News (All)

By Patrick McCormick

As summer winds down, I thought the best way to ease into autumn would be to examine certain jurisdictional and proof issues that pop up over and over again in summary proceedings. Thankfully, the Courts have provided relevant decisions worthy of discussion. The first is from Nassau County District Court Judge Scott Fairgrieve which discusses whether a commercial landlord waived the right to commence a summary proceeding seeking to collect significant additional rent when the landlord accepted base rent payments 1. The second case is from the New York City Civil Court and involves an amendment of a petition to conform to trial proof and whether additional rent demands are needed before the motion will be granted 2. The last case is a brief decision from the Appellate Division, Second Department, which discusses the adequacy of proof adduced at the trial of an unlawful eviction claim 3.

In Ambrogio & Caterina Giannone Family Ltd. Partnership, petitioner commenced a commercial non-payment proceeding seeking $1,205.10, in base rent and $79,396.72, in additional rent for construction costs. Respondent moved to dismiss alleging that petitioner accepted thirteen base rent payments since the construction was completed, seven base rent payments since the additional rent was billed and three base rent payments since the rent demand was served. Petitioner alleged “[f]rom the time the construction work began through to when the costs were billed to the tenants in August 2011, when a formal rent demand was served in December 2011, and when a nonpayment proceeding commenced in March 2012, I have actively and continuous (sic) discussed, with respondent, its obligation to pay for these costs under the lease.”

After initially confirming that laches is not a viable defense in commercial cases, the Court framed the issue presented as whether “petitioner waived its right to commence this summary proceeding” by accepting base rent payments. The Court noted that respondent did not dispute that petitioner “continuously attempted to collect the additional rent owed . . . ” The Court noted that the lease at issue contained a “no waiver clause” providing that “no waiver of any provision of this lease shall be effective unless in writing, signed by the waiving party.” The Court denied the motion to dismiss holding that these facts combined with the “no waiver provision clause” led to the conclusion that “[t]here is no basis to find that petitioner waived its right to recover additional rent in a summary proceeding by its acceptance of basic rent. To hold otherwise would frustrate the reasonable expectations of the parties embodied in their lease.”

In JDM Washington Street, LLC, after the conclusion of petitioner’s case, petitioner moved to conform its pleading to the proof presented at trial and rested its case. Respondent opposed the motion arguing that “petitioner must make an updated demand for any rent and additional rent that has accrued since the predicate notice before it can seek to amend the petition at trial.” Respondent argued that “petitioner is limited to a claim for the rent sought in the predicate notice because petitioner never demanded any additional rent while this proceeding was pending.”

In granting the motion to amend the petition to conform to the proof adduced at trial, the Court relied on the specific language of RPAPL §711(2) and CPLR §103(b). The Court noted that “RPAPL §711(2) provides for ‘a demand of rent’ — not plural demands for rent. . . The RPAPL makes no provision for an updated demand for rent in a nonpayment proceeding.” In discussing the CPLR, the Court reminds us that “[u]nder the CPLR a motion to amend a pleading at trial must be freely granted absent surprise or prejudice resulting from the delay.” The Court thus found that a tenant could not be surprised that a landlord in a nonpayment proceeding would seek all rent owed up to trial. The Court refused to read into the RPAPL “a requirement that rent demands must be updated before a petitioner may seek to amend its petition to reflect rent allegedly accrued at the time of trial. Such a requirement would graft another element onto a petitioner’s prima facie case.”

Finally, in a case brought by a commercial tenant against its landlord for damages resulting from an unlawful eviction, the Appellate Division, Second Department, reversed a judgment after a nonjury trial in favor of the tenant. The Appellate Division found that the hearsay testimony offered by tenant to establish its damages was insufficient. In awarding judgment in favor of the tenant for $120,000 ($30,000 loss plus treble damages of $90,000) as compensation for equipment lost as the result of a wrongful eviction, the lower court relied on “the hearsay testimony of the plaintiff, as well as the hearsay testimony of another witness that a third party in Georgia offered to purchase the equipment for the sum of $30,000 after the witness described the equipment to that third party during a telephone conversation.” The Appellate Division noted that “Neither the plaintiff nor his witness testified from his own knowledge as to the actual value of the equipment.” In reversing the judgment of the lower court and dismissing the complaint, the Appellate Division found that the testimony regarding damages was “based completely on hearsay, and unsupported by competent proof . . .” This ruling is harsh, but it serves to remind us that care must be taken when preparing all aspects of our cases and that damages will not be awarded unless competent proof is presented, regardless of the culpable conduct of the opposition.

