In this action seeking injunctive and declaratory relief, plaintiff landlord, 37 West Realty Co. (37 West) moves for a preliminary injunction directing the defendant tenants, who occupy units apparently as residences in a twelve (12) story loft building located at 323-325 West 37th Street in Manhattan (the Building), to pay rent and/or use and occupancy, pendente lite, and directing them to pay all rent arrears into an escrow account maintained by plaintiff's attorney.

Defendants cross move to amend their answer to add a fifth counterclaim for protection under the Rent Stabilization Law, specifically the Emergency Tenant Protection Act [ETPA], for any of the Building's residential tenants who do not qualify for protection under the Loft Law. They also seek to add a sixth counterclaim for the return of rent overcharges for tenants protected by the ETPA.

BACKGROUND

In January 1980, plaintiff's predecessor, 325 West 37th Street Realty Corp, commenced nonpayment proceedings against several tenants in the Building. The court consolidated those proceedings and in a decision dated January 4, 1980 found that there were at least three residential tenants in the Building and that the Building was a de facto multiple dwelling subject to the Multiple Dwelling Law [MDL]. Soon thereafter, 37 West purchased the Building and, in 1981, several tenants commenced an action in Supreme Court seeking a declaratory judgment that the Building was a multiple dwelling, subject to the MDL. By decision dated November 27, 1981, the Supreme Court found that 37 West "knowingly leased space [to the tenants] in the [subject commercial] building for the purpose and intention of use for residential purposes." In addition, the 1981decision states

"[37 West] has not registered nor has he obtained a

residential certificate of occupancy. In the winter

of 1980 he supplied no heat whatsoever and no heat

in 1981. The building has no operable fire extinguishers [*2]

. . . the roof is in danger of collapse. There is no sprinkler

system . . .[r]esidential tenants occupy approximately

half the units in the building"

(Burden Affirm., Ex A, at 2).

In that action, the Supreme Court found that 37 West had failed to comply with the previous orders of the court and continued to jeopardize the health and safety of the residential tenants (Burden Affirm., Ex A, at 4).

In 1982, before the Supreme Court issued a final determination in the 1981 action, the Legislature enacted the Loft Law (MDL article 7-C [L 1982, ch 349 Section 1]), in response to the "emergency . . . created by the increasing number of conversions of commercial and manufacturing loft buildings to residential use without compliance with applicable building code and laws and without compliance to the local laws regarding minimum housing maintenance standards" (MDL § 280; Wolinsky v Kee Yip Realty Corp,2 NY3d 487, 491 [2004]). The Loft Law legalized "interim multiple dwellings" [IMD] which are defined as buildings that were occupied at any time for commercial purposes, that lack residential certificates of occupancy as multiple dwellings and that have been occupied for residential purposes since April 1, 1980 by three or more families.

In 1983, 37 West tried to register the Building with the Loft Board as an IMD, but that application was denied because, at that time, the Building was not in a zoning district covered by the Loft Law (MDL § 281[2][i]). The impediment to registration was removed in 1987 by the Legislature's enactment of MDL § 281 (4), which expands the definition of an IMD,^[FN1] but 37 West did not, thereafter, attempt to register the Building.

The parties settled the 1981 action in 1984. The stipulation of settlement provides that the tenants would receive three year loft leases and that "[a]s long as the [tenants] remain in occupancy and unless the loft law shall be applied to the above tenants, the tenants shall continue to have the same right of renewal as rent stabilized tenants pursuant to the Rent Stabilization Code" (Burden Affirm., Ex B, at 3) and it also required the landlord to make significant repairs to the Building (Burden Affirm., Ex B, at 5).

In April 2005, the defendants here, along with other Building occupants, filed an application with the New York City Loft Board for a Board determination, that they are covered by the Loft [*3]Law and that 37 West has been overcharging them for rent.^[FN2] The Loft Board transferred the matter to the New York City Office of Administrative Trials and Hearings ("OATH") to conduct a fact-finding hearing. In November and December, 2006, the OATH Administrative Law Judge conducted the hearing and, on May 18, 2007, she issued her report and recommendations finding that the Building qualifies as an interim multiple dwelling in accordance with section 281 (4) of the MDL and that for the period April 2005 through December 2006, the occupants in the protected units were overcharged for rent in the aggregate amount of $214,243.13 (5/18/07 OATH findings, at 28).^[FN3]

The Administrative Law Judge has forwarded her Report and Recommendation to the Loft Board which may ultimately accept, reject or modify the findings and recommendations.

