Landlord & Tenant

AppTerm. 2nd & 11th Districts

(2-1 decision; memorandum opinion)

In a landlord's commercial holdover proceeding, the tenant appealed from the Civil Court's judgment awarding possession to the landlord. The Appellate Term reversed and dismissed the petition, holding that the tenant had timely exercised his renew, and that the landlord had waived any breach that would otherwise prevent the tenant from exercising his renewal right.

The subject premises are located in an area where zoning regulations do not permit residential use. The landlord's predecessor leased the premises to the tenant for a 5-year term that expired on July 31, 2000. The lease included a provision giving the tenant an option to renew, but prohibited residential use. The tenant nevertheless used the premises for residential purposes, and introduced evidence that the landlord's predecessor had been cited for violations resulting from residential use of various apartments in the building. In April 2000, the tenant sent the landlord's predecessor timely exercising its option to renew, but the landlord's predecessor did not acknowledge that exercise. Instead, in September 2000, the predecessor sold the building to the landlord, who subsequently brought this holdover proceeding, contending that the tenant's breach, by using the premises for residential purposes, forfeited the tenant's option to renew. The Civil Court agreed, and awarded possession to the landlord. The tenant appealed.

In reversing, the Appellate Term observed that neither the current landlord nor its predecessor had served the tenant with a notice to cure or otherwise objected to the tenant's residential use prior to expiration of the tenant's renewal option. Moreover, both the predecessor and the landlord had accepted rent from the tenant with knowledge of residential use. According to the court, this behavior by the landlord prevented the landlord from relying on the tenant's violation of the residential use provision as a basis for rejecting the tenant's exercise of the lease renewal option. As a result, in light of the tenant's timely exercise of its renewal option, the landlord was not entitled to possession, and the tenant was entitled to dismissal of the proceeding.

COMMENT

The landlord's failure to provide tenant with notice of an alleged breach of the lease, coupled with continued acceptance of rent, generally results in landlord's waiver of its right to object to tenant's exercise of a renewal option. In Atkin's Waste Materials, Inc. v. May, 34 N.Y.2d 422, 314 N.E.2d 871 (1974), for instance, the Court of Appeals held that landlord's acceptance of rent with knowledge of a purported breach – in this case the unsanctioned, large-scale burning of scrap materials – effected a waiver of any default arising from the alleged violation. The landlord had not complained of the alleged breach until after tenant had exercised its option to renew, and the court predicated its decision on the landlord's 4-month delay in rejecting the renewal, and its general failure to give the tenant notice to cure, as provided by the lease.

In Jefpaul Garage Corp. v. Presbyterian Hospital in New York, 61 N.Y.2d 442, 462 N.E.2d 1176 (1984), the landlord also accepted rent with knowledge of the tenant's alleged breach, the failure to pay rent and taxes on the subject premises. However, the landlord's immediate rejection of the tenant's renewal attempt, coupled with an unambiguous no-waiver clause in the lease, led the court to reject the tenant's argument that, by waiving its right to terminate the lease, the landlord also waived the right to object to the tenant's renewal. Unlike the landlord in Atkin's, the landlord in Jefpaul made its intent manifest by simultaneously rejecting the renewal attempt and serving the tenant with a notice to cure.

The tenant cannot predicate a waiver claim on landlord's untimely notice if the landlord was unaware of the breach prior to the expiration of a renewal option, and if the lease contains a no-waiver clause. In TSS-Seedman's, Inc. v. Nicholas, 143 A.D.2d 223, 531 N.Y.S.2d 827 (2d Dep't 1988), the landlord was unaware of the tenant's several building, fire and environmental control board violations until after the option expiration date. The tenant argued waiver, but the court found that, where a tenant is not in substantial compliance with the lease terms on the renewal option expiration date and the landlord is unaware of the breach, the no-waiver clause controls, not the timing or lack of notice to the tenant.

DHCR May Rely on DTF's Determination in High-Income Deregulation Petition

London Terrace Gardens v. New York State Division of Housing and Community Renewal

NYLJ 1/19/05, p. 18, col. 3

Supreme Ct., N.Y. Cty

(Goodman, J.)

