Landlord & Tenant

Court of Appeals (Opinion by Smith, J.)

In an action by landlord against subtenant for a percentage of subtenant's gross sales, subtenant appealed from the Appellate Division's affirmance of Supreme Court's grant of summary judgment in favor of landlord. The Court of Appeals reversed and awarded summary judgment to subtenant, holding that the percentage of sales clause contemplated only a percentage of commissions derived by subtenant, not a percentage of total sales subtenant made on behalf of a third-party seller.

In 1975, landlord entered into a long-term lease with tenant. In 1991, tenant sublet the premises to Magna Carta for 16 years. Until 1998, the premises housed a restaurant. In 1998, however, Magna Carta sublet the premises to Cellular 2000. Continuing language in an earlier sublease, Cellular 2000 agreed to pay Magna Carta $3400 per month ($2000 of which would be paid to landlord), and Cellular 2000 also agreed to pay landlord '5% of any gross sales as defined in the original lease above $480,000.' The lease defined gross sales to mean 'income generated by the business conducted by the lessee ' including income derived from the sale of all services and all products ” Cellular 2000 sells cellular telephones and related products, but also enables customers to sign contracts with Southwestern Bell Mobile Services (now Cingular Wireless) for a variety of cell phone service plans. Southwestern Bell pays Cellular a commission on these plans. When Cellular 2000 submitted to landlord a statement so that its gross sales could be determined, Cellular 2000 included its commissions, but not the full value of the contracts customers signed with Southwestern Bell. Landlord then brought this action seeking additional rent that would be payable if 'gross sales' were interpreted to include sales of Southwestern Services. The Supreme Court granted summary judgment to landlord, and the Appellate Division affirmed. Cellular 2000 appealed.

In reversing, the Court of Appeals held that the words 'gross sales' must be tied to gross income actually received by the lessee, Cellular 2000. The court noted that Southwestern Bell was under no obligation to open its books to Cellular 2000 or to the landlord to indicate what income Southwestern Bell earned on any account with a particular customer. As a result, the court declined to construe the lease to require Cellular 2000 to pay additional rent based on these sales that Cellular 2000 might not be able to document in any event. The court therefore construed gross sales to include only the commissions Cellular 2000 received from Southwestern, not the total value of contracts paid by customers to Southwestern.

Lease Does Not Obligate Tenant to Insure Against Landlord's Negligence

DeJesus v. M & J Inc.

NYLJ 4/11/03, p. 19, col. 2

AppDiv, First Dept

(memorandum opinion)

In an action by laborer against tenant for personal injuries suffered while working on the premises, landlord appealed from Supreme Court's denial of its motion to dismiss tenant's third-party claim. The court modified to sever the third-party claim, but otherwise affirmed, holding that the lease did not obligate tenant to obtain insurance against landlord's own negligence.

The subject lease requires tenant to indemnify landlord for specified liabilities unless the liabilities resulted from landlord's sole negligence. The lease also required tenant to obtain liability insurance listing landlord as additional insured. When laborer brought this action against tenant, tenant impleaded landlord. Landlord sought summary judgment dismissing the complaint. Landlord recognized that the lease did not require tenant to indemnify landlord for acts resulting from landlord's sole negligence, but contended that this provision had no effect on tenant's obligation to obtain liability insurance. Hence, landlord contended, tenant's liability insurer could not recover against landlord, because insurer would be seeking to recover for the very risk against which it had insured.

In holding that summary judgment was properly denied, the Appellate Division held first that the lease did not require tenant to procure insurance for liabilities resulting from landlord's own negligence. As a result, the insurer was not necessarily seeking to recover for the very risk it had insured against. The court noted, however, that the parties had not produced the relevant insurance policy. If the policy provided more coverage than required by the lease ' that is, if the policy insured against landlord's sole negligence, then insurer would not be entitled to recover against landlord. In that event, however, tenant would be able to recover from landlord for amounts in excess of the policy limits. Because issues of fact remained about the scope of the insurance policy, and about whether the injuries resulted from landlord's sole negligence, the court held that summary judgment was properly denied.

