Corporate Income Can't Be Considered in Deregulation Application

Facts: Landlord applied to the DHCR for high-rent/high-income deregulation of tenant's apartment. Tenant's rent was over $2,000 per month, and landlord claimed that tenant's annual income was over $250,000 for each of the two years in question. Tenant was a successful interior decorator, who was permitted under his lease to operate his business from his apartment. The lease was in tenant's name individually, but tenant's business was a corporation with its address listed at the apartment. Tenant's corporation paid the rent, and his office was located in the apartment. It was unclear whether tenant actually lived there. Landlord claimed that tenant used the corporation to funnel personal expenses, and that tenant's actual income was over $250,000 per year. Tenant's declared federal adjusted gross income was below that amount and appeared low in relation to his lifestyle. Landlord claimed that tenant's corporation must be considered a ''person'' occupying the apartment as a primary residence whose income should be included in the DHCR's determination of tenant's annual household income. The DHCR ruled against landlord, and landlord appealed. Court: Landlord loses. The court agreed with landlord that the corporation could be considered a person who occupies a housing accommodation as its primary residence. The corporation paid the rent and used the apartment as its principal, if not only, place of business. But the court agreed with the DHCR that the agency wasn't required to verify the corporation's income because the law didn't provide a way to get certification from tenant or verification from the State Department of Taxation and Finance (DTF) of the corporate occupant's income. There is also no equivalent to federal adjusted gross income on corporate income tax forms. So there was no level of income that the DHCR could verify under the law. Since the legislature didn't provide a way to verify a corporate occupant's income under the high-rent/high-income provisions of the rent regulation laws, and there was no logical way for the DTF to comply with the income verification requirement in relation to corporations, the court had to conclude that the legislature didn't intend to include corporate income when determining tenant's annual income for deregulation purposes. This was a ''loophole'' that had to be changed by the law, not by the courts.

Nestor v. DHCR: NYLJ, p. 28, col. 6 (1/15/98) (Sup. Ct. NY; McMahon, J)