Landlord & Tenant

Landlord and tenant then entered into a so-ordered stipulation, by the terms of which tenant consented to a final judgment of possession and issuance of a warrant of eviction. On landlord's claim for possession against the subtenants, all parties moved for summary judgment, and Civil Court dismissed the petition against subtenants, concluding that tenant's voluntary surrender did not affect the rights of the subtenant to remain in possession.

In modifying, the Appellate Term held that the settlement stipulation between landlord and tenant did not constitute a voluntary surrender agreement that would have permitted subtenants to continue in possession. Instead, the court concluded that landlord had terminated tenant's lease based on tenant's breach of the covenant to pay rent. As a result of that termination, the subleases were also terminated. The court also rejected subtenants' reliance on a paragraph of the net lease providing that if the main tenant were in default in payment of rent for 10 days, the tenant assigns all subleases and rents to landlord until the defaults have been cured. The court concluded that subtenants were not intended to be third-party beneficiaries of this provision in the net lease, emphasizing that no subleases had yet been executed at the time. The court also concluded that the paragraph in question was cancelled along with the rest of the net lease when the court issued a warrant of eviction against the main tenant.

COMMENT

If the prime tenant breaches the terms of a lease, and landlord terminates the lease because of the breach, the termination extinguishes the interests of all subtenants. The doctrine applies even when the breaching tenant agrees with the landlord to surrender the premises. For instance, in Precision Dynamics Corp. v. Retailers Representatives, Inc., 120 Misc.2d 180, the court held that landlord was entitled to a judgment of possession against a subtenant when the insolvent prime tenant failed to pay rent and agreed with landlord to surrender the premises. Id. at 180. The court concluded that the subtenant's rights were dependent on the rights of the tenant, which were extinguished under the lease when the tenant failed to pay rent. Id. at 183. The agreement between landlord and prime tenant did not operate to expand the subtenant's rights.

Although a subtenant's right to possession ceases when the master lease is terminated pursuant to its terms, the subtenant remains entitled to damages from the tenant for breach of the sublease agreement. In Goldcrest Transport, Ltd. v. Across America Leasing Corp., 298 A.D.2d 494, the court denied prime tenant's summary judgment motion on a breach of contract claim by subtenant when the subtenant's right to possession was extinguished by prime tenant's breach of the main lease. Shortly after subletting a portion of its leased premises, prime tenant abandoned the premises and stopped paying rent. Id. at 495. Because the master lease was terminated by prime tenant's abandonment and failure to pay rent, the subtenant's interest was also terminated. Id. at 496. However, that termination did not prevent subtenant from pursuing damages against prime tenant for breach of the parties' sublease agreement. Id. at 495.

By contrast, a tenant's voluntary surrender of its leasehold interest will preserve the subtenant's right to possession. A surrender is voluntary when the landlord and tenant agree to terminate the lease, and where termination is not made pursuant to any provision in the master lease (including a provision permitting termination upon breach by tenant). In Ocean Grille, Inc. v. Pell, 226 A.D.2d 603, the Court held that the tenant had voluntarily surrendered the premises when he terminated the master lease through an out of court settlement agreement with the landlord. Id. at 604. Because the termination was not pursuant to any provision in the master lease, the landlord's change of locks wrongfully evicted the subtenant. Id. at 605.

Even if the prime tenant's surrender is “voluntary,” the landlord is entitled to evict a subtenant when the subtenant occupied the premises in violation of the lease and without the consent of the landlord. But, even if the main lease required the landlord's consent to any sublease, a sublease is only voidable, not void, and landlord may only evict the subtenant after opting to deny consent. In Ocean Grille, for instance, the court held that the sublease was valid despite landlord's failure to give consent pursuant to a provision in the master lease prohibited subleases without the consent of the landlord. Id. at 604.

Modification Agreement Too Indefinite to Enforce
New Whitehall Apartments LLC v. S.A.V. Associates Inc.
NYLJ 7/19/17, p. 21., col. 1
AppTerm, First Dept.
(memorandum opinion)

In landlord's summary holdover proceeding, commercial tenant appealed from Civil Court's award of possession to landlord. The Appellate Term affirmed, holding that a modification agreement purporting to extend the lease for 10 years, but without specifying rent for the final five years, was too indefinite to enforce for the final five-year period.

Tenant's initial lease ran from March 1, 2000 through Dec. 31, 2009, with a series of escalating rents rising to $16,590.42 at the end of the term. In October 2009, the parties entered into a modification agreement purporting to extend the lease through Dec. 21, 2019. For the first two years of the lease, the monthly rent was to be $12,500, and from Jan. 1, 2012 to November 2014, the rent was to be $15,000, but the lease specified no rent for the period between December 2014 through 2019. When, after December 2014, landlord brought this summary holdover proceeding, tenant contended that the lease entitled tenant to remain in the premises for another five years. Civil Court disagreed and awarded possession to landlord. Tenant appealed.

