Rent deposit to begin Oct. 19th

Real Estate Weekly, Oct 8, 1997 by Lois Weiss

Coinciding with the requirement to collect these deposits, and as part of the Housing Court Program announced last week [see story on court reform below], a dedicated Rent Deposit Part is being established in each courthouse and will be up and running on October 20th, as the full force of that provision kicks in.

To provide "for consistent treatment of cases," either a Civil Court or Housing Court judge will preside over this courtroom and will hear all matters related to these rent deposits.

According to the new provisions that were instituted as part of the State Rent Regulation Reform Act of 1997, upon a second adjournment at the request of the respondent/tenant or upon the 30th day after the first appearance by the parties, a deposit of rent for use and occupancy must be made with the court within five days.

Should the owner request a delay at the first appearance, the 30-days won't start running until after that time. For small buildings with 12 or fewer units, any undisputed rent is to be paid directly to the owner, with the balance into escrow.

Keep in mind there are also provisions that limit the deposit of rent in court requirements for senior citizens and certain public assistance recipients.

Experts say the judges are supposed to have no discretion, and after two adjournments would be required to order the payment into escrow.

But attorneys warn that only rental amounts due after the petition is sent will be subject to these requirements, and the law will not affect back rental amounts due or current cases under adjudication.

No tenant will be affected, either, until a petition containing new wording requiring the deposit of rent is served upon them.

But when that language should be inserted is sparking different approaches. At least one lawyer is already inserting very specific language into all petitions currently being served on tenants on the theory that the case won't come to trial until after the effective date of the new law, so that case can then be covered by the deposit of rent provisions.

"I don't want any judge saying, 'You don't have the language in your petition, therefore you cannot demand it.' The language will make it clear the provision goes into effect on a data certain, and lay out the provisions of the new deposit of rent requirements," said attorney Joel A. Mitofsky, a partner with Mitofsky & Shapiro of Manhattan. "The more notification you give a tenant, the better the judges like it."

Besides, he says, what commonly happens is that the first time a case is on the calendar the tenant will request an adjournment, or an inspection, or won't appear. That automatically refers the case to a Wednesday afternoon for a default hearing. But instead of entering a default, the judge will usually set another trial date.

"So the odds are very good that a fair percentage of the cases won't get resolved until after the deposit of rent requirement goes into affect," Mitofsky explained.

But another attorney, and the heads of both the Rent Stabilization Association (RSA) and the Community Housing Improvement Program (CHIP), believe waiting for the law to come into full effect before serving the petition containing the requisite language is a safer game to play.

Since the notice placed by the court in the New York Law Journal said the deposit of rent was effective October 17th, Dan Margulies, CHIP's executive director, advised "Take a belt and suspenders approach," and include the new notice by October 17th, but no earlier.

Lawyers say the act was signed on June 20th by the Governor, and counting as "one" the following day, are supposed to go into effect 120 days later. This falls on October 19th -a Sunday - therefore tipping its enforcement to the next day, Monday, October 20th.

"There is a school of thought that says even if you serve it earlier, and the first court appearance is after the 20th, you may be able to claim the deposit," said Margulies. But he said it would be "a waste of time" and a "waste of money" to litigate over that issue, which will soon be moot.

"It's already the beginning of October," agreed Joseph Strasburg, the RSA's president. "I wouldn't do anything until the law goes into effect. We have only a few days to wait."

Attorney Eugene Reisman, a partner with Novick Edelstein Lubell Reisman Wasserman & Leventhal of Yonkers, says owners will have to stay closely in touch with their lawyers so they know exactly what the courts are doing and when new notices should be served and in what form.

It is also important to stay abreast of any developments, since Legal Aid and tenant organizations will probably attempt to obtain judicial stays of the deposit of rent requirements.

Since the lack of a deposit will permit owners to obtain a judgement of possession without the tenant having a trial, it "rubs against the grain of the housing court judges," said Mitofsky. "A lot of us expect a constitutional challenge being mounted on the constitutionality of that very law. Things will be happening from many angles."