East 56th Plaza, Inc. v. New York City Conciliation & Appeals Board

OPINION OF THE COURT Sullivan, J. A narrow question of law is presented as to the interpretation of a provision of the Code of the Real Estate Industry Stabilization Association of New York City (Code). The facts are not in dispute. Petitioner is the owner of a New York City luxury apartment building in which all of the housing accommodations — 390 — are subject to the provisions of the New York City Rent Stabilization Law of 1969. (Local Laws, 1969, No. 16 of City of New York as amd to date by L 1974, ch 576 and subsequent local laws.) On September 27,1979, it submitted to the Attorney-General of the State of New York a proposed offering plan for converting the building to co-operative ownership. The same day petitioner gave written notice of the filing of such plan to the Rent Stabilization Division of the New York City Department of Housing Preservation and Development (HPD). Previously, by letter dated July 11,1979, petitioner, pursuant to section 60 of the Code of the Real Estate Industry Stabilization Association of New York City1, had offered the tenants of apartment 20B, Mr. and Mrs. Sigmund Schütz, a renewal of their existing lease, which was due to expire on September 30, 1979. In its offer petitioner explained the tenants’ options as to the election of an extension of the lease for a term of one, two or three years. Petitioner also enclosed, in triplicate, an unsigned renewal agreement which contained the terms of the proposed renewal lease and provided an appropriate place for the tenants to indicate by their signature the choice of a lease term. The document concluded with the provision “in witness whereof, the parties have executed this Agreement as of the day and year first above written.” Spaces for signature by both the landlord and the tenants immediately followed. The tenants selected a three-year term commencing October 1, 1979 at a monthly rental of $1,059.15, affixed their signatures twice in the appropriate places, and on or about July 28,1979, returned the renewal agreement in triplicate to petitioner’s managing agent with a check for the additional security based upon the increased stabilization rent. Petitioner, however, anticipating the filing of an offering plan for conversion of the building to co-operative owner — 391 — ship and intending in that event, to include in the lease the 90-day cancellation clause authorized by subdivision 7 of section 61 of the Code, did not deposit the tenants’ check for the additional security or sign the renewal lease agreement. On September 28, 1979, the day after the filing of the proposed conversion plan and notice to HPD of such filing, petitioner hand delivered to the tenants the renewal agreement together with a rider containing the 90-day cancellation clause authorized by subdivision 7 of section 61 of the Code. A covering letter requested the tenant to “review, sign the rider and return * * * for further processing and signature of the Landlord.” The cancellation clause reads as follows: “CO-OP CANCELLATION CLAUSE “The tenant is hereby advised that the owner has submitted a proposed plan of cooperative conversion for the demised premises to the New York State of [sic] Attorney General and that the Department of Housing Preservation and Development has been notified of such submission. In accordance with section 61, sub-section 7 of the Code of the Rent Stabilization Association, owner and tenant agree that owner may cancel this lease upon ninety day notice to tenant that the proposed plan of cooperative conversion has been declared effective.” Thereafter, apparently on October 5, 1979, the tenants signed the rider with the notation “under protest”, and returned to petitioner’s managing agent both the renewal agreement initialled, also under protest, to show the inclusion of the rider, and the rider. Petitioner immediately signed the renewal agreement and rider and returned an executed copy to the tenants. The tenants, challenging the validity of the 90-day cancellation clause, thereupon filed a complaint with the New York City Conciliation and Appeals Board (Board). The Board declared the cancellation clause a nullity, finding that subdivision 7 of section 61 of the Code does not permit the insertion of such a clause into the lease after the tenant has been offered and has accepted and signed a renewal agreement which does not contain such a clause. Petitioner — 392 — then commenced this article 78 proceeding to vacate the Board’s determination. Special Term denied the petition and dismissed the proceeding, a disposition with which we disagree. We would reverse, grant the petition and annul the order and opinion of the Board. Subdivision 7 of section 61 of the Code provides: “Notwithstanding anything contained herein to the contrary, any renewal or vacancy lease executed after notice to the Department of Housing Preservation and Development that a proposed cooperative or condominium Plan has been submitted to the Attorney General may contain a provision that the lease may be cancelled after 90 days’ notice to the tenant that the Plan has been declared effective. In any lease containing such a provision, upon submission of the Plan of cooperative or condominium ownership to the tenant after acceptance for filing by the Attorney General, no increase in rent