Landlord & Tenant

Court of Appeals

(Opinion by Ciparick, J.)

In a landlord's article 78 proceeding challenging DHCR's denial of his petition for luxury deregulation, the landlord appealed from the Appellate Division's affirmance of the Supreme Court's denial of the petition. The Court of Appeals reversed with directions to remand to DHCR, concluding that DHCR had improperly relied on an amended return that showed the tenant's income was below $175,000 for one of the subject years.

The tenant occupies a ten-room rent-stabilized apartment on Park Avenue at a monthly rental of $3949.73. In 1998, the agent for the owner of the co-operative apartment served the tenant with an income certification form. The tenant certified that the family's income was below $175,000 for 1 of the 2 years. The owner's agent contested the certification, and filed a petition for high-income deregulation. When the owner requested income verification from the Department of Taxation and Finance (DTD), DTF reported that the household income was above the threshold for both years. DHCR then issued a notice of proposed deregulation, and afforded each party an opportunity to comment. The tenant responded by indicating that an amended tax return would demonstrate that the household income was not in excess of $175,000. DHCR then verified with DTF that income was below the threshold for 1 of the 2 years, and issued an order denying the owner's petition for luxury deregulation. The owner then brought this article 78 proceeding. The Supreme Court denied the petition and the Appellate Division affirmed.

In reversing and granting the owner's petition, the Court of Appeals emphasized that tenant had never challenged the accuracy or validity of DTF's original verification. The court noted that the statute contemplates a single verification, the result of which is binding on all parties unless it can be shown that DTF made an error. The court expressed the fear that DHCR's ruling would invite abuse of the luxury decontrol process, and concluded that DHCR's blind acceptance of the amended return was irrational. The court conceded that a tenant might have a legitimate reason to amend a tax return, but suggested that tenant's remedy in that case should not be a second verification, but instead, a contest during the statute's comment period, or, ultimately, an article 78 proceeding. As a result, the court ordered that in this case there should be a remand to DHCR for an order of luxury deregulation.

Lease Did Not Obligate Landlord to Notify Tenant of Full Restoration

The Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co.

NYLJ 3/26/04, p. 19, col. 5

Court of Appeals

(Opinion by Graffeo, J.)

In the tenant's action for a declaration that it had effectively terminated its lease, the landlord appealed from the Appellate Division's affirmance of the Supreme Court's grant of summary judgment to the tenant. The Court of Appeals reversed, holding that the lease did not obligate the landlord to notify the tenant that the building had been fully restored in order to avoid termination of the lease.

The tenant leased retail space in the landlord's building for a 10-year term. During the second year of the lease term, the wall of an adjacent building collapsed, causing extensive damage to the leased premises and causing the city's Department of Buildings to issue a “vacate” order. The lease provides that in case casualty rendered the premises wholly unusable, the tenant's obligation to pay rent would cease until the date the premises shall have been repaired and restored. The same lease provision also provided that the tenant's liability for rent would resume 5 days after written notice from the owner that the premises were substantially ready for occupancy. A separate rider to the lease authorized the tenant to provide the landlord with written notice of an election to terminate the lease if premises were not restored within 1 year after the landlord's receipt of the tenant's notice. After the collapse, the tenant notified the landlord that it intended to terminate the lease if the premises were not restored within a year. The landlord then asked the tenant for assurances that it intended to continue its tenancy. About 7 months after the collapse, the tenant removed its remaining possessions, and surrendered its keys. A year after the tenant sent its notice of intent to terminate, it sent the landlord a letter indicating that it had not received notice that the premises had been restored, and therefore declared the lease terminated, and demanded return of its security deposit. When the landlord refused, asserting that the tenant knew the premises had been restored months earlier, the tenant brought this declaratory judgment action. The Supreme Court granted summary judgment to the tenant, and a divided Appellate Division affirmed, concluding that even though the lease rider contained no explicit requirement of written notice of the completed restoration, the notice provision pertaining to resumption of rental payments obligated the landlord to provide such a notice to prevent termination. The landlord appealed.