A landlord brought an article 78 proceeding challenging DHCR's denial of its application of high-income deregulation of the tenants' apartment. The court denied the petition and dismissed the proceeding, holding that DHCR was not required to investigate the tenants' income beyond seeking income verification from the State Department of Taxation and Finance (DTF).

On April 3, 2003, the landlord served an income certification form on the tenants, who returned the form 5days later, certifying an income of less than $175,000. The following month, the landlord served a luxury deregulation petition with DHCR, and sought verification of the tenants' income. In response to DHCR's opportunity to comment, the landlord noted that the tenants had a combined income of $141,000 when they took occupancy in 1998, and that they appeared to remain employed in the same positions as when they took occupancy. The landlord requested that DHCR conduct discovery to determine the tenants' income for the relevant period. In 2004, DHCR notified the landlord and tenants that DTF had concluded that the tenants' income was below $175,000 in each of the 2 relevant years, and gave the parties an opportunity to comment. The landlord again requested discovery. DHCR denied the petition for high-income deregulation, and the commissioner denied the landlord's petition for administrative review. The landlord then brought this article 78 proceeding.

In dismissing the proceeding, the court held that DHCR has neither the authority nor the responsibility to investigate the veracity of tenants' tax returns. The court rejected the landlords' argument that giving conclusive effect to DTF's conclusions about income would give tenants an incentive to deliberately be deceitful in filing of tax returns. Instead, in cases like this one, where DTF can match tenants with tax returns, DHCR's obligation is simply to act on the data provided to it by DTF.

Landlord Must Base Renewal Increase on Preferential Rent When Past Renewals Made No Reference to Higher Legal Regulated Rent

Auto Park, Inc. v. Bugdaycay

NYLJ 1/12/05, p. 21, col. 1

Civil Ct., N.Y. Cty

(Wendt, J.)

In a landlord's summary nonpayment proceeding, both parties sought summary judgment. The court granted the tenant's motion and dismissed the complaint, concluding that the landlord was not entitled to base the tenant's renewal rent on a legal regulated rent higher than the rent the tenant was actually paying, because several past renewals included no indication that the rent actually paid was a preferential rent.

The tenant first leased the premises in 1994 at a monthly rent of $600, pursuant to a lease which stated the legal rent as $932.80, and included a preferential rent rider which stated the preferential rate as $600. Renewal leases executed in 1996, 1998, and 2000 made no reference to legal or preferential rent, and all increases during those years were based on the $600 rent in the 1994 lease. In 2002, however, the tenant executed a renewal which recited both the legal rent of $1168.69 and the lower rent to be charged of $701.91. The following year, in 2003, the Rent Stabilization Law was amended to provide that a landlord could raise the preferential rent to the previously established legal regulated rent upon lease renewal. DHCR interpreted the statute to require, however, that the preferential rent and the legal rent both be established in the lease agreement or renewals for 4 years before a complaint is filed with DHCR. When the tenant's lease expired on Jan. 1, 2004, the landlord sent the tenant a renewal lease with a rent based on the legal regulated rent, not the preferential rent. The tenant did not execute the lease, but remained in possession. The landlord billed the tenant at the new rate, but the tenant did not pay the new higher amount. The landlord then brought this holdover proceeding.

In dismissing the petition, the court concluded that the landlord had not satisfied the conditions necessary for collecting the legal regulated rent. The court first indicated that it would defer to DHCR's interpretation of the statute under which it functions. Under that interpretation, the landlord was not entitled to the higher rent because the leases executed within 4 years before the tenant's challenge did not universally refer to the legal regulated rent and the preferential rent. The original 1994 lease was outside the 4-year rent history period available for the court's consideration. As a result, the landlord was entitled to rent increases based only on the rent it had actually been collecting.

Retention of Rent Checks Does Not Automatically Vitiate Notice of Termination

2-12 Sutter LLC v. Crawford

NYLJ 1/12/05, p. 21, col. 3

Civil Ct., Kings Cty

(Marton, J.)

