Landlord & Tenant

Civil Ct. N.Y. Cty.

(Stoller, J.)

Tenant moved for an order vacating a stipulation of settlement reached in landlord's summary nonpayment proceeding. The court vacated the stipulation because tenant was a pro se litigant who, after consulting counsel, set forth a potentially meritorious defense.

In response to landlord's summary proceeding, tenant raised a single defense: breach of the warranty of habitability. The parties then stipulated to settle, with tenant consenting to a final judgment for $24,900, based on a monthly rent of $4,150. The stipulation permitted issuance of a warrant of eviction, but stayed execution of the warrant for as long as tenant met a payout schedule. After the warrant was issued, tenant retained counsel and moved to vacate the stipulation on the ground that tenant was unaware of a rent overcharge defense. In particular, tenant alleged that landlord had improperly deregulated the apartment while the apartment was still subject to a J-51 tax abatement.

In granting the motion, the court first indicated that when a tenant agrees to a stipulation of settlement while acting pro se, tenant is entitled to vacate the stipulation if tenant's counsel later discovers a “potentially meritorious” defense. Recent case law establishes that when tenant alleges that landlord deregulates a J-51 building, tenant may examine rental history more than four years old to see whether the lawful vacancy rent would exceed the threshold for luxury deregulation. In this case, tenant had established that its overcharge allegation was potentially meritorious, justifying vacatur of the stipulation.

COMMENT

A pro se tenant can obtain vacatur of a stipulation of settlement if the tenant shows that the settlement would work a substantial injustice. Hence, in Cabbad v. Melendez, the court vacated a holdover action settlement made by a pro se tenant who did not speak English and entered into a settlement that she mistakenly believed would, after she paid back rent, allow her to keep her rent-controlled apartment. 81 A.D.2d 626. Similarly, in Solack Estates, Inc. v. Goodman, the court vacated a settlement made by an elderly tenant who was “upset, crying and confused” ' as well as “under 'emotional stress' and 'considerable pressure'” ' when she agreed to forfeit possession of her apartment and pay the landlord an undisclosed sum of money in exchange for his agreement to drop his claim for back rent. 102 Misc. 2d 504, 506, aff'd, 78 A.D.2d 512. Likewise, in 144 Woodruff Corp. v. Lacrete, the court vacated a settlement made by a pro se tenant because it required rent payments “over two times greater than the legal regulated rent for her rent-stabilized apartment.” 154 Misc. 2d 301, 308-09.

Only pro se tenants can avail themselves of the substantial injustice defense. Thus, in Country Club Auto Inc. v. Sunshine Auto Spa, LLC, the court refused to apply the substantial injustice defense because “both parties were represented by attorneys, who meticulously worked out a six-page [settlement] agreement,” and the court refused to vacate the settlement because there was no indication of any fraud, unconscionability, or illegality that could justify vacatur. 32 Misc.3d 1221(A).

Pro se tenants can rely on their difficulty in obtaining funds as grounds for vacating stipulations of settlement if their difficulty was brought about in part by the landlord's actions, but courts are reluctant to grant vacatur to represented tenants on this basis. Thus, in 600 Hylan Associates v. Polshak, the court granted vacatur to a pro se tenant who successfully deployed a laches defense by showing that landlord had provided “no notice of any arrears” for several years and tenant “would be unable to pay the arrears without the assistance of the Department of Social Services.” 17 Misc. 3d 134(A). Conversely, in Chelsea 19 Associates v. James, the First Department denied vacatur to a represented tenant whose “claimed difficulty in obtaining funds” was the reason he failed to make settlement payments. 67 A.D.3d 601, 602. Similarly, in Country Club Auto Inc., the court denied vacatur to a represented tenant who defaulted on the settlement because he was “unable to secure a loan to pay the amount due.” 32 Misc.3d 1221(A).

Lease's Late-Fee Provisions Held Enforceable

Goidel & Siegel, LLP v. 122 East 42nd Street, LLC

NYLJ 1/23/13, p. 21, col. 1

Supreme Ct., N.Y. Cty.

(Hagler, J.)

