NYSBA SUMMER 2009 | VOL. 37 | NO. 3 N.Y. Real Property Law Journal A publication of the Real Property Law Section of the New York State Bar Association

SPECIAL EDITION: SELECTED TOPICS IN MEDICAL ETHICS AND BIOETHICS Inside

• Right to Terminate Proprietary Leases

• Statutory Short Form Power of Attorney Revised

• Development Rights

• Protecting a Subtenant from Losing Its Leasehold

• Disclosure in the New York City Housing Court

• Most Infl uential Commercial Lease Cases

• Selling a Co-op Back to the Borrower From the NYSBA Book Store

Real Estate Transactions— Residential Property*

Real Estate Transactions—Residential Property is a practical, step-by-step guide for attorneys representing residential real estate purchasers or sellers. This invaluable monograph covers sales of resale homes, newly constructed homes, condominium units and cooperative apartments.

Numerous practice guides and a comprehensive collection of forms, including examples of forms used in daily practice, make this publication an excellent reference for new and experienced attorneys alike.

AUTHORS In addition to updating case and statutory references, this latest Kenneth M. Schwartz, Esq. edition, prepared by Kenneth Schwartz, includes many updated Farer & Schwartz, P.C. forms and a section on fi nancing. New York, NY Claire Samuelson Meadow, Esq. Yearly updates make this monograph a mainstay of your Attorney at Law reference library for many years to come. Larchmont, NY

PRODUCT INFO AND PRICES The 2008–2009 release is current through the 2008 New York 2008–2009 / 456 pp., State legislative session. softbound / PN: 42148 NYSBA Members $72 Non-members $80

Free shipping and handling within the continental U.S. The cost for shipping and handling outside * The titles included in the NEW YORK PRACTICE MONOGRAPH SERIEs are also available as segments of the New York the continental U.S. will be added to your order. Lawyer’s Deskbook and Formbook, a five-volume set that covers 27 areas of practice. The list price for all five Prices do not include applicable sales tax. volumes of the Deskbook and Formbook is $650. Get the Information Edge NEW YORK STATE BAR ASSOCIATION 1.800.582.2452 www.nysba.org/pubs Mention Code: PUB0533 Table of Contents

A Message from the Outgoing Section Chair ...... 4 (Peter V. Coffey)

A Message from the Incoming Section Chair ...... 5 (Joel H. Sachs)

The Right to Terminate Proprietary Leases Based on Objectionable Conduct: Five Years After Pullman ...... 6 (Vincent Di Lorenzo)

Statutory Short Form Power of Attorney Revised; New Statutory Major Gifts Rider ...... 13 (Michael J. Berey)

Development Rights Purchases by Zoning Lot Merger in New York City ...... 18 (Francisco Augspach)

Protecting a Subtenant from Losing Its Leasehold upon Termination of the Prime Lease or Foreclosure of a Building Mortgage ...... 30 (L. Stanton Towne)

Disclosure and Disclosure-Like Devices in the New York City Housing Court ...... 34 (Gerald Lebovits, Rosalie Valentino, and Rohit Mallick)

The Most Influential Commercial Lease Cases in the Last Century That Every Drafter and Litigator Must Know ...... 46 (Adam Leitman Bailey and Dov Treiman)

BERGMAN ON MORTGAGE FORECLOSURES: So You Want to Sell the Co-op Back to the Borrower ...... 55 (Bruce J. Bergman)

ON THE COVER A view of rue de Grenelle in Paris, as seen at its intersection with rue du Bac, a few blocks south of the Gare d’Orsay. Painted by Sherman Stein, who said he chose this scene because it “caught the spirit of Paris.” The artist’s son, Joshua, chaired the Section for the year ending in May 2006. The painting appears here courtesy of its owner, Helaina Stein, Joshua’s elder daughter.

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 3 Message from the Outgoing Section Chair

I am told that this is my last to Ed (Baer), to the other side, but are simply Chair’s Message. They are not going who had to people of goodwill who, observing to let me write any more of them—or go through the facts and law, etc. of a given situ- I can write all of ’em I want, but are some dif- ation, come to a different judgment. not about to publish them. I assume fi culties but In what was probably a perfect storm, they are throwing away my picture. stayed with these new voices were raised at the As a good lawyer I was not going us and now same time that Karl Holtzschue, to- to take somebody’s word for it, so I has come gether with Kathleen Lynch, brought checked it out. It turns out they are back swing- a whole new perspective to our Sec- right. This is it. I once read in an ABA ing. Thanks tion in that we became increasingly publication called Bar Leader, in which Peter V. Coffey to Spencer involved in the legislative process, they dealt with the fact that after the (Compton) in proposed bills, in lobbying and in term of a president of a Bar Associa- for all his work on our budget. And taking positions regarding proposed tion, state or local, or a leadership then there is Heather Rogers, whose legislation. As I say, it was a bumpy position ends, there is a depression election to Secretary has prompted ride but it was a wonderful ride. I that sets in. I would like to tell you universal acclaim. As soon as she was must tell you all I really enjoyed it. after I cease on June 1 whether I expe- nominated, she jumped right in, fully Thanks go out to Karl Holtzschue, rienced a great depression. However, participated, attending regular offi - Kathleen Lynch, Heather Rogers, Ger- they will not let me tell you. Maybe cers’ meetings and phone conferences ry Antetomaso, John Hall, Tom Hall, I could sneak in some night and slip with a very active voice. Harry Meyer, Mel Mitzner, Raun Ras- an article (with a picture) into our mussen, Mike Hanley, Steve Alden, While Chair, Harry Meyer Journal and tell you all about it, but Steven Baum, Ed Filemyr. Their pas- brought a major change to our Execu- I guess that is not going to happen. sion, their integrity, their thoughtful- tive Committee. He created new posi- And besides, I will be too depressed ness and thoroughness made it such tions and invited people to fi ll those to do it. I better move quickly. an exciting year, particularly the last and existing positions who infused month or two. Finally, I do want to Thank-yous are in order. First the Executive Committee with voices single out one person, and that is Karl of all, thank you Joel (Sachs). Being frankly not heard before. To almost Holtzschue. He, like Harry, is a for- Chair can be a pleasant experience everyone, change is unnerving to mer Chair and his efforts for our Sec- but if you do not have the real help some extent and it may be frankly tion to involve us in legislation have of the person following you, this can said that we have had somewhat of been, if not unique, one of the great be a real hell. Joel, a former Section a bumpy ride. In the past, we have efforts I have witnessed. On a person- Chair himself (this will be his second generally focused on the business al level, I want to thank Karl—he did Chairmanship; it may be some sort aspects of banking, mortgages, fore- everything I asked, including coming of record), made life for my term as closures, etc. Now our Public Interest up with a procedure for reviewing Chair a joy. It turns out that Joel is a Law Committee and others want to comments on legislation and always poet, and speaking of fi rsts, I believe focus on those who are affected by graciously accepted my resolution I am the fi rst Chair to go out with a those activities. We would like to whenever there was an issue. poem in his or her honor. At the last think of ourselves as rational beings Executive Committee meeting, Joel whose decisions and positions are There are many issues in which actually read a poem about me, for based upon pure rationality. Frankly, we involved ourselves but the issue me. Good grief, it does not get any that is not true. As Hannah Arendt which was paramount to me was the better than that. The Summer Meet- pointed out in her book Life of the fact that a group of individuals—non- ing was a great success—the Annual Mind, there are basically three aspects lawyers—believes it has the right to Meeting for our Section was a great of the human mind—thinking, will- defi ne our practice of law. This belief success. Joel’s deferential coopera- ing and judging. We can think about is set forth in the New York State tion meant so much. Thanks to Anne something all we want but in the end Land Title Association’s proposed bill (Copps) for advice and encourage- our judgment is a matter of taste. on title agent licensing. For everyone ment. I was about to say that Anne is Hopefully, we can appreciate that in this Section reading this article, always positive, but she is not. Her those with a different viewpoint are you must know that that bill will advice accordingly is so much more not evil, sinful, irrational or all those prohibit most of you from carry- valuable and she has been a treasured other bad things that can be applied ing out your real estate practice. It friend of mine for a long time. Thanks (continued on page 53)

4 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Message from the Incoming Section Chair

Although quite well. In this regard, I composed to our committee structure. Although it may not be an “Ode to Peter,” which I recited I truly believe that we already have impressive as to him at the Executive Committee the best committees within the entire the Changing meeting in April, 2009: State Bar Association, during the past of the Guard year, under Peter’s guidance, we at Bucking- ODE TO PETER formed a Construction Law Commit- ham Palace, tee. The response to this new commit- or the hand- When Peter became Section tee at an organizational meeting held off of the Chair in the spring of ’08 in New York City was overwhelming. baton during The real estate practice was Moreover, this committee has already the 1,600- Joel H. Sachs going just great. organized a two-part MCLE program meter relay Lawyers, lenders and title com- in the Spring of 2008. Further, as my race at the Olympics, the time has panies were in a real boom. fi rst action as Section Chair, I have come, as it does each year, for the Only Peter could foresee the created a Green Real Estate Commit- torch to be passed to a new Section coming gloom and doom. tee. This committee will deal with Chair. issues related to energy effi ciency in But Peter has handled the crisis real estate projects and will deal with so well, I feel both honored and humbled such matters as LEEDS compliance, by my new position and the respon- With professionalism, intelli- green roofs, and new energy sources sibilities it entails. We are the largest gence and humor just swell. such as solar, thermal and wind pow- Section within the State Bar Associa- So here’s a big thanks to Peter. er, in that “green buildings” in both tion and we probably have the most You will always be remem- residential and commercial construc- active group of committees of any bered as our fearless leader!!!! tion will become the norm in future Section in the entire State Bar. It is years. I am most excited about this Although I may never be anoint- truly a challenge to lead this distin- prospect and our newest committee. guished Section and attempt to make ed as Poet Laureate of the Real Prop- a lasting impact on the practice of real erty Section, I do want you to know As for the coming year, my main estate law in New York State. what a great asset Peter has been to goals are to increase Section member- the Section during these trying eco- ship, retain present Section members, In this regard, some attorneys nomic times. have each of our committees involve have told me that I have not yet themselves in at least one or two I also want to extend my thanks learned my lesson. As many of you worthwhile projects, have our District and appreciation to the incoming know, several years ago I had the Representatives become more active, First Vice Chair Anne Copps and to privilege of serving as Chair of the continue commenting on legislation the incoming Second Chair Ed Baer Environmental Law Section. That Sec- pending before the Assembly and for their hard work and tireless ef- tion is approximately one-third the Senate and raise the esteem of the forts on behalf of our Section. I also size of the Real Property Law Section. Real Property Law Section in the eyes wish to congratulate Heather Rogers Even at that time, I looked with awe of the entire State Bar Association on becoming the newest offi cer of the at the myriad accomplishments of and the public. All this will be done Section. the Real Property Law Section, never during a year when we will hopefully dreaming that years later I would Also, I would be remiss if I did be coming out of the real estate reces- assume the position as Chair of our not during my fi rst message as Sec- sion, which would be good news for Section. tion Chair mention the untimely all attorneys in our Section. passing of Lorraine Power Tharp. I must start with a word of I look forward to working closely Lorraine was a friend and role model thanks to our outgoing Chair, Peter with not only members of our Execu- to all of us. She will be sorely missed Coffey. Peter has been my mentor and tive Committee, but with all members on both a professional and personal friend. He has carried out his duties of the Section. If at any time you have level. The Section has already pre- as Section Chair with professional- any suggestions or comments, please sented Lorraine with the Section’s ism, intelligence, patience and humor. feel free to contact me at my email ad- Professionalism Award posthumous- In fact, when Peter became Section dress, which is [email protected]. Chair, little did we know that the re- ly, and we are in the process of setting cession and the real estate crisis were up a permanent scholarship in her Onward and upward, fellow real right around the corner. Nevertheless, memory. estate attorneys! Peter has handled the situation and I am especially pleased with Joel Sachs its impact upon our Section members certain new developments in regard

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 5 The Right to Terminate Proprietary Leases Based on Objectionable Conduct: Five Years After Pullman By Vincent Di Lorenzo

Introduction HDFC v. Mahoney.6 In that case, there was given detailed written notice of In the Pullman1 decision, the New was a provision in the proprietary what actions were deemed objection- York Court of Appeals applied the lease permitting termination based able and undesirable. This related 7 business judgment rule to disputes on objectionable conduct. The sum- question of an obligation to provide involving the reasonableness of a mary proceeding, however, was not notice of the specifi c conduct deemed cooperative corporation’s decision brought based on a breach of the to be objectionable, and, perhaps, an 8 to terminate a tenant-shareholder’s proprietary lease. Rather, the coop- opportunity to appear and defend proprietary lease because of “ob- erative corporation alleged that the against the claim of objectionable jectionable conduct” on the part of lessee was committing a nuisance conduct, is further discussed below. the lessee. Thereafter, lower courts by maintaining her apartment in an 9 Assuming that a proprietary have sustained decisions to termi- unsanitary condition. The court, in dismissing the proceedings, noted: lease contains a provision permit- nate proprietary leases based on a ting termination for objectionable claim of objectionable conduct in There is no basis indepen- conduct, and that the requirements a variety of factual circumstances, dent of the Proprietary imposed in the lease to authorize including a sponsor’s refusal to sell Lease for termination of 2 termination have been followed, will unsold shares. Decisions to termi- Respondent’s tenancy a court examine de novo if the conduct nate proprietary leases have been based on nuisance. . . . A of the lessee was indeed suffi ciently sustained so often under the business nuisance proceeding can “objectionable?” In other words, will judgment rule that one is left with the be brought pursuant to a court examine the reasonableness of impression that there are few, if any, RPAPL 711(1) against a the cooperative corporation’s action? constraints on cooperative corpora- proprietary lessee if the tions’ actions. This article examines lease contains a limitation Legal Backdrop and the Pullman the issue of constraints on the power of the term, by reason of to terminate proprietary leases. objectionableness of the Decision tenant. However, in the There are two rules of law that Need for Authorization of a case at bar, Counsel has provided the backdrop to the Court Power to Terminate stipulated . . . that this of Appeals’ decision in Pullman. The proceeding is not based on fi rst is Real Property Actions and As a starting point, no coopera- any such lease provision. Proceedings Law (“RPAPL”) § 711(1). tive corporation has the power to ter- It provides, in relevant part: minate a proprietary lease unless that Absent such a provision, power is granted in the governing there [is] no authority to A proceeding seeking to documents, in this case the propri- terminate the tenancy. . . .10 recover possession of real etary lease.3 This is an application of property by reason of the the rule long recognized in landlord- A distinct claim that has been termination of the term tenant law that forfeitures are disfa- raised is that a provision in a pro- fi xed in the lease pursuant vored and that the law will not imply prietary lease allowing termination to a provision contained a right on the part of the landlord to for “objectionable” conduct is too therein giving the landlord terminate a lease.4 vague to be enforceable. The court the right to terminate the considered and rejected that argu- time fi xed for occupancy Typically this is not a barrier to ment in 1050 Tenants Corp. v. Lapi- under such agreement 11 termination because most proprietary dus. In Lapidus, the proprietary lease if he deem the tenant leases grant the power to terminate provided for termination based on a objectionable, shall not be for various events of default, includ- determination that “because of ob- maintainable unless the ing “objectionable conduct” on the jectionable and undesirable conduct 5 landlord shall by compe- part of the lessee. on the part of the Lessee, or a person tent evidence establish dwelling in or visiting the apartment, The need for explicit authoriza- to the satisfaction of the the tenancy of the Lessee is undesir- court that the tenant is tion to terminate a proprietary lease 12 able.” The court rejected a claim of 13 was confi rmed in the context of an objectionable. vagueness with very little discussion, attempt to terminate by a cooperative emphasizing, however, that the lessee housing corporation in Joint Approach

