Landlord & Tenant

Stipulation of Settlement Did Not Excuse Guarantor From Liability

H.L. Realty, LLC v. Edwards

NYLJ 8/21/15, p. 27, col. 6

AppDiv, Second Dept.

(3-1 decision; memorandum opinion; dissenting memorandum by Hinds-Radix, J.)

In landlord's action against tenant's guarantor, the latter appealed from Supreme Court's grant of summary judgment to landlord on the issue of liability. The Appellate Division affirmed, holding that a stipulation of settlement entered into between landlord and the original tenant's assignee did not excuse the guarantor from liability under the guarantee.

In 2003, landlord entered into the original 10-year lease with KEI as tenant and with guarantor, a principal in KEI. The guaranty provided that guarantor unconditionally guaranteed all amounts due under the lease, as renewed, amended, extended, or modified. In 2009, KEI assigned the lease to Angelina. Landlord, KEI, and guarantor entered into an agreement extending the lease through 2018 and providing that the guaranty would remain in full force during the term of the extension. Angelina subsequently defaulted in payment of rent, allegedly because of landlord's breach of the covenant of quiet enjoyment. Landlord brought a summary nonpayment proceeding, which was settled by a stipulation that included entry of a judgment of possession in favor of landlord. The stipulation also provided that Angelina would timely pay future rent. Landlord then brought this action to recover on the guaranty. Guarantor contended that when landlord retook possession, the lease ended, and so did guarantor's obligation for rent. Supreme Court disagreed, and guarantor appealed.

In affirming, the Appellate Division majority conceded that the landlord-tenant relationship between landlord and Angelina terminated with landlord's recovery of possession. But the majority emphasized that the lease required tenant to pay liquidated damages in the amount of any deficiency between the rent covenanted to be paid and the net amount collected by landlord. Because the guarantor agreed to guarantee the payment of all amounts due under the lease, the landlord was liable for liquidated damages provided in the lease. The stipulation of settlement did not affect that liability.

Justice Hinds-Radix, dissenting, contended that the stipulation of settlement constituted a new contract between landlord and the assignee by the terms of which assignee would be liable as liquidated damages for the full amount of future rent due under the lease. Because this definition differed from the definition of liquidated damages under the original lease (which included a setoff for rents actually collected by landlord), Justice Hinds-Radix concluded that the stipulation altered guarantor's obligations without the guarantor's knowledge or consent, and the alteration terminated guarantor's obligation as a matter of law.

Comment

Unless a guarantor has expressly accepted the risk of lease modification, the guarantor is relieved of its commitment when the lease agreement is modified, without his or her consent, in a manner that prejudices the guarantor. In determining if a modification is prejudicial to a guarantor, courts construe ambiguous language in favor of a private guarantor. Thus, in 665-75 Eleventh Ave. Realty Corp. v. Schlanger, 265 A.D. 2d 270, the court held that a guarantor was not liable for unpaid rent accruing after expiration of the final lease extension because the guarantor had only obligated himself to be bound in case of “any renewal, change or extension of the lease,” and not in case of the month-to-month tenancy landlord and tenant had actually established at the conclusion of the original lease. Similarly, in Lo-Ho LLC v. Batista, 62 A.D.3d 558, the court held that guarantor, who agreed to remain liable in case of any renewal or extension of the “attached lease” was not liable on an entirely new lease signed by landlord and tenant. The guarantor had expressly accepted the risk that the original lease might be modified, but upon expiration of that lease, landlord and tenant, rather than modifying the original lease, had agreed to a new one. There, this action released the guarantor from its obligation.

A guarantor expressly accepts the risk of lease modification when a guaranty contains language that indicates an absolute and unconditional guaranty. When the parties expressly agree to an absolute guaranty a guarantor is not relieved of its commitment when the parties subsequently modify the lease. For example, in Country Glen L.L.C. v. Himmelfarb, 4 Misc.3d 1015(A), the court held that guarantor was liable on an “absolute and unconditional” guaranty even though landlord and tenant had modified the lease obligations through two stipulations of settlement designed to settle two nonpayment proceedings.

'

Seller May Not Bring Holdover Proceeding Against Contract Vendee

Koppelman v. Barrett

NYLJ 8/6/15, p. 29, col. 1

App Term, 9th and 10th Districts

(memorandum opinion)

In landlord's summary holdover proceeding, landlord appealed from Justice Court's grant of occupant's motion to dismiss. The Appellate Term affirmed, holding that occupant had become a contract vendee, not a holdover tenant.

