Landlord & Tenant

Income of Tenant's Husband Properly Excluded in Luxury Decontrol Proceeding

In re 103 East 86th Street Realty Corp. v. Division of Housing and Community Renewal (DHCR)

NYLJ 11/26/04, p. 24, col. 4

AppDiv, First Dept

(memorandum opinion)

In a landlord's article 78 proceeding challenging the DHCR's decision to deny its application to deregulate an apartment under the luxury decontrol law, the landlord appealed from the Supreme Court's denial of the petition. The Appellate Division affirmed, holding that the DHCR had properly excluded consideration of the income of the tenant's husband.

The landlord served the tenant with an income certification form. After the tenant returned the form, the DHCR instructed the state Department of Taxation and Finance to verify total household income, including the husband's income, despite the tenant's submission of evidence that the husband had permanently vacated the apartment before she was served with the income certification form. When it learned of the error, the DHCR sought re-verification of the tenant's income, and when her income was verified, the DHCR, without conducting a hearing, denied the petition for deregulation. The landlord then brought this article 78 proceeding.

In holding that the Supreme Court had properly denied the petition, the Appellate Division emphasized that the operative date for determining whose income should be included in total annual income is the date on which the tenant is served with the certification form. Here, the DHCR erred in requesting, initially, that it include the husband's income in its verification. In that circumstance, the court concluded that it was appropriate for the DHCR to seek re-verification. The court rejected the landlord's argument that the DHCR should have acted on the initial verification, remitting the tenant to seek administrative review of the DHCR's determination. The court held that accepting the landlord's argument would not be in the interest of judicial economy, especially because the error was not due to any fault of the tenant.

Summary Judgment Denied on Right of First Refusal

New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp.

NYLJ 12/21/04, p. 27, col. 1

AppDiv, Second Dept

(memorandum opinion)

In a tenant's action for breach of the lease and for specific performance of a right of first refusal, the tenant appealed from the Supreme Court's denial of its summary judgment motion and grant of the landlord's cross-motion for summary judgment. The Appellate Division modified, holding that neither party was entitled to summary judgment because issues of fact remained about whether the landlord had structured its transactions to preclude tenant from exercising its right of first refusal.

The tenant's first lease, executed in 1986, gave the tenant a right of first refusal “[i]n the event of a sale of this property.” Each subsequent lease included the same language. In October 2000, the landlord transferred the property to Garden Estates, LLC. One-third of Garden Estates was owned by a non-party corporate entity, while two-thirds was owned by R & J Garden Corp., an entity in which the landlord holds a 90% interest. Thus, as a result of the transfer, the landlord retained a 60% interest in the new owner of the property. As part of the restructuring, Garden agreed to make a payment to the landlord of $2295 million. The tenant then brought this action, contending that the restructuring transaction triggered its right of first refusal, which the landlord refused to honor. The Supreme Court dismissed, concluding that the transfer did not constitute a sale that triggered the right of first refusal. The tenant appealed.

In modifying, the Appellate Division conceded that not all transfers of title amount to a sale for purposes of a right of first refusal. The court emphasized, however, that in this case, the landlord had conceded that the purpose of the restructuring was to redevelop the property into townhouses and condominium units. In such circumstances, the court concluded that a cause of action would like against the landlord if the tenant could establish that the landlord had effected the restructuring in bad faith, in an effort to redevelop the property without triggering the tenant's right of first refusal. The court also concluded that the tenant might, on those facts, have a claim against the transferee entity for tortious interference with performance of the lease. Hence, the court concluded that granting the landlord's motion for summary judgment was premature. The court also reinstated a preliminary injunction restraining the landlord or Garden from disposing of the property during the pendency of the action.

Breach of Lease; Liquidated Damages Provision

Koylum, Inc. v. Peksen Realty Corp.

NYLJ 12/20/04, p. 25, col. 1

U.S. Dist. Ct., EDNY

(Spatt, J.)

In a tenant's action to enforce a right of first refusal to purchase the leased premises, the landlord sought summary judgment on its counterclaim for liquidated damages provided in the lease allegedly breached by the tenant. The court granted the landlord's motion, holding that the tenant had breached and that the liquidated damages provision was not an unenforceable penalty.

