Landlord & Tenant

Tenant's Rent-Stabilized Tenancy Constitutes Property Exempt from Claims in Bankruptcy

Santiago-Monteverde v. Pereira

NYLJ 11/21/14, p. 21, col. 1

Court of Appeals

(5-2 decision; majority opinion by Abdus-Salaam, J; dissenting opinion by Smith, J.)

When tenant-debtor appealed from a federal district court decision concluding that her rent-stabilized tenancy constituted property of her bankruptcy estate, the Second Circuit certified a question to the Court of Appeals: Is a tenant's interest in a rent-stabilized tenancy a “local public assistance benefit” exempt from the personal bankruptcy estate? A divided Court of Appeals concluded that a rent-stabilized lease is exempt from claims in bankruptcy.

When tenant became unable to pay her credit card debts, she filed for Chapter 7 bankruptcy protection. Her landlord then approached the bankruptcy trustee, offering to buy tenant's interest in the lease. When the trustee advised tenant that he planned to accept the offer, tenant amended her filing to list the value of her lease as personal property exempt from the bankruptcy estate as a “local public assistance benefit.” The bankruptcy court struck the claimed exemption, and the district court affirmed. When tenant appealed to the Second Circuit, that court certified the question to the Court of Appeals.

In deciding that the tenant's interest in the lease qualified as a public assistance benefit, the majority noted that section 282(2) of the Debtor-Creditor law exempts the debtor's interest in a “local public assistance benefit.” The court then emphasized the crucial role rent stabilization plays in the lives of New York residents, and the purpose of the scheme in preserving affordable housing. The court rejected the argument that public assistance, within the meaning of the Debtor-Creditor law exemption, requires a cash payment. The court also rejected the trustee's argument that public assistance benefits refer to benefits subsidized by the government.

Judge Robert Smith, dissenting for himself and Judge Susan Read, started by noting that “public assistance” is a common synonym for “welfare.” He suggested that no tenants in rent-stabilized apartments would conclude that they are recipients of public assistance (unless, of course, they received some other public benefit). In light of the well-accepted meaning of the words public assistance, he concluded that the majority had misread the Debtor-Creditor Law provision.

'

Yellowstone Injunction Denied Because Tenant Could Not Establish Ability To Cure

LIDC I, LLC v. Sunrise Mall, LLC

NYLJ 11/12/14

Supreme Ct., Nassau Cty.

(Palmieri, J.)

Tenant sought a Yellowstone injunction to prevent termination of its leasehold interest in landlord's shopping center. The court denied the injunction, holding that tenant had not demonstrated its ability to cure its alleged default.

In March 2012, tenant leased space for construction of three restaurants in landlord's shopping mall. The leases contemplated that tenant would do considerable construction work, and provided that tenant's obligation to pay rent for each restaurant would start on the earlier of: 1) the date the restaurant opened for business; or 2) fixed dates in each lease. The leases also included a force majeure clause that excused tenant's delays in construction caused by a number of events, including restrictive government laws or delayed governmental action. The force majeure clause did not excuse delays caused by financial hardship, and the clause also provided that the occurrence of the specified events would not excuse tenant's obligation to pay rent after the dates specified in the lease.

When tenant began work on the site, the town building commissioner issued a stop work order based on a violation of a town code requirement that a contractor have an apprenticeship program in place. Litigation between tenant and the town ensued, and landlord ultimately became involved. Although a court reinstated the building permits on Nov. 8, 2013, tenant wrote the landlord in January 2014 complaining that the town's actions had prevented tenant from fulfilling its obligations to build under the lease, and taking the position that the town's actions tolled all of tenant's obligations under the lease, including commencement of rent. On Sept. 5, 2014, landlord served notices of default threatening termination of the leases unless rent were paid prior to expiration of the stated cure period. Tenant then sought a Yellowstone injunction to prevent termination and maintain the status quo until its rights with respect to the lease were resolved. Landlord opposed the injunction.

