Landlord & Tenant

Eastside Exhibition Corp. v. 210 East 86th Street Corp.

NYLJ 9/22/05, p. 18, col. 1

AppDiv, First Dept

(Opinion by Ellerin, J.)

In an action by tenant seeking a full abatement of rent plus compensatory and punitive damages, tenant appealed from Supreme Court's dismissal of its claims. The Appellate Division modified, holding that landlord's minimal interference with tenant's occupation of the leased space did not entitle tenant to a full abatement, but did entitle tenant to a partial rent abatement reflecting the damage tenant suffered.

Tenant leased two stories, configured as a “quad” movie theater, in landlord's seven-story retail and office building. The lease, which commenced in 1998 and runs through 2016, entitles landlord to access for repairs and improvements, and provides that there will be no abatement in rent while such work is in progress. In 2002, without notice to tenant, landlord entered the leased premises and installed cross-bracing between two existing steel columns to provide support for adding two stories to the building. The cross-bracing occupies space between the two theaters and the concession space on the first floor, and displaces a portion of an informal seating area on the second floor. In response to landlord's action, tenant stopped paying rent and brought this action seeking a permanent injunction against further work in the theater, directing landlord to remove the existing work, and seeking a full abatement of rent together with $1 million in compensatory damages and $3 million in punitive damages. After a non-jury trial, the Supreme Court noted that landlord's action deprived tenant of 12 square feet of space out of a total of between 15,000 and 19,000 square feet. The court concluded that the repair provisions in the lease did not authorize landlord to occupy permanently any portion of the leased premises, but concluded that the taking of such a minute area of the premises did not entitle tenant to a complete abatement of rent for a partial actual eviction.

In modifying, the Appellate Division agreed with the Supreme Court that the case called for an exception to the rule permitting complete abatement of rent in cases of partial actual eviction. The court concluded that this rule would be harsh and oppressive toward landlord on the facts of the case, and held that tenant was instead entitled to a partial rent abatement. The court remanded for a hearing to determine the extent of the abatement.

COMMENT

Fifth Ave. Bldg. Co. v Kernochan, 221 N.Y. 370 is often cited for the rule that a partial actual eviction by landlord suspends tenant's obligation to pay any rent because there is a failure of the consideration for which rent is paid. In Fifth Ave. Bldg. Co., tenant withheld rent payments after being excluded from a vault on the leased premises. In an action by landlord to collect unpaid rent, tenant asserted partial eviction as a defense and demanded that rent be abated in proportion to the diminished rental value of the premises. After finding that landlord had actually evicted tenant, the court affirmed the order overruling a demurrer to the answer, thereby recognizing that tenant could make out a defense of partial actual eviction. The court went on to state in dictum that tenant should be entitled to a complete abatement of rent so as to prevent landlord from being able to apportion his own wrong. Id.

A few courts have applied the language from Fifth Ave. Bldg. Co. to find a partial actual eviction and therefore allow tenant to remain on the premises rent-free. See Broadway-Spring St. Corp. v. Jack Berens Export Corp., 12 Misc. 2d 460 (dismissing landlord's action for nonpayment of rent for 2 months during which tenant and undertenant were actually evicted from a freight elevator and mezzanine floor that were reasonably necessary and essential to the beneficial enjoyment of the premises).

In general, courts have imposed a high threshold for finding partial actual eviction because of the draconian effect that total rent abatement will have on landlord. See Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77, 82 (1970), (finding that landlord's alleged failure to provide commercial tenant with proper ventilation substantially reduced the beneficial use of the premises but did not constitute actual eviction because tenant was not physically expelled or excluded from the premises). In 41st RKC Tribune Associates, v. Small Computer Co., 130 Misc. 2d 231 (1985), commercial tenant leased two rooms in an office building for his computer business which required access 24 hours a day, 7 days a week. After landlord changed the lock to the building entrance and refused to give tenant a new key, tenant was forced to rely on the often-unreliable porter for ingress and egress during non-business hours. In a nonpayment action brought by landlord, the court recognized that denial of access by refusal to give a key is a classic form of partial actual eviction. However, the court held that landlord's interference with tenant's access to the building did not amount to partial actual eviction in this case because the circumstances did not warrant imposing the drastic sanction of total abatement.