In reversing, the Court of Appeals held that the lease rider was unambiguous and did not require the landlord to send the tenant a written notice of restoration in order to avoid termination of the lease. Instead, the rider merely requires the landlord to restore the premises within 1 year from the tenant's notice. The lease's provision requiring written notice of restoration before a tenant's rent liability resumes dealt exclusively with rent liability, not with termination of the lease. Accordingly, the courts erroneously awarded summary judgment to the tenant. Instead, resolution of the dispute requires determination of the date on which the premises were actually restored, a question not suitable for resolution on motion for summary judgment.

DHCR Has Exclusive Jurisdiction over Challenges to IAI Increases

Rockaway One Company, LLC v. Wiggins

NYLJ 3/23/03, p. 25, col. 4

App Term, Second and Eleventh Districts

(memorandum opinion)

In a landlord's summary nonpayment proceeding, the landlord appealed from Civil Court's denial of his application to sever and dismiss the tenant's counterclaim challenging an individual apartment increase (IAI). The Appellate Division modified to grant the landlord's application, holding that DHCR has exclusive original jurisdiction over challenges to IAI increases for rent stabilized apartments.

Before the tenant took possession, the landlord renovated the apartment's kitchen and bathroom at a total cost of $4000, and adjusted the apartment's rent accordingly. When the tenant subsequently defaulted in payment of rent, the landlord brought this summary nonpayment proceeding. The tenant, by way of affirmative defense and counterclaim, challenged the IAI increase. The landlord moved to sever and dismiss the challenge, contending that Civil Court lacked original jurisdiction. Civil Court denied the motion, and disallowed the IAI increase because the landlord had not adequately broken down the cost of the work. Civil Court then awarded the landlord possession and $327.78 in rent arrears. The landlord appealed, contending that Civil Court had improperly entertained the defense based on the IAI increase.

In increasing the award for rent arrears to $726.14, the Appellate Term agreed with the landlord that DHCR has exclusive original jurisdiction over challenges to IAI and major capital improvement (MCI) increases. The court noted that Rent Stabilization Code section 2522.4(a)(6), applicable to both AIA and MCI increases, provides that determinations on challenges shall be based on “all factors bearing on the equities involved.”

The court concluded that such a global examination of all relevant factors invokes the rent-setting power of an administrative agency. The court further relied upon section 2522.4(a)(13), which speaks of actions and determinations by DHCR. The court acknowledged concerns that landlords might take advantage of DHCR delays to claim increases for improvements that were never made, but held that such concerns could be addressed in a summary proceeding by requiring the landlord to show, to the court's satisfaction, a likelihood of success before DHCR. In this case, the landlord made such a showing, justifying an increase in the award to the landlord.

Four-Year Statute of Limitations Applies in Illusory Tenancy Case

Thornton v. Baron

NYLJ 3/1/04, p. 26, col. 1

AppDiv, First Dept

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

In the tenants' action to compel the landlord to offer them a stabilized lease at the legal rent as of the time, the landlord entered into an illusory tenancy with another tenant in 1992, the tenants appealed from the Supreme Court's determination that the rent should be determined in accordance with a default formula developed by the DHCR. The Appellate Division affirmed, holding that the 4-year statute of limitations applicable to rent overcharge complaints barred courts from computing and imposing the 1992 rent on the parties.

In 1992, the rent-stabilized rent for the apartment was $507.85. In that year, the landlord entered into a lease with a tenant at a rent of $2400, pursuant to a lease providing that the tenant would not use the apartment as his primary residence, and that the apartment would be exempt from rent stabilization for as long as tenant did not use the apartment as a primary residence. The following year, that tenant subleased the apartment to the current tenants for $3250 per month, with renewal options at still higher prices. The current tenants brought a rent overcharge against the then-tenants in 1996, contending that the tenant and his agents had created an illusory tenancy. The Appellate Division ultimately held that the sublease agreement was void as an illusory tenancy, and the landlord then recognized current tenants as the prime tenants. The tenants then brought this action to compel landlord to offer them a lease at the 1992 rent. The landlord argued that he should be entitled to collect from the current tenant the rent specified in the lease with the illusory tenant. The Supreme Court rejected both positions, holding that the rent amount should be determined in accordance with a default mechanism used by DHCR in cases where no rent registration statement is available. The tenants appealed.

