Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Succession—”No Bright Line Rule” For Determining the Date of Permanent Vacatur by Tenant

A LANDLORD COMMENCED a summary holdover proceeding, alleging that the tenant of record (tenant) “surrendered her rent-stabilized tenancy and that the license to occupy the apartment of remaining occupants has expired.” The tenant’s daughter asserted that she is entitled to succeed to her mother’s tenancy. The daughter alleged that she had lived in the apartment since she was two and a half years old. The landlord sought summary judgment.

The landlord had commenced a nonpayment summary eviction proceeding in 2015 against the mother. Although the mother did not appear in the proceeding, the daughter answered and had appeared in court. The landlord alleged that during the 2015 proceeding, the daughter had stated that the tenant “had ‘permanently vacated’ the apartment in August 2014 and moved to the Dominican Republic.” A stipulation of adjournment in the 2015 proceeding, signed by the daughter, “sets forth this claim.”

However, the daughter now told “a slightly different story.” She claimed that in court she had noted that her mother “was in the Dominican Republic and that [her mother] was going back and forth to the Dominican Republic.” The mother had allegedly traveled to the Dominican Republic in August 2014 to take care of her sick mother. The daughter further asserted that the mother “intended to stay in the Dominican Republic ‘for a short time but her stay was extended” to take care of the grandmother. The mother had later signed a renewal lease for the apartment “because she planned to be back in New York when my grandmother got better.”

The landlord had allegedly advised the daughter that if she had paid all the arrears and “produced a notarized surrender” from the mother, that the landlord would make the daughter the tenant of record. The daughter had allegedly stated that “she only wanted the lease in her name until her mother returned.” She alleged that the landlord stated that “once that change was made, it could not revert back once [the mother] returned.” The daughter claimed that it did not matter to her, because “whether the lease was in her name or in [her mother's] name, they would live together.”

The daughter produced a letter from the mother stating that the mother “no longer resided in the apartment.” The letter did not contain the surrender language that was requested by the landlord. Thereafter, the daughter “provided a notarized document (although it is not signed by anyone), that contains the identical language” as that requested by the landlord. The nonpayment proceeding had then been discontinued.

The landlord claimed that the daughter had not been offered a lease, because the landlord had “discovered that, although [the daughter] (and the unsigned notarized statement) stated that [the mother] had moved out in August 2014,” a renewal lease had been signed by the mother on April 17, 2015. There was no explanation as to why if the lease had been signed by both sides in April 2015, the landlord only learned of such fact several months later. The landlord also alleged that the signature on the renewal lease differed from other signatures of the mother. Based on such facts, as well as the daughter’s failure to pay the rent arrears, the landlord never offered the daughter a lease and instead commenced the subject holdover proceeding.

The landlord contended that as a matter of law, the daughter cannot prevail on her succession claim. The landlord argued that “the date of [the mother's] vacatur from the apartment must be found to be either the date of her surrender (via the notarized, unsigned statement provided in August 2015) or the date of expiration of the last lease she signed (May 31, 2016).” The landlord argued that in either case, since the mother was not living in the apartment since August 2014, the daughter could not be found to have lived with the mother for the requisite two-year period immediately preceding her vacatur.

The court explained that although “there is no bright line rule that ‘for the purposes of establishing the date of permanent vacatur by the tenant, the expiration of the most recently executed lease will be the presumed date of vacatur absent an earlier written surrender by the tenant.’” The court noted that “[n]o appellate court has explicitly held as such.” Several cases have utilized “the date of the expiration of the last renewal lease as the date of vacatur….” However, in those cases, the courts had “considered totality of the facts…in rendering a decision.”

When there has been delay in notifying the landlord that the tenant of record had vacated, courts look to determine whether there was “prejudice.” In certain instances, a delay in advising the owner that the tenant had vacated an apartment, “may prejudice the owner in its ability to contest a succession claim.” The court warned, however, that “delay in notification or concealment alone is not sufficient to find prejudice in every case….”

Moreover, a recent Appellate Term decision, 90 Elizabeth Apt. v. Eng, discussed herein, (2017 NY Slip Op 50833[U] [App Term, 1st Dept 2017]) (Eng), rejected the landlord’s “formulation of the law.” Eng involved rent control rather than rent stabilization. Eng held that “the fact that respondents’ mother entered a nursing home in 2010, leaving her children in possession and, through her guardian, formally surrendered her tenancy rights several years later, does not, as a matter of law, render her children any less entitled to succession rights under the rent control law.” In Eng, it was uncontested that the tenant’s children had lived with her as a family for decades until she moved out, nor was there a “claim or showing” that the children were trying to protect their mother’s continued occupancy.

Since the landlord did not contest the daughter’s “claims or evidence that she is the daughter of [the tenant] and that she has lived in the apartment since she was a small child,” the court held that there were issues of fact as to whether the daughter was entitled to succeed to the tenancy and the court denied the landlord’s motion for summary judgment.

161 Holding v. Goris, 63692/2016, NYLJ 1202793241493, at *1 (Civ., NY, Decided June 30, 2017), Weisberg, J.

Landlord-Tenant—Assignment of Rents—Bankruptcy—Dispute As to Who Is Entitled to Receive the Rent—Assignment of Rent Became Effective Only Upon Appointment of A Receiver or Upon Foreclosure

THIS CASE INVOLVED “a small claims action for payment of rent.” The court noted that the case involves “winding facts, complex law and some clever lawyering.”

The plaintiff had notified the residential tenants that they should pay rent to him and not to the property owner (“A”) who had signed their lease. The plaintiff advised the tenants that “A” “had signed a debt instrument (a collateral balloon mortgage), had defaulted on the mortgage, and because ['A'] had defaulted, [plaintiff] was now entitled to the rent.” The letter contained “all the legal trimmings—a letter from an attorney and official documents bearing the imprimatur of the county clerk.”

