Lawsuit on illegal hotels leads to proposed law change

January 3, 2013 By Charisma L. Miller, Esq. Brooklyn Daily Eagle

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The year 2012 saw a record year of tourism for New York City. The city welcomed 52 million visitors who generated an estimated $55.3 billion in economic impact to the city’s economy spread across the five boroughs. The rise in tourist visitations has led to an increase in the illegal hotels.

After a lawsuit was filed against one of the operators of such hotels, the City Council announced proposed rules to further crack down on short-term accommodations.

In October, Mayor Michael Bloomberg filed a lawsuit against Smart Apartments, a major operator of allegedly illegal hotels and other short-term accommodations. Many of these housing units were located throughout Williamsburg and other Brooklyn neighborhoods.

The lawsuit, the first of its kind, charges that Smart Apartments engaged in deceptive trade practices against tourists. In the lawsuit, the city alleges that Smart Apartments booked, accepted, and advertised short-term reservations in illegally converted and unsafe apartments.

“Illegal hotels endanger the health, safety, and quality of life of New Yorkers. At the same time they take apartments off the market for actual residents and exacerbate our affordable housing crisis,” said State Senator Liz Krueger (D-Manhattan).

Visitors of these illegal housing units found “that the accommodations [were] in apartment buildings parading as ‘hotels’ which often lack the barest essentials that short-term guests would normally expect,” the lawsuit charges.

In response to multiple complaints received from 311, letters, emails and other sources, the city began a wide-ranging investigation into Smart Apartments’ operations and conducted inspections on numerous occasions.

In the course of its nearly yearlong investigation, the Office of Special Enforcement discovered hundreds of permanent residential apartments being illegally operated by Smart Apartments for short-term stays. In some instances, follow-up inspections uncovered no change in the use of illegally converted residential apartments, and residents, and guests continued to be endangered due to fire safety hazards – despite the issuance of violations by the Fire and Buildings departments.

Under New York law, it is illegal to occupy units intended for permanent occupancy in residential buildings for short-term stays of 29 days or less. Moreover, unlike legal hotels, permanent residential buildings illegally converted for transient occupancy lack the necessary fire-safety safeguards that are required by law to protect occupants who are unfamiliar with their surroundings.

“I lived in a building containing several of Smart Apartment’s illegal hotel rooms,” said Chris Kelly, a former resident at a location illegally used by Smart Apartments. “I speak for all my former neighbors when I say that our safety was constantly in jeopardy.

“Strangers entered our building at all hours with keys provided to them by our building’s management company. Noise levels increased, property was destroyed and our well-being and personal property were at risk.”

Seeking $1 million in punitive damages, the city received a temporary restraining order prohibiting Smart Apartments from operating.

“Illegal hotel operators create hazardous conditions and place the lives of guests in danger,” said Mayor Bloomberg. “With this lawsuit, we are sending a clear message to operators of all illegal hotels: our administration will remain vigilant in its commitment to combating this public safety problem.”

Jonathan Nelson, an attorney representing Smart Apartments, said in a statement that the litigation “apparently is directed toward situations that have allegedly occurred in the past.”

Nelson added that “Smart Apartments is committed to remedy any violations that have occurred and to bring all the apartments under the management of Smart Apartments into full compliance with New York City housing and other regulations. Smart Apartments fully supports the efforts of New York City to maintain a safe environment for both residents and tourists visiting the city.”

To further dislodge illegal hotels, the City Council has proposed a rule amendment relating to the classification of violations for the operation of illegal hotels. The proposed rule will include a daily penalty for the operation and/or conversion of a permanent residence for short-term accommodations.

A public hearing on this proposed amendment will be held at 10 a.m. on Feb. 1 at the New York City Department of Buildings offices.