Landlord & Tenant

AppDiv, Second Dept.

(memorandum opinion)

In tenant's action for seeking damages for breach of a lease agreement and return of its security deposit, tenant, tenant's guarantor and landlord all appealed from Supreme Court's denial of their summary judgment motions. The Appellate Division affirmed, holding that questions of fact remained about whether tenant had anticipatorily repudiated the lease.

Tenant entered into a 15-year commercial lease for the subject premises, and tenant's corporate parent guaranteed tenant's lease obligations. Before the inception of the lease term, tenant notified landlord that it was experiencing financial difficulties, and subsequently sent landlord an e-mail message outlining certain options for modifying the lease terms. Landlord then stopped construction it was performing to comply with the lease terms, and then terminated the lease. Tenant brought this action seeking to recover its security deposit and damages for landlord's breach. Landlord counterclaimed for damages resulting from tenant's alleged anticipatory repudiation, and also brought a third-party action against tenant's corporate parent to recover on the parent's guarantee. All parties moved for summary judgment, and Supreme Court denied all of the motions.

In affirming, the Appellate Division started by noting that when a party repudiates contract duties before the time for performance and before all consideration has been fulfilled, the nonrepudiating party may recover damages for total breach. But the court concluded that tenant's mere expression of difficulty in tendering performance is not a sufficiently unequivocal repudiation. Here, the court concluded that tenant's e-mail was not a sufficiently definite expression of its intention not to perform. But the court agreed with the trial court that issues of fact remained about whether tenant's chief executive officer expressed an unequivocal intention not to perform.

Landlord Not Liable for Breaches of Its Predecessor

Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC

NYLJ 1/21/14, p. 20, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by tenant for breach of lease obligations, landlord appealed from Supreme Court's denial of landlord's motion to dismiss. The Appellate Division reversed and dismissed the complaint, holding that under the terms of the lease, landlord was not liable for breaches of its predecessor.

Tenant leased the subject premises from landlord's predecessor. The latter began a renovation of the building's lobby in 2007, and tenant contends that portions of the premises remained derelict and “war-torn” in appearance more than four years later, when current landlord purchased the building. Tenant brought this action for breach of the lease after current landlord acquired title, seeking damages for the period during which landlord's predecessor owned the building. Landlord moved to dismiss the complaint with respect to damages for that period, but Supreme Court denied the motion. Landlord appealed.

In reversing, the Appellate Division focused on a provision of the lease indicating that lessor shall not be “liable for any act, omission or default of any prior landlord.” The court held that this provision trumped another provision in the lease indicating that the lease shall be deemed to run with the land and that any transferee agreed to assume and carry out any covenants or obligations of the landlord.

COMMENT

Where a lease between an original landlord and tenant expressly provides that successor landlords shall be bound to a particular covenant in the lease, courts will enforce the covenant against landlord's successors-in-interest. Thus, in Bank of New York, Albany v. Hirschfeld, t he court held that successor landlord was bound by a covenant to provide tenant with 10 free parking spaces, since the lease provided that successor landlords would carry out any and all covenants and obligations of the predecessor, and the lease was duly recorded which gave any subsequent purchaser notice of such covenants. Bank of New York, Albany v. Hirschfeld, 37 N.Y.2d 501 (1975).

When a lease requires successor landlords to carry out all of the lease covenants, the successor landlord does not incur liability for breaches committed by predecessor landlord before the successor took possession. Thus, in Kramer Levin Naftalis & Frankel, LLP v. Metropolitan, the court held that successor landlord was not liable for rent credits owed to a tenant by predecessor for rent overcharges, despite a clause in the lease stating that successor was to carry out any and all covenants and obligations of predecessor. The court emphasized that successor only had a duty to abide by all covenants from the time he took possession, and was not required to incur liability for breaches that occurred beforehand. 6 Misc.3d 796.

If a lease between landlord and tenant does not explicitly state whether successor landlords are bound, successors-in-interest will be bound to those covenants that touch or concern the land, but will not be bound to those covenants that are purely personal in nature. Thus, the Appellate Term in Carrano v. Castro held that the successor was bound by a covenant entered into by predecessor landlord stating that new tenants would be given all the rights of the Rent Stabilization Law, including renewal leases, when the purchaser was given notice. Carrano v. Castro, 12 Misc.3d 5. Although the lease did not contain any express language that would bind successor landlords to such covenants, because rent stabilization leases run with the land and the agreement touched the premises, any successors-in-interest are bound provided they are given notice. Carrano v. Castro, 44 A.D.3d 1038. By contrast, the court in Spivak v. Madison held that where a lease was silent as to an agreement between former landlord and broker requiring payment of commission upon tenant's renewal of lease, successor landlord was not liable to pay a brokerage commission when tenant renewed the lease since such a covenant or obligation was purely personal and did not touch or concern the land. Spivak v. Madison, 60 Misc.2d 483.

