© 1991
by Jay B. Itkowitz, Esq. and Barry Gottlieb, Esq.
1. In the current economic climate, it has become commonplace for tenants to
fall into arrears in the payment of rent. Once a tenant manifests difficulty in
paying rent, the landlord is faced with having to determine how best to bring
the tenant into compliance. The better the lease, the more options the landlord
will have in seeking to compel compliance. At the very least, a good lease will
provide the landlord with two basic options: (1) the right to commence a summary
proceeding as provided by statute, and (2) the right to terminate the lease for
failure to pay rent in the event that the tenant is served with a notice to cure
and fails to pay the amount required by the end of the cure period. Of the two,
the first is the most commonly utilized remedy for non-payment, particularly in
an environment where tenants are not always easy to replace. There are
circumstances, however, where the landlord simply wants to put an end to the
relationship between landlord and tenant. Usually this is where the landlord has
had repeated difficulty in collecting rent or the tenant has made a nuisance of
itself. Sometimes, the landlord's motivation will simply be that it has found a
stronger or more desirable tenant. Whatever the reason, the ability to compel
the tenant to meet its full financial obligation to the landlord by a date
certain upon pain of losing the tenancy is a powerful weapon indeed. It is for
this reason that landlords want such a clause and sophisticated tenants will
resist agreeing to such a clause, particularly when the market is going in their
favor.
2. In the current economic environment of recession, it is not uncommon for
tenants to struggle with their economic obligations under the lease. This is
particularly true with leases that were signed during the mid-'80s when the
economy was strong, rents were spiraling upward, and tenants fearlessly faced
the future. In the current hard times, a landlord has to evaluate what is the
cause of the tenant's inability to pay. Is the struggling tenant honestly
looking to buy time to bring itself into compliance and, if so, is that hope
realistic? Some tenants, despite honest effort, will fail. Is the tenant using
the threat of non-payment as leverage to renegotiate the terms of its lease? If
so, do you have a tenant waiting in the wings? Can you hold the tenant to a
favorable lease because of a guaranty? Worst of all for the landlord, does the
tenant who is unable or unwilling to pay the rent intend to occupy the premises
until it is evicted? Such tenants are invariably ones with little or no
security. This latter group poses a significant threat to the landlord--and
those who represent landlords.
3. Once a landlord determines to commence a summary proceeding, time becomes of
the essence, because a landlord never really knows if the tenant is going to
settle. If the situation develops into one in which the tenant with little or no
security waits to be ousted, the landlord loses (and the tenant gains) by each
day of delay in the process. For this reason, the practitioner and the landlord
must always keep in mind that the summary proceeding may turn into a painful
game, where a landlord's procedural error may result in a two- or three-month
setback in the eviction process. Accordingly, it is the task of the landlord's
attorney to craft a seamless prosecution, and the task of the tenant's attorney
to create as many procedural roadblocks as possible in the form of defenses
and/or motion practice.
1. The object of the landlord's attorney is to reduce a non-payment proceeding
to the following issues: what the rent is and how much is owed. To the extent
that the tenant asserts defenses, affirmative or otherwise, the proceeding will
be lengthened. What follows are some of the defenses that arise in the current
environment.
2. The most common defense asserted by a tenant is that of lack of jurisdiction
by reason of improper service of a rent demand and/or notice of petition and
petition. While this is not a novel defense (and it is not our intention explore
all defenses in this lecture), its successful assertion in this economic
environment can be very painful to the landlord and can mean thousands of
dollars to a tenant who is going under but living rent-free until eviction
occurs. The first thing landlord's counsel must do to avoid potential
embarrassment is to control the process server. If you serve a written rent
demand and a notice of petition, make sure the same person performs both
services and does the appropriate mailings. Traverse hearings sometimes take
place a few months after service, and a landlord's attorney does not want to
lose a proceeding because two or three people were involved in various services
and one can't be found to testify on the day you need that person in court. When
service is challenged, each person who participated in the service is an
essential witness, and the case will be dismissed where the landlord cannot
present a case that service was properly effected.