may be collected thereafter pursuant to said lease. If the Plan is abandoned then the rent will be at the rate set forth in said lease from the date of abandonment.” Thus, once notice is given to HPD of the submission of a proposed co-operative plan to the Attorney-General, any vacancy or renewal lease thereafter “executed” may provide for cancellation of the lease after 90 days’ notice to the tenant that the plan has been declared effective. Here, submission of the plan and, perforce, notice thereof to HPD, occurred subsequent to the time the tenants had been offered and signed a proposed renewal lease, but before petitioner, as landlord, had signed. Thus, the issue is whether under subdivision 7 of section 61 of the Code a renewal lease which by its terms requires the signatures of both landlord and tenant for its validity is executed when only the tenant has signed the lease. The Board held that the landlord could not insert the 90-day cancellation clause once the tenant had signed the renewal lease, thereby ruling, in effect that the lease was executed when the tenants alone signed. In our view this determination is contrary to law. A lease or other bilateral contract which, as here, provides for the signature of both parties is “executed” only when it is signed by both parties and delivered. (See 219 Broadway Corp. v Alexander’s, Inc., 46 NY2d 506.) “[I]f — 393 — the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed.” (Scheck v Francis, 26 NY2d 466, 469-470.) As already noted, the renewal agreement contained a signature place for both “Landlord” and “Tenant”, immediately following the provision “IN witness WHEREOF, the parties have executed this Agreement”. Obviously execution of the lease contemplated a signing by both parties. In 219 Broadway Corp. v Alexander’s, Inc. (46 NY2d 506, 511, supra), the Court of Appeals had occasion to reiterate a fundamental principle relating to the making of a lease: “A lease * * * requires the fulfillment by the parties of certain prerequisites to take effect. It is the well-established rule in this State that delivery is one such requirement, the absence of which, without more, renders the lease ineffective.” Special Term’s attempt to distinguish 219 Broadway on the ground it involved “commercial property not bound by the Rent Stabilization Code” is unavailing. Rent stabilization affects the substantive content of leases but in no way purports to change well-established principles relating to the requisites for execution of leases. Whether commercial or residential, and if residential, rent stabilized, or free from statutory controls, a written lease agreement2 requires the formalities of signature by both parties for its proper execution. Nor do we find any basis for an administrative interpretation of “executed”, as that term is used in subdivision 7 of section 61 of the Code, different from the established meaning ascribed to it by legal precedent. The language of subdivision 7 of section 61 of the Code, “any renewal or vacancy lease executed after notice,” could not be clearer. “Statutory language which is plain and unambiguous should be construed in its natural and most obvious sense.” (Matter of Fullerton v General Motors Corp., 46 AD2d 251, — 394 — 252; McKinney’s Cons Laws of NY, Book 1, Statutes, §§ 94, 232.) In construing the Rent Stabilization Law or the Code, in the absence of express provision otherwise, the settled meaning of a term should control. As one court has noted in considering terms used in the Workmen’s Compensation Law: “[TJhese words have a distinct and well-defined meaning in the jurisprudence of the State, and must be deemed to have the same meaning when used in the statutes.” (Matter of Sheets v Paul Smith's Hotel Co., 195 App Div 39, 42.) In ignoring the explicit language of subdivision 7 of section 61 and the settled meaning of the term “executed” as that term applies to bilateral written contracts, and in disregarding the format and “execution” clause of the renewal agreement, the Board effectively rewrote subdivision 7 of section 61 to read not “any renewal or vacancy lease executed after notice” but rather “if prior to the signing by the tenant of any renewal or vacancy lease notice has been given.” Moreover, the Board’s interpretation of subdivision 7 of section 61 is inconsistent with its prior determinations. In at least two earlier opinions the Board sanctioned and approved the owner’s insertion of a Code section 42 (subd [b])3 rider after the tenant had signed the proposed renewal lease but before the owner had signed it. The Board justifies the departure from precedent in the instant case by pointing out that a section 42 (subd [b]) rider concerns rent increases while a section 61 (subd 7) rider effects changes in the duration of the lease term. It concludes, therefore, that a 42 (subd [b]) clause has “finite parameters”, permitting a change to another stabilized rent, — 395 — while the 90-day cancellation clause “deprives the tenant of the certainty of lease protection altogether.” This is a distinction without legal significance. The amount of rent and the duration of a lease term have equal importance under the Rent Stabilization Law. Surely, a tenant’s ability to pay an increased rent affects his certainty of lease protection. Furthermore, subdivision (c) of section 54, in specifying those clauses which