Category: Uncategorized

By Patrick McCormick

Yellowstone injunctions — an injunction to stay the available cure period provided in a commercial lease and in the landlord’s notice to cure while the merits of the alleged default are litigated — have been commonplace since the Court of Appeals’ decision in First Nat. Stores v. Yellowstone Shopping Center, 21N.Y.2d 630, 290 N.Y.S.2d 721 (1968).

Two recent Appellate Division cases from the First and Second Departments remind us of the consequences of failing to promptly seek and obtain a Yellowstone injunction.

In Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 2011 WL 1206171 (2d Dep’t 2011) the plaintiff sponsor of the subject cooperative and holder of unsold shares allocated to 15 apartments, moved by order to show cause for both a Yellowstone injunction and a preliminary injunction. The motion was made after receipt of 15 separate default/cure notices, after the expiration of the cure period and after receipt of termination notices but before the date set in the termination notices for the termination of the respective leases. The Court held in these circumstances that neither a Yellowstone nor preliminary injunction was available.

In an attempt to avoid the requirement that an application for a Yellowstone injunction be made before the termination of the lease and before the expiration of the cure period set forth in the lease and cure notice, the sponsor unsuccessfully argued that the rule did not apply to owners of unsold shares of a cooperative. While this creative argument may be the subject of a future blog, what is important here is the Court’s discussion of the need for prompt action after receipt of default/cure notices.

In reaffirming its prior holdings (see e.g. Korava Milk Bar of White Plains, Inc. v. PRE Props., LLC, 70 A.D.3d 646) the Court explained that once the cure period expired, the Court was powerless to revive a lease. The Court once again explained that the request for a Yellowstone injunction must be made both before the termination of the lease and before the expiration of the cure period set forth in the lease and cure notice. In so doing, the Court restated its express rejection (as previously stated in Korava Milk Bar of White Plains) of any prior decision “fixing a different or longer period of time in which an application for Yellowstone relief must be made.” The Appellate Division held that the Court below improperly granted the Yellowstone injunction “since the plaintiff did not seek Yellowstone relief within the cure period . . .” In addition, the Appellate Division also held, in agreement with the First and Third Departments, that a motion for a preliminary injunction “must also be made prior to the expiration of the cure period.”

In 166 Enterprises Corp. v. I G Second Generation Partners, L.P., 81 A.D.3d 154, 917 N.Y.S.2d 143 (1st Dep’t 2011) the plaintiff commercial tenant sought a Yellowstone injunction one day before the cure period was to expire. A temporary restraining order (TRO) was issued but the Court ultimately denied the motion holding that the tenant failed to demonstrate it was ready and able to cure the defaults alleged (failure to pay rent and late fees and procure the required amount of liability insurance). As there was one day left in the cure period when the motion was decided, the lease terminated the next day.

After expiration of the lease, tenant moved to renew and reargue, conceding its initial motion failed to address its ability to cure the claimed insurance default. The Court below granted the motion to renew/reargue and granted the Yellowstone injunction. The case eventually went to trial and tenant was found to have breached the insurance provision but the trial judge determined that the Yellowstone injunction had been granted nunc pro tunc as of the date of the original Yellowstone application and that therefore tenant still had one day to cure the default.

The Appellate Division, First Department, held that the trial Court “improperly concluded that Tenant still had the right to cure its breach.” The Court reasoned that after the initial motion for a Yellowstone injunction was denied, because the motion to renew/reargue was brought after the cure period expired, the Court did not have the power to grant Yellowstone relief. The Appellate Division also held that, while in certain extremely limited circumstances retroactive relief was possible, those circumstances did not exist in this case and that giving retroactive effect to the Yellowstone injunction upon the motion to renew/reargue was improper.

The simple lesson to be taken from these two cases is that tenants must move quickly upon receipt of a default/cure notice and must obtain Yellowstone or other injunctive relief before the expiration of the applicable cure period and before the expiration of the lease. The Court cannot reinstate the lease if it terminates upon the failure to timely obtain a Yellowstone injunction.

In case you didn’t know, this is my first foray into the world of blogging. That being the case, I thought that I’d spend this month just explaining some of the more general concepts of Elder Law and Estate Planning; a general introduction to begin. Although they are pretty basic (at least to me), I’ve found that there are a large percentage of people that don’t know anything about these primary ideas.

