Long Island Law Firm: Patrick McCormick
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   LANDLORD/TENANT UPDATE



Is Prepaid Rent Recoverable if a Lease Terminates Early?
  (Posted Jun 23, 2014)

What happens when rent is prepaid under a lease but the lease is purportedly terminated prior to the expiration of the term? The Court of Appeals in Eujoy Realty Corp. v. Wagner Communications, LLC addressed this issue.1

Landlord Eujoy owned a building in Queens with a steel frame structure on the roof for the placement of billboard advertisements. Tenant Van Wagner considered the billboard desirable because of its visibility to passing traffic on the Long Island Expressway. Van Wagner leased the billboard for a 15-year term commencing December 1, 2000 and ending September 30, 2015.

The lease specifically provided for the payment of “annual basic rent” for the period January 1, 2007 through December 31, 2007 in the amount of $96,243.00 in advance on January 1, 2007. The lease further provided that “Should this Lease be terminated for any reason prior to the date of its expiration [Van Wagner] shall not be entitled to the return of… any basic rent paid in advance and covering period beyond the date on which the lease is terminated…” The lease, however, provided several exceptions to this clause and allowed the apportionment of rent if the lease terminated due to a fire or casualty, condemnation or the enactment of any law making the billboard illegal. A rider to the lease also afforded Van Wagner the right to terminate the lease if the view of the billboard from the Long Island Expressway was ever “substantially obstruct[ed]” by “the erection of a new building or the increase in height of the building between the location [of the billboard] and the [LIE].”

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Subtenant’s Liability for Holding Over After Termination of Its Sublease
  (Posted Mar 27, 2014)

Who is responsible for the damages that result when a commercial sub-tenant holds over past the expiration of its term causing the tenant to incur damages under its lease? In what appears to be a case of first impression in the Second Department, in PHH Mtge. Corp. v. Ferro, Kuba, Mangano, Sklyar, Gacovino Lake, P.C. the Appellate Division has confirmed that, with appropriate lease clauses, the sub-tenant is liable for the damages incurred by the tenant resulting from the sub-tenant’s failure timely to vacate the premises it occupied.

The facts in PHH are simple enough: Owner/Landlord leased certain premises to Tenant. Tenant sublet the entire premises to PHH. PHH then sub-sublet a portion of the premises to Sub-subtenant Ferro Kuba. The rent Ferro Kuba was obligated to pay to PHH was about one-half the amount of rent paid by PHH to the Tenant and about one-quarter the amount of rent paid by the Tenant to the Landlord. The Master Lease between the Landlord and the Tenant provided for holdover damages to be paid to the Landlord in the amount of one and one-half the amount of base rent for each month of the holdover. The Sublease between the Tenant and PHH and the Sub-sublease between PHH and Ferro Kuba each incorporated by reference all the terms of the Master Lease, which included the holdover damages clause.

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Around the Appellate Bench: Part 2
  (Posted Jan 18, 2014)

There have been several interesting Appellate Court decisions in the past couple of months touching on a variety of issues. Cases discussing actual partial eviction, successor landlord liability and a tenant’s failure to timely cure an alleged default are discussed below.

In Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC, a commercial tenant sued its successor landlord alleging it was damaged because defendant landlord failed to remediate the “derelict” and “war-torn appearance” of the premises, which was caused by renovation work commenced by the prior landlord, in breach of the lease. Plaintiff commenced the action approximately five months after defendant bought the premises and assumed the lease. The Appellate Division reversed the lower court’s denial on landlord’s motion to dismiss the complaint.

The Court noted that lease paragraph 22.01 provided that “in the event of a transfer of title, the lease shall be deemed to run with the land and the transferee agrees to ‘assume’ and ‘carry out any and all such covenants, obligations and liabilities of Landlord hereunder.” Plaintiff apparently relied upon this lease provision to hold the new landlord liable for the conditions caused by the prior landlord. However, the Court relied upon lease paragraph 25.03 which it found “unequivocally provides that ‘under no circumstances shall the [lessor] . . . be (a) liable for any act, omission or default of any prior landlord; or (b) subject to any offsets, claims or defenses which [t]enant might have against the prior landlord.’” In finding that lease section 25.03 “trumps” section 22.01, the Court noted that section 25.03 was prefaced by stating “[a]nything herein contained to the contrary notwithstanding.”

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Around the Appellate Bench
  (Posted Dec 19, 2013)

In a decision dated November 13, 2013, the Appellate Division, Second Department decided a case involving a contractor, Matell Contracting Co., Inc., who performed work for a commercial tenant, attempting to enforce a mechanic's lien against the owner of property, Fleetwood Park Development Co.1

Fleetwood leased certain property to a new tenant and, pursuant to an agreement with the new tenant, permitted the tenant to renovate the leased property for use as a supermarket. The tenant retained Matell Contracting as general contractor. The tenant failed to pay $1,800,000 allegedly due for work performed by Matell and Matell filed a mechanic's lien against the property. Matell then commenced an action to foreclose the mechanic's lien against, inter alia, Fleetwood Park. Fleetwood asserted several affirmative defenses including that it did not consent to the subject work. Matell moved for summary judgment on the complaint on the ground that Fleetwood consented to the work and to dismiss several affirmative defenses asserted by Fleetwood Park. The Supreme Court denied the motion and Matell appealed.