In denying the Yellowstone injunction, the court acknowledged that the requirements for the injunction are less stringent than those ordinarily required for a preliminary injunction, but held that a tenant does not qualify for a Yellowstone injunction unless tenant can demonstrate an ability to cure the default. In this case, tenant was unable to point to any source of funds from which it would be able to pay rent if the court were ultimately to hold that tenant was obligated to pay rent. Moreover, the court emphasized that the force majeure clause in this lease did not excuse tenant from paying rent. As a result, the court held that tenant was not entitled to a Yellowstone injunction.

COMMENT

A commercial tenant facing lease termination can obtain a Yellowstone injunction without establishing the likelihood of success on the merits and irreparable harm necessary to obtain a preliminary injunction under CPLR 6301. Trump on the Ocean, LLC v Ash, 81 AD3d 713, 716, illustrates the difference. In Trump, the developer sought a Yellowstone and CPLR 6301 preliminary injunction to prevent lease termination and suspend lease obligations, such as paying rent and constructing a catering facility in a flood zone. The Appellate Division reversed the trial court's grant of the preliminary injunction to suspend lease obligations, but upheld the grant of the Yellowstone injunction to prevent lease termination. Id. In upholding the Yellowstone injunction, the court emphasized that tenant had demonstrated that it: 1) held a commercial lease; 2) received a threat to terminate the lease from landlord; 3) requested the injunctive relief prior to lease termination; and 4) was willing and capable of curing the alleged default pending the determination of its action. By contrast, tenant was not entitled to the CPLR 6301 preliminary injunction because tenant's damages from termination were measurable, and tenant could not, therefore, show irreparable injury without the injunction.

When landlord's threatened lease termination is based on tenant's alleged failure to pay rent, courts may require tenant to provide some form of security, such as a bond, as a condition for granting a Yellowstone injunction, but will waive the security requirement if the tenant has invested considerable improvements on the premises. Id. In WPA/Partners LLC v. Port Imperial Ferry Corp., 307 AD2d 234, the court reversed denial of a Yellowstone injunction following the tenant's affidavit stating, “it wants and will be able to cure,” along with evidence indicating the tenant invested $22 million on premises to obtain permits and replace portions of the pier it had leased from the city. The court waived the bond requirement because the tenant's investment on the premises was of “considerable value.” Id.

However, a tenant is not entitled to Yellowstone injunctive relief when the alleged breach is chronic non-payment. In Definitions Personal Fitness, Inc. v 133 E. 58th St. LLC, 107 AD3d 617, 618, the court affirmed the lower court's denial of a motion for a Yellowstone injunction because the tenant had chronically failed to pay rent and the landlordpresented evidence of 10 nonpayment proceedings against tenant within the prior seven years. The court held that chronic nonpayment is a substantial breach of the lease that cannot be cured by the tenant.

'

Rent-Controlled Tenant Bound By Predecessor's Agreement to Trade Light and Air For Reduced Rent

Lieberman v. 244 East 86th Street, LLC

NYLJ 12/4/14, p. 21, col. 2

Supreme Ct., N.Y. Cty.

(Singh, J.)

In an action by rent-controlled tenant for an injunction directing his landlord and the owner of a neighboring building to restore light and air to his apartment, landlord and neighboring owner moved to dismiss the complaint. The court granted the motion, holding that tenant was bound by the agreement made by his grandfather permitting reduction of light and air.

Tenant succeeded to his rent-controlled apartment in 2013, upon the death of his grandfather. In 1997, tenant's building and the adjacent lot were held in common ownership. The common owner sought to build a residential building on the adjacent lot. To maximize the rentable space in the new building, owner needed to block an air shaft providing light and air to three of the eight rooms in tenant's apartment. Common owner entered into an agreement with tenant's grandfather (and other tenants in the same line) reducing rent for the apartment from $687 to $100 per month for as long as the grandfather and his wife live in the apartment, and, in return, the grandfather agreed to cease using the extra rooms as living space. Common owner then sold the subject building to current landlord, and ultimately transferred title to the adjacent lot (with a building) to current neighboring owner. Tenant now seeks restoration of the light and air available before the 1997 agreement, a solution that would require demolition of the neighboring building.

