“I tell the landlady I got a job, I’m gonna pay the rent.”

“I tell the landlady I got a job, I’m gonna pay the rent.
She said, ‘yeah?’ I said, ‘oh yeah.’”

— George Thorogood
One Bourbon, One Scotch, One Beer

Gray-haired woman holding frying pan illustrating article by Richard Klass about a commercial tenant. © Vbaleha / Dreamstime.com

The landlady rented the storefront space to an interior decorating firm. This commercial tenant signed a lease to rent the store and an individual provided a personal guarantee of the lease.

Unfortunately, the tenant defaulted in the rent payments, forcing the landlady to commence an eviction proceeding in the Civil Court. In resolving the landlord-tenant proceeding, the parties signed a stipulation staying the execution of the Warrant of Eviction provided that the tenant became current on its rent. Unsurprisingly, the tenant failed to pay its rent and got evicted from the store by the City Marshal.

The landlady came to Richard A. Klass, Your Court Street Lawyer, to sue the former tenant for rent arrears as well as to sue the individual on his personal guarantee of the lease. In the Supreme Court case brought to collect the rent arrears, the landlady brought a motion for summary judgment before the court (meaning that no trial was needed; the case could be decided on the law alone). Her burden of proving the rent arrears was established by introducing a copy of the lease agreement, which allowed her to recover (a) past due rent, (b) eviction costs, and (c) the differential between the rent owed by the former tenant through the end of the original lease term and the rent now being paid by the new tenant for the storefront space. See, H.L. Realty LLC v. Edwards, 131 AD3d 573 [2 Dept. 2015]; Preferred Capital v. PBK, Inc., 309 AD2d 1168 [4 Dept. 2003].

Surrender, but no forgiveness!

It is common in landlord-tenant cases for a tenant to surrender possession of its rented space and give the keys back to the landlord in exchange for the landlord’s promise to forgive the rent owed. Many times, it is more valuable to a landlord to have its space back sooner to re-let to a new, paying tenant than to fight with a deadbeat tenant in court.

Here, the tenant incredibly claimed in its defense to the rent arrears collection case that the landlady’s attorney made an oral agreement with him to forgive the rent owed, and any further liability, in exchange for the surrender of the store. This disputed and unproven claim was refuted by the landlady based upon two lease provisions: (1) that all of the landlady’s rights were reserved in the event of “re-entry, expiration and/or dispossession by summary proceedings or otherwise;” and (2) that any amendments, changes, or discharges of the lease had to be contained in a signed writing. Thus, the supposed oral agreement with the attorney was unenforceable. See, Aris Industries, Inc. v. 1411 Trizechahn-Swig, LLC, 294 AD2d 107 [1 Dept. 2002].

Personal guarantee was binding

The individual who provided the personal guarantee of the lease, who was also a defendant, claimed in his defense that the copy of the personal guarantee submitted by the landlady in support of her summary judgment motion may not have been the same one that he signed. The court held that the guarantor could not claim this defense because of a strong litigation tactic – the “Notice to Admit.”

In the course of the litigation, a copy of the personal guarantee was served upon the guarantor’s attorney with a document referred to as a Notice to Admit. The Notice to Admit requires the person served to sign a sworn affidavit either admitting or denying the allegation made in it (in this case, the allegation that the guarantee was a true and accurate copy of the original). In response to the Notice to Admit, the defendant’s attorney provided an unsworn response signed only by himself and not the defendant. Accordingly, the court deemed the defendant to have failed to properly respond to the Notice to Admit, and effectively admitted the genuineness of the document. See, Rosenfeld v. Vorsanger, 5 AD3d 462 [2 Dept. 2004].

Transfer into a Trust doesn’t bar proceeding

From the time that the original lease agreement was entered into until the collection action was brought, the landlady did some estate planning. She transferred the building from herself to a revocable trust and her daughter as tenants-in-common. The tenant tried to use this fact to its advantage, claiming that the plaintiff didn’t have “standing” to sue for the rent arrears.

In dismissing this defense, the court held that the fact that the original landlady was not currently the sole owner of the building did not destroy her standing to bring the case, since a tenant-in-common has standing to seek rent arrears in a non-payment proceeding (Caprer v. Nussbaum, 36 AD3d 176 [2 Dept. 2007]) and the tenant did not question the authority of the plaintiff to act as landlord under the lease (Matter of G.N. Associates v.Griffen, 178 AD2d 747 [3 Dept. 1991]).

In granting the plaintiff’s summary judgment motion, the Judge held that the defenses and proposed counterclaims of the defendants should be properly dismissed. Sardell v. Décor by R&J, Inc. and Freddy Halfon, Sup. Ct., Kings Co. Index No. 503234/2012, 11/16/2015.

