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Lease Provision Allowing Landlord to Comingle Security Deposit with Landlord’s Funds Was Void—Question of Fact Whether Both Parties’ Actions Resulted in Termination of the Lease by Operation of Law

The Second Department determined defendants-tenants were entitled to the return of their security deposit because the lease purported to allow the landlord to comingle the security deposit with the landlord’s funds.  The court further determined the landlord was not entitled to summary judgment for breach of the lease because the landlord accepted the keys to the property when the tenants left before the end of the lease, put the house on the market, and did not demand additional rent for over two months:

General Obligations Law § 7-103(1) provides that a security deposit with respect to the use or rental of real property “shall continue to be the money of the person making such deposit . . . and shall be held in trust by the person with whom such deposit or advance shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same.” General Obligations Law § 7-103(3) provides that any provision of a lease “whereby a person who so deposits or advances money waives any provision of this section is absolutely void.” When a landlord commingles the security deposit with his or her personal funds in violation of General Obligations Law § 7-103(1), the tenant has “an immediate right to the return of the funds, even if the [tenant] had breached the lease” … . Here, the defendants made a prima facie showing of their entitlement to judgment as a matter of law on their counterclaim by submitting the subject lease, which contained a provision stating that the security deposit may be commingled with the plaintiffs’ general funds. This provision is void by operation of General Obligation Law § 7-103(3), and, in addition, raises an inference that the plaintiffs violated General Obligations Law § 7-103(1) by commingling the security deposit with their own funds …. In opposition, the plaintiffs, who did not submit any evidence that they did not commingle the security deposit with their own funds, failed to raise a triable issue of fact.

The Supreme Court also properly denied the plaintiffs’ cross motion for summary judgment on the first cause of action, which was to recover damages for breach of the lease. The plaintiffs made a prima facie showing that the defendants breached the lease by failing to make monthly rent payments beginning on October 1, 2011. In opposition to that showing, the defendants submitted evidence that, after they vacated the house on or about September 4, 2011, the plaintiffs accepted a return of the keys to the house, immediately put the house on the market for sale, and did not demand payment of rent until late November, 2011. Accordingly, the defendants raised a triable issue of fact as to whether the parties both acted so inconsistently with the landlord-tenant relationship that a surrender of the premises was effected by operation of law, thereby terminating the lease prior to the rent becoming due on October 1, 2011… . Soloman v Ness, 2014 NY Slip Op 04185, 2nd Dept 6-11-14

 

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Lack of Standing Defense Waived By Absence from Answer—Objections to Authority to Sign Lease Waived by Ratification of the Signed Documents

The Third Department, in a dispute over what was due and owing under a lease agreement, determined the “lack of standing” defense had been waived by the failure to raise it in the answer, and allegedly unauthorized execution of relevant documents had been ratified:

Initially, defendant claims that plaintiff lacks standing to enforce any obligations created by the lease or confirmation agreement, as it was not a party to either document. We agree with Supreme Court that this claim was waived by defendant’s failure to assert it in the answer (see CPLR 3211 [a]; [3]; [e]…).. Defendant further argues that the confirmation agreement is not legally valid, as it was not signed by plaintiff and … PDC [the original lessor, Provident Development Corporation] had transferred the building to plaintiff prior to executing the confirmation agreement. However, “[a];n unauthorized execution of an instrument affecting the title to land or an interest therein may be ratified by the owner of the land or interest so as to be binding upon him [or her];” … . Such a ratification may be shown by the owner’s failure to timely repudiate the unauthorized actions, or by conduct consistent with an intent to be bound … . Here, plaintiff has never repudiated PDC’s execution of the confirmation agreement; on the contrary, the record reveals that, beginning on the commencement date established by the agreement and continuing through 2011, plaintiff regularly invoiced defendant for payments due at the intervals and in the amounts specified in that agreement and accepted defendant’s resulting payments — thus ratifying the confirmation agreement by accepting benefits due thereunder … . Provident Bay Rd LLC v NYSARC Inc, 2014 NY Slip Op 03895, 3rd Dept 5-29-14

