Landlord & Tenant

Acceptance of Rent Does Not Vitiate Termination Notice

Broadcom West Development Co. v. Lumpkin

NYLJ 1/8/09, p. 27., col. 1

Civil Ct, N.Y. Cty

(Kraus, J.).

In a landlord's summary holdover proceeding, a tenant sought to dismiss, contending that the landlord's acceptance of rent payments vitiated the notice of termination. The court awarded the landlord a judgment of possession, concluding that acceptance of rent did not vitiate the termination notice.

In consideration for a loan from the Housing Development Corporation, the landlord agreed to maintain 20% of its units as low income units subject to regulatory requirements. The tenant occupies one of those units, and, in accordance with the regulations, is required to provide annual certifications of income and household size, along with other documentation. When the tenant, after repeated requests, failed to provide the documentation, the landlord, on July 2, 2008, served a notice of termination indicating that tenant's tenancy would be terminated on July 21. Then, on Aug. 1, 2008, the landlord filed the notice of petition and petition in this summary proceeding. The petition was personally served on the tenant on Aug. 5. Meanwhile, the landlord accepted a rent payment for July 2008 on July 2, and accepted a rent payment for August 2008 on Aug. 4 (the check had been mailed on July 31). The tenant contended that the landlord's acceptance of these checks vitiated the notice of termination, and also constituted a waiver of the landlord's right to terminate the tenancy.

In awarding possession to landlord, the court held that when the tenant made his July rent payment, he had not yet received the notice of termination, and the tenancy had not been terminated. Moreover, his obligation to pay the July rent had already ripened. On these facts, the court held that the landlord's acceptance of the July rent check did not vitiate the notice of termination. With respect to the August payment, the court relied on RPAPL section 711(1), which provides that acceptance of rent after commencement of a special proceeding shall not terminate the proceeding or affect any award of possession to landlord. The court then held that on the merits, the landlord had established a breach of lease obligations, and an entitlement to possession.

COMMENT

A landlord's acceptance of rent from a tenant after the landlord has served a notice of termination and before landlord has commenced a holdover proceeding generally vitiates the notice of termination. Thus, in Associated Realties v. Brown, 146 Misc.2d 1069, the court held that landlord's acceptance of the September rent after serving a notice of termination on Sept. 7 required dismissal of landlord's subsequent holdover proceeding. The court explained that the acceptance of the rent for a period after the date of the notice of termination sends mixed messages to the tenant: The notice tells the tenant to remove from the premises, while acceptance of rent sends a contrary message.

Although acceptance of rent may vitiate the notice of termination, Associated Realties cautioned that acceptance “does not automatically rise to the level of a voluntary abandonment of its right to ultimately terminate respondent's tenancy for the conduct alleged.” Id. at 1071. That is, if landlord subsequently serves a new notice of termination, landlord will be entitled to commence a new holdover proceeding unless landlord's acceptance of rent constituted a voluntary abandonment of its right to terminate.

Some courts have gone further, and held that landlord's receipt of a rent check, and even cashing of a rent check, does not constitute acceptance of rent and vitiate the notice of termination if the receipt or cashing of the check was inadvertent. Thus, in Macleay Woods Housing Co. v. Franks, 16 Misc3d 1136A, the court held that a landlord who received and cashed rent checks, but returned them within 14 days, had not accepted rent. As a result, the notice of termination remained effective, and landlord was entitled to proceed with a holdover proceeding against tenant. based on the same breach. See also West Waverly Equities v. Lieff, 190 Misc.2d 280, where the landlord accepted a rent payment after the tenant's breach but before the commencement of a holdover proceeding and the court ruled that since the landlord did not purposely relinquish a known right by accepting a single, unsolicited rent payment, acceptance did not vitiate the termination proceeding.

Moreover, once a landlord brings a holdover proceeding, subsequent acceptance of rent from the tenant will not vitiate the termination proceeding. RPAPL ' 711(1) explicitly provides that “acceptance of rent after commencement of the special (holdover) proceeding'shall not terminate such proceeding nor effect any award of possession to the landlord or to the new lessee.” Once commencement of the holdover proceeding puts the tenant that landlord is not excusing any breach, the statutory provision enables the landlord to accept the rent money from the tenant to minimize his loss due to the breach without surrendering his right to terminate.