— by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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When Do Two Feet Matter? When $16,728,000 Rides on It!

Painting by Giovanni Fattori showing a narrow alleyway between slightly distressed brick or white stucco buildings.
In 2006, a developer entered into a contract to purchase a large industrial warehouse in Greenpoint, Brooklyn, in order to convert the property into residential housing. The Contract of Sale provided for a purchase price of $16,728,000.
The contract was amended and extended eight times in order to provide for several issues to be resolved. Among those issues, there were tenant buy-out agreements concerning the several remaining commercial tenants. During the entire process, the developer was required to make several types of payments to the seller (separate from the large down payment) towards the operating costs of the property. The developer made substantial payments to the seller, including Surrender Agreements, Tenant Buy-Outs, Operating Expenses, and Security Costs. The property finally became completely vacant, and a closing was to be scheduled in 2007.

Title Defects Raised – Especially Chimney Protrusion

As is common in real estate contracts, there was a clause that all title “defects” were to be cured before closing. A title defect is generally defined as an issue relating to ownership or possession of the property, the legal description of the property to be sold or liens affecting the property – or, more to the point, a title defect is one that a reputable title company believes would render title unmarketable. In this case, the survey revealed that a chimney from an adjoining property was protruding two feet into the property to be sold. The title defect was raised to the seller’s attorney by the developer. In response, the seller’s attorney claimed that the title defect was insignificant and was being raised as a delay tactic and was without merit. To that end, the seller declared a certain date as the “time of the essence” date for the closing. If the developer did not close on that date, then the down payment and all of the operating costs would be deemed forfeited to the seller. Needless to say, that date came and passed, and the seller declared the developer in breach of the contract, entitling the seller to retain the moneys. Your Court Street Lawyer, Richard A. Klass, was then retained by the developer to ensure that the down payment moneys would not be lost and title would transfer to the buyer under the Contract of Sale.

Quick Action Was Needed

The first step was to file, along with the Summons and Complaint, a Notice of Pendency (also known as a Lis Pendens) against the Block and Lot of the property. This is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This document gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of the buyer from a seller transferring title to the property in contract, as whoever buys the property is deemed to have knowledge of the dispute. Simultaneously, the Complaint against the seller was filed with the County Clerk’s Office, which contained several allegations against the seller, including that: (a) the developer fully complied with the Contract of Sale and was entitled to “specific performance” because real estate is considered a “unique” asset that cannot be replicated (the law recognizes that each piece of real estate is distinct); (b) the electronic communication from the seller’s attorney to the buyer’s attorney concerning the “time of the essence” closing date did not comply with the “notice” provision of the Contract of Sale (it is always important to check the notice provision of any contract to see how notices to the other side are to be sent, e.g. certified mail, overnight delivery, etc.); (c) the seller failed to actually “tender” the Deed to the property by coming to the place of closing, as required by the contract (the non-breaching party to a real estate contract must show that it showed up at the place and time indicated in the contract to deliver the Deed, even if the other side does not come; thus, recognizing that the breaching party could potentially show up at the last minute to actually close the transaction); and (d) the title defects rendered title to the property unmarketable and uninsurable; thus, the developer was entitled to the return of all of its down payment and operating costs. In New York, it is well settled that in order to place a contract vendor (seller) in default for a claimed failure to provide clear title, the purchaser must first tender performance and demand good title. See, Capozzola v. Oxman, 216 AD2d 509. Following that line, a tender of performance by the purchaser is excused only if the title defect is not curable. See, Cohen v. Kranz, 12 NY2d 242. The law also recognizes that a purchaser may opt to waive a title defect concerning the property in order to close title. The end result of this case was that, despite the claim of the seller that the developer breached the contract and it was entitled to retain all of the moneys paid, the seller agreed to extend the date of closing for an additional month to facilitate the closing of title to the developer.
by Richard A. Klass, Esq.
©2008 Richard A. Klass. Art credits: page one, Dorfstraße by Giovanni Fattori, 1903-1904.

copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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Making Sure the Guarantor is a “Good Guy.”

Painting by Alexander Roslin of elegant woman, presumably of status, with black shawl and fan gazing directly at viewer.
In 1997, a landlord rented a commercial space to a tire company pursuant to a commercial lease agreement. The tenant defaulted in the payment of rent, owing the landlord the claimed arrearage sum of $157,000. To collect the rent arrears, the landlord came to Richard A. Klass, Your Court Street Lawyer to recover. When the lease was entered into, the president of the tenant executed the lease agreement both as president of the tenant and as personal guarantor of performance and payment of rent. The initial term of the lease agreement was for two years, and it provided for two-year renewal periods, with all of the terms and conditions of the original lease expressly reserved. The president of the tenant signed letter agreements extending the lease four times, the last time being December 20, 2004. The landlord brought a motion for summary judgment against the personal guarantor of the lease, seeking payment of all outstanding arrears; the guarantor cross-moved for summary judgment, seeking to dismiss the case. The guarantor contended that he was not a proper party, claiming that he notified the landlord in February 2005 that the tenant was going out of business and all of its assets were being transferred to a different entity, effective March 2005. The landlord refuted receiving this notice from the guarantor.

