for payment. The sponsor of the amendment, Senator Liz Krueger has stated on her website that such conduct is not illegal and does not make the building into a hotel or constitute the operation of a business or commercial venture. And, as the purpose of a class A multiple dwelling is to provide a "residence," there is nothing less "residential" about an occupant living permanently and simultaneously in a unit sharing her unit with another, whether a family member or paying guest through Airbnb. Both the guest and the occupant engage in purely residential activities of sleeping, bathing, eating and sitting to have conversation or read, and engaging in these activities do not make the occupancy equivalent to the operation of a business. And, there are actually fewer people in the Apartment on a daily basis than was true when defendant, her partner, their two sons, and her parents all resided there. The short-term nature of a guest's occupancy is no basis to distinguish between a paying guest and a visiting family member. Plaintiff cites no caselaw indicating that permitting a guest to stay overnight makes the use of the Apartment commercial. The term "use,' given its ordinary meaning in the absence of any statutory definition, refers to the nature of the activities and whether they are associated with conduct of the some business such as the sale of retail goods or the manufacture or repair of some product. The conclusion that a paying guest does not render the Apartment "commercial" or an "illegal hotel" is consistent with the balance of the Section 16(a) and 120 (pertaining to use of dwelling units for other than permanent residence purposes).

To the extent defendant has permitted individuals to stay 30 days or more, such conduct is not covered by any of the laws, rules and/or regulations cited by plaintiff.

Further, other courts have found that the rental of a room in a tenant's own apartment while the tenant is simultaneously occupying the apartment does not violate the law.

And, the definition of Class A multiple dwelling in Housing Maintenance Code §8(a) as one which "is occupied, as a rule, for permanent residence purposes" does not support plaintiff's argument, since such rule does not require such a dwelling to be occupied "exclusively" for permanent residence purposes. Nor does Section 26-408(3) of the City Rent and Rehabilitation Law governing evictions support plaintiff's position, as this section requires an illegal occupancy. Unlike the rent stabilization law which was amended in 2002 to permit a tenant to charge a roommate no more than a proportional share of the rent, no similar regulation exists with regard to a rent control tenant. The legislature has not applied this restriction to rent control tenants, thereby overturning the prior judicially created rule that as long as a tenant was not overcharging, the Court would not get involved in the financial arrangements between roommates. Rent control tenants overcharging a roommate by allocating a larger portion of the rent to that roommate is not a viable cause of action.

There is no claim that in the [absence] of injunctive relief, the ultimate remedy of an injunction and ejectment would be ineffectual.

Plaintiff also fails to show the imminent threat of irreparable harm. Although plaintiff has known about defendant's conduct, there is no claim of actual injury or any incident where the conduct of a guest of defendant caused any damage or danger or annoyance to any person. The moving papers cover a two-year period of which no actual damage or danger is evident. The "list" provided by defendant's doorman is a re-written document, and plaintiff does not disclose the number of other guests of other tenants; thus the Court cannot determine whether there is a constant stream of visitors attributable to defendant who pose a danger on the elevator as claimed. The delay in bringing this action shows the absence of any danger.

And, the balance of the equities favors defendant. Plaintiff's potential financial gain in evicting defendant and re-renting for higher rent does not outweigh defendant's right to occupy her home of nearly 60 years with friends and guests.

A preliminary injunction should not issue because the relief sought is part of the ultimate relief sought in the complaint.

And, defendant has not collected more from room rentals than her monthly rent. Further, no eviction is warranted where an overcharge to a recently acquired roommate was not so greatly above the monthly rent and the violation is unintentional based on the tenant's belief that it has a right to charge a certain amount. There has not been any overcharge, and this issue must be explored during the pendency of this action.

