Ready, Willing and Able

Blond adult woman, shown in a mirror, putting on lipstick.

I’m ready, willing and able / And honey, now it’s up to you.
So lay your cards on the table / And tell me what you plan to do.
– Doris Day

The owner of a 4-family house was ready to make a quick sale for $1.5 million. The buyer agreed to enter into a contract of sale for the house in “as is” condition in an all-cash deal to close seven days after signing the contract. Right before the closing, however, a dispute arose between the parties regarding the actual closing date. The seller attempted many times to close title, including sending several “time of the essence” notices to set a firm closing date. Each time, the buyer’s attorney responded that it could not close on the date but proposed an alternate closing date.

Alleged Title Issues

More than one month after the closing should have taken place, the buyer finally provided a title report to the seller. In the title report, it was revealed that there were five (albeit small) NYC Housing Preservation & Development (HPD) violations against the house. The buyer claimed that those HPD violations were impediments to closing and ultimately violated the terms of the contract of sale if not resolved.

Based upon the buyer’s course of conduct in delaying the closing date and raising minor title exceptions, the seller decided to declare the buyer in material default under the contract and presented notice that the $152,000 down payment being held in escrow would be forfeited unless the closing took place in 10 days.

Lis Pendens Filed

Threatened with the potential loss of its down payment, the buyer filed a lawsuit against the seller seeking specific performance of the contract, breach of contract and monetary damages. Simultaneously with filing the action, the buyer filed a Notice of Pendency against the property (commonly known as a “lis pendens”). A Notice of Pendency may be filed in any case in which the outcome can affect the title, use or possession of real estate, and serves as notice to the world that a party lays claim to the property. Many times, an aggrieved buyer will file a lis pendens in order to tie up the property in litigation to either force concessions from the seller or protect a down payment from being turned over to the seller when in default under the contract of sale.

Ready, Willing and Able:

Failure to Prove Buyer Was “Ready, Willing and Able” to Close

To defend the lawsuit, the seller retained Richard A. Klass, Esq., Your Court Street Lawyer, who filed a pre-answer motion to dismiss the lawsuit. In the motion, the seller claimed that the complaint failed to state that the buyer substantially performed its contractual obligations and was ready, willing and able to close title.

In determining a motion to dismiss, a court must construe the complaint and accept as true the facts alleged in the complaint and any submissions in opposition to the dismissal motion. 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 [2002]. Further, a court must give the plaintiff the benefit of every possible favorable theory. Leon v. Martinez, 84 NY2d 83 [1994]. Further, a court may consider additional facts contained in affidavits submitted by a plaintiff to remedy any defects in the complaint. Rovello v. Orofino Realty Co., 40 NY2d 633 [2 Dept. 1976].

In an action for specific performance, the elements of the complaint must show that “the plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations, the defendant was able to convey the property, and that there was no adequate remedy at law.” E&D Group, LLC v. Theodore Vialet, 134 AD3d 981 [2 Dept. 2015]. In this case, the judge found that the complaint did not allege all of the elements necessary to establish its right to specific performance. Also, the plaintiff failed to submit any affidavit but only its attorney’s affirmation; and an attorney’s affirmation is of no probative or evidentiary significance (see, Warrington v. Ryder Truck Rental, Inc., 35 AD3d 455 [2 Dept. 2006]).

In deciding to grant the seller’s motion to dismiss the lawsuit, the judge held, “Notably, [Buyer’s] exhibits tend to show just the opposite, to wit that [Buyer] failed to perform on the contract and may even have been in breach of the contract by attempting to assign the contract to another entity.” Accordingly, the judge dismissed the complaint.

Richard A. Klass, Esq.
Your Court Street Lawyer

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All in the Family: Inherited Real Estate the Subject of Siblings’ Lawsuits

Two kids yelling at each other illustrating article by Richard Klass about a dispute between siblings over real estate profits and limited partnerships.

All in the Family

Inherited Real Estate the Subject of Siblings’ Lawsuits

Acrobat PDF Version

Their mother owned several valuable properties. While she was alive, the mother did some estate planning to minimize potential estate taxes. As part of her estate plan, she transferred the properties into limited partnerships, keeping for herself a life estate (the right to retain some ownership until her death).