On commercial tenant's motion for an order removing a nonpayment proceeding from Civil Court and staying that proceeding, landlord cross-moved for summary judgment dismissing the complaint. The court granted landlord's cross-motion, holding that tenant had not established that the lease's late-fee provisions constituted unenforceable penalties.

Tenant, a law firm, entered into a lease with landlord which provided that if tenant paid rent more than 10 days after it became due, tenant would pay 4% of the overdue amount as a late charge. The lease also included a complicated formula for payment of electricity charges. Landlord brought a nonpayment proceeding in Civil Court to collect rent, electricity charges, and late fees. Tenant challenged the validity of the late fees and the calculation of electricity charges. Civil Court struck tenant's defenses and counterclaims. Tenant then moved in Supreme Court to remove the proceeding, and landlord moved for summary judgment.

In granting landlord's motion, Supreme Court noted that the late fee provision had been negotiated by the law firm's independent counsel after landlord initially offered a lease with a 6% late-fee provision. Because the late-fee provision was negotiated by sophisticated parties, it was incumbent on tenant to come forward with evidence that the provision was unreasonable or against public policy. And because tenant failed to come forward with such evidence, landlord was entitled to summary judgment, subject to the court's grant of tenant's motion for leave to replead as to the electricity charges.

COMMENT

Courts routinely enforce late fee provisions in commercial leases negotiated by sophisticated parties. For example, in K.I.D.E. Associates v. Garage Estates Co., the Appellate Division affirmed Supreme Court's dismissal of lessee's claim for a judgment, declaring that a late fee was unenforceable. 280 A.D.2d 251. In K.I.D.E. Associates, the court emphasized that sophisticated parties had negotiated the 15-year lease, which included a monthly rental in excess of $20,000, and provided for a 5% late fee on the monthly overdue balance. Similarly, in Sidley Holding Corp. v. Ruderman, where the lessor sought termination of a lease for nonpayment, the Southern District upheld a late fee provision of three cents for each dollar past-due five days after the due date as a liquidated damages provision negotiated by sophisticated parties. 2009 WL 6047187 *2, 9 (S.D.N.Y. 2009). The court reasoned that commercial parties could agree between themselves the damages to be paid in the event of a breach when actual damages would be difficult to calculate at the commencement of the lease and the amount is not plainly disproportionate to the probable loss. Id. at *9.

By contrast, in one recent case, a court refused to enforce a lease's $25 per day late fee provision when the lease also included a separate $50 per day liquidated damages provision. In DDR Ontario Plaza v. Prime Communications of New York, 2012 WL 5183650, the Supreme Court of Wayne County denied the defendant's motion for summary judgment holding that both provisions, taken together, constituted an unenforceable penalty, but nevertheless upheld the $50 per day liquidated damages provision for each day the tenant abandoned the premises. invalidating (as “double dipping”) only the late-fee provision imposing $25 for each day rent was late when the tenant had abandoned the premises.

Late-fee provisions in residential leases are routinely held unenforceable. Although a number of courts suggest that they are enforceable when the late fee is identified as “additional rent,” is proportionate to the rent, and is reasonable in relation to the landlord's damages, there are no reported New York cases enforcing late-fee provisions in residential leases. For example, in Maplewood Mgmt. v. Jackson, which involved a summary proceeding for nonpayment of rent, the Nassau County District Court indicated that a late-fee provision imposing $20 as additional rent when tenant did not pay rent by the tenth of the month would be valid, but the court did not enforce this provision upon finding the tenant had tendered the rent on time. 113 Misc.2d 142 (1982). In Maplewood Mgmt., the court reasoned this provision was not invalid because the fee would be incurred only after one-third of the month had elapsed without payment of rent. Id. at 145-46.

In other cases, courts have invalidated late-fee provisions as disproportionate to either the rent or landlord's actual or probable losses, or as unreasonable or unconscionable. For example, in Rock v. Klepper, where the plaintiff sought refund of a security deposit after attempting to rescind a lease, the court held a late fee of $5 per day, which could amount to $150 per month, disproportionate to the rent of $875 a month. 23 Misc.3d 1103(A) (2009). In North Clinton Association v. Rehman, the court invalidated a late fee of 10% of the rent, reasoning that any fixed percentage is unenforceable without proof of actual losses incurred by the landlord as a result of the breach. 2/14/11, N.Y.L.J. 1202482550604 *1 (Dist. SUF); see also Parkchester Apartments v. Lewis, 4/22/98, N.Y.L.J. 27, col. 3 (Civ. Ct. Bronx. Co.) (invalidating a late fee of 5% of the monthly rent, reasoning it was unrelated to the landlord's actual harm); Raanana Realty v. Louis J. Rotundi Restaurant Corp., 1/9/91, N.Y.L.J. 23, col. 3 (Civ. Ct. N.Y. Co.) (invalidating a late fee of 4% of the monthly rent, reasoning it was disproportionate to any “probable loss” incurred by landlord).

Landlord Not Liable for Damages

Ospina v. Aviad

NYLJ 1/29/13, p. 27, col. 1

AppTerm, 2nd & 11th Districts

(memorandum opinion)

In an action by tenants for breach of the warranty of habitability, landlord appealed from Civil Court's award of $1,986.78 to one tenant and $2,234 to her roommate. The Appellate Term modified to reduce the award, holding that landlord was not liable for damages incurred before landlord was notified of the breach.

Tenants rented the apartment as roommates. Subsequently, they discovered a bedbug condition in the apartment, notified the landlord, and stopped paying rent. They then brought this action seeking return of their security deposits, rents paid to landlord, and damages to their property for the bedbug condition. Landlord counterclaimed for unpaid rent. Civil Court found that the bedbug condition indeed existed, and awarded damages to tenants.

In modifying, the Appellate Term agreed that tenants had adequately substantiated the existence of the bedbug condition. But the Appellate Term held that tenants could not recover for breach of the warranty of habitability or for breach of duties owed pursuant to the Multiple Dwelling Law until they gave landlord adequate time to correct the condition. In this case, tenants first notified landlord on May 23, 2010, and the court held that tenants could not recover rent paid for the last nine days of May because that period represented a reasonable time for landlord to cure. The court reduced tenants' awards to the $625 each, which represented their security deposits.

'

Rent Acceleration Clause Enforceable

Van Duzer Realty Corp. v. Globe Alumni Student Assistance Association

NYLJ 1/24/13, p. 23, col. 4

AppDiv, First Dept.

(memorandum opinion)

In landlord's action for damages suffered as a result of tenant's breach of a commercial lease, tenant appealed from Supreme Court's award of summary judgment to landlord on the issue of liability. The Appellate Division affirmed, holding that landlord was entitled to enforce the rent acceleration clause in the lease.

In 2006, landlord leased the subject premises to tenant for a 10-year term. The lease provided that tenant's obligation to pay rent was to continue in the event of termination of the lease, and provided that in the case of tenant breach, landlord was entitled to accelerate the rent due for the balance of the lease term. In 2008, landlord issued tenant a notice to cure violations of the lease. Rather than curing, tenant vacated the premises and landlord terminated the lease. Landlord then proceeded to court, first obtaining a judgment of possession in Civil Court, and then bringing the instant action seeking the balance of the rent due for the remainder of the lease term. Supreme Court granted landlord's summary judgment motion on the issue of liability, and tenant appealed.

In affirming, the Appellate Division held that landlord had made a prima facie showing of entitlement to accelerated rent, and that tenant had failed to raise a triable issue of fact on its claim that the liquidated damages provision constituted an unenforceable penalty. The court also held that the prior Civil Court judgment did not, under the principles of res judicata, bar landlord's subsequent action for recovery of accelerated rent, because accelerated rent would not have been recoverable in the Civil Court proceeding.

COMMENT

When a lease provides that tenant's default in payment of rent accelerates tenant's obligation to pay rent for the balance of the lease term, landlord is generally entitled to enforce the acceleration clause unless landlord has accepted a surrender of the premises. In Fifty States Management Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 578, the Court of Appeals enforced a clause in the parties' 20-year lease giving the landlord the option of accelerating future rent due for the balance of the lease term upon tenant's default of a monthly installment payment. After not receiving the August payment, the landlord had provided notice and an opportunity to resolve the problem. Tenant, however, failed to make the payment or a rent payment for the following month. In holding that landlord was entitled to enforce the acceleration clause, the court noted that upon payment of rent due for the balance of the term, tenant would remain entitled to possession of the premises, and would remain entitled to enforce all other covenants of the lease. The court did suggest, however, that if tenant's breach had been the result of a trifling mistake, equity might intervene to protect tenant against overreaching by landlord.

If the lease allows the landlord to accelerate the rent upon breach of a variety of covenants, many of them unrelated to payment of rent, courts will strike the entire accelerated rent clause as an enforceable penalty, denying enforcement even when tenant's breach is a failure to pay rent. Thus, in 884 West End Ave. Corp. v. Pearlman, 201 A.D. 12, 17, the court invalidated a rent acceleration clause in a five-year residential lease under which tenant's breach of any covenant in the lease, including failure to pay rent at the time and manner provided, triggered the accelerated rent clause. Id. at 13-14. Even though tenant had actually defaulted in payment of rent, the court found that the entire provision was invalid because an acceleration of payment, which was not only triggered by a default in rent, but also upon the breach of trivial and inconsequential conditions, must be treated as a penalty. Id. at 17.

A tenant is released from an accelerated rent provision if the landlord expressly or impliedly accepts the tenant's surrender and re-enters the premises to relet it for the landlord's own account. For instance, the Appellate Division in Centurian Development Ltd. v. Kenford Co., Inc., 60 A.D.2d 96, held that a landlord, who impliedly accepted the tenant's surrender of a lease, could not enforce the rent acceleration clause. Id. at 101. After the tenant's default and surrender of the premises, the landlord granted a series of options, which committed him to rent tenant's premises and make renovations, in exchange for payments of $5,000 for each option from the subsequent tenant. The court held that because landlord had impliedly accepted the original tenant's surrender, the original tenant was only liable for rent incurred from the time of attempted surrender to the acceptance of that surrender. Id.

'

Implied Year-to-Year Tenancy Created

Town of Islip v. Kismet Park Corp.

NYLJ 1/1/0/13, p. 21, col. 1

AppTerm, 9th & 10th Districts

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

In landlord's commercial holdover proceeding, landlord appealed from a District Court judgment dismissing the proceeding. The Appellate Term affirmed, holding that the parties' actions had created an implied year-to-year tenancy, which landlord had not properly terminated.

Landlord, the town, had leased underwater property to tenant beginning in 1965, pursuant to a series of written leases. The last written lease agreement expired on Dec. 31, 2005. During the course of the tenancy, tenant paid each year's annual rent in a lump sum during the following year. After that time, landlord accepted tenant's lump-sum payment for 2006 during 2007, and for 2007 during 2008. In May 2009, landlord rejected tenant's tender of the 2008 rent. The following month, landlord rejected tenant's tender of rent for 2008 and 2009, and served tenant with a 30-day notice to terminate effective July 31, 2009. Tenant then re-sent the checks, stating that they were being provided “in accordance with the parties' established practice.” The town retained the checks. Meanwhile, the town's Department of Planning and development issued tenant a wetlands and watercourses permit that expired in February 2011. The permit allowed tenant to make improvements on the premises. Tenant also paid property taxes for the 2009 and 2010 tax years. Landlord served tenant with a 30-day notice to terminate as of May 31, 2010, and brought the current holdover proceeding in July 2010. District Court dismissed the proceeding, and the town appealed.

In affirming, the Appellate Term majority held that acceptance of lump-sum payments for 2006 and 2007, together with issuance of a permit for improvements and tenant's payment of property taxes for 2009 and 2010, established that after expiration of the written lease, the parties had created an implied year-to-year tenancy that could only be terminated by notice six months before the annual expiration date of the tenancy. Because landlord did not provide tenant with unequivocal notice six months before Dec. 31, 2009, landlord was not entitled to prevail in the holdover proceeding. Justice Molia, dissenting, relied on Real Property Law section 232-c, which creates a presumption that a month-to-month tenancy is created when tenant holds over after a term of years. She argued that neither the acceptance of lump-sum payments nor retention of rent checks supported a retroactive implication of a tenancy from year to year. As a result, she would have held that six months' notice was not required, and that landlord was entitled to recover possession.

'

Tenant Entitled to Vacatur of Stipulation of Settlement

York v. Zgodny

NYLJ 2/5/13, p. 21, col. 3

Civil Ct. N.Y. Cty.

(Stoller, J.)

Tenant moved for an order vacating a stipulation of settlement reached in landlord's summary nonpayment proceeding. The court vacated the stipulation because tenant was a pro se litigant who, after consulting counsel, set forth a potentially meritorious defense.

In response to landlord's summary proceeding, tenant raised a single defense: breach of the warranty of habitability. The parties then stipulated to settle, with tenant consenting to a final judgment for $24,900, based on a monthly rent of $4,150. The stipulation permitted issuance of a warrant of eviction, but stayed execution of the warrant for as long as tenant met a payout schedule. After the warrant was issued, tenant retained counsel and moved to vacate the stipulation on the ground that tenant was unaware of a rent overcharge defense. In particular, tenant alleged that landlord had improperly deregulated the apartment while the apartment was still subject to a J-51 tax abatement.

In granting the motion, the court first indicated that when a tenant agrees to a stipulation of settlement while acting pro se, tenant is entitled to vacate the stipulation if tenant's counsel later discovers a “potentially meritorious” defense. Recent case law establishes that when tenant alleges that landlord deregulates a J-51 building, tenant may examine rental history more than four years old to see whether the lawful vacancy rent would exceed the threshold for luxury deregulation. In this case, tenant had established that its overcharge allegation was potentially meritorious, justifying vacatur of the stipulation.

COMMENT

A pro se tenant can obtain vacatur of a stipulation of settlement if the tenant shows that the settlement would work a substantial injustice. Hence, in Cabbad v. Melendez, the court vacated a holdover action settlement made by a pro se tenant who did not speak English and entered into a settlement that she mistakenly believed would, after she paid back rent, allow her to keep her rent-controlled apartment. 81 A.D.2d 626. Similarly, in Solack Estates, Inc. v. Goodman, the court vacated a settlement made by an elderly tenant who was “upset, crying and confused” ' as well as “under 'emotional stress' and 'considerable pressure'” ' when she agreed to forfeit possession of her apartment and pay the landlord an undisclosed sum of money in exchange for his agreement to drop his claim for back rent. 102 Misc. 2d 504, 506, aff'd, 78 A.D.2d 512. Likewise, in 144 Woodruff Corp. v. Lacrete, the court vacated a settlement made by a pro se tenant because it required rent payments “over two times greater than the legal regulated rent for her rent-stabilized apartment.” 154 Misc. 2d 301, 308-09.

Only pro se tenants can avail themselves of the substantial injustice defense. Thus, in Country Club Auto Inc. v. Sunshine Auto Spa, LLC, the court refused to apply the substantial injustice defense because “both parties were represented by attorneys, who meticulously worked out a six-page [settlement] agreement,” and the court refused to vacate the settlement because there was no indication of any fraud, unconscionability, or illegality that could justify vacatur. 32 Misc.3d 1221(A).

Pro se tenants can rely on their difficulty in obtaining funds as grounds for vacating stipulations of settlement if their difficulty was brought about in part by the landlord's actions, but courts are reluctant to grant vacatur to represented tenants on this basis. Thus, in 600 Hylan Associates v. Polshak, the court granted vacatur to a pro se tenant who successfully deployed a laches defense by showing that landlord had provided “no notice of any arrears” for several years and tenant “would be unable to pay the arrears without the assistance of the Department of Social Services.” 17 Misc. 3d 134(A). Conversely, in Chelsea 19 Associates v. James, the First Department denied vacatur to a represented tenant whose “claimed difficulty in obtaining funds” was the reason he failed to make settlement payments. 67 A.D.3d 601, 602. Similarly, in Country Club Auto Inc., the court denied vacatur to a represented tenant who defaulted on the settlement because he was “unable to secure a loan to pay the amount due.” 32 Misc.3d 1221(A).

Lease's Late-Fee Provisions Held Enforceable

Goidel & Siegel, LLP v. 122 East 42nd Street, LLC

NYLJ 1/23/13, p. 21, col. 1

Supreme Ct., N.Y. Cty.

(Hagler, J.)

On commercial tenant's motion for an order removing a nonpayment proceeding from Civil Court and staying that proceeding, landlord cross-moved for summary judgment dismissing the complaint. The court granted landlord's cross-motion, holding that tenant had not established that the lease's late-fee provisions constituted unenforceable penalties.

Tenant, a law firm, entered into a lease with landlord which provided that if tenant paid rent more than 10 days after it became due, tenant would pay 4% of the overdue amount as a late charge. The lease also included a complicated formula for payment of electricity charges. Landlord brought a nonpayment proceeding in Civil Court to collect rent, electricity charges, and late fees. Tenant challenged the validity of the late fees and the calculation of electricity charges. Civil Court struck tenant's defenses and counterclaims. Tenant then moved in Supreme Court to remove the proceeding, and landlord moved for summary judgment.

In granting landlord's motion, Supreme Court noted that the late fee provision had been negotiated by the law firm's independent counsel after landlord initially offered a lease with a 6% late-fee provision. Because the late-fee provision was negotiated by sophisticated parties, it was incumbent on tenant to come forward with evidence that the provision was unreasonable or against public policy. And because tenant failed to come forward with such evidence, landlord was entitled to summary judgment, subject to the court's grant of tenant's motion for leave to replead as to the electricity charges.

COMMENT

Courts routinely enforce late fee provisions in commercial leases negotiated by sophisticated parties. For example, in K.I.D.E. Associates v. Garage Estates Co., the Appellate Division affirmed Supreme Court's dismissal of lessee's claim for a judgment, declaring that a late fee was unenforceable. 280 A.D.2d 251. In K.I.D.E. Associates, the court emphasized that sophisticated parties had negotiated the 15-year lease, which included a monthly rental in excess of $20,000, and provided for a 5% late fee on the monthly overdue balance. Similarly, in Sidley Holding Corp. v. Ruderman, where the lessor sought termination of a lease for nonpayment, the Southern District upheld a late fee provision of three cents for each dollar past-due five days after the due date as a liquidated damages provision negotiated by sophisticated parties. 2009 WL 6047187 *2, 9 (S.D.N.Y. 2009). The court reasoned that commercial parties could agree between themselves the damages to be paid in the event of a breach when actual damages would be difficult to calculate at the commencement of the lease and the amount is not plainly disproportionate to the probable loss. Id. at *9.

By contrast, in one recent case, a court refused to enforce a lease's $25 per day late fee provision when the lease also included a separate $50 per day liquidated damages provision. In DDR Ontario Plaza v. Prime Communications of New York, 2012 WL 5183650, the Supreme Court of Wayne County denied the defendant's motion for summary judgment holding that both provisions, taken together, constituted an unenforceable penalty, but nevertheless upheld the $50 per day liquidated damages provision for each day the tenant abandoned the premises. invalidating (as “double dipping”) only the late-fee provision imposing $25 for each day rent was late when the tenant had abandoned the premises.

Late-fee provisions in residential leases are routinely held unenforceable. Although a number of courts suggest that they are enforceable when the late fee is identified as “additional rent,” is proportionate to the rent, and is reasonable in relation to the landlord's damages, there are no reported New York cases enforcing late-fee provisions in residential leases. For example, in Maplewood Mgmt. v. Jackson, which involved a summary proceeding for nonpayment of rent, the Nassau County District Court indicated that a late-fee provision imposing $20 as additional rent when tenant did not pay rent by the tenth of the month would be valid, but the court did not enforce this provision upon finding the tenant had tendered the rent on time. 113 Misc.2d 142 (1982). In Maplewood Mgmt., the court reasoned this provision was not invalid because the fee would be incurred only after one-third of the month had elapsed without payment of rent. Id. at 145-46.