The first concept is “What are Elder Law, Estate Planning, and Trusts and Estates?” Unlike tax law or criminal law or motor vehicle law, there is no one body of law that we (as attorneys) can go to. Instead, it’s a mixture of Social Security, Medicare, Medicaid, Tax, Estates, Trusts, Mental Hygiene and even torts (personal injury) and Penal Law (criminal). The idea is that we look at all these types of law and see how they apply to our clients.

Digging a little deeper there really are two main concepts, Estate Planning and Asset Protection, which arise out of Elder Law and come into play. Estate Planning is simply making sure that whatever you have when you die goes to whomever you want it to go to. This is typically done by way of a Last Will and Testament or a Trust or some type of corporate succession plan. Asset Protection is making sure that you have something to actually pass to those people you named in your estate plan.

Now, the immediate question that comes to my mind is “who am I protecting my assets from?” Two of the largest “takers” of your assets are the government and the cost of your long term care. The government reduces your assets mainly in the form of taxes. They could be in the form of income tax, capital gains tax, gift tax or estate tax, to name a few. Long term care is basically you paying for home care or nursing care after a traumatic medical event.

In the coming months, I’ll discuss the various ways in which we can try to minimize what the government takes from us and the numerous changes in the laws, along with the various ways of then keeping your assets from the cost of nursing care. Along with all of that, I’ll try to keep you abreast of the various ways to move your assets from you to your loved ones, both during your lifetime and after you’ve passed. And, with a minimum amount of headache and loss to both you and your loved ones.

By Patrick McCormick

Landlords routinely collect a security deposit from tenants at the commencement of a lease term with the deposit generally to be used to ensure the tenant’s compliance with its lease obligations. These obligations typically include the payment of rent or additional rent and payment for any damage to the leased premises caused by the tenant. While most experienced landlords understand and comply with GOL §7-103 as it relates to security deposits, some do not. As demonstrated by the following case, the failure to comply with GOL §7-103 can have harsh results.

Pritzker v. Park South Lofts LLC, 117192/09, NYLJ 1202475879547, at *1 (Sup., NY, Decided November 19, 2010) was an action brought by a residential tenant against his landlord for the return of his security deposit. The landlord refused to return tenant’s $84,000.00 security deposit because the tenant allegedly caused $36,404.06 in damage to the demised premises. Landlord also refused to return the entire deposit because it was incurring legal fees in connection with the repairs and with the action commenced by the tenant. The tenant alleged claims against the landlord for conversion, breach of the lease, violation of GOL §7-103 and attorneys fees. Landlord asserted counterclaims alleging damage to the apartment and attorneys fees.

In relevant part, GOL §7-103 (1) provides:

Whenever money shall be deposited or advanced on a contract
or license agreement for the use or rental of real property
as security for performance of the contract or agreement
or to be applied to payments upon such contract or agreement
when due, such money shall be held in trust by the person
with whom such deposit or advance shall be made and shall
not be mingled with the personal moneys or become
an asset of the person receiving the same
(Emphasis supplied)

GOL §7-103 (2) provides, in relevant part:

Whenever the person receiving money so deposited or
advanced shall deposit such money in a banking organization,
such person shall thereupon notify in writing each of the
persons making such security deposit or advance, giving
the name and address of the banking organization in which
the deposit of security money is made, and the amount of
such deposit.

The Court specifically held that “where a landlord has deposited a security deposit in a bank and fails to comply with the notice provision of GOL §7-103(2), a court may draw the rebuttable inference that the landlord has mingled that security deposit with the landlord’s own money, in violation of GOL §7-103(1). (citations omitted) Such commingling constitutes a conversion, as well as a breach of fiduciary duty [citation omitted] and regardless of any non-compliance by the tenant with the terms of the lease, it entitles the tenant to an immediate return of the deposit. [citations omitted]. In the event of such commingling, the landlord may not use any portion of the deposit even for otherwise legitimate purposes. (citations omitted).”

