Landlord & Tenant

Court Not Entitled to Consider Facts Arising After DHCR's Final Determination

Matter of Rizzo v. New York State Division of Housing and Commun-ity Renewal (DHCR)

NYLJ 1/3/06, p. 18, col. 3

Court of Appeals

(6-1 decision; majority opinion by Rosenblatt, J; dissenting opinion by Ciparick, J.)

In tenant's article 78 proceeding, tenant appealed from an Appellate Division order reversing Supreme Court's grant of the petition seeking de novo review of DHCR's order entitling landlord to partial eviction. The Court of Appeals affirmed, holding that Supreme Court was not entitled to remand for de novo review based on facts that arose after DHCR issues its determination.

Landlord owns a four-story apartment building. Landlord occupies one floor, and another floor was occupied by a market-rent tenant, and the remaining two floors were occupied by rent-regulated tenants — petitioner Rizzo and Bloedow, whose death precipitated the Supreme Court's decision. Landlord sought partial eviction of Rizzo and Bloedow from their large floor-though apartments so that landlord could create a new duplex apartment. Landlord's request was based on her inability to make an 8.5% return on the property's assessed value. (NYC Administrative Code, sec. 26-408(b)(5)(a)). DHCR granted landlord's request, and Rizzo and Bloedow both filed petitions for administrative review. DHCR denied those petitions. The following day, Bloedow died. Rizzo then brought this proceeding, seeking reversal of DCHR's determination on the ground that Bloedow's death would enable landlord to realize an adequate return even without construction of the new apartment. Supreme Court ordered DHCR to reprocess landlord's application. DHCR appealed, and the Appellate Division reversed, prompting this appeal by tenant.

In affirming the Appellate Division's order, the Court of Appeals rejected tenant's reliance on section 26-411(a)(2) of the Administrative Code, which includes a limited exception that permits a court to consider introduction of evidence that could not reasonably have been offered in proceedings before the city rent agency. The Court of Appeals held that the code provision should not be read to permit a court to engage in de novo review based on events that take place after the agency made its determination. Because DHCR's determination was made on landlord's inability to make an adequate return in 1996, Bloedow's death in 2002 was irrelevant to DHCR's determination, and Supreme Court erred in considering that death.

Judge Ciparick dissented, relying on section 26-411 and arguing that its language should be read liberally. In particular, she noted that the eviction provision was designed only to remedy extreme hardship, which might no longer have existed after Bloedow's death.

Lease Terms Preclude Landlord from Withholding Consent to Assignment

Vanderbilt Holdings, LLC v. Greenpoint-Goldman Corp.

NYLJ 12/28/05, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Cahn, J.)

In tenant's action for a declaration that tenant is free to assign its leasehold interest, and for damages, landlord moved to dismiss the complaint. The court granted landlord's motion with respect to the claims for monetary relief, but denied the motion with respect to the declaratory claims, concluding that the express terms of the lease permitted assignment when the proposed assignee met specified conditions.

In 2000, landlord leased to tenant for a 77-year period. Article 12 of the lease provided that tenant could assign its interest with landlord's prior consent, and also provided that landlord could not withhold consent if: 1) the assignee or its guarantors had a net worth of at least $35 million; and 2) tenant was not in default on the lease. The lease also provided that an assignment would not be effective until landlord gave consent. Article 38 of the lease provided that tenant waived claims against landlord for unreasonably withholding or delaying consent, and agreed that its sole remedy would be an action for specific performance, injunction, or declaratory relief. Another provision of the lease prohibited tenant from using the property for rentals to rent-regulated tenants. On March 4, 2005, tenant requested consent to an assignment to an assignee whose principal was willing to guarantee the lease obligations, and whose net worth was in excess of $35 million. Landlord refused consent, and tenant brought this action. Landlord moved to dismiss the complaint.

In granting landlord's motion with respect to the claims for restitution, rescission, breach of the implied covenant of good faith and fair dealing, and intentional interference with contract, the court relied on article 38, and concluded that tenant had waived the right to bring such claims. At the same time, the court denied landlord's motion with respect to the claims for declaratory relief. The court rejected landlord's argument that the lease as a whole permitted landlord to withhold consent from an assignee who planned to rent to rent-regulated tenants in violation of the lease's provisions. The court emphasized that article 12 was clear in setting forth clear provisions with respect to landlord's consent, and noted that landlord's remedy for breach of other provisions of the lease would be a remedy against the assignee.

