Category: Uncategorized

By Patrick McCormick

Suppose you are a landlord and lease space, commercial or residential, to an individual tenant. Tenant timely pays rent for a while but, suddenly, rent payments stop. Upon investigating, you learn that the tenant has died. Does the death terminate the lease? Is a nonpayment proceeding available to obtain possession of the premises?

While not a common occurrence, this simple fact pattern raises several issues regarding when, and against whom, a nonpayment proceeding may be brought.

Initially, while perhaps not well known, but certainly well settled, the death of a tenant does not terminate an unexpired lease or the tenant’s leasehold estate. In such situations, generally, the executor, administrator or legal representative is permitted to remain in possession of the demised premises until the expiration of the lease.

Under our facts, how can the landlord obtain possession of the premises? The answer lies buried in RPAPL §711(2). The last sentence of RPAPL §711(2) provides: “Where a tenant dies during the term of the lease and rent due has not been paid and no representative or person has taken possession of the premises and no administrator or executor has been appointed, the proceeding may be commenced after three months from the date of death of the tenant by joining the surviving spouse or if there is none, then one of the surviving issue or if there is none, then any one of the distributes.”

In Poulakas v. Ortiz a nonpayment proceeding was commenced against respondent, the son of the deceased rent-stabilized tenant. In this case, it was not disputed that there was no administrator, executor appointed or surviving spouse of the tenant; that 3 months had elapsed from the date of death of the tenant before commencement of the nonpayment proceeding; and, the lease had not yet expired. In moving to dismiss, among other things, the respondent argued that he occupied the premises and therefore the statute was inapplicable causing the Court to examine the portion of the statute that provides “and no representative or person has taken possession of the premises . . .”

In denying the motion, the Court held that this phrase “should be construed as meaning that there is no person either in possession of the premises on behalf of the estate of legally authorized to act on behalf of the estate.” The Court specifically found that “the legislature did not intend that the ‘deceased tenant’ section of §711(2) be applied only in situations where the premises are vacant, as this would limit the remedial nature of the statute.”

Thus, when a tenant dies, a little investigation by the landlord is necessary to determine the date of death and whether an administrator or legal representative of an estate of the deceased tenant has been appointed and, if not, to identify the “issue” or distributes. Once this investigation is completed, a landlord is able to commence a nonpayment proceeding to obtain possession of leased premises. The Court’s analysis of the issues in Poulakas is must reading.

1 Dolan, Rasch’s New York Landlord and Tenant including Summary Proceedings, �32:12 (4th ed); Marine Terrace Associates v. Kesoglides, 24 Misc.3d 35 (App. Term 2d, 11th and 13th Judicial Districts, 2009)

2 25 Misc.3d 717 (NYC Civ. Ct., Kings Co. 2009)

The U.S. Small Business Association (SBA) has proposed to revise its lending rules for loan programs. The goal of these regulation changes is to expand the accessibility of SBA loan programs and to increase the number of businesses taking advantage of government-guaranteed loans by giving borrowers greater access to capital. The proposed changes are an attempt by both Congress and the administration to expand the SBA’s reach by making more existing businesses eligible for the agency’s programs, to streamline the loan application process and to strengthen the oversight of the agency.

The proposed changes will affect 7(a) and 504 loans, two of the SBA’s most popular loan programs. The 7(a) loan program helps startup and existing small businesses acquire financing for a variety of general business purposes. The 504 loan program provides access to long-term, fixed asset financing for land, buildings or equipment.

Most significantly, the SBA is considering eliminating the agency’s “personal resources test” for borrowers. This rule requires investors with at least a 20 percent stake in a loan applicant to obtain a maximum level of personal finance resources before the company can get a 7(a) or 504 loan. Previously, borrowers have had to show they cannot obtain credit elsewhere before getting a government-backed loan. If this rule change is enacted, company owners will not have to exhaust their personal resources to the same extent as previously required before obtaining an SBA Loan. Although the SBA maintains that personal resources will still play a role in the SBA lending process, and the SBA’s stated goal is to streamline the loan process by eliminating complicated regulations used to determine the amount of personal resources a company’s owners must first put towards obtaining other financing.

