Landlord & Tenant

AppTerm, 2nd, 11th and 13th Districts

(per curiam opinion)

In landlord's commercial summary holdover proceeding, tenant appealed from Civil Court's grant of summary judgment to landlord. The Appellate Term affirmed, holding that landlord's refusal to accept rent after tenant had engaged in an illegal sublet did not preclude landlord from terminating the lease for nonpayment of rent.

Landlord brought this proceeding alleging two breaches by tenant ' illegally subletting the premises without landlord's prior written consent, and failure to pay rent arrears upon demand. The lease required prior written consent from the landlord for any sublease, and provided that in the event of a breach of that provision, “the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term.” The lease also provided that if tenant defaulted in payment of rent, landlord could, “at any time thereafter,” terminate the lease on five days' notice, “and this lease and the terms hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for the expiration hereof.”

Although landlord sought possession for both tenant's sublet violation and failure to pay rent, the Appellate Term held that landlord could not base a holdover proceeding on the illegal sublet because the language of the lease created a condition, but not a conditional limitation. By contrast, the court held that the lease language concerning nonpayment of rent did constitute a conditional limitation, and could serve as the foundation for a holdover proceeding. The court therefore considered only tenant's arguments with respect to rent default.

The court rejected tenant's argument that it was not in default because landlord had rejected payments tendered. The court held that landlord's failure to accept the tender was reasonable because acceptance with knowledge of the illegal sublet could constitute waiver of tenant's breach of the prohibition on subletting without consent. The court also noted that rent payments offered after landlord had served a notice of termination were properly rejected because acceptance of rent would have vitiated the notice of termination.

COMMENT

A landlord may maintain a holdover proceeding based upon its termination of a lease only if the provision allowing for early termination is a conditional limitation. To create a conditional limitation, the provision must be worded to make the termination of a lease automatic on occurrence of a contingency. By contrast, a lease provision that gives landlord an option and requires him to exercise the option to terminate the lease creates a condition, and does not permit landlord to maintain a holdover proceeding. However, courts have consistently held that a provision creates a conditional limitation when it gives the landlord an option to terminate the lease on tenant's breach, but requires notice that sets out a termination date on which the lease will terminate automatically.

For example, in Perrotta v. W Regional Off-Track Betting Corp., 98 A.D.2d 1, the Fourth Department held that a lease providing that, in the event of a breach, “the term herein shall immediately cease and determine at the option of the Landlord” created a condition, not a conditional limitation. The court emphasized that, although the clause specified that the term would terminate immediately upon occurrence of an event, the language would not become operative until and unless the landlord exercised his option. A different provision under the same lease was held to create a conditional limitation. The provision allowed the landlord, if “the landlord so elects” in case of a breach, to terminate the lease on five days' notice. The provision, the court stated, did not give the landlord the option to terminate, but rather the option to set in motion an event that would terminate the lease automa t ically without any further action by landlord or any choice on his part.

The Court of Appeals cited Perrotta with approval when establishing that a lease created a conditional limitation when it provided that “landlord may give written notice” to tenant and that on the date fixed in the notice, the lease would terminate automatically. TSS-Seedman's, Inc. v Elota Realty Co., 7 2 NY2d 1024. The court stated that, under the provision, it is not the option of the landlord to terminate the lease. Rather, the lease terminates automatically, without any further action by the landlord, on the date set out in the notice. Similarly, the Second Department in Lerner v Johnson, 167 AD2d 372, held that a lease provision created a conditional limitation when, upon occurrence of a contingency, the lease allowed the landlord to terminate a lease “at their option” on five days' notice. The court stressed that, according to the terms of the provision, it is not the landlord's actions that terminated the lease but rather, the lease terminated automatically on the date set out in the notice. However, at least one New York court emphasized that, to create a conditional limitation, a provision must expressly state that the lease will terminate automatically on the date set out in the notice. Nathan's Famous, Inc. v Frankorama, Inc., 70 Misc 2d 452. The court found that a provision giving the landlord an option to terminate the lease on 10 days' notice, without specifying that the lease would terminate automatically on the date fixed in such notice, was a condition, not a conditional limitation.

Prejudgment Interest Not Available on Fair Market Rent Appeal

Eisner v. M & E Rubin LLC

NYLJ 5/19/14, p. 30, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In tenants' action to recover prejudgment interest on a fair market rent appeal award rendered by the Division of Housing and Community Renewal (DHCR), tenants appealed from Supreme Court's award of summary judgment to landlord. The Appellate Division affirmed, holding that prejudgment interest is not available when tenant does not have to bring a plenary proceeding to enforce a fair market rent appeal award.

On May 19, 2004, DHCR granted tenants' petition for administrative review and awarded tenants a refund of excess rent against landlord in tenants' fair market rent appeal. Landlord sought judicial review of DHCR's determination, but Supreme Court dismissed landlord's article 78 proceeding and the Appellate Division affirmed. Tenants then exercised their right to withhold rent until the principal balance of the award was credited against their account. The full amount had been credited by June 2007, and tenants then resumed paying rent. Tenants subsequently brought this action to recover prejudgment interest on the award, and Supreme Court awarded summary judgment to landlord.

In affirming, the Appellate Division distinguished between tenants who are forced to bring a plenary action to enforce a fair market rent appeal order and tenants, like those in this case, who do not have to bring a plenary action. Because tenants in this case had withheld rent until the award was fully credited to their account, they never had to bring a plenary action to enforce their award. As a result, they were not entitled to prejudgment interest or attorneys' fees.

