N.Y. Real Property Law Journal a Publication of the Real Property Law Section of the New York State Bar Association

NYSBA SUMMER/FALL 2004 | VOLUME 32 | NO. 3 N.Y. Real Property Law Journal A publication of the Real Property Law Section of the New York State Bar Association

A Message from the A Message from the Outgoing Section Chair Incoming Section Chair

As the Bar Association cele- I am honored to serve as this brates the beginning of its next year’s Chair of our Section, and administrative year this June, new grateful to many. First, the leader- officers are installed and members ship of our immediate past Chair, of the Section are entitled to an Matthew Leeds, has been exempla- update. So here it is: ry. The well-being of the Section was the driving force behind all of The state of the Section is good. Matthew’s decisions and actions as • Our membership has been Chair. I thank him for keeping us on Matthew Leeds increasing and looks like it can track—and for doing it with flair. Dorothy Ferguson approach 5,000. We remain one of the three largest I’m also grateful to my fellow Sections in the Association. officers, Joshua Stein, Harry Meyer and Karl Holtzschue, • More engines for communication with members for their outstanding service and dedication to the Sec- have been established. In particular, the Computeri- tion over the years. Each has distinguished himself as a zation and Technology Committee’s Chair, Michael real estate practitioner, and we are fortunate to have Berey, has created Internet capacity for rapid com- them as leaders. I look forward to working with this munication of new developments to members and great team. for members to interact. You should be hearing more The members of the Section’s Executive Committee about this soon. continue to impress and inspire me. Their expertise and • Although we do not have statistics on diversity, the their efforts to advance the practice of real estate law Section’s efforts are poised to bear fruit, as Member- deserve recognition. They spend many hours preparing ship Committee Chairs Richard Fries and Karen for CLE seminars, writing legislative reports, traveling to DiNardo lead various initiatives for recruitment. meetings and producing articles for this publication and (Continued on page 70) (Continued on page 70) Inside Tribute to Anthony “Tony” Kuklin ...... 71 Bundled Real Estate Services and Closing Cost Estimates: Give Clients a Straight Answer ...... 92 How Much Protection Does a Leasehold Mortgagee Need? ....75 (Peter T. Roach) (Joshua Stein) Jennifer and Pullman—A Dymanic Duo for the The Illegal Multiple Dwelling in New York City ...... 83 West Gate Coop ...... 95 (Gerald Lebovits and Daniel J. Curtin, Jr.) (Robert E. Parella)

BERGMAN ON MORTGAGE FORECLOSURES: Verifying the Foreclosure Complaint? ...... 98 (Bruce J. Bergman) Message from the Outgoing Section Chair (Continued from page 69)

It is gratifying that these developments reflect the To identify all of the individuals who should be goals that had been specifically identified for the past thanked for their help in making an officer’s difficult year. It is further heartening that the Section’s Execu- job workable and pleasant would merely be to repeat tive Committee and its officers, led by incoming Chair the list of most of the members of the Executive Com- Dorothy Ferguson, have committed to continued priori- mittee and of the Association’s Staff. Unfortunately, ty for the related themes of communication and recruit- space does not allow for that. Well, so what, I have to ment for increased membership and diversity. make space to tell an unkept secret that the person really in charge of the whole shebang is the Section’s long- It does not seem productive merely to restate here time Ultimate Liaison with the State Bar Association, the numerous matters that passed by the officers on the Kathy Heider, who everybody in the Section should Executive Committee during the past year. Instead, for recognize, along with our other best friends in Albany, insight into that work, please take full advantage of the Lori Nicoll and Ron Kennedy. resources of the Section, including those Internet refer- ences that should be communicated to you in the As a continuing member of the Section and some of upcoming year that will describe projects, develop- its committees I look forward to continued work with ments and Committee minutes. my colleagues and friends, and I invite you to join me under the incoming officers, Chair Dorothy Ferguson, Please also find out how you can benefit from serv- Vice-Chair Joshua Stein, Second Vice-Chair Harry ice on a committee. Contact any officer or chair named Meyer and Secretary Karl Holtzschue. The Section and in this Journal. It remains true that the lifeblood of the its members will benefit from these guys being in Section is its committee work and the lifeblood of a charge. committee is its membership. That means you and me and us. I am not sure I have ever had the chance to write a 30 Column before, so for those of you who know what Your participation can range from using the educa- this means: tional resources in committee meetings, to voicing your opinion when a committee discusses current issues, to --30-- taking the lead on special issues that arise before a Matthew J. Leeds committee, to assuming even more far-ranging leadership.

Message from the Incoming Section Chair (Continued from page 69) others. Former Chairs of the Section also give gener- bers to travel to New York City for these meetings, I ously of their time and talents, to our great benefit. have asked the co-chairs to schedule at least one committee meeting this year in an upstate location. Please I urge all Section members to get involved—pick a be on the lookout for a meeting in your area and try to committee that interests you and commit some time attend. and energy to it. I can tell you from experience that it will benefit you in ways you never thought possible. In Finally, I must mention the women who have 1994, at the suggestion of John Blyth, I became Co- served as Section Chairs and as role models for me. I Chair, with Steve Horowitz, of the Attorney Opinion am pleased and proud to follow in the path forged by Committee. Among the very active Committee mem- Flora Schnall, Maureen Lamb, T. Mary McDonald and bers were Karl Holtzschue and David Zinberg. After Lorraine Power Tharp. As Chairs, they worked dili- my term concluded, I became Co-Chair, with Joshua gently on behalf of the Section, and, as former Chairs, Stein, of the Commercial Leasing Committee. The men- they all continue to be actively involved. I strongly toring given me by John, Steve, Karl, David and Joshua support our Section’s commitment to increase all types has been invaluable in my practice. The friendships of diversity in the legal profession, and I look forward formed through committee work are a bonus. to furthering that initiative. The Co-Chairs arrange excellent Committee meet- Best wishes for an enjoyable summer and a great ings throughout the year—some offering CLE credit. year ahead! Recognizing that it is difficult for many upstate mem- Dorothy H. Ferguson

70 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Anthony “Tony” Kuklin 1929-2004

We mourn the loss of our colleague, Tony Kuklin, former Chair of this Section, President of the American College of Real Estate Lawyers, Chair of the Section of Real Property Probate and Trust Law of the American Bar Association, Chair and founder of the Anglo-American Real Property Institute, member of the firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, scholar, teacher and friend.

Memorial Service Harvard Club June 28, 2004

Letter from David Alan Richards

Tony was my “father-in-the-law,” in attracting me to the practice of real estate law thirty-three years ago this month, when I was a summer associate (one of only a dozen!) at Paul, Weiss. He had the gift of making my first assignments in the real estate department both serious and fun, and the research for the opinion letter I drafted for him for the sale of the Grand Central Station air rights became the foundation for my Yale Law Journal Note the following year. I never wavered thereafter, either in my devotion to the practice area he led me into, or in my belief that I had stumbled upon the teacher of teachers for my chosen profession. He was always a gentle man, and only hinted at the firmness with which he could argue a point or defend a position, if you hadn’t ever seen it (as I did many times), with a sly joke: I once asked him what kind of a name was Kuklin, and he said, looking grim, “It’s like Lenin, and Stalin . . .” But I found that firmness more expressed throughout his life, not in his debating points so much as in his manner of engaging the world. He simply made no concessions, never gave up, where something could be shaped, or cajoled, or advanced to the point he envisioned. He made no concessions to the quotidian. All our writing had to be polished, and elegant, not merely service- able, and he fought “legalese” in the documents we produced, wherever we could escape the demands of such writing’s conventions. He made no concessions to boredom, and delighted in the many colors and varieties of life, and literature, and fashion, and history. He was famous among his friends for the brightness and daring of his ties, and had his pas- sions for collecting miniature soldiers (we went out looking every Christmas at the model shop, after picking up something else for you!), and modeling clay figures, and reading the latest in mystery stories featuring foreign detectives, and histories of Western trappers and traders.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 71 He made no concessions to the sometimes-perceived lack of respect for the worthiness of our shared specializa- tion in real estate law. He was amused by the thought of assembling a super real estate firm, made up of our friends across the country that we knew through the American College of Real Estate Lawyers, and the Anglo-American Real Property Institute. Tony truly enjoyed working hard on continuing legal education programs and programme materials for those organizations and for the ABA, and of course capped his career of active practice with teaching real estate at his alma mater Columbia Law School as an adjunct professor. His helping to found the American Col- lege and the Anglo-American Institute, and serving as one of the first Chairs of each, was part of that same enthusi- asm for educating his fellow practitioners, and himself. Like Chaucer’s clerk, “Gladly would he learn, and gladly teach.” And finally, he made no concessions to the ill health that attended his last years, until he was overwhelmed. He did not go gently into that good night, although he went too soon. Tony gave, for every day, some good account, as a lawyer, husband, father, and valued friend. We remember and celebrate him.

* * * Memorial Service Harvard Club June 28, 2004

Remarks by Steven Simkin

I met Tony in 1973 when I joined Paul, Weiss. For 31 years, he had been my mentor, my partner and my friend. Given Tony’s modesty, I am not sure he would approve of what I am about to say. He was an extraordinary man. He was an extraordinary lawyer. His record of professional accomplishments is not likely to ever be broken. He was Chairman of the Real Property and Probate Section of the ABA. He was Chairman of the Real Property Section of the New York State Bar Association. He was Chairman of the Real Estate Section of the International Bar Associa- tion. He was President of the American College of Real Estate Lawyers. He was Chairman of the Anglo-American Real Property Institute and a member of numerous other organizations. He was, without any doubt, the most well known, the best-respected and the most-liked real estate lawyer in the country. I remember going with Tony to an ICSC conference in Scottsdale. There were over 800 real estate lawyers in attendance from all over the world. Not only was he the host and moderator, but virtually everyone knew him on a first-name basis. It was extraordinary to see. Tony loved the real estate bar and they loved him. He taught thousands of real estate lawyers, young and old, all across the country the art he had mastered. Believe it or not, while Tony was practicing law full time, Tony gave an average of ten lectures a year for over a fifteen-year period and wrote countless numbers of articles and books during that same time period. Tony joined Paul, Weiss in 1961, having spent his six prior years as an associate at Dwight, Royal, Harris, Koegel & Caskey—the predecessor to Rogers & Wells, now Clifford Chance. I am not going to recount Tony’s many, many professional accomplishments. I thought I would mention just a few of his more significant clients: Penn Central Railroad Company, Northville Industries, American Cyanamid Company, Industrial Bank of Japan, Long Term Credit Bank of Japan, Prudential Life Insurance Company and Mitsubishi Corporation. During my early years working with Tony, I was indispensable, but he did not know it. His secretary, Mae Beverly, could not read his handwriting and every day she would come into my office and ask me what Tony had written, even on deals I had nothing to do with. I repeatedly asked her to check with Tony and she repeatedly told me that Tony was much too busy and much too important to be bothered deciphering his own handwriting. I was told that was my job, and in those days I did what I was told. Despite his many accomplishments, Tony was a humble man, very low-key, and rarely, if ever, raised his voice. He was an anomaly in the raucous world of real estate negotiations. Tony loved subtlety. I remember a time when I sat next to Tony for an entire morning negotiating an agreement with three of the toughest and nastiest adversaries

72 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 you could imagine. These three guys were yelling and screaming at me the entire time. Tony said virtually nothing and let me take all of the abuse. When we took a break for lunch, I told Tony that I could really use some support when we reconvened. He looked at me somewhat surprised. He then said to me, “Didn’t you see how I moved my eyebrows just before the break? Don’t worry,” he said, “they got the message. They now know they cannot push us around.” I was physically drained and Tony moved his eyebrows. Tony’s approach may have been unusual, but surprisingly our adversaries must have gotten the message because things did go more smoothly after the break. While he was subtle and subdued, Tony was also fiercely competitive. As an example, in his mid-40s he was still pitching shutouts for the Paul, Weiss softball team. A feat he was most proud of. The best part of closing a big deal for Tony was, of course, the celebratory dinner that followed. Tony always paid, and never spared any expense. Our favorite restaurant for these dinners was LeCygne—now closed, but one of the best ever. Tony was so well known that when he arrived, a magnificent silver swan with his initials “ABK” would always be placed on our table. During one such evening, after our fourth dessert (and I have a witness because Vivienne was there), Tony suggested we try just one more dessert. He said, “Don’t worry, I know you are full, but this one you are really going to like.” I finished the dessert, and we talked about it for months and years afterwards. We all knew Tony was well known in the elite real estate circles, and certainly in the better restaurants in New York, but he was always surprising me. He and I were in Charleston, S.C., closing a deal. When we were done, he mentioned that there was a restaurant that he had frequented years earlier when he was in the Army and would love to see if it was still there. It was called Perditas. Tony directed the cab driver to take us to Perditas (the driver had never heard of it). Undaunted, Tony directed the driver through the back roads of Charleston. Sure enough, he finds it, and, sure enough, it is open. Tony steps inside this very elegant establishment and the maitre d’ looks up and says, “Monsieur Kuklin—so good to see you again.” You would have thought it was staged, but it was not. Tony loved to tell jokes and he knew thousands of them, one funnier than the next, but most of all Tony loved dry humor, especially under stressful circumstances. In the mid-1970s, we were hired by the American Cyanamid Company to represent its wholly owned subsidiary, The Ervin Company—the second-largest real estate development company in the country. Its assets were in the billions. The problem was the liabilities of The Ervin Company exceeded its assets by hundred of millions of dollars and our job was, outside of bankruptcy, to liquidate the company and settle up all debts so that its parent company, American Cyanamid, would have no liability. In other words, this was a big deal. The Ervin Company was located in Charlotte, N.C. Before we left for our very first meeting with the client, Tony told me and the other associates not to wear a suit (in those days we all dressed rather formally), but to go out and buy a sports jacket, colored shirt and loafers and look very casual since we were going to a real estate office in the South and we did not want to look intimidating or too “New York-like.” We did as Tony instructed. We all looked like country bumpkins (including Tony). When we arrived at the company headquarters, we were told to go down the hall to the boardroom. We opened the door and sitting at the conference table were four people dressed to the nines with dark blue three-piece suits, white shirts, handkerchiefs, wing-tipped shoes, etc. There was the President of American Cyanamid Corporation, the CFO and two other senior officers. They looked at us—initially no words were exchanged and then one of them said to Tony, “You must be in the wrong place, the sales meeting is down the hall.” Tony immediately turned to me and said, “It doesn’t appear that we made a favorable first impression.” Tony in his gracious way then explained that we were their New York lawyers, despite all appearances to the contrary. Of course, the President of Cyanamid had a pretty good laugh when Tony finished the explanation. My professional and personal life was truly enriched by my friendship with Tony. Working with Tony was a complete experience. When you worked with him you ate together, drank together, traveled together, laughed together and shopped together. You were in his orbit, day and night. Tony was a joy to work for and a joy to work with. More important than teaching me to be a good lawyer, Tony taught me that it was OK to have significant interests outside the law and to pursue those interests. Tony loved his New York Giants, miniatures, model trains, modeling clay, Civil War history and so much more. He loved life and he loved people. Most of all, I know he loved his family and extended family. Vivienne and his girls were always the center of his life and deservedly so. He was the most optimistic and gracious man I ever met. Despite his years of suffering, he never complained, always smiled, always said he was doing fine and always made you feel better. I will miss Tony dearly, but I feel that he will always be with me, because of the degree to which he shaped, molded and influenced my life.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 73 Tributes Tony Kuklin was one of my favorite people and I considered him my friend. He was an outstanding lawyer and was always willing to pass on his knowledge and expertise by his teaching, writings and lectures on behalf of various bar groups and the Practising Law Institute. It was also my great pleasure to participate with him on numerous programs. Over and above his professional accomplishments, he was a fine gentleman, a pleasant person and was always a joy to be with. I will miss him and he will be missed by everyone who knew him or worked with him. Jim Pedowitz * * * My first encounter with Tony was when he, around 1980 and upon the recommendation of Tom Moonan from Rochester, asked me to become a member of the Executive Committee of the Real Property Law Section of the New York State Bar Association. At the time, Tony was a partner at Paul Weiss Rifkind Wharton & Garrison in New York City and appeared to know everything about real property. As I later learned, he did. Tony instructed me to participate in the work of the Section and to write four learned articles a year. I did the former but never lived up to the latter. Others will comment on his undergraduate (Columbia) and legal (Harvard) education and upon the fact that he was a charter member of the American College of Real Estate Lawyers (ACREL), its past president and a recent award winner. Prominent in his firm, Tony was a rainmaker who, with his Australian-born wife, Vivienne, traveled the world drumming up business. He was the first practitioner I ever met who used international title insurance twenty years ago. He explained it simply: “There was too much riding on the deal and I wanted somebody riding shotgun with me.” He knew foreign types all over the world. We frequently encountered each other at professional meetings and gradually we began to meet socially at breakfast before a meeting. Tony liked to meet at the Harvard Club, but, when I could not reciprocate there, we would go next door to the Algonquin Club. It was during those social meetings that we learned that we were both in the U.S. Army Counter Intelligence Corps (CIC, aka Chi Iota Chi, aka Christ I’m Confused). He was stationed in the U.S. and I in Germany and we discovered that neither of us ever lost an opportunity to attend a party. We con- tributed greatly to the national defense during those difficult years. We also learned that we were both adjunct law professors (he at Columbia and I at Cornell) so we began swap- ping ideas, texts, methods, terminology and war stories. He used to send me copies of his final exams and I am eter- nally grateful that I never had to take one of them. I never had a deal with Tony, but I listened to him lecture on many occasions. He knew his subject, all of it, with all the exceptions. I hope that those lectures are written down somewhere and that they can be published for the benefit of us all. John E. Blyth * * * Tony was a good friend, a brilliant lawyer, and an able teacher with a wonderful dry, acerbic wit. Tony was a leader and guide in the real estate field. He was either the Chair or President of the Real Property Probate and Trust Section of the American Bar Association, The American College of Real Estate Lawyers and The Anglo American Real Property Institute. In each organization he brought not only his encyclopedic real estate knowledge, but also deft leadership skills. He will be much missed, not only by the real estate professors and real estate mavens, but also by all “dirt” lawyers. John A. Gose * * * Tony Kuklin was unique. He was a brilliant lawyer, a true professional and an exceptionally kind, thoughtful and considerate person. He was always there. When I was asked to chair a special project of the American College of Real Estate Lawyers in 2002, twenty years after Tony served as its President, my first call was to Tony for assistance, which he gave me willingly, enthusiastically and with the same extraordinary perspicacity that defined his long career. Tony simply did everything well, with good sense and good judgment, but also with good humor, a light touch and always with humility. We should all be more like Tony. Robert Hetlage

74 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 How Much Protection Does a Leasehold Mortgagee Need? By Joshua Stein

Every real estate attorney, devel- to satisfy the literal requirements These “middle ground” Lease- oper, or investor who negotiates a and expectations of the rating agen- hold Mortgagee Protections omit long-term ground lease (a “Lease”)1 cies. The Lease would simply parrot many of the following items that knows it must be “financeable.” That the express requirements of the rat- often inflate and complicate the means the Lease must contain cer- ing agencies (just the words in their treatment of these issues in Leases: tain provisions (“Leasehold Mortgagee published criteria for Leases). In any • Options. “Bells and whistles” for Protections”) to protect the interests securitization, the Lease should then unusual or nonstandard struc- of a future Leasehold Mortgagee. match up to the published words tures; Those interests boil down to assur- and pass without objection. This ing that a Leasehold Mortgagee can approach keeps everything simple • Negotiations. Landlord-oriented always: and minimal and avoids problems. concessions or qualifications, beyond the bare minimum neces- • Take and readily enforce a Lease- “Minimal” Leasehold Mortgage sary to (a) achieve a reasonable hold Mortgage; Protections can work only if: result on each issue; and (b) pre- (a) Landlord and its counsel do not vent laughter by Landlord or its • Preserve the Lease and its value, try to festoon the “minimal” Lease- counsel; and even if part of the transaction hold Mortgagee Protections with too goes into default or surprises many conditions, limitations, proce- • Details. Extremely detailed proce- occur; or dures, qualifications, requirements, dures, time limits, notice require- • Walk away from a bad invest- and restrictions (leading to complexi- ments, and other provisions, and ment.2 ty, fine-tuning, and risk of new mis- extreme levels of clarity, specifici- takes); and (b) no future “B-piece” ty, and completeness. To achieve these goals, a Tenant buyer, Leasehold Mortgagee, partici- (or Leasehold Mortgagee) and its pant, purchaser, rating agency, rating Even after those omissions, these counsel might decide they want a agency counsel, or syndicate mem- “middle ground” Leasehold Mort- Lease to contain: (a) every possible ber ever decides the Lease needs gagee Protections should adequately Leasehold Mortgagee Protection any more than the bare minimum Lease- cover every typical “financeability” real estate lawyer has ever imagined; hold Mortgagee Protections as the issue.6 If a transaction requires “bells (b) absolute clarity and full detail rating agencies defined them at and whistles,” though, these “middle about every facet of those Leasehold Lease signing.4 ground” Leasehold Mortgagee Pro- Mortgagee Protections, leaving not tections will not provide them. The even the slightest uncertainty to be The author has published Lease- author’s “maximum” Leasehold resolved later and no possible hypo- hold Mortgagee Protections at both Mortgagee Protections can fill such thetical sequence or confluence of the “maximum” and “minimum” gaps. events unaddressed; and perhaps extremes.5 This article, in contrast, By leaving out some details, (c) as many words and pages as pos- offers a “middle ground” set of these “middle ground” Leasehold sible devoted to protecting future Leasehold Mortgagee Protections, Mortgagee Protections increase the Leasehold Mortgagees. which could be copied into a Lease and customized as necessary to dra- risk of uncertainty and surprises, Such an approach, if carefully matically shorten and simplify nego- hence the risk of litigation if some and intelligently implemented, tiation of Leasehold Mortgagee Pro- unusual circumstance or sequence of should minimize the likelihood that tections for that Lease. These events occurs. Most details omitted any prospective Leasehold Mort- “middle ground” Leasehold Mort- here, though, relate to very unlikely gagee or its counsel will ever find a gagee Protections seek to give any events. In the real world, Landlords, way to disapprove a Lease. This Tenant and Leasehold Mortgagee a Tenants, and Leasehold Mortgagees approach can, however, also produce reasonably succinct, simple, straight- can and do negotiate reasonable res- complexity, verbosity, excessive forward, “fair,” and nearly always olutions for most issues that arise, negotiations, and risk of error.3 adequate way to address typical con- assuming each has some leverage.7 At the opposite extreme, a Ten- cerns of a typical Leasehold Mort- These model Leasehold Mort- ant (or Leasehold Mortgagee) and its gagee. For each issue, these Lease- gagee Protections omit a few provi- counsel might decide a Lease should hold Mortgagee Protections offer a sions that sometimes appear in contain only the minimum Lease- balanced outcome that all parties Leasehold Mortgagee Protections. hold Mortgagee Protections needed will usually accept. Each such omitted provision would

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 75 have added too much detail, bur- lished pleas for use of Plain English lord; (c) determining that a Total dened Landlord unreasonably and even in sophisticated commercial Loss has occurred; (d) exercising unnecessarily, or covered a topic real estate transactional documents.10 any Bankruptcy Termination highly unlikely to become relevant— No law requires lawyers to write Option; (e) subordinating this and one that probably can be dealt legal documents in a weird and per- Lease or the Leasehold Estate to with in some other reasonable way if verted form of pompous quasi-Eng- any other estate or interest in the it ever does become relevant. lish, marked by long sentences, con- Premises; or (f) waiving any voluted verb structures, graceless term(s) of this Lease. Most Leasehold Mortgagee Pro- word piles to describe simple con- tections serve a Leasehold Mort- 6. “Lease Termination Notice” cepts, profligate use of the passive gagee’s interests without directly means a notice16 stating this voice, redundancy, and gratuitous benefiting the Tenant. Beyond such Lease has terminated, and complexity.11 “pure” Leasehold Mortgagee Protec- describing in reasonable detail tions, a Leasehold Mortgagee consid- The author welcomes comments any uncured Tenant Defaults. ering a Lease as collateral will care on these Leasehold Mortgagee Pro- 7. “Leased Fee Value” means the about all other terms of the Lease. A tections, both substantive and stylis- fair market value of the Fee Leasehold Mortgagee will consider tic. Comments should be directed to Estate, considered as if unim- nearly every issue in the Lease. Any [email protected]. 17 such issue, if handled badly enough, proved and subject to this 18 can make a Lease “unfinanceable.” Definitions Lease. Covering all such issues in a dis- 1. “Bankruptcy Sale” means a sale 8. “Leasehold Mortgage” means cussion of Leasehold Mortgagee Pro- of any property, or any interest any collateral assignment, deed tections would lead to a general dis- in any property, under 11 U.S.C. of trust, mortgage, or other lien cussion of Leases, not the intention § 363 or otherwise in any bank- (each as modified from time to of this article. Nevertheless, a Tenant ruptcy or insolvency proceeding time) encumbering this Lease, and a Leasehold Mortgagee share a affecting the owner of such the Leasehold Estate, and Ten- 19 few fundamental concerns. The property. ant’s Preemptive Rights. A Leasehold Mortgage shall not issues on that “short list” are often 2. “Bankruptcy Termination attach to the Fee Estate. regarded as Leasehold Mortgagee Option” means Tenant’s right to Protections, even though one might treat this Lease as terminated 9. “Leasehold Mortgagee” means more aptly describe them as funda- under 11 U.S.C. § 365(h)(1)(A)(i) a holder of a Leasehold Mort- mental to any decent Lease. These or any comparable provision of gage (and its successors and “medium” Leasehold Mortgagee law. assigns), provided: (a) it is not Protections cover a few of those fun- an Affiliate of Tenant;20 and (b) 8 3. “Fee Estate” means Landlord’s damental “shared issues” before Landlord has received notice of fee interest in the Premises,12 turning to issues oriented more its name and address and a copy including13 Landlord’s rever- directly toward Leasehold Mort- of its Leasehold Mortgage.21 gagees. sionary interest, all subject to this Lease. 10. “Loss” means a casualty or con- The footnotes in these model demnation affecting the Premis- 4. “Foreclosure Event” means any: Leasehold Mortgagee Protections es. describe some judgment calls that (a) foreclosure sale (or trustee’s went into these Leasehold Mort- sale, assignment in lieu of fore- 11. “Loss Proceeds” means any gagee Protections. Anyone can argue closure, Bankruptcy Sale, or sim- insurance proceeds or condem- for some other judgment call. Any- ilar transfer) affecting the Lease- nation award paid or payable one can deem any omitted issue to hold Estate or14 (b) Leasehold for a Loss. 9 Mortgagee’s exercise of any have been worth covering. These 12. “New Lease” means a new lease other right or remedy under a risks are inevitable in trying to of the Premises and related cus- Leasehold Mortgage (or applica- define any “middle ground” legal tomary documents such as a ble law) that divests Tenant of its document. memorandum of lease and a Leasehold Estate. Beyond offering a “reasonable” deed of the Improvements. Any set of Leasehold Mortgagee Protec- 5. “Lease Impairment” means Ten- New Lease shall: (a) commence tions, the following model seeks to ant’s: (a) canceling, modifying,15 immediately after this Lease ter- demonstrate straightforward, simple, surrendering, or terminating this minated; (b) continue for the and comprehensible legal writing, Lease, including upon Loss; (b) entire remaining term of this consistent with the author’s pub- consenting, or failing to object, Lease, as if no termination had to a Bankruptcy Sale by Land- occurred, subject to any Preemp-

76 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 tive Rights; (c) give New Tenant stantially all the Premises or, in Loss25 the same rights to the Improve- Tenant’s reasonable determina- If a Loss occurs: (a) the party ments that this Lease gave Ten- tion (with Leasehold Mort- that first becomes aware of it shall ant; (d) have the same terms, gagee’s consent) any: (a) Loss notify the other; (b) the parties shall including Preemptive Rights, after which Tenant cannot legal- direct the payor to pay all Loss Pro- and the same priority, as this ly restore the Improvements as ceeds to Leasehold Mortgagee;26 (c) Lease, subject to any subsequent an architectural whole for eco- Loss Proceeds shall be applied as fol- written amendments that bind nomic use for their previous lows until exhausted; (d) each New Tenant; and (e) require purpose; or (b) casualty after party’s rights to receive Loss Pro- New Tenant to cure, with rea- which, because of changes in ceeds shall be subject to the rights of sonable diligence and continuity, Legal Requirements, Tenant can- its mortgagee(s); and (e) the parties within a reasonable time, all not legally restore the Improve- shall have the following rights and Tenant Defaults (except Tenant- ments to substantially their pre- obligations.27 Specific Defaults) not otherwise vious size. cured or waived. Landlord’s Costs. First, Landlord Use shall receive Loss Proceeds to reim- 13. “New Tenant” means Leasehold burse Landlord and Fee Mortgagee Mortgagee or its designee or Tenant may use the Premises for any lawful purpose.23 for their reasonable costs and nominee, and any of their suc- expenses (including attorneys’ fees cessors and assigns. Assignment and expenses), incurred because of 28 14. “Preemptive Right” means any Without Landlord’s consent, the Loss. expansion, purchase, or renewal Tenant may assign this Lease at any Total Loss. Second, if a Total Loss option; right of first refusal or time, provided only that Tenant or occurs, this Lease shall terminate. first offer; or other preemptive the assignee gives Landlord a copy Landlord may require Tenant to use right this Lease gives Tenant. of the assignment and also, except in Loss Proceeds to remove all debris 15. “Remaining Premises” means the case of any Leasehold Mortgage from, fill any substantial excavations any Premises that Landlord con- or an assignment through a Foreclo- in, and return to a level and vacant tinues to own after a Total Loss. sure Event, Tenant: (a) has achieved condition any Remaining Premises. and paid for Substantial Completion Landlord shall then receive Loss Pro- 16. “Tenant Default” means Ten- of Development; and (b) causes the ceeds equal to the Leased Fee Value ant’s uncured default or breach assignee to deliver to Landlord an measured as if no Loss had occurred, under this Lease. assumption of this Lease. less the value of the Remaining Premises after completion of the 17. “Tenant Default Notice” means Subleases Landlord’s notice of a Tenant work described in the previous sen- Default, describing the Tenant Without Landlord’s consent, tence. Tenant shall then receive all 29 Default in reasonable detail. Tenant may sublease the Premises in remaining Loss Proceeds. whole or in part at any time(s). If 18. “Tenant-Specific Default” this Lease terminates, Landlord shall Termination Option Loss. Third, if means any Tenant Default that: not disturb the possession, interest, a Termination Option Loss occurs, (a) arises from any lien or or quiet enjoyment of any Subtenant Tenant may (subject to the provi- encumbrance attaching solely to not in default beyond applicable sions of this Lease on Lease Impair- the Leasehold Estate (not the Fee cure periods under its Sublease,24 ments) terminate this Lease by notice 30 Estate) but junior to the Lease- provided such Subtenant is not relat- to Landlord. Landlord shall then 31 hold Mortgage; or (b) Leasehold ed to Tenant, at least one Leasehold receive all Loss Proceeds. Mortgagee or New Tenant can- Mortgagee has granted such Sub- Revaluation. Fourth, upon any not reasonably cure. tenant nondisturbance protection, condemnation of the Premises, and the Sublease either: (a) does not 19. “Termination Option Loss” except a temporary condemnation or demise all or substantially all the means any Loss that occurs dur- a Total Loss: (a) future Rent under Premises and was on commercially ing the last ______months of this Lease shall decrease by the reasonable and fair market terms the Term or would cost22 more product of such future Rent (meas- (including fixed subrent that cannot than $______(beyond Loss ured as if the condemnation had not decline except upon Loss) when such Proceeds to be made available) occurred) times the percentage of Subtenant became legally bound; or to restore. the Premises taken, by value; and (b) demises the entire Premises and (b) Landlord shall receive Loss Pro- 20. “Total Loss” means any con- is in all material respects at all times ceeds equal to the diminution in demnation that affects all or sub- no less favorable to Landlord than value of the Fee Estate. this Lease.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 77 Restoration. Fifth, if a Loss does Notices New Lease not terminate this Lease, Tenant shall Any notice from Landlord to If this Lease terminates for any apply Loss Proceeds to restore the Tenant shall have no effect unless reason (except with Leasehold Mort- Improvements substantially as they Landlord gives a copy to Leasehold gagee’s consent or because of a Total existed before the Loss (subject to Mortgagee. If any Tenant Default Loss), even if Leasehold Mortgagee changes this Lease allows), to the occurs for which Landlord intends to failed to timely exercise its cure extent reasonably possible under the exercise any remedy, Landlord shall rights for a Tenant Default,41 Land- 32 circumstances. promptly give Leasehold Mortgagee lord shall promptly give Leasehold Disbursement. To the extent this a Tenant Default Notice. Mortgagee a Lease Termination Lease requires Tenant to apply Loss Notice. By giving notice to Landlord 38 Proceeds for a specified purpose, Opportunity to Cure on or before the day that is ___ days Loss Proceeds shall be disbursed: Landlord shall accept Leasehold after Leasehold Mortgagee receives (a) from time to time under reason- Mortgagee’s cure of any Tenant Landlord’s Lease Termination able and customary disbursement Default39 at any time until __ days40 Notice, Leasehold Mortgagee may procedures as Leasehold Mortgagee after both: (a) Tenant and Leasehold require Landlord to promptly enter (or, absent any Leasehold Mort- Mortgagee have received the Tenant into a New Lease with New Tenant. gagee, Landlord) reasonably Default Notice for that Tenant Landlord need not do so, however, requires, except as this Lease other- Default; and (b) Tenant’s cure period unless New Tenant has, consistent wise provides; and (b) to Tenant, for that Tenant Default has expired. with the Lease Termination Notice: only if and when Tenant has accom- If Leasehold Mortgagee cannot rea- (a) cured all reasonably curable Ten- plished the specified purpose. sonably cure the Tenant Default ant Defaults (except Tenant-Specific within Leasehold Mortgagee’s cure Defaults); and (b) reimbursed Land- Fee Mortgages33 period under the preceding sentence, lord’s reasonable costs and expenses Every Fee Mortgage shall be, it shall have such further time as it (including attorneys’ fees and and state that it is, subject and subor- reasonably needs so long as it pro- expenses) to terminate this Lease, dinate to this Lease and any New ceeds with reasonable diligence. If recover the Premises, and enter into 42 Lease,34 and shall attach only to the Leasehold Mortgagee cannot reason- the New Lease. ably cure a Tenant Default without Fee Estate. A Foreclosure Event shall New Lease Implementation impair no estate or right under any possession, or if any Tenant-Specific Fee Mortgage35 and shall transfer Default(s) occur(s), Leasehold Mort- If Leasehold Mortgagee timely only the Leasehold Estate. gagee shall be entitled to such addi- requests a New Lease in conformity tional time as it reasonably needs to with this Lease, then from the date Leasehold Mortgages consummate a Foreclosure Event this Lease terminates until the par- and obtain possession, provided ties execute and deliver a New Without Landlord’s consent, at Leasehold Mortgagee timely exercis- Lease, Landlord shall not: (a) operate any time(s): (a) provided that any es its cure rights for all other Tenant the Premises in an unreasonable Event of Default has been, or simul- Defaults. If Leasehold Mortgagee manner; (b) terminate Sublease(s) taneously is, cured, Tenant may consummates a Foreclosure Event, except for the Subtenant’s default; or grant Leasehold Mortgage(s);36 (b) Landlord shall waive all Tenant-Spe- (c) lease any Premises except to New any Leasehold Mortgagee may initi- cific Defaults. Tenant. When the parties sign a New ate and complete any Foreclosure Lease, Landlord shall transfer to Event and exercise any other rights Cure Rights Implementation New Tenant all Subleases (including and remedies against Tenant and the any security deposits Landlord Leasehold Estate (but not the Fee Whenever Leasehold Mort- held), service contracts, Premises Estate) under its Leasehold Mort- gagee’s time to cure a Tenant Default operations,43 and net income Land- gage; and (c) any transferee through or consummate a Foreclosure Event lord collected from the Premises dur- a Foreclosure Event, and its succes- has not expired, Landlord shall not ing the period described in the previ- sors and assigns, may assign this terminate this Lease, accelerate any ous sentence, and Landlord shall Lease. rent, or otherwise interfere with Ten- ant’s or Leasehold Mortgagee’s pos- cause every Fee Mortgagee to subor- Lease Impairments session and quiet enjoyment of the dinate unconditionally to the New Leasehold Estate. Leasehold Mort- Lease. Any Lease Impairment made gagee may enter the Premises to seek without Leasehold Mortgagee’s con- to cure a Tenant Default. This right Tenant’s Leasehold Rights sent shall be null, void, and of no or its exercise shall not be deemed to If Tenant’s period to exercise any force or effect, and not bind Tenant, give Leasehold Mortgagee posses- Preemptive Right expires, Landlord Leasehold Mortgagee, or New Ten- sion. shall promptly notify Leasehold ant.37