In affirming that portion of the order denying Matell's motion for summary judgment on the complaint and to dismiss the affirmative defense relating to consent, the Appellate Division examined the knowledge required of an owner before the owner will be liable for work performed for a tenant. The Appellate Division confirmed that Matell "presented evidence showing that Fleetwood Park had knowledge of, and acquiesced in, the work performed to convert the leased property into a supermarket . . ." But, of primary importance, the Appellate Division determined that Matell nevertheless failed to make a prima facie showing that Fleetwood Park actually affirmatively consented to the subject work. The Court confirmed the distinction between the situation where an owner has simply approved or agreed that the work be performed and where the owner affirmatively gave consent for the specific work directly to the contractor. It is this specific consent by the owner directly to the contractor that is required to be proved by a contractor attempting to hold an owner liable in connection with the foreclosure of a mechanic's lien.

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Well Settled Legal Principles and Proof Required to Prevail
  (Posted Nov 25, 2013)

Three recent appellate decisions, each sparse on fact, nevertheless remind us of the relevance of well settled legal principles and confirm the proof required to prevail on each. The first, Tewksbury Management Group, LLC v. Rogers Investments NV LP1, involves application of the doctrine of res judicata; the second, Bonacasa Realty Company, LLC v. Salvatore2, discusses the concept of piercing the corporate veil; and the third, MH Residential 1, LLC MH v. Barrett3, inter alia, discovery.

In Tewksbury, the commercial tenant commenced an action against its landlord claiming landlord breached the lease by failing to obtain a valid certificate of occupancy, remove building violations that allegedly interfered with tenant's use of the premises, to provide heat and to deliver possession of the entire premises. By order entered April 19, 2012, the Supreme Court granted landlord's motion to dismiss the complaint.

As it turns out, several years earlier in 2008, landlord commenced a nonpayment proceeding against tenant. That proceeding ended with a consent judgment of possession and judgment for rent arrears. In affirming the dismissal of tenant's claims upon the doctrine of res judicata, the Appellate Division held that tenant's claims were "inextricably intertwined with defendant's claims in the summary proceeding" and could have been raised by tenant in that summary proceeding. Obviously, tenant's claims, if proved, would have provided a defense to landlord's claims for possession and rent. Having failed to raise the claims in the summary proceeding and, more importantly, having consented to a judgment for rent arrears and possession, tenant necessarily acknowledged rent was owed, thus precluding its claim that landlord breached the lease. If you represent a tenant and have claims that could provide a defense to a claim of nonpayment and that would also result in an award of damages, the claim must be raised in the summary proceeding or it may be forever lost.

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Tenant Liability in Commercial Leases
  (Posted Aug 23, 2013)

This article will address two recent appellate court rulings involving commercial leases and the tenant's liability for certain damages incurred by the landlord. The first, from the Appellate Division, First Department, involves an action by a landlord against a tenant for damages resulting from a flood caused by a rusted gauge on tenant's supplemental HVAC system. The second case is from the Appellate Division, Second Department and involves tenant's liability for post-termination rent.

In 45 Broadway Owner, LLC v. NYSA-ILA Pension Trust Fund1, the tenant's predecessor installed a supplemental HVAC system that connected to the building's water risers. The lease provided that the parties' respective insurance policies would each contain an endorsement by which their respective insurance companies would "waive subrogation or permit the insured, prior to any loss, to waive any claim it might have against the other." The lease also provided that "each party releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property by fire or other casualty . . . occurring during the terms of this lease." In April 2010, in connection with certain work to be performed, the landlord notified the tenants that they were required to shut down any supplemental HVAC systems. During the work, the lobby of the building flooded and it was determined that a rusted and corroded pressure gauge on defendant/tenant's supplemental HVAC system burst, allowing water to flow out. The landlord suffered total damages (exclusive of attorney's fees and costs) of $136,055.22. The landlord's motion for summary judgment was granted and the tenant's cross-motion for summary judgment was denied.

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Derivative Claims in Landlord/Tenant Court
  (Posted Jun 24, 2013)

In a case of apparent first impression in New York, in Gorbrook Associates Inc., and Norman Fishman, derivatively on behalf of Gorbrook Associates, Inc., v. Ilene Silverstein, John Doe and Jane Doe1, Judge Scott Fairgrieve held that the summary holdover proceeding was properly instituted derivatively by a shareholder on behalf of the corporation.

The petition alleged that petitioner Norman Fishman was an officer and owned 25 shares of Gorbrook and that Fishman and Allen Silverstein were the only directors of Gorbrook. As set forth in the decision, the petition further alleged that Ilene Silverstein was the daughter of Allen Silverstein and sister of Eric Silverstein and that Allen Silverstein and/or Eric Silverstein "arranged for Ilene Silverstein and her husband to move into the premises without a lease or contractual or statutory grant, authority or other basis." Further still, the petition alleged that Fishman had demanded that Allen Silverstein cooperate or not interfere with Gorbrook's efforts to secure use and occupancy payments from Ilene or to remove Ilene and her husband from possession of the premises; that Allen Silverstein was aware that Fishman wanted to collect such payments or to obtain possession of the premises; that Allen Silverstein refused to cooperate with Gorbrook's efforts and that Allen Silverstein opposed the relief sought in the petition so that "it would have been futile for N. Fishman to attempt to secure the approval of A. Silverstein to seek such relief assuming arguendo that such approval was necessary." A thirty day notice to quit was served and upon the refusal to vacate the premises the holdover proceeding was commenced. Respondents moved to dismiss under CPLR 3211(A)(7) alleging that Norman Fishman did not have authority to bring the proceeding and that a shareholder could not maintain a summary proceeding derivatively.

