Landlord & Tenant

Tenant Entitled to Attorneys' Fees Despite Landlord's Reliance on Regulation

251 CPW Housing LLC v. Pastreich

NYLJ 1/8/14, p. 22, col. 1

AppDiv, First Dept.

(memorandum opinion)

In landlord's summary holdover proceeding, tenant appealed from the Appellate Term's order reversing Civil Court's grant of attorneys' fees. The Appellate Division modified, holding that tenant was entitled to attorneys' fees incurred during the holdover proceeding, but not entitled to fees incurred in related DHCR proceedings or in an article 78 proceeding brought to challenge a DHCR determination.

In 1991, landlord leased the subject rent-stabilized apartment to tenant. Although the lease stated that the stabilized rent was $5,747.52, the parties executed a rider providing for a preferential rent of $3,000 on condition that tenant accept the premises in as-is condition. The rider also gave tenant the option to renew at the preferential rent, adjusted by applicable rent guidelines. The parties continued to renew the lease based on the preferential rent rider until 2004, when landlord offered tenant a renewal lease at a rent of $7,652.26, the current legal rent based on the initial stabilized rent without the preferential rent rider. Tenant refused to execute the new lease, resulting in two separate legal proceedings ' a rent overcharge proceeding brought by tenant before DHCR, and this summary holdover proceeding brought in Civil Court. Civil Court stayed the holdover proceeding pending resolution of the DHCR proceeding.

DHCR denied tenant's overcharge complaint, and also denied tenant's petition for administrative review. Supreme Court then dismissed tenant's article 78 proceeding challenging DHCR's determination, but the Appellate Division reversed, rejecting DHCR's reliance on 9 NYCRR 2521.2(a), which gives a landlord who charges a preferential rent the option of offering a lease renewal based either on the legal regulated rent or the preferential rent. The Appellate Division held that the regulation would not override the parties' intent that renewal leases be based on the preferential rent, and remanded for a hearing on the parties' intent. DHCR then determined that the parties intended that renewals be based on the preferential rent. Tenant then moved in the holdover proceeding for an award of attorneys' fees in all proceedings, and Civil Court granted the motion. The Appellate Term reversed and denied attorneys' fees because landlord's position was of “colorable merit.” Tenant appealed.

In modifying, the Appellate Division held that Real Property Law section 234 entitled tenant, as the prevailing party, to attorneys' fees in the holdover proceeding. The court emphasized that attorneys' fees should be denied to a prevailing tenant only when a fee award would be manifestly unfair or when the tenant engaged in bad faith. The court rejected landlord's argument that it would be unfair to award attorneys' fees when landlord had relied on 9 NYCRR 2521.2(a), noting that no case law had developed to support landlord's position. The court then upheld the Appellate Term's denial of attorneys' fees incurred in the DHCR and article 78 proceedings, holding that RPL 234 does not extend to those proceedings.

COMMENT

Despite the absolute language of Real Property Law ' 234, courts have not required a landlord who has relied on Appellate Division precedent to pay attorney fees to a prevailing tenant. In Wells v. East 10th Street Associates, 2 05 A.D.2d 431, the court held that even though tenant was entitled to succession rights to the subject apartment, tenant was not entitled to legal fees because landlord had brought a summary proceeding in reliance on law succession principles that the Court of Appeals subsequently changed. The court concluded that it would be unfair to award tenant legal fees in such a situation, The court in 251 CPW Housing was unwilling to extend the standard in Wells t o a landlord who improperly relied on a plausible, but ultimately erroneous, interpretation of an amendment to the Rent Stabilization Law 9 NYCRR 2521.2(a). The court emphasized that in this case, unlike Wells and other cases, landlord had not relied on controlling appellate precedent.

