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Incidents of Ownership Awarded Hospital-Services-Tenant in Lease Entitled Tenant to Exemption from Real Property Tax

The Third Department determined that the tenant of a building used for hospital services was entitled to an exemption from real property tax because the tenant assumed many incidents of ownership.  The town argued that the tenant was not entitled to any exemption because it was not the true owner of the building:

As relevant here, RPTL 420-a mandates that “[r]eal property owned by a corporation or association organized or conducted exclusively for . . . hospital . . . purposes, and used exclusively for carrying out thereupon one or more of such purposes . . . shall be exempt from taxation” (RPTL 420-a [1] [a] [emphasis added]). Land and buildings are separately defined as taxable forms of real property (see RPTL 102 [12] [a], [b]), and a landlord and tenant may agree to their separate ownership … . The mere labeling of a tenant as “owner,” however, is not conclusive for real property taxation purposes … . Rather, the question of ownership turns on whether the lease agreement confers incidents of ownership upon the tenant or whether the landlord retains such dominion and control over the property that it must be deemed the beneficial owner for tax purposes … .

Here, the lease expressly vests title to all improvements on the property in petitioner as owner and grants petitioner significant incidents of ownership. For example, petitioner is entitled to claim depreciation on the improvements and is insured to the full extent of its interest in the building. In the event of substantial destruction of the improvements, petitioner has the right to determine whether to rebuild and, in the event of condemnation proceedings, petitioner is to receive the value of its present interest in the improvements. Petitioner also has the sole right to contest any tax assessment of the property, obtain a mortgage on the improvements, which it has done, and remove the improvements at the end of the lease term. Title to the improvements and the right to remove them vest in the landlord only in the event that petitioner abandons them at the termination of the lease. Finally, it is undisputed that the landlord does not retain any control over petitioner’s operation of its improvements as a health care facility. Matter of United Health Servs Hosps Inc v Assessor of the Town of Vestal, 2014 NY Slip Op 08275, 3rd Dept 11-26-14

 

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Successive Tenants of Same Apartment Limited to a Single Policy Limit Re: Recovery for Lead Paint Exposure

The Court of Appeals, in a full-fledged opinion by Judge Smith, over a dissent, determined that the children in two families who were successive tenants of the same apartment were restricted to recovery for exposure to lead paint to a single policy limit, and not multiple policy limits based upon annual policy renewals.  The two families’ recoveries were limited to the single $500,000 policy limit:

In September 1991, Allstate Insurance Company issued a policy of liability insurance to the landlord of a two-family house in Rochester. The policy was renewed annually for the years beginning September 1992 and September 1993. It stated on the declarations page a $500,000 limit for “each occurrence,” and contained the following noncumulation clause:

“Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.”

Felicia Young and her children lived in one of the two apartments in the house from November 1992 until September 1993. In July 1993, the Department of Health notified the landlord that one of the children had been found to have an elevated blood lead level and that several areas in the apartment were in violation of State regulations governing lead paint. The Department listed the violations and directed the landlord to correct them. The landlord made some repairs, and the Department advised him in August 1993 that the violations “have been corrected.”

After the Young family moved out of the apartment in September 1993, Lorenzo Patterson, Sr. and Qyashitee Davis moved in with their two children. Again a child was found to have an elevated blood lead level, and the Department of Health sent another letter saying that violations had been found and instructing the landlord to correct them. (This letter was sent in December 1994, but the parties seem to assume that the elevated readings resulted at least in part from events on or before September 29, 1994, the last day of Allstate’s coverage.) * * *

Young’s children and Nesmith’s grandchildren were exposed to the same hazard, lead paint, in the same apartment. Perhaps they were not exposed to exactly the same conditions; but to say that the “general conditions” were not the same would deprive the word “general” of all meaning. Nesmith argues that, because the landlord made an effort to correct the problem after Young’s children were exposed and before Nesmith’s grandchildren moved in, the “conditions” that injured her grandchildren must have been new ones. But she makes no claim, and the record provides no basis for inferring, that a new lead paint hazard had been introduced into the apartment. The only possible conclusion from this record is that the landlord’s remedial efforts were not wholly successful, and that the same general conditions — the presence of lead paint that endangered children’s health — continued to exist. Because Young’s children and Nesmith’s grandchildren were injured by exposure to the same general conditions their injuries were part of a single “accidental loss,” and only one policy limit is available to the two families. Nesmith v Allstate Ins Co, 2014 NY Slip Op 08217, CtApp 11-25-14

 

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Class Action Mechanism Is Available Where the Relevant Statute Imposes a Non-Mandatory Penalty and the Penalty Is Waived by the Class