3. The "Fried Chicken" Defense. This defense is named after the case of
Siegel v. Kentucky Fried Chicken of Long Island, 108 A.D.2d 218 (2d Dep't
1985), aff'd, 67 N.Y.2d 792 (1986). The case stands for the proposition
that a notice signed by a landlord's agent or attorney but which did not contain
proof that the attorney or agent had authority to act on behalf of the tenant is
legally insufficient. Frequently, landlords hire agents and/or attorneys to
prepare and/or sign and serve notices on tenants. However, where such agency is
not reflected in the lease, if proof of the agent's authority does not accompany
the notice signed by the agent, and proof of such authority has not previously
been provided to the tenant, the landlord is vulnerable to a motion to dismiss
or to dismissal at trial. Two recent cases applied the "Fried Chicken" defense
to three-day rent demands: 50 Lefferts Associates v. Wilson, NYLJ,
February 14, 1991, p. 25 col 5 (Kings Co. Civ. Ct.), and 615 Company v. UNA
World Corp., NYLJ, August 22, 1990, p. 23, col. 3 (N.Y. Co. Civ. Ct.). In
the latter case, the court, not surprisingly, held that the defect was not
subject to amendment "since no action is commenced if the papers served are not
in compliance with the statutory mandate as to the substance and content."
(Citations omitted.)
4. The Constructive Eviction Defense. A landlord's breach of the warrant of
habitability may not be interposed as a defense to the tenant's non-payment of
rent, because the warranty is applicable only to residential premises. However,
the tenant's complaints about conditions in and services to the premises can be
asserted as affirmative defenses in a non-payment proceeding, where the tenant
alleges a constructive eviction from the premises. It used to be the case that
such a defense could routinely be stricken by motion on the ground that the
assertion of the defense required abandonment of the entire premises. New York
courts clearly recognize that a tenant who abandons the entire premises because
of conditions which substantially interfere with his proper use of the premises
(which conditions it was the landlord's duty to prevent or remedy) may plead
these circumstances as the defense of constructive eviction. However, Minjak
v. Diane Randolph, 140 A.D.2d 245 (1st Dep't 1988) appears to
have extended the availability of this defense to situations where the tenant
has been denied the beneficial use of a portion of the premises, and has thereby
been forced to abandon only a portion of the premises: a partial constructive
eviction. In Minjak, the landlord leased loft premises to a tenant for
residential use, but about two-thirds of the premises were used commercially,
and the lease was in fact a commercial lease. The tenant alleged that
construction by the landlord and other acts and omissions of the landlord had
substantially interfered with the tenant's ability to use and enjoy the
premises. At trial, the tenant proved, inter alia, that it had been unable to
use the commercial portion of the premises at all, and the First Department held
that "a tenant may assert as a defense to the nonpayment of rent the doctrine of
constructive eviction, even if he or she has abandoned only a portion of the
demised remises due to the landlord's acts in making that portion of the
premises unusable by the tenant." 140 A.D.2d at 248. Minjak has
apparently opened the door to innumerable fact situations where the tenant can
claim the landlord's actions have denied it the beneficial uses of a portion of
the premises in such a manner as to constitute a constructive eviction.
Minjak was recently cited and followed in Manhattan Mansions v. Moe's
Pizza, NYLJ, September 19, 1990, p. 22, col. 4 (N.Y. Co. Civ. Ct.), where
Judge Lobis opined that the fact that the premises in Minjak were used
for both residential and commercial purposes did not in any way qualify or limit
Minjak's holding. It should be noted that where there has been a partial
eviction, the tenant's obligation to pay rent is completely suspended. Bijan
Designer for Men, Inc. v. St. Regis Sheraton Corp., 142 Misc.2d 175 (Sup.
Ct. N.Y. Co. 1989), aff'd, 150 A.D.2d 244 (1st Dep't 1989). It is unclear
as yet whether the effect of a constructive partial eviction is the same.
