JOSEPH MIHALOW v. AMEET RANE (2025)

The following e-filed documents, listed by NYSCEF document number (Motion 003) 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 86, 87 were read on this motion for JUDGMENT - SUMMARY.

Upon the foregoing documents, plaintiffs' motion for partial summary judgment on their breach of contract claim is denied and defendants' cross-motions for summary judgment dismissing the complaint and for summary judgment on their counterclaims are granted, in part, as set forth below.

FACTUAL BACKGROUND

The following is undisputed unless otherwise noted.

Plaintiffs own shares in 74 Fifth Avenue Corporation appurtenant to Apartment 5C in 74 Fifth Avenue, New York, New York (the "Apartment"). On February 10, 2020, plaintiffs and defendants executed a Standard Form of Cooperative Apartment Sublease (the "Sublease") in which plaintiffs leased the Apartment to defendants from March 2, 2020 through March 1, 2021, for $8,000.00 per month (NYSCEF Doc No. 50, Sublease at §§ 2, 5). On or about March 1, 2021, the parties extended the Sublease through March 1, 2022, pursuant to a Rider to Cooperative Apartment Sublease ("Sublease Extension"), which lowered defendants' monthly rent and security deposit to $7,500.00.

The Sublease provided that if defendants vacated the Apartment in violation of the Sublease, plaintiffs would "use reasonable efforts to re-rent the Apartment at the lesser of the fair market value of the Apartment or the Rent paid hereunder" but, in such an event, defendants would pay plaintiffs any shortfall between their rent and that paid by replacement tenants for the remainder of the Lease as well as pay for the cost of repairs to any damage in the apartment (id. at § 18).

In April 2021, defendants informed plaintiffs that they would be relocating to Florida and purported to terminate the Sublease as of May 31, 2021, which plaintiffs rejected. Defendants moved out at the end of May 2021 and stopped paying rent. Plaintiffs claim that a subsequent inspection revealed that defendants had damaged the Apartment's walls, paint, and flooring and broke a shelf in the refrigerator which required plaintiffs to replace the entire refrigerator. Defendants maintain that they did not damage the Apartment.

Plaintiffs commenced this action on July 20, 2021, asserting claims for: (1) breach of the Sublease based on defendants' failure to pay rent and damage to the Apartment; and (2) attorneys' fees. Defendants interposed an Answer, asserting, as pertinent here, an affirmative defense that plaintiffs failed to mitigate their damages as they were required to do under Real Property Law ("RPL") § 227. Defendants also asserted counterclaims for: (1) forfeiture of defendants' $7,500.00 security deposit pursuant to General Obligations Law § 7-108(1-a); and (2) attorney's fees pursuant to RPL § 234 (NYSCEF Doc No. 57, answer).

Plaintiffs now move for summary judgment as to liability on the branch of its breach of contract claim seeking unpaid rent,¹ arguing that their submission of the Sublease and Sublease Extension and defendants undisputed vacatur of the Apartment prior to the expiration of the Sublease term and failure to pay rent thereafter establishes their prima facie case.

Defendants oppose the motion and cross-move for summary judgment dismissing the complaint on the grounds that plaintiffs made no effort to mitigate their damages by re-letting the Apartment, as required by RPL § 227-e and are therefore barred from recovering rent arrears. Defendants also cross-move for summary judgment on their counterclaims, arguing that plaintiffs' failure to provide defendants with an itemized statement documenting the basis for their retention of defendants' security deposit mandates the forfeiture of this deposit under General Obligations Law ("GOL") § 7-108 (1-a)(e) as well as punitive damages under GOL § 7-108(1-a)(g). Finally, defendants seek attorney's fees pursuant to RPL § 234.

In opposition to defendants' cross-motion, plaintiffs do not dispute that they made no efforts to re-let the Apartment. Rather, they argue that they were prohibited from doing so under the "Rules and Regulations of the Apartment Corporation" (also known as the "House Rules") which provide that"[s]ublets are allowed for a one year term . . . [with] a second year with occupancy by the same tenant . . . subject to board approval" and that "[t]wo years is the maximum period allowed for subletting" (NSYCEF Doc No. 49, House Rules excerpt V.10).