In March 2006, while the Loft Board application was pending, several, but not all, of the defendants here, commenced a Housing Part proceeding against 37 West ^[FN4] seeking, "the correction of, inter alia, broken intercom, elevator, windows, radiators and fire doors, crumbling balcony and missing smoke detectors" (Burden Affirm., Ex D, at 1). 37 West moved to dismiss the proceeding on the ground that the building is not a multiple dwelling that it has a commercial certificate of occupancy and the tenants have commercial leases and that the Housing Court does not have jurisdiction over commercial buildings. The court denied 37 West's dismissal motion, stating:

"An owner who has full knowledge of residential tenants

in a commercial building cannot argue that the commercial

nature of the lease and the building control. . . and thereby

avoid the statutory protection of the Multiple Dwelling

law. . . . Moreover, it has already been judicially determined

that the subject building is a multiple dwelling. [37 West]

cannot be permitted to rent the subject premises under a

commercial lease with full knowledge that petitioners

utilize same as their residence, and some 26 years thereafter

avoid the protections afforded under the Multiple Dwelling

law and the Housing Maintenance Code"

(Citations omitted)

(Burden Affirm., Ex D, at 4).

Thereafter, by order dated December 5, 2006, the Housing Part directed 37 West to provide an adequate supply of heat to the building (Burden Affirm., Ex E). The HP proceeding is apparently still pending in the Housing Part of Civil Court.

In July 2006, 37 West commenced this action complaining that the defendants have failed to pay rent and additional rent due under their leases and that it is entitled to preliminary injunctive [*4]relief because without the payment of rent, pendente lite, it will be unable to maintain the building or pay the operating expenses and real estate taxes. Plaintiff also claims that the Building is not covered by the Loft Law, and that waiver and laches bar defendants from asserting Loft Law claims ^[FN5]. In addition, 37 West seeks a money judgment for unpaid rent and judgments of possession for units where tenants have not paid rent (Burden Affirm., Ex F).

To obtain a preliminary injunction, the movant must show: (1) a likelihood of success on the merits; (2) irreparable harm absent the relief sought and (3) the balance of equities in its favor (Aetna Ins. Co. v Capasso, 75 NY2d 860, 862 [1990]).

A. 37 West is not likely to succeed on the merits

As noted above, on May 18, 2007, the ALJ in the Loft Board proceeding found, based on the stipulated facts and the testimony at the hearing, that the Building qualifies as an IMD in accordance with Section 281 (4) of the MDL (5/18/07 OATH Findings, at 6). This finding, although not a final determination having preclusive collateral estoppel effect unless adopted by the Loft Board, and the evidence marshalled by the ALJ or which it is based, are a strong indication that 37 West will not succeed on its claim that the Building is not covered by the Loft Law, particularly because 37 West stipulated to all the requirements of Loft Law coverage for several of the units at issue here (Petrucci Affirm., Ex C). In that stipulation, plaintiff acknowledged that the Building was formerly occupied for manufacturing, commercial or warehouse purposes; that the building never had a certificate of occupancy for residential use pursuant to MDL § 301; and that several of the units had residential occupants during the "window period"^[FN6] set forth in MDL § 281 (4). Moreover, based on the stipulation and testimony, the ALJ found that units 3F, 3R, 4F, 4R, 5F, 6, 9F, 9R, 11 and 12 are units covered by the Loft Law (5/18/07 OATH Findings, at 28).^[FN7]

MDL § 285 (1) permits an IMD owner who has not obtained a certificate of occupancy pursuant to MDL 302 and has not registered pursuant to MDL 325 to collect rent from IMD tenants provided that the owner is in compliance with the Loft Law; however, the owner must both plead and prove full compliance with article 7-C before it can collect rent (County Dollar Corp. v Douglas, 161 AD2d 370, 371 [1st Dept 1990]; Lower Manhattan Loft Tenants v N.Y.C. Loft Board, NYLJ, Aug. 15, 1984, at 11, col 1 [Sup Ct, NY County]). In addition, future compliance does not cure past non-compliance and the landlord may not recover rent that accrued during the period of non-compliance (Grossman v MFK Realty Corp., 203 AD2d 129 [1st Dept 1994]; Lipkis v Gilmour, 160 Misc 2d 50 [App Term, 1st Dept 1994] aff'd on opinion below, 221 AD2d 229 [1st Dept 1995]).

Section 284 of the MDL requires the owner of a interim multiple dwelling to, inter alia, file an alteration application; take all action reasonable and necessary to obtain an approved alteration permit; comply with residential fire and safety codes and "take all reasonable and necessary action" to obtain an appropriate certificate of occupancy. [*5]

In this case, 37 West does not allege in its pleading that it is in full compliance with the Loft Law. Moreover, plaintiff has stipulated that there has never been a certificate of occupancy permitting residential use of the Building and plaintiff does not claim to have filed an alteration application or to be in compliance with residential fire and safety codes. Accordingly, because 37 West is not in compliance with the relevant sections of the Loft Law, it does not appear that it will succeed on its claim for rent against the tenants entitled to Loft Law protection.

