Case of the Week: Fox v. 12 East 88th LLC

LandlordsNY Member

LandlordsNY Member

One of the more bizarre cases to have come to our attention in recent months concerns the lawsuit between attorney Barry Fox and his previous and current landlords. It’s unlikely that anyone will experience something akin to this anytime soon, but it does go to show how even lawyers can find themselves tripped up by the law.

The undisputed facts are as follows: Mr. Fox moved into his stabilized, penthouse apartment in 1975. In 1996, he also took possession of the stabilized penthouse next door, thereby making him the sole tenant for the building's two penthouse apartments. He then spent approximately $500,000 to turn the two units into a single apartment. It was at this time, when the two apartments were converted into one, that the landlord took both units out of stabilization. Under the conditions of the lease following the renovation, the landlord agreed to offer the tenant unlimited renewal leases.

One final detail: At this time, the landlord was receiving J-51 benefits, but this was unknown to Mr. Fox.

The situation remained stable until 2008. At this time, Mr. Fox asked the landlord, Nostra Realty Corp., if he could sign the next renewal lease as MBE Ltd., an entity wholly owned by Mr. Fox, with the understanding that he would continue to be the sole tenant to occupy the unit. The landlord agreed. MBE executed the 2008 lease and subsequent leases in both 2010 and 2012, as well. In 2014, 12 East 88th LLC purchased the building and informed Mr. Fox that they would not be renewing his lease.

Mr. Fox sued in New York Supreme Court for breach of contract. He also argued that he should be protected under Rent Stabilization Law because the building was receiving J-51 benefits during his tenancy. Finally, Mr. Fox alleged that he had been overcharged because rents had not gone up in accordance with the adjustment levels set by the Rent Guidelines Board.

By an order filed on October 17, 2016, the court ruled, among other things, that the apartment was subject to Rent Stabilization Law.

The landlord appealed this decision and won.

According to the majority in a decision entered on April 10, 2018, in the First Department of the Supreme Court, Appellate Division, this was because “the 2008 lease, and the subsequent lease renewals, named MBE as the sole tenant and did not identify as the occupant of the apartment a particular individual with a right to demand a renewal lease.” However, it should be noted that the majority came to this decision because “the substitution of MBE as tenant of record was undertaken at Fox’s own instance.” Had the landlord pushed the tenant to make the change, the appeal would not have gone in the landlords’ favor.

The court concluded: “A high-rent vacancy deregulation occurred when, on May 19, 2008, at Fox’s request, a market rate renewal lease was entered into by MBE at $25,000 per month, without Fox being a signatory to the lease. Fox was thereby deemed to have vacated the apartment.” Furthermore, the idea that he was tricked was considered unwarranted, as Mr. Fox is himself a lawyer.

What to take away: Even lawyers don’t seem to understand the law very well. This guy essentially signed away his rights to a 3,300-square-foot, full floor penthouse apartment with a 1,900-square-foot terrace less than a stone’s throw from the Guggenheim without knowing it.

To read more about this case, click here to see what Landlord V. Tenant has to say.

  • LandlordsNY Member

    Completely tangential, but this excerpt caught my eye "the 2008 lease, and the subsequent lease renewals, named MBE as the sole tenant and did not identify as the occupant of the apartment a particular individual with a right to demand a renewal lease.” Am I to infer based on this that only natural persons (e.g. individuals and not corporate entities) have the right to demand a renewal lease under rent-stabilization rules? Perhaps more of a legal question, so the forum may not be able to answer.

    • LandlordsNY Member

      So after reading the precedent that this case cites (Manocherian v. Lenox Hill Hospital), as well as the precedent that the precedent sites (Cale Dev. Co. v, Conciliation & Appeals Bd.), what I can takeaway is that corporate entities are entitled to renewal leases so long as the lease identifies a specific person who will occupy the apartment. Without such legal protection, an apartment could change hands between the employees of a corporation in perpetuity, which would be unfair to landlords.

      That's just my interpretation, though. It does not constitute legal advice.

      • LandlordsNY Member

        Interesting. I wonder then if having a corporate entity as a middleman can provide a way around the need to offer renewal leases. For example, if an intermediary company signs the lease, without a specific person listed and then that company sub-leases to an individual. It sounds like the landlord would have no obligation to offer a renewal to the intermediary corp., although the intermediary is probably required to offer a renewal, it may not actually have the ability to do so.

  • LandlordsNY Member

    Let me look into that. It would be interesting to see if individuals and corporate entities have different rights under RSL.

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