In this case it was not disputed that the landlord deposited the tenant’s security deposit in an “agency account” of landlord’s managing agent and neither landlord nor its managing agent notified tenant of that deposit as required by GOL §7-103(2). Landlord produced certain banking records from the agent for a period surrounding the deposit of the tenant’s security deposit which records showed seven deposits into the account in addition to the deposit of tenant’s security. Landlord did not identify the sources of those other deposits and no proof was submitted that anyone other than the landlord may have owned any portion of the money in that particular account.

The Court held that “the mere fact that [tenant’s] security deposit was deposited in an agency account does not show that the deposit was not commingled with any of [landlord’s] own money.” A member of the landlord (an LLC) provided an affidavit that its agency account “is wholly segregated from [landlord’s] monies.” Notwithstanding such affidavit, the Court held “in the absence of any explanation of the sources of the many credits to [the agency] account, other than that of plaintiff’s security deposit, in the absence of a copy of such contract as [landlord] and [its agent] may have entered into, and in the absence of unambiguous evidence that the [agency] account does not include money belonging to [landlord]” the affidavit was not sufficient “to rebut the presumption that the security deposit was mingled with the personal monies [of the landlord] within the meaning of GOL §7-103.” Also troubling to the Court was the fact that, after the tenant vacated the apartment, the landlord determined that a portion of the security deposit would be used to repair damage allegedly caused by tenant. But, rather than return the excess security deposit, the landlord retained the entire security deposit to guarantee attorneys fees to which it believed it would be entitled in connection with the tenant’s action. The Court held that these facts demonstrated that the landlord exerted dominance over the security deposit and did not view it as segregated from its own money and therefore granted tenant summary judgment on its claims for conversion and violation of the General Obligations Law.

While the Court did find the tenant partially liable to landlord on landlord’s counterclaims for damage to property, the Court nevertheless granted judgment for the full amount of the security deposit of $84,000.00 to the tenant with interest from the end of the lease term.

While this result may be harsh, it could have been avoided had landlord or its agent provided tenant with notice in compliance with GOL §7-103(2) and produced sufficient proof in accordance with GOL §7-103 that the security deposit was not commingled with landlord’s personal funds.

The Appellate Term also recently considered a matter in which the tenant sued to recover his security deposit and the landlord sought to recover sums for certain unpaid charges. In awarding the tenant the return of his security deposit and reducing the amount awarded to the landlord, the Court focused on the specific terms of the lease. In Schlesinger v. Edwards, 2008-945 N C, NYLJ 1202474306192, at *1 (App. Tm., 9th and 10th Dist., Decided October 20, 2010), after a non-jury trial, the Court awarded the tenant, who had vacated the premises at the end of the lease term, a judgment in the sum of $4,300.00 representing the return of tenant’s full security deposit and awarded the landlord the sum of $553.54 on his counterclaim to recover sums for unpaid electric bills, water bills, carpet cleaning, cleaning and repair of bath and kitchen tile and for rekeying locks to the premises. On appeal, the landlord argued that a rider to the lease required the tenant to provide 60 days notice to landlord if tenant did not intend to renew the lease and that if tenant failed to do so landlord was entitled to retain the entirety of the security deposit. While the specific lease language is not reported in the case, the Court found that the landlord’s interpretation of the lease clause did “not appear to reflect the parties’ intention, as the lease was for a defined one-year term.” The Court interpreted the lease clause at issue to require the tenant, upon the expiration of the lease term, to provide 60 days notice to the landlord if tenant intended to remain in the premises after the expiration of the lease term and that if the tenant did not give such notice but nevertheless remained in the premises, his security deposit would be forfeited. Finding the lease clause ambiguous, the Court applied the doctrine of contra proferentem, construed the clause against the landlord, and granted the return of the security deposit because the tenant had timely vacated the premises upon the expiration of the one year term. The Court also reduced the monetary award to the landlord finding that the lease specifically provided that if the premises was not cleaned at the expiration of the term, the sum of $100.00 would be deducted from the security deposit but that landlord could collect more than $100.00 if the cleaning costs exceeded $100.00 and landlord provided itemized receipts for such cleaning. The landlord, despite claiming that the cleaning costs for the carpet and bathroom/kitchen tile exceeded $100.00, did not provide itemized receipts for such and thus reduced the landlord’s award for such cleaning costs to $100.00 reducing the entire award to $373.54. The very simple lesson here is that both landlord and tenant should specifically comply with the terms of their lease, which should be carefully drafted to properly memorialize their agreement.

