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INCONSISTENCIES IN TWO FINAL RENT-ADJUSTMENT ORDERS ALLOWED RECONSIDERATION OF THE NATURE OF THE MAJOR CAPITAL IMPROVEMENTS [MCI’S] DESCRIBED IN THE ORDERS.

In a rent-increase matter which was before the NYS Division of Housing and Community Renewal (DHCR), the First Department, over an extensive two-justice dissent, determined a discrepancy between two prior rent-adjustment orders constituted “an irregularity in a vital matter” which allowed the DHRC, on remand, to reconsider the two (final) orders. The discrepancy related to the nature of the “major capital improvement [MCI]” (purportedly justifying a rent increase) to which each order referred. The dissent argued that the two orders were final orders and collateral estoppel prohibited further reexamination of them. Matter of 60 E. 12th St. Tenants’ Assn. v New York State Div. of Hous. & Community Renewal, 2015 NY Slip Op 09599, 1st Dept 12-29-15

ADMINISTRATIVE LAW (RECONSIDERATION OF INCONSISTENT FINAL ORDERS BY NYS DIVISION OF HOUSING AND COMMUNITY RENEWAL)/DIVISION OF HOUSING AND COMMUNITY RENEWAL [DHCR] (RECONSIDERATION OF INCONSISTENT FINAL RENT-ADJUSTMENT ORDERS)

SECURITY DEPOSIT CANNOT BE USED BY THE LANDLORD AS AN OFFSET AGAINST UNPAID RENT, BUT CAN BE USED BY THE TENANT TO REDUCE AMOUNT OWED TO THE LANDLORD.

In finding the special referee exceeded the scope of the reference from Supreme Court, the First Department explained the consequences of a landlord’s failure to place a security deposit in a separate account pursuant to General Obligations Law 7-103:

Section 7-103 prohibits landlords from commingling security deposits with their own funds. Violation of the statute gives rise to an action in conversion and the right to immediate return of the funds … . A landlord who violates Section 7-103 of the General Obligations Law cannot use the security as an offset against unpaid rents. This is so because a landlord is considered to be a trustee with respect to those funds deposited as security. To allow the landlord to set off the rent against the deposit would be to treat the deposit as a debt and the landlord as a debtor, the situation the statute was enacted to change … .The same logic does not pertain where a tenant seeks to apply the security deposit to reduce amounts found owing to the landlord.  23 E. 39th St. Mgt. Corp. v 23 E. 39th St. Dev., LLC, 2015 NY Slip Op 09605, 1st Dept 12-29-15

LANDLORD-TENANT (SECURITY DEPOSIT CANNOT BE USED AS OFFSET AGAINST UNPAID RENT)/LANDLORD-TENANT (SECURITY DEPOSIT CAN BE USED TO REDUCE AMOUNT TENANT OWES LANDLORD)/SECURITY DEPOSIT (LANDLORD CANNOT USE AS OFFSET AGAINST UNPAID RENT)/SECURITY DEPOSIT (CAN BE USED TO REDUCE AMOUNT OWED LANDLORD BY TENANT)

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DEFENDANT DID NOT ESTABLISH IT WAS AN OUT-OF-POSSESSION LANDLORD; MANAGEMENT AGREEMENT INCLUDED THE RIGHT TO INSPECT THE PROPERTY AND AN AGREEMENT TO INDEMNIFY TENANT FOR CLAIMS ARISING FROM TENANT’S NEGLIGENCE.

The First Department determined defendant did not demonstrate it was an out-of-possession landlord and defendant was therefore properly held liable for plaintiff’s slip and fall. Plaintiff worked for nonparty tenant Sunrise Senior Living Management, Inc. (SSLM) with which defendant had a property management agreement. Although the agreement required SSLM to maintain the facility, defendant had access to the facility for inspection and agreed to indemnify SSLM for claims arising from SSLM’s negligence:

Defendant failed to establish that it was an out-of-possession landowner with limited liability to third persons injured on the property … . Its management agreement with SSLM gave SSLM “complete and full control and discretion in the operation … of the Facility” and required SSLM to “maintain the Facility … in conformity with applicable Legal Requirements.” However, defendant had “access to the Facility at any and all reasonable times for the purpose of inspection,” had access to SSLM’s books and records, and was required to fund operating shortfalls, and SSLM was required to report to defendant regularly and to maintain bank accounts in approved financial institutions “as agent for [defendant].”