Every year, she transferred certain percentages of each limited partnership to each of her children, of which there were five — two brothers and three sisters. As part of her estate plan, the mother set up a separate company to manage the limited partnerships’ real estate, appointing herself and one of her sons to be the two managers of the company. She also made a Will which directed that her children equally share in the proceeds of the sale of her real estate interests after her demise.
After her death, the son whom she had appointed manager was now in charge of managing the limited partnerships’ real estate. He found buyers and sold two of the properties held by the limited partnerships. After the sales, the son/manager sent each of his siblings a letter stating how much each property sold for and the amount of the net proceeds from the closings. After meetings and conversations among the siblings about their mother’s estate and the son/manager’s sale of the properties, a couple of the sisters accused the son/manager and his brother of committing fraudulent acts. Specifically, they accused the brothers of selling the properties at below-market prices to entities owned by the brothers, without any prior notice to the sisters, in order to develop the properties.

Refusal to Waive Claims

Faced with the threat of litigation, and on advice of estate counsel, the son/manager sent each of his siblings a letter offering to distribute to each sibling his/her share of the proceeds of the property sales from the limited partnerships provided each sibling signed a Receipt and Release Agreement, which would release the son/manager from any potential claims. The sisters refused to sign the Receipt and Release Agreement, claiming that its terms were unconscionable and oppressive.

Through counsel, the sisters then requested copies of certain documents from their brother’s attorney. The son/manager’s attorney provided documentation of the property sales. Despite providing the requested documents, two of the sisters commenced a lawsuit against the two brothers alleging, among other things, that the brothers failed to provide all documents related to the sales of the properties and, also, that the brothers breached their fiduciary duties.

Commingling of Individual and Derivative Claims

In the first lawsuit, the sisters sued in their own individual capacities and not on behalf of the limited partnerships. In dismissing the case, the judge held that the sisters were required to sue on behalf of the limited partnerships, as their claims were derivative claims. “Derivative claims” are those brought by a member of an entity, on its behalf, against another person.

After the first case was dismissed, one of the sisters brought a new case suing both on her behalf and on behalf of the limited partnerships. The case against the two brothers asked for essentially the same relief as in the first case. The brothers retained Richard A. Klass, Esq., Your Court Street Lawyer, who argued that the new case should be dismissed because the complaint failed to distinguish between the sister’s individual claims and the derivative claims. The reasoning for requesting dismissal was that commingling (or mixing) the claims together would confuse who is entitled to which relief. See, Wallace v. Perret, 28 Misc.3d 1023; Pomerance v. McGrath, 2011 NY Slip Op. 34060(U). New York Partnership Law §121-1002 provides that a limited partner may bring a derivative claim to address harm to the limited partnership.

Dissolution of the Limited Partnerships not Directed

One argument made by the sister was that, as there had been no activity by the limited partnerships since selling the real estate, the limited partnerships should be judicially dissolved (or terminated by the court). She argued that her brother (the son/manager) was holding her money hostage simply for her to release him from any liability.

In response, Your Court Street Lawyer pointed out that the operating agreements for the limited partnerships provide for certain specific events which would trigger their dissolution, mainly (a) an act or omission by a partner under New York’s Partnership law; (b) agreement of all of the partners; or (c) January 1, 2050. Since none of these events occurred as of yet, it was urged by the brothers, there was no cause of action for dissolution. The son/manager argued that it was within his right as the manager/general partner to elect to retain the net proceeds unless and until the release is provided; the limited partnerships’ moneys needed to be preserved to defend the lawsuits filed by the sister.

No Proof Submitted in Opposition to Summary Judgment

In response to the sister’s motion to dissolve the limited partnerships, the brothers brought their own motion seeking summary judgment, in order to dismiss the sister’s case entirely. They submitted affidavits in support of the motion, claiming that their sister had no case against them. The brothers claimed that they were innocent of any wrongdoings.

In opposition to the motion for summary judgment, the sister’s attorney provided his affirmation with nothing more; there was no affidavit from the sister or any documentary evidence in opposition to the motion. The judge pointed out to the sister’s attorney that he could have provided an appraisal of the fair market value of the two properties to show that they were sold below-market. But, she hadn’t. The judge held that failure to provide any meaningful opposition was fatal to her case. The judge dismissed the case.

— Richard A. Klass, Esq.

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33 Year Old Mortgage Doomed by Statute of Limitations

Photo, of a dog wearing a pink dress and pink sunglasses with the caption "That's Queen to You," illustrating an article, by Richard A. Klass, entitled Statute of Limitations Dooms Sister-in-Law’s 33 Year Old Mortgage

Way back in 1982, a wife and her husband purchased a home in Brooklyn. The wife’s mother-in-law — her husband’s mother — provided $20,000 to help the couple make the purchase. At the time the money was provided, the mother-in-law had not firmly decided whether she considered the $20,000 a gift or a loan.