 

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No Liability for Out-of-Possession Landlord—No “Significant Structural Defect” and No Code Violation

The First Department determined the out-of-possession landlord could not be held liable for an accident which occurred on a spiral staircase in a restaurant which connected a basement prep kitchen to the main-floor kitchen.  The staircase was not a “significant structural defect” and did not violation any provision of the NYC Administrative Code:

Liability does not lie against defendant out-of-possession landlord because the claimed riser, tread and handrail violations were not significant structural defects … . The staircase was not an “interior stair” as defined in § 27-132 of the NYC Administrative Code …. . Nor were the claimed violations of former §§ 27-127 and 27-128 specific statutory safety provisions that may serve as predicates for defendant landlord’s liability … . It is therefore immaterial whether landlord had notice of the allegedly dangerous condition or retained a right to reenter … . Podel v Glimmer Five LLC, 2014 NY Slip Op 03635, 1st Dept 5-20-14

 

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Out-of-Possession Landlord Not Liable for Injury Caused by Trash Compactor on Property

The First Department determined an out-of-possession landlord had no liability for an injury caused by a trash compactor located on the property:

[Defendant] demonstrated that as an out-of-possession owner it had no responsibility for the complained-of defect, because the defect was not a significant structural or design defect that was contrary to a specific statutory safety provision … . In support of his position that the trash compactor is a structural component of the building, plaintiff cited Administrative Code of City of NY § 27-232 (defining “Service Equipment” to include “refuse disposal”). However, that provision is not a safety provision. Plaintiff’s argument that as an out-of-possession owner [defendant] remained liable for any dangerous condition that existed at the time it net leased the building—four years before the accident—is unavailing, since the net lessee “had reasonable time to discover and remedy the defect” after the conveyance of the property interests … . Humareda v 550A E 87th St LLC, 2014 NY Slip Op 03584, 1st Dept 5-15-14

 

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Tenants Not Compelled to Bring a Plenary Action to Enforce a Fair Market Rent Appeal Award Because They Withheld Rent Until the Principal Balance of the Award Was Fully Credited to Them—Therefore Tenants Were Not Entitled to Prejudgment Interest Pursuant to CPLR 5001 (a)

The Second Department determined tenants who had been awarded a rent refund in a fair market rent appeal (FMRA) were not entitled to pre-judgment interest on the award.  The tenants had exercised their right under the Rent Stabilization Code to withhold rent until the principal balance of the FMRA award was fully credited.  Therefore, the tenants did not need to start a plenary action for prejudgment interest pursuant to CPLR 5001 (a) because there was no principal balance owing them:

“A tenant compelled to bring a plenary action to enforce a fair market rent appeal order is entitled to . . . prejudgment interest under CPLR 5001(a) computed from the date of the Rent Administrator’s order … ” … . However, where a tenant is not otherwise compelled to commence an action to enforce a fair market rent appeal award, the tenant is not entitled to recover interest on the award … . Prior to the commencement of this action, the plaintiffs exercised their right under the relevant provision of the Rent Stabilization Code (see 9 NYCRR 2522.3[d][1]) to withhold payment of rent until the principal balance of the FMRA award was fully credited to their account. The FMRA award was fully credited to the plaintiffs’ account by June 2007, after which the plaintiffs resumed paying rent. Thus, contrary to the plaintiffs’ allegations, there was no principal balance of the FMRA award due and owing to them. Under these circumstances, the plaintiffs were not compelled to commence this action to enforce their FMRA award. Thus, the plaintiffs are not entitled to the relief they sought in the complaint, including the alleged principal balance, prejudgment interest, or an award of an attorney’s fee. Eisner v M & E Rubin LLC, 2014 NY Slip Op 03477, 2nd Dept 5-14-1

 

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Question of Fact About Property Owner’s Constructive Notice of Lead Paint/Tenant by the Entirety Could Be Vicariously Liable