Landlord leased the subject property to occupants for one year beginning Feb. 1, 2009 and ending on Jan. 31, 2009. The lease gave occupants an option to purchase for $2,500,000 at any time during the lease term. In June 2009, after expiration of the lease and after the death of the original landlord, the trustee or the original landlord's revocable trust contracted to sell the property to occupants for $799,000. Occupants stopped paying rent, and have made no payments other than a $5,000 down payment. Landlord then brought this summary proceeding, and occupants moved to dismiss on the ground that no landlord-tenant relationship existed between the parties. Justice Court granted the motion.

In affirming, the Appellate Term first concluded that the option to purchase did not survive the original lease. But the court then held that once the lease expired, the landlord-tenant relationship ceased to exist, and no holdover tenancy was created. The court emphasized that in this case, tenant did not offer, and landlord did not accept, any rental payments. As a result, there was no landlord-tenant relationship between the parties, and landlord could not maintain a holdover proceeding. The court also noted that landlord could not have maintained a summary proceeding pursuant to RPAPL 713(9) because the contract of sale was not one that was necessarily to be performed within 90 days. The court observed that landlord remained free to bring an ejectment action.

'

Landlord May Amend Nonpayment Petition

36 Main Realty Corp. v. Wang Law Office PLLC

NYLJ 9/2/15, p. 21, col. 1

AppTerm, 2nd, 11th, and 13th Districts

(memorandum opinion)

In landlord's commercial nonpayment proceeding, tenant appealed from Civil Court's award of possession and rent to landlord. The Appellate Term affirmed, rejecting tenant's contention that landlord could not amend the petition to seek rent accruing after commencement of the proceeding.

Landlord brought this proceeding premised on tenant's failure to pay rent, and additional rent for January 2013. Tenant defended against the proceeding by alleging constructive eviction. At a nonjury trial, Civil Court granted landlord's application to amend the petition to include rent for May 2013, and awarded landlord a judgment of possessions and back rent, which included May. The court concluded that, under the terms of the lease, tenant bore the obligation to make repairs, and landlord assumed those obligations without waiving its right to collect rents. Tenant appealed, contending that Civil Court was not entitled to permit landlord to amend the petition to seek May rent.

In affirming, the Appellate Term held that in nonpayment proceedings, no new demand is necessary in order to amend the petition to include newly accrued rent. With respect to tenant's constructive eviction defense, the court found no reason to disturb Civil Court's finding that landlord had made all necessary repairs after receiving proper notice.

Comment

In 36 Main, a Second Department Appellate Term was faced with two conflicting lines of First Department appellate cases: one holding that a landlord must file a new demand for rent in order to seek post-petition rent in a commercial nonpayment proceeding, and the other holding that no new demand is necessary. The court cited two 20th-century Appellate Term cases indicating that the established practice is to allow amendment of the petition to include post-petition rent (GSL Enters., Inc. v. Newlinger, NYLJ, May 24, 1996, at 25, col. 6 [ App.Term, 1st Dept.1996 ] ; C.F. Monroe, Inc. v. Nemeth, NYLJ, Oct. 25, 1994, at 25, col. 1 [ App.Term, 1st Dept.1994 ]) , but acknowledged an even older case requiring a landlord to file new demand of rent in order to amend its petition to include newly accrued rent. (1587 Broadway Rest. Corp. v. Magic Pyramid, NYLJ, Dec. 19, 1979, at 10, col. 2 [ App.Term, 1st Dept.1979 ]) .

This confusion in the Appellate Term has led to a disparity in Civil Court results. In JDM Wash. St., LLC v. 90 Wash. Rest. Assoc., LLC, 36 Misc.3d 769, the court held that in commercial nonpayment proceedings, rent demands do not need to be updated by new demand notices before a petitioner may seek to amend its petition to reflect rent allegedly accrued at the time of proceeding. The court in JDM relied on RPAPL ' 711(2), which requires one demand, not plural demands, of rent. The JDM court also noted that CPRL 103(b) states that an amendment to a pleading at trial must be granted absent surprise or prejudice resulting from delay. The court reasoned that in commercial nonpayment cases, a demand for rent places the tenant on notice, and therefore does not prejudice the tenant when landlord seeks unpaid rent until the end of the proceeding.

On the other hand some cases have continued to follow 1587 Broadway. For instance, in 501 Seventh Ave. Assocs. v. 501 Seventh Ave. Bake Corp., 2002 NY Slip Op 50362(U) (Civ. Ct.) the court denied landlord's motion to amend the petition to include post-petition rent because the court found that landlord did not offer any proof that it served tenant with a demand for rent accruing after filing of the commercial nonpayment petition.