6 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 The second is the Court of Ap- protections should be granted to unit versial. The outcome is severe—the peals’ 1990 decision in Levandusky v. owners against abusive or otherwise loss of a home by the lessee—and One Fifth Avenue Apartment Corp.14 unjustifi ed termination of possessory therefore arguably is a decision that In that case, the court recognized a interests.21 This issue initially arose in should not be left to the board’s standard of review analogous to the connection with a decision by a board discretion subject to only minimal ju- corporate business judgment rule for alone to terminate a proprietary lease dicial review. Indeed, in a third lower challenges by a lessee of a coopera- based on objectionable conduct. court decision, reached after the tive apartment to a decision of the Appellate Division’s decision in Pull- In a corporate law setting, the cooperative’s board of directors.15 man, but before the Court of Appeals’ business judgment rule is a rule Levandusky involved, however, a decision, the court distinguished deferring to the decisions of a corpo- stop-work order for lessee’s renova- the Pullman case precisely because ration’s board of directors.22 In the tions that violated the terms of the the decision to terminate in Pullman Pullman case, however, the decision proprietary lease.16 It did not involve was not made solely by the board.29 to terminate the proprietary lease was a decision to terminate a proprietary After the Court of Appeals’ decision, made at a special shareholders’ meet- lease. the lower courts so far have applied ing and was authorized by the share- the business judgment standard to a Thus, the issue became whether holders, as required by the propri- 23 board’s decision to terminate pro- the business judgment rule would be etary lease in question. The Pullman prietary leases. Given the concern applied to cooperative corporations’ court applied the business judgment generated by this issue, however, it is decisions to terminate a proprietary rule to its decision on the part of cor- 24 one that the appellate courts should lease, or whether RPAPL § 711(1) porate shareholders. Some commen- address. required the court to determine the tators have questioned whether the reasonableness of the conclusion that severe sanction in question—termi- the lessee was engaged in objection- nation of all possessory rights of the Constraints on Cooperative able conduct. In the Pullman decision, unit owner—requires that the courts Corporation’s Action the Court of Appeals rejected the review the evidence de novo when the In Pullman, the court reaffi rmed argument that the courts must inde- decision to terminate has been made the limits to judicial deference that pendently evaluate the reasonable- by a small group—the board alone— it had earlier announced in Levan- 25 ness of a cooperative corporation’s rather than all shareholders. This dusky.30 Namely, a court will not decision to terminate a proprietary concern recognizes that the purpose defer to the cooperative corporation’s lease based on the lessee’s “objection- behind the requirement in RPAPL § decision if the board or the share- 17 able conduct.” Instead, the court 711(1) —that a court must be satisfi ed holders act: (1) outside the scope of held that “the business judgment that there is competent evidence of a its authority, (2) in a way that did not standard governs a cooperative’s tenant’s objectionable conduct—is to legitimately further the corporate decision to terminate a tenancy in protect tenants from eviction based purpose, or (3) in bad faith.31 The les- accordance with the terms of the par- on the landlord’s sole and unfettered see bears the burden of proving that 18 26 ties’ agreement.” determination. the shareholder or board decision is 32 Specifi cally, the court in Pull- There have been few subsequent not entitled to deference. man rejected the argument that the cases in which the decision to termi- The courts have described the requirement in RPAPL § 711(1)—that nate the proprietary lease was made business judgment rule as applied to the tenant’s objectionable conduct be solely by the board. One lower court decisions to terminate a proprietary established “by competent evidence applied the business judgment rule lease as a two-step process.33 In step 19 27 . . . to the satisfaction of the court” — without discussion. Another en- one, the court decides whether the required the court to review the gaged in a detailed discussion of the business judgment rule is inappli- evidence of lessee’s objectionable risks of deferring to the actions of the cable.34 The burden of proof is on the conduct de novo. Instead, the court board alone, but then felt compelled lessee to persuade the court there is concluded that “in the realm of coop- to follow the language found in the a reason not to apply the rule based erative governance . . . the coopera- Court of Appeals’ decision in Pull- on the three limits noted in Pullman.35 tive’s determination as to the tenant’s man, which, although dicta, repeat- If the court does not apply the rule, objectionable behavior stands as com- edly stated the business judgment then in step two, the court deter- petent evidence necessary to sustain rule would apply to the decisions of a mines, from its own evaluation of the 20 28 the cooperative’s determination.” cooperative corporation’s board. evidence, whether the cooperative In a scenario in which the courts Despite the origins of the busi- corporation is entitled to possession will typically not review the suffi cien- ness judgment rule, applying it to based on evidence of the lessee’s al- cy of the evidence of objectionable a board’s decision to terminate a legedly “objectionable” conduct. At conduct, the issue that arises is what proprietary lease is somewhat contro- this stage the cooperative corporation bears the burden of proof.36

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 7 A. Unit Owner Protections the proprietary lease is 13315 Own- that could be raised in a holdover Recognized by Pullman ers Corp. v. Kennedy.39 In the Kennedy proceeding.47 However, the court The three reasons stated for re- case, the notice of the board meeting concluded that this claim was directly fusing to defer to decisions of coop- to consider termination of the les- related to the question of whether the erative corporations to terminate a see’s proprietary lease was sent on board acted outside the scope of its 48 proprietary lease due to objectionable letterhead of an entity, and signed by authority under the Pullman rule. conduct become constraints on a cor- an entity, whose name did not match The court noted: the petitioner’s name. The difference porative corporation’s power, at least A situation in which a could be considered minor,40 and the in the sense that the court will decide board can evict share- lessee did in fact attend the board de novo if termination is permit- holder-tenants who never meeting in question. Nonetheless, the ted. The manner in which the lower had a chance to vote for court noted that: courts have applied these constraints its members is precisely is discussed below. [W]hen the name on the the kind of situation the notice is not identical to Court of Appeals wished Scope of Authority petitioner’s name, the to avoid in requiring that The fi rst reason a court will shareholder-tenant might the cooperative board refuse to defer to the decision of a be misled and legitimately unfailingly follow proce- cooperative corporation to terminate decide not to attend the dure. Without election as a proprietary lease is if the corpora- meeting. The difference in prescribed by its by-laws, tion’s action was outside the scope names is a failure on pe- a co-operative board can of its authority. The lower courts titioner’s part unfailingly become authoritarian and have reached this conclusion primar- to follow procedures and heavy-handed, assuming ily when the board or shareholders is evidence that the board a position reminiscent of a have failed to follow the procedures acted outside the scope of dictatorial landlord from required in the proprietary lease for its authority.41 feudal times.49 termination. When the Pullman deci- sion applied the business judgment In addition, the lessee in Kennedy Good Faith argued that the notice of a meeting rule to the case before it, the court The second reason a court will of the board to consider termination noted that the “cooperative unfailing- refuse to defer to the decision of a co- failed to indicate which cooperative ly followed the procedure contained operative corporation to terminate a board offi cer signed the notice.42 The in the lease when acting to terminate proprietary lease is if the corporation 37 cooperative by-laws required that a defendant’s tenancy.” Lower courts failed to act in good faith. In Pullman, special meeting of the board must be have refused to apply a rule of defer- the court explained this basis for judi- called by the president or secretary.43 ence when required procedures have cial intervention as a means to avoid The court noted that the available not been strictly followed, concluding abuse of power through “arbitrary or documents do not indicate that this that, as a result, the decision to termi- malicious decision-making, unlawful procedure was followed and this nate was not authorized. discrimination or the like.”50 possible failure to follow procedure Factually, the situations in which would also lead the court to refuse to In other factual contexts involv- deference is not granted vary, but the apply the business judgment rule.44 ing court deference to board action, common theme is a demand that the bad faith was typically based on Finally, the Kennedy court rec- cooperative corporation strictly com- discriminatory treatment.51 How- ognized a third reason for refusing ply with all procedural requirements ever, bad faith was recognized by the to defer to the board’s decision. The imposed in governing documents. court in 13315 Owners Corp. v. Ken- lessee claimed, and the cooperative Thus, deference has not been accord- nedy52 based on the board’s action of corporation did not dispute, that ed when the lessee has raised an issue inviting the proprietary-lessee to the the board that terminated his lease regarding whether the cooperative meeting to decide if the board would was not elected at a meeting that corporation complied with the pro- terminate his lease but then refus- complied with the cooperative’s prietary lease’s express requirements ing to let him plead his cause to the by-laws.45 Specifi cally, the two prior regarding notice to cure and notice of board. In the court’s view, this refusal 38 meetings for election of the board termination. The court noted that demonstrated malice on the board’s either did not have the required such compliance was an inquiry the part.53 This conclusion is related to quorum of shareholders or were not court must make independent of the the right to have an opportunity to called pursuant to the required notice business judgment rule. be heard, which is further discussed to shareholders.46 The cooperative below. An extreme example of insistence argued that improper election of the on strict compliance with the terms of board was not ordinarily a defense

8 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Furthering the Corporate Purpose One unusual factual situation Specifi c Factual Allegations/ The Court of Appeals explained that led a cooperative corporation to Conclusion in Levandusky and again in Pullman terminate a proprietary lease based The need to recite specifi c factual that in order for the business judg- on objectionable conduct involved allegations that provide the basis for ment rule to be applied, the board termination of sponsor’s leases to a possible conclusion that the lessee or shareholders must act in “legiti- apartments representing unsold is engaged in objectionable conduct mate furtherance of corporate pur- shares for failing to sell such shares has been recognized (a) at the stage poses. Specifi cally, there must be a in good faith in accordance with the in which the lessee is provided with 61 legitimate relationship between the Jennifer Realty decision. That deci- notice of a meeting to decide whether Board’s action and the welfare of sion was one in a procedural context to terminate the lessee’s proprietary the cooperative.”54 This is not typi- in which the court denied sponsor’s lease, and (b) as part of the coop- cally a barrier to judicial deference. motion for a preliminary injunction erative corporation’s decision to Assuming that the lessee’s actions prohibiting the cooperative from terminate. 62 were objectionable in the sense that terminating its proprietary leases. In 1050 Tenants Corp. v. Lapi- they disturbed other cooperative unit The court ruled that the sponsor had dus,64 the court seemingly imposed owners, then, as the court concluded failed to show a likelihood of success a requirement that the cooperative in Pullman, “[b]y terminating the on the merits in light of the Jennifer 63 corporation provide the lessee with tenancy, the Board’s action . . . bore Realty decision. detailed written notice of what ac- an obvious and legitimate relation to However, the West Gate House tions were deemed objectionable. The the cooperative’s avowed ends.”55 In decision was handed down in the court did not explicitly impose such other factual contexts in which the robust market of 2004. In the current a requirement.65 However, when it business judgment rule was invoked, market, sales of unsold units may be decided that the terms of a propri- the claim that the board has failed extremely diffi cult. Any cooperative etary lease permitting termination to act to further legitimate corporate development with a signifi cant num- based on “objectionable” conduct purposes when it acted primarily to ber of unsold units might be deemed were not vague, and therefore were benefi t individual board members “objectionable” to lessees that are enforceable, it justifi ed its conclusion has at times been accepted.56 Similar- owner-occupants. If the sponsor is by referring to the specifi c factual ly, in situations involving termination incapable of selling the unsold units, allegations provided to the lessee of a proprietary lease, a failure to act however, then it is likely that a court in a notice of a special meeting to in furtherance of corporate purposes would rule that termination would consider termination of the lessee’s could be related to a claim of malice not be authorized. proprietary lease.66 or discriminatory treatment. B. Additional Procedural At the decision-making stage, Absent malice or self-dealing, the Protections Imposed by the 320 Owners Corp. v. Harvey67 recog- true question becomes what types of Courts nized the need to provide detailed conduct on the part of lessees have factual fi ndings justifying a conclu- (a) led cooperative corporations to A second type of constraint on sion that the lessee’s conduct was determine that the lessee was “objec- the power of cooperative corpora- objectionable. The court noted that tionable” and (b) been accepted by tions to terminate proprietary leases in the Pullman decision, the Court of the courts as terminations in further- relates to procedural requirements Appeals had cautioned the courts ance of the legitimate interests of the imposed by the courts rather than that when dealing with lease termina- cooperative corporation? The actions by the terms of the proprietary lease. tion they must exercise a heightened accepted as objectionable conduct Three types of implied procedural vigilance in examining whether the in reported decisions include long- requirements have been considered board’s action meets the business term disruptive behavior toward by the lower courts—a recitation of judgment test, and that the business neighbors,57 commencing numerous specifi c factual allegations, the op- judgment rule, while deferential, frivolous lawsuits,58 failing to pay portunity to be heard, and a right to should not serve as a rubber stamp maintenance over a prolonged period cure. The fi rst has been embraced by for cooperative corporation ac- of time without legal justifi cation,59 the courts. The courts are divided on tions.68 In the Harvey case, the notice and numerous violations of the terms the second, and the third has been of a special meeting of the board to of the proprietary lease or by-laws.60 recognized only when explicitly consider termination of the lessee’s In most cases, there were multiple required by the cooperative corpora- proprietary lease due to objectionable types of behavior deemed to be objec- tion’s governing documents. conduct did contain a detailed list of tionable, and the behavior continued charges.69 The board’s determination, for a prolonged period of time. however, did not set forth any specif- ic factual fi ndings made by the board

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 9 to support its conclusion of objection- Right to Cure such as the proprietary lease, for ter- 70 able conduct. The court dismissed The lessee’s possible implied mination. In addition, the courts have the cooperative corporation’s action right to be given a right to cure ob- required a specifi c recital of factual 71 of ejectment. It noted that the board jectionable conduct was considered allegations that provide the bases for “must at a minimum state the factual and rejected in 13315 Owners Corp. v. possible termination of a proprietary basis, and not a bare conclusion, in Kennedy.81 The Kennedy court noted lease based on objectionable conduct. support of its decision to terminate that the proprietary lease did not However, several important ques- a tenancy based on objectionable explicitly provide for an opportunity tions regarding possible constraints conduct.”72 This requirement was im- to cure as a prerequisite to termina- on power remain unanswered. It is posed because, without it, the court 82 tion based on objectionable conduct. not certain if the cooperative corpo- could not determine if the coopera- It then concluded that this was not a ration must provide the proprietary tive corporation acted in good faith right that the court would imply into lessee the opportunity to be heard and in the exercise of honest judg- the proprietary lease. It noted: when the decision to terminate is be- ment. Instead, it would merely be ing made at a board meeting. Indeed, asked to rubber stamp the decision of A lack of notice to cure it is not certain that the business the cooperative corporation. is a defense that a share- holder-tenant can raise in judgment rule must be applied when The Opportunity to Be Heard some competent-evidence the decision to terminate a propri- etary lease is made only by the board. The Court of Appeals in Pullman proceedings but never in a These are questions that need to be discussed the lessee’s opportunity to proceeding brought under addressed by the appellate courts. In be heard only in passing.73 It noted Paragraph 31(f) of a pro- the interim, cooperative corporations in that case that the cooperative prietary lease. Under the should proceed cautiously—provid- unfailingly followed the procedures typical proprietary lease, a ing the lessee with an opportunity contained in the lease, including cooperative board evicting to be heard, and, perhaps, insisting providing the lessee with notice of a shareholder-tenant for on shareholder authorization of the the special meeting of the sharehold- objectionable conduct un- extreme sanction of termination of a ers and the opportunity to be heard.74 der Pullman is not required unit owner’s proprietary lease. However, in Pullman the decision to to offer a cure period. That terminate the lessee’s proprietary is one reason why courts lease was made by the shareholders must exercise caution in Endnotes at a duly convened shareholder meet- assuring that cooperatives 1. 100 N.Y.2d 147, 790 N.E.2d 1174, 760 ing.75 Thus, it is not clear whether implement Pullman fairly, N.Y.S.2d 745 (2003), aff’d, 296 A.D.2d 120, notice and an opportunity to be heard especially after non-share- 742 N.Y.S.2d 264 (1st Dep’t 2002). are required at a meeting of the board holder votes.83 2. W. Gate House, Inc. v. 860-870 Realty LLC, that is to consider termination when 7 A.D.3d 412, 776 N.Y.S.2d 482 (1st Dep’t Of course, the opportunity to 2004). not required by the proprietary lease. cure may be expressly granted in the 3. Pullman, 100 N.Y.2d at 156, 790 N.E.2d One lower court has considered this proprietary lease. An example of such at 1181, 760 N.Y.S.2d at 752 (“Indeed, issue and rejected a claim that a full an opportunity is when the lease pro- it recognizes, correctly, that if there was no such provision, termination and fair opportunity to be heard, vides that the objectionable conduct and defend allegations of objection- could proceed only pursuant to RPAPL 76 must be repeated after written notice 711(1).”). able conduct, was always required. of it is provided to the lessee.84 In that case, neither the proprietary 4. See, e.g., Lake Anne Realty Corp. v. Sibley, 154 A.D.2d 349, 351, 545 N.Y.S.2d 828, 829 lease nor the by-laws imposed this (2d Dep’t 1989). Tenant’s violation of the requirement and the court refused to Conclusion lease provision, prohibiting alterations independently impose it.77 Instead it Five years have passed since the without town approval, did not allow concluded that the board had acted in landlord to declare forfeiture absent an Court of Appeals handed down the express stipulation for forfeiture. Id. accordance with the requirements im- Pullman decision. In that time the 78 5. In Pullman, for example, the proprietary posed by the governing documents. lower courts have made clear some lease provided as follows: In another lower court decision, how- of the constraints they will impose on If at any time the Lessor shall ever, the court criticized the board’s the cooperative corporation’s power determine, upon the affi rma- failure to permit the lessee to plead to terminate a proprietary lease based tive vote of the holders of his cause.79 It concluded that not only on objectionable conduct without record of at least two-thirds did this prove malice but, in addition, of that part of its capital stock de novo judicial review. The clearest which is then owned by Les- it violated the “Court of Appeals’ message provided by the courts is sees under proprietary leases requirement that a shareholder-tenant that they will insist on strict compli- then in force, at a meeting of have the ’opportunity to be heard’ ance with all procedural requirements such stockholders duly called before a termination vote.”80 contained in governing documents, to take action on the subject,

