Landlord & Tenant

AppDiv, First Dept

(3-2 decision; majority opinion by Tom, J; dissenting opinion by Sullivan, J.)

In landlord's article 78 proceeding challenging DHCR's determination in a luxury decontrol proceeding, landlord appealed from Supreme Court's dismissal of the petition. A divided Appellate Division affirmed, holding that DHCR was not required to conduct further investigation of tenants' amended tax returns.

In 1998, landlord filed a petition for luxury deregulation of the subject apartment, seeking income verification for the years 1996 and 1997. When the State Department of Taxation and Finance (DTF) reported that tenants' income exceeded $175,000 for each of the 2 years, DHCR asked tenants to comment on a proposed deregulation of the apartment. Tenants then responded that they had filed an amended return that would bring their income below $175,000 for the subject years. DTF later verified that the tenants' income did not exceed the threshold. Landlord then asked DHCR to seek verification for prior years to be sure tenants had not shifted income to those prior years in order to reduce income for the subject years. DHCR declined to hold a hearing to inquire into the amended returns, and landlord brought this article 78 proceeding challenging that determination. Supreme Court dismissed landlord's petition.

The Appellate Division, in affirming, noted that the applicable statutes circumscribe DHCR's review of tenants' income. In particular, DTF is not authorized to reveal tenants' actual income to DHCR. Instead, DTF can only reveal whether tenants' income exceeds $175,000. As a result, a hearing on tenants' amended returns would necessarily have been limited. Moreover, in the absence of any evidence of fraud, illegality, or irregularities requiring a hearing, DHCR's determination was rational. Justice Sullivan, dissenting for himself and Justice Williams, noted the potential for abuse by tenants and suggested that a hearing was necessary to explore the circumstances surrounding filing of the amended returns.

Attorneys' Fees Not Available in Tenant's Successful Proceeding

Salvato v. St. David's School

NYLJ 8/11/03, p. 20, col. 3

AppDiv, First Dept

(memorandum opinion)

In an action by tenant for declaratory and injunctive relief, landlord appealed from Supreme Court's denial of its summary judgment motion on tenant's causes of action for attorneys' fees. The Appellate Division reversed and granted summary judgment to landlord, holding that tenant's claims for declaratory and injunctive relief did not fall within the language of Real Property Law section 234.

Tenants lease a residential apartment from landlord, a school. The school occupies the adjacent building, and had made some alteration plans that would have included conversion to school use of space currently occupied by tenant's walk-in closet. Before landlord had implemented the plans, tenants brought this action seeking a declaration that the planned demolition constituted anticipatory breach of the lease and seeking an injunction preventing interference with their leasehold. Tenants also sought attorneys' fees. The school moved for summary judgment on the claims for attorneys' fees, but Supreme Court denied the motion.

In reversing, the Appellate Division noted that the lease gave to tenants the right to collect attorneys' fees incurred in an action against landlord to the extent permitted by Real Property Law section 234. That statute, in turn, authorizes attorney fee awards to tenants in actions based on landlord's “failure to perform any covenant under the lease.” The court held even if tenant were to establish anticipatory breach, tenant would not have established failure to perform a covenant. Moreover, the court held that the claims for declaratory and injunctive relief were designed to prevent future conduct that, if it occurred, might constitute breach. The claims, however, were not based on any failure to perform by landlord. As a result, landlord was entitled to summary judgment dismissing tenant's damage claims, because tenant had alleged no compensable damages.

Failure to Cancel Lease Bars Claims

Culver & Thiesen, Inc. v. Starr Realty Co., LLC

NYLJ 8/7/03, p. 27, col. 1

AppDiv, Second Dept

(memorandum opinion)

In an action by tenant for rescission of a commercial lease, tenant appealed from a Supreme Court order dismissing five causes of action. The Appellate Division affirmed, holding that tenant's failure to cancel the lease within the 6-month period specified by the lease barred tenant's claims for fraudulent inducement, mistake, failure of consideration, and illegality.

Tenant executed a lease to use landlord's property to erect a billboard. The lease gave tenant a 6-month time limited period to cancel if tenant was unable to obtain the permits for construction of the billboard. Tenant did not cancel during that period, and paid rent for 29 months before learning that the applicable zoning ordinance prohibited construction of a billboard on the site. Tenant then brought this action for rescission, alleging that landlord had orally represented that tenant would be permitted to build the billboard on the site. Supreme Court dismissed tenant's first five causes of action.

In affirming, the Appellate Division first held that because tenant had ample opportunity to learn the truth of landlord's alleged misrepresentation, the fraudulent inducement claim could not stand. The court then dismissed the mistake claims because any mistake was the result of tenant's own failure to exercise ordinary care in ascertaining the terms of the zoning ordinance. Tenant's failure of consideration claim failed because the lease had allocated to tenant the risk that tenant would be unable to obtain a permit, in consideration for the six-month period during which tenant was free to cancel the lease. Finally, the court dismissed tenant's claim that the lease contemplated illegal use of the premises, holding that where parties to a lease consider the possibility of illegal use, and address the problem in the terms of the lease, neither party is entitled to rescission for illegality.

