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Squatters, Transients and…Luxury Apartment Renters?

August 6th, 2013 — 4:21pm

donotredAll of these months, the owner of apartment 3A could not figure out why there was a constant buzz of activity surrounding his neighbor’s apartment.  Beginning around January, there had been an influx of strange happenings including loud parties and exotic meetings being conducted by constantly changing and often unfriendly faces.

The new and unwelcomed hullabaloo aroused the owner’s suspicion and caused him to probe its origins.  After a quick Google search, he had discovered the source of the activity – a rental advertisement by Airbnb.com – a website devoted to providing apartment dwellers a platform for advertising the rental of their space for short periods of time, just like a hotel. Continue reading »

This is hardly a novel concept, and up until recently, it was arguably legal.  Yet despite its newfound illegal status in New York, there remains a plethora of websites offering this service for those who want to be part time inn-keepers and transform their traditional living space into a transient hotel.  To deal with these amateur inn-keepers, New York State amended the Multiple Dwelling Law, Article I §4(8)(a) in 2010 and cleared up the confusion surrounding its previously ambiguous language.  The law now plainly states “A Class A multiple dwelling shall only be used for permanent residential purposes…which is defined as occupancy of a dwelling unit by the same natural person or family for thirty consecutive days or more…”  The Administrative Code of the City of New York § 27-2004(a)(8)(a) mirrors the language of the Multiple Dwelling Law.   The penalty for noncompliance can be $2,400 per violation and targets landlords, who are considered the legally responsible party, even if the landlord’s tenants are to blame for renting out the space.  That would mean the cooperative corporation for coop abusers and the owners of condominium units in condos.

However, it is not just recreational apartment renters who have come under scrutiny, as large companies have not overlooked the fact that there is a lot of money to be made in the hotel industry.  In October 2012, New York City filed suit against Smart Apartments, a major operator of short-term rentals in more than 50 buildings in the City.  While the suit is sure to please the hotel lobby, the City’s lawsuit focused on the safety concerns, nuisance and deceptive trade practices presented by illegal hotels.

In February 2013, the City was successful in enjoining Smart Apartments from advertising or allowing the transient occupancy in New York City Class A Multiple Dwellings, and compelling them to remove any such advertising from all internet websites and other media.  The decision stated that Smart Apartment’s business was illegal, unsafe, a public nuisance and was based on deceptive trade practices.

The crux of the argument posed by the City is that short-term rentals are unsafe and a nuisance.  The City claims they are unsafe because New York City Fire and Building Codes require transient residences to observe significantly higher fire safety standards than non-transient residences and most apartment buildings are not up to that higher code.  However, whether that higher standard for a less than 30 day stay makes any sense is another question.  After all, what is the practical difference between someone who is subletting an apartment for a month and one who is only there for a week?  It is not likely that the former is more familiar with the staircases and thus more capable of evacuating the building in case of a fire.

The City argues they are a nuisance because of (among other reasons) security risks, loud parties and the occupants not conducting themselves in the “civilized, genteel manner of the locals”.

And it is not just the internet sites that have to worry.  Recently, an administrative law judge sustained a notice of violation for “occupancy contrary to Certificate of Occupancy in that apartment 5G was used transiently” issued by the NYC Environmental Control Board to an owner of a condominium unit.  The owner was issued a fine for $2,400 after the owner’s tenant used Airnb, Inc. to arrange for a guest to occupy the premises for less than 30 days.

There is no doubt that constantly changing neighbors may pose a nuisance to others who live in the building.  As an advisor to Mayor Bloomberg said, “It’s not the bargain that somebody who bought or rented an apartment struck, that their neighbors could change by the day.”   However, in coops and condos this can and generally is controlled by the building’s bylaws or proprietary lease.  For example, most coops have strict subleasing restrictions and some condos have time limits as well as rights of first refusal.  In other words, this is an activity which the building’s owners are fully capable of regulating and all such regulation decisions should be deferred to them.  Potential purchasers who perform their due diligence can themselves decide whether they want to live in a building which allows short-term rentals.

So what are we left with?  The issue of safety seems baseless because it strains logic to conclude that the same apartment is safe for a 30 day rental but not for a 29 day rental.   The idea that short-term renting is a nuisance to other owners in the building is erroneous because the coop or condo owners can set the rules and a buyer should know these rules before he or she signs a contract.

While we recognize that the City should insure that housing is safe even for short-term rentals, we believe that these current laws should be re-examined in light of the fact that people are using the internet to find housing for short stays in the City.  It simply does not seem reasonable to allow the same apartment to be rented for 30 days but not for 29.  Certainly there must be a way to find logical protections that make sense given the realities of the internet and how it has affected the marketplace.

