Scott E. Mollen
Scott E. Mollen ()

Commercial Landlord-Tenant—Landlord’s 5 Percent Late Charges and Electricity Charges Were Lawful—Usury, “Illegal Penalty” and Unconscionability Defenses Rejected—Commercial Leases “Will Not Be Upset By the Court” to Alleviate a Hard or Oppressive Bargain—Electric Charges Are Lawful Even if They Result in a Profit

A petitioner (landlord) had commenced a non-payment proceeding against the law firm respondent tenant. The lease obligated the tenant to pay a basic rent of “$7,398.66 per month for the months of January 2016 through December 2016, in advance of the 1st day of each month, plus additional rent as set forth therein including 993.45 per month for electricity plus late charges.”

The landlord served a demand on the tenant for $2,531.70, which included a 5 percent late charge plus electrical charges at $993.42 and charges for taxes and attorney fees.

The tenant asserted that the late fees were illegal, because they were “usurious” and did “not in any way even remotely apply to damages actually sustained and is an unconscionable penalty.” The tenant argued that the late fees amounted to “an interest rate of 328 percent interest rate per annum.” Additionally, the tenant argued that the lease provided for a five day grace period for which no late charge could be charged. The tenant also contended that it occupied only “a minor portion of the building” and that “$993.42 is totally disproportionate to the amount due” for electricity. The tenant further claimed that it had asked for an accounting and had not received it. The tenant also asserted that the electricity was provided on a sub-metered basis and the landlord is only permitted to charge “10 percent over the actual costs as administrative fees.”

The tenant had previously commenced an action in the New York State Supreme Court, seeking reimbursement of the alleged excess electricity payments.

The landlord argued that the late fees were “not usurious, because a lease payment is not a loan or a forbearance” and the late fees were “not unconscionable” because they were negotiated by “sophisticated business people for a commercial lease.” The landlord also asserted that the lease’s five-day grace period was inapplicable, since such grace period “only applies when the landlord serves a notice of default seeking to terminate the lease.” Here, “no default notice was served.” Thus, the landlord contended that the tenant was not entitled to the grace period, i.e., the late fees were appropriate, because “no grace period exists.” The landlord also noted that the tenant had paid the monthly electrical charge for more than 10 years and such charge was “not based upon actual consumption.” Additionally, the landlord argued that the New York Public Service Commission lacks jurisdiction over commercial leases and “cannot impact the lease by a tariff.”

The tenant also contended that the Supreme Court must determine this dispute, because the tenant had requested a declaratory judgment and other equitable relief for which the subject district court has no jurisdiction to grant.

The subject court granted summary judgment to the landlord. The court explained that the Supreme Court action had been commenced “between the demand and the summary proceeding” and the District Court had “broad discretion as to the disposition of an action when another action is pending….” The court opined that it could “determine all issues in an expeditious manner.”

The court then held that the electric charge “is legal and does not violate New York State law.” The court cited Accurate Copy Service of America v. Fisk Building, 72 AD3d 456, 899 NYS2d 157 (1st Dept. 2010) (Accurate), which dismissed claims by commercial tenants that electrical charges were inappropriate. In Accurate, there was no allegation that the landlord had not enforced a lease’s electricity provisions “in conformance with their terms or that the profit earned by [landlord] violates the terms of the leases.” Accurate had also dismissed an unjust enrichment claim on the grounds that there was “an enforceable agreement between the parties….” Moreover, Accurate had rejected an unconscionability claim, “because the plaintiffs failed to allege and prove a lack of meaningful choice” and “the commercial tenants were free to not rent from the defendant and go elsewhere.”

In the subject case, the court observed that the tenant had “a meaningful choice to walk away and rent elsewhere” and had signed four separate lease agreements, “confirming the electric charge and has paid the same over a 10-year period.” The court explained that “commercial leases will not be upset by courts for the ‘purpose of alleviating a hard or oppressive bargain’” and electrical charges are not illegal, because they result in “a profit.”