In 1994, the landlord's predecessor leased the premises to the tenant's predecessor for use as a gasoline service station. The lease expressly referred to a supply agreement. Under the terms of the agreement, the tenant contracted to purchase all of its gasoline requirements from a corporation owned by the landlord's principals. The lease itself provided that the tenant would not, during the term of the lease, permit the sale of gasoline not supplied by the seller under the supply agreement. Finally, the lease provided that if the tenant remained in possession after the expiration of the lease, the tenant would be liable for two times the annual rates of minimum and additional rent in effect during the month preceding expiration.

The tenant began operating the service station in 1996, pursuant to an assignment of the lease. Beginning in 1998, the tenant sold gasoline not purchased pursuant to the supply agreement, and the landlord 's predecessor sent the tenant a notice of termination, effective Oct. 6, 1998. In May, 1999, the current landlord purchased the premises, and brought a holdover proceeding against the tenant in Suffolk County District Court. In July 1999, the tenant then brought this action seeking to enforce a right of first refusal to purchase the premises; the state court holdover proceeding was dismissed the same month. After trial, the court found that the tenant had breached by selling gasoline in violation of the lease, and held that the tenant therefore had no right of first refusal. The court also held that the landlord had the right to terminate the lease, and the tenant vacated. The landlord then sought summary judgment seeking to enforce the lease's liquidated damages provision.

In awarding summary judgment to the landlord, the court rejected the tenant's argument that the double rent provision should not be enforced because double rent was grossly disproportionate to the landlord's actual damages. The court noted that the tenant had not refuted the landlord's assertion that double rent provisions are customary in agreements like these, and emphasized that if the tenant had not breached, the landlord would be entitled to earn profits on the sale of gasoline at the demised service station. In light of these facts, the court concluded that double rent was not grossly disproportionate to the landlord's possible loss, and that actual damages were difficult to determine. As a result, the landlord was entitled to summary judgment on its claim for liquidated damages.

Landlord's Liability for Injuries Due to Mold

Litwack v. Plaza

Realty Investors, Inc.

NYLJ 12/1/04, p. 23, col. 1

Supreme Ct., N.Y. Cty

(Shafer, J.)

In a tenant's action against a landlord for negligence, violation of codes and statutes, and breach of the warranty of habitability, the landlord moved for summary judgment, and to preclude the tenant from offering expert testimony. The court granted summary judgment only on the warranty of habitability claim, and set the case for a Frye hearing to evaluate the admissibility of the expert testimony.

Beginning in 1999, the tenant began to notice wet spots in her apartment, together with dripping air-conditioner units. The landlord's representative repaired a wall near one of the wet spots, but the repair failed to cure the problem. Later that year, the tenant began to suffer a variety of symptoms, including rashes, night sweats, diarrhea, and inability to eat. After consulting physicians, who could not diagnose her illness, she had the apartment tested by an environmental specialist, whose tests revealed the presence of a variety of molds. The tenant moved out of the apartment in 2001, and her symptoms allegedly began to subside. She did not notify the landlord of the mold problem until 2002, when she surrendered the apartment. She then brought this action, seeking recovery for her personal injuries, and for property damage. The landlord sought summary judgment, contending that it lacked notice of any mold condition. The landlord also moved to preclude the tenant from offering evidence that her illness was caused by the mold in the apartment, contending that there is no scientific basis for the conclusion that mold causes illnesses like those alleged by the tenant.

The court granted the landlord's summary judgment motion only with respect to the warranty of habitability claim, noting that the warranty does not permit an action for personal injuries. With respect to the tenant's other claims, the court rejected the landlord's argument based on the tenant's failure to provide notice, holding that notice of the underlying conditions would be enough to require the landlord to attend to those conditions, even if the landlord did not know that mold was present in the apartment. The court then turned to the tenant's proposed expert testimony, and held that a Frye hearing to assess the scientific basis for the testimony, to determine whether it should be admissible at trial to establish a causal relationship between the mold and the tenant's illnesses.

