Category: Landlord-Tenant

By Patrick McCormick

The Appellate Courts have been busy this fall rendering significant decisions involving landlord/tenant law.  Two decisions of interest are discussed below.

The first is a decision by the Appellate Term, Second Department[1] involving a landlord who engaged in self-help to regain possession of the commercial demised premises at issue.  The tenant commenced an unlawful entry and detainer summary proceeding under RPAPL §713(10), and apparently the landlord engaged in self-help to regain possession of the demised premises after commencement of the proceeding.

The court recognized a landlord’s right to engage in self-help, provided such is authorized by the parties’ lease.  Here, the landlord engaged in self-help—as authorized by the commercial lease—upon the tenant’s alleged breach of the lease after the notice called for therein.  The Appellate Term dismissed the tenant’s petition, not because the landlord improperly engaged in self-help, but because the tenant’s pleadings failed “to contain any allegations establishing that tenants were not in breach of a condition of the lease, that landlord had not complied with the lease provisions requiring notice, or that reentry by landlord was not accomplished peaceably.”

While achieving an apparent victory, the landlord was, in fact, not so lucky.  The Appellate Term affirmed the denial of the landlord’s request for possession and for use and occupancy.  The court recognized that RPAPL §743 permits the assertion of legal counterclaims on a summary proceeding.  The court emphasized that RPAPL §743 “does not allow a respondent to circumvent the requirements of RPAPL article seven for the maintenance of a summary proceeding to obtain a judgment of possession” (citations omitted).  When the tenants resumed possession, they did so—if landlord’s position was accepted—as squatters, the lease having been terminated, and no 10-day notice was served as is required to obtain a final judgment pursuant to RPAPL §713(4) (citation omitted).  Moreover, the landlord had not pleaded the elements of a Civil Court ejectment action.

Thus, although the tenant had reentered the premises, the court determined that the landlord was, nevertheless, obligated to comply with the notice requirements of the RPAPL prior to initiating a claim for possession.  Indeed, the Court chastised the landlord, holding “while the landlord may now be faced with additional litigation, this was brought about by landlord’s resort to self-help.  The court was available for landlord to seek an award of possession, but, having chosen to act on its own, landlord cannot now complain of being denied the opportunity to short circuit the procedural requirements of a summary proceeding, by way of counterclaim.”  Therefore, engaging in self-help may not result in expeditiously obtaining possession of the demised premises, and caution should be used before engaging in such.

The second case, from the Appellate Division, First Department,[2] involves a tenant’s claim that the landlord was improperly charging tenant an assessment for a façade restoration.  In affirming the lower court’s ruling that the tenant was not obligated to pay any part of the façade restoration assessment, the court looked to the unambiguous language of the parties’ lease.  The court recognized that the lease specifically provided that after the condominium conversion, “‘and in lieu of CAM [common area maintenance] Costs described in paragraph (B)(1) above,’ ‘Tenant shall pay…[its] Proportionate Share of [the] monthly Common Charges levied against the Commercial Unit; and other special or regular assessments against the Commercial Unit.’”  The court went on to recognize that the lease specifically provided that “‘costs for capital improvements, to the extent that same are not in furtherance of reasonable or necessary maintenance of the building,’ ‘shall not be included as CAM Costs.’”  The court rejected the defendant/landlord’s argument that the obligation to pay “other special or regular assessments against the Commercial Unit” required the tenant to pay a proportionate share of the façade assessment.  While the court did not go into detail in explaining its reasoning, the decision serves as a cautionary tale to both landlords and tenants that, whenever possible, the obligation to pay certain costs must be specifically detailed in the parties’ lease.

[1] Martinez v. Ulloa, 2015 WL 5775821(App.Term 2d Dep’t 2015)

[2] Rogan LLC v. YHD Bowery Commercial Unit LLC, 2015 WL 6510726 (1^st Dep’t 2015)

By Patrick McCormick

Three recent decisions, two from the Supreme Court, Appellate Term, First Department and the third from Supreme Court, Queens County (Ritholtz, J.) are instructive to landlord/tenant practitioners.  The first involves an application by a tenant for a Yellowstone injunction; the second involves a tenant’s renewal option contained in a commercial lease; and, the third involves enforcement of a settlement agreement.

