New York City Landlord/Tenant Representation
An Actual Partial Eviction is No More
The facts of Eastside Exhibition warrant discussion. The commercial tenant signed a lease to occupy two floors in the subject building to operate a movie theatre with four screens. After taking occupancy and using the subject property for its stated purpose, the landlord entered the commercial space without permission and installed cross-bracing between two existing steel support columns on both of the tenant's leased floors. This installation caused a change in the flow of patron foot traffic on the first floor and a slight diminution of the second-floor waiting area. The installation was unsightly and was done solely for the landlord's benefit - for the landlord to add two additional floors to the building.
When the landlord performed the work the tenant ceased paying rent as a remedy for the alleged actual partial eviction and commenced a lawsuit seeking a permanent injunction barring the landlord from doing any further work in the subject property and seeking to have the landlord remove the cross-bracing. The procedural posture of the case then took an unusual turn. There was a non-jury trial held in the state court on whether the landlord's actions constituted an actual partial eviction. After trial the judge held that the taking of the portion of the tenant's space was minimal and that there was no relief to be awarded to the tenant. The case was then appealed to the Appellate Division (the intermediate appellate court). The Appellate Division held that the landlord's actions did constitute an actual partial eviction but held that the centuries old remedy of a 100% rent abatement was too harsh and remanded the case back to the trial court for a hearing on the damages actually suffered. At that hearing (held 3 years after the Appellate Division decision) the tenant could not give a specific measurement of the damages suffered. The trial court then ruled that because no damages were proven that no damages would be awarded. On appeal of that order the Appellate Division held that it was bound to affirm. The Court of Appeals accepted the case and affirmed the result while doing so on different grounds that have dramaticlaly altered the landscape in New York.
As I stated above it has always been the law in New York that if a landlord took even "one inch" of a tenant's space that the tenant was entitled to a full abatement of its rental obligation even though the tenant remained in possession of the rest of the space. The Court of Appeals changed that common law principle and instead has created a new rule. That new rule can be summed up as follows: A landlord is now free to trespass upon and sieze a tenant's bargained-for space without penalty unless the tenant can prove that it has significantly suffered as a result of the tenant's actions. Further, it appears that a 100% abatement will no longer be possible and that the tenant's measure of damages will be limited to what it can prove. A judge will then have to subjectively determine those damages.
The impact of this rule is dramatic. A landlord wanting to recover a portion of a tenant's space may decide that it makes sense to simply take it by force and be willing to simply pay the tenant whatever damages a court might determine. The inherent disadvantage to which a tenant is put is hard to quantify but it suffices to state that the scales have tipped in favor of the landlord.
Housing Court Has Jurisdiction - Again
The Appellate Term has again swatted down an attempt by a tenant advocate to obtain a holding that a landlord can only commence a garden variety landlord-tenant proceeding before DHCR as opposed to commencing that case in Housing Court.
Certain landlord-tenant "disputes" must be commenced at DHCR where a landlord seeks a "certificate of eviction". For instance, if a landlord wants to demolish a building that has rent regulated tenants in it the landlord must apply to DHCR for that certificate of eviction prior to receiving permission to demolish.
Most landlord-tenant disputes are commenced in the Housing Court. Illegal sublet cases, non-payment proceedings, nuisance holdovers and very often - non-primary residence holdover proceedings are commenced there. Tenant advocates would prefer that any case be heard at DHCR because there is a guarantee that the case will take years. Delay always favors the tenant because each day that the tenant remains in possession is a good day when someone is trying to evict you. While the Housing Court is not as speedy as some would like, it is certainly faster than DHCR. So, tenant advocates have been trying to win determinations in the Housing Court that only DHCR has jurisdiction to hear types of cases that the Housing Court has heard for years.
Not long ago this author panned a decision from a Housing Court judge who ruled that the Housing Court did not have jurisdiction to preside over a licensee holdover proceeding commenced in respect of a rent control apartment. Now a tenant advocate has sought a determination that the Housing Court does not have power to hear rent control non-primary residence proceedings.
