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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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TENANT WAS PRECLUDED FROM ASSERTING A CLAIM FOR BREACH OF THE COVENANT OF QUIET ENJOYMENT BECAUSE THE TENANT HAD ALREADY STOPPED PAYING RENT WHEN IT VACATED THE PREMISES (FIRST DEPT).

The First Department, reversing Supreme Court, determined the tenant’s claim for breach of the covenant of quiet enjoyment was precluded because the tenant was in default (failure to pay rent) at the time the tenant vacated the premises:

Under … the lease between the landlord and defendant tenant … , the tenant was entitled to “peaceabl[y] and quietly enjoy the premises,” which were in the basement of the landlord’s building, as long as it performed its obligations under the lease, which included the obligation to pay rent. Under … the lease, the tenant waived the provisions of Real Property Law § 227. The premises were shut down in March 2020 under Executive Order 202.7 (9 NYCRR 8.202.7) in response to COVID. At that time, the tenant stopped paying rent. * * *

The tenant is precluded from asserting a claim for breach of the covenant of quiet enjoyment because it was already in default of its obligation to pay rent at the time it vacated the leased premises. The law is clear that, in order for a tenant to assert a claim for breach of the covenant of quiet enjoyment, the tenant must have performed all obligations which are a condition precedent to its right to insist upon the covenant … . When a tenant vacates the premises after defaulting on its obligation to pay rent, it is deprived of its right to insist upon the performance of the covenant of quiet enjoyment … . By the express terms of the lease, the tenant was obligated to pay rent while remaining in possession of the premises as a condition precedent to receiving the benefit of quiet enjoyment of the premises. Since the tenant remained in possession of the premises without paying rent, the tenant has failed to satisfy the condition precedent in the lease and is thereby precluded from claiming a breach of the covenant of quiet enjoyment … . 558 Seventh Ave. Corp. v E&B Barbers Inc., 2025 NY Slip Op 02546, Frist Dept 4-29-25

Practice Point: Here, under the terms of the lease, payment of rent was a condition precedent for the benefit of quiet enjoyment of the premises. Therefore the tenant, who had stopped paying rent at the time the premises were vacated, could not make a claim for breach of the covenant of quiet enjoyment.

 

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CIVIL COURT WHICH AWARDED RENT ARREARS IN THE EVICTION PROCEEDING DID NOT HAVE SUBJECT MATTER JURISDICTION OVER THE CLAIM FOR RENT DUE FOR THE REMAINDER OF THE LEASE (POST-EVICTION); THEREFORE THE ACTION IN SUPREME COURT FOR THE POST-EVICTION RENT AS LIQUIDATED DAMAGES WAS NOT BARRED BY THE DOCTRINE OF RES JUDICATA (FIRST DEPT).

The First Department, reversing Supreme Court, determined the doctrine of res judicata did not apply to this action for rent due as liquidated damages. Although the eviction proceeding in Civil Court awarded defendant the rent arrears, Civil Court did not have subject matter jurisdiction over the claim for the rent due for the remainder of the lease term (post-eviction). Therefore the rent-as-liquidated-damages claim could be brought in Supreme Court:

This action, in which plaintiff seeks the recovery of rent arrears, is not barred by the doctrine of res judicata, as plaintiff could not have sought relief for its current claims in the Civil Court eviction proceeding. Although the rent arrears claim arises out of the same transaction as the claim for future rent … , res judicata is inapplicable where the plaintiff could not seek a particular remedy in the first action because of a limitation on a court’s subject matter jurisdiction, and plaintiff wishes to seek that remedy in the second action … .

The liquidated damages clause in the lease expressly provided that plaintiff was under no duty to mitigate damages by re-letting the premises and further provided that, even if Levant was evicted, it was to remain liable for its monetary obligations under the lease … . However, Civil Court, which determined the eviction proceeding, is “without authority to address a claim for the balance of rent due” as liquidated damages … . Thus, once plaintiff had been awarded judgment in the summary proceeding, the parties’ relationship as landlord and tenant ended and whatever monetary liability Levant may have had to plaintiff at that point “was no longer in the nature of rent, but was in the nature of contract damages” … . Prospect Resources Inc. v Levant Capital N. Am., Inc., 2025 NY Slip Op 02169, First Dept 4-15-25

Practice Point: Here the court which handled the eviction proceedings did not have subject matter jurisdiction over the claim for post-eviction rent as liquidated damages. Therefore the doctrine of res judicata did not preclude the suit for the post-eviction rent in Supreme Court.

