Law Against Illegal Hotels Takes Effect

On May 1, the state law to stop illegal hotels went into effect despite a last-minute lawsuit by two single-room occupancy hotel owners. The bill was signed by then-Gov. David Paterson last July.

The law specifies that “Class A multiple dwelling” units can only be used for permanent residences—people occupying the apartment for at least 30 consecutive days. This will make it easier for city agencies to prevent them from being used illegally as Class B (commercial) hotels. For many years, residential buildings in New York City have been used increasingly for commercial and transient rentals instead of as long-term housing for New Yorkers. These illegal hotels present a threat to both tenants and affordable housing.

“The profits from daily and weekly rentals are huge incentives to push out long-term tenants,” says Jackie Del Valle, head of organizing at Housing Conservation Coordinators, a community-rights group in Hell’s Kitchen. “Every year, we lose over 10,000 apartments from rent stabilization. The growth of the illegal hotel industry is a serious contributor to this.”

The practice began in SRO residential hotels in Manhattan, especially the Upper West Side, where transients were much more profitable than long-term tenants, and week-to-week leases were an invitation for abuse by landlords. Since then, illegal hotel operations have spread into rent-regulated and even market-rate or privately owned apartments throughout the city. Some owners bought condo units and rented them to transients by the night.

Two of these SRO landlords went to federal court to stop the law from going into effect. On April 8, Jay Wartski of Dexter 345 Inc. and Dexter Properties LLC, and Alexander Scharf, of Esplanade 94 LLC, filed for an injunction to “enjoin” the enforcement of the new law, claiming that it violated the “takings” clause of the Fifth Amendment, the due-process clauses of the Fifth and Fourteenth Amendments, the equal-protection clause of the Fourteenth Amendment, and the equivalent clauses of the New York State Constitution. It said that enforcing the law would cause “irreparable” harm to their businesses, because they would not financially be able to run them. Finally, Wartski and Scharf argued that the law would also damage their reputations and good will in the community.

In response, several tenants’ rights and legal service groups—the Goddard Riverside SRO Law Project, Housing Conservation Coordinators, Manhattan Legal Services, and the West Side Neighborhood Alliance—filed a conjoined amicus brief. They wrote that the new law is meant to protect rent-regulated tenants from being forced to live in unsafe conditions caused by tourists, and in some cases prostitutes, coming in and out of their buildings. These operations often lead to building managers harassing tenants out of their apartments and resentment by residents towards the tourists, who can become part of unsafe situations.

U.S. District Judge Richard J. Sullivan denied the request for the injunction, holding that Wartski and Scharf did not provide a compelling enough case to prove that the new law would cause severe financial damage to the hotel businesses they run or own. Further, he found that the damage to these two landlords’ reputations was actually caused by legislators’ findings that their “budget hotels” were both unsafe and not wanted within the communities in which they operated. The judge also ruled that a stay would work against the public interest, while the timely execution of the regulations was in the public interest.
Judge Sullivan added that as the owners waited for the “11th hour” to file the injunction, some 10 months after the law first passed, they knew they were risking an adverse decision.

“We are pleased with the decision, though we were not surprised, as the plaintiffs did not have any merit to stop the legislation,” said Vivian Riffelmacher of the West Side Neighborhood Alliance. “This was simply another desperate attempt by these operators to wrongfully deny tenants their rights and to push out their SRO tenants, forever losing these affordable units.”