Lopez v Evergreen Terrace LLC

Civil Court of the City of New York, Kings County

Decided on May 6, 2026

Index No. L&T 322842-24

Logan J. Schiff, J.

Recitation, as required by CPLR § 2219(a), of the papers considered in the review of Respondents-Owners' motion to vacate the default entered upon their failure to appear on November 13, 2025, and the resulting Order to Correct, and upon vacatur for dismissal of the Petition (mot. seq. 3): NYSCEF 48-72.

The court's decision and order is as follows:

BACKGROUND AND PROCEDURAL HISTORY

Petitioners, tenants in five apartments within an eight-unit, rent-stabilized building, commenced the instant group Housing Part (HP) proceeding by Petition dated August 7, 2024, seeking repairs following a fire on July 16, 2024, that resulted in the issuance of full vacate orders by the Department of Buildings (DOB) and the Department of Housing Preservation and Development (HPD).

Respondents-Owners (Respondents) retained counsel, which, after several adjournments, advised Petitioners that a DOB application for permits was "rejected and that DOB wants the building to be torn down due to its wood frame" (NYSCEF 15). Thereafter, Respondents counsel, Law Offices of Scott Gross P.C., moved to withdraw by order to show cause, which was granted by decision dated October 23, 2025, with the proceeding adjourned to November 13, 2025, for Respondents to retain new counsel. Respondents did not appear on the return date, and the court issued an Order to Correct on default directing Respondents to "take all steps necessary to have the HPD and DOB vacate orders rescinded and have the tenant petitioners restored to possession within 90 days" (NYSCEF 48).

Respondents then retained new counsel, the Law Office of Henry Graham P. C., which filed the instant motion by order to show caused dated December 18, 2026, to vacate their default pursuant to CPLR 5015(a)(1), and upon vacatur, to dismiss the proceeding. The matter was adjourned several times for settlement discussions and for Petitioners to submit opposition [*2]and was argued on April 16, 2026.

DISCUSSION

To be relieved from the consequences of a default judgment pursuant to CPLR 5015(a)(1), a movant must demonstrate both a reasonable excuse and a potentially meritorious defense (see Torres v DeJesus, 197AD 3d 1260 [2d Dept 2021]). "The determination of what constitutes a reasonable excuse sufficient to open a default lies within the sound discretion of the motion court." (Talsania v Sehgal, 79 Misc 3d 130 [App Term, 2d Dept, 9th & 10th Jud Dists 2023]). Factors the court should consider include whether the default was "intentional or prejudicial, and [if the movant] promptly moved for vacatur relief upon learning of the default judgment entered against her" as well as the "strong public policy of this State to dispose of cases on the merits" (1755 Jarvis LLC v Felix, 80 Misc 3d 132[A] [App Term, 1st Dept 2023]; see also Rooney v Zhou, 222 AD3d 678 [2d Dept 2023]).

Here, for their reasonable excuse, Respondents claim scheduling confusion caused the transition in their legal counsel, and the relatively short three-week adjournment afforded by the court following its order dated October 23, 2025, authorizing Respondents' former counsel to withdraw. Respondents' current counsel further avers that he was only retained on November 12, 2026, the day before the November 13 appearance, and that because of a prior engagement, he retained Nacmias Law as per diem counsel, which neglected to check in on time, resulting in a default judgment based on law office failure. While the mere assertion of "law office failure" is not a panacea for vacating a default judgment (see CitiMortgage, Inc. v Ramlal, 238 AD3d 976 [2d Dept 2025]), in the absence of any prior history of delay or neglect or indication of willfulness, the court finds Respondents' proffered excuse reasonable under the circumstances (see Diaz De-Rivas v Esplanade, 243 AD3d 407 [1st Dept 2025]; Davis v 574 Lafa Corp., 206 AD3d 613 [2d Dept 2022]; Quercia v Silver Lake Nursing Home, Inc., 176 AD3d 1244 [2d Dept 2019]).

