Court says flophouses fall under rent stabilization

Real Estate Weekly, April 20, 1994

In a case that could create reverberations for the future of New York's housing for the poorest citizens, an Appellate Division court panel issued a divided opinion late last month ruling that "flophouses" come under the meaning of the Rent Stabilization laws. The case will be appealed, said the attorney for the owner.

In the case of Gracecor v. Hargrove, the court determined 2-1 that even though William Hargrove's cubicle at the Bowery's Palace Hotel lacked a bathroom or proper walls, it was equivalent to a "housing accommodation" under the rent laws.

Dan Margulies, executive director of the owner's ground Community Improvement Program, still while he sympathizes with the owners, there are in fact stabilized spaces and stabilized storage facilities in buildings throughout the city.

"The quality of the housing makes no difference," he said. "The finding is just another clear example of how stupid the law is. The law is sweeping and it cuts down everything in its path.

Joseph Strasburg, president of the Rent Stabilization Association, another owner's group, agreed the ruling "is a dumb interpretation" and is concerned about its long-term applicability to other forms of housing. Strasburg said this could affect homeless shelters and temporary Tier II housing.

"That program is designed to provide transitional housing for those citizens who are beginning to make a new life for themselves and weans them from the streets through these transitional programs to finally reside in their own apartments," explained Strasburg. "Does this [ruling] mean you are precluded from throwing them out [of the transitional housing]?." Strasburg said the RSA has offered to help the owners in their appeal.

The case began in 1990, when the hotel owners sought to evict William Hargrove as a holdover tenant who had long before ceased paying his $6 nightly rent. Hargrove moved out about a year ago, anyway, after burning up his cubicle, said the owner's attorney, and the cubicle itself was discarded when the property was leased to a non-profit agency that serves the homeless.

In dissenting, Justice Stanley Parness said it was unreasonable to equate the rental of a bed with the rental of a housing accommodation. The "law does not, or at least should not, extend stabilization protection to a mattress," he wrote. Justice Kristen Booth Glen and William P. McCooe, however, concurred that since the hotel, as a Class B lodging, was not specifically exempt from the Emergency Tenant Protection Act, the lower Civil Court had acted correctly in dismissing the holdover petition.

The East Side SRO project, a division of the MFY Legal Services. handled the appeal for Hargrove, who has since disappeared. Margulies said the only situations where such a tenancy has become an issue is where legal services has come into the picture, usually, he added, "with the least desirable tenant who disturbs everyone else."

"It probably won't affect that building at all because its being renovated for another use", said the owners attorney, Lawrence P. Wolf. "It will have some repercussions. The real impact is that the State of New York and the DHCR have not promulgated regulations for this kind of housing

Margulies calls this "the biggest gap in rent registration." The owners and tenants are unsure if they are covered or not and typically do not think of the buildings as the kind of housing that might be covered under rent regulation, he noted.

Wolf agrees that perception was always the problem. "The Division of Housing, and Community Renewal (DHCR) says these buildings aren't subject to the Rent Stabilization laws."

Wolfs' client, he maintains, only had five of these dormitories anyway, while the rental laws kick in once there are six units or more. Additionally, there were lapses in the jurisdiction over these units by rent administration offices, a fact the judges ignored, Wolf added.

DHCR spokesperson Louis Ganim said the agency has had jurisdiction over SRO's for the last ten years and is capable of dealing with these kinds of issues. Ganim was unsure of what the impact of the case would be. "It raises the prospect that we could get complaints," he said, "And if we got a complaint we would have to look into it.

But he agreed with Wolf, "My understanding is that the rent law does not apply to transient situations," Ganim said.

Martin J. Heistein, a partner with Belkin Burden Wenig & Goldman and former in-house counsel to the RSA, said he felt the justices did not fully consider the broader implications of placing, the onerous administrative burden of rent regulation on these spaces designed for transient living

Wolf said he would file a notice of appeal.

"I believe this is appealable," said Strasburg. "I'm focused on the fact that the Appellate Term said unless the legislature specifically excludes it, we will incorporate it into the rental laws."