10 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 that because of objectionable 26. Pullman, 100 N.Y.2d at 155, 790 N.E.2d 37. Pullman, 100 N.Y.2d at 156, 790 N.E.2d at conduct on the part of the 1180, 760 N.Y.S.2d 751. 1181, 760 N.Y.S.2d at 752. Lessee, or of a person dwelling 27. Carnegie Hill 87th Street Corp. v. Heller, 38. 16 Maujer St. HDFC v. Titus, N.Y.L.J., Feb. in or visiting the apartment, N.Y.L.J., Aug. 17, 2005, at 18, col. 3 (Sup. 23, 2007, at 27 (Civ. Ct., Kings Co. 2007). the tenancy of the Lessee is Ct., N.Y. Co.). undesirable. 39. 13315 Owners Corp. v. Kennedy, 4 Misc. 3d 28. See e.g., London Terrace Towers Inc. v. Davis, 931, 782 N.Y.S.2d 554 (Civ. Ct., N.Y. Co. 100 N.Y.2d at 152, 790 N.E.2d at 1178, 760 6 Misc. 3d 600, 790 N.Y.S.2d 813 (Civ. 2004). N.Y.S.2d at 749. Ct., N.Y. Co. 2004); see also Sirianni v. 40. The petitioner-cooperative corporation’s 6. N.Y.L.J., Dec. 19, 2007, at 30 (Civ. Ct., Rafaloff, 284 A.D.2d 447, 727 N.Y.S.2d 452 correct name was 13315 Owners Corp. Kings Co.). (2d Dep’t 2001) (applying the business The letterhead on the notice stated it was judgment rule in reviewing the board’s 7. Id. from East 15th Street Owners Corp., and decision, however, termination was due it was signed by the management of 133 8. Id. to lessees’ act of operating a business East 15th Street Owners Corp. out of their apartment in violation of the 9. Id. terms of the proprietary lease). 41. Kennedy, 4 Misc. 3d at 946, 782 N.Y.S.2d at 10. Id. 567. 29. Woodrow Court, Inc. v. Levine, N.Y.L.J., 11. 39 A.D.3d 379, 384, 835 N.Y.S.2d 68 (1st Nov. 15, 2002, at 22, col. 4 (Civ. Ct., N.Y. 42. Id. at 946, 782 N.Y.2d at 567. Dep’t 2007). Co.). The court stated two reasons for 43. Id. 12. Id. at 383, 835 N.Y.S.2d at 74. its conclusion that the case before it was distinguishable from Pullman: (1) unlike 44. Id. 13. N.Y. REAL PROPERTY ACTIONS AND Pullman there was never a shareholder 45. Id. at 947, 782 N.Y.2d at 568. PROCEEDINGS LAW § 711(1). vote on respondent’s tenancy; and (2) 46. Id. 14. 75 N.Y.2d 530, 553 N.E.2d 1318, 554 respondents never had an opportunity N.Y.S.2d 807 (1990). to defend themselves at a meeting of the 47. Id. board of directors and never had notice 48. Id. at 948, 782 N.Y.2d at 568. 15. Id. at 533, 553 N.E.2d at 1321, 554 of the board’s meeting regarding their N.Y.S.2d at 808. alleged objectionable conduct. Id. 49. Id. 16. Id. at 535, 553 N.E.2d at 1320, 554 30. 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d 50. 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d N.Y.S.2d at 810. 147, 790 N.E.2d 1174, 760 N.Y.S.2d 745, 147, 153-54, 790 N.E.2d 1174, 1179, 760 17. 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d (2003). N.Y.S.2d 745, 750 (2003). The court later 147, 154, 790 N.E.2d 1174, 1179-80, 760 noted, when discussing the good faith 31. Id. at 155, 790 N.E.2d at 1180, 760 N.Y.2d requirement, that in the case before it N.Y.S.2d 745, 750-51 (2003) (concluding at 751; see Levandusky v. One Fifth Ave. that the business judgment rule does not there was not the slightest indication of Apart. Corp., 75 N.Y.2d 530, 538, 553 any “bad faith, favoritism, discrimination confl ict with RPAPL § 711(1) because the N.E.2d 1317, 1322 (1990). lease agreement contained a contract or malice on the cooperative’s part provision for termination to which the 32. Pullman 100 N.Y.2d at 156, 790 N.E.2d . . . ,” and that these types of abuses are lessee agreed to). at 1181, 760 N.Y.S.2d at 752. Defendant- incompatible with good faith. Id. at 156- lessee failed to demonstrate the 57, 790 N.E.2d at 1181-82, 760 N.Y.2d. at 18. Id. at 150, 790 N.E.2d at 1176, 760 N.Y.S.2d cooperative acted outside the scope 752-53. at 747. of its authority or in bad faith. Id.; see 51. VINCENT DILORENZO, NEW YORK 19. Id. at 154, 790 N.E.2d at 1180, 760 N.Y.S.2d Breezy Point Coop., Inc. v. Young, 16 CONDOMINIUM AND COOPERATIVE LAW at 751. Misc. 3d 101, 104-5, 842 N.Y.S.2d 150, § 12-3 (2008-09 Supplement). 152 (Sup. Ct. App. Term 2007). Tenant 20. Id. at 154, 790 N.E.2d at 1179-1180, 760 failed to overcome the presumption that 52. Kennedy, 4 Misc. 3d 931, 948, 782 N.Y.S.2d N.Y.S.2d at 750-51. the stockholders exercised their honest 554, 569. 21. Id. at 153-154, 790 N.E.2d at 1179, 760 judgment to promote the lawful and 53. Id. at 948, 782 N.Y.S.2d at 569. N.Y.S.2d at 750. The court recognized legitimate interests of the corporation. Id.; 54. Pullman, 100 N.Y.2d at 156, 790 N.E.2d at that there may be instances where the see also London Terrace Towers, Inc. v. Davis, 1181, 760 N.Y.S.2d at 752. cooperative’s broad powers may lead to 6 Misc. 3d 600, 610, 790 N.Y.S.2d 813, 821 abuse by arbitrary decision-making. Id. (Civ. Ct., N.Y. Co. 2004). The court noted 55. Id. at 156, 790 N.E.2d at 1181, 760 N.Y.S.2d 22. 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d that “[i]t is the shareholder-tenant’s at 752. The disturbance might be physical 147, 153, 790 N.E.2d 1174, 1179, 760 burden to show that the board vote is not or it might be fi nancial. In Pullman, the N.Y.S.2d 745, 750 (2003). entitled to deference.” Id. court noted that the defendant’s actions had a negative effect on all of the other 33. This two-step process and the shifting of 23. Id. at 151, 790 N.E.2d at 1177, 760 N.Y.S.2d 37 leaseholders including making them burden of proof has been best described at 748. responsible for thousands of dollars in by Judge Lebovits in 13315 Owners unnecessary legal fees. Id. at 157 n. 6, 790 24. Id. at 157, 790 N.E.2d at 1181, 760 N.Y.S.2d Corp. v. Kennedy, 4 Misc. 3d 931, 938, 782 N.E.2d at 1181 n. 6, 760 N.Y.S.2d at 752 at 745. In applying the business judgment N.Y.S.2d 554, 565 (Civ. Ct., N.Y. Co. 2004), n. 6. rule, the court determined that the and in London Terrace Towers, 6 Misc. 3d cooperative had followed the procedures 600, 610, 790 N.Y.S.2d 813, 821 (Civ. Ct., 56. DILORENZO, supra note 51. The board’s set forth in the lease and that defendant N.Y. Co. 2004). actions must not violate fi duciary duties, failed to challenge these fi ndings. Id. including the duty of undivided loyalty. 34. Kennedy, 4 Misc. 3d 931, 938, 782 N.Y.S.2d 25. See, e.g., Scott F. Mollen, Realty Law 554, 565. 57. See, e.g., Pullman, 100 N.Y.2d at 150, Digest, N.Y.L.J., Oct. 6, 2004, at 5, col. 1 790 N.E.2d at 1177, 760 N.Y.S.2d at 748. 35. Pullman, 100 N.Y.2d at 155, 790 N.E.2d at (noting that there is a very real potential The conduct of the lessee continued for 1180, 760 N.Y.S.2d at 751. for abuse, and if boards are given too over two decades. Id.; see also Carnegie much power it could diminish demand 36. Kennedy, 4 Misc. 3d 931, 938, 782 N.Y.S.2d Hill 87th Street Corp. v. Heller, N.Y.L.J., for co-op apartments and hurt the value 554, 565. Aug. 17, 2005, at 18 (Sup. Ct., N.Y. Co.). of co-op apartments in general). Lessee yelled obscenities at tenants and

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 11 employees of the building, repeatedly of two years, including playing a stereo meetings, absent an express by-law, slammed doors, banged on walls, rang at unreasonably loud levels, slamming are controlled by accepted usage and neighbors’ doorbells, and engaged in doors, storing personal belongings in the common practice—the fundamental rule other actions that allegedly constituted a common hallways, creating a security being that all who are entitled to take nuisance. Id. risk by rigging stairwell doors to remain part in a meeting must be treated with unlocked, and stealing from other fairness and good faith). By contrast, 58. See, e.g., Pullman, at 151, 790 N.E.2d residents in the common areas such as special meetings of the board of directors at 1177, 760 N.Y.S.2d at 748 (noting the health club). require notice only to the directors. BCL that lessee commenced four lawsuits § 711 (2009). Shareholders who are not against neighbors, the president of 61. W. Gate House, Inc. v. 860-870 Realty directors do not have a right to attend or the cooperative and the cooperative LLC, 7 A.D.3d 412, 776 N.Y.S.2d 482 participate in discussions that is granted management, and tried to commence (1st Dep’t 2004). The Jennifer Realty by the Business Corporation Law. Id. three more); see also Breezy Point decision imposed an implied contractual Cooperative, Inc. v. Young, 16 Misc. 3d obligation on the sponsor to undertake 76. Carnegie Hill 87th Street Corp v. Heller, 101, 101, 842 N.Y.S.2d 150, 150 (Sup. Ct. in good faith to timely sell so many N.Y.L.J., Aug. 17, 2005, at 18 (Sup. Ct., App. Term 2007) (holding that lessee shares as necessary to create a fully viable N.Y. Co.). brought unfounded lawsuits against cooperative. 511 W. 232nd Owners Corp. 77. Id. the cooperative in abuse of the judicial v. Jennifer Realty Co., 98 N.Y.2d 144, 746 system, which cost the cooperative N.Y.S.2d 131 (2002). 78. Id. several hundred thousand dollars in legal 62. W. Gate House, Inc., 7 A.D.3d 412, 776 79. 13315 Owners Corp. v. Kennedy, 4 Misc. 3d fees). N.Y.S.2d 482. 931, 948, 782 N.Y.S.2d 554, 569 (Civ. Ct., N.Y. Co. 2004). 59. See, e.g., 1050 Tenants Corp. v. Lapidus, 39 63. Id. at 412, 776 N.Y.S.2d at 482. A.D.3d 379, 379, 835 N.Y.S.2d 68, 68 (1st 80. Id. at 948, 782 N.Y.S.2d at 569; see Woodrow Dep’t 2007) (discussing the unjustifi ed 64. 39 A.D.3d 379, 384, 835 N.Y.S.2d 68, 74 Court, Inc. v. Levine, N.Y.L.J., Nov. 15, withholding of maintenance and other (1st Dep’t 2007). 2002, at 22 (Civ. Ct., N.Y. Co.). The payments for extensive periods of time, 65. See generally Lapidus, 39 A.D.3d 379, 835 Woodrow Court case was decided after the as well as the repeated refusal to remove N.Y.S.2d 68. New York Appellate Court’s decision in the air conditioning system that leaked Pullman, but before the Court of Appeals’ 66. Id. at 383-84, 835 N.Y.S.2d at 68, 74. into the apartment below, which caused decision. The court distinguished Pullman further damage, all in violation of house 67. 2008 Slip Op. 32796, 2008 WL 4641987 and did not defer to the board’s decision rules). (Sup. Ct., N.Y. Co. 2008). to terminate the proprietary lease in 60. See, e.g., Pullman, 100 N.Y.2d at 151, 68. Id. part because the lessees never had an 790 N.E.2d at 1177, 760 N.Y.S.2d at 748 opportunity to defend themselves at 69. Id. (noting that the lessee made alterations the meeting of the board and never had without board approval, performing 70. Id. notice that the board was discussing and planning to act on the issue of their construction work on weekends in 71. Id. violation of house rules and not allowing alleged objectionable conduct. Id. 72. Id. inspection of the apartment and not 81. Kennedy, 4 Misc. 3d at 931, 782 N.Y.S.2d at responding to requests to correct these 73. 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d 554. conditions); see also Lapidus, at 383, 147, 156, 790 N.E.2d 1174, 1181, 760 82. Id. at 945, 782 N.Y.S.2d at 566. 835 N.Y.S.2d at 74 (noting that lessees’ N.Y.S.2d 745, 752 (2003). consciously and unabashedly damage 83. Id. 74. Id. at 156, 790 N.E.2d at 1181, 760 N.Y.S.2d another neighbor’s property, and infl ict at 752. 84. See, e.g., 16 Maujer Street HDFC v. Titus, thousand of dollars in unnecessary legal N.Y.L.J. Feb. 23, 2007, at 27 (Civ. Ct., fees, is in furtherance of the cooperative’s 75. Id. at 151, 790 N.E.2d at 1177, 760 Kings Co.). legitimate interests); Breezy Point, 16 Misc. N.Y.S.2d at 748. The New York Business 3d 101, 103, 842 N.Y.S.2d 150, 151 (Sup. Corporation Law requires notice to the Ct. App. Term 2007) (fi nding that lessee shareholders of any special meeting. Vincent Di Lorenzo is professor violated cooperative by-laws or rules on BCL §§ 602(c), 605 (2009) (Westlaw). of law at St. John’s University, and 94 occasions over the course of 18 years); In addition, shareholders have an author of New York Condominium London Terrace Towers, Inc. v. Davis, 6 inherent right to speak at shareholder Misc. 3d 600, 603, 790 N.Y.S.2d 813, 816 meetings. See N.Y. JUR. 2d, Business and Cooperative Law (West). (Civ. Ct., N.Y. Co. 2004) (noting numerous Relationships § 882 (2009) (Westlaw) violations of house rules over the course (noting that the conduct of shareholders’