Plaintiff Noel Mihalow adds, in an affidavit, that

As Board President for the Building, I know first-hand that the Board does not permit proprietary lessees to sublet to more than one subtenant, and it will only allow a second year of subletting if the subtenant does not change from the first year. That rule has been in place and followed for more than 30 years. The Building is almost entirely owner-occupied, with an emphasis on as few subtenants as possible. I have been the Board President of the Building for approximately 15 years. During my 15 years on the Board, no exception has ever been made to this rule. In fact I have ruled against making this exception for others in the Building during the past 15 years. Specifically, in 2013, the former owners of the Apartment made a request to the Board for a subletting extension, and the Board at the time, including me, denied that request and upheld the rule. As such, by the Corporation's own rules—enacted more than 30 years ago and applied and followed since then— we could not possibly have "mitigated" our damages following Defendants' bad faith breaches

(NYSCEF Doc No. 48, Mihalow aff. at ¶¶36-41 [emphasis added]).

Plaintiffs also submit an affidavit from Peter Klosowicz, another resident of plaintiffs' building and a current member of its board of directors (the "Board") emphasizing that the Board has only allowed a second year of subletting if the subtenant does not change from the first year and that, during his 16 years on the Board, no exception has ever been made to this rule (NYSCEF Doc No. 53, Klosowicz aff at ¶¶7, 10). In light of the foregoing, plaintiffs' argue, they were excused from their obligation under RPL § 227-e to attempt to re-let the Apartment by the doctrine of impossibility.

Plaintiffs also oppose defendants' motion for summary judgment on their counterclaim for forfeiture of the security deposit pursuant to GOL § 7-108(1-a)(e), arguing that forfeiture is only authorized under that statute when a landlord fails to timely produce an itemized statement detailing the cost of the repairs for which the security deposit was used whereas plaintiffs applied the security deposit to defendants' rent arrears.

DISCUSSION

"The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986] [internal citations omitted]).

In general, to prevail on summary judgment in a breach of contract action, a plaintiff must show "the existence of a contract, the plaintiff's performance thereunder, the defendant's breach thereof, and resulting damages" (Gramercy Park Partners, LLC v GPH Ground Tenant LLC, 79 Misc 3d 1226(A) [Sup Ct, NY County 2023] [internal citations and quotations omitted]). In this case, however, plaintiffs bear the additional burden here to establish that they made efforts to mitigate their damages by attempting to re-let the apartment.

Specifically, RPL § 227-e provides that:

In any lease or rental agreement . . . covering premises occupied for dwelling purposes, if a tenant vacates a premises in violation of the terms of the lease, the landlord shall, in good faith and according to the landlord's resources and abilities, take reasonable and customary actions to rent the premises at fair market value or at the rate agreed to during the term of the tenancy, whichever is lower. If the landlord rents the premises at fair market value or at the rate agreed to during the term of the tenancy, the new tenant's lease shall, once in effect, terminate the previous tenant's lease and mitigate damages otherwise recoverable against the previous tenant because of such tenant's vacating the premises. The burden of proof shall be on the party seeking to recover damages. Any provision in a lease that exempts a landlord's duty to mitigate damages under this section shall be void as contrary to public policy.

(RPL § 227-e [emphasis added]).

"Real Property Law § 227-e now clearly holds that the duty to mitigate damages applies to all residential leases in New York State. It also clarifies that the doctrine of mitigation of damages is not an affirmative defense to be asserted by a tenant, but rather the burden is on landlord to establish it took reasonable and customary actions to render the injury as light as possible" (14 E. 4th St. Unit 509 LLC v Toporek, 203 AD3d 17, 23 [1st Dept 2022] [internal citations and quotations omitted]). Plaintiffs have not established that they made any efforts to re-let the Apartment after defendants vacated the Apartment. To the contrary, they concede that they did not do so.

Plaintiffs' argument that their non-compliance with RPL § 227-e is excused by the doctrine of impossibility is unavailing. First, their interpretation of section VIII of the House Rules—which was effectively incorporated into the Sublease by reference in section 4 of that Sublease—as prohibiting re-letting under the circumstances presented here would render it a "provision in a lease that exempts a landlord's duty to mitigate damages" (RPL § 227-e) that would be void under that statute as contrary to public policy.