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Death of a Tenant
  (Posted Apr 19, 2013)

Suppose you are a landlord and lease space, commercial or residential, to an individual tenant. Tenant timely pays rent for a while but, suddenly, rent payments stop. Upon investigating, you learn that the tenant has died. Does the death terminate the lease? Is a nonpayment proceeding available to obtain possession of the premises?

While not a common occurrence, this simple fact pattern raises several issues regarding when, and against whom, a nonpayment proceeding may be brought.

Initially, while perhaps not well known, but certainly well settled, the death of a tenant does not terminate an unexpired lease or the tenant's leasehold estate. In such situations, generally, the executor, administrator or legal representative is permitted to remain in possession of the demised premises until the expiration of the lease.

Under our facts, how can the landlord obtain possession of the premises? The answer lies buried in RPAPL §711(2). The last sentence of RPAPL §711(2) provides: "Where a tenant dies during the term of the lease and rent due has not been paid and no representative or person has taken possession of the premises and no administrator or executor has been appointed, the proceeding may be commenced after three months from the date of death of the tenant by joining the surviving spouse or if there is none, then one of the surviving issue or if there is none, then any one of the distributes."

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Split Decision-Nonpayment Proceedings Against Month-to-Month Tenants
  (Posted Feb 18, 2013)

In 1400 Broadway Associates v. Henry Lee and Co. of NY, Inc.,1 the parties' commercial lease expired January 31, 1990 and the tenant, who did not realize the lease had expired, continued to make monthly rent payments, in the amount set forth in the expired lease, for six months. The tenant learned that the lease had expired during negotiations for a new lease and during the negotiations continued to pay rent through October 1992. Tenant then stopped making monthly rent payments and landlord commenced a nonpayment proceeding. Tenant moved for summary judgment to dismiss the complaint for failure to state a cause of action. The Court granted the motion holding that a nonpayment proceeding could not be maintained against a month-to-month tenant because, "absent a meeting of the minds, no agreement exists regarding the monthly rental rate." The Court held:

A month-to-month tenancy, by its nature, is renewable by the parties' conduct, i.e., by continued payment and acceptance of agreed-upon amounts each month. When the parties no longer agree to continue the relationship, either party can terminate it. However, if the tenant does not voluntarily surrender, the owner must serve a statutory notice of termination at least 30 days before expiration of the monthly term, as a condition to bringing a holdover proceeding.

Thus, the Court held that "Petitioner's acceptance of respondent's monthly payments created a month-to-month tenancy, by operation of law, which could be terminated only by service of a 30-day notice." A 30-day termination notice, the predicate to commencing a holdover proceeding against a month-to-month tenant, was not served and therefore a holdover proceeding was not possible.

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Is it a License or a Lease?
  (Posted Jan 21, 2013)

Perhaps the better question is not whether the relationship at issue is one between a landlord and tenant or between a licensor and license, but whether it matters legally or practically? The short answer is that it does matter both legally and practically. But first, what is the distinction between a lease and a license?1

The Court of Appeals, long ago, described a license as "a personal, revocable and non-assignable privilege, conferred either by writing or parol, to do one or more acts upon land without possessing any interest therein." Licenses are commonly used for kiosks found in shopping malls or for cellular towers on roofs of buildings. Under a lease, the landlord surrenders "absolute possession and control of property to another for an agreed-upon rental."2 Thus, the primary factor is whether the occupant has the exclusive right to use the premises. If the use is exclusive, the relationship is most likely a landlord/tenant relationship. If not, a licensor/licensee relationship likely exists.3 As will be discussed below, there may be reasons a landowner may want a licensor/licensee relationship, but it is important to note that courts will analyze the relationship to determine whether it is a licensor/licensee or landlord/tenant relationship and will not simply acquiesce in the characterization of the relationship used by the parties.4

In addition to obtaining the exclusive use of premises that is the hallmark of a lease, what are the other factors to consider when deciding whether to enter a license or lease? The most obvious consideration relates to termination of the relationship and resulting eviction. Initially, as set forth above, the license may be revoked at any time. Thus, absent an agreement, the revocation, and thus termination of the license can generally come with no notice whatsoever. Any resulting eviction requires service of a 10 day notice to quit before commencement of a summary proceeding. Notably, the 10 day notice to quit is also required if the license term expires.5

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Landlord/Tenant Issues: Recent Appellate Cases
  (Posted Dec 16, 2012)

Two appellate courts recently rendered decisions discussing landlord/tenant issues. The decisions, while breaking no new ground, do point out what can happen when parties fail to properly memorialize their landlord/tenant relationship and when a landlord fails to act to correct defective conditions in commercial premises.

The first case is Joylaine Realty Co., LLC v. Samuel1 in which the Appellate Division affirmed the dismissal of landlord's complaint holding that repeated flooding of the commercial premises combined with the landlord's failure to take any action to correct the condition suspended tenant's obligation to pay rent. The Appellate Division decision is short on facts and analysis but does clearly hold "the repeated flooding of the subject premises substantially and materially deprived the defendant of the beneficial use and enjoyment of the premises, and the plaintiff failed to take any steps to correct the condition." Without engaging in substantive analysis of the facts or applicable law, the Appellate Division simply relied upon well settled law that "[A] commercial tenant may be relieved of its obligation to pay the full amount of rent due where it has been actually or constructively evicted from either the whole or part of the leasehold"2 and "A constructive eviction occurs where 'the landlord's wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises."3 Thus, finding that a constructive eviction occurred, the Court confirmed that the tenant's obligation to pay rent was suspended.

