Landlord & Tenant

Attornment Possibility Precludes Summary Judgment in Action To Eject Tenant

1426 46 St., LLC v. Klein

NYLJ 3/16/09, p. 33., col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by fee owner to eject tenant, tenant appealed from a Supreme Court order granting owner's summary judgment motion and denying tenant's summary judgment motion. The Appellate Division modified to deny owner's summary judgment motion, holding that questions of fact remained about whether a foreclosure sale extinguished tenant's 99-year lease.

Tenant apparently owned the subject premises in the 1980s, but sold it to Low in 1990 because of financial difficulties. In exchange for selling the premises to Low at a below-market price, Low gave Klein a 99-year lease to occupy the second-floor apartment. The lease, executed on Aug. 27, 1990, required tenant to pay half the carrying costs for the building and half of the payments due on a mortgage to Citibank. The lease was not recorded until 1997. Six years earlier, in 1991, Low defaulted on the mortgage, and Citibank brought a foreclosure action. Citibank did not name tenant as a party in the foreclosure action, but nevertheless obtained a judgment of foreclosure and sale. At the sale, on Oct. 14, 1994, the premises were sold to Low's sister, Horowitz. Ten years later, in 2004, Horowitz sold the premises to Daskal, who immediately transferred title to current owner, an LLC of which Daskal is the managing partner. Owner then brought this ejectment action against tenant, and Supreme Court granted summary judgment to owner.

In modifying to deny summary judgment to owner, the Appellate Division started by noting that tenant was a necessary party to the foreclosure proceeding because tenant had an interest in possession of the premises. Because tenant was not joined, the foreclosure action failed to extinguish tenant's leasehold interest. The court then concluded that the foreclosure sale to Horowitz did not extinguish tenant's rights because an unrecorded conveyance is void only as against a subsequent good-faith purchaser. Here, tenant's actual possession constitute notice of any right the person in possession would be able to establish. Next, the court turned to owner's argument that Citibank's notice of pendency in the foreclosure action extinguished tenant's interest because the tenant's lease was recorded after filing of the notice of pendency. The court rejected owner's argument because a notice of pendency does not extinguish interests actually known to the filer of the notice at the time of filing, and neither party had offered evidence to establish whether Citibank had actual or constructive notice of tenant's interest. Finally, the court held that even if the lease had been extinguished by the foreclosure judgment and sale, the owner would not be entitled to summary judgment because tenant had raised a triable issue of fact about whether the lease had been revived by attornment because tenant alleges that tenant had continued to pay rent to Horowitz after the foreclosure sale. As a result, the court held that owner was not entitled to summary judgment.

COMMENT

Under feudal doctrine, when a fee owner transferred title to a successor, the terms of a lease with the original fee owner were not binding on either party unless the tenant “attorned” to the new owner by acknowledging his obligation to that owner. Real Property Law section 224(3) provides that attornment shall not “affect the possession of the landlord” except in three circumstances, one of which when the tenant attorns to the purchaser at a foreclosure sale. When a tenant pays rent to a foreclosure sale purchaser, court have held the tenant bound to the new owner upon the same terms as the tenant previously held from the former landlord. In Kelley v. Osborn, 157 N.Y.S. 1100 (1st Dept. 1916), following foreclosure and sale of the premises, the court held tenant liable for unpaid rent for the balance of tenant's pre-foreclosure lease term, holding that tenant's payment of approximately six months rent to the foreclosure sale purchaser constituted attornment. See also Jacob Reich v. Fordon, 254 N.Y.S. 453, (1st Dept. 1931) (tenant's payment of rent to the new owner and its acceptance by him constituted acceptance of the new owner by the tenant, and an acceptance of the tenancy by the new owner) ' .

