[NYtenants-online] NY Tenants Online 12/20/01
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Thu, 20 Dec 2001 14:28:25 -0500
NYtenants Online/TenantNet 12/20/01
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IN THIS ISSUE ...
1. XMAS present for Rent Control Tenants
2. Landlord-Tenant: Mitigating Damages (Law Journal)
3. Ruling Could Give Landlord Less Leeway in No-Pet Clauses
4. Mold Suit Nets Tenants 1G (Daily News)
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RENT CONTROLLED TENANTS SAVED THOUSANDS OF DOLLARS BY TODAY'S RULING
The New York State Court of Appeals (the state's highest court) today
handed down a landmark decision that could save approximately 30,000 Rent
Controlled Tenants in New York City from retroactive rent increases ranging
from $8,000 to $10,000 each.
In "City of New York v. NYS Div. of Housing and Community Renewal," a case
winding its way through the courts since 1997, the court gave tenants a
complete victory in the methodology of calculating the Maximum Base Rent (MBR).
The MBR is a ceiling used to determine the maximum payable rent by NYC Rent
Controlled tenants. Many tenants pay a lower amount, the Maximum
Collectible Rent (MCR), but with a high MBR, the MCR can rise dramatically.
While most tenants in New York City are Rent Stabilized, and are not
affected by today's ruling, there are still approximately 90,000 Rent
Controlled tenants left.
In 1997, the Division of Housing and Community Renewal (DHCR) set the
1996/97 MBR at around 32% in response to a successful lawsuit by landlords
in Albany. Local Law 73, passed by City Council in 1997, used a different
methodology to determine the MBR and resulted in an MBR calculation of only 3%.
With a virtually unlimited MBR ceiling, rent controlled tenants would have
had their rents increased dramatically for a prolonged period.
Stephen Dobkin, of the tenant law firm COLLINS DOBKIN & MILLER LLP, argued
the case for tenants including Metropolitan Council on Housing and various
other groups. While Met Council was the chief tenant group in the appeal,
Dobkin pointed out that it was tenant activist Stanley Panesoff who was
instrumental in bringing the issue to the forefront and it was his
influence, along with tenant activist Jon Lilienthal, who were the key
players in the issue.
Jenny Laurie, Executive Director of Metropolitan Council on Housing stated,
"This decision is the perfect Xmas present for NYC's rent control tenants.
Judge Kaye decided that the city's change to the MBR formula was not a
violation of the Urstadt Law -- but more than that, she decided that
thousands of rent controlled tenants, mostly elderly people living on
social security, can stay in their apartments. If the landlords had won,
these tenants would have owed thousands -- some tens of thousands - of
dollars in back rent. Rent control tenants will be free of that worry for
the first time since the lawsuit started in 1997."
TEXT OF DECISION:
City of New York v. New York State Div.Housing and Comm. Renewal
Text http://www.tenant.net/Alerts/MBR/164opn01.txt
MS Word Doc http://www.tenant.net/Alerts/MBR/164opn01.doc
Acrobat PDF http://www.tenant.net/Alerts/MBR/164opn01.pdf
Previous Coverage of the MBR Lawsuit
http://www.tenant.net/Tengroup/Metcounc/Nov97/mbr.html
http://www.tenant.net/Tengroup/Metcounc/Dec97/mbr.html
http://www.tenant.net/Tengroup/Metcounc/May98/mbr.html
http://www.tenant.net/Tengroup/Metcounc/Jun98/mbr.html
http://www.tenant.net/Tengroup/Metcounc/Nov98/mbr.html
http://www.tenant.net/Tengroup/Metcounc/Feb99/mbr.html
http://www.tenant.net/Tengroup/Metcounc/Apr00/MBR.html
http://www.tenant.net/Tengroup/Metcounc/Jan01/mbr.html
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LANDLORD-TENANT: MITIGATING DAMAGES
Landlord's Duty May Depend on Where You Live
New York Law Journal, December 4, 2001
by Warren A. Estis and William J. Robbins
Where a tenant has abandoned the premises, and assuming the court finds
there was no legal justification for doing so, does a landlord have a duty
to mitigate damages? This is an issue which may be particularly relevant
post-Sept. 11, when some tenants with leases for premises near ground zero
may seek to abandon those premises.
