Scott E. Mollen

Commercial Landlord-Tenant—Law Firm Tenant Failed To Establish Partial Actual or Constructive Eviction

A landlord appealed from a trial court decision, following a non-jury trial, which dismissed the petition in a non-payment summary proceeding and directed the landlord to credit the tenant's account with an 80 percent abatement of rent, additional rent and other charges from June 23, 2016 through Jan. 15, 2017. The trial court had also granted the tenant's claim for attorney fees as the prevailing party and denied the landlord's motion for a stay of enforcement of the final judgment.

The Appellate Term (court) reversed, reinstated the petition and awarded the landlord a final judgment for possession and rent arrears in the principal amount of $58,491.17. The court also granted the landlord's claim for attorney fees.

The parties' commercial lease authorized the landlord to make "'repairs, alterations, additions or improvements' in or to any portion of the building or demised premises, with 'no allowance to tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business' arising from these acts." The lease further provided that the tenant "is not entitled to 'any setoff or reduction of rent' due to Landlord's failure to comply with any covenant of the lease, and that tenant's 'sole remedy' at law is an action for breach of contract." Moreover, the lease permitted the landlord to make changes to "'corridors…toilets or other public parts of the building' without the same 'constituting an eviction and without incurring liability to tenant' for 'inconveniences, annoyance or injury to business.'"

The court explained that based on the "clear terms of the commercial lease, and arm's length agreement entered into by sophisticated parties, tenant's claim of a partial actual or constructive eviction as a result of landlord's renovation work outside of tenant's 7^th floor law offices, should have been rejected." In order for there to be a constructive or actual eviction, "there must be a wrongful act by the landlord…." Here, the landlord's renovation work "was not wrongful because it was authorized by the lease…." The court stated that "[a]lterations to leased premises, made with the consent of the tenant, did not amount to an eviction, no matter how extensive or the degree of interference with the tenant's occupancy…."

Apart from the "lease's exculpatory provisions, the tenant had failed to establish that landlord's acts amounted to a partial actual or constructive eviction." The tenant had not abandoned its premises or a part thereof, because of the renovation work which occurred in the "common hallways, corridors and hallway bathrooms on the seventh floor where tenant's office is located, so as to constitute a partial constructive eviction…." Moreover, the tenant had not established that the landlord had "physically excluded or expelled tenant from the premises, or a portion thereof, for purposes of partial actual eviction…."

Thus, the court reversed the trial court's determination and granted the landlord's non-payment petition and the landlord's request to recover reasonable attorney fees.

Fieldstone Capital v. Ryan & Conlon LLP, Appellate Term, 1st Dept., Case No. 571072/18, decided June 26, 2019, Ling-Cohan, J.P., Gonzalez, Cooper, JJ., All Concur

Landlord-Tenant—Unenforceable 17.7% Late Fee Renders rent demand Defective—Nonpayment Proceeding Dismissed—Second Department "Stricter Standard"

A landlord commenced a nonpayment proceeding by a notice of petition and petition dated February 2019. Prior thereto, the landlord had allegedly served the tenant with a three-day notice (rent demand) dated Dec. 31, 2018. "The rent demand required the tenant to pay $2,135.43, comprised of $907.40 for November 2018 rent, $907.40 for December 2018 rent, and a late fee of $320.63." The tenant, pro se, filed an answer. The tenant thereafter retained counsel and who moved to dismiss the subject proceeding.

The tenant argued that the $320.63 late fee included in the rent demand "renders the notice defective since it does not apprise (tenant) of the accurate amount owed." It was unclear whether the late fee claim set forth in the rent demand was for one or two months or for some other period of time. There was no time period referenced other than November 2018 and December 2018, the months for which rent was sought. The court deemed the late fee as applying to those two months only.

The late fee represented 17.7% of the total rent demanded. The court noted that two recent Appellate Term, Second Department decisions held that "late fees with percentages less than 17.7 percent of the rent" were unenforceable. One case involved a 10% late fee and another case involved a 13% late fee. Those decisions characterized the late fees as "excessive and grossly disproportionate to any damages that could be sustained as a result of tenant's failure to pay rent on time."

The subject court found that the 17.7% late fee included in the rent demand was "excessive and unenforceable as a matter of law." The court then addressed the issue of "whether the unenforceability of the late fee rendered the entire rent demand defective."