When a tenant pays rent to the purchaser at a foreclosure sale, but the amount of rental payments is inconsistent with the terms of the original lease, tenant's rent payments do not establish ATTORNMENT, and the new owner may terminate the tenancy. In Ripples of Clearview, Inc. v. Le Havre Associates, 452 N.Y.S.2d 447 (2nd Dept. 1982), the court held that tenant could not prevent the new owner from terminating its tenancy because tenant's payment of rent to the new landlord, who had purchased the premises from the foreclosure sale purchaser, was not consistent with the terms of the original lease. Tenant paid $1,000 per month to the new owner for approximately three months, at which point tenant agreed to an increase in rent to $2,500 per month, applied retroactively. The court held that even if the $1,000 per month payment represented the terms of the lease, the renegotiated payments were clearly not derived from the terms of the lease and therefore attornment doctrine did not protect the tenant.

ATTORNMENT requires the acquiescence of both the tenant and the new landlord. Even if a tenant sends the foreclosure sale purchaser written confirmation of its acceptance of the terms of the original lease, if the landlord does not accept tenant's offer to attorn, the tenant will not be bound by the lease terms. In Montdale Holding Corporation v. Kaplan, 244 N.Y.S. 735 (Mun. Ct. 1930), the purchaser at a foreclosure sale claimed that tenant's written request to exercise its option to renew the lease and repeated recognition that new owner would be tenant's landlord in extended correspondence, taking place after the judgment in foreclosure was rendered and before the expiration of the term of the lease, constituted attornment. The court held that the mere act of tenant offering to attorn was not sufficient because there was no confirmation by the new owner prior to tenant's withdrawal of the offer to attorn.

J-51 Benefits Preclude Luxury Deregulation

Roberts v. Tishman Speyer Properties LP

NYLJ 3/11/09, p. 26., col. 1

AppDiv, First Dept.

(Opinion by Nardelli, J.)

In a class action brought by tenants in the Peter Cooper Village/Stuyvesant Town Complex seeking to establish that their apartments had been improperly deregulated, tenants appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed and reinstated the complaint, holding that because landlord had received property tax benefits under New York City's J-51 tax abatement program, landlord was not entitled to avail itself of the luxury deregulation provisions in the rent stabilization law.

In 1974, as the original 25-year tax exemption for the project was about to expire, the state legislature amended the Real Property Tax Law to provide a gradual phase-in of real estate taxes for the subject complex. The amendment also provided that the apartment units would become subject to rent stabilization. Later, in 1992, landlord's predecessor began accepting benefits under New York's J-51 abatement program, which provided incentives for rehabilitation and improvement of buildings. In 1993, the state legislature enacted the Rent Regulation Reform Act (RRRA) which provided for deregulation of residential units when legal rents exceeded $2,000 and either the units became vacant or the tenants and occupants had a total annual income in excess of statutory limits. The RRRA's exclusion of luxury apartments from rent stabilization included an exception: “this exclusion shall not apply to housing accommodations which became or become subject to this law ' by virtue of receiving tax benefits pursuant to” the J-51 program. Rent Stabilization Law, secs. 26-504.1, 26-504.2[a]. Landlord in this case sought a determination from the Division of Housing and Community Renewal (DHCR) that this exception did not apply to the subject complex, because accommodations in the complex had become subject to rent stabilization long before landlord's predecessor began participating in the J-51 program. DHCR agreed, and adopted formal regulations providing that the exception does not apply unless the apartments became subject to the Rent Stabilization Law and Code solely by virtue of acceptance of J-51 tax benefits. Tenants then brought this class action, and Supreme Court awarded summary judgment to landlord. Tenants appealed.

In reversing, the Appellate Division first held that because the issue involved a pure question of statutory construction, the DHCR's determination was not entitled to deference. The court then held that the exemption from luxury decontrol applies whenever participation in the J-51 program provided a basis for rent regulation of apartments in the building, even if there might also have been other bases for regulating those apartments. That is, the court rejected DHCR's injection of the word “solely” into the statutory language, and held that the apartments in this complex had become subject to rent stabilization by virtue of receipt of J-51 tax benefits, even if the apartments would have been subject to rent stabilization without acceptance of those benefits.

