Good news for developers, bad news for tenants

The Appellate Division of the Supreme Court of New York, First Department, recently held that, when a rental building is being converted to condominium ownership by means of a non-eviction offering plan, unregulated tenants whose leases expire prior to the offering plan being declared effective by the Attorney General are not entitled to protection from eviction under the Martin Act.

In MH Residential 1, LLC, et al. v. John Barrett, et al., the owners of a large residential building proposed a non-eviction offering plan to convert the building from rental to condominium ownership. Of the 29 market-rate tenants whose leases had expired, only 11 had been offered renewal leases. However, the tenants argued that the renewal offers were not bona fide offers because the leases were shorter (3-12 months) and sought rents that were substantially higher than those previously paid, in some instances nearly double the previous rents. The offers also gave the landlord the right to terminate the lease extension on only 15 days’ notice and to compel the tenants to relocate to another apartment at the same rent, regardless of the new apartment’s size, location or condition. The owners brought holdover proceedings against the 29 unregulated tenants. Once the offering plan was accepted for filing on March 31, 2007, the tenants claimed entitlement to protections under the Martin Act.

The Martin Act states that, under a non-eviction offering plan, eviction proceedings shall not be commenced against non-purchasing tenants for failure to purchase or for any other reason related to expiration of the tenancy. The Martin Act defines “non-purchasing tenant” as a person who has not purchased under the offering plan and who is entitled to possession at the time the plan is declared effective.

The First Department decided in favor of the owners, explaining that, in holdover matters regarding unregulated expired leases, the tenant’s rights have already been extinguished by the expiration of the lease term, and it is irrelevant that the tenant may still be in possession and that a warrant of eviction has not yet issued. Therefore, the tenants in this case were not “entitled to possession” at the time the plan was ultimately declared effective.