Levying Rents Pursuant to Monetary Judgment

New York's law on levies of rents pursuant to money judgment is most peculiar. The obligation of a tenant (T) to pay rent runs with the land. Let us call the forward-looking obligation of a tenant to pay rent a “rent receivable.” New York law insists that the rent receivable is real property.

Once the rent receivable is actually paid, the proceeds are considered the landlord's personal property. Collection of the rent “severs” the dollars from the real property.

'Harvesting' Rent

Wyckoff v. Scofield, 98 N.Y. 475, 477 (1885). Collecting rent is like harvesting crops. While attached to the earth, they are part of the earth itself. But when rent is collected and crops harvested, the dollars and crops are unencumbered personal property.

A lien on real property encumbers all rent receivables. Yet the landlord may harvest the rent free of any lien. Where a landlord collects rents and leaves a lien unpaid, the landlord does not convert the property of the lienholder. “Conversion” ' wrongful interference with the personal property of another ' cannot exist here.

Eventually, a lien creditor, whether a mortgagee or judgment creditor (JC), will foreclose. After the sale, a buyer has the right to collect the rent receivables. New York law, however, permits mortgagees to dispossess a landlord even before the foreclosure sale. In New York, a mortgagee may obtain the appointment of a receiver in an ex parte hearing.

The effect of a receivership is that the landlord is dispossessed and loses the rents to the receiver. If the landlord wrongly collects and pockets the money, she commits the tort of conversion.

Enforcing Judicial Lien

These principles apply to the enforcement of a judicial lien. Since the rent receivable is real property, a docketing lien attaches to it. CPLR 5203(a). The landlord, however, continues to have the right to harvest the rents free and clear of the judicial lien. The CPLR gives JC a right to a receiver, who may “collect . . . any real . . . property of the debtor.” CPLR 5228(a). When the receiver appears, the landlord's ability to collect rent free of JC comes to an end.

Suppose, however, we have the following:

t1: JD leases to T.

t2: JD grants a mortgage to A.

t3: JC obtains a judgment against JD.

t4: JC obtains a receiver to take possession of JD's reversionary interest.

t5: A obtains a receiver for the same purpose.

In this scenario, JC's receiver has the right to collect from T starting at t4 and ending at t5. At t5, A's receiver has an even better possessory right. So A's receiver dispossesses JC's receiver, just as JC's receiver dispossessed JD. S&H Corp. v. European-American Bank, 428 N.Y.S.2d 140 (1980).

In Glassman v. Hyder, 244 N.E.2d 259 (1968), a sheriff levied T's obligation to pay rent for a New Mexico building by serving T (doing business in New York) with an order of attachment. The court acknowledged that if rent receivables are located in New York, a receiver of rents could be appointed. But T was renting in New Mexico. The rent therefore could only be reached by encumbering the land in New Mexico.

Court's Ruling

The court did not quite rule that rents were real estate and therefore unleviable by attachment. Rather, he ruled that rent receivables were debts owed by T to D. Confusingly, the CPLR distinguishes between personal property and debts, as if they are separate things. But, in New York, only debts certain to become due can be levied. CPLR 5201(a). A rent receivable is not certain to become due. Rather, it is contingent; T owes rent only if T's use and enjoyment of the premises continues. Therefore, the rent receivable was an unleviable contingent debt.

Later, the court in ABKCO Industries v. Apple Films, 385 N.Y.S.2d 511 (1976), amplified on Glassman; a rent receivable is both a debt under CPLR 5201(a) and property under CPLR 5201(b). As a debt, it was contingent and could not be levied. As property, the rent receivable was usufructuary to New Mexico land, i.e., rent receivables are real property (as well as debts). Yet, levies under CPLR 5232(a) or 6214(a) operate only if the debtor has personal property or debts certain to become due. So rent receivables in New York are not properly leviable.

