Petitioner commenced this summary holdover proceeding on or about September 11, 2012, seeking to recover possession of apartment No. 5B located at 906 Amsterdam Avenue, New York, NY, after the lease between the parties expired on August 31, 2012. The petition states that the subject apartment is not subject to rent regulation.

Respondent appeared by counsel, and interposed an answer asserting the following defenses and counterclaims: (1) the subject apartment is subject to rent regulation because of the building's receipt of J-51 tax benefits during Respondent's tenancy, the lease renewal did not provide Respondent with the requisite notice that the benefits would expire, and Petitioner illegally deregulated the apartment; (2) Petitioner violated § 741 of the RPAPL by improperly pleading the rent regulatory status of the apartment and failing to state any reason why the apartment is not subject to rent regulation; (3) Petitioner failed to properly register the apartment with the NYS Division of Housing and Community Renewal ("DHCR" herein); (4) Petitioner has charged Respondent an illegal rent and has overcharged Respondent entitling her to treble damages, and interest; and (5) an award of legal fees in the event she is the prevailing party.

The proceeding first appeared on the Court's calendar on September 27, 2012, and was adjourned. Subsequently, Respondent made a motion for summary judgment on the ground that the subject apartment is subject to rent stabilization because of the building's receipt of J-51 tax benefits, and was therefore illegally deregulated. The Court denied the motion finding that there were material issues of fact incapable of resolution on the papers, and restored the proceeding to the Court's calendar. The proceeding was then adjourned. On June 12, 2013, the proceeding was [*2]transferred to the Expediter, and referred to this part for trial on July 22, 2013.

At trial, Allyson Sachman Nick, the building's manager testified that she is employed by Sachman Enterprises which manages the subject building, and she has managed the building since 2007. Ms. Sachman Nick testified that in August of 2002 the tenant of record prior to Respondent's tenancy, Kate Tedesco, entered into a surrender agreement with Petitioner's predecessor and vacated the apartment sometime thereafter. Further, Ms. Sachman Nick testified that Respondent is the tenant of record pursuant to a lease with Petitioner's predecessor. Respondent's lease was for a 10-year term which expired on August 31, 2012. Ms. Sachman Nick described the apartment as a two bedroom duplex with a roof terrace. In addition, Ms. Sachman Nick testified that she was not familiar with the occupants of the apartment between September 2001 and September 2002 because she was not the building manager at that time, and she had no personal knowledge of the facts and circumstances surrounding the signing of the 10-year lease since she had only recently been informed by Petitioner of what took place at the time the lease was executed. Moreover, Ms. Sachman Nick testified that the subject apartment is not rent regulated because the J-51 tax benefits the building received have expired. However, she admitted that the petition failed to state this information.

Catherine Orenstein, the Respondent in this proceeding, testified that she has lived in the subject apartment since 1999. Ms. Orenstein testified that she and Kate Todesco, the original tenant of record, were schoolmates. Ms. Todesco, moved into the apartment with Ms. De Silva who later moved out of the apartment. At some point, both Respondent and Ms. Todesco inquired about the lease renewal for the apartment, and Respondent testified that she and Ms. Todesco were informed that Ms. Todesco's lease would not be renewed, and that the rent could increase to $3,200 a month based on major capital improvements, and the deregulation of the building. Ms. Orenstein testified that this became confusing, and that they contacted an attorney, and subsequently made a complaint to DHCR in January of 2001. In response to the DHCR complaint, Petitioner acknowledged that the apartment was subject to the rent stabilization laws, and informed DHCR that a renewal lease was sent to Ms. Todesco who did receive a signed lease renewal dated March 27, 2001, for a two-year term, commencing on July 1, 2001 ^[FN1].