As for potentially meritorious defenses to the underlying proceeding and the resulting Order to Correct, Respondents first argue that the court's Order is "void on its face" because it impermissibly directs them to correct all open immediately hazardous Class C violations of the Housing Maintenance Code (HMC) within 24 hours, an impractical, if not impossible, task that would necessitate unsafe work practices in violation of the building code.

Although Respondents are correct that correction of HMC violations within 24 hours is a legal impossibility under the present circumstances, and the boilerplate Order to Correct prepared by HPD, with its standardized timeframes for correction of code violations, may be poorly suited to a matter involving a vacate order after a fire, it is apparent from a closer reading of the Order that the court set an initial deadline of 90 days, not 24 hours. To the extent there is any inconsistency in the Order, the court construes the deadlines in Respondents' favor as providing 90 days for correction of all violations (see Viacom Outdoor Group, Inc. v. McClair, 62 AD3d 864 [2d Dept 2009]; Richards v. Estate of Kaskel, 169 AD2d 111 [1st Dept 1991]). In any event, any ambiguity in the Order does not render it void (see In re Landau, 230 AD 308 [2d Dept 1930]). Rather, the appropriate procedure is to move for clarification or modification (see id.; Matter of Rodriguez v Silva, 121 AD3d 794 [2d Dept 2014]).

Next, Respondents argue that they need not repair the subject building because they made the financial decision to demolish it, noting:

Respondents have a meritorious defense because they were entitled to demolish the building if they believed it was in their best interest and as long as it complied with the [*3]law. The Court's refusal to allow the premise to be demolished despite being supported by Building Code Rules mandates that The Order be vacated.

Petitioners' Affirm. at ¶ 76 (NYSCEF 50). While a novel defense, for which there appears to be a lack of on point appellate authority, for the reasons stated below, this court concludes that Petitioners' desire to demolish the building, absent a demonstration of economic infeasibility, does not relieve them of their obligation to make repairs or furnish a defense to this proceeding.

When a building is evacuated pursuant to a governmental vacate order following a natural disaster, including a fire, tenants may commence a special proceeding in the Housing Part against the owners to correct the conditions underlying the vacate order (see Harvey v Miller, 86 Misc 3d 133 [App Term, 2d Dept, 2d, 11th, & 13th Jud Dists 2025]; Eyedent v Vickers Management, 150 AD2d 202 [1st Dept 1989], citing NYC Admin Code § 27-2140[c][1]; Civil Court Act 110[a]). In the case of rent-stabilized tenants, who generally have the right to renewal leases, they make also seek an order from the Division of Housing Community & Renewal (DHCR) reducing their rent to a nominal $1 per month for the period of the vacate order and retain constructive possessory rights pending restoration (see 9 NYCRR (RSC) § 2500.9 [6] and [7]; DHCR Operational Bulleting 95-2; 1000 LLC v Calogero, 17 AD3d 157 [1st Dept 2005]; Ecco Land Corp. v. New York State Div. of Hous. & Cmty. Renewal, 11 AD3d 683 [2d Dept 2004]).

Historically, there have been only two judicially recognized defenses to a duly served HP proceeding commenced by the tenants of a rent-stabilized dwelling against their landlord to compel repairs following the issuance of vacate order: (1) economic infeasibility, and (2) impossibility by virtue of the effective demolition of the premises (see Vargas v. 112 Suffolk St. Apt. Corp., 66 Misc 3d 1214 (Civ Ct, NY County 2020), citing D'Agostino v. Forty-Three E. Equities Corp., 12 Misc 3d 486, 489-90 (Civ Ct, NY County 2006), aff'd on other grounds, 16 Misc 3d 59 [App Term 1st Dept 2007]; Allen v 219 24th St. LLC, 67 Misc 3d 1212 [Civ Ct, New York County]; Eyedent 150 AD2d at 205-206; Quiles v Term Equities, 22 AD3d 417 [1st Dept 2005]).

