Landlord & Tenant

Commercial Tenant May Use Self-Help to Recover Possession So Long As Exercise Is Peaceful

De Ibiza, LLC v. Panjo Realty, Inc.

NYLJ 10/06/10, AppTerm, First Dept.

(per curiam opinion)

In commercial tenant's wrongful eviction action, landlord appealed from Civil Court's order restoring tenant to the premises and directing an assessment of damages. The Appellate Term reversed and remanded, rejecting Civil Court's conclusion that self-help is never available to commercial landlords.

In 2008, landlord and tenant entered into a written lease for commercial purposes for a five-year term. The lease provided that if tenant were to default in payment of rent, landlord would be entitled to re-enter the premises by force or otherwise. In September 2008, landlord served a rent demand on tenant, and then sought a declaratory judgment with respect to tenant's rent obligations, together with a money judgment for arrears. The parties disputed the meaning of provisions of the lease, particularly whether tenant's rent obligations had commenced. While that action was still pending, landlord served another rent demand on tenant, alleging rent due for a period of more than a year, amounting to $270,493.21. Tenant refused to comply with the rent demand, and landlord padlocked the door of the premises. Tenant cut the lock, and landlord padlocked it again, allegedly threatening one of tenant's employees. Tenant then brought this action, seeking restoration to the premises and treble damages for wrongful eviction. Civil Court concluded that a landlord is obligated to bring a summary proceeding to recover possession, and restored tenant to possession, permitting tenant to file a notice of inquest for an assessment of damages for wrongful eviction. Landlord appealed. In reversing, the Appellate Term held that a commercial landlord may use self-help to regain possession when: 1) the lease reserves to landlord a right to reenter; 2) landlord serves on tenant a valid rent demand before entering the premises; 3) re-entry is peaceable; and 4) tenant is, in fact, in default on its rent obligation. Here, the court concluded that the lease authorized the exercise of self-help. The court remanded, however, because the undeveloped record did not make it clear whether reentry was peaceable, whether the rent demand furnished tenant with adequate notice, and whether tenant was actually in default of its obligation to pay rent.

COMMENT

Although New York courts enforce lease provisions affording a commercial landlord a self-help remedy for tenant breach, a landlord may only exercise self-help when it serves a rent demand upon the tenant before exercising that right, and serves that demand in time to provide tenant adequate time to comply with the rent demand. Thus, in North Main Street Bagel Corp., v. Duncan, 6 A.D.3d 590, the commercial landlord reserved a right of reentry in the lease, but the court held that the landlord was not entitled to exercise self-help because the landlord failed to serve a rent demand upon the tenant. Moreover, in Matter of Lee v. Ho Park, 16 A.D.3d 986, the commercial landlord reserved a right of reentry in the lease and served a rent demand, but the court held that the landlord was not entitled to exercise self-help because the landlord reentered the premises on the same day it mailed and posted the rent demand. Similarly, in De Ibiza, LLC, the court remanded for a determination of whether the rent demand furnished the tenant with adequate notice.

A commercial landlord may only exercise self-help when reentry is peaceable. If the commercial landlord padlocks the premises or otherwise retakes possession when the tenant is away from the premises, courts hold that reentry was peaceable. In Jovana Spaghetti House v. Heritage Company of Massena, 189 A.D.2d 1041, the commercial landlord reserved a right of reentry in the lease, and the court held that the landlord's reentry was peaceable where the landlord's manager entered the premises when the tenant was not present, padlocked the doors to the tenant's restaurant, and placed a temporary barricade in front of the main entrance. Similarly, in Liberty Industry Park Corp. v. Protective Packaging Corp., 71 Misc. 2d 116 , aff'd 43 A.D.2d 1020, the court held, in an action by a commercial landlord against a tenant for failure to timely vacate the premises, that the commercial landlord's reentry was peaceable where the landlord hired trucks, men, and a garbage company to remove the tenant's property from the premises while the tenant was not there.