'

Acceptance of Rent Vitiates Holdover Proceeding

92 Bergenbrooklyn, LLC v. Cisarano

NYLJ 9/9/15, p. 21, col. 1 AppTerm

2nd, 11th and 13th Districts

(per curiam opinion)

In landlord's summary holdover proceeding based on termination of a month-to-month tenancy, landlord appealed from Civil Court's dismissal of the petition. The Appellate Term affirmed, holding that landlord's acceptance of rent after filing the holdover proceeding, but before service on tenant, vitiated landlord's termination notice.

After terminating the month-to-month tenancy on May 31, 2013, landlord filed a summary holdover proceeding on June 7, accepted rent on June 10, and served tenant by substitute service on June 13 and by mailing on June 14. Tenant moved to dismiss, contending that landlord's acceptance of June rent before service of the petition and notice of petition operated to reinstate the tenancy. Civil Court agreed, holding that a summary proceeding is commenced upon service. Landlord appealed, relying on RPAPL 711(1), which provides that “Acceptance of rent after the commencement of the [holdover] proceeding ' shall not terminate such proceeding ' “

In affirming, the Appellate Term first rejected Civil Court's conclusion that summary proceedings are commenced upon service. The court noted that in 2005, the legislature had amended section 400 of the Civil Court Act to provide that a summary proceeding is commenced by filing a notice of petition and petition. The court also noted that the legislative history surrounding a 1994 amendment to RPAPL 731 also made it clear that summary proceedings are within the commencement by filing system in courts where that system was in effect. As a result, the Appellate Term concluded that a summary proceeding is commenced by filing in Civil Court. But the court then held that the change from a commencement upon service to a commencement upon filing system in Civil Court was not meant to change the pre-existing rule that acceptance of rent before service of the notice of petition and petition nullifies the petition and reinstates the tenancy. The court emphasized that the change to a commencement by filing system was designed to raise money for the state coffers and had nothing to do with whether acceptance of rent vitiates a termination notice. The court explained that RPAPL 711(1) was designed to allow tenant to pay, and landlord to receive, rent during a proceeding without prejudicing their respective litigation positions. But the court held that the statute should not apply when tenant does not yet have notice of the litigation, because tenant has not yet been served. As a result, the court held (after noting contrary authority), that for the limited purpose of RPAPL 711(1), commencement should remain keyed to service, not filing.

'

Stipulation of Settlement Did Not Excuse Guarantor From Liability

H.L. Realty, LLC v. Edwards

NYLJ 8/21/15, p. 27, col. 6

AppDiv, Second Dept.

(3-1 decision; memorandum opinion; dissenting memorandum by Hinds-Radix, J.)

In landlord's action against tenant's guarantor, the latter appealed from Supreme Court's grant of summary judgment to landlord on the issue of liability. The Appellate Division affirmed, holding that a stipulation of settlement entered into between landlord and the original tenant's assignee did not excuse the guarantor from liability under the guarantee.

In 2003, landlord entered into the original 10-year lease with KEI as tenant and with guarantor, a principal in KEI. The guaranty provided that guarantor unconditionally guaranteed all amounts due under the lease, as renewed, amended, extended, or modified. In 2009, KEI assigned the lease to Angelina. Landlord, KEI, and guarantor entered into an agreement extending the lease through 2018 and providing that the guaranty would remain in full force during the term of the extension. Angelina subsequently defaulted in payment of rent, allegedly because of landlord's breach of the covenant of quiet enjoyment. Landlord brought a summary nonpayment proceeding, which was settled by a stipulation that included entry of a judgment of possession in favor of landlord. The stipulation also provided that Angelina would timely pay future rent. Landlord then brought this action to recover on the guaranty. Guarantor contended that when landlord retook possession, the lease ended, and so did guarantor's obligation for rent. Supreme Court disagreed, and guarantor appealed.

In affirming, the Appellate Division majority conceded that the landlord-tenant relationship between landlord and Angelina terminated with landlord's recovery of possession. But the majority emphasized that the lease required tenant to pay liquidated damages in the amount of any deficiency between the rent covenanted to be paid and the net amount collected by landlord. Because the guarantor agreed to guarantee the payment of all amounts due under the lease, the landlord was liable for liquidated damages provided in the lease. The stipulation of settlement did not affect that liability.

Justice Hinds-Radix, dissenting, contended that the stipulation of settlement constituted a new contract between landlord and the assignee by the terms of which assignee would be liable as liquidated damages for the full amount of future rent due under the lease. Because this definition differed from the definition of liquidated damages under the original lease (which included a setoff for rents actually collected by landlord), Justice Hinds-Radix concluded that the stipulation altered guarantor's obligations without the guarantor's knowledge or consent, and the alteration terminated guarantor's obligation as a matter of law.