Significantly, the management agreement requires defendant to indemnify SSLM for claims arising out of SSLM’s own negligence in the performance of its duties. This agreement to indemnify is analogous to the procurement of insurance, which constitutes evidence of ownership and control … . It evidences defendant’s intent to be responsible for any accidents on the property. But for the fortuity of plaintiff’s being an employee who was barred from suing his employer, defendant would be responsible, through the indemnification provision, for his injuries. Waring v Sunrise Yonkers SL, LLC, 2015 NY Slip Op 09174, 1st Dept 12-10-15

MONTHLY COMPILATION INDEX ENTRIES FOR THIS CASE:

NEGLIGENCE (DEFENDANT NOT AN OUT-OF-POSSESSION LANDLORD, PROPERLY HELD LIABLE FOR PLAINTIFF’S INJURIES)/LANDLORD-TENANT (DEFENDANT NOT AN OUT-OF-POSSESSION LANDLORD, PROPERLY HELD LIABLE FOR PLAINTIFF’S INJURIES)/OUT-OF-POSSESSION LANDLORD (DEFENDANT NOT AN OUT-OF POSSESSION LANDLORD, PROPERLY HELD LIABLE FOR PLAINTIFF’S INJURIES)

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QUESTION OF FACT WHETHER PARTIAL PERFORMANCE TOOK ORAL AGREEMENT OUT OF THE STATUTE OF FRAUDS.

The Third Department determined a question of fact had been raised about whether an oral agreement to extend a mining lease was enforceable because partial performance took the contract out of the statute of frauds. An amendment to extend the mining lease for 20 years was never executed. However, the agreement was mentioned in a 20-year sublease which was subsequently entered:

Defendants’ statute of frauds argument is governed by General Obligations Law § 5-703, which, as relevant here, provides that an interest in real property can be created or conveyed only by a signed writing. While plaintiff concedes that a signed copy of the amendment does not exist, he contends that the statute of frauds is inapplicable, as the parties’ course of conduct constitutes partial performance of an oral contract to extend the term of the lease (see General Obligations Law § 5-703 [4]…). “[P]artial performance of an alleged oral contract will be deemed sufficient to take such contract out of the [s]tatute of [f]rauds only if it can be demonstrated that the acts constituting partial performance are ‘unequivocally referable’ to said contract” … .

Here, plaintiff raised triable issues of fact as to whether the partial-performance exception to the statute of frauds applies. Evidence of such performance can be found in the parties’ mutual decision to execute the 20-year sublease agreement, which explicitly referred to the amendment and acknowledged that plaintiff and [defendant] were parties to it. Indeed, if the parties did not have an understanding that the mining lease was to be extended to 20 years, then [defendant sublessee’s] willingness to enter into a 20-year sublease with plaintiff — despite the fact that plaintiff had only a five-year lease with [defendant] and [defendant’s] express consent to the creation of these incongruous interests in his property — would appear to be “‘unintelligible or at least extraordinary,’ explainable only with reference to the oral agreement” …. . Bowers v Hurley, 2015 NY Slip Op 08884, 3rd Dept 12-3-15

REAL PROPERTY (PARTIAL PERFORMANCE OF ORAL AGREEMENT, STATUTE OF FRAUDS)/CONTRACT LAW (PARTIAL PERFORMANCE OF ORAL AGREEMENT, STATUTE OF FRAUDS)/STATUTE OF FRAUDS (PARTIAL PERFORMANCE OF ORAL AGREEMENT)