The next appellate decision comes from the Fourth Department in Peak Development, LLC v. Construction Exchange4 and involved a claim related to common area maintenance. In Peak, the landlord sued to collect from tenant additional rent consisting of common area maintenance charges for snow removal, janitorial services and lavatory maintenance. The Fourth Department reversed summary judgment granted in favor of tenant. The tenant's lease extension expired in October 1997 and a new lease was not executed. Thus, tenant remained in possession of the demised premises as a holdover month-to-month tenant. The express terms of the lease provided for CAM charges and that such charges were to be "pro-rated on a monthly basis according to the amount of space occupied by [defendants] to the total building space." Plaintiff purchased the property in 2003.

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Landlord/Tenant Issues: Recent New York Cases
  (Posted Oct 24, 2012)

There have been numerous recent decisions by appellate and trial courts involving landlord/tenant disputes covering a wide variety of issues. A few of those decisions are discussed in this article.

In a decision dated October 5, 2012, the Appellate Term, First Department in C&A 483 Broadway, LLC v. KLMNI, Inc.,1 discussed Yellowstone injunctions. In a short decision that did not discuss many facts, the Appellate Term reversed the lower court's order granting summary judgment to the tenant dismissing the petition, and held a "May 2008 Yellowstone injunction issued by Supreme Court, which restrained landlord from terminating the governing commercial lease agreement based on tenant's conduct in 'affixing a flag or banner' to a flagpole attached to the building's facade, did not bar landlord from terminating the tenancy and maintaining this August 2010 holdover proceeding based on the conditional limitation provision in the lease triggered by the tenant's late payment of rent." This brief decision reminds us that a Yellowstone injunction serves to toll a cure period related to a specific alleged default claimed by a landlord. Where a landlord serves successive default notices each alleging a new default, tenant will need to seek and obtain a new Yellowstone injunction to toll the cure period related to each claimed default.

In 455 Second Avenue LLC v. NY School of Dog Grooming, Inc.,2 the commercial tenant, relying on Multiple Dwelling Law §302, moved to dismiss the nonpayment petition claiming no rent was due because a proper Certificate of Occupancy had not been obtained for the premises. The tenant, operating a dog grooming business, and landlord entered into a commercial lease with a termination date of August 31, 2018. In 2008, the tenant sought to renew its dog grooming educational license which could not be renewed without a proper C of O for the premises. The existing C of O was for a multiple dwelling, with a basement (the premises at issue) used as a restaurant. The tenant stopped paying rent, the landlord commenced the nonpayment proceeding and tenant moved to dismiss alleging that MDL §302(1) relieved tenant of the obligation to pay rent because a proper C of O did not exist for the premises. The New York City Civil Court denied the motion, citing to well settled appellate precedent, holding that MDL §302, by its terms, which the Court held were required to be strictly construed, did not apply to commercial premises/tenancies.

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Yellowstone Injunctions . . Pitfalls and Perils
  (Posted Sept 26, 2012)

Public policy in New York seeks to avoid forfeiture of leases.1 What is commonly referred to as a Yellowstone injunction is a procedural mechanism used by tenants in furtherance of that policy.2 As succinctly stated by the Court of Appeals:

A Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.3

To obtain a Yellowstone injunction, and thus toll the running of a lease cure period, the party requesting the relief needs to demonstrate:

(1) it holds a commercial lease, (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease, (3) it requested injunctive relief prior to the termination of the lease, and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.4

As is evident from this well accepted standard, to obtain Yellowstone relief, the tenant need not meet the more stringent requirements for a preliminary injunction.5 However, despite this relaxed standard, obtaining Yellowstone relief is not always a simple matter and there are numerous cases denying relief, most of which focus on the timeliness of the application or the tenant's ability to cure the alleged default.

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Amendment to Conform to Proof;
Sufficiency of Rent Demand and Proof of Damages

  (Posted July 24, 2012)

As summer winds down, I thought the best way to ease into autumn would be to examine certain jurisdictional and proof issues that pop up over and over again in summary proceedings. Thankfully, the Courts have provided relevant decisions worthy of discussion. The first is from Nassau County District Court Judge Scott Fairgrieve which discusses whether a commercial landlord waived the right to commence a summary proceeding seeking to collect significant additional rent when the landlord accepted base rent payments1. The second case is from the New York City Civil Court and involves an amendment of a petition to conform to trial proof and whether additional rent demands are needed before the motion will be granted2. The last case is a brief decision from the Appellate Division, Second Department, which discusses the adequacy of proof adduced at the trial of an unlawful eviction claim3.

In Ambrogio & Caterina Giannone Family Ltd. Partnership, petitioner commenced a commercial non-payment proceeding seeking $1,205.10, in base rent and $79,396.72, in additional rent for construction costs. Respondent moved to dismiss alleging that petitioner accepted thirteen base rent payments since the construction was completed, seven base rent payments since the additional rent was billed and three base rent payments since the rent demand was served. Petitioner alleged "[f]rom the time the construction work began through to when the costs were billed to the tenants in August 2011, when a formal rent demand was served in December 2011, and when a nonpayment proceeding commenced in March 2012, I have actively and continuous (sic) discussed, with respondent, its obligation to pay for these costs under the lease."

After initially confirming that laches is not a viable defense in commercial cases, the Court framed the issue presented as whether "petitioner waived its right to commence this summary proceeding" by accepting base rent payments. The Court noted that respondent did not dispute that petitioner "continuously attempted to collect the additional rent owed . . . " The Court noted that the lease at issue contained a "no waiver clause" providing that "no waiver of any provision of this lease shall be effective unless in writing, signed by the waiving party." The Court denied the motion to dismiss holding that these facts combined with the "no waiver provision clause" led to the conclusion that "[t]here is no basis to find that petitioner waived its right to recover additional rent in a summary proceeding by its acceptance of basic rent. To hold otherwise would frustrate the reasonable expectations of the parties embodied in their lease."