In 25 West 68th Street LLC v. Lynch, 2012 NY Slip Op 50843(U) (1st Dept. App.Term 2012), the Appellate Term affirmed a decision of Housing Court Judge Arlene Hahn holding that the Housing Court did have the power to hear non-primary residence proceedings. The Appellate Term ruled that a court of competent jurisdiction did have the power to hear that "type" of case.
Landlords, tenants and Housing Court judges alike can rest easy knowing that non-primary residence proceedings will remain interesting cases on the Court's docket.
A Tenant's Right to Legal Fees is Preserved
As many of us who practice in the field of landlord-tenant law know - often the issues in the case become secondary to the looming claim for legal fees. In England there is a rule (interestingly enough called The English Rule) that provides that the losing party must pay the legal fees of the prevailing party. This chilling rule causes some plaintiffs with viable claims to eschew litigation because of the threat of paying a ruinous amount of legal fees to the other side should the claim be lost. In America there is a rule (interestingly enough called The American Rule) that provides that the losing party never pays the legal fees of the prevailing party. The American Rule fosters open access to the courts for everyone.
We are in America. Therefore the American Rule prevails and it is safe to state that generally speaking the loser in a lawsuit need not worry about paying the winner's legal fees. There are two large exceptions to this rule. First, there may be a statute that calls for the loser to pay the winner when the loser has committed a particular breach of the law (someone who violates the Americans with Disabilities Act is an example). Second, there may be a contract between two parties that provides that in the event of litigation between those two parties that the loser must pay the winner.
Many decades ago landlords began inserting into leases clauses that state that in the event of litigation arising out of the lease that the tenant would be required to pay the landlord's legal fees. New York State passed a law that is codified as New York Real Property Law 234 that provides that all such clauses in residential leases are read reciprocally as a matter of law. In other words, if the landlord sues the tenant and the landlord wins then the landlord gets its fees paid. If the tenant sues the landlord and wins then the tenant gets his/her fees paid. If the tenant sues the landlord and loses then the landlord gets its fees paid. Finally, if the landlord sues the tenant and loses then the tenant gets his/her fees paid.
There are often disputes about when legal fees clauses apply to particular situations. Frequently a lease clause will be written in such a way that it does not apply to declaratory judgment cases. Also the clauses are often written in such a way that there must be a default present for the legal fees clause to apply.
A recent decision of the Appellate Division, First Department addresses a situation in which a landlord attempted to draft the reciprocity of RPL 234 out of the lease. Marsh v. 300 West 106th Street, 2012 NY Slip Op 03719 (1st Dept. 2012).
There a tenant sued a landlord alleging a breach of the lease and one of the causes of action stated was for legal fees. The landlord moved to dismiss the claim for legal fees arguing that the lease clause as written did not support the tenant's claim. The trial court denied the landlord's motion and the Appellate Division affirmed. It appears that the landlord attempted to limit the clause's reach only to those situations where the landlord was suing for possession of the apartment. The Appellate Division held that, "Since the lease permits the landlord to collect attorneys' fees when suing for breach of the lease's covenants, whether nonpayment of rent or any other breach couched in a suit for recovery of possession, but does not accord the tenant attorneys' fees if successful against a landlord when suiing for breach of the lease's covenants, REPL 234 is triggered".
This case should serve as a reminder to landlord and tenant alike that a legal fees clause will be waiting for you at the end of a lawsuit if the parties do not reach a settlement on the case.
A Cooperative is Permitted to Treat a Single Shareholder Differently
The Appellate Division recently released a decision that walks the line between a situation where the cooperative board seems to have it out for an individual shareholder and a situation where the board passes a rule to deal with a situation in need of remedy. The case is Bregman v. 111 Tenants Corp., 2012 N.Y.Slip Op. 03545 (1st Dept. 2012).
Cornelia Sharpe Bregman was a rent control tenant in 1972 when the owner of the building wanted to convert it to a cooperative. Without enough interested purchasers the owner approached Ms. Bregman and asked her to purchase a penthouse apartment. She agreed with the understanding that she would be able to sublet the penthouse apartment and her own apartment because she could not live in both places. The lawyers sent the purchasing documents back and forth and eventually entered into an agreement in which it was agreed that she could sublet the apartments so long as she received the consent of the Board.