Ms. Orenstein testified that Ms. Todesco was the only tenant on the lease at the time she moved in. Thereafter, there came a time when she and Ms. Todesco were having financial difficulties, and they received an eviction notice from Petitioner. Respondent testified that as a result, she obtained two cash advances from her bank, and paid the full amount of the rental arrears to Petitioner. Ms. Todesco asked Petitioner if Respondent could be added to the lease so that she could assist in paying the rent every month. Petitioner initially refused, but later asked that Respondent submit documentation for consideration. However, Petitioner then denied the request. Respondent further testified that only Ms. Tedesco signed the rent checks because Petitioner would not accept checks from anyone else. Sometime in 2002, Petitioner agreed to add Respondent to the lease on condition that Ms. Todesco first surrender her rights to the apartment. Petitioner later offered an unregulated lease to both her and Ms. Todesco who refused to sign it because there was still time left on her stabilized lease which was not due to [*3]expire until June 30, 2003. However, after initially rejecting Petitioner's offer, Respondent and Ms. Todesco subsequently entered into a 10-year unregulated lease with Petitioner for a term commencing on September 1, 2002 and ending on August 31, 2012, which included rent stabilized like' increases ^[FN2]. Respondent testified that this lease was signed on the same day that the surrender agreement was signed (August 27, 2002)^[FN3], and the surrender was a condition to Petitioner issuing a lease in both Respondent and Ms. Todesco's names. Both she and Ms. Todesco went to Petitioner's office where the documents were signed. Respondent testified that Ms. Todesco moved out of the apartment approximately a year after they both executed the unregulated lease.

Ms. Todesco then testified that she moved into the subject apartment sometime in 1999. Respondent, with whom she has had a friendship for 20 years since they met as graduate students at Columbia University, moved into the subject apartment with her in 1999, a few months after she moved into the apartment. Ms. Todesco testified that she took over the lease from Benjamin Hughes, the tenant of record at the time. Subsequently, she and Respondent entered into the 10-year lease with Petitioner. Sometime in 2002, Ms. Todesco encountered financial difficulties, and rental arrears accrued because she was transitioning from a full-time job to a part-time job as a freelancer. At that point in time, Ms. Todesco requested that Petitioner add Respondent to her lease, but Petitioner only agreed to do so on the condition that she first surrender her rights to the apartment. When they agreed on the terms, both the 10-year lease and the surrender agreement were executed on the same day. Ms. Todesco testified that she moved out of the subject apartment in the summer of 2003, approximately one year after signing the lease.

Petitioner's rebuttal witness JoAnn Valentino, the managing partner of Valsac 906 LLC, testified that she was also a partner of Valsac Realty LLC, Petitioner's predecessor. According to Ms. Valentino, she was the property manager for the subject building in 1996 while working for Jay Realty, and her duties included collecting rents and drawing up leases. In 1999, it was the office policy to add a new occupant as a party to the lease if the individual moved into an apartment with the tenant of record. The individual would have been required to fill out an application, and submit to a credit check and employment verification. However, if the individual did not meet the approval criteria, then the individual would not be added to the existing lease. Ms. Valentino testified that she is not familiar with Respondent, and she was unaware that Respondent resided in the apartment in 1999. As property manager, Ms. Valentino testified that she was in charge of 38 apartments in total, and would recognize the names of all the tenants. Further, Ms. Valentino added that she had not spoken to Respondent or Ms. Todesco about Respondent being added to the lease because in 2001 Jay Realty was no longer managing the subject building, and the company did not maintain records of requests of persons seeking to be added to existing leases. In January 2001, Ms. Sachman Nick became the managing agent of the subject building after Ms. Valentino ceased managing the building in December 2000. Ms. Valentino further testified that she had no knowledge of the 10-year lease between the parties.

