
    Eliahu Lipkis, Appellant-Respondent, v Mario Pikus et al., Respondents-Appellants.
    Supreme Court, Appellate Term, First Department,
    March 30, 1979
    APPEARANCES OF COUNSEL
    
      Shatzkin, Cooper, Labaton, Rudoff & Bandler (William H. Morris and Gerald P. McMorrow of counsel), for appellant-respondent. Levenson & Ule (Anne Jaffe of counsel), for (Mario Pikus and others, respondents-appellants. Roger K. Evans and Michael D. Kaufman for William Gordy, respondent-appellant. Berger, Kramer & Sugerman (Robert Sugerman of counsel), for Metropolitan Council on Housing and Lower Manhattan Loft Tenants Association, amici curiae.
    
   OPINION OF THE COURT

Per Curiam.

Order entered October 13, 1978 (Leonard N. Cohen, J.) modified by reversing so much thereof as directed final judgment in favor of the tenants dismissing the petition and as directed the refund of deposited rent, and final judgment directed in favor of landlord as prayed for in the petition; as modified, order affirmed, with $10 costs to the petitioner. However, enforcement of the final judgment shall be stayed until such time as landlord obtains a certificate of occupancy in compliance with the Multiple Dwelling Law. Tenants shall deposit with the clerk of the court below any and all arrears in rent and continue to deposit use and occupancy at the rate previously payable as rent, as the same becomes due, pending compliance. Upon proof by affidavit that compliance has been effected, landlord may move to vacate the stay and for the fund on deposit (22 NYCRR 2900.26 [e]). In the event of noncompliance, the stay shall continue until the further order of the court.

Petitioner is the owner of three loft buildings situated on Walker Street in lower Manhattan. Respondent is one of six tenants who executed a standard Real Estate Board loft lease, covenanting to use and occupy the demised premises for an "artist studio and for no other purpose.” (A seventh tenant is in possession on a monthly basis.) These lofts (with one exception) had been converted by previous occupants from raw industrial work space to habitable residential quarters, and tenants herein paid their predecessors a "fixture fee” for the value of improvements left behind. (In the remaining case, the tenant made his own original capital improvements to the vacant space.) The filed certificate of occupancy for each of the buildings allows for commercial use only. Despite the lease provisions limiting occupancy to commercial use, and despite the outstanding certificates of occupancy, the record amply demonstrates that both parties intended that the premises be used for joint living and working purposes ("living lofts”), and they were in fact so used.

Tenants defended these nonpayment proceedings (brought in response to a rent witholding action) by successfully invoking sections 301 and 302 of the Multiple Dwelling Law. Those statutes provide, in relevant part, that a multiple dwelling may not be occupied in whole or in part until the issuance of a certificate of occupancy (Multiple Dwelling Law, § 301, subd 1), and that rent may not be recovered by the owner for the period of such unlawful occupation (Multiple Dwelling Law, § 302, subd 1, par b). While petitioner initially took the position that the premises were not multiple dwellings (and therefore not subject to the section 302 defense), that position was abandoned during the course of the trial, at least as to premises 49 and 55 Walker Street, when petitioner testified that he had obtained a multiple dwelling registration number for these buildings by filing proposed plans for conversion with the Department of Buildings. As to number 47 Walker Street, even assuming that it is a structure separate and apart from number 49, we adopt the trial court’s finding that it also qualifies as a multiple dwelling as presently constituted.

The question framed for decision is whether the rent-forfeiture sanctions of the Multiple Dwelling Law are properly applied in the delineated circumstances. We conclude that they are not. While it is beyond dispute that this landlord was aware of and directly encouraged the conversions to residential lofts, it is equally clear that from the inception of these tenancies, tenants knew, or should have known, by the very terms of their leases as well as the surrounding conditions, that their occupancy was illegal. Essentially, both sides were content to abide by this arrangement, apparently secure in the knowledge that the city was not diligently inspecting these properties. Having entered into possession fully cognizant of the existing realities, tenants should not now be permitted to reap the benefits of occupancy and, at the same time, avoid the payment of rent. It is also observed that the unrebutted testimony of petitioner’s expert established that the buildings substantially complied with many of the minimum standards enumerated in the Multiple Dwelling Law; nor is there any proof that the condition of the premises poses a threat to the health and/or safety of the tenants.

The pervasive extent of the problem confronting us is best illustrated by a report of the Department of City Planning (received in evidence) indicating that fewer than 10% of the industrial buildings located in Manhattan which have undergone total or partial conversion have valid certificates of occupancy for residential use. It seems obvious that the Multipie Dwelling Law provision under review did not envision a situation involving wholesale conversion of commercial properties precipitated by shifting patterns of industrial use and a resurgent demand for mixed residential/commercial space. In this context, we are not persuaded that the implicit condonation of widespread rent withholding actions, or "strikes”, is the most feasible and equitable alternative to bring converted properties within the applicable multiple dwelling guidelines. That goal would be better achieved by the more stringent enforcement of building and zoning standards by the appropriate city agencies. In our discretion, however, we have conditioned enforcement of the final judgment granted herein upon petitioner’s procurement of the requisite certificate of occupancy. We view this relief as giving balance to the competing interests of both parties by avoiding hnjust enrichment to the tenants and stimulating expeditious completion of the actions necessary to legalize the conversion.

That part of the order appealed from dismissing the counterclaim for lack of proof is affirmed.

Riccobono, J.

(dissenting). I am inclined to dissent. The language of section 302 of the Multiple Dwelling Law unequivocally precludes recovery of rent for the occupancy of a multiple dwelling and bars the landlord from dispossessing a tenant for failure to pay rent where the landlord has failed to obtain a certificate of occupancy. This is not a case where the tenants blocked the issuance of a certificate by denying landlord access to an apartment to cure an illegal condition or conditions (see Chatsworth 72nd St. Corp. v Rigai, 35 NY2d 984, affg 71 Misc 2d 647, on the opn of the Civil Court), nor is this a case where the tenants surreptitiously converted loft space to residential use without the knowledge or consent of the landlord. Indeed, it is conceded that petitioner actively participated in and encouraged the conversion of industrial space in these buildings to residential space by his tenants. The fact that application of the statute may incidentally (and perhaps unjustly) enrich the tenants is not a valid reason for refusing to enforce it. It was intended to be penal in nature, and its overriding purpose is to spur conversion of unsafe and substandard dwellings into proper and legal ones.

An owner has the paramount responsibility to insure that his property is in conformance with code regulations (Multiple Dwelling Law, § 300). In this connection, it is pertinent to note that the Multiple Dwelling Law has been amended with the specific objective of facilitating conversion of buildings from nonresidential to residential use (art 7-b). No better illustration of the efficacy of the provision under review may be found than this very case, where, in response to the assertion of section 302, petitioner has now filed plans to legalize the conversion and is in the process of obtaining a valid certificate of occupancy. If it is to be determined that the statute is no longer viable, at least in the loft conversion field, because of the rampant abuse on the part of landlords as well as tenants, that is a judgment which should be made by legislative pronouncement and not by judicial repeal.

The order appealed from should be affirmed in its entirety.

Hughes, J. P., and Tierney, J., concur in Per Curiam opinion; Riccobono, J., dissents in separate memorandum.  