By contrast, if landlord enters the premises while tenant physically occupies them, courts are more likely to find the eviction forcible. Thus, in Lori-Kay Golf, Inc. v. Lassner, 93 AD2d 857, rev'd on other grounds, 61 NY2d 551, the Appellate Division held that tenant had made out a prima facie case of forcible eviction against its landlord, the town, when tenant alleged that the town's police officers entered the premises and threatened tenant's principal with arrest if they did not leave the property. Moreover, when landlord's entry is forcible, tenant is entitled to damages for forcible eviction, even if tenant had breached the lease. See 110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, Inc., 265 AD2d 415 (damages available when restoration of tenant to the premises would be futile because landlord would prevail in a summary possession proceeding).

Martin Act Does Not Protect Tenants with Expired Leases

MH Residential 1, LLC v. Barrett

NYLJ 9/20/10, AppDiv, First Dept.

(per curiam opinion)

In holdover proceedings brought by landlord against market-rate tenants whose leases had expired, tenants appealed from the Appellate Term's award of possession to landlord, reversing Civil Court's grant of tenants' motion to dismiss. The Appellate Division affirmed, holding that the Martin Act did not protect tenants whose leases had expired before landlord's condominium conversion plan was accepted for filing.

On or about Feb. 1, 2006, landlord submitted a non-eviction condominium conversion offering plan. Landlord then brought holdover proceedings against 29 market-rate tenants whose leases had expired. Tenants moved to dismiss, claiming protection under the Martin Act. Civil Court denied the motion because the Martin Act offers no protection before the offering plan is accepted for filing. When the offering plan was accepted for filing on March 31, 2007, tenants served answers asserting that the Martin Act protected them from eviction based on the expiration of their tenancies (General Business Law, section 352-eeee[2][c][ii]. Civil Court agreed and dismissed the petitions. The Appellate Term reversed, and tenants appealed.

In affirming, the Appellate Division concluded that tenants did not qualify as “non-purchasing tenants” within the meaning of the Martin Act. The court noted that the act defines non-purchasing tenants as those “entitled to possession at the time the plan is declared effective.” GBL section 352-eeee[1][e]. The court held that because tenants' leases had already expired before the plan was accepted for filing, tenants were not entitle to protection under the statute. The court rejected tenants' argument that tenants remained entitled to possession until issuance of a warrant of eviction.

COMMENT

In New York, a tenant at sufferance ' a tenant who continues to be in possession of the premises against the landlord's will after the expiration of the lease ' is entitled to a 30-day notice before the landlord can terminate the tenant's possessory interest through an eviction proceeding. In North Shore Community Services v. Lehrfeld M.D., 3 Misc.3d 436, the court dismissed landlord's eviction proceeding because the landlord had failed to give the tenant at sufferance 30 days' notice prior to taking any action to recover the property.

In the event of a condominium conversion, MH Residential holds that a tenant at sufferance is not protected under the Martin Act if the landlord filed the offering plan with the Attorney General after the tenant's lease expired. The court's decision is consistent with an earlier trial court case addressing the same issue. In 322 West 57th Owner, LLC v. Grozea, 15 Misc.3d 1109, the court also concluded that market rate tenants whose leases had expired were not protected as “non-purchasing tenants” under the Martin Act.

Since the Martin Act offers no protections for tenants at sufferance, it will often be in the landlord's interest to let market-rate leases expire and to permit holdover tenants remain in occupancy until landlord files a condominium conversion plan. However, the Martin Act's prohibitions on warehousing vacant apartments makes this course of action risky if landlord allows too many leases to expire. The statute requires that landlord not have a vacancy rate of more than 10% five months prior to filing with the Attorney General and that all residences must be occupied by bona fide tenants. Bona fide tenants have the right to occupy the premises, or a right to renew their occupancy. Russell v. Raynes Associates Ltd. P'ship, 166 A.D.2d 6. Since tenants at sufferance are not bona fide tenants, they pose a substantial threat to increasing the landlord's vacancy rates if they remain in the apartments prior to the landlord filing a condominium conversion plan.