Successful Tenant Entitled To Attorneys' Fees

Graham Court Owner's Corp. v. Taylor

NYLJ 1/24/14

AppDiv, First Dept.

(3-2 decision; majority opinion by Renwick, J; dissenting opinion by DeGrasse, J.)

In landlord's holdover proceeding, tenant appealed from the Appellate Term's reversal of Civil Court's award of attorneys fees to tenant. The Appellate Division modified and reinstated the award of attorneys fees, holding that a lease provision entitling landlord to deduct attorneys fees from rentals collected after tenant breach was sufficient to entitle tenant to fees under Real Property Law section 234.

The year after tenant took possession of the subject apartment, tenant successfully brought a rent overcharge complaint. Landlord then brought the instant holdover proceeding, contending that tenant had violated the lease by making alterations without landlord's prior written consent. Civil Court dismissed the proceeding, finding that landlord's agents had authorized tenant to make the alterations, and that tenant was not, therefore, in breach. Civil Court awarded attorneys fees to tenant based on the retaliatory eviction statute, Real Property Law section 223-b. The Appellate Term held that Civil Court had properly dismissed the proceeding, but concluded that tenant was not entitled to attorneys fees either under RPL 223-b or under RPL 234. Tenant appealed.

In holding that tenant was entitled to attorneys fees under RPL 234, the Appellate Division majority emphasized that the statute implies a reciprocal covenant for landlord to pay attorneys fees to a successful tenant whenever the lease provides for landlord's recovery of attorneys fees resulting from tenant's failure to perform a covenant under the lease. The court then turned to the parties' lease, and noted that the lease provided that in the case of tenant breach, landlord was entitled to cancel the lease and relet the apartment. In that case, if landlord relet the apartment, any rent received would first be used to pay landlord's expenses, including reasonable legal fees. In the majority's view, that provision ' entitling landlord to use rent collected from a subsequent tenant to offset legal fees in removing the current tenant ' was sufficient to trigger RPL 234. The dissenting justices disagreed, emphasizing that if landlord had prevailed in the holdover action in this case, the lease would not have entitled landlord to recover attorneys fees. The dissenters concluded that because landlord would not have been entitled to an award of fees if successfully, RPL 234 was inapplicable.

Three-Quarter House Residents Not Entitled to Rent Stablization Protection

David v. #1 Marketing Service, Inc.

NYLJ 1/31/14, p. 28, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by residents of three-quarter houses for declaratory and injunctive relief, residents appealed from a Supreme Court order granting summary judgment to operators of the houses. The Appellate Division modified to deny summary judgment on claims for deceptive practices, unconscionability of the contracts, and unjust enrichment, but affirmed Supreme Court's determination that the residents were not entitled to rent stabilization protection.

Three quarter houses are operated to house persons with disabilities and histories of substance abuse, or persons leaving shelters or released from prison. Residents commit their income or housing allowances to the operators in return for shelter. In this complaint, residents alleged that in return for their payments, they found themselves in abject conditions with no support services on site. They alleged that the operators violated the Rent Stabilization Laws, engaged in deceptive practices prohibited by General Business Law section 349, entered into unconscionable contracts, and were unjustly enriched. Supreme Court dismissed the complaint, and residents appealed.

In modifying, the Appellate Division first held that the residents were licensees, not tenants, and were not, therefore, entitled to rent stabilization protection. The court, however, held that the residents had raised triable issues of fact with respect to their other allegations.

Nonprimary Residence Proceeding Succeeds on Remand from Court of Appeals

409-411 Sixth Street LLC v. Mogi

NYLJ 1/3/14, p. 22, col. 2

AppDiv, First Dept.

(memorandum opinion)

In landlord's summary holdover proceeding, the Court of Appeals had remanded to the First Department for application of the correct standard of review. Applying that standard, the Appellate Division awarded possession to the landlord, concluding that competent evidence in the record supported the trial court's finding that tenant's primary residence was in Vermont.

Landlord had brought this nonprimary residence holdover proceeding on the ground that tenant's primary residence was indeed in Vermont, not New York. Civil Court awarded landlord possession, and the Appellate Term affirmed, but a divided Appellate Division reversed, and dismissed the proceeding. The Court of Appeals then reversed and remanded, holding that when the Appellate Division acts as the second appellate court, the decision of the fact-finding court should not be disturbed “unless it is obvious that the court's conclusions could not be reached under any fair interpretation of the evidence, especially when the findings of fact rest in large measure on considerations relating to the credibility of witnesses.”

On remand, the Appellate Division concluded that competent evidence in the record supported the trial court's conclusion that New York was not tenant's primary residence. Tenant's testimony merely raised questions of fact for the trial court.