5. The "Stale Rent" (Laches) Defense. The commencement of a non-payment
proceeding is the chief weapon available to landlords upon a tenant's default in
paying rent, and the tenant will naturally try to frustrate the landlord's
successful prosecution of the proceeding with as many defenses as possible. One
commonly-raised defense is a challenge to the landlord's right to recover
"stale" arrears in a summary proceeding. This is possible because New York
courts have evolved an application of the doctrine of laches, holding that a
landlord's claims to arrears going back a significant period of time may not be
recovered in a non-payment proceeding, but must be prosecuted in a plenary
(i.e., non-summary) proceeding. The earliest cases (e.g., Gramford
Realty Corp. v. Valentin, 71 Misc.2d 784 (N.Y. Co. Civ. Ct. 1972)) attempted
to set specific standards for stale rent. In Gramford, the court ruled
that where a landlord had allowed the tenant to accumulate one year's arrears
without demanding the payment of rent, the year-old arrears could not be
recovered in a summary proceeding. However, later cases have addressed
additional considerations besides the vintage of the arrears in determining
whether a claim for arrears is 'stale.' In 177 East 90th Street v. Devine,
NYLJ, March 30, 1982, p.6, col.1 (App.T. 1st Dept.), the court allowed recovery
on a 32-month-old rent claim, and noted that a stale-rent defense "should be
used sparingly and in cases where it is clear that the landlord was manipulating
the tenants for a setup with eviction as the intended goal" (citing Malek v.
Cruz, 74 Misc.2d 448 (N.Y. Co. Civ. Ct. 1973)). To like effect was Mt.
Nebo Baptist Church of New York v. Myers, NYLJ, April 10, 1979, p. 10, col.
5 (App. T. 1st Dept.), where the Court rejected a state-rent defense based on
laches, because "there was neither claim nor proof that petitioner had
calculatedly delayed in bringing the proceeding so as to make the final sum so
prohibitive as to be beyond the means of the tenant to pay." Cryptically, a
successful assertion by a tenant of the stale-rent defense means that the
landlord may only recover arrears of relatively recent vintage in a non-payment
proceeding, and the landlord's claim for older arrears is preserved for a
plenary action.) This is an unsettled area of the law where much may depend on
the particular judge who considers the tenant's stale-rent defense, often on a
motion by the landlord to dismiss the defense. The wise practitioner should be
aware of the potential stale-rent defense before commencing the non-payment
proceeding, so that the landlord-client may be accurately advised as to the
potential for success of any anticipated non-payment proceeding.
Moreover, the practitioner should also be aware of the implications of pursuing
aged rent claims in a plenary action. Such an action is not summary and
therefore takes longer to prosecute than a non-payment proceeding; the tenant
may take discovery, giving rise to additional delay and requiring the
expenditure of additional resources of time and money; and the tenant may assert
counterclaims in a plenary action which he might have been barred by his lease
from asserting in a summary proceeding. (See discussion of counterclaims below.)
6. Counterclaims. Counterclaims are another tool that tenants may use to
frustrate a landlord's ability to recover rent in arrears in a summary
proceeding. Most commercial leases contain a provision whereby the tenant waives
his right to assert any counterclaims in any non-payment proceeding commenced by
the landlord. New York courts have typically enforced such waivers of
counterclaims in commercial leases. (E.g., Earbert v. Little Luxuries
Inc., 99 A.D.2d 734 (1st Dept. 1984); Net Realty Holding Trust v. Cidis,
NYLJ, December 7, 1990, p. 29, col. 2 (App. T. 2d Dept.); Bomze v. Jaybee
Photo Suppliers, Inc. 117 Misc.2d 957 (App.T. 1st Dept. 1983); Amazon
Management Corp. v. Paff, 166 Misc. 438 (App.T. 2nd Dept. 1938)), but there
is a recent case where circumstances persuaded the court to allow counterclaims
to be tried in a non-payment proceeding against a commercial tenant. In Amdar
Co. v. Hahalis, NYLJ, October 26, 1989, p. 25, col. 4 (N.Y. Co. Civ. Ct.),
the court upheld a tenant's right to bring counterclaims even though the lease
contained a waiver of counterclaims "where the tenant alleges reduction or lack
of essential services or interference with the right to possession[,] use or
enjoyment, in other words, counterclaims inextricably linked to the summary
proceeding for nonpayment of rent." (Citing Haskel v. Sarita, 109 Misc.2d
409 (N.Y. Co. Civ. Ct. 1981).) However, there is little likelihood that the
Amdar doctrine will be endorsed by appellate courts (at least in the First
and Second Departments), and where a trial court denies a motion to dismiss
counterclaims based on a waiver of counterclaims, using the Amdar
rationale, an appeal of such a denial is advisable.
The relationship between the type of counterclaims permitted in Amdar v.