Agreement Between Tenant and Subtenant Was Not an Assignment of Lease Term

JPMorgan Chase Bank, N.A. v. HB Beach SPA, Inc.

NYLJ 10/06/2010 Civil Ct., N.Y. Cty.

(Engoron, J.)

In tenant's nonpayment proceeding against subtenant, tenant moved to dismiss subtenant's affirmative defenses, and subtenant cross-moved to dismiss the petition for lack of a landlord-tenant relationship. The court granted tenant's motion, holding that even though the purported sublease was for the duration of the lease term, the agreement between the parties was a sublease and not an assignment, creating a landlord-tenant relationship between the parties.

Tenant leased portions of the subject building from landlord in 2000. In 2003, tenant and subtenant entered into an agreement denominated a “Sublease Agreement,” by the terms of which tenant agreed to sublet portions of the premises to subtenant. Both the main lease and the sublease terminate on Aug. 31, 2016. The sublease requires subtenant to pay rent to tenant, rather than to landlord, and makes subtenant liable for tenant's attorneys' fees. On April 29, 1910, tenant brought this nonpayment proceeding. Subtenant's answer contended that tenant had no standing to bring the proceeding because the purported sublease extended for the entire duration of tenant's lease term, rendering the agreement between the parties an assignment rather than a sublease, and leaving tenant and subtenant without a landlord-tenant relationship. Tenant moved to dismiss subtenant's affirmative defenses, and subtenant cross-moved to dismiss the proceeding.

In granting tenant's motion, the court held that the agreement between the parties is not deemed an assignment merely because subtenant's term terminates on the same day as tenant's term. The court noted that the sublease provided that subtenant was to surrender possession to tenant, not to landlord, and also emphasized that the parties intended to create a sublease and not an assignment.

COMMENT

New York courts are generally unwilling to permit defaulting subtenants to rely on technical distinctions between assignments and subleases to escape rent obligations. When a landlord seeks to recover rent from a subtenant, New York courts rely on the rule that an agreement between the tenant and subtenant that devises the whole term under the original lease constitutes an assignment, and entitles the landlord to recover rent from the subtenant. Thus, in Stewart v. Long Island Railroad Company, 102 N.Y. 601, the court held that because tenant entered into a 99-year agreement with subtenant, which exceeded tenant's own 50-year lease with landlord, the agreement between tenant and subtenant left no reversion in tenant because of the extension of time far beyond the original term and therefore constituted an assignment. As a result, there was privity between the subtenant and landlord, which entitled the landlord to collect rent from the subtenant. Courts apply the same approach, enabling landlord to collect rent from the subtenant, even when the purported sublease covers less space than tenant rented from landlord. Thus, in New Amsterdam Casualty Co. v. National Union Fire Ins. Co., 266 NY 254, the Court of Appeals held that an agreement, designated a sublease, in fact constituted an assignment because the term of the agreement was identical to the main lease, even though the subtenant agreed to take only a fraction of the space leased to the main tenant. The court's holding enabled landlord to collect rent from the subtenant after the main tenant had become insolvent.

By contrast, when a tenant, rather than the landlord, seeks to recover rent from a subtenant, courts are more likely to conclude that the agreement constitutes a sublease, even if the agreement between the tenant and subtenant ends on the same day as the tenant's lease from the landlord. For instance, in Shumer v. Hurwitz, 49 Misc. 121, a case much like JPMorgan Chase, the court held that tenant had a right of possession on the last day of the sublease and thus retained an interest in the property. Landlord had leased the premises in question to tenant for a term of 10 years. Three years into the original lease, tenant sublet the premises to subtenant, retaining a right of re-entry in case of the breach of certain conditions and to delivery of possession at the end or other expiration of the term. Although subtenant claimed that rent was paid to the landlord and that tenant had divested herself of all rights by assignment, the court held that there was no privity between landlord and subtenant and, thus, that rent was owed to tenant.