In a second big change, the revised rules would eliminate the “Nine-Month Rule” for the 504 lending program which now requires borrowers to include in a capital project only those expenses incurred nine months prior to submitting a loan application. SBA proposes to eliminate this nine month limitation and permit financings of expenses toward a project regardless of when they were incurred.

Additionally, the SBA will relax its affiliation rules, which are meant to ensure that a small-business loan applicant is not in fact controlled by a larger company which is ineligible for SBA financing. According to the SBA, revising this rule will open access to SBA loans to businesses that, under current rules, would not qualify as a small business under SBA’s size standards by virtue of their association with other companies.

In proposing this series of rules changes the SBA is trying to save both lenders and borrowers time and money in the attempt to increase lending activity.

For comprehensive information on the new rules and their benefits, visit
http://www.sba.gov/content/revised-ocaregulations-504-and-7a-loan-program

By Patrick McCormick

In 1400 Broadway Associates v. Henry Lee and Co. of NY, Inc.,1 the parties’ commercial lease expired January 31, 1990 and the tenant, who did not realize the lease had expired, continued to make monthly rent payments, in the amount set forth in the expired lease, for six months. The tenant learned that the lease had expired during negotiations for a new lease and during the negotiations continued to pay rent through October 1992. Tenant then stopped making monthly rent payments and landlord commenced a nonpayment proceeding. Tenant moved for summary judgment to dismiss the complaint for failure to state a cause of action. The Court granted the motion holding that a nonpayment proceeding could not be maintained against a month-to-month tenant because, “absent a meeting of the minds, no agreement exists regarding the monthly rental rate.” The Court held:

A month-to-month tenancy, by its nature, is renewable by the parties’ conduct, i.e., by continued payment and acceptance of agreed-upon amounts each month. When the parties no longer agree to continue the relationship, either party can terminate it. However, if the tenant does not voluntarily surrender, the owner must serve a statutory notice of termination at least 30 days before expiration of the monthly term, as a condition to bringing a holdover proceeding.

Thus, the Court held that “Petitioner’s acceptance of respondent’s monthly payments created a month-to-month tenancy, by operation of law, which could be terminated only by service of a 30-day notice.” A 30-day termination notice, the predicate to commencing a holdover proceeding against a month-to-month tenant, was not served and therefore a holdover proceeding was not possible.

The Court concluded that:

[t]o permit petitioner to maintain a nonpayment proceeding under these circumstances, seeking payment at the lease rate, would permit a landlord unilaterally to bind a tenant to payment at a rate predicated on a continuing agreement, even though there no longer was a meeting of the minds. Such a result would vitiate the intent of RPL §232-c.

RPL 232-c provides:

Where a tenant whose term is longer than one month holds over after the expiration of such term, such holding over shall not give to the landlord the option to hold the tenant for a new term solely by virtue of the tenant’s holding over. In the case of such a holding over by the tenant, the landlord may proceed, in any manner permitted by law, to remove the tenant, or, if the landlord shall accept rent for any period subsequent to the expiration of such term, then, unless an agreement either express or implied is made providing otherwise, the tenancy created by the acceptance of such rent shall be a tenancy from month to month commencing on the first day after the expiration of such term.

The Court’s analysis has been generally accepted.2 But, in Tricarichi v. Moran3 the Appellate Term reversed an oral order dismissing a nonpayment proceeding brought against month-to-month tenants and in its decision explicitly rejected the analysis set forth in 1400 Broadway Associates v. Henry Lee and Co. of NY, Inc.

In Tricarichi, the Appellate Term specifically held:

Real Property Law §232-c is inapplicable to month-to-month tenants, since the term of a month-to-month tenancy is not ‘longer than one month.’

