Landlord & Tenant

Tortious Interference Claim Against Holdover

Havana Cent NY2 LLC v. Lunney's Pub

NYLJ 1/7/08, p. 18, col. 1

AppDiv, First Dept.

(3-2 decision; majority opinion by Andrias, J; dissenting opinion by McGuire, J.)

In an action by corporate tenant against prior holdover tenant for tortious interference with contract, both parties appealed from a Supreme Court order adhering, on motion to renew, to its earlier determination granting holdover tenant's motion to dismiss claims for tortious interference with prospective economic advantage and for prima facie tort, but denying the motion to dismiss with respect to corporate tenant's claim for tortious interference with contract. The Appellate Division modified to permit addition of another party defendant, but otherwise affirmed, holding that holdover's failure to surrender possession at the expiration of the lease term caused landlord's material breach of the lease with new tenant, even if the lease between landlord and new tenant precluded new tenant from recovering for that breach.

Although holdover tenant was aware that landlord had leased the premises to a new tenant, holdover remained in possession in an attempt to secure a renewal lease or to avoid closing its business while it found another location. Holdover held over for six months before it was forcibly evicted following summary proceedings. New tenant brought this action for tortious interference with contract, tortious interference with prospective economic advantage, and prima facie tort, alleging damages from the inability to start up its business in a timely manner. Holdover moved to dismiss, relying in part on two provisions in the lease between landlord and new tenant. The first provision relieved landlord of liability to new tenant if it failed to give possession on the commencement date of the lease, and the second gave new tenant an option to terminate if it did not receive possession within 30 days of the commencement date. Holdover argued that its holdover did not render landlord's performance impossible. Holdover argued that because landlord's inability to deliver possession did not constitute breach, the holdover could not have induced breach.

In holding that the Supreme Court had properly denied holdover's motion to dismiss the claim for tortious interference with contract, the Appellate Division majority noted that tenant had become a trespasser when its right to possession expired, and concluded that landlord's failure to deliver possession to new tenant at the commencement of the lease constituted a material breach of that lease, even if the exculpatory clause of the lease would have denied new tenant a remedy for that breach. The majority also held that the Supreme Court had properly dismissed
the claim for tortious interference with prospective economic advantage because new tenant had not set forth evidence that holdover had interfered with the new lease by wrongful means or for the sole purpose of harming the new tenant. Instead, the evidence showed that holdover had held over for multiple reasons. Similarly, the court held that the prima facie tort claim was properly dismissed because new tenant had failed to demonstrate disinterested malevolence by holdover.

Justice McGuire's dissent focused on the exculpatory clause in the
lease between landlord and new tenant. He concluded that because new tenant had no enforceable right against landlord to recover possession of the premises at the commencement date for the new lease, new tenant could not maintain a tortious interference claim against holdover for losses resulting from new landlord's failure to deliver possession.

COMMENT

Although an incoming tenant has standing to maintain an action in trespass against a holdover tenant, the limited damages available will often make a trespass action unattractive. Thus, in Schreiber v. Kleban, 63 Misc.2d 628, the court held that a holdover tenant was liable to an incoming residential tenant for trespass, and conceded that the holdover tenant was entitled to the reasonable use and occupancy, but held that the incoming tenant had already been compensated for that loss because the landlord had credited the incoming tenant for that amount. Hence, in cases where the incoming tenant is not obligated to pay landlord during the holdover period, the incoming tenant may not be able to recover use and occupancy from the holdover. At the same time, the Schreiber court relied on Nodine v. State, 192 Misc. 572, to limit recovery of special damages to those foreseeable to the parties and that for which there is some reasonable basis for computation. The court in Schreiber found that the plaintiff could only recover money spent for moving and storing furniture in a warehouse ' reasoning that other damages such as the loss of income were too speculative under the standard of Nodine.

Moreover, although an incoming tenant may have a common law trespass claim against a holdover tenant, the incoming tenant may not advance a statutory claim for use and occupancy. In El Gallo Meat Market v. Gallo Market, 286 AD2d 255, the court held that the right to recover use and occupancy lies only with the landlord, as it is derived from a landlord's statutory right to damages under Real Property Law section 220.