By: Ryan V. Stearns and Jerome J. Strelov

Comment » | News, Renting Your Apartment

Art On The Wall? You May be In For A Surprise

May 22nd, 2013 — 1:01pm

artIs your restaurant tenant planning to have a mural painted?  Are you planning to install a sculpture in the lobby of one of your buildings?  Be cautioned that it might not be easy to remove that work and you might find yourself on the wrong end of a lawsuit if you damage the work.  Even after artists transfer their ownership interests in artwork they created, they still may have rights known as “moral rights” to works located on your property.  Here’s the skinny on what you need to know about moral rights and how they can affect your property. Continue reading »

Background

The Visual Artists Rights Act (“VARA”) is an amendment to the federal copyright law that grants certain moral rights to visual artists, including the rights of attribution and integrity.  Under the right of attribution, an artist has the right to claim authorship of her work and to prevent the use of her name as the author of: (i) any artwork she did not create or (ii) any artwork that has been distorted, mutilated or modified in a way that is prejudicial to her honor or reputation.  Under the right of integrity, the artist may generally prevent: (i) any intentional distortion, mutilation or modification of an artwork that is prejudicial to her honor or reputation and (ii) the destruction of any work of recognized stature.

Importantly, artists maintain these rights regardless of whether they have sold or otherwise transferred the artwork or their copyright interests in the work.  For works created on or after June 1, 1991, the effective date of VARA, the rights provided for endure for the life of the artist, or in the case of a joint work, the life of the last surviving artist.  These rights may not be transferred, but they can be waived by a writing signed by the artist.

Certain exceptions to these rights exist.  For example, modifications caused by the passage of time (such as fading or dulling) or the inherent nature of the materials used to create the artwork do not violate an artist’s rights under VARA.  Additionally, modifications resulting from conservation (e.g., re-touching) or the public presentation (including lighting and placement) of an artwork are not VARA violations unless the modifications are caused by gross negligence.   Moreover, the law only applies to a “work of visual art,” which is defined to include paintings, drawings, prints, sculptures and artistic photographs, existing in a single copy or in a limited edition of 200 copies or fewer.  Posters, maps, globes, charts, technical drawings, diagrams, models, applied art, motion pictures and other audio-visual works are specifically excluded from the definition of that term.  Additionally, works “made for hire,” which are works that are prepared by an employee within the scope of her employment, are not protected under VARA.

Of interest to building owners is the so-called “building exception,” which applies to works “incorporated in or made a part of a building in such a way that removing the work from the building will cause modification of the work.”  These works do not get protection from modification if the artist consented to the installation of his work in the building (if pre-VARA) or if the building owner and the artist executed a written acknowledgment that removal of the work may subject it to modification (if post-VARA).  In addition, the right of integrity does not apply where an artwork can be removed without damage from a building, provided the building owner either makes a diligent, good-faith attempt without success to notify the artist of the intended removal or provides notice to the artist, who fails to remove the work or pay for its removal.  When the building owner has complied with this notice requirement, the artist has no claim under VARA when the work is removed.

Since its enactment over twenty years ago, courts have decided several hard cases interpreting the language of VARA.  In the real estate context, several courts have grappled with cases questioning whether the statute applies at all to the artwork in question.  For example, in Carter v. Helmsley-Spear, Inc. , 71 F.3d 77 (2d Cir. 1995), a trio of artists filed a lawsuit to prevent a building owner and manager from altering artwork that they were commissioned to create for a commercial building located in Long Island City, including several sculptural forms that they affixed to the walls and ceiling of the building’s lobby.   In that case, the court rejected the landlord’s claim that the work was “applied art” since it was affixed to the building, but nonetheless dismissed the artists’ case because the court found the artwork was “work made for hire,” and therefore not a work of visual at under VARA.   In Phillips v. Pembroke Real Estate, Inc., 459 F.3d 128 (1st Cir. 2006), an artist tried to prevent a manager of a public park from removing several sculptures that he created specifically for the park, including stone forms that were integrated into the landscape of the park.  The artist eventually lost the case after an appellate court ruled that his sculpture was site-specific artwork, which is not covered by VARA.   This ruling was called into doubt by a court which recently dismissed on other grounds an artist’s VARA claim challenging the modification of a wildflower garden he created for a city park.  See Kelley v. Chicago Park Dist., 635 F.3d 290 (7th Cir. 2011). Although the property holders prevailed in these cases, they had to endure protracted legal battles in order to resolve the artists’ claims under VARA.