The relevant statute:

RCL § 26-408(a)(1) and 9 NYCRR § 2204.2(a)(1), RCL § 26-408(a)(1) provides, in relevant part, that:

  1. No tenant, so long as he or she continues to pay the rent to which the landlord is entitled, shall be removed from any housing accommodation which is subject to rent control under this chapter by action to evict or to recover possession . . . except on one or more of the following grounds, or unless the landlord has obtained a certificate of eviction pursuant to subdivision b of this section:

(1) The tenant is violating a substantial obligation of his or her tenancy other than the obligation to surrender possession of such housing accommodation and has failed to cure such violation after written notice by the landlord that the violation cease within ten days, or within the three month period immediately prior to the commencement of the proceeding the tenant has willfully violated such an obligation inflicting serious and substantial injury to the landlord...

The application of the facts to the law:

Here, it cannot be said that the violation was merely technical or de minimus...

While the record indicates that defendant has ceased all advertisements and rentals since the commencement of this action, the record supports defendant's claim that for three months prior to the commencement of this action, defendant wilfully violated a substantial obligation of her tenancy which inflicted serious and substantial injury to the defendant.

*     *     *

Here, defendant advertises to tourists and other visitors to book rooms in her Apartment, a Class A dwelling unit, for stays of less than 30 days. The record supports defendants' claims that defendants' rentals are in direct violation of the COO and are unsafe inasmuch as they are unaccompanied by any of the fire and safety protections applicable to short-term rentals of less than 30 days.

Defendant provides all of the items commonly provided by a typical hotel, and other useful amenities to facilitate a visitor or tourist's stay in New York City: fresh linens and towels, complimentary soap, shampoo, a hair dryer, an iron, a dolly, Wi-Fi, and a map and information on local entertainment venues. Similar to a hotel, defendant charges her Guests either a nightly or weekly rate, and a fee for additional persons staying in a room; maintains rules for check-in and check-out procedures; requires Guests to make a reservation; and provides Guests with a reservation number. None of these characteristics are attendant with the typical "roommate" living agreement or arrangement.

Further, based on defendant's own records, of the 135 rentals, not one exceeded 21 days; all of the rentals ranged from at least 3 night-stays to one 21-day stay; none of Guests occupied the Apartment more than 30 days.

And, plaintiff demonstrated, at this juncture, that defendant has received more than the legal rent for the Apartment.

Her current rent is $4,477.47[.] However, based on her on-line advertisements on Airbnb, from the three-month period of July 1, 2014 through September 30, 2014 alone, defendant generated approximately $21,000 in rental fees, with rental income of approximately $6,400, $6,500, and $8,800 per month, at an average of more than $7,200 per month. For the previous six-month period of January 1, 2014 through June 30, 2014, defendant generated more than $40,000, with rental income ranging from $4,865.00 per month to as much as $9,919.00, and thus averaging more than $6,500 per month. In essence, defendant's own records indicate that she has been profiteering from a rent controlled apartment partially subsidized by another government program SCRIE.

Therefore, plaintiff has sufficiently demonstrated, at this juncture, that defendant's 135 rentals to transients for the past year and a half for more than the legal regulated rent, constitutes an incurable violation of the Rent Control Law...

The relevant provisions of the Multiple Dwelling Law:

A "class A" multiple dwelling is a multiple dwelling that is occupied for permanent residence purposes. This class shall include tenements,..., apartment houses, apartment hotels,...duplex apartments,..., and all other multiple dwellings except class B multiple dwellings. A class A multiple dwelling shall only be used for permanent residence purposes. For the purposes of this definition, "permanent residence purposes" shall consist of occupancy of a dwelling unit by the same natural person or family for thirty consecutive days or more and a person or family so occupying a dwelling unit shall be referred to herein as the permanent occupants of such dwelling unit. The following uses of a dwelling unit by the permanent occupants thereof shall not be deemed to be inconsistent with the occupancy of such dwelling unit for permanent residence purposes:

(1)(A) occupancy of such dwelling unit for fewer than thirty consecutive days by other natural persons living within the household of the permanent occupant such as house guests or lawful boarders, roomers or lodgers; or

(B) incidental and occasional occupancy of such dwelling unit for fewer than thirty consecutive days by other natural persons when the permanent occupants are temporarily absent for personal reasons such as vacation or medical treatment, provided that there is no monetary compensation paid to the permanent occupants for such occupancy.