12 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Statutory Short Form Power of Attorney Revised; New Statutory Major Gifts Rider By Michael J. Berey

On January 27, 2009, Governor A non-statutory Power executed An SSF Power, and a non-statu- Paterson signed into law an exten- in New York can be used. It appears, tory Power, executed in New York, sive revision of Title 15 of Article 5 however, that a natural person can by an individual, are required to be of New York’s General Obligations only execute a non-statutory form typed, in no less than 12-point type Law (“GOL“), which sets forth a new of power of attorney meeting the (or legibly printed with letters the Statutory Short Form Power of Attor- requirements of new Section 5-1501B equivalent of such type), dated and ney (“SSF Power’’).1 Chapter 644 of (“Creation of a valid power of attor- signed by a Principal with capacity the Laws of 2008 also introduces the ney; when effective’’).9 While new and by the agent(s) appointed in the concept of the Statutory Major Gifts subsection 4 of Section 5-1501B states Power (the attorney(s)-in-fact).14 An Rider (“SMGR’’).2 Accordingly, the that “[n]othing in this title shall be SSF Power and a non-statutory Power heading of Title 15 has been changed construed to bar the use of any other must contain the text of the sections from “Statutory Short Form Power of or different form of power of attor- in the SSF Power captioned “Cauti- Attorney’’ to “Statutory Short Form ney [not meeting the requirements of on to the Principal’’ and “Important and Other Powers of Attorney for Section 5-1501B] desired by a per- Information for the Agent.’’15 Financial Estate Planning.’’3 Chapter son other than an individual . . . ,’’10 A Power executed in another sta- 644’s effective date of March 1, 2009 subsection 1 of new Section 5-1501B te or in a jurisdiction outside of New was changed to September 1, 2009 by provides that “[t]o be valid, a statu- York which complies with the law Chapter 4 of the Laws of 2009.4 tory SSF Power power of attorney, or of that state or the law of New York a non-statutory power of attorney, Amended Sections 5-1502J is valid in New York, regardless of executed in this state by an individu- (“Construction–benefi ts from milita- whether the Principal is a domiciliary al, must’’ meet the requirements set ry service’’), 5-1502K (newly named of New York.16 forth in that Section.11 “Construction—health care billing and payment matters’’), and 5-1504 When a Statutory Power Is (“Acceptance of statutory SSF Po- “[T]he heading of Title 15 Effective wer power of attorney’’), and new has been changed from Sections 5-1505 (“Standard of care; ’Statutory Short Form Although the Principal and the fi duciary duty; compelling disclosure agent need not execute the Power of record’’) and 5-1510 (“Special pro- Power of Attorney’ to at the same time, the Power is not ceedings’’) will also apply to powers- ’Statutory Short Form and effective until the agent’s signature of-attorney (“Powers’’) executed Other Powers of Attorney is acknowledged.17 If more than one prior to September 1.5 Powers validly for Financial Estate agent is appointed, the Power is executed prior to the effective date effective when the signatures of all of may continue to be used. Planning.’’’ the agents are acknowledged.18 The signatures of the Principal and of the A “Person’’ may execute an SSF The form of the new SSF Power agent(s) must be acknowledged “in Power and be the “Principal’’ under is set forth in new Section 5-1513 the manner prescribed for the ack- the Power (what has been referred (“Statutory short form power of attor- nowledgment of a conveyance of real to as the “donor’’ of a power-of- ney’’).12 While former Section 5-1501 property.’’19 attorney).6 A “Person’’ is defi ned in included a separate form of durable new Section 5-1501 to include, among power, new Section 5-1501A (“Power Section 5-1501(13) provides that others, an individual “acting for him- of attorney not affected by incapa- a signature can be made by even a self or herself,’’ a fi duciary, corporati- city’’) provides that an SSF Power is mark, a stamp or by an electronic si- 20 on, estate, trust, partnership, limited durable unless it expressly states that gnature. However, referencing Sec- liability company, governmental the Principal’s incapacity terminates tion 307 (“Exceptions’’) of the State’s entity or instrumentality, or “any the Power, and, unless the Power so Electronic Signatures and Records other legal or commercial entity.’’7 An states, “[t]he subsequent incapacity of Act, which excludes from the scope individual executing an SSF Power or a principal shall not revoke or termi- of that Act “any conveyance or other a SMGR, discussed below, must be 18 nate the authority of an agent. . . .’’13 instrument recordable under article years of age or older.8 nine of the real property law,’’21 Sec-

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 13 tion 5-1501(13) states that a power of or the agent may petition a court to Principal’s property to himself or attorney “that is recordable under the approve his or her resignation.31 The herself.40 The agent must also keep a real property law shall not be execut- Power can set forth other ways for an record of all receipts, disbursements ed with an electronic signature.’’22 agent to resign.32 and transactions entered into and make them available within 15 days Section 5-1506 (“Powers of attor- A “Monitor’’ is a person appoin- on request of a “Monitor,’’ a co-agent ney effective at a future time or upon ted to receive from the agent a record or a successor agent, a government the occurrence of a contingency’’) has of all receipts, disbursements and entity, a court evaluator appointed been repealed.23 (New Section 5-1506 transactions entered into by the agent 24 33 under the Mental Hygiene Law is captioned “Compensation’’). under the Power. § 81.09 (“Proceedings for Appoint- Instead, under new Section ment of a Guardian for Personal 5-1501B(3)(b), a Power may provide ”An agent is not entitled Needs or Property Management. that it takes effect on a certain date Appointment of court evaluator’’),41 or on the occurence of a specifi ed to be compensated unless 25 a guardian ad litem appointed under contingency. The Power may also specifically provided for in Surrogate’s Court Procedures Act § require that a person or persons na- the Power, except that an 1754 (“Guardians of Mentally Retar- med or otherwise identifi ed declare agent may be reimbursed ded and Developmentally Disabled in writing that the contingency has for reasonable expenses Persons. Hearing and Trial’’),42 a occurred, and such a declaration is guardian or conservator of the estate effective “without regard to wheth- actually incurred.” of the Principal, or the personal repre- er the contingency has [actually] 26 sentative of the estate of a deceased occurred.’’ An agent’s authority may be ter- Principal.43 minated by the Principal affi rmatively Multiple Agents revoking the authority of the agent A Special Proceeding can be and by the death or incapacity of an commenced by any of the parties Under new Section 5-1508 agent.34 If the agent is the spouse of noted in the immediately preceeding (“Co-agents and successor agents’’), the Principal, then on their divorce, paragraph to compel the agent to pro- mulitple agents act jointly unless or on the annulment or the issu- vide the records.44 A Special Proceed- 27 the Power states otherwise. How- ance of a declaration of the nullity of ing can also be commenced by the ever, if prompt action is required to their marriage, the agent’s authority agent, the Principal’s spouse, child accomplish a purpose of a Power ceases.35 However, the termination of or parent, the Principal’s successor and to avoid irreparable injury to the an agent’s authority is not effective as in interest, and by any third party Principal’s interest when the co-agent to third parties who act in good faith “who may be required to accept’’ a is unavailable because of absence, without actual notice.36 Even when a Power, to determine, among other illness, or other temporary incapacity, notice of the revocation of an agent’s things, whether the Power is valid, to 28 the other agent may act alone. In authority is recorded, the third party remove the agent or to approve the addition, the Principal may appoint must have actual notice: “A fi nancial resignation of an agent, to construe one or more successor agents to serve institution is deemed to have actual any provision of the Power, or to “if every initial or predecessor agent notice after it has had a reasonable compel its acceptance.45 resigns, dies, becomes incapacitated, opportunity to act on a written notice is not qualifi ed to serve or declines to of the revocation or termination fol- 29 The Statutory Form serve.’’ lowing receipt at its offi ce where an account [of the principal] is located.’’37 The statutory form of the new Termination of the Agent’s SSF Power in Section 5-1513 includes An agent is not entitled to be the following:46 Authority compensated unless specifi cally pro- An agent may resign on writ- vided for in the Power, except that an 1. A section captioned “Caution to 47 ten notice to the Principal and also agent may be reimbursed for reason- the Principal’’; 38 to any co-agent or successor agent, able expenses actually incurred. 2. The designation of an agent a “Monitor’’ if one was named, or or agents and a statement that to the Principal’s guardian, if one they act jointly, with an option 30 Agent Is a Fiduciary was appointed. If the Principal is to direct that they are to act Under new Section 5-1505, an incapacitated and there is no other separately;48 such person to whom notice may be agent is a fi duciary and may be sub- given, notice of resignation may be ject to liability for his or her conduct 3. A statement that the power is 39 given to a government agency with or omissions. For example, absent not affected by the Principal’s the authority to protect the Principal, being specifi cally authorized in the subsequent incapacity, unless Power, an agent may not transfer the otherwise indicated in the

14 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 section of the Power captioned and family maintenance,’’ “benefi ts of the agent terminates without there “Modifi cations’’;49 from governmental programs or civil being a co-agent or a successor agent or military service’’ and “health care appointed or willing or able to serve, 4. A statement that all prior pow- billing and payment matters; records, when the purpose of the Power is ers of attorney executed by the reports and statements.’’54 Substan- accomplished, or if a court appoints a Principal are revoked, unless tive changes have also been made to guardian for the Principal and revo- stated otherwise in the section certain Sections. In particular, Section kes the Power under Mental Hygiene of the Power captioned “Modi- 5-1502A (“Construction—real estate Law § 1.29 (“Effect of the appoint- fi cations,’’ in which case it must transactions’’) has been amended to ment on the incapacitated person’’) or be indicated whether the agents remove the authority of an agent to as provided in Section 5-1511.63 under all of the Powers are to act “revoke, create or modify a trust.’’55 jointly or separately;50 12. The acknowledged signature of 6. An optional “Modifi cations’’ the Principal;64 5. A list of “subjects’’ correspon- section. Section 5-1503, as amen- 13. “Important Information for the ding to the categories of powers ded by Chapter 644 and now Agent’’;65 set forth in Sections 5-1502A–5- captioned “Modifi cations of the 1502N, similar to the list in the statutory short form power of at- 14. The acknowledged signature(s) now effective form of SSF Power. torney and of the statutory major of the agent(s).66 Authority is granted as to a par- gifts rider,’’ governs this section ticular subject by the Principal’s of the Power;56 The agent executes an instrument initialling the corresponding pursuant to a Power by signing either bracket or by listing the letters 7. A section providing that if the his or her name as agent for the Prin- for the subjects selected on line agent is to make major gifts and cipal, the name of the Principal by “P’’ (“Each of the matters iden- other transfers of the Principal’s the agent as agent, or by “any similar tifi ed by the following letters property, the Principal must written disclosure of the principal _____’’) and by initialling line initial a statement in the Po- and agency relationship.“ Section “P,’’ as has been done under the wer to that effect and annex 5-1507 (“Signature of agent’’). prior statutory form of Power, an SMGR.57 It cautions that an “P’’ having been letter “Q’’ in the SMGR “should be prepared by a prior form.51 lawyer’’;58 Relying on the Power No third party located in New Deleted from the new SSF Power 8. The optional designation of a York State “shall refuse without rea- 59 is the subject “making gifts to my “Monitor’’; sonable cause’’ to honor a properly spouse, children and more remote 9. An optional section of “Compen- executed SSF Power, an SSF Power descendants, and parents, not to ex- sation of Agents’’;60 supplemented by a SMGR, or an SSF ceed in the aggregate $10,000 to each Power “executed in accordance with 52 of such persons in any year.’’ How- 10. “Acceptance by Third Parties,’’ the laws in effect at the time of its ever, new subdivision 14 of amended under which the Principal agrees execution.’’67 “Reasonable cause’’ to Section 5-1502I (“Construction— to indemnify third parties re- refuse to accept a Power exists when, personal and family maintenance’’) lying on the Power and confi rms for example, an agent refuses to pro- authorizes the agent “[t]o continue that a termination of the Power vide the original power of attorney, to make gifts that the principal cus- is not effective as to a third party the third party has actual knowledge tomarily made to individuals and until that party has actual notice of or a reasonable basis for believing charitable organizations prior to the or knowledge that the Power has that (i) the Principal has died, (ii) is creation of the agency’’ to $500 in been terminated;61 incapacitated (when the Power is the aggregate to any one recipient in non-durable), (iii) was incapacitated a single calendar year, and gifts can 11. “Termination,’’ stating that the power continues until it is when the Power was executed, or also be made as authorized under a (iv) the Power was procured by duly executed SMGR.53 revoked or terminated by the death of the Principal or other- fraud, duress or undue infl uence, In addition to Section 5-1502I, wise by an event listed in Section when the agent has actual notice other Sections, corresponding to 5-1511.62 of the termination or revocation of the subjects listed on the Power, the Power, or “the refusal of a title have been amended. The subjects Under Section 5-1511 (“Termi- insurance company to underwrite “personal relationships and affairs,’’ nation or revocation of a power of title insurance for a transfer of real “benefi ts from military service,’’ and attorney; notice’’), a Power terminates property made pursuant to a major “records, reports and statements’’ in when the Principal dies, the Prin- gifts rider or a non-statutory power the former statutory form are now cipal becomes incapacitated (if the of attorney that does not contain ex- captioned, respectively, “personal power is not durable), the authority

