Landlord & Tenant

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by commercial tenant against landlord for damages resulting from interference with the leased premises, landlord moved to dismiss, and tenant cross-moved for summary judgment on the issue of liability. The court granted tenant's motion, holding that the lease provisions did not relieve landlord from liability for disruption due to construction work on landlord's neighboring building.

Tenant leased rooftop space atop landlord's garage building for operation of a tennis club. Landlord also owns a building adjacent to the garage building, and in April 2006, began renovation of the fa'ade of the adjacent building. Tenant alleges that during construction, landlord used the roof for construction
materials, tools and workers, and that the renovation work created construction debris that fell on the rooftop, making the tennis club partially inoperable and requiring repairs. To support its motion to dismiss, landlord relied first on a lease provision allowing it to enter the premises to make repairs, and second, on other provisions requiring tenant to obtain liability insurance and releasing landlord from liability for loss, damages, or destruction to the property to the extent tenant is insured under a policy containing a waiver of subrogation clause.

In denying landlord's motion to dismiss, the court first held that the lease's authorization of repairs extended only to the garage building itself, not to the adjacent building. The court then turned to the waiver of liability provisions, and held that even if the waiver provisions would otherwise be applicable, they applied only to landlord's actions as landlord, while in this case, the alleged liability arose from landlord's actions as adjacent landowner. In addition, the court concluded that a waiver of rights clause cannot insulate landlord from liability for its own intentional or grossly negligent conduct. As a result, the waiver could not release landlord from liability for trespass or private nuisance claims. Finally, because it was undisputed that landlord entered the building for doing work at an adjacent building, and that, as a result, tenant had to abandon use of a portion of the leased premises, tenant was entitled to summary judgment on the issue of liability on its claims for breach of the lease, trespass, and private nuisance.

COMMENT

A landlord may not relieve itself from liability for intentional torts by including an exculpatory clause in a lease. In Berenger v. 261 West LLC, 93 A.D.3d, 175, the court held that an exculpatory clause did not bar tenant's claims for trespass and nuisance based on noise and odors emanating from sponsor-landlord's maintenance of a cooling tower outside of tenant's penthouse apartment. the court held that the offering plan's exculpatory clause, which provided that “nothing contained in this section will be construed so as to render sponsor liable for money damage,” was contrary to public policy when applied to a claim for an intentional tort. However, where a commercial lease combines an exculpatory clause with a requirement that tenant purchase insurance against a harm, an exculpatory clause relieving landlord from liability for that harm is enforceable. In Duane Reade v. 405 Lexington, L.L.C., 22 A.D.3d, 108, the court held that the landlord was released from liability for leaks and falling construction debris that caused tenant's loss of business, since the commercial lease required tenant to purchase business loss insurance, and expressly provided that landlord would not carry insurance for tenant's loss of business. Although landlord's intentional activity caused tenant's loss of business, the exculpatory clause was enforceable because tenant's insurance policy would still provide tenant with a remedy for loss of business.

Where a commercial lease does not explicitly state the type of insurance tenant must purchase, an exculpatory clause does not release landlord from liability for intentional acts not covered by the insurance tenant has purchased. The court held in Reade v. Reva Holding Corp, 30 A.D.3d, 229, that landlord was not released from liability for property damage and business interruption, despite the exculpatory clause and a lease requirement that tenant purchase general liability insurance and fire insurance. Because enforcing the exculpatory clause would have left tenant without any remedies for its loss, the landlord was held liable for property damage and business interruption that was caused by its intentional construction activity.

Not-For-Profit Corporation Not Entitled to Lease Renewal

Lexington NY Realty LLC v. Iris House

NYLJ 10/11/12, p. 21, col. 3

Civil Court, N.Y. Cty.

(Stanley, J.)

In landlord's summary holdover proceeding, tenant moved to dismiss for failure to state a claim. The court denied the motion, holding that a not-for-profit tenant is not entitled to the renewal protections afforded by rent stabilization if the tenant's lease does not name a specific occupant of the apartment.

Since 1998, Iris House, a not-for-profit organization, has leased the subject apartment to provide housing and support services to individuals and families living with HIV/AIDS. The leases have been issued on rent-stabilized lease forms, but they do not name any specific occupant. In August 2011, landlord sent tenant a lease renewal form for a new lease beginning July 1, 2011. Tenant signed the lease and returned it, but landlord did not sign it. Instead, landlord served a notice to vacate, purporting to terminate tenant's monthly tenancy. Landlord then brought this summary proceeding. Tenant moved to dismiss.