The law is clear that in a commercial lease, the landlord has no duty to
mitigate damages where the tenant has abandoned the premises. This means
that a commercial landlord can refuse to re-rent the premises and can sit
idly by while damages pile up on the tenant during the remainder of the lease.
This rule originated in feudal times. According to English common law, a
lease (whether for commercial or residential property) was deemed to be a
contract of sale of a vested interest in real estate. Rent was deemed to be
the purchase price, to be paid in regular installments. Once the tenant
"bought" the property, he was obligated to pay the full purchase price,
even if he no longer intended to use the premises.{[1]}†
'Holy Properties'
The New York Court of Appeals reaffirmed this doctrine in a 1995 decision
in Holy Properties, Ltd. v. Kenneth Cole Productions, Inc.{[2]}† In that
case, the tenant had entered into a written lease for premises in a
commercial office building for a ten year lease term. After approximately
seven years, following a change of owners and an alleged deterioration in
the level and quality of building services, the tenant vacated the
premises. The new owner then commenced a summary eviction proceeding and
obtained a judgment and warrant of eviction. Subsequently, the new owner
instituted a Supreme Court action seeking rent arrears and damages.
At trial, the tenant asserted, as an affirmative defense, that the landlord
had failed to mitigate damages by deliberately failing to show or offer the
premises to prospective replacement tenants. The Supreme Court entered
judgment for the landlord, holding that the tenant had breached the lease
without cause and that the landlord had no duty to mitigate damages. The
Appellate Division affirmed.
The Court of Appeals affirmed the order of the Appellate Division, holding
that:
"Once the tenant abandoned the premises prior to the expiration of the
lease, . . . the landlord was within its rights under New York law to do
nothing and collect the full rent due under the lease."{[3]}†
In support of that holding, the Court cited three Court of Appeals
decisions from the 19th century, namely, Becar v. Flues,{[4]}† Underhill v.
Collins,{[5]}† and Matter of Havenor.{[6]}†
In Holy Properties, the Court of Appeals explained the theory behind the
no-mitigation rule as follows:
"The law imposes upon a party subjected to injury from breach of contract,
the duty of making reasonable exertions to minimize the injury . . . Leases
are not subject to this general rule, however, for, unlike executory
contracts, leases have been historically recognized as a present transfer
of an estate in real property . . . Once the lease is executed, the
lessee's obligation to pay rent is fixed according to its terms and a
landlord is under no obligation or duty to the tenant to relet, or attempt
to relet abandoned premises in order to minimize damages."{[7]}†
The Court of Appeals "decline[d]" to "reject this settled law and adopt the
contract rationale recognized by some courts in this State and elsewhere"
because:
"Parties who engage in transactions based on prevailing law must be able to
rely on the stability of such precedents. In business transactions,
particularly, the certainty of settled rules is often more important than
whether the established rule is better than another or even whether it is
the 'correct' rule . . . . This is perhaps true in real property more than
any other area of the law, where established precedents are not lightly to
be set aside."{[8]}†
Where a residential lease is involved, however, the duty to mitigate issue
is more clouded. There is a 1997 Appellate Term, First Department decision,
in Whitehouse Estates, Inc. v. Post,{[9]}† which applied the no mitigation
rule in a residential context. In that case, the court quoted the no
mitigation rule as set forth in Holy Properties. The court conceded that "a
commercial tenancy was the subject of the litigation in Holy Properties,
but nevertheless, in the context of the residential tenancy before it,
applied the "settled higher authority which relieves a landlord of any
obligation to mitigate damages where the tenant has abandoned the premises
prior to the expiration of the lease term."