The legislative background of the MDL:

According to plaintiff, the amendment of MDL § 4.8 was intended to prevent both building owners and tenants, such as defendant, looking to rent out units from circumventing fire and safety laws applicable to hotels. According to defendant, on the other hand, the intent of the amendment is to establish that a permanent resident's fee-based rental of a room in his or her apartment that he or she occupies is neither illegal nor converts such building into a hotel.

The legal analysis:

[T]he Court observes that prior to its amendment, MDL § 4.8 defined "class A" multiple dwelling simply as one that was "occupied, as a rule, for permanent residence purposes."... The section then elaborated that "This class shall include tenements,... apartment houses, apartment hotels,...studio apartments, duplex apartments,...and all other multiple dwellings except class B multiple dwellings." "Class B multiple dwellings are occupied, as a rule transiently, as the more or less temporary abode of individuals or families" and include hotels, lodging houses, rooming houses, and lodgings..."Class B dwelling units were required to comply with more stringent egress and fire safety requirements"[.]

Thus, by clarifying, by amendment in 2011, that a class A multiple dwelling "shall only be used for permanent residence purposes," and defining such permanent residence as an occupancy by "the same" person or family for at least 30 consecutive days, the Legislature intended to limit a class A multiple dwelling unit to one that is occupied by the same person or family for at least 30 days solely.

However, at the same time, the amendment created two types of occupancies that would not deprive the multiple dwelling from its "permanent residency" Class A status: 1(A), an occupancy for fewer than 30 consecutive days by other natural persons living within the household of the permanent occupant; and 1(B), for incidental and occasional occupancy of the unit for fewer than 30 consecutive days by other natural persons when the permanent occupant is temporarily absent provided that the permanent occupant receives no monetary compensation. What the statute does not expressly address is the situation herein, where the transient occupies the unit for less than 30 days within the household of the permanent occupant and there is "monetary compensation paid to the permanent occupants for such occupancy," a phrase not appearing in 1(A).

And the application of the MDL to the facts:

Based on the plain language of MDL§ 4.8, as amended, and the stated purpose thereof, MDL § 4.8 was intended to prohibit building owners of Class A multiple dwellings, which are intended for permanent residencies, from renting out dwelling units for less than 30 days or on such a transient basis...However, it cannot be said that amendment "created" a loophole, or a right, as defendant suggests, for a permanent occupant to engage in such activity. One of the objectives of the amendment is to address the problematic use "of residential property intended for permanent dwelling as illegal hotels' or for other transient uses" that pose a danger to transient occupants due to the Class A dwellings' freedom from compliance with fire and safety regulations...The intent of the amendment to MDL § 4.8 was to prevent tenants or building owners looking to rent out residential units "from circumventing the strict fire and safety standards applicable to hotels"[.]

The dangers created by such noncompliance exist irrespective of whether the lessor is the landlord or the permanent occupant. The legislation, as drafted without any reference to requirements that protect the health and safety of transient "renting guests" which the amendment was designed, in part to address, cannot be construed to permit the permanent occupant to participate in conduct that is otherwise forbidden of landlords.

Interestingly, the Court notes that transient use of a Class A dwelling unit for a fee, with significant strictures concerning health, safety and welfare, has been proposed but not passed in 2013.

Further, plaintiff's records also demonstrate that defendants' use of her Apartment is inconsistent with the COO. According to the COO issued by DOB, the "Description of Use" of the subject unit is "Apartment" (unlike the "Administrative Offices" and "Classrooms" uses assigned to the first and second floors, respectively).

...that part of a multiple dwelling consisting of one or more rooms containing at least one bathroom and arranged to be occupied by the members of a family, which room or rooms are separated and set apart from all other rooms within a multiple dwelling.

