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Landlord Not Entitled to Reformation of a Lease—Landlord Had Failed to Use Due Diligence Before Signing and Did Not Notice a Deletion Made by Plaintiff—Plaintiff Was Not Obligated to Highlight the Deletion

The First Department determined defendant landlord, sophisticated in business matters, was not entitled to reformation of a lease. The landlord had signed the agreement after the provision capping what the landlord would pay for renovations made by the tenant was deleted.  The renovations ended up costing nearly a year’s rental income. Plaintiff’s failure to “highlight” the deletion did not constitute fraud:

Defendant landlord failed to demonstrate that it was entitled to reformation of the lease amendment providing that it would reimburse plaintiff tenant the total cost of its alterations, rather than a capped amount as had been set forth in drafts circulated during negotiations over the renewal lease. Defendant’s failure to read the final document before signing it precludes its claim of unilateral mistake induced by fraud based on plaintiff’s failure to highlight its deletion of the portion of the provision capping the reimbursement amount, before presenting it to defendant’s in-house counsel for defendant’s signature … . Contrary to this sophisticated defendant’s contention, the justifiability of its reliance does not present an issue of fact barring summary disposition … . Even assuming an obligation to conduct pre-contractual negotiations in good faith in appropriate circumstances, such as would enable a party to rely on the adverse party negotiating in good faith and to assume that there are no new changes to earlier drafts unless the change is highlighted, defendant’s claim for reformation based on the allegation of fraud cannot stand. Defendant simply may not justifiably rely on the absence of such highlighting for its failure to fully review the final version of this four-page document before signing it, especially since the change is on the first page. US Legal Support Inc v Eldad Prime LLC, 2015 NY Slip Op 01386, 1st Dept 2-17-15

 

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Criteria for Collateral Estoppel Explained (Criteria Not Met Here)

The Second Department reversed Supreme Court finding that plaintiff’s housing discrimination action was not precluded by the landlord’s prior successful eviction action under the doctrine of collateral estoppel.  Although it was determined that there was a nondiscriminatory reason for the eviction, the eviction proceeding did not address issues raised in the discrimination action.  The court explained the criteria for collateral estoppel:

“The doctrine of collateral estoppel . . . precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same” … . “The two elements that must be satisfied to invoke the doctrine of collateral estoppel are that (1) the identical issue was decided in the prior action and is decisive in the present action, and (2) the party to be precluded from relitigating the issue had a full and fair opportunity to contest the prior issue” … . “Preclusive effect, however, will only be given where the particular issue was actually litigated, squarely addressed and specifically decided'” … . “Generally, for a question to have been actually litigated’ so as to satisfy the identity requirement, it must have been properly raised by the pleadings or otherwise placed in issue and actually determined in the prior proceeding'” … .

Here, while the Supreme Court and the landlords characterize the instant action as one to recover damages for “wrongful eviction,” that is not the essence of the plaintiff’s claim. Rather, the complaint alleges that, upon learning that the plaintiff suffered from a mental illness, the defendants engaged in a course of “harassment, discrimination and hostile conduct” against him that spanned several years and predated the decision to enforce the rule pertaining to carpeting of the floor against him. The prior summary proceeding did not decide whether the plaintiff was subjected to harassment based on his mental illness, whether such harassment affected a term, condition, or privilege of his housing, or any other elements of his cause of action to recover damages for housing discrimination based on disability in violation of Executive Law § 296(5) … . Curley v Bon Aire Props Inc, 2015 NY Slip Op 00718, 2nd Dept 1-28-15

 

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Question of Fact Whether Out-of-Possession Landlord Created the Dangerous Condition Which Caused Gas Escaping from a Propane Tank to Ignite/Question of Fact Whether the Injured Employee’s Negligent Act (the Employee, Against the Direction of His Supervisor, Brought a Partially-Filled Propane Tank Inside the Building) Was Foreseeable