In Whitehouse Estates, the Appellate Term, First Department specified two
grounds for applying the no mitigation rule in a residential context. The
court pointed out that it had not been referred "to any case decided by the
Appellate Division expressly adopting a duty to mitigate in residential
cases." The court also stated that:
"[N]either the language nor reasoning employed in the [Holy Properties]
decision signals an intent on the part of the Court of Appeals to abrogate
the no-mitigation rule in the context of residential landlord and tenant
relationships."{[10]}†
The Appellate Term, First Department in Whitehouse Estates did not expand
upon its comment concerning the language and reasoning of Holy Properties,
except (i) to state in a footnote that the case of Becar v. Flues, cited
with approval by the Court of Appeals in Holy Properties, involved a
residential lease, and (ii) to cite the case of Duda v. Thompson.{[11]}†
Duda v. Thompson is a Supreme Court, Westchester County case (Donovan, J.),
decided approximately eight months after Holy Properties, in which the
court concluded that a residential landlord was under no duty to mitigate
damages. The court rejected the tenant's argument that, with respect to the
issue of mitigation, there should be a distinction between commercial and
residential leases.
The Duda v. Thompson court stated that it was "apply[ing] Holy Properties
as it more plainly reads, without distinction as to the lack of mitigation
obligation based on the character of the lease itself." Justice Donovan
noted "the obvious approval by the Court of Appeals [in Holy Properties] of
its own Becar v. Flues residential lease holding" and commented that "the
high court itself [in Holy Properties] makes no such distinction between
the two types of leases." He also reasoned that:
"[T]he stated legal theory underpinning the holding [in Holy Properties]
i.e., that leases, unlike contracts, constitute present transfers of
estates solidifying the obligation to pay the full rent, would be vastly
contradicted by attempting to continue any such distinction [between
residential and commercial leases]."{[12]}†
'Paragon'
It does not appear that any other appellate courts have followed Whitehouse
Estates in holding that the no mitigation rule applies in a residential
context. In fact, Whitehouse Estates is contradicted by Appellate Term
authority from the Second Department that pre-dates it. In a 1983 decision
in Paragon Industries, Inc. v. Williams,{[13]}† the Appellate Term, 2nd and
11th Judicial Districts, expressly held that a residential landlord has a
duty to mitigate damages:
"[T]his court . . . has not previously had occasion to pass upon the issue
of the landlord's duty to mitigate. We now hold that a landlord has such a
duty."{[14]}†
The court characterized its holding as part of the trend of modernizing
traditional concepts of landlord and tenant law.
In a 1987 decision in Syndicate Building Corp. v. Lorber,{[15]}† the
Appellate Division, First Department cited Paragon Industries in support of
the statement that courts in New York have "imposed the duty to mitigate
damages upon residential landlords." The Syndicate Building Corp. case
involved a commercial lease and, therefore, the Appellate Division, First
Department did not have to reach the issue of whether it agreed with
Paragon Industries in imposing such a duty on residential landlords. In any
event, however, the Appellate Division in Syndicate Building Corp. did not
express disagreement with Paragon Industries and, indeed, contrasted the
cases imposing a mitigation duty on residential landlords with "the
contrary [being] true in the context of commercial leases."
Just as Paragon Industries is countervailing Appellate Term authority to
Whitehouse Estates, so, too, there is Supreme Court authority contrasting
to Duda v. Thompson. In a 1997 decision in Kabushi Kaysha Iwasa Tekkojo v
Comico Entertainment, Inc.,{[16]}† the Supreme Court, New York County
(Greenfield, J.) expressly took issue with Duda v. Thompson. Justice
Greenfield commented that the Court of Appeals holding in Holy Properties:
"[D]eals only with a commercial lease which expressly provided that the
landlord was under no duty to mitigate damages. The decision does not
purport to overrule the many cases requiring a landlord of residential
premises to make a showing of good faith to minimize damages."{[17]}†
In an earlier column discussing Holy Properties shortly after that Court of
Appeals decision was issued, we similarly expressed the view that "the Holy
Properties holding is properly read as only applying to commercial
leases."{[18]}†
In a 1986 decision in Goldman v. Orange County Chapter, New York State
Association for Retarded Children, Inc.,{[19]}† the Appellate Division,
Second Department, commented that whether or not a residential landlord has
a requirement to mitigate damages "is subject to question."
