Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Attorney Fees—Real Property Law §223-b—Retaliatory Proceeding—Reciprocal Mandate of Real Property Law (RPL) §234—Appellate Division Reconciled Apparent Conflict As To Whether A Provision Which Permits A Landlord To Recover Attorney Fees For Re-renting an Apartment After Prevailing In A Holdover Proceeding Is Adequate To Invoke the Reciprocal Mandate of RPL §234

This appeal involved a tenant who had successfully defended a holdover proceeding. The landlord sought to recover the apartment, asserting that the tenant breached the lease “by making unauthorized alterations to the premises.” Following a trial, the trial court had dismissed the holdover proceeding and “awarded the tenant attorney fees pursuant to [RPL] §223-b ['§223-b'], based upon [a court's] finding that [the] proceeding was retaliatory in nature.” The Appellate Term reversed the award of attorney fees, but otherwise affirmed. It also rejected the tenant’s alternative claim for attorney fees pursuant to RPL §234 (§234]. The Appellate Division, First Department (court) modified the order of the Appellate Term and examined and reconciled “an apparent conflict within this Department with respect to whether a similarly worded lease provision, which permits a landlord to recover attorneys’ fees for re-renting an apartment after prevailing in a holdover proceeding, is adequate to invoke the reciprocal mandate of…§234.”

In 2004, the parties entered into a lease that provided for rent of $2,200 per month for an “unregulated apartment.” In 2005, the tenant filed a rent overcharge complaint with the Division of Housing and Community Renewal (DHCR), claiming that the apartment was, in fact, subject to rent stabilization. The landlord claimed that “the apartment had become deregulated because $60,000 in renovations were performed to the apartment before the tenant took occupancy.” The tenant countered with proof that he, not the landlord, had performed such renovation work. DHCR found that there had been an overcharge and the apartment remained rent-regulated. The state Supreme Court had dismissed the landlord’s Article 78 petition challenging DHCR’s determination and the Appellate Division had affirmed.

Thereafter, the landlord accused the tenant of “making unauthorized alterations to the apartment.” The lease permitted the tenant to make alterations only with the “landlord’s ‘prior written consent.’” The lease provided that if the tenant defaulted, the landlord could re-let the apartment and recover the expenses of such re-renting, including the costs of getting possession and re-renting the apartment, “including,…reasonable legal fees….”

After serving a notice to cure and a notice of termination, the landlord commenced a summary holdover proceeding. The landlord sought, inter alia, an award of possession and “legal fees in the amount of $3,000.” The tenant asserted a defense of retaliatory eviction under §223-b and counterclaims for attorney fees and damages. The tenant asserted that the work did not violate the lease and had been “performed to remedy hazardous conditions.”

The tenant testified that he discussed the work with the landlord before it was done and the landlord consented to the work. The building superintendent had given the tenant access to the apartment before the lease commencement date. The tenant had also written to the landlord, advising that the work was completed and had enclosed bill invoices and requested reimbursements and a five-year lease extension. A landlord representative had come to the apartment and verified that the work had been done and advised the tenant that he would not be reimbursed, but the landlord “would agree to extend the lease to a three-year term.”

The trial court thereafter dismissed the holdover proceeding, finding that since the landlord’s agents had authorized the alterations, the tenant had not breached the lease. The trial court found that the landlord’s witness’s testimony was “entirely incredible,” the witness had “lied repeatedly and obviously” and the landlord had commenced the holdover proceeding “in retaliation for the tenant’s successful rent overcharge claim.” The trial court also stated that “[a]lthough…the attorneys’ fee clause in the lease…is not enforceable under current case law, [the tenant] is entitled to collect his attorneys’ fees as part of his damages for retaliatory eviction.”

The Appellate Term modified the trial court award by denying the tenant attorney fees under §223-b, but otherwise affirmed. The Appellate Term found that “the landlord was estopped from enforcing the ‘no alterations provision.’” Since the landlord’s agents expressly consented to the work and the landlord, in connection with prior proceedings before DHCR, had falsely asserted that “its own contractors had effectuated the electrical work.” The Appellate Term opined that the subject attorney fees provision did “not meet the requirement that a statute expressly authorize an award of attorneys’ fees.”

The tenant appealed to the Appellate Division solely from the denial of attorney fees. The court found that since the tenant prevailed in the holdover proceeding, the tenant may recover attorney fees pursuant to §234. That section provides that “when a lease provides for a landlord’s recovery of attorney fees resulting from a tenant’s failure to perform any covenant under a lease, a reciprocal covenant ‘shall be implied’ for the landlord to pay attorney fees incurred as a result of either its failure to perform a covenant under the lease or a tenant’s successful defense’….”