In any event, the wife signed a mortgage in favor of her mother-in-law which contained no terms of repayment (that part was left blank) and no mortgage note was signed. The mortgage stated that the whole balance could be declared due at the option of the mortgagee after default in the payment of any installment or principal or of interest for fifteen days. It was alleged that the mother-in-law never made any demand during her lifetime for repayment of the money. The mortgage was never recorded by the mother-in-law with the City Register’s Office.

Sister-in-Law’s Assignment of Mortgage

In 1998, the mother-in-law signed an assignment of the $20,000 mortgage over to her own daughter. In 1999, the mother-in-law passed away. Unfortunately, in September 2013, the husband passed away, leaving the wife, now a widow, the sole owner of the house as the surviving spouse. About a month after the husband’s death, the sister-in-law — the dead husband’s sister — recorded both the mortgage and the assignment of mortgage with the City Register’s Office.

Sale of the House

After the death of her husband, the widow/homeowner decided to sell the house and relocate from New York. In connection with the sale, the woman now had to deal with her sister-in-law and the $20,000 “mortgage.” The widow retained Richard A. Klass, Your Court Street Lawyer, to sue her sister-in-law to discharge the mortgage of record. An action was brought under New York Real Property Actions and Proceedings Law Section 1501(4).

The sister-in-law answered the complaint, alleging that both her brother and his wife frequently reassured her and her mother that the mortgage would be satisfied when the house was sold. She claimed that the law should uphold the covenant to pay the debt as set forth in the mortgage even though there was no note. The sister-in-law also asserted counterclaims (and brought the house’s new owners into the case) to foreclose on the old mortgage and obtain a money judgment, claiming the sums of $20,000 for the principal amount of the loan plus another $98,000 representing 33 years’ worth of interest at 15% per annum.

Mortgage Barred by Statute of Limitations

New York State law provides that “an action upon a bond or note, the payment of which is secured by a mortgage upon real property, or upon a bond or note and mortgage so secured, or upon a mortgage of real property, or any interest therein,” must be commenced within six years. CPLR 213(4). When the terms of the mortgage provide for its repayment in installments, separate causes of action for each installment accrues and the Statute of Limitations begins to run on the date each installment becomes due. Pagano v. Smith, 201 AD2d 632 [1994]. However, once the mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire mortgage debt. Lolacono v. Goldberg, 240 AD2d 476 [1997].

In this case, the 1982 mortgage had no provision stating when payment was due, since those provisions of the mortgage were left blank. Under such circumstance, New York courts have held that the loan is presumed to be payable upon demand, and the Statute of Limitations accrues from the date of the mortgage. See, Martin v. Stoddard, 127 NY 61 [1891]. Corrado v. Petrone, 139 AD2d 483 [1988]. The court noted that, absent any written payment terms, the Statute of Limitations began to accrue when the 1982 mortgage was executed, expiring six years later in 1988 (more than ten years before the 1998 assignment to the sister-in-law).

No oral representations

In response to the sister-in-law’s claim that her brother and his wife repeatedly said that the debt would be paid at the end of the 30-year term, the court rejected the claim, noting that the mortgage contained an important clause stating that “this mortgage may not be changed or terminated orally.” Oral representations (such as those allegedly made in this case) may not be considered based upon the “parol evidence rule,” by which oral statements in contravention to the written contract are inadmissible as evidence.

In granting the plaintiff’s motion to dismiss the counterclaims, the Judge held that the defenses and proposed counterclaims of the sister-in-law should properly be dismissed and the mortgage canceled and discharged of record. Nagrotsky v. Koch, Sup. Ct., Kings Co. Index No. 506293/2015, 1/19/2016.

— Richard A. Klass, Esq.

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 by phone at (718) COURT-ST or e-mail at RichKlass@courtstreetlaw.comcreate new email with any questions. Prior results do not guarantee a similar outcome.

RPAPL Section 1308 Enacted

RPAPL Section 1308

Real Property Actions and Proceedings Law (RPAPL) Section 1308 (RPAPL Section 1308) has been enacted, “Subject to bankruptcy filings, cease and desist orders, threats of violence or active loss mitigation efforts, within 90 days of a borrower’s delinquency, the servicer authorized to accept payment of the loan shall complete an exterior inspection of the subject property to determine occupancy. Thereafter, throughout the delinquency of the loan, the servicer shall conduct an exterior inspection of the property every 25-35 days at different times of day.” If the house is determined to be vacant and abandoned, the servicer has to post a notice within 7 days on an easily accessible part of the house with the servicer’s contact information. If there’s not response to the notice, then the servicer must take certain steps to secure the house, including boarding up windows and doors, taking measures concerning basic utilities on the property, and removing any harmful risks to neighboring properties. The servicer has to take reasonable and necessary actions to maintain the house until one of the following events occur: an occupant claims a right to occupy the house or the servicer has received threats of violence, the borrower files for bankruptcy, a court orders the care to cease, the property has been transferred to a new owner, the mortgage on the property has been released, or the mortgage note has been assigned, transferred or sold to another servicer.

