Landlord & Tenant Law

In modifying, the Appellate Division first noted that the parties had for buildings zoned for residential occupancy, rent stabilization provides tenants with a track to obtain rent regulation that is independent of the Loft Law. In this case, because the landlord owns an adjoining building with common facilities, the two buildings together constitute a horizontal multiple dwelling subject to rent stabilization once the landlord obtains a residential certificate of occupancy. Under these circumstances, the court could find no valid reason for the Loft Board's refusal to grant tenant's request for withdrawal of the conversion application. As a result, the court affirmed Supreme Court's order vacating the Loft Board's rejection of tenant's request to withdraw their application. The court modified only to deny the portion of the petitions requiring seeking to vacate the portion of the Loft Board's order rejecting the proposed settlement between landlord and tenants — a portion of the order largely irrelevant once the Board was required to accept the tenants' withdrawal of their application.

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Tenant Entitled to Relief from Failure to Timely Exercise Renewal Option

Laundry Management – N.3^rd Street Inc. v. BFN Realty Associates, LLC NYLJ 1/17/20, p. 26, col. 6 AppDiv, Second Dept. (memorandum opinion)

In commercial tenant's action for breach of contract, landlord appealed from Supreme Court's judgment for tenant in the amount of $1,250,000. The Appellate Division affirmed, holding that tenant was entitled to relief from its failure to timely exercise its renewal option.

Tenant operated a laundry on the premises pursuant to a lease whose original term expired on Nov. 30, 2011. A lease rider gave tenant the option to renew for two successive five-year periods so long as tenant notified landlord of its intent to exercise the renewal option no later than six months prior to the expiration of the then-existing term. The rider provided for notice in writing and delivered personally or by registered or certified mail or by a reputable overnight courier service. Landlord contended that tenant did not provide notice of an intent to renew until it received notice by certified mail in November 2011. Landlord rejected that notice as untimely, and tenant vacated the premises pursuant to court order in April 2012. Tenant then brought this action for breach of contract. At trial, one of tenant's principals testified that he had an employee hand deliver a renewal notice on May 30, 2011. Although the principal did not mention hand delivery in his earlier deposition or two sworn affidavits, and although landlord's representative testified that its office was closed that day, which was Memorial Day, Supreme Court awarded tenant judgment for $1,250,000. Landlord appealed.

In affirming, the Appellate Division first concluded that the testimony of tenant's principal was incredible, and that tenant had timely exercised its renewal option. But the court then noted that equity intervenes to relieve tenant of its failure to timely exercise a right to renew when the failure was the result of inadvertence, when nonrenewal would result in a forfeiture, and where landlord would not be prejudiced by tenant's delay in sending the renewal notice. In this case, the court started by crediting tenant's principal's testimony that he sent notice by ordinary mail on May 30, even though he never mentioned the mail notice in his affidavits. The court concluded that failure to exercise the renewal notice in the manner required by the lease was a matter of inadvertence. The court then concluded that tenant's loss of good will constituted forfeiture of a valuable asset, and then indicated that landlord was not prejudiced by the delay, because landlord had received written notice by the May 30 mailing. The court rejected landlord's contention that it was prejudiced because it had entered into a contract to sell the building to a buyer who wanted the premises vacant, noting that in light of the notice tenant had received, execution of that contract was the product of bad faith or negligence.

Comment

Although New York courts have awarded tenants equitable relief from failure to timely exercise a lease renewal option, to date, no court appears to have awarded money damages to a t. A tenant may establish the forfeiture necessary to obtain equitable relief if he or she has made substantial improvements to the property that could not be recouped during the initial lease term For instance, in Popyork, LLC v. 80 Ct. St. Corp., 23 A.D.3d 538, the Second Department held that the tenants' payment of $500,000 to acquire the former tenant's right during the first two years of the five year lease as well as the $300,000 in renovation expenses would result in forfeiture if the tenant were not allowed to renew. However, improvements to the property will not amount to forfeiture if the tenant has reaped the benefits of the improvements during the initial lease term. For instance, in Wayside Homes, Inc. v. Purcelli, 104 A.D.2d 650, the Second Department held that substantial improvements made by a tenant during the first year of a 30-year lease would not result in substantial forfeiture if the tenant were denied the renewal option. The Court reasoned that since the improvements were made at the commencement of the long initial lease period, tenant had already realized the benefits of the improvements.

Out-of-possession commercial tenants may not be entitled to equitable relief for improvements to the property were made by a third party. In Baygold Assoc., Inc. v. Congregation Yetev Lev Monsey, Inc., 19 N.Y.3d 223, the Court of Appeals denied equitable relief to a tenant who had no made improvements, even though tenant's first sublessee had made $1,000,000 in improvements to the premises. Although the court emphasized that only the subtenant had made improvements, the court also focused on the fact that the improvements had been made more than 20 years earlier, and were "too attenuated" from tenant's subsequent failure to exercise the lease renewal option.