Peculiar enough. Now we must add this absurd distinction: New York distinguishes between the forward-looking obligation of the covenant running with the land and the liability for breach of the covenant. The future obligation is real property ' the rent receivable. But the breach of a past obligation is a chose in action'personal property of the debtor that can be levied, because it has already become due. Mygatt v. Coe, 26 N.E. 611, 612 (1891). For example, in Glassman, T had to pay rent a month in advance. T was levied on Dec. 21, 1965. At the time, T was current on back rent. No rent was due until Jan. 1, 1966. In December, the rent receivable was real property and an unleviable contingent debt.

Suppose the sheriff levied on Jan. 2 at a time when T had not yet paid rent. As of Jan. 1, T owed rent certainly and it was due. So, on the reasoning of Glassman, the rent receivable had become a chose in action. This chose in action was both D's personal property and a debt that has certainly become due. As such it was fully leviable. And given that a valid levy occured, the second sentence of CPLR 6214(a) now takes effect: “All ' debts of such a person ' then due and thereafter coming due to the defendant, shall be subject to the levy.”

This means that T has an ongoing duty to pay rent to the sheriff as rent accrued after Jan. 2 (the date of levy). For instance, rent in February, March, etc., was payable to the sheriff until the amount named in the order of attachment was paid. In Tenzer, Greenblatt, Fallon & Kaplan v. Abbruzzese, 293 N.Y.S.2d 634 (1968), some back rent was due and owing at the time of the levy. So all rent in the future was levied. In Tenzer, JC received years of rent that accrued after the initial valid levy.

Conclusion

In sum, JC gets rent by docketing a money judgment and by obtaining a receiver who “dispossesses” JD and collect rents. Whether rent can be levied pursuant to an ordinary execution, however, is subject to the caprice of whether, at the time of the levy, T owes back rent (a chose in action) or future rent (not D's personal property). These absurdities result from the fact that only personal (not real) property and noncontingent debts may be levied by the sheriff.

David Gray Carlson is a professor at the Benjamin N. Cardozo School of Law in New York.

New York's law on levies of rents pursuant to money judgment is most peculiar. The obligation of a tenant (T) to pay rent runs with the land. Let us call the forward-looking obligation of a tenant to pay rent a “rent receivable.” New York law insists that the rent receivable is real property.

Once the rent receivable is actually paid, the proceeds are considered the landlord's personal property. Collection of the rent “severs” the dollars from the real property.

'Harvesting' Rent

Wyckoff v. Scofield , 98 N.Y. 475, 477 (1885). Collecting rent is like harvesting crops. While attached to the earth, they are part of the earth itself. But when rent is collected and crops harvested, the dollars and crops are unencumbered personal property.

A lien on real property encumbers all rent receivables. Yet the landlord may harvest the rent free of any lien. Where a landlord collects rents and leaves a lien unpaid, the landlord does not convert the property of the lienholder. “Conversion” ' wrongful interference with the personal property of another ' cannot exist here.

Eventually, a lien creditor, whether a mortgagee or judgment creditor (JC), will foreclose. After the sale, a buyer has the right to collect the rent receivables. New York law, however, permits mortgagees to dispossess a landlord even before the foreclosure sale. In New York, a mortgagee may obtain the appointment of a receiver in an ex parte hearing.

The effect of a receivership is that the landlord is dispossessed and loses the rents to the receiver. If the landlord wrongly collects and pockets the money, she commits the tort of conversion.

Enforcing Judicial Lien

These principles apply to the enforcement of a judicial lien. Since the rent receivable is real property, a docketing lien attaches to it. CPLR 5203(a). The landlord, however, continues to have the right to harvest the rents free and clear of the judicial lien. The CPLR gives JC a right to a receiver, who may “collect . . . any real . . . property of the debtor.” CPLR 5228(a). When the receiver appears, the landlord's ability to collect rent free of JC comes to an end.