RPAPL 1309

RPAPL 1309 allows for an expedited foreclosure process when the house is vacant and abandoned. As opposed to the normal foreclosure step of seeking the appointment of a referee to compute the amounts due to the foreclosing plaintiff on the mortgage, the plaintiff may apply to the court for a judgment of foreclosure and sale immediately after the time for the defendant/homeowner to answer has expired and is in default. Specific notices, affidavits, information concerning utilities and photographs establishing vacancy and abandonment are required to be included in the motion papers to be served upon the defendants. The court may then dispense with a referee’s computation and, instead, proceed directly to judgment based upon the calculations set forth by the plaintiff.

– Richard A. Klass, Esq.
Your Court Street Lawyer

 

R. A. Klass
Your Court Street Lawyer

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Caveat emptor: Developer should’ve taken ” Loft Law 101 “

Caution Buyer Beware: illustrating article about New York Loft Law, Caveat Emptor, special facts doctrine, Transfer of Development Rights, and temporary restraining order
He was the owner of two buildings on one lot in Greenpoint, Brooklyn. Greenpoint is an area well known for its warehouses and lofts, and is now a very desirable neighborhood for residential development. It is also well known that many tenants in commercial lofts in and around Greenpoint reside in them instead of just using them as artist studios or business spaces. One building housed the owner’s gym business and the other was a three story loft building. Along with the property itself, the Transfer of Development Rights (TDRs) were very valuable to developers, as they would allow greater development of another property. The owner negotiated the sale of the whole property for $16 million. The buyer was a sophisticated real estate developer with numerous large real estate projects who already owned other lots next to the owner’s property. He had designs to demolish the existing structures and build residential apartments on the combined properties.
The contract of sale was signed by the parties; it included various representations and warranties of both the seller/owner and buyer. The contract included a schedule of all rents, security deposits and lease expiration dates of the loft tenants, along with copies of the leases (which referred to the lofts as ‘apartments’). There was also a statement made in the contract that all of the loft leases were commercial leases.
After the contract was signed, the seller/owner directed his attorney to make crystal clear to the buyer by giving notice that most of the loft tenants were living there (despite there being commercial leases). The owner’s attorney emailed the buyer’s attorney to inform that most, if not all of the loft tenants resided in their lofts in violation of their leases and to extend to the buyer a 7-day period in which to cancel the contract and receive a full refund of his down payment. The buyer declined this opportunity to cancel the contract, opting instead to proceed with the purchase. The closing took place and the $16 million purchase price was paid to a §1031 qualified intermediary company so that the seller could purchase a replacement property as a like-kind exchange and defer capital gains taxes under the Internal Revenue Code.

Subsequent to the closing of title, the buyer/developer learned that the loft tenants had filed a loft law application with the New York City Loft Board to recognize their status as residential tenants. The implications of their attaining residential loft status would mean that the building would have to be upgraded to bring it up to the City’s residential code and the certificate of occupancy would have to be revised from commercial to residential. Obviously, the loft law application created a huge impediment to the developer’s plan to demolish the building. So, the developer decided to sue the owner for allegedly not disclosing that loft tenants were residing in the commercial units in violation of their leases. The developer claimed that he was fraudulently induced into buying the property for $16 million when it was now virtually worthless because of the loft law application and his inability to demolish the structures.

Temporary restraining order granted without notice

Simultaneously with filing his lawsuit, the developer requested that the judge immediately restrain the $16 million being held by the §1031 qualified intermediary company. He made this request without giving prior notice to the owner. In tying up the $16 million, the developer was preventing the owner from closing on his replacement property that he already went to contract to purchase and putting at risk both the down payment moneys paid for the replacement property and substantial tax liabilities. The developer relied upon an exception to the notice rule laid out in Rules of Court §202.7(f) that a party seeking a temporary restraining order (TRO) does not have to give notice to the other side of the request when there is a risk of ‘significant prejudice.’ He alleged that the $16 million would be spirited away if notice was given. After the temporary restraining order was granted, the court scheduled a date for the owner to appear and oppose the imposition of an injunction on the money throughout the pendency of the lawsuit.