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 15 press instructions or purposes of the Statutory Major Gifts Rider pal obtains an interest after the 68 Principal.’’ The statutory form of the new Power is executed. Such pro- SMGR is in Section 5-1514 (“Major perty may be situated within or Grounds for refusing to honor outside of New York;80 a Power do not incude the lapse of gifts and other transfers; formal 73 time since execution of the Power or requirements; statutory form’’). The 4. The authority for the agent to that there has been a lapse of time Section authorizes an agent to make make a gift or a transfer to the between the dates on which the gifts and transfers of the Principal’s Principal’s spouse is revoked on signatures of the Principal and any property. It must be executed simulta- the divorce of the Principal and agent were acknowledged.69 Except neously with and supplement an SSF his or her spouse, the annulment as provided in Section 5-1504, it is Power or be executed simultaneously of their marriage, or the issuance 74 with a non-statutory form of Power. of a declaration of the nullity of unlawful for a third party The SMGR and, if executed in their marriage, unless the SMGR to unreasonably refuse to expressly provides otherwise.81 honor a properly execut- connection with a non-statutory ed statutory short form form of Power, the Power itself, must power of attorney, includ- be witnessed “by two persons not Endnotes ing a statutory short form named in the instrument as recipients 1. N.Y. GEN. OBLIG. LAW § 5-1501 (effective power of attorney which of other gifts or other transfers, in the Sept. 1, 2009). is supplemented by a manner described at’’ Estates, Powers 2. Chapter 644 of the N.Y. Laws of 2008 statutory major gifts rider, and Trusts Law 3-2.1(a)(2) (“Executi- is available at http://www.titlelaw- newyork.com/Chapter644.pdf. In or a statutory short form on and authorization of wills; formal requirements’’).75 EPTL 3-2.1(a)(2) re- connection with the SMGR, reference power of attorney execut- should be made to Sections 5-1501.14, ed in accordance with the quires the testator to sign in the pres- 5-1501B.2 and 5-1514. § 5-1501(14); laws in effect at the time of ence of, or acknowledge his signature 5-1501B(2); 5-1514. 76 its execution.70 to, the attesting witnesses. 3. § 5-1501 (effective until Sept. 1, 2009). 4. Chapter 644 of the NY Laws of 2008. However, a third party is not The types of gifts that can be made under an SMGR and the limita- 5. §§ 5-1502J, 5-1502K, 5-1504, 5-1505 and required to accept a Power other than 5-1510 (effective Sept. 1, 2009). an SSF Power.71 tions on the powers of the agent un- der an SMGR are set forth in Section 6. § 5-1501(9), (11) (effective Sept 1, 2009). A third party to whom a Power 5-1514.77 Note is made of the follo- 7. Id. at (9). is presented may require the agent to wing provisions of the Section insofar 8. Id. at (11). execute an acknowledged affi davit as they may affect real property: 9. § 5-1501B (effective Sept. 1, 2009). which states that the Power is in full 10. Id. at (4). force and effect. More particularly, the 1. The SMGR must expressly 11. Id. at (1). affi davit may also state that the agent authorize the agent to make any has no actual notice or notice of any gifts or transfer of a kind not set 12. § 5-1513 (effective Sept. 1, 2009). facts indicating that the Power was forth in subdivision 14 of Section 13. § 5-1501(1) (effective until Sept. 1, 2009); § terminated or revoked or otherwise 5-1502I, noted above. In parti- 5-1501A(2) (effective Sept. 1, 2009). modifi ed in a way that would impact cular, an agent may not gift to 14. § 5-1501B (effective Sept. 1, 2009). the immediate transaction. If the himself or herself an interest in 15. Id. agent is a successor agent, the affi da- the Principal’s property unless 16. § 5-1512 (effective Sept. 1, 2009) vit may also state that the prior agent the authority to do so is expres- (“Powers of attorney executed in other 78 is no longer able or willing to serve. sly set forth; jurisdictions”). 17. § 5-1501B(3)(a) (effective Sept. 1, 2009). According to Section 5-1504.5, 2. The agent is authorized “to execute, acknowledge, seal and 18. Id. [s]uch an affi davit is con- deliver any deed, assignment, 19. Id. at (1)(c). clusive proof to the third agreement, trust agreement, 20. § 5-1501(13) (effective Sept. 1, 2009). party relying on the power authorization, check or other in- 21. N.Y. TECH. LAW § 307 (2009). of attorney that the power strument which the agent deems 22. § 5-1501(13) (effective Sept. 1, 2009). is valid and effective, and useful for the accomplishment of 23. § 5-1506 (effective until Sept. 1, 2009). has not been terminated or any of the purposes enumerated 24. § 5-1506 (effective Sept. 1, 2009). revoked, except as to any in’’ Section 5-1514;79 third party who had actual 25. § 5-1501B(3)(b) (effective Sept. 1, 2009). notice that the power of 3. The authority of the agent 26. Id. attorney had terminated to make a gift of property is 27. § 5-1508(1) (effective Sept. 1, 2009). or been revoked prior to exercisable in connection with 28. Id. execution of the affi davit.72 property in which the Princi-

16 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 29. Id. at (2). 49. Id. at (1)(d). 69. Id. at (1)(b)(3). 30. § 5-1505(3)(a) (effective Sept. 1, 2009). 50. Id. at (1)(e). 70. Id. at (2). 31. Id. 51. Id. at (1)(f). 71. Id. at (6). 32. Id. at (3)(b). 52. § 5-1505I (effective until Sept. 1, 2009). 72. Id. at (5). 33. § 5-1501(6) (effective Sept. 1, 2009). 53. § 5-1502I(14) (effective Sept. 1, 2009). 73. § 5-1514 (effective Sept. 1, 2009). 34. § 5-1511(2)(a)-(b) (effective Sept. 1, 2009). 54. § 5-1502I, J, K (effective Sept. 1, 2009). 74. Id. at (1). 35. Id. at (2)(c). 55. § 5-1502A(2) (effective until Sept. 1, 2009). 75. Id. at (9)(b). 36. Id. at (5). 56. § 5-1503 (effective Sept. 1, 2009). 76. E.P.T.L. 3-2.1(a)(2) (2009). 37. Id. 57. § 5-1514(9)(c)–(d) (effective Sept. 1, 2009). 77. § 5-1514 (effective Sept 1, 2009). 38. § 5-1506(1) (effective Sept. 1, 2009). 58. § 5-1514 (effective Sept. 1, 2009). 78. Id. at (4)(b). 39. § 5-1505(2)(b) (effective Sept. 1, 2009). 59. § 5-1513(i) (effective Sept. 1, 2009). 79. Id. at (6)(b)(2). 40. Id. at (2)(a)(2). 60. Id. at (j). 80. Id. at (7).

41. N.Y. MEN. HYG. LAW § 81.09 (2009). 61. Id. at (k). 81. Id. at (8).

42. N.Y. SURR. CT. PROC. ACT § 1754 (2009). 62. Id. at (l).

43. § 5-1505(3) (effective Sept. 1, 2009). 63. Id at (1); N.Y. MEN. HYG. LAW § 1.29 Michael J. Berey is General (2009). Counsel and Senior Vice-President 44. § 5-1510(1) (effective Sept. 1, 2009). 64. § 5-1513(m) (effective Sept. 1, 2009). of First American Title Insurance 45. § 5-1510(3) (effective Sept. 1, 2009). 65. Id. at (n). Company of New York. 46. § 5-1513 (effective Sept. 1, 2009). 66. Id. at (o). 47. Id. at (1)(a). A copy of Chapter 644 is posted 67. § 5-1504(1) (effective Sept. 1, 2009). 48. Id. at (1)(b). at www.titlelaw-newyork.com/ 68. Id. at (1)(a). Chapter644.pdf.

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NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 17 Development Rights Purchases by Zoning Lot Merger in New York City By Francisco Augspach

I. Introduction its lot size. If the lot is 40 feet by 100 depending on whether the building Zoning lot mergers are one of the feet, then it has a total 4,000 sq. ft. and fronts a narrow or a wide street. any building on the lot cannot have two ways to purchase development The object of this scant exhibition rights (sometimes called “air rights”) more than 2,000 sq. ft. In a C5 district a building can have 10 sq. ft. per sq. of zoning restrictions is to show that in the City of New York. This article development rights, or FA, are only explains what development rights are ft. of the lot size. A lot with 4,000 sq. ft. would allow for a building with one form of building restriction in a and how to purchase them by zoning large regulatory framework. Zoning lot merger. While these transactions 40,000 sq. ft. (a tower). The ratio (e.g., 0.5 to 1 in R2; or 10 to 1 in C5) approvals require compliance with involve the purchase of rights under the entire framework, not just with the zoning law, they are typically is called “fl oor area ratio” (“FAR”) and the resulting square footage, FAR. More importantly, the real estate handled by real estate practitioners practitioner must recognize that this because: (1) they involve private “fl oor area” (“FA”) or “development rights.” is part and parcel of the zoning law, parties as opposed to the zoning law, and must avoid thinking of “develop- where the object is governmental In addition to FAR, districts have ment rights” as real property rights. power, and (2) because the ultimate many other restrictions. For example, While the principles of real property goal is to create interests attaching to minimum-lot size, front yard (i.e., law protect the transfer of real estate, land. Despite their twin-nature, zon- setback), rear yard, side yards, and the transfer of development rights ing lot mergers are not prohibitively maximum height can be very strict is a “privilege” at the pleasure of diffi cult, except for the fact that they in low-density residential districts. In the city of New York, rather than a involve concepts foreign to the real fact, in the case of R1 and R2 districts, “right” incidental to ownership. estate practitioner. Transferable De- these restrictions typically limit the velopment Rights, i.e., development shape of the building to the extent B. Commercial, Residential and rights purchases from landmarks or that the builder cannot benefi t fully Community Facility FA special districts, are beyond the scope from its endowment of FA. In low There are three kinds of FA: com- of this article. density residential districts, FAR is mercial, residential, and community rather meaningless because the other facility. These determine how much II. Elements of New York City restrictions determine the size of square footage can be designated to a Zoning Law the building. An endowment of FA specifi c use.2 For instance, only com- Development rights are does not carry the right to expend it mercial FA can be used for retail store rooted in zoning law, not real prop- fully. In higher density districts, this space and most offi ces. “Community erty law. In order to understand their point becomes relevant when the lot facility” refers to services (which can nature, the real estate practitioner acquires FA in excess of its original be profi table) that are essential to the must fi rst familiarize himself or her- allotment. immediate community, such as health self with concepts of the zoning law. care, houses of worship, libraries, and Other noteworthy restrictions in- At the very least, familiarity with the educational centers. clude minimum garage/parking, lot terms will ease communications with coverage and sky exposure plane. Lot the client’s architect and the Depart- In C1 and C2 districts, unused coverage is the percentage of the sur- ment of Buildings.1 commercial FA can be used for face of the lot that may be covered by residential purposes. Community A. “FAR,” “FA,” and Other the building. For instance, a lot with facility FA can sometimes be used Building Restrictions 4,000 sq. ft. in a C5 district may have for residential purposes.3 Otherwise, a total of 40,000 sq. ft of FA, but at the no amount of one kind of FA can be The City is divided into residen- ground level the building cannot oc- exchanged for any amount of the tial, commercial, and manufacturing cupy more than 40% of the surface of other. When drafting contracts, it is districts. Every district is designated the lot, or 1,600 sq. ft. The sky expo- important to distinguish the amount with the letter “R”, “C,” or “M” fol- sure plane is a setback (or further set- and type of FA involved. lowed by a number, 1 through 10. back) that begins at a certain height Usually, a higher number means a to prevent buildings from blocking all C. A Defi nition of Floor Area? higher district density. For example, light and air from the streets. The sky a building in an R2 district cannot Floor area “is the sum of the exposure plane varies substantially have more square footage than half gross area of the several fl oors of a

18 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 building or buildings, measured from fers at all. The concept is straight- itself, is typically called a “through- the exterior faces of the exterior walls forward: two or more owners of lot.” Zoning lot mergers have also or from the center lines of walls sepa- adjoining zoning lots enter into an been pursued by advertising com- rating two buildings.”4 Five pages agreement by which (a) the zoning panies. The maximum legal size of of items specifi cally included and lots are combined (i.e., merged), and a sign is dictated by the size of the excluded follow this defi nition. While (b) they apportion the resulting FA zoning lot. By having lots merge, ad- we will not delve into the intricacies among them. For example, A and B vertising companies can post larger here, a word of caution is warranted. own adjoining zoning lots, and each signs. is allowed to develop 100,000 sq. ft. An illegal use or development of FA. They merge the zoning lots, C. What Is a “Zoning Lot”? can result in more use of FA. For and now own a zoning lot with a Until now, we have referred to example, cellar space does not count maximum of 200,000 sq. ft. of FA. B “lots” and “zoning lots” indistinc- toward FA unless the cellar is be- records covenants and restrictions tively. The concept of a “zoning lot” ing used as dwelling space. After against her lot prohibiting her from was introduced by the 1961 Zoning accounting for this, one may fi nd using more than 70,000 sq. ft. of the Resolution. A “zoning lot” is defi ned that a lot did not have as much combined FA. As a result, A now has as “a lot of record existing on De- disposable FA as one thought. Other 130,000 sq. ft. available. There is no cember 15, 1961” or as a lot that may instances where FA may be acciden- actual transfer as would be the case result from a zoning lot merger.8 By tally increased are: (a) by enclosing in transfers involving special districts “lot of record,” the Zoning Resolu- steps, porches and galleries; (b) by or landmarks (neither of which will tion means a tax lot on the offi cial increasing off-street parking (such as be reviewed here). There is a merger tax map of the city of New York. The by covering yard with cement); and of zoning lots, with fi led covenants fi rst portion of the defi nition sets (c) by enlarging loading docks. In and restrictions against the parcel the starting line, the second portion short, the legality of the premises giving up development rights. That opens the door for zoning lot merg- involved in the transfer should be the other parcel can benefi t from the ers. “A ’zoning lot,’ therefore, may or checked. balance of the combined zoning lot is may not coincide with a lot as shown D. Other Means of Increasing FA only the result of merger and restric- on the offi cial tax map of the City of tion.5 The rationale in allowing this New York, or any recorded subdivi- A zoning lot merger is only one form of transfer is that the district sion plat or deed.”9 The fi rst task of way of increasing the original allot- density remains unaffected. The New the practitioner facing a zoning lot ment of FA. The zoning resolution York City Zoning Resolution (“ZR”) merger is determining which are the provides for other means, such as assigns a certain FAR to the district. zoning lots involved. It is common the purchase of excess development The city is neutral as to whether the practice to leave this determination rights from protected buildings FA is expended by one building or to the title companies. However, as (landmarks or special districts) that the one next-door, provided the lots, will be shown, identifying zoning lots they cannot legally use themselves. when seen jointly, remain within the can be a rather complex matter. The In addition, dedications of portions district FAR. relevant information exceeds the type of the property to the public use of records title companies are used to are rewarded with a bonus of FA. B. Applications working with. Therefore, blind reli- Examples include creating a public In order to be merged, lots must ance on the title company’s determi- park or indoor area at the ground be contiguous by ten linear feet and nation is ill-advised.10 level, building an archway or public must be within the same block.6 Any passage connecting public streets, or number of lots can be joined. The 1. Zoning Lot Mergers Between even constructing an alternative ac- requirement of ten feet is satisfi ed if December 15, 1961 and cess to the subway. While the closing complied with in sequence, e.g., lot August 18, 1977 attorney is not expected to be a build- A shares ten feet with B, lot B shares Between December 15, 1961 and ing planner, this information sheds ten feet with C, but A and C do not August 18, 1977, adjoining zoning light on dedications fi led on record, touch on each other. Occasionally, lots (and in the same block) would be consequences of their breach and the immediately adjoining lot, for merged if they were in single owner- rights to be reserved when merging example, B, has no disposable FA, ship at the time of the application for zoning lots. but will agree on a merger with A a certifi cate of occupancy or building III. Zoning Lot Mergers and C so that A can purchase FA from permit. Single ownership, however, C. B would naturally exact a fee and did not necessarily mean “single fee A. Introduction perhaps some other benefi t for this ownership.” The city had taken the 7 Zoning lot mergers are used to service. A lot that joins in a merger position that a ground lease with transfer development rights; how- to facilitate a transaction between a duration of 75 years, or a 50-year ever, they do not really cause trans- two other lots, without selling any FA lease with an option to increase it to

