Claim Against Title Insurance Company Dismissed—Alleged Zoning Restriction Preventing Home From Being Used as Two Family Home Did Not Render Title Unmarketable

The court granted a title insurance company’s motion to dismiss the complaint. The plaintiff had commenced the action against "the sellers, his mortgage lender, his real estate broker and the movant title insurer [defendant], alleging that he has been damaged because the real property he purchased is a legal one family dwelling rather than a legal two family dwelling." The plaintiff alleged that a "variance permitting the use…of the…property as a two family dwelling expired without his knowledge prior to plaintiff’s closing of February 8, 2007."

The defendant had been named in the action because a codefendant abstract company, as "issuing agent," had issued to the plaintiff, "an owner’s policy of title insurance." The policy was a "standard American Land Title Association form owner’s policy containing the standard terms, conditions, and exclusions from coverage." The defendant had not been engaged by the plaintiff, and had not undertaken "to search, prepare a report, or an abstract or to guarantee a title search in connection with the real property, or to ascertain that the subject property was in conformance with applicable zoning laws, regulations and ordinances."

The title search had been performed by the abstract company for the defendant’s benefit "so that the risks of insuring title and issuing the policy could be assessed." The court explained that "[a] policy of title insurance is a contract of indemnification concerning the marketability of title indemnifying the insured against loss or damage as a result of title being rendered unmarketable by reason of defect, lien or encumbrance." Thus, "a zoning ordinance, existing at the time of the contract, which regulates only the use of property, generally is not an encumbrance making title unmarketable…."

The court noted that the subject zoning code violation "for the use of a two family home relates to the manner in which the property can be used, and not to the marketablility of title." The alleged violation "involves the use and occupancy of the property, and not a defect that impairs title, which is specifically excluded from coverage under the title insurance policy issued to plaintiff as stated on the face page of the policy." Accordingly, the court granted the defendant’s motion to dismiss.

Silberger v. Smith, 10201/12, NYLJ 1202587550583, at *1 (Sup., NA, Decided Jan. 24, 2013), Diamond, J.

Brokerage—Commercial Tenant Ignored Agreement to Exclusively Use Brokerage Firm

A plaintiff brokerage firm (broker) and a commercial tenant defendant had entered into a written agreement dated June 12, 2008 (Agreement). The Agreement granted the broker "the exclusive right to find, negotiate for, and secure space" for the tenant and the tenant agreed to lease or purchase such space "solely and exclusively" through the broker. The Agreement was to continue through May 31, 2009 and extend thereafter unless cancelled by either party upon sixty days’ written notice. The Agreement required that the defendant "refer all inquiries, proposals and offers to [the broker]" and authorized the broker "to work with other brokers on a cooperating basis…." The Agreement also provided that the broker would "receive its compensation from the owner lessor or sublessor of the space, which is leased or purchased." Additionally, the Agreement obligated the defendant to act through the broker "’on all submissions’ made to the defendant during the term of the Agreement" and specified that the Agreement could "not be changed, rescinded or modified except by an agreement in writing."

The defendant’s existing lease was due to expire on April 30, 2009. Although the broker advised the defendant that it should start looking at locations in September 2008, and again in November 2008, the defendant thought it was "too early." Beginning in early December 2008, and continuing through the end of February 2009, the broker contacted the defendant with several potential locations and showed the defendant three possible premises. The defendant had advised the broker that "those locations did not meet its space, price or location requirements." However, the broker and the defendant "continued to negotiate prices with a landlord or its broker regarding a possible location."

Beginning in March 2009, the defendant began working with a different broker ("A"). The defendant had used "A" with respect to the defendant’s existing space. "A" ultimately found a new space for the defendant and the defendant signed a lease for such space in March 2009. The defendant thereafter notified the broker that it had leased other space. The defendant had never informed the broker that it was also working with "A," nor did it advise "A" of the Agreement with the broker. The broker reminded the defendant of the "exclusive agreement," requested the terms of the new transaction and advised the defendant that the broker would look to the new landlord or the defendant for its compensation.

The broker thereafter commenced the subject action, seeking damages from the defendant for breach of contract, quantum meruit, and unjust enrichment and had moved for summary judgment. The defendant asserted as affirmative defenses, that the contract was unconscionable, the plaintiff failed to perform any enforceable contract and the defendant had no obligation to pay the broker under the terms of the alleged contract. The defendant asserted that despite the Agreement, he did not believe that "he had to work exclusively with [the broker]," that "with time running short before his lease expired, he felt he had to pursue other leads," he had not been satisfied with the broker’s performance and there were questions of fact regarding the wording of the Agreement.

The court explained that "the mere assertion by the party opposing the motion that the agreement language means something different to him, where the contract or agreement is otherwise clear, unequivocal, and understandable when read in connection with the entire agreement, is not in and of itself sufficient to raise a triable issue of fact." The court found that the Agreement was clear and unambiguous and required the defendant to work exclusively through the broker to find any new space until the expiration of the Agreement.

Moreover, the Agreement authorized the broker to work cooperatively with other brokers and all proposals and offers were to be referred to the broker. The Agreement required the defendant to notify the broker of the offer from "A" in March 2009 and permit the broker to work with "A" on a cooperative basis. Although the defendant may have been unsatisfied with the broker’s efforts, a position which had never been conveyed to the broker, the defendant was "still required under the Agreement to work with [the broker] and refer any other leads it received to [the broker]." Although the defendant may have felt that "it had entered into an Agreement which was a bad business deal, that is not a cognizable legal defense." Thus, the court found that defendant had breached the Agreement and the plaintiff is entitled to summary judgment for breach of contract.