COMMENT

Whatever the merits of DHCR's interpretation of the RRRA's exclusion provision, the statute's meaning is less clear than the Roberts opinion suggests. If the legislature had meant to exclude all recipients of J-51 from the luxury de-control provisions it could have excluded them more simply and explicitly, by providing, for example, that “this exclusion does not apply to housing accommodations receiving the benefits of ' J-51.” By using the less direct language that excludes accommodations that “became or become subject to this law by virtue of receiving tax benefits'” (NYC Code ” 26-504.1, 26-504.2), the legislature introduced ambiguity and invited the interpretation adopted by DHCR. The inclusion of less direct and encompassing language could indicate that the legislature did not intend to exclude all J-51 recipients from the luxury de-control provisions, especially because another provision of the same statute, section 26-504(c), uses the more encompassing language, referring to buildings “receiving the benefits of [J-51].” The difference in language suggests that the statute's drafters understood how to use direct and encompassing language, and that the failure to use that language signals an intention not to exclude all recipients of J-51 from the luxury de-control provision. While this analysis does not explain the precise meaning of the statute, it casts doubt on the court's conclusion that the statutory language is unambiguous.

Furthermore, the court ignored the possibility that the legislature acquiesced in DHCR's statutory construction by retaining the disputed language when it amended the RRRA in 2003. After the legislature enacted the luxury decontrol provision at issue in this case, DHCR issued advisory opinions and then a formal regulation (9 NY ADC 2520.11) reading the word “solely” into the statute. Yet when, the legislature amended the RRRA in 2003, the amendments focused on the income limits and rent maximums, but did not address DHCR's interpretation of the disputed language in sections 26-504.1 and 26.504.2. Had DHCR's interpretation been inconsistent with legislative intent, one might have expected the legislature to clarify the disputed language at a time when it was already amending the statute. It is, of course, possible, however, that the legislature never examined the disputed J-51 language while adjusting the income limits.

Attornment Possibility Precludes Summary Judgment in Action To Eject Tenant

1426 46 St., LLC v. Klein

NYLJ 3/16/09, p. 33., col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by fee owner to eject tenant, tenant appealed from a Supreme Court order granting owner's summary judgment motion and denying tenant's summary judgment motion. The Appellate Division modified to deny owner's summary judgment motion, holding that questions of fact remained about whether a foreclosure sale extinguished tenant's 99-year lease.

Tenant apparently owned the subject premises in the 1980s, but sold it to Low in 1990 because of financial difficulties. In exchange for selling the premises to Low at a below-market price, Low gave Klein a 99-year lease to occupy the second-floor apartment. The lease, executed on Aug. 27, 1990, required tenant to pay half the carrying costs for the building and half of the payments due on a mortgage to Citibank. The lease was not recorded until 1997. Six years earlier, in 1991, Low defaulted on the mortgage, and Citibank brought a foreclosure action. Citibank did not name tenant as a party in the foreclosure action, but nevertheless obtained a judgment of foreclosure and sale. At the sale, on Oct. 14, 1994, the premises were sold to Low's sister, Horowitz. Ten years later, in 2004, Horowitz sold the premises to Daskal, who immediately transferred title to current owner, an LLC of which Daskal is the managing partner. Owner then brought this ejectment action against tenant, and Supreme Court granted summary judgment to owner.