No Eviction for Rent Profiteering

Cambridge Development, LLC v. Staysna

NYLJ 12/31/08, p. 39, col. 1

AppTerm, First Dept.

(2-1 decision; memorandum opinion; dissenting memorandum by McKeon, J.)

In a landlord's proceeding to evict a rent-stabilized tenant for rent profiteering, the tenant appealed from a Civil Court order issuing a warrant of eviction. A divided Appellate Term permanently stayed execution of the warrant, holding that tenant's lapse in judgment did not warrant the remedy of eviction.

The rent-stabilized tenant sublet his apartment, which had a legal regulated rent of $425, for a monthly rent of $1,625. The tenant also collected $1,625 as a security deposit. During the first month of the subtenant's possession, the tenant was made aware of the overcharge, and the tenant gave the subtenant a credit for amounts previously paid. Nevertheless, the landlord brought this summary possession proceeding based on the tenant's profiteering. The subtenant then vacated.

The tenant did not refund the subtenant any of the rent paid, even though it was in excess of the legal rent for the period the subtenant had been in possession. Civil Court awarded the landlord a judgment of possession, and issued a warrant of eviction.

Although the Appellate Term was in agreement that the landlord had established that the tenant had collected more than the legal rent from the subtenant, the Appellate Term majority concluded that the penalty of eviction was neither required or appropriate in light of the insubstantial overcharge (after the tenant credited the subtenant's payments against rent “due”). Accordingly, the court issued a stay of the warrant of eviction. Justice McKeon, dissenting, emphasized that the tenant had charged the subtenant 382% above the legal regulated rent, and did not credit the subtenant for the amount overcharged until tenant was caught in the overcharge.

Breach of Contract Claim Not Barred by Liquidated Damages Provision

Deer Park Enterprises, LLC v. AIL Systems, Inc.

NYLJ 12/29/09, p. 30, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by a landlord for breach of contract by the tenant, the tenant appealed from the Supreme Court's denial of its motion to dismiss two of the landlord's causes of action. The Appellate Division modified to dismiss the cause of action for breach of the duty of good faith and fair dealing, but otherwise affirmed, holding that the the landlord's breach of contract claim was not barred by a liquidated damages provision in the lease agreement.

The landlord alleged that pursuant to a purchase agreement and lease between the parties, the tenant undertook an obligation to conduct an environmental cleanup. The landlord also alleged that the tenant failed to satisfy that obligation. As a result, the landlord contended that the tenant breached its obligation of good faith and fair dealing, as well as breaching the contract. The tenant contended that it was not liable for any breach, relying on a provision in the lease agreement specifying that if the tenant failed to comply with its environmental obligations prior to its surrender of the lease, the tenant remained liable for rent until it did comply. The tenant argued that this provision constituted a liquidated damages provision, and precluded the landlord from any recovery beyond the rent due under the lease. The Supreme Court denied the tenant's motion to dismiss, and the tenant appealed.

The Appellate Division first agreed with the tenant that the claim for breach of the obligation of good faith and fair dealing could not be sustained, because that claim was intrinsically tied to the breach of contract claim. But the court held that the Supreme Court had properly denied the tenant's motion to dismiss the breach of contract claim. First, the court held that the provision requiring the tenant to pay rent until it had complied with its cleanup obligations did not constitute an unambiguous liquidated damages provision. The court concluded that the provision created an obligation in the tenant, but did not limit the tenant's obligation to the landlord for harms to the landlord's ability to develop the premises. The court also rejected the tenant's claim that a tenant's liability for breach of a lease obligation is limited to the rent due under the lease, noting that liability is so limited only when a landlord's loss results from a shortfall in a tenant's occupancy under the lease, not where, as here, a landlord's loss results from an alleged failure to comply with cleanup obligations created by the lease agreement.