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Equity Does Not Relieve Tenant's Failure to Timely Exercise Renewal
  (Posted Jun 13, 2012)

A recent article discussed the decision by the Appellate Division First Dept. in 135 East 57th Street LLC v. Daffy's Inc.1 in which the Appellate Division excused a tenant's failure to timely give notice of its election to exercise its option to renew its commercial lease because the tenant had "garnered substantial good will in its approximately 15 years at the location, which good will was a valuable asset that would be damaged by its ouster from the premises." The Court in Daffy's Inc. referenced the Court of Appeals decision in J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.2 , which held that "the loss of an option does not ordinarily result in the forfeiture of any vested rights . ."

By decision dated May 3, 2012, the Court of Appeals in Baygold Associates, Inc. v. Congregation Yetev Lev of Monsey, Inc.3 , citing J.N.A. Realty Corp., held that the tenant was not entitled to equitable relief to excuse its failure to timely exercise its option to renew under the circumstances presented, despite the fact that the premises had been continually operated as a nursing home for more than 30 years and more than one million dollars in improvements had been made to the premises.

In Baygold Associates, Inc., Baygold operated a nursing home in Monsey, New York from 1972 through 1975. In 1976, Baygold, as tenant, entered into a lease with Monsey Park Hotel, the owner of the premises, for a ten year term. The lease granted Baygold the option to extend the term of the lease for four ten year periods by giving notice by certified mail, return receipt requested, no later than 270 days before the expiration of each term or extended term. With the owner's consent, Baygold sublet the premises to its affiliate Monsey Park Home for Adults which operated a nursing home from 1976 through 1985 and made approximately one million dollars in improvements to the premises. In 1985, Monsey Park Home for Adults sub-sublet the premises to Israel Orzel who continued to operate a nursing home at the premises. In August 1985, Baygold renewed the lease for two additional ten year periods. During Orzel's tenancy, Orzel also made improvements to the premises.

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A Bright Line Rule Is No Longer Bright
  (Posted Apr 27, 2012)

The long standing "one inch" rule in New York, in connection with actual partial evictions, as explained by Judge Cardozo1 has been that an actual eviction by a landlord, even if partial, and no matter how trivial, will suspend the entire rent owed by the tenant. The reason for such rule, as explained by the Court of Appeals2 is "that the tenant has been deprived of the enjoyment of the demised premises by the wrongful act of the landlord; and thus the consideration of his agreement to pay rent has failed."

As a result of such rule, practitioners in Landlord/Tenant courts are (or were) well aware that a full 100% rent abatement would result, even if a tenant remained in possession of the premises,3 if a landlord physically expelled or excluded a tenant from any part of the leased premises.

The Court of Appeals in Eastside Exhibition Corp. v. 210 East 86th Street Corp.,4 while claiming it was not overruling this longstanding rule, appears to have done just that.

The facts in Eastside are straightforward: Eastside, as tenant, entered into an 18 year lease with 210 86th Street Corp., as landlord, to operate a multiplex movie theater. The lease allowed landlord to make repairs and improvements without an abatement of rent during the period the work was in progress and also provided that the tenant would not receive an allowance for any diminution in value resulting from the repairs or improvements. Approximately 4 years after commencement of the term, without notice, landlord entered the premises and "installed cross-bracing between two existing steel support columns on both of plaintiff's leased floors causing a change in the flow of patron traffic on the first floor and a slight diminution of the second floor waiting area." Plaintiff ceased paying rent alleging an actual partial eviction. At trial, the parties stipulated that the total area of the demised premises was between 15,000 and 19,000 square feet and that the cross-bracing installed by landlord occupied approximately 12 square feet.

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Equity Relieves Tenant of Failure to Timely Exercise Option to Renew
  (Posted Mar 19, 2012)

It has been recognized that an option to renew a lease is a valuable right.1 The Appellate Division, First Department, in 135 East 57th Street v. Daffy's Inc.2 , in which the tenant failed timely to give notice of its election to exercise its option to renew its lease, refused to enforce the lease holding that strict enforcement would result in forfeiture. The Court came to this conclusion even though the tenant had not produced evidence that it made substantial improvements to the leased premises. The Court determined that the tenant had "garnered substantial goodwill in its approximately 15 years at the location, which goodwill was a valuable asset that would be damaged by its ouster from the premises." The Appellate Division found that this goodwill was an asset sufficient to warrant equitable relief. The facts of this case and the Court's application of the relevant law to the facts provides significant guidance to practitioners who find themselves representing tenants who may be at risk of losing valuable renewal rights.

The facts in Daffy's Inc. are straightforward. The lease term commenced November 7, 1994 and expired January 31, 2011. The lease contained two five-year renewal terms. The first renewal was to be exercised "no later than January 31, 2010." Due to an internal bookkeeping error, tenant did not timely give the requisite notice -- the notice was given by letter, by e-mail and fax on February 4, 2010, although the letter was dated January 30, 2010. The late notice was rejected by the landlord by letter dated February 5, 2010, and noted that the tenant's letter was "fraudulently backdated" and not "delivered in the manner prescribed by the lease." The tenant sent another "renewal letter in the manner prescribed by the lease on February 9, 2010." Landlord then commenced a declaratory judgment action seeking a declaration that the tenant had not timely renewed the lease, that the option was terminated and that the lease would expire January 31, 2011. The trial court, after a nonjury trial, found the tenant entitled to equitable relief and excused the late renewal notice.