an owner may impose on a tenant as a condition to the offer of a renewal lease, does not differentiate between a section 42 (subd [b]) rider and a 61 (subd 7) rider. In justifying their interpretation of the term “executed” as used in subdivision 7 of section 61, both the Board and Special Term rely, in part, upon section 60 of the Code. Under this section an owner must, not more than 150 days and not less than 120 days before the expiration of the current lease, notify the tenant of his right to renew at a rent not in excess of the lawful stabilization rent permitted for such renewal. As the Board concedes, however, neither section 60 nor any other provision of the Code requires that the renewal lease be tendered or signed during this period.4 Notice by mail of termination and offer to renew suffices. Had petitioner, on July 11, 1979, merely mailed a notification of expiration and offer to renew and delayed tender of. a renewal lease containing the cancellation rider until September 28, 1979 (after submission of its co-operative plan to the Attorney-General and notice thereof to HPD), it would still have been in full compliance with section 60. Yet, in such circumstances the tenants would have received no greater notice of the inclusion of the 90-day cancellation rider than was given here. We fail to see why petitioner should be penalized merely because the renewal agreement which it had tendered earlier had already been signed by the tenants by September 28, 1979, as long as it, by not signing, had not completed execution of the document. Moreover, both the Board and Special Term misconstrue — 396 — the function of section 60. Within the time limits specified the owner must “offer to renew the lease at a rent not in excess of the stabilization rent permitted for each renewal lease and otherwise on the same conditions as the expiring lease”. (Emphasis added.) The clear thrust of the section is to provide the tenant a specified minimum period of time in which to decide whether to renew at the new lawful stabilization rent. But the notice provisions of section 60 do not apply to a change in lease terms to include a 90-day cancellation rider because offers of renewal made pursuant to it, except for the rent increase, must be “on the same conditions as the expiring lease”. Thus, sections 60 and subdivision 7 of 61, while compatible, are autonomous. Appealing as it may be, Special Term’s finding that “[permitting a major alteration of the renewál lease, already signed by the tenant, just two days before the expiration of the old lease’s term would not be in keeping with the intent of section 60” unfortunately ignores the section’s specific language, which does not provide for any change in the lease terms, except for rent, irrespective of whether notice of inclusion of the cancellation clause was given to the tenant within the time limits of section 60 or before the tenant signed the lease. Section 60 should be recognized for what it is, a notice procedure for increasing a tenant’s rent on renewal. It does not concern itself at all with execution of the lease. On the other hand, subdivision 7 of section 61 applies to “any renewal or vacancy lease executed after notice”. Surely, a vacancy lease calling for a signature by both parties is not executed under subdivision 7 of section 61 until signed by both owner and tenant. Since the Legislature did not intend disparate treatment between a vacancy and renewal lease as to the interpretation of the word “executed” a renewal lease should not be subject to a different interpretation. Finally, we conclude that this is not an instance where due deference should be accorded the Board’s construction of a statute. The meaning of the “lease executed” provision of subdivision 7 of section 61 is purely a question of law, not involving the Board’s special expertise. As the Court of Appeals has noted: “Where, however, the question is one of pure statutory reading and analysis, dependent only on — 397 — accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretive regulations are therefore to be accorded much less weight. And, of course, if the regulation runs counter to the clear wording of a statutory provision, it should not be accorded any weight.” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459.) Similarly, in Matter of Caraballo v Community School Bd. Dist. 3 (49 NY2d 488, 494) the Court of Appeals, citing Kurcsics, held that the Commissioner of Education’s interpretation of the Education Law “is not to be slavishly followed when it ‘runs counter to the clear wording of a statutory provision’ ”. Nor may an administrative agency give its own regulation an unreasonable interpretation. (Matter of Abraham & Straus v Tully, 47 NY2d 207, 214.) We are not, however, concerned here with an administrative agency’s interpretation of its own regulations. The Code was adopted by the Rent Stabilization Association, not the Board, with the approval of HPD. Subdivision 7 of section 61 of the Code is authorized in haec verba by the New York City Rent Stabilization Law, as amended (Administrative Code of City of New York, tit YY), which requires that the Code to be approved by HPD contain such provision. (Administrative Code of City of New York, § YY 55-6.0, subd b, piar [2]; subd c, par [9], cl [f]; see L 1946, ch 274, § 1 et seq., as amd.) Thus, the Board did not