78 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Mortgagee. Until __ days after not extend to any Tenant Default sonable attorneys’ fees and expenses, Leasehold Mortgagee receives such that occurred before such Tenant amend this Lease as any current or notice, Leasehold Mortgagee may took title to this Lease (or a New prospective Leasehold Mortgagee exercise such Preemptive Right for Lease), except as identified in a Ten- reasonably requests, provided such Tenant. Notwithstanding anything to ant Default Notice (or Lease Termi- amendment does not materially the contrary in this Lease, so long as nation Notice) delivered to Lease- adversely affect Landlord or reduce Leasehold Mortgagee’s time to hold Mortgagee before such Tenant any payment. obtain a New Lease has not expired, took title; and (b) terminate if and it may exercise Tenant’s rights when any such Tenant assigns (and Miscellaneous (including Preemptive Rights) under the assignee assumes) or abandons Notwithstanding anything to the this Lease,44 even if a Tenant Default this Lease (or a New Lease). contrary in this Lease, Leasehold exists.45 Tenant irrevocably assigns to Mortgagee may: (a) exercise its Leasehold Mortgagee:46 (a) to the Multiple Leasehold rights through an affiliate, assignee, exclusion of Tenant and any other Mortgagees51 designee, nominee, subsidiary, or person, any right to exercise any If at any time multiple Leasehold other Person, acting in its own name Bankruptcy Termination Option;47 Mortgagees exist: (a) any consent by or in Leasehold Mortgagee’s name and (b) any right of Tenant to object or notice to Leasehold Mortgagee (and anyone acting under this clause to any Bankruptcy Sale by refers to all Leasehold Mortgagees; “a” shall automatically have the Landlord.48 (b) except under clause “a,” the most same protections, rights, and limita- senior Leasehold Mortgagee may tions of liability as Leasehold Mort- 49 Certain Proceedings exercise all rights of Leasehold Mort- gagee); (b) refrain from curing any If Landlord or Tenant initiates gagee(s), to the exclusion of junior Tenant Default; (c) abandon such any appraisal, arbitration, litigation, Leasehold Mortgagee(s); (c) to the cure at any time;53 or (d) withhold or other dispute resolution proceed- extent that the most senior Lease- consent or approval for any reason ing affecting this Lease, then the par- hold Mortgagee declines to do so, or no reason, except where this Lease ties shall simultaneously notify any other Leasehold Mortgagee may states otherwise. Any such consent Leasehold Mortgagee. Leasehold exercise those rights, in order of pri- or approval must be written. To the Mortgagee may participate in such ority;52 and (d) if Leasehold Mort- extent any Mortgagee’s rights under proceedings on Tenant’s behalf, or gagees do not agree on priorities, a this Lease apply after this Lease ter- exercise any or all of Tenant’s rights written determination of priority minates, they shall survive such ter- in such proceedings, in each case (at issued by a title insurance company mination. Leasehold Mortgagee’s option) to the licensed in the State shall govern. exclusion of Tenant.50 No settlement Endnotes shall be effective without Leasehold Further Assurances 1. The sample Leasehold Mortgagee Pro- Mortgagee’s consent, unless Tenant Upon request from Tenant or tections below define many but not all simultaneously pays the settlement, capitalized terms. “Lease” should any Leasehold Mortgagee (prospec- include permitted amendments. the amount at issue does not exceed tive or current), Landlord shall 2. A Tenant might not worry itself about $______, and the claimant has promptly, under documentation rea- Leasehold Mortgagees—at least if the released (or does not assert) any sonably satisfactory to the request- Tenant knows with absolute certainty claim against Leasehold Mortgagee. ing party: (a) acknowledge any Sub- that it, and its successors and assigns, will never need leasehold financing. A tenant’s nondisturbance and No Merger more typical Tenant will care very much recognition rights (provided such about Leasehold Mortgagee Protections, If the Leasehold Estate and the Subtenant joins in such agreement); because by making a Lease financeable Fee Estate are ever commonly held, (b) agree directly with Leasehold they make it more attractive to a wider universe of future debt and equity they shall remain separate and dis- Mortgagee that it may exercise investors. tinct estates (and not merge) without against Landlord all Leasehold Mort- 3. It also causes headaches, according to Leasehold Mortgagee’s and Fee gagee’s rights in this Lease; (c) certi- counsel for at least one Landlord. Mortgagee’s consent. fy that (subject to any then exception 4. The rating agencies’ published standards reasonably specified) this Lease is in do not always track their current prac- No Personal Liability full force and effect, no Lease tices. No Leasehold Mortgagee or Impairment has occurred, to Land- 5. See Joshua Stein, Model Leasehold Mort- lord’s knowledge no Tenant Default gagee Protections, The American College New Tenant shall ever have any lia- of Real Estate Lawyers Papers, Oct. bility under this Lease beyond its exists, the date through which Rent 1999. This article has been updated and interest in this Lease, even if it has been paid, and such other simi- reprinted extensively. See, e.g., Chicago becomes Tenant or assumes this lar matters as may be reasonably Title Insurance Company continuing requested; and (d) provided that legal education program (2000); Ass’n of Lease. Any such liability shall: (a) the Bar of the City of New York (2000); Tenant reimburses Landlord’s rea- N.Y.S. Bar Ass’n Real Property Law Sec-

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 79 tion, Advanced Real Estate Practice 12. “Premises” should include appurtenant 22. Who estimates restoration cost? Omis- (2000); and N.Y. Mortgage Bankers Ass’n air rights and development rights. sion of a detailed estimation procedure (2001). Except the 1999 publication, each 13. The Lease should say once that leaves a tolerable level of uncertainty, included both the “maximum” and the “include” means “without limitation.” much like any other uncertainty about “minimum” Leasehold Mortgagee Pro- whether some condition has been satis- tections. Each also contains a general 14. The Lease should say once that “or” fied or fact exists. includes “and.” discussion of ground lease issues, alter- 23. A Leasehold Mortgagee will usually tol- natives, negotiations, and closing proce- 15. Though “modification” seems synony- erate a somewhat narrower permitted dures. The author periodically updates mous with “amendment” or “change,” use. Any such narrowing affects the the various Leasehold Mortgagee Protec- one often sees all three words piled value of the Lease, not its fundamental tions and related materials. Current ver- together. It hardly seems necessary. financeability, provided the permitted sions may be obtained from the author 16. The Lease should say once that “notice” uses still make sense, allow reasonable and will appear in the author’s book on means “written notice” delivered in a flexibility, and will not intolerably limit ground leases to be published by the certain way. Leasehold Mortgagee’s resale of the American Law Institute/American Bar 17. This assumes the Lease originally Lease after a Foreclosure Event. Association in late 2004 or early 2005. demised raw land. Valuation of the 24. Landlord may also want Subtenant to 6. This is not a representation or warranty. leased Fee Estate raises many issues, agree to pay Subrent (and any Sublease Any prospective Leasehold Mortgagee including nuances such as how to treat termination payments) directly to Land- or its counsel can almost always find changes in zoning or tax incentives after lord. Landlord (and its Fee Mortgagees) some objection to any Lease. the Commencement Date. may hesitate to “nondisturb” (or “recog- 7. The negotiation process can, however, 18. For this and other value-related provi- nize”) all future Subtenants, even under sometimes be painful and expensive. sions, the Lease should establish the conditions stated. Landlord may 8. Beyond the “shared issues” covered appraisal procedures. Usually the par- argue that once the Lease terminates, here, a Leasehold Mortgagee would look ties find three appraisers, who must Landlord should recover clear posses- next at these issues: remaining term, choose either Landlord’s or Tenant’s sion, without worrying about any bits or transferability, rent adjustment (starting proposed result—“baseball arbitration.” pieces of Tenant’s failed development with the absolute clarity of any revalua- Many believe this process gives both plans. Tenants and Leasehold Mort- tion formula), unusual obligations, alter- parties an incentive to act reasonably. gagees usually look ahead to the agenda of any future major Subtenant; reject ations, demolition, insurance, and envi- 19. Mezzanine lenders may also want Landlord’s position; and win that dis- ronmental matters. Leasehold Mortgagee Protections. Land- cussion despite Landlord’s good argu- lord may say a mezzanine lender is just 9. Whatever topics these Leasehold Mort- ments. gagee Protections omit are generally an equity investor and should rely on its covered, often at length, in the author’s rights as an equity investor—the same 25. The possibility of a Loss and its varia- “maximum” Leasehold Mortgagee Pro- rights it relies on for repayment— tions often consume many pages in a tections. instead of bothering Landlord. Landlord Lease or loan agreement. Landlords, Tenants, Leasehold Mortgagees, and 10. See Joshua Stein, Writing Clearly and may want to limit the amount, number, purpose, or type of loan(s) that Lease- counsel to all of them can negotiate this Effectively: How to Keep the Reader’s Atten- topic, creating new categories, condition, N.Y.S. Bar Ass’n Journal, July–Aug. hold Mortgages secure. Such limitations are generally not market standard or tions, and distinctions, to whatever 1999, at 44; Template for a Template: A degree they want or can stand. Of all the Checklist To Prepare or Improve Any Model appropriate, at least after Tenant has completed and paid for initial develop- issues Leasehold Mortgagee Protections Document, The Practical Lawyer, Apr. cover, treatment of Loss is the one least 2000, at 15, reprinted in Real World Docu- ment. After that: (a) any Leasehold Mortgage of any size to any Leasehold suited to a “one size fits all” resolution, ment Drafting: Form, Style, and Sub- but also the one where cost-benefit con- stance (ALI-ABA professional skills Mortgagee merely creates a possible future Lease transfer through a Foreclo- siderations most cry out for it. These course materials), Dec. 2001, at 131 and Leasehold Mortgagee Protections make Apr. 2002, at 151; How to Use Defined sure Event; (b) Landlord should not care; and a valiant effort. One lawyer has pro- Terms to Make Transactional Documents posed, not entirely as a joke, that the Work Better, The Practical Lawyer, Oct. (c) even if overleverage creates some theoretical possibility of temporarily government should: (a) ban condemna- 1997, at 15; and Cures for the (Sometimes) tion clauses; (b) require any condemnor Needless Complexity of Real Estate Docu- deferring Landlord’s rental income, Landlord’s concerns are not compelling. to compensate each holder of an interest ments, Real Estate Review, Fall 1995, at in the condemned property separately 63. Tenant will usually agree that any Lease- hold Mortgagee must: (1) be “institu- for the value lost; (c) collect a minuscule 11. See Joshua Stein, Short and Simple, The tional;” (2) have a minimum net worth; fee from each real estate transaction to American Lawyer, Oct. 2002, at 59. Here, (3) not be related to Tenant, with some establish a “condemnation undercom- the author suggests seven principles for exceptions; and (4) meet other objective pensation protective fund”; and (d) use better legal writing: (1) shorten long sen- and reasonable criteria. These conces- that fund to make whole any owner or tences; (2) get rid of words, sentences, sions will cause definitional issues, com- lender ever undercompensated for a and paragraphs you do not need; (3) plexity, and risk of obsolescence (for condemnation. (In some states, total prefer verbs to nouns; (4) question use of example, see a typical definition of silence on condemnation, and a lack of any word that includes “here”; try to “institutional lender” in 1975). typical language saying any condemna- substitute something less legalistic; (5) tion terminates a Lease, may produce 20. Depending on circumstances, Tenant use simple words if you can; (6) use the the right result. No Leasehold Mort- may want to provide for joint venture active voice; and (7) write larger num- gagee would ever rely on that proposi- partners that might also hold Leasehold bers as numerals. These principles are tion, however.) Mortgages. hardly new. See, e.g., William Strunk, Jr. 26. Even if Landlord has agreed to allow 21. Landlord may also want copies of & E.B. White, The Elements of Style (4th just anyone to be Leasehold Mortgagee, unrecorded loan documents and future ed. 2000). The legal profession still Landlord can legitimately set standards amendments. Neither request seems jus- seems mostly oblivious to them. for who may hold Loss Proceeds. If a tified. third party might hold Loss Proceeds,

80 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Leasehold Mortgagee will have similar game”). Insurance might cover some of 34. Tenant should agree, in the Leasehold concerns. this risk. Mortgage, not to subordinate the Lease 27. On the issue of a temporary condemna- 30. Without a specific decision deadline, the to any Fee Mortgage. Landlord or a Fee tion, silence will usually suffice. courts will infer a “reasonable” time, Mortgagee may suggest that the Fee Mortgagee: (a) be superior and prior to 28. Tenant may want to cap or narrow these creating tolerable uncertainty. In a fully nonrecourse Lease: (a) Tenant has a ter- the Lease, but (b) enter into an absolute expenses, or argue they are just a risk of and unconditional nondisturbance ownership. mination option at all times; (b) a further termination option might just waste agreement with Tenant and any Lease- 29. Leasehold Mortgagees often want Loss words, so long as Tenant must unam- hold Mortgagee. Tenants and Leasehold Proceeds to pay all Leasehold Mortgages biguously leave behind all Loss Pro- Mortgagees typically reject that proposi- in full first. Many observers regard this ceeds if Tenant just “walks away”; and tion, in part for fear it might be deemed position as extreme, for these reasons. A (c) a Loss-based termination becomes an executory contract in the Mortgagee’s condemnation clause should give each interesting only when Tenant or Lease- bankruptcy. They may, however, reluc- party a package reflecting the value and hold Mortgagee wants the right to ter- tantly tolerate a prior Fee Mortgage if relative risks/benefits of its position minate for a partial Loss, yet keep some Fee Mortgagee “joins in” the Lease under the Lease, as if the Lease had con- Loss Proceeds, a possibility not offered when the parties sign it—a joinder in the tinued. Neither party should find itself here. present creation of a property interest in a better position, wealthier, after a rather than an “executory” promise to condemnation than before. Absent con- 31. A “Termination Option Loss” lets Tenant do something later. As another option, demnation, Landlord would hold a low- decide whether to terminate. Landlord the Fee Mortgage could be expressly risk high-priority relatively fixed annu- would reasonably argue that Landlord subordinate to the Lease, except during ity much like a first fee mortgage. See, should keep Loss Proceeds, or Tenant any period when Fee Mortgagee is e.g., Special Report: CMBS: Moody’s should nevertheless restore, and Land- bound by a fully effective nondistur- Approach to Rating Loans Secured By lord’s claim for the value of the bance agreement. If the nondisturbance Ground Leasehold Interests (Oct. 23, 2001). Improvements should defeat the claim agreement goes away, then the Lease In contrast, Tenant and Leasehold Mort- of Tenant and Leasehold Mortgagee, subordination goes away. who “walked away.” If, however, Tenant gagees, as holders of a higher-risk and 35. Fee Mortgagee may want the right to lower-priority interest in the real estate, and Leasehold Mortgagee had no real choice, Landlord’s “expectation”-based cure Landlord defaults. Given the limit- bear the risk of “first loss” if the value ed scope of Landlord’s obligations, Fee and cash flow of the property cannot claim to Loss Proceeds becomes less compelling. For example, if a 60-story Mortgagee’s cure rights can be simpler adequately support Landlord, Tenant, than Leasehold Mortgagee’s. Fee Mort- and their various mortgagees. To do jus- office building was originally a “legal nonconforming use” but current code gagee’s cure rights are neither relevant tice to these positions after an unexpect- to financeability nor uniformly included ed “liquidation” of the Premises from a allows restoration only as a single-family residence, or if the condemnor took in Leases. The same applies to other pos- Loss, Landlord should have first claim sible Fee Mortgagee protections. to Loss Proceeds, but only to the extent 95% of the site (either, a “Total Loss”), of the value of its low-risk annuity Landlord still has a first-priority claim 36. The parties may want to say that a under the Lease, including the reversion. for any resulting diminution in the Leasehold Mortgagee’s rights end when Tenant should own everything else, Leased Fee Value, but any remaining Tenant repays its loan. This seems obvi- including both the risk of inadequate Loss Proceeds (typically more or less the ous and hence unnecessary. Silence Loss Proceeds and the possible windfall value of the Improvements) go to Tenant avoids the need to analyze, carve out, of excessive Loss Proceeds. In response and its Leasehold Mortgagee. and define certain loan repayments that to issues like these, some Leases require 32. Tenant and Leasehold Mortgagee cannot should not terminate a Leasehold Mort- Landlord and Tenant to share Loss Pro- “take the money and run.” Landlord has gagee’s rights (e.g., those resulting from ceeds in proportion to the relative values an independent interest in restoration. a Foreclosure Event). of their positions. Landlord may fear But what if Loss Proceeds will not cover 37. Without Leasehold Mortgagee’s consent, that any formula tied to the value of restoration? Typically a Lease will any Lease amendment cannot even bind Landlord’s position at the moment of require Tenant to make up the shortfall Landlord and Tenant. Though perhaps condemnation may undercompensate before starting work, but will not require “overkill,” this concept does prevent Landlord, especially for a condemnation a guaranty of that obligation at Lease complexity, controversy, and issues that that occurs during high interest rates or signing. Tenant can “walk away.” Land- might arise if some amendments bound an anomalous real estate market, like lord receives the remaining Loss Pro- Landlord and Tenant but did not bind that of 1991. This undercompensation ceeds, licks its wounds, and finds anoth- Leasehold Mortgagee or New Tenant. parallels the loss a mortgagee suffers er tenant—a residual risk of ownership. 38. Although Leasehold Mortgagees want under 11 U.S.C. §§ 506(a) and 1129(a)(7). The Leasehold Mortgage loan docu- extensive cure rights, they will rarely Those sections let a debtor “cram down” ments will also have something to say. exercise them, because of: (a) fear of lia- a mortgagee based on current adverse Landlord will want some ability to con- bility; (b) general free-floating anxiety; circumstances—fleeting impairment of trol how Tenant restores—raising issues (c) institutional inertia and delays; (d) value of the mortgagee’s collateral— like those in any other major construc- bank group dissension; (e) lack of funds; from a temporarily bad market at the tion project and usually justifying simi- (f) unrecoverability; and (g) an inclina- moment of a bankruptcy filing. The lar outcomes. tion to rely on a court-appointed receiv- mortgagee suffers that loss even though 33. These Leasehold Mortgagee Protections er. In reality, cure rights are probably it thought it had bought into the real do not require all Fee Mortgages to be more a monitoring mechanism than a estate for the long haul. The condemna- “subordinate” to all Leasehold Mort- Lease preservation mechanism. tion formula can set a floor for Land- gages. That issue opens a can of worms 39. If the parties disagree about an alleged lord’s share of the award, taking into caused mostly by confusion about lease- account such things as the remaining Tenant Default, a Leasehold Mortgagee hold transactions. Instead, this para- may want the right to pay under protest Lease term, maximum discount rate, and graph tries to explain succinctly how Fee minimum projected residual value. Any and potentially obtain a refund. Such a Mortgages, the Lease, and Leasehold provision probably duplicates what such Landlord protections will create a Mortgages should interact. corresponding risk for Tenant and its courts would allow anyway. Its absence Leasehold Mortgagees (a “zero-sum should create only tolerable risks, hence

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 81 not impair financeability. Leasehold bankruptcy code lets Tenant offset dam- hold Mortgagee Protection. That issue Mortgagee will want Tenant to have ages against rent. Incorrect offsets can belongs in an intercreditor agreement, ample cure periods and dispute rights conceivably produce Lease terminations. not Leasehold Mortgagee Protections. even before Leasehold Mortgagee’s cure Thus, some Leases let Leasehold Mort- 53. Landlord may want Leasehold Mort- period begins. gagee approve each offset. These Lease- gagee to commit at some point that 40. Landlord may want a shorter cure peri- hold Mortgagee Protections contain no Leasehold Mortgagee will in fact eventu- od for failure to insure. This sounds such procedures, because such offsets ally cure a Tenant Default, especially if compelling, but probably not practical or are quite rare, and if problems arise construction-related. Leasehold Mort- necessary. Landlord should rely on its Leasehold Mortgagee can reasonably gagee, though, will want a “right to own (and Leasehold Mortgagee’s) moni- protect itself through normal notices of walk” at any time, regardless of how toring; a requirement for prior notice of default and, if necessary, preemptive liti- long Landlord may have had to “wait cancellation from the carrier; and the gation. around,” and will point out that all right to force-place single-interest cover- 48. A recent Seventh Circuit case allowed a monetary obligations will have always age quickly at Tenant’s cost. Landlord to destroy a Lease by selling been kept current. The outcome varies. 41. Landlord may argue that this gives a the leased property through a Bankrupt- Leasehold Mortgagee too many bites at cy Sale—a Lease destruction technique Joshua Stein, a real estate part- the apple and, for example, Leasehold that ground lease practitioners had ner in the New York office of Lath- never before envisioned. See Precision Mortgagee should lose its New Lease am & Watkins LLP, is First Vice rights if at any time any monetary obli- Industries v. Qualitech, 327 F.3d 537, 547 gation was more than ___ days past due. (7th Cir. 2003). The result sounds quite Chair of the Real Property Law Sec- Leasehold Mortgagees usually win this alarming, especially if one believes the tion. His articles and books on real discussion. hysteria that many law firms expressed estate law and practice have been on their websites. The tenant in that case 42. If a dispute exists about any of these could, however, easily have prevented widely published. Copies of some items, Leasehold Mortgagee may want a the problem, and saved its Lease, just by are available at http://www.real- New Lease even while the parties fight. asserting its rights under the Bankruptcy Whether this is reasonable may depend estate-law.com. Recently, he served Code. It apparently failed, forgot, or as editor of Commercial Leasing in part on the nature of the dispute. decided not to exercise those rights, 43. From Lease termination until New Lease hence lost its lease. Qualitech stands for (NYSBA 2004). execution, the Lease could control Land- only three principles. First, anyone who lord’s interim leasing program, Subleas- holds an interest in real estate must This article is based on a chap- es, and operations. Given how rarely (if monitor its position and act proactively ter in the author’s recent book, The ever) any Landlord has ever terminated to protect it when necessary. Second, Lender’s Guide: Structuring and a Lease and then entered into a New surprises never end in the world of Closing Commercial Real Estate Lease, the topic probably does not merit ground leases. Third, bad cases produce the attention and verbiage it can receive. longer documents. Loans (Mortgage Bankers Associa- tion Campus MBA 2004). A revised These Leasehold Mortgagee Protections 49. Much like cure rights, a Leasehold Mort- cover it in a minimal and “broad brush” gagee’s rights under this paragraph may version of this article will also way. be more theoretical—monitoring become part of the author’s upcom- 44. This concept is not standard, but some devices—than ever likely to be used. ing book on ground leases to be secondary market players want it. 50. Tenant will want any Leasehold Mort- published by the American Law 45. Landlord may argue that certain rights gagee not to exclude Tenant unless the Institute/American Bar Association. of Tenant under the Lease should go Loan is in default, and perhaps not even away while Tenant is in default, even then. Such concepts belong in the loan Earlier versions appeared in Real though Leasehold Mortgagee might documents, not the Lease. Estate Finance Journal, Practical want the right to exercise them. 51. The senior Leasehold Mortgagee may Real Estate Lawyer, and elsewhere. 46. This assignment should also appear in want more control than this paragraph The author appreciates previous the Leasehold Mortgage and loan docu- grants. All Leasehold Mortgagees need comments from Richard L. ments. an intercreditor agreement. Chadakoff, Andrew L. Herz, James 47. Many Leases address the Bankruptcy 52. This clause “c” governs as between Termination Option at great length. Landlord and Leasehold Mortgagees as I. Hisiger, Donald H. Oppenheim, Everything they say boils down to this a group. The most senior Leasehold Robert M. Safron, and Bruce M. sentence and the definition of Lease Mortgagee might want to go further, Stachenfeld. Copyright (C) 2004 Impairment. Looking ahead, if Landlord reserving the right to decide that no one Joshua Stein (mail to: rejects the Lease and Tenant exercises no at all shall exercise a particular Lease- Bankruptcy Termination Option, the [email protected]).