In dismissing the complaint, the court first held that tenant lacked standing to bring the action, because the action challenges the terms of the 1997 agreement, to which tenant was not a party. The court nevertheless reached the merits, and concluded that the 1997 agreement did not waive a statutory protection afforded by the rent regulation laws. The court noted that the agreement did not reduce the space in the apartment; instead, by the terms of the agreement the grandfather agreed to use certain rooms as non-living quarters. Moreover, because the grandfather and the then-owner voluntarily agreed to the reduction of light and air, DHCR approval of the agreement was not necessary. The court emphasized that the grandfather entered the agreement with the advice of counsel, and the court saw no reason to upset the agreement.

'

Cancellation of Section 8 Payments Without Notice Does Not Constitute Due Process Violation

Davidson Heights, LLC v. New York City Housing Authority

NYLJ 11/14/14

U.S. Dist. Ct., EDNY

(Ramos, J.)

In an action by landlord against the New York City Housing Authority (NYCHA), landlord alleged that the Housing Authority violated its due process rights by ceasing Section 8 payments without adequate notice. The court dismissed the complaint because landlord had adequate post-deprivation remedies, precluding any due process claim.

Landlord had been renting an apartment to a tenant who qualified for federal Section 8 housing assistance, and NYCHA had been making those payments until it inspected the premises, without notice, in December, 2011. Landlord asserts that it immediately corrected the violation, and landlord and tenant both signed a certification of completed repairs, which landlord faxed to NYCHA. Nevertheless, NYCHA did no reinstate Section 8 payments. Instead, in May 2012, NYCHA reinspected the premises and issued a new violation. Landlord and tenant again signed a certification of completed repairs, but NYCHA did not reinstate payments. Instead, allegedly without notice to landlord, tenant issued a voucher to tenant allowing her to transfer her Section 8 assistance to another apartment. In October 2012 landlord brought an eviction proceeding against tenant. That proceeding was settled in February, 2013, when tenant's counsel confirmed that her move was pending. She did not leave, however, until August, 2013. Landlord brought this action, alleging that NYCHA owes it back payments for the period until tenant moved out, and that NYCHA's failure to provide landlord written notice that the Section 8 payments had been suspended, that the transfer voucher had been issued to tenant, and that NYCHA had terminated its housing assistance contract for the apartment when the previous owner's ownership interest terminated.

In dismissing the complaint, the court first questioned whether landlord held a property interest protected by the due process clause, but ultimately held that the availability of adequate post-deprivation relief ' through an article 78 proceeding ' barred any due process claim.

'

Refusal to Sign a Renewal Lease Constitutes Grounds For Eviction

MMB Apartments, LLC v. Guerra

NYLJ 11/28/14, p. 27, col. 2

AppTerm, 2nd, 11th& 13th Districts

(memorandum opinion; concurring memorandum by Elliot, J.)

Landlord appealed from Civil Court's grant of summary judgment dismissing landlord's holdover proceeding. The Appellate Term reversed and denied tenant's motion, holding that refusal to sign a renewal lease constitutes ground for eviction under the Martin Act.

Tenant rented the subject apartment from landlord seven years after title to the building was transferred to a co-op corporation. In this holdover proceeding, landlord contended that it had offered tenant a renewal lease at $1,350, an increase of only $50 over tenant's prior rent, but tenant had refused to sign the lease and had remained in possession, creating a month-to-month tenancy. Landlord contended that tenant's refusal constituted a ground for eviction under the Martin Act. Civil Court disagreed and dismissed landlord's holdover proceeding.

In reversing, the Appellate Term first held that tenant qualified as a non-purchasing tenant protected by the Martin Act. But the court then concluded that tenant's refusal to sign a renewal lease constitutes a ground for eviction under the Martin Act because it constitutes a breach of tenant's obligations to the owner of the dwelling unit, as long as the rent is not unconscionable. As a result, tenant was not entitled to summary judgment, and noted that if the trial court finds that tenant did breach, tenant would have 10 days post-judgment to cure the breach. Justice Elliot, concurring, argued that the court should reconsider its opinion in Paikoff v. Harris , 185 Misc.2d 372, which held that a tenant who purchases after a co-operative conversion is nevertheless a non-purchasing tenant protected by the Martin Act.