Anticipatory Repudiation Raises Questions of Fact

Children of America, LLC v. Pike Plaza Associates, LLC

NYLJ 1/10/14, p. 28, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In tenant's action for seeking damages for breach of a lease agreement and return of its security deposit, tenant, tenant's guarantor and landlord all appealed from Supreme Court's denial of their summary judgment motions. The Appellate Division affirmed, holding that questions of fact remained about whether tenant had anticipatorily repudiated the lease.

Tenant entered into a 15-year commercial lease for the subject premises, and tenant's corporate parent guaranteed tenant's lease obligations. Before the inception of the lease term, tenant notified landlord that it was experiencing financial difficulties, and subsequently sent landlord an e-mail message outlining certain options for modifying the lease terms. Landlord then stopped construction it was performing to comply with the lease terms, and then terminated the lease. Tenant brought this action seeking to recover its security deposit and damages for landlord's breach. Landlord counterclaimed for damages resulting from tenant's alleged anticipatory repudiation, and also brought a third-party action against tenant's corporate parent to recover on the parent's guarantee. All parties moved for summary judgment, and Supreme Court denied all of the motions.

In affirming, the Appellate Division started by noting that when a party repudiates contract duties before the time for performance and before all consideration has been fulfilled, the nonrepudiating party may recover damages for total breach. But the court concluded that tenant's mere expression of difficulty in tendering performance is not a sufficiently unequivocal repudiation. Here, the court concluded that tenant's e-mail was not a sufficiently definite expression of its intention not to perform. But the court agreed with the trial court that issues of fact remained about whether tenant's chief executive officer expressed an unequivocal intention not to perform.

Landlord Not Liable for Breaches of Its Predecessor

Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC

NYLJ 1/21/14, p. 20, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by tenant for breach of lease obligations, landlord appealed from Supreme Court's denial of landlord's motion to dismiss. The Appellate Division reversed and dismissed the complaint, holding that under the terms of the lease, landlord was not liable for breaches of its predecessor.

Tenant leased the subject premises from landlord's predecessor. The latter began a renovation of the building's lobby in 2007, and tenant contends that portions of the premises remained derelict and “war-torn” in appearance more than four years later, when current landlord purchased the building. Tenant brought this action for breach of the lease after current landlord acquired title, seeking damages for the period during which landlord's predecessor owned the building. Landlord moved to dismiss the complaint with respect to damages for that period, but Supreme Court denied the motion. Landlord appealed.

In reversing, the Appellate Division focused on a provision of the lease indicating that lessor shall not be “liable for any act, omission or default of any prior landlord.” The court held that this provision trumped another provision in the lease indicating that the lease shall be deemed to run with the land and that any transferee agreed to assume and carry out any covenants or obligations of the landlord.

COMMENT

Where a lease between an original landlord and tenant expressly provides that successor landlords shall be bound to a particular covenant in the lease, courts will enforce the covenant against landlord's successors-in-interest. Thus, in Bank of New York, Albany v. Hirschfeld, t he court held that successor landlord was bound by a covenant to provide tenant with 10 free parking spaces, since the lease provided that successor landlords would carry out any and all covenants and obligations of the predecessor, and the lease was duly recorded which gave any subsequent purchaser notice of such covenants. Bank of New York, Albany v. Hirschfeld, 37 N.Y.2d 501 (1975).

When a lease requires successor landlords to carry out all of the lease covenants, the successor landlord does not incur liability for breaches committed by predecessor landlord before the successor took possession. Thus, in Kramer Levin Naftalis & Frankel, LLP v. Metropolitan, the court held that successor landlord was not liable for rent credits owed to a tenant by predecessor for rent overcharges, despite a clause in the lease stating that successor was to carry out any and all covenants and obligations of predecessor. The court emphasized that successor only had a duty to abide by all covenants from the time he took possession, and was not required to incur liability for breaches that occurred beforehand. 6 Misc.3d 796.

If a lease between landlord and tenant does not explicitly state whether successor landlords are bound, successors-in-interest will be bound to those covenants that touch or concern the land, but will not be bound to those covenants that are purely personal in nature. Thus, the Appellate Term in Carrano v. Castro held that the successor was bound by a covenant entered into by predecessor landlord stating that new tenants would be given all the rights of the Rent Stabilization Law, including renewal leases, when the purchaser was given notice. Carrano v. Castro, 12 Misc.3d 5. Although the lease did not contain any express language that would bind successor landlords to such covenants, because rent stabilization leases run with the land and the agreement touched the premises, any successors-in-interest are bound provided they are given notice. Carrano v. Castro, 44 A.D.3d 1038. By contrast, the court in Spivak v. Madison held that where a lease was silent as to an agreement between former landlord and broker requiring payment of commission upon tenant's renewal of lease, successor landlord was not liable to pay a brokerage commission when tenant renewed the lease since such a covenant or obligation was purely personal and did not touch or concern the land. Spivak v. Madison, 60 Misc.2d 483.