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Because the Lease Authorized Landlord to Make Repairs, the Erection of Scaffolding Could Not Constitute a Partial Eviction; Occupant Not Named on the Lease Owes Rent Under a Quantum Meruit Theory

With respect to the lessee of a garage, the First Department determined the landlord’s erection of scaffolding to make repairs was allowed by the lease and, therefore, did not constitute a partial eviction. With respect to a party which occupied the premises but which was not a party to the lease, the First Department determined rent was owed to the landlord under a quantum meruit theory:

The … defendants’ argument that they were partially evicted from the garage is unavailing. “To be an eviction, constructive or actual, there must be a wrongful act by the landlord” … . Plaintiff’s installation of temporary scaffolding as part of its repairs to the garage’s facade was not wrongful because it was authorized by the lease … . … “[T]enants are well advised . . . to specify some limits to the exculpatory clause concerning repairs” … . * * *

A claim by a landlord against a nonlessee occupant for use and occupancy should not be foreclosed simply because there is a lease covering the premises. The obligations of the lessee arising under the lease are distinct from the obligations of an occupant of premises toward the owner of those premises.

Notwithstanding the general rule that “[t]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter” … , in the landlord-tenant context, the occupant of premises is liable to the owner of the property for use and occupancy irrespective of the existence of a lease in the name of another entity: “[t]he obligation to pay for use and occupancy does not arise from an underlying contract between the landlord and the occupant[,] [but] [r]ather, an occupant’s duty to pay the landlord for its use and occupancy of the premises is predicated upon the theory of quantum meruit, and is imposed by law for the purpose of bringing about justice without reference to the intention of the parties” … . Carlyle, LLC v Beekman Garage LLC, 2015 NY Slip Op 08499, 1st Dept 11-19-15

 

Payment of Rent Does Not Waive the Tenant’s Right to Recover Rent Paid Based Upon the Landlord’s Breach of the Covenant of Quiet Enjoyment

The Third Department noted that the tenant’s paying of rent did not waive the tenant’s right to recover rent payments made during the time an elevator was not yet installed. The lease agreement called for the installation of an elevator by March and it was not installed until November. The tenant was entitled to a return of the rent paid before the elevator was functioning based upon the landlord’s breach of the covenant of quiet enjoyment:

The case law makes clear that a tenant’s “payment of all required rent is a condition precedent to the maintenance of . . . an action” for breach of the covenant of quiet enjoyment … . Hence, plaintiff’s payment of rent during the months in question cannot be deemed to be a waiver of its rights under this portion of the lease. City of Troy, N.Y. v 1776 Sixth Ave., Troy, LLC, 2015 NY Slip Op 08236, 3rd Dept 11-12-15

 

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Cause of Action Based Upon a Dispute About the Correct Rent-Increase Computation Accrues on the First Use of the Disputed Computational Methodology

The First Department determined a lawsuit stemming from a dispute about the proper rent computation in an ambiguous contract was time-barred. The lawsuit was started in 2009. However, the rent computation problem was apparent in 1999. That is when the statute of limitations started running and it does not start anew every year the problem persisted:

In Goldman Copeland [260 AD2d 370], this Court squarely held that a claim for breach of contract based on an allegedly erroneous computation of rent accrues upon the first use of that computational methodology, and the statute of limitations does not begin to run anew each time the same formula is used. * * *

Goldman Copeland is a precedent of this Court, and we adhere to it as a matter of stare decisis. Its holding applies to this case, as Tenant consistently paid, and Landlord accepted, rent based on two successive 50-cents-per-square-foot escalations from 1999 through 2009, when this action was commenced. Further, when the first rent escalation went into effect in late 1999, Landlord could have determined, through the use of simple arithmetic, that the lease’s rent illustrations for the initial 25-year term were not based on 10% increases. When Landlord subsequently discovered in 2001 that it had not been billing rent based on a 10% escalation since 1999, the discovery was not based on any information that Landlord had not possessed in 1999. K-Bay Plaza, LLC v Kmart Corp., 2015 NY Slip Op 07905, 1st Dept 10-29-15

 