'

Tenant's Rent-Stabilized Tenancy Constitutes Property Exempt from Claims in Bankruptcy

Santiago-Monteverde v. Pereira

NYLJ 11/21/14, p. 21, col. 1

Court of Appeals

(5-2 decision; majority opinion by Abdus-Salaam, J; dissenting opinion by Smith, J.)

When tenant-debtor appealed from a federal district court decision concluding that her rent-stabilized tenancy constituted property of her bankruptcy estate, the Second Circuit certified a question to the Court of Appeals: Is a tenant's interest in a rent-stabilized tenancy a “local public assistance benefit” exempt from the personal bankruptcy estate? A divided Court of Appeals concluded that a rent-stabilized lease is exempt from claims in bankruptcy.

When tenant became unable to pay her credit card debts, she filed for Chapter 7 bankruptcy protection. Her landlord then approached the bankruptcy trustee, offering to buy tenant's interest in the lease. When the trustee advised tenant that he planned to accept the offer, tenant amended her filing to list the value of her lease as personal property exempt from the bankruptcy estate as a “local public assistance benefit.” The bankruptcy court struck the claimed exemption, and the district court affirmed. When tenant appealed to the Second Circuit, that court certified the question to the Court of Appeals.

In deciding that the tenant's interest in the lease qualified as a public assistance benefit, the majority noted that section 282(2) of the Debtor-Creditor law exempts the debtor's interest in a “local public assistance benefit.” The court then emphasized the crucial role rent stabilization plays in the lives of New York residents, and the purpose of the scheme in preserving affordable housing. The court rejected the argument that public assistance, within the meaning of the Debtor-Creditor law exemption, requires a cash payment. The court also rejected the trustee's argument that public assistance benefits refer to benefits subsidized by the government.

Judge Robert Smith, dissenting for himself and Judge Susan Read, started by noting that “public assistance” is a common synonym for “welfare.” He suggested that no tenants in rent-stabilized apartments would conclude that they are recipients of public assistance (unless, of course, they received some other public benefit). In light of the well-accepted meaning of the words public assistance, he concluded that the majority had misread the Debtor-Creditor Law provision.

'

Yellowstone Injunction Denied Because Tenant Could Not Establish Ability To Cure

LIDC I, LLC v. Sunrise Mall, LLC

NYLJ 11/12/14

Supreme Ct., Nassau Cty.

(Palmieri, J.)

Tenant sought a Yellowstone injunction to prevent termination of its leasehold interest in landlord's shopping center. The court denied the injunction, holding that tenant had not demonstrated its ability to cure its alleged default.

In March 2012, tenant leased space for construction of three restaurants in landlord's shopping mall. The leases contemplated that tenant would do considerable construction work, and provided that tenant's obligation to pay rent for each restaurant would start on the earlier of: 1) the date the restaurant opened for business; or 2) fixed dates in each lease. The leases also included a force majeure clause that excused tenant's delays in construction caused by a number of events, including restrictive government laws or delayed governmental action. The force majeure clause did not excuse delays caused by financial hardship, and the clause also provided that the occurrence of the specified events would not excuse tenant's obligation to pay rent after the dates specified in the lease.

When tenant began work on the site, the town building commissioner issued a stop work order based on a violation of a town code requirement that a contractor have an apprenticeship program in place. Litigation between tenant and the town ensued, and landlord ultimately became involved. Although a court reinstated the building permits on Nov. 8, 2013, tenant wrote the landlord in January 2014 complaining that the town's actions had prevented tenant from fulfilling its obligations to build under the lease, and taking the position that the town's actions tolled all of tenant's obligations under the lease, including commencement of rent. On Sept. 5, 2014, landlord served notices of default threatening termination of the leases unless rent were paid prior to expiration of the stated cure period. Tenant then sought a Yellowstone injunction to prevent termination and maintain the status quo until its rights with respect to the lease were resolved. Landlord opposed the injunction.

