Scott E. Mollen
Scott E. Mollen ()

Commercial Landlord-Tenant—A Lease Modification Extended a Lease Term, but Failed to Specify the Rent nor Any Methodology for Determining the Rent for a Five-Year Period—Landlord Testified Expiration Date Was Typographical Error and It Would Not Have Agreed to a Five-Year Rent-Free Extension—Court Found Tenant’s Position Inconsistent with the Circumstances, Unsupported by the Record, and Commercially Unreasonable

A restaurant tenant appealed, following a nonjury trial which awarded the landlord possession in a holdover summary proceeding. The subject lease commenced on March 1, 2000 and expired Dec. 31, 2009. A lease rider set forth escalating base rents, ranging from $10,000 per month to $16,590.42 per month in 2009. In October 2009, the parties signed a “single-page modification agreement” (modification), which specified that the lease “shall be extended so that the same expires on December 21, 2019.” However, the modification only specified the monthly rent to be paid for the periods Oct. 1, 2009 to Nov. 30, 2011 ($12,500) and from Jan. 1, 2012 to Nov. 2014 ($15,000). The modification failed to set forth “any specific rental rate, nor any methodology for a determination of the rental rate, for the five-year period from December 2014 through November 2019.”

The court explained that “although the parties may intend to enter into a contract, if essential terms are omitted from their agreement, or if some of the terms included are too indefinite, no legally enforceable contract will result….” Here, the modification omitted the amount of rent to be paid, or a methodology for ascertaining the amount of the rent, for the five-year period following November 2014.

The court found that such omission rendered the modification “too indefinite to be enforced, at least with respect to the post-November 2014 period….” The court reasoned that it would be “highly illogical or absurd to conclude that the parties intended that the commercial tenant, whose monthly rent was $10,000 in March 2000 and $15,000 in 2014, would not be obligated to pay any rent for the remaining five years of the lease.” The court explained that “where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part,” courts “may interpret a document to carry out the intention of the parties ‘by transposing, rejecting, or supplying words to make the meaning of the contract more clear….’”

Based on the “indefiniteness and uncertainty of the underlying modification…” the trial court had considered “parol evidence to determine the parties’ intent….” The Appellate Term (court) agreed with that approach and affirmed the trial court’s finding that the modification “was intended to be for a five-year period and not a ten-year period and …that the lease expired on November 30, 2014.” The court opined that such finding “comports with a fair interpretation of the evidence, particularly that reflecting the parties’ previous conduct….” Additionally, the court cited the parties’ practice of providing with “great specificity and detail the annual increases in rent from the March 2000 inception of their relationship.” The court held that the trial court could have reasonably concluded that such practice would have continued to 2019, “if it was intended that the … modification was to extend for ten years.”

The court further held that the trial court had properly considered the circumstances when the modification had been entered into and had “reasonably credited the testimony of landlord’s managing member that the 2019 expiration date … was a typographical error; that landlord would not have agreed to a 10-year extension without specifying the rent for the last five years; and that in view of tenant’s financial troubles in 2009 and the worldwide financial downturn, the parties agreed to a short extension with a reduced rent in order to assist tenant.” Accordingly, the court rejected tenant’s argument that the 2014 rent was intended to continue through 2019, since such position was “unsupported by the record and commercially unreasonable….”

New Whitehall Apartments v. S.A.V. Associates, 570644/16, NYLJ at *1 (App. Div., 1st, Decided July 3, 2017); Before: Lowe, III, P.J., Schoenfeld, Ling-Cohan, JJ.

Landlord-Tenant—Rent Stabilization—A Holdover Proceeding Alleging That the Tenant Allegedly Permitted Apartment to Be Used for “Illegal Transient Use” (“Illegal Hotel”)—Wrongful Conduct Ceased by End of Cure Period—Landlord’s Remedy to Recover NYC Dept. of Building Fines Which Had Not Been Rendered When the Notice to Cure Was Issued, Is to Bring Plenary Action

A landlord had commenced a summary holdover eviction proceeding. The landlord alleged that the tenant had used the subject apartment to operate an “illegal hotel.” Following service of the predicate notices, the tenant’s conduct resulted in the “levying of a fine against landlord” by the NYC Department of Buildings (DOB), which the landlord paid. Prior to commencement of the proceeding, the landlord had served a notice to cure (notice) and had conceded that the alleged conduct was curable. The unlawful conduct had ceased within the time required by the notice. The issue was whether the tenant had “to reimburse (landlord) for its payment of the fine to fully effectuate a cure so as to warrant dismissal of the petition.”

The court noted that if the cure occurred within the time specified in the notice, the landlord could not have terminated the tenancy and the petition would have to be dismissed. The court explained that would be in “contrast to the opportunity to cure provided to tenants pursuant to RPAPL 753(4), which allows for cure even after entry of judgment.”

After referring to the offending conduct and the DOB violations, the notice stated that the tenant was required “to cure said breach.” The notice did not specify “any particular way (tenant) must effectuate a cure.” The court stated that typically, a cure is effectuated by a “cessation of the offending conduct or a removal of an item (for example, a washing machine or a pet) the presence of which is a violation of the lease.” Here, however, the fine had not yet been imposed by the DOB at the time the notice was served and therefore, the landlord could “not have been expected to have required payment of the fine as part of the cure required.” Moreover, even if the payment had been required in the notice, “it would have been impossible for (tenant) to comply within the time specified because at that time there was no fine to pay. By the cure date, the tenant had fully complied with whatever action the notice required.