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82 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 The Illegal Multiple Dwelling in New York City By Gerald Lebovits and Daniel J. Curtin, Jr.

The issue of additional occupancy of legal one- and two-family buildings is a constant happening . . . evidence of the City’s reluctance to crack down on this practice which for decades has provided additional, albeit illegal, housing in a tight housing market, as well as a silent recognition of the likely need by many owners for additional rental income to maintain these structures.1 There are a number of reported decisions in this area. After extensive research, the Court has found that many of the decisions are conflicting . . . .2

Introduction nonpayment of such rent.”8 Tenants York City Housing Maintenance Common are the proceedings may not, however, recoup money Code (HMC) in a summary proceed- involving the use and occupation of voluntarily paid as rent for the illegal ing seeking rent arrears in New York 9 13 illegal multiple dwellings, including premises or to obtain a stay. City. The court rule provides that efforts to collect rental arrears from The certainty ends here. Every- [i]n every summary proceed- or to remove occupants of illegal thing else is uncertain. ing brought to recover pos- units. Uncommon is the disparity session of real property pur- with which the courts resolve the Illegal dwellings are illegal threes suant to section 711 of the issues surrounding illegal dwellings, when a c/o allows two units but the Real Property Actions and commonly called “illegal threes” or building contains three. The illegal Proceedings Law, the peti- de facto multiple dwellings. This arti- unit is the third apartment. Other tioner shall allege either: (1) cle explores the uncertainty that the illegal apartments come up: illegal that the premises are not a courts’ splits have engendered in twos, nicknamed “mother-daugh- multiple dwelling; or (2) that summary nonpayment and holdover ters.” When a premises has a c/o that the premises are a multiple proceedings involving de facto multi- permits one-family use, creating or dwelling and, pursuant to ple dwellings. adding a separate unit in the premis- the Administrative Code, es not covered by the c/o results in sections 27-2097 et seq., there The Basics an illegal two. When seeking rent is a currently effective regis- This much is certain: A multiple arrears from or the removal of an tration statement on file with dwelling, according to the Multiple occupant of an illegal two, questions the office of code enforce- Dwelling Law (MDL), is a “dwelling about the MDL do not come into ment in which the owner has which is rented, leased, let or hired play. A one-unit building converted designated a managing out, to be occupied, or is occupied, as to a two-unit building is not a multi- agent, a natural person over 10 the residence or home of three or ple dwelling. Thus, for mother- 21 years of age, to be in con- more families living independently daughters, summary proceedings in trol of and responsible for of each other.”3 The MDL requires the Civil Court’s Housing Part are the maintenance and opera- 11 landlords and owners to register all permitted—holdovers and nonpay- tion of the dwelling. The 12 multiple dwellings located in New ment proceedings. Significant ques- petitioner shall also allege York City.4 Failure to register these tions arise, however, when the the following information: dwellings results in barring the land- dwelling is a two-family home and the multiple dwelling regis- lord from collecting rent.5 A multiple someone adds an illegal unit. The tration number, the regis- dwelling may not be occupied absent addition of the problematic unit—the tered managing agent’s a duly issued certificate of occupancy “illegal three”—brings the building name, and either the resi- (c/o) attesting to MDL compliance.6 within the MDL’s purview. The same dence or business address of Landlords that rent an illegal apart- holds true when the building is a said managing agent. The ment—premises not covered by an multiple dwelling and an additional, petitioner may (optionally) existing c/o, either with no c/o or illegal unit is added, creating an ille- list a telephone number with a c/o but nonconforming use— gal four. Once three or more units which may be used to call violate the MDL and are subject to exist in a building, the MDL and for repair and service.14 penalties.7 Penalties include that attendant inquiries and issues sur- “[n]o rent shall be recovered by the face. Pleading MDL compliance is unnecessary in a holdover proceeding owner of such premises for said peri- A New York City Civil Court rule od, and no action or special proceed- when no use and occupancy is requires a landlord to plead compli- 15 ing shall be maintained therefor, or sought or when no landlord-tenant ance with the MDL and the New 16 for possession of said premises for relationship exists.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 83 When MDL compliance must be forming to [MDL] § 325 on file with multiple dwelling because only two pleaded, a landlord must also prove the New York City Department of legal units are in a three-unit build- MDL compliance.17 Recital errors in Housing Preservation and Develop- ing, the pleading is improper because the petition regarding multiple- ment. To omit these allegations from three units turn a building into a dwelling registration (MDR) are the petition is to state facts insuffi- multiple dwelling. Either way, MDL amendable if the landlord can cient to constitute a cause of compliance has not been, or will not demonstrate that a valid MDR exist- action.”27 Although the HMC be, pleaded as required. The question ed when the proceeding began and if requires that a copy of the MDR is whether it is a lie to verify that a the tenant was not prejudiced.18 For receipt be annexed to all petitions, three-unit building is not a multiple example, inadvertently omitting the omitting to do so is de minimis.28 dwelling, given that an illegal con- name and telephone number of the version prevents valid registration. Landlords must plead MDL com- building’s manager may be corrected And assuming falsity, should not the pliance, but the failure to do so does by amendment.19 The complete fail- case be dismissed solely on the not implicate the court’s subject-mat- ure to register as the MDL requires ground that it is wrong to lie in a ter jurisdiction. In Chan v. Adossa,29 will, however, allow a tenant to stay Housing Part proceeding to mask an an owner sought to recover posses- all proceedings or to assert the failure illegal conversion in order to seek sion of a premises predicated on as a defense to a proceeding for rent or use and occupancy that might owner’s use. After interposing an rent.20 not be collectable in a proceeding answer, the tenant moved to dismiss that might not be sustainable? Failure, therefore, to comply with on the ground that the landlord had the MDL results in a landlord’s being an invalid MDR; the managing It is unsurprising that courts unable to collect rent.21 Slightly dif- agent’s address on file was a post- have rendered conflicting decisions ferent, but just as damaging to a office box. Civil Court had held that on the topic of the illegal three. In landlord’s demand to collect rent, is a MDRs are jurisdictional in nature few areas of the law will a court c/o violation. That failure might and that the failure to have a valid grapple all at once with issues of result in the landlord’s being unable registration on file at the proceed- pleadings, forums for adjudication, to win a summary nonpayment pro- ing’s commencement deprived the the public’s need for affordable hous- ceeding to collect arrears.22 In practi- court of jurisdiction. The Appellate ing, and a landlord’s right to receive cal terms, there might be no real dif- Term, First Department, disagreed. rent versus a tenant’s right to live in ference between not being able to The Appellate Term held that the a safe home. collect rent and not being able to sue court rule requiring pleading MDL for rent. As one court stated, if compliance “neither creates nor extir- Proceedings for Arrears “pleading and proving” the existence pates, neither increases nor diminish- In light of the MDL’s language, of a valid multiple dwelling registra- es the jurisdiction accorded to this tenants inhabiting illegal units and tion insulated landlords from other court as prescribed by the Constitu- sued for not paying rent defend illegalities in a premises—like occu- tion of the State of New York and as against these proceedings by arguing pancy in violation of a c/o—“then is particularly outlined in the New that the landlord has failed to com- the larger public policy issue . . . York City Civil Court Act and other ply with the MDL’s c/o require- would be subverted.”23 Landlords legislative enactments. Court rules ment.31 Whether the argument will might then find themselves “in a are promulgated to regulate and be viable depends on where the pro- legal conundrum where they are facilitate practice and have nothing ceeding is maintained and against unable to evict a tenant in a summa- whatever to do with a court’s juris- whom it is maintained. ry proceeding or collect use and diction.”30 occupancy in a Civil Court action.”24 The First Department One problem is that in illegal- Although some courts view an three cases, landlords often lie in Illegal-three cases in the First MDR lapse as correctable,25 the pro- Housing Part petitions. Because land- Department are less common than in 32 ceeding might be dismissed if the lords can secure a judgment only if the Second Department. But First landlord commits a significant error they plead MDL compliance, they or Department jurisprudence offers in pleading MDL compliance.26 their attorneys must verify that the insight into whether rent arrears may Many courts hold that when com- unit is or is not located in a multiple be recovered when a landlord fails to mencing a nonpayment proceeding, dwelling and then state that a valid comply with the MDL. When a land- “a landlord . . . must allege either MDR is on file, concede that no MDR lord seeks to collect arrears from a that the building is not a multiple is on file, or invent an MDR number tenant residing in an illegal unit, First dwelling or that it is a multiple and hope that the fraud will go Department courts do not always dwelling and that there is a currently uncovered. Alternatively, if a land- apply MDL § 302’s bar to 33 effective registration statement con- lord verifies that the building is not a collections. Applying the MDL’s rent-forfeiture provision is usually

84 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 based on the existence of certain cir- does not affect a tenant’s sixth-floor threaten the occupants’ health, wel- cumstances. In applying the penalty, occupancy, the landlord’s petition for fare, and safety or whether the unit courts generally find that the subject arrears against the legal apartment at issue is legal or illegal in light of illegal unit—often located in a base- need not suffer dismissal based on the c/o. ment, where health and safety issues the illegal unit.40 Second, the tenant might be are heightened—endangers the occu- required to pay the rent sought if the pants and that because of those con- The basis of this rule is that some landlord can quickly obtain a proper ditions, the landlord is forbidden to question whether the legal tenants c/o. Pay to the court, that is. In one collect the rent sought in the are within the class of persons the MDL is meant to protect. As one case, the Appellate Division, First petition.34 As the Appellate Term, author has observed, “tenants who Department, conditioned the tenant’s First Department, has noted, “assum- assert an MDL 302 defense to nonpayment of rent into court “while ing that the rent forfeiture provisions payment proceedings are in essence stimulating plaintiff’s expeditious of the [MDL] apply in [a] case . . . it raising contradictory claims. On the completion of the actions necessary must be shown that [conditions] in one hand they claim their occupancy to legalize the premises.”46 The court the building adversely affected the is dangerous or illegal; on the other, noted that the tenant did “not claim structure’s integrity and threatened they claim that they should be per- the premises pose[d] a threat to his tenant’s health and safety before a mitted to remain in occupancy, rent health and safety” or that the premis- complete abatement of the rent is free . . . . when there is nothing es’ condition adversely affected the imposed.”35 wrong with their own premises.”41 tenant’s occupation.47 The groundwork for the First But the reasoning behind allow- Third, according to the First Department caselaw is that MDL ing landlords to seek arrears from Department’s Appellate Term, “[t]he § 302’s rent-forfeiture provisions tenants not in an illegal apartment, or rent withholding sanction is not derogate the common law and are legal tenants, has been questioned, available to tenants who are them- penal in nature. In the First Depart- particularly in the Second Depart- selves impeding the compliance with ment, MDL § 302 must be construed ment, where one court has observed 48 strictly, not liberally to effect their the [c/o] requirements,” and that is that the “heightened risks and fire, the law statewide, for the Court of remedial and beneficial goals.36 health and safety issues are not limit- Appeals held in Chatsworth 72nd St. In other words, First Department ed only to the so-called illegal apart- Assocs. v. Ragai, ultimately affirming courts will not enforce the rent penal- ment.”42 Additionally, permitting ten- the order of Civil Court, New York ty when the noncompliance has no ants in legal apartments successfully County, that rent may not be forfeit- negative impact on the subject unit.37 to defend nonpayment proceedings ed when the tenants’ refusal to The key aspect is that in the First on the basis of MDL defects might vacate thwarts the landlord’s attempt Department, the irregularity over the work a windfall for them. Thus, “the to secure a permanent c/o.49 c/o must directly impact or relate to tenants of these [legal] apartments In the First Department, there- the unit for which rent arrears are are unjustly enriched by not being fore, a landlord not in compliance sought.38 Otherwise, the landlord within the court’s jurisdiction in a with the MDL and against whose might be permitted to recover nonpayment suit.”43 Whether non- building a c/o or MDR violation arrears. payment proceedings may be main- exists will be barred from collecting tained against legal tenants is more rent. But for the forfeiture to apply, Sometimes a landlord will not be hotly contested in the Second Depart- subject to rent forfeiture despite a the conditions must warrant punish- ment.44 In the First Department, they c/o or MDR violation. Assume that ing the landlord for allowing the con- are often allowed. the c/o permits residential occupa- ditions to exist, arrears must be tion of a unit and that the landlord There are other instances when sought only for the illegal unit, and commences a nonpayment proceed- the courts of the First Department the tenant must not be complicit in ing against that unit’s tenant, allow a landlord to recover rent from the existence and maintenance of the although illegal apartments are else- a tenant who occupies premises in illegal apartment. where in the building. When the violation of the building’s c/o. First, landlord is pursuing the “legal” ten- a landlord can maintain a cause of The Second Department ant, the courts of the First Depart- action for arrears when a tenant is ment do not always impose the complicit in converting a portion of a In the Second Department, courts MDL’s rent-forfeiture provision, and building into an illegal unit or when hold fairly consistently that no rent arrears may be sought despite the the tenant enters into occupancy of may be recovered when the MDL is c/o defect.39 For example, the Appel- premises the tenant knows is ille- violated and when the nonconform- late Term, First Department, has held gal.45 If so, it will not matter whether ing use relates to the c/o. One court that if an illegal basement apartment the premises has conditions that has gone so far as to note that “a

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 85 review of the Second Department forfeited under MDL § 302 in the Sec- lived in the legal unit, the tenant was caselaw shows that the literal mean- ond Department. responsible for the arrears—after the ing of MDL [section] 325 is still the landlord corrected the MDL viola- Courts in the Second Department proper standard to be applied.”50 In tion.63 But illegality is often incapable are at odds, not only with the courts so noting, that court rejected the of cure, or is curable only at signifi- in the First Department, but also landlord’s contention that “there is a cant expense. with themselves over whether rent trend to ‘liberalize’ the requirements arrears may be sought from tenants Finally, stipulations of settlement of the [MDL],”51 despite the land- in legal apartments when illegal with monetary judgments are unen- lord’s arguing that cases like B.S.L. units are elsewhere in the building. forceable—at least in the Second One Corp. v. Rubenstein52 support that Some Second Department courts Department, where there is authority view. hold that rent arrears may be sought on the subject. In two cases, tenants In B.S.L., a cooperative tenant in those situations while others hold residing in illegal apartments con- entered into possession of an illegal that all rents—from legal or illegal sented to monetary judgments for apartment knowing about the units—are forfeited when a c/o or rental arrears that accrued while the improper c/o. The landlord was MDR violation exists. premises in which they were residing awarded arrears because the tenant did not conform to the c/o. When the In Mannino v. Fielder, the court prevented the landlord from obtain- Appellate Term, Second Department, determined that literally applying the ing a proper c/o. Although this deci- addressed these cases, it vacated the MDL was called for in all nonpay- sion seems to bring the Second monetary aspects of the stipulations. ment proceedings, not only those in Department in line with the First, The Appellate Term reasoned that the which rents were sought from ten- B.S.L.’s extenuating circumstances “proscription provided for in [MDL] ants in illegal units.57 The court take the case outside not only the § 302, deemed penal in nature and rejected the landlord’s contention MDL’s rent-forfeiture provision but strictly applied, constitutes a regula- that other cases from courts in the also outside the First Department’s tory restraint on landlord[s] that may Second Department suggest that rent occasional deviations from the “no not be ‘waived’ by stipulation.”64 In a might be sought from tenants occu- rent” rule. Specifically, the B.S.L. third Second Department case, the pying legal apartments. The landlord court was worried that “[r]espon- Appellate Term refused to vacate the had relied upon Chan v. Kormendi, a dent’s attempt to recover eight years possessory aspect of a stipulation Queens County case that holds that back rent paid from the time she pur- that converted a nonpayment pro- the MDL’s purposes of protecting chased the shares [would place] an ceeding into a holdover proceeding tenants from unsafe conditions and unnecessary burden upon petitioner, even though the petition did not identifying the owner are met with [and] may cripple the co-operative or allege a proper MDR.65 The First respect to legal units and thus that threaten its viability to the detriment Department has yet to speak on this the MDL’s rent-forfeiture provision of all shareholders including respon- issue. was inapplicable.58 The Mannino dent herself.”53 The B.S.L court was court instead adopted the reasoning What all this means is that courts primarily interested in preserving the of Manabhal v. Talavera, in which a in the Second Department have yet cooperative. As noted in Shahid v. holdover proceeding was dismissed to determine with finality whether Doe,54 the B.S.L. court stated that against a tenant who resided in a rent may be collected from a tenant “[i]n the absence of certain circum- legal apartment in premises also con- in a legal unit when illegal units exist stances described earlier, which may taining an illegal unit.59 In Manabhal, elsewhere in the subject multiple excuse a landlord from a strict the court discounted the landlord’s dwelling. This, although “the Second mechanical reading of MDL § 302 to arguments, analogous to those the Department caselaw shows that the avoid a tenant’s unjust enrichment, landlord made in Mannino, and in literal meaning of MDL [section] 325 equitable construction of the statute’s dismissing the holdover found that is still the proper standard to be rent forfeiture penalties generally any changes to the MDL and its applied.”66 requires a literal application of the requirements should come not from statute.”55 Without these extenuating the courts but from the legislature.60 Actions and Proceedings for circumstances and considerations The Mannino court determined that Possession such as proof “that the failure of the the same result is warranted in non- landlord to have a Certificate of As if uncertainty with respect to payment proceedings. Occupancy was the result of an error nonpayment proceedings were not by the Department of Buildings”56— Although Totaram v. Cordero61 enough, the existence of an illegal the rule in the Second Department is and Marrocco v. Lugero62 cited Manni- unit in a multiple dwelling also strict compliance with MDL § 325 no with approval, another court split impacts possessory proceedings. A with respect to illegal apartments. the difference. In Skala v. Edlich, the question exists whether a possessory Absent strict compliance, all rents are court held that because the tenant proceeding may be brought by a