Acceptance of Rent Does Not Vitiate Termination Notice

Broadcom West Development Co. v. Lumpkin

NYLJ 1/8/09, p. 27., col. 1

Civil Ct, N.Y. Cty

(Kraus, J.).

In a landlord's summary holdover proceeding, a tenant sought to dismiss, contending that the landlord's acceptance of rent payments vitiated the notice of termination. The court awarded the landlord a judgment of possession, concluding that acceptance of rent did not vitiate the termination notice.

In consideration for a loan from the Housing Development Corporation, the landlord agreed to maintain 20% of its units as low income units subject to regulatory requirements. The tenant occupies one of those units, and, in accordance with the regulations, is required to provide annual certifications of income and household size, along with other documentation. When the tenant, after repeated requests, failed to provide the documentation, the landlord, on July 2, 2008, served a notice of termination indicating that tenant's tenancy would be terminated on July 21. Then, on Aug. 1, 2008, the landlord filed the notice of petition and petition in this summary proceeding. The petition was personally served on the tenant on Aug. 5. Meanwhile, the landlord accepted a rent payment for July 2008 on July 2, and accepted a rent payment for August 2008 on Aug. 4 (the check had been mailed on July 31). The tenant contended that the landlord's acceptance of these checks vitiated the notice of termination, and also constituted a waiver of the landlord's right to terminate the tenancy.

In awarding possession to landlord, the court held that when the tenant made his July rent payment, he had not yet received the notice of termination, and the tenancy had not been terminated. Moreover, his obligation to pay the July rent had already ripened. On these facts, the court held that the landlord's acceptance of the July rent check did not vitiate the notice of termination. With respect to the August payment, the court relied on RPAPL section 711(1), which provides that acceptance of rent after commencement of a special proceeding shall not terminate the proceeding or affect any award of possession to landlord. The court then held that on the merits, the landlord had established a breach of lease obligations, and an entitlement to possession.

COMMENT

A landlord's acceptance of rent from a tenant after the landlord has served a notice of termination and before landlord has commenced a holdover proceeding generally vitiates the notice of termination. Thus, in Associated Realties v. Brown, 146 Misc.2d 1069, the court held that landlord's acceptance of the September rent after serving a notice of termination on Sept. 7 required dismissal of landlord's subsequent holdover proceeding. The court explained that the acceptance of the rent for a period after the date of the notice of termination sends mixed messages to the tenant: The notice tells the tenant to remove from the premises, while acceptance of rent sends a contrary message.

Although acceptance of rent may vitiate the notice of termination, Associated Realties cautioned that acceptance “does not automatically rise to the level of a voluntary abandonment of its right to ultimately terminate respondent's tenancy for the conduct alleged.” Id. at 1071. That is, if landlord subsequently serves a new notice of termination, landlord will be entitled to commence a new holdover proceeding unless landlord's acceptance of rent constituted a voluntary abandonment of its right to terminate.

Some courts have gone further, and held that landlord's receipt of a rent check, and even cashing of a rent check, does not constitute acceptance of rent and vitiate the notice of termination if the receipt or cashing of the check was inadvertent. Thus, in Macleay Woods Housing Co. v. Franks, 16 Misc3d 1136A, the court held that a landlord who received and cashed rent checks, but returned them within 14 days, had not accepted rent. As a result, the notice of termination remained effective, and landlord was entitled to proceed with a holdover proceeding against tenant. based on the same breach. See also West Waverly Equities v. Lieff, 190 Misc.2d 280, where the landlord accepted a rent payment after the tenant's breach but before the commencement of a holdover proceeding and the court ruled that since the landlord did not purposely relinquish a known right by accepting a single, unsolicited rent payment, acceptance did not vitiate the termination proceeding.

Moreover, once a landlord brings a holdover proceeding, subsequent acceptance of rent from the tenant will not vitiate the termination proceeding. RPAPL ' 711(1) explicitly provides that “acceptance of rent after commencement of the special (holdover) proceeding'shall not terminate such proceeding nor effect any award of possession to the landlord or to the new lessee.” Once commencement of the holdover proceeding puts the tenant that landlord is not excusing any breach, the statutory provision enables the landlord to accept the rent money from the tenant to minimize his loss due to the breach without surrendering his right to terminate.