In denying tenant's motion, the court rejected tenant's interpretation of section 2520.11(f) of the Rent Stabilization Code. The court indicated that a corporate tenant, even if a non-profit tenant, could assert rent stabilization protection only if the lease named a particular occupant of the apartment. The court also indicated, however, that if landlord had accepted rent at the rate specified on the lease renewal form, landlord might have accepted tenant for an additional lease term even without signing the lease.

COMMENT

When a rent-stabilized lease lists a corporation as the tenant, the corporation is not entitled to an automatic renewal of the lease unless the lease identifies the specific individual or individuals who will occupy the corporate apartment. In Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385 (Manocherian I), the Court of Appeals struck down as an unconstitutional taking a provision of the Rent Stabilization Act that mandated a landlord to renew the leases of 15 apartments to corporation hospital for the use of employee nurses. The court emphasized that the provision in effect gave the hospital a perpetual stabilized tenancy.

When Lenox Hill then asserted that the nurses themselves, as subtenants, had renewal rights, the First Department rejected the argument and held that landlord was free to evict the nurses. Manocherian v. Lenox Hill Hospital, 229 A.D. 2d 197 (Manocherian II). The court interpreted Manocherian I to permit renewal of a corporate lease only when a particular individual is named as the occupant and there is, therefore, no chance of a perpetual tenancy.

When a rent-stabilized lease to a corporation names a class of occupants as the tenants, but not a specific individual, the corporation has no right to renew, because members of the class could remain in possession indefinitely, raising the possibility of a perpetual tenancy. Thus, in 416 W 47th St. Assocs. Ltd v. Fountain House, Inc., 179 Misc.2d 351, the court held that corporate tenant was not entitled to renew a lease that identified a class of occupants which included disabled persons receiving assistance from the corporation, trainees and employees of the corporation, observing that the employees and trainees were similar to the nurses in Manocherian I.

However, if the corporate tenant has supplied the landlord with the names of the occupants, the perpetual tenancy concerns disappear and the corporation is entitled to renew the lease. Thus, in 220 West 98 Realty, L.L.C. v. New York Province of the Society of Jesus, 291 A.D.2d 13, the First Department held that corporate tenant was entitled to renew when in settlement of a prior holdover proceeding, the landlord and tenant corporation had agreed that the lease would be renewed upon receipt of a list of occupants from the corporation, which the landlord then received.

In the Absence of Fraud, Tenant and Principal Bound By Documents They Signed

Dabriel, Inc. v. First Paradise Theaters Corp.

NYLJ 10/15/12, p. 27, col. 6.

AppDiv, First Dept.

(memorandum opinion)

In an action by commercial tenant to set aside promissory notes and its principal's guarantees of their notes, and to compel landlord to perform certain work in the premises, landlord appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division modified to grant landlord's motion with respect to all but one of tenant's claims, holding that tenant and its principal were bound by the documents they signed.

A corporation owned by current tenant's principal originally leased the premises in 2003 pursuant to a lease which required landlord to perform certain work. That tenant assigned its lease to Mossberg, who subsequently stopped paying rent, leading to a nonpayment proceeding. Landlord, the original tenant, and Mossberg entered into a settlement agreement releasing all claims against each other, including a claim by the original tenant that landlord had never performed the required work. Landlord recovered possession of the premises and then, in 2009, entered into a new lease with the current corporate tenant. The lease provide that landlord had not made any representation with respect to the building's condition, and also required tenant to execute two promissory notes totaling nearly $1.5 million, and required tenant's principal to personally guarantee the loans, which were made to assist corporate tenant in leasing the premises. Corporate tenant was in arrears by 2010, and landlord then agreed to waive rent arrears and payments on the promissory notes in return for a rent increase and additional guarantees. Tenant then brought this action, contending that the notes were void as against public policy, that landlord orally represented that it would perform all of the work outlined in the 2003 agreement, that the rent could be renegotiated if it became too onerous, and that the notes and guarantees were only letters designed to avoid litigation. Landlord moved to dismiss all claims, but Supreme Court denied the motion in its entirety.

In modifying, the Appellate Division held that tenant had not alleged any of the elements necessary to show that the lease was unconscionable. The complaint included no indication of deceptive or high-pressure tactics, no disparity in bargaining power, and no lack of sophistication in the tenant's principal who ran a significant theater operation. Any allegation of fraud by the landlord failed because of the absence of any allegation that tenant's reliance on landlord's alleged representations was reasonable. The only claim that would survive dismissal was a claim by tenant for conversion of electricity.

Lease Provision Does Not Relieve Landlord of Liability

Town Tennis Member Club, Inc. v. Plaza 400 Owners Corp.