COMMENT

General Obligations Law section 5-321 declares void any agreement that exempts a landlord or his agent from liability for negligence. New York courts, however, have held that section 5-321 is not applicable to agreements requiring tenant to indemnify landlord in circumstances where both parties have been negligent, and that the statute does not generally preclude a landlord from requiring tenant to purchase insurance covering landlord for all acts of negligence.

Agreements requiring a tenant to indemnify landlord when both parties have been negligent are enforceable despite the statute, so long as the landlord and tenant are sophisticated parties and it was their 'unmistakable intent' to provide for indemnification. Thus, in Jensen v. Chevron Corp. and Dilip S. Deokule, 160 A.D.2d 767, a gas station called the Quick Stop and the landlord, Chevron, were determined to be sophisticated parties operating at arms length. In enforcing an indemnification clause in their lease, the court determined that the lease had been negotiated at arms length, and that the clause represented the 'unmistakable intent' of the parties.

Courts have also enforced agreements where the landlord requires the tenant to purchase insurance to protect the landlord even where the landlord is found to be solely negligent. Hogeland v. Sibley, 42 N.Y.2d 153. In Hogeland, the lease required landlord to reimburse tenant for the cost of insurance coverage that exceeded what tenant would have had to pay to procure coverage for its own negligence. The Court of Appeals reasoned that the requirement that the landlord pay for the extra insurance coverage was a clear indication the tenant and landlord were of equal bargaining power. Therefore, despite the fact that the insurer would be required to indemnify the landlord for any and all of its actions through insurance procured by the tenant, the lease provision did not violate '5-321, which was put in place, in part, to counteract unequal bargaining power among landlords and tenants. Id. Furthermore, the court reasoned that landlord was only trying to avoid having to carry a duplicate policy while ensuring that insurance was obtained, and was not attempting to contract around responsibility for negligence. Hogeland did not, however, decide whether lease provisions requiring tenant to procure insurance against landlord's negligence would be enforced where the lease does not expressly require landlord to pay for the cost of the extra coverage.

Tenant Cannot Waive Certificate of Occupancy Requirement

Nii v. Quinn

NYLJ 4/18/03, p. 21, col. 1

AppTerm, Second and Eleventh Districts

(memorandum opinion)

In landlord's holdover proceeding, tenant appealed from a Civil Court order denying his motion to vacate a stipulation of settlement. The Appellate Term modified to strike a provision relating to tenant's payment of use and occupancy, holding ineffective tenant's waiver of landlord's failure to obtain a residential certificate of occupancy.

Landlord's building is registered as a multiple dwelling governed by certificate of occupancy requirements. Tenant occupied, for residential purposes, a commercial storefront in the building. Residential occupation was in violation of the certificate of occupancy. When landlord brought this holdover proceeding, the parties entered into a stipulation of settlement that called for tenant to pay use and occupancy for the storefront space. In landlord's holdover proceeding based on the stipulation of settlement, tenant sought to vacate the stipulation, but Civil Court denied tenant's motion.

In modifying, the Appellate Term held that tenant could not waive the certificate of occupancy provisions in the Multiple Dwelling Law. As a result, landlord was not entitled to collect use and occupancy for the subject premises. On the other hand, the court concluded that the remaining provisions of the stipulation of settlement ' including the provision that awarded landlord possession ' were severable from the use and occupancy provision. The court concluded that landlord was entitled to recover possession of premises occupied in violation of a certificate of occupancy, and left standing that portion of the stipulation of settlement.

NYLJ 4/11/03, p. 19, col. 2

AppDiv, First Dept (memorandum opinion)

In an action by laborer against tenant for personal injuries suffered while working on the premises, landlord appealed from Supreme Court's denial of its motion to dismiss tenant's third-party claim. The court modified to sever the third-party claim, but otherwise affirmed, holding that the lease did not obligate tenant to obtain insurance against landlord's negligence.

The subject lease requires tenant to indemnify landlord for specified liabilities unless the liabilities resulted from landlord's sole negligence. The lease also required tenant to obtain liability insurance listing landlord as additional insured. When laborer brought this action against tenant, tenant impleaded landlord. Landlord sought summary judgment dismissing the complaint. Landlord recognized that the lease did not require tenant to indemnify landlord for acts resulting from landlord's sole negligence, but contended that this provision had no effect on tenant's obligation to obtain liability insurance. Hence, landlord contended, tenant's liability insurer could not recover against landlord, because insurer would be seeking to recover for the very risk against which it had insured.