The Take Away

Before artwork is installed on your building, you might want to consider whether to add language in your agreements protecting you from potential VARA claims.  If you are commissioning artwork to be displayed on your building, you should consider whether to include a provision in your commission agreement whereby the artist waives any and all moral rights, including the artist’s rights under VARA.  If you want to hire an artist to create artwork to be incorporated into your building in such a way that removal would damage the work, you should also consider obtaining a written acknowledgment signed both by you and the artist stating that the installation of the work may subject the work to damage.  You should also keep records that include the artists’ contact information and update these records regularly so that you can comply with your notification obligations in the event that you wish to remove an artwork from your premises.

If you think your tenant may commission artwork to be installed in a leased premises, you might want to consider including in the lease the tenant’s agreement to obtain a VARA waiver from any artist hired to create artwork for display on the premises.  You also may want to include in your lease a provision whereby the tenant would indemnify you for any damages incurred as a result of a VARA claim.

By Amelia K. Brankov, counsel at the law firm of  Frankfurt Kurnit Klein & Selz.

2 comments » | Art, Commercial Corner, Commercial Leases, News

Is Your Security Secure?

February 19th, 2013 — 10:18am

secA knock on the door interrupts the banter of the cooperative’s board of directors, who are sitting around the living room of the president’s apartment.  It’s the fourth member at the door, who will make up the quorum necessary for this month’s matters to be resolved.  Before voting on the approval of an applicant or discussing the proposed capital improvements, the members want to finalize the lease of the commercial storefront owned by the cooperative.  While none of the members are lawyers or landlords by trade, they nonetheless have managed to negotiate a simple 10 year lease of a gluten-free vegan smoothie health bar.  The new lessee recently mailed a check for the security deposit which now sits in front of the board members.  After some discussion, one of the unwitting members suggests depositing the security deposit check into an interest bearing account which he uses for his own personal motorcycle repair business.  Although the board’s actions may appear legitimate on the surface, they are about to make a fatuous mistake which carries with it serious legal consequences.

Continue reading »

Our unassuming board is going to want to be made aware of certain regulations governing the security deposit before finalizing their commercial lease.  While the internet is a never-ending source of articles and guides relating to the legal requirements on landlords in the residential paradigm, the internet is noticeably less fulfilling in the commercial setting.  This is likely to leave our amateur landlord who is trying to navigate the commercial leasing waters perplexed.  Of particular concern to is (a) whether to deposit the security into an interest bearing account and (b) whether the security should be deposited into a separate account designated strictly for such deposits.

If our benevolent board decides to do their due diligence, they are going to run into some serious confusion the minute they begin reading the relevant statute, New York’s General Obligations Law (the “NYGOL”)  § 7-103(2-a), which reads, “Whenever the money so deposited or advanced is for the rental of property containing six or more family dwelling units, the person receiving such money shall . . . deposit it in an interest bearing account . . .”  Clearly enough, the statute requires the security to be deposited into an interest-bearing account if the rental unit is situated in a building with six or more apartments, and does not require the same for a non-residential building being leased strictly for commercial purposes.  But what if the building, like the one being operated by our unwary board, is being utilized primarily as a residential cooperative or condominium, but contains a commercial storefront?  Does the board have to put the security deposit for rental of the storefront into an interest bearing account because the property also contains six-plus dwelling units?  This type of scenario is hardly an anomaly, yet the ambiguous language of the NYGOL leaves those who have a reason to care with unanswered questions and a slew of potential legal ramifications.

So what is the Board to do?

There is a simple solution with little to lose as the NYGOL also allows the cooperative owner to retain a sum equivalent to “one percent annum” of the earned interest as an administrative expense.   It is pretty clear that the coherent plan of action for the board to take is to deposit their commercial tenant’s security into an interest bearing account and pay the tenant all interest earned, less one percent, regardless of the argument that the plain language of the NYGOL may not apply to commercial leases.

Now that the board is aware of the type of account to use and who is entitled to the interest, what should we make of the member’s suggestion to deposit the security into his personal business account?  The answer is much simpler than the previous conundrum.  A landlord may not comingle a tenant’s security deposit with other funds in a landlord’s general account.   Case law has held that the consequence of doing so is conversion which entitles the tenant to recover the deposit in its entirety even if the tenant may be in breach of the lease, a very bad result for our cooperative and the board of directors.   Paterno v Carroll, 75 A.D.3d 625, (N.Y. App. Div. 2d Dep’t 2010).  Moreover, the board has a compelling justification to act within the bounds of these laws as § 7-109 grants the Attorney General authority to bring suit in the name of the People of the State of New York for violations of the sections relating to security deposits.