86 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 summary holdover proceeding or unavailable. This is not which the tenant consented to a judg- whether an ejectment action is the because the [MDL] bars a ment of possession and some future appropriate mechanism to remove a proceeding in this situation, payment of use and occupancy.79 On tenant who resides in an illegal but because the petition fails appeal, the Appellate Term, Second apartment. If ejectment is elected or to allege multiple dwelling Department, modified in part. While appropriate, there are two forums for registration as required pur- vacating that portion of the stipula- these cases: Supreme Court and Civil suant to 22 NYCRR 208.42 (g) tion relating to use and occupancy, Court. A landlord should bring an and, thus, fails to state a the Appellate Term upheld the pos- ejectment action in Civil Court when cause of action.72 sessory judgment.80 The litigants had the amount of the dispute—the tax- fought over the possessory judgment; Accordingly, adding an illegal apart- assessed value of the premises at if the Civil Court’s Housing Part had ment to a building that otherwise issue—is $25,000 or less, 67 the Civil no jurisdiction to hear the dispute, constitutes a duly registered multiple Court’s jurisdictional limit. In all the stipulation might have been dwelling will not defeat the land- other instances, landlords should vacated, and if so the landlord would lord’s prior, proper registration or bring their cases in Supreme Court, have been forced to bring a slower any future holdover proceeding.73 which has original, general jurisdic- ejectment action, thus affording the tion and thus no jurisdictional limit A policy argument supports dis- tenant more time to reside in his on the action’s monetary value.68 The allowing holdovers when an MDL apartment, or well past six months. MDL itself makes no mention of pos- violation exists. If an expeditious The Appellate Term, finding that sessory proceedings, aside from pro- summary proceeding were available the Housing Part had jurisdiction all viding that “no action or special pro- and the landlord successfully along, wrote that “it is well settled ceeding shall be maintained . . . for removes the tenant, the landlord that a landlord may maintain a possession of said premises for non- could re-let the illegal premises holdover proceeding to recover payment of such rent.”69 It therefore before anyone reports the unlawful premises occupied in violation of the seems from the governing statutory space, “and the cycle of illegality certificate of occupancy require- language that a defect in MDL com- [would] continue.”74 ments.”81 pliance would not impact actions or Yet some courts have found that proceedings seeking possession The Appellate Division, Second landlords may maintain holdover alone. But exceptions and distinc- Department, granted leave to appeal proceedings to recover premises tions abound. in Meaders on December 23, 2003. As 75 occupied in violation of a c/o. This of June 17, 2004—the date this article Judges—though not all, and not might be a logical conclusion. was completed—oral argument is in all cases, as explained below Because the MDL’s purpose is to scheduled for September 2004. often find that summary holdover ensure safe housing,76 permitting a proceedings may not be maintained tenant to remain in an illegal apart- Nii v. Quinn82 presents a scenario absent compliance with the MDL’s ment would defeat not only that goal similar to the one in Meaders. The registration requirements.70 As one but might also work an unjust landlord in Nii registered the premis- court put it, “in the world of summa- enrichment to the tenant because the es and had a c/o. The tenant, howev- ry proceedings in New York City, the landlord might be precluded from er, occupied the premises in violation housing court refuses to entertain collecting rent or use and occupan- of the c/o. After the landlord began a ‘holdover’ proceedings in regard to cy.77 One court that held that holdover proceeding for arrears, use tenants in illegal apartments.”71 It is holdover proceedings may be main- and occupancy, and possession, the not the MDL noncompliance that tained despite an MDL violation rea- parties entered into a stipulation in prohibits a holdover proceeding. soned that when there is an other- which the tenant consented to mone- Rather, when creating the illegal wise valid c/o and the requisite tary and possessory judgments. On apartment results in pleadings appear in the petition, the appeal, the Appellate Term, Second court is powerless to strike the c/o or Department, found that the landlord a “de facto” multiple 78 had made no effort to obtain a con- dwelling (one which in fact deem the MDR invalid. Thus, with forming c/o and that as a result, the contains three or more the requisite pleadings made, and landlord could not collect any arrears dwelling units, but has a cer- without specific statutory authority sought in the petition.83 But the court tificate of occupancy only as prohibiting a holdover proceeding, also found that “inasmuch as land- a one- or two-family the proceeding might be maintained. lord is entitled to maintain a hold- dwelling) . . . the remedy of a For example, in Meaders v. Jones, over proceeding to recover posses- holdover under Real Proper- a co-author of this article, sitting in sion of premises occupied in ty Actions and Proceedings Richmond County, denied a tenant’s violation of a certificate of occupancy Law [RPAPL] § 711 becomes motion to vacate a stipulation in and the remaining terms of the settle-

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 87 ment stipulation are severable from holdover proceedings to evict tenants inspect the premises. The New York the unenforceable terms and consti- who live in illegal dwellings. City Administrative Code provides tute a proper disposition of the par- that the DOB may “order and imme- Meaders has already begun to ties’ rights and interests, we find no diately cause any building, structure, have offspring. In June 2004, the basis to strike the portion of the stip- place or premises (i) to be vacated; Appellate Term, Second Department, ulation which awards landlord pos- and, also, if the commissioner deter- decided two cases, Esposito v. Ango92 session.”84 With that, the court found, mines such action is necessary to the 93 at least implicitly, that holdover pro- and Furman v. DeGeorge —both preservation of life and safety, (ii) to ceedings may be maintained to resolved below by a co-author sitting be sealed, secured and closed.”95 A recover illegal units. in Richmond County—that raise DOB determination is difficult to questions about illegal dwellings. overrule or change. Absent “a clear The Appellate Term’s decision in showing . . . that the administrative Meaders, despite affirming the Hous- In reviewing Esposito, the Appel- determination . . . to issue [a] Vacate ing Part’s central ruling, has been the late Term, citing Meaders with Order[] is arbitrary and capricious or subject of debate. One authority has approval, declined to vacate the pos- in any way irrational, such determi- written that “[i]t is difficult to recon- sessory aspect of a stipulation con- nation should not be disturbed.”96 cile the holding in Meaders v. Jones cerning what it termed an illegal Once made, the order is self-execut- with the holdings in Santos v. Aquas- multiple dwelling (and which the ing, and the tenant will be required vivas and in Blackgold Realty Corp. v. landlord argued was a lawful two- family house)—but only because the to vacate forthwith. Milne.”85 The Appellate Term had tenant had already vacated the prem- held in Santos held that “[a]s a condi- If the DOB does not enforce its ises. The court did, however, vacate tion precedent to maintaining a order, the court may order the the monetary provisions of the settle- holdover proceeding, the landlord agency to allow the landlord the ment, consistent with Meaders. The must allege the registration require- opportunity to cure the illegality or same day Esposito was published, ments pursuant to Multiple Dwelling keep the premises vacant.97 This is Furman was published. Furman, Law § 325 . . . .”86 good for landlords, if the illegality another dwelling the landlord argued can be cured without great cost, Moreover, without in any way was a two-family house, followed because it might be faster than a suggesting that the Appellate Term Meaders in allowing for a possessory summary proceeding and cheaper decided Meaders incorrectly (or even judgment in stipulations involving than an ejectment action, even with correctly, because a discussion of illegal multiple dwellings. But unlike any fines assessed for the illegal Meaders’s merits is not the authors’ Esposito, Furman upheld the possesso- premises. But purposely seeking a 87 ry judgment, not because the tenant goal ), a tenant’s attorney might vacate order places the landlord in had vacated, but because, under argue that three cases the Appellate the position of contacting a regulato- Meaders, a landlord may maintain a Term cited in Meaders do not support ry agency to report wrongdoing—its holdover for an illegal dwelling. The the proposition that landlords may own wrongdoing. Some may find Furman court, as opposed to the maintain summary holdover pro- this result undesirable. Tenants, how- Esposito court, never reached whether ceedings in the Housing Part to ever, are in a weak position to defend the dwelling was legal. remove tenants from illegal apart- that action. ments. Hornfeld v. Gaare, for example, Furman raises a second issue. The did not uphold a landlord’s right to Ejectment actions present a seem- Appellate Term declined to order bring a holdover proceeding against ing middle ground between Housing money returned because the court a tenant. Rather, the Hornfeld court Part summary proceedings for pos- found that the tenant paid the awarded the landlord a declaration session and vacate orders. Landlords monies voluntarily under the terms that the tenant had to vacate illegally may still obtain speedy resolutions of a stipulation by which the tenant occupied premises.88 That was akin by way of summary-judgment obtained a stay. Given Furman, one to an order for ejectment, a plenary motions filed shortly after the issue is can ask why a court would vacate mechanism to remove tenants from joined, although additional costs are the monetary aspect of a stipulation illegal premises.89 Additionally, 99 associated with these actions, includ- in which a tenant agrees to remit rent Commercial St. v. Ulewellen confirms a ing various filing fees, particularly in or use and occupancy in the first landlord’s right to bring an ejectment Supreme Court. Tenants, whether or place.94 action, not a holdover proceeding not they receive a stay of the ultimate against tenants occupying illegal If the Housing Part has no juris- judgment for ejectment in the land- units.90 And Nii v. Quinn, which diction over these proceedings, landlord’s favor,98 may still seek to renew, allows a landlord to maintain a lords still have remedies, and tenants reargue, or appeal any adverse deter- holdover, itself cites Hornfeld,91 still have protections. For example, a mination and thereby obtain a stay, which, as noted above, does not say landlord may request that the and in the meantime no rent is col- that the Housing Part may hear Department of Buildings (DOB)

88 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 lectable from them, at least in the 3. N.Y. Mult. Dwelling L. § 4(7); see also Jali- 13. See 22 N.Y.C.R.R. § 208.42(g). nos v. Ramkalup Second Department. , 255 A.D.2d 293, 294, 679 14. Id. N.Y.S.2d 419, 419 (2d Dep’t 1998) (mem.) But what matters, according to (“[P]laintiff is the owner of a two-family 15. See, e.g., Chan v. Adossa, 195 Misc. 2d 590, home which contains three separate 592, 760 N.Y.S.2d 609, 611 (App. Term 1st the Appellate Term, Second Depart- apartments, one of which was occupied Dep’t 2003) (mem.) (“[I]t is clear that the ment, in Nii v. Quinn, Meaders v. by the defendants. The premises there- requirement that a petition . . . include Jones, and Furman v. DeGeorge, is that fore constitute a multiple dwelling as the MDR allegation was not intended to landlords may maintain holdover defined by Multiple Dwelling Law § 4(1) and cannot affect the jurisdiction of the and (7).”). A “family” includes a single- Civil Court, particularly with respect to proceedings in the Civil Court’s person household. N.Y. Mult. Dwelling holdover proceedings.”); Citibank, N.A. v. Housing Part to recover possession L. § 4(7). Garcia, N.Y.L.J., Nov. 6, 1998, at 23, col. 2 of illegal apartments,99 given that (App. Term 2d Dep’t, 2d & 11th Jud. 4. N.Y. Mult. Dwelling L. § 325(2). Dists.) (mem.) (“The instant proceeding MDL registration and pleading 5. Id. was brought pursuant to RPAPL § 713. requirements do not implicate the 6. Id. § 301(1). Thus, the requirement that petitioner court’s jurisdiction. Landlords, allege that the premises were not a mul- although in one sense not punished 7. See generally id. § 302 (providing penal- tiple dwelling or the multiple dwelling ties for violating registration require- registration number is not applicable”); for having an illegal apartment, ben- ments). Freedman v. Hahn, N.Y.L.J., Mar. 31, 1989, efit from an expeditious adjudication 8. Id. § 302(1)(b). at 21, col. 3 (App. Term 1st Dep’t) (per with fewer costs. Together, these curiam) (“The absence from landlord’s 9. Id. § 325(2); e.g., Furman v. DeGeorge, three cases recognize that tenants, proof of a rent registration statement . . . N.Y.L.J., June 10, 2004, at 29, col. 1 (App. was not fatal to this holdover proceeding although forced to vacate their Term. 2d Dep’t, 2d & 11th Jud. Dists., seeking possession on the basis of ten- homes without awaiting a lengthy mem.); Baer v. Gotham Craftsman Ltd., 154 ant’s alleged nonprimary residence.”); see ejectment action, will leave danger- Misc. 2d 490, 493, 595 N.Y.S.2d 604, 606 generally Andrew Scherer, Residential (App. Term 1st Dep’t 1992) (per curiam) ous premises, and the Housing Part Landlord-Tenant Law in New York § (dismissing counterclaim to return back 7:138, at 7-56 (2004 ed.); Daniel Finkel- might have the power to award the rent voluntarily paid); but cf. Carcione v. stein & Lucas Ferrara, Landlord and Ten- tenant a stay of up to six months to Rizzo, 154 Misc. 2d 13, 593 N.Y.S.2d 152 ant Practice in New York § 15:467, at 15- effect a peaceful vacatur from the (App. Term 2d Dep’t, 2d & 11th Jud. 216 (2003 ed.). Dists. 1992) (mem.) (holding summary illegal unit even if the tenant pays no judgment improper when issues of fact 16. Scherer, supra note 15, at § 12:40, at 12-16, use and occupancy.100 And under Nii, arise whether payments were voluntary 12-17. Meaders, and Furman, the Housing or tenant alleges fraud and misrepresen- 17. Id. at § 7:139, at 7-57. tation). Part, charged with enforcing laws 18. Lin v. Rivas, N.Y.L.J., May 26, 1998, at 30, affecting the housing stock to protect 10. See supra at note 3 (defining multiple col. 5 (App. Term 2d Dep’t, 2d & 11th that inventory, will comply with that dwellings). Jud. Dists.) (mem.) (finding “pleading infirmities” relating to MDRs amendable mandate. 11. E.g., Wokal v. Sequin, 167 Misc. 463, 465, 4 N.Y.S.2d 86, 88 (Mun. Ct., Queens Coun- absent “prejudice to the respondent”); ty 1938). Whitehall Apts. Co. v. Zeigler, N.Y.L.J., Jan. Conclusion 26, 1993, at 22, col. 1 (App. Term 1st 12. E.g., Corsini v. Gottschalk, N.Y.L.J., Dec. Dep’t) (per curiam) (finding variance A hodgepodge of decisions has 20, 1999, at 32, col. 2 (App. Term 2d due to transcription error in petitioner’s wreaked havoc on landlord-tenant Dep’t, 9th & 10th Jud. Dists.) (“The fact name between MDR and petition not proceedings involving illegal threes. that landlord had a certificate of occu- fatal to proceeding). pancy for a one-family dwelling rather Until the Appellate Division in each than a two-family did not bar recovery 19. 390 W. End Assocs. v. Raiff, 166 Misc. 2d department in which the MDL is at of rent in the instant case.”) (internal 730, 733, 636 N.Y.S.2d 965, 966 (App. issue releases a series of definitive citations omitted); Rose v. Leverich, Term 1st Dep’t 1995) (per curiam). rulings, or until the legislature N.Y.L.J., June 9, 1997, at 32, col. 1 (App. 20. N.Y.C. Admin. Code § 27-2107(b). Term 2d Dep’t, 9th & 10th Jud. Dists.) redrafts and clarifies the MDL, prac- (mem.) (“The absence of a certificate of 21. N.Y. Mult. Dwelling L. § 325(2). titioners, landlords, and tenants alike occupancy is not a bar to seeking the 22. Id. § 302(1)(b). Tuzel v. Reil- will continue to muddle through the recovery of rent.”) (mem.); 23. Frank Pizza Irrevocable Trust v. Burns, ert, refractory and conflicting issues sur- N.Y.L.J., Dec. 3, 1996, at 26, col. 3 N.Y.L.J., Oct. 7, 1998, at 29, col. 1 (Civ. (App. Term 2d Dep’t, 10th & 11th Jud. Ct.,, Kings County). rounding illegal multiple dwelling in Dists.) (mem.) (“The statutory bar to New York City. recovery of rent . . . is no bar where a 24. Aponte v. Santiago, N.Y.L.J., June 7, 1995, one-family home is used as a two-fami- at 26, col. 6 (Civ. Ct., Bronx County). Endnotes ly.”) (internal citations omitted) (award- 25. Beacway Operating Corp. v. Hult, N.Y.L.J., ing judgment of possession and money); Mar. 13, 1992, at 21, col. 1 (App. Term 1st 1. Hall v. Burroughs, 159 Misc. 2d 481, 485, Herzog v. Thompson, 50 Misc. 2d 488, 490, Dep’t) (mem.); Borglum v. Rich, N.Y.L.J., 604 N.Y.S.2d 684, 687 (Hous. Part Civ. 270 N.Y.S 2d 469, 471 (Civ. Ct., N.Y. Jan. 18, 1990, at 23, col. 3 (App. Term 1st Ct., Kings County 1993). County 1966); but see Fantuzzi v Todras, Dep’t) (per curiam); 128 E. 83rd St. v. 2. Mannino v. Fielder, 165 Misc. 2d 605, 608, N.Y.L.J., Feb. 27, 2002, at 24, col. 5 (Civ. Kagan, N.Y.L.J., Oct. 6, 1987, at 14, col. 1 629 N.Y.S.2d 651, 653 (Hous Part. Civ. Ct., Richmond County) (barring rent col- (App. Term 1st Dep’t) (per curiam). Ct., Kings County 1995). lection for illegal twos, but citing no authority for its holding). 26. Little v. Steginsky, N.Y.L.J., Oct. 22, 1998, at 28, col. 5 (App. Term 1st Dep’t) (per

