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By law, a rent-stabilized tenant is not permitted to charge a roommate more than a proportionate share of the rent. (That rent share is determined by dividing the legal rent by the total number of tenants named on the lease together with such other occupants in the apartment. However, a tenant's spouse and family, or an occupant's dependent child, are not included in the total.) [Rent Stabilization Code (9 NYCRR) section 2525.7(b)]

While the Rent Stabilization Code provides that "profiteering"--charging in excess of this proportionate-share formula--comprises a "violation," the regulation is conspicuously silent as to whether the misconduct is curable or a forfeiture of the tenancy must ensue. As a result, over the last few years, a somewhat malleable application of this prohibition has developed.

In extreme instances of "commercializing," possessory judgments have issued against regulated tenants. In a recent case, West 148 LLC v. Paule-Sylvie Yonke, Ms. Yonke advertised her unit on the Internet as "Chez Sylvie Bed and Breakfast," rented out one of the rooms in her apartment to a series of "guests" or "roommates," and charged them nearly double her monthly stabilized rent for that privilege. On an appeal from a New York City Housing Court Judge's eviction order issued against the tenant, the Appellate Term, First Department, observed:

On these facts, the trial court correctly concluded that the tenant's commercial exploitation of her stabilized apartment required eviction pursuant to Rent Stabilization Code....
When a tenant's conduct is not as "offensive" or "abusive," courts are willing to afford the miscreant a bit more latitude. By way of example, in Roxborough Apartments Corp. v. Becker , a regulated tenant charged his three roommates sums which exceeded the regulated rent by a total of only $146. Finding a violation of the proportionate-share formula, a New York City Housing Court Judge ruled against the tenant and ordered an eviction. On appeal, the Appellate Term, First Department, reversed, noting as follows:
[T]he overcharges did not rise to a level of profiteering requiring eviction of the long-term tenant without giving him an opportunity to cure...Significantly, the surcharge amounts, though not insubstantial, do not reflect commercial exploitation of the regulated tenancy...Nor, so far as shown by the parties' stipulation of facts, were the financial arrangements between tenant and his roommates actuated by "bad faith or an intent to profiteer"...Tenant's belief that he was entitled to compensation in the form of rent for the services and amenities he provided to his roommates, though erroneous...was not palpably unreasonable....

Ultimately, Mr. Becker was allowed to retain his regulated tenancy on condition that he refund all monies charged to his roommates which exceeded 25% of the legal regulated rent.

What struck us as particularly interesting about the Becker case was the appellate court's reluctance to award the landlord $24,452.50 in attorneys' fees and costs. In an interesting twist, despite the tenant's misconduct, the Appellate Term characterized the landlord's recovery of its fees as "unfair under the particular circumstances of this case." Yet, while describing the dispute as an "unsettled area of the law," the Court seemingly chastises the landlord for not having anticipated an unfavorable outcome.

As innocent as Mr. Becker's error may have been, it strikes us as fundamentally unfair to have allowed him to escape liability for the landlord's fees and costs, particularly since the tenant was found to have violated the law's requirements and was directed to refund all overcharges to his roommates. Some "penalty" should have flowed as a consequence of the tenant's "unclean hands."

While post-judgment cures are common in the landlord-tenant context, they usually do not absolve the tenant of liability for a prevailing landlord's fees and costs. Mr. Becker's receipt of a "double bonus"--retention of his stabilized unit and avoidance of reimbursing his landlord's fees and costs--seems to run contrary to that established precedent.

For a copy of the Appellate Term's decision in the Yonke case, please click on the following link:
For a copy of the Appellate Term's decision in the Roxborough case, please click on the following link: