Scott E. Mollen

Commercial Landlord-Tenant—Tenant Obligated to Pay Real Estate Taxes Without Consideration of Tax Abatements and Exemptions

A bench trial in a summary nonpayment proceeding determined whether pursuant to the terms of the lease, the tenant is permitted to benefit from tax abatements and benefits provided to the landlord, “in the calculation of its additional real estate tax.” The court held that based on the explicit language of the lease, the tenant was not entitled to benefit from tax abatements or other exemption benefits.

The parties had entered into a ten-year commercial lease which commenced May 1, 2011. The leased premises were located in a mixed-use building, which included some rent stabilized residential apartments. The landlord received J-51 benefits and participated in the Senior Citizen Rent Increase Exemption (SCRIE) program.

The lease provided:

(tenant) is responsible for a portion of the real estate taxes of the…premises as additional rent. The lease…contains a formula for calculating the tax escalation from one year to the next. The base tax year or “Tax Base Factor,” as identified in the lease…, is the period of July 1, 2010 through June 30, 2011. All of the (tenant's) tax liability is determined by using the taxes for that time frame and the formula articulated in the…lease.

Briefly, for whichever year of (tenant's) taxes are being calculated, the base year taxes are subtracted from the subject year's tax amount billed by the City of New York for the entire property. The resulting amount is then divided in half.

The lease also provided

Notwithstanding the foregoing, the term “real estate taxes” shall not include the benefit of: 1) any residential J51 exemption/abatement benefits; 2) senior citizen rent increase exemption benefits (SCRIE); 3) 421(a) benefits; or 4) any other exemption/abatement benefits that reduce the real estate taxes that are due and payable.

The landlord established tenant's tax liability through “documents consisting of tax bills dated back to 2010, together with subsequent tax bills and demand letters sent to the (tenant) by the (landlord's) real estate management company.” The landlord also established the amount of additional rent attributable to water bills. Since the tenant had never interposed an Answer, the tenant lacked any “articulable defenses” and was “limited to challenging the (landlord's) prima facie case.”

The court reasoned that “[o]nly in unusual circumstances will a party be relieved from complying with a lease.” The court noted that “parties to a commercial lease are free to negotiate and agree to whatever terms are suitable for the landlord and tenant under the circumstances, so long as the terms are legal, are not void as against public policy and do not shock the conscience of the court.

Once put to paper, however, a lease is a binding contract, not something that serves as a basis for further negotiations down the road when one party becomes dissatisfied.” Here, the court found that the tenant had “not proven, or even alleged fraudulent inducement, mutual mistake or misrepresentation, which would be necessary for a reformation of the agreement.”

Moreover, the subject lease terms were “common in commercial leases” and the “calculation formula for determining the amount of annual taxes and the tenant's exclusion of benefits are crystal clear in their meaning. Where the tax escalation clause has been unambiguous, these provisions have been upheld by the appellate courts of this State.” The court cited the New York Court of Appeals, in Barnan Associates LLC v. 196 Owners Corp., 14 NY3d 780, 899 NYS2d 724 (2010), which had held that the “unambiguous clause of the lease which required calculation of the tenant's taxes without regard to the landlord's tax exemptions or abatements,” should be enforced.

The court also noted that the J-51 and SCRIE programs, “result from a financial sacrifice by the (landlord.)” In order to obtain J-51 tax abatement benefits, the landlord had to “renovate the…building.” In order to obtain a SCRIE tax exemption, the landlord had to “freeze the rent of certain rent regulated tenants over the age of 62 who meet income eligibility requirements.” It observed that the tenant was “not the (landlord's) partner and clearly did not share in the expenses of the building renovations or contribute to the rent of SCRIE tenants in this building.” Thus, the court reasoned that it would be “illogical not to give effect to the lease term which precludes the (tenant) from sharing in the tax benefits awarded to the (landlord.)”

Thus, the court held that the tenant was “responsible for payment of the taxes as calculated in the lease…freely executed by the parties, without regard to any tax exemption or abatement benefits that reduce the real estate taxes payable by (landlord.)” It awarded a judgment of possession and a money judgment, together with costs and disbursements and a warrant of eviction.

Comment: This case is also consistent with the recent Court of Appeals decision in 159 MP Corp. v. Redbridge Bedford LLC, 2019 WL 1995526 (N.Y.), 2019 Slip Op. 03526, which observed that “[i]n New York, agreements negotiated at arm's length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to our strong public policy favoring freedom of contract.”