The court explained that §234 was intended “to provide a level playing field between landlords and tenants, by creating a mutual obligation that is an incentive to resolve disputes quickly and without undue expense…. As a remedial statute,…§234 should be accorded its broadest protective meaning consistent with legislative intent…. The outcome of any claim pursuant to…§234 depends upon an analysis of the…language of the lease provision at issue in each case to discern its meaning and import….”

Here, the lease provided that, if it was cancelled, the landlord was entitled, inter alia, to use an eviction or other lawsuit to take back the apartment and if the landlord took back the apartment, “[r]ent and added rent for the unexpired Term is due and payable.” The term “added rent” was defined to include “‘other charges to Landlord under the terms of this Lease’ which the tenant ‘may be required to pay.’” The lease permitted the landlord to relet the apartment and the tenant would remain liable and not be released, except as provided by law. “Any rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes…. The landlord’s expenses include the costs of getting possession and re-renting the Apartment, including,…reasonable legal fees.”

The court opined that such language came “within the language of…§234, since it does ‘provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform any covenant or agreement contained in such lease….’” The court noted that the dissent argued that §234 is inapplicable since the “language [,] attorneys’ fees…merely provides for the offset of rents collected in the event of a reletting.” The court found that “such limitations of the award of attorneys’ fees [is] of no moment as to whether the clause triggers the reciprocal mandate of…§234.”

The court explained that “an attorneys’ fees clause in a lease may be narrowly tailored to permit fees only under certain circumstances, or for particular types of proceedings” and “what is significant for purposes of…§234 is whether the landlord’s right to attorneys’ fees is triggered by the tenant’s failure to perform a covenant in the lease….”

The court emphasized that the attorney fees provision would be triggered by a breach of lease covenants and had the landlord prevailed in the holdover proceeding, it would have been entitled to acquire possession and re-rent the apartment and collect reasonable attorney fees relating thereto. The court relied on Bunny Realty v. Miller, (180 AD2d 460 [1st Dept. 1992]) and Matter of Casamento v. Juaregui, (88 AD3d 345 [2011]). Casamento stated that “[t]o deny the tenant’s motion pursuant to…234 simply because [the lease] does not include a more direct method for the landlord’s recovery of his attorneys’ fees would be only to reward ‘artful draftsmanship’ and undermine the salutary purpose of section 234….”

The court opined that “where the landlord…engaged in improper retaliation, a contrary conclusion based on the dissent’s narrow construction of…§234 would undermine one of the key purposes of…§234.” The court noted that §234 was intended “to discourage landlords from engaging in frivolous litigation…to harass tenants, particularly tenants without the resources to resist legal action, into terminating legal occupancy.” The landlord argued that two Appellate Division, First Department cases had overruled Bunny Realty. The court stated that those cases did not cite Bunny Realty. Moreover, one case arose out of an agreement that was not the lease and “the tenants had incurred attorney’s fee in their successful defense of the landlord’s cause of action to rescind [such] agreement….”

Thus, the “attorneys’ fees provision was not triggered by a breach of the lease.” Moreover, the other appellate case did not expressly overrule Bunny Realty, did not “even cite it” and to the extent that such case relied upon dicta, it had “limited precedential value.” Thus, the court concluded that “the type of lease clause at issue here is sufficient ‘to trigger the implied covenant in the tenant’s favor pursuant to…§234′” and there was “no need to address the tenant’s alternative contention that he is entitled to…attorneys’ fees pursuant to…§223-b.” Accordingly, the court granted the tenant’s claim for attorney fees pursuant to §234.

A dissenting opinion argued, inter alia, that “[l]egislative enactments in derogation of common law, and especially those creating liability where none previously existed, must be strictly construed….” The dissent reasoned that “under the reciprocal provisions of…§234, a tenant may recover attorneys’ fees only where the lease provides for the landlord’s recovery of such fees (a) in an action or special proceeding or (b) as additional rent. Neither situation is present here.” The dissent explained that “[n]othing in the…lease provision provides for tenant’s payment of attorneys’ fees. The language merely provides for an offset of rents collected in the event of a reletting. Therefore,…§234 is inapplicable.”

The dissent cited a Court of Appeals decision which had been decided subsequent to Bunny Realty, which explained that “a statute providing for an award of attorneys’ fees should be narrowly construed in light of New York’s adherence to the common-law rule disfavoring any award of attorneys’ fees to a prevailing party in litigation….” The Court of Appeals had further stated that “‘[t]he common law is never abrogated by implication, but on the contrary it must be held no further changed than the clear import of the language used in a statute absolutely requires….’”

Additionally, the dissent asserted that where “[r]emedial statutes create liability not otherwise existing, or increase common law liability, the rule of liberal construction does not apply, but on the contrary the statute must be followed with strictness,” citing McKinney’s Cons Laws of NY, Book 1, Statutes §321.