Therefore, plaintiff has also demonstrated a likelihood of success of the merits of its claim that defendant's use violated MDL § 4.8 as well.

And the defendant's inability to cure:

Defendant's reliance on plaintiff's failure to serve a notice to cure is unavailing.

"A landlord may generally only bring a proceeding for eviction based upon a claim that a tenant violated a substantial obligation of his or her tenancy after serving a written 10 day Notice to Cure"...

However, there "are only two possible exceptions to the Notice to Cure requirement. The first exception arises where it is asserted that the tenant has willfully violated' a substantial obligation of the tenancy and inflicted serious and substantial injury upon the owner within a three month period immediately prior to the commencement of the proceeding"...Here, this exception is applicable since the notice of termination and petition...assert a serious or substantial injury.

"The second exception stems from a line of cases holding that failure to serve a Notice of Cure is not fatal where, based upon the cumulative pattern of a tenant's chronic nonpayment of rent, the course of conduct is incapable of any meaningful cure"...[N]onetheless, "certain roommate overcharges are also not susceptible to post-judgment cure and perhaps, in these instances, courts should also dispense with the formality of a 10 day Notice to Cure." Continuing, the Court explained that "In determining whether a tenant is entitled to a post-judgment cure, courts have looked to the nature of the overcharge. Where the overcharge is so egregious that it rises to the level of "commercial exploitation," a post-judgment cure is unavailable"...

Here [unlike a prior case] where (1) the "roommate" paid a proportionate share to use of 2 of 3 bedrooms for at least three months, (2) the overcharge of 17.33% was small; (3) the notice of termination did not allege that respondent profiteered or received a lucrative windfall; and (4) the amount collected from respondent's "one roommate was well shy of the total legal regulated rent for the apartment and respondent did not commercially exploit his apartment by renting rooms as a hotel or bed and breakfast," defendant's guests are transient, the petitioner alleges that defendant received a lucrative windfall, the amount defendant collected was in excess of the legal regulated rent, and defendant exploited her Apartment on a "bed and breakfast" internet website, rendering her conduct akin to that of the respondent [in another prior case]. Thus, where a cure is impossible, the landlord is relieved of his obligation to serve on the tenant the usual 10-day Notice to Cure...As such, the absence of a predicate notice is not fatal to plaintiff's action as defendant contends.

42nd & 10th Associates LLC v. Ikizi, 2015 NY Slip Op 50124(U) (Civ. Ct. N.Y. Co.) [decided on February 17, 2015] (Stoller, J.)

The Court summarized the pending proceeding:

42nd and 10th Associates LLC, the petitioner in this proceeding ("Petitioner"), commenced this holdover proceeding against Henry P. Ikezi, the respondent in this proceeding ("Respondent"), seeking possession of 450 West 42nd Street, Apt. 46B, New York, New York ("the subject premises"), on the ground that Respondent was using the subject premises, which is subject to the Rent Stabilization Law, for hotel purposes and profiteering. Respondent answered, denying the allegations and raising as a defense, inter alia, that Petitioner did not serve a notice to cure. The Court held a trial of this matter on January 16, 2015 and January 21, 2015.

At trial, Petitioner proved that it is the proper party to commence this proceeding pursuant to RPAPL §721; that Petitioner has complied with the registration requirements of MDL §325; and that there is a landlord/tenant relationship between the parties pursuant to a lease that commenced October 10, 2014 with a monthly rent of $6,670.00. Prior to the commencement of this proceeding, Petitioner served a notice upon Respondent purporting to terminate his tenancy pursuant to 9 N.Y.C.R.R. §§2524.2(c) and 2524.2(d).

Petitioner's evidence at trial:

Petitioner called its senior residential service specialist as a witness ("Petitioner's employee"). Petitioner's employee testified that she is at the building in which the subject premises is located ("the Building") every day. Petitioner's witness testified that on October 16, 2014, shortly after Respondent's tenancy commenced, she spoke with a person who claimed to have rented the subject premises on Airbnb.