Fifteen years later, it would seem that the same comment could still be
made. There is no Court of Appeals decision, and there does not appear to
be any Appellate Division authority, expressly holding whether a
residential landlord does or does not have a duty to mitigate. There are
conflicting Appellate Term decisions.
To the extent that the nature of the lease (i.e., commercial versus
residential) makes a difference with respect to a landlord's duty to
mitigate damages, the question logically arises why that should be. The
cases do not answer that question. In the first article we wrote on the
mitigation issue approximately eight years ago, we speculated on possible
reasons for a variation in treatment.{[20]}†
Perhaps the difference in treatment is explained by an unarticulated belief
that residential tenants both require and deserve more protection than
commercial tenants. Without expressly saying so, the courts may regard
residential tenants as less sophisticated and less armed with legal advice
than commercial tenants when negotiating a lease.
It may also be psychologically more difficult for a judge to allow a
landlord to let damages accumulate and increase in a residential context
than in a commercial context. Damages against a residential tenant are
likely to come out of a person's pocket. Damages against a commercial
tenant are likely to be corporate or partnership liability, perceived as a
more impersonal liability.
Perhaps there is also an unspoken notion that a residence is more essential
than a place of business. The courts may therefore find it more
objectionable that a landlord would keep vacant residential space off the
market as compared to vacant commercial space.
As we pointed out in that earlier article, however, any such unspoken
considerations may be more sentimental than realistic. In the luxury
residential rental market, for example, tenants can afford to and do hire
sophisticated counsel to represent them in lease negotiations. Conversely,
many commercial leases are for "mom-and-pop" stores. These are precisely
the kind of businesses that are abandoning long-term leases negotiated
years ago at rentals that are now far above market.
If no cogent reasons can be advanced for different treatment, and given
that the Court of Appeals has been so definitive that there is no duty to
mitigate with respect to a commercial lease, do these circumstances
militate in favor of a no-mitigation rule for residential leases? On the
other hand, is there likely to be a post-Sept. 11 sympathy for the plight
of tenants that, pragmatically, makes unlikely any definitive expansion of
the no mitigation rule to the residential context?
In short, the issue of duty to mitigate in a residential lease is a
quagmire that both cries out for express guidance from the Appellate
Division or the Court of Appeals and, at the same time, perhaps has been
complicated by current events. Warren A. Estis is a founding partner and
William J. Robbins is a partner with Rosenberg & Estis in New York.
--------------------------
FootNotes: [1]
††† See Rasch, N.Y. Landlord and Tenant, §26:22 (3rd ed. 1988). [2]
††† 87 N.Y.2d 130, 637 N.Y.S.2d 964 (1995). [3]
††† 87 N.Y.2d at 134, 637 N.Y.S.2d at 966. [4]
††† 64 N.Y. 518 (1876). [5]
††† 132 N.Y. 269 (1892). [6]
††† 144 N.Y. 271 (1895). [7]
††† 87 N.Y.2d at 133, 637 N.Y.S.2d at 966. [8]
††† 87 N.Y.2d at 134, 637 N.Y.S.2d at 966. [9]
††† 173 Misc.2d 558, 662 N.Y.S.2d 982 (A.T. 1st Dep't 1997). [10]
††† 173 Misc.2d at 559, 662 N.Y.S.2d at 982. [11]
††† 169 Misc.2d 649, 647 N.Y.S.2d 401 (Sup. Ct. Westchester Co. 1996). [12]
††† 169 Misc.2d at 652, 647 N.Y.S.2d at 404. [13]
††† 122 Misc. 2d 628, 473 N.Y.S.2d 92 (A.T. 2nd Dep't 1983). [14]
††† 122 Misc.2d at 629, 473 N.Y.S.2d at 93. [15]
††† 128 A.D.2d 381, 512 N.Y.S.2d 674 (1st Dep't 1987). [16]
††† N.Y.L.J., April 16, 1997, p. 25, col. 2, 25 HCR 205 (Sup. Ct. N.Y.Co.
