Scott E. Mollen

Commercial Landlord-Tenant—Court Rejects Tenant's Claim That Landlord Concealed Building Violations That Caused Utilities To Be Turned Off—Lease Provided That Tenant Accepted Premises “As Is,” “After Inspection” and Agreed to Make Necessary Repairs –Experienced Tenant, Represented by Counsel, Failed to Use Available Means to Verify Conditions—Reliance On Alleged False Representations Not Justified

A tenant appealed from a final judgment of a trial court which, following a nonjury trial, awarded the landlord possession, recovery of rent arrears and dismissed the tenant's counterclaims in a nonpayment summary proceeding. The Appellate Term (court) held that “[t]he commercial tenant's counterclaims for fraudulent inducement, breach of contract and breach of the covenant of good faith and fair dealing were properly dismissed by the trial court.” Those counterclaims were based upon the “landlord's alleged failure to disclose certain building violations that caused all utilities to be turned off….” The court held that such counterclaims were “wholly barred by the plain language of the governing lease agreement providing that tenant accepted the premises 'as is' after having inspected the premises, and that tenant agreed to make all necessary repairs and replacements, 'including the repair and replacement of pipes, electrical wiring, heating and plumbing systems, fixtures and all other systems and appliances and their appurtenances.'”

The court further found that the evidence established that the “tenant was an 'experienced restauranteur,'” who had been “represented by counsel during the lease negotiation, and that the terms of the lease put 'all the onus' on getting the premises ready to operate as a restaurant/bar and lounge on the tenant.”

The court also explained that the “tenant could not justifiably or reasonably rely upon landlord's alleged false representations regarding the condition of the subject premises, since she failed to make use of the means of verification that were available….” The tenant had admitted that “at the time of the rental she knew that there was neither electricity nor gas service nor a useable kitchen at the premises….” The court further opined that “[e]ven accepting tenant's claim that she asserted a counterclaim for rescission, and that the amount in controversy did not exceed $25,000 . . ., such relief is unwarranted in view of the aforementioned lease provisions….” The court's decision was without prejudice to any counterclaim by the tenant seeking a refund of her security deposit.

Comment: This decision illustrates how generally, courts will enforce clear written lease provisions that address the physical condition of a property, when the lease was negotiated and signed by a commercial party who was represented by counsel.

The many rights and obligations that are embodied in commercial leases are often interrelated. If a landlord had to invest substantial money to make a space compliant with applicable building and land use laws and regulations and the specific needs of a new tenant, then the rent would likely be higher than it would be if the tenant agreed to take the premises “as is” and undertook to do all of such work. Thus, many tenants will emphasize the amount of the investment needed to upgrade the premises when they bargain for a lower rent.

Commercial parties often consider the terms of the entire transaction when they agree to a specific lease term. For instance, a landlord may forego the requirement of a personal guarantee of a corporate tenant's individual principal or the guarantee of a parent entity, if the landlord does not have to pay for substantial alterations and improvements.

If a tenant acknowledges that it had the opportunity to inspect the premises and it failed to exercise such right, or if it did exercise such right and the subject problems were ascertainable with reasonable due diligence, then it is difficult for such tenant to establish that it “reasonably” relied upon fraudulent representations as to the physical condition which were allegedly made by the landlord. Moreover, most commercial leases include explicit language as to the landlord's lack of representations or limitations on the landlord's representations with respect to physical condition issues and compliance with legal requirements and contain merger and integration provisions which preclude reliance upon alleged oral representations.

Landucci v. de la Rosa, App. Term, First Dept. Case No. 570047/18, decided July 5, 2018, Ling-Cohan, J.P., Cooper, Edmead, JJ

Landlord-Tenant—NYCHA Found In Civil Contempt for Disobeying Court Order to Remediate Mold—NYCHA Displayed A “Blatant Disregard For the Safety of Petitioner and Her Family and A Total Disregard for the Orders of the Court” —NYCHA's Excuses Were “Inadequate” and Its Attitude Appeared to be One of Indifference

A petitioner moved for an Order punishing the respondent New York City Housing Authority (NYCHA) for “criminal and civil contempt pursuant to Judiciary Law §753 and §773.” An HP proceeding had been commenced in Nov. 2015. The petitioner cited “mold in the first bedroom, peeling paint throughout the entire apartment” and asserted that “the apartment needed painting and plastering throughout.”