In denying the Yellowstone injunction, the court acknowledged that the requirements for the injunction are less stringent than those ordinarily required for a preliminary injunction, but held that a tenant does not qualify for a Yellowstone injunction unless tenant can demonstrate an ability to cure the default. In this case, tenant was unable to point to any source of funds from which it would be able to pay rent if the court were ultimately to hold that tenant was obligated to pay rent. Moreover, the court emphasized that the force majeure clause in this lease did not excuse tenant from paying rent. As a result, the court held that tenant was not entitled to a Yellowstone injunction.

COMMENT

A commercial tenant facing lease termination can obtain a Yellowstone injunction without establishing the likelihood of success on the merits and irreparable harm necessary to obtain a preliminary injunction under CPLR 6301. Trump on the Ocean, LLC v Ash, 81 AD3d 713, 716, illustrates the difference. In Trump, the developer sought a Yellowstone and CPLR 6301 preliminary injunction to prevent lease termination and suspend lease obligations, such as paying rent and constructing a catering facility in a flood zone. The Appellate Division reversed the trial court's grant of the preliminary injunction to suspend lease obligations, but upheld the grant of the Yellowstone injunction to prevent lease termination. Id. In upholding the Yellowstone injunction, the court emphasized that tenant had demonstrated that it: 1) held a commercial lease; 2) received a threat to terminate the lease from landlord; 3) requested the injunctive relief prior to lease termination; and 4) was willing and capable of curing the alleged default pending the determination of its action. By contrast, tenant was not entitled to the CPLR 6301 preliminary injunction because tenant's damages from termination were measurable, and tenant could not, therefore, show irreparable injury without the injunction.

When landlord's threatened lease termination is based on tenant's alleged failure to pay rent, courts may require tenant to provide some form of security, such as a bond, as a condition for granting a Yellowstone injunction, but will waive the security requirement if the tenant has invested considerable improvements on the premises. Id. In WPA/Partners LLC v. Port Imperial Ferry Corp., 307 AD2d 234, the court reversed denial of a Yellowstone injunction following the tenant's affidavit stating, “it wants and will be able to cure,” along with evidence indicating the tenant invested $22 million on premises to obtain permits and replace portions of the pier it had leased from the city. The court waived the bond requirement because the tenant's investment on the premises was of “considerable value.” Id.

However, a tenant is not entitled to Yellowstone injunctive relief when the alleged breach is chronic non-payment. In Definitions Personal Fitness, Inc. v 133 E. 58th St. LLC, 107 AD3d 617, 618, the court affirmed the lower court's denial of a motion for a Yellowstone injunction because the tenant had chronically failed to pay rent and the landlordpresented evidence of 10 nonpayment proceedings against tenant within the prior seven years. The court held that chronic nonpayment is a substantial breach of the lease that cannot be cured by the tenant.

'

Rent-Controlled Tenant Bound By Predecessor's Agreement to Trade Light and Air For Reduced Rent

Lieberman v. 244 East 86th Street, LLC

NYLJ 12/4/14, p. 21, col. 2

Supreme Ct., N.Y. Cty.

(Singh, J.)

In an action by rent-controlled tenant for an injunction directing his landlord and the owner of a neighboring building to restore light and air to his apartment, landlord and neighboring owner moved to dismiss the complaint. The court granted the motion, holding that tenant was bound by the agreement made by his grandfather permitting reduction of light and air.

Tenant succeeded to his rent-controlled apartment in 2013, upon the death of his grandfather. In 1997, tenant's building and the adjacent lot were held in common ownership. The common owner sought to build a residential building on the adjacent lot. To maximize the rentable space in the new building, owner needed to block an air shaft providing light and air to three of the eight rooms in tenant's apartment. Common owner entered into an agreement with tenant's grandfather (and other tenants in the same line) reducing rent for the apartment from $687 to $100 per month for as long as the grandfather and his wife live in the apartment, and, in return, the grandfather agreed to cease using the extra rooms as living space. Common owner then sold the subject building to current landlord, and ultimately transferred title to the adjacent lot (with a building) to current neighboring owner. Tenant now seeks restoration of the light and air available before the 1997 agreement, a solution that would require demolition of the neighboring building.