In a landlord's holdover proceeding, the tenant sought dismissal on the ground that the landlord's retention of the tenant's rent checks had vitiated the notice of termination. The court awarded the landlord a judgment of possession, holding that the landlord's actions did not signify an abandonment of its right to terminate the tenancy.

The landlord purchased the premises in August 2003, and, on Oct. 1, served on the tenants a notice of termination as a predicate to terminating the tenants' month-to-month tenancy. On Dec. 1, the tenants entered into a stipulation of settlement agreeing to vacate by April 30, 2004, and to pay use and occupancy in the interim. Subsequently, the tenants moved to vacate the stipulation, and the case was set for trial. At trial, the tenants contended that they were not month-to-month tenants, but instead were rent-stabilized tenants in a horizontal multiple dwelling. They also contended that the landlord's retention of checks sent on Nov. 5 vitiated the landlord's notice of termination and precluded award of possession to the landlord.

In rejecting the tenants' contentions, the court first held that the subject premises were not a part of a horizontal multiple dwelling because the buildings have separate entrances, with separate certificates of occupancy, and without any common attic or interior hallway. The court then turned to the effect of the landlord's retention of rent checks. The court noted that the tenants had sent the landlord a postal money order on Nov. 5, but had not proven that the money order specified that it was for November rent. Moreover, the tenant owed the landlord back rent at the time the rent check was sent. The court observed that the landlord was entitled to cash any check that did not specify that it was for November rent, and to apply the proceeds to the tenants' arrears. The tenants also sent the landlord a check for $300 that did bear the notation “Rent 11/03″ and the landlord retained that check for several weeks, until after the landlord commenced this proceeding. The court held, however, that retention of this check did not constitute an unmistakable manifestation of the landlord's intent to reinstate the tenancy. The court held retention to be an equivocal act, insufficient to establish an intent to reinstate, especially when combined with the landlord's quick action to terminate the tenancy upon purchase of the building. Hence, the court held that the landlord did not voluntarily abandon its right to terminate the tenancy.

Landlord Waived Breach That Would Prevent Exercise of Termination Rights

Freeman Street Properties, LLC v. Thelian

NYLJ 12/30/04, p. 31, col. 4

AppTerm. 2nd & 11th Districts

(2-1 decision; memorandum opinion)

In a landlord's commercial holdover proceeding, the tenant appealed from the Civil Court's judgment awarding possession to the landlord. The Appellate Term reversed and dismissed the petition, holding that the tenant had timely exercised his renew, and that the landlord had waived any breach that would otherwise prevent the tenant from exercising his renewal right.

The subject premises are located in an area where zoning regulations do not permit residential use. The landlord's predecessor leased the premises to the tenant for a 5-year term that expired on July 31, 2000. The lease included a provision giving the tenant an option to renew, but prohibited residential use. The tenant nevertheless used the premises for residential purposes, and introduced evidence that the landlord's predecessor had been cited for violations resulting from residential use of various apartments in the building. In April 2000, the tenant sent the landlord's predecessor timely exercising its option to renew, but the landlord's predecessor did not acknowledge that exercise. Instead, in September 2000, the predecessor sold the building to the landlord, who subsequently brought this holdover proceeding, contending that the tenant's breach, by using the premises for residential purposes, forfeited the tenant's option to renew. The Civil Court agreed, and awarded possession to the landlord. The tenant appealed.

In reversing, the Appellate Term observed that neither the current landlord nor its predecessor had served the tenant with a notice to cure or otherwise objected to the tenant's residential use prior to expiration of the tenant's renewal option. Moreover, both the predecessor and the landlord had accepted rent from the tenant with knowledge of residential use. According to the court, this behavior by the landlord prevented the landlord from relying on the tenant's violation of the residential use provision as a basis for rejecting the tenant's exercise of the lease renewal option. As a result, in light of the tenant's timely exercise of its renewal option, the landlord was not entitled to possession, and the tenant was entitled to dismissal of the proceeding.