The court further noted that “‘escalation clauses are common in commercial leases and have been approved and enforced according to their terms’….” Moreover, the New York Court of Appeals has approved of “the common practice in commercial leases of using formulas for computing additional rent charges, even where the charges are not tied to the landlord’s actual costs and may result in the landlord obtaining a profit in excess of its actual costs.”

The New York Court of Appeals had addressed a lease that “‘contain[ed] no requirement that rent escalations be measured by actual costs’ and held that the clause was not unconscionable even though the landlord received ‘economic advantage’ of the formula….” The Court of Appeals explained that an alleged “windfall,” was not illegal since it resulted from “a formula to which the parties agreed.” The subject court did not view the instant case as distinguishable from the Court of Appeals precedent merely because the escalation clause before the Court of Appeals “was tied to an objective industry accepted wage-rate chart….”

Additionally, the court held that the late fee was not usurious, since case law has held that a five percent late fee is legal in a commercial setting. Finally, the court noted that the Supreme Court had issued an order which upheld “the electrical charge, five percent late fee, and deduction of” monies owed from the security deposit and also held that there was not a five-day grace period for payment. Accordingly, the court granted the landlord summary judgment.

Old Country Road Realty v. Zisholtz & Zisholtz, LT-002181-16, NYLJ 1202770152039, at *1 (Dist., NA, Decided Sept. 26, 2016), Fairgrieve, J.


Pro Se Tenant—Stipulations Vacated—CPLR §5015—RPAPL §749(3)—Tenant Established “Good Cause,” “Mistake” and “Misrepresentation”

A petitioner commenced a non-payment proceeding against a respondent-tenant. The respondent filed a pro se answer, asserting two affirmative defenses, payment of rent and “conditions in the apartment.” The respondent thereafter consented to the entry of a final judgment in favor of the petitioner and agreed to pay $2,390 by May 8, 2015. The petitioner agreed to repair certain listed conditions in the apartment.

The parties entered into a second stipulation, pursuant to which a warrant was stayed, pending payment of $3,525. Again, the petitioner agreed to repair certain conditions. A third stipulation required the respondent to pay $734.60, but did not mention repairs. The parties thereafter entered into a fourth stipulation, pursuant to which the respondent agreed to pay $582, plus November 2015 rent. Thereafter, the respondent hired counsel and moved to vacate the prior stipulations of settlement.

The respondent argued that she entered into the stipulations “improvidently and inadvisably.” She had “waived defenses based on ‘serious violations of the warranty of habitability’” (WOH), that have “persisted throughout the tenancy.” The respondent claimed she was “unaware of her rights and did not understand that she could raise the repairs as a defense or seek a reduction in rent based on the conditions in the apartment.”

The respondent cited Appellate Term precedent which permitted “a pro se litigant who established a defense of the breach of [WOH],” to vacate a settlement stipulation and argued that “a tenant’s inadvertent waiver of the [WOH] defense warrants vacatur of an agreement.” The respondent emphasized that she was “pro-se” when she entered into the stipulations, was “unaware of her rights” and had “improvidently waived her right to the breach of the [WOH].”

The petitioner countered that the respondent’s motion was “a delay tactic” and she had “failed to demonstrate good cause to vacate the judgment and…stipulation agreements.” The petitioner argued that “stipulation agreements were entered into freely, knowingly and openly….” The petitioner asserted that the mere fact that the respondent was not represented, did not warrant vacatur of the agreements and that “[a] stipulation is a contract that must be upheld by the court.”

“Stipulations of settlement are favored” by the courts and are “not lightly cast aside,” and “[s]tipulations that are freely, knowingly, and openly agreed to…should be enforced according to their terms.” However, courts may vacate judgments pursuant to CPLR §5015 and RPAPL §749(3). CPLR §5015 provides that “[t]he court which rendered a judgment or order may relieve a party from it upon such terms as may be just,…, upon the ground of: (3) fraud, misrepresentation, or other misconduct of an adverse party.” RPAPL §749(3) authorizes a court “to vacate a judgment and warrant for good cause shown prior to the execution of the warrant.”

