Court of Appeals Upholds Loft Board Rejection of Landlord-Tenant Settlement Creating Illegal Living Arrangement

In March 2014, four residents of a loft building submitted Loft Law coverage applications to the NYC Loft Board, seeking to compel landlord to legalize the building as an interim multiple dwelling (IMD). Landlord claimed that the residents weren't subject to Loft Law coverage. In 2015, the parties entered into a settlement agreement that they submitted to the Loft Board. It provided that tenants would withdraw the coverage application and landlord would recognize tenants as covered by the Rent Stabilization Law and would register the units with the DHCR as rent stabilized. Landlord also agreed not to increase rents until a certificate of occupancy (C of O) was obtained and to use reasonably diligent efforts to obtain a new C of O for residential use.

The Loft Board's ALJ recommended acceptance of the settlement agreement, but the Loft Board rejected the agreement, finding it against public policy and sent the applications back for further consideration and determination. Landlord and tenants sought reconsideration from the Loft Board, arguing that the loft building formed a horizontal multiple dwelling with the adjoining building and therefore was rent stabilized. The Loft Board denied the reconsideration applications. Landlord and tenant then filed Article 78 petitions for judicial review. The court ruled for landlord and tenant.

The Loft Board appealed and lost. The Appellate Division found that it was irrational to refuse to allow tenants to withdraw their conversion application because the Loft Law wasn't the sole basis for legalization of the loft units. The Loft Board should have permitted withdrawal of tenants' applications. 

The Loft Board then appealed to New York's highest court. The Court of Appeals reversed the Appellate Division order, and sent the case back to the Appellate Division with directions to remand the matter to the Loft Board for further proceedings. In accordance with city regulations under 29 RCNY Section 1-106(j)(5), the Loft Board reviewed and rejected the parties' proposed settlement agreement, finding that it perpetuated an illegal living arrangement. The rationality of that decision was not before the Court of Appeals. The Court of Appeals found that, under these limited circumstances, it wasn't irrational for the Loft Board to remand for further proceedings, thereby declining to give effect to a provision of the settlement agreement in which tenants withdrew their application for Loft Law coverage.

Matter of Callen v. New York City Loft Board: 2022 NY Slip Op 00957 (Ct App; 2/15/22; DiFiore, CJ, Rivera, Garcia, Wilson, Singas, Cannataro, JJ)