In affirming, the Appellate Division majority held that the statutory prescription against using rental history reflected in a registration statement more than 4 years old applies even where the prior rental history clearly indicates that an unauthorized rent increase has been imposed. Justice Tom dissented, arguing that the 4-year limitation “was not intended to allow the landlord to profit from a scheme to circumvent the Rent Stabilization Laws by creating an illusory tenancy.” The dissenters would have restored the 1992 stabilized rent.

Residential Landlord Has Obligation to Mitigate

29 Holding Corp. v. Diaz

NYLJ 3/31/04, p. 22, col. 3

Supreme Ct., Bronx Cty

(Victor, J.)

In an action by a residential landlord on a lease guarantee, the landlord moved for summary judgment. The court granted the landlord's motion, but held that on the issue of damages, the landlord should be prepared to demonstrate efforts to relet the subject premises.

The landlord and tenant entered into a residential lease in 1992. The guarantor executed an agreement guaranteeing tenant's performance, and providing that the guarantee would “remain in full force and effect even if the lease is renewed, changed or extended in any way.” The tenant renewed the lease in 1993 and 1995. The last renewal was for the period from May 1, 1996 through April 30, 1998. The tenant vacated the premises in May 1997, and defaulted on payment for 12 months. The landlord then brought this action against the guarantor.

In awarding summary judgment to the landlord, the court rejected the guarantor's argument that the guarantee extended only to the original lease term. The court noted the broad wording of the guarantee, extending to changes as well as renewals, and observed that because the guarantor was uncompensated, he could have revoke the guarantee if he no longer wanted to be bound to its terms. The court then held that a residential landlord has a duty to mitigate damages by attempting to relet the premises, construing Holy Properties, L.P. v. Kenneth Cole Productions, Inc., 87 NY2d 130, to apply only to commercial tenancies. As a result, the court held that on the inquest on damages the landlord would have to demonstrate reasonable and diligent efforts to re-let the premises.

DHCR Improperly Relied on Amended Return in Luxury Deregulation

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

NYLJ 3/31/04, p. 19, col. 5

Court of Appeals

(Opinion by Ciparick, J.)

In a landlord's article 78 proceeding challenging DHCR's denial of his petition for luxury deregulation, the landlord appealed from the Appellate Division's affirmance of the Supreme Court's denial of the petition. The Court of Appeals reversed with directions to remand to DHCR, concluding that DHCR had improperly relied on an amended return that showed the tenant's income was below $175,000 for one of the subject years.

The tenant occupies a ten-room rent-stabilized apartment on Park Avenue at a monthly rental of $3949.73. In 1998, the agent for the owner of the co-operative apartment served the tenant with an income certification form. The tenant certified that the family's income was below $175,000 for 1 of the 2 years. The owner's agent contested the certification, and filed a petition for high-income deregulation. When the owner requested income verification from the Department of Taxation and Finance (DTD), DTF reported that the household income was above the threshold for both years. DHCR then issued a notice of proposed deregulation, and afforded each party an opportunity to comment. The tenant responded by indicating that an amended tax return would demonstrate that the household income was not in excess of $175,000. DHCR then verified with DTF that income was below the threshold for 1 of the 2 years, and issued an order denying the owner's petition for luxury deregulation. The owner then brought this article 78 proceeding. The Supreme Court denied the petition and the Appellate Division affirmed.

In reversing and granting the owner's petition, the Court of Appeals emphasized that tenant had never challenged the accuracy or validity of DTF's original verification. The court noted that the statute contemplates a single verification, the result of which is binding on all parties unless it can be shown that DTF made an error. The court expressed the fear that DHCR's ruling would invite abuse of the luxury decontrol process, and concluded that DHCR's blind acceptance of the amended return was irrational. The court conceded that a tenant might have a legitimate reason to amend a tax return, but suggested that tenant's remedy in that case should not be a second verification, but instead, a contest during the statute's comment period, or, ultimately, an article 78 proceeding. As a result, the court ordered that in this case there should be a remand to DHCR for an order of luxury deregulation.