Even setting this aside, the doctrine of impossibility does not apply here, for two reasons.² First, the asserted impossibility—that the Board prevented plaintiffs from re-letting the Apartment—is speculative. The affidavits of Peter Klosowicz and Noel Mihalow tacitly concede that while the Board had previously applied the House Rules to deny such a re-letting, it had the discretion to deviate from this practice. Accordingly, whether the Board would have denied plaintiffs' request is uncertain, because plaintiffs did not even request permission to re-let the Apartment (see Gottwald v Sebert, 161 AD3d 679, 680 [1st Dept 2018]; see also HCE Assoc. v 3000 Watermill Lane Realty Corp., 131 AD2d 543 [2d Dept 1987] [Defendant's claim of impossibility of performance of stipulation of settlement discredited where defendant did not attempt to perform its obligations under stipulation by making application to village for variance permitting changes in property lines]).

In addition, this doctrine serves to excuse performance where "an unanticipated event that could not have been foreseen or guarded against" renders performance impossible (Kel Kim Corp. v Cent. Markets, Inc., 70 NY2d 900, 902 [1987] [internal citations omitted]; see also LeRoy v Sayers, 217 AD2d 63, 71 [1st Dept 1995]) whereas the existence of the House Rules and the Board's asserted practice of refusing permission to re-let were not unanticipated—indeed, Noel Mihalow's own affidavit indicates that plaintiffs were well aware of both the House Rules and the Board's position on re-letting. Accordingly, plaintiffs' motion for summary judgment is denied (see 50 W. Dev. LLC v Azoulay, 2023 NY Slip Op 33189[U], 3 [Sup Ct, NY County 2023]; Kakade v Newman, 79 Misc 3d 304, 307 [Sup Ct, NY County 2022]).

Defendants' Motion for Summary Judgment

In light of plaintiffs' conceded failure to mitigate, the branch of defendants' cross motion for summary judgment dismissing the complaint is granted to the extent that plaintiffs' breach of contract claim for unpaid rent is dismissed (seeKakade v Newman, 79 Misc 3d 304, 307-08 [Sup Ct, NY County 2022] [dismissing plaintiff's claim for rent arrears for period in which plaintiff relisted apartment for $500.00 more than defendant paid under the sublease]).

That branch of defendants' cross-motion for summary judgment on their counterclaim for forfeiture of their security deposit is also granted. General Obligations Law § 7-108(1-a) provides, in pertinent part, that:

(b) The entire amount of the deposit or advance shall be refundable to the tenant upon the tenant's vacating of the premises except for an amount lawfully retained for the reasonable and itemized costs due to non-payment of rent, damage caused by the tenant beyond normal wear and tear, non-payment of utility charges payable directly to the landlord under the terms of the lease or tenancy, and moving and storage of the tenant's belongings . . .

(e) Within fourteen days after the tenant has vacated the premises, the landlord shall provide the tenant with an itemized statement indicating the basis for the amount of the deposit retained, if any, and shall return any remaining portion of the deposit to the tenant. If a landlord fails to provide the tenant with the statement and deposit within fourteen days, the landlord shall forfeit any right to retain any portion of the deposit . . .

(g) Any person who violates the provisions of this subdivision shall be liable for actual damages, provided a person found to have willfully violated this subdivision shall be liable for punitive damages of up to twice the amount of the deposit or advance.

(GOL § 7-108 [emphasis added]).

It is undisputed that plaintiffs withheld defendants' entire security deposit without providing them with an itemized statement. Plaintiffs argue that no statement was necessary because GOL § 7-108 only requires a landlord to provide such a statement where a security deposit is retained to repair damage caused by tenants, while plaintiffs applied the security deposit to defendants' rent arrears.³ The Court is not persuaded by this interpretation.

Reading the statute as a whole (see Andryeyeva v. New York Health Care, Inc., 33 NY3d 152, 177 [2019] ["All parts of a statute must be harmonized with each other as well as with the general intent of the whole statute, and effect and meaning must, if possible, be given to the entire statute and every part and word thereof"]), the "itemized statement indicating the basis for the amount of the deposit retained" in GOL § 7-108(1-a)(e) is necessarily informed by GOL § 7-108(1-a)(b)'s recital of the proper basis for a landlord to retain a security deposit. As the first of these grounds offered in that list is "non-payment of rent," entirely undercuts plaintiffs' argument that they could apply the security deposit toward rent arrears without providing defendants with an itemized statement explaining their rationale for retaining the entire deposit.

