McCORMICK'S
LANDLORD/TENANT UPDATE
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:
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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)
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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.
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:
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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 . . .
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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