In holding that summary judgment was properly denied, the Appellate Division held first that the lease did not require tenant to procure insurance for liabilities resulting from landlord's own negligence. As a result, the insurer was not necessarily seeking to recover for the very risk it had insured against. The court noted, however, that the parties had not produced the relevant insurance policy. If the policy provided more coverage than required by the lease ' that is, if the policy insured against landlord's sole negligence, then insurer would not be entitled to recover against landlord. In that event, however, tenant would be able to recover from landlord for amounts in excess of the policy limits. Because issues of fact remained about the scope of the insurance policy, and about whether the injuries resulted from landlord's sole negligence, the court held that summary judgment was properly denied.

Comment

General Obligations Law section 5-321 declares void any agreement that exempts a landlord or his agent from liability for negligence. New York courts, however, have held that section 5-321 is not applicable to agreements requiring tenant to indemnify landlord in circumstances where both parties have been negligent, and that the statute does not generally preclude a landlord from requiring tenant to purchase insurance covering landlord for all acts of negligence.

Agreements requiring a tenant to indemnify landlord when both parties have been negligent are enforceable despite the statute, so long as the landlord and tenant are sophisticated parties and it was their 'unmistakable intent' to provide for indemnification. Thus, in Jensen v. Chevron Corp. and Dilip S. Deokule, 160 A.D.2d 767, a gas station called the Quick Stop and the landlord, Chevron, were determined to be sophisticated parties operating at arms length. In enforcing an indemnification clause in their lease, the court determined that the lease had been negotiated at arms length, and that the clause represented the 'unmistakable intent' of the parties.

Courts have also enforced agreements where the landlord requires the tenant to purchase insurance to protect the landlord even where the landlord is found to be solely negligent. Hogeland v. Sibley, 42 N.Y.2d 153. In Hogeland, the lease required landlord to reimburse tenant for the cost of insurance coverage that exceeded what tenant would have had to pay to procure coverage for its own negligence. The Court of Appeals reasoned that the requirement that the landlord pay for the extra insurance coverage was a clear indication the tenant and landlord were of equal bargaining power. Therefore, despite the fact that the insurer would be required to indemnify the landlord for any and all of its actions through insurance procured by the tenant, the lease provision did not violate '5-321, which was put in place, in part, to counteract unequal bargaining power among landlords and tenants. Id. Furthermore, the court reasoned that landlord was only trying to avoid having to carry a duplicate policy while ensuring that insurance was obtained, and was not attempting to contract around responsibility for negligence. Hogeland did not, however, decide whether lease provisions requiring tenant to procure insurance against landlord's negligence would be enforced where the lease does not expressly require landlord to pay for the cost of the extra coverage.Nii v. Quinn

NYLJ 4/18/03, p. 21, col. 1

AppTerm, Second and Eleventh Districts (memorandum opinion)

In landlord's holdover proceeding, tenant appealed from a Civil Court order denying his motion to vacate a stipulation of settlement. The Appellate Term modified to strike a provision relating to tenant's payment of use and occupancy, holding ineffective tenant's waiver of landlord's failure to obtain a residential certificate of occupancy.

Landlord's building is registered as a multiple dwelling governed by certificate of occupancy requirements. Tenant occupied, for residential purposes, a commercial storefront in the building. Residential occupation was in violation of the certificate of occupancy. When landlord brought this holdover proceeding, the parties entered into a stipulation of settlement that called for tenant to pay use and occupancy for the storefront space. In landlord's holdover proceeding based on the stipulation of settlement, tenant sought to vacate the stipulation, but Civil Court denied tenant's motion.

In modifying, the Appellate Term held that tenant could not waive the certificate of occupancy provisions in the Multiple Dwelling Law. As a result, landlord was not entitled to collect use and occupancy for the subject premises. On the other hand, the court concluded that the remaining provisions of the stipulation of settlement ' including the provision that awarded landlord possession ' were severable from the use and occupancy provision. The court concluded that landlord was entitled to recover possession of premises occupied in violation of a certificate of occupancy, and left standing that portion of the stipulation of settlement.

Sales Clause Requires Only a Percentage Based on Tenant's Commissions

Matter of Bombay Realty Corp. v. Magna Carta, Inc.