The First Department determined questions of fact had been raised about whether defendant property owner, Robert Dvorak, had constructive notice of lead paint on the premises.  The court noted that the complaint should not have been dismissed against Diane Dvorak who also owned the property as a tenant by the entirety:

The motion court correctly found that plaintiffs raised questions of fact as to whether Robert A. Dvorak had constructive notice of lead-based paint in the Babylon premises, since they presented evidence that he entered the premises, made repairs, knew that the building was constructed before the banning of lead-based interior paint, was aware that paint was peeling on the premises, knew of the hazards of lead-based paint to young children, and knew that a young child lived in the house …. .The motion court should not have granted summary judgment to Diane L. Dvorak, since, as a tenant by the entirety with her husband Robert, she may be held vicariously liable for his actions toward the property… . Rivera v Neighborhood Partnership Hous Dev Fund Co Inc, 2014 NY Slip Op 02873, 1st Dept 3-29-14

 

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Eviction Based Upon Firearm and Drugs Found in Petitioner’s Apartment Affirmed Despite the Lack of Evidence Petitioner Was Aware the Items Were In the Apartment (Apparently They Were Brought Into the Apartment by Her Older Children) and Despite Petitioner’s Unblemished Record as a Tenant

The First Department reversed Supreme Court and upheld the New York City Housing Authority’s eviction of petitioner based upon the police finding marijuana, oxycodone and an operable firearm in petitioner’s apartment.  Petitioner was not in the apartment at the time the items were found, and there was evidence the items were brought into the apartment by petitioner’s older children.  There was no evidence petitioner was aware the items were in the apartment.  Supreme Court had determined eviction “shocked the conscience” because petitioner had lived in the apartment for 23 years and had an otherwise unblemished record.  The First Department reinstated the eviction order:

…[W]e review the sanction of termination in accordance with the standard set forth in Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County (34 NY2d 222 [1974]). There, the Court of Appeals defined a penalty that is unsustainable as “shocking to one’s sense of fairness” as one which

“is so grave in its impact on the individual subjected to it that it is disproportionate to the misconduct, incompetence, failure or turpitude of the individual, or to the harm or risk of harm to the agency or institution, or to the public generally visited or threatened by the derelictions of the individuals. Additional factors would be the prospect of deterrence of the individual or of others in like situations, and therefore a reasonable prospect of recurrence of derelictions by the individual or persons similarly [situated]” (34 NY2d at 234).

Applying this standard, we find that the facts here support petitioner’s eviction. Eviction is undoubtedly a “grave” sanction. However, in permitting drugs and a lethal weapon to be present in her apartment, petitioner committed a serious breach of the code of conduct that is critical to any multiple dwelling community, and which warrants the ultimate penalty … . Petitioner’s neighbors have a right to live in a safe and drug-free environment, and petitioner significantly compromised their ability to do so, her alleged ignorance of the activities in her apartment notwithstanding … . Matter of Grant v New York City Hous Auth, 2014 NY Slip Op 02535, 1st Dept 4-15-14

 

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Code Provision Requiring Issuance of Rental Certificate by City Prior to Leasing an Apartment Deemed Constitutional

The Third Department determined the code provision (Rental Certificate Ordinance or RCO) which required the issuance a rental certificate each time a vacant apartment is about to be leased is constitutional.  Entry to the apartment is accomplished either with the consent of the owner, or upon the issuance of a search warrant:

The RCO provided, in relevant part, that “[i]t shall be unlawful for any owner to permit the occupancy of any rental unit subject to [former article X of the Code of the City of Schenectady], unless such unit has a current and valid rental certificate or temporary rental certificate” (Code of City of Schenectady former § 167-59 [A]). Thus, “[w]henever a vacancy shall exist in a rental unit and a leasing is about to occur, or whenever there is a change in occupancy, the owner [must] submit a written application for a rental certificate” (Code of City of Schenectady former § 167-60 [A] [1]) and, “within five working days of receipt of [such] application, the Building Inspector [must] inspect the rental unit to determine if [it] is in compliance with” certain enumerated housing standards (Code of City of Schenectady former § 167-60 [A] [2]). If the Building Inspector is unable to perform the necessary inspection within the five-day window, the property owner may apply for a temporary rental certificate, which “is valid for 30 days or until the unit is inspected . . . , whichever is less” (Code of the City of Schenectady former § 167-60 [B]). In the event that the property owner refuses to grant access to the premises, “the Building Inspector shall apply for a search warrant or court order in an appropriate court and upon a showing that there [are] reasonable grounds to believe that a building or rental unit within [the] building is rented and occupied in violation of” the RCO (Code of the City of Schenectady former § 167-61). A property owner’s violation of the RCO may result in the imposition of a fine or other civil or criminal penalties (see Code of the City of Schenectady former § 167-67).

“It is well established that the 4th Amendment protection against unreasonable searches and seizures extends to administrative inspections of private commercial premises. [Thus,] to the extent that the challenged ordinance directly or in practical effect authorizes or requires a warrantless inspection, it will not pass constitutional muster” … . Here, however, the RCO expressly required either the consent of the property owner or the issuance of a valid search warrant in order for the Building Inspector to conduct the administrative inspection. As the inclusion of the warrant requirement is sufficient to safeguard plaintiff’s constitutional rights, his challenge to the facial validity of the RCO must fail … . Wisoff v City of Schenectady, 2014 NY Slip Op 02479, 3rd Dept 4-10-14

 

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Shareholder in a Cooperative Apartment Corporation Had Right to Inspect Books

The Second Department determined a shareholder in a cooperative apartment corporation (Acropolis) had a right to inspect the corporate books, including the  minutes of board meetings:

…[T]he petitioner satisfied the requirements of Business Corporation Law § 624(b), and is, therefore, entitled to a list of shareholders and their mailing addresses … as well as all Board meeting minutes from 2001 to the present. Moreover, in light of the terms of the relevant proprietary lease …, the petitioner established his contractual right to inspect all of Acropolis’s books of account from 2001 to the present. With respect to the petitioner’s entitlement to inspect additional corporate documents, “a shareholder has a common-law right to inspect a corporation’s books and records if the inspection is sought in good faith and for a valid purpose” … . Contrary to Acropolis’s contention, the Supreme Court was not required to hold a hearing prior to issuing its order and judgment directing it to allow the petitioner to review its books and records, because no substantial question of fact existed as to the petitioner’s good faith and purpose in seeking Acropolis’s books and records… . Matter of Goldstein v Acropolis Gardens Realty Corp, 2014 NY Slip Op 02436, 2nd Dept 4-9-14

 

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Corporate Officer Not Liable in Lead Paint Exposure Case Under “Commission of a Tort” Doctrine for Nonfeasance/No Evidence of Malfeasance or Misfeasance

The Fourt Department determined summary judgment should have been granted to a corporate officer in a lead paint exposure case. The court explained when the “commission of a tort” doctrine applies to corporate officers:

“The ‘commission of a tort’ doctrine permits personal liability to be imposed on a corporate officer for misfeasance or malfeasance, i.e., an affirmative tortious act; personal liability cannot be imposed on a corporate officer for nonfeasance, i.e., a failure to act” … . Such misfeasance may include exacerbating a hazardous lead paint condition by negligently attempting to correct it … . Here, defendant met his initial burden by presenting “evidence that, if uncontroverted, would have established that [he] did not personally participate in malfeasance or misfeasance constituting an affirmative tortious act” … . Plaintiff failed to raise an issue of fact in response, inasmuch as he submitted no evidence that defendant affirmatively created the dangerous lead condition at the property or did anything to make it worse; at most, defendant merely failed to remedy the condition. We thus conclude that he cannot be held individually liable to plaintiff in this action. Lloyd v Moore…, 200, 4th Dept 3-28-14

 

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