The Wage Theft Prevention Act (“Act”) was recently signed into law and becomes effective April 11, 2011. The Act significantly modifies employer requirements regarding wage notices, wage statements and payroll records, and posting requirements. Additionally, the Act includes more stringent anti-retaliation provisions and criminal and civil penalties against noncooperating employers. Below, we highlight some of the new changes and expectations.

First, there are considerable changes to wage notice requirements to new and current employees. Prior to this act the law required that employers provide every new hire a written notice that included information such as regular wage rate, the overtime rate, and regular pay day. This act will require, in addition to existing new hire notice requirements, that the new notice must contain information such as classification of pay (i.e. hourly, shift, day, week, etc.), and permitted allowances claimed as minimum wage. Additionally, the notices must be provided not only to new hires, but to each employee annually, as well as seven days before any wage change takes effect. All notices described here must be provided in the employee’s primary language, if not English. Employers must obtain and retain notice receipt acknowledgements from each employee.

Second, the Act modifies the records retention requirements. Employers must maintain copies of payroll records for six years. The Act provides the NY Department of Labor with discretion to require employers to provide an accounting of all assets upon the employers default on administrative order to pay wages, damages, and penalties.

Third, the Act increases civil penalties for labor law violations. Liquidated damages on unpaid wages (most commonly for unpaid overtime) are increased from 25% to 100% in court actions. Where an employer fails to provide disclosures of wage rates and paystubs, the Act provides for both statutory damages and a private right of action. Any employer who fails to pay wages shall pay $500 per failure. Statutory damages available for employees are capped at $2,500. It is an affirmative defense if either the employer made complete and timely payment of all wages due or the employer reasonably believed in good faith that it was not required to provide the employee with the required notice.

In addition to civil penalties, the Act increases the criminal penalties for an employer’s violation of the NY Labor Law. Any employer as well as officers and principals of the corporation, partnership, or limited liability company, who knowingly permits the violation of the Act by failure to pay wages shall be guilty of a misdemeanor and upon conviction shall be fined between $500 and $20,000 or imprisoned for no more than a year. In the event of a second or subsequent offense within six years of the date of prior conviction, the employer or its principals shall be guilty of a felony.

The Act also provides for more stringent anti-retaliation protections for employees. No employer or other person (closing the loop hole on the definition of employer) shall discharge, threaten, penalize, or in any other manner discriminate or retaliate against any employee because the employee filed a complaint or is in some other way involved with a complaint filed against the employer. There is a two year statute of limitations for filing a retaliation claim running from the date of the retaliation itself. If the NY Department of Labor finds a violation, in addition to other penalties, it may assess a civil penalty up to $10,000. The NY Department of Labor may also order an injunction of conduct of any person or employer or a reinstatement of employment to the former position or its equivalent.

It is imperative that employers review and update employee notification and payroll practices to ensure compliance with the Act and all other NY and federal labor laws.

New York government recently enacted the New York State Construction Industry Fair Play Act (“New Act”). The intent behind this new law is to address misclassification of construction workers as independent contractors instead of employees. This law created a new standard for determining whether a construction worker is an employee or independent contractor. Additionally, it provides new penalties for employers who fail to properly classify their employees. The law is likely to have an ongoing impact on the construction industry and the costs associated with a construction work force.

Under this law, which became effective on October 26, 2010, a construction worker is presumed to be an employee—as opposed to an independent contractor—unless either one of the following applies:

(1) the worker meets all three of the following criteria: (a) the worker is free from control and direction in performing the job, (b) the service performed is outside the usual course of work done by the business, and (c) the worker is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue. Only if all three criteria are met, then the worker may be considered an independent contractor.

OR (2) the worker is a separate business entity, as determined by a 12-part test included in the new law to determine when a sole proprietor, partnership, corporation or other entity will be considered a “separate business entity.” In order for an entity to be considered an independent contractor, it must meet all of the 12 criteria, otherwise the entity appearing as a corporate entity will still be deemed an employee under New York State law. it will not be considered an employee of the contractor. Instead it will be a separate business that is itself subject to the new law regarding its own employees. The 12 criteria for a separate business entity can be found on the DOL website.