promulgate the Code and it may not change the plain meaning of its provisions to produce a desired result. The Legislature has provided the tenants with a quid pro quo for the inclusion of the 90-day cancellation clause in the lease. Subdivision 7 of section 61 provides that “[i]n any lease containing such a provision, upon submission of the Plan of cooperative or condominium ownership to the tenant after acceptance for filing by the Attorney General, no increase in rent may be collected thereafter pursuant to said lease.” The Board’s strained interpretation is not consonant with the fair accommodation and balancing of interests between landlord and tenant which subdivision 7 of section 61 accomplishes. (See Halperin v 2 Fifth Ave. Co., 75 AD2d 565.) — 398 — To justify its conclusion that, notwithstanding the absence of the landlord’s signature on the lease instrument, an enforceable agreement conveying a leasehold interest was reached, the dissent treats the July 11, 1979 letter and the accompanying proposed unsigned lease together as an offer requiring nothing further on the landlord’s part, and argues that under general contract principles a bilateral contract was entered once the tenants signed the lease. The facts do not support such a conclusion. The letter of July 11, 1979 was clearly a form letter of transmittal. Rather than summarize its contents, we set forth its text in full: WILLOWICK Management 400 East 56th Street New York, N.Y. 10022 July 11,1979 Dear........................, Enclosed is Renewal Agreement in triplicate. The increments for your rent are regulated by the Rent Stabilization Law of 1969. That Law also provides that one may elect to extend his lease for a 3-year term at 15%, a 2-year term at 12 % or 1-year term at 8% % • Please note that the Agreement must be signed in TWO PLACES: (1) On the first page indicating your selection of term, and (2) On the last page where indicated. This must be done on ALL sets of the Agreement. IT IS NECESSARY THAT THESE DOCUMENTS BE RETURNED TO US AS SOON AS POSSIBLE, along with a check covering your additional security deposit as outlined in paragraph 2 of the document. This check should be drawn to the order of: WILLOWICK MANAGEMENT CORP. Your tenancy is sincerely appreciated and we hope that you will continue to reside in the building. — 399 — Sincerely, WILLOWICK MANAGEMENT CORP. EVELYN COPELAND Assistant Manager EC/ac Enel: Prior to the mailing of this letter no discussions or negotiations regarding a renewal had taken place. Thus, we find inapplicable the principle, relied upon by the dissent, that where the parties have agreed upon all the substantial terms of a contract a more formal writing is not necessary for a binding contract, even though the parties may intend to memorialize their agreement by execution of such a writing. (See Matter of Municipal Consultants & Publishers v Town of Ramapo, 47 NY2d 144.) Here, no prior oral agreement had been reached. The mailing of the letter with the proposed lease was the first communication between the parties concerning renewal. Our conclusion that a lease was not executed until both parties signed the lease instrument is premised not merely on the presence of space on that instrument for the signature of both parties. Petitioner’s own actions in preparing a letter and a lease; in signing the letter but not the lease; and in requiring all the documents to be returned rather than permitting the tenants to hold a copy, as would have been proper if the lease was to be executed upon the tenants’ signatures, all support the conclusion that petitioner had not already bound itself. No act, unequivocal or otherwise, is present from which one can conclude that petitioner endowed the tenants with the legal power to create a binding contract simply by signing the lease. Indeed, by withholding its signature from the lease when it prepared the lease and the letter, petitioner clearly evinced an intention to reserve for itself the power to complete execution of the contract upon return of the lease signed by the tenants. As long as it is reasonably apparent that some further act of the offeror is necessary, the offeree has no power to create a contractural relation by an act of his own, and there is as yet no operative offer. (1 Corbin, Contracts, § 11, p 25.) This is no — 400 — less true because a landlord is obligated to offer a renewal lease*5 under the Code. Moreover, the tenants clearly understood this by returning all three copies of the lease, rather than retaining a copy for themselves. “In determining whether the parties entered into a contractual agreement * * * it is necessary to look * * * to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds”. (Brown Bros. Elec. Contrs. v Beam Constr. Corp., 41 NY2d 397, 399.) Thus, the true tenor of the July 11 letter was the proffering of a renewal to take effect upon the execution of the enclosed lease instrument, rather than a written commitment, in praesenti, to convey a leasehold interest. The signed July 11 letter, viewed by itself or in tandem with the unsigned renewal agreement, did not create the relationship of landlord and tenant for a renewal term nor did it vest any estate or interest as long as it contemplated the execution of a formal lease to complete the contract. (See Schwartz v Greenberg, 304 NY 250; Harvey v General Cable Corp., 