Comment

Unless a guarantor has expressly accepted the risk of lease modification, the guarantor is relieved of its commitment when the lease agreement is modified, without his or her consent, in a manner that prejudices the guarantor. In determining if a modification is prejudicial to a guarantor, courts construe ambiguous language in favor of a private guarantor. Thus, in 665-75 Eleventh Ave. Realty Corp. v. Schlanger, 265 A.D. 2d 270, the court held that a guarantor was not liable for unpaid rent accruing after expiration of the final lease extension because the guarantor had only obligated himself to be bound in case of “any renewal, change or extension of the lease,” and not in case of the month-to-month tenancy landlord and tenant had actually established at the conclusion of the original lease. Similarly, in Lo-Ho LLC v. Batista, 62 A.D.3d 558, the court held that guarantor, who agreed to remain liable in case of any renewal or extension of the “attached lease” was not liable on an entirely new lease signed by landlord and tenant. The guarantor had expressly accepted the risk that the original lease might be modified, but upon expiration of that lease, landlord and tenant, rather than modifying the original lease, had agreed to a new one. There, this action released the guarantor from its obligation.

A guarantor expressly accepts the risk of lease modification when a guaranty contains language that indicates an absolute and unconditional guaranty. When the parties expressly agree to an absolute guaranty a guarantor is not relieved of its commitment when the parties subsequently modify the lease. For example, in Country Glen L.L.C. v. Himmelfarb, 4 Misc.3d 1015(A), the court held that guarantor was liable on an “absolute and unconditional” guaranty even though landlord and tenant had modified the lease obligations through two stipulations of settlement designed to settle two nonpayment proceedings.

'

Seller May Not Bring Holdover Proceeding Against Contract Vendee

Koppelman v. Barrett

NYLJ 8/6/15, p. 29, col. 1

App Term, 9th and 10th Districts

(memorandum opinion)

In landlord's summary holdover proceeding, landlord appealed from Justice Court's grant of occupant's motion to dismiss. The Appellate Term affirmed, holding that occupant had become a contract vendee, not a holdover tenant.

Landlord leased the subject property to occupants for one year beginning Feb. 1, 2009 and ending on Jan. 31, 2009. The lease gave occupants an option to purchase for $2,500,000 at any time during the lease term. In June 2009, after expiration of the lease and after the death of the original landlord, the trustee or the original landlord's revocable trust contracted to sell the property to occupants for $799,000. Occupants stopped paying rent, and have made no payments other than a $5,000 down payment. Landlord then brought this summary proceeding, and occupants moved to dismiss on the ground that no landlord-tenant relationship existed between the parties. Justice Court granted the motion.

In affirming, the Appellate Term first concluded that the option to purchase did not survive the original lease. But the court then held that once the lease expired, the landlord-tenant relationship ceased to exist, and no holdover tenancy was created. The court emphasized that in this case, tenant did not offer, and landlord did not accept, any rental payments. As a result, there was no landlord-tenant relationship between the parties, and landlord could not maintain a holdover proceeding. The court also noted that landlord could not have maintained a summary proceeding pursuant to RPAPL 713(9) because the contract of sale was not one that was necessarily to be performed within 90 days. The court observed that landlord remained free to bring an ejectment action.

'

Landlord May Amend Nonpayment Petition

36 Main Realty Corp. v. Wang Law Office PLLC

NYLJ 9/2/15, p. 21, col. 1

AppTerm, 2nd, 11th, and 13th Districts

(memorandum opinion)

In landlord's commercial nonpayment proceeding, tenant appealed from Civil Court's award of possession and rent to landlord. The Appellate Term affirmed, rejecting tenant's contention that landlord could not amend the petition to seek rent accruing after commencement of the proceeding.

Landlord brought this proceeding premised on tenant's failure to pay rent, and additional rent for January 2013. Tenant defended against the proceeding by alleging constructive eviction. At a nonjury trial, Civil Court granted landlord's application to amend the petition to include rent for May 2013, and awarded landlord a judgment of possessions and back rent, which included May. The court concluded that, under the terms of the lease, tenant bore the obligation to make repairs, and landlord assumed those obligations without waiving its right to collect rents. Tenant appealed, contending that Civil Court was not entitled to permit landlord to amend the petition to seek May rent.

In affirming, the Appellate Term held that in nonpayment proceedings, no new demand is necessary in order to amend the petition to include newly accrued rent. With respect to tenant's constructive eviction defense, the court found no reason to disturb Civil Court's finding that landlord had made all necessary repairs after receiving proper notice.