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Enforcing Rent Acceleration Clauses
  (Posted Jan 30, 2012)

A recent decision by Nassau County District Court Judge Scott Fairgrieve reminds us that a landlord's ability to accelerate rent and to thereafter obtain a judgment for such accelerated rent is not a simple process.1 Initially, it is well settled that a lease that provides for the payment of rent in installments may also accelerate the date upon which all rent under the lease is due by providing that the entire rent reserved for the balance of the lease term shall become immediately due and payable upon a default in the payment of rent installments.2 Such lease clause is commonly referred to as an "acceleration clause". Similarly, the absence of an acceleration clause precludes the acceleration of the balance of rent due under a lease.3

However, a lease acceleration clause that is found to impose a penalty will not be enforced.4 The Court of Appeals in Fifty States Management Corp. v. Pioneer Auto Parks, Inc. 5 stated ". . . in rare cases, agreements providing for the acceleration of the entire debt upon the default of the obligor may be circumscribed or denied enforcement by utilization of equitable principles. In the vast majority of instances, however, these clauses have been enforced at law in accordance with their terms [citations omitted]. Absent some element of fraud, exploitive overreaching or unconscionable conduct on the part of the landlord to exploit a technical breach, there is no warrant, either in law or equity, for a court to refuse enforcement of the agreement of the parties . . . Generally, where a lease provides for acceleration as a result of a breach of any of its terms, however trivial or inconsequential, such a provision is likely to be considered an unconscionable penalty and will not be enforced by a court of equity." Thus, where a lease did not obligate Landlord to re-rent the demised premises after a default and to apply the rent obtained upon re-renting to the benefit of the prior tenant, a rent acceleration clause was deemed to impose a penalty and was not enforced.6

Assuming the Landlord properly drafts a rent acceleration clause that does not result in a penalty, how is the clause enforced? Judge Fairgrieve's recent decision reminds us that it cannot be enforced in the District Court.7

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Be Careful with Security Deposits
  (Posted Jan 18, 2012)

Landlords routinely collect a security deposit from tenants at the commencement of a lease term with the deposit generally to be used to ensure the tenant's compliance with its lease obligations. These obligations typically include the payment of rent or additional rent and payment for any damage to the leased premises caused by the tenant. While Courts will look to the lease to determine the nature of a deposit (i.e. whether the deposit is security, liquidated damages or a penalty) and the right to the deposit, the parties to the lease sometime overlook the General Obligations Law provisions relating to security deposits1. The failure to comply with the General Obligations Law can prove costly. Indeed, as demonstrated by the following case, the failure to comply with GOL §7-103 can have harsh results.

In relevant part, GOL §7-103 (1) provides:
  • Whenever money shall be deposited or advanced on a contract or license
    agreement for the use or rental of real property as security for performance
    of the contract or agreement or to be applied to payments upon such contract or
    agreement when due, such money . . . shall be held in trust by the person with
    whom such deposit or advance shall be made and shall not be mingled
    with the personal moneys or become an asset of the person receiving the
    same
    . . . (Emphasis supplied)
GOL §7-103 (2) provides, in relevant part:
  • Whenever the person receiving money so deposited or advanced shall
    deposit such money in a banking organization, such person shall thereupon
    notify in writing each of the persons making such security deposit or advance,
    giving the name and address of the banking organization in which the deposit
    of security money is made, and the amount of such deposit.
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Recovery of Attorney's Fees under Residential Leases
  (Posted Oct 2, 2011)

It has long been the rule in New York that "attorneys' fees are deemed incidental to litigation and may not be recovered unless supported by statute, court rule or written agreement of the parties." Flemming v. Barnwall Nursing Home & Health Facilities, Inc., 15 NY3d 375, 379 (2010). A lease for residential property can constitute such a written agreement and residential leases often contain provisions permitting landlords to recover attorneys' fees incurred with enforcing the terms of the lease, including commencing and prosecuting summary proceedings.

Recognizing the disparity of bargaining power that often exists between landlords and tenants, in 1966, Real Property Law §234 was enacted to level the playing field and permit tenants to recover legal fees from a landlord, if the lease contains a provision that the landlord may recover from tenant the legal fees incurred by the landlord in connection with an action or summary proceeding, but does not contain a reciprocal provision in favor of the tenant. RPL§234, in relevant part, provides:
  • Whenever a lease of residential property shall provide that in any action
    or summary proceeding the landlord may recover attorneys' fees and/or
    expenses incurred as the result of the failure of the tenant to perform any
    covenant or agreement contained in such lease, or that amounts paid by
    the landlord therefore shall be paid by the tenant as additional rent, there
    shall be implied in such lease a covenant by the landlord to pay to the
    tenant the reasonable attorneys' fees and/or expenses incurred by the
    tenant as the result of the failure of the landlord to perform any covenant
    or agreement on its part to be performed under the lease or in the
    successful defense of any action or summary proceeding commenced
    by the landlord against the tenant arising out of the lease . . .
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The Rent Demand Revisited: Strict Construction and Harsh Results
  (Posted Sept 7, 2011)

It cannot be debated that making or serving a proper rent demand under RPAPL § 711(2) is a necessary precondition to the commencement of a nonpayment proceeding. It is common practice, indeed I suspect it would not be an exaggeration to say it happens every day in every landlord/tenant court, for a landlord to make or serve a rent demand and then commence a nonpayment proceeding seeking to recover not only the rent and additional rent demanded, but also rent that accrued after the demand.