 

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THE LANDLORD’S APPLICATION TO AMEND PRIOR ANNUAL REGISTRATION STATEMENTS TO PERMANENTLY EXEMPT AN APARTMENT FROM RENT STABILIZATION WAS PROPERLY DENIED BY THE DIVISION OF HOUSING AND COMMUNITY RENEWAL (DHCR); ONLY MINISTERIAL AMENDMENTS TO PRIOR ANNUAL REGISTRATION STATEMENTS, SUCH AS CLERICAL ERRORS AND MISSPELLINGS, ARE ALLOWED (CT APP). ​

The Court of Appeals, in a full-fledged opinion by Judge Singas, over an extensive two-judge dissenting opinion, determined the Division of Housing and Community Renewal (DHCR) properly rejected petitioner-landlord’s application to amend two prior annual registration statements to permanently exempt an apartment from rent stabilization. The ability to amend the annual registration statements extends only to ministerial issues such as clerical errors, misspellings, incorrect lease terms, etc.:

DHCR’s chosen limiting principle—that amendments may correct only “ministerial” issues—does not permit amendments that seek to remove a housing accommodation’s rent-stabilized status.  The application of that rule to this case was clearly rational. Matter of LL 410 E. 78th St. LLC v Division of Hous. & Community Renewal, 2025 NY Slip Op 01672, CtApp 3-20-25

 

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TO SUFFICIENTLY ALLEGE THE APPLICABILITY OF THE FRAUD EXCEPTION TO THE FOUR-YEAR LOOKBACK FOR A “FRAUDULENT SCHEME TO INFLATE RENTS” ACTION, THE PLAINTIFF NEED NOT ALLEGE RELIANCE ON A FRAUDULENT REPRESENTATION; IT IS ENOUGH TO ALLEGE SUFFICIENT INDICIA OF FRAUD OR A COLORABLE CLAIM OF FRAUD (CT APP). ​

The Court of Appeals, reversing (modifying) the Appellate Division, in a full-fledged opinion by Judge Garcia, determined that to sufficiently allege the applicability of the fraud exception to the four-year statute of limitations (“lookback” period) in a “fraudulent scheme to inflate rents” action, a plaintiff need not allege satisfaction of each element of common-law fraud (including reliance), rather the plaintiff need only allege “sufficient indicia” of fraud:

… [T]he fraud exception serves a far different purpose than an allegation of common law fraud. The fraud exception, applicable only to an overcharge claim, simply allows for review of the rental history outside the four-year lookback period and then … “solely to ascertain whether fraud occurred—not to furnish evidence for calculation of the base date rent or permit recovery for years of overcharges barred by the statute of limitations” … . The exception operates to protect not only current tenants, who may or may not have relied on a fraudulent representation, but future tenants and the overall rent regulatory system. Requiring that a tenant show reliance on a landlord’s fraudulent representation would exempt an “unscrupulous landlord in collusion with a tenant” from the consequences of engaging in a scheme to evade the law’s protection … . Given the narrow purpose and scope of the fraud exception, there is no basis for imposing the pleading requirements of a common law fraud claim. Instead, we require plaintiffs to put forth “sufficient indicia of fraud” or a “colorable claim” of a fraudulent scheme but do not impose a burden to establish each element of a common law fraud claim.

… [T]o invoke the fraud exception, a plaintiff must allege sufficient indicia of fraud, or a colorable claim of a fraudulent scheme to evade the protections of the rent stabilization laws, to withstand a motion to dismiss on statute of limitations grounds. Such allegations must include more than an assertion that a tenant was overcharged—a mere allegation of a high rent increase is insufficient for the fraud exception to apply … We address only the reliance issue here. On remittal the Appellate Division should apply our established standard—assessing whether plaintiffs’ complaint alleges sufficient indicia of fraud or a colorable claim of a fraudulent scheme “to remove tenants’ apartment from the protections of rent stabilization” … . Burrows v 75-25 153rd St., LLC, 2025 NY Slip Op 01669, CtApp 3-20-25

Practice Point: Consult this opinion for insight into what the complaint must allege to invoke the fraud exception to the four-year lookback period for a “fraudulent scheme to inflate rents” action.