The court distinguished 151-155 Atlantic Ave. v. Pendry (308 A.D.2d 543 [2d Dept. 2003]) since in that case, no cure was available “because of the tenant’s profiteering….” In the subject case, the landlord conceded that a cure was possible.

The subject landlord argued that absent reimbursement, it would be responsible for “the consequence of conduct for which it does not bear responsibility.” However, the court found that the landlord had a remedy, that i.e., it may seek reimbursement in a plenary action. Since the wrongful conduct ceased by the date required by the notice, the court granted tenant’s motion for summary judgment and dismissed the petition.

884 Riverside v. Zelaya, 59863/2016, NYLJ 1202793937933, at *1 (Civ., NY, Decided July 2, 2017), Weisberg, J.

Landlord-Tenant—Foster Child Is “Child of the Tenant” and Protected by the Fair Housing Act

After a landlord commenced a holdover proceeding against the respondents, the parties entered into a settlement agreement which provided that the respondents agree, inter alia, that:

they shall not have or harbor…any sub-tenants, roommates, or additional occupants other than themselves and any children that they may one day have or immediate family members who are blood relatives or their spouses to reside for any length of time in the apartment, whether or not they collect any rent or contributions towards the rent or household expenses, for a period of six years, or until such earlier time as either [Respondents] (but not both) permanently vacate the apartment or there is a change in the law, at which time the prevailing law shall apply.

The respondent father testified that he had lived in the apartment for 11 years. He currently lives in the apartment with his wife and a foster child who had been placed in the apartment by a social services organization (SSO). The child is 13 years old and had been removed from his parent’s home because the parents were abusing drugs and were unfit to raise the child. The father had been approved by the SSO as a foster parent after “long training.” The respondent wife testified that she had lived in the apartment since 2008 and had attended at least 60 hours of classes which had been conducted by the SSO to become a “certified foster parent.” After hearing testimony from additional witnesses, the court explained that its decision would depend upon the meaning of the terms of the stipulation.

The landlord argued that the stipulation only permitted “blood relatives” to live in the apartment for the following six years. The child lived in the apartment from October 2015 through January 2016. The landlord contended that such fact alone established a breach of the stipulation. However, the court found that the stipulation clearly permitted “any children that they may one day have” to live in the premises. The court noted that the child was “a foster child” who had been placed in the residence by the SSO under a foster care program. Moreover, the foster parents had accepted the child “as their child during the time she ha[d] been placed with them.”

The court explained that the failure to treat the child as a child of the respondents would violate The Fair Housing Act. “The Fair Housing Act, 42 U.S.C., Section 3601 et seq., makes it unlawful to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling because of race, color, religion, sex, familial status or national origin.” Thus, the court held that the respondents “are aggrieved parties under the Fair Housing Act because of their familial status” with the child and that the child “is considered a child of the [respondents].” The court noted that “[t]he definition of familial status specifically includes the ‘designee’ of parents or the persons having custody of children.”

Additionally, the court cited a U.S. District Court decision which held that “a familial relationship existed between the tenant and her goddaughter even though the foster parents had not yet completed their training to become licensed as foster parents.”

Accordingly, the court denied the landlord’s request for a final judgment of possession.

659 Ocean Realty v. Tuckett, L&T 78649/14, NYLJ 1202793241551, at *1 (Civ., NY, Decided July 6, 2017), Stanley, J.

Mortgages—Inclusion in a Mortgage Trust of Interest Only and Balloon Loans Do Not Violate the Mortgage Loan Purchase Agreement—No Contractual Obligation That Monthly Payments Be of Equal Amount and Prospectus Stated That Interest Only on Balloon Loans Were Included in the Trust

A trial court had dismissed an indemnification claim against a defendant lender and a “breach of contract claim based on the inclusion in the mortgage loan trust of interest-only and balloon loans….” The Appellate Division modified, to the extent of denying “dismissal of the indemnification claim, and otherwise affirmed.”

The plaintiff trustee “sufficiently alleged a claim for indemnification” under a master mortgage loan purchase agreement (purchase agreement). The purchase agreement provided that the lender, as seller, would “indemnify purchaser and hold it harmless against any loss, damages, penalties, fines, forfeitures, legal fees and related costs, judgments, and other…expenses resulting from any claim, demand, defense or assertion based on…, or resulting from, a breach of [purchase agreement's] representations and warranties contained in Sections 5(a) and 5(b) hereof.”

The court found that the foregoing indemnification provision evidenced the intent that the “plaintiff may recover its legal expenses incurred in enforcing the representations and warranties contained in the [master mortgage loan purchase agreement]….” Additionally, the court held that inclusion in “the trust of interest-only loans and balloon loans does not violate the terms of…the [purchase agreement]” which provides that “ mortgage loans must ‘amortize fully.’”

The court explained that “[i]nterest-only loans and balloon loans may be fully amortized over its life. As plaintiff concedes, there is no contractual obligation that the monthly payments be of equal amount. Moreover, the definition of amortization urged by plaintiff is not included in the [purchase agreement] and will not be read into the agreement by this court….” Moreover, “the prospectus supplement made clear that interest-only and balloon loans were included in the trust.”

Wilmington Trust v Morgan Stanley, 2017 NY Slip Op 05565, Decided on July 11, 2017, Appellate Division, First Department. Friedman, J.P., Renwick, Andrias, Moskowitz, Gesmer, JJ.