Landlord & Tenant

Tenant Entitled to Attorney Fees When Some of Landlord's Claims Arose Out of Lease

University Properties, LLC v. Vartanian

NYLJ 9/17/07, p. 28, col. 2

AppDiv, First Dept.

(memorandum opinion)

In landlord's action to evict tenants from a residential apartment, landlord appealed from the Supreme Court's award of attorney fees to tenant. The Appellate Division affirmed, holding that because some of the claims landlord had unsuccessfully raised arose out of the lease, Real Property Law section 234 entitled tenant to attorney fees.

Landlord brought this action against tenants, advancing several causes of action. Two of those causes of action alleged that tenant's lease was void because it was a 'sweetheart lease', against public policy, and lacking in consideration. Landlord's other causes of action were for breach of the lease by not using the apartment as their primary residence. The Supreme Court granted tenants summary judgment and dismissed the complaint. Tenants then sought attorneys fees, invoking Real Property Law section 234, which provides that when a lease entitles landlord to attorneys fees for actions brought by landlord as a result of tenant default, tenant shall have a reciprocal right to reasonable attorneys fees incurred 'in the successful defense of any action ' commenced by the landlord against the tenant arising out of the lease.' Landlord argued that section 234 was inapplicable because landlord's claims were not claims 'arising out of the lease.' The Supreme Court rejected that argument and awarded attorneys fees to tenants.

In affirming, the Appellate Division emphasized that tenant had successfully defended against claims for breach of the lease ' claims that unquestionably arose out of the lease. In light of that fact, tenants were entitled to fees whether or not landlord's claims that the lease was void were claims 'arising out of the lease.' As a result, the court concluded that it was unnecessary to decide whether tenants would be entitled to fees for a successful defense of a claim that the lease was void.

COMMENT

Although Real Property Law ' 234 ('RPL ' 234') permits a residential tenant who is successful in litigation against a landlord to collect attorney fees from a landlord if the lease provides for the award of attorneys fees to a successful landlord, section 234 is applicable only when the litigation is brought to enforce a provision within a valid lease. In Jerulee Co. v. Sanchez, 2007 NY Slip Op 6443, the court held that the tenants could not collect attorney's fees pursuant to RPL ' 234 despite successfully defending against an action by the landlord to rescind the lease based on fraud and mutual mistake. The court reasoned that section 234 was inapplicable because the fraud and mistake claims did not allege any breach of the terms of the lease.

Similarly, when the landlord's proceeding against tenant is based on an alleged statutory violation, section 234 does not entitle the tenant to attorney fees. Thus, in Peck v. Wolf, 157 A.D. 2d 535, the court held that the prevailing rent stabilized tenant was not entitled to attorney's fees because the landlord's declaratory judgment action sought to determine whether the tenant maintained the apartment as a primary residence. The court reasoned that because the tenant's obligation to maintain the apartment as a primary residence arose out of the statute, not the lease, section 234 was not applicable. The Appellate Term went even further in White v. Pineda, 12 Misc.2d 45, holding that a successful tenant cannot recover attorney's fees under RPL ' 234 when the landlord had a statutory obligation to bring the claim, even if the claim also alleged a breach of the lease.. In White, the Real Property Actions and Proceedings Law ' 715 ('RPAPL ' 715') obligated landlord to initiate eviction proceedings once the District Attorney ('DA') informed her of illegal narcotics trafficking at the residence. Later, the parties and the DA stipulated to dismiss the petition, as no conclusive proof of illegal drug activity existed. The court held that tenant was not entitled to attorney fees , noting although the lease contained a provision entitling the landlord to attorney's fees for a breach of a term of the lease, the DA had directed the landlord to proceed under RPAPL ' 715. Hence, the court concluded that landlord's cause of action did not 'arise out of the lease,' thus barring recovery under RPL ' 234.

When tenant brings an action against landlord, and some but not all claims arise out of the lease, at least one court has held that the successful tenant is entitled to attorney fees for those claims intimately related to the breach of a lease obligation. In Senfeld v. I.S.T.A. Holding Co., Inc., 235 A.D. 2d 345, the court, in rejecting landlord's appeal of an award of attorney's fees, noted that the IAS court had held that only services intimately related to the claim for breach of the warranty of habitability should be considered in arriving at reasonable attorney's fees. In that case, tenant's failure to prevail in their actions for intentional tort and an injunction did not prevent the court from awarding fees for tenant's success on the habitability claim. In Senfeld, tenant was the plaintiff. By contrast, in cases like Vartanian, where tenant is the defendant, and has no alternative but to defend against all claims brought (whether or not the claims arise out of the lease) it would appear inconsistent with the purpose of section 234 to apportion the successful tenant's award of attorney fees.

