Ejectment of Boxing Gym: Throw in the Towel!

Two men in business suits in boxing ring, one unconscious on the mat, one standing. Illustrating article by Richard Klass about ejectment of a boxing gym.

COVID-19 has had a deleterious effect on New York’s commercial landlords. Due to the pandemic, many tenants have been unable to meet their lease obligations; in turn, this has resulted in the domino effect of landlords being unable to meet their mortgage obligations. Landlords have been hampered from evicting non-paying commercial tenants because of the Governor’s executive orders placing a moratorium on commercial evictions for over a year.

Caught up in the current quagmire, landlords whose tenants have defaulted under their commercial leases for reasons other than nonpayment of rent have had a difficult time removing them from the premises.

Boxing gym with troubling lease violations

According to the landlord, a fitness center specializing in boxing, martial arts and MMA-inspired workout routines was violating the terms of its lease prior to the pandemic. The allegations against the fitness center included:

  • Lack of special fitness center permit: NYC Zoning Regulations §12-10 define a “physical culture or health establishment” as “any establishment or facility, including commercial and non-commercial clubs, which is equipped and arranged to provide instruction, services, or activities which improve or affect a person’s physical condition by physical exercise or by massage.” The NYC Department of Buildings requires that businesses operating as a physical culture establishment or facility have a special permit in order to operate. The tenant never obtained the special permit and was alleged to have abandoned the application process;
  • Failure to obtain a health club license: The tenant agreed in the lease to “file any and all applications for permits and licenses required by any local, federal, state or city municipal agency for the conduct of tenant’s business and the operation and maintenance of the demised premises.” The lack of the license was alleged to be a breach of the lease;
  • Dissolution of corporation: The tenant was operating the fitness center despite the corporation having been dissolved by the New York Secretary of State years ago;
  • Lack of insurance: The lease required the tenant to maintain general liability insurance to cover any claims for bodily injury or death or property damage occurring on the premises of at lease $2 million per occurrence. The tenant did not provide the landlord with proof of insurance;
  • Non-payment of rent: The landlord claimed substantial rent arrears were due from the tenant for many months’ worth of rent and taxes owed.

Immediate Request for Order of Ejectment

The landlord retained Richard A. Klass, Esq., Your Court Street Lawyer, to bring an action against the fitness center to regain possession of the premises. An action for “ejectment” of the tenant from the premises was commenced and an Order to Show Cause was immediately filed, asking the judge to issue an Order of Ejectment.

Preliminary injunction request

Under CPLR 6301, a court is authorized to grant a preliminary injunction where it appears that the defendant threatens or is about to do an act in violation of the plaintiff’s rights regarding the subject of the action, which would tend to render any judgment ineffectual. The court may also grant a temporary restraining order (“TRO”) where it appears that there is the potential for immediate and irreparable injury, loss or damage. The plaintiff must show that: (1) there is a likelihood of the plaintiff’s success on the merits; (2) irreparable harm will occur without an injunction; and (3) a balancing of the equities tips in the plaintiff’s favor. See, Hoeffner v. John F. Frank Inc., 302 AD2d 428 [2 Dept. 2003].

  • Likelihood of success on the merits: The landlord alleged that the tenant remained in possession of the premises, continuing to operate its fitness center, despite the lease having been terminated; the tenant owing substantial rent arrears; the corporation having been dissolved; there being no license or permit to operate as a health club; and the lack of insurance coverage. The landlord made a prima facie showing of its right to relief. See, Terrell v. Terrell, 279 AD2d 301 [1 Dept. 2001].
  • Irreparable harm or injury: The tenant allegedly continued operating as a fitness center to the detriment of not only the landlord but also its gym patrons and the general public. The landlord urged that the threats to the public included the lack of liability insurance, operating an unlicensed facility with lack of proper permits, and the potential exposure of bodily injury or damage claims. These were alleged to be of actual, imminent harms to be suffered and were not remote possibilities or speculation. See, Khan v. State University of New York Health Science Center at Brooklyn, 271 AD2d 656 [1 Dept. 2000].
  • Balancing of the equities: The landlord asked the judge to consider the harms each side would suffer and that they would tilt in favor of ejecting the tenant. In balancing the equities of the situation, “it must be shown that the irreparable injury to be sustained … is more burdensome [to the plaintiff] than the harm caused to the defendant through imposition of the injunction.” McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan & Co. Inc., 114 AD2d 165 [2 Dept. 1986].

The judge considered the landlord’s request and granted the Order of Ejectment. The New York City Sheriff immediately issued process on the fitness center and, acting on the Order of Ejectment, delivered possession of the boxing gym to the landlord.