The New Act also requires contractors to post notice in a prominent place at the business site that describes the responsibility of independent contractors to pay taxes required by state and federal law, the rights of employees to workers’ compensation, unemployment benefits, minimum wage, overtime, and other federal and state workplace protections, and the protections against retaliation and the penalties for failing to properly classify an individual as an employee.

The notice must also contain contact information for individuals to file complaints or to inquire about employment classification status. The notice is to be provided in English, Spanish, or other languages required by the labor commissioner and must also be constructed of materials able to withstand adverse weather conditions.

The New Act applies to all employers involved in constructing, reconstructing, altering, maintaining, moving, rehabilitating, repairing, renovating or demolition of any building, structure or improvement or relating to the excavation of or other development or improvement to land. Employers who willfully violate the law are subject to civil penalties of up to $2,500 for the first violation and up to $5,000 for each subsequent violation within a five year period. This penalty may be assessed for each worker who is misclassified. Additionally, employers who violate the law may be guilty of a criminal misdemeanor, and subject to imprisonment for up to 30 days or a fine up to $25,000 for the first offense, or imprisonment for up to 60 days or a fine up to $50,000 for a subsequent offense. If the employer is a corporation, any officer or shareholder who owns or controls 10% or more of the corporation and who knowingly allows a violation of the law, may also be subject to civil and/or criminal liability. The new law also prohibits retaliation and requires a notice posting. The law explicitly states that violators may be subject to additional penalties for the misclassification of a worker with regard to unemployment compensation insurance, workers’ compensation insurance, or business, corporate, or personal income taxes. Where uncertainty exists as to the worker’s proper classification, seeking legal guidance is a advised given the steep penalties under this law. Feel free to contact us should you have any questions about the new law.

By Patrick McCormick

This month’s blog will begin to discuss a topic that will be revisited in future installments: Is a commercial landlord entitled to engage in self-help to recover possession of demised premises and, if so, under what circumstances and what are the potential damages available to a tenant if the landlord acts improperly?

Two recent decisions, the first from the Supreme Court, Appellate Term, First Department and the second from the Supreme Court, Suffolk County (Spinner, J.) are a good starting point.

In Sol De Ibiza, LLC v. Panjo Realty, Inc., 570805/09, NYLJ 1202472860256, at *1 (App. Term, 1st Dep’t, decided September 22, 2010) the Appellate Term reversed a Civil Court Order granting tenant’s petition to be restored to the demised premises and directed an assessment of damages under RPAPL §853 based upon an unlawful eviction. The Appellate Term held “. . it is well established that a landlord may, under certain circumstances, utilize self-help to regain possession of demised commercial premises (citations omitted).” The Court identified the following factors to be considered to determine when self-help may be available:

1. The subject lease specifically reserves the landlord’s right to reenter and regain the premises upon tenant’s breach of its obligation to pay rent;
2. Prior to reentry, landlord serves upon tenant a valid rent demand;
3. Reentry was effected peaceably, and;
4. Tenant is in fact in default in its obligation to pay rent.
(Citations omitted)

The Court noted that the lease at issue did specifically reserve “landlord’s right to reenter and regain the demised premises upon tenant’s breach of its obligations to pay rent.”

While the Court also noted that the landlord did serve a rent demand it found that the record from the lower court proceeding was not sufficiently developed to allow a determination to be made as to the validity of the rent demand, whether landlord’s reentry was peaceable or whether tenant actually breached its obligation to pay rent. Accordingly, the matter was remanded to Civil Court for a hearing on these issues.

In Pernell v. 287 Albany Avenue LLC, 2006-20355, NYLJ 1202473637827, at *1 (Supreme Court, Suffolk Co., decided October 4, 2010, Spinner, J.), after a bench trial and without specifically discussing the factors identified in Panjo Realty, Justice Spinner found that the tenant was unlawfully evicted and awarded significant damages to tenant. In Pernell, the tenant occupied the subject premises for use as a delicatessen/convenience store. The lease term expired January 31, 2003, but Plaintiff/tenant remained in possession until December 2005, and made monthly rental payments “through late 2005.” Plaintiff/tenant operated his business at the premises until 2003, when his cousin took over the operation of the business. Plaintiff/tenant reentered the premises in September 2005, keeping his trade fixtures and chattels in the store but he did not operate any business and “[t]he premises were secured by padlocked gates over the two windows and the door.”