The court found that the respondent had established “good cause.” During the subject time period, the respondent had been “unable to obtain any repairs.” The court noted that, “[a]s in many cases in housing court, tenants are unaware of their rights or they are unable to enforce their rights to obtain the necessary repairs and they stop requesting repairs.” Although the last two stipulations did not mention repairs, repairs were still needed. For approximately 10 months, the respondent had been “unable to procure any repairs….” Moreover, the respondent’s last stipulation indicated that the respondent owed only $582. The court noted that the respondent could have sought an abatement based upon the petitioner’s “failure to complete the repairs and not risked possible eviction.” The court viewed that as “another indicator that [respondent] improvidently and inadvertently waived her defense of the breach of [WOH].”

The petitioner had also argued that it was “not on notice of the conditions in [respondent's] apartment because [respondent] did not submit any photographic evidence of the conditions,” it “is not the actual landlord but a tenant” and it lacked any “ability to effectuate any repairs.” The petitioner “rents the…premises from the landlord/owner of the building” and sublets the subject apartment to the respondent. Pursuant to its lease, the petitioner is unable to make any direct repairs and conditions in the apartment that were “to be fixed by the landlord of the building which is not petitioner herein.”

The court found that the respondent had “established good cause,” “mutual mistake and misrepresentation of an adverse party pursuant to CPLR §5015.” The respondent was a pro se litigant who expected the conditions in her apartment to be repaired. The respondent had contacted the NYC Department of Housing Preservation and Development (HPD) regarding “the conditions in her apartment and HPD recorded “C” violations for a water leak in the bathroom, “B” violations for mold and four “A” violations. Two years later, there were still “C” violations, “B” violations and “A” violations in the apartment. Additionally, the petitioner had “agreed to complete the listed repairs…in two stipulation agreements and was on notice of the conditions in respondent’s pro se answer and failed to do anything.” Accordingly, the court vacated the judgment and warrant.

Women in Need, Inc. v. Allen, 14693/2015, NYLJ 1202769249942, at *1 (Civ., BX, Decided Sept. 21, 2016), Asforis, J.

Commercial Landlord-Tenant—Landlord’s 5 Percent Late Charges and Electricity Charges Were Lawful—Usury, “Illegal Penalty” and Unconscionability Defenses Rejected—Commercial Leases “Will Not Be Upset By the Court” to Alleviate a Hard or Oppressive Bargain—Electric Charges Are Lawful Even if They Result in a Profit

A petitioner (landlord) had commenced a non-payment proceeding against the law firm respondent tenant. The lease obligated the tenant to pay a basic rent of “$7,398.66 per month for the months of January 2016 through December 2016, in advance of the 1st day of each month, plus additional rent as set forth therein including 993.45 per month for electricity plus late charges.”

The landlord served a demand on the tenant for $2,531.70, which included a 5 percent late charge plus electrical charges at $993.42 and charges for taxes and attorney fees.

The tenant asserted that the late fees were illegal, because they were “usurious” and did “not in any way even remotely apply to damages actually sustained and is an unconscionable penalty.” The tenant argued that the late fees amounted to “an interest rate of 328 percent interest rate per annum.” Additionally, the tenant argued that the lease provided for a five day grace period for which no late charge could be charged. The tenant also contended that it occupied only “a minor portion of the building” and that “$993.42 is totally disproportionate to the amount due” for electricity. The tenant further claimed that it had asked for an accounting and had not received it. The tenant also asserted that the electricity was provided on a sub-metered basis and the landlord is only permitted to charge “10 percent over the actual costs as administrative fees.”

The tenant had previously commenced an action in the New York State Supreme Court, seeking reimbursement of the alleged excess electricity payments.

The landlord argued that the late fees were “not usurious, because a lease payment is not a loan or a forbearance” and the late fees were “not unconscionable” because they were negotiated by “sophisticated business people for a commercial lease.” The landlord also asserted that the lease’s five-day grace period was inapplicable, since such grace period “only applies when the landlord serves a notice of default seeking to terminate the lease.” Here, “no default notice was served.” Thus, the landlord contended that the tenant was not entitled to the grace period, i.e., the late fees were appropriate, because “no grace period exists.” The landlord also noted that the tenant had paid the monthly electrical charge for more than 10 years and such charge was “not based upon actual consumption.” Additionally, the landlord argued that the New York Public Service Commission lacks jurisdiction over commercial leases and “cannot impact the lease by a tariff.”