Hahalis and the defense of partial constructive eviction should be noted; in
many cases, the circumstances giving rise to Amdar-type counterclaims
also provide the basis for a claim of partial constructive eviction, and a
prudent tenant's attorney should plead such circumstances as both a counterclaim
and an affirmative defense, clearly and separately. Of course, as indicated
above, Minjak is strong authority for the partial constructive eviction
defense. In another interesting case, an appellate court validated the trial of
a counterclaim in a non-payment proceeding. In Zachariadis v. S.K.C. Corp.,
NYLJ, April 19, 1990 (App. T. 1st Dept.), the court refused to sever the
counterclaim in spite of a no-counterclaim clause in the lease. The reason? The
landlord never moved to dismiss the counterclaim, and the trial court therefore
allowed the tenant to try the claim. "Since tenant's damage claim was tried
below, severance ... at this late juncture ... is now unwarranted in the
interest of judicial economy." The lesson is clear. Where the landlord has the
right to enforce a no-counterclaim clause in a summary proceeding, he must use
it or waive it. The landlord's attorney's failure to utilize such a provision to
dismiss the counterclaim goes against the tenets of effective summary litigation
on behalf of the landlord. The landlord's task is to reduce the proceeding to
its simplest issue, i.e., how much rent is owed.
Some commercial leases allow a landlord to charge the tenant a late fee on
unpaid charges of rent or charges that are paid late. Such lease provisions will
be enforced, but some judges will decline to enforce such a provision if the
late charge is too high. E.g., Raanana Realty v. Louis J. Rotondi
Restaurant Corp., NYLJ, January 9, 1991, p. 23, col. 3 (N.Y. Co. Civ. Ct.).
In Raanana, Judge Walter Tolub found a lease provision allowing the
landlord to charge a late fee of 4% per month on any charge of rent paid more
than fifteen days after the due date to be unenforceable, even though such a
charge was not usurious under Sec. 5-501 of the General Obligations Law. It
would appear that a similar charge of 1.5% rather than 4% would be enforceable,
as 1.5% per month is the level of interest chargeable on unpaid balances under
many credit-card agreements.
Some commercial leases allow the landlord to allocate the tenant's rent payments
at the landlord's discretion once the tenant falls into arrears. This can be
useful in two contexts. If the landlord, for whatever reasons, wishes to allow a
financially-troubled tenant to default in paying selected charges of rent
charges (typically lump-sum adjustments of real-estate tax or other escalations)
without commencing a non-payment proceeding, a provision giving the landlord the
right to allocate payments allows the landlord to apply the tenant's payments of
typical monthly charges to the oldest charges of arrears, thus helping to avoid
the stale-rent problem discussed above. Also, a provision allowing the landlord
to allocate rent payments if the tenant is in arrears is useful where a
non-payment proceeding has been commenced, but the landlord is negotiating with
the tenant and accepting partial payments of current rent and/or arrears in the
meantime.
1. In some situations, entities other than the tenant in possession may be
liable for the payment of rent required under a commercial lease. Where the
original tenant has assigned the lease to a third party, the lease and/or the
landlord's written consent to the assignment (where required) will usually
provide that the tenant-assignor remains liable under the lease in addition to
the tenant-assignee, notwithstanding the assignment. If the tenant in possession
is in deep financial trouble (and therefore unlikely to be able to satisfy any
judgment for unpaid rent), the landlord may be better off suing the assignor,
either as part of the non-payment proceeding (where the assignor retains a
contingent possessory interest in the premises) or in a separate plenary action.
The garden-variety situation where an assignor retains the right to re-enter
occurs when a tenant assigns a store or restaurant lease and holds the
assignment in escrow pending payment on notes issued by the purchaser-assignee.
In such cases the assignor has a very strong interest in making sure that the
assignee complies, and if the assignee doesn't, the assignor may have the right
and desire to step into the shoes of the defaulting assignee. In such a case the
failure to name the assignor in a summary proceeding will not result in secure
possession for the landlord. A separate action against the assignor would be
necessary if the tenant in possession has filed a petition in bankruptcy.