Comment

In 36 Main, a Second Department Appellate Term was faced with two conflicting lines of First Department appellate cases: one holding that a landlord must file a new demand for rent in order to seek post-petition rent in a commercial nonpayment proceeding, and the other holding that no new demand is necessary. The court cited two 20th-century Appellate Term cases indicating that the established practice is to allow amendment of the petition to include post-petition rent (GSL Enters., Inc. v. Newlinger, NYLJ, May 24, 1996, at 25, col. 6 [ App.Term, 1st Dept.1996 ] ; C.F. Monroe, Inc. v. Nemeth, NYLJ, Oct. 25, 1994, at 25, col. 1 [ App.Term, 1st Dept.1994 ]) , but acknowledged an even older case requiring a landlord to file new demand of rent in order to amend its petition to include newly accrued rent. (1587 Broadway Rest. Corp. v. Magic Pyramid, NYLJ, Dec. 19, 1979, at 10, col. 2 [ App.Term, 1st Dept.1979 ]) .

This confusion in the Appellate Term has led to a disparity in Civil Court results. In JDM Wash. St., LLC v. 90 Wash. Rest. Assoc., LLC, 36 Misc.3d 769, the court held that in commercial nonpayment proceedings, rent demands do not need to be updated by new demand notices before a petitioner may seek to amend its petition to reflect rent allegedly accrued at the time of proceeding. The court in JDM relied on RPAPL ' 711(2), which requires one demand, not plural demands, of rent. The JDM court also noted that CPRL 103(b) states that an amendment to a pleading at trial must be granted absent surprise or prejudice resulting from delay. The court reasoned that in commercial nonpayment cases, a demand for rent places the tenant on notice, and therefore does not prejudice the tenant when landlord seeks unpaid rent until the end of the proceeding.

On the other hand some cases have continued to follow 1587 Broadway. For instance, in 501 Seventh Ave. Assocs. v. 501 Seventh Ave. Bake Corp., 2002 NY Slip Op 50362(U) (Civ. Ct.) the court denied landlord's motion to amend the petition to include post-petition rent because the court found that landlord did not offer any proof that it served tenant with a demand for rent accruing after filing of the commercial nonpayment petition.

'

Acceptance of Rent Vitiates Holdover Proceeding

92 Bergenbrooklyn, LLC v. Cisarano

NYLJ 9/9/15, p. 21, col. 1 AppTerm

2nd, 11th and 13th Districts

(per curiam opinion)

In landlord's summary holdover proceeding based on termination of a month-to-month tenancy, landlord appealed from Civil Court's dismissal of the petition. The Appellate Term affirmed, holding that landlord's acceptance of rent after filing the holdover proceeding, but before service on tenant, vitiated landlord's termination notice.

After terminating the month-to-month tenancy on May 31, 2013, landlord filed a summary holdover proceeding on June 7, accepted rent on June 10, and served tenant by substitute service on June 13 and by mailing on June 14. Tenant moved to dismiss, contending that landlord's acceptance of June rent before service of the petition and notice of petition operated to reinstate the tenancy. Civil Court agreed, holding that a summary proceeding is commenced upon service. Landlord appealed, relying on RPAPL 711(1), which provides that “Acceptance of rent after the commencement of the [holdover] proceeding ' shall not terminate such proceeding ' “

In affirming, the Appellate Term first rejected Civil Court's conclusion that summary proceedings are commenced upon service. The court noted that in 2005, the legislature had amended section 400 of the Civil Court Act to provide that a summary proceeding is commenced by filing a notice of petition and petition. The court also noted that the legislative history surrounding a 1994 amendment to RPAPL 731 also made it clear that summary proceedings are within the commencement by filing system in courts where that system was in effect. As a result, the Appellate Term concluded that a summary proceeding is commenced by filing in Civil Court. But the court then held that the change from a commencement upon service to a commencement upon filing system in Civil Court was not meant to change the pre-existing rule that acceptance of rent before service of the notice of petition and petition nullifies the petition and reinstates the tenancy. The court emphasized that the change to a commencement by filing system was designed to raise money for the state coffers and had nothing to do with whether acceptance of rent vitiates a termination notice. The court explained that RPAPL 711(1) was designed to allow tenant to pay, and landlord to receive, rent during a proceeding without prejudicing their respective litigation positions. But the court held that the statute should not apply when tenant does not yet have notice of the litigation, because tenant has not yet been served. As a result, the court held (after noting contrary authority), that for the limited purpose of RPAPL 711(1), commencement should remain keyed to service, not filing.

'