Landlord Must Make Building Habitable After Fire

Facts: In early 1994 landlord's six-story, 60-unit building was severely damaged by fire. Most of the roof and sixth floor were demolished, and portions of them collapsed into the fifth floor. The rest of the building was badly water-damaged. All tenants had to vacate the building. The building had been converted to co-op ownership. Rent-stabilized tenants and co-op lessees sued landlord sponsor, who still held two-thirds of the building shares, and the co-op corporation. Tenants demanded that the building be made habitable. Landlord claimed that this was economically unfeasible and that the so-called marine rule should apply. Under the marine rule, if the cost of restoring a ship or commercial building is more than one-half of the value of the building prior to the fire, then it is deemed to be totally destroyed and repair isn't required. Court: Tenants win. The marine rule doesn't apply to residential buildings, especially where there are rent-stabilized tenants and co-op tenants who have a substantial financial investment in the building. Landlords also underinsured the building, so any economic hardship faced in making required repairs was self-inflicted. The co-op offering plan stated that $300,000,000 insurance would be carried for 100 percent of replacement cost. But ''to save money,'' landlord sponsor reduced this insurance to $200,000,000 while the co-op offering plan still contained the original figure. The $300,000,000 insurance obligation remained in effect because landlord didn't amend the offering plan.

Bernard v. Scharf: NYLJ, p. 30, col. 3 (10/25/95) (Civ. Ct. NY; Wendt, J.)