THE CONTRACTUAL ARRANGEMENTS MADE WITH APARTMENT OWNERS AND SERVICE PROVIDERS BY THE NYC DEPARTMENT OF HOMELESS SERVICES (DHS) DID NOT CREATE “ILLUSORY TENANCIES” SUCH THAT THE PREVIOUSLY HOMELESS TENANTS WERE ENTITLED TO VACANCY LEASES WHEN THE DHS CONTRACTS WERE TERMINATED (SECOND DEPT).

The Second Department, over a dissent, determined that the previously homeless appellants who had been placed in apartments did not demonstrate the arrangement constituted an “illusory tenancy” such that the appellants were entitled to vacancy leases. The owners of the apartments were entitled to possession after their contracts with the NYC Department of Homeless Services (DHS] were terminated:

… “[A]n illusory tenancy is defined generally as a residential leasehold created in a person who does not occupy the premises for his or her own residential use and subleases it for profit, not because of necessity or other legally cognizable reason”… . An illusory tenancy scheme exists, for example, where the “prime tenant” rents a rent-stabilized apartment, which it never intends to occupy, and then subleases it for an amount in excess of the legal rent so as to make a profit … . * * *

The leases in the present case did not lack a legitimate purpose. The subject premises were leased to, and by, both CAMBA and We Always for the “legally cognizable reason” of providing transitional housing in accordance with the terms of the Cluster Transitional Residence Program run by the City …  The leases entered into by CAMBA and We Always both specified that the agreement was entered into “for the sole purpose of providing transitional housing and services in connection with the DHS Agreement,” and the leases expired by their terms upon termination of the DHS [NYC Department of Homeless Services] Agreement (if not terminated earlier). * * *

… [T]he owners demonstrated, prima facie, that the appellants were not entitled to vacancy leases and related relief because illusory tenancies were not created to deprive them of the benefits of rent stabilization. Sapp v Clark Wilson, Inc., 2022 NY Slip Op 04184, Second Dept 6-29-22

Practice Points: The previously homeless tenants were not entitled to vacancy leases when the relevant contracts with the NYC Department of Homeless Services [DHS} were terminated. The tenants argued the contractual arrangements between the apartment owners and DHS created “illusory tenancies.” An “illusory tenancy” is created, for example, when a party leases a rent-stabilized apartment for the sole purpose of subletting it for a profit. Here the leases served a legitimate purpose, the provision of transitional housing.