No grounds for a preliminary injunction

The owner hired Richard A. KlassYour Court Street Lawyer, to ask the court to lift the restraining notice and obtain the immediate release of his $16 million. The owner argued that there were no grounds for the court to grant the developer a preliminary injunction. CPLR 6301 requires a party seeking an injunction to show (1) a likelihood of success on the merits; (2) irreparable injury in the absence of the injunction; and (3) a balancing of the equities in its favor. Courts realize what a drastic remedy an injunction is and, therefore, require a demonstrated clear right to the relief based upon undisputed facts; where the facts are sharply in dispute, an injunction will not issue. See, Sumiko Enterprises, Inc. v. Town Realty Co. LLC, 259 AD2d 483 [2 Dept. 1999]. Here, the facts were very much in dispute – the owner alleged that the developer was fully aware from the time he negotiated the deal through the closing that tenants were residing in the commercial lofts in violation of their leases.

Caveat Emptor – Buyer Beware!

This well-known expression means that the law does not impose any duty on the seller to disclose information concerning a purchase when the contracting parties deal at arm’s length with each other unless there is some conduct on the part of the seller which constitutes active concealment. See, Platzman v. Morris, 283 AD2d 561 [2 Dept. 2001]. The doctrine of caveat emptor applies to real estate transactions, where the buyer has the duty to satisfy himself as to the quality of his bargain. London v. Courduff, 141 AD2d 803 [2 Dept. 1988]. In the context of real estate transactions, a claim of fraudulent misrepresentation or inducement must be analyzed within the doctrine of caveat emptorMandarin Trading Ltd. v. Wildenstein, 16 NY3d 173 [2011]. The owner urged that he owed no duty to the developer concerning the loft tenants; and he did not actively conceal the fact they were living there. Rather, it was argued that the developer utterly failed to perform any due diligence before making the purchase. Indeed, the owner suggested that a couple buying a single family home did more to look into their purchase than the developer did. Shockingly, the developer claimed that he did not even walk through the whole building, order a building inspection or even an appraisal, and a visual view of the building plainly showed what looked like an apartment building.

Sophisticated developer did not exercise due diligence

The owner contended that the real estate developer did absolutely no due diligence before plunking down $16 million in cash, including claiming that: the developer claimed he did not walk through a single loft unit; the developer did not obtain any building appraisals; the building looks like an apartment building with lots of windows; the owner told him that commercial tenants were living there; the real estate broker knew tenants were living in the building; the leases referred to “apartments;” the owner’s real estate attorney emailed the developer’s attorney to notify that tenants were living there and gave the developer a 7-day right to cancel the contract; the developer requested from the owner authorizations to review the records of the NYS Homes and Community Renewal and NYC Loft Board; and the contract of sale permitted the developer to enter the premises to inspect.
There is a principle that a sophisticated party has the “duty to exercise ordinary diligence and conduct an independent appraisal of the risks [he is] assuming.” Abrahami v. UPC Constr. Co., Inc., 224 AD2d 231, 234 [1 Dept. 1996]. Accordingly, a sophisticated party cannot claim it justifiably relied on alleged misrepresentations if that party failed to make use of available means of verification that would have likely disclosed the risk. See, Lampert v. Mahoney, Cohen & Co., 218 AD2d 580 [1 Dept. 1995]. The owner asserted that the developer should be held to the sophisticated party standard. (Indeed, the judge later found that the developer was a “sophisticated party well-versed in the purchase of multi-million dollar properties.”)
Moreover, the owner asserted that the special facts doctrine did not apply to this case. The special facts doctrine requires the satisfaction of a two-pronged test: that the material fact was information peculiarly within the knowledge of one party and that the information was not such that could have been discovered by the other party through the exercise of ordinary intelligence. Black v. Chittenden, 69 NY2d 665 [1986]. By the developer not taking an appraisal or walking through the loft units, the owner suggested to the court that the developer “never even bothered to ‘kick the tires’ of the property.”

