Cheating on Taxes Doesn’t Hurt Tenants in Non-Primary Residence Cases

A recent decision of the Appellate Term, First Department has reiterated, emphasized and clarified a long-standing rule in non-primary residence cases – That rule is that even if a tenant has under penalty of perjury sworn on tax documents that the tenant lives away from the subject rent stabilized apartment it will not operate as a conclusive admission against him/her and that the tenant will still be afforded the opportunity to prove he/she lives in the subject apartment.

When a tenant has the benefit of a rent stabilized apartment the tenant has few obligations in order to maintain possession of that rent stabilized apartment. One obligation of a rent stabilized tenancy is that the tenant actually lives in the subject apartment.

When a landlord believes that a tenant is not maintaining a rent stabilized apartment as a primary residence, the landlord will refuse to renew and then commence a non-primary residence holdover proceeding in which the landlord will have the burden of proving that the tenant is not primarily residing in the subject apartment.

Once the case begins the landlord will be entitled to discovery in the form of document production and an examination before trial. The tenant will be required to produce many categories of documents but some have an amplified importance. Amongst the particularly important documents are bank statements, credit card statements, driver license, voter registration, and tax returns.

Tax returns are important for many reasons:

For years cases have been started by landlords that would seem to be easy wins for the landlord because the tenant has filed tax returns in which a tenant has averred that he/she lives in Florida and has taken a homestead exemption there or because the tenant has a home in upstate New York for which the tenant has taken the STAR exemption. It, however, has not been that simple. If the tenant explains that the tax returns do indicate a primary residence elsewhere but that what is written on the tax returns is untrue – then a judge hearing a non-primary residence case will merely consider it as one factor of many.

On April 10, 2014 the Appellate Term decided the case of Ansonia Associates v. Unwin, (1st Dept. App.Term 2014) and was again called upon to weigh in on a situation in which a tenant has either cheated the government by claiming that her rent stabilized apartment is a business expense or the tenant is lying in the non-primary residence proceeding by claiming to actually live in the apartment that she swore on her tax returns was only used for business purposes. The Appellate Term affirmed the Housing Court (J. Kraus) and held that because what the tenant puts on his/her tax returns is one factor of many to consider when determining a non-primary residence case lying or not lying on tax returns can’t be conclusive.

The landlord had cited a 2009 New York Court of Appeals case as standing for the proposition that a party to a lawsuit cannot take a position in litigation contrary to what has been taken on a tax return. The Appellate Term held that the Court of Appeals case cannot apply to a non-primary residence proceeding because of the principle that tax returns are just one factor of many to consider.

The lesson to be learned is that a tenant is given every opportunity to keep a rent stabilized apartment. Being in a situation in which a tenant must swear that he/she lied on his/her tax returns in order to prevail is not a bar to being able to prevail.