COMMENT

The landlord's failure to provide tenant with notice of an alleged breach of the lease, coupled with continued acceptance of rent, generally results in landlord's waiver of its right to object to tenant's exercise of a renewal option. In Atkin's Waste Materials, Inc. v. May, 34 N.Y.2d 422, 314 N.E.2d 871 (1974), for instance, the Court of Appeals held that landlord's acceptance of rent with knowledge of a purported breach – in this case the unsanctioned, large-scale burning of scrap materials – effected a waiver of any default arising from the alleged violation. The landlord had not complained of the alleged breach until after tenant had exercised its option to renew, and the court predicated its decision on the landlord's 4-month delay in rejecting the renewal, and its general failure to give the tenant notice to cure, as provided by the lease.

In Jefpaul Garage Corp. v. Presbyterian Hospital in New York , 61 N.Y.2d 442, 462 N.E.2d 1176 (1984), the landlord also accepted rent with knowledge of the tenant's alleged breach, the failure to pay rent and taxes on the subject premises. However, the landlord's immediate rejection of the tenant's renewal attempt, coupled with an unambiguous no-waiver clause in the lease, led the court to reject the tenant's argument that, by waiving its right to terminate the lease, the landlord also waived the right to object to the tenant's renewal. Unlike the landlord in Atkin's, the landlord in Jefpaul made its intent manifest by simultaneously rejecting the renewal attempt and serving the tenant with a notice to cure.

The tenant cannot predicate a waiver claim on landlord's untimely notice if the landlord was unaware of the breach prior to the expiration of a renewal option, and if the lease contains a no-waiver clause. In TSS-Seedman's, Inc. v. Nicholas, 143 A.D.2d 223, 531 N.Y.S.2d 827 (2d Dep't 1988), the landlord was unaware of the tenant's several building, fire and environmental control board violations until after the option expiration date. The tenant argued waiver, but the court found that, where a tenant is not in substantial compliance with the lease terms on the renewal option expiration date and the landlord is unaware of the breach, the no-waiver clause controls, not the timing or lack of notice to the tenant.

DHCR May Rely on DTF's Determination in High-Income Deregulation Petition

London Terrace Gardens v. New York State Division of Housing and Community Renewal

NYLJ 1/19/05, p. 18, col. 3

Supreme Ct., N.Y. Cty

(Goodman, J.)

A landlord brought an article 78 proceeding challenging DHCR's denial of its application of high-income deregulation of the tenants' apartment. The court denied the petition and dismissed the proceeding, holding that DHCR was not required to investigate the tenants' income beyond seeking income verification from the State Department of Taxation and Finance (DTF).

On April 3, 2003, the landlord served an income certification form on the tenants, who returned the form 5days later, certifying an income of less than $175,000. The following month, the landlord served a luxury deregulation petition with DHCR, and sought verification of the tenants' income. In response to DHCR's opportunity to comment, the landlord noted that the tenants had a combined income of $141,000 when they took occupancy in 1998, and that they appeared to remain employed in the same positions as when they took occupancy. The landlord requested that DHCR conduct discovery to determine the tenants' income for the relevant period. In 2004, DHCR notified the landlord and tenants that DTF had concluded that the tenants' income was below $175,000 in each of the 2 relevant years, and gave the parties an opportunity to comment. The landlord again requested discovery. DHCR denied the petition for high-income deregulation, and the commissioner denied the landlord's petition for administrative review. The landlord then brought this article 78 proceeding.

In dismissing the proceeding, the court held that DHCR has neither the authority nor the responsibility to investigate the veracity of tenants' tax returns. The court rejected the landlords' argument that giving conclusive effect to DTF's conclusions about income would give tenants an incentive to deliberately be deceitful in filing of tax returns. Instead, in cases like this one, where DTF can match tenants with tax returns, DHCR's obligation is simply to act on the data provided to it by DTF.

Landlord Must Base Renewal Increase on Preferential Rent When Past Renewals Made No Reference to Higher Legal Regulated Rent

Auto Park, Inc. v. Bugdaycay

NYLJ 1/12/05, p. 21, col. 1

Civil Ct., N.Y. Cty

(Wendt, J.)