Petitioner's employee testified that she found an advertisement ("the ad") Respondent placed with Airbnb for the subject premises on that day; that she then spoke with Respondent about the ad; and that Respondent said that he can do whatever he wants and that he was not going to remove the ad. Petitioner introduced the ad into evidence. In addition to touting appealing features of the subject premises, the ad states that the charge for the room is $649.00 a month; that there is a check-in time of 4:00 p.m. and a check-out time of 11:00 a.m.; that there is a charge of $95.00 per extra guest; and that there is a $150.00 cleaning fee.

Petitioner's employee testified on cross-examination that there are 816 units in the Building, and that floors 7 through 63 on the "B" line have the same view as the subject premises up to the 47th floor, that there are other units in the Building with the same floor plan as the subject premises and the same appliances, and that she has not been in the subject premises after Respondent moved in. Petitioner's employee testified that the legal regulated rent for the subject premises exceeds $9,000.00 a month, and that Respondent is charged a preferential rent pursuant to 9 N.Y.C.R.R. §2521.2(a).

Petitioner's employee testified on cross-examination that the Building has a guest policy, according to which guests whom tenants register may enter the Building without the tenant. Petitioner's employee testified on cross-examination that after she was notified about a guest that Respondent had in the Building, Respondent told her that this person was his guest, which Petitioner's employee testified was her last verbal communication with Respondent. Petitioner's employee testified on cross-examination that she sent Respondent a warning letter and an email regarding the ad, and that Respondent sent her an email telling Petitioner's witness to contact her attorney. Petitioner's employee testified on cross-examination that she did not have personal knowledge as to whether Respondent charged money for his guests to be there.

On redirect examination, Petitioner's employee testified that she has never seen Respondent at the Building.

[A] concierge who works for Petitioner ("the concierge") testified for Petitioner that since October of 2014 he has been stationed at the front desk in the middle of the lobby of the Building from Sundays through Thursdays, from 7 a.m. to 3:30 p.m., where he accepts packages for residents, assists residents if they lock themselves out, and takes work orders. The concierge testified that he knows Respondent, although he had only seen Respondent about five times since October of 2014. The concierge testified that, in October of 2014, a European guest of Respondent once needed his assistance with a key. The concierge testified on cross-examination that someone staffs the Building lobby twenty-four hours a day; that anyone who wants to enter the Building through the front desk has to be announced; and that a guest may sent up to an apartment in the Building if the guest showed a key to an apartment in the Building. The concierge testified that there is another entrance accessible by a key by which a person may enter the Building without passing by the concierge desk.

Petitioner called Respondent as Petitioner's witness. Respondent testified that he is employed in the field of real estate construction and that he fixes up houses and sells them. Respondent testified that he is an officer, part owner, and president of a five-year-old organization called the Circle Group, where he works with other partners, seven or eight of whom that he knows of, who are also owners. Respondent testified that he was a manager and a vice president of the Circle Group before becoming president, which he has been for a year. Respondent testified that while there is no other "Henry" at the Circle Group, there are at least sixty people working at the Circle Group, that he is unaware as to whether there are real estate brokers working for his company, that he does not have an email address with the Circle Group, and that he was unaware as to whether his biography appears on the website for the Circle Group. Respondent authenticated a printout from the website for the Circle Group by testifying that it was what he knows the website to be, that he knows that people portrayed on the website work for the Circle Group, and that a phone number on the website is the main office number for the Circle Group. Respondent testified that he did not know if an entry on the page of the website entitled "About Us" with the name "Henry Ike" refers to him or not. Respondent's biography, as it appears on the website of the Circle Group, does not mention anything about construction. Respondent testified that he worried that the website is inaccurate.

Respondent testified that he is familiar with Airbnb, that he has used it because he travels a lot, that it is a way to meet people, and that he regards it as a social network and a community. Respondent first testified that he does not list rentals on Airbnb, but that someone at a division in his office lists rentals for him, then he testified that he does not know the extent of websites that people in his office use, although Airbnb could be one of those websites. Petitioner introduced into evidence Respondent's profile on Airbnb, which states that Respondent has been a member of Airbnb since June of 2014 and features a picture that Respondent testified was of him, his wife, and his son.