In affirming, the Appellate Term, concluded that it would be illogical to assume that tenant, whose monthly rent was $10,000 in March 2000 and $15,000 in 2014, would not be obligated to pay any rent for the remaining five years. As a result, the court concluded that Civil Court had properly credited landlord's testimony that the modification agreement was supposed to extend the lease for five years, not 10, and that the inclusion of the 2019 date was the result of a typographical error.

Questions of Fact Remain on Succession Rights
90 Elizabeth Apt. LLC v. Eng
NYLJ 6/29/17, p. 21, col. 1
AppTerm, First Dept.
(memorandum opinion)

In landlord's summary holdover proceeding, landlord appealed from Civil Court's denial of its summary judgment motion. The Appellate Term affirmed, holding that landlord had failed to establish an absence of issues of fact on occupant's defense that she had succeeded to her parents' rent control rights.

Occupants, sister and brother, have lived in the apartment since sister was born in 1971. Their parents, the original statutory tenants, were admitted into nursing homes in 2005 and 2010, respectively. The father died in 2012, and the mother's appointed guardian surrendered tenancy rights in October 2015. Landlord then brought this summary holdover proceeding to remove sister and brother, and sought summary judgment. Civil Court denied the summary judgment motion and landlord appealed.

In affirming, the Appellate Term concluded that the mother's formal surrender of tenancy rights through her guardian did not, as a matter of law, deprive the children of succession rights under the rent control law. The court emphasized that the children had lived in the apartment as part of the family unit for decades until their parents moved out, and held that landlord was not entitled to summary judgment.

Stipulation of Settlement Did Not Constitute Voluntary Surrender
NRP LLC I v. Elo Management LLC
NYLJ 7/10/17, p. 18, col. 1
AppTerm, First Dept.
(memorandum opinion)

In commercial landlord's nonpayment proceeding, landlord appealed from Civil Court's dismissal of the petition against subtenants. The Appellate Term modified to reinstate the petition and grant summary judgment to landlord, holding that the stipulation of settlement between landlord and main tenant did not constitute a voluntary surrender that would permit the subtenants to remain in possession.

In 1979, landlord and main tenant entered into a net lease for the building at 1674 Broadway in Manhattan. The lease provided for arbitration as a mechanism for setting the rent at the expiration of the initial 35-year term. As a result of an arbitration award, confirmed by Supreme Court, tenant's yearly rent increased from $241,999 to $3.15 million. At the new rent, tenant would have been obligated to pay landlord more than tenant was collecting from its subtenants. When tenant could not pay, landlord served tenant with a 10-day notice specifying rent arrears of $2.7 million, and commenced this nonpayment proceeding, naming tenant and all of tenant's subtenants.

Landlord and tenant then entered into a so-ordered stipulation, by the terms of which tenant consented to a final judgment of possession and issuance of a warrant of eviction. On landlord's claim for possession against the subtenants, all parties moved for summary judgment, and Civil Court dismissed the petition against subtenants, concluding that tenant's voluntary surrender did not affect the rights of the subtenant to remain in possession.

In modifying, the Appellate Term held that the settlement stipulation between landlord and tenant did not constitute a voluntary surrender agreement that would have permitted subtenants to continue in possession. Instead, the court concluded that landlord had terminated tenant's lease based on tenant's breach of the covenant to pay rent. As a result of that termination, the subleases were also terminated. The court also rejected subtenants' reliance on a paragraph of the net lease providing that if the main tenant were in default in payment of rent for 10 days, the tenant assigns all subleases and rents to landlord until the defaults have been cured. The court concluded that subtenants were not intended to be third-party beneficiaries of this provision in the net lease, emphasizing that no subleases had yet been executed at the time. The court also concluded that the paragraph in question was cancelled along with the rest of the net lease when the court issued a warrant of eviction against the main tenant.

COMMENT

If the prime tenant breaches the terms of a lease, and landlord terminates the lease because of the breach, the termination extinguishes the interests of all subtenants. The doctrine applies even when the breaching tenant agrees with the landlord to surrender the premises. For instance, in Precision Dynamics Corp. v. Retailers Representatives, Inc., 120 Misc.2d 180, the court held that landlord was entitled to a judgment of possession against a subtenant when the insolvent prime tenant failed to pay rent and agreed with landlord to surrender the premises. Id. at 180. The court concluded that the subtenant's rights were dependent on the rights of the tenant, which were extinguished under the lease when the tenant failed to pay rent. Id. at 183. The agreement between landlord and prime tenant did not operate to expand the subtenant's rights.

