How to Win a Rent-Stabilized Unit for Your Business Use
You may want to use an apartment in your building for your business—say, as a managing agent’s office or a super’s apartment, or even for an unrelated business. But suppose a rent-stabilized tenant lives there. Can you evict the tenant? The answer is “Yes,” if you can meet the requirements set by the rent stabilization business use laws.
Get DHCR Okay
An owner may refuse to renew a rent-stabilized lease if he seeks in good faith to withdraw the unit from both the residential and commercial rental markets. According to the Rent Stabilization Code, to qualify, the owner must have no intention of renting or selling all or part of the land or structure. In addition, the owner must establish that all or part of the rental unit or the land is needed for use in connection with a business the landlord owns and operates [9 NYCRR §2524.5(a)(1)(i)].
The first step is to get the DHCR’s permission not to renew the tenant’s lease. You must file an application (DHCR Form RA-54) during the 150-120 day window period before the tenant’s lease ends. On the application, you must prove to the DHCR that you want to withdraw the unit from the rental market so that you can use the apartment in connection with a business you own and operate.
You should be prepared for the DHCR to hold a hearing on your application. You may have to produce witnesses who can testify in detail about the facts on your application. If the DHCR okays your application, you must wait until the tenant’s lease ends. Then you go to housing court to seek his eviction. Your grounds for eviction are that you’ve gotten the DHCR’s okay not to renew the lease and the lease has in fact ended.
MEET SEVEN REQUIREMENTS FOR DHCR OKAY
1. You Own the Building
The owner of the building must be the person who will actually be using the apartment for his business purposes. Members of the owner’s immediate family don’t qualify.
The owner, however, doesn’t have to be an individual. A partnership or corporation can take advantage of the rent stabilization business use laws. For example, if a partnership or corporation buys a building, it can withdraw all or part of it from the rental market and move its business into the building.
2. Withdraw Apartment from Rental Market
You must withdraw the apartment from the rental market and use it in connection with a business that you own and operate. You must prove to the DHCR that after you evict the tenant, you won’t re-rent the apartment. And you can’t try to get an apartment to use as your residence through a business use eviction proceeding; to do that, you must go through a different kind of proceeding with different rules.
3. Use Apartment in Connection with a Business You Own and Operate
The building owner must actually own and operate the business that will use the apartment. For example, if John Doe owns a building and is an employee of the XYZ Corp., he can’t use the rent stabilization business use laws to get an apartment for the corporation’s use.
Also, if more than one person owns the building, the owners must jointly own the business that will use the apartment. The identity of the building owners must match the identity of the business owners. In one case, an owner wanted to withdraw tenant’s apartment from both the housing and non-housing rental markets, and use the apartment for its property management and investment business.
The request was denied, in part, because of the lack of identity between the owner of the building and the entities that conducted the business the owner sought to bring into the apartments. The owner’s president testified that the space would be predominantly used to serve the needs of some other business entities in which he had an interest. The owner didn’t offer enough evidence as to the ownership and involvement of the businesses [210 West 29th St. Corp: DHCR Adm. Rev. Dckt. PJ420002OE, July 2004].
4. Owner Must Act in Good Faith
You must show the DHCR that you’re acting in good faith. The DHCR has to be convinced that you’re not seeking the unit as a subterfuge to remove the tenant and then re-rent it to someone else for higher rent. Here are three ways to show good faith:
Show you need the apartment. This means more than showing intent or a desire to use the apartment. You must show the DHCR that you “require” (as opposed to desire or intend to use) the apartment.
In the case cited above, another reason the owner was denied was that the owner couldn’t prove that the use of the apartments was a business necessity. The business entities that the owner wanted to move to the building operated out of an office in Long Island. The administrative judge found that regardless of which entity’s operations and staff would utilize the lion’s share of the space in the subject apartment, the proposed relocation couldn’t be deemed a matter of business necessity, but merely a change as a matter of convenience to the owner [210 West 29th St. Corp: DHCR Adm. Rev. Dckt. PJ420002OE, July 2004].
Show renovation plans. If you plan to renovate the tenant’s unit, show the DHCR your architectural plans and a retainer or letter agreement from a contractor. It’s also a good idea to prepare applications for any needed city permits. And ask your attorney and architect to give you opinion letters that say you’ll be able to get the required permits to make the alterations.
In one case, an owner asked the DHCR for permission to evict tenants so that he could use the building for his business, which he operated nearby. After a DHCR hearing, an administrative judge found that owner was proceeding in good faith, as long as he submitted approved building alteration plans and proof that he was complying with relocation requirements. The owner never submitted the documents, and tenants filed an objection to the eviction, arguing that the owner’s delay in filing the plans indicated lack of good faith. The DHCR ruled for the tenants [Montag: DHCR Adm. Rev. Dckt. EB 220232-RO, March 1994].
Deal wisely with vacancies. If you don’t use a vacant apartment, make sure you have a good reason for not using it, which you can present to the DHCR. Although technically you don’t have to use the vacancy, the DHCR is likely to deny your application because it will find you’re not acting in good faith.
After an owner becomes aware of its need to relocate and a vacancy occurs in a space that would meet the owner’s needs, and the owner doesn’t take that space for itself but rents it to a third party, the DHCR has found that a serious question as to that owner’s good faith in continuing its efforts to recover the regulated residential space must be recognized [210 West 29th St. Corp: DHCR Adm. Rev. Dckt. PJ420002OE, July 2004].
If you don’t take a vacant apartment, make sure you offer it to the tenant whose apartment you want. This bolsters your case for good faith. It will show that you really want the tenant’s apartment and that you’re not just trying to get rid of him. Put your offer in writing. Then you can prove you made the offer if it ever becomes an issue.
5. Deliver Nonrenewal Notice
You must deliver a written notice to the tenant during the window period—150 to 120 days before his lease ends. The notice must tell the tenant you’re not planning to renew his lease because you want to withdraw the unit from the rental market so that you can use it in connection with a business you own or operate.
6. Pay for Tenant Relocation
To get the DHCR’s okay, you may have to pay the tenant’s reasonable moving expenses, provide a reasonable cash stipend, and/or relocate the tenant to “suitable housing” in the same neighborhood at the same or lower regulated rent. If no suitable housing is available, the DHCR may require you to pay the difference in rent between the tenant’s old apartment and the new apartment for as long as the DHCR determines [9 NYCRR §2524.5(c)].
7. Ensure Business Use Is Legal
The DHCR won’t okay your application unless you prove that the business use is legal under the zoning law and the building’s certificate of occupancy. If your building is zoned for residential use only, the DHCR won’t okay your application unless you can get a variance.
In one case, an owner sought permission to evict rent-stabilized tenants in his building to expand his funeral director’s business in the building. After a hearing, the District Rent Administrator ruled against the owner stating that the owner didn’t show that he had specific plans for this purpose and that due to zoning restrictions the business could expand only to a portion of the second floor, negating the need for a third-floor apartment. The owner eventually won on appeal after tenants agreed not to contest the owner’s application and after the Board of Standards and Appeals removed the zoning restrictions on his plan to convert the building into an extension of his funeral business [Joyce: DHCR Adm. Rev. Dckt. IF410001RP, March 1995].