Respondent testified that he knew of an address that appears on the website for the Circle Group in Jamaica, Queens, the same address listed as Respondent's address ("the Queens address") on the lease he signed for the subject premises in evidence. Respondent testified that the Queens address is his mother's house, that he has lived there, that he does not currently live there, and that he lives in the subject premises. When asked how many nights he spends at the subject premises, Respondent's answer was that he does not keep a log of nights that he spends at the subject premises.

Respondent testified that he was not familiar with the content of the ad and that it did not look like something he wrote. Respondent testified that he did not know if the photographs in the ad were photographs of the subject premises, that he did not know if the furniture in the photographs of the apartment in the ad was his because he has a friend on the 45th floor of the Building who has similar furniture, if the hallway portrayed in the ad was his, and that he did not know if a comforter on a bed in a picture on the ad was his comforter because the photograph was in black and white and he has multiple comforters.

Respondent testified that the subject premises is in his stable of rentals for the Circle Group. Respondent testified that the rate quoted in the ad is not always the rate that an Airbnb guest always pays because different prices are sometimes negotiated, although he did not say that he quoted the rate of $649 a night on the ad. Respondent testified that he could not recall if he ever charged anyone money to stay in the subject premises, and that he does not know if he ever charged anyone money to stay in the subject premises, as he is not aware of how properties are placed, although he testified that he never placed any properties on Airbnb because someone in his office deals with rentals.

Respondent testified that the signature on the lease for the subject premises is not his signature.

Respondent testified that a list of "assigned properties" listing addresses, including the Queens address, prices, and information about how to rent or sell such properties, under his name on the website for the Circle Group are not actually assigned to him, that he is not a real estate broker or agent and does not hold a real estate license, although he did five years ago.

Respondent testified that he was aware of the ad before Petitioner's employee complained to him about the ad. Respondent testified that when Petitioner's employee challenged him with regard to his Airbnb account that he deactivated his account and instructed his office to remove any ads that might have been there with his profile. Respondent testified that he did not write language in the ad that said "treat our home with respect", but that that was standard language in an Airbnb ad. Respondent testified that he was pleased with his guests, but that he deactivated the account because he didn't want issues.

Respondent testified that he has been married for five years, that the lease does not list his wife as an occupant of the subject premises because of Petitioner's error, but then that he did not list her and his son as occupants when he applied for a tenancy at the subject premises, and that his wife lives with him at the subject premises, although he does not keep track of the times that she is there and that he does not know if there is another address that would be her residence.

Respondent testified that he has several properties leased or owned by the Circle Group where he can stay if he wants to; at least two or three in lower Manhattan, although he does not know the addresses, does not know how long the Circle Group has owned these properties, quite a few properties in Queens although he did not know if there were more than five, and that he did not know how many were in Brooklyn or in the Bronx. Respondent testified that he "suppose[s]" that he has access to these units, but that his wife and his child do not stay in his company's residences. Respondent testified that he has stayed at the Queens address where his parents live.

Another concierge at the Building testified that he works a shift from Sunday to Thursday from 3:00 p.m. to 11:30 p.m. since October of 2014, that Respondent lives in the subject premises, that he sees Respondent rarely, although he has seen Respondent with Respondent's wife and child, that he wrote an incident report involving someone on October 30, 2014 who looked lost carrying duffel bags and luggage and that Respondent came downstairs to let them in, and that he wr[o]te an incident report on November 2, 2014 about another older couple that had a key to the subject premises. On cross-examination, he testified that it was possible that Respondent could have entered the Building through a back entrance and that he would not have then seen Respondent.