The affirmative defense of economic infeasibility is rooted in the Takings Clause of the 5th and 14th amendments to the United States Constitution. The defense provides that an owner cannot be compelled to invest money into rebuilding his property where the net value of the entire premises, after repair, would be less than the cost for the needed repairs (see Bernard v Scharf, 246 AD2d 171 [1st Dept 1998] ["If the building is not worth repairing, repair should not be required."], revd on mootness grounds 93 NY2d 842 [1999]; Eyedent 150 AD2d at 205-206). It is a landlord's burden to present competent evidence as to the cost of repairs and the pre- and post-repair valuation of the property to establish an economic infeasibility defense. (see id.; 153-155 Essex St. Tenants Ass'n. v. Kahan, 791 NYS 2d 874 (Civ Ct, NY County 2004). An owner's lack of insurance proceeds or other financial resources needed to complete repairs is not an element of an economic infeasibility defense (see Bernard v Scharf, 246 AD2d 171, 175 [1st Dept 1998] ["[T]he relevant issue is the economic condition of the building, not that of the owners"] [emphasis original]).

Separately, where a building has been so decimated by a fire or other natural disaster such that all that remains is an empty shell of a structure, manifestly incapable of repair, the building is said to be "effectively demolished" (Gregoretti v 92 Morningside Ave. LLC, 166 AD3d 466 [1st Dept 2018]). Under these circumstances, the appellate courts have held that [*4]because there is no longer an extant building, the landlord is under no obligation to repair it, and any preexisting rent-stabilized tenancies are extinguished (see id., citing Quiles v Term Equities, 22 AD3d 417 [1st Dept 2005]). Even in cases where the landlord's negligence contributed to the destruction of the building, while the tenants may have monetary claims, they nonetheless remain unable to seek restoration to any newly constructed building on the site (see Hester LLC v. NY State Div. of Hous. & Cmty. Renewal, 146 AD3d 706, 707 [1st Dept. 2017), citing Eyedent,150 AD2d 202).

Here, Respondents assert neither economic infeasibility nor the effective demolition of the premises as defenses to the court's Order to Correct. On the contrary, it is clear from Respondents' submissions that they believe the subject building remains standing and capable of repair and that demolition is "optional" (see Opposition at ¶ 53, NYSCEF 50). Rather, Respondents have determined that demolition is the preferred financial course of action because of the expense involved in replacing the building's wood beams with steel beams, which they claim is needed to comply with the current building code. In Respondents' view, for which they cite no relevant statutory or legal authority, because "it is within Respondents right to demolish" (id.), and they have resolved to pursue this course of action, they cannot be compelled to repair the building prior to demolition. This court is unpersuaded.

In general, a landlord's desire to reap greater profits than may be available while a building remains subject to government regulation is not a legal basis for relief from the strictures of the Rent Stabilization Law and Code (see generally Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332 [2020] ["The Constitution merely mandates that a landlord earn a reasonable return"] [internal citation and quotation omitted]; Cmty. Hous. Improvement Program v. City of New York, 59 F.4th 540 [2d Circ 2023]).