Judge Arlene P. Bluth in RCPI Landmark v. Chasm Lake Management Services, LLC, (56557/11 NYLJ 1202494916664, at *1 (Civ, NY, Decided May 9, 2011) found fault with this common practice and dismissed a nonpayment proceeding as fatally defective, because the petitioner sought to recover rent that was not demanded.

The facts in RCPI are straightforward: landlord served a rent demand on January 24, 2011, for rent due through January 2011; tenant failed to pay; landlord commenced a non-payment proceeding in February 2011, seeking the amount sought in the demand plus February 2011 rent. Respondent moved to dismiss "asserting that the petition is fatally defective because petitioner sued for February rent, which was never demanded."

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Smoking and Second-Hand Smoke Intrusion
  (Posted July 27, 2011)

Two recent cases address issues that arose when a tenant's smoking and the resulting intrusion of second-hand smoke into a neighboring tenant's apartment created objectionable living conditions.

In Upper East Lease Associates, LLC v. Cannon, 30 Misc.3d 1213(A), 924 N.Y.S.2d 312 (2011, Dist. Ct., Nassau Co.; Ciaffa, J.) the Court held that landlords of "high-rise apartment" buildings have a "duty to prevent one tenant's habits from materially interfering with another tenant's right to quiet enjoyment. When a tenant's smoking results in an intrusion of second-hand smoke into another tenant's apartment, and that tenant complains repeatedly, the landlord runs a financial risk if it fails to take appropriate action." In this case, the landlord commenced an action against the tenant seeking monetary damages for breach of a residential apartment lease. Tenant served an answer which included counterclaims alleging that: landlord violated the warranty of habitability owed to defendant; landlord failed to address unsafe and intolerable conditions; and, the tenant was deprived of the beneficial use and enjoyment of the premises forcing it to abandon the premises resulting in a constructive eviction. The tenant also alleged that the claimed breach of warranty of habitability entitled her to a refund of the rent previously paid and damages for breach of the lease.

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Inadvertent Creation of Month-To-Month Tenancy
  (Posted June 6, 2011)

In its recent decision in Islands Heritage Realty Corp. v. Joseph, LT-002642-10, NYLJ 1202492662252, at *1 (Dist., NA, Decided April 28, 2011), Judge Scott Fairgrieve, in deciding a motion brought on by order to show cause to vacate a judgment of possession and warrant of eviction, determined that a month-to-month tenancy had been created by the parties' conduct after they executed a settlement stipulation, even though the tenant agreed to vacate the demised premises no later than September 30, 2010.

Shortly before the day tenant agreed to vacate, Landlord's agent signed an agreement dated September 9, 2010 that provided:

This 9 September 2010
Balance due to Pierre Borga [petitioner's agent] for Court stipulation account $1500.00
     expiring 9/30/2010.
New agreement if possible will be:
Starting October 1st 2010
2,300.00 Oct. 1st to Oct. 30, 2010
2,300.00 Security Deposit
$4,600
Peirre C. Borga

Respondent/Tenant submitted proof of payment under the "agreement" by two receipts -- the first for $1,500.00 dated November 5, 2010 "toward the monthly amount due of $2,300.00 for the period of October 1, 2010 to October 31, 2010" and the second dated December 20, 2010 for $800.00 "reducing the balance due to zero for the period of October 1, 2010 to October 31, 2010."

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Failure to Timely Obtain Yellowstone Injunction Results in Lease Termination
  (Posted April 13, 2011)

Yellowstone injunctions -- an injunction to stay the available cure period provided in a commercial lease and in the landlord's notice to cure while the merits of the alleged default are litigated -- have been commonplace since the Court of Appeals' decision in First Nat. Stores v. Yellowstone Shopping Center, 21N.Y.2d 630, 290 N.Y.S.2d 721 (1968).

Two recent Appellate Division cases from the First and Second Departments remind us of the consequences of failing to promptly seek and obtain a Yellowstone injunction.

In Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 2011 WL 1206171 (2d Dep't 2011) the plaintiff sponsor of the subject cooperative and holder of unsold shares allocated to 15 apartments, moved by order to show cause for both a Yellowstone injunction and a preliminary injunction. The motion was made after receipt of 15 separate default/cure notices, after the expiration of the cure period and after receipt of termination notices but before the date set in the termination notices for the termination of the respective leases. The Court held in these circumstances that neither a Yellowstone nor preliminary injunction was available.

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Mistakes = Dismissal of Summary Proceeding
  (Posted Feb 28, 2011)

Two recent cases, one from Bronx Civil Court and the other from Nassau County District Court, remind us of the harsh reality that avoidable mistakes made in the preparation of predicate notices and the pleadings will result in the dismissal of your summary proceeding.

The Court in 3414 KNOS LLC v. Bryant, L&T 014058/10, NYLJ 1202477575221, at *1 (Civ., BX, Decided December 30, 2010) dismissed a nonpayment proceeding after Respondent defaulted, the warrant of eviction was issued and after Respondent defaulted in appearing on the initial return date of his motion to vacate the default judgment and warrant. Respondent, represented by counsel, thereafter again moved to vacate the judgment and warrant and to dismiss the proceeding alleging improper verification and that the proceeding was commenced by a party who had no interest in the premises.

Petitioner admitted a mistake was made by counsel in drafting the petition in that "Inadvertently counsel used the name of the owner of the property instead of the leaseholder."

The Court held "A petition brought by someone not authorized as required by RPAPL § 721 is jurisdictionally defective and must be dismissed." The Court found that the named petitioner "had no right to institute the proceeding against respondent in order to obtain possession. There must be privity between the parties."