DHCR Need Not Investigate Amended Returns in Luxury Decontrol Proceeding

In re Classic Realty, LLC v. New York State Division of Housing and Community Renewal

NYLJ 8/15/03, p. 18, col. 1

AppDiv, First Dept

(3-2 decision; majority opinion by Tom, J; dissenting opinion by Sullivan, J.)

In landlord's article 78 proceeding challenging DHCR's determination in a luxury decontrol proceeding, landlord appealed from Supreme Court's dismissal of the petition. A divided Appellate Division affirmed, holding that DHCR was not required to conduct further investigation of tenants' amended tax returns.

In 1998, landlord filed a petition for luxury deregulation of the subject apartment, seeking income verification for the years 1996 and 1997. When the State Department of Taxation and Finance (DTF) reported that tenants' income exceeded $175,000 for each of the 2 years, DHCR asked tenants to comment on a proposed deregulation of the apartment. Tenants then responded that they had filed an amended return that would bring their income below $175,000 for the subject years. DTF later verified that the tenants' income did not exceed the threshold. Landlord then asked DHCR to seek verification for prior years to be sure tenants had not shifted income to those prior years in order to reduce income for the subject years. DHCR declined to hold a hearing to inquire into the amended returns, and landlord brought this article 78 proceeding challenging that determination. Supreme Court dismissed landlord's petition.

The Appellate Division, in affirming, noted that the applicable statutes circumscribe DHCR's review of tenants' income. In particular, DTF is not authorized to reveal tenants' actual income to DHCR. Instead, DTF can only reveal whether tenants' income exceeds $175,000. As a result, a hearing on tenants' amended returns would necessarily have been limited. Moreover, in the absence of any evidence of fraud, illegality, or irregularities requiring a hearing, DHCR's determination was rational. Justice Sullivan, dissenting for himself and Justice Williams, noted the potential for abuse by tenants and suggested that a hearing was necessary to explore the circumstances surrounding filing of the amended returns.

Attorneys' Fees Not Available in Tenant's Successful Proceeding

Salvato v. St. David's School

NYLJ 8/11/03, p. 20, col. 3

AppDiv, First Dept

(memorandum opinion)

In an action by tenant for declaratory and injunctive relief, landlord appealed from Supreme Court's denial of its summary judgment motion on tenant's causes of action for attorneys' fees. The Appellate Division reversed and granted summary judgment to landlord, holding that tenant's claims for declaratory and injunctive relief did not fall within the language of Real Property Law section 234.

Tenants lease a residential apartment from landlord, a school. The school occupies the adjacent building, and had made some alteration plans that would have included conversion to school use of space currently occupied by tenant's walk-in closet. Before landlord had implemented the plans, tenants brought this action seeking a declaration that the planned demolition constituted anticipatory breach of the lease and seeking an injunction preventing interference with their leasehold. Tenants also sought attorneys' fees. The school moved for summary judgment on the claims for attorneys' fees, but Supreme Court denied the motion.

In reversing, the Appellate Division noted that the lease gave to tenants the right to collect attorneys' fees incurred in an action against landlord to the extent permitted by Real Property Law section 234. That statute, in turn, authorizes attorney fee awards to tenants in actions based on landlord's “failure to perform any covenant under the lease.” The court held even if tenant were to establish anticipatory breach, tenant would not have established failure to perform a covenant. Moreover, the court held that the claims for declaratory and injunctive relief were designed to prevent future conduct that, if it occurred, might constitute breach. The claims, however, were not based on any failure to perform by landlord. As a result, landlord was entitled to summary judgment dismissing tenant's damage claims, because tenant had alleged no compensable damages.

Failure to Cancel Lease Bars Claims

Culver & Thiesen, Inc. v. Starr Realty Co., LLC

NYLJ 8/7/03, p. 27, col. 1

AppDiv, Second Dept

(memorandum opinion)

In an action by tenant for rescission of a commercial lease, tenant appealed from a Supreme Court order dismissing five causes of action. The Appellate Division affirmed, holding that tenant's failure to cancel the lease within the 6-month period specified by the lease barred tenant's claims for fraudulent inducement, mistake, failure of consideration, and illegality.

Tenant executed a lease to use landlord's property to erect a billboard. The lease gave tenant a 6-month time limited period to cancel if tenant was unable to obtain the permits for construction of the billboard. Tenant did not cancel during that period, and paid rent for 29 months before learning that the applicable zoning ordinance prohibited construction of a billboard on the site. Tenant then brought this action for rescission, alleging that landlord had orally represented that tenant would be permitted to build the billboard on the site. Supreme Court dismissed tenant's first five causes of action.

In affirming, the Appellate Division first held that because tenant had ample opportunity to learn the truth of landlord's alleged misrepresentation, the fraudulent inducement claim could not stand. The court then dismissed the mistake claims because any mistake was the result of tenant's own failure to exercise ordinary care in ascertaining the terms of the zoning ordinance. Tenant's failure of consideration claim failed because the lease had allocated to tenant the risk that tenant would be unable to obtain a permit, in consideration for the six-month period during which tenant was free to cancel the lease. Finally, the court dismissed tenant's claim that the lease contemplated illegal use of the premises, holding that where parties to a lease consider the possibility of illegal use, and address the problem in the terms of the lease, neither party is entitled to rescission for illegality.