Commercial Landlord-Tenant—Tenant Never Obtained Permit From Landmarks Preservation Commission (LPC) to Install Flagpole—Eviction Denied—No Evidence LPC Ever Determined There Was a Violation—Landlord Knew of Breach for a Long Time Without Taking Any Action—Tenant Lulled Into Believing Landlord Did Not Object

A landlord commenced a holdover proceeding to evict a restaurant tenant on the grounds that the tenant had failed to comply with a previously issued notice to cure (notice). The tenant had moved for summary judgment dismissing the proceeding. The landlord had cross-moved for summary judgment.

The notice dated Sept. 28, 2015, required the tenant to obtain a permit from the New York City LPC, related to the tenant's “installation of a flagpole on the façade of the premises which was designated by LPC as being in the Ladies Mile Historic District.” Any alteration to the facade of a building within such a district required approval by the LPC. The notice gave the tenant until Oct. 23, 2015 to cure the alleged breach. There was no evidence on record that the tenant had ever filed an application with LPC for a permit to install a flagpole. On Dec. 22, 2015, the landlord served a notice of termination on the grounds that the tenant failed to comply with the notice. After the tenant failed to vacate the premises, the landlord commenced the holdover proceeding.

The lease provided that the premises was “either within an historic district or is a separate landmarked building….” The lease required that the tenant obtain a permit from the LPC before commencing any exterior or interior work, except for ordinary repair and maintenance” and specified that “signage, canopies and security gates” which require prior approval by the LPC will be erected only after the tenant applies for and receives permission of the LPC for a certificate of appropriateness or similar sign-off. The tenant was required to provide landlord with copies of all applications submitted by tenant to the LPC within five days after submission and copies of all approvals obtained within five days after receipt thereof. A lease modification and extension agreement (Modification) provided that the tenant would, at its sole cost and expense, on or before June 1, 2012, “Time being of the essence,” “cure, discharge and remove all violations issued by (LPC).”

The landlord asserted that the tenant failed to comply with the lease and the modification by failing to obtain permission from the LPC to install a flagpole and by failing to cure the alleged violation. The tenant countered that the landlord “was well aware of the presence of the flagpole and banner prior to September 28, 2015” and the “flagpole and banner have been removed from the premises.” The issue was whether the tenant's conduct “warrants eviction from the premises.”

The landlord submitted three warning letters from the LPC relating to work performed by the tenant or its predecessors. Only one of the letters addressed the installation of the flagpole and banner without a permit. That letter, dated Sept. 1, 2006, had been sent directly to the landlord. The tenant correctly claimed that the landlord knew about the flagpole and banner well before its issuance of the notice. There was no evidence that either the landlord or the tenant had been fined or penalized by the LPC, and there was no evidence that the tenant had received the letter directly from the LPC, or that the landlord had ever directed the tenant to remove the flagpole prior to the Sept. 28, 2015 notice. The subject LPC warning letter had been issued prior to the date when the tenant had acquired its interest in the lease through an assignment. Thus, the original installation of the flagpole and banner had not been done by the tenant.

The court acknowledged that the tenant “inherited the actions of the original tenant….” Records indicated that the prior tenant had removed the flagpole. Therefore, the present tenant's installation of the flagpole and banner “was not a repeat act and was not the subject of the 2006 LPC warning letter.” Moreover, the landlord “was well aware of the installation well prior to its 2015 notice….”

The court explained that as a general rule, “the law will not sanction a forfeiture of possession where no substantial injury occurs or where a mere technical breach of the lease is involved.” Moreover, merely because a lease clause provides that the “failure to comply with a notice of cure can result in a loss of possession does not make this a[n] automatic conclusion.” Although the landlord argued that the installation of flagpole and banner violated the NYC Landmarks Preservation Law, the court noted that only the “LPC can make this decision.”

In a prior court appearance, the landlord's attorney had stated that the flagpole had been removed after the 2006 warning letter, but had been installed again. It did not appear that the respondent tenant had removed the prior flagpole and banner. There was no evidence that LPC had ever sent a warning letter to current tenant. A picture supported the tenant's position that the flagpole and banner had been removed no later than May 2, 2016.

The court reasoned that the tenant should not lose possession based on a violation of Landmarks Preservation Law absent a “finding to that effect by LPC.” The landlord failed to support its claim that it was subject to “severe fines and other punitive actions by LPC due to the (tenant's) actions, in that there is no evidence that any penalties have ever been imposed against (the landlord) by LPC during the period from 2006 through the time of trial, a period of over ten years.” The court also noted “there are clauses in the lease which require the respondent to be liable for the payment of any penalties imposed on the petitioner, and there is no evidence that this has ever occurred during the time since the respondent was assigned this lease.

The court further observed that the landlord knew of the existence of the flagpole and banner both for the current and former tenant and the landlord had permitted the flagpole and banner to exist “without any indication that it ever requested the respondent to produce any evidence that it ever had applied to the LPC for a permit due to the building being in the Ladies Mile Historic District.” After the “long period of not interfering with the respondent's action, the petitioner waited until September 28, 2015 to serve respondent with a notice of cure, giving respondent only between three and four weeks to cure any violation.” Based on the record, including the fact that the flagpole and banner had been removed prior to the trial date, the court held that the record did not justify the forfeiture of the tenancy, and dismissed the case.