Because of the limited damages tenant may recover in a trespass action, incoming tenants may find it preferable to bring actions for tortious interference. Although, before Havana Central, courts have not addressed the availability of tortious interference claims in the context of an incoming tenant suing a wrongful holdover, such claims may lead to a greater award of damages. An action for tortious interference requires an enforceable contract between the plaintiff and a third party, and deliberately interference with that contract, causing a breach that results in damages to the plaintiff. See Hamawi Deli v. Psaras, 14 Misc.3d 1205(A)(No tortious interference claim because stationery store tenant's sale of food items in violation of its lease did not result in breach of any provision of lease between landlord and neighboring deli tenant).

 

Holdover Tenant Must Disgorge Profits

Chock Full O'Nuts Corp. v. NRP LLC I

NYLJ 12/17/07, p. 18, col. 1

AppDiv, First Dept.

(Opinion by Friedman, J.)

In landlord's action for a determination that tenant's lease had expired, landlord appeals from Supreme Court's judgment based on a referee's report, awarding landlord $59,795.20 in damages for tenant's use and occupancy. The Appellate Division modified to increase the award to require tenant to disgorge all gain realized from a holdover subtenant, but otherwise affirmed, holding that landlord had not established a right to greater damages based on comparable rents.

In an earlier stage of the proceeding, the court determined that tenant's lease had expired on March 12, 2001. One of tenant's subtenants, however, had held over for two additional years, paying net rent to tenant of $254,000 per year. Landlord sought damages for tenant's holdover. Although a referee had initially determined that the fair market value rent for the premises was $319,130.89 plus interest, the Supreme Court rejected the referee's report, concluding that the referee's report had been based on comparison with non-analogous spaces. In particular, the rent for comparables was based on a per square foot price for usable area, while the referee applied the per square foot price to the gross area of the subject property. The referee then submitted a supplemental report determining that the fair market value rent was $207,844. When reduced by tenant's payments for use and occupancy, this figure yielded damages to landlord of $59,795.20. The Supreme Court entered judgment in that amount, and landlord appealed.

In modifying, the Appellate Division first rejected landlord's argument that the referee should have applied the per square foot value for usable area in comparable properties to the gross area of the subject property. Landlord had argued that because the subject space was used by a single tenant, the per-square-foot values of comparables should have been applied to the entire rentable area of the subject property. The court, however, noted that landlord bore the burden of proof on this issue, and had not submitted any proof to establish that the price per unit for usable space would be equal to the price per square foot of gross area when the gross area is used by a single tenant. The court also cited a leading appraisal treatise noting the importance of stating values in appropriate units of comparison. At the same time, the court modified the Supreme Court's judgment because the damages Supreme Court awarded would have permitted tenant to profit from the rent collected from the subtenant during the holdover period. Hence, the court concluded that damages should be computed by calculating the rent collected by tenant from the subtenant during the holdover period, and subtracting amounts previously paid by tenant for use and occupancy. As a result, the court held that landlord was entitled to $161,723.20 plus interest.

 

Duration of Preferential Rent Riders

Rosenshein v. Heyman

NYLJ 1/9/08, p. 36, col. 1

AppTerm, 2nd and 11th Districts

(memorandum opinion)

In landlord's nonpayment proceeding, landlord appealed from Civil Court's award of summary judgment to tenant. The Appellate Term affirmed, holding that the language of preferential rent riders in tenant's leases required that tenant's rent be based on that preferential rent for the duration of tenant's occupancy of the subject apartment.

Tenant moved into the subject apartment in 1995, and her initial lease did not state that the amount was a preferential rent. Beginning in 1996, tenant's renewal leases contained preferential rent riders that set forth the purported legal regulated rent and provided that 'during the term of the tenant's occupancy' tenant would be charged a preferential rent. The riders also provided that the preferential rent was personal to tenant and would not inure to her successors or assigns. In 2003, the Rent Stabilization Law was amended to permit an owner to discontinue a preferential rent upon a renewal or vacancy lease (L. 2003, ch. 82, sec. 6). In 2005, landlord advised tenant that it was discontinuing the preferential rent, and offered to renew tenant's lease at the legal regulated rent. Tenant refused to sign the renewal lease, and continued to pay rent at the last preferential rate. Landlord then brought this nonpayment proceeding, and Civil Court awarded summary judgment to tenant. Landlord appealed.

In affirming, the Appellate Term held that the 2003 statutory amendment was not intended to and does not abrogate the agreement of the parties. Because in this case, the language of the various lease riders made it clear that tenant's rent would be based on the preferential rate for the duration of her occupancy, tenant was entitled to remain in occupancy at rents based on that preferential rate.