The tenants’ attorney had advised them to pay the rent into an escrow account. The plaintiff thereafter commenced a small claims action against the tenants. At a court hearing, an LLC entity (LLC) appeared and explained that “A” had assigned to LLC, the rent from the tenants’ home.

The tenants and LLC argued that the plaintiff had really brought “a declaratory judgment case disguised as a small claims case,” since the case is really about “the court declaring who has the legal right to collect the rent.” LLC contended that since any declaratory judgment action must be brought in the Supreme Court, the Small Claims Court lacked jurisdiction over the case. The plaintiff argued that he should be able “to try his case in City Court because litigating a declaratory judgment action in Supreme Court is more expensive, more complex and riskier.” He asserted that the case is really a “breach of contract” case, which the City Court has jurisdiction over and that the amount of money sought was within “the monetary limits of the City Court’s civil jurisdiction.”

The court stated that this was a case for damages. The court acknowledged that its decision may have “the effect of determining whether [plaintiff] or ['A'] gets the rent,” but “[d]eciding cases causes collateral effects—it is the nature of adjudication” and “[t]he collateral effect of a decision in this case does not transform it from damages into a declaratory judgment action….”

The plaintiff had loaned “A” money. The loan was secured by, inter alia, “A’s” personal guarantee and a pledge of the subject property through “a collateral balloon mortgage.” “A” failed to honor her personal guarantee, had defaulted on the mortgage and had also filed for bankruptcy. The Bankruptcy Court had granted “A” a discharge under Chapter 7 of the Bankruptcy Code and that discharged all of her personal liabilities.

However, “[t]he bankruptcy discharge extinguished only claims against ['A'] personally; it does not prevent a mortgagee to sue her property in a foreclosure proceeding, an in rem action.” Although the plaintiff could have brought a foreclosure proceeding, he instead exercised the assignment of rents provisions under the mortgage and demanded the rent from the tenants.

The court explained that the salient issue was “whether an assignment of rents created an in rem right possessed by [plaintiff] (not covered by the bankruptcy discharge) or whether the debtor ['A''s] collection of rent prior to a foreclosure action is personal income which would be protected under the discharge.” i.e., “whether the rental income is part of the property or personal income.”

The court further noted that assignment clauses may be sources of “additional security for a mortgage loan, or, alternatively, it may create an absolute and unconditional assignment. When an assignment is for additional security, the lender has a lien on the rents, but title to the rents remains with the borrower. When an assignment is absolute, title to the rents vests as a property right with the mortgagee upon default of the mortgage….”

Additionally, the court explained that “as with any general rule of law, the rule varies according to jurisdiction” and federal courts have held that the question is to be resolved by the law of the state where the property is located. In this case, New York law applied. However, the law in New York is “split between a title theory for the rent and a lien theory.” Although “some courts have found rent assignments to be absolute under New York law (title theory), ‘the majority of New York state cases are of the view that an absolute assignment is not permitted, regardless of the language in the agreement.’” Moreover, pursuant to “the lien theory, a mortgage creates a lien but does not transfer title to the mortgagee.” Thus, “a rent assignment clause under New York law acts ‘merely as a pledge of rents, not as a direct conveyance’….” Furthermore, “an assignment of rents provision does not create an automatic conveyance of the rents, even ‘if the assignment is made as further security for the mortgage debt’….”

Accordingly, the court stated that “assignment of rents becomes effective only upon foreclosure or upon the appointment of a receiver of the rents of the mortgaged property. That is, a mortgage is merely a lien, which gives the mortgagee security and no more, and cannot, regardless of its form or of the intention of the parties to the mortgage, transfer title to the mortgagee.” Since the plaintiff was neither a receiver nor a person who had foreclosed on the property, “A,” not the plaintiff, was entitled to the rents collected by her prior to foreclosure. Since the plaintiff had no claim for rent because “his right to receive rent is not ripe,” the tenants owed the plaintiff nothing and the court dismissed the plaintiff’s claim.

Herrmann v. Coletti, SC-572-17/CO, NYLJ 1202794285949, at *1 (City, AL, Decided June 29, 2017), Marcelle, J.

Landlord-Tenant—Succession—Holdover Proceeding Was “Not Susceptible to Summary Disposition”—Issues of Fact as to Respondents’ Family Member Succession Defense—Father Died and Mother Had Alzheimer’s Disease—Children Had Lived In the Apartment With Their Parents Until the Parents Were Admitted Into Nursing Homes

RESPONDENT “A,” who is approximately 46 years old, “essentially lived in the apartment her entire life with her brother,…as well as her mother and father, the original statutory tenants, until the latter were admitted into nursing homes in 2005 and 2010, respectively.” The father died in 2012, and the “mother, who had suffered from Alzheimer’s disease and had an Article 81 guardian appointed on her behalf, surrendered tenancy rights in October 2015.” The respondents had attempted to assert “a succession claim in…a 2010 nonprimary residence proceeding” which had been commenced by the petitioner, “but that succession claim was held to be premature.”

The court explained that because the mother had “entered a nursing home in 2010, leaving her children in possession and, through her guardian, formally surrendered her tenancy rights several years later, does not, as a matter of law, render her children any less entitled to succession rights under the rent control law….” There was “no dispute that respondents primarily resided in the apartment with the tenants as part of the family unit for decades until the tenants moved out.” Moreover, there was no evidence that the “respondents’ occupancy was a subterfuge to protect their mother’s continued possession….”

90 Elizabeth Apt. v. Eng, 570694/16, NYLJ 1202791672817, at *1 (App. Div., 1st, Decided June 23, 2017), Before: Lowe, III, P.J., Shulman, Ling-Cohan, JJ.