 

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HERE THE MOTION TO RENEW, BASED UPON A CHANGE IN OR CLARIFICATION OF THE LAW, SHOULD HAVE BEEN GRANTED DESPITE THE APPELLATE RULING ON THE PRIOR ORDER (FIRST DEPT).

he First Department, reversing Supreme Court, determined defendant landlord’s motion to renew based upon a change in the law should have been granted}

On appeal, this Court agreed with defendant that the law as it existed prior to enactment of the Housing Stability and Tenant Protection Act of 2019 (HSTPA) applies in this case. However, we found that plaintiffs had raised a triable issue of fact as to whether the landlord engaged in a fraudulent scheme [to deregulate apartments]. Accordingly, we affirmed denial of defendant’s summary judgment motion.

In April 2023, defendant moved in Supreme Court for renewal of its summary judgment motion. Defendant argued that Casey v Whitehouse Estates, Inc. (39 NY3d 1104 [2023]) supported its position on the summary judgment motion. The motion court denied the motion to renew and did not reach the substantive issue raised by defendant.

Contrary to plaintiffs’ contention, a court of original jurisdiction may entertain a motion for leave to renew based on an alleged change in or clarification of the law, “even after an appellate court has rendered a decision” on the prior order … . Accordingly, defendant’s motion to renew its summary judgment motion should be granted. 435 Cent. Park W. Tenant Assn. v Park Front Apts., LLC, 2025 NY Slip Op 01157, First Dept 2-27-25

Practice Point: Even where the denial of summary judgment has been affirmed on appeal, a motion to renew based upon a change in or clarification of the law should be granted.​

 

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THE 2024 AMENDMENTS WHICH SET A STANDARD FOR DETERMINING CLAIMS ALLEGING A FRAUDULENT SCHEME TO DEREGULATE A RENT-STABILIZED APARTMENT APPLY TO CLAIMS PENDING AT THE TIME OF ENACTMENT AND ARE CONSTITUTIONAL (SECOND DEPT).

The Second Department, in a comprehensive opinion by Justice Connolly, determined the 2024 amendments (the “chapter amendments”), which set forth a standard for determining claims alleging a fraudulent scheme to deregulate a rent-stabilized apartment, applied retroactively to claims pending when the amendments were enacted and are constitutional:

First, we must determine whether so much of the chapter amendments as set forth the standard for determining a fraudulent scheme to deregulate a rent-stabilized apartment unit applies to actions such as this one, which were commenced before the effective date of the chapter amendments but were pending before a court on the effective date. We hold that it does.

Next, we must determine whether the defendant established that so much of the chapter amendments as set forth the standard for determining a fraudulent scheme to deregulate an apartment unit is unconstitutional on its face or whether it would be unconstitutional to apply that portion of the chapter amendments to this action. We hold that the defendant did not establish that the relevant portion of the chapter amendments is unconstitutional, either on its face or as applied in this action.

Finally, applying the standard set forth in the chapter amendments, we must determine whether the plaintiffs met their prima facie burden of demonstrating that the defendant engaged in a fraudulent scheme to deregulate the subject apartment units such that the formula set forth in Rent Stabilization Code (9 NYCRR) §§ 2522.6(b)(3) and 2526.1(g) (hereinafter the default formula) should be used to calculate the legal regulated rent and any rent overcharges. We hold that the plaintiffs did not meet their prima facie burden. Gomes v Vermyck, LLC, 2025 NY Slip Op 00849, Second Dept 2-13-25

 

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HERE THE PLAINTIFFS-TENANTS WERE ENTITLED TO A YELLOWSTONE INJUNCTION WHICH TOLLS THE CURE PERIOD UNTIL A COURT DETERMINES WHETHER THE TENANT HAS ACTUALLY DEFAULTED; PURPOSES OF AND CRITERIA FOR A YELLOWSTONE INJUNCTION CLEARLY EXPLAINED (FIRST DEPT). ​

The First Department reversed Supreme Court and granted plaintiff’s a “Yellowstone” injunction to allow time for a court to determine the nature and status of an ambiguous lease. Supreme Court had erroneously struck the “temporary restraining order” paragraph in plaintiffs-tenants’ order to show cause, which allowed the period to cure the alleged defaults to run out resulting in termination of the lease. The opinion includes a clear explanation of the nature and equitable purpose of a Yellowstone injunction, which is applicable to commercial leases. One of the issue here was whether the lease was commercial or residential:

A Yellowstone injunction “maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture” … .