Mr. James Valentino also testified in rebuttal. Mr. Valentino is a managing member of Valsac [*4]906 LLC, and was a managing member of Valsac Realty LLC, Petitioner's predecessor. Mr. Valentino testified that he became familiar with the subject building sometime between 1979 and 1981. According to Mr. Valentino, when he first saw the building, it was dilapidated: there were no locks on the doors, the boiler was not working, and the top floor was burnt. The building's owner at the time was 906-908 Amsterdam Tenants Corporation. The building became the subject of a foreclosure action commenced by the City of New York ("the City" herein) as a result of unpaid taxes. The City then took title to the building on April 17, 1981 ^[FN4]. Mr. Valentino testified that the corporation later paid the back taxes owed to the City, and the deed and the judgment of foreclosure to the City were later vacated on January 7, 1982 ^[FN5]. The property was transferred back to the corporation at which point Mr. Valentino became a shareholder. 906-908 Amsterdam Tenants Corporation then transferred the property to FBK Realty Corporation ("FBK" herein) on November 30, 1983 ^[FN6], and Mr. Valentino testified that he also became a shareholder of FBK. At that time, the building was not occupied, and the City had issued vacate orders for both 906 and 908 Amsterdam Avenue on November 25, 1981 ^[FN7]. Later, FBK transferred its ownership of the building to Valsac Realty LLC, and a gut renovation of the building was completed: a boiler was installed, electricity was restored, plumbing work was done, partitions were erected, and kitchens and bathrooms installed at a cost of more than $500,000. As a result of the renovation, a new certificate of occupancy was issued for the subject building ^[FN8]. Sometime after the new certificate of occupancy was issued, Petitioner applied for J-51 tax benefits with the City and began receiving the benefits during tax year 1986/1987. The J-51 tax benefits expired during tax year 1998/1999. Mr. Valentino testified that his understanding of the law is that after J-51 tax benefits expire, the apartments in the building become deregulated. Mr. Valentino also testified that he is familiar with Ms. Orenstein as a tenant of the building, and he first became aware of her as a tenant when the 10-year lease was signed. However, Mr. Valentino added that she was never a party to the rent stabilized lease.

Mr. Valentino further testified that the subject apartment has not been subject to rent stabilization since sometime between 2000 and 2001, but it was rent stabilized before Respondent and Ms. Todesco entered into the 10-year lease and had been from the inception of Petitioner's receipt of J-51 tax benefits until after they expired. Further, Mr. Valentino testified that he was familiar with J-51 tax benefits riders, but he had no knowledge of whether that specific rider was provided along with the original lease.

Pursuant to § 2520.11 (o) of the Rent Stabilization Code, housing accommodations in buildings completed or substantially rehabilitated as family units on or after January 1, 1974 which were originally made subject to regulation solely as a condition of receiving J-51 tax benefits, become exempt from regulation if after the tax benefits have expired the housing accommodation becomes vacant, or each lease and each renewal thereof of the tenant in residence at the time of [*5]expiration of the tax benefit period includes a notice informing such tenant that the housing accommodation shall become deregulated upon the expiration of the last lease or rental agreement entered into during the tax benefit period, and states the approximate date on which such tax benefit period is scheduled to expire (see Gersten v 56 7th Avenue LLC, 88 AD3d 189, 194, 928 NYS2d 515 [1st Dept 2011] see also DHCR Fact Sheet #41 "Tax Abatements").

The subject building was substantially rehabilitated sometime in the early 1980s, and a new certificate of occupancy was issued in 1984 thereby excluding it from rent regulation. However, after completion of the substantial rehabilitation, when Petitioner began receiving J-51 tax benefits commencing in tax year 1986/1987, the apartments in the building became subject to the rent stabilization code ^[FN9]. The DHCR rent registration information reflects that beginning in 1988, Petitioner complied with the requirements of the statute by registering the subject apartment with DHCR ^[FN10]. It is undisputed that the J-51 tax benefits expired during tax year 1998/1999 ^[FN11].

In 1999, Ms. Todesco joined the then tenant of record, Benjamin Hughes, as a party to the lease, and signed a lease renewal on December 23, 1999 for a one-year term commencing on February 1, 2000, and ending on January 31, 2001. Although Ms. Todesco signed this lease renewal when the J-51 tax benefits had already expired, she was added as a tenant on the renewal of the rent stabilized lease. The DHCR apartment registration information reflects that the last vacancy lease was entered into on February 1, 1995, during the period that Petitioner was receiving the J-51 tax benefits, and thereafter several renewal leases were executed. The original lease, which was required to include a notice informing the tenant that the building was receiving J-51 tax benefits, was not introduced into evidence, and the renewal leases introduced into evidence did not include the required notice to the tenant regarding the deregulation of the apartment after the expiration of the tax benefits as is required of buildings subject to rent regulation solely by virtue of receiving J-51 tax benefits pursuant to § 2520.11 (o) of the Rent Stabilization Code. Consequently, Ms. Todesco remained a rent stabilized tenant (see Spaeda v Bakirtjy, 189 Misc 2d 222, 730 NYS2d 826 [App Term, 1st Dept 2001]).