A Yellowstone injunction is a procedural mechanism used by tenants to maintain the status quo and to toll the running of a cure period so that a commercial tenant confronted by threat of termination of its lease may protect its investment in the leasehold.[1] The party requesting Yellowstone relief needs to demonstrate: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and, (4) it is ready, willing and able to cure the alleged default by any means short of vacating the premises.[2]

In NY Great Stone, Inc. v. Two Fulton Square LLC, [3] the tenant received a ten (10) day notice to cure dated November 21, 2014.  The cure notice alleged the tenant defaulted under the terms of the lease by failing to conduct a hydrostatic pressure test on a sprinkler system in the premises and failed to obtain comprehensive general liability insurance required by the lease.  The lease at issue obligated the tenant to obtain and maintain general liability insurance for the term of the lease naming the landlord as an additional insured.  This type of insurance clause is common in commercial leases. The tenant, in its application for a Yellowstone injunction, provided the Court with a certificate of liability insurance dated December 2, 2014 evidencing coverage effective April 7, 2014 to April 7, 2015, and indicating the landlord as an additional insured. Based on the documentation provided to the Court, the Court denied the application for a Yellowstone injunction. The Court, correctly in my view, noted that the tenant’s failure to maintain proper insurance is a material default under the terms of the lease and that such a default is not curable because a prospective insurance policy does not necessarily protect a landlord against unknown claims that might arise during the period in which no coverage exists. Thus, existence of current coverage did not cure the default for failing to maintain (or perhaps not prove) the existence of coverage from the inception of the lease. The tenant argued that the default notice directed it to obtain general public liability insurance, but the Court was not persuaded that the default was cured by tenant’s claim that it obtained a current policy of general liability insurance as demanded by the cure notice. Accordingly, Yellowstone relief was denied as the tenant could not establish that it was ready, willing and able to cure the default.

The next case, 315 West 48^th Street Realty Corp. v. Maria’s Mont Blanc Restaurant Corp,[4] involved a commercial lease in which the tenant operated a restaurant under two separate lease agreements that expired, at the expiration of a five (5) year renewal term, on August 31, 2010. The landlord commenced a holdover proceeding and tenant defended alleging that its predecessor validly exercised a second renewal option for both leases to extend the term through August 31, 2015. The Court noted that the tenant’s claim was not properly raised at trial but, nevertheless, should have been rejected because the tenant did not establish that the second renewal option was properly exercised.  The tenant apparently claimed, but no evidence was produced at the trial, that the prior tenant gave notice to the landlord of its intent to exercise the renewal option. The Court also rejected the tenant’s claim that the second renewal option was exercised when its predecessor exercised the first renewal option. The Court noted that the leases did not authorize the tenant simultaneously to exercise the renewal options for both renewal terms and, based upon the renewal language in the leases, the court concluded that the parties intended that the second renewal option could be exercised only during the first renewal term. The Court therefore found that notice of the exercise of the second renewal term claimed by tenant was not timely given and therefore was ineffective.  While Courts may, in an exercise of equity, relieve a tenant from its failure to timely exercise a renewal option if no prejudice is demonstrated, it appears in this instance that the tenant did not provide the Court with any evidence or basis to grant such relief.

Finally, 567 West 125^th Street Realty, LLC v. VJRJ Restaurants, LLC[5] involved enforcement of a settlement agreement entered into between landlord and tenant.  The facts of this matter are straight forward. In a commercial non-payment summary proceeding the landlord and tenant settled the matter by entering into a settlement agreement awarding a judgment of possession and judgment for rent arrears.  The stipulation itself recited that it was “the product of ‘extensive negotiations’ between the parties, provided for the warrant of eviction to issue ‘forthwith,’ with execution of the warrant stayed on the condition that the corporate tenant complied with the specific ‘time of the essence’ payment schedule.”  Upon a default by tenant under the stipulation, landlord was obligated to serve a three day cure notice. The tenant failed to make several payments due under the stipulation and the landlord served the requisite three day cure notice. The lower court granted tenant’s application to stay the execution of the warrant, entered on condition that the tenant pay the arrears. The Appellate Term reversed. The Court, in reversing, instructed that “strict enforcement of the parties’ stipulation…is warranted based upon the principle that parties to a civil dispute are free to chart their own litigation course” (citation omitted). The Court noted that the tenant did not provide a valid excuse for its failure to comply with the time of the essence payment requirements of the stipulation, the tenant entered into the stipulation upon the advice of counsel and the tenant’s excuse that it was in the process of selling certain business equipment was not good cause under RPAPL 749(3) to justify staying the execution on the warrant of the eviction. It appears that the specific language of this particular settlement agreement that recited that it was the product of extensive negotiations; that payments were required “time of the essence” and that it was entered into on the advice of counsel are all significant factors in the Court’s determination. From a landlord’s prospective, these provisions should be included, where appropriate, in all settlement stipulations.

[1] Graubard, Mollen, Horowitz, Pomeranz & Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999).
[2] Id.
[3] 17762/2014, NYLJ 1202722119287, at *1 (Sup., QU, Decided March 24, 2015).
[4] 2015 WL 1133988, 2015 N.Y. Slip Op. 25077 (App. Term, 1^st Dep’t 2015).
[5] 46 Misc.3d 150(A)(App. Term, 1^st Dep’t 2015).

By Patrick McCormick

In a case of apparent first impression in New York, in Gorbrook Associates Inc., and Norman Fishman, derivatively on behalf of Gorbrook Associates, Inc., v. Ilene Silverstein, John Doe and Jane Doe1, Judge Scott Fairgrieve held that the summary holdover proceeding was properly instituted derivatively by a shareholder on behalf of the corporation.