By contrast, in recent cases where landlord has appropriated a de minimis portion of the leased premises, courts have been willing, despite the dictum in Fifth Avenue Bldg Co., to find partial actual eviction and award tenant a partial abatement of rent. Thus, in 81 Franklin Co. v Ginaccini, 160 A.D.2d 558, 559, landlord's construction of a new elevator adversely affected tenant's use of the leased premises as an art studio. Throughout the construction period, tenant was deprived of one half of the gallery space comprising 25% of the total space. However, once the construction was completed, tenant had lost only 1% of the total leased premises. In a nonpayment action brought by landlord, the court granted a partial abatement to the extent of tenant's deprivation.

Landlord Who Fails to Exercise Option to Terminate Must Accept Section 8 Payments

7 Highland Management Corp. v. McCray

NYLJ 10/3/05, p. 27, col. 4

AppTerm, 9th & 10th Districts

(memorandum opinion)

In landlord's summary nonpayment proceeding, tenant appealed from an order of the Yonkers City Court denying tenant's motion to dismiss the petition and to compel landlord to accept section 8 housing assistance payments. The Appellate Term modified to dismiss the petition, holding that landlord had failed to exercise any option to refuse to accept “section 8″ payments.

Tenant qualified for housing assistance under the federal section 8 program. Under the terms of tenant's original 1983 lease with landlord's predecessor, the predecessor agreed to accept payments from the local section 8 administrator for the section 8 share of tenant's rent. That lease also provided that tenant would pay only the tenant share of the rent. Landlord's predecessor, and then landlord, renewed tenant's leases annually on the same terms and conditions as the expiring leases. Landlord then decided not to accept section 8 payments, and brought this nonpayment proceeding when tenant did not pay the full rent for the apartment. Yonkers City Court denied tenant's motion to dismiss.

In modifying and dismissing the petition, the court noted that even if the 1996 and 1998 amendments to the United States Housing Act (42 USC sec. 1437 et seq) permitted a landlord to terminate its participation in the section 8 program at the end of a tenant's lease, landlord had not in this case exercised any option to terminate. Instead, by renewing previous leases on the same terms, landlord had effectively agreed to continue accepting section 8 payments. As a result, tenant had not defaulted in any payment of rent, and tenant was entitled to dismissal of the nonpayment proceeding. The court concluded, however, that the equitable relief sought by tenant — compelling landlord to accept section 8 payments — was not available in a summary proceeding brought in Yonkers City Court. As a result, the court denied that branch of tenant's motion.

Illegal Loft Contract Precludes Use and Occupancy Award

Kee Yip Realty Corp. v. Wolinsky

NYLJ 10/7/05, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Tolub, J.)

In landlord's action for possession, use and occupancy, real estate taxes, and legal fees, landlord moved for summary judgment. The court granted landlord summary judgment for possession, but granted summary judgment to tenant on the other claims, holding that the illegality of the lease precluded landlord from recovery of money.

In 1997, landlord leased the subject space to tenant for commercial use. At the expiration of the lease, tenant refused to leave, and brought an action for a declaration that the premises were subject to rent stabilization protection. That action ultimately resulted in a decision by the Court of Appeals that because the premises were incapable of becoming legalized residential apartments, they could not be subject to rent stabilization protection. Meanwhile, landlord brought a commercial holdover proceeding against tenant, but Civil Court dismissed the petition on the ground that the premises had been knowingly used for residential purposes. Landlord then brought this action seeking possession, use and occupancy, real estate taxes, and legal fees. Landlord moved for summary judgment.

The court noted that the premises could not legally be occupied for residential purposes, and held, therefore, that landlord was entitled to summary judgment on its possession claim. On the other claims, however, the court searched the record and concluded that tenant was entitled o summary judgment, even without a motion, because the lease was an illegal contract, and its provisions for payment of rent, taxes, and legal fees could not therefore be enforced against tenant.

Four-Year Rule Does Not Bar Challenge to Longevity Increases

Matter of Ador Realty, LLC v. DHCR

NYLJ 10/12/05, p. 18, col. 1

AppDiv, Second Dept

(Opinion by Spolzino, J.)

In landlord's article 78 proceeding challenging DHCR's determination sustaining tenant's rent overcharge complaint, DHCR appealed from Supreme Court's grant of landlord's petition. The Appellate Division modified, holding that DHCR could consider an 11-year-old rent registration statement in evaluating landlord's application for a longevity increase.