NYLJ 5/7/03, p. 18, col. 1

Court of Appeals (Opinion by Smith, J.)

In an action by landlord against subtenant for a percentage of subtenant's gross sales, subtenant appealed from the Appellate Division's affirmance of Supreme Court's grant of summary judgment in favor of landlord. The Court of Appeals reversed and awarded summary judgment to subtenant, holding that the percentage of sales clause contemplated only a percentage of commissions derived by subtenant, not a percentage of total sales subtenant made on behalf of a third-party seller.

In 1975, landlord entered into a long-term lease with tenant. In 1991, tenant sublet the premises to Magna Carta for 16 years. Until 1998, the premises housed a restaurant. In 1998, however, Magna Carta sublet the premises to Cellular 2000. Continuing language in an earlier sublease, Cellular 2000 agreed to pay Magna Carta $3400 per month ($2000 of which would be paid to landlord), and Cellular 2000 also agreed to pay landlord '5% of any gross sales as defined in the original lease above $480,000.' The lease defined gross sales to mean 'income generated by the business conducted by the lessee ' including income derived from the sale of all services and all products ” Cellular 2000 sells cellular telephones and related products, but also enables customers to sign contracts with Southwestern Bell Mobile Services (now Cingular Wireless) for a variety of cell phone service plans. Southwestern Bell pays Cellular a commission on these plans. When Cellular 2000 submitted to landlord a statement so that its gross sales could be determined, Cellular 2000 included its commissions, but not the full value of the contracts customers signed with Southwestern Bell. Landlord then brought this action seeking additional rent that would be payable if 'gross sales' were interpreted to include sales of Southwestern Services. The Supreme Court granted summary judgment to landlord, and the Appellate Division affirmed. Cellular 2000 appealed.

In reversing, the Court of Appeals held that the words 'gross sales' must be tied to gross income actually received by the lessee, Cellular 2000. The court noted that Southwestern Bell was under no obligation to open its books to Cellular 2000 or to the landlord to indicate what income Southwestern Bell earned on any account with a particular customer. As a result, the court declined to construe the lease to require Cellular 2000 to pay additional rent based on these sales that Cellular 2000 might not be able to document in any event. The court therefore construed gross sales to include only the commissions Cellular 2000 received from Southwestern, not the total value of contracts paid by customers to Southwestern.

Lease Does Not Obligate Tenant to Insure Against Landlord's Negligence

DeJesus v. M & J Inc.

NYLJ 4/11/03, p. 19, col. 2

AppDiv, First Dept

(memorandum opinion)

In an action by laborer against tenant for personal injuries suffered while working on the premises, landlord appealed from Supreme Court's denial of its motion to dismiss tenant's third-party claim. The court modified to sever the third-party claim, but otherwise affirmed, holding that the lease did not obligate tenant to obtain insurance against landlord's own negligence.

The subject lease requires tenant to indemnify landlord for specified liabilities unless the liabilities resulted from landlord's sole negligence. The lease also required tenant to obtain liability insurance listing landlord as additional insured. When laborer brought this action against tenant, tenant impleaded landlord. Landlord sought summary judgment dismissing the complaint. Landlord recognized that the lease did not require tenant to indemnify landlord for acts resulting from landlord's sole negligence, but contended that this provision had no effect on tenant's obligation to obtain liability insurance. Hence, landlord contended, tenant's liability insurer could not recover against landlord, because insurer would be seeking to recover for the very risk against which it had insured.

In holding that summary judgment was properly denied, the Appellate Division held first that the lease did not require tenant to procure insurance for liabilities resulting from landlord's own negligence. As a result, the insurer was not necessarily seeking to recover for the very risk it had insured against. The court noted, however, that the parties had not produced the relevant insurance policy. If the policy provided more coverage than required by the lease ' that is, if the policy insured against landlord's sole negligence, then insurer would not be entitled to recover against landlord. In that event, however, tenant would be able to recover from landlord for amounts in excess of the policy limits. Because issues of fact remained about the scope of the insurance policy, and about whether the injuries resulted from landlord's sole negligence, the court held that summary judgment was properly denied.

