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HOLDOVER RENT IN AN AMOUNT THREE TIMES EXISTING RENT CONSTITUTED APPROPRIATE LIQUIDATED DAMAGES, NOT A PENALTY; DEFENDANT, THE SELLER OF THE COOPERATIVE APARTMENT, REQUESTED POSSESSION FOR THIRTY DAYS AFTER THE CLOSING (FIRST DEPT).

The First Department, reversing Supreme Court, determined the holdover rent, which was three times the existing rent, constituted appropriate liquidated damages, not a penalty. Plaintiffs are purchasers of defendant’s cooperative apartment:

Defendant seller, who requested continued possession of the apartment after closing for one month, complains that the holdover rent set in the liquidated damages provision of the post-closing possession agreement is grossly disproportionate because, over the course of 30 days, it amounted to three times the amount of rent set for the initial 30-day period of possession. However, “[w]hether a provision in an agreement is an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances” … . The party “seeking to avoid liquidated damages” bears the burden “to show that the stated liquidated damages are, in fact, a penalty” … .

Plaintiffs’ cross-motion for summary judgment should have been granted. “[L]iquidated damages clauses that permit a landlord to recover between two or three times the amount of the existing rent or license fee in a holdover proceeding are not ‘grossly disproportionate’ to the probable loss and therefore, not a penalty” … . Moreover, defendant does not account for plaintiffs’ payment during the holdover period of the maintenance and assessment, in addition to the mortgage. The agreement further provides that defendant is responsible for plaintiffs’ costs of administering the agreement, among other things, which were unknown at the time the agreement was signed. Thus, “the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation” … . Sang Min Kim v Bedouet, 2025 NY Slip Op 02875, First Dept 5-13-25

Practice Point: Here holdover rent in an amount three times the existing rent was deemed appropriate liquidated damages, not a penalty.

 

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