Although Real Property Law section 234 entitles a tenant to the reciprocal right to attorneys' fees in “ any action or summary proceeding “ resulting from the landlord's failure to perform the agreements of the lease, the statute does not, by its terms, entitle tenants to fees incurred in proceedings before DHCR. If, however, DHCR concludes that landlord has denied tenant rights afforded by the rent stabilization laws, and tenant then has to bring an action or proceeding to enforce those rights, courts have granted attorneys' fees to tenants For instance, in Paganuzzi v. Primrose Management Co., 268 A.D.2d 213, the court noted that while in general, attorneys' fees should not be awarded from Article 78 DHCR proceedings, they may be provided when a tenant has to bring a “ plenary action to enforce such an order.“ By contrast, where tenant prevails before DHCR, but does not need to bring a separate proceeding to obtain additional relief, tenant is not entitled to fees. Thus, in Eisner v. M&E Rubin, LLC, 117 A.D.3d 778, where tenants withheld payment of rent until the balance of their award in a fair market rent appeal had been fully credited to their account, the court held that tenants were not entitled to attorneys ' fees because they did not have to bring an action to enforce DHCR's determination.

'

Habitability Defense Dismissed

72A Realty Associates, L.P. v. Mercado

NYLJ 12/31/14, p. 21, col. 1

AppTerm, First Dept.

(memorandum opinion)

In landlord's summary nonpayment proceeding, both parties appealed from Civil Court's order denying summary judgment to landlord on the nonpayment petition, denying summary judgment to landlord dismissing the counterclaim and affirmative defense of breach of the warranty of habitability, and denying summary judgment to tenant dismissing the petition. The AppellateTerm modified to dismiss the habitability defense.

Landlord sought to recover $52,000 in rent arrears, largely arising from landlord's refusal to accept rent from named tenant's daughter. Tenant and the daughter claim that the daughter holds succession rights to the apartment, but landlord has disagreed. When landlord brought this proceeding, tenant's only defense was landlord's alleged breach of the implied warranty of habitability.

In holding that Civil Court should have rejected the habitability defense, the Appellate Term focused on the failure of tenant or his daughter to demonstrate that either of them ever notified landlord of the alleged defective conditions. The court held that failure to provide landlord with the requisite notice of defects is fatal to tenant's habitability defense. The court remanded for exploration of tenant's defense of laches arising from landlord's delay in instituting the proceeding.

'

Court Grants Yellowstone Injunction

W & G Wines LLC v. Golden Chariot Holdings LLC

NYLJ 1/7/15, p. 21, col. 1

Supreme Ct., Kings Cty.

(Demarest, J.)

In tenant's action for a declaration that tenant had not breached its commercial lease, tenant sought a Yellowstone injunction. The court granted the injunction, rejecting landlord's argument that tenant's breaches were incurable.

In 2010, landlord leased the premises to tenant for a 10-year term for use as a wine and liquor store. In June 2014, landlord served tenant with a notice of default and gave tenant 15 days to cure. The notice of default asserted that tenant had breached the lease by providing inadequate insurance coverage in violation of the lease terms, by permitting consumption of food and beverages in violation of the lease term and the ABC law, and by installing signage and fixtures without approval of the Department of Buildings. The following month, tenant brought this declaratory judgment action and sought a Yellowstone injunction giving tenant the opportunity to cure if the court were ultimately to determine that tenant had breached its lease obligations. Landlord opposed the injunction, contending that the absence of adequate insurance to date, and the other alleged breaches, were not curable.

In granting the Yellowstone injunction, the court started by focusing on the alleged defect in insurance: The policy included landlord as an additional insured rather than a named insured, as required by the lease. The court acknowledged case law holding that amendment of the insurance policy prospectively would not cure the breach of inadequate coverage before the amendment, but noted that in this case, tenant alleged that landlord's principal, an insurance agent, had reviewed and approved the policy, raising questions of fact about whether landlord had waived its right to be listed as a named insured. The court then turned to the alleged violations arising out of tenant's supposed pouring, at wine tastings of more alcohol than permitted by the ABC law, and tenant's supposed service of food at those tastings. The court held that it was premature to resolve at this stage whether those alleged breaches, if they occurred, were curable.

Finally, the court acknowledged that questions of fact remained about whether tenant had breached the lease by making alterations without DOB permits, but then observed that DOB had never issued violations, and even in cases where DOB has issued violations, courts have held that failure to obtain DOB permits does not constitute an incurable violation. As a result, the court held that tenant was entitled to the Yellowstone injunction.