Income of Tenant's Husband Properly Excluded in Luxury Decontrol Proceeding

In re 103 East 86th Street Realty Corp. v. Division of Housing and Community Renewal (DHCR)

NYLJ 11/26/04, p. 24, col. 4

AppDiv, First Dept

(memorandum opinion)

In a landlord's article 78 proceeding challenging the DHCR's decision to deny its application to deregulate an apartment under the luxury decontrol law, the landlord appealed from the Supreme Court's denial of the petition. The Appellate Division affirmed, holding that the DHCR had properly excluded consideration of the income of the tenant's husband.

The landlord served the tenant with an income certification form. After the tenant returned the form, the DHCR instructed the state Department of Taxation and Finance to verify total household income, including the husband's income, despite the tenant's submission of evidence that the husband had permanently vacated the apartment before she was served with the income certification form. When it learned of the error, the DHCR sought re-verification of the tenant's income, and when her income was verified, the DHCR, without conducting a hearing, denied the petition for deregulation. The landlord then brought this article 78 proceeding.

In holding that the Supreme Court had properly denied the petition, the Appellate Division emphasized that the operative date for determining whose income should be included in total annual income is the date on which the tenant is served with the certification form. Here, the DHCR erred in requesting, initially, that it include the husband's income in its verification. In that circumstance, the court concluded that it was appropriate for the DHCR to seek re-verification. The court rejected the landlord's argument that the DHCR should have acted on the initial verification, remitting the tenant to seek administrative review of the DHCR's determination. The court held that accepting the landlord's argument would not be in the interest of judicial economy, especially because the error was not due to any fault of the tenant.

Summary Judgment Denied on Right of First Refusal

New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp.

NYLJ 12/21/04, p. 27, col. 1

AppDiv, Second Dept

(memorandum opinion)

In a tenant's action for breach of the lease and for specific performance of a right of first refusal, the tenant appealed from the Supreme Court's denial of its summary judgment motion and grant of the landlord's cross-motion for summary judgment. The Appellate Division modified, holding that neither party was entitled to summary judgment because issues of fact remained about whether the landlord had structured its transactions to preclude tenant from exercising its right of first refusal.

The tenant's first lease, executed in 1986, gave the tenant a right of first refusal “[i]n the event of a sale of this property.” Each subsequent lease included the same language. In October 2000, the landlord transferred the property to Garden Estates, LLC. One-third of Garden Estates was owned by a non-party corporate entity, while two-thirds was owned by R & J Garden Corp., an entity in which the landlord holds a 90% interest. Thus, as a result of the transfer, the landlord retained a 60% interest in the new owner of the property. As part of the restructuring, Garden agreed to make a payment to the landlord of $2295 million. The tenant then brought this action, contending that the restructuring transaction triggered its right of first refusal, which the landlord refused to honor. The Supreme Court dismissed, concluding that the transfer did not constitute a sale that triggered the right of first refusal. The tenant appealed.

In modifying, the Appellate Division conceded that not all transfers of title amount to a sale for purposes of a right of first refusal. The court emphasized, however, that in this case, the landlord had conceded that the purpose of the restructuring was to redevelop the property into townhouses and condominium units. In such circumstances, the court concluded that a cause of action would like against the landlord if the tenant could establish that the landlord had effected the restructuring in bad faith, in an effort to redevelop the property without triggering the tenant's right of first refusal. The court also concluded that the tenant might, on those facts, have a claim against the transferee entity for tortious interference with performance of the lease. Hence, the court concluded that granting the landlord's motion for summary judgment was premature. The court also reinstated a preliminary injunction restraining the landlord or Garden from disposing of the property during the pendency of the action.

Breach of Lease; Liquidated Damages Provision

Koylum, Inc. v. Peksen Realty Corp.

NYLJ 12/20/04, p. 25, col. 1

U.S. Dist. Ct., EDNY

(Spatt, J.)

In a tenant's action to enforce a right of first refusal to purchase the leased premises, the landlord sought summary judgment on its counterclaim for liquidated damages provided in the lease allegedly breached by the tenant. The court granted the landlord's motion, holding that the tenant had breached and that the liquidated damages provision was not an unenforceable penalty.