2. Similarly, the landlord may have a written guaranty from a third party,
guaranteeing the tenant's payment of rent under the lease and executed as an
inducement to the landlord to enter into the lease with the tenant. Where the
tenant's coffers are empty, looking to the guarantor for payment of arrears in a
separate action may be advisable; where the tenant has filed for bankruptcy (or
reorganization), a plenary action against the guarantor may in fact be the
landlord's only practical recourse.
Some commercial leases allow the landlord to apply all or a portion of the
tenant's security deposit to the tenant's arrears. Particularly where the tenant
appears headed for bankruptcy court, taking the security may be advisable, as it
will be frozen upon the tenant's filing a petition for bankruptcy or
reorganization. L. Cherkis, Collier Real Estate Transactions and the Bankruptcy
Code Sec. 3.04 (King ed. 1990). However, leases which allow the landlord to
apply the security toward arrears do not always contain a provision requiring
the tenant to replenish the security within a specific period of time (some
leases simply say "forthwith"), and many leases lack a provision deeming the
obligation to replenish security to be an obligation to pay rent or additional
rent (thus making it impossible to recover the security in a non-payment
proceeding). Accordingly, a landlord should be aware that taking the security to
satisfy arrears may result in the landlord's loss of the security through the
end of the term of the lease. (If the tenant is going under, though, this won't
make a difference.)
Some commercial leases require the landlord to provide specified services to the
demised premises so long as the tenant is not in default of its obligations
under the lease. In such a case, a landlord may reduce or discontinue such
services as a means of putting pressure on the tenant to pay the arrears.
Obviously, landlords should be careful in reducing or discontinuing services,
limiting such a move to only those services which are contingent upon the
tenant's full compliance with its obligations under the lease. Reducing or
cutting off services to a tenant typically spawns defenses and counterclaims
which may complicate or delay a summary proceeding if it goes to trial, and some
judges would likely disapprove of reducing or cutting off services to a tenant
in arrears even if the lease allows it.
1. Some leases provide a mechanism whereby the landlord may terminate the lease
after a default by the tenant in paying rent, upon written notice to the tenant.
Properly drafted, such termination clauses will be enforced by the courts.
E.g., Grand Liberte Coop v. Bilhaud, 126 Misc.2d 961 (App. T. 1st
Dept. 1984); Nineteen N.Y. Properties v. Apple Video Services, NYLJ,
October 10, 1990, p. 22, col. 1 (App. T. 1st Dept.); T.W. Dress Corp. v.
Kaufman, 143 A.D. 2d 900 (2d Dept. 1988). However, the termination clause
must be drafted as a conditional limitation upon the term of the lease, making
clear that "upon the occurrence of an event the lease shall expire as if the
lease by its terms had been limited to that time. . ." 2 J. Rasch, New York
Landlord & Tenant, Sec. 23:31 (3d ed. 1988).
2. At least one appellate case giving full force and effect to such a
conditional limitation --Grand Liberte-- noted that the use of such a
conditional limitation to terminate a lease allowed a landlord to use a holdover
rather than a nonpayment proceeding to recover possession, thus depriving the
tenant of the right to retain his lease by depositing the amount of the final
judgment for arrears into court prior to the issuance of the warrant of
eviction, pursuant to RPAPL Sec. 751(1). But the Appellate Term in Grand
Liberte indicated that the aforesaid argument against the propriety of such
conditional limitations was vitiated by the availability of "Yellowstone"
injunctions to toll the running of a cure period (and thereby delay the
termination of a lease for non-payment of rent). And subsequent cases have held
that a Yellowstone injunction is generally not available to a tenant whose
leasehold is threatened by the exercise of a conditional limitation based on the
non-payment of rent. E.g., Rainbow Travel, Inc. v. Omabuild N.V.,
139 Misc.2d 279 (Sup. Ct. N.Y. Co. 1988). The First Department has shown no
inclination to either disallow the type of conditional limitation in question as
void as against public policy (because it deprives the tenant of the "cure"
provision available in non-payment proceedings pursuant to RPAPL Sec. 751[l]),
or make Yellowstone injunctions available in this context. However, it is
unclear whether any of the other departments will at some future time rule that
conditional limitations of the type under discussion are void as against public
policy because of the unavailability of both the right to "cure" under RPAPL
Sec. 751(l) and the right to a Yellowstone injunction, or whether any other
department will hold that Yellowstone injunctions are available in this context.
