Image Credit: GoogleMaps.

Red Hook developer converted commercial buildings into residential apartments. Harbor Tech LLC in 1999 purchased a commercial complex located in the Red Hook neighborhood of Brooklyn that had been built in the 1920s and used continuously for commercial purposes. Harbor Tech by 2005 had converted the five interlaced buildings of the complex into 100 residential units.

Thirty-five residents of the complex in 2013 sued Harbor Tech to have the City’s Rent Stabilization Law applied to the complex. In response, Harbor Tech argued that the complex was exempt from the Rent Stabilization Code because the buildings were “substantially rehabilitated” as residential units after 1974. The residents argued that the exemption did not apply because the regulations define “substantially rehabilitated” as requiring the replacement of at least 75 percent of the building-wide and apartment systems. The Supreme Court rejected the tenants’ argument, ruling that rent stabilization laws did not apply because the complex had been converted from commercial to residential, and the percentage of systems replaced was irrelevant.

The Appellate Division, Second Department, affirmed and ruled that the residents’ apartments were not subject to rent stabilization. The court ruled that a natural reading of the “substantially rehabilitated” regulation limited the rule to situations where the owner purports to rehabilitate an existing residential building. The Second Department, agreeing with a First Department opinion, ruled that “the conversion of a purely commercial space into an almost purely residential space . . . is a substantial rehabilitation” and therefore exempt from rent stabilization.

Bartis v. Harbor Tech LLC, 2016 N.Y. Slip Op. 08831 (2nd Dep’t Dec. 28, 2016) (Attorneys: Jack L. Lester, for Bartis; Michael Liskow, Alexander H. Schmidt, for Harbor Tech).

By: Jonathon Sizemore (Jonathon is the CityLaw Fellow and a New York Law School Graduate, Class of 2016).