In modifying to deny summary judgment to owner, the Appellate Division started by noting that tenant was a necessary party to the foreclosure proceeding because tenant had an interest in possession of the premises. Because tenant was not joined, the foreclosure action failed to extinguish tenant's leasehold interest. The court then concluded that the foreclosure sale to Horowitz did not extinguish tenant's rights because an unrecorded conveyance is void only as against a subsequent good-faith purchaser. Here, tenant's actual possession constitute notice of any right the person in possession would be able to establish. Next, the court turned to owner's argument that Citibank's notice of pendency in the foreclosure action extinguished tenant's interest because the tenant's lease was recorded after filing of the notice of pendency. The court rejected owner's argument because a notice of pendency does not extinguish interests actually known to the filer of the notice at the time of filing, and neither party had offered evidence to establish whether Citibank had actual or constructive notice of tenant's interest. Finally, the court held that even if the lease had been extinguished by the foreclosure judgment and sale, the owner would not be entitled to summary judgment because tenant had raised a triable issue of fact about whether the lease had been revived by attornment because tenant alleges that tenant had continued to pay rent to Horowitz after the foreclosure sale. As a result, the court held that owner was not entitled to summary judgment.

COMMENT

Under feudal doctrine, when a fee owner transferred title to a successor, the terms of a lease with the original fee owner were not binding on either party unless the tenant “attorned” to the new owner by acknowledging his obligation to that owner. Real Property Law section 224(3) provides that attornment shall not “affect the possession of the landlord” except in three circumstances, one of which when the tenant attorns to the purchaser at a foreclosure sale. When a tenant pays rent to a foreclosure sale purchaser, court have held the tenant bound to the new owner upon the same terms as the tenant previously held from the former landlord. In Kelley v. Osborn, 1 57 N.Y.S. 1100 (1st Dept. 1916), following foreclosure and sale of the premises, the court held tenant liable for unpaid rent for the balance of tenant's pre-foreclosure lease term, holding that tenant's payment of approximately six months rent to the foreclosure sale purchaser constituted attornment. See also Jacob Reich v. Fordon, 254 N.Y.S. 453, (1st Dept. 1931) (tenant's payment of rent to the new owner and its acceptance by him constituted acceptance of the new owner by the tenant, and an acceptance of the tenancy by the new owner) ' .

When a tenant pays rent to the purchaser at a foreclosure sale, but the amount of rental payments is inconsistent with the terms of the original lease, tenant's rent payments do not establish ATTORNMENT, and the new owner may terminate the tenancy. In Ripples of Clearview, Inc. v. Le Havre Associates, 452 N.Y.S.2d 447 (2nd Dept. 1982), the court held that tenant could not prevent the new owner from terminating its tenancy because tenant's payment of rent to the new landlord, who had purchased the premises from the foreclosure sale purchaser, was not consistent with the terms of the original lease. Tenant paid $1,000 per month to the new owner for approximately three months, at which point tenant agreed to an increase in rent to $2,500 per month, applied retroactively. The court held that even if the $1,000 per month payment represented the terms of the lease, the renegotiated payments were clearly not derived from the terms of the lease and therefore attornment doctrine did not protect the tenant.

ATTORNMENT requires the acquiescence of both the tenant and the new landlord. Even if a tenant sends the foreclosure sale purchaser written confirmation of its acceptance of the terms of the original lease, if the landlord does not accept tenant's offer to attorn, the tenant will not be bound by the lease terms. In Montdale Holding Corporation v. Kaplan, 244 N.Y.S. 735 (Mun. Ct. 1930), the purchaser at a foreclosure sale claimed that tenant's written request to exercise its option to renew the lease and repeated recognition that new owner would be tenant's landlord in extended correspondence, taking place after the judgment in foreclosure was rendered and before the expiration of the term of the lease, constituted attornment. The court held that the mere act of tenant offering to attorn was not sufficient because there was no confirmation by the new owner prior to tenant's withdrawal of the offer to attorn.

J-51 Benefits Preclude Luxury Deregulation

Roberts v. Tishman Speyer Properties LP

NYLJ 3/11/09, p. 26., col. 1

AppDiv, First Dept.

(Opinion by Nardelli, J.)

In a class action brought by tenants in the Peter Cooper Village/Stuyvesant Town Complex seeking to establish that their apartments had been improperly deregulated, tenants appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed and reinstated the complaint, holding that because landlord had received property tax benefits under New York City's J-51 tax abatement program, landlord was not entitled to avail itself of the luxury deregulation provisions in the rent stabilization law.