The dissent further argued that the language of the lease did not provide “for a similar recovery by landlord if it had prevailed. Within the meaning of [Duell v. Condon, 84 NY2d 773 (1995)], the mere possibility of landlord’s offset of reletting expenses can hardly be considered the ‘same benefit’ as today’s outright award of attorney fees to tenant. Today’s ruling makes for the mutuality of a ‘heads, I win; tails, you still don’t win’ coin toss.” Finally, the dissent agreed with the Appellate Term that was “no basis for an award of attorneys’ fees under…§223-b inasmuch as the statute does not explicitly provide for such relief….”

Comment: I was advised that this decision is being appealed.

Graham Court Owner’s Corp. v. Taylor, 70520/10, NYLJ 1202639616295, at *1 (App. Div., 1st, Decided Jan. 21, 2014), Before: Sweeny, Jr., J.P., Renwick, Moskowitz, DeGrasse, Gische, JJ. Opinion by Renwick, J. All concur except Sweeny J.P., and DeGrasse, J., who dissents in an opinion.

Landlord-Tenant—Chronic Rent Delinquency Holdover Proceeding Dismissed—At Least 12 Non-Payment Proceedings Had Been Commenced—Most Had Been Commenced Beyond the Six-Term Statute of Limitations and Others Resulted in Agreements with Required Repairs

A 73-year-old tenant had resided, with three grandchildren, in a federally subsidized Housing and Urban Development (HUD) building for approximately 31 years. Issues had arisen with respect to the tenant’s qualifications for her subsidy, prompting her to fall in arrears. She had commenced a CPLR Article 78 proceeding against the Department of Housing, Preservation and Development and the landlord.

The landlord had previously served the tenant with a 10-day notice to terminate, alleging that the tenant had violated a substantial obligation of her lease “by ‘exhibit[ing] a chronic…propensity for paying [her] rent late each month, allow[ing] arrears to accumulate over periods of months, and hav[ing] compelled the Landlord to commence numerous non-payment proceedings…’ during the past 22 years of her tenancy.” The landlord alleged that, since 1991, at least 12 non-payment proceedings had been commenced. The landlord thereafter commenced the subject chronic rent delinquency holdover proceeding, alleging chronic failure “to timely pay the rent,” the tenant’s lease had expired and the tenant owes more than $15,090 in rent arrears.

The tenant had moved to dismiss and for summary judgment, arguing that the termination notice failed to state a claim for breach of a substantial obligation of the tenancy based on chronic nonpayment of rent. In the alternative, she sought summary judgment dismissing that part of the petition which asserted “untimely predicate claims barred by the Statute of Limitations [SOF] of CPLR 213(2), or for permission to file an Answer pursuant to CPLR 3025(b).” The tenant contended that the landlord may not rely on nonpayment proceedings commenced more than six years prior to the subject proceeding, and that the three timely predicate legal proceedings cited by the landlord “were either settled by stipulations containing repair and habitability issues or concluded after only one appearance.”

The subject proceeding had not been commenced “upon the ground of ‘nuisance,’ which requires a showing of ‘aggravating circumstances.’” With respect to allegations of “chronic and systematic” failure to pay rent, “[t]he number and frequency of nonpayment proceedings are not the only criteria judicially considered when determining whether a substantial obligation has been violated since ‘the number of nonpayment actions commenced is relevant only in the context of the entire circumstances surrounding the alleged withholding of rent.’” Additionally, “[a] temporary financial embarrassment may excuse isolated instances of late payment, but inability to pay cannot excuse chronic and continuing delinquency.”

The court found that nine of the 12 legal proceedings relied upon by the landlord should have been “barred from consideration under the [SOL]…, as having been commenced more than six years prior to this contractual proceeding….” Thus, the court granted the tenant’s motion to dismiss “any consideration of those time-barred proceedings prior to 2007.”

A 2007 nonpayment proceeding had been settled pursuant to an agreement that provided for payment and a repair schedule relating to “radiators, leaks and electrical problems.” A 2011 proceeding had been settled pursuant to an agreement which obligated the landlord to make certain repairs and the tenant to provide payments. The third nonpayment proceeding resulted in a default judgment against the tenant for her failure to answer.

Accordingly, the court found that two of the nonpayment proceedings were “not so unjustified as to warrant a lease violation finding….” Even if the court deemed the two 2011 proceedings as proper predicate proceedings, the tenant had established that the landlord had “failed to allege enough frequency and number of prior proceedings” to demonstrate a substantial violation of a material obligation of the tenant’s 15-year tenancy. Thus, the court dismissed the proceeding.

Mins Court Housing v. Wright, L&T 013224/2013, NYLJ 1202639434876, at *1 (Civ., BX, Decided Jan. 10, 2014), Vargas, J.

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