Scott E. Mollen
Scott E. Mollen ()

Commercial Landlord-Tenant—Yellowstone Injunction Granted—Gym Lacked Required Permits

A plaintiff commercial tenant (tenant) moved for a Yellowstone injunction, seeking to toll the period to cure alleged violations of its commercial lease. The lease was for a term of three years. It had expired on Sept. 25, 2014. However, the tenant had “the sole right to renew the lease” pursuant to two options. The first option extended the lease for “years four through six” and the second option extended the lease for “years seven through nine.”

The landlord had served a notice to cure, which demanded that the tenant correct certain alleged defaults. The notice alleged that the tenant had “built and was operating an unlicensed, uninsured gymnasium in violation of the New York City Administrative, Building and Fire codes; resulting in, inter alia, a violation of the building’s certificate of occupancy.”

The tenant denied the allegations in the notice and claimed that “the landlord was… aware of the efforts being made by [tenant] to ‘obtain the necessary approvals and permits to operate a physical culture establishment well before the ['notice'] was served.’” The tenant also provided proof of insurance. The lease provided that the use of the premises would be “that of a ‘fitness center and for no other purpose.’”

On Dec. 7, 2014, NYC Department of Buildings issued a violation to the landlord. The violation stated that “a ‘physical culture establishment (gym)’” was “operating without the necessary permits and approvals.” A $1,200 fine was being assessed against the landlord.

The tenant argued that the landlord had “intentionally refused to expeditiously cooperate in the process of obtaining the necessary permits to operate a gym from the city….” The tenant asserted that “the current landlord took advantage of the fact that the principal of the prior owner died, and could not continue the process of bringing the gym into compliance with the city’s codes.” The tenant further claimed that “it’s business would be destroyed if it were forced to move from the premises.”

The landlord countered that “the legal use of the premises, (a gym), was predicated upon plaintiff’s possession of all the necessary approved permits and plans to operate a gym” and that the tenant had “been operating illegally for a number of years.”

The court explained that the requirements for obtaining Yellowstone relief are that a plaintiff holds a commercial lease, the landlord had served a notice to cure, the cure period has not expired and the tenant can demonstrate an ability and willingness to cure. The purpose of a Yellowstone injunction is to maintain “the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture of the lease….” Tenants who seek a Yellowstone injunction, “need not show a likelihood of success on the merits….” The court noted that the Yellowstone rationale is to further New York’s “public policy against the forfeiture of leases” and to “promote the economy and business in our city.”

Additionally, the court explained that the “public policy concern takes on greater weight when a tenant has asserted that it will diligently and in good faith attempt to cure the defect, but through no inaction of its own, cannot do so without the cooperation of defendant….”

Accordingly, the court held that the tenant had “shown that it is prepared and it has the ability to assist in curing the alleged defaults” and therefore, is entitled to a Yellowstone injunction tolling the landlord’s effort to terminate the lease. The court required the tenant to continue paying its rent and provided that, if the tenant was in arrears, “the parties shall devise a payment plan to pay the arrears within 12 months from the date” of the court’s decision.

Comment: This decision illustrates why tenants who need some form of a land use approval in order to operate, should retain qualified experts to determine the feasibility of obtaining necessary permits and the length of time necessary to obtain such permits. People often underestimate how long it will take to obtain government permits.

Additionally, there are simply cases where each party necessary was mistaken as to whether a permit could be obtained. In many cases, the lease will address the risk that the approvals will not be obtained and delineate responsibility for obtaining such approvals.

For example, a lease may provide that the landlord makes no representation as to the ability to obtain necessary permits, etc. Occasionally, in a declining real estate market, a tenant may have internal business problems or simply think that the rent is too high. Such tenant may make less than a bona fide effort to obtain a permit and then cite the failure to obtain the permit as a ground to terminate a lease that it no longer needs or wants. Similarly, in a rising real estate market, a landlord may fail to cooperate with a permitting process in order to recapture the space and relet it for a higher rent.

Pureform Movement v. 2374 Concourse Assoc., 150758/15, NYLJ 1202773324891, at *1 (Sup., NY, Decided Nov. 4, 2016), Kenney, J.

Landlord-Tenant—Court Denies Motion to Appoint Article 7A Administrator—Court Drew a Negative Inference Based on the Petitioners’ Failure to Call Two-Thirds of the Tenants to Testify at Trial on Their Own Behalf

The petitioners commenced a proceeding, seeking the appointment of a Real Property Actions and Procedure Law (RPAPL) Article 7A administrator for the subject premises. The building contains six apartments. A tenant testified that two apartments are vacant. The petitioner named the co-petitioners as occupants of the other apartments in the building. At trial the court took judicial notice of violations of record that had been issued by the NYC Department of Housing Preservation and Development (HPD), the NYC Department of Building (DOB) and complaints filed with the Environmental Control Board (ECB).

At the close of the petitioners’ case, the respondent orally moved to dismiss the proceeding on the grounds that “the petitioners had failed to meet their prima facie burden.” The respondent then submitted a memorandum of law arguing that the petitioners had failed to meet their prima facie burden and the proceeding should be dismissed. The petitioners had produced only one witness and introduced numerous documents into evidence. The petitioners countered that the certified documents of HPD and DOB, certain affidavits and petitioners’ witness (“A’s”) “unrebutted testimony,” were sufficient for the court “to appoint an administrator and to defeat the respondent’s application for a directed verdict.” The petitioners asked for a trial on the issue of the respondent’s defenses. The court rejected the petitioners’ argument that the respondent’s motion for a directed verdict was “not properly before the court,” because it had not been made by a formal motion on notice, but instead was made by an oral application. Following the oral application, the respondent had submitted a memoranda of law.