Although a subtenant's right to possession ceases when the master lease is terminated pursuant to its terms, the subtenant remains entitled to damages from the tenant for breach of the sublease agreement. In Goldcrest Transport, Ltd. v. Across America Leasing Corp., 298 A.D.2d 494, the court denied prime tenant's summary judgment motion on a breach of contract claim by subtenant when the subtenant's right to possession was extinguished by prime tenant's breach of the main lease. Shortly after subletting a portion of its leased premises, prime tenant abandoned the premises and stopped paying rent. Id. at 495. Because the master lease was terminated by prime tenant's abandonment and failure to pay rent, the subtenant's interest was also terminated. Id. at 496. However, that termination did not prevent subtenant from pursuing damages against prime tenant for breach of the parties' sublease agreement. Id. at 495.

By contrast, a tenant's voluntary surrender of its leasehold interest will preserve the subtenant's right to possession. A surrender is voluntary when the landlord and tenant agree to terminate the lease, and where termination is not made pursuant to any provision in the master lease (including a provision permitting termination upon breach by tenant). In Ocean Grille, Inc. v. Pell, 226 A.D.2d 603, the Court held that the tenant had voluntarily surrendered the premises when he terminated the master lease through an out of court settlement agreement with the landlord. Id. at 604. Because the termination was not pursuant to any provision in the master lease, the landlord's change of locks wrongfully evicted the subtenant. Id. at 605.

Even if the prime tenant's surrender is “voluntary,” the landlord is entitled to evict a subtenant when the subtenant occupied the premises in violation of the lease and without the consent of the landlord. But, even if the main lease required the landlord's consent to any sublease, a sublease is only voidable, not void, and landlord may only evict the subtenant after opting to deny consent. In Ocean Grille, for instance, the court held that the sublease was valid despite landlord's failure to give consent pursuant to a provision in the master lease prohibited subleases without the consent of the landlord. Id. at 604.

Modification Agreement Too Indefinite to Enforce
New Whitehall Apartments LLC v. S.A.V. Associates Inc.
NYLJ 7/19/17, p. 21., col. 1
AppTerm, First Dept.
(memorandum opinion)

In landlord's summary holdover proceeding, commercial tenant appealed from Civil Court's award of possession to landlord. The Appellate Term affirmed, holding that a modification agreement purporting to extend the lease for 10 years, but without specifying rent for the final five years, was too indefinite to enforce for the final five-year period.

Tenant's initial lease ran from March 1, 2000 through Dec. 31, 2009, with a series of escalating rents rising to $16,590.42 at the end of the term. In October 2009, the parties entered into a modification agreement purporting to extend the lease through Dec. 21, 2019. For the first two years of the lease, the monthly rent was to be $12,500, and from Jan. 1, 2012 to November 2014, the rent was to be $15,000, but the lease specified no rent for the period between December 2014 through 2019. When, after December 2014, landlord brought this summary holdover proceeding, tenant contended that the lease entitled tenant to remain in the premises for another five years. Civil Court disagreed and awarded possession to landlord. Tenant appealed.

In affirming, the Appellate Term, concluded that it would be illogical to assume that tenant, whose monthly rent was $10,000 in March 2000 and $15,000 in 2014, would not be obligated to pay any rent for the remaining five years. As a result, the court concluded that Civil Court had properly credited landlord's testimony that the modification agreement was supposed to extend the lease for five years, not 10, and that the inclusion of the 2019 date was the result of a typographical error.

Questions of Fact Remain on Succession Rights
90 Elizabeth Apt. LLC v. Eng
NYLJ 6/29/17, p. 21, col. 1
AppTerm, First Dept.
(memorandum opinion)

In landlord's summary holdover proceeding, landlord appealed from Civil Court's denial of its summary judgment motion. The Appellate Term affirmed, holding that landlord had failed to establish an absence of issues of fact on occupant's defense that she had succeeded to her parents' rent control rights.

Occupants, sister and brother, have lived in the apartment since sister was born in 1971. Their parents, the original statutory tenants, were admitted into nursing homes in 2005 and 2010, respectively. The father died in 2012, and the mother's appointed guardian surrendered tenancy rights in October 2015. Landlord then brought this summary holdover proceeding to remove sister and brother, and sought summary judgment. Civil Court denied the summary judgment motion and landlord appealed.

In affirming, the Appellate Term concluded that the mother's formal surrender of tenancy rights through her guardian did not, as a matter of law, deprive the children of succession rights under the rent control law. The court emphasized that the children had lived in the apartment as part of the family unit for decades until their parents moved out, and held that landlord was not entitled to summary judgment.