Successful Tenant Entitled To Attorneys' Fees

Graham Court Owner's Corp. v. Taylor

NYLJ 1/24/14

AppDiv, First Dept.

(3-2 decision; majority opinion by Renwick, J; dissenting opinion by DeGrasse, J.)

In landlord's holdover proceeding, tenant appealed from the Appellate Term's reversal of Civil Court's award of attorneys fees to tenant. The Appellate Division modified and reinstated the award of attorneys fees, holding that a lease provision entitling landlord to deduct attorneys fees from rentals collected after tenant breach was sufficient to entitle tenant to fees under Real Property Law section 234.

The year after tenant took possession of the subject apartment, tenant successfully brought a rent overcharge complaint. Landlord then brought the instant holdover proceeding, contending that tenant had violated the lease by making alterations without landlord's prior written consent. Civil Court dismissed the proceeding, finding that landlord's agents had authorized tenant to make the alterations, and that tenant was not, therefore, in breach. Civil Court awarded attorneys fees to tenant based on the retaliatory eviction statute, Real Property Law section 223-b. The Appellate Term held that Civil Court had properly dismissed the proceeding, but concluded that tenant was not entitled to attorneys fees either under RPL 223-b or under RPL 234. Tenant appealed.

In holding that tenant was entitled to attorneys fees under RPL 234, the Appellate Division majority emphasized that the statute implies a reciprocal covenant for landlord to pay attorneys fees to a successful tenant whenever the lease provides for landlord's recovery of attorneys fees resulting from tenant's failure to perform a covenant under the lease. The court then turned to the parties' lease, and noted that the lease provided that in the case of tenant breach, landlord was entitled to cancel the lease and relet the apartment. In that case, if landlord relet the apartment, any rent received would first be used to pay landlord's expenses, including reasonable legal fees. In the majority's view, that provision ' entitling landlord to use rent collected from a subsequent tenant to offset legal fees in removing the current tenant ' was sufficient to trigger RPL 234. The dissenting justices disagreed, emphasizing that if landlord had prevailed in the holdover action in this case, the lease would not have entitled landlord to recover attorneys fees. The dissenters concluded that because landlord would not have been entitled to an award of fees if successfully, RPL 234 was inapplicable.

Three-Quarter House Residents Not Entitled to Rent Stablization Protection

David v. #1 Marketing Service, Inc.

NYLJ 1/31/14, p. 28, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by residents of three-quarter houses for declaratory and injunctive relief, residents appealed from a Supreme Court order granting summary judgment to operators of the houses. The Appellate Division modified to deny summary judgment on claims for deceptive practices, unconscionability of the contracts, and unjust enrichment, but affirmed Supreme Court's determination that the residents were not entitled to rent stabilization protection.

Three quarter houses are operated to house persons with disabilities and histories of substance abuse, or persons leaving shelters or released from prison. Residents commit their income or housing allowances to the operators in return for shelter. In this complaint, residents alleged that in return for their payments, they found themselves in abject conditions with no support services on site. They alleged that the operators violated the Rent Stabilization Laws, engaged in deceptive practices prohibited by General Business Law section 349, entered into unconscionable contracts, and were unjustly enriched. Supreme Court dismissed the complaint, and residents appealed.

In modifying, the Appellate Division first held that the residents were licensees, not tenants, and were not, therefore, entitled to rent stabilization protection. The court, however, held that the residents had raised triable issues of fact with respect to their other allegations.

Nonprimary Residence Proceeding Succeeds on Remand from Court of Appeals

409-411 Sixth Street LLC v. Mogi

NYLJ 1/3/14, p. 22, col. 2

AppDiv, First Dept.

(memorandum opinion)

In landlord's summary holdover proceeding, the Court of Appeals had remanded to the First Department for application of the correct standard of review. Applying that standard, the Appellate Division awarded possession to the landlord, concluding that competent evidence in the record supported the trial court's finding that tenant's primary residence was in Vermont.

Landlord had brought this nonprimary residence holdover proceeding on the ground that tenant's primary residence was indeed in Vermont, not New York. Civil Court awarded landlord possession, and the Appellate Term affirmed, but a divided Appellate Division reversed, and dismissed the proceeding. The Court of Appeals then reversed and remanded, holding that when the Appellate Division acts as the second appellate court, the decision of the fact-finding court should not be disturbed “unless it is obvious that the court's conclusions could not be reached under any fair interpretation of the evidence, especially when the findings of fact rest in large measure on considerations relating to the credibility of witnesses.”

On remand, the Appellate Division concluded that competent evidence in the record supported the trial court's conclusion that New York was not tenant's primary residence. Tenant's testimony merely raised questions of fact for the trial court.