Landlord & Tenant

In affirming, the Appellate Term rejected tenant's argument that she was entitled to notice to cure and an opportunity to cure. The court held that tenant's commercialization of her apartment constituted a noncurable violation. Moreover, the court noted that even if the violation were curable, cure would require refund of the overcharges collected from tenants, which would create a practical difficulty in light of the number of individuals tenant had hosted. Finally, the court rejected tenant's argument that she should be excused because she did not know the premises were stabilized, because ignorance of law is not a defense. The court also observed that at that the same time tenant was seeking to escape the burdens of rent stabilization in this case, tenant had brought a rent overcharge action against landlord in Supreme Court, challenging alleged overcharges during the same period.

Comment

Traditionally, New York courts had allowed, in some instances, a tenant to remain in his rent-stabilized apartment, despite illegally profiteering from a sublet. In such instances, the tenant had taken independent action to cure any violation for his profiteering by refunding all unlawfully collected rents. For instance, in Cambridge Dev. v. Staysna, 68 A.D.3d 614, the tenant arranged for a five-month sublet. However, within the first month, “upon learning of the illegality of the rent being charged, tenant promptly cured any violation … by immediately agreeing with the subtenant to offset his future rent and utility payments.” In Cambridge, the tenant immediately acted in good faith to refund the profit before the landlord became aware of the violation. Courts have, however, allowed for cure even when tenant did not act until after the landlord notified the tenant of his violation. In Ariel Assoc. v. Brown, 271 A.D.2d 369, the tenant had sublet for three summers over four years, and nonetheless refunded all subtenants, notifying the landlord of the refunds before the landlord commenced the holdover proceeding.

These somewhat older cases typically involved sublets with one subtenant, or a relatively small number of subtenants, creating an identifiable group that could be promptly contacted and refunded. However, in more recent cases courts have shifted to find substantial profiteering a non-curable violation when tenants use services like AirBnb to sublet to a larger number of subtenants, sometimes for as little as one-night. This is in part to “protect the integrity” of the rent-stabilized system, and in part due to issues of feasibility. Goldstein v. Lipetz, 150 A.D.3d 562, 571. The courts have found violations non-curable without regard to the duration of the subletting. In Goldstein, supra, a tenant sublet her apartment to 93 different customers for 338 days over a span of 18 months (more than half the total time), constituting a clear substantial profiting. Similarly, in 335-7 LLC v. Steele, 2016 WL 6990049, the Appellate Term again found a non-curable violation even though the subletting was less extensive — some two dozen rentals, for 120 nights over a 14-month period (roughly one quarter of the total time).

Tenant May Terminate When Landlord Failed to Cure Landmarks Violation

Sushi Tatsu, LLC v. Benaresh, NYLJ 6/27/18, p. 24., col. 5., AppDiv, Second Dept. (memorandum opinion)

In tenant's action for a declaration that it had properly exercised its option to terminate its lease, landlord appealed from Supreme Court's award of summary judgment to tenant. The appellate Division affirmed, holding that the lease included no conditions precedent to landlord's obligation to cure a Landmarks violation.

Tenant agreed to lease the subject premises and to build out the premises. The lease, however, acknowledged the existence of a Landmarks violation and obligated landlord to cure that violation. Landlord did not cure the violation, and tenant did not build out the premises, instead exercising its option to terminate the lease. When tenant brought this declaratory judgment action, Supreme Court held that tenant was entitled to exercise the option. Landlord appealed.

In affirming, the Appellate Division held that requiring tenant to file an application for a work permit and then await the objections of the Building Department would negate the express provision in the lease requiring landlord to cure the Landmarks violation. The court distinguished the situation from one in which the lease imposed on the tenant the obligation to obtain necessary approvals.