For the next 30 years (that's right - 30 years!) she sublet both apartments. Occasionally she would notify the Board of her sublets but never formally sought consent. In 2003 one of the members of the Board learned how much Ms. Bregman was earning by subletting her apartments. That Board member decided that a resolution needed to be adopted preventing anyone from subletting an apartment for more than two years in any four year period. Ms. Bregman sued claiming that this resolution was specifically directed to her.
A lawsuit was born. Ms. Bregman claimed that the Board acted improperly by singling her out due to the profits she was earning subletting her apartment - as she had done for the previous 30 years. Her claims were particularly validated because when the managing agent received her latest sublet information he rejected it explaining that he had been directed by the Board to reject all sublet applications from her.
The Appellate Division held that the Board was permitted to single Ms. Bregman out for this treatment. While acknowledging that the conduct seemed geared toward her the Court held that because the Board retained the right to deny any sublet for any reason or no reason, Ms. Bregman could not complain that she was being singled out. Any other shareholder could be treated the same way she was being treated.
This decision is a bit surprising to the author because Ms. Bregman's attorney apparently did a capable job of connecting the dots and showing that the Board was acting solely in response to Ms. Bregman - and that Ms. Bregman was then the only person impacted by the Board's conduct. Yet, it seems that Courts continue to be reluctant to substitute their judgment for that of any cooperative board.
A lesson to be learned - if you choose to buy a cooperative you can enjoy community and cooperative living.....But...You could also be subject to the arbitrary whims of the Board.
Out of Court Settlements Have the Same Effect as In Court Settlements
A common experience for an attorney representing a landlord against a tenant in Housing Court is to reach an out of court settlement with the tenant in which the tenant will agree to surrender possession of a rent stabilized apartment in consideration of a cash payment and/or a rent waiver. With the matter resolved the tenant will not want to take off from work to return to Housing Court to sit for a couple of hours just to let the judge know that the case has in fact resolved itself. The landlord's attorney will however bring the out of court written settlement to the court on the next return date seeking to file it as a final resolution of the pending case. In almost every instance the judge will refuse to accept or "so order" the agreement.
The reasoning for the refusal to "so order" the out of court settlement is that because the unrepresented tenant is not physically standing before the judge, the judge cannot ensure that the landlord's attorney has not engaged in some abhorrent unethical conduct to induce the tenant to give up the apartment. A frustrated landlord's attorney will then have to choose whether to mark the case off calendar or to adjourn the case repeatedly until the agreed upon surrender actually arrives.
The inability of a landlord's attorney to have this type of a stipulation of settlement "so ordered" is disappointing in light of a few things seemingly true about the law both as written and in practice. First, the Court retains continuing jurisdiction over its judgments and settlements so if the landlord's attorney did do something improper the Court could always correct the injustice when the landlord sought to enforce the agreement. Second, and more importantly, the law has long been settled that out of court settlements have the same effect as those reached in court. A recent decision from Queens County Supreme Court discusses the enforceability of such out of court settlements. Oshy v. Koufa Realty Corp., 35 Misc.3d 1207(A) (N.Y.Sup.Ct., Queens Co. 2012).
In Oshy a rent stabilized tenant had reached an out of court settlement with his landlord to surrender his apartment in consideration of a rent waiver and the payment of $5,000. When it came time for the tenant to surrender the apartment the tenant sought to vacate the agreement and to remain in possession. The landlord wanted the apartment. Justice Bernice Siegal investigated the facts surrounding the reaching of the agreement and determined that because there had been no conduct on the part of the landlord that could be described as coercion the out of court settlement entered into by the unrepresented tenant was fully enforceable.
Justice Siegal recounted the history of the law on this issue and found that in all of the relevant appellate cases it had been held that a rent stabilized tenant could agree to sell his/her apartment back to the landlord and that an out of court agreement to do so would be enforceable so long as the tenant was not coerced into entering into the agreement (which of course is no different than an in court agreement).
Given that the law on this issue is so settled it is a bit frustrating that when a summary proceeding is settled out of court that the presiding judge will rarely (which means never) accept the agreement. Landlords should take comfort (and tenants should beware) in knowing that the out of court agreement is enforceable even if not "so ordered" by the judge.
