Landlord & Tenant

Tenant purported to renew the lease by letter dated more than 15 years prior to the lease's expiration, but did not exercise the option within 60 days of expiration. Landlord accepted rent past the date of the initial lease's termination. Meanwhile, one year after the lease's termination, tenant assigned the lease. Landlord then brought this holdover proceeding, and Supreme Court awarded possession to landlord.

In affirming, the Appellate Division held that tenant had failed to comply with the 60-day condition for renewing the lease. As a result, the lease terminated at the expiration of the lease term. The court also held that landlord's failure to provide notice of the option to renew did not have the effect of automatically renewing the lease. Moreover, because the lease terminated at the end of the initial term, tenant's attempt to assign the lease was ineffective.

COMMENT

Courts will not generally enforce a tenant's effort to exercise a renewal option after the expiration of a renewal deadline in the lease. In 95 E. Main St. Serv. Station, Inc. v.
H & D All Type Auto Repair, Inc., 162 A.D.2d 440, 441 the court awarded summary judgment to landlord, holding that a tenant's notice given one day before the lease expired was ineffective when the lease explicitly required written notice nine months prior to the expiration of the lease. The court rejected tenant's argument that the lease provision did not reflect the parties' intentions, holding that a time limitation clause in the lease cannot be ignored based upon an inference as to the intention of the parties. Id. at 441.

However, equity will intervene to relieve ineffective notice that otherwise would result in forfeiture, when the tenant makes substantial improvements on the assumption that it will renew, and tenant would lose significant customer goodwill because the location is a valuable part of the enterprise. In J. N. A. Realty Corp. v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392, the Court of Appeals held that equitable relief was justified when tenant, because of neglect or inadvertence, failed to comply with a lease provision requiring notice of renewal six months prior to the expiration of the lease. The Court of Appeals reasoned that unless tenant were permitted to review, forfeiture would occur and the gravity of the loss would be out of proportion to the gravity of the fault because tenant had made considerable improvements on the premises, and would lose significant customer goodwill if the lease were not renewed. Id. at 399.

Courts are less likely to excuse ineffective notice when the improvements tenant made were completed close to the beginning of the lease term, and when tenant could reestablish goodwill at other nearby locations. In Soho Dev. Corp. v. Dean & De Luca, Inc., 131 A.D.2d 385 the court awarded landlord possession of premises when tenant failed to comply with a lease provision requiring tenant to provide notice of renewal six months before expiration of the lease term. The court held that equity would not relieve tenant from late exercise because tenant's improvements had been amortized and depreciated over the course of the initial lease term, and because tenant Dean & Deluca's international reputation would enable tenant to reestablish customer goodwill at other available locations available in the Soho area. Id. at 387.

Illusory Tenancy Claim
Matter of Riggin v. DHCR
NYLJ 11/29/17, p. 21, col. 1
Sup.Ct., N.Y Cty.
(Bluth, J)

In tenant's overcharge proceeding, tenant sought to overturn DHCR's determination rejecting her illusory tenancy claim. Supreme Court remitted to DHCR for a decision that would correctly apply precedent to the claim.

In 2006, tenant signed a lease with Chin-Sang, whom she believed to be the landlord. She paid rent to Chin-Sang, but subsequently discovered that Chin-Sang was the daughter of the prime tenant, Persaud. In 2012, tenant filed a rent overcharge complaint with DHCR, and also alleged that the prime tenancy was an illusory tenancy. DHCR awarded tenant damages on the overcharge complaint, but rejected the illusory tenancy claim, noting that there was no evidence of collusion between landlord and the prime tenant. On tenant's petition for administrative review, DHCR adhered to its initial determination, concluding that tenant had failed to establish a sufficient link or knowledge by landlord of the illusory tenancy. Tenant then sought judicial review. DHCR cross-moved to remit the matter to DHCR for further review. Landlord opposed remittal, noting that DHCR had not admitted any mistake and had not asserted that it needed to consider additional evidence.

In remitting to DHCR, the court observed that DHCR had misconstrued existing case law in emphasizing the absence of collusion between landlord and the prime tenant. In Primrose Mgt. Co. v. Donohoe, 253 AD2d 404, the Appellate Division had indicated that collusion was unnecessary to support an illusory tenancy claim; landlord's constructive knowledge of the subleasing arrangement was sufficient. In this case, DHCR had not considered whether landlord had constructive knowledge of the arrangement, requiring remittal to DHCR for a correct application of the Primrose standard.