An agreement such as the one over the units at 155 Riverside Dr. are contrary to the public policy considerations underpinning the rent stabilization system, the Court held. "It is the policy of the rent stabilization laws that apartments should either be rented at no more than the legal maximum or deregulated," Judge Smith wrote. "Deregulation, when the conditions for it are met, serves public policy by increasing the availability of housing on the open market. Agreements like the one at issue here distort the market without benefiting the people the rent stabilization laws were designed to protect."

Civil Court Judge Saralee Evans had approved the stipulation in 1996. In Supreme Court, Acting Justice Judith J. Gishe also sustained the agreement, but she was reversed unanimously by the Appellate Division, First Department, which held in Riverside Syndicate v. Munroe, 39 AD3d 256 (2007), that it was illegal to waive the benefits of rent stabilization as provided for in the stipulation.

Jeffrey Turkel, who represented Riverside, says in an interview that it was not a "close or difficult case" to decide against the validity of the stipulation. "I think that anyone who practices in the rent-regulation field would understand that an agreement whereby a tenant agrees to pay a rent overcharge in exchange for a landlord looking the other way for a non-primary residence is illegal and unenforceable," says Turkel, of Rosenberg & Estis.

Not every stipulation a tenant and landlord make would be void under rent stabilization, says Turkel. For example, no one would object to an arrangement where a landlord who owes money to a tenant agrees to have an apartment painted every two years instead of three years to make up the difference.

Eric Hecker of Emery Celli Brinckerhoff & Abady represented Munroe and Saltzman. He did not immediately return a call seeking comment Thursday.

Joel Stashenko can be reached at [email protected].