While plaintiffs cite the Appellate Division, First Department's statement in 14 E. 4th St. Unit 509 LLC v Toporek that "[t]he penalty of forfeiture [of a security deposit] is only mandated when a landlord fails to provide an itemized statement of the repairs that it claims are required and justify retention of part or all of the security deposit" (14 E. 4th St. Unit 509 LLC v Toporek, 203 AD3d 17, 26 [1st Dept 2022] [emphasis added]), the Court does not view this statement as limiting GOL § 7-108 in the manner suggested by plaintiffs. In the context of that decision, this statement was the First Department's rejection of tenant's argument that the landlord's failure to schedule an inspection of the premises contemplated in GOL 7-108(1-a)(d) was grounds for forfeiture of the security deposit. Moreover, as plaintiffs note, the lease at issue in that case did not permit the landlord to retain the security deposit as rent arrears, and therefore the question of whether a landlord's retention of a tenant's security deposit for rent arrears must be included in an itemized statement to tenant was not before the trial court or Appellate Division.

Defendants' motion for punitive damages pursuant to GOL § 7-108(1-a)(g) is denied. That statute provides that, "[a]ny person who violates the provisions of this subdivision shall be liable for actual damages, provided a person found to have willfully violated this subdivision shall be liable for punitive damages of up to twice the amount of the deposit or advance." However, the determination as to whether plaintiffs willfully withheld the itemized statement cannot be made at this juncture, where there has been no discovery (see Masseroli v Gatfield, 84 Misc 3d 487, 49394 [Sup Ct, Westchester County 2024] [landlord's testimony that she was unaware of changes to security deposit law and did, belatedly, provide tenant with an itemized statement established that she did not willfully violate the statute]).

In light of the foregoing, the branch of defendants' cross-motion seeking attorney's fees is denied as premature. "Only a prevailing party is entitled to attorneys' fees, including in the context of lease disputes, and to prevail, the party seeking attorneys' fees must be successful on the central relief sought. This determination requires an initial consideration of the true scope of the dispute litigated, followed by a comparison of what was achieved within that scope" (49 E. Owners Corp. v 825 Broadway Realty, LLC, 224 AD3d 493 [1st Dept 2024] [internal citations and quotations omitted]). Although defendants have established their entitlement to the return of their security deposit, the determination of the prevailing party must await the resolution of plaintiffs' property damage claim and defendants' counterclaim for punitive damages (see id.).

Accordingly, it is

ORDERED that plaintiffs' motion for partial summary judgment on their first cause of action is denied; and it is further

ORDERED that defendants' cross-motion for summary judgment dismissing the complaint is granted, in part, to the extent that plaintiffs' breach of contract claim for rent arrears is dismissed, and is otherwise denied; and it is further

ORDERED that defendants' cross-motion for summary judgment on its first counterclaim is granted and the Clerk is directed to enter judgment in favor of defendants and against plaintiffs for the security deposit amount of $7,500.00 plus interest from June 15, 2021, together with costs and disbursements; and it is further

ORDERED that defendants shall, within ten days of the date of this decision and order, serve a copy of sane, with notice of entry, upon plaintiffs as well as the Clerk of the Court, who is directed to enter judgment accordingly; and it is further

ORDERED that such service upon the Clerk of the Court shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "EFiling" page on this court's website); and it is further

ORDERED that the parties shall appear in Part 4 (80 Centre Street, room 308) on Thursday September 25, 2025, at 9:30 am for a preliminary conference.

This constitutes the decision and order of the Court.

DATE 7/11/2025

HON. JUDY H. KIM, J.S.C.

FOOTNOTES

1.   While plaintiffs' notice of motion seeks "partial summary judgment", plaintiffs' counsel clarifies in their memorandum of law that plaintiffs seek "partial summary judgment on their breach of contract claim as to base monthly rent and associated default charges and fees" (NYSCEF Doc. No. 59).

2.    Savitsky v Sukenik, 240 AD2d 557, 558 [2d Dept 1997] and Kralik v 239 East 79th Street Owners Corp., 2006 NY Slip Op 30550(U) [Sup Ct, NY Co 2006]), cited by plaintiffs, were issued prior to the enactment of RPL § 227-e and involve very different factual circumstances, and have no bearing here.

3.   To the extent plaintiffs' representation that the security deposit was applied solely to defendants' rent arrears is made only by plaintiffs' counsel, the Court nevertheless accepts it as true for purposes of this motion.

Judy H. Kim, J.