Mount Sinai Hospital v. Loutsch
119 Misc.2d 427, 462 N.Y.S.2d 1004, 1983 N.Y. Misc. LEXIS 3529 (1983)
Rule of Law:
Tenants of residential premises not subject to rent regulation may enforce rights as third-party beneficiaries of a regulatory agreement between their landlord and the United States Department of Housing and Urban Development (HUD) if the agreement was intended for their benefit and the landlord's proposed action constitutes a prohibited change in use without HUD's approval.
Facts:
- Mount Sinai Hospital purchased the apartment building at 1245 Park Avenue in October 1975.
- Respondents Boelczkevy and others resided in apartments within the building, along with individuals professionally affiliated with Mount Sinai Hospital.
- Each of the respondents' apartments had been vacancy decontrolled, and Mount Sinai Hospital's ownership of the premises granted an exemption from rent stabilization laws.
- In connection with its purchase of the building, Mount Sinai Hospital executed a regulatory agreement with the United States Department of Housing and Urban Development (HUD).
- Section 6(h) of this regulatory agreement stipulated that the owner would not, without prior written HUD approval, "permit the use of the dwelling accommodations * for any purpose except the use which was originally intended, or permit commercial use greater than that originally approved by the Secretary."
- Mount Sinai Hospital sought to limit its tenant population exclusively to persons affiliated with the hospital.
- The respondents were month-to-month tenants, having no current written leases with Mount Sinai Hospital.
Procedural Posture:
- Mount Sinai Hospital served 30-day notices of termination to the respondents, intending to end their month-to-month tenancies.
- Mount Sinai Hospital subsequently initiated holdover proceedings in the Supreme Court, New York County, against the respondents after they remained in possession of their apartments.
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Issue:
May residential tenants in a hospital-owned, non-rent-regulated building assert rights as third-party beneficiaries of a regulatory agreement between the hospital and HUD, thereby preventing their eviction based on a proposed change in the building's use without HUD's prior approval?
Opinions:
Majority - David B. Saxe, J.
Yes, residential tenants in a hospital-owned, non-rent-regulated building may assert rights as third-party beneficiaries of a regulatory agreement between the hospital and HUD, preventing their eviction based on a proposed change in the building's use without HUD's prior approval. The court first established that the apartments were neither rent-controlled nor rent-stabilized due to vacancy decontrol and the hospital-owner exemption under the Emergency Tenant Protection Act of 1974 (ETPA), meaning the respondents were month-to-month tenants. However, under New York law, a third person may enforce a promise made for their benefit if the contract was intended for their benefit, even if they are not a party to the contract or provided consideration. The burden is on the respondents to prove this intent. The court held that the respondents were direct third-party beneficiaries of Section 6(h) of the regulatory agreement, which restricted the use of dwelling accommodations to their "originally intended" purpose, thereby benefiting the tenants. The hospital's plan to evict all nonaffiliated residential tenants to house solely affiliated persons constituted a "change in use to one other than that originally intended" within the meaning of Section 6(h). Such a significant change in the building's permitted population required prior written approval from the Secretary of HUD. Since Mount Sinai Hospital failed to obtain this necessary approval, it breached the regulatory agreement. As third-party beneficiaries, the respondents were entitled to assert this breach as a valid defense to the holdover proceedings. The court clarified that this holding does not confer "perpetual tenancies" but merely requires the hospital to secure HUD's approval before implementing such a change in use.
Analysis:
This case significantly affirms the principle that third-party beneficiaries can enforce contractual provisions, particularly those involving governmental regulatory oversight, even when direct statutory protections are absent. It highlights that an "intent to benefit" a third party, even if not explicitly stated, can be inferred from the nature and language of a regulatory agreement, thereby creating enforceable rights. The ruling serves as a check on a landlord's discretion to unilaterally alter property use when bound by such an agreement, requiring adherence to the terms and potentially protecting tenant populations who are otherwise vulnerable. This precedent can impact future cases where regulatory agreements, especially those with federal agencies like HUD, include clauses limiting changes in property use, extending protections beyond traditional landlord-tenant statutes.