Warren LLC v. BBQ Chicken Don Alex Inc., Civil Court, Queens Co., Case No. 51733/18, decided May 16, 2019, Unger, J.

Landlord-Tenant—Judicial Estoppel—Landlord Cannot Take Opposing Positions in Separate Proceedings Against Tenant Even Though the Respondent's Claim is “Laughable”

A respondent moved to dismiss a holdover summary proceeding. The respondent alleged that the petition fails to state a cause of action, since the petitioner is “judicially estopped from bringing the proceeding by alleging respondent is an unregulated tenant and is not an owner of the shares to this cooperative apartment, having claimed exactly the opposite in two prior proceedings.”

The petitioner contended that it was “simply a mistake made due (to) poor record keeping and that it now knows that respondent is not a shareholder as it has obtained records from the NYC Dept. of Housing Preservation and Development showing that neither respondent, nor her deceased husband, had purchased the shares of stock allocated to the…apartment, and…no other lease with respondent existed, thus she is an unregulated tenant subject to summary eviction.”

In a prior holdover proceeding, the petitioner alleged that the apartment was not subject to rent stabilization and that it was owned by a cooperative corporation of which “respondent is a member.” A prior notice of termination asserted that the respondent had a “proprietary lease.” Although no judgment had been entered in that prior proceeding, a stipulation of settlement had been so ordered by the court, “thus putting the imprimatur of the court on petitioner's claim of respondent's status as a shareholder and the underlying basis for the proceeding.”

The petitioner thereafter commenced a second holdover proceeding, asserting the same allegations set forth in the prior proceeding. In the second proceeding, the respondent had moved to dismiss, alleging that there was no lease. The petitioner permitted that proceeding to be dismissed on default and now, “acknowledges that it can find no lease for respondent of any sort.”

Thus, the prior two proceedings, “were predicated upon respondent being an owner, and in at least one of those proceedings, petitioner obtained relief.”

The court explained that “a party cannot take inconsistent positions” in proceedings where it has obtained relief from a court in the prior case. The doctrine of judicial estoppel is based on the principle that a litigant “should not be permitted…to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise.”

The court stated that “[u]nfortunately for petitioner, due to poor or sloppy record keeping, it has acted as, and treated respondent as, a shareholder and predicated its previous proceedings against her on that basis. This is a hole petitioner dug for itself and now it needs to obtain a judicial settlement of title before it can sustain a summary proceeding against respondent.”

The court further observed that it had “no doubt that respondent is not an owner nor a shareholder of the…apartment. Her claim that she thinks she remembers seeing a stock certificate with her name on it in the past is so ridiculous as to be laughable. Why not claim she saw a deed to the entire building with her name on it and go for broke, it would have as much validity and probative value as her statement here, which is none.” However, since the court is a court of limited jurisdiction and “determining issues of title or ownership is not within its jurisdiction,” the petitioner “needs to obtain a judicial order settling title of respondent's apartment before it can proceed with a summary proceeding for her eviction.” Thus, the respondent's motion was granted and the proceeding dismissed, without prejudice to the institution of a new proceeding once title to the apartment has been determined by a court of competent jurisdiction.

425 W. 153rd St. HDFC v. Brown, Civil Court, Bronx Co., Case No. 045248/18, decided May 24, 2019, Weissman, J.

Landlord-Tenant—Notice of Termination Served One Day After Cure Notice Expired Held to be Defective—Notice of Termination Did Not Allege New Instances of Violations After Cure Period Expired and Only Partially Mirrored Cure Notice—Sanctions Are Not Assessed To Teach the Law to an Ignorant Attorney, But Are to Punish Frivolous Conduct Which Includes “Meritless-Claims, Undue Delay, Harassment and Malicious Injury”

A landlord sought possession of a rent stabilized apartment through a holdover proceeding after allegedly terminating the tenant's tenancy on Sept. 1, 2018 by service of a notice to terminate. The tenant had allegedly lived in the apartment for 31 years. The landlord served a Notice to Cure, alleging that the tenant had breached the lease, by failing to obtain the landlord's prior written consent to install any “paneling, flooring…railing or make alterations…to the apartment.” The landlord also alleged that the tenant had violated the lease by failing to comply with all “laws, orders, rules…of all governmental authorities.”

