## Facts

- Mount Sinai Hospital owned a residential building at 1245 Park Avenue in Manhattan that housed hospital-affiliated occupants and unaffiliated residential tenants.
- Respondents were unaffiliated occupants of separate apartments and, at the time of suit, did not have current written leases with Mount Sinai.
- Mount Sinai sought to restrict occupancy to hospital-affiliated persons and served 30-day notices terminating respondents’ tenancies, then commenced consolidated summary holdover proceedings when they remained.
- The apartments were not subject to rent control because they had previously been vacancy decontrolled before respondents’ occupancy.
- The apartments were not subject to rent stabilization because the building was owned and operated by a hospital exempt under Emergency Tenant Protection Act § 5(a)(6).
- Respondents asserted defenses based on a HUD regulatory agreement executed in connection with federally assisted financing, including a provision (described as § 6(h)) requiring HUD’s prior written approval before a change in the property’s use.
- Mount Sinai had not obtained HUD’s written approval before attempting to convert the building to hospital-only occupancy and evict unaffiliated tenants.

## Issues

1. Whether respondents were rent-regulated tenants or month-to-month tenants in a hospital-owned, statutorily exempt building.
2. Whether respondents were intended third-party beneficiaries of the HUD regulatory agreement’s provision restricting changes in use absent HUD approval.
3. Whether the hospital’s failure to obtain HUD’s prior written approval could be raised as a defense barring the holdover evictions.

## Decision

- The court held the apartments were exempt from rent stabilization under ETPA § 5(a)(6) and not rent controlled; respondents were month-to-month tenants.
- The court held respondents were intended third-party beneficiaries of the HUD regulatory agreement provision requiring HUD approval for a change in use.
- The court found Mount Sinai’s effort to shift the building to hospital-only occupancy constituted a change in use requiring HUD’s prior written approval.
- Because HUD approval was not obtained, respondents were prejudiced by the noncompliance, and the holdover proceedings were dismissed (or the petitions were denied).

## Legal Principles

- Housing accommodations owned or operated by a hospital are exempt from coverage under ETPA § 5(a)(6); absent other protections, occupants without leases may be month-to-month tenants.
- Under New York contract doctrine, a nonparty may enforce a contract as an intended third-party beneficiary when the contract manifests an intent to benefit that class; incidental beneficiaries have no enforceable rights.
- Where a HUD regulatory agreement restricts an owner’s ability to change a property’s use without HUD’s prior written approval, intended beneficiary tenants may invoke the owner’s noncompliance defensively in a summary holdover proceeding.
- A landlord’s failure to satisfy a contractually required condition precedent (HUD approval) can bar eviction relief when the landlord’s termination strategy depends on the prohibited change in use.

## Conclusion

The court recognized that a hospital-owned building could be exempt from New York rent regulation while still subject to enforceable HUD regulatory agreement limits, and it denied eviction relief because the tenants, as intended third-party beneficiaries, could rely on the owner’s failure to obtain HUD’s prior written approval for a change in use.


Mount Sinai Hosp. v. Loutsch, 119 Misc. 2d 427 (N.Y. Civ. Ct. 1983)