The landlord cited an Appellate Term, First Department case in support of its argument that it was permitted to proceed with its rent demand, notwithstanding the fact that the late fee was not collectable. That decision held that "the itemization of ancillary charges for attorney's fees and late fees does not represent a demand for 'illegal' rent in excess of the stabilized maximum, but permissibly gives notice of landlords' additional claim for contractual damages provided for in the parties lease." That decision further "noted that fees 'are a proper subject of recovery in a summary proceeding, albeit they may only be the source of a money judgment in the case of a regulated tenancy.'"

The court noted however, that the Appellate Term, Second Department, had developed a "stricter standard for what constitutes an 'approximate good faith amount' of rent that must be included in a rent demand in order for it to be upheld." That decision had dismissed a commercial non-payment proceeding where "'exorbitant' utility charges were sought and where 'in light of the magnitude of the discrepancy between amount of rent upon which the proceeding may properly be maintained and the amounts actually asserted… tenant may have been prejudiced in its 'ability to respond to the demand, formulate defenses, and avoid litigation or eviction.'"

The subject court cited another decision wherein it was "held that a rent demand was defective and 'not sufficiently specific' where it sought common charges and undefined utility charges in a commercial nonpayment proceeding." Moreover, a recent court decision held that a "rent demand was defective where 'the magnitude of the inaccuracies in the amount sought' (including the improper failure to properly credit earmarked payments) may have 'prejudiced the tenant in his ability to respond to the demand, formulate defenses and avoid litigation or eviction.'"

Based on Second Department precedent, the subject court held that the amount sought in the landlord's rent demand was not in "approximate good faith amount" of rent owed by the tenant. Since the court had determined that the late fee was unenforceable and "constituted as significant portion of the total rent otherwise sought," the court reasoned that the rent demand "did not fairly apprise" the tenant of the amounts actually due and "prejudiced" the tenant's "ability to respond to the demand, formulate defenses, and avoid litigation or eviction." Additionally, the court opined that it was not its "role to prune unenforceable portions of a rent demand in order to create a proper notice. "Since a defective rent demand may not be amended," the court granted the tenant's motion to dismiss, without prejudice.

56-11 94th St. Co. v. Jara, Civil Court, Queens Co., Case No. 53991/19, decided July 2, 2019, Guthrie, J.

Foreclosures—Defendant Waived CPLR 3215(c) Relief (One-Year Default Judgment Rule)—Lender Never Showed Intent to Abandon Foreclosure—Defendant Submitted Affirmation of Disbarred Attorney

This decision involved an action to foreclose a mortgage on residential property. In 2005, the defendant had borrowed $312,000.00 from the plaintiff lender's predecessor in interest and executed a promissory note and a mortgage. The defendant failed to pay the monthly installments due in December 2014. The lender commenced the subject action in July 2016. Defendants "A" and "B," were served with a summons and complaint on July 28, 2016. An answer was served upon the lender's counsel by Federal Express on August 17, 2016, "on both defendants' behalf, through counsel, ("C"), asserting forty six affirmative offenses and five counter claims."

A court conference pursuant to CPLR 3408 was scheduled for and held on October 26, 2016. The defendants failed to appear for that conference. At a March 15, 2018 court status conference, the lender's counsel appeared and represented to the court that an answer had been received on the defendants' behalf and the "parties were currently engaged in loss mitigation review." The lender's counsel there also appeared at a subsequent court conference on April 15, 2018 and advised the court that the loss mitigation review had been denied and the lender was preparing a motion for summary judgment.

Defendant "A's," new counsel, moved on February 28, 2019, to dismiss the complaint pursuant to CPLR 3215(c). CPLR 3215(c) provides that "if the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned…unless sufficient cause is shown why the complaint should not be dismissed….." The court explained that to "avoid dismissal, the plaintiff need not actually obtain nor specifically seek the default judgment within one year…." Rather, "[a]s long as 'proceedings' are being taken that manifest 'an intent not to abandon the case but to seek a judgment, the case should be not be subject to dismissal….'" Notwithstanding the foregoing, "a defendant may waive the right to seek relief pursuant to CPLR 3215(c) by serving an answer or taking 'any steps which may be viewed as a formal or informal appearance….'"

The Appellate Division had "recently affirmed the rule that a defendant may waive the right to seek relief under the CPLR 3215(c) by his or her conduct…."