At Sec. 23:34, Rasch sets out a good example of an effective conditional
limitation allowing a landlord to terminate a lease for non-payment of rent.
Some commercial leases contain a provision giving a tenant the right to renew or
extend the lease at the expiration of the term. Usually, the right to extend is
contingent upon the tenant not being in default at the time the right to extend
is exercised by the tenant. However, the last sentence of paragraph 17 of the
standard Real Estate Board office lease is to a different effect: "If tenant
shall make default hereunder prior to the date fixed as the commencement of any
renewal or extension of this lease, Owner may cancel and terminate such renewal
or extension agreement by written notice." Such a provision gives the landlord
another weapon against the non-paying tenant. It is unclear under the quoted
language whether the tenant's cure of the default restores the availability of
the tenant's extension option. In one sense, the argument that the tenant's cure
will restore the extension option is helpful to the landlord, as such an
argument encourages the tenant to cure the default in order to retain the
extension option.
Some commercial leases allow the landlord to accelerate the tenant's obligation
to pay all rents reserved under the lease upon the tenant's default in paying
rent, so that all payments of rent due under the lease are immediately due and
owing. Exercising such an acceleration option generally gets the tenant's
attention, and shows the tenant that the landlord "means business"; if the
tenant thereafter wishes to pay all arrears and become current, the landlord can
always accept the tendered payment and agree to rescind its exercise of the
acceleration option. However, an acceleration may also have the effect of
pushing a financially-troubled tenant further toward bankruptcy. Acceleration
clauses are also useful where a viable tenant has abandoned the premises. In
such cases, the landlord accelerates the rent obligation and goes after all the
rent that would be due in a plenary action. In the absence of such a clause, a
landlord may not sue on such rental obligations until they accrue, month by
month.
Traditionally, New York courts have declined to impose upon commercial landlords
the duty to mitigate damages where a tenant has vacated and stopped paying rent.
E.g., Syndicate Building Corp. v. Lorber, 128 A.D.2d 381 (1st
Dept. 1987). This doctrine has recently been questioned, and a few judges have
declined to apply it. E.g., Rubin v. Dondysh, 146 Misc.2d 37
(Queens Co. Civ. Ct. 1989), reargument/renewal denied, NYLJ, May 16,
1990, p. 31, col. 6; Grays v. Brooks, NYLJ, October 10, 1990, p. 28, col.
4 (Queens Co. Civ. Ct.). However, the rule that the landlord in a commercial
lease has no duty to mitigate damages was reaffirmed last year in Mitchel &
Titus Assoc. v. Mesh Realty Corp., NYLJ, April 19, 1990, p. 23, col. 3 (App.
Div. 1st Dept.), and earlier in Sun Action, Inc. v. Sanchez, NYLJ, April
12, 1988, p. 6, col. 3 (App. T. 1st Dept.).
Particularly in commercial non-payment cases, a tenant with an aggressive lawyer
can often delay and frustrate a landlord's claim simply by insisting that the
landlord prove every element of its case in technically proper fashion. Where
escalation rent for real-estate taxes, operating expenses, etc. is at issue,
this may force a landlord to scurry for last-minute documentation and escalation
billing notices that were never sent as required by the lease. At a minimum, a
witness for the landlord will be required to explain and apply a complex
mathematical formula and a series of calculations. This travail can be avoided
by including in the lease a provision giving the tenant a 30-day window period
to contest charges of escalation rent. (Of course, such a clause will do no good
if the landlord neglects to send the tenant proper notice of the escalation
charge, to start the 30-day period running).
Attorney fee awards in landlord-tenant matters have been inconsistent. For
years, attorney fee awards in landlord-tenant and other kinds of cases have been
limited by holdings barring attorneys from recovering for a "fee on a fee",
i.e., for work expended to prove entitlement to an attorney fee. The failure to
allow for a fee on a fee has limited the impact of leases which provide for
attorney fees for the prosecution of summary proceedings. Such provisions, if
construed as permitting a fee on a fee, raise the stakes of litigation and favor
the party best able to absorb an economic loss, usually the landlord. A recent
appellate case, however, upheld the award of a "fee on a fee." Kumble v.