In addition, based on the discussion, infra, regarding defendants' cross motion to amend the complaint, it appears that defendants Other Productions and Manuel Wally have cognizable claims for protection under the ETPA, and because 37 West does not seem to be in compliance with Sections 302 and 325 of the Multiple Dwelling Law, it does not appear that it will succeed on the merits on its rent claims against those defendants.

B. 37 West has not Demonstrated Irreparable Injury

37 West has not shown that it will be irreparably injured if it cannot collect pendente lite rent and/or use and occupancy from the defendants as it does not deny that there are several commercial tenants that occupy the building and that it collects rent from each of these commercial tenants. Moreover, 37 West has failed to demonstrate that, in the event that the Loft Board finds that the Building is not covered by the Loft Law, it would not be made whole by money damages. Irreparable harm has not been shown where money damages would adequately compensate the movant (Corris v 129 Front Co., 85 AD2d 176 [1st Dept 1982]["there is an adequate remedy at law for the recovery of money either by action to recover rent or by summary dispossess proceedings"]).

C. The Equities do not Balance in Favor of 37 West

The 1987 Loft Law amendment embraces the Building in the definition of "interim multiple dwelling." 37 West did not take any action to obtain a certificate of occupancy pursuant to MDL § 302 or to register the building pursuant to MDL § 325. Accordingly, because 37 West did not take any action to achieve full compliance with the Loft Law (see MDL § 285), 37 West may not collect rent. Moreover, the Court notes that the ALJ found that because the Building is covered under Section 281 (4) of the MDL, 37 West has overcharged the tenants covered by the Loft Law because, according to the Loft Board regulation:

"The maximum legal rent is the last rent paid under the

lease in effect in July 27, 1987, or if no lease was in

effect, the rent actually paid in July, 1987. . . No

increases in the base rents are permitted until the owner

has registered the building and the unit with the Loft

Board, and [37 West] has not registered the building.

Thus no increases are due the landlord"

(Citations omitted)

(5/18/07 OATH Findings, at 25-26).

The Court notes that the ALJ found that, from April 1, 2005 through December 31, 2006, 37 West overcharged rent in the aggregate amount of more than $214, 000. Because of the Loft Board regulations, the ALJ could not consider the amount of overcharges from 1987 through March 31, 2005, but, according to the defendants, the amount exceeds $2 million (Defendants' Mem of Law, at 12).

Furthermore, it does not appear that 37 West provided residential building services from 1987 forward. In fact, Samuel Kurz, a partner in 37 West, states that plaintiff did not provide [*6]residential heating services until 2006 (Kurz Aff. ¶¶ 8-10).^[FN8] Accordingly, because of compelling evidence indicating that 37 West failed to register the building or obtain a certificate of occupancy, failed to provide residential building services and overcharged tenants on rent for a long period, the balance of the equities does not lie in favor of 37 West.

D. Status Quo

37 West's argument that an injunction is necessary to maintain the status quo is without merit. Pursuant to the Multiple Dwelling Law, 37 West may not collect any rent until it registers and obtains a certificate of occupancy and, even when it does comply with the law, it may only collect current rent going forward (see Grossman v MFK Realty Corp., 203 AD2d 129 [1st Dept 1994]). Moreover, plaintiff's reliance on Eli Haddad Corp. v Cal Redmond Studio (102 AD2d 730 [1st Dept 1984]), is misplaced. In that case, the tenants had not paid rent overcharges, amounting to more than $2 million dollars, for at least twenty years. Here, the ALJ found that the tenants could recover only those overcharges incurred since April 1, 2005 the date the tenants filed the Loft Board proceeding, and even for this short period the overcharges exceeded $214,000. 37 West may not charge rent in excess of that which is allowable by law and, at the same time, ignore its obligations pursuant to the MDL.

In 480-486 Broadway, LLC v No Mystery Sound, Inc. (2006 WL 456818 [Civ Ct, NY County 2006]), the court found that Wolinsky v Kee Yip Realty Corp (2 NY3d 487, supra), relied on by plaintiff here, did not bar the defendant's counterclaim for relief pursuant to the ETPA. The tenants in Wolinsky lived in a building zoned for light manufacturing and for joint living and working space for artists. There, the tenants, who were not artists, illegally converted the premises to residential space, and then claimed protection under the ETPA. Under those circumstances, the Wolinsky court held that the tenants were not protected by the ETPA, because ETPA coverage does not extend to tenancies that are illegal and incapable of becoming legal because of applicable zoning restrictions (Wolinsky, 2 NY3d at 493).