R. A. Klass
Your Court Street Lawyer

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Scales of justice

Joint Venture Agreements – I would do anything for [my partners] but I won’t do that…

Three business partners arguing to illustrate an article by Richard Klass about Joint Venture Agreements

Acrobat PDF Version

Two partners owned vacant lots in Manhattan and wanted to build on them. They found two developers who pitched building townhouses on the lots. The four of them entered into a joint venture agreement (“JVA”). [1] Essentially, the agreement was that, in return for the developers paying off debts owed on the lots, refinancing an existing mortgage and obtaining a new construction loan, the lot owners would transfer the property to a limited liability company (“LLC”) to be jointly owned by all four of them.

Joint Venture Agreement

According to the JVA, ownership of the new LLC would be equally divided among the four partners (25% each). The LLC was supposed to refinance the property. The funds from the refinance would first be utilized to satisfy the existing mortgage on the property and then finance all of the construction costs for three single-family townhouses. The developers were to use their best efforts to obtain a construction loan to perform the purpose of the joint venture, and the lot owners were to fully cooperate in these efforts.

Formation of the LLC

One of the developers formed an LLC into which title to the lots would be transferred. The LLC was initially formed with him as the sole member for convenience purposes until the prospective refinance and closing were to take place, at which time all four partners would constitute the members.

Lack of cooperation

In order to comply with the mortgage lender’s requests about the property, the developers needed certain back-up documentation from the lot owners concerning expenses. The lot owners did not provide the requested items. Ultimately, they stopped cooperating with the developers. The developers retained Richard A. Klass, Esq., Your Court Street Lawyer, to pursue their rights under the joint venture agreement, including suing for breach of contract and to enforce a constructive trust over the vacant lots.

In response to the developers’ claims, the lot owners contended that they properly rejected the demand to transfer title to the property to the new LLC. They claimed that they were never provided with an operating agreement that named all four of the partners as members. The lot owners declared, “There was no way it was either reasonable or pursuant to the terms of the JVA that we were going to transfer the property worth at least $4,000,000.00 to an LLC in which we had no ownership interest and no control.”

The developers asserted that this defense was pretext — the lot owners never intended on complying with the joint venture agreement from the start. As fully laid out before the arbitrator, both in testimony and documentary evidence, the developers established that this defense was unfounded based on several facts: (1) the transfer tax documents, prepared by the title company, reflected all four joint venturers’ names and respective 25% interests in the new LLC; [2] (2) One of the lot owners himself emailed the title company the names of all four people for the new LLC; (3) the developer emailed the mortgage lender that all four people were partners in the new LLC; (4) the developer informed the lot owner that the mortgage lender needed a draft of the operating agreement, Excel spreadsheet and all checks following; and (5) the developers made various, substantial payments in furtherance of their joint venture prior to any deed transfer.

The developers claimed that the lot owners wrongfully breached their fiduciary duty that was created when they entered into the joint venture.[3] As joint venturers, the developers asserted the lot owners owed them a fiduciary duty to supply financial information which was within their exclusive control and they breached their duty by intentionally failing to cooperate and disclose pertinent information. Cooperation on the part of both sides to a contract is implied in every contract. See, Madison Pictures, Inc. v Pictorial Films, Inc., 6 Misc 2d 302, 324-25 (Sup. Ct. 1956) (“Where a matter is particularly within the knowledge of one party, it is his duty to supply the information.”); see also Weeks v. Rector of Trinity Church in City of New York, 56 App.Div. 195, 67 N.Y.S. 670, 672 (1st Dept. l900) (“The rule of law is that, when the obligation of performance by one party to a contract presupposes the doing of another act by the other party prior thereto, there arises an implied obligation of the second party to do the act which the performance of the contract necessarily…”).

The arbitrator determined that the developers were entitled to compensation from the lot owners for their substantial investment of time and money into the project. The arbitrator awarded half of the value of the property along with reimbursement for all of their expenses.

[1] Under New York law, five elements are necessary to form a joint venture: “(1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses.” Dinaco, Inc. v. Time Warner Inc., 346 F.3d 64, 67-68 (2d Cir. 2003).