Plaintiff/tenant attempted to sell his fixtures and chattels and in November 2005, received an offer of $30,000 for the fixtures/chattels; the purchaser was to use the equipment to open a soup kitchen. However, by deed recorded December 19, 2005, the premises was conveyed to Defendant. Defendant’s members testified that Plaintiff’s “store never appeared to be open” and that its sale contract “guaranteed delivery of the premises free of tenancies and . . . Defendant . . . did not receive any rents or leases from the seller nor any assignments thereof and no representation was made regarding month to month tenancies.”

Defendant’s members also testified that “as of the date of trial [tenant’s] equipment was still present at the premises and that he could reclaim it at any time.” Plaintiff/tenant testified that he drove by the premises, as he did every day, and “saw a dumpster in front of the premises and the security gate opened, his padlocks having been forcibly removed.” Plaintiff/tenant was advised by the Suffolk County Police to retain counsel. The Court did not find the testimony offered by Defendant to be credible and found Plaintiff/tenant’s testimony that Defendant disposed of his property to be credible.

The Court therefore held “[t]he entry upon the premises at issue by Defendant without giving statutory written notice and by failing to invoke the provisions of RPAPL §711 et seq. constituted both wrongful eviction and trespass, thereby entitling Plaintiff to recover damages from Defendant.”

The Court found that Plaintiff/tenant would be entitled to “compensatory damages for wrongful eviction” in the amount of the “value to Plaintiff, above and beyond the rent, of the unexpired term of the leasehold interest plus the actual amount of damages that flow from the wrongful ejectment.” Finding that the “leasehold has no ascertainable value” the Court awarded Plaintiff/tenant damages of $30,000 for the value of the equipment (based on the offer to purchase the equipment) plus that amount trebled ($90,000) pursuant to RPAPL §853.

Taken together, these cases support the use of self-help in certain circumstances, but remind us that the exercise of self-help may come at a steep price. While commencing a summary proceeding comes at a price, including legal expenses and time, such price may very well be significantly less than the potential damages that may result from an unlawful eviction.

By Patrick McCormick

We know that the failure to comply with the rules governing service of predicate notices and pleadings can result in the dismissal of your proceeding. Similarly, knowing the intricacies of the rules regarding service can save what might appear to be defective service and result in unexpected benefits.

An often overlooked decision by the Supreme Court, Appellate Term, supports an award of a default money judgment where service of the notice of petition and petition was accomplished by affixing the papers to the door of the subject premises and mailing the papers by certified and first class mail. Avgush v. Berrahu, 17 Misc. 3d 85, 847 N.Y.S.2d 343, 2007 N.Y. Slip Op. 27424 (2d Dep’t App. Term 2007). The reason: the more burdensome “due diligence” requirement of CPLR 308(4) was complied with rather than the less restrictive “reasonable application” standard set forth in RPAPL 735(1), before the processor server resorted to “nail and mail” service.

In Avgush v Berrahu the process server made five separate attempts to serve the tenant at five different times (from 9:00 a.m. through 9:00 p.m.) over two days. Upon respondent/tenant’s default in appearing, petitioner/landlord sought and was awarded a default money judgment for rent arrears. In affirming the judgment, the Appellate Term held the service at issue complied not only with the “reasonable application” standard of RPAPL 735(1), but also with the “due diligence” standard of CPLR 308(4). Recognizing “the current rule followed in many of the lower courts prohibiting the award of a money judgment upon a tenant’s default in a summary proceeding unless personal jurisdiction was obtained by personal delivery . . .” the Appellate Term specifically stated “that a money judgment should be available in a summary proceeding whenever service has been effected in a manner which would support a money judgment, we hold that service sufficient to satisfy CPLR 308(4) and, indeed, any of the CPLR 308 provisions, is sufficient to support an award of a money judgment in a summary proceeding.”

This holding was based on the Court’s determination that service was “sufficient to meet the New York State and federal constitutional requirements of notice and an opportunity to be heard.”