'

Refusal to Accept Rent After Illegal Sublet Does Not Preclude Lease Termination

St. Catherine of Sienna Roman Catholic Church v. 188 Convent Associations

NYLJ 5/8/14, p. 21, col. 1

AppTerm, 2nd, 11th and 13th Districts

(per curiam opinion)

In landlord's commercial summary holdover proceeding, tenant appealed from Civil Court's grant of summary judgment to landlord. The Appellate Term affirmed, holding that landlord's refusal to accept rent after tenant had engaged in an illegal sublet did not preclude landlord from terminating the lease for nonpayment of rent.

Landlord brought this proceeding alleging two breaches by tenant ' illegally subletting the premises without landlord's prior written consent, and failure to pay rent arrears upon demand. The lease required prior written consent from the landlord for any sublease, and provided that in the event of a breach of that provision, “the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term.” The lease also provided that if tenant defaulted in payment of rent, landlord could, “at any time thereafter,” terminate the lease on five days' notice, “and this lease and the terms hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for the expiration hereof.”

Although landlord sought possession for both tenant's sublet violation and failure to pay rent, the Appellate Term held that landlord could not base a holdover proceeding on the illegal sublet because the language of the lease created a condition, but not a conditional limitation. By contrast, the court held that the lease language concerning nonpayment of rent did constitute a conditional limitation, and could serve as the foundation for a holdover proceeding. The court therefore considered only tenant's arguments with respect to rent default.

The court rejected tenant's argument that it was not in default because landlord had rejected payments tendered. The court held that landlord's failure to accept the tender was reasonable because acceptance with knowledge of the illegal sublet could constitute waiver of tenant's breach of the prohibition on subletting without consent. The court also noted that rent payments offered after landlord had served a notice of termination were properly rejected because acceptance of rent would have vitiated the notice of termination.

COMMENT

A landlord may maintain a holdover proceeding based upon its termination of a lease only if the provision allowing for early termination is a conditional limitation. To create a conditional limitation, the provision must be worded to make the termination of a lease automatic on occurrence of a contingency. By contrast, a lease provision that gives landlord an option and requires him to exercise the option to terminate the lease creates a condition, and does not permit landlord to maintain a holdover proceeding. However, courts have consistently held that a provision creates a conditional limitation when it gives the landlord an option to terminate the lease on tenant's breach, but requires notice that sets out a termination date on which the lease will terminate automatically.

For example, in Perrotta v. W Regional Off-Track Betting Corp., 98 A.D.2d 1, the Fourth Department held that a lease providing that, in the event of a breach, “the term herein shall immediately cease and determine at the option of the Landlord” created a condition, not a conditional limitation. The court emphasized that, although the clause specified that the term would terminate immediately upon occurrence of an event, the language would not become operative until and unless the landlord exercised his option. A different provision under the same lease was held to create a conditional limitation. The provision allowed the landlord, if “the landlord so elects” in case of a breach, to terminate the lease on five days' notice. The provision, the court stated, did not give the landlord the option to terminate, but rather the option to set in motion an event that would terminate the lease automa t ically without any further action by landlord or any choice on his part.

The Court of Appeals cited Perrotta with approval when establishing that a lease created a conditional limitation when it provided that “landlord may give written notice” to tenant and that on the date fixed in the notice, the lease would terminate automatically. TSS-Seedman's, Inc. v Elota Realty Co., 7 2 NY2d 1024. The court stated that, under the provision, it is not the option of the landlord to terminate the lease. Rather, the lease terminates automatically, without any further action by the landlord, on the date set out in the notice. Similarly, the Second Department in Lerner v Johnson, 167 AD2d 372, held that a lease provision created a conditional limitation when, upon occurrence of a contingency, the lease allowed the landlord to terminate a lease “at their option” on five days' notice. The court stressed that, according to the terms of the provision, it is not the landlord's actions that terminated the lease but rather, the lease terminated automatically on the date set out in the notice. However, at least one New York court emphasized that, to create a conditional limitation, a provision must expressly state that the lease will terminate automatically on the date set out in the notice. Nathan's Famous, Inc. v Frankorama, Inc., 70 Misc 2d 452. The court found that a provision giving the landlord an option to terminate the lease on 10 days' notice, without specifying that the lease would terminate automatically on the date fixed in such notice, was a condition, not a conditional limitation.

Prejudgment Interest Not Available on Fair Market Rent Appeal

Eisner v. M & E Rubin LLC

NYLJ 5/19/14, p. 30, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In tenants' action to recover prejudgment interest on a fair market rent appeal award rendered by the Division of Housing and Community Renewal (DHCR), tenants appealed from Supreme Court's award of summary judgment to landlord. The Appellate Division affirmed, holding that prejudgment interest is not available when tenant does not have to bring a plenary proceeding to enforce a fair market rent appeal award.

On May 19, 2004, DHCR granted tenants' petition for administrative review and awarded tenants a refund of excess rent against landlord in tenants' fair market rent appeal. Landlord sought judicial review of DHCR's determination, but Supreme Court dismissed landlord's article 78 proceeding and the Appellate Division affirmed. Tenants then exercised their right to withhold rent until the principal balance of the award was credited against their account. The full amount had been credited by June 2007, and tenants then resumed paying rent. Tenants subsequently brought this action to recover prejudgment interest on the award, and Supreme Court awarded summary judgment to landlord.

In affirming, the Appellate Division distinguished between tenants who are forced to bring a plenary action to enforce a fair market rent appeal order and tenants, like those in this case, who do not have to bring a plenary action. Because tenants in this case had withheld rent until the award was fully credited to their account, they never had to bring a plenary action to enforce their award. As a result, they were not entitled to prejudgment interest or attorneys' fees.

'