In other cases, courts have invalidated late-fee provisions as disproportionate to either the rent or landlord's actual or probable losses, or as unreasonable or unconscionable. For example, in Rock v. Klepper, where the plaintiff sought refund of a security deposit after attempting to rescind a lease, the court held a late fee of $5 per day, which could amount to $150 per month, disproportionate to the rent of $875 a month. 23 Misc.3d 1103(A) (2009). In North Clinton Association v. Rehman, the court invalidated a late fee of 10% of the rent, reasoning that any fixed percentage is unenforceable without proof of actual losses incurred by the landlord as a result of the breach. 2/14/11, N.Y.L.J. 1202482550604 *1 (Dist. SUF); see also Parkchester Apartments v. Lewis, 4/22/98, N.Y.L.J. 27, col. 3 (Civ. Ct. Bronx. Co.) (invalidating a late fee of 5% of the monthly rent, reasoning it was unrelated to the landlord's actual harm); Raanana Realty v. Louis J. Rotundi Restaurant Corp., 1/9/91, N.Y.L.J. 23, col. 3 (Civ. Ct. N.Y. Co.) (invalidating a late fee of 4% of the monthly rent, reasoning it was disproportionate to any “probable loss” incurred by landlord).

Landlord Not Liable for Damages

Ospina v. Aviad

NYLJ 1/29/13, p. 27, col. 1

AppTerm, 2nd & 11th Districts

(memorandum opinion)

In an action by tenants for breach of the warranty of habitability, landlord appealed from Civil Court's award of $1,986.78 to one tenant and $2,234 to her roommate. The Appellate Term modified to reduce the award, holding that landlord was not liable for damages incurred before landlord was notified of the breach.

Tenants rented the apartment as roommates. Subsequently, they discovered a bedbug condition in the apartment, notified the landlord, and stopped paying rent. They then brought this action seeking return of their security deposits, rents paid to landlord, and damages to their property for the bedbug condition. Landlord counterclaimed for unpaid rent. Civil Court found that the bedbug condition indeed existed, and awarded damages to tenants.

In modifying, the Appellate Term agreed that tenants had adequately substantiated the existence of the bedbug condition. But the Appellate Term held that tenants could not recover for breach of the warranty of habitability or for breach of duties owed pursuant to the Multiple Dwelling Law until they gave landlord adequate time to correct the condition. In this case, tenants first notified landlord on May 23, 2010, and the court held that tenants could not recover rent paid for the last nine days of May because that period represented a reasonable time for landlord to cure. The court reduced tenants' awards to the $625 each, which represented their security deposits.

'

Rent Acceleration Clause Enforceable

Van Duzer Realty Corp. v. Globe Alumni Student Assistance Association

NYLJ 1/24/13, p. 23, col. 4

AppDiv, First Dept.

(memorandum opinion)

In landlord's action for damages suffered as a result of tenant's breach of a commercial lease, tenant appealed from Supreme Court's award of summary judgment to landlord on the issue of liability. The Appellate Division affirmed, holding that landlord was entitled to enforce the rent acceleration clause in the lease.

In 2006, landlord leased the subject premises to tenant for a 10-year term. The lease provided that tenant's obligation to pay rent was to continue in the event of termination of the lease, and provided that in the case of tenant breach, landlord was entitled to accelerate the rent due for the balance of the lease term. In 2008, landlord issued tenant a notice to cure violations of the lease. Rather than curing, tenant vacated the premises and landlord terminated the lease. Landlord then proceeded to court, first obtaining a judgment of possession in Civil Court, and then bringing the instant action seeking the balance of the rent due for the remainder of the lease term. Supreme Court granted landlord's summary judgment motion on the issue of liability, and tenant appealed.

In affirming, the Appellate Division held that landlord had made a prima facie showing of entitlement to accelerated rent, and that tenant had failed to raise a triable issue of fact on its claim that the liquidated damages provision constituted an unenforceable penalty. The court also held that the prior Civil Court judgment did not, under the principles of res judicata, bar landlord's subsequent action for recovery of accelerated rent, because accelerated rent would not have been recoverable in the Civil Court proceeding.

COMMENT

When a lease provides that tenant's default in payment of rent accelerates tenant's obligation to pay rent for the balance of the lease term, landlord is generally entitled to enforce the acceleration clause unless landlord has accepted a surrender of the premises. In Fifty States Management Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 578, the Court of Appeals enforced a clause in the parties' 20-year lease giving the landlord the option of accelerating future rent due for the balance of the lease term upon tenant's default of a monthly installment payment. After not receiving the August payment, the landlord had provided notice and an opportunity to resolve the problem. Tenant, however, failed to make the payment or a rent payment for the following month. In holding that landlord was entitled to enforce the acceleration clause, the court noted that upon payment of rent due for the balance of the term, tenant would remain entitled to possession of the premises, and would remain entitled to enforce all other covenants of the lease. The court did suggest, however, that if tenant's breach had been the result of a trifling mistake, equity might intervene to protect tenant against overreaching by landlord.