COMMENT

General Obligations Law section 5-321 declares void any agreement that exempts a landlord or his agent from liability for negligence. New York courts, however, have held that section 5-321 is not applicable to agreements requiring tenant to indemnify landlord in circumstances where both parties have been negligent, and that the statute does not generally preclude a landlord from requiring tenant to purchase insurance covering landlord for all acts of negligence.

Agreements requiring a tenant to indemnify landlord when both parties have been negligent are enforceable despite the statute, so long as the landlord and tenant are sophisticated parties and it was their 'unmistakable intent' to provide for indemnification. Thus, in Jensen v. Chevron Corp. and Dilip S. Deokule, 160 A.D.2d 767, a gas station called the Quick Stop and the landlord, Chevron, were determined to be sophisticated parties operating at arms length. In enforcing an indemnification clause in their lease, the court determined that the lease had been negotiated at arms length, and that the clause represented the 'unmistakable intent' of the parties.

Courts have also enforced agreements where the landlord requires the tenant to purchase insurance to protect the landlord even where the landlord is found to be solely negligent. Hogeland v. Sibley, 42 N.Y.2d 153. In Hogeland, the lease required landlord to reimburse tenant for the cost of insurance coverage that exceeded what tenant would have had to pay to procure coverage for its own negligence. The Court of Appeals reasoned that the requirement that the landlord pay for the extra insurance coverage was a clear indication the tenant and landlord were of equal bargaining power. Therefore, despite the fact that the insurer would be required to indemnify the landlord for any and all of its actions through insurance procured by the tenant, the lease provision did not violate '5-321, which was put in place, in part, to counteract unequal bargaining power among landlords and tenants. Id. Furthermore, the court reasoned that landlord was only trying to avoid having to carry a duplicate policy while ensuring that insurance was obtained, and was not attempting to contract around responsibility for negligence. Hogeland did not, however, decide whether lease provisions requiring tenant to procure insurance against landlord's negligence would be enforced where the lease does not expressly require landlord to pay for the cost of the extra coverage.

Tenant Cannot Waive Certificate of Occupancy Requirement

Nii v. Quinn

NYLJ 4/18/03, p. 21, col. 1

AppTerm, Second and Eleventh Districts

(memorandum opinion)

In landlord's holdover proceeding, tenant appealed from a Civil Court order denying his motion to vacate a stipulation of settlement. The Appellate Term modified to strike a provision relating to tenant's payment of use and occupancy, holding ineffective tenant's waiver of landlord's failure to obtain a residential certificate of occupancy.

Landlord's building is registered as a multiple dwelling governed by certificate of occupancy requirements. Tenant occupied, for residential purposes, a commercial storefront in the building. Residential occupation was in violation of the certificate of occupancy. When landlord brought this holdover proceeding, the parties entered into a stipulation of settlement that called for tenant to pay use and occupancy for the storefront space. In landlord's holdover proceeding based on the stipulation of settlement, tenant sought to vacate the stipulation, but Civil Court denied tenant's motion.

In modifying, the Appellate Term held that tenant could not waive the certificate of occupancy provisions in the Multiple Dwelling Law. As a result, landlord was not entitled to collect use and occupancy for the subject premises. On the other hand, the court concluded that the remaining provisions of the stipulation of settlement ' including the provision that awarded landlord possession ' were severable from the use and occupancy provision. The court concluded that landlord was entitled to recover possession of premises occupied in violation of a certificate of occupancy, and left standing that portion of the stipulation of settlement.

NYLJ 4/11/03, p. 19, col. 2

AppDiv, First Dept (memorandum opinion)

In an action by laborer against tenant for personal injuries suffered while working on the premises, landlord appealed from Supreme Court's denial of its motion to dismiss tenant's third-party claim. The court modified to sever the third-party claim, but otherwise affirmed, holding that the lease did not obligate tenant to obtain insurance against landlord's negligence.

The subject lease requires tenant to indemnify landlord for specified liabilities unless the liabilities resulted from landlord's sole negligence. The lease also required tenant to obtain liability insurance listing landlord as additional insured. When laborer brought this action against tenant, tenant impleaded landlord. Landlord sought summary judgment dismissing the complaint. Landlord recognized that the lease did not require tenant to indemnify landlord for acts resulting from landlord's sole negligence, but contended that this provision had no effect on tenant's obligation to obtain liability insurance. Hence, landlord contended, tenant's liability insurer could not recover against landlord, because insurer would be seeking to recover for the very risk against which it had insured.