The Court of Appeals, in a full-fledged opinion by Judge Lippman, over a dissent, determined that class action suits brought by tenants pursuant to CPLR 901 (b) were properly allowed to go forward.  The suits alleged the tenants, who were in rent-stabilized apartments, were overcharged when the landlords decontrolled the apartments despite their receipt of tax benefits under the J-51 program.  The Court of Appeals, in 2009, determined that the receipt of J-51 tax benefits precluded the landlords from decontrolling the apartments.  The central issue was the availability of the class action mechanism, which is generally not available where the suit seeks the imposition of a penalty.  Here the treble damages (penalty) provision of the Rent Stabilization Law (RSL 26-516) was waived by the plaintiffs. The waiver was deemed valid, clearing the way for the class actions:

CPLR 901 (b) prohibits any claim for penalties to be brought as a class action. It states, “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action” (CPLR 901 [b]). The language of CPLR 901 (b) itself says it is not dispositive that a statute imposes a penalty so long as the action brought pursuant to that statute does not seek to recover the penalty. * * *

From a policy standpoint, permitting plaintiffs to bring these claims as a class accomplishes the purpose of CPLR 901 (b). Preemptively responding to the argument raised by defendants here, the State Consumer Protection Board emphasized the importance of class actions: “The class action device responds to the problem of inadequate information as well as to the need for economies of scale” for “. . . a person contemplating illegal action will not be able to rely on the fact that most people will be unaware of their rights — if even one typical person files a class action, the suit will go forward and the other members of the class will be notified of the action either during the proceedings or after a judgment is rendered in their favor” (Mem of State Consumer Protection Bd, Bill Jacket, L 1975, ch 207).

Where a statute imposes a non-mandatory penalty, plaintiffs may waive the penalty in order to bring the claim as a class action … . Borden 400 E 55th St Assoc LP, 2014 NY Slip Op 08211, CtApp 11-24-14

 

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Rent-Stabilized Apartment Lease Is Exempt from the Bankruptcy Estate

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over a dissent, determined that a rent-stabilized apartment lease is exempt from the bankruptcy estate because it qualifies as a “local public assistance benefit” under Debtor and Creditor Law (DCL) 282 (2):

Section 522 (b) of the Bankruptcy Code permits the debtor to exempt certain property from the bankruptcy estate, and section 522 (d) provides a list of property that may be exempt. However, the Code also permits states to create their own list of exemptions, and New York has done so. DCL § 282 sets forth the permissible exemptions in personal bankruptcy. Debtors domiciled in New York have the option of choosing either the federal exemptions or New York exemptions (11 USC § 522 (b); DCL § 285). DCL § 282 (2), entitled “Bankruptcy exemption for right to receive benefits” lists the following as exemptions:

“The debtor’s right to receive or the debtor’s interest in: (a) a social security benefit, unemployment compensation or a local public assistance benefit; (b) a veterans’ benefit; (c) a disability, illness, or unemployment benefit; (d) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and (e) all payments under a stock bonus, pension, profit sharing, or similar plan or contract on account of illness, disability, death, age, or length of service . . . “

When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit.   Matter of Santiago-Monteverdi, 2014 NY Slip Op 08051, CtApp 11-20-14

 

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In a Lead-Paint-Injury Case, Non-party Medical Records Not Discoverable (Re: Plaintiff’s Mother and Siblings)–Non-party Academic Records Should Be Submitted for In Camera Review–Mother Cannot Be Compelled to Submit to an IQ Test

The Third Department determined the extent of allowable discovery re: non-parties in a lead-paint-injury case.  The defense sought medical and academic records of plaintiff’s mother and siblings, all non-parties, and sought to compel the mother to undergo an IQ test.  The Third Department held that the non-party medical records were not discoverable (except for the mother’s records during pregnancy), the non-party academic records should be submitted to the court for in camera review, and the mother should not be compelled to undergo an IQ test:

A subdivision of the main disclosure statute provides that “[u]pon objection by a person entitled to assert the privilege, privileged matter shall not be obtainable” (CPLR 3101 [b]). Medical records are protected by a doctor-patient privilege and cannot be disclosed without consent or a waiver of the privilege (see CPLR 4504 [a]…). A plaintiff waives the privilege by commencing an action that places his or her mental or physical condition at issue, but nonparties are not subject to having their medical histories made public merely because a relative commences an action … . As plaintiff’s mother and siblings did not consent and have not waived that privilege, Supreme Court should not have ordered disclosure of their medical records … . An exception exists for the mother’s medical records during the time of her pregnancy with and birth of plaintiff, but plaintiff has already provided an authorization for those records … .

