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Southhampton Town Code renders Rental without Rental Permit Illegal - Landlord barred from Recoverin

Pursuant to the lease, the plaintiffs paid a security deposit and utility deposit before learning that the premises did not have a rental permit. A rental permit is required by the Town of Southhampton, Town Code section 2703. Once the plaintiffs became aware of this, the plaintiffs sent a letter notifying the landlord (Guzman) that the lease was illegal and, therefore, unenforcable. The decision is very important for landlords throughout Long Island (all with similar town code provisions requiring rental permits) because the plaintiffs demanded the return of all sums paid to the landlord pursuant to the lease - and the Court affirms - the landlord was barred from collecting rent!

"[S]ection 2703 [of the Southhampton Town code] provides that a valid rental permit shall be a condition precedent to the collection of rent. The penalties for violating section 270 include monetary fines or imprisonment….Contrary to Guzman's contention, Town Code § 2703 affords an implied private right of action and, therefore, the plaintiffs may assert claims against him for his alleged violation of that statute."

How can this be so (landlords may be asking)? The Court indicates that "[w]here, as here, a statute 'does not explicitly provide for a private cause of action, recovery may be had under the statute only if a legislative intent to create such a right of action is fairly implied' in the statutory provisions and their legislative history" (citations omitted).

This inquiry involves three factors: "(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme'" (Maimonides Med. Ctr. v First United Am. Life Ins. Co., 116 AD3d 207, 211, quoting Carrier v Salvation Army, 88 NY2d 298, 302; see Sheehy v Big Flats Community Day, 73 NY2d at 633). The third factor is often noted to be the "most important" (Cruz v TD Bank, N.A., 22 NY3d 61, 70; see Brian Hoxie's Painting Co. v CatoMeridian Cent. School Dist., 76 NY2d at 211; Maimonides Med. Ctr. v First United Am. Life Ins. Co., 116 AD3d at 211). Where, as here, the legislature clearly contemplated administrative enforcement of the statute, " [t]he question then becomes whether, in addition to administrative enforcement, an implied private right of action would be consistent with the legislative scheme'" (AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 16, quoting Uhr v East Greenbush Cent. School Dist., 94 NY2d 32, 40).

Looking at the above factors, the Plaintiff show that the Town Code is intended for their benefit. Owners must obtain a valid rental permit as a condition precedent to the collection of rent. A private cause of action under a statute has been satisfied - the Southhampton Town Code is directed toward promoting the police power (health, safety and well-being) of the Town of Southhampton. Again, similar provisions exist throughout the towns and villages throughout Long Island. The Town of Southhampton requires that there must be an on-site inspection of the proposed rental which, amongst other things, ensures compliance with the NYS Uniform Fire Prevention and Building Code and the Town Code.

The Court of Appeals has observed that, "[w]here the procuring of a license is merely for the purpose of raising revenue it would seem that acts performed without securing a license would be valid. But where the statute looks beyond the question of revenue and has for its purpose the protection of public health or morals or the prevention of fraud, a noncompliance with its terms would affect the legality of the business" Benjamin v Koeppel, 85 NY2d at 553 [internal quotations marks omitted]; see Village Taxi Corp. v Beltre, 91 AD3d 92, 99-100.

The Court holds that "under the circumstances of this case, it would be against public policy to permit Guzman to retain the plaintiffs' rental payments and to profit from his wrongdoing." (citations omitted). Southhampton Landlords beware - you should obtain a rental permit unless you want to suffer a similar fate as Guzman, the landlord in this appeal.

The case is Ader v Guzman, 2016 NY Slip Op 00137 (App. Div. 2d Dep't. Jan. 13, 2016)

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