The Third Department determined a question of fact had been raised about the out-of-possession landlord’s liability for an accident which ignited gas from a propane tank.  The landlord had converted the building where the accident occurred for the operation of a propane tank refinishing business.  The business was continued by the tenant.  An expert concluded that there were several ignition sources within the building, installed by the landlord, which could have ignited the gas.  Therefore, there was a question of fact whether the out-of-possession landlord had created the dangerous condition.  In response to the argument that the negligence of injured employee (who brought a propane tank which still had gas in it into the building) was the sole proximate cause of the accident, the Third Department determined there was a question of fact about whether bringing such a partially filled tank inside the building (something employees were directed not to do) was foreseeable:

… [I]t is well established that, generally, “once possession has been transferred to a tenant, an out-of-possession landlord will not be held responsible for dangerous conditions existing upon leased premises” … . Exceptions to the general rule do exist, including situations where the landlord retains control over the leased premises, has agreed to repair or maintain the premises or “has affirmatively created the dangerous condition” … .

… [Landlord and tenant-employer] assert that the reckless conduct of [tenant’s] employees was the sole proximate cause of the explosion and that defendant cannot be held liable to plaintiffs merely because it allegedly furnished the condition that allowed for the accident. In order to sever the causal connection in this matter, it must be demonstrated that the employees’ actions were “extraordinary under the circumstances, not foreseeable in the normal course of events, or independent of or far removed from … defendant’s conduct” … . Certainly, the act of the [tenant’s] new employee of bringing a tank that was not marked as empty into the building –against the direct instructions of his supervisor–was negligent. Nonetheless, defendant and third-party defendant have failed to show that such conduct was unforeseeable, thereby “sever[ing] any causal link between [defendant’s] negligence and [decedent’s] injuries” … . Miller v Genoa AG Ctr Inc, 2015 NY Slip Op 00586, 3rd Dept 1-22-15

 

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Tenant Entitled to Attorney’s Fees After Successfully Defending Landlord’s Holdover Action—Discretion to Deny Attorney’s Fees Should Be Used Sparingly Because of the Purpose of the Controlling Statute

The First Department reversed the Appellate Term finding that a tenant who successfully defended a holdover action brought by the landlord was entitled to attorney’s fees. After several lease renewals at a “preferential” rate, the landlord required that a renewal be at the “legal” rate (several thousand dollars higher than the preferential rate) and started a holdover proceeding when the tenant refused to pay the “legal” rate.  Appellate Term decided the tenant was not entitled to attorney’s fees because the landlord had a “colorable claim” that it was entitled to charge the “legal” rate.  The First Department explained that whether the landlord had a “colorable claim” was not the correct standard to apply:

Under Real Property Law § 234, when a residential lease provides for a landlord’s recovery of attorneys’ fees resulting from a tenant’s failure to perform a lease covenant, a reciprocal covenant is implied requiring the landlord to pay the tenant’s attorneys’ fees incurred as a result of, inter alia, the tenant’s successful defense of an action or summary proceeding commenced by the landlord arising out of the lease … . To support an award of attorneys’ fees, the tenant must be the prevailing party, that is, the result must be substantially favorable to the tenant … .

Here, the terms of the parties’ lease plainly triggers the reciprocal covenant mandated by Real Property Law § 234, and the tenant is entitled to recover the attorneys’ fees incurred in his successful defense of the holdover proceeding. Contrary to the landlord’s assertion, the tenant was the prevailing party regardless of whether the holdover proceeding was formally dismissed, since a tenant is entitled to recover fees “when the ultimate outcome is in his favor, whether or not such outcome is on the merits” … .

Despite the tenant’s status as the prevailing party, the Appellate Term nevertheless denied the fee request because, in its view, the landlord’s possessory claim was “of colorable merit” … . This was an improper standard. “The overriding purpose of [Real Property Law § 234] is to provide a level playing field between landlords and tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense” … . Because it is a remedial statute, Real Property Law § 234 “should be accorded its broadest protective meaning consistent with legislative intent” … . The Appellate Term’s conclusion that a tenant’s claim to reciprocal attorneys’ fees can be denied whenever a landlord asserts a colorable claim undermines the salutary purpose of Real Property Law § 234. A “colorable claim” standard would result in the gutting of the protections afforded by the statute because it would allow courts to deny fees whenever the landlord can make a nonfrivolous legal argument in support of its position.