Tenant leased the subject rent-stabilized apartment in 1999, and filed a rent overcharge complaint 2 years later. In response to the complaint, landlord purported to justify the rent on the basis of a 1978 lease, together with longevity and major capital improvement increases. The Rent Regulation Reform Act of 1997 entitles landlord, upon vacancy, to a 20% increase plus, whenever there has not been a vacancy increase for 8 years or more, a longevity increase amounting to .6% per year for each year since the previous vacancy increase. On the basis of this statute, landlord sought an increase of .6% for each of 21 years. Tenant, however, submitted a 1990 rent registration statement reflecting a change in tenancy in 1989. Tenant, therefore, argued that landlord was entitled to a longevity increase for only 9 years. Landlord objected, based on Rent Stabilization Law sec. 26-516(a)(2), which prohibits DHCR from examining rental history of the housing accommodation prior to the 4-year period preceding the filing of a rent overcharge complaint. DHCR rejected landlord's contention, concluded that landlord had overcharged tenant, and assessed permanent damages. (DHCR also rejected landlord's major capital improvement increase, based on the visit of an inspector, who found no evidence of new plywood or walls in the kitchen and bedroom). Landlord then brought this article 78 proceeding. Supreme Court granted the petition, holding that DHCR was not entitled to consider the 1990 rent registration statement because it had been filed more than 4 years before the date of the overcharge complaint. DHCR appealed.

In modifying, the Appellate Division acknowledged that the statutes included “apparently irreconcilable commands.” The court went on to hold, however, that the approach least inconsistent with legislative intent is “to read the 4-year rule as not applying to longevity increase determinations.” As a result, the court concluded that DHCR was entitled to consider the 1990 registration statement. The court did hold, however, that DHCR had improperly relied on the inspector's visit with respect to major capital improvements. As a result, the court remanded to DHCR to recalculate the amount of the overcharge. The court did, however, sustain DHCR's determination to award treble damages.

ERRATUM

In the October 2005 Issue, Volume 19, Number 11, p. 8, the summary of Duane Reade v. 405 Lexington inadvertently referred to section 5-321 of the General Business Law. The citation should have been to the General Obligations Law. We regret the error.

Tenant Entitled to Partial Abatement for Partial Actual Eviction

Eastside Exhibition Corp. v. 210 East 86th Street Corp.

NYLJ 9/22/05, p. 18, col. 1

AppDiv, First Dept

(Opinion by Ellerin, J.)

In an action by tenant seeking a full abatement of rent plus compensatory and punitive damages, tenant appealed from Supreme Court's dismissal of its claims. The Appellate Division modified, holding that landlord's minimal interference with tenant's occupation of the leased space did not entitle tenant to a full abatement, but did entitle tenant to a partial rent abatement reflecting the damage tenant suffered.

Tenant leased two stories, configured as a “quad” movie theater, in landlord's seven-story retail and office building. The lease, which commenced in 1998 and runs through 2016, entitles landlord to access for repairs and improvements, and provides that there will be no abatement in rent while such work is in progress. In 2002, without notice to tenant, landlord entered the leased premises and installed cross-bracing between two existing steel columns to provide support for adding two stories to the building. The cross-bracing occupies space between the two theaters and the concession space on the first floor, and displaces a portion of an informal seating area on the second floor. In response to landlord's action, tenant stopped paying rent and brought this action seeking a permanent injunction against further work in the theater, directing landlord to remove the existing work, and seeking a full abatement of rent together with $1 million in compensatory damages and $3 million in punitive damages. After a non-jury trial, the Supreme Court noted that landlord's action deprived tenant of 12 square feet of space out of a total of between 15,000 and 19,000 square feet. The court concluded that the repair provisions in the lease did not authorize landlord to occupy permanently any portion of the leased premises, but concluded that the taking of such a minute area of the premises did not entitle tenant to a complete abatement of rent for a partial actual eviction.

In modifying, the Appellate Division agreed with the Supreme Court that the case called for an exception to the rule permitting complete abatement of rent in cases of partial actual eviction. The court concluded that this rule would be harsh and oppressive toward landlord on the facts of the case, and held that tenant was instead entitled to a partial rent abatement. The court remanded for a hearing to determine the extent of the abatement.