The tenant also contended that the Supreme Court must determine this dispute, because the tenant had requested a declaratory judgment and other equitable relief for which the subject district court has no jurisdiction to grant.

The subject court granted summary judgment to the landlord. The court explained that the Supreme Court action had been commenced “between the demand and the summary proceeding” and the District Court had “broad discretion as to the disposition of an action when another action is pending….” The court opined that it could “determine all issues in an expeditious manner.”

The court then held that the electric charge “is legal and does not violate New York State law.” The court cited Accurate Copy Service of America v. Fisk Building, 72 AD3d 456 , 899 NYS2d 157 ( 1st Dept. 2010 ) ( Accurate ), which dismissed claims by commercial tenants that electrical charges were inappropriate. In Accurate, there was no allegation that the landlord had not enforced a lease’s electricity provisions “in conformance with their terms or that the profit earned by [landlord] violates the terms of the leases.” Accurate had also dismissed an unjust enrichment claim on the grounds that there was “an enforceable agreement between the parties….” Moreover, Accurate had rejected an unconscionability claim, “because the plaintiffs failed to allege and prove a lack of meaningful choice” and “the commercial tenants were free to not rent from the defendant and go elsewhere.”

In the subject case, the court observed that the tenant had “a meaningful choice to walk away and rent elsewhere” and had signed four separate lease agreements, “confirming the electric charge and has paid the same over a 10-year period.” The court explained that “commercial leases will not be upset by courts for the ‘purpose of alleviating a hard or oppressive bargain’” and electrical charges are not illegal, because they result in “a profit.”

The court further noted that “‘escalation clauses are common in commercial leases and have been approved and enforced according to their terms’….” Moreover, the New York Court of Appeals has approved of “the common practice in commercial leases of using formulas for computing additional rent charges, even where the charges are not tied to the landlord’s actual costs and may result in the landlord obtaining a profit in excess of its actual costs.”

The New York Court of Appeals had addressed a lease that “‘contain[ed] no requirement that rent escalations be measured by actual costs’ and held that the clause was not unconscionable even though the landlord received ‘economic advantage’ of the formula….” The Court of Appeals explained that an alleged “windfall,” was not illegal since it resulted from “a formula to which the parties agreed.” The subject court did not view the instant case as distinguishable from the Court of Appeals precedent merely because the escalation clause before the Court of Appeals “was tied to an objective industry accepted wage-rate chart….”

Additionally, the court held that the late fee was not usurious, since case law has held that a five percent late fee is legal in a commercial setting. Finally, the court noted that the Supreme Court had issued an order which upheld “the electrical charge, five percent late fee, and deduction of” monies owed from the security deposit and also held that there was not a five-day grace period for payment. Accordingly, the court granted the landlord summary judgment.

Old Country Road Realty v. Zisholtz & Zisholtz, LT-002181-16, NYLJ 1202770152039, at *1 (Dist., NA, Decided Sept. 26, 2016), Fairgrieve, J.


Pro Se Tenant—Stipulations Vacated—CPLR §5015—RPAPL §749(3)—Tenant Established “Good Cause,” “Mistake” and “Misrepresentation”

A petitioner commenced a non-payment proceeding against a respondent-tenant. The respondent filed a pro se answer, asserting two affirmative defenses, payment of rent and “conditions in the apartment.” The respondent thereafter consented to the entry of a final judgment in favor of the petitioner and agreed to pay $2,390 by May 8, 2015. The petitioner agreed to repair certain listed conditions in the apartment.

