Landlord & Tenant

Claim for Rent Increases Time-Barred

K-Ray Plaza LLC V. Kmart Corp.

NYLJ 10/30/15, p. 18, col. 1

AppDiv, First Dept.

(memorandum opinion)

In landlord's action for breach of contract by failing to pay rent increases supposedly mandated in the lease, tenant appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division modified to grant the summary judgment motion, holding that landlord's claim for rent increases was time-barred.

In 1993, landlord leased the premises to tenant for an initial term of 25 years, to be followed by renewal periods totaling another 24 years. Because the building had not yet been built, the lease term started in November, 1994. The lease included multiple provisions calling for cumulative rent increases every five years. One provision called for 10% cumulative increases every five years. Another provision included illustrations of the formula that in fact computed to 50 cents per square foot each fifth year during the initial 25-year term. In 1999, when the first rent escalation went into effect, landlord sent tenant increases reflecting an increase of 50 cents per square foot, and tenant paid those increases, which were consistent with the rent illustrations.

Between 2001 and 2003, however, landlord began sending tenant invoices reflecting a 10% increase over the initial rent. Tenant continued to pay rent reflecting the 50-cents-per-square-foot amount. Landlord continued to accept those payments unit April 2009, when landlord brought this action to recover the alleged cumulative deficiency in rent since May 1, 2003 and to obtain a declaration that the lease provides for a 10% increase every five years. Both parties sought summary judgment, and the court denied both motions. Both parties appealed.

In holding that tenant was entitled to summary judgment, the court first noted that each party had said the contradiction in the lease's terms should be resolved by reference to canons of construction, by parol evidence in the record, or by the parties' course of dealing. The court ultimately held, however, that tenants' statute of limitations defense was dispositive. The court observed that tenant had consistently paid, and landlord had consistently accepted, rent based on the 50-cents-per-square-foot escalations from 1999 to 2009. Because landlord did not bring a lawsuit challenging the amount paid until more than six years after it should have discovered the alleged error, landlord's claim was time-barred. The court also rejected landlord's claim that tenant should be equitably estopped from raising the statute of limitations claim because of allegedly deceptive conduct, emphasizing that here, landlord could not reasonably have relied on any deceptive conduct, because landlord should have discovered the discrepancy by 1999. Finally, the court held that the statute of limitations barred landlord's claim for declaratory relief as well as its breach of contract claim.

COMMENT

When a lease requires a tenant to make a series of periodic payments, a new cause of action for breach of contract generally accrues separately for each payment and the six-year statute of limitations accrues separately when each payment becomes due. In Yeshiva University Development Foundation v. Consultants & Designers, Inc., 60 A.D.2d 525, the court determined that the statute of limitations barred landlord's action for tax payments due more than six years prior to the filing of the complaint. However, the statute of limitations did not bar the claim for payments that were due and payable within six years of the date of the suit. In Yeshiva, the lease included a tax escalation clause, but a tax-exempt entity subsequently bought the property from the original landlord. After a significant delay, the new landlord brought suit, seeking to require tenant to pay as additional rent the amount that would have been due had the landlord not been tax-exempt. In holding that questions of fact about construction of the lease-barred summary judgment with respect to tenant's obligations for more recent years, the court emphasized that the statute of limitations barred suit on the claims for payments that had become due more than six years before filing suit.

However, the courts have carved out an exception to the rule when a party challenges the method of computation that has continuously been used to calculate payments due. In that situation the statute of limitations on all installments accrues when the party first received constructive notice of the computation method. In Goldman Copeland Associated P.C. v. Goodstein Bros., & Co., Inc., 268 A.D.2d 370, the court held that a tenant was barred both from recovering allegedly overpaid past wage escalation payments and from challenging the computation for future payments because the tenant did not file its claim within six years of receiving constructive notice of the computation method. The landlord provided the tenant with detailed yearly porter wage escalation statements that used the same formula every year to determine the amount due. The court explained that the tenant's claim accrued upon receiving constructive notice of the method of computation because he had all of the information needed to contest the method at that time. Goldman, 2 68 A.D.2d at 371. The court further explained that the yearly increase of payments due did not create a new cause of action each and every year because the formula used remained constant over the entire period of time. Id.