Commercial Tenant May Use Self-Help to Recover Possession So Long As Exercise Is Peaceful

De Ibiza, LLC v. Panjo Realty, Inc.

NYLJ 10/06/10, AppTerm, First Dept.

(per curiam opinion)

In commercial tenant's wrongful eviction action, landlord appealed from Civil Court's order restoring tenant to the premises and directing an assessment of damages. The Appellate Term reversed and remanded, rejecting Civil Court's conclusion that self-help is never available to commercial landlords.

In 2008, landlord and tenant entered into a written lease for commercial purposes for a five-year term. The lease provided that if tenant were to default in payment of rent, landlord would be entitled to re-enter the premises by force or otherwise. In September 2008, landlord served a rent demand on tenant, and then sought a declaratory judgment with respect to tenant's rent obligations, together with a money judgment for arrears. The parties disputed the meaning of provisions of the lease, particularly whether tenant's rent obligations had commenced. While that action was still pending, landlord served another rent demand on tenant, alleging rent due for a period of more than a year, amounting to $270,493.21. Tenant refused to comply with the rent demand, and landlord padlocked the door of the premises. Tenant cut the lock, and landlord padlocked it again, allegedly threatening one of tenant's employees. Tenant then brought this action, seeking restoration to the premises and treble damages for wrongful eviction. Civil Court concluded that a landlord is obligated to bring a summary proceeding to recover possession, and restored tenant to possession, permitting tenant to file a notice of inquest for an assessment of damages for wrongful eviction. Landlord appealed. In reversing, the Appellate Term held that a commercial landlord may use self-help to regain possession when: 1) the lease reserves to landlord a right to reenter; 2) landlord serves on tenant a valid rent demand before entering the premises; 3) re-entry is peaceable; and 4) tenant is, in fact, in default on its rent obligation. Here, the court concluded that the lease authorized the exercise of self-help. The court remanded, however, because the undeveloped record did not make it clear whether reentry was peaceable, whether the rent demand furnished tenant with adequate notice, and whether tenant was actually in default of its obligation to pay rent.

COMMENT

Although New York courts enforce lease provisions affording a commercial landlord a self-help remedy for tenant breach, a landlord may only exercise self-help when it serves a rent demand upon the tenant before exercising that right, and serves that demand in time to provide tenant adequate time to comply with the rent demand. Thus, in North Main Street Bagel Corp., v. Duncan, 6 A.D.3d 590, the commercial landlord reserved a right of reentry in the lease, but the court held that the landlord was not entitled to exercise self-help because the landlord failed to serve a rent demand upon the tenant. Moreover, in Matter of Lee v. Ho Park, 16 A.D.3d 986, the commercial landlord reserved a right of reentry in the lease and served a rent demand, but the court held that the landlord was not entitled to exercise self-help because the landlord reentered the premises on the same day it mailed and posted the rent demand. Similarly, in De Ibiza, LLC, the court remanded for a determination of whether the rent demand furnished the tenant with adequate notice.

A commercial landlord may only exercise self-help when reentry is peaceable. If the commercial landlord padlocks the premises or otherwise retakes possession when the tenant is away from the premises, courts hold that reentry was peaceable. In Jovana Spaghetti House v. Heritage Company of Massena, 189 A.D.2d 1041, the commercial landlord reserved a right of reentry in the lease, and the court held that the landlord's reentry was peaceable where the landlord's manager entered the premises when the tenant was not present, padlocked the doors to the tenant's restaurant, and placed a temporary barricade in front of the main entrance. Similarly, in Liberty Industry Park Corp. v. Protective Packaging Corp., 71 Misc. 2d 116 , aff'd 43 A.D.2d 1020, the court held, in an action by a commercial landlord against a tenant for failure to timely vacate the premi s es, that the commercial landlord's reentry was peaceable where the landlord hired trucks, men, and a garbage company to remove the tenant's property from the premises while the tenant was not there.