In holding that summary judgment was properly denied, the Appellate Division held first that the lease did not require tenant to procure insurance for liabilities resulting from landlord's own negligence. As a result, the insurer was not necessarily seeking to recover for the very risk it had insured against. The court noted, however, that the parties had not produced the relevant insurance policy. If the policy provided more coverage than required by the lease ' that is, if the policy insured against landlord's sole negligence, then insurer would not be entitled to recover against landlord. In that event, however, tenant would be able to recover from landlord for amounts in excess of the policy limits. Because issues of fact remained about the scope of the insurance policy, and about whether the injuries resulted from landlord's sole negligence, the court held that summary judgment was properly denied.

Comment

General Obligations Law section 5-321 declares void any agreement that exempts a landlord or his agent from liability for negligence. New York courts, however, have held that section 5-321 is not applicable to agreements requiring tenant to indemnify landlord in circumstances where both parties have been negligent, and that the statute does not generally preclude a landlord from requiring tenant to purchase insurance covering landlord for all acts of negligence.

Agreements requiring a tenant to indemnify landlord when both parties have been negligent are enforceable despite the statute, so long as the landlord and tenant are sophisticated parties and it was their 'unmistakable intent' to provide for indemnification. Thus, in Jensen v. Chevron Corp. and Dilip S. Deokule, 160 A.D.2d 767, a gas station called the Quick Stop and the landlord, Chevron, were determined to be sophisticated parties operating at arms length. In enforcing an indemnification clause in their lease, the court determined that the lease had been negotiated at arms length, and that the clause represented the 'unmistakable intent' of the parties.

Courts have also enforced agreements where the landlord requires the tenant to purchase insurance to protect the landlord even where the landlord is found to be solely negligent. Hogeland v. Sibley, 42 N.Y.2d 153. In Hogeland, the lease required landlord to reimburse tenant for the cost of insurance coverage that exceeded what tenant would have had to pay to procure coverage for its own negligence. The Court of Appeals reasoned that the requirement that the landlord pay for the extra insurance coverage was a clear indication the tenant and landlord were of equal bargaining power. Therefore, despite the fact that the insurer would be required to indemnify the landlord for any and all of its actions through insurance procured by the tenant, the lease provision did not violate '5-321, which was put in place, in part, to counteract unequal bargaining power among landlords and tenants. Id. Furthermore, the court reasoned that landlord was only trying to avoid having to carry a duplicate policy while ensuring that insurance was obtained, and was not attempting to contract around responsibility for negligence. Hogeland did not, however, decide whether lease provisions requiring tenant to procure insurance against landlord's negligence would be enforced where the lease does not expressly require landlord to pay for the cost of the extra coverage.Nii v. Quinn

NYLJ 4/18/03, p. 21, col. 1

AppTerm, Second and Eleventh Districts (memorandum opinion)

In landlord's holdover proceeding, tenant appealed from a Civil Court order denying his motion to vacate a stipulation of settlement. The Appellate Term modified to strike a provision relating to tenant's payment of use and occupancy, holding ineffective tenant's waiver of landlord's failure to obtain a residential certificate of occupancy.

Landlord's building is registered as a multiple dwelling governed by certificate of occupancy requirements. Tenant occupied, for residential purposes, a commercial storefront in the building. Residential occupation was in violation of the certificate of occupancy. When landlord brought this holdover proceeding, the parties entered into a stipulation of settlement that called for tenant to pay use and occupancy for the storefront space. In landlord's holdover proceeding based on the stipulation of settlement, tenant sought to vacate the stipulation, but Civil Court denied tenant's motion.

In modifying, the Appellate Term held that tenant could not waive the certificate of occupancy provisions in the Multiple Dwelling Law. As a result, landlord was not entitled to collect use and occupancy for the subject premises. On the other hand, the court concluded that the remaining provisions of the stipulation of settlement ' including the provision that awarded landlord possession ' were severable from the use and occupancy provision. The court concluded that landlord was entitled to recover possession of premises occupied in violation of a certificate of occupancy, and left standing that portion of the stipulation of settlement.