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 19 75 years, qualifi ed as “ownership.” did not occur as soon as the lots en- 3. Zoning Lot Mergers Before Developers would typically own in tered into “single ownership”; an ap- 1961 fee the parcel planned for develop- plication for a permit or certifi cate of It is undisputed that the concept ment and obtain ground leases on occupancy also had to be made. The of “zoning lot” was introduced by the surrounding lots meant to remain fact that an owner granted a ground Zoning Resolution of 1961. Therefore, vacant or underdeveloped. The lots lease to the adjoining owner did not there is support for the proposition were only required to adjoin each result in a merger. Consequently, the that there could not have been any other. The developer would submit zoning law would consider both the zoning lot mergers before 1961. Un- its application with the lease and fee owner and the lessee as the “own- fortunately, this is not the case.17 the permit would be issued for the er.” The Department of Buildings combined lots in single ownership. could legally entertain an application Air rights transactions pre-date The merger would then be noted (if from either party.13 The zoning law the 1961 resolution. The Empire State only by metes and bounds covering did not regard them as “co-owners” Building (1931) and 666 Fifth Avenue both lots) in the building fi le with the but each one as “the owner.” Each (1957) were built thanks to air rights resulting permit. one of them had the right to expend transactions.18 The original 1916 the available FA to the detriment of resolution imposed height limits, but Mergers dating from this pe- the other.14 allowed them to be waived in one riod present three problems. The instance. After reaching the height fi rst problem is that there was no The third issue is that ground limit the building could continue, if requirement that the ground leases leases, though long, expire or termi- thereafter it only occupied 25% of be recorded. Therefore, no diligent nate prematurely. If the minimum the allowable base area of the build- title search can reveal whether zoning term was 50 years (with an option ing. For example, if a building could lots have been merged. A developer to renew) and starting in 1961, then have 1,000 sq. ft. at its ground level, might have thought he or she was these leases could begin expiring the so-called “25% tower” could have purchasing vacant land in Manhattan in 2011. It appears that the Depart- up to 250 sq. ft. at each level, without (that alone should raise suspicion) ment of Buildings will allow these height limit.19 Soon thereafter, “the and then later discover that there was owners to continue to benefi t from Department of Buildings construed a preexisting ground lease requiring these mergers through the life of the a ’lot’ to include contiguous parcels the property to remain undeveloped building, rather than through the that were: (i) held in common owner- 15 for 75 years. A diligent search in expiration of the lease. Litigation ship; or (ii) held in separate owner- the Department of Building records by ground lessors is expected in this ship, provided that one of the parcels would not necessarily disclose the situation. benefi ted (sic) from the use of the lease either. The merger would only adjoining parcel’s air rights by way of be noted in the fi le of the building 2. Zoning Lot Mergers After August 18, 1977 an air rights sale, lease, or other con- that benefi ted from it, not in the fi le veyance.”20 In 1959 this interpretation of the transferor lot. This issue was It was the 1977 amendment that of “lot” for the purposes of waiving mostly cured by the 1977 amend- fi nally disassociated development height restrictions was codifi ed into ment, which, among other things, rights and land ownership. “Single New York City Zoning Resolution required all such ground leases to be ownership” is no longer required to (hereinafter ZR) section 9(d). recorded no later than August 1, 1978. merge lots. Rather, the current zoning We say “mostly cured” because a resolution merely requires adjoining It can be argued that none of this troublesome fact pattern remains un- owners (or the same owner, should amounted to a zoning lot merger. resolved. If a building was completed he or she be the same person) to fi le a These might have been requirements and the certifi cate of occupancy was statement declaring the lots merged. for the issuance of permits and certifi - issued prior to August 18, 1977, the This statement, called a “Declaration cates of occupancy. To say that these developer would have had little inter- of Zoning Lot Restrictions,” must be transactions constituted zoning lot est in recording the ground lease and fi led with the City Register, or with mergers, when the concept was not the Department of Buildings would the County Clerk, if fi led in Rich- introduced until 1961, would mean have had little leverage to require it mond County.16 Therefore, mergers reclassifying them retroactively. (even assuming that fi les for ap- occurring after August 18, 1977 are The 1961 Zoning Resolution pre- proved buildings would be revisited easily revealed by a title search. The sented three alternative defi nitions of to check this).11 Therefore, a purchas- procedure for merger will be ex- “zoning lot.” Two of them we have er of underdeveloped land could still plained below. reviewed in Section 1, supra, which fi nd that the property is subject to a are a lot of record in the offi cial tax private ground lease.12 map in effect on December 15, 1961 The second problem of mergers and zoning lots resulting from merg- from this period is that the merger ers after 1961. We are now concerned

20 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 with the third defi nition of “zoning that there is an ’acquisition The consequences of this are lot” in the 1961 resolution: of the air rights . . . [per- troublesome. This reading means that taining to one such parcel] lots were merged or deemed merged (b) A tract of land, either by deed, lease or other retroactively at least as far back as unsubdivided or con- written instrument’ for the 1931. Since the buildings would have sisting of two or more benefi t of the other parcel. been completed long before 1978, contiguous lots of record, The viability of this defi ni- there would have been no interest in located within a single tion of a “lot’’ was tested recording air rights leases or “other block, which, on the effec- when, in 1956, C.L.R. conveyances.” As a result, there is tive date of this resolution Realty Co., the owner of a another layer of unrecorded leases or any subsequent amend- parcel apparently restrict- that might determine the zoning lot. ment thereto, was in single 21 ed by an air rights lease Moreover, the older the building ownership[.] (underlin- sued the Commissioner record, the more cryptic it is. ing added, italics in the of Housing and Buildings original.) and the owner of a con- 4. Certifi cate of Occupancy Searches This subsection (b) appears to tiguous benefi ted parcel have been meant to subsume pre- with a twenty-fi ve percent Sometimes a certifi cate of occu- 1961 transactions into zoning lots. tower. The plaintiff sought pancy is approved subject to condi- The underlined portion clearly refers to remove any restriction tions, such as an easement for emer- to something in place at the time from his apparently re- gency egress through an adjoining of the writing (note the use of the stricted parcel and thereby lot. These conditions can sometimes past tense “was”). Moreover, “single establish its independence. have implications for the purpose ownership” are the precise words that He sought a declaration of determining the zoning lot. For the immediately following subsec- that the twenty-fi ve per- instance, the author has seen certifi - tion (c)22 uses to refer to what we cent tower had no effect cates of occupancy that read, “Note: call a zoning lot merger (no statute, on any development rights Entire lot to remain in single owner- not even the current one, uses the that accrued to the plain- ship.” Needless to say, this very much word “merger”). The fact that there tiff’s parcel. The defen- suggests that a zoning lot merger has is no reference to ground leases, or dant argued that once the occurred. Similarly, the certifi cate of any other form of air rights convey- parcels were severed, the occupancy could make reference to ances, is not surprising. Subsection (c) tower would more than unrecorded leases, a negative ease- does not refer to them either. There double its coverage in rela- ment for light and air, or a variance. was probably no need to because tion to the reduced size of The fact that one of the lots involved “single ownership” had already been its owner’s parcel and be- is subject to a variance can jeopardize interpreted to include them. Our come markedly non-com- a merger as will be explained below. current Zoning Resolution contains plying as to bulk. The New In sum, review of the certifi cate of a practically identical subsection (b), York Supreme Court held occupancy for the lots to be merged using the words “single ownership” for the defendants and dis- should be on the practitioner’s due without italics. missed the complaint. The diligence list. decision was affi rmed on Norman Marcus, former counsel appeal.23 (Internal citations 5. About Unrecorded Leases and to the New York City Planning Com- omitted.) Undisclosed Prior Mergers mission, was of the opinion that these If a zoning lot was merged and It should be noted that the 1959 pre-1961 transactions effected merg- expended its development rights, the amendment to ZR § (9)d, the refer- ers. In 1984 he wrote: Department of Buildings could deny ence to lots that were in single owner- new applications on that basis. For In 1959, this ruling was ship prior to the 1961 ZR, and the that reason, practitioners should keep codifi ed by an amendment excerpt from Marcus’ article, above, an eye out for any hints of unre- to section 9(d) that both turn on the defi nition of “lot” or corded leases, such as references in the City Planning Com- “zoning lot,” not on building require- the certifi cate of occupancy, or even mission and the Board of ments. Therefore, the conclusion references in other documents in Estimate approved. The that these pre-1961 actions merged the title records. There is no formula amendment provided that zoning lots cannot be escaped, even to discover unrecorded leases. The with respect to buildings if the terms “zoning lot” and “zon- most conservative approach would erected or being erected on ing lot merger” were only coined be to request the building fi le of or before October 14, 1959, subsequently. a “lot” could embrace con- every building on the block. A more tiguous parcels, provided practical one would be to request the

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 21 building fi les only for those build- This only provides some comfort as one “zoning lot’’ for the ings that are too large for their lots. to the practitioner. Private parties purpose of this Resolu- The client’s building planner, or any who oppose the development might tion. Such declaration shall professional familiar with build- search for and fi nd the lease, and be made in one written ing requirements, could be of great then report it to the Department. The Declaration of Restric- assistance identifying suspect build- Department has the duty to enforce tions covering all of such ings. Signage extending beyond the the ZR, but not the right to dispense tract of land or in sepa- lot can also hint at a merger, as well with provisions. Waivers, i.e., vari- rate written Declarations as a building dwarfed by its neighbor. ances, can only be given by the Board of Restrictions covering Once suspect buildings are identifi ed, of Standards and Appeals. Therefore, such parts of such tract building fi les for them can be request- if the Department receives proof that of land and which in the ed to investigate what their approvals a lot has been merged and that grant- aggregate cover the entire were based on. ing a permit will result in a viola- tract of land comprising tion of the ZR, then the Department the “zoning lot”. Any Despite our warning, the reader would be bound to deny the permit. Declaration of Restrictions should know that it appears that the or Declarations of Restric- Department of Buildings has quietly The problems caused by un- tions which individually decided to ignore over-development recorded mergers extend beyond or collectively cover a tract that may result from undisclosed the context of development rights of land are referred to zoning lot mergers. Many factors purchases. Searching for them should herein as “Declarations.” point to this conclusion. First, we be considered in connection with the Each Declaration shall be know that the city has adopted the purchase of properties in Manhat- executed by each party policy that development rights “are tan. For example, if a building was interest (as defi ned herein) not recoverable during the life of the erected with the benefi t of an un- 24 in the portion of such tract improvement.” Hence, no action recorded merger and it then burns of land covered by such will be taken against completed down, the owner might not be able to Declaration (excepting any buildings. Second, the purpose of the rebuild it. If the owner cannot prove such party as shall have recording requirements in the 1977 to the Department that the lot ben- waived its right to execute amendment was not only to protect efi ts from a merger, the permit will be such Declaration in a writ- private parties but to protect the denied. Even if it can be proven, there ten instrument executed city’s interest against overbuilding is the risk that the other lot might by such party in record- as well. This suggests that the city is have been issued permits without able form and recorded at hardly any better positioned to detect knowledge of the merger, thereby 25 or prior to the recording prior mergers than private parties. expending the FA. The owner might of the Declaration). Each Third, because the City could not fi nd that its replacement building will Declaration and waiver of detect them, the actual language of be smaller, even though there was no right to execute a Declara- the 1977 amendment required a zon- down-zoning. tion shall be recorded in ing lot description to be fi led on every the Conveyances Section application, regardless of whether a D. Mechanics of the Zoning Lot 26 Merger of the Offi ce of the City new merger was intended. The plan Register or, if applicable, appears to have been to defi ne and The current statute on mergers the County Clerk’s Offi ce record a zoning lot description every reads: of the county in which time the Department of Buildings such tract of land is lo- visited a building fi le. If a merger A “zoning lot’’ is either . . . (d) a tract of land, cated, against each lot of was not fi led before, it would be fi led record constituting a por- as the Department opened the fi le either unsubdivided or consisting of two or more tion of the land covered by for any reason. Mergers on building such Declaration.28 fi les would then appear in the title lots of record contigu- records. However, the Department ous for a minimum of ten The requirements regarding con- has chosen not to apply this portion linear feet, located within tiguity by ten feet, that the lots must of the ZR.27 All in all, the Department a single “block”, which be in the same block, and that the might have given up searching for at the time of fi ling for a Declaration must be fi led in the land undisclosed leases and decided to building permit (or, if no records are self-explanatory. The form address the problem with the new building permit is re- and content of the Declaration poses rules over decades as buildings are quired, at the time of fi ling no diffi culty either. On May 18, 1978, replaced. for a certifi cate of occu- the Acting Commissioner of Build- pancy) is declared to be a ings promulgated forms (often called tract of land to be treated Exhibits I through V) to be used.29

22 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 The only diffi culty here is determin- superior to the owner’s, or, rather, of the usable area of the building and ing who the “parties in interest” are. because they simply do not possess a 95% of the total area of the building, The procedure and form will be ad- real property interest.32 and claimed that it fi t under both (X) dressed briefl y. and (Y).35 The Court of Appeals noted Nevertheless, judgment credi- that the drafters of the resolution 1. Parties in Interest tors can qualify under (Y). The test chose the words “tract of land” as op- here is merely that their interest (a) A “party in interest” in posed to “land and improvements” be recorded and (b) that it be ad- the portion of the tract of and concluded “that the phrase ’tract versely affected by the Declaration. If land covered by a Declara- of land’ refers only to the underlying the merger reduces the value of the tion shall include only (W) surface land and does not embrace property, which can be presumed, if the fee owner or owners buildings on that land.”36 The Court the lot gave something up for consid- thereof, (X) the holder of reasoned that it would be impractical eration, then the lienholder would be any enforceable recorded to require space tenants to sign off on adversely affected by the Declaration. interest in all or part there- mergers and that it would undermine The lesser the value of the debtor’s of which would be supe- the purpose of the zoning resolu- real property, the lower the chance rior to the Declaration and tion, which is “to promote the most that the creditor might collect in which could result in such desirable use of land and direction of full. Hence, the creditor of a judg- holder obtaining posses- building development . . . .”37 Under ment recorded against the transferor sion of any portion of such MacMillan, no tenant is a party in lot qualifi es as a “party in interest” tract of land, (Y) the holder interest except for a ground lessee under (Y). Lienholders in general of any enforceable record- because it has an interest in the tract qualify under (Y) if their lien attached ed interest in all or part of land and not just in the use of the to the transferor lot. thereof which would be building.38 adversely affected by the The reader may properly ask The MacMillan holding has met Declaration, and (Z) the whether the lienholders of a through- with considerable resistance by prac- holder of any unrecorded lot can be considered “adversely titioners. Consider “[a] space tenant interest in all or part affected.” There is no law to answer with a right to make improvements thereof which would be this, so the practitioner is encouraged that may increase the amount of superior to and adversely to take the conservative approach fl oor area being used, in confl ict with affected by the Declara- and address the liens. With that said, the total available, retained FAR.”39 tion and which would be it is the writer’s opinion that they While a plain reading of the statute disclosed by a physical should not be considered “adversely could support that this tenant is a inspection of the portion affected.” The value of the through- party in interest, after MacMillan this of the tract of land covered lot is unaffected by the merger (the can no longer be the case. The fact by the Declaration.30 new building may have an impact, that the landlord may have frustrated but that’s a different question). The It is undisputed that fee owners the tenant’s right to develop would opportunity to act and benefi t as a are parties in interest under (W). All be a breach of the lease but not a through-lot is pure chance, unique to others need clarifi cation. defect in the merger. the moment. If it lapses because the a. Mortgagees, Remaindermen, lienholder refuses to consent, there is Other diffi cult cases are conceiv- Life Tenants and Contract no guarantee that a valuable interest able. An advertising company that Vendees has been preserved because the op- has a lease for a sign on the building, portunity may not repeat itself. The which will be eclipsed by the devel- Mortgagees, remaindermen, same advice and rationale to the con- opment next door, might consider life tenants and contract vendees 31 trary applies to the case of mergers itself “adversely affected,” as may have an interest superior to that of for signage purposes, where no lot general parties who will suffer con- the owner’s, which could develop gives up any development rights.33 gestion or interference in light and air into possessory rights, and could be because of the new development. It adversely affected by the Declara- c. Tenants was the view of the Appellate Divi- tion. Therefore, they may qualify In MacMillan, Inc. v. CF LEX Asso- sion, the lower court in MacMillan, under (X), (Y), and (Z), depending on ciates, the landlord of the offi ce build- that “tract of land” was more than whether their interest is of record or ing at 866 Third Avenue was sued “plot of land,” and that the notion of can be ascertained by inspection. by its tenant for merging the zoning “parties in interest” was an invita- b. Lienholders lot without declaring the tenant as tion for affl icted parties to opine on a party in interest, thereby failing to the development.40 The Appellate Unlike mortgagees, miscel- procure the tenant’s approval.34 The Division did not elaborate on what laneous lienholders cannot qualify tenant contended that it used 100% under (X) because their interest is not