However, in Wolinsky, the Court of Appeals acknowledged that the ETPA could provide protection to tenancies capable of becoming legalized, noting that there the City of New York had not "acted to amend the Zoning Resolution to include purely residential use . . .or to rezone tenants' neighborhood . . .such steps could make residential loft units like tenants' legal or capable of being legalized" (Wolinsky, 2 NY3d at 493; see also Duane Thomas LLC v Wallin, 35 AD3d 232 [1st Dept 2006]; Tan Holding Corp. v Stewart Wallace, 187 Misc 2d 687 [App Term, 1st Dept 2001][ETPA coverage may apply, even in the absence of loft law protection, so long as the premises could be [*7]legalized under current zoning restrictions]; 182 Fifth Ave. v Design Dev. Concepts, 300 AD2d 198 [1st Dept 2002]).

In contrast, it is undisputed here that in January, 2005, the New York City Council adopted a zoning text amendment that, for the first time, permitted residential use as of right in the zone where the Building is located. Thus, it would appear that, pursuant to Wolinsky and Tan Holding, the City may have effectively legalized Other Productions's and Wally's tenancies in 2005 and, despite the absence of Loft Law coverage, coverage under ETPA may be available to Other Productions and Wally, if all the other requirements are met. Thus, at this juncture, it appears that the defendants have cognizable counterclaims for protection under the ETPA.

Defendants have shown litigable, potentially meritorious claims. Plaintiff has not demonstrated prejudice. Accordingly, the defendant's cross motion to amend the answer is granted and the answer, in the form annexed to the cross motion papers is deemed served (Thomas Crimmins Contr. Co. v Cayuga Constr. Co., 74 NY2d 166, 170 [1989][Leave to amend pleading should be freely granted absent prejudice, unless the proposed claim is plainly without merit]).

co-ordinate the relationship between the courts and

administrative agencies to the end that divergence of

opinion between them not render ineffective the statutes

with which both are concerned, and to the extent that

the matter before the court is within the agency's

specialized field, to make available to the court in

reaching its judgment the agency's views concerning

not only the factual and technical issues involved but

also the scope and the meaning of the statute administered

by the agency"

(Davis v Waterside Hous. Co.,274 AD2d 318 [1st Dept 2000], quoting Capital Tel. Co. v. Pattersonville Tel. Co., 56 NY2d 11 [1982]; 150 Greenway Terrace LLC v Gale, 37 AD3d 792 [2nd Dept 2007]).

"[W]hile concurrent jurisdiction does exist, where there is

an administrative agency which has the necessary

expertise to dispose of an issue, in the exercise of

discretion, resort to a judicial tribunal should be

withheld pending resolution of the administrative

proceeding"

(Eli Haddad Corp.,102 AD2d at 730).

Here, the Loft Board has not reached a final determination as to whether the building is an IMD covered by the Loft Law, and whether the tenants were overcharged for rent. Under the circumstances, further judicial action in this Supreme Court proceeding should await the exhaustion of administrative remedies as this case involves both statutory interpretation and factual evaluations within the agency's expertise (Davis v Waterside Hous. Co., 274 AD2d 318, supra).

The Court notes that there is also a pending proceeding in the Housing Part of the Civil [*8]Court, captioned, Tenants of 325 West 37th Street v 37 West Realty Co., Index No. 6100/06 ^[FN9]. In a September 22, 2006 decision denying respondent 37 West's motion to dismiss that proceeding, the court noted, "[t]he Housing Part has jurisdiction to hear all disputes involving enforcement of state and local housing laws, including but not limited to the Multiple Dwelling Law. . . " (Burden Affirm., Ex D, at 1). Thus, it appears that the Housing Part would also be an appropriate forum for the parties here to resolve their dispute.

Litigation of these claims in three different forums is wasteful of judicial and administrative resources; it is also expensive and time consuming for the parties. Although neither side has requested a stay of this proceeding, in the exercise of judicial discretion, the Court sua sponte stays this action pending final determination of the tenants' application for Loft Law coverage that is currently pending before the Loft Board (see e.g. Nasaw v Jemrock Realty Co., 225 AD2d 385 [1st Dept 1996]) and encourages the parties to proceed thereafter expeditiously with the pending, prior-commenced Housing Part proceeding, where material issues raised here may also be raised and resolved.

Accordingly, it is ORDERED that 37 West's motion for a preliminary injunction is denied; and it is further

ORDERED that defendants' cross motion to amend the complaint is granted; and it is further

ORDERED that this matter is stayed pending final determination by the Loft Board of the tenants' application for Loft Law coverage.

This decision constitutes the order of the Court.

Date: August 14, 2007E N T E R:

New York, New York

s/

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J.S.C.