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 89 curiam) (“In a summary proceeding Dep’t 1991) (per curiam) (disagreeing 52. B.S.L. One Corp. v. Rubenstein, 159 Misc. brought under RPAPL § 711, the petition- with McCooe, J., dissenting, who argued 2d 903, 606 N.Y.S.2d 979 (Civ. Ct., Rich- er must plead and prove . . . that a cur- for a liberal, not strict, interpretation of mond County 1994). id. rently effective registration statement is MDL § 302, at 632, 572 N.Y.S.2d at 53. Id. at 910, 606 N.Y.S.2d 984–85. on file . . . .”). 838). 54. Shahid, N.Y.L.J., Dec. 24, 1997, at 24, col. 6. 27. Jocar Realty Co. v. Rukavina, 130 Misc. 2d 37. 50 E. 78th Corp. v. Jire, N.Y.L.J., Dec. 2, 1009, 1010, 498 N.Y.S.2d 244, 245 (Hous. 1991, at. 25, col. 1 (App. Term 1st Dep’t) 55. B.S.L. One Corp., 159 Misc. 2d at 910, 606 Part Civ. Ct., N.Y. County 1985), aff’d per (per curiam) (“Such a violation does not N.Y.S.2d at 985. curiam, 137 Misc. 2d 1045, 526 N.Y.S.2d . . . provide these tenants with a com- 56. St. George Hotel Assocs. v. Jaye, N.Y.L.J., 49 (App. Term 1st Dep’t 1987). plete defense against landlord’s rent Aug. 11, 1993, at 24, col. 2 (Hous. Part 28. N.Y.C Admin. Code § 27-2107(b); Oceana claim, since it neither adversely affected Civ. Ct., Kings County). Apts. v. Spielman, 164 Misc. 2d 98, 100, the structural integrity of the building nor rendered tenant’s residential occu- 57. Mannino, 165 Misc. 2d at 609, 629 623 N.Y.S.2d 724, 726 (Hous. Part Civ. N.Y.S.2d at 654. Ct., N.Y. County 1995) (“This court pancy unlawful.”). found no cases that hold that the failure 38. Bruce M. Solomon, Multiple Dwelling 58. 118 Misc. 2d 1026, 1032–33, 462 N.Y.S.2d to annex the registration receipt as is Law: The Matter of the Misplaced Decision, 943, 947–48 (Civ. Ct., Queens County required under the law constitutes a sub- 1 Landlord-Tenant Prac. Rep. 4, 14 1983). stantial defect that is sufficiently prejudi- (2000). 59. N.Y.L.J., Aug. 18, 1993, at 24, col. 3 (Civ. cial to merit or mandate a dismissal of 39. Little v. Joseph, N.Y.L.J., May 4, 1992, at Ct., Kings County). the petition. Rather, this court believes it 27, col. 4 (App. Term 1st Dep’t) (per curi- 60. Maninno, 165 Misc. 2d at 609, 629 represents the kind of error that the am) (“Any alleged nonconforming use N.Y.S.2d at 654–55 (discussing Manabhal). appellate courts would find to be minor, on the second and third floors does not 61. 2003 N.Y. Slip Op. 50663(U), 2003 N.Y. nonprejudicial and therefore cor- warrant a complete rent forfeiture, and Misc. LEXIS 315 (Civ. Ct., Kings County rectable.”) (citations omitted). dismissal of the nonpayment proceeding 2003). 29. 195 Misc. 2d at 592, 760 N.Y.S.2d at 611. under Sections 301 and 302 of the [MDL] 62. N.Y.L.J., Oct. 6, 1999, at 31, col. 2 (Civ. 30. Id. 195 Misc. 2d at 595, 760 N.Y.S.2d at was in error.”). Ct., Richmond County). 612. 40. Shoretown Realty Corp. v. Kahill, N.Y.L.J., 63. 2002 N.Y. Slip Op. 50129(U), 2002 N.Y. 31. See, e.g., Hornfeld v. Gaare, 130 A.D.2d Oct. 28, 1993, at 27, col. 3 (App. Term 1st Misc. LEXIS 577 (Civ. Ct., Richmond 398, 400, 515 N.Y.S.2d 258, 260 (1st Dep’t Dep’t) (per curiam). County 2002); see also Christos v. Papaste- 1987) (mem.) (noting tenant’s argument 41. Warren A. Estis, Real Estate Update: fanou, N.Y.L.J., Apr. 4, 2000, at 31, col. 4 that landlord was “not entitled to collect Landlord/Tenant Law, The Rent Forfeiture (Hous. Part Civ. Ct., Bronx County). rent or use and occupancy because the StatuteCourts Take Conservative [c/o] prohibits the residential use”); Mis- Approach to Applying MDL 302, N.Y.L.J., 64. Nii v. Quinn, 195 Misc. 2d 821, 759 sry v. Ehlich, 1 Misc. 3d 723, 723, 765 Dec. 8, 1993, at 5, col. 2. N.Y.S.2d 841 (App. Term 2d Dep’t, 2d & N.Y.S.2d 176, 177 (Civ. Ct., N.Y. County 11th Jud. Dists. 2003) (mem.) (citations 42. Mannino, 165 Misc. 2d at 610, 629 2003) (“Respondent . . . moved for sum- omitted) (disapproving of Holder v. N.Y.S.2d at 654. mary judgment dismissing this commer- Williams, 188 Misc. 2d 73, 725 N.Y.S.2d cial nonpayment proceeding . . . Respon- 43. Id. at 611, 629 N.Y.S.2d at 654. 793 (Hous. Part Civ. Ct., Kings County dent alleges that the premises are an 44. See discussion of that issue, infra. 2001) (using balancing test to decide interim multiple dwelling (IMD) lacking whether to vacate stipulation concerning a [c/o] for residential use . . .”). 45. Zafra v. Sawhuck, N.Y.L.J., Jan 9, 1995, at de facto multiple dwelling); accord Mead- 27, col. 2 (App. Term 1st Dep’t) (per curi- ers v. Jones, 2003 N.Y. Slip Op. 51123(U), 32. These cases arise regularly in the Bronx am); Lipkis v. Pikus, 96 Misc. 2d 581, 409 2003 N.Y. Misc. LEXIS 933 (App. Term 2d but only occasionally in Manhattan. N.Y.S.2d 598 (Civ. Ct., N.Y. County 1978), Dep’t, 2d & 11th Jud. Dists.) (mem.) 33. E.g., Hakim v. Von Walstrom, 198 A.D.2d modified per curiam, 99 Misc. 2d 518, 520, (“While not implicating the court’s juris- 139, 604 N.Y.S.2d 733 (1st Dep’t 1993) 416 N.Y.S.2d 694, 696 (App. Term 1st diction, such violations bar the recovery (mem.), which affirmed the order of the Dep’t), aff’d mem., 72 A.D.2d 697, 421 of rent or use and occupancy, and these Housing Part, which had held that MDL N.Y.S.2d 825 (1st Dep’t 1979), lv. proscriptions may not be ‘waived’ by rent forfeiture “will not be enforced dismissed, 51 N.Y.2d 874, 414 N.E.2d 399, stipulation. Thus, the stipulation’s terms under all circumstances” regarding a 433 N.Y.S.2d 1019 (1980). awarding landlord rent and use and building occupied without a c/o. 46. Zane v. Kellner, 240 A.D.2d 208, 209, 658 occupancy, as well as the money judg- 34. See, e.g., Mathurin v. Jackson, N.Y.L.J., Dec. N.Y.S.2d 289, 290 (1st Dep’t 1997) ment entered thereon, are stricken, and 12, 1990, at 23, col. 2 (Hous. Part Civ. Ct., (mem.). the cause of action seeking a money judgment is dismissed.”) (citations omit- N.Y. County) (holding MDL § 302 sanc- 47. Id. at 209, 658 N.Y.S.2d at 290. tions warranted when c/o was absent ted); see also Finkelstein & Ferrara, supra and building conditions were grossly 48. Amdar Co. v. Armenti, N.Y.L.J., June 23, note 15, at §§ 14:275, 15:259, at 15-130. substandard.); 40 Clinton St. Assocs. v. 1994, at 28, col. 4 (App. Term 1st Dep’t) 65. Willoughby v. Dance-Lonesome, 2003 N.Y. Dolgin, 126 Misc. 2d 373, 375, 481 (per curiam). Slip Op. 51058(U), at 2, 2003 N.Y. Misc. N.Y.S.2d 960, 962 (Civ. Ct., N.Y. County 49. 35 N.Y.2d 984, 324 N.E.2d 888, 336 LEXIS 822, at 2 (App. Term 2d Dep’t, 2d 1984) (holding MDL § 302 sanctions N.Y.S.2d 531 (1975), aff’g, 71 Misc. 2d, 336 & 11th Jud. Dists.) (mem.). applicable when no c/o existed but dan- N.Y.S.2d 604 (Civ. Ct., N.Y. County 1972). 66. Shahid, N.Y.L.J., Dec. 24, 1997, at 24, col. 6. gerous conditions did). 50. Shahid v. Doe, N.Y.L.J., Dec. 24, 1997, at 67. Fazio v. Kelly, N.Y.L.J., Sept. 24, 2003, at 35. Gottlieb v. Marco, N.Y.L.J., Apr. 28, 1995, 24, col. 6 (Hous. Part Civ. Ct., Kings 20, col. 5; Cippollone v. Torres, N.Y.L.J., at 28, col. 3 (App. Term 1st Dep’t) (per County). June 16, 199, at 33, col. 6 (Civ. Ct., curiam) (citations omitted). 51. Id. Queens County); Frank Pizza, N.Y.L.J., 36. See, e.g., Goho Equities v. Weiss, 149 Misc. Oct. 7, 1998, at 29, col. 1; Aponte, N.Y.L.J., 2d 628, 572 N.Y.S.2d 836 (App. Term 1st June 7, 1995, at 26, col. 6.

90 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 68. David D. Siegel, New York Practice § 12, Fisher) (citing Santos v. Aquasvivas, Totaram, the Civil Court, Kings County, at 15 (3d ed. 1999). N.Y.L.J., July 10, 1997, at 32, col. 5 (App. stayed the execution of a warrant of evic- 69. N.Y. Mult. Dwelling L. § 302(1)(b) Term 2d Dep’t, 2d & 11th Jud. Dists, tion in an ejectment action even though, In re Blackgold Realty Corp. v. (emphasis added). mem.); under RPAPL 753 (1) & (2), a stay must Milne, 69 N.Y.2d 719, 504 N.E.2d 392, 512 be conditioned on the tenant’s paying 70. E.g., Tan Holding Corp. v. Weber, N.Y.L.J., N.Y.S.2d 25 (1987)). use and occupancy, and in the Second May, 15, 2002, at 19, col. 2 (Civ. Ct., N.Y. 86. Santos, N.Y.L.J., July 10, 1997, at 32, col. 5. Department a tenant may not be ordered County). to pay use and occupancy for an illegal 71. Fazio, N.Y.L.J., Sept. 24, 2003, at 20, col. 5. 87. Mr. Curtin wrote the preceding five para- unit. graphs, this paragraph, the following See Fazio 72. Khelawan v. Corneil, 190 Misc. 2d 621, 623, three paragraphs, and the last paragraph 99. , N.Y.L.J., Sept., 24, 2003, at 20, 739 N.Y.S.2d 557, 559 (Hous. Part Civ. in this section, including the attached col. 5 (“[T]here is nothing in the statute Ct., Queens County 2002). endnotes. Judge Lebovits, who decided to support the Housing Court rejection of jurisdiction and requiring institution 73. Id. at 622, 739 N.Y.S.2d at 557. Meaders in first instance, does not wish to express any views on the case. of an [RPAPL] Article 6 [ejectment] pro- 74. Fazio, N.Y.L.J., Sept. 24, 2003, at 20, col. 5. ceeding.”) (citing Meaders). 88. Hornfeld, 130 A.D.2d at 400, 515 N.Y.S.2d Cf. Totaram 75. Nii, 195 Misc. 2d at 822, 759 N.Y.S.2d at at 260. 100. , 2003 N.Y. Slip Op. 50663(U), 842 (citing Hornfeld, 130 A.D.2d 398, 515 2003 N.Y. Misc. LEXIS 315. If the Civil N.Y.S.2d 258). 89. Totaram, 2003 N.Y. Slip Op. 50663(U), * Court’s plenary part may grant a stay, by 4–5, 2003 N.Y. Misc. LEXIS 315, at *4–5. analogy so may the Civil Court’s Hous- 76. Wash. Square Prof’l Bldg, Inc. v. Leader, 68 ing Part. Misc. 2d 72, 74, 326 N.Y.S.2d 716, 719 90. 99 Commercial St., 240 A.D.2d at 483, 658 (Civ. Ct., N.Y. County 1971). N.Y.S.2d at 132. Gerald Lebovits is a judge of 77. See nonpayment discussion, supra. 91. Nii, 195 Misc. 2d at 822, 759 N.Y.S.2d at 842. New York City Civil Court, Housing 78. Khelawan, 190 Misc. 2d at 624, 739 Part, in New York County and an N.Y.S.2d at 559–60. 92. N.Y.L.J., June 10, 2004, at 29, col. 1 (App. Term 2d Dep’t, 2d & 11th Jud. Dists., adjunct professor at New York Law 79. For a discussion of Meaders, see Clinton mem.). School. Judge Lebovits decided in Hill Lofts 1, LLC v. Reid, N.Y.L.J., Aug. 6, 2003, at 23, col. 1 (Hous. Part Civ. Ct., 93. N.Y.L.J., June 10, 2004, at 29, col. 1. first instance three cases mentioned Kings County). 94. Mr. Curtin wrote this paragraph, the next in this article: Meaders v. Jones, 80. Meaders, 2003 N.Y. Slip Op. 51123(U), *3, two paragraphs, and the last paragraph Esposito v. Ango, and Furman v. 2003 N.Y. Misc. LEXIS 933, at *3. in this section, including the attached DeGeorge. He expresses no view endnotes. Judge Lebovits, who decided about these cases and did not write 81. Id. (citing 99 Commercial St. v. Ulewellen, Esposito and Furman in first instance, 240 A.D.2d 481, 483, 658 N.Y.S.2d 130, does not wish to express any views on the passages or endnotes about 132 (2d Dep’t) (mem.), lv. denied, 90 these cases. them. Daniel J. Curtin, Jr., is an N.Y.2d 686 N.E.2d 1366, 664 N.Y.S.2d 271 (1977); Hornfeld, 130 A.D.2d at 400, 515 95. N.Y.C. Admin. Code § 26-127(b). associate at Finkelstein Newman N.Y.S.2d at 260; Nii, 195 Misc. 2d at 822, 96. E. 13th St. Homesteaders’ Coalition v. LLP in Manhattan, the principal 759 N.Y.S.2d at 842). Wright, 217 A.D.2d 31, 39, 635 N.Y.S.2d research and writing assistant for 82. Nii, 195 Misc. 2d 821, 759 N.Y.S.2d 841. 958, 963 (1st Dep’t 1995). Finkelstein and Ferrara’s Landlord 83. Id. at 822, 759 N.Y.S.2d at 842. 97. Koroma v. Kempster, 2001 N.Y. Slip Op. and Tenant Practice in New York 50012(U), 2001 N.Y. Misc. LEXIS 1325 84. Id., 759 N.Y.S.2d at 842. (West), and an adjunct professor at (Civ. Ct., Richmond County 2001). New York Law School. 85. Scherer, supra note 15, at § 7:138, at 7-57 98. See, e.g., Totaram, 2003 N.Y. Slip Op. (View from the Bench, by Hon. Fern 50663(U), 2003 N.Y. Misc. LEXIS 315. In

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NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 91 Bundled Real Estate Services and Closing Cost Estimates: Give Clients a Straight Answer By Peter T. Roach

It has been almost a thousand financing consumer real estate trans- standardize their fees long before years since William the Conqueror actions. By requiring lenders to pro- HUD acts to require lenders to do so. first gave land to his most faithful vide estimates of all fees in advance, followers and, with it, the right to RESPA (Real Estate Settlement Proce- Bundling Services transfer and convey that land. We dures Act) represented a positive have come far, indeed, from the days step towards enabling the consumer Specifically, “bundled” real when conveyances were “recorded” to understand and intelligently com- estate services, through which a sin- by ceremonial dances or the passage pare closing costs. Unfortunately, it gle entity charges one flat fee in of a twig, with no writings, no docu- has proved a small step due to the exchange for a long list of services, ments, not even a Disclosure or inherent problem faced by con- will put an end to the “questioning” HUD-1 form! Conveyance of real sumers: the lack of standardization of associated with closing costs. Typi- estate today has become complex. the closing costs associated with a cally, bundled real estate services Even the simplest transaction, the real estate transaction. Although involve title insurance companies sale of a one-family home, requires a lenders are already required to pro- partnering with lenders in an effort multitude of services from many dif- vide “good faith estimates” of clos- to co-ordinate the many services ferent providers. So many that it ing costs, they are not required to required for each real estate transac- becomes difficult, if not impossible, adhere to the estimates, which are tion. These various services are pro- to calculate in advance the total cost often inaccurate. Few consumers vided together, as a suite, at a fixed associated with all of the various understand the “good faith esti- cost, with the fees for those services services provided. Yet, the real estate mates” and fewer understand the to be determined in advance, well attorney still must face the client’s HUD-1 form, which itemizes all of before the day of the closing. A sin- question: “How much money will I the actual closing costs. Furthermore, gle entity charges the consumer for need at the closing?” Lawyers often lenders can charge the consumer a all of the different services from dif- find themselves at a loss when this myriad of fees as long as they are ferent providers. It works because, question arises. The attorney is disclosed, without conformity to any with today’s technology, the entity forced to explain that the total can’t regulations or industry standards. can statistically project its costs, and be calculated or even accurately determine one flat fee to the con- HUD has attempted to respond approximated. The client is put in sumer. to increased consumer disapproval the awkward situation of not know- of the current system, in which last- Of course, since attorneys are ing the total amount of money that minute, unexpected settlement fees prohibited from any such “fee-shar- will be needed to complete the trans- may add hundreds or thousands of ing” arrangements, the lender’s legal action. With each service provided dollars to the cost of a closing, by fees are paid directly to the lender’s on an “a la carte” basis, there are advocating an amendment to RESPA lawyer by the borrower from the simply too many different services prohibiting lenders from deviating closing proceeds. However, under from too many different providers to from their good faith estimates. the bundled services concept, only enable the lawyer to conjure an esti- HUD’s proposal to the OMB (Office lawyers who agree to accept a flat mate. of Management and Budget) was fee for their services in connection withdrawn in March in response to with the real estate transaction will Regulatory Responses: concerns of certain consumer and be retained. These fees are negotiat- HUD and RESPA industry groups. While it will ed in advance between the settlement company and the attorney, For many years, regulatory agen- undoubtedly be reconsidered as the allowing the settlement company to cies such as HUD (the United States agency continues its attempts to sim- offer the consumer a single price for Department of Housing and Urban plify the closing process, the likeli- all services. Development) have wrestled with hood is that other ideas and the ways to resolve the problem of the forces of the marketplace will drive vast range of fees associated with providers to join together and to

