Civil Court of the City of New York, New York County, December 21, 2020

Romer Debbas, LLP, New York City (Steven Kirkpatrick of counsel), for 524 West 134th LLC, proposed corespondent.

Department of Housing Preservation and Development, Housing Litigation Unit, New York City (Lynette Parker of counsel), for Department of Housing Preservation and Development, respondent.

Burton & Burton, P.C., Lynbrook (David Burton of counsel), for RPAPL article 7-A Administrator.

[*2]Manhattan Legal Services, New York City (Jerome Frierson of counsel), for petitioners.

The decision/order of this court on this order to show cause is as follows:

This is an RPAPL article 7-A proceeding with a petition dated March 16, 2017, brought by five petitioners/tenants. The subject building is located at 524 West 134 Street, New York, NY 10031.

Under RPAPL 770 (1),

"One-third or more of the tenants occupying a dwelling located in the city of New York or the commissioner of the department of the city of New York charged with enforcement of the housing maintenance code of such city . . . may maintain a special proceeding as provided in this article, upon the ground that there exists in such dwellings or in any part thereof a lack of heat or of running water or of light or of electricity or of adequate sewage disposal facilities, or any other condition dangerous to life, health or safety, which has existed for five days, or an infestation by rodents, or any combination of such conditions; or course of conduct by the{**70 Misc 3d at 953} owner or the owner's agents of harassment, illegal eviction, continued deprivation of services or other acts dangerous to life, health or safety."

Specifically, paragraph 7 of the petition described conditions dangerous to life, health and safety including repeated lack of heat and hot water, missing and/or broken fire alarms, an infestation of mice and roaches, eroded brick on the exterior of the building, missing fire alarms and much more. When the proceeding was commenced, there were 200 Department of Housing Preservation and Development (HPD) code violations. The petition claimed that the owner, Cundel Realty, and head officer, Eugene Cundelan, abandoned the property and left the premises without a "functioning landlord." As such, the petitioners asked the court to appoint an administrator under article 7-A of the RPAPL to effectively manage the subject premises.

The role of a 7-A administrator may include the following duties: to receive and [*3]administer the rent monies and security deposits, order necessary materials, labor and services, remedy open HPD code violations as required by law, rent or lease empty units in the building, hire a superintendent and borrow funds from HPD for repairs. (RPAPL 778.) However, the first duty of a 7-A administrator is to remove housing code violations on the building. (Andrew Scherer & Jean T. Schneider, Residential Landlord-Tenant Law in New York § 19:47, Article 7A Administrator—Powers and Duties of Administrator [2020-2021 ed].)

Judge Peter Wendt on December 5, 2017, issued an "Order Appointing a 7A Administrator" for the subject building. The order appointed Allan Heussinger of West Realty Group as the 7-A Administrator to manage and make repairs to the building, and the order also contained other decrees. More than two years later, Cundel Realty sold the subject building to the movant, 524 West 134th LLC (current owner), pursuant to a bargain and sale deed dated January 2, 2020.

Now, the current owner moves by order to show cause seeking multiple relief. First, the current owner moves to join the proceeding as a corespondent. Second, the current owner asks the court to discharge the article 7-A Administrator of his duties. Third, the owner asks that the Administrator file with the court and serve upon counsel for all parties a full accounting{**70 Misc 3d at 954} of all receipts and expenses, during the 7-A Administrator's appointment, pursuant to RPAPL 779 and paragraph 10 (h) of the article 7-A order. Fourth, the movant seeks to have the 7-A Administrator disburse all remaining funds in its bank account to the owner.

The 7-A Administrator opposes the motion indicating that he has dutifully performed his obligations under the order. For example, he states that there have been significant repairs to the subject building since he was appointed, including the installation of doors and windows throughout the building, façade repairs, roof repairs, and repairs to the heating plant. (Heussinger aff ¶ 7.) Mr. Heussinger explains that there are currently 14 vacant units in the building and admits that many of the HPD violations^[FN1] are in those units. The Administrator further argues that the current owner's application to remove him is premature because he can only be discharged after all conditions giving rise to his appointment are corrected. Additionally, the Administrator argues that the movant/current owner has not submitted a plan for the continued maintenance and operation of the building, as is required before the building can be entrusted to the owner.