In 1974, as the original 25-year tax exemption for the project was about to expire, the state legislature amended the Real Property Tax Law to provide a gradual phase-in of real estate taxes for the subject complex. The amendment also provided that the apartment units would become subject to rent stabilization. Later, in 1992, landlord's predecessor began accepting benefits under New York's J-51 abatement program, which provided incentives for rehabilitation and improvement of buildings. In 1993, the state legislature enacted the Rent Regulation Reform Act (RRRA) which provided for deregulation of residential units when legal rents exceeded $2,000 and either the units became vacant or the tenants and occupants had a total annual income in excess of statutory limits. The RRRA's exclusion of luxury apartments from rent stabilization included an exception: “this exclusion shall not apply to housing accommodations which became or become subject to this law ' by virtue of receiving tax benefits pursuant to” the J-51 program. Rent Stabilization Law, secs. 26-504.1, 26-504.2[a]. Landlord in this case sought a determination from the Division of Housing and Community Renewal (DHCR) that this exception did not apply to the subject complex, because accommodations in the complex had become subject to rent stabilization long before landlord's predecessor began participating in the J-51 program. DHCR agreed, and adopted formal regulations providing that the exception does not apply unless the apartments became subject to the Rent Stabilization Law and Code solely by virtue of acceptance of J-51 tax benefits. Tenants then brought this class action, and Supreme Court awarded summary judgment to landlord. Tenants appealed.

In reversing, the Appellate Division first held that because the issue involved a pure question of statutory construction, the DHCR's determination was not entitled to deference. The court then held that the exemption from luxury decontrol applies whenever participation in the J-51 program provided a basis for rent regulation of apartments in the building, even if there might also have been other bases for regulating those apartments. That is, the court rejected DHCR's injection of the word “solely” into the statutory language, and held that the apartments in this complex had become subject to rent stabilization by virtue of receipt of J-51 tax benefits, even if the apartments would have been subject to rent stabilization without acceptance of those benefits.

COMMENT

Whatever the merits of DHCR's interpretation of the RRRA's exclusion provision, the statute's meaning is less clear than the Roberts opinion suggests. If the legislature had meant to exclude all recipients of J-51 from the luxury de-control provisions it could have excluded them more simply and explicitly, by providing, for example, that “this exclusion does not apply to housing accommodations receiving the benefits of ' J-51.” By using the less direct language that excludes accommodations that “became or become subject to this law by virtue of receiving tax benefits'” (NYC Code ” 26-504.1, 26-504.2), the legislature introduced ambiguity and invited the interpretation adopted by DHCR. The inclusion of less direct and encompassing language could indicate that the legislature did not intend to exclude all J-51 recipients from the luxury de-control provisions, especially because another provision of the same statute, section 26-504(c), uses the more encompassing language, referring to buildings “receiving the benefits of [J-51].” The difference in language suggests that the statute's drafters understood how to use direct and encompassing language, and that the failure to use that language signals an intention not to exclude all recipients of J-51 from the luxury de-control provision. While this analysis does not explain the precise meaning of the statute, it casts doubt on the court's conclusion that the statutory language is unambiguous.

Furthermore, the court ignored the possibility that the legislature acquiesced in DHCR's statutory construction by retaining the disputed language when it amended the RRRA in 2003. After the legislature enacted the luxury decontrol provision at issue in this case, DHCR issued advisory opinions and then a formal regulation (9 NY ADC 2520.11) reading the word “solely” into the statute. Yet when, the legislature amended the RRRA in 2003, the amendments focused on the income limits and rent maximums, but did not address DHCR's interpretation of the disputed language in sections 26-504.1 and 26.504.2. Had DHCR's interpretation been inconsistent with legislative intent, one might have expected the legislature to clarify the disputed language at a time when it was already amending the statute. It is, of course, possible, however, that the legislature never examined the disputed J-51 language while adjusting the income limits.