In dismissing the complaint, the court first held that tenant lacked standing to bring the action, because the action challenges the terms of the 1997 agreement, to which tenant was not a party. The court nevertheless reached the merits, and concluded that the 1997 agreement did not waive a statutory protection afforded by the rent regulation laws. The court noted that the agreement did not reduce the space in the apartment; instead, by the terms of the agreement the grandfather agreed to use certain rooms as non-living quarters. Moreover, because the grandfather and the then-owner voluntarily agreed to the reduction of light and air, DHCR approval of the agreement was not necessary. The court emphasized that the grandfather entered the agreement with the advice of counsel, and the court saw no reason to upset the agreement.

'

Cancellation of Section 8 Payments Without Notice Does Not Constitute Due Process Violation

Davidson Heights, LLC v. New York City Housing Authority

NYLJ 11/14/14

U.S. Dist. Ct., EDNY

(Ramos, J.)

In an action by landlord against the New York City Housing Authority (NYCHA), landlord alleged that the Housing Authority violated its due process rights by ceasing Section 8 payments without adequate notice. The court dismissed the complaint because landlord had adequate post-deprivation remedies, precluding any due process claim.

Landlord had been renting an apartment to a tenant who qualified for federal Section 8 housing assistance, and NYCHA had been making those payments until it inspected the premises, without notice, in December, 2011. Landlord asserts that it immediately corrected the violation, and landlord and tenant both signed a certification of completed repairs, which landlord faxed to NYCHA. Nevertheless, NYCHA did no reinstate Section 8 payments. Instead, in May 2012, NYCHA reinspected the premises and issued a new violation. Landlord and tenant again signed a certification of completed repairs, but NYCHA did not reinstate payments. Instead, allegedly without notice to landlord, tenant issued a voucher to tenant allowing her to transfer her Section 8 assistance to another apartment. In October 2012 landlord brought an eviction proceeding against tenant. That proceeding was settled in February, 2013, when tenant's counsel confirmed that her move was pending. She did not leave, however, until August, 2013. Landlord brought this action, alleging that NYCHA owes it back payments for the period until tenant moved out, and that NYCHA's failure to provide landlord written notice that the Section 8 payments had been suspended, that the transfer voucher had been issued to tenant, and that NYCHA had terminated its housing assistance contract for the apartment when the previous owner's ownership interest terminated.

In dismissing the complaint, the court first questioned whether landlord held a property interest protected by the due process clause, but ultimately held that the availability of adequate post-deprivation relief ' through an article 78 proceeding ' barred any due process claim.

'

Refusal to Sign a Renewal Lease Constitutes Grounds For Eviction

MMB Apartments, LLC v. Guerra

NYLJ 11/28/14, p. 27, col. 2

AppTerm, 2nd, 11th& 13th Districts

(memorandum opinion; concurring memorandum by Elliot, J.)

Landlord appealed from Civil Court's grant of summary judgment dismissing landlord's holdover proceeding. The Appellate Term reversed and denied tenant's motion, holding that refusal to sign a renewal lease constitutes ground for eviction under the Martin Act.

Tenant rented the subject apartment from landlord seven years after title to the building was transferred to a co-op corporation. In this holdover proceeding, landlord contended that it had offered tenant a renewal lease at $1,350, an increase of only $50 over tenant's prior rent, but tenant had refused to sign the lease and had remained in possession, creating a month-to-month tenancy. Landlord contended that tenant's refusal constituted a ground for eviction under the Martin Act. Civil Court disagreed and dismissed landlord's holdover proceeding.

In reversing, the Appellate Term first held that tenant qualified as a non-purchasing tenant protected by the Martin Act. But the court then concluded that tenant's refusal to sign a renewal lease constitutes a ground for eviction under the Martin Act because it constitutes a breach of tenant's obligations to the owner of the dwelling unit, as long as the rent is not unconscionable. As a result, tenant was not entitled to summary judgment, and noted that if the trial court finds that tenant did breach, tenant would have 10 days post-judgment to cure the breach. Justice Elliot, concurring, argued that the court should reconsider its opinion in Paikoff v. Harris , 185 Misc.2d 372, which held that a tenant who purchases after a co-operative conversion is nevertheless a non-purchasing tenant protected by the Martin Act.

'