The Court explained that:

Real Property Law §232-c did not abolish a landlord’s right to elect to hold a month-to-month tenant for a new term solely by virtue of his holding over. Indeed, the requirement of Real Property Law §232-b –that both a landlord and a tenant wishing to terminate a month-to-month tenancy must give a month’s notice — remains unaffected by the subsequent enactment of Real Property Law §232-c. Here, both the making of a rent demand by landlord and the commencement of a nonpayment proceeding constitute an election by landlord to treat the holdover tenants as tenants for a new term and not as trespassers (see Friedman on Leases §18:4). Their month-to-month tenancy continues on the same terms as were in the expired lease, if, in fact, the lease has expired.

This statutory analysis by the Appellate Term, at least in the 9th and 10th Judicial Districts and until a higher court weighs in, permits a landlord to commence a nonpayment proceeding against a holdover month-to-month tenant. The obvious benefit to a landlord is time. Rather than being compelled to serve a 30-day termination notice to terminate a month-to-month tenancy under RPL §232-b before commencing a holdover proceeding, the landlord may now commence a nonpayment proceeding against a month-to-month tenant upon making an oral demand for rent or serving a 3-day written demand under RPAPL §711(2).

1 161 Misc.2d 497, 614 N.Y.S.2d 704 (NYC Civ. Ct., NY Co. 1994)

2 See, Krantz & Phillips, LLP v. Sedaghati, 2003 N.Y. Slip Op. 50032(U) (App. Term 1st Dep’t 2003)

3 2012 N.Y. Slip Op. 22395 (App. Term, 9th & 10th Judicial Districts 2012)

Governor Andrew Cuomo has approved legislation designed to streamline the process of filing lawsuits against municipalities and other government entities in New York, providing the groundwork for uniform, fair, cost-effective and straightforward statewide procedures for filing a Notice of Claim.

State law requires individuals intending to sue government entities for any tort — such as a slip-and-fall
or a malpractice at a public hospital — to file a Notice of Claim to alert a potential defendant of an
impending lawsuit. Currently, they must be filed in the county in which an alleged incident occurred.
The bill will allow plaintiffs to file notices of claim with the secretary of state in Albany, who would then notify defendants. Most of the bill’s provisions take effect in 180 days.

The legislature will also amend the bill to ensure that local governments and public authorities will not face shortened time periods within which to investigate claims if the secretary of state faces delays in notifying potential defendants.

The legislation also provides for a uniform 90-day filing deadline for all notices of claim, regardless of the type of government entity involved.

Supporters of the proposal, including the State Bar Association and the New York Trial Lawyers Association, say the current process of filing notices of claim is confusing and often leads to cases being tossed out on technicalities. They believe this bill will eliminate expensive and time-consuming litigation over unnecessarily complex issues of procedure which unnecessarily burden the courts as well as the
governmental and quasi-governmental entities involved.

Here are some highlights.

• Service on secretary of state. In addition to serving a Notice of Claim directly on a governmental or quasi-governmental entity, plaintiffs will also be able serve Notices of Claim through the Secretary of State, as current law allows for service of process on businesses and corporations;
• Uniform 90-day period for serving notice of claim. Notices of Claim to any entity, including public corporations and public authorities, entitled to such a notice will be subject to the current rules of the general municipal law, including a 90-day limit for filing a Notice of Claim;
• Uniform one year and 90 day statute of limitations. The CPLR and other statutes are amended to state that except for wrongful death actions, all actions against public entities for damages, injuries to property, or personal injuries are subject to a one year and 90 day statute of limitations or another applicable statute of limitations prescribed by law, whichever is longer.

As we reported several times over the last two years, New York enacted the Wage Theft Prevention Act (“WTPA”) requiring employers to furnish notices to employees addressing pay, overtime, and other pay-related information. As is the case every year, the annual notice must be distributed to employees between January 1, 2013 and February 1, 2013. If you employ individuals in New York State, or have affiliates and branches in New York that employ individuals, then you must comply with the current notification requirement of the WTPA. All employers should make sure this is handled promptly to avoid potential penalties and fines.

Employers must provide a copy of the notice to the employee, have each employee sign and date the notice, and maintain all notices and acknowledgements for six years. While the law does not dictate the form of notice, the New York State Department of Labor (NYSDOL) has provided sample forms, which we have included in the links below.