Tenant May Sue for Breach of Potentially Void Agreement with Landlord

Stecher v. 85^th Estates Co.

NYLJ 9/24/07, p. 29, col. 5.

AppDiv, First Dept .

(3-2 decision; memorandum opinion; separate dissenting memoranda by Tom, J., and McGuire, J.).

In an action by tenant seeking damages for landlord's breach of a contract to offer tenant perpetual renewal leases in return for a one-time payment of $50,000, tenant appealed from Supreme Court's grant of landlord's motion to dismiss. A divided Appellate Division reversed, holding that even if the agreement between the parties was void, tenant was entitled to pursue a claim for profits obtained by landlord in violation of the Rent Stabilization Law.

Tenant alleged that in 1992, tenant paid landlord $50,000 in return for landlord's oral agreement to permit tenant to continue renting the subject rent-stabilized apartment for so long as tenant cared to rent the apartment, even thought both parties knew at the time that tenant was not using the apartment as his primary residence, and was not, therefore, entitled to rent stabilization protection. In 2003, landlord notified tenant that it would not renew the existing lease because tenant was not using the apartment as his primary residence. In 2004, landlord brought a nonprimary residence proceeding against tenant in Civil Court. Tenant then brought this action against landlord claiming damages for landlord's breach of the 1992 agreement by failing to renew the lease. The Supreme Court dismissed the breach of contract claim, concluding that because the claim was based on the 1992 agreement, the claim was time-barred. Tenant appealed.

In reversing, the Appellate Division majority first held that the statute of limitations was triggered by landlord's alleged breach in 2004, not by the agreement itself. Hence, the court concluded that tenant's claim was timely. The majority then noted that any claim that the agreement entitled tenant to maintain a rent-stabilized apartment illegally could be resolved in the pending non-primary residence proceeding, and the majority declined to reach that contention. The majority then concluded that even if the lease were void, tenant would be entitled to pursue a claim with respect to profits obtained by landlord in violation of the Rent Stabilization Law. Therefore, the majority held that theSupreme Court should not have dismissed the breach of contract claim.

Justice Tom, dissenting, argued that because the contract on which tenant's breach of contract claim is founded was itself unenforceable, the breach of contract claim should have been dismissed. Justice McGuire agreed, noting that tenant was not seeking to recover the $50,000 payment (for which tenant might have had a claim) but was instead seeking damages for breach ' a claim that, in his view, could not stand.

Tenant Entitled to Attorney Fees When Some of Landlord's Claims Arose Out of Lease

University Properties, LLC v. Vartanian

NYLJ 9/17/07, p. 28, col. 2

AppDiv, First Dept.

(memorandum opinion)

In landlord's action to evict tenants from a residential apartment, landlord appealed from the Supreme Court's award of attorney fees to tenant. The Appellate Division affirmed, holding that because some of the claims landlord had unsuccessfully raised arose out of the lease, Real Property Law section 234 entitled tenant to attorney fees.

Landlord brought this action against tenants, advancing several causes of action. Two of those causes of action alleged that tenant's lease was void because it was a 'sweetheart lease', against public policy, and lacking in consideration. Landlord's other causes of action were for breach of the lease by not using the apartment as their primary residence. The Supreme Court granted tenants summary judgment and dismissed the complaint. Tenants then sought attorneys fees, invoking Real Property Law section 234, which provides that when a lease entitles landlord to attorneys fees for actions brought by landlord as a result of tenant default, tenant shall have a reciprocal right to reasonable attorneys fees incurred 'in the successful defense of any action ' commenced by the landlord against the tenant arising out of the lease.' Landlord argued that section 234 was inapplicable because landlord's claims were not claims 'arising out of the lease.' The Supreme Court rejected that argument and awarded attorneys fees to tenants.

In affirming, the Appellate Division emphasized that tenant had successfully defended against claims for breach of the lease ' claims that unquestionably arose out of the lease. In light of that fact, tenants were entitled to fees whether or not landlord's claims that the lease was void were claims 'arising out of the lease.' As a result, the court concluded that it was unnecessary to decide whether tenants would be entitled to fees for a successful defense of a claim that the lease was void.

COMMENT

Although Real Property Law ' 234 ('RPL ' 234') permits a residential tenant who is successful in litigation against a landlord to collect attorney fees from a landlord if the lease provides for the award of attorneys fees to a successful landlord, section 234 is applicable only when the litigation is brought to enforce a provision within a valid lease. In Jerulee Co. v. Sanchez, 2007 NY Slip Op 6443, the court held that the tenants could not collect attorney's fees pursuant to RPL ' 234 despite successfully defending against an action by the landlord to rescind the lease based on fraud and mutual mistake. The court reasoned that section 234 was inapplicable because the fraud and mistake claims did not allege any breach of the terms of the lease.