The defendant asserted that since the defendant was not obligated to pay the plaintiff under the terms of the Agreement if there was no breach, the defendant should not be obligated to pay anything upon the breach of the Agreement. The court rejected such argument. "[H]ad defendant not breached the Agreement and had referred the ['A'] listing to [the broker], plaintiff would have had to seek its compensation from the lessor, and perhaps would have shared the commission." By breaching the Agreement and not referring the "A" listing to the broker, the defendant prevented the plaintiff from receiving such compensation from the lessor. Appellate authority held that "the measure of damages for breach of an exclusive agency agreement ‘are measured "not necessarily" by the amount of commissions but rather by the expenses actually incurred and the profits of commissions lost on a sale the exclusive broker would have made’…."

A prior appellate decision held that, "when a broker with an exclusive agreement with its client was prevented from collecting a commission when its client used another broker to lease premises, the exclusive broker was entitled to an award of half of the total commission which it could have received had it been brought into the negotiations." In that case, the court found that "the first broker was not entitled to the total commission amount, despite its exclusive contract, since it could not prove it could have independently procured the lease into which its client entered." Accordingly, the court granted the broker’s motion for summary judgment on the issue of liability and ordered that a referee hear and determine the amount of damages.

Comment: You often see these kinds of cases when the tenant is a relatively small commercial party. Such entrepreneurs often sign agreements without the benefit of experienced counsel or if they utilized such counsel at the time of contract execution, they did not consult with counsel thereafter. Why? Often, because they want to save money on legal fees.

Here, the tenant possibly could have negotiated a shorter exclusive brokerage agreement. Most commercial brokers would accept an exclusive period that is shorter than a year. Most brokers would also agree to a reasonable termination provision. Here, the tenant seemingly ignored the exclusive brokerage agreement. Occasionally, this occurs because a tenant actually forgets that its agreement is exclusive, the tenant thinks that the broker will not sue, the tenant thinks that it could settle for a relatively small amount of money if the broker sues or the tenant thinks it signed a "bad" contract, doesn’t want to work with the broker and will accept the risk of a damage award. As the court noted, the original broker had agreed to work with co-brokers and it is not the role of the court to save a businessperson from a deal that with "hindsight," looks like a bad business deal.

Hunter Realty Organization v. A.O. Textiles, 107794/2009, NYLJ 1202589223908, at *1 (Sup., NY, Decided Jan. 16, 2013), Hagler, J.

Out of Possession Landlord Not Responsible for Alleged Injuries to Pedestrian Arising From Icy Sidewalk

Landlord defendants had moved for summary judgment "dismissing the plaintiff’s complaint against them or, alternatively, granting them summary judgment on their cross claims for contractual and common-law indemnity" against their commercial tenants. The plaintiff alleged that she slipped and fell on the sidewalk outside of a supermarket. The defendants include the owner of the premises and its managing agent (agent). The supermarket space was net leased to the supermarket operator.

The plaintiff allegedly slipped on a patch of ice close to the supermarket exit. The plaintiff claimed that "it had snowed the prior day, that she did not see any ice patches…, that an unnamed store employee saw her fall and…there was no snow but only ice at the location of her fall outside the Premises…." The supermarket contended that its employees routinely remove snow and ice before the store opens in the morning. The supermarket asserted that the sidewalk had been "clear with no ice" and that it had only been "moist" from "a few snow flurries." The supermarket claimed that the plaintiff had admitted that she fell "because her knee gave out and that there was no ice or snow at the location…where plaintiff fell."

The landlord defendants argued that they are "out-of-possession landlords." The agent argued that it only collected rent. Under the lease, the landlord defendants had "no responsibility for the condition of the Premises or of the sidewalk in front of it." The supermarket "performed…, cleaning and maintenance of the premises and the sidewalk in front of it" and the defendants asserted that they lacked notice of the sidewalk’s condition at the time of the incident. Accordingly, the defendants moved to dismiss the complaint and any cross claims against them.

The court explained:

Generally, a landowner must act as a reasonably prudent person in maintaining its property in a reasonably safe condition…, including the likelihood of injury, the potential seriousness of injury and the burden of avoiding the risk…. Additionally, a party must be aware of the alleged defective or dangerous condition, either through having created it, actual knowledge of the condition or constructive notice of it through the defect’s visibility for a sufficient amount of time prior to the accident to enable a defendant to discover and remedy it….

Moreover, "[a] defendant moving for summary judgment in a slip-and-fall action has the initial burden of showing that it neither created, nor had actual or constructive notice of the dangerous condition that caused plaintiff’s injury"….

Generally, "[a]n out-of-possession landlord is…not liable for the condition of the…premises unless the landlord has a contractual obligation to maintain the premises, or [the] right to reenter in order to inspect or repair, and the defective condition is ‘a significant structural or design defect that is contrary to a specific statutory safety provision’…."

The plaintiff had failed to present any evidence to rebut the landlord defendants’ showing that they "were out-of-possession landlords under a net-net lease that transferred responsibility for maintenance of the Premises to [the supermarket]," that the agent "merely collected rents" and the supermarket "exercised its responsibility for maintenance of the Premises by having the porter and, if necessary, other employees, clean the sidewalk in front of the Premises…and that the porter had cleaned the sidewalk that morning…." The court therefore granted the landlord defendants summary judgment. The court emphasized that the alleged defective "condition of ice on the sidewalk" was "not the type of structural defect that an out-of-possession landlord would be responsible for and a landlord who has shifted responsibility for maintenance to a tenant is not in a position to have notice of this type of condition…."

Ayala v. Associated Supermarket, 109846/2009, NYLJ 1202589223985, at *1 (Sup., NY, Decided Jan. 22, 2013), Ling-Cohan, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.