Our recently learned board is also going to want to take into consideration a few other requirements before adjourning their monthly meeting.  § 7-103(1) also requires the landlord who places his tenant’s security into an interest bearing account to give notice to the tenant specifying the name and the address of the bank where the deposit is held, by which the depository bank must have a place of business in New York State.

Now that we have managed to keep our board of directors out of trouble with regard to security deposits, they can concentrate on more interesting matters, such as arbitrarily denying the most recent purchase application…

– Ryan V. Stearns and Jerome J. Strelov

 

Comment » | Commercial Corner, For The Board, News, Security Deposits

The HUD Tail That Wags The Dog

January 16th, 2013 — 9:42am

More and more, real estate attorneys are going to closings which are delayed one, two, three or even four hours.  In a typical scenario, the closing is scheduled for 11AM, everyone arrives on time and the closing almost finishes smoothly but…  The buyer’s bank attorney does not have checks and everyone starts getting anxious.  The seller has moved out, the buyer’s movers are on their way and the seller needs to bring those checks to another closing to buy another apartment. Continue reading »

What just happened?

Some may argue that the root of this epidemic is the intolerably-designed and overly complex HUD-1 Settlement Statement (“HUD-1”) which is to be signed by the sellers and buyers in a deal involving financing and is supposed to simply provide a detailed summary of the financial aspects of the closing but is often the cause of extensive delays and agada.  The instructions alone, for this 3 page form are a mind boggling 11 pages long.

After going through the inevitable emotions of frustration, anger, and eventually apoplectic rage, it becomes logical to ask: Why is the bank attorney always late?  Why does he never show up with checks? Why hasn’t the bank’s wire hit yet?

In order to fully understand why this occurs, it is necessary to discuss the bank’s relationship to the HUD-1 and the effect it has on the lender’s attorney.

The bank’s procedure should work something like this: (1) The lender’s attorney receives a clear to close from the bank; (2) The lender’s attorney prepares the HUD-1 and sends it to the bank for approval;  (3) The bank approves the HUD-1 and sends the wire to the lender’s attorney in the early morning;  and (4) The lender’s attorney cuts the required checks and goes to a local branch of the bank to have these “certified” in time for the 11 AM closing.

Sounds simple enough right?  It is simple until the bank’s underwriting department does not approve the HUD-1 and sends it back for revisions sometimes two or three times.  Coalesce this with the large number of HUD-1s that one bank representative is responsible for, and suddenly what should have taken an hour or less, take north of 24 hours.  To go back to the original illustration, although your closing took place as scheduled, the HUD-1 was not approved until that day, and thus the wire was not sent out in the early morning, guaranteeing delays in the closing.  Once the wire finally does hit, the bank attorney has to somehow obtain certified checks, which usually means another trip back to the office to get the checks and then a journey to the bank (and a wait on line) to get the checks certified.  Meanwhile, closing small talk has been exhausted, managing agents are talking about increasing fees and tempers are flaring.

But wait, it can get even worse.  Sometimes in the mad rush to create the HUD-1, the lender’s attorney forgets or is unable to get the seller’s attorneys comments until the closing.  Then the fun really begins because the seller’s attorney will often find a missing charge or error and insist the HUD-1 be revised, causing the lender’s attorney, the buyer’s attorney and the bank to revise the HUD-1 in a panic mode which often results in further mistakes.

Add all of this together and you are in for a long delay, an angry adversary and additional expenses to what should have been a routine and celebratory event.  If this weren’t involving the time, money and emotions of several people around a closing table it would be humerous.

While most of these delays seem inevitable, one possible way to ensure that the closing occurs in a reasonable amount of time is to schedule it late in the afternoon.  Assuming there are no other issues, this will effectively give the bank and the bank’s attorney an ample amount of time to get the HUD-1 approved and the wire sent on time.

Another and less viable solution (in this overregulated environment) is to simply eliminate the dreaded HUD-1 and make our closings go faster and smoother.

– Jerome J. Strelov and Ryan V. Stearns

Comment » | Closings, News

AIR RIGHTS AND WRONGS

September 19th, 2012 — 3:28pm

Jerome Strelov, Esq., on air rights and wrongs
September 19th, 2012
by Tracy Kaler, Brick Underground
Problem-solving New York City real estate attorney Jerry Strelov is the subject of our Real.Est. List Spotlight this week. In addition to knowing his way around air rights, Strelov specializes in high-end rentals and co-op and condo purchases; he loves to negotiate and review leases and contracts as much as he enjoys sleuthing for information some might prefer remain hidden during due diligence.

read more

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