10 N.Y.3d 18 (2008)
An agreement by a tenant to waive the benefit of rent stabilization laws in exchange for the ability to use an apartment as a second home at an illegally inflated rent is void and unenforceable, regardless of court approval of the initial settlement.
Summary
This case addresses the enforceability of an agreement where tenants waived their rent stabilization rights in exchange for the landlord allowing them to use the apartment as a second home and charging them an illegally high rent. The New York Court of Appeals held that such agreements are void as against public policy, regardless of whether the agreement was part of a court-approved settlement. The court emphasized that the Rent Stabilization Code explicitly prohibits tenants from waiving their rights and that the agreement distorted the housing market without benefiting those the rent stabilization laws were designed to protect.
Facts
Victoria Munroe and Eric Saltzman rented three rent-stabilized apartments in Manhattan. An initial dispute over an alleged illegal sublease was settled with a so-ordered stipulation in 1996. This agreement recognized the tenants as lawful rent-stabilized tenants but at a monthly rent of $2,000, substantially above the legal maximum. The tenants waived the right to challenge the rent’s legality and were allowed to maintain the apartment regardless of their primary residence. The apartments were deregulated in 2000 without the tenants’ objection. In 2003, the landlord initiated eviction proceedings, claiming the tenants did not use the apartments as their primary residence, leading to a declaratory judgment action in 2004.
Procedural History
The Supreme Court initially granted summary judgment to the tenants, upholding the agreement. The Appellate Division reversed, declaring the agreement void and granting summary judgment to the landlord. The Appellate Division granted the tenants leave to appeal to the Court of Appeals.
Issue(s)
1. Whether an agreement where a tenant waives rent stabilization benefits in exchange for the right to maintain a non-primary residence at an illegally inflated rent violates public policy and is void under the Rent Stabilization Code.
2. Whether the “negotiated settlement” exception to Rent Stabilization Code § 2520.13 applies to an agreement that sets an illegal rent.
3. Whether the statute of limitations bars a challenge to an agreement that was allegedly void at its inception.
Holding
1. Yes, because such agreements directly contravene the purpose of rent stabilization laws by allowing tenants to waive their protections and pay illegally inflated rents, distorting the housing market.
2. No, because the “negotiated settlement” exception applies only to bona fide settlements of existing disputes and not to agreements designed to circumvent rent stabilization laws.
3. No, because a statute of limitations does not validate an agreement that was void from its inception; the action seeks to declare that no valid contractual obligations ever existed.
Court’s Reasoning
The Court of Appeals relied heavily on Rent Stabilization Code § 2520.13, which states that agreements waiving rent stabilization benefits are void. The court rejected the tenants’ argument that enforcing the agreement would not violate public policy, stating that the rent stabilization laws aim to ensure apartments are rented at legal maximums or deregulated when conditions allow. The court found that the agreement distorted the market without aiding the intended beneficiaries of rent stabilization laws.
The court further clarified that the “negotiated settlement” exception did not apply, as the agreement was not a bona fide settlement of a genuine dispute. Instead, it was a mechanism to circumvent the rent stabilization laws by setting a rent significantly higher than the legal maximum. As the court stated, “The obvious purpose of the settlement was not to resolve a dispute about what the law permitted, but to achieve something the law undisputedly did not and does not permit.”
Addressing the statute of limitations argument, the court emphasized that a statute of limitations does not validate a void agreement. The landlord’s action was not to enforce a contract, but to declare that no valid contract ever existed. The court affirmed the Appellate Division’s order, clarifying that the agreement was void as to both parties. While not prejudging any specific claims, the court suggested that the tenants might have a claim to recover excess rent paid, and potentially rescind the deregulation of the apartments, provided no statute of limitations applied. The court emphasized that the landlord, having successfully argued the agreement was void, could not then invoke it in their own defense.