Tortious Interference Claim Against Holdover

Havana Cent NY2 LLC v. Lunney's Pub

NYLJ 1/7/08, p. 18, col. 1

AppDiv, First Dept.

(3-2 decision; majority opinion by Andrias, J; dissenting opinion by McGuire, J.)

In an action by corporate tenant against prior holdover tenant for tortious interference with contract, both parties appealed from a Supreme Court order adhering, on motion to renew, to its earlier determination granting holdover tenant's motion to dismiss claims for tortious interference with prospective economic advantage and for prima facie tort, but denying the motion to dismiss with respect to corporate tenant's claim for tortious interference with contract. The Appellate Division modified to permit addition of another party defendant, but otherwise affirmed, holding that holdover's failure to surrender possession at the expiration of the lease term caused landlord's material breach of the lease with new tenant, even if the lease between landlord and new tenant precluded new tenant from recovering for that breach.

Although holdover tenant was aware that landlord had leased the premises to a new tenant, holdover remained in possession in an attempt to secure a renewal lease or to avoid closing its business while it found another location. Holdover held over for six months before it was forcibly evicted following summary proceedings. New tenant brought this action for tortious interference with contract, tortious interference with prospective economic advantage, and prima facie tort, alleging damages from the inability to start up its business in a timely manner. Holdover moved to dismiss, relying in part on two provisions in the lease between landlord and new tenant. The first provision relieved landlord of liability to new tenant if it failed to give possession on the commencement date of the lease, and the second gave new tenant an option to terminate if it did not receive possession within 30 days of the commencement date. Holdover argued that its holdover did not render landlord's performance impossible. Holdover argued that because landlord's inability to deliver possession did not constitute breach, the holdover could not have induced breach.

In holding that the Supreme Court had properly denied holdover's motion to dismiss the claim for tortious interference with contract, the Appellate Division majority noted that tenant had become a trespasser when its right to possession expired, and concluded that landlord's failure to deliver possession to new tenant at the commencement of the lease constituted a material breach of that lease, even if the exculpatory clause of the lease would have denied new tenant a remedy for that breach. The majority also held that the Supreme Court had properly dismissed
the claim for tortious interference with prospective economic advantage because new tenant had not set forth evidence that holdover had interfered with the new lease by wrongful means or for the sole purpose of harming the new tenant. Instead, the evidence showed that holdover had held over for multiple reasons. Similarly, the court held that the prima facie tort claim was properly dismissed because new tenant had failed to demonstrate disinterested malevolence by holdover.

Justice McGuire's dissent focused on the exculpatory clause in the
lease between landlord and new tenant. He concluded that because new tenant had no enforceable right against landlord to recover possession of the premises at the commencement date for the new lease, new tenant could not maintain a tortious interference claim against holdover for losses resulting from new landlord's failure to deliver possession.

COMMENT

Although an incoming tenant has standing to maintain an action in trespass against a holdover tenant, the limited damages available will often make a trespass action unattractive. Thus, in Schreiber v. Kleban, 63 Misc.2d 628, the court held that a holdover tenant was liable to an incoming residential tenant for trespass, and conceded that the holdover tenant was entitled to the reasonable use and occupancy, but held that the incoming tenant had already been compensated for that loss because the landlord had credited the incoming tenant for that amount. Hence, in cases where the incoming tenant is not obligated to pay landlord during the holdover period, the incoming tenant may not be able to recover use and occupancy from the holdover. At the same time, the Schreiber court relied on Nodine v. State, 192 Misc. 572, to limit recovery of special damages to those foreseeable to the parties and that for which there is some reasonable basis for computation. The court in Schreiber found that the plaintiff could only recover money spent for moving and storing furniture in a warehouse ' reasoning that other damages such as the loss of income were too speculative under the standard of Nodine.

Moreover, although an incoming tenant may have a common law trespass claim against a holdover tenant, the incoming tenant may not advance a statutory claim for use and occupancy. In El Gallo Meat Market v. Gallo Market, 286 AD2d 255, the court held that the right to recover use and occupancy lies only with the landlord, as it is derived from a landlord's statutory right to damages under Real Property Law section 220 .