Contractual Disclaimers

Aside from the back-and-forth allegations as to whether the developer knew loft tenants lived in the building, the contract of sale contained very specific disclaimers which could bar any action. New York contract law provides that, where a contract of sale contains a provision that the plaintiff is fully aware of the condition of the premises based upon its own inspection and is not relying upon any representations of the seller, any subsequent action for fraud is barred. See, Daly v. Kochanowicz, 67 AD3d 78 [2 Dept. 2009]. In this contract of sale were various provisions, including representations that:
  • Purchaser inspected the premises, is fully familiar with its condition and is accepting it in “as is” condition;
  • Purchaser examined the operations of the premises and is not relying upon any warranties or statements of the seller not expressly set forth in the contract;
  • Seller does not warrant that any particular lease or tenancy will be in force and effect at the closing or that the tenants will have performed their obligations thereunder;
  • Purchaser had the right to access the property to conduct inspections, investigations and studies prior to closing;
  • The contract constituted the entire understanding of the parties and any prior agreements or statements merged into the contract – the so-called “Merger Clause;” and
  • Seller made no representations or warranties as to the suitability of the premises for Purchaser’s intended use.
Courts have held that specific disclaimers in contracts of sale, which are not just ‘generalized boilerplate exclusions’ and which cover the subject matter of the alleged misrepresentation with sufficient specificity bar fraud claims. See, HSH Nordbank AG v. UBS AG, 95 AD3d 185 [1 Dept. 2012]; Danann Realty Corp. v. Harris, 5 NY2d 317 [1959] (The court actually held that not enforcing the specific disclaimer clause would be tantamount to condoning the fraudulent statement of a purchaser that he was not relying on anything else except the contract representations themselves).

Vacating Temporary Restraining Order and Denying Injunction

In granting the owner’s motion to vacate the temporary restraining order and deny the developer the injunction, the judge found that the developer’s “decision to rely on [the owner’s] statements in lieu of inspecting the tenants’ units to verify the ‘real quality’ of defendant’s representation that the tenants and leases were ‘commercial’ shows a lack of due diligence.” The developer could not show that he would be irreparably harmed if money damages could be awarded; merely claiming an increased difficulty in enforcing a possible judgment is not enough to show irreparable harm. In balancing the equities of the situation, the party seeking the injunction must show that the burden caused to a defendant by the imposition of an injunction is less than the harm caused to the plaintiff by the defendant’s activities. See, Edgeworth Food Corp. v. Stephenson, 53 AD2d 588 [1 Dept. 1976]. In this case, the owner has placed all $16 million into a §1031 Like-Kind Exchange with a replacement property; he would have lost his entire down payment if he didn’t timely close and would have also suffered severe tax liabilities on the proceeds from the sale of the Greenpoint property.
– Richard A. Klass, Esq.
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 by phone at (718) COURT-ST or e-mail at RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

Full Balance: Landlord / Tenant

Landlord may pursue tenant for full balance of a lease

When a tenant vacates the premises prior to the expiration of the lease, the landlord is within its rights under New York law to do nothing and collect the full rent due under the lease (see Holy Props. v. Cole Prods., 87 N.Y.2d 130, 134, 637 N.Y.S.2d 964, 661 N.E.2d 694; see also Rios v. Carrillo, 53 A.D.3d 111, 113, 861 N.Y.S.2d 129). REP A8 LLC v. Aventura Tech., Inc., 68 AD3d 1087, 1089 [2d Dept 2009]; (“If the lease provides that the tenant shall be liable for rent after eviction, the provision is enforceable.” Gallery at Fulton St., LLC v. Wendnew LLC, 30 AD3d 221, 222 [1st Dept 2006]).

 

R. A. Klass
Your Court Street Lawyer

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“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
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“What’s in a Name?” asked Shakespeare. “$300,000” we replied.

Portrait of William Shakespeare by William Page, 1873, illustrating article about notice of pendency by Richard Klass.

The child got injured as a result of a trip and fall accident in a building in Brooklyn. His mother hired a law firm to pursue his personal injury claim. The law firm recovered judgment in favor of the child against the building’s owner; however, it was having trouble collecting on the Judgment because the owner seemingly did not have premises liability coverage on the building. To enforce the Judgment, the law firm retained Richard A. Klass, Your Court Street Lawyer, as special collection counsel.

Typographical Error in Judgment

Once a Judgment is granted in favor of a litigant, the court clerk “ opens in a new windowdockets” the Judgment and records the exact name of the judgment debtor (CPLR 5018). After docketing, the Judgment becomes a lien against any real property owned by the debtor in that county (CPLR 5203). Unfortunately, in this particular case, the Judgment misspelled the name of the building owner/judgment debtor (The “Iguenia” Limited Partnership instead of “Iugenia” Limited Partnership). [This is not the debtor’s actual name; we have changed it for this article.]

Since the clerk indexes judgment debtors’ names exactly as they appear in judgments, a misspelling can effectively allow a judgment debtor to sell its real property to a good faith buyer without the imposition of the judgment lien. In this case, the misspelled name “Iguenia” would have allowed the building owner to sell its property to an unknowing buyer (bona fide purchaser) without having to satisfy the personal injury judgment.