If the lease allows the landlord to accelerate the rent upon breach of a variety of covenants, many of them unrelated to payment of rent, courts will strike the entire accelerated rent clause as an enforceable penalty, denying enforcement even when tenant's breach is a failure to pay rent. Thus, in 884 West End Ave. Corp. v. Pearlman, 201 A.D. 12, 17, the court invalidated a rent acceleration clause in a five-year residential lease under which tenant's breach of any covenant in the lease, including failure to pay rent at the time and manner provided, triggered the accelerated rent clause. Id. at 13-14. Even though tenant had actually defaulted in payment of rent, the court found that the entire provision was invalid because an acceleration of payment, which was not only triggered by a default in rent, but also upon the breach of trivial and inconsequential conditions, must be treated as a penalty. Id. at 17.

A tenant is released from an accelerated rent provision if the landlord expressly or impliedly accepts the tenant's surrender and re-enters the premises to relet it for the landlord's own account. For instance, the Appellate Division in Centurian Development Ltd. v. Kenford Co., Inc., 60 A.D.2d 96, held that a landlord, who impliedly accepted the tenant's surrender of a lease, could not enforce the rent acceleration clause. Id. at 101. After the tenant's default and surrender of the premises, the landlord granted a series of options, which committed him to rent tenant's premises and make renovations, in exchange for payments of $5,000 for each option from the subsequent tenant. The court held that because landlord had impliedly accepted the original tenant's surrender, the original tenant was only liable for rent incurred from the time of attempted surrender to the acceptance of that surrender. Id.

'

Implied Year-to-Year Tenancy Created

Town of Islip v. Kismet Park Corp.

NYLJ 1/1/0/13, p. 21, col. 1

AppTerm, 9th & 10th Districts

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

In landlord's commercial holdover proceeding, landlord appealed from a District Court judgment dismissing the proceeding. The Appellate Term affirmed, holding that the parties' actions had created an implied year-to-year tenancy, which landlord had not properly terminated.

Landlord, the town, had leased underwater property to tenant beginning in 1965, pursuant to a series of written leases. The last written lease agreement expired on Dec. 31, 2005. During the course of the tenancy, tenant paid each year's annual rent in a lump sum during the following year. After that time, landlord accepted tenant's lump-sum payment for 2006 during 2007, and for 2007 during 2008. In May 2009, landlord rejected tenant's tender of the 2008 rent. The following month, landlord rejected tenant's tender of rent for 2008 and 2009, and served tenant with a 30-day notice to terminate effective July 31, 2009. Tenant then re-sent the checks, stating that they were being provided “in accordance with the parties' established practice.” The town retained the checks. Meanwhile, the town's Department of Planning and development issued tenant a wetlands and watercourses permit that expired in February 2011. The permit allowed tenant to make improvements on the premises. Tenant also paid property taxes for the 2009 and 2010 tax years. Landlord served tenant with a 30-day notice to terminate as of May 31, 2010, and brought the current holdover proceeding in July 2010. District Court dismissed the proceeding, and the town appealed.

In affirming, the Appellate Term majority held that acceptance of lump-sum payments for 2006 and 2007, together with issuance of a permit for improvements and tenant's payment of property taxes for 2009 and 2010, established that after expiration of the written lease, the parties had created an implied year-to-year tenancy that could only be terminated by notice six months before the annual expiration date of the tenancy. Because landlord did not provide tenant with unequivocal notice six months before Dec. 31, 2009, landlord was not entitled to prevail in the holdover proceeding. Justice Molia, dissenting, relied on Real Property Law section 232-c, which creates a presumption that a month-to-month tenancy is created when tenant holds over after a term of years. She argued that neither the acceptance of lump-sum payments nor retention of rent checks supported a retroactive implication of a tenancy from year to year. As a result, she would have held that six months' notice was not required, and that landlord was entitled to recover possession.

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