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Collateral Estoppel Does Not Bar Application for Service Reduction

Matter of Riverside Tenants Association v. DHCR

NYLJ 11/20/15, p. 39, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's determination that landlord's application to reduce services was premature, landlord appealed from Supreme Court's determination that the application was barred by collateral estoppel. The Appellate Division modified to reinstate DHCR's determination, rejecting Supreme Court's collateral estoppel holding.

In 2008, landlord applied to DHCR to modify courtyard services at the building to accommodate an underground parking garage that would encroach on 10% of the building's courtyard space. DHCR denied the application, and Supreme Court and the Appellate Division upheld DHCR's determination. In 2011, landlord filed a new application with DHCR for permission to decrease courtyard services and to reduce rents in the building. This time, the proposed garage would encroach on only 3% of the courtyard. DHCR denied the application as premature, but without prejudice to refilling when landlord obtained the necessary permits and plans for the project. The owner and the building's tenants' association each brought article 78 proceedings challenging DHCR's determination. Supreme Court denied landlord's petition and granted tenant's petition, holding that collateral estoppel, based on denial of landlord's 2008 application, barred landlord's 2011 application. Landlord appealed and DHCR cross-appealed.

In modifying, the Appellate Division held that because the 2011 application was different from the 2008 application, the collateral estoppel doctrine was inapplicable. The court then noted that DHCR's interpretation of the statutes it administers is entitled to deference. Here, DHCR had broad discretion in evaluating and interpreting the facts presented to it. The court noted that DHCR's determination that the application was premature was rational, and not affected by any error of law. In particular, the court noted that many permitting issues required evaluation by the Department of Buildings, subject to review by the Board of Standards and Appeals. Because those agencies have more expertise than DHCR in zoning and permitting issues, it was rational for DHCR to deny the application until landlord could produce approved plans for the project.

'

Claim for Rent Increases Time-Barred

K-Ray Plaza LLC V. Kmart Corp.

NYLJ 10/30/15, p. 18, col. 1

AppDiv, First Dept.

(memorandum opinion)

In landlord's action for breach of contract by failing to pay rent increases supposedly mandated in the lease, tenant appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division modified to grant the summary judgment motion, holding that landlord's claim for rent increases was time-barred.

In 1993, landlord leased the premises to tenant for an initial term of 25 years, to be followed by renewal periods totaling another 24 years. Because the building had not yet been built, the lease term started in November, 1994. The lease included multiple provisions calling for cumulative rent increases every five years. One provision called for 10% cumulative increases every five years. Another provision included illustrations of the formula that in fact computed to 50 cents per square foot each fifth year during the initial 25-year term. In 1999, when the first rent escalation went into effect, landlord sent tenant increases reflecting an increase of 50 cents per square foot, and tenant paid those increases, which were consistent with the rent illustrations.

Between 2001 and 2003, however, landlord began sending tenant invoices reflecting a 10% increase over the initial rent. Tenant continued to pay rent reflecting the 50-cents-per-square-foot amount. Landlord continued to accept those payments unit April 2009, when landlord brought this action to recover the alleged cumulative deficiency in rent since May 1, 2003 and to obtain a declaration that the lease provides for a 10% increase every five years. Both parties sought summary judgment, and the court denied both motions. Both parties appealed.

In holding that tenant was entitled to summary judgment, the court first noted that each party had said the contradiction in the lease's terms should be resolved by reference to canons of construction, by parol evidence in the record, or by the parties' course of dealing. The court ultimately held, however, that tenants' statute of limitations defense was dispositive. The court observed that tenant had consistently paid, and landlord had consistently accepted, rent based on the 50-cents-per-square-foot escalations from 1999 to 2009. Because landlord did not bring a lawsuit challenging the amount paid until more than six years after it should have discovered the alleged error, landlord's claim was time-barred. The court also rejected landlord's claim that tenant should be equitably estopped from raising the statute of limitations claim because of allegedly deceptive conduct, emphasizing that here, landlord could not reasonably have relied on any deceptive conduct, because landlord should have discovered the discrepancy by 1999. Finally, the court held that the statute of limitations barred landlord's claim for declaratory relief as well as its breach of contract claim.