Breach and Fraudulent Inducement Claims Survive Motion to Dismiss

Iken v. Bohemian Brethren Presbyterian Church, NYLJ 7/2/18, p. 23., col. 6. AppDiv, First Dept. (memorandum opinion)

In an action by tenant against landlord for breach of the lease and for fraudulent inducement, each side appealed from portions of Supreme Court's order. The Appellate Division modified, holding that tenant had pled sufficiently to avoid dismissal of the breach of the lease claim and some of the fraudulent inducement claims.

Landlord, a church, leased space to tenant for use as a preschool. Tenant brought this action contending that landlord had breached the lease by refusing to address building code violations, preventing tenant from obtaining a letter of no objection and running the school. Although the lease provided that landlord was not responsible for making repairs and that tenant was taking the premises “as is,” the lease also required landlord to cooperate with tenant in obtaining approvals from the Department of Buildings. As a result, the court concluded that tenant had adequately alleged a breach of the lease. Moreover, a rider to the lease requires landlord to install a proper fire alarm system, and tenant had adequately pled that landlord had breached that obligation. On the other hand, the court dismissed, tenant's claim that landlord had breached the covenant of quiet enjoyment because tenant did not allege that tenant was actually evicted or had abandoned the premises.

Tenant alleged six separate bases for its fraudulent inducement claim. The court held that a number of the bases were central to the lease itself, and could not, therefore, serve as a basis for a fraudulent inducement claim. The court did, however, sustain the fraudulent inducement claim to the extent that tenant alleged landlord had misrepresented that homeless people were living on the property legally rather than illegally, that landlord intended to remove oversight on those homeless individuals, and that tenant would need to receive only a letter of no objection in order to operate on the premises.

Late Fees Not Enforceable

Jacoby v. Cabrera, NYLJ 7/13/18, p. 35., col. 3. AppTerm, 9th and 10th Districts (memorandum opinion)

In landlord's summary holdover proceeding, tenants appealed from Justice Court's denial of their motion to vacate a judgment awarding landlord possession and $23,532.10 in back rent. The Appellate Division reversed and granted the motion to the extent of substituting a monetary award of $5,760 because Justice Court did not have jurisdiction to entertain claims for late fees.

The subject lease provided for monthly rent of $2,100, plus a late fee of $400 when rent was not paid by the 10th of the month, with an additional $25 per day after that, for a potential total of $900 per month. At the expiration of the lease, landlord sought use and occupancy for two months after expiration, together with utilities and late fees accrued during the period of the lease. All rent had been paid during the period of the lease. Justice court awarded landlord the sums sought in the petition, tougher with legal fees and use and occupancy for a post-petition period. Tenant moved to vacate the award, but Justice Court denied the motion.

In reversing, the Appellate Term held that because the lease did not deem late fees, utility charges, and attorney's fees to be additional rent, Justice Court lacked subject matter jurisdiction to entertain landlord's claims for those charges. The court went on to note that even if the late fees had been denominated additional rent, late charges amounting to up to 43% of monthly rent were grossly disproportionate to any damages, and therefore unenforceable. As a result, the court reduced the award to the value of use and occupancy for the holdover period.

Subtenants Not Entitled to 30 Day Notice

304 PAS Owner LLC v. Life Extension Realty LLC, NYLJ 7/11/18, p. 21., col. 1., AppTerm, First Dept. (memorandum opinion)

In landlord's commercial holdover proceeding, landlord appealed from Civil Court's dismissal of the proceeding against subtenants and denial of landlord's summary judgment motion. The Appellate Term reversed and granted summary judgement to landlord, holding that subtenants were not entitled to a 30-day notice.

The commercial lease for the subject premises expired on July 31, 2016. Landlord subsequently served a 30-day notice on the named tenant, and then brought this commercial holdover proceeding. Subtenants moved to dismiss on the ground that the 30-day notice was not served on them, and Civil Court granted their motion. Landlord appealed.

In reversing, the Appellate Term held that the 30-day notice provision of RPL section 232-a is applicable only to the immediate tenant of the landlord, and subtenants need not be served with a notice of termination. As a result, landlord was entitled to summary judgment on its claim for possession. The court stayed execution of the warrant of eviction for 30 days.