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 23 interests would merit protection, but delivered at closing, and every party jeopardize the allocation. There is decided that the 95% space tenant in interest must either waive or join. no need for an elevation survey, as did.41 As we know, however, this in- Waivers must be in the form of would be the practice when a de- terpretation was rejected by the Court Exhibit V. It should be noted that the veloper wishes to identify air space of Appeals.42 The ruling of the Court Exhibit IV does not cause the merger to remain vacant for light and air. of Appeals is best understood when itself. It is only a request by the par- A transferor lot does not need to contrasted with the lower decision it ties that the lots be treated as one covenant not to build above a certain was asked to review. zoning lot. The merger itself occurs height. The height of buildings is ir- subsequently, upon the fi ling of an relevant. What matters is the amount d. Easement Holders application for a permit or certifi cate and kind of FA used. A building can The question of easement holders of occupancy.45 increase its FA use without increasing has been largely resolved by Mac- its height, e.g., by illegal occupancy, Millan. It is well-settled law in New E. The Zoning Lot Development by building a garage underground, York that an easement is merely a Agreement or by creating a mezzanine level right to use but not a right to the land The merging of zoning lots is a in what was an opulent entrance itself.43 Therefore, if easement hold- matter of zoning law; the allocation of level. The courts will enforce private ers do not have rights to the “tract the combined FA among the owners agreements restricting development of land” itself, then they cannot be is a matter of private law.46 So far, we merely by preventing further use of considered “parties in interest.” have explained how the zoning lots FA and will look into the ZR for a are merged. Now, we will discuss the determination.51 2. Certifi cate of Ownership contract that the parties enter into 2. Parties Once the parties in interest have to apportion development rights be- been identifi ed, they must either join tween them. This agreement is called Since the purpose of the ZLDA in the merger or waive their rights. the Zoning Lot Development Agree- is to create a negative easement, it There is no difference between join- ment (“ZLDA,” pronounced “zelda”). would seem that the ZLDA would ing and waiving, except that the The ZR makes no reference to this only require the same parties as actual fee owners are expected to and it does not control agreements would be necessary to create a valid join. Mortgage lenders, however, are among the owners. easement. However, we must not usually asked to waive and subordi- forget that in order to determine who nate their interest. This formula is not 1. A Negative Easement was a party in interest by reason redundant. The waiver is necessary The purpose of the ZLDA is to of being “adversely affected,” we pursuant to the zoning law, and the create development restrictions on made representations regarding subordination is necessary pursuant the transferor lots, and any through- which lots would lose and which to the real property law. The former lots, so that more FA is available to lots would earn development rights. is a merger requirement (i.e., neces- the purchaser’s lot. In the language of These representations do not appear sary under the zoning law), and the real property law, a covenant running in the merger documents, i.e., in latter protects it from destruction by with the land restricting its develop- the Exhibits IV and V. The resulting foreclosure (i.e., necessary under real ment is a negative easement, even if apportionment only appears in the property law). After all the parties the words “negative easement” are ZLDA. Therefore, it is the suggested are accounted for, a title company is not used. The labeling is important to practice to have all the “parties in to issue a certifi cate of ownership, understand the set of rules that will interest” join or waive their right to also called a “certifi cation pursuant to govern it. For example, a negative join in the ZLDA, even if these parties zoning lot” or an “Exhibit II,” which easement cannot be created except by are not required to create the negative identifi es the parties in interest and written conveyance or reservation.47 easement. which represents that all parties have Since an easement is an interest in either joined or waived of record. real property, it is recordable.48 Ease- 3. Other Matters Covered in the This certifi cate is then recorded in ments are also interpreted restric- ZLDA the land records and a certifi ed copy tively.49 Most importantly, negative At a minimum, the ZLDA should of it is fi led with the Department of easements are subject to the two-year contain representations and warran- Buildings.44 release statute in New York Real ties regarding the availability of FA Property Actions and Proceedings and prior mergers, provide for the 3. Declaration of Zoning Lot Law.50 contingencies of down-zoning or up- Restrictions zoning, compel the parties to agree The restriction itself need only The document that evidences to subsequent mergers with new declare how much of the combined the consent to the merger is called lots, and provide who will benefi t FA will be made available to each lot the Declaration of Zoning Lot Re- from the additional FA. In addition, and prohibit development that may strictions (Exhibit IV). It is usually the owners of the transferor and of

24 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 the through-lots should covenant to G. Transfer Taxes and is now paying $2 million for the support the new building in all public The sale of development rights development rights, he or she would hearings, or at least not to contest it. is subject to the State Real Estate want to be insured in the amount of $12 million. Relying on her original 4. Recording Transfer Tax and to the City Real Property Transfer Tax. There is no $10 million policy would leave him The ZLDA should be recorded, if uniform convention as to which party or her under-insured by $2 million. In only because it creates an interest in is responsible for them. However, addition, it is uncertain whether the real property. It is important that all since the transfer taxes are the seller’s endorsement would be effective since subsequent owners be on notice of liability under the statute, a silent it would suffer from a fundamen- the allocation. Otherwise, a bona fi de contract would make the seller liable tal fl aw: Insurance policies protect purchaser would only be on notice for them. through the Date of Policy, but on the of the merger itself (because of the Date of Policy there was no zoning zoning lot restrictions of record) and H. Title Insurance lot merger. Was there an insurable of whatever its seller represents to be interest on the Date of Policy? 1. The New York City the allocation. “Development Rights” A new policy, as in the drafter’s F. “As-of-Right” Development Endorsement plan, insuring the land with the Title insurance is available to endorsement would be unacceptable. Most applications for permits and The developer will object to having certifi cates of occupancy are done insure the purchase of FA through zoning lot mergers. At fi rst sight, one to re-insure his or her land for the “as-of-right.” This means that the full amount. And if the developer application complies with all zoning would think that title insurance pres- ents hardly any diffi culty. There is were to request a new policy only regulations and that no discretionary in the amount of the FA purchase approval is required. The fact that an endorsement, the “New York City ’Development Rights’ Endorsement,” price, he or she would encounter an application calls for FA acquired two problems. First, the Title Insur- pursuant to a zoning lot merger does available for the Owner’s Policy and the Loan Policy, which insures (a) that ance Rate Manual forbids title insurers not prohibit its “as-of-right” status; from issuing an Owner’s Policy in however, there is an exception. the “parties in interest” have joined in the merger, (b) the validity of the an amount lower than the greater of A lot that benefi ts from a vari- ZLDA, and (c) that the ZLDA is effec- the contract price or the value of the 58 ance cannot be merged without the tive to transfer development rights. interest. Since the purchase price approval of the Board of Standards The endorsement does not insure of the FA is by defi nition less than and Appeals.52 Variances are granted either the amount of FA transferred the value of the FA plus the value of as a measure of relief to properties or any matters of zoning law relating the land, the insurer will refuse to particularly prejudiced by the appli- to use and occupancy. The cost of the issue the policy. Second, the policy cable zoning regulations. In Bella Vista endorsement is only $25. would cover the entire project, so Apartment Co. v. Bennet, the owner that payments on losses against the had obtained a variance to build a 2. The Problem of Separate Land developer’s main lot will reduce the movie theater in a residential district, and Development Rights coverage available for the develop- but that would use less FA than its Transactions ment rights.59 allocation.53 Years later, a developer The drafters of the endorsement 3. A Possible Solution merged the lot with a neighboring clearly envisioned a developer pur- lot to benefi t from the unused FA chasing a tract of land simultaneously Title insurers have created a and applied for a building permit with the purchase of development policy to insure only the purchase of 54 “as-of-right.” The application was rights. A regular title policy would be FA by zoning lot merger. It consists denied and the litigation that resulted issued in the total amount of the pur- of the regular 2006 ALTA Owner’s 55 reached the Court of Appeals. The chases and the endorsement would Policy with variations in the legal Court, ruling for the city, reasoned be attached to it. The endorsement description and of schedules A and that allowing the movie theater to fi ts this transaction squarely. B. Schedule A specifi es that it only profi t from its excess FA by a sale to covers the insured’s interest under the developer would “undermine the But what if the developer already the attached New York City “Devel- basis for the use variance grant”; to purchased and insured his or her opment Rights” Endorsement and wit, that the owner could not make tract of land? What if the purchase of that the source of title is the ZLDA, a reasonable return under the appli- development rights occurred sub- which is also excepted in schedule B. cable zoning regulation.56 Therefore, sequently to the land deal? Simply The legal description includes all lots the lot could not be merged without issuing the endorsement later to be involved in the merger, but separates a decision by the Board of Standards made part of the policy is no suitable the insured’s “fee parcel” and the and Appeals on whether it still mer- solution. To begin with, if the devel- “development rights parcels,” with ited the variance.57 oper paid $10 million for the land

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 25 the latter being listed “for informa- 4. A Proposed Solution this task. A review of the title records tion only.” A different policy for develop- ranks high in the due diligence list, but it is not conclusive. The problem with this policy is ment rights transfers is conceivable. that the standard terms of the ALTA The problem with the current one is A conservative approach to the are at odds with the intended cover- that by insuring a zoning lot merger risk of undisclosed mergers is to age. For example, the policy insures it mixes zoning and real property inspect the building fi les of every against lack of access to the “land.”60 laws. A practical solution would be to building on the block. A more practi- If by “land” is meant the “fee par- create a title policy that only insures a cal approach is to identify suspect cel,” we are once again in a situation property law interest, i.e., without the buildings, i.e., buildings that appear where the policy inadvertently covers New York City Development Rights to be too large for their lots and were a broader interest. More importantly, Endorsement. As explained above, built prior to 1978, and inspect those it is not clear what the result is of the purchase of development rights building fi les. The client’s building citing the ZLDA as the source of title through a zoning lot merger involves planner could be of great assistance in schedule A and excepting it alto- (a) the merger under the zoning identifying suspect buildings. gether in schedule B.61 On a similar law, and (b) the building restriction Once the lots to be merged have note, the standard policy insures on the transferor-lot under the real been identifi ed, determining the “par- against lack of marketability of title.62 property law. The proposed policy ties in interest” is straightforward This coverage, designed with prin- would cover only (b), and would, thanks to the Court of Appeals’ strict ciples of real property law in mind, in effect, insure a negative easement interpretation of “tract of land” in wreaks havoc in terms of zoning on the transferor lot. The fact that it MacMillan. Generally, the “parties in law. It implies that the insured is would not cover against (a) would interest” are the fee owners, life ten- free to transfer its interest under the be a concern, but one that could be ants, remaindermen, contract vend- ZLDA. Needless to say, this cannot easily corrected. The ZLDA would ees, ground lessees and mortgagees be. Any further transfer will require need a provision declaring it void (or of all the lots and the lienholders of a new merger and, concomitantly, at least, the negative easement void) the transferor and through-lots. the approval of the original trans- in the event the merger is declared 63 void ab initio. The title policy would feror, and perhaps even a municipal Finally, there is title insurance only need to insure affi rmatively approval. In addition, a zoning lot available which protects against against voidance by reason of defect merger involves clearing liens against prior, unrecorded mergers. However, in the zoning lot merger.65 Then, any all lots involved, including the the validity and extent of these title challenge to the merger would effec- purchaser’s own. When this is taken policies, drafted in real property tively be a challenge to the negative into account, we may fi nd that the law terms, as to zoning law interests easement as well. The policy would amount of coverage left for protection remains to be tested. And just as in be delivered at closing without any against liens on the transferor’s lot every construction project, indemnity issues as to whether there was an is actually lower than the purchase of the purchase price is an imperfect insurable interest at closing. More- price (i.e., the face amount of insur- remedy to a developer who would 64 over, this approach would also avoid ance). Lastly, there is a question as have also expended time and re- an uncomfortable question we have to whether the policy is valid at all, sources drafting plans and obtaining not addressed, namely, whether title since it is issued at closing, but the permits, not to mention the loss of insurance companies possess the actual merger (as shown above) oc- profi t and the attorneys’ fees. curs subsequently, on the fi ling for a power to insure matters of zoning 66 permit. Is there an insurable interest law at all. Some provisions, such as at the date of closing? the coverage on access to land, would Endnotes have to be amended in schedule B. 1. See generally, NEW YORK CITY DEP’T OF To summarize, the terms of Other provisions, such as marketabil- CITY PLANNING, ZONING HANDBOOK (2006) the development rights policy are ity, could be left untouched.67 (the author recommends this for an excellent introduction to the zoning law awkward and possibly confl ict with of the city of New York). the intention of the parties. It has not IV. Conclusion 2. See generally, NEW YORK, N.Y., ZONING yet been subject to interpretation by The only diffi culty in zoning lot RESOLUTION art. VII, available at http:// the courts, so its application remains mergers is identifying the zoning lots www.nyc.gov/html/dcp/html/zone/ zonetext.shtml (last modifi ed March uncertain. The closing attorney can to be merged. This task is typically take comfort in the knowledge that 24, 2009) (describing 18 use groups, of relegated to the title companies to de- which, the fi rst two are residential, the insurance policies are typically inter- termine from title records. However, following three are community facility preted in the light most favorable to because the diffi culty lies precisely use, the last three are industrial, and the rest are commercial). the insured. At any rate, it’s the only in the fact that mergers may have policy available. occurred without notice in the title re- 3. It should be kept in mind that if a part of a building is used for residential cords, title companies are ill-fi tted for