COMMENT

When a lease requires a tenant to make a series of periodic payments, a new cause of action for breach of contract generally accrues separately for each payment and the six-year statute of limitations accrues separately when each payment becomes due. In Yeshiva University Development Foundation v. Consultants & Designers, Inc., 60 A.D.2d 525, the court determined that the statute of limitations barred landlord's action for tax payments due more than six years prior to the filing of the complaint. However, the statute of limitations did not bar the claim for payments that were due and payable within six years of the date of the suit. In Yeshiva, the lease included a tax escalation clause, but a tax-exempt entity subsequently bought the property from the original landlord. After a significant delay, the new landlord brought suit, seeking to require tenant to pay as additional rent the amount that would have been due had the landlord not been tax-exempt. In holding that questions of fact about construction of the lease-barred summary judgment with respect to tenant's obligations for more recent years, the court emphasized that the statute of limitations barred suit on the claims for payments that had become due more than six years before filing suit.

However, the courts have carved out an exception to the rule when a party challenges the method of computation that has continuously been used to calculate payments due. In that situation the statute of limitations on all installments accrues when the party first received constructive notice of the computation method. In Goldman Copeland Associated P.C. v. Goodstein Bros., & Co., Inc., 268 A.D.2d 370, the court held that a tenant was barred both from recovering allegedly overpaid past wage escalation payments and from challenging the computation for future payments because the tenant did not file its claim within six years of receiving constructive notice of the computation method. The landlord provided the tenant with detailed yearly porter wage escalation statements that used the same formula every year to determine the amount due. The court explained that the tenant's claim accrued upon receiving constructive notice of the method of computation because he had all of the information needed to contest the method at that time. Goldman, 2 68 A.D.2d at 371. The court further explained that the yearly increase of payments due did not create a new cause of action each and every year because the formula used remained constant over the entire period of time. Id.

'

Collateral Estoppel Does Not Bar Application for Service Reduction

Matter of Riverside Tenants Association v. DHCR

NYLJ 11/20/15, p. 39, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's determination that landlord's application to reduce services was premature, landlord appealed from Supreme Court's determination that the application was barred by collateral estoppel. The Appellate Division modified to reinstate DHCR's determination, rejecting Supreme Court's collateral estoppel holding.

In 2008, landlord applied to DHCR to modify courtyard services at the building to accommodate an underground parking garage that would encroach on 10% of the building's courtyard space. DHCR denied the application, and Supreme Court and the Appellate Division upheld DHCR's determination. In 2011, landlord filed a new application with DHCR for permission to decrease courtyard services and to reduce rents in the building. This time, the proposed garage would encroach on only 3% of the courtyard. DHCR denied the application as premature, but without prejudice to refilling when landlord obtained the necessary permits and plans for the project. The owner and the building's tenants' association each brought article 78 proceedings challenging DHCR's determination. Supreme Court denied landlord's petition and granted tenant's petition, holding that collateral estoppel, based on denial of landlord's 2008 application, barred landlord's 2011 application. Landlord appealed and DHCR cross-appealed.

In modifying, the Appellate Division held that because the 2011 application was different from the 2008 application, the collateral estoppel doctrine was inapplicable. The court then noted that DHCR's interpretation of the statutes it administers is entitled to deference. Here, DHCR had broad discretion in evaluating and interpreting the facts presented to it. The court noted that DHCR's determination that the application was premature was rational, and not affected by any error of law. In particular, the court noted that many permitting issues required evaluation by the Department of Buildings, subject to review by the Board of Standards and Appeals. Because those agencies have more expertise than DHCR in zoning and permitting issues, it was rational for DHCR to deny the application until landlord could produce approved plans for the project.

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