The defendant "A" argued that since "one year has elapsed since the defendant's default and (the lender) had failed to commence proceedings for the entry of a default judgment during that time, the action had to be dismissed." However, the "movant" served an answer, through counsel, on Aug. 17, 2016. The court noted that a defendant "appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer…." Furthermore, pursuant to CPLR 320(b), "an appearance of the defendant is equivalent to personal service of the summons upon him, unless an objection to jurisdiction under CPLR 3211(a)(8) is asserted by motion or in the answer as provided in CPLR 3211…." Here, since the defendant filed an answer in August 2016, the defendant "waived any claims to relief under CPLR 3215(c)."

The defendant argued that he had not retained or authorized "C" or "C's" law office to file an answer on his behalf in this action and he "rejected and disavowed" the answer. The defendant submitted an affidavit by "C," wherein "C" stated that he "has not and does not represent the defendant ("A"), in this action and asserts that if any documents were sent by his office, they were sent in error and should be ignored by the court."

The court ignored "C's" affirmation since "C" was "disbarred and is prohibited from the practice of law… thus precluding him from providing an affirmation in any case." However, the defendant's motion still had to be denied because "[d]espite the answer and plaintiff's reliance on such, the plaintiff has not demonstrated an intent to abandon the action, as plaintiff appeared at the foreclosure settlement conference and at two subsequent status conferences during which plaintiff's counsel notified the court of the parties' settlement negotiation discussion and the subsequent denial of such. Attendance at these conferences demonstrated the plaintiff's intent to pursue with the action." Accordingly, the court denied the defendant's motion and directed the lender to file its motion for summary judgment.

Deutsche Bank Nat'l Trust v. McDonnell, Supreme Court, Suffolk Co., Case No. 611249/16E, decided June 27, 2019, Whelan J.

Landlord Tenant—Rent Stabilization—Tenant Not Liable for One Year of Post-Surrender Rent Arrears

A tenant appealed from a judgment from a trial court, which, after a non-jury trial, awarded the landlord damages in the amount of $9,947.76. The Appellate Term (court) reduced the landlord's recovery to the principal amount of $1,248.33.

The landlord commenced an action for unpaid rent against a "former rent-stabilized tenant." The tenant had vacated "the apartment on or about January, 2016, prior to the Dec. 31, 2016 expiration of her lease." The tenant's vacatur was "in accordance with the terms of a prior stipulation between the parties (stipulation)." The stipulation, which had been "entered into during the pendency of a nonpayment proceeding, expressly provided for the tenant's 'surrender of possession prior to Jan. 8, 2016' in consideration for the discontinuance of that proceeding."

Pursuant thereto, the tenant had vacated on or about that date and returned the keys to the landlord. The landlord thereafter re-let the apartment, effective Aug. 15, 2016 and received rent payments from a new tenant. The landlord had not demanded the subject alleged rental arrears until eight months after, in mid-August 2017.

The court found that there was a "surrender by operation of law." Although the tenant's answer had not "specifically pled a defense based on surrender, the 'assertion of that defense cannot have come as a surprise to plaintiff….'" Based on the surrender, it held that the tenant is not liable for rent arrears after Jan. 31, 2016 and disagreed with the trial court's finding that the tenant was "liable for post-surrender rent pursuant to the terms of the aforementioned pro se stipulation, which provided, in relevant part, that the proposed surrender would be 'without prejudice to claims for past and future rent.'"

The court opined that "[m]anifestly, this provision is not a resolution on the merits of the claims for past and future rent, but rather a clear acknowledgement by the parties that any monetary claims arising from the proposed surrender have yet to be decided." It reasoned that nothing in the stipulation indicated any intention on the part of tenant to "pay rent for one year after her surrender or to waive any defense to a claim for post-surrender rent." Further, it noted that even the trial court, had observed that "it would 'defy logic' for defendant to vacate her stabilized apartment of many years, while also agreeing to pay rent for one year after her vacatur." Accordingly, the court limited the landlord's recovery to $1,248.33, reflecting December 2015 and January 2016 rent, plus major capital improvement increases for those two months, less an offset for the tenant's security deposit.

Rockaway One Co. v. Alston, Appellate Term, 1st Dept., Case No. 570128/19, decided July 1, 2019, Ling-Cohan, J.P., Gonzalez, Cooper, JJ., All Concur.

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