Rent Stabilization is Left Alone
The United States Supreme Court denied a writ of certiorari filed by James and Jeanne Harmon of Manhattan who were seeking to have New York City's Rent Stabilization Law declared unconstitutional as an improper taking of his property. The Harmons' application attracted a great deal of media attention because the High Court had asked New York to file a brief opposing the application (an unusual step that seemed to indicate that the High Court was interested in taking the case).
With the denial of the application, the Rent Stabilization Law (and the rent stabilization code that is promulgated pursuant to the Law) is left undisturbed by the Court. Those of us who are interested in the quirks of rent stabilization should have many more years to fight our fights over undervalued and underutilized apartments.
An Interesting Non-Primary Residence Proceeding
In 405 East 56th Street, LLC v. Malfa, 2012 NY Slip Op 22097 (1st Dept. App.Term April 13, 2012) the Appellate Term reversed the decision/order entered after trial. The landlord alleged that the tenant made minimal use of the subject rent stabilized apartment for the year and one half prior to the service of the notice of non-renewal of lease. The tenant defended the proceeding by claiming two things - First that the apartment was too cluttered to occupy as a result of the tenant being forced to take his terrace furniture into his living room because of the landlord's ongoing renovations to the terrace. Second, that the tenant suffered from a psychological problem that prevented him from living alone. The trial court ruled in the tenant's favor based upon both of these defenses. The Appellate Term reversed finding that the tenant had failed to prove that the clutter was such that the apartment could not be occupied and because the trial judge had erred in permitting evidence of the alleged psychological problem.
In the tenant's answer to the landlord's petition the tenant had not claimed that there was a psychological basis for the tenant to not occupy the apartment. Mid-trial the tenant called an expert witness to discuss the tenant's mental state. The landlord's attorney objected claiming that it was an unfair surprise because the tenant's responsive pleading did not alert the landlord to the claim that a mental health issue was preventing the tenant's occupancy. The trial court admitted the testimony and ruled in favor of the tenant on the defense. The Appellate Term reversed finding that it was an unfair surprise and reversible error to have admitted the testimony.
What makes the case so interesting is the interplay between this brand new Appellate Term case and the Appellate Division, First Department case of Ascot Realty LLC v. Richstone, 10 A.D.3d 513, 781 N.Y.S.2d 513 (1st Dept. 2004). In Ascot Realty the trial judge was reversed by the Appellate Division for considering evidence of what transpired after the service of a notice of non-renewal of lease despite the fact that neither party objected to the admissibility of the evidence. The holding in Ascot was very definitive and speaks exclusively to the idea that it is reversible error for a trial court in a non-primary residence proceeding to consider evidence of what transpired after the service of a Golub Notice.
Here, the Appellate Term found "based on its [our] independent weighing of the evidence" that the defense was not well-taken because the tenant resumed occupying the apartment full time within a few days after the service of the notice of non-renewal of lease. In other words the tenant's defense that a pyshcological problem prevented his occupancy looks rather empty when the tenant resumed occupancy as soon as the landlord served the notice of non-renewal.
But - a reading of Ascot Realty specifically precludes an examination of what the tenant did after the service of the notice of non-renewal. I have sympathy for the trial judge in this case to this extent - putting aside what may have been a shaky defense of clutter and putting aside the evidentiary error of considering the expert's testimony - the trial judge (who was the same trial judge in Ascot Realty) seems to have now been reversed in Ascot Realty for considering evidence after the service of the notice of non-renewal and has now been reversed in Malfa for not considering evidence of what transpired after the service of a notice of non-renewal.
The new trial should be interesting indeed.
Yellowstone Injunction Protection is Strengthened
A Yellowstone Injunction is a unique type of injunction that exists to prevent the loss of valuable commercial tenancies. If a landlord believes that a commercial tenant has violated its lease (other than for the payment of rent) the landlord will want to terminate the commercial tenancy. The first step in this process is the service of a notice to cure. The notice to cure will advise the tenant of the breaches of the lease and will inform the tenant that if the breaches are not cured by a date certain that the tenancy will be terminated. If the commercial tenant does not cure the alleged breaches by the date stated in the notice to cure then the landlord will terminate the tenancy - and crucially - any opportunity to cure after the expiration of the date stated in the notice to cure is lost.