In a landlord's summary nonpayment proceeding, both parties sought summary judgment. The court granted the tenant's motion and dismissed the complaint, concluding that the landlord was not entitled to base the tenant's renewal rent on a legal regulated rent higher than the rent the tenant was actually paying, because several past renewals included no indication that the rent actually paid was a preferential rent.

The tenant first leased the premises in 1994 at a monthly rent of $600, pursuant to a lease which stated the legal rent as $932.80, and included a preferential rent rider which stated the preferential rate as $600. Renewal leases executed in 1996, 1998, and 2000 made no reference to legal or preferential rent, and all increases during those years were based on the $600 rent in the 1994 lease. In 2002, however, the tenant executed a renewal which recited both the legal rent of $1168.69 and the lower rent to be charged of $701.91. The following year, in 2003, the Rent Stabilization Law was amended to provide that a landlord could raise the preferential rent to the previously established legal regulated rent upon lease renewal. DHCR interpreted the statute to require, however, that the preferential rent and the legal rent both be established in the lease agreement or renewals for 4 years before a complaint is filed with DHCR. When the tenant's lease expired on Jan. 1, 2004, the landlord sent the tenant a renewal lease with a rent based on the legal regulated rent, not the preferential rent. The tenant did not execute the lease, but remained in possession. The landlord billed the tenant at the new rate, but the tenant did not pay the new higher amount. The landlord then brought this holdover proceeding.

In dismissing the petition, the court concluded that the landlord had not satisfied the conditions necessary for collecting the legal regulated rent. The court first indicated that it would defer to DHCR's interpretation of the statute under which it functions. Under that interpretation, the landlord was not entitled to the higher rent because the leases executed within 4 years before the tenant's challenge did not universally refer to the legal regulated rent and the preferential rent. The original 1994 lease was outside the 4-year rent history period available for the court's consideration. As a result, the landlord was entitled to rent increases based only on the rent it had actually been collecting.

Retention of Rent Checks Does Not Automatically Vitiate Notice of Termination

2-12 Sutter LLC v. Crawford

NYLJ 1/12/05, p. 21, col. 3

Civil Ct., Kings Cty

(Marton, J.)

In a landlord's holdover proceeding, the tenant sought dismissal on the ground that the landlord's retention of the tenant's rent checks had vitiated the notice of termination. The court awarded the landlord a judgment of possession, holding that the landlord's actions did not signify an abandonment of its right to terminate the tenancy.

The landlord purchased the premises in August 2003, and, on Oct. 1, served on the tenants a notice of termination as a predicate to terminating the tenants' month-to-month tenancy. On Dec. 1, the tenants entered into a stipulation of settlement agreeing to vacate by April 30, 2004, and to pay use and occupancy in the interim. Subsequently, the tenants moved to vacate the stipulation, and the case was set for trial. At trial, the tenants contended that they were not month-to-month tenants, but instead were rent-stabilized tenants in a horizontal multiple dwelling. They also contended that the landlord's retention of checks sent on Nov. 5 vitiated the landlord's notice of termination and precluded award of possession to the landlord.

In rejecting the tenants' contentions, the court first held that the subject premises were not a part of a horizontal multiple dwelling because the buildings have separate entrances, with separate certificates of occupancy, and without any common attic or interior hallway. The court then turned to the effect of the landlord's retention of rent checks. The court noted that the tenants had sent the landlord a postal money order on Nov. 5, but had not proven that the money order specified that it was for November rent. Moreover, the tenant owed the landlord back rent at the time the rent check was sent. The court observed that the landlord was entitled to cash any check that did not specify that it was for November rent, and to apply the proceeds to the tenants' arrears. The tenants also sent the landlord a check for $300 that did bear the notation “Rent 11/03″ and the landlord retained that check for several weeks, until after the landlord commenced this proceeding. The court held, however, that retention of this check did not constitute an unmistakable manifestation of the landlord's intent to reinstate the tenancy. The court held retention to be an equivocal act, insufficient to establish an intent to reinstate, especially when combined with the landlord's quick action to terminate the tenancy upon purchase of the building. Hence, the court held that the landlord did not voluntarily abandon its right to terminate the tenancy.