Motion for Summary Judgment:

The term “summary judgment” means that a litigant is claiming that there is no reason to have a trial (either by judge or jury) because the case can be decided based upon application of the law. A “motion” is basically a request for a judge to take some sort of action.
Summary judgment is a drastic remedy, as it deprives a party of his day in court, and should be granted when it is clear that there are no triable issues of fact. See, Alvarez v. Prospect Hospital, 68 NY2d 320 [1986]. The burden is upon the moving party (the landlord in this case) to make a prima facie (Latin term for “by its first instance”) showing that the movant is entitled to summary judgment as a matter of law by presenting evidence in admissible form demonstrating the absence of any material facts. See, Giuffrida v. Citibank, 100 NY2d 72 [2003]. The failure to make that showing requires the denial of the motion regardless of the adequacy of the opposing papers. See, Ayotte v. Gervasio, 81 NY2d 1062 [1993]. Once a prima facie showing has been made, the burden of proof shifts to the opposing party (the tenant in this case) to produce evidentiary proof sufficient to establish the existence of material issues of fact which necessitate a trial. In this case, the judge decided that the landlord laid out its case that the tenant owed rent arrears. This was based upon the evidence submitted with the motion, including the written lease agreement, the letters extending the lease for several additional terms, and the rent ledger. The judge dismissed the evidence presented by the guarantor, which amounted to his affidavit and the supposed notice that the tenant was ceasing business and a new company would be the tenant going forward.

Restriction on Assignment of Lease:

The argument that the tenant had given notice of assignment of the lease to a new company was refuted by the specific provisions of the lease. A provision in a lease which restricts assignment or subletting, and requires the consent of the landlord prior to doing so, is enforceable. See, Matter of Clason Management Co. v. Altman, 40 AD2d 635 [1 Dept. 1972]. The lease agreement at issue had such a restriction, which explicitly barred the tenant from assigning or transferring the lease or subletting the premises unless the tenant obtained the prior written consent of the landlord. Thus, even if the landlord did receive the letter from the guarantor in February 2005, there was no showing that the mandated consent was ever procured from the landlord.

Enforceability of Personal Guaranty:

It is no secret to landlords that, unless the incoming tenant is a large corporation, a commercial tenant is essentially a shell entity whose assets can disappear overnight (nowadays, even large corporations could qualify). So, landlords insist upon obtaining signed personal guaranties from the principals of the corporate tenants. Sometimes, the guaranty will be for all lease obligations through the end of the lease term, and sometimes, the guaranty will be effective through the date the tenant physically moves out of the premises – the proverbial “good guy clause.” In this case, the landlord obtained the guaranty through the end of the lease term, but still expected the guarantor to be a “good guy” and pay the rent. Generally, a guaranty is to be interpreted in the strictest manner. See, White Rose Food v. Saleh, 99 NY2d 589 [2003]. But it is also the case that a personal guaranty which contains language of a continuing obligation is enforceable and survives payment of the original indebtedness. USI Capital and Leasing v. Chertock, 172 AD2d 235 [1 Dept. 1991]. Thus, termination of a continuing personal guaranty requires compliance with the provisions governing termination expressly set forth in the guaranty. In the absence of some writing which addresses termination, a guaranty which is silent on that issue remains in full force and effect. See, Chemical Bank v. Geronimo Auto Parts Corp., 224 AD2d 461 [1 Dept. 1996]. In this case, the personal guaranty could not be canceled merely by the president of the tenant sending a notice, indicating that the old company was going out and a new one was coming in. In granting the landlord’s motion for summary judgment, the judge held that the personal guarantor is liable to the landlord, based upon his guarantee of the tenant’s lease obligations. Ribellino v. Fleet 2000, Inc. and Rosenfeld, Sup. Ct., Kings Co. Index No. 7501/2008 [Decision dated October 7, 2009].
Richard A. Klass, Esq.
©2009 Richard A. Klass. Art credits: The Lady with the Veil (Marie-Suzanne Giroust) (1768). Artist: Alexander Roslin. Marketing by The Innovation Works, Inc.
———– copyr. 2011 Richard A. Klass, Esq. The firm’s website: www.CourtStreetLaw.com Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

R. A. Klass Your Court Street Lawyer

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