By contrast, if landlord enters the premises while tenant physically occupies them, courts are more likely to find the eviction forcible. Thus, in Lori-Kay Golf, Inc. v. Lassner, 93 AD2d 857, rev ' d on other grounds, 61 NY2d 551, the Appellate Division held that tenant had made out a prima facie case of forcible eviction against its landlord, the town, when tenant alleged that the town's police officers entered the premises and threatened tenant's principal with arrest if they did not leave the property. Moreover, when landlord's entry is forcible, tenant is entitled to damages for forcible eviction, even if tenant had breached the lease. See 110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, Inc., 265 AD2d 415 (damages available when restoration of tenant to the premises would be futile because landlord would prevail in a summary possession proceeding).

Martin Act Does Not Protect Tenants with Expired Leases

MH Residential 1, LLC v. Barrett

NYLJ 9/20/10, AppDiv, First Dept.

(per curiam opinion)

In holdover proceedings brought by landlord against market-rate tenants whose leases had expired, tenants appealed from the Appellate Term's award of possession to landlord, reversing Civil Court's grant of tenants' motion to dismiss. The Appellate Division affirmed, holding that the Martin Act did not protect tenants whose leases had expired before landlord's condominium conversion plan was accepted for filing.

On or about Feb. 1, 2006, landlord submitted a non-eviction condominium conversion offering plan. Landlord then brought holdover proceedings against 29 market-rate tenants whose leases had expired. Tenants moved to dismiss, claiming protection under the Martin Act. Civil Court denied the motion because the Martin Act offers no protection before the offering plan is accepted for filing. When the offering plan was accepted for filing on March 31, 2007, tenants served answers asserting that the Martin Act protected them from eviction based on the expiration of their tenancies (General Business Law, section 352-eeee[2][c][ii]. Civil Court agreed and dismissed the petitions. The Appellate Term reversed, and tenants appealed.

In affirming, the Appellate Division concluded that tenants did not qualify as “non-purchasing tenants” within the meaning of the Martin Act. The court noted that the act defines non-purchasing tenants as those “entitled to possession at the time the plan is declared effective.” GBL section 352-eeee[1][e]. The court held that because tenants' leases had already expired before the plan was accepted for filing, tenants were not entitle to protection under the statute. The court rejected tenants' argument that tenants remained entitled to possession until issuance of a warrant of eviction.

COMMENT

In New York, a tenant at sufferance ' a tenant who continues to be in possession of the premises against the landlord's will after the expiration of the lease ' is entitled to a 30-day notice before the landlord can terminate the tenant's possessory interest through an eviction proceeding. In North Shore Community Services v. Lehrfeld M.D., 3 Misc.3d 436, the court dismissed landlord's eviction proceeding because the landlord had failed to give the tenant at sufferance 30 days' notice prior to taking any action to recover the property.

In the event of a condominium conversion, MH Residential holds that a tenant at sufferance is not protected under the Martin Act if the landlord filed the offering plan with the Attorney General after the tenant's lease expired. The court's decision is consistent with an earlier trial court case addressing the same issue. In 322 West 57th Owner, LLC v. Grozea, 15 Misc.3d 1109, the court also concluded that market rate tenants whose leases had expired were not protected as “non-purchasing tenants” under the Martin Act.

Since the Martin Act offers no protections for tenants at sufferance, it will often be in the landlord's interest to let market-rate leases expire and to permit holdover tenants remain in occupancy until landlord files a condominium conversion plan. However, the Martin Act's prohibitions on warehousing vacant apartments makes this course of action risky if landlord allows too many leases to expire. The statute requires that landlord not have a vacancy rate of more than 10% five months prior to filing with the Attorney General and that all residences must be occupied by bona fide tenants. Bona fide tenants have the right to occupy the premises, or a right to renew their occupancy. Russell v. Raynes Associates Ltd. P'ship, 166 A.D.2d 6. Since tenants at sufferance are not bona fide tenants, they pose a substantial threat to increasing the landlord's vacancy rates if they remain in the apartments prior to the landlord filing a condominium conversion plan.