Thus, it seems prudent to urge process servers to make multiple attempts at service over at least two days, before resorting to “nail and mail” service. The result may be an unanticipated default money judgment.

In another recent case the Court sustained service of a rent demand upon a restaurant/tenant, which was closed at the time of service, where the rent demand was affixed to “the iron entry gate” at the premises. Centre Plaza, LLC v. Chin Young Co., Inc., L&T 63605/10, NYLJ 1202472107676, at *1 (Civ. NY, Decided August 26, 2010). In denying a motion to dismiss and sustaining service of the rent demand, the Court held “the ‘conspicuous part’ of a premises may extend to the location at which the [process] server’s progress is arrested.’” The Court emphasized that because the server “could not get any further than the iron gate,” posting the notice thereon constituted valid “conspicuous place service.”

The Court in Centre Plaza also addressed the validity of service of the notice of petition and petition which were served upon a waiter employed at the tenant/restaurant. Tenant moved to dismiss claiming that the waiter was not a proper person to be served, because he did not have a management role with the restaurant. The Court held service in an summary proceeding is governed by RPAPL 735(1) which, unlike CPLR 311, “does not require that the employee so served have a management role with the respondents . . .” Service upon the waiter employed at the restaurant was sufficient.

By Patrick McCormick

Two recent cases serve to remind us of the importance of carefully drafting default notices and strictly complying with the terms of a lease. In the first case, deficiencies in a default notice resulted in the dismissal of a commercial holdover proceeding. In the second, the failure to strictly comply with the surrender clause of a sublease resulted in a judgment against the subtenant in excess of $1.0 million.

The Supreme Court, Appellate Term, in 240 West 37th LLC v. BOA Fashion, Inc., 2009 NY Slip Op 51823U; 24 Misc. 3d 145A; 899 NYS2d 63 (App. Term, 1st Dep’t) reversed the lower court and granted a tenant’s cross-motion to dismiss the proceeding. While the landlord’s predicate default/cure notice specifically identified the lease provisions allegedly violated, “it conspicuously failed to inform the tenant of the precise defaults alleged.” The Court held that “it is imperative that the cure notice particularize the nature of the default(s) with clarity and factual basis. A mere reference to or recitation of a numbered lease provision, without specifying the nature of the violation(s), is insufficient.”

Here, the lesson to be learned, at least where default/cure notices are concerned, is that more is better. In addition to lease references, specific details about the conduct/circumstances constituting the default should be set forth in the default/cure notice. If specific factual details are not known, caution should be exercised before serving the default/cure notice — under penalty of dismissal.

In the second case, American Express Travel Related Services Company, Inc. v. Stamack Constructions LLC, 2010 NY Slip Op 30407U; 2010 N.Y. Misc. LEXIS 2456, plaintiff/sublandlord commenced an action against the defendant/subtenant for unpaid rent. Subtenant alleged it was not liable for the rent because it surrendered the premises to the managing agent who induced it to surrender the premises. The sublease contained a typical clause incorporating the terms of the overlease within the sublease. The surrender clause in the overlease required any surrender of the premises to be in a writing and signed by the owner. The overlease used the terms “landlord” and “owner” interchangeably and the sublease provided that the term “landlord” in the overlease shall mean “sublandlord.” Subtenant claimed it was induced to break the lease and vacate the premises by the owner’s managing agent. The subtenant did not prepare a writing surrendering the sublease and the sublandlord did not sign such a written surrender. The subtenant’s failure to comply with the lease (and thus sublease) surrender clause requirement of a written surrender notice which is accepted in writing by the sublandlord was fatal to the subtenant’s claim. In fact, the Supreme Court held that even if subtenant could prove it was induced by the managing agent to surrender the premises, such would not provide a vialble defense to the sublandlord’s rent claim — at most there might be a claim against the managing agent or owner, neither of which was a party to the sublandlord’s action. Subtenant’s failure to strictly comply with the applicable surrender clause resulted in a judgment against it in excess of $1.0 million plus legal fees incurred by sublandlord.

A primary reason for entering into written lease agreements is to memorialize the landlord and tenant’s rights, duties and obligations. The lesson here is that ignoring the terms and requirements of a written lease can have severe consequences which can easily be avoided by knowing and complying with the requirements of your lease.