NYLJ 10/1/12

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by commercial tenant against landlord for damages resulting from interference with the leased premises, landlord moved to dismiss, and tenant cross-moved for summary judgment on the issue of liability. The court granted tenant's motion, holding that the lease provisions did not relieve landlord from liability for disruption due to construction work on landlord's neighboring building.

Tenant leased rooftop space atop landlord's garage building for operation of a tennis club. Landlord also owns a building adjacent to the garage building, and in April 2006, began renovation of the fa'ade of the adjacent building. Tenant alleges that during construction, landlord used the roof for construction
materials, tools and workers, and that the renovation work created construction debris that fell on the rooftop, making the tennis club partially inoperable and requiring repairs. To support its motion to dismiss, landlord relied first on a lease provision allowing it to enter the premises to make repairs, and second, on other provisions requiring tenant to obtain liability insurance and releasing landlord from liability for loss, damages, or destruction to the property to the extent tenant is insured under a policy containing a waiver of subrogation clause.

In denying landlord's motion to dismiss, the court first held that the lease's authorization of repairs extended only to the garage building itself, not to the adjacent building. The court then turned to the waiver of liability provisions, and held that even if the waiver provisions would otherwise be applicable, they applied only to landlord's actions as landlord, while in this case, the alleged liability arose from landlord's actions as adjacent landowner. In addition, the court concluded that a waiver of rights clause cannot insulate landlord from liability for its own intentional or grossly negligent conduct. As a result, the waiver could not release landlord from liability for trespass or private nuisance claims. Finally, because it was undisputed that landlord entered the building for doing work at an adjacent building, and that, as a result, tenant had to abandon use of a portion of the leased premises, tenant was entitled to summary judgment on the issue of liability on its claims for breach of the lease, trespass, and private nuisance.

COMMENT

A landlord may not relieve itself from liability for intentional torts by including an exculpatory clause in a lease. In Berenger v. 261 West LLC, 93 A.D.3d, 175, the court held that an exculpatory clause did not bar tenant's claims for trespass and nuisance based on noise and odors emanating from sponsor-landlord's maintenance of a cooling tower outside of tenant's penthouse apartment. the court held that the offering plan's exculpatory clause, which provided that “nothing contained in this section will be construed so as to render sponsor liable for money damage,” was contrary to public policy when applied to a claim for an intentional tort. However, where a commercial lease combines an exculpatory clause with a requirement that tenant purchase insurance against a harm, an exculpatory clause relieving landlord from liability for that harm is enforceable. In Duane Reade v. 405 Lexington, L.L.C., 22 A.D.3d, 108, the court held that the landlord was released from liability for leaks and falling construction debris that caused tenant's loss of business, since the commercial lease required tenant to purchase business loss insurance, and expressly provided that landlord would not carry insurance for tenant's loss of business. Although landlord's intentional activity caused tenant's loss of business, the exculpatory clause was enforceable because tenant's insurance policy would still provide tenant with a remedy for loss of business.

Where a commercial lease does not explicitly state the type of insurance tenant must purchase, an exculpatory clause does not release landlord from liability for intentional acts not covered by the insurance tenant has purchased. The court held in Reade v. Reva Holding Corp, 30 A.D.3d, 229, that landlord was not released from liability for property damage and business interruption, despite the exculpatory clause and a lease requirement that tenant purchase general liability insurance and fire insurance. Because enforcing the exculpatory clause would have left tenant without any remedies for its loss, the landlord was held liable for property damage and business interruption that was caused by its intentional construction activity.

Not-For-Profit Corporation Not Entitled to Lease Renewal

Lexington NY Realty LLC v. Iris House

NYLJ 10/11/12, p. 21, col. 3

Civil Court, N.Y. Cty.

(Stanley, J.)

In landlord's summary holdover proceeding, tenant moved to dismiss for failure to state a claim. The court denied the motion, holding that a not-for-profit tenant is not entitled to the renewal protections afforded by rent stabilization if the tenant's lease does not name a specific occupant of the apartment.

Since 1998, Iris House, a not-for-profit organization, has leased the subject apartment to provide housing and support services to individuals and families living with HIV/AIDS. The leases have been issued on rent-stabilized lease forms, but they do not name any specific occupant. In August 2011, landlord sent tenant a lease renewal form for a new lease beginning July 1, 2011. Tenant signed the lease and returned it, but landlord did not sign it. Instead, landlord served a notice to vacate, purporting to terminate tenant's monthly tenancy. Landlord then brought this summary proceeding. Tenant moved to dismiss.