By Patrick McCormick

A recent article discussed the decision by the Appellate Division First Dept. in 135 East 57th Street LLC v. Daffy’s Inc.1 in which the Appellate Division excused a tenant’s failure to timely give notice of its election to exercise its option to renew its commercial lease because the tenant had “garnered substantial good will in its approximately 15 years at the location, which good will was a valuable asset that would be damaged by its ouster from the premises.” The Court in Daffy’s Inc. referenced the Court of Appeals decision in J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.2 , which held that “the loss of an option does not ordinarily result in the forfeiture of any vested rights . .”

By decision dated May 3, 2012, the Court of Appeals in Baygold Associates, Inc. v. Congregation Yetev Lev of Monsey, Inc.3 , citing J.N.A. Realty Corp., held that the tenant was not entitled to equitable relief to excuse its failure to timely exercise its option to renew under the circumstances presented, despite the fact that the premises had been continually operated as a nursing home for more than 30 years and more than one million dollars in improvements had been made to the premises.

In Baygold Associates, Inc., Baygold operated a nursing home in Monsey, New York from 1972 through 1975. In 1976, Baygold, as tenant, entered into a lease with Monsey Park Hotel, the owner of the premises, for a ten year term. The lease granted Baygold the option to extend the term of the lease for four ten year periods by giving notice by certified mail, return receipt requested, no later than 270 days before the expiration of each term or extended term. With the owner’s consent, Baygold sublet the premises to its affiliate Monsey Park Home for Adults which operated a nursing home from 1976 through 1985 and made approximately one million dollars in improvements to the premises. In 1985, Monsey Park Home for Adults sub-sublet the premises to Israel Orzel who continued to operate a nursing home at the premises. In August 1985, Baygold renewed the lease for two additional ten year periods. During Orzel’s tenancy, Orzel also made improvements to the premises.

In July, 2005, Baygold directed its attorney to renew the lease for two additional ten year terms. It was disputed whether Baygold’s attorney actually prepared and sent the renewal notice as required by the lease.

In July 2007, the Rubenfeld family, as successor to the owner, entered into a contract to sell the property to defendant Congregation Yetez Lev of Monsey Inc. Rubenfeld’s attorney notified Baygold that its tenancy would expire September 30, 2007 and that Baygold would be a month-to-month tenant. Baygold claimed it had exercised the renewal option and Baygold’s attorney produced a copy of a November 1, 2005, renewal letter but did not produce either a certified mail receipt or a return receipt green card.

Baygold sued seeking a declaration of the rights of the parties in connection with the renewal term. After a bench trial, Supreme Court held that the lease was not properly renewed because Baygold did not comply with the specific lease renewal provisions and denied equitable relief. The Appellate Division affirmed holding that Baygold “failed to demonstrate ‘that it made improvements of a substantial character’ in anticipation of renewing the lease.”

The Court of Appeals granted leave to appeal and on appeal framed the issue as “whether non-renewal would result in a forfeiture by Baygold.” The Court, in citing J.N.A. Realty, noted that “a forfeiture results where the tenant has in good faith made improvements of a substantial character, intending to renew the lease and the tenant would sustain a substantial loss in case the lease were not renewed.” Also, in citing Sy Jack Realty Co. v. Pergament Syosset Corp.4 the Court of Appeals noted that “we have concluded that the ‘long standing location for a retail business is an important part of the good will of that enterprise’ and that a tenant may be entitled to equitable relief through the loss of such ‘a substantial and valuable asset.’” However, the Court of Appeals held that “the forfeiture rule was crafted to protect tenants in possession who make improvements of a ‘substantial character’ with an eye toward renewing lease, not to protect the revenue stream of an out-of-possession tenant like Baygold.”

The Court noted that Baygold had not made any improvements to the premises since 1985, and that neither Baygold nor any of its affiliates was a tenant in possession of the premises at the time of the failure to comply with the lease renewal provision. The Court dismissed any claim that Baygold’s improvements made more than twenty years earlier, when it was a tenant in possession were made “with a view toward renewal of the lease such that Baygold’s equitable interest in a renewal must be protected. Those improvements are too attenuated from Baygold’s failure to exercise the option over 20 years later.”

The Court seemed to place significant emphasis on the fact that Baygold was an out of possession tenant and therefore did not possess any good will in connection with the premises. This, coupled with the fact that Baygold itself did not make improvements to the premises for more than 20 years, in the Court’s view, precluded equity from from intervening to excuse Baygold’s failure to comply with the lease renewal provisions.