92 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 The table below illustrates how bundled services compare to an “a la Beyond the competitive advan- carte” fee schedule. tages, bundled real estate services offer other benefits to the lawyer as Service Bundled Fee “A la carte” Fee well. As the number of real estate transactions conducted in any given Discount Points Included 0% time frame will not be affected by Application Fee Included 150 “bundling” services and the need for a lawyer’s services likewise will not Lender’s Title Insurance Included 1,043 change, the aggregate business for Settlement Costs Included 350 real estate lawyers should remain constant. Yet, the time the lawyer has Lender’s Attorney Included 650 to devote to each transaction should be reduced as efficiency improves. Recording Fee Included 225 For example, it is not unusual Credit Report Included 30 for the mortgage and judgment pay- Survey Included 100 offs to approach the total proceeds available to satisfy them. In other Flood Certification Included 18 instances, unforeseen closing costs Tax Service Fee Included 73 reduce the available proceeds to an amount insufficient to satisfy the Underwriting Fee Included 300 existing liens. These are situations where the ability to identify the actu- Document Preparation Included 295 al total of closing costs in advance Processing Fee Included 100 could have a real impact. The time wasted in scheduling, preparing doc- Appraisal Included 300 uments and attending a closing in abortive transactions would be Benefits to the Consumer expedite the deal in a more cost- avoided. With one fixed fee, negotiated in advance, that covers all clos- Bundled services simplify the effective and efficient manner. By ing costs, attorneys will know well real estate finance process and make paying a flat fee, the consumer is before the closing exactly how much the complexity of the transaction less assured that the services required money will be available to satisfy of an obstacle for the consumer by to consummate the transaction will mortgages, judgments, or any other obviating the need for the consumer be provided without the delay or liens. Labor-intensive calculations by to develop expertise in real estate confusion that might otherwise the lender and its attorney will be finance. Across the marketplace, result if payment authorization was drastically reduced, and, because buyers have neither the time nor the required. bundled real estate services avoid inclination to navigate the real estate the need for multiple invoices to be transaction on their own. Yet the Benefits to Lawyers reviewed and explained to the client, attorney’s role does not typically Bundled real estate services can the attorney’s responsibilities at the begin until after all the “business be a strong marketing tool for closing itself will be reduced. terms” have been fully negotiated every participating service and agreed upon. Bundling allevi- provider. Companies benefit from In addition, new business is like- ates the buyer’s need to understand the competitive advantage of pro- ly to result from the strategic and negotiate the closing costs of the viding a service designed to meet alliances that are formed by the real estate transaction and avoids the consumer demand. Consumers are many different providers involved in necessity of explaining the pros and also becoming more and more bundling. Appraisers, title insurance cons of many minor decisions knowledgeable, computer literate, companies, lenders and law firms regarding the settlement services and willing to search to locate will no doubt increase their activity that will be needed. providers who meet their require- and develop relationships with each other as well as each other’s clients. In addition to knowing the total ments. Increased competition is The players will shift. Different enti- closing costs in advance, the con- forcing title companies, law firms ties will emerge to place attorneys on sumer receives another indirect ben- and lenders to work together so lists reflecting their willingness to efit. With no compensation possible that borrowers are able to complete work with a bundled fee group. for additional time and expense, the their transactions as quickly, as eas- New alliances will form. Some providers in a bundled real estate ily, and as cost effectively as possi- lawyers will receive more business, services transaction are motivated to ble.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 93 while others will receive less. fees, etc. Real estate costs, on the tion and delivery. An automated title Whether bundled real estate services other hand, consist of contract application tracking system will become a dominant marketing strat- deposits, real estate tax adjustments, automatically route work orders and egy, or become mandated by regula- concessions, etc. track their progress. Tracking sys- tions, the attorneys who will benefit tems will assign policy numbers to At the closing, the parties are the most are the ones who adopt this insured applicants and identify typically confused, bewildered and new strategy. underwriters used in each state. The overwhelmed, rarely understanding bundled services provider will what is transpiring, what they are A Look at the Marketplace obtain all abstract and municipal paying for, or why. The HUD-1 form, searches, automatically and without Title insurance companies typi- prepared by the lender’s attorney paper. cally offer a variety of services, many and designed to “simplify and of which are not required in each explain” the closing and its associat- As technology advances, bun- and every transaction. At the other ed expenses, is rarely understood. In dled real estate services will become extreme, certain transactions require the past, the HUD-1 form was com- the norm. Indeed, there are already multiple searches of different names, pleted after the closing was prepared lenders originating mortgages in properties or entities, which would and all costs associated with the New York featuring guaranteed typically result in additional charges. transaction were determined. Today, fixed closing costs. Under the bundled real estate servic- it is commonly prepared simultane- In today’s competitive real estate es concept, the consumer’s total clos- ously with the other closing docu- environment, technology creates ing costs would be determined and ments and often must be faxed to the knowledge-sharing, new forms of fixed in advance, no matter how lender for approval prior to the transacting business, faster means of many searches must be performed. funding of the transaction. In the communicating, and significant effi- In addition to the actual insurance future, bundling services will permit ciencies of scope and scale. Electron- policy, for which the title company the HUD-1 to be prepared in ic communication forces all players charges a premium established by advance of the closing with on-line, to rethink their business and adapt. the New York State Superintendent error-correcting, auto-intelligent soft- By becoming technological leaders, of Insurance, title insurance compa- ware. nies also perform a host of ancillary the firms that align themselves with services, such as providing surveys, The Technological Imperative bundling real estate services will survey inspections, municipal empower themselves and their The law firms best suited to par- searches, New York City departmen- clients. ticipating in bundled services pro- tal searches, certificates of occupancy grams will be those that have Peter Roach, Esq. is the sole and completion, recording services, upgraded their information manage- stockholder of Peter T. Roach & title or lien discharge services, document systems. By partnering with Associates, P.C., located in both Jeri- ment pickup, delivery services, etc. tech-savvy title companies, these law cho and Brooklyn, New York, and Traditionally, the consumer has been firms will be able to reap the benefits has been an Adjunct Professor of charged for each of these services on of increased efficiency through Law at St. John’s University School an a la carte basis, with little or no automation and become the techno- of Law since 1987. Mr. Roach has government regulation. logical leaders in the real estate served on the Board of Directors of Presently, the real estate closing industry. We have seen regular mail the St. John’s University School of is a work session where the buyer’s replaced by overnight delivery, Law Alumni Association and was and seller’s debits and credits are overnight delivery replaced by fac- President in 2002–2004. Mr. Roach reconciled. Various charges, includ- similes, and facsimiles replaced by has lectured for the New York State, ing closing costs and real estate e-mail as our desired means of com- Queens and Nassau County Bar costs, are calculated and paid. The munication and transmittal of data. Associations, the Practising Law phrase “closing costs” refers to the What was an acceptable delay yes- Institute, and Lorman Education costs associated with services pro- terday is no longer acceptable today Services. He is also the co-author of vided by professionals in connection and what is acceptable today will How to Handle Your First Foreclo- with the real estate transaction, and not be tolerated in the future. sure, Practising Law Institute (1999); should not be confused with the Title Examination in New York, Lor- Ideally, the bundled real estate phrase “real estate costs,” which man Education Services (March services provider will maintain a refers to the transaction itself. Clos- 2001). Mr. Roach is a member of the sophisticated, private, and secure ing costs include items such as New York State and Nassau County wide-area networked computer sys- lender’s legal fees, title examination Bar Associations and was assigned tem with 24-hour Internet connectiv- fees, appraisal fees, credit inspector’s Martindale Hubbell’s highest “AV” ity. Its internal processing systems fees, bank application fees, escrow rating. should provide paperless automa-

94 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Jennifer and Pullman—A Dynamic Duo for The West Gate Coop By Robert E. Parella

In the last two years, the New 50% of the shares and of the apart- Gate litigation. The conclusion here is York Court of Appeals decided two ments. In early 2003, the sponsor that it should not, as a matter of pre- very important and provocative learned that a board member was sumed intent and sound policy. cases involving housing coopera- renovating his apartment without Specifically, Pullman, i.e., a lease ter- tives. In Jennifer,1 the Court held that consent of the board. An attempt by mination, eviction and forced sale of a complaint, alleging that the spon- the sponsor to have him removed shares predicated upon objectionable sor had undertaken a contractual from the board resulted in a dead- conduct, should not be available duty to sell the “unsold shares” in locked vote of the board. Subse- when there is a conventional, tradi- the cooperative corporation, suffi- quently, the board adopted a resolu- tional cause of action for which the ciently pleaded a cause of action. In tion to commence an action against coop has a conventional, traditional Pullman,2 the pertinent proprietary the sponsor; the declaratory judg- remedy. lease provided for termination of a ment action noted above was com- The starting point for analysis is tenant-shareholder’s tenancy upon a menced, alleging breach of a contrac- that Pullman is a questionable hold- two-thirds shareholder vote that the tual and statutory obligation to sell ing. Section 711(1) of the Real Prop- tenant-shareholder was undesirable the unsold shares. erty Actions and Proceedings Law, because of objectionable conduct. While the action was pending, enacted in 1920, is applicable to an The Court held that such a termina- the board voted to terminate leases eviction proceeding pursuant to a tion is subject to limited review held by the sponsor on the ground of provision in a lease giving the land- under the “business judgment” rule, objectionable conduct, i.e., failure to lord the right to terminate the lease if rather than independent judicial sell the shares for those apartments, the landlord “deem[s] the tenant evaluation.3 Recently, the West Gate which was the gist of the pending objectionable.” The proceeding can- coop invoked the two decisions in action. Defendant-sponsor then not be maintained “unless the land- tandem.4 Initially West Gate sought a sought a Yellowstone injunction, lord shall by competent evidence declaration that the defendant suc- seeking to enjoin termination during establish to the satisfaction of the cessor to the sponsor (hereinafter the pendency of the action, and court that the tenant is objection- “sponsor”) violated its contractual arguing various grounds including able.”9 In Pullman, the Court stated and statutory duties to sell the likelihood of success and irreparable that the statute was not irrelevant, unsold shares held by it. Subse- harm. but it should be tailored to the facts quently, and while the action was of a cooperative setting. The Court pending, the West Gate board voted The Supreme Court denied held that “the cooperative’s determi- to terminate the defendant’s leases injunctive relief. The court found nation as to the tenant’s objection- based on “objectionable conduct,” that defendant had not demonstrat- able behavior stands as competent i.e., failure to sell the unsold shares. ed a likelihood of success on the evidence necessary to sustain the Simply stated, the Supreme Court merits. In support of this finding, the cooperative’s determination,”10 sub- sustained the plaintiff-coop’s action court found that the notice of termi- ject only to scrutiny under a very and the First Department has now nation was duly adopted; it also narrow “business judgment” rule. unanimously affirmed.5 But West relied upon Jennifer and provisions That conclusion seems to violate Gate is anything but simple, analyti- in the offering plan as a basis for the both the letter and the spirit of sec- cally, and requires a full statement. defendant’s obligation to sell.6 The tion 711(1). “Competent evidence” Although the decision raises several court also found that defendant has long been understood to mean questions, the focal point of this would not suffer irreparable injury evidence admissible in court under short piece is whether Pullman because its monetary losses could be the rules of evidence.11 A majoritari- should be applicable in such a case. calculated if it later prevailed.7 In a an, or super-majoritarian, democratic The conclusion here is that it should short memorandum, the Appellate exercise simply does not fit the leg- not be, and that the Court of Appeals Division, First Department unani- islative text. Additionally, the legisla- should revisit Pullman and, at least, mously affirmed.8 tive policy clearly proscribes a uni- limit it to its facts. As indicated above, the focus lateral determination in conventional In West Gate, the defendant- here is whether Pullman should be landlord-tenant relationships. The sponsor owned a little more than available in matters such as the West Court apparently sees a difference in

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 95 coops, predicated upon a presumed least expensive basis, for what is contract cause of action and there- greater need to defer to the “land- most likely an infrequent problem. fore do not address the issue of lord” in a communal ownership set- whether, as alleged, the sponsor If Pullman is at least debatable, ting. But the other side of the bal- impliedly promised to sell all its then its application in West Gate is ance is the greater interest of the unsold shares.”17 In West Gate, the very troubling. Simply stated, the individual shareholder-owner in the Supreme Court denied the Yellow- coop effected a boot-strap operation coop setting than that of a tenant in a stone injunction partly because the of sorts. It first alleged that the spon- conventional, often short-term leas- defendant sponsor had not shown a sor breached its obligation to sell ing arrangement. For the sharehold- likelihood of success. The court cited unsold shares. Then, while that liti- er, there is typically a substantial to provisions in the offering plan gation was pending, the board voted equity investment in a very valuable that the purpose of the offering was to terminate certain leases of the asset. It is surprising that the Court “sale of apartments for use as homes sponsor for “objectionable conduct,” did not simply apply the statute and by purchasers on a cooperative i.e., failure to sell the shares for those require independent judicial scruti- basis” and that shares were initially apartments. The troubling aspect is ny. being offered to existing residential two-fold. First, the defendant is tenants and thereafter “will be There are other reasons for limit- denied the opportunity to litigate offered to non-tenants.” In affirming, ing Pullman. The “business judg- fully the merits of the underlying the Appellate Division seemed to go ment” rule is most appropriate for cause of action, including the appro- further and reprise its original hold- policy choices, exercises of judgment priateness of a particular remedy. ing in Jennifer, rejected by the Court and discretion, and application of Rather, the coop has become a judge of Appeals, that a sponsor, per se, has standards to undisputed facts. In in its own cause. Second, the tactic is a duty to sell unsold shares: Pullman there were many disputed objectionable even if the court is able “adjudicative facts”—who did what to resolve, or has resolved, the As the motion court held, in to whom with what intent—and that underlying merits in favor of plain- view of recent authority was noted in the Supreme Court’s tiff-coop. The coop regime is built holding a sponsor liable in denial of summary judgment, and upon a plethora of rights and duties, contract to a cooperative for the Appellate Division’s dissenting which constitute the agreement and not undertaking in good opinion.12 expectation of each member. But it is faith to timely sell so many likewise the ordinary understanding shares in the building as nec- It is also surprising that a unani- that violation of any such right is essary to create a fully viable mous Court was so willing to defer justiciable with respect to eviden- cooperative (511 W. 232nd to the coop determination, not only tiary support, scrutiny of standards, Owners Corp. v Jennifer Realty of factual matters, but also apparent- and appropriateness of remedy. For Co., 98 NY2d 144, 152, 154), ly to the definition of “objectionable” example, suppose a shareholder is defendant fails to show a conduct. That latter term is incorpo- late with maintenance and the coop likelihood of success on the rated in the statute and this implies a brings an eviction proceeding. The merits.18 legal standard and definition. It is shareholder can effect a stay by pay- fundamental to the common law tra- ing the maintenance into court. On an intuitive basis, this writer is dition and to the very nature of the Should a coop be able to declare sympathetic to the proposition that judicial power that the courts “say such a shareholder objectionable, ter- coop purchasers have a reasonable 19 what the law is.” This is especially minate the proprietary lease, and expectation of a viable coop. And it seen when there is a deprivation of a thereby circumvent the statutory well may be that, once we get an valuable property right in the bal- stay policy? authoritative determination on the ance.13 There are numerous instances merits, stare decisis will cause its of this tradition in connection with The facts of West Gate are perti- applicability to many other coops judicial review of administrative nent in this regard and require a because of the similarity of docu- action that the legislature seemingly brief revisiting of Jennifer. In Jennifer, ments in these coops. But, again, foreclosed.14 As between private par- the Court of Appeals expressly stat- whether the merits have been decid- ties, the courts scrutinize waivers ed that its analysis differed from the ed for the coop in a case such as West and contracts of adhesion routinely. Appellate Division’s in that the Gate should be immaterial. The West Finally, the hurdle of the “business Court of Appeals addressed “only Gate type defendant should be sub- judgment,” as articulated by the the sufficiency of the contract cause ject only to the conventional, con- Court in Pullman, is a very low one.15 of action as opposed to its merits.”16 templated remedy of injunction, i.e., In light of all of the above, it is diffi- The Court stated that “at this prean- a court order directing sale over cult to see why coops need this swer stage of the litigation, we need some period of time and circum- tremendous leverage, and on the not reach the merits of plaintiffs’ stances, or, alternatively, a money

96 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 damages remedy if equitable relief is Findings, 32 N.Y. Real Prop. J. 4 (2004); 12. 296 A.D.2d 120, 742 N.Y.S.2d 264 (1st impractical. Vincent Di Lorenzo, The Business Judg- Dep’t 2002). ment Rule and Fiduciary Obligations Are 13. It seems clear that a forced sale by the Applied to Shareholder Decisions in Cooper- It is instructive to compare the coop is a deprivation of the valuable ative Housing Corporations, id. at 10. underlying claim and facts in West property to retain property, or to sell at Gate with those in Pullman. In Pull- 4. West Gate House, Inc. v. 860-870 Realty one’s own price, at a time and by a LLC., Index No. 601678/03 (Sup. Ct., method of one’s choosing. man the great bulk of the alleged aff’d N.Y. Co. 2003), , 7 A.D.3d 412, 776 14. See, e.g., Bd. Of Educ. of the City of N.Y. v. objectionable conduct involved Pull- N.Y.S.2d 482 (1st Dep’t 2004). Allen, 6 N.Y.2d 127, 188 N.Y.S.2d 515 man’s friction with another elderly 5. Id. (1959); Estep v. United States, 327 U.S. 114 tenant-couple. The conventional 6. It is not entirely clear whether the court (1946). causes of action, arguably applicable was purporting to find an obligation to 15. As articulated in Pullman, in order to on the facts, would seem to have sell, or only that defendant was not like- trigger judicial scrutiny, an aggrieved been primarily available to the cou- ly to succeed with its argument that it shareholder must show that the Board had no such obligation. The court stated acted (1) outside the scope of its authori- ple against Pullman, e.g., defama- that defendant’s argument was unper- ty, (2) in a way that did not legitimately tion, malicious prosecution, assault, suasive, and that it was undisputed that further the corporate purpose or (3) in etc. Except for possible unauthorized defendant retained a majority of the bad faith, 100 N.Y.2d at 155. A challenger alterations in Pullman’s apartment, shares and was renting the apartments is unlikely to succeed on either of the for profit with no intention of selling first two grounds unless the board got which seemed relatively minor in the them. But it also said that in the event sloppy with its procedures. As to the litigation, there may not have been a defendant later prevails, its monetary third, occasionally a challenger succeeds, simple conventional cause of action loss can be calculated. The court also as the Court in Pullman noted. Id. at for the coop against Pullman, and relied, rather dubiously, on the fact that 157–58. In West Gate, the defendant- the leases do not define objectionable sponsor initially attempted to remove a probably no adequate remedy other conduct; therefore the defendant did not board member. Presumably, even that than eviction (assuming the allega- clearly establish that his conduct was would not constitute a showing of retali- tions were true, of course). In West not objectionable. ation and “bad faith” in light of the Gate—as in Jennifer—there was a 7. This finding seems unorthodox. An strong coop interest in forcing sponsors to sell unsold shares. conventional cause of action for injury to an interest in real property, his- breach of contract; and there were torically regarded as unique, is usually 16. 100 N.Y.2d at 151. considered irreparable, and proprietary 17. 100 N.Y.2d at 154. the conventional remedies of injunc- leases should fall within such rule. Fur- tion and damages available. Indeed, ther, the mere fact that a remedy at law 18. Supra, note 4. in Jennifer those were the remedies for monetary relief is possible does not 19. That expectation must be more than a sought. necessarily mean that it is adequate. unilateral, subjective one. But the offer- The court, also dubiously, denied relief ing plan and, perhaps, the entire conver- This last suggested analysis of on the ground that defendant had not sion process and setting may imply an Pullman provides a very easy and shown how it could cure its alleged obligation to effect a viable coop. There are also some practical, but probably not Pullman default if the plaintiff subsequently pre- prudent way to limit to its vailed. It would seem that the defendant insurmountable, difficulties in framing a facts. Termination for objectionable could cure simply by obeying an ulti- decree that orders the sale of shares conduct should be available only mate order on the merits to start selling because of the risk that the parties will when there is no conventional cause shares for apartments. If the court was frequently be before the court in con- tempt proceedings. of action and no conventional reme- concerned about the sponsor renting apartments during the pending of the Professor Robert E. Parella is dy. Otherwise, there would be no litigation, it could have conditioned its assurance that an alleged breach Yellowstone injunction appropriately. the George F. Keenan Professor of actually occurred or that a remedy 8. Supra, note 4. Real Property Law at St. John’s Uni- versity School of Law. Prior to join- would be proportionate and consis- 9. N.Y. RPAPL § 711 (1). ing the faculty, he taught at the Uni- tent with a particular breach. Fur- 10. 100 N.Y.2d at 154. ther, the proposed limitation on Pull- versity of Michigan Law School. 11. In 1963, the CPLR replaced the former Professor Parella received his Judi- man would prevent unnecessary and Civil Practice Act. The latter required unjustifiable enlargement of the “competent proof” of all the facts in an cial Doctorate from New York Uni- opportunity for punitive, discrimina- Article 78 review of quasi-judicial action. versity School of Law, where he tory and arbitrary action. That phrase was the basis for the legal was a Pomeroy Scholar and a Law residuum rule, requiring some evidence Review Articles Editor. He is a admissible under technical rules of evi- Endnotes dence. The CPLR requires “substantial member of Order of the Coif and 1. 511 West 232nd Owners Corp. v. Jennifer evidence,” rather than “competent has served as Special Counsel to the Realty Co., 98 N.Y.2d 144, 746 N.Y.S.2d proof” so that a determination may be Board of Education of the City of 131 (2002). sustained even though the evidence New York. He is also a member of relied on was not admissible under the 2. 40 West 67th St. Corp. v. Pullman, 100 rules of evidence. See Weinstein, Korn & the American and New York State N.Y.2d 147, 760 N.Y.S.2d 745 (2003). Miller, New York Civil Practice ¶ 7803.01 Bar Associations and the Associa- 3. See Joel E. Miller, Court of Appeals Holds (2004). tion of the Bar of the City of New Courts Powerless to Review Cooperative’s York.