In denying tenant's motion, the court rejected tenant's interpretation of section 2520.11(f) of the Rent Stabilization Code. The court indicated that a corporate tenant, even if a non-profit tenant, could assert rent stabilization protection only if the lease named a particular occupant of the apartment. The court also indicated, however, that if landlord had accepted rent at the rate specified on the lease renewal form, landlord might have accepted tenant for an additional lease term even without signing the lease.

COMMENT

When a rent-stabilized lease lists a corporation as the tenant, the corporation is not entitled to an automatic renewal of the lease unless the lease identifies the specific individual or individuals who will occupy the corporate apartment. In Manocherian v. Lenox Hill Hospital, 84 N.Y.2d 385 (Manocherian I), the Court of Appeals struck down as an unconstitutional taking a provision of the Rent Stabilization Act that mandated a landlord to renew the leases of 15 apartments to corporation hospital for the use of employee nurses. The court emphasized that the provision in effect gave the hospital a perpetual stabilized tenancy.

When Lenox Hill then asserted that the nurses themselves, as subtenants, had renewal rights, the First Department rejected the argument and held that landlord was free to evict the nurses. Manocherian v. Lenox Hill Hospital, 229 A.D. 2d 197 (Manocherian II). The court interpreted Manocherian I to permit renewal of a corporate lease only when a particular individual is named as the occupant and there is, therefore, no chance of a perpetual tenancy.

When a rent-stabilized lease to a corporation names a class of occupants as the tenants, but not a specific individual, the corporation has no right to renew, because members of the class could remain in possession indefinitely, raising the possibility of a perpetual tenancy. Thus, in 416 W 47th St. Assocs. Ltd v. Fountain House, Inc., 1 79 Misc.2d 351, the court held that corporate tenant was not entitled to renew a lease that identified a class of occupants which included disabled persons receiving assistance from the corporation, trainees and employees of the corporation, observing that the employees and trainees were similar to the nurses in Manocherian I.

However, if the corporate tenant has supplied the landlord with the names of the occupants, the perpetual tenancy concerns disappear and the corporation is entitled to renew the lease. Thus, in 220 West 98 Realty, L.L.C. v. New York Province of the Society of Jesus, 291 A.D.2d 13, the First Department held that corporate tenant was entitled to renew when in settlement of a prior holdover proceeding, the landlord and tenant corporation had agreed that the lease would be renewed upon receipt of a list of occupants from the corporation, which the landlord then received.

In the Absence of Fraud, Tenant and Principal Bound By Documents They Signed

Dabriel, Inc. v. First Paradise Theaters Corp.

NYLJ 10/15/12, p. 27, col. 6.

AppDiv, First Dept.

(memorandum opinion)

In an action by commercial tenant to set aside promissory notes and its principal's guarantees of their notes, and to compel landlord to perform certain work in the premises, landlord appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division modified to grant landlord's motion with respect to all but one of tenant's claims, holding that tenant and its principal were bound by the documents they signed.

A corporation owned by current tenant's principal originally leased the premises in 2003 pursuant to a lease which required landlord to perform certain work. That tenant assigned its lease to Mossberg, who subsequently stopped paying rent, leading to a nonpayment proceeding. Landlord, the original tenant, and Mossberg entered into a settlement agreement releasing all claims against each other, including a claim by the original tenant that landlord had never performed the required work. Landlord recovered possession of the premises and then, in 2009, entered into a new lease with the current corporate tenant. The lease provide that landlord had not made any representation with respect to the building's condition, and also required tenant to execute two promissory notes totaling nearly $1.5 million, and required tenant's principal to personally guarantee the loans, which were made to assist corporate tenant in leasing the premises. Corporate tenant was in arrears by 2010, and landlord then agreed to waive rent arrears and payments on the promissory notes in return for a rent increase and additional guarantees. Tenant then brought this action, contending that the notes were void as against public policy, that landlord orally represented that it would perform all of the work outlined in the 2003 agreement, that the rent could be renegotiated if it became too onerous, and that the notes and guarantees were only letters designed to avoid litigation. Landlord moved to dismiss all claims, but Supreme Court denied the motion in its entirety.

In modifying, the Appellate Division held that tenant had not alleged any of the elements necessary to show that the lease was unconscionable. The complaint included no indication of deceptive or high-pressure tactics, no disparity in bargaining power, and no lack of sophistication in the tenant's principal who ran a significant theater operation. Any allegation of fraud by the landlord failed because of the absence of any allegation that tenant's reliance on landlord's alleged representations was reasonable. The only claim that would survive dismissal was a claim by tenant for conversion of electricity.