Lease Did Not Obligate Landlord to Notify Tenant of Full Restoration

The Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co.

NYLJ 3/26/04, p. 19, col. 5

Court of Appeals

(Opinion by Graffeo, J.)

In the tenant's action for a declaration that it had effectively terminated its lease, the landlord appealed from the Appellate Division's affirmance of the Supreme Court's grant of summary judgment to the tenant. The Court of Appeals reversed, holding that the lease did not obligate the landlord to notify the tenant that the building had been fully restored in order to avoid termination of the lease.

The tenant leased retail space in the landlord's building for a 10-year term. During the second year of the lease term, the wall of an adjacent building collapsed, causing extensive damage to the leased premises and causing the city's Department of Buildings to issue a “vacate” order. The lease provides that in case casualty rendered the premises wholly unusable, the tenant's obligation to pay rent would cease until the date the premises shall have been repaired and restored. The same lease provision also provided that the tenant's liability for rent would resume 5 days after written notice from the owner that the premises were substantially ready for occupancy. A separate rider to the lease authorized the tenant to provide the landlord with written notice of an election to terminate the lease if premises were not restored within 1 year after the landlord's receipt of the tenant's notice. After the collapse, the tenant notified the landlord that it intended to terminate the lease if the premises were not restored within a year. The landlord then asked the tenant for assurances that it intended to continue its tenancy. About 7 months after the collapse, the tenant removed its remaining possessions, and surrendered its keys. A year after the tenant sent its notice of intent to terminate, it sent the landlord a letter indicating that it had not received notice that the premises had been restored, and therefore declared the lease terminated, and demanded return of its security deposit. When the landlord refused, asserting that the tenant knew the premises had been restored months earlier, the tenant brought this declaratory judgment action. The Supreme Court granted summary judgment to the tenant, and a divided Appellate Division affirmed, concluding that even though the lease rider contained no explicit requirement of written notice of the completed restoration, the notice provision pertaining to resumption of rental payments obligated the landlord to provide such a notice to prevent termination. The landlord appealed.

In reversing, the Court of Appeals held that the lease rider was unambiguous and did not require the landlord to send the tenant a written notice of restoration in order to avoid termination of the lease. Instead, the rider merely requires the landlord to restore the premises within 1 year from the tenant's notice. The lease's provision requiring written notice of restoration before a tenant's rent liability resumes dealt exclusively with rent liability, not with termination of the lease. Accordingly, the courts erroneously awarded summary judgment to the tenant. Instead, resolution of the dispute requires determination of the date on which the premises were actually restored, a question not suitable for resolution on motion for summary judgment.

DHCR Has Exclusive Jurisdiction over Challenges to IAI Increases

Rockaway One Company, LLC v. Wiggins

NYLJ 3/23/03, p. 25, col. 4

App Term, Second and Eleventh Districts

(memorandum opinion)

In a landlord's summary nonpayment proceeding, the landlord appealed from Civil Court's denial of his application to sever and dismiss the tenant's counterclaim challenging an individual apartment increase (IAI). The Appellate Division modified to grant the landlord's application, holding that DHCR has exclusive original jurisdiction over challenges to IAI increases for rent stabilized apartments.

Before the tenant took possession, the landlord renovated the apartment's kitchen and bathroom at a total cost of $4000, and adjusted the apartment's rent accordingly. When the tenant subsequently defaulted in payment of rent, the landlord brought this summary nonpayment proceeding. The tenant, by way of affirmative defense and counterclaim, challenged the IAI increase. The landlord moved to sever and dismiss the challenge, contending that Civil Court lacked original jurisdiction. Civil Court denied the motion, and disallowed the IAI increase because the landlord had not adequately broken down the cost of the work. Civil Court then awarded the landlord possession and $327.78 in rent arrears. The landlord appealed, contending that Civil Court had improperly entertained the defense based on the IAI increase.

In increasing the award for rent arrears to $726.14, the Appellate Term agreed with the landlord that DHCR has exclusive original jurisdiction over challenges to IAI and major capital improvement (MCI) increases. The court noted that Rent Stabilization Code section 2522.4(a)(6), applicable to both AIA and MCI increases, provides that determinations on challenges shall be based on “all factors bearing on the equities involved.”