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Security Deposits -- A Cautionary Tale
  (Posted Jan 18, 2011)

Landlords routinely collect a security deposit from tenants at the commencement of a lease term with the deposit generally to be used to ensure the tenant's compliance with its lease obligations. These obligations typically include the payment of rent or additional rent and payment for any damage to the leased premises caused by the tenant. While most experienced landlords understand and comply with GOL §7-103 as it relates to security deposits, some do not. As demonstrated by the following case, the failure to comply with GOL §7-103 can have harsh results.

Pritzker v. Park South Lofts LLC, 117192/09, NYLJ 1202475879547, at *1 (Sup., NY, Decided November 19, 2010) was an action brought by a residential tenant against his landlord for the return of his security deposit. The landlord refused to return tenant's $84,000.00 security deposit because the tenant allegedly caused $36,404.06 in damage to the demised premises. Landlord also refused to return the entire deposit because it was incurring legal fees in connection with the repairs and with the action commenced by the tenant. The tenant alleged claims against the landlord for conversion, breach of the lease, violation of GOL §7-103 and attorneys fees. Landlord asserted counterclaims alleging damage to the apartment and attorneys fees.

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Self-Help and Unlawful Evictions
  (Posted Nov 30, 2010)

This month's blog will begin to discuss a topic that will be revisited in future installments: Is a commercial landlord entitled to engage in self-help to recover possession of demised premises and, if so, under what circumstances and what are the potential damages available to a tenant if the landlord acts improperly?

Two recent decisions, the first from the Supreme Court, Appellate Term, First Department and the second from the Supreme Court, Suffolk County (Spinner, J.) are a good starting point.

In Sol De Ibiza, LLC v. Panjo Realty, Inc., 570805/09, NYLJ 1202472860256, at *1 (App. Term, 1st Dep't, decided September 22, 2010) the Appellate Term reversed a Civil Court Order granting tenant's petition to be restored to the demised premises and directed an assessment of damages under RPAPL §853 based upon an unlawful eviction. The Appellate Term held ". . it is well established that a landlord may, under certain circumstances, utilize self-help to regain possession of demised commercial premises (citations omitted)." The Court identified the following factors to be considered to determine when self-help may be available:

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Service of Process
  (Posted Oct 26, 2010)

We know that the failure to comply with the rules governing service of predicate notices and pleadings can result in the dismissal of your proceeding. Similarly, knowing the intricacies of the rules regarding service can save what might appear to be defective service and result in unexpected benefits.

An often overlooked decision by the Supreme Court, Appellate Term, supports an award of a default money judgment where service of the notice of petition and petition was accomplished by affixing the papers to the door of the subject premises and mailing the papers by certified and first class mail. Avgush v. Berrahu, 17 Misc. 3d 85, 847 N.Y.S.2d 343, 2007 N.Y. Slip Op. 27424 (2d Dep't App. Term 2007). The reason: the more burdensome "due diligence" requirement of CPLR 308(4) was complied with rather than the less restrictive "reasonable application" standard set forth in RPAPL 735(1), before the processor server resorted to "nail and mail" service.

In Avgush v Berrahu the process server made five separate attempts to serve the tenant at five different times (from 9:00 a.m. through 9:00 p.m.) over two days. Upon respondent/tenant's default in appearing, petitioner/landlord sought and was awarded a default money judgment for rent arrears.

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Part II: Default Notices and Terms of a Lease
  (Posted Sept 20, 2010)

Last months' blog discussed defective default notices and the need to strictly comply with lease provisions. We continue that theme this month with two cases recently decided by Nassau County District Court Judge Scott A. Fairgrieve. In The Retail Property Trust v. SHNS Corp. d/b/a J&A Gallery, 003192/10, NYLJ 1202464430374, at *1 (Dist., NA, August 4, 2010) Judge Fairgrieve granted a tenant's motion to dismiss based on a defective default notice that was required by the lease. In this case the parties' lease required landlord to serve a ten (10) day notice upon the tenant for a default in the payment of taxes. The landlord served a three (3) day notice which, not surprisingly, the court deemed deficient because the lease required a ten (10) day notice.

The more important lesson of this case, other than the need to comply with lease requirements, involved the subsequent ten (10) day notice actually served by landlord and provided in response to the tenant's motion to dismiss. First, the ten day notice was not filed with the petition filed with the court, which, depending on the contents of the petition, could have served as an independent bases to dismiss. But, Judge Fairgrieve determined that even if the ten day notice was considered, it was nevertheless defective because "it fails to provide a breakdown of monies owed." The Court noted that the ten day notice included an aggregate sum of monies allegedly due.

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Default Notices and Terms of a Lease
  (Posted July 29, 2010)

Two recent cases serve to remind us of the importance of carefully drafting default notices and strictly complying with the terms of a lease. In the first case, deficiencies in a default notice resulted in the dismissal of a commercial holdover proceeding. In the second, the failure to strictly comply with the surrender clause of a sublease resulted in a judgment against the subtenant in excess of $1.0 million.

The Supreme Court, Appellate Term, in 240 West 37th LLC v. BOA Fashion, Inc., 2009 NY Slip Op 51823U; 24 Misc. 3d 145A; 899 NYS2d 63 (App. Term, 1st Dep't) reversed the lower court and granted a tenant's cross-motion to dismiss the proceeding. While the landlord's predicate default/cure notice specifically identified the lease provisions allegedly violated, "it conspicuously failed to inform the tenant of the precise defaults alleged." The Court held that "it is imperative that the cure notice particularize the nature of the default(s) with clarity and factual basis. A mere reference to or recitation of a numbered lease provision, without specifying the nature of the violation(s), is insufficient."

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