However, the court cautioned that its decision should not be interpreted to imply that the tenant was not obligated to file an application with the LPC for a variance permitting it to install a flagpole and banner. Here, the landlord's failure to act on this issue, despite it being in the 2011 modification, had “lulled the respondent into a belief that the petitioner did not object.” Furthermore, the flagpole and banner had been removed and the issue was moot. Accordingly, the court dismissed the petition and restored the matter to the calendar to address the question of legal fees and court costs.

Comment: We often see commercial real estate litigation that is possibly “driven” by current real estate market conditions. In a “weak” market, some landlords will tolerate breaches of a lease. In some such cases, the landlord will consent to or acquiesce to, or ignore a breach, because the landlord is happy to have its space filled by a rent-paying tenant. In a “strong” market, a landlord may be incentivized to assert a breach of a lease by the opportunity to receive significantly higher current market rent. In a declining market, certain tenants will assert breaches of their leases by their landlords in an effort to escape an above-market rent.

Here, if the tenant was paying market or above-market rent, would the landlord have commenced the subject proceeding when it had known about the breach for many years, had never taken action against the tenant based upon such breach for all of those years, the LPC had not prosecuted the matter and the tenant had removed the offending flag pole and banner?

36 East 20th Str. Realty v. Parea Group, 053477/2016, NYLJ 1202793241777, at *1 (Civ., KI, Decided July 5, 2017), Feinman, J.

Landlord-Tenant—Assisted Care Facility Cannot Use a Special Proceeding to Sue Guarantors

An assisted living facility (petitioner) had commenced a special proceeding pursuant to Social Services Law (SSL) §461-h to terminate the residency of a respondent (occupant) and for his removal from the petitioner's facility. The special proceeding also sought recovery from the respondent occupant's brother (guarantor), who had guaranteed “all charges, expenses and other assessments due” under the subject “residency agreement.”

A notice of termination had been served upon the occupant and the guarantor. The guarantor had moved pursuant to CPLR §§404 and 3211(a) (2) to dismiss the petition on the grounds that he could not be held liable based upon a guarantee in a special proceeding commenced in the Landlord-Tenant court pursuant to RPAPL §713-a and SSL §461-h. The guarantor argued that he had never been in possession of the premises and the court lacked subject matter jurisdiction over cases involving guarantors.

The court observed that this case is a case of “first impression in New York.” The issue was “whether a petitioner can commence a special proceeding in Landlord-Tenant court against a guarantor based upon [SSL] §461-h.” The court held that “[g]uarantors are not proper parties in a summary proceeding and any obligation they may have to the petitioner is not rent.”

The guarantor had argued that SSL §461-h and RPAPL §713-a “indicate that relief may be obtained only against residents and the said statutes do not indicate an intent to permit proceedings against guarantors.” He contended that “since guarantors cannot be sued under RPAPL §713 where no landlord-tenant relationship exists, this should be applied to proceedings under Social Service Law §461-h.”

The petitioner had cited the services and items that it had provided to the guarantor's brother, e.g., “lodging, board, three meals a day and snack, personal care, assistance with medications, twenty four hour security system, linen change, laundry of resident's personal clothing, and assistance in obtaining access to necessary health or mental health services….”

The petitioner argued that “it had to serve a notice terminating the Residency Agreement…, because [the guarantor's brother and the guarantor] failed to pay $20,407.81.” The petitioner had commenced proceedings pursuant to SSL §461-g to remove the guarantor's brother from the petitioner's facility. The petitioner asserted that the guarantor's legal arguments in support of his motion to dismiss were applicable only “to landlord-tenant relationships under Article 7 of the RPAPL.” Here, the proceeding was commenced pursuant to SSL §461-h and “does not involve a landlord-tenant relationship.” The petitioner contended that rather than looking to RPAPL Art. 7, the court should look at the SSL and applicable rules and regulations to determine the subject issue.

Prior case law held that the relationship between an adult care facility and a resident “is that of licensor and licensee. . . .” and that “RPAPL §713-a authorizes a special proceeding to be commenced against a resident to terminate the admission agreement pursuant to SSL §461-h.”

A special proceeding to terminate the admission agreement of a resident of an adult home or residence for adults and discharge a resident therefrom may be maintained in a court of competent jurisdiction pursuant to the provisions of section four hundred sixty-one-h of the social services law and nothing contained in such section shall be construed to create a relationship of landlord and tenant between the operator of an adult home or residence for adults and a resident thereof.

The court concluded that an analysis of SSL §461-h establishes that a “special proceeding is only contemplated against a resident to terminate his/her residency. SSL §461-h(1)(a) provides for the jurisdiction of courts to terminate the residencies in adult homes; no mention is made of proceedings against guarantors.” Moreover, “SSL §461-h(5)(a) provides for service of the notice of petition and petition” to be “by 'personally delivering them to the resident….'” Finally, the court cited Appellate Term authority which held that guarantors could not be “joined as respondents in matters brought as traditional landlord-tenant proceedings.” Such precedent held that since “no landlord-tenant relationship exists between these parties, the money owed by the guarantor on the guaranty is not 'rent' within the meaning of RPAPL 741(5).”

Accordingly, the court denied the petitioner's effort to join the guarantor as a party in the special proceeding. The court noted that the petitioner “may commence a separate plenary proceeding in a court of competent jurisdiction against the guarantor.”

Westbury Senior Living v. Clements, LT-001505-17, NYLJ 1202793242001, at *1 (Dist., NA, Decided July 11, 2017), Fairgrieve, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John's University School of Law.