By Patrick McCormick

The long standing “one inch” rule in New York, in connection with actual partial evictions, as explained by Judge Cardozo1 has been that an actual eviction by a landlord, even if partial, and no matter how trivial, will suspend the entire rent owed by the tenant. The reason for such rule, as explained by the Court of Appeals2 is “that the tenant has been deprived of the enjoyment of the demised premises by the wrongful act of the landlord; and thus the consideration of his agreement to pay rent has failed.”

As a result of such rule, practitioners in Landlord/Tenant courts are (or were) well aware that a full 100% rent abatement would result, even if a tenant remained in possession of the premises,3 if a landlord physically expelled or excluded a tenant from any part of the leased premises.

The Court of Appeals in Eastside Exhibition Corp. v. 210 East 86th Street Corp.,4 while claiming it was not overruling this longstanding rule, appears to have done just that.

The facts in Eastside are straightforward: Eastside, as tenant, entered into an 18 year lease with 210 86th Street Corp., as landlord, to operate a multiplex movie theater. The lease allowed landlord to make repairs and improvements without an abatement of rent during the period the work was in progress and also provided that the tenant would not receive an allowance for any diminution in value resulting from the repairs or improvements. Approximately 4 years after commencement of the term, without notice, landlord entered the premises and “installed cross-bracing between two existing steel support columns on both of plaintiff’s leased floors causing a change in the flow of patron traffic on the first floor and a slight diminution of the second floor waiting area.” Plaintiff ceased paying rent alleging an actual partial eviction. At trial, the parties stipulated that the total area of the demised premises was between 15,000 and 19,000 square feet and that the cross-bracing installed by landlord occupied approximately 12 square feet. The Supreme Court dismissed plaintiff’s claim and entered judgment for defendant holding that “the taking of 12 square feet of non-essential space in plaintiff’s lobby constituted a de minimis taking not justifying a full rent abatement.” The Appellate Division, First Department modified, “holding that there is no de minimis exception to the rule that any unauthorized taking of the demised premises by the landlord constitutes an actual eviction” but held that the remedy was not a full rent abatement but compensation to plaintiff for its actual damages. During an inquest, the plaintiff’s witnesses were not able to estimate actual damages testifying that given the variables in the motion picture industry, damages were impossible to determine. The Supreme Court made no damage award to plaintiff and the Appellate Division affirmed.

On these facts, and acknowledging the existence of the long standing rule, the Court of Appeals held “Given the inherent inequity of a full rent abatement under the circumstances presented here and modern realities that a commercial lessee is free to negotiate appropriate lease terms, we see no need to apply a rule, derived from feudal concepts, that any intrusion-no matter how small-on the demised premises must result in a full rent abatement. Rather, we recognize that there can be an intrusion so minimal that it does not prescribe such a harsh remedy.” The Court then enunciated what appears to be a new rule: “For an intrusion to be considered an actual partial eviction it must interfere in some, more than trivial, manner with the tenant’s use and enjoyment of the premises.”

This new pronouncement now opens the door to an analysis, on a case by case basis, as to whether a particular intrusion or taking by a landlord, given the particular facts at issue, is severe enough to warrant any relief at all and, if so, the extent of such relief.

The dissent by Judge Read is well written and worth reading for its analysis as to why the “trivial” taking may not be so trivial on the facts presented and for its historical analysis of the law as it relates to actual partial evictions. The most compelling objection raised by Judge Read is succinctly stated as follows: “The majority has overruled an easy to understand, easy to apply bright-line rule in favor of a new de minimis rule that affords no predictability of outcome. Under Kernochan, it was very risky for a landlord to intrude on leased space in disregard of the tenant’s right to the whole of the property because the tenant might withhold rent. Now it is very risky for a tenant to withhold rent where the landlord wrongfully appropriates any portion of the leased premises because it is left up to the courts to determine whether the ouster is merely trifling in amount and trivial in effect. This determination will inevitably require expensive, protracted litigation with an uncertain resolution (citation omitted).”

It was the predictability of outcome that previously guided both landlords and tenants and helped guide their decision making process. Now, without such predictability, will landlords be more willing to take space from tenants? Will tenants continue to pay rent even if landlords trespass and take back portions of the demised premises instead of availing themselves of the costly and often times lengthy, and now unpredictable, judicial process? Only time will tell what the fallout from this decision may be.