What a commercial tenant should always do when receiving a notice to cure is to seek a Yellowstone Injunction in Supreme Court. The basic purpose of the Yellowstone Injunction is to toll the running of the notice to cure (meaning that if the notice to cure states that the breaches must be cured by April 15 then receiving the Yellowston Injunction on April 14 will stop April 15 from ever arriving insofar as the notice to cure is concerned). If the commercial tenant does not obtain the Yellowstone Injunction prior to the "cure date" arriving then the landlord will serve a notice of termination - and assuming that the commercial tenant does not vacate on the termination date - the landlord will bring an eviction proceeding and upon proving the breach of the lease the tenant will be evicted with no opportunity for redemption.
In order to obatin the Yellowstone Injunction the commercial tenant must demonstrate that it (1) has a commercial lease;
(2) received a notice to cure for which the cure date has not yet expired and;
(3) a willingness and an ability to cure if the Court determines that there has been a breach of the lease.
If the tenant obtains the Yellowstone Injunction then the Supreme Court lawsuit will slowly wind its way through the the Supreme Court. Should the Court determine that there has been a breach of the lease the commercial tenant will then have a short opportunity to cure in order to redeem the tenancy.
One of the issues that will often present itself is whether the tenant has in fact cured. A landlord will generally take the position that whatever steps a tenant might take to cure will not be enough if a complete cure is not accomplished. A tenant will generally take the position that any step taken toward a cure will not be enough.
The Appellate Division, First Department has issued a decision that clarifies the rule of just what constitutes a cure in the case of
Neighbors Become Enemies - Adverse Possession
New York's highest court - the New York Court of Appeals - recently decided a case called Estate of Becker v. Murtagh, 2012 WL 1080325 (2012) that paints an interesting picture of friendly neighbors becoming unfriendly over a claim of adverse possession.
Adverse possession is an ancient (though occasionally current) means of acquiring an interest in land from another simply through its use. When a person occupies another person's land for a period of 10 years or more that user will acquire title to the owner's land - so long as certain conditions are true. Traditionally, in order to acquire title to another's land via adverse possession the occupation of the property must be:
(1) Hostile and under a claim of right;
(2) Actually occupied;
(3) Open and notoriously used;
(4) Exclusively used;
(5) Continuously used for at least ten years and;
(6) The user must have usually cultivated or improved the land.
After centuries of this being the standard for adverse possession the New York State Legislature amended the adverse possession statute in 2008 to make the standard more difficult for the person seeking title via adverse possession. In the Murtagh case the facts of the adverse possession occurred prior to 2008 and so the new statute was not applicable.
In the Murtagh case there were neighbors who lived side by side in Oak Beach in the Town of Babylon and the County of Suffolk on Long Island. The neighbors were the Beckers and the Gordons. The Town of Babylon encouraged the neighbors to construct jetties on their beachfront lots to inhibit beach erosion. Shortly after the erection of the jetty that separated the properties, the Becker family erected a four foot dock using the jetty for support. He later added a boardwalk.
From 1963 through 1984, the Beckers acted as the owners of the boardwalk and dock. It was the Beckers who built it, maintained it, painted it, and exercised dominion and control over it. The Beckers - as friendly neighbors - permitted the Gordons and other specific neighbors to use it but prevented the general public from doing so. In 1984, the Gordons had their property surveyed and learned that the dock and boardwalk was actually constructed on the Gordons' property and not on the Beckers' property. Despite the Beckers and the Gordons now knowing that the dock and boardwalk were on the Gordon side of the property line the use continued as it had before.
In 2004 the Gordons sold their property to the Murtaghs. The Murtaghs then informed the Beckers that they could no longer use the dock and boardwalk that the Beckers had build decades before. The Beckers started a lawsuit seeking a determination that the disputed dock and boardwalk was the property of the Beckers claiming that it had been acquired by adverse possession. The Murtaghs countersued. What ensued was a protracted lawsuit that took 8 years to complete.
The trial court ruled in favor of the Beckers and determined that the Beckers had acquired the disputed land via adverse possession. The intermediate appellate court reversed and ruled for the Murtaghs. The Court of Appeals reversed again - and put an end to the lawsuit - by finally ruling for the Beckers.
