Scott E. Mollen
Scott E. Mollen ()

Commercial Landlord-Tenant—Real Property Law §232-c Does Not Create a Month-to-Month Tenancy After a Lease Expires and Landlord Accepts Rent When an “Express or Implied Agreement Between the Landlord and Tenant Provides Otherwise”—Landlord Barred by Doctrines of Judicial Estoppel and Waiver From Asserting That Tenant Was Not a Month-to-Month Tenant

A tenant and a landlord entered into a commercial lease. The monthly rent was $33,333.33. The lease expired on March 31, 2010. The lease provided that if the tenant continued to occupy the premises after the lease’s expiration, the tenant would “pay use and occupancy charges ‘at the rate of two and one-half (2 1/2) times the daily rate of the fixed rent payable during the last month of the term’” (holdover rent).

In July 2015, the landlord commenced the subject action against the tenant, to recover holdover rent. The landlord claimed that the tenant failed to pay holdover rent for the period between May 1, 2010 and Dec. 3, 2014, which resulted in an outstanding balance of approximately $3,400,000. The tenant moved for summary judgment dismissing the complaint. The landlord cross-moved for summary judgment dismissing the complaint or alternatively, for summary judgment on the issue of liability and an immediate trial on damages.

The tenant argued that it did not owe holdover rent, because it became a month-to-month tenant after the lease expired, pursuant to Real Property Law (RPL) §232-c and the landlord “is judicially estopped from denying [tenant's] status as a month-to-month tenant because it previously asserted this position in a prior holdover proceeding….” The tenant also asserted that the landlord was collaterally estopped from seeking holdover rent, since a judge in a prior non-payment proceeding held that the tenant was a month-to-month tenant. The tenant also claimed that the landlord “waived its right to collect holdover rent because it accepted [the tenant's] rent payments after the lease” and the landlord consented to the continued occupation of the premises.

A tenant witness acknowledged that the tenant remained in possession as a month-to-month tenant following the expiration of the lease, until March 2014. The witness further stated that the tenant’s monthly rent payments for April and May 2010, were accepted by the landlord, without objection. The tenant had allegedly paid monthly rent of $33,333.33 to a court appointed property manager for the period June 2010 to March 2011.

In view of water infiltration and flooding conditions, a court-appointed receiver had allegedly agreed to reduce the monthly rent to $25,000. The tenant paid the reduced amount for April and May 2011. In June 2011, the tenant began withholding rent, allegedly due to worsening conditions at the premises. In late 2011, the receiver commenced a nonpayment proceeding against the tenant. The tenant explained that it thereafter “resumed paying rent to the receiver in an effort to negotiate a new lease.”

In March 2012, a judge had dismissed the nonpayment proceeding “without prejudice” to commencement of a holdover proceeding and/or plenary action. That decision stated that it was “not in dispute that respondent is…a month-to-month tenant…Pursuant to RPL §232-c, the effect of landlord’s acceptance of payments following the expiration of the lease resulted in a month to month tenancy.” That court further held that “the non-payment proceeding was fatally defective because [tenant] was ‘not holding the premises pursuant to an existing rental agreement.’”

The receiver thereafter commenced holdover proceedings in 2012 and 2014. The court dismissed the first holdover proceeding based on lack of service. The court awarded possession of the premises to the landlord in the second holdover proceeding.

The landlord argued that it “is entitled to collect holdover rent…because [the tenant] is not a month-to-month tenant pursuant to [RPL] §232-c.” The landlord contended that the tenant’s estoppel arguments are baseless, since the landlord could not have sought contract damages in the prior Civil Court proceedings and the landlord “is not bound by its receiver’s acts or omissions regarding the premises.”

[RPL] §232-c states that in the case of “a holding over by the tenant…if the landlord shall accept rent for any period subsequent to the expiration of such term, then, unless an agreement either express or implied is made providing otherwise, the tenancy created by the acceptance of such rent shall be a tenancy from month to month commencing on the first day after the expiration of such term.”

The court explained that although “RPL §232-c may operate to create a month-to-month tenancy after a lease expires and the landlord continues to accept rent, this statute does not create such a tenancy when an express or implied agreement between the landlord and tenant provides otherwise.” Here, the lease embodied an agreement that the tenant would be liable for 21/2 times the last month’s rent for the holdover period. The court held that based on the existence of the lease, RPL §232-c did not create a month-to-month tenancy.

“The doctrine of judicial estoppel prevents a party who assumed a certain position in a prior proceeding and secured a ruling in his or her favor from advancing a contrary position in another action, simply because his or her interests have changed.” In a prior holdover proceeding, the landlord asserted that its lease with the tenant “expired by its own terms,” and the tenant “remained in possession…as a month to month tenant.” Throughout that proceeding, the landlord “maintained that [the tenant] was a month-to-month tenant and it never sought to collect holdover rent under the lease.” In fact, the landlord had alleged in the prior action that it had not received rent and/or use and occupancy since March 31, 2014 and it “sought to recover ‘the fair value of use and occupancy.’”