HPD also opposes the motion. HPD argues that the current owner has not met the necessary requirements to discharge the 7-A Administrator for several reasons. First, per Swallow v Schnipper (NYLJ, Sept. 21, 1984 at 14, col 4 [App Term, 2d Dept, 2d & 11th Jud Dists 1984]) the party moving for the removal of a 7-A administrator must show (1) that all necessary repairs have been made or essential services provided and (2) that there is an ongoing plan for the maintenance of the building. According to HPD, no such showing can be made, since there currently are 206 open HPD violations for the subject building. These open violations include paint and plaster, defective wood floors, electrical work and vermin extermination. (Parker affirmation ¶ 5.) Second, HPD argues that the current owner has not set [*4]forth a plan for the continued maintenance of the building (i.e. financial plans, payment of real estate taxes, water charges, fuel costs or unforeseen expenses that may arise).{**70 Misc 3d at 955}

HPD also argues that the current owner must complete and submit a sponsor review to HPD to determine if the owner has the financial means to maintain and operate the building. According to HPD, the current owner's failure to submit the sponsor review compliance packet raises questions as to whether it can financially maintain the building going forward.

Additionally, HPD indicates that $536,000 is owed in city real estate taxes for the building. Under RPAPL 778 (11), "[t]he court may only discharge an administrator if the owner has paid in full or entered into a payment agreement to pay in full all outstanding real property tax liens claimed by the city of New York, [and] all outstanding emergency repair liens filed." As such, HPD argues that the discharge of the Administrator cannot occur until the taxes are paid.

Lastly, HPD opposes the request that the monies in the Administrator's possession be turned over to the current owner. According to HPD, paragraph 7 of the article 7-A order sets forth a priority list detailing the order of preference for the disbursements of the funds collected by the 7-A Administrator. These funds must first be used to pay for all work specified in the petition and payment for the services of the Administrator. The second disbursement priority is payment of outstanding property tax liens. Here, there are $536,000 in outstanding real estate taxes for the subject building that need to be paid.

However, HPD does not oppose the current owner's request for accounting of receipts and expenditures of the 7-A Administrator. Paragraph 10 of the order requires the Administrator to keep written accounts itemizing the receipts and expenditures of the building and to keep it open at any reasonable time for inspection by the owner as also enumerated in RPAPL 779. HPD asks that the current owner only be provided with accounting records from the time of its purchase and thereafter.

Counsel for the petitioners did not submit written or oral opposition to the motion.

Mr. Obstfeld, the managing agent of the current owner, argues in reply that the subject building is in worse condition now than when the 7-A Administrator was appointed. (Obstfeld aff ¶ 2.) For instance, he submits that now there are more HPD violations in the subject building. Mr. Obstfeld argues that he has provided a strong plan to make repairs to the subject building and has established a verifiable record with{**70 Misc 3d at 956} HPD regarding two other neighboring buildings it owns. This indicates that he would be better suited than the 7-A Administrator to correct the violations in the building. (Id. ¶ 3.) Mr. Obstfeld attaches a copy of the owner's insurance policy showing that the owner added the 7-A Administrator as an additional insured on its insurance policy as an act of good faith. (Id. ¶ 5; exhibit D to reply [copy of certificate of liability expires Jan. 3, 2021].)

Regarding the current owner's ability to pay real estate taxes, water charges, fuel costs or unforeseen expenses, Mr. Obstfeld attaches a copy of the current owner's primary operating bank account showing a balance of $663,679.60. (Exhibit E to reply.) He estimates that the subject building's HPD violations can be corrected at a cost of less than $100,000. (Id. ¶ 7.) Based on the bank account balance and estimated costs of repairs, Mr. Obstfeld states that the current owner has established its ability to financially maintain the building. Lastly, Mr. Obstfeld indicates that his attorney submitted to HPD a completed sponsor review or compliance [*5]package, even though he believes that the owner is not legally obligated to complete such a package. (Id. ¶ 9.) According to Mr. Obstfeld, those types of packages are contemplated for companies or individuals developing buildings in partnership with the City and therefore are not applicable to applications to relieve 7-A administrators.^[FN2]