Similarly, when the landlord's proceeding against tenant is based on an alleged statutory violation, section 234 does not entitle the tenant to attorney fees. Thus, in Peck v. Wolf, 157 A.D. 2d 535, the court held that the prevailing rent stabilized tenant was not entitled to attorney's fees because the landlord's declaratory judgment action sought to determine whether the tenant maintained the apartment as a primary residence. The court reasoned that because the tenant's obligation to maintain the apartment as a primary residence arose out of the statute, not the lease, section 234 was not applicable. The Appellate Term went even further in White v. Pineda, 12 Misc.2d 45, holding that a successful tenant cannot recover attorney's fees under RPL ' 234 when the landlord had a statutory obligation to bring the claim, even if the claim also alleged a breach of the lease.. In White, the Real Property Actions and Proceedings Law ' 715 ('RPAPL ' 715') obligated landlord to initiate eviction proceedings once the District Attorney ('DA') informed her of illegal narcotics trafficking at the residence. Later, the parties and the DA stipulated to dismiss the petition, as no conclusive proof of illegal drug activity existed. The court held that tenant was not entitled to attorney fees , noting although the lease contained a provision entitling the landlord to attorney's fees for a breach of a term of the lease, the DA had directed the landlord to proceed under RPAPL ' 715. Hence, the court concluded that landlord's cause of action did not 'arise out of the lease,' thus barring recovery under RPL ' 234.

When tenant brings an action against landlord, and some but not all claims arise out of the lease, at least one court has held that the successful tenant is entitled to attorney fees for those claims intimately related to the breach of a lease obligation. In Senfeld v. I.S.T.A. Holding Co., Inc., 235 A.D. 2d 345, the court, in rejecting landlord's appeal of an award of attorney's fees, noted that the IAS court had held that only services intimately related to the claim for breach of the warranty of habitability should be considered in arriving at reasonable attorney's fees. In that case, tenant's failure to prevail in their actions for intentional tort and an injunction did not prevent the court from awarding fees for tenant's success on the habitability claim. In Senfeld, tenant was the plaintiff. By contrast, in cases like Vartanian, where tenant is the defendant, and has no alternative but to defend against all claims brought (whether or not the claims arise out of the lease) it would appear inconsistent with the purpose of section 234 to apportion the successful tenant's award of attorney fees.

Tenant May Sue for Breach of Potentially Void Agreement with Landlord

Stecher v. 85^th Estates Co.

NYLJ 9/24/07, p. 29, col. 5.

AppDiv, First Dept .

(3-2 decision; memorandum opinion; separate dissenting memoranda by Tom, J., and McGuire, J.).

In an action by tenant seeking damages for landlord's breach of a contract to offer tenant perpetual renewal leases in return for a one-time payment of $50,000, tenant appealed from Supreme Court's grant of landlord's motion to dismiss. A divided Appellate Division reversed, holding that even if the agreement between the parties was void, tenant was entitled to pursue a claim for profits obtained by landlord in violation of the Rent Stabilization Law.

Tenant alleged that in 1992, tenant paid landlord $50,000 in return for landlord's oral agreement to permit tenant to continue renting the subject rent-stabilized apartment for so long as tenant cared to rent the apartment, even thought both parties knew at the time that tenant was not using the apartment as his primary residence, and was not, therefore, entitled to rent stabilization protection. In 2003, landlord notified tenant that it would not renew the existing lease because tenant was not using the apartment as his primary residence. In 2004, landlord brought a nonprimary residence proceeding against tenant in Civil Court. Tenant then brought this action against landlord claiming damages for landlord's breach of the 1992 agreement by failing to renew the lease. The Supreme Court dismissed the breach of contract claim, concluding that because the claim was based on the 1992 agreement, the claim was time-barred. Tenant appealed.

In reversing, the Appellate Division majority first held that the statute of limitations was triggered by landlord's alleged breach in 2004, not by the agreement itself. Hence, the court concluded that tenant's claim was timely. The majority then noted that any claim that the agreement entitled tenant to maintain a rent-stabilized apartment illegally could be resolved in the pending non-primary residence proceeding, and the majority declined to reach that contention. The majority then concluded that even if the lease were void, tenant would be entitled to pursue a claim with respect to profits obtained by landlord in violation of the Rent Stabilization Law. Therefore, the majority held that theSupreme Court should not have dismissed the breach of contract claim.

Justice Tom, dissenting, argued that because the contract on which tenant's breach of contract claim is founded was itself unenforceable, the breach of contract claim should have been dismissed. Justice McGuire agreed, noting that tenant was not seeking to recover the $50,000 payment (for which tenant might have had a claim) but was instead seeking damages for breach ' a claim that, in his view, could not stand.