COMMENT

Fifth Ave. Bldg. Co. v Kernochan, 221 N.Y. 370 is often cited for the rule that a partial actual eviction by landlord suspends tenant's obligation to pay any rent because there is a failure of the consideration for which rent is paid. In Fifth Ave. Bldg. Co., tenant withheld rent payments after being excluded from a vault on the leased premises. In an action by landlord to collect unpaid rent, tenant asserted partial eviction as a defense and demanded that rent be abated in proportion to the diminished rental value of the premises. After finding that landlord had actually evicted tenant, the court affirmed the order overruling a demurrer to the answer, thereby recognizing that tenant could make out a defense of partial actual eviction. The court went on to state in dictum that tenant should be entitled to a complete abatement of rent so as to prevent landlord from being able to apportion his own wrong. Id.

A few courts have applied the language from Fifth Ave. Bldg. Co. to find a partial actual eviction and therefore allow tenant to remain on the premises rent-free. See Broadway-Spring St. Corp. v. Jack Berens Export Corp., 12 Misc. 2d 460 (dismissing landlord's action for nonpayment of rent for 2 months during which tenant and undertenant were actually evicted from a freight elevator and mezzanine floor that were reasonably necessary and essential to the beneficial enjoyment of the premises).

In general, courts have imposed a high threshold for finding partial actual eviction because of the draconian effect that total rent abatement will have on landlord. See Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77, 82 (1970), (finding that landlord's alleged failure to provide commercial tenant with proper ventilation substantially reduced the beneficial use of the premises but did not constitute actual eviction because tenant was not physically expelled or excluded from the premises). In 41st RKC Tribune Associates, v. Small Computer Co., 130 Misc. 2d 231 (1985), commercial tenant leased two rooms in an office building for his computer business which required access 24 hours a day, 7 days a week. After landlord changed the lock to the building entrance and refused to give tenant a new key, tenant was forced to rely on the often-unreliable porter for ingress and egress during non-business hours. In a nonpayment action brought by landlord, the court recognized that denial of access by refusal to give a key is a classic form of partial actual eviction. However, the court held that landlord's interference with tenant's access to the building did not amount to partial actual eviction in this case because the circumstances did not warrant imposing the drastic sanction of total abatement.

By contrast, in recent cases where landlord has appropriated a de minimis portion of the leased premises, courts have been willing, despite the dictum in Fifth Avenue Bldg Co., to find partial actual eviction and award tenant a partial abatement of rent. Thus, in 81 Franklin Co. v Ginaccini, 160 A.D.2d 558, 559, landlord's construction of a new elevator adversely affected tenant's use of the leased premises as an art studio. Throughout the construction period, tenant was deprived of one half of the gallery space comprising 25% of the total space. However, once the construction was completed, tenant had lost only 1% of the total leased premises. In a nonpayment action brought by landlord, the court granted a partial abatement to the extent of tenant's deprivation.

Landlord Who Fails to Exercise Option to Terminate Must Accept Section 8 Payments

7 Highland Management Corp. v. McCray

NYLJ 10/3/05, p. 27, col. 4

AppTerm, 9th & 10th Districts

(memorandum opinion)

In landlord's summary nonpayment proceeding, tenant appealed from an order of the Yonkers City Court denying tenant's motion to dismiss the petition and to compel landlord to accept section 8 housing assistance payments. The Appellate Term modified to dismiss the petition, holding that landlord had failed to exercise any option to refuse to accept “section 8″ payments.

Tenant qualified for housing assistance under the federal section 8 program. Under the terms of tenant's original 1983 lease with landlord's predecessor, the predecessor agreed to accept payments from the local section 8 administrator for the section 8 share of tenant's rent. That lease also provided that tenant would pay only the tenant share of the rent. Landlord's predecessor, and then landlord, renewed tenant's leases annually on the same terms and conditions as the expiring leases. Landlord then decided not to accept section 8 payments, and brought this nonpayment proceeding when tenant did not pay the full rent for the apartment. Yonkers City Court denied tenant's motion to dismiss.

