You As A Loft Tenant
As residential space – and particularly residential space that includes artists’ work space – becomes harder to find, New York is undergoing another wave of “illegal” conversions of commercial and manufacturing buildings to residential or “artists’ loft” usage. There is a great deal of this occurring in the Williamsburg area of Brooklyn, much as there was in SOHO and Tribeca in the late 1970’s and early 1980’s. These conversions have cropped up along Canal Street in lower Manhattan and in formerly commercial areas of Harlem, as well.
The earlier conversions, when artists such as Claus Oldenburg and Larry Rivers were prominent in SOHO, lead to a great deal of litigation and eventually to legislation that sought to regularize the conversions of commercial or industrial space to residential use. Eventually, Articles 7B and 7C were added to the Multiple Dwelling Law (MDL) by the state legislature, and there are a number of buildings that were legalized for residential occupancy and a few that have not yet been legalized under those laws. The laws provided a framework for the conversions and legalization and rent regulation, including the rights to continued occupancy by the tenants, and the New York City Loft Board was created to oversee the legalization process. The units covered by Article 7B generally are those that are occupied by “Artists in Residence” and the units covered by Article 7C can be occupied by non-artists, and are called Interim Multiple Dwellings – IMD’s for short.
However, these laws do not apply to recently converted lofts; if there was not a coverage determination made in the 1980’s, it is exceedingly unlikely that one could be obtained. Courts are now dealing with the legal issues raised anew by this wave of conversion.
If you are a tenant in that type of space, or are looking for a loft to live in, you should be aware that your status is uncertain and somewhat precarious.
There are several factual and legal issues that may affect your right to remain in your loft, both after your lease expiration and even during the lease term. As a tenant, you need to worry about whether you can be removed from your home by either New York City agencies or the landlord. In Williamsburg, the Housing Court has been faced with situations where the landlord has been blatantly converting commercial space to residential space, and then using that “illegality” as an excuse to evict “troublesome” tenants – those who want heat in the winter, for example.
What is it that makes the conversion of space to residential use “illegal?” Note that the term “illegal” is in quotes – conversion of commercial buildings to residential is not a crime under the Penal Law, but it can cause the owner and sometimes the tenant to be the subject of various type of violations issued by City agencies and possible civil litigation such as eviction proceedings.
For residential use to be fully “legal” in any building, there are three basic legal issued to be considered. First, the residential use must be permitted by the applicable zoning. Secondly, the residential use must be in conformity with the Certificate of Occupancy issued by the Department of Buildings – and the building should also conform with whatever plans for alterations or construction have been filed with the DOB. Finally, if there is a lease or other agreement between the landlord and the tenant, the residential usage should be permitted by the lease. What rights and remedies of the landlord, the tenant and the City have depends on which of these three things requirements is violated.
In New York City, zoning is determined by the New York City Department of City Planning, although non-compliance with zoning can result in violations being issued by other agencies, notably the Department of Buildings. A detailed explanation of zoning, including the full text of the zoning resolution and zoning maps, can be found at the DCP web page, but a short explanation will help explain why zoning is important in loft conversion.
Zoning is a designation of the permissible use of a plot of land; zoning is geographically determined. The zoning itself does not change by virtue of an actual change in use or ownership of property, or if lots are merged or broken up – although what may be built on a plot may be affected. In New York City, individual blocks have been designated block numbers, and within each block, there are lot numbers. The lot numbers often, but not always, represent the footprint of buildings and associated yard and sidewalk space on a one building/one lot basis.
These blocks and lots are shown on a “tax” map – real property taxes are assessed on a block by block basis, but the block and lot designations are used by the Department of Buildings and Department of Housing Preservation and Development, and are the index used to record deeds and various types of liens or land in New York. Zoning areas frequently, but again, not always, cover an area of contiguous blocks and lots, so that most of the time a building is on a plot of land covered by a single deed and the plot of land has the same zoning. As you can imagine, as buildings are torn down and rebuilt, lots are often merged or broken up, this one to one congruence has eroded. There are also small areas – called overlays – within larger zoning areas with changes in zoning; a typical example would be that there would be a small commercial area at one end of a city block that is otherwise purely residential, to permit stores at the end of the block.
There are three basic types of zoning designation that are important in New York City. They are “R” or residential; “C” or commercial; and “M” or manufacturing (including warehouse use). Each of these major categories has subcategories that determines such things as the maximum floor area compared to the lot area that is permitted, the height of the buildings that is allowed, how close the back of the building can be to the lot line behind the building and so on. These sub designations look like “R6” or “M1-1.” As a general rule, in R areas, the permitted use is residential. In C areas, both residential and commercial use – stores and offices – is generally permitted as of right. In M districts, with certain exceptions, residential use is not permitted as of right. For a more detailed explanation, visit the DCP web page on zoning. There are dozens of subcategories, and they specify or limit the use of the area is great detail.