At trial, the petitioners called “A” as a witness. “A” testified that she had been a long-term tenant, that she was afraid “for the health and safety of herself and her family,” that as a result of construction in the building, there was “constant banging, free falling plaster, noise, pipes shaking and… the ceiling ‘caved in.’” “A” identified certain photographs that reflected the condition in her apartment.

The respondent argued that the petitioners failed to introduce “credible evidence” and “submitted ‘only suspect testimony’ and certified documents which fail to demonstrate by ‘a preponderance of the evidence’ that conditions exist which are ‘dangerous’ to health and safety.” The respondent asserted that not every violation involved a condition that was a danger to health and safety and that there was no evidence to support the petitioners’ harassment claims.

The court explained that:

Article 7A of the RPAPL authorizes the commencement of a “special proceeding by tenants of a dwelling in the city of New York… for a judgment directing the deposit of rents into court and their use for the purpose of remedying conditions dangerous to life, health or safety… in the civil court of the city of New York….”

RPAPL §770(1) provides:

One-third or more of the tenants occupying a dwelling located in the city of New York…. may maintain a special proceeding…upon the ground that there exists in such dwellings or in any part thereof a lack of heat or of running water or of light or of electricity or of adequate sewage disposal facilities, or any other condition dangerous to life, health or safety, which has existed for five days, or an infestation by rodents, or any combination of such conditions; or course of conduct by the owner or the owner’s agents of harassment, illegal eviction, continued deprivation of services or other acts dangerous to life, health or safety….

The court explained that “[o]nce one-third or more of the tenants/petitioners demonstrate the existence of” conditions dangerous to life, health and safety, which have existed for five days “or course of conduct by the owner or the owner’s agents of harassment, illegal eviction, continued deprivation of services or other acts dangerous to life, health or safety…,’” “the burden shifts to the owner to demonstrate the existence of one or more of the three defenses specifically authorized by statute.”

RPAPL §776 provides that it is a defense to the proceeding if the owner can establish that:

(a) The condition or conditions alleged in the petition did not in fact exist or that such condition or conditions have been removed or remedied; or (b) Such condition or conditions has been caused by a petitioning tenant or tenants or members of the family or families of such petitioner or petitioners or of their guests or by other residents of the dwelling or their families or guests; or (c) Any tenant or resident of the dwelling has refused entry to the owner or his agent to a portion of the premises for the purpose of correcting such condition or conditions.

The respondent argued that the petitioners had to demonstrate that “one-third or more of the tenants occupying the dwelling are named petitioners in the proceeding and the one-third or more of those tenants must demonstrate that” there exists in their dwelling, conditions that are “dangerous to life, health or safety…; or course of conduct by the owner or the owner’s agents of harassment, illegal eviction, continued deprivation of services or other acts dangerous to life, health or safety…. ‘which has existed for five days.’”

The respondent asserted that the petitioners may not merely rely on “pleadings, affidavits and the testimony of a single witness” to support the appointment of an RPAPL Article 7A administrator.

The court found that the respondent had “asserted sufficient defenses” to defeat the petitioners’ petition. The respondent claimed that the petitioners had “refused to provide access to inspect and correct the stated conditions,” that “the conditions were caused by the petitioners or guests or family members of the petitioners and that the conditions have been corrected.”

The court explained that since “an RPAPL Article 7A administrator is a drastic remedy,” it should “not be invoked without the participation of all of the statutorily required tenants….” RPAPL §770(1) requires that “at least one third of the affected tenants ‘maintain’ the proceeding.” The court stated that such provision was a “safeguard provided by the Legislature to ensure that a landlord will not be divested of his or her property interest by the imposition of an administrator at the request of only a minority of the tenants in occupancy.” The court further noted that since the respondent had asserted valid defenses, the respondent had been entitled to a trial on the issues as a matter of due process.

The court also noted that it “‘may draw the strongest inference that the opposing evidence permits against a witness who fails to testify in a civil proceeding,’ including summary proceedings tried in Housing Court.” Thus, the court drew “a negative inference as a result of the petitioners’ failure to call two thirds of the tenants of the subject premises to testify at the trial on their own behalf.” Accordingly, the court held that since the petitioners called only one witness and it was undisputed that four units in the building were currently occupied, the respondent had been deprived of the opportunity “to confront his accusers.” Since the court held that the petitioners failed to meet their prima facie burden, the respondent was entitled to a judgment as a matter of law.

Comment: The court noted that RPAPL Article 7A provides a mechanism pursuant to which a court may “remove an irresponsible landlord from management of a building and replace that irresponsible landlord with a responsible manager.” Here, given the defense proffered by the landlord and the fact that there apparently were four occupied apartments, the court did not believe that it should impose the “drastic” remedy of a 7A administrator and thereby take away the owner’s right to operate its property based on the testimony of only one tenant and record violations. This was especially so, when the owner contended that it was the petitioners who caused the violations.

Matter of Brown, HP, 15262/2016, NYLJ 1202774523618, at *1 (Civ., KI, Decided Nov. 4, 2016), Avery, J.