The Court held that the Beckers had exclusively, openly, and notoriously occupied the dock and boardwalk for more than 10 years. The Court further held that the Beckers had exclusively improved and cultivated the property by building the dock and boardwalk and then maintaining it for more than 10 years.
The lesson of this case is that should a neighbor be using your property under a claim of right you could potentially lose title to that portion of your property. If a neighbor is doing construction near what you believe to be the property line check your survey or have a survery done to make sure that the sanctity of your property line is not breached. In the Murtagh case the friendly neighbor won but a dispute over adverse possession could turn friendly neighbors into very unfriendly ones.
The Appellate Division Strengthens the Impact of the Roberts Decision
The Roberts decision andd its retroactivity put landlords in a tough spot. Many landlords had deregulated apartments that should have still been subject to rent regulation. Those deregulated apartments saw rents of several thousand dollars/month more than would have been permitted by rent stabilization. Tenants have been anxious to challenge the rents charged in such apartments and have hoped to have the apartments not only subjected to rent stabilization once again but to have their rents rolled back to what they would have been had the landlords not improperly deregulated them.
Standing in the way of the tenants has been the statute of limitations. The statute of limitations provides that a tenant can only (with a few exceptions like when there has been fraud) go back 4 years in collecting the overcharge.
Understand that the landlords find themselves in a terrible position. They had apartments that were subject to rent stabilization. The apartments became vacant. The landlords then did whatever the law (as they understood it) permitted to raise the legal rent to $2,000/month and believed that once the rent reached $2,000/month that the landlord was permitted to charge anything that the landlord wanted - even a rent far in excess of $2,000/month. After having deregulated so many apartments - and after having charged rents of $6,000/month - the landlords have learned that they should not have done that.
Once Roberts was decided it become apparent that there were a tremendous number of apartments that landlords believed to have been deregulated that were actually subject to rent stabilization all along. In defeding lawsuits brought by tenants over these issues the Landlords have sought to take advantage of that four year statute of limitations however they could.
Landlords have sought to use the statute of limitations to their advantage by retroactively registering the apartments at the higher (but improper) rent that was actually charged and then defending lawsuits by claiming that the four year statute of limitations bars the inquiry because of those retroactive registrations. In Gordon v. 305 Riverside Corp., 2012 NY Slip Op 02382 (1st Dept. 2012) the Appellate Division has taken some of the sting out of that defense.
Landlords want the Courts to believe that when the rent stabilized tenant left the apartment that the landlord then improperly deregulated that the landlord was permitted to charge the new tenant any amount and that new amount would then be subject to rent regulation but with no chance of an overcharge award because whatever the landlord charged would simply be considered the rent stabilized rent. Landlords have theorized that section 2526.1(a)(3)(iii) of the Rent Stabilization Code permits the setting of a base rent in any amount to which the landlord and new tenant agree after there has been a vacancy in a building for which the landlord received J51 tax benefits.
Justice Joan Madden and now the Appellate Division have held that this argument will not work. A landlord can no longer claim that the landlord could set any amount as the rent stabilized rent during a vacancy and then claim an inquiry as to that rent would be improper because of the four year statute of limitations. Section 2526.1(a)(3)(iii) of the Rent Stabilization Code necessarily presumes that that the first tenant after a vacancy was offered a rent stabilized lease - the tenant in Gordon and the tenants in almost all of these situations are not offered a rent stabilized lease. Accordingly, the rent set at that vacancy cannot be considered the first rent stabilized rent after that vacancy.
When the landlords offered this very high rent to new tenants the landlords did so believing that the apartment was no longer subject to rent stabilization. Accordingly, the landlord would not register the apartment as rent stabilized with DHCR. Additionally, the landlord would not offer renewal leases in the manner required by the Code. Finally, landlords would not be offering the vacancy lease as a rent stabilized lease.
As a result, landlords will not escape an overcharge award and will not escape the setting of a lower rent stabilized rent when relying on Section 2526.1(a)(3)(iii) when the tenant taking possession after a vacancy was not offered a rent stabilized lease.