Regarding the mother’s and siblings’ academic records, defendants have submitted an expert affidavit, as noted above, indicating that those records are relevant and necessary to determine whether other factors caused plaintiff’s injuries … . Considering that these records are private but not privileged, Supreme Court reasonably balanced defendants’ need for them and their possible relevance against the burden to these nonparties from disclosure, requiring that the siblings’ records be produced to the court for an in camera review … . The mother’s academic records should similarly be submitted to the court for review and redaction of any privileged material. …

Defendants’ need for her IQ test results, however, are not outweighed by the burden on her to undergo such a test, as well as the potential for extending this litigation by focusing on information extraneous to plaintiff’s condition, such as all of the factors contributing to the mother’s IQ … . Considering the private and personal nature of the information sought and the potential delay due to myriad collateral issues, defendants should not be able to compel plaintiff’s mother, a nonparty, to undergo an IQ test … . Perez v Fleischer, 2014 NY Slip Op 008101, 3rd Dept 11-20-14

 

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Slip and Fall Suit Against Out-Of-Possession Landlord Properly Dismissed

The Third Department affirmed the dismissal of the complaint against the out-of-possession landlord (SJM).  The plaintiff slipped and fell because of a loose stairway-tread block.  The stairway was constructed by defendant-company, Stanley, with which SJM had contracted.  However SJM did not supervise or control Stanley’s work. There was evidence the stairway (used only by employees of the tenant, not the general public) did not conform to the tread-width requirements of the building code:

As a general rule, “‘an out-of-possession landlord who relinquishes control of the premises and is not contractually obligated to repair unsafe conditions is not liable to employees of a lessee for personal injuries caused by an unsafe condition existing on the premises'” … . There are exceptions. For example, a landlord has a “‘nondelegable duty to provide the public with a reasonably safe premises and a safe means of ingress and egress'” … . Liability may attach where the out-of-possession landlord has contracted to repair or maintain the premises, has affirmatively created the condition … or has retained a right to reenter the premises for inspection or repairs and the injury arises from a structural defect or specific statutory violation … . …

SJM’s nondelegable duty to the public is not relevant because plaintiff’s injury did not occur in an area open to the public * * * Although SJM retained a right under the lease to re-enter the premises, this “‘is insufficient to establish the requisite degree of control necessary for the imposition of liability with respect to an out-of-possession landlord'” … .

….[T]he condition of the stairway was not sufficient to impose liability upon SJM. Assuming, without deciding, that the stairway did not conform to the New York State Building Code provision with regard to the width of stair treads (see 9 NYCRR former 713.1), the condition does not constitute a significant structural defect or statutory violation as would be necessary to find that SJM had constructive notice of the loose concrete block … . Accepting plaintiff’s descriptions of the accident, the stairway and the condition of the step, his fall was not attributable to the width of the tread, but rather its instability. …Supreme Court properly determined that SJM did not create the allegedly dangerous condition. Plaintiff’s expert does not assert that the stairs were negligently designed, but rather that they were not constructed in accordance with the specifications. Although SJM retained Stanley to construct the stairway in accordance with the architectural plans, as a general rule, SJM is not liable for the independent contractor’s alleged negligent construction … . Wayman v Roy Stanley Inc, 2014 NY Slip Op 08087, 3rd Dept 11-20-14

 

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Cause of Action Against Landlord for Nuisance, Based Upon a Noisy Tenant, Does Not Lie Where the Landlord Did Not Create the Nuisance and the Landlord Has Surrendered Control of the Premises to the Tenant

In affirming the denial of summary judgment to the landlord in an action alleging a tenant’s noise constituted a nuisance (because the papers submitted were inadequate), the First Department noted that a cause of action for nuisance does not lie against a landlord who did not create the nuisance and who has surrendered control of the premises to a tenant.  Clarke v 6485 & 6495 Broadway Apt Inc, 2014 NY Slip Op 07961, 1st Dept 11-18-14

 

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Summary Judgment Properly Granted to Property Owner in Lead-Paint-Injury Case

The Fourth Department determined the property owner was entitled to summary judgment in a lead-paint-injury case.  There was no showing defendant had notice of the presence of lead paint hazard or that defendant was negligent in abating the lead paint hazard:

“In order for a landlord to be held liable for a lead paint condition, it must be established that the landlord had actual or constructive notice of the hazardous condition and a reasonable opportunity to remedy it, but failed to do so” … . We conclude that plaintiffs failed to meet their initial burden of establishing that defendants had actual or constructive notice … . Faison v Luong, 2014 NY Slip Op 07794, 4th Dept 11-14-14

