NEXT GENERATION FULTON, LLC, Petitioner–Landlord, v. COMMUNITY COUNSELING AND MEDIATION SERVICES, Respondent–Tenant.
The first issue presented is whether a commercial lease term can be terminated automatically when a tenant defaults in payment of rent or real estate taxes, and the landlord previously violated the lease resulting in a judgment for the tenant which remains unpaid. The second issue is whether the tenant established a valid defense to the holdover by showing that the judgment amount in the tenant's favor exceeded the unpaid real estate taxes claimed as the basis for eviction.
Petitioner Next Generation Fulton, LLC (“petitioner” or “NGF”) commenced this holdover proceeding in August 2014 against respondent tenant Community Counseling and Mediation Services (“respondent” or “CCMS”). Petitioner alleged that the lease on the property located at 1 Hoyt Street, 7th Floor, Brooklyn (“subject property”) automatically terminated pursuant to the conditional limitation set forth in Paragraph 17 of the lease, because respondent was late in paying real estate taxes in the amount of $41,479.84. Respondent counterclaimed for a set-off because at the time NGF filed the instant proceeding, Next Generation Chera (“NGC”), the predecessor-in-interest to NGF, owed CCMS over $400,000 pursuant to a judgment from Supreme Court, New York County (Louis Crespo, Special Referee, 3/22/2013), affirmed by the First Department on March 25, 2014. Community Counseling & Mediation Servs. v. Chera, 115 A.D.3d 589, 982 N.Y.S.2d 469 (1st Dept.2014). Justice Debra A. James subsequently ruled that NGF, as successor-in-interest to NGC, took the lease subject to counterclaims that CCMS had against NGC. See, Community Counseling & Mediation Services v. Richard Chera, Next Generation Chera, LLC d/b/a Next Generation LLC, Meir Wachs and Long Island University (Sup.Ct.N.Y. Co. 12/09/14).
Respondent's second counterclaim herein was based on retaliatory eviction.
In October 2014, respondent paid and NGF accepted the monies owed in real estate taxes. However, petitioner did not satisfy the judgment until February 2016.
At the outset, this Court dismisses respondent's counterclaim for retaliatory eviction because Real Property Law § 223–b, which forbids retaliatory eviction of a tenant who has enforced certain legal rights, applies only to “rental residential premises.” Real Property Law § 223–b (6); Tirse v. Andrews, 128 A.D.3d 1112, 1114, 8 N.Y.S.3d 711 (3rd Dept.2015); Matter of Lazy Acres Park, LLC v. Ferretti, 118 A.D.3d 1406, 1407, 988 N.Y.S.2d 364 (4th Dept.2014).
However, this Court finds that respondent established a valid defense to the instant nonpayment proceeding by showing that the judgment amount exceeded the unpaid real estate taxes claimed as the basis for eviction. See, Moore v. Chase Manhattan Bank, 217 A.D.2d 419, 629 N.Y.S.2d 41 (1st Dept.1995) (Damages resulting from landlord's breach of the lease in excess of unpaid rent provided equitable defense to holdover proceeding); Linden Blvd. v. Elota Realty Co., 196 A.D.2d 808, 811, 601 N.Y.S.2d 949 (2nd Dept.1993) (Tenant may raise equitable defense that due to landlord's breach of its obligation to repair, it suffered damages in excess of unpaid rent claimed as basis for terminating lease).
The Court further finds that Paragraph 17 of the lease, as applied to the facts herein, is an impermissible forfeiture of respondent's right to cure under Real Property Actions And Proceedings Law (“RPAPL”) § 751(1). The latter section provides that tenants have a right to obtain an automatic and indefinite stay of the issuance and execution of a warrant of eviction by paying the amount owed into court prior to the issuance of a warrant.
Paragraph 17 provides that if the tenant defaults in the payment of rent or taxes due and such default continues for 15 days after the landlord provides written notice of such default, the owner may serve upon the tenant a written five days' notice of cancellation of the lease, upon the expiration of which, the lease terminates. Paragraph 17 is a “conditional limitation,” i.e., the lease automatically expires on the happening of a specified event, namely, the arrival of the termination date fixed in the notice. See, TSS–Seedman's, Inc. v. Elota Realty Co., 72 N.Y.2d 1024, 1027, 534 N.Y.S.2d 925, 531 N.E.2d 646 (1988); Fucile v. L.C.R. Dev., Ltd., 102 A.D.3d 915, 919, 960 N.Y.S.2d 123 (2nd Dept.2013). Petitioner allegedly provided written notice to respondent that its tax payment was due within 10 days of receipt of the statement. Upon respondent's alleged default, petitioner served another written notice upon respondent that if the real estate taxes and late fees were not paid within five days, the lease would be terminated. Following respondent's alleged default, petitioner notified respondent that the lease had terminated and then commenced a holdover.
In general, a summary proceeding could be properly maintained where there is a conditional limitation in a commercial lease and the tenant held over after defaulting in the payment of rent or taxes. See, Boman v. Professional Data Management, Inc., 218 A.D.2d 637, 631 N.Y.S.2d 19 (1st Dept.1995); Ranalli v. Burns, 157 A.D.2d 936, 937, 550 N.Y.S.2d 192 (3rd Dept.1990); Grand Liberte Coop., Inc. v. Bilhaud, 126 Misc.2d 961, 963, 487 N.Y.S.2d 250 (App.Term 1st Dept.1984); A.K. Estates v. 454 Cent. Corp., LLC, 2010 N.Y. Slip Op. 52050(U), 29 Misc.3d 1227(A), 1227(A), 2010 WL 4860968 (Dist.Ct.Nass.Co.2010). However, a conditional limitation may not be enforced if there is a showing of “fraud, exploitive overreaching or other unconscionable conduct on the part of the landlord.” Grand Liberte Coop., supra, 126 Misc.2d at 963, 487 N.Y.S.2d 250.
Here, petitioner's commencement of a holdover after a judgment had been recently rendered for respondent and against petitioner constitutes unconscionable retaliatory conduct. Accordingly, the conditional limitation in the lease on the subject property may not be enforced. Furthermore, a conditional limitation is subject to strict scrutiny so as to avoid forfeiture of the lease and will not be enforced for “minor breaches or where no substantial injury occurs.” Helsam Realty Co. v. H.J.A. Holding Corp., 4 Misc.3d 64, 67, 781 N.Y.S.2d 554 (N.Y.App.Term 2004). Here, respondent's alleged breach ($41,479.84) was minute compared to petitioner's major breach of the lease (over $400,000), as determined by the Supreme Court. Therefore, respondent's right to cure under RPAPL § 751(1) could not be forfeited by the conditional limitation in the lease.
For the aforementioned reasons, petitioner's holdover is dismissed. This constitutes the decision and order of the Court.
KATHERINE A. LEVINE, J.