Enforcement Remedy of Receivership

Given the very real possibility that the building owner could sell the property to avoid payment of the Judgment, there needed to be a mechanism to ensure that no one could claim that it did not have notice of the judgment lien. A motion to “resettle” (amend) the Judgment into the correct name might have alerted the debtor to a quick way to dispose of its assets before the Judgment could be fixed.

The strategy devised, utilizing one of the enforcement of judgment measures of New York’s Civil Practice Law and Rule’s (CPLR) Article 52, was to file a petition for the court to appoint a receiver over the property under CPLR 5228. A receiver may be appointed by a court to “administer, collect, improve, lease, repair, or sell any real or personal property in which the judgment debtor has an interest.”

Filing of the Notice of Pendency

The filing of the new case against the debtor gave the creditor/petitioner the ability to also file a opens in a new windowNotice of Pendency (also referred to as a “Lis Pendens”).CPLR Section 6501 states:

A notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property, except in a summary proceeding brought to recover the possession of real property. The pendency of such an action is constructive notice, from the time of filing of the notice only, to a purchaser from, or incumbrancer against, any defendant named in a notice of pendency indexed in a block index against a block in which property affected is situated or any defendant against whose name a notice of pendency is indexed. A person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.

Typically, in post-judgment enforcement measures, it is not necessary to file a Notice of Pendency with the court clerk because the Judgment is already filed as of record (and, thus, acts as notice to the world of its existence). Here, the filing of the Notice of Pendency with the petition for receivership was essential in order to make sure that everyone in the world knew that there was a judgment lien against the real property.

Clerk’s Rejection – and Acceptance

Sometimes, creative lawyering is not appreciated or understood by the court clerk. Upon presenting the Notice of Pendency for filing with the new petition for receivership, the clerk rejected it as an inappropriate document. With the CPLR book in hand (the lawyers’ equivalent of an NFL Rulebook), Richard Klass met with the Chief Clerk to convince him that the filing was allowed based upon the fact that the outcome of the receivership petition would necessarily affect the “possession, use or enjoyment” of the debtor’s real property. It was also urged that the clerk could not reject the filing because he was constrained by CPLR 2102(c) (“A clerk shall not refuse to accept for filing any paper presented for that purpose except where specifically directed to do so by statute or rules promulgated by the chief administrator of the courts, or order of the court.”).

Once the Chief Clerk accepted the filing of the Notice of Pendency, the debtor was served with the petition for receivership. The debtor brought into the picture its former insurance broker, who it alleged failed to procure the appropriate insurance policy to cover the building. The parties settled the matter with the debtor acknowledging both the Judgment and the lien and the creditor allowing the debtor to sue its insurance broker and wait for payment of the Judgment until that case resolved. In the end, the creditor received over $300,000 in satisfaction of his Judgment.

— by Richard A. Klass, Esq.

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 by phone at (718) COURTST or e-mail at opens in a new windowrichklass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

© 2015 Richard A. Klass
Credits: Image at top: Portrait of William Shakespeare by William Page, 1873. Marketing by opens in a new windowThe Innovation Works, Inc.


R. A. Klass
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The Rent Is Too Damn High

Frightened woman in fashionable, white apartment. copyright: PlusONE/Shutterstock.com

The tenant lived in an apartment building in Brooklyn for several years. She dutifully paid her rent to her landlord. After several years, she discovered that the rental amount she was paying exceeded the legally-allowed amount for her rent-stabilized apartment according to New York State law.

DHCR Rent Overcharge

After the tenant realized that she was paying higher-than-permitted rent, she filed a Rent Overcharge Application with the NYS Division of Housing and Community Renewal (DHCR). The DHCR, a State agency, enforces the regulations as to how much rent a landlord may legally charge a tenant. (Point in fact: A tenant may also commence a court case for rent overcharge or assert the claim as a defense in a Housing Court proceeding brought by the landlord). In this case, the tenant proved to the Rent Administrator that there was a rent overcharge by the landlord which exceeded the legal regulated rent.

Penalty phase

Once the DHCR determined that the tenant was overcharged for rent, an appropriate penalty was to be assessed against the landlord. Sometimes, the penalty is merely the amount above the legal regulated rent plus accrued interest. Other times, as in this case, the penalty for a willful overcharge equals three times the amount of the overcharge (treble damages) for two years prior to filing the complaint. In this case, the landlord was penalized with treble damages as detailed in the Final Order.