COMMENT

A landlord can arbitrarily refuse to consent to a lease assignment when the lease requires landlord's prior approval and does not impose any constraint on landlord's power to withhold consent. In Dress Shirt Sales, Inc. v. Hotel Martinique Associates, 12 N.Y.2d 339, the Court of Appeals held that landlord could arbitrarily deny tenant the right to assign its lease because the lease required landlord's consent and was silent regarding how landlord's determination should be made. In that case, when tenant sought permission to assign, the landlord refused consent on the ground that the proposed assignee was unsuitable. Tenant then paid landlord $30,000 to agree to cancellation of the lease, whereupon landlord executed a new lease to the proposed assignee at more rent than tenant had previously been paying. The court held that tenant was not entitled to return of the $30,000, because landlord had an absolute right to refuse consent to the assignment

A landlord cannot arbitrarily refuse consent when the lease provides that landlord's consent shall not be unreasonably withheld. Thus, in Astoria Bedding, Mr. Sleeper Bedding Center Inc. v. Northside Partnership, 239 A.D.2d 775, the court awarded tenant a declaratory judgment that landlord's refusal to consent was unreasonable when the proposed assignee was financially responsible and suitable for the building. The lease specified that tenant could use the property only as a retail bedding, home furnishing, and accessory business. When tenant sought to assign to an assignee who would have used the store for other purposes, the landlord refused, but the court held the refusal unreasonable because it was not predicated upon consideration of objective factors. But in Gladliz v. Castiron Court Corp., 177 Misc.2d 392, the court held that landlord's refusal to consent to tenant's assignment was reasonable because tenant was in default of its financial obligation, which according to the lease, prohibited tenant from assigning its lease.

Courts do not imply restrictions on assignment unless the lease makes it clear that landlord relied on particular characteristics of the original tenant, generally evidenced by a lease in which landlord's rent was based in large measure on the success of tenant's business. Thus, in Nassau Hotel Co. v. Barnett & Barse Corp., 212 N.Y. 568, where the court held that an implied covenant against assignment existed when landlord's decision to lease the hotel was predicated on the tenants' hotel management experience, and where landlord's compensation was solely based on the gross receipts of the hotel. By contrast, in Rowe v.Great Atlantic & Pacific Tea Company Inc., 46 N.Y.2d 62, the Court of Appeals refused permit landlord to repossess leased property as a result of tenant's alleged violation of an implied covenant against assignment. The court refused to imply a covenant limiting assignment, despite a clause entitling landlord to a percentage of tenant's sales, because the original tenant's sales were not sufficient to trigger the percentage rent clause, and because a reasonable landlord could easily have entered into the lease without an understanding that tenant's freedom to assign was restricted.

Court Not Entitled to Consider Facts Arising After DHCR's Final Determination

Matter of Rizzo v. New York State Division of Housing and Commun-ity Renewal (DHCR)

NYLJ 1/3/06, p. 18, col. 3

Court of Appeals

(6-1 decision; majority opinion by Rosenblatt, J; dissenting opinion by Ciparick, J.)

In tenant's article 78 proceeding, tenant appealed from an Appellate Division order reversing Supreme Court's grant of the petition seeking de novo review of DHCR's order entitling landlord to partial eviction. The Court of Appeals affirmed, holding that Supreme Court was not entitled to remand for de novo review based on facts that arose after DHCR issues its determination.

Landlord owns a four-story apartment building. Landlord occupies one floor, and another floor was occupied by a market-rent tenant, and the remaining two floors were occupied by rent-regulated tenants — petitioner Rizzo and Bloedow, whose death precipitated the Supreme Court's decision. Landlord sought partial eviction of Rizzo and Bloedow from their large floor-though apartments so that landlord could create a new duplex apartment. Landlord's request was based on her inability to make an 8.5% return on the property's assessed value. (NYC Administrative Code, sec. 26-408(b)(5)(a)). DHCR granted landlord's request, and Rizzo and Bloedow both filed petitions for administrative review. DHCR denied those petitions. The following day, Bloedow died. Rizzo then brought this proceeding, seeking reversal of DCHR's determination on the ground that Bloedow's death would enable landlord to realize an adequate return even without construction of the new apartment. Supreme Court ordered DHCR to reprocess landlord's application. DHCR appealed, and the Appellate Division reversed, prompting this appeal by tenant.

In affirming the Appellate Division's order, the Court of Appeals rejected tenant's reliance on section 26-411(a)(2) of the Administrative Code, which includes a limited exception that permits a court to consider introduction of evidence that could not reasonably have been offered in proceedings before the city rent agency. The Court of Appeals held that the code provision should not be read to permit a court to engage in de novo review based on events that take place after the agency made its determination. Because DHCR's determination was made on landlord's inability to make an adequate return in 1996, Bloedow's death in 2002 was irrelevant to DHCR's determination, and Supreme Court erred in considering that death.

Judge Ciparick dissented, relying on section 26-411 and arguing that its language should be read liberally. In particular, she noted that the eviction provision was designed only to remedy extreme hardship, which might no longer have existed after Bloedow's death.