The court concluded that such a global examination of all relevant factors invokes the rent-setting power of an administrative agency. The court further relied upon section 2522.4(a)(13), which speaks of actions and determinations by DHCR. The court acknowledged concerns that landlords might take advantage of DHCR delays to claim increases for improvements that were never made, but held that such concerns could be addressed in a summary proceeding by requiring the landlord to show, to the court's satisfaction, a likelihood of success before DHCR. In this case, the landlord made such a showing, justifying an increase in the award to the landlord.

Four-Year Statute of Limitations Applies in Illusory Tenancy Case

Thornton v. Baron

NYLJ 3/1/04, p. 26, col. 1

AppDiv, First Dept

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

In the tenants' action to compel the landlord to offer them a stabilized lease at the legal rent as of the time, the landlord entered into an illusory tenancy with another tenant in 1992, the tenants appealed from the Supreme Court's determination that the rent should be determined in accordance with a default formula developed by the DHCR. The Appellate Division affirmed, holding that the 4-year statute of limitations applicable to rent overcharge complaints barred courts from computing and imposing the 1992 rent on the parties.

In 1992, the rent-stabilized rent for the apartment was $507.85. In that year, the landlord entered into a lease with a tenant at a rent of $2400, pursuant to a lease providing that the tenant would not use the apartment as his primary residence, and that the apartment would be exempt from rent stabilization for as long as tenant did not use the apartment as a primary residence. The following year, that tenant subleased the apartment to the current tenants for $3250 per month, with renewal options at still higher prices. The current tenants brought a rent overcharge against the then-tenants in 1996, contending that the tenant and his agents had created an illusory tenancy. The Appellate Division ultimately held that the sublease agreement was void as an illusory tenancy, and the landlord then recognized current tenants as the prime tenants. The tenants then brought this action to compel landlord to offer them a lease at the 1992 rent. The landlord argued that he should be entitled to collect from the current tenant the rent specified in the lease with the illusory tenant. The Supreme Court rejected both positions, holding that the rent amount should be determined in accordance with a default mechanism used by DHCR in cases where no rent registration statement is available. The tenants appealed.

In affirming, the Appellate Division majority held that the statutory prescription against using rental history reflected in a registration statement more than 4 years old applies even where the prior rental history clearly indicates that an unauthorized rent increase has been imposed. Justice Tom dissented, arguing that the 4-year limitation “was not intended to allow the landlord to profit from a scheme to circumvent the Rent Stabilization Laws by creating an illusory tenancy.” The dissenters would have restored the 1992 stabilized rent.

Residential Landlord Has Obligation to Mitigate

29 Holding Corp. v. Diaz

NYLJ 3/31/04, p. 22, col. 3

Supreme Ct., Bronx Cty

(Victor, J.)

In an action by a residential landlord on a lease guarantee, the landlord moved for summary judgment. The court granted the landlord's motion, but held that on the issue of damages, the landlord should be prepared to demonstrate efforts to relet the subject premises.

The landlord and tenant entered into a residential lease in 1992. The guarantor executed an agreement guaranteeing tenant's performance, and providing that the guarantee would “remain in full force and effect even if the lease is renewed, changed or extended in any way.” The tenant renewed the lease in 1993 and 1995. The last renewal was for the period from May 1, 1996 through April 30, 1998. The tenant vacated the premises in May 1997, and defaulted on payment for 12 months. The landlord then brought this action against the guarantor.

In awarding summary judgment to the landlord, the court rejected the guarantor's argument that the guarantee extended only to the original lease term. The court noted the broad wording of the guarantee, extending to changes as well as renewals, and observed that because the guarantor was uncompensated, he could have revoke the guarantee if he no longer wanted to be bound to its terms. The court then held that a residential landlord has a duty to mitigate damages by attempting to relet the premises, construing Holy Properties, L.P. v. Kenneth Cole Productions, Inc. , 87 NY2d 130, to apply only to commercial tenancies. As a result, the court held that on the inquest on damages the landlord would have to demonstrate reasonable and diligent efforts to re-let the premises.