Concededly, the Rent Stabilization Code offers a pathway for an owner to demolish a rent-stabilized building and to end all preexisting tenancies in the process (see Matter of Peckham v. Calogero, 12 NY3d 424 [2009], citing RSC § 2524.5; NYC Admin Code (RSL) § 26-511[c][9][a]). The landlord must apply for demolition permission to DHCR, the relevant supervising agency, which has exclusive jurisdiction (see Sohn v. Calderon, 78 NY2d 755, 765-769 [1991]). Approval is by no means a foregone conclusion, as DHCR considers a number of factors in assessing the bona fides of a demolition request, which often involves years of litigation, including an adequate demonstration of "a financial ability to demolish the building, whether plans for the undertaking have been approved by the appropriate city agency, and whether the applicant has complied with the statutory provisions for the relocation of rent stabilized tenants, the reimbursement of moving expenses, and the payment of stipends" (Matter of 220 CPS "Save Our Homes" Assn. v. New York State Div. of Hous. & Cmty. Renewal, 60 AD3d 593 [1st Dept 2009], citing RSC § 2524.5 [a][2][ii][a]-[f]); see also Matter of 118 Duane LLC v. New York State Div. of Hous. & Community Renewal, 212 AD3d 401 [1st Dept 2023]; Matter of First NY LLC v. New York State Div. of Hous. & Community Renewal, 208 AD3d 1095 [1st Dept 2022]; Matter of Porter v. New York State Div. of Hous. & Community Renewal, 51 AD3d 417 [1st Dept 2007]).^FN1

Critically, nothing in the Rent Stabilization Law or Code provides that, pending a demolition application to DHCR, a landlord is relieved of its obligation to maintain essential services or repair a rent-stabilized building in need of repair, absent a defense of economic infeasibility. To the contrary, RSC § 2500.9[e][7] provides that:

[W]hen an accommodation has been rendered uninhabitable [and the tenant has received a vacate order] . . . the owner will restore the building to a layout that is substantially similar to the building layout prior to the building being rendered uninhabitable, unless the owner can demonstrate that doing so would be financially infeasible.

Further, the Rent Stabilization Law states that "[n]o provision of [the RSC] shall impair or diminish any right or remedy granted to any party by this law or any other provision of law" (RSL § 26—511[b]). One such remedy afforded to tenants of rent-stabilized buildings is the option to commence a proceeding to enforce the "obligation of a landlord to keep residential property in good repair" after a vacate order is issued (Eyedent v Vickers Management, 150 AD2d at 204, citing Multiple Dwelling Law § 78).

Accordingly, the court finds that Respondents' voluntary decision to seek demolition approval for the subject rent-stabilized building following the issuance of a vacate order after a fire, does not relieve them of their duty under the Multiple Dwelling Law, Housing Maintenance Code, and Rent Stabilization Code to maintain the premises in good repair pending demolition approval by DHCR, or offer a defense to the court's issuance of an Order to Correct. Therefore, because Respondents have failed to articulate a meritorious defense to this HP proceeding, their motion to vacate the Order to Correct entered upon their default and to dismiss is denied.

Respondents, if they be so advised, may promptly move for a stay pursuant to CPLR 2201 "upon such terms as may be just" to the extent they contend it would be improvident to compel the investment of significant resources into repairing a building they intend to demolish. However, any such application must be supported by proof of a credible, good faith application before DHCR seeking demolition approval, as well as a demonstration of the landlord's ability to tender the appropriate relocation stipends to the tenants should the application be approved. Furthermore, because a demolition application is typically a years-long process with no certainty of success, and the tenants will be severely prejudiced by any delay in restoration to their homes occasioned by a stay should the demolition application fail, the court will require an appropriate undertaking to "accommodate[] the competing interests of the parties in affording necessary and fair protection to both . . . " (Gramercy Realty LLC v Vasiljevic, 85 Misc 3d 143 [App Term, 1st [*5]Dept 2025], quoting MMB Assoc. v Dayan, 169 AD2d 422, 422 [1st Dept 1991]). Such undertaking may conceivably take the form of temporary relocation stipends to the impacted tenants or the provision of comparable temporary apartments pending a determination by DHCR.^FN2

The proceeding is hereby adjourned to June 1, 2026, at 930am for a status conference. The parties are directed to confer regarding settlement, including potential permanent or temporary relocation to the adjacent building, which Respondents have indicated they own and is available to house many of the displaced tenants.

This is the decision and order of the court.

Dated: May 6, 2026

Brooklyn, New York

HON. LOGAN J. SCHIFF, J.H.C.