Lease Terms Preclude Landlord from Withholding Consent to Assignment

Vanderbilt Holdings, LLC v. Greenpoint-Goldman Corp.

NYLJ 12/28/05, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Cahn, J.)

In tenant's action for a declaration that tenant is free to assign its leasehold interest, and for damages, landlord moved to dismiss the complaint. The court granted landlord's motion with respect to the claims for monetary relief, but denied the motion with respect to the declaratory claims, concluding that the express terms of the lease permitted assignment when the proposed assignee met specified conditions.

In 2000, landlord leased to tenant for a 77-year period. Article 12 of the lease provided that tenant could assign its interest with landlord's prior consent, and also provided that landlord could not withhold consent if: 1) the assignee or its guarantors had a net worth of at least $35 million; and 2) tenant was not in default on the lease. The lease also provided that an assignment would not be effective until landlord gave consent. Article 38 of the lease provided that tenant waived claims against landlord for unreasonably withholding or delaying consent, and agreed that its sole remedy would be an action for specific performance, injunction, or declaratory relief. Another provision of the lease prohibited tenant from using the property for rentals to rent-regulated tenants. On March 4, 2005, tenant requested consent to an assignment to an assignee whose principal was willing to guarantee the lease obligations, and whose net worth was in excess of $35 million. Landlord refused consent, and tenant brought this action. Landlord moved to dismiss the complaint.

In granting landlord's motion with respect to the claims for restitution, rescission, breach of the implied covenant of good faith and fair dealing, and intentional interference with contract, the court relied on article 38, and concluded that tenant had waived the right to bring such claims. At the same time, the court denied landlord's motion with respect to the claims for declaratory relief. The court rejected landlord's argument that the lease as a whole permitted landlord to withhold consent from an assignee who planned to rent to rent-regulated tenants in violation of the lease's provisions. The court emphasized that article 12 was clear in setting forth clear provisions with respect to landlord's consent, and noted that landlord's remedy for breach of other provisions of the lease would be a remedy against the assignee.

COMMENT

A landlord can arbitrarily refuse to consent to a lease assignment when the lease requires landlord's prior approval and does not impose any constraint on landlord's power to withhold consent. In Dress Shirt Sales, Inc. v. Hotel Martinique Associates, 12 N.Y.2d 339, the Court of Appeals held that landlord could arbitrarily deny tenant the right to assign its lease because the lease required landlord's consent and was silent regarding how landlord's determination should be made. In that case, when tenant sought permission to assign, the landlord refused consent on the ground that the proposed assignee was unsuitable. Tenant then paid landlord $30,000 to agree to cancellation of the lease, whereupon landlord executed a new lease to the proposed assignee at more rent than tenant had previously been paying. The court held that tenant was not entitled to return of the $30,000, because landlord had an absolute right to refuse consent to the assignment

A landlord cannot arbitrarily refuse consent when the lease provides that landlord's consent shall not be unreasonably withheld. Thus, in Astoria Bedding, Mr. Sleeper Bedding Center Inc. v. Northside Partnership, 239 A.D.2d 775, the court awarded tenant a declaratory judgment that landlord's refusal to consent was unreasonable when the proposed assignee was financially responsible and suitable for the building. The lease specified that tenant could use the property only as a retail bedding, home furnishing, and accessory business. When tenant sought to assign to an assignee who would have used the store for other purposes, the landlord refused, but the court held the refusal unreasonable because it was not predicated upon consideration of objective factors. But in Gladliz v. Castiron Court Corp., 177 Misc.2d 392, the court held that landlord's refusal to consent to tenant's assignment was reasonable because tenant was in default of its financial obligation, which according to the lease, prohibited tenant from assigning its lease.

Courts do not imply restrictions on assignment unless the lease makes it clear that landlord relied on particular characteristics of the original tenant, generally evidenced by a lease in which landlord's rent was based in large measure on the success of tenant's business. Thus, in Nassau Hotel Co. v. Barnett & Barse Corp., 212 N.Y. 568, where the court held that an implied covenant against assignment existed when landlord's decision to lease the hotel was predicated on the tenants' hotel management experience, and where landlord's compensation was solely based on the gross receipts of the hotel. By contrast, in Rowe v.Great Atlantic & Pacific Tea Company Inc., 46 N.Y.2d 62, the Court of Appeals refused permit landlord to repossess leased property as a result of tenant's alleged violation of an implied covenant against assignment. The court refused to imply a covenant limiting assignment, despite a clause entitling landlord to a percentage of tenant's sales, because the original tenant's sales were not sufficient to trigger the percentage rent clause, and because a reasonable landlord could easily have entered into the lease without an understanding that tenant's freedom to assign was restricted.