The tenant had allegedly installed a “sub floor above the main floor and altered the front door to fit over it, creating a trip hazard without the written consent or permission of the landlord and without permits and approval from municipal authorities.” The notice to cure was served on June 25, 2018. The notice to terminate was dated July 15, 2018. The notice to terminate alleged that the tenant had failed to cure the violation.

The tenant moved to dismiss, on the grounds that the notice of termination failed to allege “any new instances of lease violations by tenant after the expiration of the cure period but merely mirrors the Notice to Cure.” The landlord opposed the motion to dismiss and cross moved for discovery, sanctions and summary judgment.

The court explained that notices to cure and notices of termination are “independent notices, both which must allege a legal ground for the claim and set forth sufficient facts to support that claim.” Additionally, a notice of termination should allege, inter alia, that the violation” continued after the cure date and how the (landlord) discovered that.”

Here, the notice of termination “only partially mirrors the notice to cure in that it recites the legal grounds for the case, but curiously leaves out the facts on which the claim is based.” Moreover, the notice of termination was issued on July 15, 2018, “just one day after the cure date of July 14, 2018” and failed to allege how the landlord determined on July 15, 2018, that the breach had not been cured by the 14^th.

The court concluded that the termination notice failed to set forth the relevant facts upon which the landlord relied for eviction and gave the “appearance of bad faith in its preparation.” Accordingly, it held that the notice of termination was defective and dismissed the petition.

With respect to sanctions, the court explained the sanctions “are not assessed to teach the law to an ignorant attorney…but are imposed to punish frivolous conduct that may include merit-less claims, undue delay, harassment and malicious injury.” Here, the landlord failed to demonstrate that the tenant or tenant's counsel engaged in any such conduct and the tenant had prevailed. Thus, the court dismissed the petition.

Sudimac v. Beck, Civil Court, Queens Co., Case No. 71333/18, decided May 15, 2019, Jimenez, J.

Landlord-Tenant—Discovery Permitted in a Nuisance Holdover Proceedings

A petitioner (landlord) commenced a nuisance holdover proceeding to recover possession of an apartment, based on “complaints it received from respondents' (tenants') neighbor.” The tenants sought “documents and notices in petitioner's possession related to the alleged nuisance, leave to depose an agent of (landlord) who is familiar with the claims in the predicate notice and leave to subpoena the complaining neighbor.”

The court explained that “[d]iscovery is not inherently hostile to the nature of a summary proceeding and may assist in the speedy disposition of a case by clarifying the issues for trial.” Although there is “no presumption in favor of discovery in a nuisance holdover proceeding,” courts will permit discovery “in the appropriate circumstances.” Courts will

look at the attendant circumstances of each case and determine whether ample need has been shown….

When it comes to obtaining disclosure from a non-party witness, the same standard applies…. CPLR §3101(a) (4) provides that “[t]here shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof, by:…any other person, upon notice stating the circumstances or reasons such disclosure is sought or required”. The words “material and necessary” are to “be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity”…. The statute does not require that the party seeking disclosure demonstrate that it cannot obtain the information from any other source…. Therefore, if the disclosure sought is relevant to the prosecution or defense of an action, it must be provided by the nonparty.

The notice of termination alleged that the neighbor had reported that the tenants “have continuously harassed him for at least three years.” The notice alleged “specific behavior over the course of the years upon which harassment claim is based.”

The court stated that the “opportunity to review the records (landlord) has made or collected pertaining to the alleged harassment and to depose (landlord's) agent and the complaining neighbor are narrowly tailored discovery requests which target the disputed facts, are likely to clarify same and would not be prejudicial to (landlord.)”

The landlord had argued that the tenants' motion should be denied because the tenants failed to “offer an affidavit in support.” The court noted that CPLR §105(u) “provides that a verified pleading may be substituted for an affidavit whenever the latter is required.” Here, the tenants' verified answer contains “a sworn denial of (landlord's) factual claims against them and thus supports the merits of their defense for purposes of the instant motion.” Accordingly, the court granted the tenants' motion and directed that the landlord respond to the tenants' Notice of Discovery and Inspection and make its agent available for a deposition.

472-476 Columbus Ave. LLC v. Kretzu, Civil Court, New York Co., Case No. 75250/17, decided May 10, 2019, Nembhard, J.

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