Agreement Between Tenant and Subtenant Was Not an Assignment of Lease Term

JPMorgan Chase Bank, N.A. v. HB Beach SPA, Inc.

NYLJ 10/06/2010 Civil Ct., N.Y. Cty.

(Engoron, J.)

In tenant's nonpayment proceeding against subtenant, tenant moved to dismiss subtenant's affirmative defenses, and subtenant cross-moved to dismiss the petition for lack of a landlord-tenant relationship. The court granted tenant's motion, holding that even though the purported sublease was for the duration of the lease term, the agreement between the parties was a sublease and not an assignment, creating a landlord-tenant relationship between the parties.

Tenant leased portions of the subject building from landlord in 2000. In 2003, tenant and subtenant entered into an agreement denominated a “Sublease Agreement,” by the terms of which tenant agreed to sublet portions of the premises to subtenant. Both the main lease and the sublease terminate on Aug. 31, 2016. The sublease requires subtenant to pay rent to tenant, rather than to landlord, and makes subtenant liable for tenant's attorneys' fees. On April 29, 1910, tenant brought this nonpayment proceeding. Subtenant's answer contended that tenant had no standing to bring the proceeding because the purported sublease extended for the entire duration of tenant's lease term, rendering the agreement between the parties an assignment rather than a sublease, and leaving tenant and subtenant without a landlord-tenant relationship. Tenant moved to dismiss subtenant's affirmative defenses, and subtenant cross-moved to dismiss the proceeding.

In granting tenant's motion, the court held that the agreement between the parties is not deemed an assignment merely because subtenant's term terminates on the same day as tenant's term. The court noted that the sublease provided that subtenant was to surrender possession to tenant, not to landlord, and also emphasized that the parties intended to create a sublease and not an assignment.

COMMENT

New York courts are generally unwilling to permit defaulting subtenants to rely on technical distinctions between assignments and subleases to escape rent obligations. When a landlord seeks to recover rent from a subtenant, New York courts rely on the rule that an agreement between the tenant and subtenant that devises the whole term under the original lease constitutes an assignment, and entitles the landlord to recover rent from the subtenant. Thus, in Stewart v. Long Island Railroad Company, 102 N.Y. 601, the court held that because tenant entered into a 99-year agreement with subtenant, which exceeded tenant's own 50-year lease with landlord, the agreement between tenant and subtenant left no reversion in tenant because of the extension of time far beyond the original term and therefore constituted an assignment. As a result, there was privity between the subtenant and landlord, which entitled the landlord to collect rent from the subtenant. Courts apply the same approach, enabling landlord to collect rent from the subtenant, even when the purported sublease covers less space than tenant rented from landlord. Thus, in New Amsterdam Casualty Co. v. National Union Fire Ins. Co., 266 NY 254, the Court of Appeals held that an agreement, designated a sublease, in fact constituted an assignment because the term of the agreement was identical to the main lease, even though the subtenant agreed to take only a fraction of the space leased to the main tenant. The court's holding enabled landlord to collect rent from the subtenant after the main tenant had become insolvent.

By contrast, when a tenant, rather than the landlord, seeks to recover rent from a subtenant, courts are more likely to conclude that the agreement constitutes a sublease, even if the agreement between the tenant and subtenant ends on the same day as the tenant's lease from the landlord. For instance, in Shumer v. Hurwitz, 49 Misc. 121, a case much like JPMorgan Chase, the court held that tenant had a right of possession on the last day of the sublease and thus retained an interest in the property. Landlord had leased the premises in question to tenant for a term of 10 years. Three years into the original lease, tenant sublet the premises to subtenant, retaining a right of re-entry in case of the breach of certain conditions and to delivery of possession at the end or other expiration of the term. Although subtenant claimed that rent was paid to the landlord and that tenant had divested herself of all rights by assignment, the court held that there was no privity between landlord and subtenant and, thus, that rent was owed to tenant.