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 97 BERGMAN ON MORTGAGE FORECLOSURES: Verifying the Foreclosure Complaint? By Bruce J. Bergman

Assum- or a contested matter, the mortgage ation, this section shouldn’t apply at ing there is a servicer doesn’t hear about the case all! And even if there is a default, the debate on until a request is made for updated order of reference stage is not the this (and figures at the referee computation judgment plateau, so employing the something stage. statute then is premature. must be There is an exception to this gen- All this may be accurate, but if going on or it eral rule, however, in at least three the court insists, discretion is the bet- wouldn’t be counties in New York State: Nassau, ter part of valor. After all, the fore- worthy of Greene and Suffolk. Unlike all other closure must proceed. Which path, discussion), counties, each of these requires then, to follow? A verification avoids the ultimate either an “affidavit of facts” to the effort of an affidavit of facts later practical accompany the application for order and the possible delay if it is neglect- answer will probably depend upon of reference or a verified complaint ed. But the verification signed by the lawyer-client relationship. For as a substitute. A verification is someone on behalf of the plaintiff large or commercial cases, counsel defined by CPLR 3020(a) as consumes some time—at least how- would surely want the client to ever long it takes to be transmitted review the complaint in any event, . . . a statement under oath to the servicer and then returned to so soliciting the verification is hardly that the pleading is true to counsel. In multiple foreclosure cases a burden. Even for a more mundane the knowledge of the depon- where every day counts, this is a case, where there is a genuine ent, except as to the matters meaningful contemplation. lawyer-client relationship, the client alleged on information and would likewise read the pleading so belief, and as to those mat- To answer the question raised by that here, too, obtaining the verifica- ters he believes it to be true. the title, no, a foreclosure complaint tion is almost inherent in the process. need not be verified, but sometimes Why this requirement? It is clear In any event, under such circum- it is expeditious to do so. On bal- that a foreclosure complaint does not stances, efforts attendant to the veri- ance, though, where speed is man- have to be verified. The CPLR fication are not an impediment to dated, the affidavit of facts can be a imposes no such mandate and case progress. more efficient means to ensure faster law confirms that none exists. (Logue filing of the summons and complaint Time in relation to the verifica- v. Young, 94 A.D.2d 827, 463 N.Y.S.2d and a somewhat quicker pace to the tion does become a factor, though, 120 (3d Dep’t 1983)). But another sec- foreclosure. when counsel prosecutes foreclo- tion (CPLR 3215), relating to judg- sures in volume, particularly when ments upon default, provides at sub- Mr. Bergman, author of the strict time frames are imposed by section (f) that: servicers or government agencies. three-volume treatise, Bergman on That leads to the inquiry: Does the On any application for judg- New York Mortgage Foreclosures, foreclosure complaint need to be ver- ment by default, the appli- Matthew Bender & Co., Inc. (rev. ified (definition to follow), and if so, cant shall file . . . proof by 2004), is a partner with Certilman how best to accomplish that while affidavit made by the party Balin in East Meadow, New York, preserving maximum speed in pros- of the facts constituting the an Adjunct Associate Professor of ecuting the case? claim, the default and the Real Estate with New York Univer- amount due. sity’s Real Estate Institute where he Lenders and servicers recognize teaches the mortgage foreclosure that once a file and all the requisite Although the foreclosure com- course and a special lecturer on law information and documentation is plaint contains all that information, at Hofstra Law School. He is also a given to counsel, a foreclosure search it’s not sworn to by anyone—unless it member of the USFN and the is reviewed, the summons, com- has been verified—and CPLR 3215(f) American College of Real Estate plaint (and lis pendens) is prepared specifically allows a verified com- Lawyers. and filed, with process service to fol- plaint to substitute for the affidavit Copyright 2004 Bruce J. Bergman low. So, short of questions, problems, of facts. Well, if it is not a default situ-

98 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 At Nysba.org you can . . . ✦ conduct legal research ✦ take CLE courses ✦ keep pace with the latest developments in your area of practice ✦ access member discounts and more . . . without leaving your desk. Use this handy table of contents to locate key areas on nysba.org. Simply click on each of the headings opposite a topic to reach that subject area.

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NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 99 Real Estate Titles Third Edition

The success of the earlier Contents editions of Real Estate Titles The Nature of Title and Estates in testifies to the need for a New York practical work encompassing Search and Examination of Title the many complex subjects Parties and Capacity to Buy and Sell surrounding real estate titles. Federal Deposit Insurance The breadth of the problems Corporation Reasons to Buy encountered in title examina- Devolution of Title by Death • Understand the nature of titles tion is well beyond the appre- Real Estate Descriptions, Plottings, and estates in New York and ciation of most laypersons and how they relate to the parties’ Surveys and Maps capacity to buy and sell lawyers alike. This volume Deeds • Deal with the various American deals with most of those mat- Mortgages Land Title Association policies ters. Liens and Encumbrances and the updated Title Insur- ance Rate Service Association The Third Edition is a thor- Proceedings to Sell, Mortgage or (TIRSA) rate manual, including ough update of the original Lease copies of all the TIRSA endorse- text encompassing new deci- Contracts of Sale ments sions, statutes and regula- Tax Titles: How Created • Cope with the complexities of tions. Some material contains searching and examining titles Actions and Involuntary Alienations: and understand the various substantial rewriting, such as Lis Pendens forms of deeds and other vol- the chapter on title insurance. Civil and Criminal Forfeiture untary conveyances as well as The rewritten chapter now involuntary conveyances such Bankruptcy: An Invasion of Private as adverse possession and title deals with the various Ameri- Rights? by eminent domain can Land Title Association Title by Eminent Domain: Who May • Learn to draft complex con- policies and the updated Title Condemn tracts of sale, and obtain com- Insurance Rate Service Associa- petitive mortgages of varying Adverse Possession forms tion (TIRSA) rate manual, Title to Land under Water including copies of all the Mines and Minerals TIRSA endorsements. The Editor-in-Chief Airspace, Air Rights and Transferable index has been substantially Development Rights James M. Pedowitz, Esq. revised and expanded. New Of Counsel The Torrens System practitioners will benefit from Berkman, Henoch, Peterson Marketable Title & Peddy the comprehensive coverage Condominiums, Cooperatives and Garden City, NY by leading practitioners from Homeowners’ Associations throughout New York State, Title Insurance: What Every New Product Info and Prices and real estate experts will be York Lawyer Should Know able to turn to this book Book Prices 2001 • 1,256 pp., loose-leaf whenever a novel question • PN: 42101 arises. NYSBA Members $130 Non-Members $160 To order call 1-800-582-2452 or visit us online at www.nysba.org/pubs Product Number: 42101 Source Code: CL2245

100 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Section Committees & Chairs The Real Property Law Section encourages members to participate in its programs and to volunteer to serve on the Committees listed below. Please contact the Section Officers or Committee Chairs for further information about the Committees.

Committee on Attorney Opinion Jill M. Myers (Co-Chair) Harold A. Lubell (Co-Chair) Letters 206 Park Avenue 1290 Avenue of the Americas Charles W. Russell (Co-Chair) Rochester, NY 14607 New York, NY 10104 2400 Chase Square (585) 697-0040 (212) 541-2130 Rochester, NY 14604 Fax: (585) 697-0043 Fax: (212) 541-4630 (585) 232-5300 E-Mail: [email protected] E-Mail: [email protected] Fax: (585) 232-3528 E-Mail: [email protected] Committee on Condemnation, Committee on Environmental Law Certiorari & Real Estate Taxation Joel H. Sachs (Co-Chair) David J. Zinberg (Co-Chair) Robert L. Beebe (Co-Chair) 1 North Broadway, Suite 700 250 Park Avenue 514 Vischers Ferry Road White Plains, NY 10601 New York, NY 10177 Clifton Park, NY 12065 (914) 946-4777 x318 (212) 907-9601 (518) 373-1500 Fax: (914) 946-6868 Fax: (212) 907-9681 Fax: (518) 373-0030 E-Mail: [email protected] E-Mail: [email protected] E-Mail: [email protected] John M. Wilson, II (Co-Chair) Committee on Awards Jon N. Santemma (Co-Chair) 2400 Chase Square John G. Hall (Chair) 300 Garden City Plaza, 5th Floor Rochester, NY 14604 57 Beach Street Garden City, NY 11530 (585) 232-5300 Staten Island, NY 10304 (516) 393-8277 Fax: (585) 232-3528 (718) 447-1962 Fax: (516) 393-8282 E-Mail: [email protected] Fax: (718) 273-3090 E-Mail: [email protected] E-Mail: [email protected] Committee on Land Use & Planning Committee on Condominiums & Karl S. Essler (Co-Chair) Committee on Commercial Leasing Cooperatives 295 Woodcliff Drive, Suite 200 Austin J. Hoffman, II (Co-Chair) David L. Berkey (Co-Chair) Fairport, NY 14450 4 Clinton Square 845 Third Avenue, 8th Floor (585) 641-8000 Syracuse, NY 13202 New York, NY 10022 Fax: (585) 641-8080 (315) 422-7000 (212) 935-3131 E-Mail: [email protected] Fax: (315) 472-4035 Fax: (212) 935-4514 E-Mail: [email protected] E-Mail: [email protected] Carole S. Slater (Co-Chair) 61 Broadway, Suite 1105 Bradley A. Kaufman (Co-Chair) Joseph M. Walsh (Co-Chair) New York, NY 10006 1270 Avenue of the Americas 42 Long Alley (212) 391-8045 Suite 2500 Saratoga Springs, NY 12866 Fax: (212) 391-8047 New York, NY 10020 (518) 583-0171 E-mail: [email protected] (212) 218-5503 Fax: (518) 583-1025 Fax: (212) 218-5526 E-Mail: [email protected] Committee on Landlord & E-Mail: [email protected] Tenant Proceedings Committee on Continuing Legal Edward G. Baer (Co-Chair) Committee on Computerization & Education 270 Madison Avenue Technology Terrence M. Gilbride (Co-Chair) New York, NY 10016 Michael J. Berey (Co-Chair) One M&T Plaza, Suite 2000 (212) 867-4466 633 Third Avenue, 16th Floor Buffalo, NY 14203 Fax: (212) 867-0709 New York, NY 10017 (716) 848-1236 E-Mail: [email protected] (212) 850-0624 Fax: (716) 819-4625 Fax: (212) 331-1511 E-Mail: [email protected] E-Mail: [email protected]

NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 101 Gerald Goldstein (Co-Chair) Committee on Professionalism Committee on Real Estate 605 Third Avenue Anne Reynolds Copps (Co-Chair) Financing New York, NY 10158 126 State Street, 6th Floor Steven M. Alden (Co-Chair) (212) 557-7200 Albany, NY 12207 919 Third Avenue Fax: (212) 286-1884 (518) 436-4170 New York, NY 10022 E-Mail: [email protected] Fax: (518) 436-1456 (212) 909-6481 E-Mail: [email protected] Fax: (212) 909-6836 Committee on Legislation E-Mail: [email protected] Robert W. Hoffman (Co-Chair) Alfred C. Tartaglia (Co-Chair) 1802 Eastern Parkway 851 Grand Concourse, Room 841 Leon T. Sawyko (Co-Chair) Schenectady, NY 12309 Bronx, NY 10451 99 Garnsey Road (518) 370-4743 (718) 590-3838 Pittsford, NY 14534 Fax: (518) 370-4870 Fax: (718) 590-4830 (585) 419-8632 E-Mail: [email protected] E-Mail: [email protected] Fax: (585) 419-8815 E-Mail: [email protected] Gary S. Litke (Co-Chair) Committee on Publications 237 Park Avenue, 20th Floor William A. Colavito (Co-Chair) Committee on Title Insurance New York, NY 10017 One Robin Hood Road Peter V. Coffey (Co-Chair) (212) 880-6190 Bedford Hills, NY 10507 224 State Street Fax: (212) 682-0200 (516) 294-9600 P.O. Box 1092 E-Mail: [email protected] Fax: (914) 241-1881 Schenectady, NY 12305 E-Mail: [email protected] (518) 370-4645 Committee on Low Income & Fax: (518) 370-4979 Affordable Housing William P. Johnson (Co-Chair) E-Mail: [email protected] Brian E. Lawlor (Chair) 501 John James Audubon Parkway 38-40 State Street Suite 300 Lawrence J. Wolk (Co-Chair) Albany, NY 12207 Amherst, NY 14228 195 Broadway (518) 486-6337 (716) 688-3800 New York, NY 10007 Fax: (518) 473-8206 Fax: (716) 688-3891 (212) 513-3200 E-Mail: [email protected] E-Mail: [email protected] Fax: (212) 385-9010 E-Mail: [email protected] Committee on Membership Robert M. Zinman (Co-Chair) Karen A. DiNardo (Co-Chair) 8000 Utopia Parkway Committee on Title & Transfer 28 E. Main Street, Suite 1400 Jamaica, NY 11439 Joseph D. DeSalvo (Co-Chair) Rochester, NY 14614 (718) 990-6646 188 East Post Road, 4th Floor (585) 238-2038 Fax: (718) 990-6649 White Plains, NY 10601 Fax: (585) 232-3141 E-Mail: [email protected] (914) 286-6415 E-Mail: [email protected] Fax: (212) 331-1455 Ad Hoc Committee on E-Mail: [email protected] Richard S. Fries (Co-Chair) Public Relations 1251 Avenue of the Americas Maureen Pilato Lamb (Co-Chair) Samuel O. Tilton (Co-Chair) New York, NY 10020 510 Wilder Building 2 State Street (212) 835-6215 One East Main Street 700 Crossroads Building Fax: (212) 884-8725 Rochester, NY 14614 Rochester, NY 14614 E-Mail: [email protected] (585) 325-6700, x220 (585) 987-2841 Fax: (585) 325-1372 Fax: (585) 454-3968 Committee on Not-for-Profit E-Mail: [email protected] E-Mail: [email protected] Entities & Concerns Mindy H. Stern (Chair) Harold A. Lubell (Co-Chair) Committee on Unlawful Practice 60 East 42nd Street, 39th Floor 1290 Avenue of the Americas of Law New York, NY 10165 New York, NY 10104 John G. Hall (Chair) (212) 661-5030, ext. 214 (212) 541-2130 57 Beach Street Fax: (212) 687-2123 Fax: (212) 541-4630 Staten Island, NY 10304 E-Mail: [email protected] E-Mail: [email protected] (718) 447-1962 Fax: (718) 273-3090 E-Mail: [email protected]

102 NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 Revolutionize Your Real Estate Practice

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NYSBA N.Y. Real Property Law Journal | Summer/Fall 2004 | Vol. 32 | No. 3 103 Publication of Articles N.Y. REAL PROPERTY LAW JOURNAL The Journal welcomes the submission of articles of timely Section Officers Co-Editors interest to members of the Section in addition to comments and Chair William A. Colavito suggestions for future issues. Articles should be submitted to One Robin Hood Road Dorothy H. Ferguson any one of the Co-Editors whose names and addresses appear Bedford Hills, NY 10507 on this page. D.H. Ferguson, Attorney, P.L.L.C. (516) 294-9600 1115 Midtown Tower Fax: (914) 241-1881 For ease of publication, articles should be submitted on a Rochester, NY 14604 E-Mail: wcolavito@ 3½" floppy disk, preferably in Microsoft Word or WordPerfect (585) 325-3620 yahoo.com and no longer than 8–10 pages. Please also include one laser- Fax: (585) 325-3635 William P. Johnson E-Mail:dhferguson@ printed copy. The Co-Editors request that all submissions for Nesper Ferber & frontiernet.net consideration to be published in this Journal use gender neutral DiGiacomo, LLP terms where appropriate or, alternatively, the masculine and 1st Vice-Chair 501 John James Audubon feminine forms may both be used. Please contact the Co- Joshua Stein Parkway, Suite 300 Editors regarding further requirements for the submission of Latham & Watkins LLP Amherst, NY 14228 articles. 885 Third Avenue, Suite 1000 (716) 688-3800 Fax: (716) 688-3891 10th Fl. Unless stated to the contrary, all published articles repre- E-Mail: wjohnson@ New York, NY 10022 sent the viewpoint of the author and should not be regarded as nfdlaw.com (212) 906-1342 representing the views of the Co-Editors, Board of Editors or Fax: (212) 751-4864 Robert M. Zinman the Section or substantive approval of the contents therein. E-Mail: [email protected] St. John’s University School of Law Student Editorial Assistance 2nd Vice-Chair 8000 Utopia Parkway St. John’s University, School of Law Harry G. Meyer Jamaica, NY 11439 Hodgson Russ LLP (718) 990-6646 Editors-in-Chief One M&T Plaza, Su. 2000 Fax: (718) 990-6649 Jay Bryan Mower Buffalo, NY 14203 E-Mail: zinmanr@ Kristen Vasselman (716) 848-1417 stjohns.edu Student Publications Editor Fax: (716) 819-4632 Richard O’Brien E-Mail: hmeyer@ hodgsonruss.com Assistant Student Publications Editor Jacqueline Doody Secretary Karl B. Holtzschue Editors 122 East 82nd Street Aileen Calcagni Valeriya Lavrova New York, NY 10028 Paula Clarity Nicholas Malito (212) 472-1421 Christian Errico Megan Philbin Fax: (212) 472-6712 Jonathan Gottlieb Alissa Picardi E-Mail: [email protected] Tom Gottlieb Jeffrey Silber This Journal is published for members of the Real Property Cassandra Johnson Gino Tonetti Law Section of the New York State Bar Association. Megan E. Kates John Wright We reserve the right to reject any advertisement. The New York State Bar Association is not responsible for typographical or other errors in advertisements. Cite as: N.Y. Real Prop. L.J. Copyright 2004 by the New York State Bar Association. ISSN 1530-3918

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