1997). [17]
††† 25 HCR at 206. [18]
††† Warren A. Estis and William J. Robbins, "Commercial Leases: Court
Affirms Landlord Has No Duty To Mitigate Damages", N.Y.L.J., Feb. 7, 1996,
at 5. [19]
††† 121 A.D.2d 683, 503 N.Y.S.2d 884 (2nd Dep't 1986). [20]
††† Warren A. Estis, "Feudalism Is Alive and Well: The 'No Duty To
Mitigate' Rule for Commercial Landlords", N.Y.L.J., Oct. 16, 1993, at 5.
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RULING COULD GIVE LANDLORD LESS LEEWAY IN NO-PET CLAUSES
New York Law Jornal, December 13, 2001
In a ruling that could give landlords less leeway in enforcing no-pet
clauses, the Appellate Division, First Department, Thursday dismissed an
eviction suit brought against a family who owned a pet in violation of the
lease.
The split decision in Seward Park Housing Corp. v. Carol Cohen, 2600, found
that landlords are assumed to know that a tenant owns a pet if the
landlord's employees, such as a superintendent or janitors, are aware of
the pet - no matter whether the landlord lives elsewhere.
Under New York City law, a landlord cannot enforce a no-pet clause unless
an eviction proceeding is started within 90 days of learning that a tenant
has a pet. The First Department's decision overturned a split decision from
the Appellate Term, First Department, and sided with Civil Court ruling
that dismissed the proceeding.
In the case before the court, a family residing in a Lower East Side co-op
had lived openly with a dog, named Rocky, often letting building security
guards and maintenance workers pet and play with the animal. The building's
landlord served an eviction notice five months after the family bought the
dog. At trial, the building's manager testified that he did not learn of
the dog until three months before seeking eviction.
The majority of the First Department found that the landlord had imputed
knowledge of the pet, even though the building's employees were not
required to report violations of the no-pet clause.
"Common sense dictates that landlords will have an agent or employee
checking the property regularly," wrote Justice John T. Buckley, who signed
the majority opinion. Justice Buckley added that "the three-month Statute
of Limitations requires routine awareness on the part of the landlord."
In a dissenting opinion, Justice David Friedman wrote that the majority
opinion reverses previous holdings by the First Department, and permits the
law to be applied to circumstances never considered by the City Council.
The law, the judge wrote, "was enacted to prevent landlords from evicting
tenants for improper, retaliatory reasons, circumstances that are not
present here."
Justice Friedman added that the ruling means landlords who do not live in a
building "can no longer enforce no-pet clauses unless they hire employees
whose function it is to actually visit the premises and ferret out lease
violators."
The judge favored the Appellate Term's decision, which gave the family 10
days to get rid of its dog or be evicted. Justices Eugene Nardelli, Angela
M. Mazzarelli and Alfred D. Lerner concurred with Justice Buckley.
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MOLD SUIT NETS TENANTS 1G
Daily News, December 16, 2001
by Helen Peterson
Tenants who contended they were sickened by toxic mold in their Kips Bay
apartments will receive an average of $1,000 each under a settlement
reached with the landlord.
The settlement ends 160 lawsuits representing 500 tenants at Henry Phipps
Plaza. It calls for $1.17 million to be paid by the landlord, Henry Phipps
Plaza Associates, according to Phipps spokeswoman Colleen Roche. The
plaintiffs had sought $12 billion.
Roche said $500,000 will go to tenants. Some tenants may receive more or
less than $1,000 depending on their ailments or mold conditions in their
apartments.
The rest of the settlement money will go toward legal fees and experts,
Roche said. Phipps did not admit any liability.
Manhattan Supreme Court Justice Louise Gruner-Gans approved the settlement
two weeks ago, nearly two months into a trial. Although the settlement
initially had been sealed, Gruner-Gans approved its disclosure last week.
Tenants at the Kips Bay complex had complained that black, green and purple
mold infesting their homes caused problems ranging from respiratory disease
to death.
Steven Goldman, a lawyer for the tenants, said water leakage spurred the
growth of mold in apartments at E. 26th St. and Second Ave.
He claimed the mold caused health problems, including short-term memory
loss, nosebleeds, breathing problems and, in five cases, hastened death.
Goldman said Phipps promised to continue efforts to remove the mold.
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