Suppose, however, we have the following:

t1: JD leases to T.

t2: JD grants a mortgage to A.

t3: JC obtains a judgment against JD.

t4: JC obtains a receiver to take possession of JD's reversionary interest.

t5: A obtains a receiver for the same purpose.

In this scenario, JC's receiver has the right to collect from T starting at t4 and ending at t5. At t5, A's receiver has an even better possessory right. So A ' s receiver dispossesses JC 's receiver, just as JC ' s receiver dispossessed JD . S&H Corp. v. European-American Bank , 428 N.Y.S.2d 140 (1980).

In Glassman v. Hyder , 244 N.E.2d 259 (1968), a sheriff levied T 's obligation to pay rent for a New Mexico building by serving T (doing business in New York) with an order of attachment. The court acknowledged that if rent receivables are located in New York, a receiver of rents could be appointed. But T was renting in New Mexico. The rent therefore could only be reached by encumbering the land in New Mexico.

Court's Ruling

The court did not quite rule that rents were real estate and therefore unleviable by attachment. Rather, he ruled that rent receivables were debts owed by T to D. Confusingly, the CPLR distinguishes between personal property and debts, as if they are separate things. But, in New York, only debts certain to become due can be levied. CPLR 5201(a). A rent receivable is not certain to become due. Rather, it is contingent; T owes rent only if T's use and enjoyment of the premises continues. Therefore, the rent receivable was an unleviable contingent debt.

Later, the court in ABKCO Industries v. Apple Films , 385 N.Y.S.2d 511 (1976), amplified on Glassman ; a rent receivable is both a debt under CPLR 5201(a) and property under CPLR 5201(b). As a debt, it was contingent and could not be levied. As property, the rent receivable was usufructuary to New Mexico land, i.e., rent receivables are real property (as well as debts). Yet, levies under CPLR 5232(a) or 6214(a) operate only if the debtor has personal property or debts certain to become due. So rent receivables in New York are not properly leviable.

Peculiar enough. Now we must add this absurd distinction: New York distinguishes between the forward-looking obligation of the covenant running with the land and the liability for breach of the covenant. The future obligation is real property ' the rent receivable. But the breach of a past obligation is a chose in action'personal property of the debtor that can be levied, because it has already become due. Mygatt v. Coe , 26 N.E. 611, 612 (1891). For example, in Glassman, T had to pay rent a month in advance. T was levied on Dec. 21, 1965. At the time, T was current on back rent. No rent was due until Jan. 1, 1966. In December, the rent receivable was real property and an unleviable contingent debt.

Suppose the sheriff levied on Jan. 2 at a time when T had not yet paid rent. As of Jan. 1, T owed rent certainly and it was due. So, on the reasoning of Glassman, the rent receivable had become a chose in action. This chose in action was both D's personal property and a debt that has certainly become due. As such it was fully leviable. And given that a valid levy occured, the second sentence of CPLR 6214(a) now takes effect: “All ' debts of such a person ' then due and thereafter coming due to the defendant, shall be subject to the levy.”

This means that T has an ongoing duty to pay rent to the sheriff as rent accrued after Jan. 2 (the date of levy). For instance, rent in February, March, etc., was payable to the sheriff until the amount named in the order of attachment was paid. In Tenzer, Greenblatt, Fallon & Kaplan v. Abbruzzese , 293 N.Y.S.2d 634 (1968), some back rent was due and owing at the time of the levy. So all rent in the future was levied. In Tenzer, JC received years of rent that accrued after the initial valid levy.

Conclusion

In sum, JC gets rent by docketing a money judgment and by obtaining a receiver who “dispossesses” JD and collect rents. Whether rent can be levied pursuant to an ordinary execution, however, is subject to the caprice of whether, at the time of the levy, T owes back rent (a chose in action) or future rent (not D's personal property). These absurdities result from the fact that only personal (not real) property and noncontingent debts may be levied by the sheriff.

David Gray Carlson is a professor at the Benjamin N. Cardozo School of Law in New York.