The parties entered into a second stipulation, pursuant to which a warrant was stayed, pending payment of $3,525. Again, the petitioner agreed to repair certain conditions. A third stipulation required the respondent to pay $734.60, but did not mention repairs. The parties thereafter entered into a fourth stipulation, pursuant to which the respondent agreed to pay $582, plus November 2015 rent. Thereafter, the respondent hired counsel and moved to vacate the prior stipulations of settlement.

The respondent argued that she entered into the stipulations “improvidently and inadvisably.” She had “waived defenses based on ‘serious violations of the warranty of habitability’” (WOH), that have “persisted throughout the tenancy.” The respondent claimed she was “unaware of her rights and did not understand that she could raise the repairs as a defense or seek a reduction in rent based on the conditions in the apartment.”

The respondent cited Appellate Term precedent which permitted “a pro se litigant who established a defense of the breach of [WOH],” to vacate a settlement stipulation and argued that “a tenant’s inadvertent waiver of the [WOH] defense warrants vacatur of an agreement.” The respondent emphasized that she was “pro-se” when she entered into the stipulations, was “unaware of her rights” and had “improvidently waived her right to the breach of the [WOH].”

The petitioner countered that the respondent’s motion was “a delay tactic” and she had “failed to demonstrate good cause to vacate the judgment and…stipulation agreements.” The petitioner argued that “stipulation agreements were entered into freely, knowingly and openly….” The petitioner asserted that the mere fact that the respondent was not represented, did not warrant vacatur of the agreements and that “[a] stipulation is a contract that must be upheld by the court.”

“Stipulations of settlement are favored” by the courts and are “not lightly cast aside,” and “[s]tipulations that are freely, knowingly, and openly agreed to…should be enforced according to their terms.” However, courts may vacate judgments pursuant to CPLR §5015 and RPAPL §749(3). CPLR §5015 provides that “[t]he court which rendered a judgment or order may relieve a party from it upon such terms as may be just,…, upon the ground of: (3) fraud, misrepresentation, or other misconduct of an adverse party.” RPAPL §749(3) authorizes a court “to vacate a judgment and warrant for good cause shown prior to the execution of the warrant.”

The court found that the respondent had established “good cause.” During the subject time period, the respondent had been “unable to obtain any repairs.” The court noted that, “[a]s in many cases in housing court, tenants are unaware of their rights or they are unable to enforce their rights to obtain the necessary repairs and they stop requesting repairs.” Although the last two stipulations did not mention repairs, repairs were still needed. For approximately 10 months, the respondent had been “unable to procure any repairs….” Moreover, the respondent’s last stipulation indicated that the respondent owed only $582. The court noted that the respondent could have sought an abatement based upon the petitioner’s “failure to complete the repairs and not risked possible eviction.” The court viewed that as “another indicator that [respondent] improvidently and inadvertently waived her defense of the breach of [WOH].”

The petitioner had also argued that it was “not on notice of the conditions in [respondent's] apartment because [respondent] did not submit any photographic evidence of the conditions,” it “is not the actual landlord but a tenant” and it lacked any “ability to effectuate any repairs.” The petitioner “rents the…premises from the landlord/owner of the building” and sublets the subject apartment to the respondent. Pursuant to its lease, the petitioner is unable to make any direct repairs and conditions in the apartment that were “to be fixed by the landlord of the building which is not petitioner herein.”

The court found that the respondent had “established good cause,” “mutual mistake and misrepresentation of an adverse party pursuant to CPLR §5015 .” The respondent was a pro se litigant who expected the conditions in her apartment to be repaired. The respondent had contacted the NYC Department of Housing Preservation and Development (HPD) regarding “the conditions in her apartment and HPD recorded “C” violations for a water leak in the bathroom, “B” violations for mold and four “A” violations. Two years later, there were still “C” violations, “B” violations and “A” violations in the apartment. Additionally, the petitioner had “agreed to complete the listed repairs…in two stipulation agreements and was on notice of the conditions in respondent’s pro se answer and failed to do anything.” Accordingly, the court vacated the judgment and warrant.

Women in Need, Inc. v. Allen, 14693/2015, NYLJ 1202769249942, at *1 (Civ., BX, Decided Sept. 21, 2016), Asforis, J.