The purported surrender agreement signed by Ms. Todesco on August 27, 2002, provided that Ms. Todesco would leave the apartment in clean condition, and return the keys to Petitioner on or before August 31, 2002 (see ¶ 1 of the surrender agreement). Further, ¶ 2 of the surrender agreement states that "in the event Tedesco [sic] fully complies with all the terms and conditions of this Agreement, Landlord shall enter into a new lease with Catherine Orenstein and Kate Tedesco [sic] for a term of ten (10) years commencing September 1, 2002." There is no evidence that Ms. Tedesco complied with the surrender agreement. However, petitioner did enter into a lease agreement with both tenants.

It is well-established that "parties to a rent-stabilized lease may not contract out of rent [*6]stabilization,' even where their agreement bestows obvious advantages on the tenant" (Gersten, 88 AD3d at 199) ([internal quotation marks and citation omitted]). Moreover, "a landlord-tenant relationship under a rent-stabilized lease is principally defined and governed by statute" such that "pursuant to the RSL, the rent-regulated status of an apartment is a continuous circumstance that remains until different facts or events occur that change the status of the apartment" and the Appellate Division held that it "considers such legislative mandate so sacrosanct as to be impervious to waiver" (id.)

It is undisputed that Ms. Todesco did not vacate the subject apartment after signing the purported surrender agreement, and that her surrender was never actually intended. It is also evident that the surrender was merely a paper fiction. Rather, Ms. Todesco and Respondent entered into a lease on the same date that the surrender agreement was signed, and there was no interruption of Ms. Todesco's tenancy under the new lease.

It is permissible for a landlord to issue a new lease when a co-tenant who is not a family is added to the lease, and Petitioner may qualify for a vacancy allowance (see 132132 LLC v Strasser, 24 Misc 3d 140 (A), 899 NYS2d 61 [App Term, 1st Dept 2009]). But, this would not automatically remove the apartment from rent stabilization coverage (Strasser, supra). In fact, since Ms. Todesco remained in possession, and Petitioner made Respondent a co-tenant of Ms. Todesco, the unit remains subject to rent stabilization (see Matter of Hoy v State of New York Division of Housing and Community Renewal, 233 AD2d 120, 649 NYS2d 135 [1st Dept 1996]), and the unregulated lease is void pursuant to the Rent Stabilization Code §2520.13.

Petitioner did not include the required notice informing Ms. Todesco that the apartment would become deregulated at the expiration of the J-51 tax benefits. Pursuant to Rent Stabilization Law § 26-504 (c), a unit subject to rent stabilization as a result of the owner receiving J-51 tax benefits remains subject to rent stabilization until the first vacancy occurs after the expiration of the benefits if the required notices were not provided with the lease renewals. Therefore, in order to support its claim that the subject apartment is not subject to rent stabilization, petitioner must show that a vacancy occurred which caused the unit to be removed from rent stabilization.

For the reasons stated above, the surrender agreement did not interrupt Ms. Todesco's tenancy, and the signing of a new lease did not create a vacancy, even if a vacancy allowance was added to the rent. Ms. Todesco did not vacate the apartment upon signing the new lease which included Respondent a co-tenant, and her single tenancy became a double tenancy (see Matter of Equity Properties v Joy, 48 AD2d 630, 368 NYS2d 514 [1st Dept 1975]). Although Ms. Todesco vacated the apartment in 2003, Respondent remained in possession and vacancy decontrol does not attach (see Veltri v Joy, 55 AD2d 529, 389 NYS2d 105 [1976], affd 43 NY2d 660, 400 NYS2d 816 [1977]). Since Ms. Todesco did not vacate the apartment at the time of the new lease, there was no hiatus or actual physical vacancy, the apartment was not deregulated (Hoy, supra), and remains subject to rent regulation through Respondent's tenancy.

Based on the foregoing, the petition is hereby dismissed. Respondent's counterclaims for rent overcharge, treble damages, and legal fees are set down for hearing on February 26, 2014 at 9:30 a.m. in Part L, Room 1166. [*7]

This constitutes the decision and order of the Court.

All trial exhibits may be picked up in Part D, Room 524 within 30 days.

DATED: January 2, 2014

______________________ _______

Cheryl J. Gonzales, J.H.C.