1 AD2d 79, affd 2 NY2d 986.) While obligated, pursuant to section 60 of the Code, to offer to renew within 150 to 120 days before a lease’s expiration, a landlord is not required to submit a written lease within any specified period.6 And if, as here, a written renewal lease instrument is tendered within that time span, the landlord may also withhold execution of the written lease, because it may wish to reserve its rights, including the right to take advantage of a conversion plan filing with the Attorney-General, and in accordance with the Code, — 401 — add a section 61 (subd 7) rider. We see no reason, under either contract law or statute, why it should be denied that right. The situation here is similar to that found in Queens Bonnie Co. v Brittain (40 AD2d 876). There, the landlord had transmitted proposed leases which did not contain a so-called “tax clause” to a number of tenants, who signed the leases in the form submitted and returned them to the landlord. The landlord then inserted a “tax clause” in the leases, signed and sent them back to the tenants. The tenants retained the leases and paid the relatively small share of the real estate tax increase in the first year, but balked at the heftier increase in the second year. The court upheld the validity of the tax clause, finding that the “landlords’ action in adding a tax clause to the leases while the parties were still in process of negotiating constituted a counteroffer to the proposals otherwise contained in the instruments signed by the tenants.” (Queens Bonnie Co. v Brittain, supra, p 877.) The court found acceptance in the tenants’ retention of the revised leases. It concluded (p 877) that if the tenants “were not bound by the tax clause, they would have had no written leases at all.” This is precisely the case here. Until it signed the lease petitioner could avail itself of its rights and insert a 90-day cancellation clause. The dissent’s reliance upon Century Operating Corp. v Prince (NYLJ, March 6,1978, p 11, cols 1-2, affd 66 AD2d 1032) for the proposition that the tenants’ signature created a binding contract is misplaced. In Century, which involved a Statute of Frauds issue because the landlord never signed the lease, the crucial fact was the landlord’s retention of the deposit, a factor unequivocally referable to part performance of the lease. Here, petitioner refrained from depositing the tenants’ check for the additional security. Accordingly, the judgment, Supreme Court, New York County (Tyler, J.), entered October 24, 1980, dismissing the petition should be reversed, on the law, without costs or disbursements, and the petition granted. Footnotes [1] Section 60 of the Code, as amended April 2,1979, provides in relevant part: “Every owner shall notify the tenant in occupancy not more than 150 and not less than 120 days prior to the end of the tenant’s lease term, by mail, of such termination and offer to renew the lease at a rent not in excess of the stabilization rent permitted for each renewal lease and otherwise on the same conditions as the expiring lease, and shall give such tenant a period of 60 days to renew such lease and accept the offer”. [2] Whether an alleged lease agreement satisfies Statute of Frauds requirements (see General Obligations Law, § 5-703) is not at issue here, because no lease agreement was ever reached. [3] Subdivision (b) of section 42 permits the inclusion in a renewal lease of a rider providing for rent increases in specified situations. In pertinent part subdivision (b) of section 42 reads: “(b) Any lease may contain a clause which provides for an increase in the stabilization rent during the term of said lease on one of the following conditions : “(1) pursuant to an order of the CAB or the Rent Guidelines Board; “(2) that owner and tenant have agreed to be bound by any determination on the CAB affecting the tenancy during the term of said lease; provided, however, that nothing herein shall limit the right of the parties hereto to judicial review”. [4] No prejudice ensues to the tenant if the owner delays in submitting the proposed renewal lease because section 42 (subd [a], par [1]) of the Code provides that an increase over the stabilization rent in an expiring lease may not be collected by the owner' unless “the owner and tenant have entered into a valid written renewal or vacancy lease.” [5] Renewal lease is defined as “[a]ny extension after May 31, 1968 of a tenant’s lawful occupancy of a dwelling unit after the completion of his lease term, including, but not limited to a written extension of an existing lease or the execution of a new lease for the same space”. (Code of the Real Estate Industry Stabilization Assn, of New York City, § 2, subd [s] ; Administrative Code of City of New York, § YY51-6.0.) The definition thus contemplates other means of extending the lease, presumably including oral extensions as well as holdovers resulting from the landlord’s failure to offer a written renewal. [6] While the Code definition of “Renewal Lease” is broad enough to encompass even an oral extension of an existing lease or lawful occupancy (§2, subd [s]), the stabilization rent may be increased only if the owner and tenant have entered into a valid written renewal lease (§42). Such is the case here as the proposed renewal lease contemplated increases in accordance with the rent guidelines.