In 1994, the landlord's predecessor leased the premises to the tenant's predecessor for use as a gasoline service station. The lease expressly referred to a supply agreement. Under the terms of the agreement, the tenant contracted to purchase all of its gasoline requirements from a corporation owned by the landlord's principals. The lease itself provided that the tenant would not, during the term of the lease, permit the sale of gasoline not supplied by the seller under the supply agreement. Finally, the lease provided that if the tenant remained in possession after the expiration of the lease, the tenant would be liable for two times the annual rates of minimum and additional rent in effect during the month preceding expiration.

The tenant began operating the service station in 1996, pursuant to an assignment of the lease. Beginning in 1998, the tenant sold gasoline not purchased pursuant to the supply agreement, and the landlord 's predecessor sent the tenant a notice of termination, effective Oct. 6, 1998. In May, 1999, the current landlord purchased the premises, and brought a holdover proceeding against the tenant in Suffolk County District Court. In July 1999, the tenant then brought this action seeking to enforce a right of first refusal to purchase the premises; the state court holdover proceeding was dismissed the same month. After trial, the court found that the tenant had breached by selling gasoline in violation of the lease, and held that the tenant therefore had no right of first refusal. The court also held that the landlord had the right to terminate the lease, and the tenant vacated. The landlord then sought summary judgment seeking to enforce the lease's liquidated damages provision.

In awarding summary judgment to the landlord, the court rejected the tenant's argument that the double rent provision should not be enforced because double rent was grossly disproportionate to the landlord's actual damages. The court noted that the tenant had not refuted the landlord's assertion that double rent provisions are customary in agreements like these, and emphasized that if the tenant had not breached, the landlord would be entitled to earn profits on the sale of gasoline at the demised service station. In light of these facts, the court concluded that double rent was not grossly disproportionate to the landlord's possible loss, and that actual damages were difficult to determine. As a result, the landlord was entitled to summary judgment on its claim for liquidated damages.

Landlord's Liability for Injuries Due to Mold

Litwack v. Plaza

Realty Investors, Inc.

NYLJ 12/1/04, p. 23, col. 1

Supreme Ct., N.Y. Cty

(Shafer, J.)

In a tenant's action against a landlord for negligence, violation of codes and statutes, and breach of the warranty of habitability, the landlord moved for summary judgment, and to preclude the tenant from offering expert testimony. The court granted summary judgment only on the warranty of habitability claim, and set the case for a Frye hearing to evaluate the admissibility of the expert testimony.

Beginning in 1999, the tenant began to notice wet spots in her apartment, together with dripping air-conditioner units. The landlord's representative repaired a wall near one of the wet spots, but the repair failed to cure the problem. Later that year, the tenant began to suffer a variety of symptoms, including rashes, night sweats, diarrhea, and inability to eat. After consulting physicians, who could not diagnose her illness, she had the apartment tested by an environmental specialist, whose tests revealed the presence of a variety of molds. The tenant moved out of the apartment in 2001, and her symptoms allegedly began to subside. She did not notify the landlord of the mold problem until 2002, when she surrendered the apartment. She then brought this action, seeking recovery for her personal injuries, and for property damage. The landlord sought summary judgment, contending that it lacked notice of any mold condition. The landlord also moved to preclude the tenant from offering evidence that her illness was caused by the mold in the apartment, contending that there is no scientific basis for the conclusion that mold causes illnesses like those alleged by the tenant.

The court granted the landlord's summary judgment motion only with respect to the warranty of habitability claim, noting that the warranty does not permit an action for personal injuries. With respect to the tenant's other claims, the court rejected the landlord's argument based on the tenant's failure to provide notice, holding that notice of the underlying conditions would be enough to require the landlord to attend to those conditions, even if the landlord did not know that mold was present in the apartment. The court then turned to the tenant's proposed expert testimony, and held that a Frye hearing to assess the scientific basis for the testimony, to determine whether it should be admissible at trial to establish a causal relationship between the mold and the tenant's illnesses.