Petitioner called its amenities host as a witness ("the host"). She testified that she has been working at the Building for four months, and that she manages amenities at the Building, including a gym, a screening room, a game room, a party room, a business center, and a basketball court. The host testified that Respondent attempted to have a guest of his have access to these amenities, but that the host was not able to allow that because Respondent was the only person on the lease for the subject premises. Upon showing the host the photograph of Respondent's wife and children already in evidence, the host testified that Respondent's guest was not his wife. The host testified that when she told Respondent that he could deal with the issue at Petitioner's leasing office, he said that he did not want to do that. The host testified that another guest of Respondent tried to access the amenities at a later date without following Petitioner's procedures.

Respondent chose to not put on a case.

The Court's initial evaluation of the testimony:

Even if the Court were to afford Respondent the most favorable interpretation of his testimony on Petitioner's case, at the very least the record shows that Respondent's employees at the company that he is the president of placed the subject premises on Airbnb and rented the subject premises out as if it was a hotel room. What remains for the Court to determine is whether Respondent profiteered from this activity. As the monthly rent for the subject premises is $6,670.00, the daily rate for the subject premises is $219.29. Even assuming arguendo that the operative figure was the legal regulated rent of $9,347.66, the daily rate would be $307.32. The ad sought a nightly rate of $649.00 for use of the subject premises as a hotel room.

The resolution of the question presented:

When questioned on Petitioner's case whether Respondent charged anyone money to stay in the subject premises, Respondent first testified that he could not recall if he ever charged anyone money to stay in the subject premises for a tenancy, and then testified that he does not know if he ever charged anyone money to stay in the subject premises. Given that Respondent was being sued for eviction, that Respondent testified as such on January 21, 2015, and that Respondent's tenancy commenced on October 10, 2014, three months and eleven days before his [testimony], Respondent's inability to remember or know if he had charged anyone to sleep in the subject premises defies common sense. Such incredible testimony was of a piece with other testimony Respondent offered, such as his response to a question about how many nights he has slept in the subject premises with the answer that he does not keep a log of where he sleeps, Respondent's inability to determine whether a photograph of a comforter on a bed in the ad was a comforter that he owned, Respondent's lack of knowledge as to other addresses that might be his wife's address, and Respondent's testimony that he does not have an email address at the company that he is the president of. If Respondent was actually profiteering by renting out the subject premises as a hotel room, wanted to avoid testifying as such, and was trying to be clever about technically avoiding committing perjury, it is hard to imagine how Respondent would testify differently.

This Court passes no judgment on any individual's lifestyle. Some people would require a log to be able to truthfully answer a question as to how many nights they sleep in their homes. Married households engage in all types of arrangements that work for them. Some people are inattentive to details like the pattern on comforters they may own. However, if the particularities of Respondent's personal situation otherwise happen to be consistent with a pattern of profiteering, it would behoove Respondent to offer evidence addressing such a consistency in a civil trial where parties must prove their cases by a preponderance of the evidence. Yet, Respondent chose not to put on a case. A trier of fact may draw the strongest inference that the opposing evidence permits against a witness who fails to testify in a civil proceeding...particularly when that witness is an actual party to the action, knowing the truth of a matter in controversy and having the evidence in his or her possession...

Accordingly, the Court finds that Respondent engaged in profiteering, either by renting out the subject premises himself on Airbnb or by causing his employees to rent out the subject premises on Airbnb, that Respondent's relentlessly evasive answers on his direct testimony on Petitioner's case constituted an attempt to withhold this information, and that Respondent did not present a case because there was no case for Respondent to present.

And the legal consequences:

Using a residential apartment as a hotel room and profiteering off of it is ground for eviction and is incurable, as it undermines a purpose of the Rent Stabilization Code...As Respondent's infraction is incurable, Petitioner was not required to serve Respondent a notice to cure...

Lesson learned:  New and developing technologies and their applications are clearly "disruptive" of existing real estate and other entrepreneurial landscapes.  "High tech" will nevertheless find obstacles in pre-existing laws, rules and regulations that do not contemplate – and have not been updated to address – the recently-developed internet business models.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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