The current owner argues in reply that the appointment of a 7-A administrator is not intended to be punitive to an owner. Instead, a 7-A administrator is appointed to allow for tenants to use their rent money for the expeditious repair of emergency conditions in the building. (Matter of Brodie v Alam, 62 Misc 3d 1214[A], 2018 NY Slip Op 51966[U] [Civ Ct, Kings County 2018].) As such, counsel argues that HPD and the 7-A Administrator's opposition to the motion equates to punitive behavior because paragraph 13 of the order prohibits the owner from interfering with the Administrator's management, operation and control of the premises. At minimum, the current owner asks this court to modify the order to allow it to begin making repairs.{**70 Misc 3d at 957}

[1] Under NY City Civ Ct Act § 110 (d), the court, on its own motion, may join any person as a party in order to effectuate proper housing maintenance standards and to promote the public interest in actions or proceedings involving the enforcement of state and local laws for the establishment and maintenance of housing standards. Here, 524 West 134th LLC is the current deed owner of the subject building. (Exhibit B, bargain and sale deed.) As such, it is a necessary party to this proceeding for enforcement of maintenance of housing standards, and this court, under NY City Civ Ct Act § 110 (d), joins 524 West 134th LLC as a corespondent to this proceeding. The nonparty motion^[FN3] to join the current owner as a corespondent is granted on this court's own motion, under NY City Civ Ct Act § 110 (d). Accordingly, 524 West 134th LLC is added as corespondent.

Moreover, the current owner moves to discharge the article 7-A Administrator. The RPAPL is explicit and detailed about the appointment and duties of a 7-A administrator. It is less detailed about the criteria for the removal of an administrator. Given the lack of statutory guidance, appellate and lower courts have developed a legal framework for deciding whether it is proper to relieve a 7-A administrator. This common-law precedent details a two-step showing that must be made before the 7-A Administrator can be relieved. The movant must first show that all necessary building repairs have been made or essential services provided. Once that benchmark is established, the movant must then show that there is an ongoing plan for the maintenance of the building. If either of these two showings are not made, then "a court would be remiss in granting a motion seeking the discharge of the Administrator" (Swallow v Schnipper) because it would risk placing the building in a state of abandonment to the detriment of the tenants. (Mercer v 944 Marcy Ave. Holding Corp., 92 Misc 2d 564 [Civ Ct, Kings County 1977].)

[2] Here, the current owner has not been able to show that the necessary building repairs [*6]have been made or essential services provided. There are over 200 open HPD violations that have not been corrected which is the primary duty of a 7-A administrator. Similarly, the owner has not shown or presented an ongoing plan for the maintenance of the subject building.{**70 Misc 3d at 958} (Department of Hous. Preserv. & Dev. v 333 W. 16 St. Assoc., NYLJ, June 7, 1989 at 21, col 1 [App Term, 1st Dept 1989].) Nathan Obstfeld merely states, "owner has provided a strong plan to make repairs and improvements to the Premises . . . and has established a verifiable track record in making repairs and improvements in the two other buildings that it purchased from the same seller." (Obstfeld aff ¶ 3.) The owner must be able to show more than good intentions to remedy the violations before an administrator is relieved. (Nicholas Ave. Tenants Assn. v Dixon, NYLJ, May 20, 1985 at 13, col 5 [App Term, 1st Dept 1985].) The fact that Mr. Obstfeld attaches a copy of a primary operating bank account showing a balance of $663,679.60 is not enough to support a strong ongoing plan for the maintenance of the building. (Exhibit E to reply.)

Additionally, this court is mindful that there are $536,000 in outstanding real estate taxes for the subject building that need to be paid. This tax payment is required by RPAPL 778 (11), otherwise, the Administrator can not be discharged. The $536,000 tax payment would leave a balance of $127,679.60 to correct the open 200 code violations and to maintain the subject building. Mr. Obstfeld did not submit any contractor estimates to confirm that the $127,679.60 balance would be enough to correct the violations nor has he been qualified as a construction expert to provide such estimates. He merely states that based on his experience in clearing similar violations, he believes the cost would be less than $100,000. (Obstfeld aff ¶ 7.) In sum, this court is not satisfied that the current owner in this motion has submitted an operating plan and financial information that sufficiently show it can pay outstanding taxes, clear violations of record and manage the property. (Snow v 131 W. 122 St. Corp., 2001 WL 36404983, *2 [Civ Ct, NY County, Sept. 17, 2001, index No. 99527/95].) Therefore, this court would be remiss and place the building in a state of abandonment to the detriment of the tenants if at this juncture, it would grant the owner the motion to discharge the 7-A Administrator. (Mercer v 944 Marcy Ave. Holding Corp.)

