Philadelphia Skyline

Itkowitz PLLC Helps a Building Emerge from AEP, Avoid a 7A Administrator, and Get Back on Track

July 24, 2017

I had a young, out-of-town client come to me after buying her first multifamily property(1). She and her closing attorney did not do Rent Stabilization Due Diligence before the purchase. Therefore, she was surprised to find out that she just bought a building in AEP Program (worst buildings in NYC), on a rent strike, with a motion to appoint a 7A administrator looming.

It was a long year. But my client did everything right. She fixed the building top to bottom. She gained the trust of the tenants. I developed a nice working relationship with Legal Aid. Repairs were done, the number of violations dwindled, a lead violation was removed, the cooking gas and hot water were restored, and AEP went way. As a new chapter ushered in for the building, Legal Aid and I struggled to normalize things. It is a fascinating phenomenon to watch a building come back to life like that. Things work – water flows, heat comes on, things function. The landlord and the tenants communicate again. The rent actually gets paid! The balance of this post is about the boring, mundane, but important details of a building emerging from the brink of disaster, from the point of view of a landlord’s lawyer.

Arrears and the abatements. The tenants were supposed to be paying into an escrow for over a year. Not all of them did, and no one was monitoring the account, so some were pretty far behind. In any event, the tenants were owed abatements. Synching the arrears to the abatements was an exercise that was not fun. But it was still nice for the landlord to finally get a small infusion of funds on a building that it had yet to have any cash flow on. 

The legal rents needed to be agreed upon. Records were scant. There was, of course, the obligatory $78/month rent control tenant that DHCR has no paper work on, or worse, different paperwork on for each FOIL request. But the parties agreed upon the legal rents based on available lease and DHCR documents and memorialized our conclusions in a stipulation.

Leases and riders needed to be prepared and executed.

One tenant of the building was not in the Tenant Association (“TA”) and, therefore, she was hard to contact. Although this tenant was not in the TA, she was taking advantage of the situation at the building and not paying her rent. We had to get her attention (via a nonpayment proceeding) so that she too would pay rent. 

It is absolutely imperative in situations such as this that any lingering DHCR Rent Reduction Orders be dealt with. Legal Aid agreed to give me letters (that I drafted) to send to DHCR to get the rent restored. A Rent Reduction Order has the effect of freezing the rent, no matter how many years ago it was entered. Cintron v. Calogero, 15 N.Y.3d 347 (2010).

All other loose-end DHCR proceedings, motions, and Housing Court matters had to be discontinued.

An application for a 7A Administrator comes along with a Notice of Pendency. Such Notice of Pendency (a lis pendens) needs to be lifted of record, or a building can never be refinanced. This requires affidavits and an ex parte motion.

Finally, it is good to ask Legal Aid for confidentiality in these matters. Specifically, I asked them not to write a hyperbolic blog post for their funders about how they brought my client to her knees. The truth was -- we cooperated. I told them they could write a blog post about the cooperation and success story for both sides. Looks, however, as if I beat them to it!

Respectfully submitted,

Michelle Maratto Itkowitz

(1) Details changed to protect the innocent.

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