Landlord & Tenant

AppDiv, First Dept.

(memorandum opinion)

In an action by commercial garage lessor seeking rent and damages from lessee and related entities, the latter appealed from Supreme Court's award of partial summary judgment to lessor, and from denial of a summary judgment motion by one of the related entities. The Appellate Division modified to strike a claim for rent against the related entity, but concluded that the related entity could be liable for use and occupancy even if it was not in privity with lessor.

Lessor leased garage space to QP Beekman for a term to begin May 1, 2008 and to end April 30, 2016. The lease provided that lessor would maintain and repair the exterior and interior of the buildings, and that “there shall be no allowance to the Tenant for the diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business” as a result of the process of making repairs. Lessor undertook to make repairs pursuant to a recommendation for an architectural and engineering firm hired to evaluate the structure. The repairs resulted in a loss of parking spaces for a prolonged period. Lessor refused to reduce lessee's rent during the period of repairs, and lessee then withheld all rent. Lessor then brought this action against lessee and lessee's assignee, and also against Quik Park 1633, an entity controlled by the principal of lessee and lessee's assignee. Quik Park 1633 had never signed a lease for the garage premises, but has operated the garage and had paid rent to landlord. Lessee contended that they were not obligated to pay rent because they were partially evicted from the garage, and Quik Park 1633 contended that it was not obligated to pay rent because it was not in privity with landlord. Supreme Court awarded summary judgment to lessor, and denied Quik Park's summary judgment motion.

In modifying, the Appellate Division upheld Supreme Court's rejection of the partial eviction defense, relying on the language in the lease that expressly contemplated that there might be interference with lessee's business as a result of repairs, and that held tenant would not be entitled to an allowance for any injury to business. The court then held that Supreme Court should not have struck Quik Park's affirmative defense, contending that the absence of privity precluded lessor from collecting rent from Quik Park. But the court also held that lessor was entitled to seek use and occupancy from Quik Park even in the absence of any lease or contractual relationship between the parties.

COMMENT

Although the issue is not entirely free from doubt, most New York courts have held that, based on the theory of quantum meruit , a commercial building owner may recover damages for use and occupancy from a subtenant who is not in a contractual relationship with the building owner. In Eighteen Associates, LLC v. Nanjim Leasing Corp., 257 A.D.2d 559, the court held that the sublessees had an obligation to pay the building owner for their use and occupancy even though they were not parties to the lease contract between the landlord building owner and the tenant. The court emphasized that sublessee liability was necessary to rectify the fact that the building owner had not been paid by the tenant. See also Ministers, Elders and Deacons of Reformed Protestant Dutch Church of City of New York v. 198 Broadway, Inc., 152 Misc.2d 936 (holding that even though the absence of a contractual privity bars an action for rent, landlord was entitled to damages for use and occupancy) A few cases have indicated, however, that privity might remain a bar to recovery of use and occupancy against a subtenant. Thus, in Chock Full O' Nuts Corp. v. NRP LLC, 11 A.D.3d 385, 386, in an action by a landlord against tenant and tenant's assignee for damages suffered when they did not remove a subtenant, the First Department held that landlord could recover holdover damages from tenant and tenant's assignee, but opined that there was “no basis for holdover liability against the subtenant since the subtenant was not in contractual privity with the landlord.” Perhaps the court was focused only on subtenant's liability under its lease (especially since the subtenant was not a party to the action), but the “no basis” language could also be read to preclude a use and occupancy claim.

Courts may award use and occupancy damages that exceed a subtenant's rent amount if the subtenant prevents tenant from fulfilling its obligation to vacate the premises at the expiration of the lease. In Syracuse Associates v. Touchette Corp., 73 A.D.2d 813, the court held that subtenant, who occupied a quarter of the premises, should be liable for use and occupancy of the entire premises because subtenant's continued occupancy prevented tenant from surrendering possession at the end of the lease. Tenant vacated at the expiration of the lease and provided written notice to subtenant that the lease was expiring. The court explicitly rejected the notion that tenant's liability should be based on rents that would have been due under the lease, emphasizing that use and occupancy damages must be based on reasonable value of use during the period of subtenant's holdover.

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Lease Term Started When Tenant Entered Possession

Arista Real Estate Holding, Inc. v. Kemalettin

NYLJ 11/20/15, p. 34, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action for a declaratory judgment that a commercial lease terminated on Dec. 31, 2013, landlord appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed and, searching the record, held that tenant was entitled to summary judgment based on facts conceded by landlord.

Landlord and tenant entered into a commercial lease for a 15-year term to begin on Jan. 1, 1999 and to end on Dec. 31, 2013. A rider provided, however, that if landlord did not deliver possession by Jan. 1, 1999, the lease term would begin when landlord delivered possession. Landlord submitted an affidavit from its president indicating that landlord delivered possession on July 1, 1999, six months after the date stated in the original lease. Landlord subsequently brought this declaratory judgment action, also seeking ejectment. Supreme Court denied landlord's summary judgment motion.

In affirming, the Appellate Division rejected landlord's reliance on an estoppel certificate signed by tenant. The estoppel certificate stated only that the lease had not been modified in any way, but failed to make any representation about the date on which the premises had been delivered. The court concluded that landlord's affidavit established that the start date for the lease was July 1, 1999, and held that in light of that start date, the term did not end on Dec. 31, 2013.

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Stipulation Vacated

Bridgeview II, LLC v. Mares

NYLJ 12/10/15, p. 25

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

(2-1 decision; memorandum opinion; dissenting memorandum by Weston, J.)

In landlord's nonpayment proceeding, tenant appealed from Civil Court's denial of her motion to vacate a stipulation of settlement. A divided Appellate Term reversed, holding that because the stipulation was entered without an understanding that it failed to comply with the terms of a federal statute, the stipulation should be vacated.

In settlement of a nonpayment proceeding brought by landlord, the parties stipulated that landlord would accept $10,000 in satisfaction of rent arrears, the tenant would then pay use and occupancy at $1,250 a month for one year, and then at $1,500 a month for the following year, and at “the full amount as stated in the HAP contract” [with HUD], which was stated to be $1,950 a month. This stipulation was entered while tenant had benefit of counsel, and after the courts had rejected tenant's contention that the apartment was rent stabilized after landlord paid of its section 236 mortgage pursuant to a HUD use agreement. After the stipulation, tenant fired her lawyer and hired a new one who moved to vacate the stipulation on ground of fraud and/or mistake in calculation of the applicable rent. Civil Court denied tenant's motion, and tenant appealed.

In reversing, the Appellate Term concluded that federal statute ' 12 USC section 4112(2)(D) ' controls the amount of monthly rent a landlord can collect when a section 236 mortgage has been prepaid, and concluded that the parties were unaware of the statute when they entered into the stipulation of settlement. As a result, the court held that the stipulation should be vacated. Justice Weston, dissenting, found no good cause for vacating the stipulation. In particular, she emphasized that there was no injustice in enforcing the stipulation when tenant had, for years, received rent benefits to which she had not been entitled.

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