Accordingly, the motion to discharge the 7-A Administrator is denied without prejudice to resubmit upon a showing that the 7-A Administrator has corrected all open violations and the current owner has a specific ongoing plan for the maintenance of the building. However, if the owner can show that the 7-A Administrator has taken an unreasonable amount of time to perform his first duty as building administrator to remove all{**70 Misc 3d at 959} housing code violations, then the owner may resubmit a motion to discharge the 7-A Administrator detailing why such a delay is unreasonable and submit a detailed showing of their contractor plans, estimates for the cost of repairs, financials, proof of payment of outstanding real estate taxes on the subject building and ongoing plan for the maintenance of the building.

[3] The owner moves to have the Administrator file with the court and serve upon counsel for all parties a full accounting of all receipts and expenses, during the 7-A Administrator's appointment, pursuant to RPAPL 779 and paragraph 10 (h) of the "Order Appointing a 7A Administrator" dated December 5, 2017. This relief is denied for the reasons discussed below. Paragraph 10 (h) of the order is not applicable to these current factual circumstances because it relates to the Administrator submitting to HPD and the court a full accounting of all receipts and expenditures, upon completion of the work prescribed in the petition. Here, the work in the petition has not [*7]yet been completed, and those types of receipts are for submission only to HPD and the court. As such, the owner cannot seek such relief under paragraph 10 (h) of the article 7-A order.^[FN4]

However, paragraph 10 (a) of the article 7-A order indicates that the Administrator shall keep written accounts itemizing the receipts and expenditures made in conformity with the judgment pursuant to RPAPL 779. The accounting records shall be open at any reasonable time for inspection by the owner. The relief requested is clearly authorized under RPAPL 779 and paragraph 10 (a) of the article 7-A order. Accordingly, the 7-A Administrator, within 30 days of the date of this decision/order, through its counsel shall schedule with the owner's counsel a reasonable time to have the owner inspect all written accounting records itemizing the receipts and expenditures so far made in conformity with the judgment.

Lastly, the movant seeks that the 7-A Administrator disburse all remaining funds in its bank account to the owner. This{**70 Misc 3d at 960} request is denied. Paragraph 7 (a)-(d) of the article 7-A order sets forth a priority list detailing the order of preference for the disbursements of the funds collected by the 7-A Administrator. These funds must first be used to pay for all work specified in the petition and payment for the services of the Administrator. Until all work specified in the petition is completed, and payment of such work is made, no other disbursements shall be permitted. The second payment will consist of outstanding real property tax liens. The third payment will be for repayment of outstanding emergency expenses and liens. Then, the fourth payment will be to the owner of any surplus remaining, after disbursement is made of the first three payments discussed above. Here, the movant has not made a showing that the first three priority payments have been fully disbursed, thereby entitling it to a remaining surplus. As such, the movant's request to have the 7-A Administrator disburse all remaining funds in its bank account to the owner is denied.

Any other relief sought to have the owner access the subject building for inspection and repairs, prohibit the Administrator from entering into any agreements with contractors for repairs, and staying the Administrator from entering into leases for vacant units in the building is denied. Paragraph 13 of the article 7-A order clearly states that the owner is enjoined and restrained from entering the subject premises without the prior knowledge of the Administrator and interfering with the Administrator's management, operation and control of the premises.

This matter is adjourned to February 4, 2021, at 2:30 p.m. via Microsoft Teams for follow-up conference.

Ordered that the clerk is to add "524 West 134th LLC" to the caption as a corespondent and further,

Ordered that corespondent 524 West 134th LLC's motion to discharge the article 7-A Administrator is denied without prejudice to resubmit upon a showing of conditions discussed above and further,

Ordered that corespondent 524 West 134th LLC's motion to have the Administrator file [*8]with the court and serve upon counsel for all parties a full accounting of all receipts and expenses during the 7-A Administrator's administration is denied but granted in part as modified in the decision and further,{**70 Misc 3d at 961}

Ordered that corespondent 524 West 134th LLC's motion to have the 7-A Administrator disburse all remaining funds in its bank account to the owner is denied.