Landlord & Tenant

Apartment Not Vacant for Rent Increase Purposes When Tenant Vacated Due to Fire

Matter of Columbus 95th Street LLC v. Division of Housing and Community Renewal (DHCR)

NYLJ 10/21/10

Supreme Ct., N.Y. Cty.

(Diamond, J.)

In an article 78 proceeding, landlord challenged DHCR's denial of its request for a rent increase based on improvements made after a fire rendered the subject apartment uninhabitable. The court denied the petition and dismissed the proceeding, upholding DHCR's determination that the apartment was not “vacant” during the period tenant had been ordered to vacate the apartment due to the fire.

When tenant was ordered to vacate her apartment after a fire that had made the apartment uninhabitable, she obtained an order reducing the legal regulated rent to $1 per month. She also advised landlord that she did not want anything new or better than what was in the apartment before the fire. Within six months, landlord restored the apartment and tenant moved back in. Landlord applied to DHCR for a rent increase of 1/40 of the $25,000 it had spent on restoring the apartment. DHCR's rent administrator denied the request, relying on a 2008 change in policy holding that an apartment was not vacant when vacated due to fire, and that, as a result, landlord was not entitled to a rent increase for restoration work unless tenant consented to the work. (Before 2008, DHCR had taken the opposite position, holding that tenant's consent was not necessary for landlord to obtain increases based on improvements made as a result of fire). DHCR then denied landlord's petition for administrative review, and landlord brought this article 78 proceeding.

In denying landlord's petition, the court started with the principle that an agency is not bound by its prior rulings when it concludes those rulings were erroneous and has provided an explanation for that conclusion. The court noted that in this case, the agency had explained that its prior rulings negated the purpose of the $1 rent order, which is to preserve the prior tenant's ability to reoccupy the apartment when it is restored. As a result, the court rejected landlord's argument that DHCR's determination was arbitrary and capricious because it was inconsistent with prior agency rulings and inconsistent with prior case law.

Self-Insurance Retention Breaches Lease Provision Requiring Tenant to Obtain Insurance

Federated Retail Holdings, Inc. v. Weatherly 39th Street, LLC

NYLJ 11/1/10, p. 18., col. 1

AppDiv., First Dept.

(memorandum opinion)

In tenant's action against landlord, landlord appealed from Supreme Court's denial of its summary judgment motion and grant of tenant's cross-motion dismissing landlord's counterclaims. The Appellate Division reversed and granted landlord's summary judgment motion, holding that self-insurance did not satisfy tenant's lease obligation to maintain insurance covenant for the benefit of both landlord and tenant.

The lease required tenant to procure insurance coverage for the benefit of itself and landlord in the amount of $1 million for injury to any individual and $3 million for any one accident plus an umbrella policy of $5 million. Tenant used self-insured retentions of $1 million each for both the primary and umbrella policies. Landlord contended that these retentions breached tenant's obligation under the lease, but Supreme Court disagreed. Landlord appealed.

In reversing, the Appellate Division noted that Supreme Court's reading of the policy would render meaningless tenant's obligation to purchase specified amounts of insurance, because tenant could satisfy that obligation by purchasing a policy with a high sel-insured retention (and concomitantly low premium). Moreover, the court held that subtenant's purchase of insurance did not cure the defect, because subtenant could at any time cancel its policy, and landlord would have no remedy against subtenant because of the absence of privity. As a result, the court held that landlord was entitled to summary judgment.

Apartment Not Vacant for Rent Increase Purposes When Tenant Vacated Due to Fire

Matter of Columbus 95th Street LLC v. Division of Housing and Community Renewal (DHCR)

NYLJ 10/21/10

Supreme Ct., N.Y. Cty.

(Diamond, J.)

In an article 78 proceeding, landlord challenged DHCR's denial of its request for a rent increase based on improvements made after a fire rendered the subject apartment uninhabitable. The court denied the petition and dismissed the proceeding, upholding DHCR's determination that the apartment was not “vacant” during the period tenant had been ordered to vacate the apartment due to the fire.

When tenant was ordered to vacate her apartment after a fire that had made the apartment uninhabitable, she obtained an order reducing the legal regulated rent to $1 per month. She also advised landlord that she did not want anything new or better than what was in the apartment before the fire. Within six months, landlord restored the apartment and tenant moved back in. Landlord applied to DHCR for a rent increase of 1/40 of the $25,000 it had spent on restoring the apartment. DHCR's rent administrator denied the request, relying on a 2008 change in policy holding that an apartment was not vacant when vacated due to fire, and that, as a result, landlord was not entitled to a rent increase for restoration work unless tenant consented to the work. (Before 2008, DHCR had taken the opposite position, holding that tenant's consent was not necessary for landlord to obtain increases based on improvements made as a result of fire). DHCR then denied landlord's petition for administrative review, and landlord brought this article 78 proceeding.

In denying landlord's petition, the court started with the principle that an agency is not bound by its prior rulings when it concludes those rulings were erroneous and has provided an explanation for that conclusion. The court noted that in this case, the agency had explained that its prior rulings negated the purpose of the $1 rent order, which is to preserve the prior tenant's ability to reoccupy the apartment when it is restored. As a result, the court rejected landlord's argument that DHCR's determination was arbitrary and capricious because it was inconsistent with prior agency rulings and inconsistent with prior case law.

Self-Insurance Retention Breaches Lease Provision Requiring Tenant to Obtain Insurance

Federated Retail Holdings, Inc. v. Weatherly 39th Street, LLC

NYLJ 11/1/10, p. 18., col. 1

AppDiv., First Dept.

(memorandum opinion)

In tenant's action against landlord, landlord appealed from Supreme Court's denial of its summary judgment motion and grant of tenant's cross-motion dismissing landlord's counterclaims. The Appellate Division reversed and granted landlord's summary judgment motion, holding that self-insurance did not satisfy tenant's lease obligation to maintain insurance covenant for the benefit of both landlord and tenant.

The lease required tenant to procure insurance coverage for the benefit of itself and landlord in the amount of $1 million for injury to any individual and $3 million for any one accident plus an umbrella policy of $5 million. Tenant used self-insured retentions of $1 million each for both the primary and umbrella policies. Landlord contended that these retentions breached tenant's obligation under the lease, but Supreme Court disagreed. Landlord appealed.

In reversing, the Appellate Division noted that Supreme Court's reading of the policy would render meaningless tenant's obligation to purchase specified amounts of insurance, because tenant could satisfy that obligation by purchasing a policy with a high sel-insured retention (and concomitantly low premium). Moreover, the court held that subtenant's purchase of insurance did not cure the defect, because subtenant could at any time cancel its policy, and landlord would have no remedy against subtenant because of the absence of privity. As a result, the court held that landlord was entitled to summary judgment.