Landlord & Tenant

In affirming, the Court of Appeals rejected landlord's argument that a contractor working for a tenant may not place a lien on landlord's property unless the landlord has expressly or directly consented to performance of the work. The court held that landlord's consent could be implied from the lease provisions requiring tenant to perform the electrical work and giving landlord authority to review and ultimately approve the design drawings related to the electrical work.

Comment

Until Ferrara v. Peaches Café LLC, the Appellate Divisions had been divided about what constitutes improvements “with the consent or at the request of the owner thereof” within the meaning of Lien Law §3.

The Fourth Department has held that consent could be inferred when the work performed by the lienor was work the lease authorized tenant to undertake, even though there was no direct contact between the lienor and the owner. For example, in Boyle v. Paolini Cafeteria & Restaurant, 220 A.D. 482, the court upheld a lien for contracting work required by the lease, rejecting landlord's argument that the lien was invalid because tenant had ignored a lease provision requiring tenant to obtain landlord's written consent before making written alterations. The Fourth Department's position was derived from Court of Appeals holdings that have determined that consent by an owner is established when a lease provision authorizes or requires a tenant to perform improvements. In Jones v. Menke, 168 NY 61, a lease provision required the tenant to convert premises to a first-class saloon and if the tenant did not do so, the lease would terminate with all title to improvements vesting in the owner. The court held that this lease provision established the consent of the owner for the improvements under Lien Law §3, making him liable for the mechanics' lien imposed by the contractor. Id. at 63. See also, McNulty Bros. v. Offerman, 221 N.Y. 98 (holding that a lease provision authorizing tenant work constituted consent by the owner).

The First, Second and Third Departments, by contrast held that a contractor's lien did not bind the owner unless the owner directly authorized the contractor to perform the work For example, in Paul Mock, Inc. v. 118 East 25th Street Realty Co., 87 A.D.2d 756, the First Department found that the owner's consent to tenant's request to perform alterations did not constitute direct authorization to the contractor. As a result, the contractor could not foreclose the lien against the owner under Lien Law §3. Similarly, in Matell Contracting Co., Inc. v. Fleetwood Park Development, LLC, 111 A.D.3d 681, the Second Department held that an owner's mere knowledge that tenant's contractor was performing work was not enough to sustain the contractor's lien against the owner. In Matell, landlord had not authorized tenant to make the alterations. See also, Beaudet v. Saleh, 149 A.D.2d 772 (The Third Department found no affirmative act by the owner to the contractor, even with evidence that the owner visited the property and witnessed improvements being made by the contractor).

The position taken by these three Departments was derived from dictum of the Court of Appeals opinion in P. Delany & Co. v. Duvoli, stating that absent an “affirmative act” by the owner, no consent is established. 278 N.Y. 328. The Court of Appeals explained in Ferrara that Delany's “affirmative act” requirement does not require a “direct relationship” between an owner and a contractor, and that a lienor may demonstrate consent from lease provisions requiring specific improvements to property, or from the owner's “overall course of conduct and the nature of the relationship between the owner and lienor.”

Stipulation of Settlement Between Landlord and Tenant Did Not Release Guarantor

Pitsy, LLC v. Rindenow NYLJ 11/2/18, p. 25, col. 3 AppDv, Second Dept. (memorandum opinion)

In landlord's action to recover on a guaranty of rent, guarantor appealed from Supreme Court's grant of summary judgment to landlord. The Appellate Division affirmed, holding that a so-ordered stipulation of settlement did not release the guarantor from liability.

When landlord leased the subject apartment to guarantor's mother, guarantor executed an absolute and unconditional guaranty of his mother's full performance under the lease. When the mother fell into arrears, landlord brought a nonpayment proceeding against the mother. That proceeding was ultimately resolved by a stipulation of settlement requiring the mother to vacate her apartment by a specified date, and waiving landlord's pursuit of the nonpayment proceeding against her. Guarantor was not a party to the nonpayment proceeding, but guarantor agreed to the stipulation and signed it. After the mother vacated the apartment, landlord brought this action against the guarantor to recover the amount due under the terms of the lease. Supreme Court granted landlord's summary judgment motion, and guarantor appealed.

In affirming, the court held that guarantor's absolute and unconditional guaranty constituted an independent agreement that imposed a direct and primary obligation of payment on the guarantor. The court held that the stipulation waiving landlord's right to recover from guarantor's mother did not affect landlord's right to recover under the independent guaranty. The court emphasized that the stipulation recited that landlord was waiving only its right to recover from guarantor's mother.

Landlord Bound By Rent Mistakenly Set By Temporary Receiver

Matter of Mesiskill v. Division of Housing and Community Renewal NYLJ 11/9/18, p. 33, col. 1 AppDiv, Second Dept. (memorandum opinion)

In landlord's article 78 proceeding challenging DHCR's determination that landlord had failed to abide by rent stabilization regulations, DHCR appealed from Supreme Court's grant of the petition. The Appellate Division reversed and reinstated the determination, concluding that DHCR had rationally found that landlord was bound by a rent mistakenly set by a temporary receiver of the property.

After a mortgagee brought an action to foreclose a mortgage on landlord's building, a temporary receiver was appointed to collect rents. Tenant Fuentes entered into a lease with the receiver at a monthly rent of $1,000. During the subsequent two years, landlord offered Fuentes a renewal lease at a rent of $1,600 per month, based on a prior legal rent of $1,834. Fuentes did not sign either lease, and filed a complaint with DHCR claiming that landlord was not abiding by rent stabilization regulations. A rent administrator concluded that because the vacancy lease signed by tenant and the receiver did not specify that $1,000 was a preferential rent, landlord was obligated to base future rents on the $1,000 rent. The Deputy Commissioner denied landlord's petition for administrative review, and landlord then brought this article 78 proceeding. Supreme Court granted the petition and annulled DHCR's determination. DHCR appealed.

In reversing, the Appellate Division held that because the vacancy lease did not indicate that $1,000 was a preferential rent, and did not set forth any other legal regulated rent, DHCR's determination that $1,000 constituted the legal regulated rent was rational. Even though the lease was executed by a receiver, DHCR's determination was not arbitrary or capricious. As a result, DHCR's determination should have been upheld, and landlord's petition should have been dismissed.