The Legal Implications of Illegal Apartments and Rent Collection in New York

In the complex landscape of New York real estate, the issue of illegal apartments and rent collection has become increasingly significant. As housing costs soar and space becomes scarce, some property owners have turned to creating unauthorized living spaces. However, this practice not only poses safety risks but also carries substantial legal consequences. This article explores the legal intricacies surrounding illegal apartments and rent collection in New York, drawing from various court cases and statutes.

Defining Legal and Illegal Dwellings

New York's Multiple Dwelling Law provides clear definitions for legal dwellings:

- Section 4.6 defines a "private dwelling" as "any building or structure designed and occupied exclusively for residence purposes by not more than two families."

- Section 4.7 defines a "multiple dwelling" as a "dwelling which is either rented, leased, let or hired out, to be occupied, or is occupied as the residence or home of three or more families living independently of each other".

Any deviation from these definitions can render a dwelling illegal, with serious repercussions for property owners.

Legal Consequences for One- and Two-Family Dwellings

In cases involving illegal apartments in one- and two-family dwellings, the courts have consistently ruled against landlords, holding that contracts for illegal apartments are unenforceable, and thus no rent can be collected. The case of Acquino v. Ballester, 37 Misc. 3d 705 (Civ. Ct. NY County 2012) is particularly illuminating:

"Although there is no statute prohibiting the collection of rent from illegal one- and two-family dwellings, no rent is recoverable because the contract is illegal, the apartment is presumably unsafe because it is not built to code, and public policy requires such a finding."

The court further emphasized that:

"The New York City Administrative Code (26NYCAC §125) makes the failure to comply with the building code subject to criminal penalties and civil fines."

This ruling underscores the serious legal and financial risks landlords face when renting out illegal apartments in one- and two-family dwellings.

De Facto Multiple Dwellings

When a property becomes a de facto multiple dwelling (i.e., housing three or more families), additional legal issues arise. As stated in Malden v. Wykoff SP, LLC, 192 A.D. 3d 1002, 1005 (2d Dept. 2021):

"An owner of a de facto multiple dwelling who fails to obtain a proper certificate of occupancy or comply with the registration requirements of the Multiple Dwelling Law cannot recover rent or use and occupancy."

This principle is reinforced by Multiple Dwelling Law §§ 302(1)(b) 1 and 325(2) 2 . The courts have consistently applied this rule, as seen in cases like Holder v. Williams, 188 Misc. 2d (Civ. Ct. NY County 2001) and Mannino v Fielder, 165 Misc. 2d 605 (Civ. Ct. NY County 1995), where nonpayment proceedings were dismissed against tenants in buildings that had become de facto multiple dwellings.

First Department Rulings

Courts in the First Department have also weighed in on this issue, consistently ruling against landlords who fail to comply with legal requirements. In Matter Of GVS Properties LLC v. Vargas, 172 A.D.3d 466 (1st Dept. 2019), the court held:

"Multiple Dwelling Law § 302 (1) (b) prohibits the collection of rent during the period in which the dwelling lacks a valid CO under Multiple Dwelling Law § 301 (1)."

Similarly, in Ormonde Equities LLC v. Jacoby, 2022 NY Slip Op 33960 (Civ. Ct. NY County 2022) aff’d NY Slip Op 51416 (Civ. Ct. NY County 2023) the court stated:

"Without a Certificate of Occupancy, any occupancy is illegal. The consequence of illegal occupancy is that Petitioner is prohibited from maintaining this proceeding or collecting rent."

These rulings demonstrate the courts' strict interpretation of the Multiple Dwelling Law and their unwillingness to allow landlords to profit from illegal arrangements.

Safety Concerns

The City of New York has emphasized the dangers of illegal apartments, particularly those in basements and cellars. As noted in 274 E. 175 REALTY LLC v. Rodriguez (2023):

"Occupants of illegal basement and cellar apartments face potential dangers such as carbon monoxide poisoning, inadequate light and ventilation, and inadequate egress in the event of a fire."

These safety concerns are a primary reason for the strict enforcement of housing laws and the courts' unwillingness to allow the collection of rent for illegal apartments.

Potential for Rent Recovery

Despite the strict stance against illegal apartments, there are circumstances where landlords may recover rent. In Pickering v. Chappe, 29 Misc. 3d 6 (1st Dept. 2010), the court ruled:

"There is no bar to the recovery of rent when a dwelling that has a certificate of occupancy as a one-family dwelling contains an illegal apartment."

However, it's crucial to note that this only applies when the dwelling does not constitute a multiple dwelling under the law.

Additionally, landlords may have options for recovering rent once they bring their properties into compliance. In Zane v Kellner 240 A.D.2d 208 (1st Dept. 1997), the court directed a tenant to pay use and occupancy into court until the landlord obtained a certificate of occupancy. Furthermore, as suggested in Christos v Papastefanou 3 (2000), once a landlord brings the premises into compliance, they may be able to recover previously accrued rent arrears.

Conclusion

The legal landscape surrounding illegal apartments and rent collection in New York is complex and largely favors tenant protection. Property owners must be vigilant in ensuring their dwellings comply with all relevant laws and regulations. The consequences of non-compliance extend beyond mere financial losses, potentially including criminal penalties and civil fines.

As stated by the Acquino court: "The court makes it clear that the Landlord cannot collect rent on an illegal apartment." This principle underscores the importance of compliance in New York's rental market.

As the housing market continues to evolve, it's crucial for both landlords and tenants to stay informed about their rights and responsibilities. Landlords should be particularly cautious about creating de facto multiple dwellings, as the courts have shown little leniency in such cases. Tenants, on the other hand, should be aware of their rights and the potential safety risks associated with illegal apartments.

Ultimately, adherence to housing laws not only ensures legal compliance but also promotes safer living conditions for all New Yorkers. Property owners considering creating additional living spaces should consult with legal professionals and obtain proper permits and certificates of occupancy to avoid the severe legal and financial consequences associated with illegal apartments.

 

1 “No rent shall be recovered by the owner of such premises for said period [without a valid certificate of occupancy], and no action or special proceeding shall be maintained therefor, or for possession of said premises for nonpayment of such rent”

2 Stating in relevant part that “no rent shall be recovered by the owner of a multiple dwelling who fails to comply with such registration requirements until he complies with such requirements.” This section also states that any rent paid by a resident voluntarily during such a period is barred from recovery, essentially barring recovery prior to any action being commenced, with some limited exceptions.

3 Unreported but cited to by the Zane court for the reasoning stated.