Employers who fail to provide the required notices may be liable for damages of up to $50 per week, per employee.

By Patrick McCormick

Two appellate courts recently rendered decisions discussing landlord/tenant issues. The decisions, while breaking no new ground, do point out what can happen when parties fail to properly memorialize their landlord/tenant relationship and when a landlord fails to act to correct defective conditions in commercial premises.

The first case is Joylaine Realty Co., LLC v. Samuel1 in which the Appellate Division affirmed the dismissal of landlord’s complaint holding that repeated flooding of the commercial premises combined with the landlord’s failure to take any action to correct the condition suspended tenant’s obligation to pay rent. The Appellate Division decision is short on facts and analysis but does clearly hold “the repeated flooding of the subject premises substantially and materially deprived the defendant of the beneficial use and enjoyment of the premises, and the plaintiff failed to take any steps to correct the condition.” Without engaging in substantive analysis of the facts or applicable law, the Appellate Division simply relied upon well settled law that “[A] commercial tenant may be relieved of its obligation to pay the full amount of rent due where it has been actually or constructively evicted from either the whole or part of the leasehold”2 and “A constructive eviction occurs where ‘the landlord’s wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises.”3 Thus, finding that a constructive eviction occurred, the Court confirmed that the tenant’s obligation to pay rent was suspended.

The next appellate decision comes from the Fourth Department in Peak Development, LLC v. Construction Exchange4 and involved a claim related to common area maintenance. In Peak, the landlord sued to collect from tenant additional rent consisting of common area maintenance charges for snow removal, janitorial services and lavatory maintenance. The Fourth Department reversed summary judgment granted in favor of tenant. The tenant’s lease extension expired in October 1997 and a new lease was not executed. Thus, tenant remained in possession of the demised premises as a holdover month-to-month tenant. The express terms of the lease provided for CAM charges and that such charges were to be “pro-rated on a monthly basis according to the amount of space occupied by [defendants] to the total building space.” Plaintiff purchased the property in 2003. The month-to-month tenancy continued until April 1, 2006 when a “letter lease” became effective. The specific terms contained in the “letter lease” were not discussed by the Court. Defendant/tenant in moving for summary judgment relied on the lease, the lease extension and an affidavit from defendant’s executive vice president that CAM charges under the lease and lease extension were not paid between September 1987 and October 1997 and argued that plaintiff waived the right to collect such charges because plaintiff’s predecessor did not collect the CAM under the lease and lease extension. The Court found that the “issue of whether waiver has occurred is generally one of fact [citation omitted] and, here, defendants failed to establish as a matter of law that plaintiff’s predecessor waived his entitlement to CAM charges.”

As part of its decision, the Appellate Division cited to the well settled law that “a successor-in-interest to real property takes the premises subject to the conditions as to the tenancy, including any waiver of rights, that [its] predecessor in title has established if the successor-in-interest has notice of the existence of the leasehold and of the waiver”[Citations omitted]. The Court also found that the plaintiff in this case “had notice of the leasehold with defendants and, in any event, possession of the premises constitutes constructive notice to purchaser of the rights of the possessor” [citation omitted].

The practical impact of this decision and the facts presented is significant. If, in fact, there was a waiver of the right to collect CAM, the tenant now must locate the seller of the premises (the sale occurred about 8 years before the lower court decision) and, even if located, hope that seller or someone on behalf of the seller if the seller was a business entity, even remembers the terms of the lease and lease extension and whether there was any thought given to the right to collect CAM charges and whether such right was affirmatively waived.

By Patrick McCormick

There have been numerous recent decisions by appellate and trial courts involving landlord/tenant disputes covering a wide variety of issues. A few of those decisions are discussed in this article.