[2] It was noted that both the Joint Venture Agreement and the NYC Real Property Transfer (RPT) Tax Return served as documentary evidence of the respective LLC ownership interests of the parties. As held in Matter of Pappas v Corfian Enterprises, Ltd., 22 Misc 3d 1113(A) [Sup Ct 2009], affd, 76 AD3d 679 [2d Dept 2010]: “In the real world, particularly that in which close corporations operate, clear evidence of share ownership is often not found in the corporate books and records, for any number of reasons. Other evidence must be found, and the lodestar for admissibility and probative value must be the contractual foundation for shareholder status. A court may consider the intent of the parties, particularly evidence of an agreement to form a corporation. (See Matter of Estate of Purnell v. LH Radiologists, 90 N.Y.2d at 530, 664 N.Y.S.2d 238, 686 N.E.2d 1332; Blank v. Blank, 256 A.D.2d at 689, 681 N.Y.S.2d 377.) * * *

Documentary evidence may be particularly probative when the documents were created under circumstances in which there was no incentive to fabricate. Among the types of documents that courts have considered, and that have been proffered in this case, are corporate and personal tax returns, bank loan documents, and financial statements. (See Matter of Capizola v. Vantage International, Ltd., 2 A.D.3d at 845, 770 N.Y.S.2d 395; Blank v. Blank, 256 A.D.2d at 694, 681 N.Y.S.2d 377; Hunt v. Hunt, 222 A.D.2d at 761, 634 N.Y.S.2d 804.

[3] It is well settled that joint venturers are governed by the same good-faith requirements as co-partners and the creation of a joint venture “imposes a fiduciary relationship, and not a simple contract.” Learning Annex Holdings, LLC v Whitney Educ. Group, Inc., 765 F Supp 2d 403, 412 [SDNY 2011]. In order to demonstrate a breach of fiduciary duty, there must be: “(i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” N. Shipping Funds I, LLC v Icon Capital Corp., 921 F Supp 2d 94, 101 (S.D.N.Y. 2013)(Citing Johnson v. Nextel Communications, Inc., 660 F.3d 131, 138 (2d Cir. 2011)).

R. A. Klass
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Scales of justice

Free: RPAPL 881 Booklet by Richard A. Klass. Newly Published.

A Man’s Home Is (Not Always) His Castle:
RPAPL 881 License to Enter Neighbor’s Property

by Richard A. Klass, Esq.

Cover of book " A Man’s Home Is (Not Always) His Castle: RPAPL 881 License to Enter Neighbor’s Property " by Richard A. Klass, Esq.

Download and view the free E-Book version in PDF format.
Click here to view the free on-line web-book.
12 pages/830 KB

Summary

A Man’s Home Is (Not Always) His Castle

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 property owners are experiencing “growing pains.” Among those “growing pains” are the inconvenience and annoyance to neighboring property owners when a developer buys land next door, then seeks to build on that land, and must gain access through the adjacent owners’ property in order to do the work. 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.

(Click here to read the book.)

R. A. Klass
Your Court Street Lawyer

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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. Klass, Your 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 emptor. Mandarin 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.

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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The Result when a Foreclosing Mortgagee Fails to Comply with RPAPL Section 1304

In Real Property Actions and Proceedings Law [RPAPL] Section 1304, a pre-commencement notice to a borrower-homeowner is required to be served by registered or certified mail and also by first-class mail at least ninety days prior to commencement of the foreclosure action. Further, pursuant to RPAPL Section 1304, the pre-commencement notice must be sent by the lender or mortgage loan servicer. In the RPAPL Section 1306, the lender, assignee, or mortgage loan servicer has to file another notice with the Superintendent of Banks within three days of mailing the notice.

The Second Department held in Aurora Loan Services LLC v. Weisblum, 85 A.D.3d 95, 103 [2 Dept. 2011], that, “[P]roper service of the RPAPL Section 1304 notice containing the statutorily-mandated content is a condition precedent to the commencement of the foreclosure action. The plaintiff’s failure to show strict compliance requires dismissal.” Moreover, the Second Department stated in Aurora Loan Services LLC v. Weisblum, that the co-mortgagor (who signed the mortgage but not the note, as in this case) was deemed a “borrower” under RPAPL Section 1304 who was also entitled to receive the 90-day notice prior to the commencement of the action.

In Deutsche Bank National Trust Company v. Spanos, 102 A.D.3d 909 [2 Dept. 2013], further upheld its findings in the above Aurora Loan Services case, adding that a cross-motion for summary judgment dismissing the action should include proof that the plaintiff failed to comply with the statute.

Where there is a failure to comply with the above condition precedent, the court lacks subject matter jurisdiction over this action. Thus, the mortgage foreclosure proceeding should be dismissed in its entirety (and the cross-motion granted) based upon the Plaintiff’s complete and utter disregard of the requirements under RPAPL Section 1304 and lack of subject matter jurisdiction. See, Binkley v. O’Connor, 58 A.D.3d 834 [2 Dept. 2009].

by Richard A. Klass, Esq.

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copyr. 2014 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.


R. A. Klass
Your Court Street Lawyer

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