The petition alleged that petitioner Norman Fishman was an officer and owned 25 shares of Gorbrook and that Fishman and Allen Silverstein were the only directors of Gorbrook. As set forth in the decision, the petition further alleged that Ilene Silverstein was the daughter of Allen Silverstein and sister of Eric Silverstein and that Allen Silverstein and/or Eric Silverstein “arranged for Ilene Silverstein and her husband to move into the premises without a lease or contractual or statutory grant, authority or other basis.” Further still, the petition alleged that Fishman had demanded that Allen Silverstein cooperate or not interfere with Gorbrook’s efforts to secure use and occupancy payments from Ilene or to remove Ilene and her husband from possession of the premises; that Allen Silverstein was aware that Fishman wanted to collect such payments or to obtain possession of the premises; that Allen Silverstein refused to cooperate with Gorbrook’s efforts and that Allen Silverstein opposed the relief sought in the petition so that “it would have been futile for N. Fishman to attempt to secure the approval of A. Silverstein to seek such relief assuming arguendo that such approval was necessary.” A thirty day notice to quit was served and upon the refusal to vacate the premises the holdover proceeding was commenced. Respondents moved to dismiss under CPLR 3211(A)(7) alleging that Norman Fishman did not have authority to bring the proceeding and that a shareholder could not maintain a summary proceeding derivatively.

Not surprisingly, there is more to the story. The moving and opposing papers revealed that Ilene Silverstein had entered into a contract to purchase the subject premises and that the contract was signed by Fishman. When the closing did not occur after the declaration of a “time of the essence” closing date, Gorbrook, by Fishman, terminated the contract and an action was commenced in Nassau Supreme Court wherein Ilene Silverstein sought a declaratory judgment that the contract was valid. Ilene Silverstein also alleged in an affidavit that Fishman owned 25% of Gorbrook’s shares, that Allen Silverstein owned 25% of the shares; 25% were owned by her sister-in-law Robin Silverstein and 25% were owned by Rita Fishman as beneficiary of the estate of Ted Fishman, Norman’s brother. Ilene also alleged that there were 3 directors of Gorbrook: Norman Fishman, Allen Silverstein and Robin Silverstein. Ilene also alleged that she moved into the premises with Fishman’s consent. Robin Silverstein submitted an affidavit wherein she claimed she was a 25% shareholder and was a director and secretary of Gorbrook and that Fishman commenced the proceeding “on his own volition and does not have authority to evict Ilene Silverstein.” Allen Silverstein submitted an affidavit claiming he owned 25% of the shares and was a director with Robin Silverstein and that he was the vice-president of Gorbrook. The Silversteins alleged that Fishman did not have authority to commence the summary proceeding and that the proceeding was vindictive and designed to force Allen Silverstein to make financial concessions in a dissolution proceeding for Gorbrook.

Norman Fishman submitted an affidavit stating that: “Respondents are trying to use Allen Silverstein and Robin Silverstein’s membership on the board of directors to prevent Gorbrook and Norman Fishman from acting derivatively on behalf of Gorbrook”; that he “has a 31.25% ownership interest and that Allen Silverstein has a 18.75% interest”; that the “only two members of the board are Norman Fishman and Allen Silverstein”; and that neither the sale contract or any modification permitted occupancy of the premises and that he protested the occupancy.

Judge Fairgrieve held that “a derivative action may be maintained by Norman Fishman on behalf of the corporation Gorbrook.” The court reasoned that “[t]he economic benefit of the summary proceeding belongs to the corporation and not to Norman Fishman, individually . . . Any recovery from a shareholder’s derivative suits inures to Gorbrook and not to the shareholder who instituted the suit . . . Thus any recovery belongs to the corporation. Since the corporation is the owner of the premises and will receive the benefit of the summary proceeding an action may be brought pursuant to RPAPL §721 because Gorbrook is the owner of the property.” The Court also found that Fishman’s pleading adequately pled grounds establishing that a demand on the board of directors to initiate the summary proceeding would be futile and that sufficient specific facts were alleged showing that the other directors would not be impartial and therefore, because “Gorbrook has the right to protest and enjoy the economic benefits to be derived from ownership of said premises . . . this summary proceeding may be brought by Norman Fishman derivatively on behalf of Gorbrook Associates.”

The Court’s Decision/Order is worthy of review not only for the discussion of the viability of the derivative claim but also for the Court’s analysis and determination that Norman Fishman did not have the authority as a director and treasurer to institute the proceeding directly in the name of Gorbrook. This proceeding and the Court’s Decision confirm that sometimes summary eviction proceedings can involve complex issues usually reserved for Supreme Court litigation.

1 District Court of Nassau County, First District, L&T Part, Index Number LT-004906-10, Decided May 14, 2013