The Final Order of the Rent Administrator was timely challenged by the landlord through its filing of a Petition for Administrative Review (PAR) with the DHCR Commissioner (which had to be done within 35 days of the Order to stop the tenant from collecting the penalty). After the landlord’s PAR was decided and the landlord lost again, the landlord timely filed a court proceeding known as an “Article 78” to further challenge the DHCR’s Final Order and Order after the PAR (which had to be done within 60 days after the PAR Order). The state court judge determined in the Article 78 proceeding that the DHCR acted appropriately and sustained the treble damage award.

Enforcement of the DHCR Final Order

Now that the DHCR Order was final, the tenant needed to collect the money from the landlord. She retained Richard A. Klass, Your Court Street Lawyer, to collect the debt.

Under DHCR rules, a tenant may enforce the rent overcharge order either through certain deductions from current rent due to the landlord or through entering a money judgment with the County Clerk’s Office (this option is usually selected when the amount is very large or the tenant has moved from the apartment already). Here, the Judgment was entered against the landlord and enforcement measures were immediately taken to collect the Judgment, including docketing a lien against the landlord’s apartment building and issuing an Execution to the Sheriff to levy upon the landlord/judgment debtor. After the full-court press by Richard A. Klass, the Judgment was collected and the tenant received payment pursuant to the DHCR Rent Overcharge finding.

— by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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A Man’s House is (Not Always) His Castle

Neuschwanstein Castle, in Bavaria, Germany, which looks similar to Cinderella's castle in Disney World, used to illustrate both an e-book and an article by Richard Klass with titles such as " A Man’s Home Is (Not Always) His Castle: RPAPL 881 License to Enter Neighbor’s Property. "

A New York City college bought an old garage on a residential street with the intention of eventually tearing it down and using the vacant lot in the development of a 17-story building. The owner of the adjacent apartment building was more than glad to have the college demolish the garage, which had become an eyesore. In order to demolish the garage, however, the college needed to enter the adjacent property to erect bridge scaffolding around the apartment building. But the college offered little protection to the owner other than promising to pay for any damage it might cause to the apartment building during the demolition.

Alleging that the apartment building owner refused to consent, the college brought a petition for a court order to allow its contractor to enter upon the adjacent property to erect the scaffolding. The adjacent apartment building owner retained Richard A. Klass, Esq., Your Court Street Lawyer, to oppose the petition and negotiate a license agreement with the college to grant access, but only upon meeting certain, reasonable conditions.

In the current economic and political climate in New York City, which encourages building more and more housing units for the multitudes, it is not surprising that current property owners are experiencing “growing pains.” Among those “growing pains” are the inconvenience and annoyance they experience when a developer buys land next to their property, seeking to build on that land, and needs to gain access to the neighboring property to do the work. Such access may be needed to move equipment, build up to the property line, or deliver material to the building site.

RPAPL 881 grants a license to enter property

New York law seeks to find middle ground between the property developer and the neighboring owner so that the developer may build its structure while the neighbor can be left relatively undisturbed. Real Property Actions and Proceedings Law (RPAPL) Section 881 provides as follows:

When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry.

Essentially, if a developer must gain access to the adjacent property, it must first make a request upon that property owner. If turned down, the developer can then file a petition to ask the court to grant a license to enter the premises for a reasonable period of time.

Courts apply a ‘balancing test’

The court must balance the competing interests of the parties and should grant the issuance of the license when necessary, under reasonable conditions, and where the inconvenience to the adjacent property owner is outweighed by the hardship of its neighbor if the license is refused. In Rosma Development LLC v. South, the court granted a developer a license to enter the adjacent property, recognizing that the developer’s property interests in completing its project (and as quickly as possible in order to avoid unnecessary delay and expense) outweighed the temporary inconvenience to the neighbor.

Provisions of a license agreement

Courts have held that reasonable conditions of a license agreement under RPAPL 881 may include:

  1. Providing the owner with the details and schedule of the work to be done;
  2. Conducting pre-construction inspections and monitoring for cracks, vibrations, and noise during construction;
  3. Paying the owner’s fees for engineers, attorney’s fees, and other expenses;
  4. Imposing penalties in the event of noncompliance with the license, including the failure to complete the work in a timely fashion;
  5. Taking steps after construction is complete to close up lot-line windows or resolve any structural wall issues; and
  6. Ensuring that an adequate liability insurance policy is in effect in the event that actual damages occur.

In resolving the college’s petition, the parties negotiated an extensive agreement that ultimately allowed the judge to approve the license to enter the adjoining property.

— by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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