Landlord Can't Prove Good Faith Intent to Withdraw Rent-Stabilized Apartment from Market

Landlord applied to the DHCR in 2020 for a ruling granting permission to refuse to renew a rent-stabilized tenant's lease because it sought to remove the apartment from the rental market for its own business use. The DRA ruled against landlord in 2021, finding that landlord failed to demonstrate a good faith intent to withdraw the apartment on that basis.

Landlord appealed and lost. The DHCR found that landlord failed to show it had the financial ability to complete the proposed project. Landlord had failed to submit DOB-approved plans for the project to the DRA for review. Landlord then filed an Article 78 court appeal of the DHCR's decision, arguing that the DHCR shouldn't have decided the case without conducting a hearing. The court agreed and sent the case back to DHCR.

After conducting a hearing, the DHCR again ruled against landlord, citing Rent Stabilization Code Section 2524.5(a)(1)(i). The DHCR's hearing report again found that landlord had failed to provide proper proof of financial ability to perform the proposed conversion work. There was no firm commitment letter from a financial institution or a bank statement in the building owner's name showing a segregated bank account of sufficient size that was specifically earmarked to complete the project. Therefore, landlord had failed to show a good faith intent to withdraw the apartment from the rental market for business use. The hearing report also stated that landlord showed a lack of "sufficient identity" and failed to show a "business need" to undertake the proposed project. Landlord operated its business using a combination of staff and facilities of other entities for which it was actually seeking to recover the apartment. The DHCR also found that landlord was seeking to evict the building's last remaining rent-stabilized tenant as a matter of convenience and showed no business necessity.

351 Canal Street LLC: DHCR Adm. Rev. Docket No. LQ410003RP (2/22/24)[3-pg. document]