Because of the limited damages tenant may recover in a trespass action, incoming tenants may find it preferable to bring actions for tortious interference. Although, before Havana Central, courts have not addressed the availability of tortious interference claims in the context of an incoming tenant suing a wrongful holdover, such claims may lead to a greater award of damages. An action for tortious interference requires an enforceable contract between the plaintiff and a third party, and deliberately interference with that contract, causing a breach that results in damages to the plaintiff. See Hamawi Deli v. Psaras, 14 Misc.3d 1205(A)(No tortious interference claim because stationery store tenant's sale of food items in violation of its lease did not result in breach of any provision of lease between landlord and neighboring deli tenant ).

 

Holdover Tenant Must Disgorge Profits

Chock Full O'Nuts Corp. v. NRP LLC I

NYLJ 12/17/07, p. 18, col. 1

AppDiv, First Dept.

(Opinion by Friedman, J.)

In landlord's action for a determination that tenant's lease had expired, landlord appeals from Supreme Court's judgment based on a referee's report, awarding landlord $59,795.20 in damages for tenant's use and occupancy. The Appellate Division modified to increase the award to require tenant to disgorge all gain realized from a holdover subtenant, but otherwise affirmed, holding that landlord had not established a right to greater damages based on comparable rents.

In an earlier stage of the proceeding, the court determined that tenant's lease had expired on March 12, 2001. One of tenant's subtenants, however, had held over for two additional years, paying net rent to tenant of $254,000 per year. Landlord sought damages for tenant's holdover. Although a referee had initially determined that the fair market value rent for the premises was $319,130.89 plus interest, the Supreme Court rejected the referee's report, concluding that the referee's report had been based on comparison with non-analogous spaces. In particular, the rent for comparables was based on a per square foot price for usable area, while the referee applied the per square foot price to the gross area of the subject property. The referee then submitted a supplemental report determining that the fair market value rent was $207,844. When reduced by tenant's payments for use and occupancy, this figure yielded damages to landlord of $59,795.20. The Supreme Court entered judgment in that amount, and landlord appealed.

In modifying, the Appellate Division first rejected landlord's argument that the referee should have applied the per square foot value for usable area in comparable properties to the gross area of the subject property. Landlord had argued that because the subject space was used by a single tenant, the per-square-foot values of comparables should have been applied to the entire rentable area of the subject property. The court, however, noted that landlord bore the burden of proof on this issue, and had not submitted any proof to establish that the price per unit for usable space would be equal to the price per square foot of gross area when the gross area is used by a single tenant. The court also cited a leading appraisal treatise noting the importance of stating values in appropriate units of comparison. At the same time, the court modified the Supreme Court's judgment because the damages Supreme Court awarded would have permitted tenant to profit from the rent collected from the subtenant during the holdover period. Hence, the court concluded that damages should be computed by calculating the rent collected by tenant from the subtenant during the holdover period, and subtracting amounts previously paid by tenant for use and occupancy. As a result, the court held that landlord was entitled to $161,723.20 plus interest.

 

Duration of Preferential Rent Riders

Rosenshein v. Heyman

NYLJ 1/9/08, p. 36, col. 1

AppTerm, 2nd and 11th Districts

(memorandum opinion)

In landlord's nonpayment proceeding, landlord appealed from Civil Court's award of summary judgment to tenant. The Appellate Term affirmed, holding that the language of preferential rent riders in tenant's leases required that tenant's rent be based on that preferential rent for the duration of tenant's occupancy of the subject apartment.

Tenant moved into the subject apartment in 1995, and her initial lease did not state that the amount was a preferential rent. Beginning in 1996, tenant's renewal leases contained preferential rent riders that set forth the purported legal regulated rent and provided that 'during the term of the tenant's occupancy' tenant would be charged a preferential rent. The riders also provided that the preferential rent was personal to tenant and would not inure to her successors or assigns. In 2003, the Rent Stabilization Law was amended to permit an owner to discontinue a preferential rent upon a renewal or vacancy lease (L. 2003, ch. 82, sec. 6). In 2005, landlord advised tenant that it was discontinuing the preferential rent, and offered to renew tenant's lease at the legal regulated rent. Tenant refused to sign the renewal lease, and continued to pay rent at the last preferential rate. Landlord then brought this nonpayment proceeding, and Civil Court awarded summary judgment to tenant. Landlord appealed.

In affirming, the Appellate Term held that the 2003 statutory amendment was not intended to and does not abrogate the agreement of the parties. Because in this case, the language of the various lease riders made it clear that tenant's rent would be based on the preferential rate for the duration of her occupancy, tenant was entitled to remain in occupancy at rents based on that preferential rate.