Based upon the landlord’s prior assertions that the tenant was a month-to-month tenant, the court held that the landlord “is judicially estopped from denying [the tenant's] status as a month-to-month tenant and from collecting holdover rent.” The court opined that to permit the landlord to “change its position now and seek holdover rent would be highly prejudicial to [the tenant].”

The court further held that the landlord’s acceptance of rent from the tenant after the lease expired, constituted a waiver of its right to collect holdover rent. The court explained that “[u]nder New York law, contractual rights may be waived ‘if they are knowingly, voluntarily and intentionally abandoned.’” Here, the landlord “continued to accept the rent paid by [the tenant] even after the lease expired, and [the landlord] never asserted its right to collect holdover rent until now.” The court opined that the landlord’s conduct amounted to “a waiver because it [was] a ‘clear manifestation of intent to relinquish a contractual protection’—i.e., the right to collect holdover rent under the lease.”

Hamilton 65th Partners v. Smallbone, 652414/2015, NYLJ 1202770648871, at *1 (Sup., NY, Decided Oct. 11, 2016), Scarpulla, J.

Landlord-Tenant—Rent Stabilization—Inconsistencies Between Filed Registration Statements and Original Lease Provisions Raise Question Whether Fraud Was Perpetrated, So as to Warrant Reviewing the Rental History Further Than the Four Year Rent Stabilization Code Look Back Period

A landlord commenced a holdover proceeding, alleging that a rent-stabilized tenant of record “failed to renew their timely offered renewal lease.” The tenant argued that the renewal lease was improper since “the registered rent history reveals illegal rent increases that were taken in a fraudulent scheme to remove the premises from rent-stabilization coverage.” The tenant moved for discovery. The landlord cross-moved to strike certain affirmative defenses and to dismiss certain counterclaims.

The court explained that a review of the rent registration history revealed “inconsistencies for the period from 2007 through 2010, the latter year being the inception of the respondent’s [tenant's] tenancy.” On Aug. 2, 2007, the apartment was registered at a monthly rent of $667.26 for the period from May 1, 2005 through April 30, 2007. On March 25, 2009, the apartment was registered “as vacant for 2008 in the amount of $715.64.” Four months later, the apartment was registered on July 29, 2009 with a lease for a period from May 1, 2007 through Sept. 30, 2009, in the amount of $1,150.00. On April 23, 2010, a lease was registered with a legal regulated rent in the amount of $1345.50. The review of leases showed “inconsistencies with the registrations.” Additionally, the tenant alleged that she had not been provided with a “rent stabilized rent rider explaining how the rent was calculated.”

The court reviewed Rent Stabilization Code (RSC) §2522.5(c), which, inter alia, describes “the rights and duties of owners and tenants as provided for under the RSL, including a detailed description in a format as prescribed by DHCR of how the rent was adjusted from the prior legal rent.”

The court then stated that there seemed to be “a discrepancy with lawful increases in rent as provided for by the rent stabilization guideline board.” The court noted that “[g]enerally, an increase in the rent alone will not be sufficient to establish a ‘colorable claim of fraud,’ and a mere allegation of fraud alone, without more, will not be sufficient to require DHCR to inquire further.” Rather, in order to require that DHCR inquire further, a tenant must provide “evidence of a landlord’s fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization.”

The court then explained that:

A widening body of appellate authority has liberalized the prohibition against inspection of a rent history prior to four years before the interposition of the defense…. Factors that warrant an investigation regarding the legality of the rent in effect four years prior to the interposition of the claim are: (1) the tenant alleges circumstances that indicate the landlord’s violation of the Rent Stabilization Law and Rent Stabilization Code in addition to charging an illegal rent; (2) the evidence indicates a fraudulent scheme to remove the rental unit from rent regulation; and/or (3) the rent registration history is inconsistent with the lease history….

The court found that the rent registration history was “inconsistent with the lease history” and that such inconsistencies “present a question as to whether fraud was perpetrated, so as to warrant looking further back in the rental history than the four years authorized by the Rent Stabilization Code….” The court further noted that the leases provided by the landlord supported “the [tenant's] argument that the landlord is charging an illegal rent.”

Thus, the court granted the tenant’s motion for discovery and will permit the tenant to review rent records from the past four years, since “she has established ‘a colorable claim of fraud’….” The court also stated that the tenant had “demonstrated ‘ample need’ to warrant discovery.”

Since the rent registrations and the landlord’s arguments did not allege that increases resulted from individual apartment increases, the court denied the tenant’s request for discovery concerning those increases.

700 Bklyn Realty v. Forsythe, L&T 68197/2016, NYLJ 1202770649099, at *1 (Civ., KI, Decided Oct. 13, 2016), Kuzniewski, J.