Ruling on Sheffield Conversion May Give Market-Rate Tenants More Rights

A housing court judge on Tuesday slammed Kent Swig’s plan to kick out market-rate tenants at Sheffield 57–even though their leases were up and had not been renewed–as part of his conversion of the West 57th Street building to swank condominiums.

The ruling, if upheld, is going to put Mr. Swig and numerous other developers in a bind. They have long been unable to kick market-rate tenants out after a conversion has been completed. Now, thanks to Judge David B. Cohen, they will not be able to kick them out while the conversion is under way, either.

“It is a very important case,” said Arthur Weinstein, a real estate lawyer and vice president of the Council of New York Cooperatives. “If it survives on appeal, it closes a significant gap in the existing law governing the conversion of occupied buildings into cooperative or condominium status.”

Rent-regulated tenants have long been protected from eviction during a conversion, but the rule on market-rate tenants is more vague.

Landlords are prohibited from emptying buildings by more than 10 percent before a conversion is filed, so generally they wait until the conversion is under way and then get rid of market-rate tenants by letting leases lapse, which is what Mr. Swig did in the case of Sheffield 57. That allows landlords to renovate, combine units, and generally make a profit.

Judge Cohen’s decision closes this option for now, and leaves landlords to either negotiate down to sell condos to the market-rate tenants, or crank up the rents to force them to leave–although the tenants are also protected against excessive rent increases.

The ruling centers on the part of the state law governing conversions which states that “no eviction proceedings will be commenced at any time against non-purchasing tenants for failure to purchase or any other reason applicable to expiration of tenancy.” Judge Cohen said that it applies to market-rate tenants with expired leases.

Needless to say, Mr. Swig is appealing.

“We chose not to renew the leases of the market-rate tenants, and there were 23 of them who did not want to leave,” Mr. Swig told The Real Estate. “The law is black and white. If you don’t have a lease and you are not rent-regulated, then you have no right to occupy.”

Since buying the high-rise in March 2005, Mr. Swig has pretty much emptied the 50-story building except for the 23 defendants and about 100 rent-regulated tenants.

Mr. Swig said that he offered the defendants insider prices at “way below the market.”

The president of the tenants association and a defendant in the eviction case, Nancy Rovelli, told The Real Estate that in most cases the offers did not represent a discount off the black book, or first offering prices, but rather off later amendments.

“When Judge Cohen was hearing the case, he did indicate and encourage negotiations, and at that point we did, but nothing ever came of it,” Ms. Rovelli said. “Not only was [Mr. Swig] jacking up the prices but he was inflating the square feet.”

- Matthew Schuerman