Although courts have some discretion to deny attorneys’ fees sought under Real Property Law § 234, such discretion should be exercised sparingly … . Thus, a request for attorneys’ fees should be denied only where a fee award would be manifestly unfair or where the successful party engaged in bad faith … .

Here, the landlord has made no showing of any bad faith on the tenant’s part. Matter of 251 CPW Hous LLC v Pastreich, 2015 NY Slip Op 00208, 1st Dept 1-6-15

 

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Tenant’s Filing for Bankruptcy Precluded County from Proceeding with Efforts to Collect on a Property Tax Lien

The Fourth Department determined the county properly concluded it could not proceed to collect on a tax lien after the tenant in the relevant property filed for bankruptcy:

The Village contends that the County used an improper basis for its determination to withdraw the properties from the in rem foreclosure proceeding and to cancel the tax liens, i.e., the bankruptcy proceeding filed by plaintiff’s tenant. Although the County does not explicitly respond to the Village’s contention that the bankruptcy petition of plaintiff’s tenant did not operate to stay the in rem proceeding because plaintiff is the property owner, we nevertheless reject that contention. “[A] leasehold, like all other interests of the debtor, immediately becomes property of the [debtor’s] estate whenever bankruptcy relief is sought” … . Thus, the tenant’s petition operated as a stay to “enforce any lien against property of the estate” (11 USC § 362 [a] [4]). We therefore conclude that the County properly determined that the in rem foreclosure proceeding with respect to the subject parcels was stayed pursuant to RPTL 1140 (1), and properly withdrew those parcels from the proceeding. Herkimer County Indus Dev Agency v Village of Herkimer, 2015 NY Slip Op 00053, 4th Dept 1-2-15

 

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Although the Landlord Can Sue Pursuant to the Accelerated Rent Clause and Is Not Under a Duty to Mitigate, the Out-of-Possession Tenant Should Be Afforded a Hearing On Whether the Accelerated Rent/Liquidated Damages Clause, Under the Facts, Constitutes an Unenforceable Penalty Because It Results In Recovery Grossly Disproportionate to the Landlord’s Actual Damages

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined that, where the tenant has breached the lease and left the premises, the landlord can sue to enforce the rent acceleration clause and is under no duty to mitigate.  However, under the facts here, the tenant was entitled to a hearing to address whether the acceleration clause allows liquidated damages which are grossly disproportionate to the actual losses, and therefore constitutes an unenforceable penalty:

As a general matter parties are free to agree to a liquidated damages clause “provided that the clause is neither unconscionable nor contrary to public policy” … . Liquidated damages that constitute a penalty, however, violate public policy, and are unenforceable … . A provision which requires damages “grossly disproportionate to the amount of actual damages provides for a penalty and is unenforceable” … .

Whether 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 burden is on the party seeking to avoid liquidated damages[] to show that the stated liquidated damages are, in fact a penalty” … . Where a party establishes a penalty, the proper recovery is the amount of actual damages established by the party … .

Defendants claim that because the acceleration clause permits [the landlord] to hold possession and immediately collect all rent due, the damages are grossly disproportionate to the landowner's actual damages. They contend this is a windfall that allows [the landlord] to double dip—–get the full rent now and hold the property. On its face this argument is compelling because arguably the ability to obtain all future rent due in one lump sum, undiscounted to present-day value, and also enjoy uninterrupted possession of the property provides the landowner with more than the compensation attendant to the losses flowing from the breach—–even though such compensation is the recognized purpose of a liquidated damages provision … . 172 Van Duzer Realty Corp v Globe Alumni Student Assistance Assn Inc, 2014 NY Slip Op 08872, CtApp 12-18-14

 

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Officer of Corporation Dissolved Pursuant to the Tax Law Is Personally Liable for Corporation’s Lease Obligations

The Second Department determined that defendant, an officer of the defendant dissolved corporation, was personally liable for the dissolved corporation’s lease obligations:

Pursuant to Tax Law § 203-a, the Secretary of State may dissolve a corporation by proclamation for the nonpayment of franchise taxes. Upon dissolution, the corporation’s legal existence terminates and it is prohibited from carrying on new business (see … Business Corporation Law § 1005[a][1]). It retains a limited de jure existence solely for the purpose of winding up its affairs (see … Business Corporation Law §§ 1005[a][1], 1006). A person who purports to act on behalf of a dissolved corporation is personally responsible for the obligations incurred … . Personal liability is not limited to the person who executes a contract on behalf of a dissolved corporation, but extends to the officers of the dissolved corporation … . 80-02 Leasehold LLC v CM Realty Holdings Corp, 2014 NY Slip Op 08805, 2nd Dept 12-17-14

 

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Insurer of Lessee Obligated to Defend and Indemnify the Owner/Lessor of the Premises (Named as an Additional Insured) Re: a Slip and Fall on the Sidewalk in Front of the Premises/Use of the Sidewalk Constitutes “Use of the Leased Premises” Within the Meaning of the Policy

The Second Department determined the insurer, Continental, was obligated to defend and indemnify the plaintiff-owner of the premises re: a slip and fall on the sidewalk in front of the premises. The premises was leased to the insured, “White Plains,” and sublet to “Pretty Girl,” a retail store.  The owner/lessor was named as an additional insured in the Continental policy:

The Continental policy contains an endorsement stating that a lessor of premises is an additional insured with respect to liability arising out of the ownership, maintenance, or use of the specific part of the premises leased. The plaintiffs, who are the owners and lessors of the subject premises, established that their potential liability in the underlying action arises out of the ownership, maintenance, or use of the specific part of the premises leased to Continental’s insured, White Plains Sportswear Corp., and sublet to Pretty Girl, Inc.

Inasmuch as New York City Administrative Code § 7-210 imposes liability on owners of commercial property for defective conditions on sidewalks, the plaintiffs’ potential liability arises from their ownership of the leased premises … . The underlying claim arises out of the maintenance or use of the leased premises, as the sidewalk was necessarily used for access in and out of the leased building … . Frank v Continental Cas Co, 2014 NY Slip Op 08808, 2nd Dept 12-17-14

 

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Landlord Properly Granted Summary Judgment in Action Stemming from an Assault on Landlord’s Premises—Plaintiff Unable to Raise a Question of Fact Whether the Assailants Were Intruders, as Opposed to Tenants or Invitees

The First Department determined summary judgment was properly awarded to the landlord in an action based upon an attack upon plaintiff on the landlord’s premises.  Plaintiff was not able to raise a question of fact about whether the assailants were intruders, as opposed to tenants or invitees:

A landlord has a common-law duty to take minimal precautions to protect tenants from a third party’s foreseeable criminal conduct … . In order to recover damages, a tenant must establish that the landlord’s negligent conduct was a proximate cause of the injury … . Where a plaintiff alleges that a criminal attack in a building was proximately caused by a landlord’s failure to provide adequate security, “[the] plaintiff can recover only if the assailant was an intruder” (id. at 551). “To defeat a motion for summary judgment, a plaintiff need not conclusively establish that the assailants were intruders, but must raise triable issues of fact as to whether it was more likely than not that the assailants were intruders who gained access to the premises through the negligently-maintained entrance” … . Applying these principles, no triable issue of fact exists here because there is no evidence from which a jury could conclude, without pure speculation, that the assailants were intruders, as opposed to tenants or invitees. Hierro v New York City Hous Auth, 2014 NY Slip Op -8734, 1st Dept 12-11-14

 

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Out-Of-Possession Landlord Liability Criteria Explained

The Third Department determined an out-of-possession landlord was not liable to an employee of the tenant who slipped and fell on a loose stair tread.  Neither the terms of the lease nor a course of conduct rendered the out-of-possession landlord responsible for repairing the condition.  The Third Department explained the relevant analytical criteria:

“Generally, ‘an out-of-possession landlord who relinquishes control of the premises is not liable to employees of a lessee for personal injuries caused by an unsafe condition existing on the premises'” … . “‘Exceptions to this rule include situations where the landlord retains control of the premises, has specifically contracted to repair or maintain the property, has through a course of conduct assumed a responsibility to maintain or repair the property or has affirmatively created a dangerous condition'” … . Whittington v Champlain Ctr N LLC, 2014 NY Slip Op 08691, 3rd Dept 12-11-14

 

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