… [T]he Yellowstone injunction tolls the relevant cure period, thereby preventing the termination of the lease … . With the Yellowstone injunction in place, the tenant can litigate with some confidence: if the tenant prevails in the underlying dispute with the landlord, the tenant walks away from the litigation with the lease intact; if the tenant loses the underlying dispute, the tenant can cure the demonstrated lease defaults before the expiration of the remaining cure period … .

* * * Yellowstone relief is a unique injunction. Unlike a standard preliminary injunction that can be granted only upon a demanding three-part showing of a likelihood of success on the merits, irreparable injury, and that the equities favor the party seeking the preliminary injunction, a Yellowstone injunction is granted on “far less” a showing … .

The party seeking Yellowstone relief must demonstrate the following four elements: “(1) It holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises” … . Wharton-Bickley v 388 Broadway Owners LLC, 2025 NY Slip Op 00802, First Dept 2-11-25

Practice Point: Consult this decision for a clear explanation of the purposes of and the criteria for a Yellowstone injunction.

 

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EVEN THOUGH THE COOPERATIVE LANDLORD WON IN THE UNDERLYING LITIGATION AGAINST A SHAREHOLDER TENANT, THE LEASE PROVISION REQUIRING THE TENANT TO PAY ATTORNEY’S FEES REGARDLESS OF DEFAULT OR MERIT WAS UNENFORCEABLE AS UNCONSCIONABLE (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined the lease provision which provides for attorney’s fees regardless of default or merit unenforceable as unconscionable:

Because the lease provides for attorneys’ fees regardless of default or merit, in a dispute between a residential co-op [The Dakota] and a shareholder tenant [Fletcher] , we find this provision to be unenforceable as unconscionable … . The lease is not “silent as to whether such right is contingent upon the merits of plaintiff’s action” … , but explicitly provides for attorneys’ fees whenever the tenant sues The Dakota. This interpretation is not changed by the description of the fees as “reasonable” … . “Bearing in mind that agreements providing for payment of attorneys’ fees should be construed strictly” … , we will not rewrite the parties’ agreement simply because The Dakota prevailed in the underlying litigation … .”To enforce such a provision would produce an unjust result because it would dissuade aggrieved parties from pursuing litigation and preclude tenant-shareholders from making meaningful decisions about how to vindicate their rights in legitimate instances of landlord default” … . Kasowitz, Benson, Torres & Friedman, LLP v JPMorgan Chase Bank, N.A., 2025 NY Slip Op 00396, First Dept 1-28-25

Practice Point: A lease provision which requires a tenant to pay attorney’s fees regardless of default or merit is unconscionable and will not be enforced even where the landlord won the underlying litigation.

 

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PURSUANT TO THE NEW YORK CITY HUMAN RIGHTS LAW, PROPERTY OWNERS (LANDLORDS) MAY BE HELD VICARIOUSLY LIABLE FOR THE DISCRIMINATORY CONDUCT OF THEIR AGENTS IN DEALING WITH PROSPECTIVE TENANTS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kennedy, determined the owners of housing accommodations may be vicariously liable (pursuant to the NYC Human Rights Law) for discrimination by their agents who deal with prospective tenants. Here plaintiff is an indigent person with AIDS. The complaint alleges he was denied housing by defendant, who acted as an agent for defendant property owners:

… [A]bsent vicarious liability, landlords would evade liability under the City HRL except when they directly interact with a prospective tenant. This is neither the mandate of the statute, nor supported by the legislative intent behind § 8-107 of the City HRL … .

The text of the City HRL also supports the imposition of vicarious liability upon landlords. Specifically, the key statutory remedy in the City HRL for housing discrimination is to approve the rental and to provide housing (see Administrative Code § 8-120[a][7]). Moreover, §§ 8-122 and 8-502 permit a tenant allegedly aggrieved by discriminatory practices to seek injunctive relief. In the absence of vicarious liability against owners, who have title to the prospective property, these remedies would be unavailable and rendered meaningless … . Newson v Vivaldi Real Estate LTD., 2025 NY Slip Op 00052, First Dept 1-7-25

Practice Point: Pursuant to the NYC Human Rights Law, landlords may be vicariously liable for the discriminatory conduct of their agents in dealing with prospective tenants.

 

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