No Eviction for Rent Profiteering

Cambridge Development, LLC v. Staysna

NYLJ 12/31/08, p. 39, col. 1

AppTerm, First Dept.

(2-1 decision; memorandum opinion; dissenting memorandum by McKeon, J.)

In a landlord's proceeding to evict a rent-stabilized tenant for rent profiteering, the tenant appealed from a Civil Court order issuing a warrant of eviction. A divided Appellate Term permanently stayed execution of the warrant, holding that tenant's lapse in judgment did not warrant the remedy of eviction.

The rent-stabilized tenant sublet his apartment, which had a legal regulated rent of $425, for a monthly rent of $1,625. The tenant also collected $1,625 as a security deposit. During the first month of the subtenant's possession, the tenant was made aware of the overcharge, and the tenant gave the subtenant a credit for amounts previously paid. Nevertheless, the landlord brought this summary possession proceeding based on the tenant's profiteering. The subtenant then vacated.

The tenant did not refund the subtenant any of the rent paid, even though it was in excess of the legal rent for the period the subtenant had been in possession. Civil Court awarded the landlord a judgment of possession, and issued a warrant of eviction.

Although the Appellate Term was in agreement that the landlord had established that the tenant had collected more than the legal rent from the subtenant, the Appellate Term majority concluded that the penalty of eviction was neither required or appropriate in light of the insubstantial overcharge (after the tenant credited the subtenant's payments against rent “due”). Accordingly, the court issued a stay of the warrant of eviction. Justice McKeon, dissenting, emphasized that the tenant had charged the subtenant 382% above the legal regulated rent, and did not credit the subtenant for the amount overcharged until tenant was caught in the overcharge.

Breach of Contract Claim Not Barred by Liquidated Damages Provision

Deer Park Enterprises, LLC v. AIL Systems, Inc.

NYLJ 12/29/09, p. 30, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by a landlord for breach of contract by the tenant, the tenant appealed from the Supreme Court's denial of its motion to dismiss two of the landlord's causes of action. The Appellate Division modified to dismiss the cause of action for breach of the duty of good faith and fair dealing, but otherwise affirmed, holding that the the landlord's breach of contract claim was not barred by a liquidated damages provision in the lease agreement.

The landlord alleged that pursuant to a purchase agreement and lease between the parties, the tenant undertook an obligation to conduct an environmental cleanup. The landlord also alleged that the tenant failed to satisfy that obligation. As a result, the landlord contended that the tenant breached its obligation of good faith and fair dealing, as well as breaching the contract. The tenant contended that it was not liable for any breach, relying on a provision in the lease agreement specifying that if the tenant failed to comply with its environmental obligations prior to its surrender of the lease, the tenant remained liable for rent until it did comply. The tenant argued that this provision constituted a liquidated damages provision, and precluded the landlord from any recovery beyond the rent due under the lease. The Supreme Court denied the tenant's motion to dismiss, and the tenant appealed.

The Appellate Division first agreed with the tenant that the claim for breach of the obligation of good faith and fair dealing could not be sustained, because that claim was intrinsically tied to the breach of contract claim. But the court held that the Supreme Court had properly denied the tenant's motion to dismiss the breach of contract claim. First, the court held that the provision requiring the tenant to pay rent until it had complied with its cleanup obligations did not constitute an unambiguous liquidated damages provision. The court concluded that the provision created an obligation in the tenant, but did not limit the tenant's obligation to the landlord for harms to the landlord's ability to develop the premises. The court also rejected the tenant's claim that a tenant's liability for breach of a lease obligation is limited to the rent due under the lease, noting that liability is so limited only when a landlord's loss results from a shortfall in a tenant's occupancy under the lease, not where, as here, a landlord's loss results from an alleged failure to comply with cleanup obligations created by the lease agreement.