Following multiple stipulations, inspections and Orders, NYCHA was found to be in civil contempt by a court Order dated May 17, 2017. That Order was based on NYCHA's “failure to keep scheduled access dates and its failure to produce a person with knowledge at the May 17, 2016 court date.” The court awarded the petitioner $1,000.00 and scheduled the matter “for trial on the mold and excessive moisture issues.”

In Oct. 2017, following a trial, the court “determined that there was excessive moisture in various areas of the apartment and that a mold condition existed.” The court mandated “very specific requirements regarding access and remediation of the moisture and the mold. The requirements included 72 hours advance notice to the tenant, addressing the moisture around the windows prior to mold correction, mold remediation pursuant to the NYCHA manual, testing by the mold expert and once determined to be negative for mold, plaster and paint.” The Oct. 2017 Order gave NYCHA until Dec. 4, 2017 to fully comply.

The petitioner again moved for contempt, alleging that NYCHA failed to comply with the October 2017 order, “by failing to remediate the mold and moisture conditions on or before December 4, 2017, in accordance with the provisions of the Order.” The petitioner alleged that “the first proposed access dates were for December 14 and 15, 2017. After rescheduling, NYCHA sent seven people to the apartment on January 3, 2018 to inspect. Workers returned on January 4, 2018.” They scraped and plastered three walls and “replaced window brackets in the bedroom.” The petitioner claimed that “there were other days in February agreed upon for access but that no one appeared and no further work was effectuated.”

The petitioner argued that NYCHA knew of the October 2017 order and the specific procedures required to be followed by NYCHA had not been followed. The petitioner asserted that the noncompliance adversely impacted “the health of her and her family” and that she had vacated the premises “to protect the health of her children and her unborn baby.”

NYCHA's opposition papers were “only supported by an Affirmation In Opposition by [NYCHA's] counsel,” i.e., there was no affidavit by someone with personal knowledge. NYCHA argued that under the NYC Admin. Code (Code), civil penalties can only be awarded to the NYC Dep't of Housing Preservation and Development (DHPD) and DHPD may not “obtain and enforce a judgment for civil penalties against NYCHA due to the conflict of interest.” NYCHA also argued that upon information and belief, the “[p]etitioner informed management that she was unable to provide access on December 21 and December 22.”

The court declined to consider the lack of access assertion since it was not supported by an affidavit from someone with personal knowledge. The court also rejected NYCHA's arguments as to attempts that had been made to remediate repairs, since NYCHA's counsel lacked “personal knowledge” of NYCHA's attempts to comply with the October 2017 Order.

Moreover, NYCHA did not address the October 2017 order or assert that it was in strict compliance with the directives of such order. The court found that the argument that NYCHA is not subject to civil penalties is inapplicable since the petitioner was not seeking civil penalties, “but contempt.” Additionally, NYCHA had not addressed the petitioner's “claim of damages resulting from the alleged constructive eviction of her and her family.”

The court stated that NYCHA displayed “a blatant disregard for the safety of the Petitioner and her family and a total disregard for the orders of the court,” “NYCHA's justifications for its failure to comply” were “inadequate, and the attitude of NYCHA officials appears to be one of indifference.” The court noted that “no member of NYCHA's management bothered to attend the hearing on plaintiffs' motion, the outcome of which may have broad implications for the agency.”