'

Tenant Entitled to Attorneys' Fees Despite Landlord's Reliance on Regulation

251 CPW Housing LLC v. Pastreich

NYLJ 1/8/14, p. 22, col. 1

AppDiv, First Dept.

(memorandum opinion)

In landlord's summary holdover proceeding, tenant appealed from the Appellate Term's order reversing Civil Court's grant of attorneys' fees. The Appellate Division modified, holding that tenant was entitled to attorneys' fees incurred during the holdover proceeding, but not entitled to fees incurred in related DHCR proceedings or in an article 78 proceeding brought to challenge a DHCR determination.

In 1991, landlord leased the subject rent-stabilized apartment to tenant. Although the lease stated that the stabilized rent was $5,747.52, the parties executed a rider providing for a preferential rent of $3,000 on condition that tenant accept the premises in as-is condition. The rider also gave tenant the option to renew at the preferential rent, adjusted by applicable rent guidelines. The parties continued to renew the lease based on the preferential rent rider until 2004, when landlord offered tenant a renewal lease at a rent of $7,652.26, the current legal rent based on the initial stabilized rent without the preferential rent rider. Tenant refused to execute the new lease, resulting in two separate legal proceedings ' a rent overcharge proceeding brought by tenant before DHCR, and this summary holdover proceeding brought in Civil Court. Civil Court stayed the holdover proceeding pending resolution of the DHCR proceeding.

DHCR denied tenant's overcharge complaint, and also denied tenant's petition for administrative review. Supreme Court then dismissed tenant's article 78 proceeding challenging DHCR's determination, but the Appellate Division reversed, rejecting DHCR's reliance on 9 NYCRR 2521.2(a), which gives a landlord who charges a preferential rent the option of offering a lease renewal based either on the legal regulated rent or the preferential rent. The Appellate Division held that the regulation would not override the parties' intent that renewal leases be based on the preferential rent, and remanded for a hearing on the parties' intent. DHCR then determined that the parties intended that renewals be based on the preferential rent. Tenant then moved in the holdover proceeding for an award of attorneys' fees in all proceedings, and Civil Court granted the motion. The Appellate Term reversed and denied attorneys' fees because landlord's position was of “colorable merit.” Tenant appealed.

In modifying, the Appellate Division held that Real Property Law section 234 entitled tenant, as the prevailing party, to attorneys' fees in the holdover proceeding. The court emphasized that attorneys' fees should be denied to a prevailing tenant only when a fee award would be manifestly unfair or when the tenant engaged in bad faith. The court rejected landlord's argument that it would be unfair to award attorneys' fees when landlord had relied on 9 NYCRR 2521.2(a), noting that no case law had developed to support landlord's position. The court then upheld the Appellate Term's denial of attorneys' fees incurred in the DHCR and article 78 proceedings, holding that RPL 234 does not extend to those proceedings.

COMMENT

Despite the absolute language of Real Property Law ' 234, courts have not required a landlord who has relied on Appellate Division precedent to pay attorney fees to a prevailing tenant. In Wells v. East 10th Street Associates, 2 05 A.D.2d 431, the court held that even though tenant was entitled to succession rights to the subject apartment, tenant was not entitled to legal fees because landlord had brought a summary proceeding in reliance on law succession principles that the Court of Appeals subsequently changed. The court concluded that it would be unfair to award tenant legal fees in such a situation, The court in 251 CPW Housing was unwilling to extend the standard in Wells t o a landlord who improperly relied on a plausible, but ultimately erroneous, interpretation of an amendment to the Rent Stabilization Law 9 NYCRR 2521.2(a). The court emphasized that in this case, unlike Wells and other cases, landlord had not relied on controlling appellate precedent.