If a particular use is not permitted by the zoning, it may be possible to obtain a variance for DCP. Additionally, if there is a pre-existing use that becomes improper because of a change in the zoning, it is possible that the pre-existing use will be “grandfathered” and could be lawfully continued. Needless to say, zoning issues can get to be very complicated, and a building may straddle areas of different zoning, or a building with grandfathered use may be physically combined with a new structure.
From the standpoint of a tenant, if the tenant’s occupancy or use of the premise is contrary to the zoning, the tenant has a potentially serious problem. If space in a building located in a purely residential area is used commercially, or if there is residential use of a building in an M zoned area, it is possible that the City can come in a force the tenants out. This can be quite sudden, as it was for more than 200 tenants at 1717 Troutman Street in the fall of 2007.
MDL Articles 7B and 7C do legalize certain residentially used buildings in M zoning districts.
The next issue is the Certificate of Occupancy (CO). Under the MDL §§301 and 302, a building may not be residentially occupied unless a certificate of occupancy is issued permitting that use. If there is no residential certificate of occupancy then, not only can either the DOB or HPD issue violations, but technically the landlord cannot maintain a court case to collect rent and any lender with a mortgage of the property can call the entire mortgage due. While this is exactly what the law provides, courts are reluctant to enforce a forfeiture of the rent, and various judicial exceptions have been carved out of the plain meaning of the statute.
There are also a great many buildings in New York that do not need to have a CO because they were built before April 18, 1929, when one was first required. However, if new residential units are created in these older buildings or if there are other significant alterations, a CO is required. This is certainly the case where a commercial or manufacturing building is converted in whole or in part to residential use.
You can view a PDF copy of a building’s certificate of occupancy at the DOB web site.
The situation of a tenant in a building with no residential CO but in a C or R zoned area is much better than a residential tenant in a building that has an M zoning. It may be possible to legalize the residential use, and if the landlord caused, participated or permitted the change to residential use, the landlord may be forced to undertake the legalization. The legalization may be as simple as only making filings with the DOB, or it might involve construction to ensure proper fire egress and compliance with the Building Code. Depending on the circumstances, the residential occupant may be in the enviable position of remaining in the premises rent-free indefinitely.
The fact that the residential occupancy is contrary to the CO does not exempt the residential units from the Rent Stabilization Law. If the building has six or more residential units and was constructed prior to July 1974, then the Rent Stabilization Law will apply unless there are specific applicable exceptions. While a substantial rehabilitation of a building can cause such an exemption, merely changing the building to commercial usage does not count. This, by the way, represents a change in the law that started with DHCR Operational Bulleting 95-2 and RSC §2520.11(e). Now, for the substantial rehabilitation exception to apply, 75% of a list of specified building systems must be completely replaced under OB 95-2. In the typical conversion from commercial to residential use, this is not done.
But, what about the use being “illegal?” To quote a recent case, 81 Bowery Realty Corp. v. Chen, New York Law Journal, July 16, 2008, p26, Col 1., “It is well settled that a landlord may not remove a tenant on the ground of illegal occupancy where (1) the landlord created the illegality, or (2) where the landlord took title with notice of an illegally created by a predecessor in title, and (3) the illegality is susceptible of cure without undue expense or difficulty.” The third item is one that may give a court trouble, especially where the landlord intentionally undertook an illegal conversion.
The law in this area is far from settled. If a tenant moves into a unit that was created by illegally converting the building to residential use, then it is not clear what a court will do even if the zoning permits residential occupancy. The Court of Appeals held in a case where the zoning did not permit residential use – the building was zoned in an M zone – that the tenants could be evicted and were not covered by rent stabilization. Wolinsky v. Kee Yid Realty Corp., 2 NY 3d 487 (2004). The recent cases indicate that the courts in the First Department, which includes Manhattan, are more favorable to loft tenants than courts in the Second Department, which includes Brooklyn.
The final item is the issue of the lease. Leases generally specify the use of the rented premises, and they are generally specific as to whether residential use is permitted. It is not surprising that where there has been an “illegal” conversion to residential use that a landlord will issue a lease that purports to prohibit residential use. Use of a commercial or “loft” lease is common, even where it is clear that both the landlord and the tenant knew and intended that the rented space would be used residentially.
Keep in mind that the lease is an agreement between the landlord and the tenant – only they can enforce the lease. A landlord could bring an eviction case based upon a violation of the provisions of the lease, but the City cannot.
A landlord’s rights to bring an eviction case may also be limited, even if there is a technical violation of the use provision of the lease. If the tenant is rent stabilized, then the tenant may be evicted only on grounds that are permitted by the Rent Stabilization Code, and the Code specifically prohibits evasion of the code – and issuing a commercial lease for residential, rent regulated space would probably be considered such an evasion.
Further, if the landlord has failed to enforce the terms of the lease for a period of time, the landlord may waive that right.