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Out-of-Possession Landlord and Lessee Are Not “United In Interest” Such that the Lessee Could Be Added to the Complaint After the Statute of Limitations Had Run (Relation-Back Doctrine)

The Third Department determined Supreme Court, in a snow-ice slip and fall case, properly denied plaintiff’s motion to amend the complaint, after the statute of limitations had run, to add the lessee of the property (Albany Medical Center Hospital [AMCH]) as a defendant. The defendant out-of-possession landlord demonstrated, under the terms of the lease, AMCH had the responsibility for maintaining the property in a safe condition. Because the out-of-possession landlord and AMCH were not “united in interest,” the relation-back doctrine did not apply:

… [T]he relation back doctrine permits a plaintiff to amend the complaint to add a defendant even though the statute of limitations had expired at the time of amendment so long as three requirements are met: “(1) both claims must arise out of the same occurrence, (2) [the] defendant and [the new party] were united in interest, and by reason of that relationship can be charged with notice of the institution of the action such that it will not be prejudiced in maintaining a defense on the merits, and (3) [the new party] knew or should have known that, but for a mistake by [the] plaintiff as to the identity of the proper party, the action would have been brought against it as well ” … . While there is no dispute that the first prong of this test is satisfied under these circumstances, we agree with Supreme Court that defendant and AMCH do not share unity of interest inasmuch as they cannot be said to “stand or fall together” … . “Indeed, unless the original defendant and new party are vicariously liable for the acts of the other[,] there is no unity of interest between them” … . McLaughlin v 22 New Scotland Ave., LLC, 2015 NY Slip Op 07883, 3rd Dept 10-29-15

 

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Criteria for Lead-Paint-Exposure Cause of Action Described

In finding plaintiff had raised a question of fact whether one of the defendant landlords was aware of peeling lead paint in the apartment (because of alleged complaints about it), the Fourth Depatment explained the elements of a lead-paint-exposure cause of action:

” To establish that a landlord is liable for a lead-paint condition, a plaintiff must demonstrate that the landlord had actual or constructive notice of, and a reasonable opportunity to remedy, the hazardous condition,’ ” and failed to do so … . Thus, to meet their burden on their motions for summary judgment with respect to the premises liability causes of action, defendants were required to establish that they “had no actual or constructive notice of the hazardous lead paint condition prior to an inspection conducted by the [Oswego] County Department of Health” (…see generally Chapman v Silber, 97 NY2d 9, 15). … “[T]he factors set forth in Chapman . . . remain the bases for determining whether a landlord knew or should have known of the existence of a hazardous lead paint condition and thus may be held liable in a lead paint case”… . Kimball v Normandeau, 2015 NY Slip Op 07357, 4th Dept 10-8-15

 

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Question of Fact Whether Former Tenants Entitled to Pass Apartment to Their Son Under the Rent Stabilization Law

The First Department determined there was a question of fact whether former tenants had stopped using their apartment as a primary residence, or whether they had permanently vacated the apartment. Under the terms of an agreement (Settlement Agreement), if the former tenants had permanently vacated the apartment, they were entitled to pass the apartment to their son, who had been living there most of his life. If, on the other hand, the former tenants merely stopped using the apartment as their primary residence, they could not pass the apartment to their son. The former tenants had moved to Uganda, where they had a home. They returned to New York every year to visit and used the apartment during the visits:

Although the parents no longer have rights to the apartment, there are still disputed issues of fact regarding whether at the time the parents moved to Uganda, they permanently vacated the apartment or continued to use the apartment as nonprimary residents. This issue and disputed facts directly affect the son’s right (if any) to a successor tenancy. If the parents permanently vacated, then the son would have rights as a successor. If, however, the parents continued to use the apartment as non-primary residents, the son’s claim would fail This issue precludes the grant of summary judgment to either side on the issue of whether the son has successor rights.  Waterside Plaza Ground Lessee, LLC v Rwambuya, 2015 NY Slip Op 06867, 1st Dept 9-22-15

 

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