In a decision dated October 5, 2012, the Appellate Term, First Department in C&A 483 Broadway, LLC v. KLMNI, Inc.,1 discussed Yellowstone injunctions. In a short decision that did not discuss many facts, the Appellate Term reversed the lower court’s order granting summary judgment to the tenant dismissing the petition, and held a “May 2008 Yellowstone injunction issued by Supreme Court, which restrained landlord from terminating the governing commercial lease agreement based on tenant’s conduct in ‘affixing a flag or banner’ to a flagpole attached to the building’s facade, did not bar landlord from terminating the tenancy and maintaining this August 2010 holdover proceeding based on the conditional limitation provision in the lease triggered by the tenant’s late payment of rent.” This brief decision reminds us that a Yellowstone injunction serves to toll a cure period related to a specific alleged default claimed by a landlord. Where a landlord serves successive default notices each alleging a new default, tenant will need to seek and obtain a new Yellowstone injunction to toll the cure period related to each claimed default.

In 455 Second Avenue LLC v. NY School of Dog Grooming, Inc.,2 the commercial tenant, relying on Multiple Dwelling Law §302, moved to dismiss the nonpayment petition claiming no rent was due because a proper Certificate of Occupancy had not been obtained for the premises. The tenant, operating a dog grooming business, and landlord entered into a commercial lease with a termination date of August 31, 2018. In 2008, the tenant sought to renew its dog grooming educational license which could not be renewed without a proper C of O for the premises. The existing C of O was for a multiple dwelling, with a basement (the premises at issue) used as a restaurant. The tenant stopped paying rent, the landlord commenced the nonpayment proceeding and tenant moved to dismiss alleging that MDL §302(1) relieved tenant of the obligation to pay rent because a proper C of O did not exist for the premises. The New York City Civil Court denied the motion, citing to well settled appellate precedent, holding that MDL §302, by its terms, which the Court held were required to be strictly construed, did not apply to commercial premises/tenancies. In reaching its determination, the Court referenced a recent Court of Appeals decision in Chazon, LLC v. Maugenest, 19 N.Y.3d 410 (2012).

In Chazon, the plaintiff/landlord owned a loft building in Brooklyn. The defendant/tenant occupied an apartment in the building but had not paid rent for 9 years. Landlord commenced an ejectment action based on the nonpayment of rent. Supreme Court granted summary judgment in favor of landlord awarding landlord possession of the apartment. The Appellate Division affirmed and permission to appeal was granted by the Court of Appeals. The Court of Appeals reversed based on MDL §302 and MDL art. 7-C (the Loft Law). Briefly, the Loft Law permitted residential occupancy of lofts (apartments in buildings formerly used for commercial purposes) but set deadlines for owners of the buildings to alter the building to conform to certain safety and fire protection standards. The Loft Law allowed for extensions of the deadlines in certain circumstances. Until the standards are met and a proper certificate of occupancy is obtained, tenants are protected by the MDL from eviction. In rejecting opinions from various appellate courts, the Court of Appeals strictly construed what it termed “the law’s command” that “No rent shall be recovered by the owner of such premises . . . and no action or special proceeding shall be maintained therefore, or for possession of said premises for nonpayment of such rent.” The Court, in reversing the Appellate Division, recognized that “the statutes leave these parties in their present stalemate until compliance has been achieved.”

In Disunno v. WRH Properties, LLC3 the Appellate Division addressed a well settled principle involving the covenant of quiet enjoyment in commercial leases. Because the issue is raised from time to time, a review of this recent decision is helpful. The tenant commenced an action seeking damages from the landlord for an alleged breach of the commercial lease at issue. The landlord moved under CPLR 3211(a)(7) to dismiss the third cause of action which alleged landlord breached an implied warranty of fitness for a commercial purpose. The lower court denied the motion. In reversing that portion of the lower court’s determination, the Appellate Division reaffirmed that “[i]n the absence of fraud or of a covenant, a lessor does not represent that the premises are tenantable and may be used for the purpose for which they are apparently intended [citations omitted]. The implied warranty of habitability applies only to residential lease space [citations omitted].” This case reminds counsel of the importance of careful lease drafting and the need, from the tenant’s perspective, to obtain from the landlord proper representations in the lease that the premises can in fact be used for the purpose intended by the tenant.