Although Real Property Law section 234 entitles a tenant to the reciprocal right to attorneys' fees in “ any action or summary proceeding “ resulting from the landlord's failure to perform the agreements of the lease, the statute does not, by its terms, entitle tenants to fees incurred in proceedings before DHCR. If, however, DHCR concludes that landlord has denied tenant rights afforded by the rent stabilization laws, and tenant then has to bring an action or proceeding to enforce those rights, courts have granted attorneys ' fees to tenants For instance, in Paganuzzi v. Primrose Management Co., 268 A.D.2d 213, the court noted that while in general, attorneys' fees should not be awarded from Article 78 DHCR proceedings, they may be provided when a tenant has to bring a “ plenary action to enforce such an order. “ By contrast, where tenant prevails before DHCR, but does not need to bring a separate proceeding to obtain additional relief, tenant is not entitled to fees. Thus, in Eisner v. M&E Rubin, LLC, 117 A.D.3d 778, where tenants withheld payment of rent until the balance of their award in a fair market rent appeal had been fully credited to their account, the court held that tenants were not entitled to attorneys ' fees because they did not have to bring an action to enforce DHCR's determination.

'

Habitability Defense Dismissed

72A Realty Associates, L.P. v. Mercado

NYLJ 12/31/14, p. 21, col. 1

AppTerm, First Dept.

(memorandum opinion)

In landlord's summary nonpayment proceeding, both parties appealed from Civil Court's order denying summary judgment to landlord on the nonpayment petition, denying summary judgment to landlord dismissing the counterclaim and affirmative defense of breach of the warranty of habitability, and denying summary judgment to tenant dismissing the petition. The AppellateTerm modified to dismiss the habitability defense.

Landlord sought to recover $52,000 in rent arrears, largely arising from landlord's refusal to accept rent from named tenant's daughter. Tenant and the daughter claim that the daughter holds succession rights to the apartment, but landlord has disagreed. When landlord brought this proceeding, tenant's only defense was landlord's alleged breach of the implied warranty of habitability.

In holding that Civil Court should have rejected the habitability defense, the Appellate Term focused on the failure of tenant or his daughter to demonstrate that either of them ever notified landlord of the alleged defective conditions. The court held that failure to provide landlord with the requisite notice of defects is fatal to tenant's habitability defense. The court remanded for exploration of tenant's defense of laches arising from landlord's delay in instituting the proceeding.

'

Court Grants Yellowstone Injunction

W & G Wines LLC v. Golden Chariot Holdings LLC

NYLJ 1/7/15, p. 21, col. 1

Supreme Ct., Kings Cty.

(Demarest, J.)

In tenant's action for a declaration that tenant had not breached its commercial lease, tenant sought a Yellowstone injunction. The court granted the injunction, rejecting landlord's argument that tenant's breaches were incurable.

In 2010, landlord leased the premises to tenant for a 10-year term for use as a wine and liquor store. In June 2014, landlord served tenant with a notice of default and gave tenant 15 days to cure. The notice of default asserted that tenant had breached the lease by providing inadequate insurance coverage in violation of the lease terms, by permitting consumption of food and beverages in violation of the lease term and the ABC law, and by installing signage and fixtures without approval of the Department of Buildings. The following month, tenant brought this declaratory judgment action and sought a Yellowstone injunction giving tenant the opportunity to cure if the court were ultimately to determine that tenant had breached its lease obligations. Landlord opposed the injunction, contending that the absence of adequate insurance to date, and the other alleged breaches, were not curable.

In granting the Yellowstone injunction, the court started by focusing on the alleged defect in insurance: The policy included landlord as an additional insured rather than a named insured, as required by the lease. The court acknowledged case law holding that amendment of the insurance policy prospectively would not cure the breach of inadequate coverage before the amendment, but noted that in this case, tenant alleged that landlord's principal, an insurance agent, had reviewed and approved the policy, raising questions of fact about whether landlord had waived its right to be listed as a named insured. The court then turned to the alleged violations arising out of tenant's supposed pouring, at wine tastings of more alcohol than permitted by the ABC law, and tenant's supposed service of food at those tastings. The court held that it was premature to resolve at this stage whether those alleged breaches, if they occurred, were curable.

Finally, the court acknowledged that questions of fact remained about whether tenant had breached the lease by making alterations without DOB permits, but then observed that DOB had never issued violations, and even in cases where DOB has issued violations, courts have held that failure to obtain DOB permits does not constitute an incurable violation. As a result, the court held that tenant was entitled to the Yellowstone injunction.

'