Can you legally Rent or Occupy a Basement in NYC? 

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Basement and Cellar Occupancy Law
www1.nyc.gov/site/hpd/service...
Basements and cellars differ in their amount of height above curb level. A basement has at least one-half of its height above curb level, while a cellar has less than one-half of its height above curb level. Usually, if a cellar has any windows, the windows are too small for an adult to fit through. Basements and cellars in residential properties of all sizes can NEVER be lawfully rented or occupied unless the conditions meet the minimum requirements for light, air, sanitation and egress, and have received approval by the Department of Buildings (DOB). You can check the Certificate of Occupancy on the DOB website to see if the basement you wish to rent is legal. DOB also posts Tips for Renters to help identify when an apartment is illegal.
Basements
A basement is a story of a building partly below curb level but with at least one-half of its height above the curb level.
Basements in one- and two-family homes can be lawfully occupied only if the following conditions are met:
The room complies with the requirements of the Housing Maintenance Code for rooms not located in the cellar or basement, e.g., minimum room size.
There is a minimum ceiling height of 7 ft.
The walls, as high as ground level, must be damp- and water-proofed if HPD determines that subsoil conditions on the lot require it.
The basement is occupied by only members of the family or families occupying the dwelling.
Basements in a one-family home can be lawfully rented only if the following conditions are met:
Compliance with the Housing Maintenance Code for minimum room size.
There is a minimum ceiling height of 7 ft.
The walls, as high as ground level, must be damp- and water-proofed if HPD determines that subsoil conditions on the lot require it.
The basement is occupied by one family and does not include boarders.
Every room must have at least one window.
The bottom of any yard or other required open space cannot be higher than six inches below the window sill of any required window in the room.
Basements in a two-family home cannot be lawfully rented:
If the rental of a basement in a two-family dwelling would result in changing the status of the building to a multiple dwelling (three-family or more) and would require a new Certificate of Occupancy issued by the Department of Buildings. Please call 311 for more information on compliance.
Cellars
Cellars in one- and two-family homes can never be lawfully rented. Cellars in one- and two-family homes cannot be lawfully used for sleeping, eating, or primary.