In modifying and dismissing the petition, the court noted that even if the 1996 and 1998 amendments to the United States Housing Act (42 USC sec. 1437 et seq) permitted a landlord to terminate its participation in the section 8 program at the end of a tenant's lease, landlord had not in this case exercised any option to terminate. Instead, by renewing previous leases on the same terms, landlord had effectively agreed to continue accepting section 8 payments. As a result, tenant had not defaulted in any payment of rent, and tenant was entitled to dismissal of the nonpayment proceeding. The court concluded, however, that the equitable relief sought by tenant — compelling landlord to accept section 8 payments — was not available in a summary proceeding brought in Yonkers City Court. As a result, the court denied that branch of tenant's motion.

Illegal Loft Contract Precludes Use and Occupancy Award

Kee Yip Realty Corp. v. Wolinsky

NYLJ 10/7/05, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Tolub, J.)

In landlord's action for possession, use and occupancy, real estate taxes, and legal fees, landlord moved for summary judgment. The court granted landlord summary judgment for possession, but granted summary judgment to tenant on the other claims, holding that the illegality of the lease precluded landlord from recovery of money.

In 1997, landlord leased the subject space to tenant for commercial use. At the expiration of the lease, tenant refused to leave, and brought an action for a declaration that the premises were subject to rent stabilization protection. That action ultimately resulted in a decision by the Court of Appeals that because the premises were incapable of becoming legalized residential apartments, they could not be subject to rent stabilization protection. Meanwhile, landlord brought a commercial holdover proceeding against tenant, but Civil Court dismissed the petition on the ground that the premises had been knowingly used for residential purposes. Landlord then brought this action seeking possession, use and occupancy, real estate taxes, and legal fees. Landlord moved for summary judgment.

The court noted that the premises could not legally be occupied for residential purposes, and held, therefore, that landlord was entitled to summary judgment on its possession claim. On the other claims, however, the court searched the record and concluded that tenant was entitled o summary judgment, even without a motion, because the lease was an illegal contract, and its provisions for payment of rent, taxes, and legal fees could not therefore be enforced against tenant.

Four-Year Rule Does Not Bar Challenge to Longevity Increases

Matter of Ador Realty, LLC v. DHCR

NYLJ 10/12/05, p. 18, col. 1

AppDiv, Second Dept

(Opinion by Spolzino, J.)

In landlord's article 78 proceeding challenging DHCR's determination sustaining tenant's rent overcharge complaint, DHCR appealed from Supreme Court's grant of landlord's petition. The Appellate Division modified, holding that DHCR could consider an 11-year-old rent registration statement in evaluating landlord's application for a longevity increase.

Tenant leased the subject rent-stabilized apartment in 1999, and filed a rent overcharge complaint 2 years later. In response to the complaint, landlord purported to justify the rent on the basis of a 1978 lease, together with longevity and major capital improvement increases. The Rent Regulation Reform Act of 1997 entitles landlord, upon vacancy, to a 20% increase plus, whenever there has not been a vacancy increase for 8 years or more, a longevity increase amounting to .6% per year for each year since the previous vacancy increase. On the basis of this statute, landlord sought an increase of .6% for each of 21 years. Tenant, however, submitted a 1990 rent registration statement reflecting a change in tenancy in 1989. Tenant, therefore, argued that landlord was entitled to a longevity increase for only 9 years. Landlord objected, based on Rent Stabilization Law sec. 26-516(a)(2), which prohibits DHCR from examining rental history of the housing accommodation prior to the 4-year period preceding the filing of a rent overcharge complaint. DHCR rejected landlord's contention, concluded that landlord had overcharged tenant, and assessed permanent damages. (DHCR also rejected landlord's major capital improvement increase, based on the visit of an inspector, who found no evidence of new plywood or walls in the kitchen and bedroom). Landlord then brought this article 78 proceeding. Supreme Court granted the petition, holding that DHCR was not entitled to consider the 1990 rent registration statement because it had been filed more than 4 years before the date of the overcharge complaint. DHCR appealed.

In modifying, the Appellate Division acknowledged that the statutes included “apparently irreconcilable commands.” The court went on to hold, however, that the approach least inconsistent with legislative intent is “to read the 4-year rule as not applying to longevity increase determinations.” As a result, the court concluded that DHCR was entitled to consider the 1990 registration statement. The court did hold, however, that DHCR had improperly relied on the inspector's visit with respect to major capital improvements. As a result, the court remanded to DHCR to recalculate the amount of the overcharge. The court did, however, sustain DHCR's determination to award treble damages.