 

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Effects of Taking Property “As Is,” the Implied Covenant of Fair Dealing, and Constructive Eviction Discussed

Plaintiff-tenant took possession of the leased premises “as is.” Subsequently plaintiff stopped paying rent claiming that the condition of the elevator prevented the issuance of a certificate of occupancy.  In denying both parties’ motions for summary judgment (because plaintiff failed to show the condition of the elevator was the reason for the denial of the certificate of occupancy; and because the defendants failed to show it properly maintained the elevator), the Second Department explained the relevant contract principles:

A court’s fundamental objective in interpreting a contract is to determine the parties’ intent from the language employed and to fulfill their reasonable expectations … . “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” … . Thus, “[i]t is the role of the courts to enforce the agreement made by the parties—not to add, excise or distort the meaning of the terms they chose to include, thereby creating a new contract under the guise of construction” … .

Moreover, “[i]mplicit in every contract is a covenant of good faith and fair dealing, which encompasses any promise that a reasonable promisee would understand to be included” … . “The implied covenant of good faith and fair dealing is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement” … . * * *

…[T]he fact that the plaintiff agreed to take possession of the leased premises in “as-is” condition does not necessarily warrant the conclusion that the plaintiff intended to waive any claims with respect to the portions of the building that were not leased to him, or to waive the landlord’s obligation to maintain the elevator. The defendants … argued that the provision of the lease which required them to “maintain the current elevator services and maintain and repair the elevator in reasonable condition” only obligated them to prevent any deterioration in the elevator service existing on the date that the parties entered into the lease. However, in light of the implied covenant of good faith and fair dealing, a reasonable tenant could interpret that provision as obligating the landlord to maintain the elevator free from violations and to promptly perform repairs, particularly if failing to do so could prevent the tenant from obtaining a certificate of occupancy for the leased premises. …

[Re: the defendants-landlords’ motion for summary judgment to recover unpaid rent:] “The obligation of a commercial tenant to pay rent is not suspended if the tenant remains in possession of the leased premises, even if the landlord fails to provide essential services” … . Before a tenant may withhold rent, the tenant must prove actual or constructive eviction … . To demonstrate constructive eviction, then, a tenant must vacate the premises … . Here, the defendants’ submissions failed to demonstrate, prima facie, that the plaintiff remained in possession of the leased premises and thus, was not constructively evicted. Prakhin v Fulton Towers Realty Corp, 2014 NY Slip Op 07487, 2nd Dept 11-5-14

 

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Re: a Slip and Fall in a McDonald’s Restaurant, the McDonald’s Defendants Were Not Liable as an Out-of-Possession Landlord, a Franchisor, or a Property Owner—Summary Judgment Properly Granted

In dismissing a slip and fall complaint against the McDonald’s (restaurant) defendants, the Second Department explained that the defendants could not be held liable as an out-of-possession landlord, a franchisor, or as an entity responsible for a dangerous condition on the property:

The McDonald’s defendants established, prima facie, that McDonald’s Corporation was an out-of-possession landlord on the date of the subject accident, and that it had no duty to maintain or repair the leased premises where the accident occurred. Therefore, the McDonald’s defendants met their initial burden of establishing that McDonald’s Corporation owed no duty to the plaintiff … . In opposition, the plaintiff failed to raise a triable issue of fact.

Further, McDonald’s Corporation was not liable based upon its status as a franchisor. In determining whether a defendant, as a franchisor, may be held vicariously liable for the acts of its franchisee, the most significant factor is the degree of control that the franchisor maintains over the daily operations of the franchisee or, more specifically, the manner of performing the very work in the course of which the accident occurred … . Here, the McDonald’s defendants tendered sufficient evidence in support of their motion to establish, prima facie, that McDonald’s Corporation lacked the requisite control over the alleged causes of the plaintiff’s injuries. The plaintiff failed to raise a triable issue of fact in opposition.

In addition, the Supreme Court correctly granted that branch of the motion which was for summary judgment dismissing the amended complaint insofar as asserted against the defendant McDonald’s Restaurants of New York, Inc. Liability for a dangerous condition on property is generally predicated upon ownership, occupancy, control, or special use of the property … . The McDonald’s defendants established, prima facie, that McDonald’s Restaurants of New York, Inc., did not own, occupy, control, or have a special use of the subject property at the time of the accident and, thus, could not be held liable for injuries caused by the allegedly dangerous conditions … . Khanimov v McDonald’s Corp, 2014 NY Slip Op 07332, 2nd Dept 10-29-14

 

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