Windsor Co., NYLJ, May 10, 1990, p. 21, col. 5 (App. Div. 1st Dept.). Such a
case, if followed in the future, could have a significant impact on
landlord-tenant litigation.
22 NYCRR Part 130 provides for the award of sanctions against a party who
engages in frivolous conduct. "[C]onduct is frivolous if (i) it is completely
without merit in law or fact and cannot be supported by a reasonable argument
for an extension, modification or reversal of existing law; or (ii) it is
undertaken primarily to delay or prolong the resolution of the litigation, or to
harass or maliciously injure another." 22 NYCRR Part 130. 1 (c). In a recent
residential landlord-tenant proceeding, a court awarded $5,000 in sanctions
against a law firm for "frivolous conduct". West Coast Co. v. Beretta,
NYLJ, Feb. 4, 1991, p. 28, col. 3 (N. Y. Co. Civ. Ct.). This principle is
equally applicable to non-payment proceedings against commercial tenants. The
point is that commercial landlord tenant litigation frequently spawns frivolous
defenses and motion practice where one party attempts to gain or exploit an
economic advantage over the other party. Where you encounter such tactics, you
may want to consider moving for sanctions. The fact that sanctions can be
awarded against a law firm is a consideration litigators should keep in mind.
1. Acceleration of Future Rents May Be Advisable. The present economic climate
has given rise to more and more tenants who default in paying rent, and it is
sometimes desirable for a landlord to settle a non-payment proceeding by
agreeing to accept a pay-out of the arrears while the tenant continues to pay
new rent as it becomes due. Typically, the written stipulation of such a
settlement provides for a warrant of eviction to issue, execution stayed pending
the tenant's default in making any scheduled payment of arrears. However, what
happens if the tenant makes all the arrears payments on schedule, but misses a
payment of current rent during the pay-out period? Some judges will refuse to
vacate the stay of execution of the warrant after such a default in current
rent, even if the stipulation provides for it, apparently on the theory that an
eviction without trial may not be based upon a failure of the tenant to pay
charges of rent which are not in arrears at the time the stipulation of
settlement is executed. Accordingly, it appears to be better practice to have
the tenant agree in the stipulation of settlement that all rents reserved to the
landlord under the lease for the period in which the arrears will be paid out
are now due and owing (i.e., the obligation to pay such rents is now
accelerated), and set out in the stipulation a schedule of payments for these
accelerated rents (which schedule may, of course, simply require the tenant to
pay the accelerated rents on the dates they would have been due under the lease
in the absence of any acceleration). Then, either a default in a payment of
arrears or a default in paying "current" rent will allow the stay of execution
of the warrant of eviction to vacate.
2. Don't Forget the Follow-Up. Stipulations of settlement are not
self-executing. Where a stipulation provides for the immediate entry of a final
judgment of possession and the issuance of a warrant of eviction with execution
stayed pending performance of certain acts by the tenant, such as paying rent
pursuant to a specific schedule, a landlord's attorney must make sure to apply
for the judgment and warrant via the city marshal after the execution,
so-ordering of, and filing of the stipulation. The failure to do so will delay
the day of reckoning in the event of the tenant's non-compliance with the
stipulation of settlement. Once a default occurs, the landlord's desire for and
expectation of the immediate expulsion of the tenant is likely to rise to a
fever pitch. At such a point, the attorney's only response can be that he/she
will immediately apply for the warrant of eviction, that a 72-hour notice will
be served as soon as the warrant has been issued, and the eviction will occur as
soon as possible after the expiration of the 72 hours. Your landlord-client will
be distinctly unhappy to hear that an eviction cannot yet proceed because you
have not yet applied for the warrant.
Publications
Landlord's Remedies After Default in Payment of Rent Under Commercial Leases
A. Introductory Remarks
B. The Non-Payment Proceeding
C. Late Charges
D. Change Application of Rent Payments
E. Action Against Guarantor or Assignor of Lease
F. Take Tenant's Security
G. Cut Off Services to Tenant
H. Terminate Lease
I. Cancel Extension/Renewal Option
J. Accelerate All Rent Payments Due Under Lease
K. Landlord's Duty to Mitigate Damages
L. An Ounce of Prevention: Proving Escalation Rent
M. Attorney Fees
N. A Word About Sanctions
O. Stipulations of Settlement.