The court emphasized that its Oct. 30, 2017 order embodied “specific directives” and NYCHA offered “no proof of their attempts at compliance.” The court also noted on April17, 2014, U.S. District Court Judge William Pauley III, had approved a consent decree: “which established a new mold and moisture abatement program for NYCHA.” The consent decree embodied time periods for necessary repairs and required NYCHA to follow up with tenants to ascertain whether “their mold or excessive moisture problems were remediated, and produce quarterly reports to plaintiffs' counsel setting forth the number of tenants contacted and the percentage of complaints left unresolved.” NYCHA had not acknowledged the aforementioned consent decree.

Accordingly, the court found that “under NY Judiciary Law §753, NYCHA has shown total disobedience of the lawful mandate of the court issued on October 30, 2017.” Furthermore, petitioner has demonstrated that such “disobedience has impeded and prejudiced her safe and habitable use of the premises.” Thus, the court held NYCHA in civil contempt of Oct. 30, 2017 Order and set the matter down for “a hearing on the costs, disbursements and legal fees incurred by the Petitioner.” Finally, the court noted that “NYCHA is still legally required to comply with the remediation of the moisture and mold as ordered by the court.”

Edwards v. N.Y.C. Hous. Auth., Civ. Ct., Kings Co., Index No. 2628/2015, decided 7/5/18, Kuzniewski, J.

Landlord-Tenant—Rent Stabilization—Corporate Tenant Not Entitled to Renewal Lease Since It Could Not Meet Primary Residence Test—Stabilization Not Intended to Place Corporate Tenant's Leasehold Estate “In Perpetual Trust For the Benefit of Whomever May Occupy the Corporate Office At Any Particular Point In Time” Manocherian v. Lenox Hill Hosp. A corporate tenant and an occupant appealed from a trial court order which denied their motion to dismiss the subject petition in a holdover summary proceeding and which granted the landlord's motion for summary judgment of possession. The Appellate Term (court) affirmed.

The subject rent stabilized apartment had originally been “leased to a corporate tenant” (“A” Corp.), “for the intended use of a single designated individual” (“B”); “the first renewal lease listed the same tenant by its current name,…, and specified that the apartment was to be occupied by the school's 'Director and the Director's immediate family'”; “['B'] vacated the apartment many years ago;” and “the apartment is currently occupied by ['C'], who serves as co-director of the school, and her husband….”

The court explained:

“While…, a corporate tenant is entitled to a renewal lease provided it can meet the primary residence test, rent stabilization was never intended to place such a tenant's leasehold estate in perpetual trust for the benefit of whomever, at a particular point in time, might happen to occupy a corporate office”…. “[A] corporation is entitled to a renewal lease where the lease specifies a particular individual as the occupant and no perpetual tenancy is possible”…. [even where a corporation's rent stabilized lease is "manifestly for the benefit of" an individual occupant, the individual is not protected by the Rent Stabilization Law if he or she is not designated in the lease….

The court held that since “the only individual identified in the lease as the intended occupant ['A'] has vacated the premises, the corporate tenant is not entitled to a renewal lease….” The court noted that “the listing of the apartment's present occupants on the DHCR RA-23.5 forms submitted with certain renewal leases, does not satisfy the Manocherian requirement [Manocherian v. Lenox Hill Hospital, 229 A.D.2d 197] that the lease designate an individual who is to occupy the premises….”

Additionally, the court held that the notice of nonrenewal was reasonable since “it fairly stated the nature of landlord's claim and the facts necessary to establish the existence of such claim.” The landlord was only required to serve the notice of nonrenewal upon the tenant and the conclusory allegations that the tenant had not received the notice “were insufficient to rebut the presumption that a proper mailing occurred.” The court also held that “B” was not a “necessary party,” since her presence was not “indispensable to providing complete relief as between landlord and the corporate tenant.”

Capital 155 E. 55th LLC v. Garden Hous. Sch. of N.Y., App. Tm., First Dept., Index No. 570752/17, decided July 5, 2018, Ling-Cohan, J.P., Cooper, Edmead, JJ. All concur.

Scott E. Mollen is a partner at Herrick, Feinstein.