26 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 purposes the amount of FA dedicated free to exercise them and to build to the modifi cations to the defi nition of zoning to community facility can be severely maximum allowed by law.” Kenvic at 492, lot, N 760226 ZRY, Cal. No. 27 (July 13, limited. 492 N.Y.S.2d at 730.). 1997) (on fi le with author). 4. New York, N.Y. Zoning Resolution, art 15. See supra footnote 10. 25. Id. (“[T]he recording of the declaration I, ch. 2, § 12-10, available at http://www. will eliminate the current problem of not 16. NEW YORK, N.Y. ZONING RESOLUTION, being able to determine from the public nyc.gov/html/dcp/html/zone/zonetext. art I, ch. 2, § 12-10, available at http:// record whether the building has been shtml (last modifi ed March 24, 2009). www.nyc.gov/html/dcp/html/zone/ built in part on the basis of development 5. Id. (“zoning lot,” subparagraphs (d) and zonetext.shtml (last modifi ed March rights applicable to land on which the (f)). (Subparagraphs (c) and (e) introduce 24, 2009) (“zoning lot,” subparagraphs building is not physically located. The the procedure for zoning lot mergers (c), (d), and last paragraph). The statute amendment thus proposed protects the when all lots to be merged are owned requires that a zoning lot certifi cate City’s interest in avoiding overbuilding, by the same party. While the procedure be fi led even when there is no merger and provides private parties with a is substantially similar to the case of and the tract of land is the same as the certainty based on which they can protect different parties, its discussion exceeds corresponding tax lot from December their own interests.) the subject matter of this article, as it is 15, 1961. However, the Department of not a purchase.) Buildings has chosen not to apply this The author made an informal inquiry to provision. See Memorandum of New the Department of Buildings. The inquiry 6. Id. (“zoning lot,” subparagraph (d)). York City Department of Buildings, was: If a lot merged and conveyed 7. See WILLIAM NEUMAN, Selling the Air Zoning Lot Certifi cation Pursuant to Section development rights before the recording Above, NEW YORK TIMES, March 5, 2006, 12-10 of the Zoning Resolution, from Acting requirements were in place, and years at Real Estate Section, available at http:// Commissioner Irving E. Minkin, P.E., to later the owner applied for a building www.nytimes.com/2006/03/05/ the Borough Presidents (May 18, 1978) permit only for that lot, when and how realestate/05air.html. (on fi le with author). would the prior merger come up? The informal answer was that it would not. 8. § 12-10 (zoning lot, paraphrased for ease 17. We have left this discussion for last The application would be made “as of of exposition). because there is skepticism among right” and everything fi led against the practitioners regarding these mergers. 9. Id. applicant lot would be read. But if there Regular standards of review today do not is no hint in that fi le that the building 10. A common mistake in this area is to order include searching for pre-1961 mergers. searches solely on the transferor-lot. At a next door expended the fl oor area minimum, searches on the transferee-lot 18. Marcus, Norman, Air Rights in New York already, it might not be detected. City: TDR, Zoning Lot Merger and the Well- will be required as well. 26. NEW YORK, N.Y. ZONING RESOLUTION, art Considered Plan, 50 BROOK. L. REV. 867, 873 I, ch. 2, § 12-10, available at http://www. 11. In re Amendment of the Zoning (1984). Resolution pursuant to section 200 nyc.gov/html/dcp/html/zone/zonetext. of New York City Charter relating to 19. NEW YORK, N.Y., ZONING RESOLUTION shtml (last modifi ed March 24, 2009) Chapter 2, § 12-10 (Defi nition) concerning art. I, ch. 1 § (9)(d) (1916) (current version (“zoning lot,’’ last paragraph). at NEW YORK, N.Y., ZONING RESOLUTION modifi cations to the defi nition of zoning 27. See Memorandum of New York City art. I, ch. 2, § 12-10, available at http:// lot, N 760226 ZRY, Cal. No. 27 (July 13, Department of Buildings, Zoning Lot www.nyc.gov/html/dcp/html/zone/ 1997) (on fi le with author) (“[A]s City Certifi cation Pursuant to Section 12-10 zonetext.shtml (last modifi ed March 24, policy, unused development rights of the Zoning Resolution, from Acting 2009). which are transferred from one parcel to Commissioner Irving E. Minkin, P.E., another parcel within the same zoning 20. Marcus, supra note 18, at 871–72. to the Borough Presidents (May 18, lot are not recoverable during the life of 21. NEW YORK, N.Y., ZONING RESOLUTION art. 1978) (on fi le with author). In that 1978 the development [. . . ].”) (The city does I, ch. 2, § 12-10(b) (1961) (current version memorandum, the application of this not revoke certifi cates of occupancy for at NEW YORK, N.Y., ZONING RESOLUTION section was limited to issuance of permits fi nished buildings because of terminated, art. I, ch. 2, § 12-10, available at http:// and certifi cates of occupancy and only rescinded or invalid leases.). www.nyc.gov/html/dcp/html/zone/ where the lots in single ownership were 12. This is an instance where principles of zonetext.shtml (last modifi ed March 24, held by different parties in interest. real property law must be distinguished 2009). Nowadays, it appears that it is dead from principles of zoning law. A bona fi de script altogether. 22. Id. at § 12-10(c) (“A tract of land, located purchaser for value without notice after within a single block, which at the time 28. § 12-10 (Subsection (c) introduces a a diligent search may take free of the of fi ling for a building permit [or, if no similar mechanism for merging lots undisclosed lease. However, the validity building permit is required, at the time owned by the same party. We will of the lease between the parties would of fi ling for a certifi cate of occupancy], is concern ourselves here with arm’s length be irrelevant to the City, which would designated by its owner or developer as mergers only.). take the position that the lots have been a tract of land all of which is to be used, merged and the combined FA already 29. See Memorandum of New York City developed, or built upon as a unit under expended. Department of Buildings, Zoning Lot single ownership.”) (italics in original). Certifi cation Pursuant to Section 12-10 13. Once again, whether an application 23. Marcus, supra note 18, at 872. (citing of the Zoning Resolution, from Acting by the lessor breached the terms of the C.L.R. Realty v. S.F.S. Realty, No. 41234- Commissioner Irving E. Minkin, P.E. to lease is a matter of private law between 1956 (Sup. Ct., N.Y. Co., Sept. 14,1956) the Borough Presidents (May 18, 1978) lessor and lessee, and of no interest to the (unpublished decision), aff’d, 2 A.D.2d (on fi le with author) (The forms are Department of Buildings. 972, 158 N.Y.S.2d 753 (1st Dep’t 1956) available at every title company and are 14. See Newport Associates v. Solow, 30 N.Y.2d (mem.), and appeal denied, 3 A.D.2d 701, easy to complete. Therefore, we will not 263, 332 N.Y.S.2d 617, 283 N.E.2d 600 160 N.Y.S.2d 618 (1st Dep’t 1957)). go over them here.). (1972); see also 873 Third Ave. Corp. v. 24. In re Amendment of the Zoning 30. § 12-10 (”zoning lot” subparagraph (f)(4)) Kenvic Associates, 109 A.D.2d 489, 492 Resolution pursuant to section 200 (There is a different but similar defi nition N.Y.S.2d 727 (1st Dep’t 1985) (“[T]he of New York City Charter relating to for “party in interest” when merging Court of Appeals held that so long as no Chapter 2, § 12-10 (Defi nition) concerning lots in single fee ownership, pursuant to one had exercised the air rights, each was subparagraph (c).).

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 27 31. The meaning of “superior interest” be a party in interest. This, however, their liability to $1,000 on the Exhibit can easily be misunderstood. Despite does not explain why new mortgages II. It can hardly be a matter of expertise the fact that this appears in the Zoning are ignored. The Zoning Resolution either. Reviewing documents of record Resolution, we must bear in mind that does not distinguish between original and issuing opinions regarding real the drafting of this particular section and subsequent mergers. They are both property rights (or zoning rights) is legal “was undertaken in consultation with subject to the same rules. work under any defi nition. The only reason why title companies are allowed the Committee on Real Property Law 34. 56 N.Y.2d 386, 452 N.Y.S.2d 377, 437 to issue regular certifi cates of title, i.e., of the Association of the Bar of the City N.E.2d 1134 (1982). of New York.” In re Amendment of the title reports, in the fi rst place is because Zoning Resolution pursuant to section 35. Id. at 389, 452 N.Y.S.2d at 378, 437 N.E.2d of an exception in the Judiciary Law. N.Y. 200 of New York City Charter relating to at 1135. JUD. LAW § 495(5) (McKinney 2005). Why Chapter 2, § 12-10 (Defi nition) concerning 36. Id. at 391, 452 N.Y.S.2d at 380, 437 N.E.2d should the Zoning Resolution prohibit modifi cations to the defi nition of zoning at 1137. attorneys from issuing the certifi cate of lot, N 760226 ZRY, Cal. No. 27 (July 13, ownership? 1997) (on fi le with author). Therefore, 37. Id. at 392, 452 N.Y.S.2d at 380, 437 N.E.2d at 1137. 45. § 12-10 (“zoning lot,” subparagraph (d), because this section relates to interests “a tract of land . . . consisting of two or in a “tract of land,” it is proper to give 38. Ground leases are different from space more lots of record, which at the time of this term its specifi c meaning in the real leases in that they convey the owner’s fi ling for a building permit . . . is declared property law. estate for a term of years. As opposed to be a tract of land to be treated as one In real property law, a “superior interest” to space leases, they convey the land “zoning lot” . . .) (italics added). is merely one that the holder of the as well, and therefore fi t within the MacMillan standard of having an interest 46. See generally 402 West 38th St. Corp. v. 485- inferior one cannot destroy. It does not 497 Ninth Avenue, 16 Misc. 3d 1131(A), mean that the superior interest can in the “tract of land.” In fact, and to illustrate their nature as a conveyance 847 N.Y.S.2d 901, 2007 WL 2429695, 2007 divest or dispossess the inferior one. For N.Y. Slip Op. 51654(U) (Sup. Ct., N.Y. example, a right of way is a superior of title, they can be created by deed. The only change that a standard deed Co. 2007) (providing an example of the interest to the landowner’s because the supreme court distinguishing between landowner cannot rid himself or herself would require is the substitution of the word “forever” for a defi nite term in the zoning duties under the ZR and private of it. See BLACK’S LAW DICTIONARY 1478 rights under the ZLDA). (8th ed. 2004). Examples of this use in habbendum clause (e.g., “to have and to cases abound. See Canfi eld v. Ford, 28 hold [for X number of years]”). 47. See Eng v. Shimon, 12 Misc. 3d 1174(A), Barb. 336 (Sup. Ct., N.Y. Co. 1858) (“This 39. Michael J. Berey, Development Rights 820 N.Y.S.2d 842, 2006 WL 1789085, 2006 class of cases is nearly allied to, . . . a Transfers in New York City, in CITY N.Y. Slip Op. 51221(U) (Sup. Ct., Queens still superior interest in real property, BAR CENTER FOR CONTINUING LEGAL Co. 2006); see also Chatsworth Realty 344 called an easement . . .”); see also Arbor EDUCATION, HOW DID THAT BUILDING GET v. Hudson Waterfront Co., 309 A.D.2d 567, Nat’l Mortgage v. Goldsmith, 154 Misc. 2d SO TALL? 8 (New York City Bar, 2008). 765 N.Y.S.2d 39, 2003 N.Y. Slip Op. 17392 853, 586 N.Y.S.2d 702 (Sup. Ct., Nassau (1st Dep’t 2003); see also Lafayette Auvergne 40. MacMillan, Inc. v. Cadillac Fairview Corp., Co. 1992) (“[T]he plaintiff, [foreclosing Corp. v. 10243 Management Corp., 35 86 A.D.2d 15,19-20, 448 N.Y.S.2d 668, 671 mortgagee], contends that [debtor’s N.Y.2d 834, 362 N.Y.S.2d 863, 321 N.E.2d (1st Dep’t 1982), rev’d sub nom. MacMillan, wife who is not in title], by virtue of her 784 (1974). Inc. v. CF Lex Associates, 56 N.Y.2d 386, claim of an interest in the real property 452 N.Y.S.2d 377, 437 N.E.2d 1134 (1982). 48. N.Y. REAL PROP. LAW §§ 290-91 superior to that of plaintiff mortgagee, (McKinney 2006). is attempting to resurrect the right of 41. Id. at 19, 448 N.Y.S.2d at 671. 49. See Brody v. St. Onge, 167 A.D.2d 671, 563 dower . . .”). Whether a superior interest 42. MacMillan, Inc. v. CF Lex Associates, 56 is one that may mature into title (such as N.Y.S.2d 251, (3rd Dep’t 1990); see also N.Y.2d 386, 452 N.Y.S.2d 377, 437 N.E.2d Crane Neck Assoc., Inc. v. NYC/LI County a remainder or a mortgage) is a separate 1134 (1982). question. Only real property rights can be Serv. Group, 92 A.D.2d 119, 460 N.Y.S.2d superior to real property rights. 43. See Lewis v. Young, 92 N.Y.2d 443, 682 69 (2nd Dep’t 1983); Sweet v. Hollearn, 142 N.Y.S.2d 657, 705 N.E.2d 649 (1998); see Misc. 408, 254 N.Y.S. 625 (Sup. Ct., Fulton 32. Filing liens with the county clerk does also Grafton v. Moir, 130 N.Y. 465, 29 N.E. Co. 1932). not result in real property rights. See 974 (1891); Dowd v. Ahr, 78 N.Y.2d 469, 2386 Creston Ave. Realty v. M-P-M Mgmt., 50. N.Y. Real Prop. ACTS § 2001(2)(a) 577 N.Y.S.2d 198, 583 N.E. 911 (1991); (McKinney 2009). See Pak v. 5 Harrison 58 A.D.3d 158, 867, N.Y.S.2d 416, 2008 Bakeman v. Talbot, 31 N.Y. 366 (1865); N.Y. Slip Op. 09002 (1st Dep’t 2008). Associates, Ltd., 43 A.D.3d 807, 841 Onthank v. Lake Shore & Mich. S. R.R., 71 N.Y.S.2d 779 (1st Dep’t 2007); see also Their nature is different from that of N.Y. 194 (1877). mortgages. Foreclosing on a mortgage Ram Island Homeowners Ass’n v. Hathaway restores title to the state it was in when 44. NEW YORK, N.Y. ZONING RESOLUTION, art. Realty, 305 A.D.3d 390, 758 N.Y.S.2d 522 the mortgage was fi rst made, destroying I, ch. 2, § 12-10, available at http://www. (2nd Dep’t 2003); Rahabi v. Morrison, 81 all subsequent liens, covenants, nyc.gov/html/dcp/html/zone/zonetext. A.D.2d 434, 440 N.Y.S.2d 941 (1981). restrictions and conveyances, which shtml (last modifi ed March 24, 2009) (The consequences of this statute can jeopardizes the Declaration. Levying on a (”zoning lot,” subparagraph (f)1 and the be troubling. If the seller violated the judgment against real property does not last paragraph). Title companies typically ZLDA by using more FA than agreed, the have this effect. The buyer receives the issue a draft certifi cate fi rst which purchaser would only have two years same estate the debtor possessed at the purchaser and seller of development to enforce the ZLDA. The purchaser is time of the transfer, not the time of fi ling. rights use to determine which parties well-advised to procure its own permits they have to reach out to for joining or promptly and to keep an eye on the 33. On zoning lot expansions, i.e., on waiving. The fact that the statute should seller’s activities until permits covering subsequent mergers, it is the standard expressly call for certifi cation by a title all the FA are issued. One must bear in practice today to ignore new liens insurance company is odd. Why can’t mind that the Department of Buildings against through-lots. The only possible attorneys issue the certifi cate, as a legal will not look at the allocation of FA, i.e., support for this is that the lienholder is opinion on ownership? It is not a matter the ZLDA; it will only look at the merger not deemed to be “adversely affected” of solvency, because no title insurance is documents.). by the new merger and therefore cannot issued and title companies usually limit

28 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 51. Wing Ming Properties Ltd. v. Mott to improve on it because the ZLDA is lapse if the building is demolished or Operating Corp., 79 N.Y.2d 1021, 584 in essence a building restriction on the if they cease to be required by the NYC N.Y.S.2d 427, 594 N.E.2d 921 (1992). transferor lot. Therefore, excepting the Fire Code. Similarly, covenants and covenants and restrictions in the ZLDA restrictions in towns and villages that 52. See Bella Vista Apartment Co. v. Bennet, 89 would also be inappropriate. delayed in passing a zoning ordinance N.Y.2d 465, 655 N.Y.S.2d 742, 678 N.E.2d were occasionally set to lapse upon 198 (1997), see also Fisher v. N.Y.C. Bd. of 62. ALTA, supra note 59 (“Covered Risks,” adoption of a zoning ordinance by the Standards & Appeals, 21 Misc. 3d 1134(A), subparagraph 3). local municipality. 873 N.Y.S.2d 511, 2008 WL 4966546, 2008 63. ZLDAs typically include a power of 66. See N.Y. INS. LAW § 6403(b) (McKinney N.Y. Slip Op. 52345(U) (Sup. Ct., N.Y. Co. attorney provision which allows the 2009). The NYC Development Rights 2007). purchaser to cause further mergers Endorsement insures that the ZLDA “is 53. Bella Vista, N.Y.2d at 467, 655 N.Y.S.2d at and execute the same for the seller, effective to transfer to the insured the 742, 678 N.E.2d at 98 (1997). if the seller refuses to join. However, fl oor area development rights. . . .” no prudent attorney uses a power of 54. Id. at 467, 655 N.Y.S.2d at 743, 678 N.E.2d attorney such as this one without court 67. We will not expand here on the difference at 199. approval. See 402 West 38th St. Corp. between predicating “marketability” 55. Id. at 467, 655 N.Y.S.2d at 742-43, 678 v. 485-497 Ninth Avenue, 16 Misc. 3d of an “easement,” i.e., a real property N.E.2d at 198-99. 1131(A), 847 N.Y.S.2d 901, 2007 WL interest, and predicating “marketability” 56. Id. at 470, 655 N.Y.S.2d at 745, 678 N.E.2d 2429695, 2007 N.Y. Slip Op. 51654(U) of “FA” or “development rights,” i.e., at 201. (Sup. Ct., N.Y. Co. 2007). Does this mean a zoning law term. We will only say that the title company intends to cover that the former is a recognized and 57. Id. at 471, 655 N.Y.S.2d at 745, 678 N.E.2d the costs of enforcing the power of established real property law concept, at 201. attorney? while the latter is a new concept for the zoning law, which meaning is to be 58. See TITLE INS. RATE SERV. ASS’N INC., 64. This point is exacerbated in light of 2006 determined by the courts. TITLE INSURANCE RATE MANUAL: NEW ALTA Owner’s Policy, Condition #11 YORK STATE § 5, at 8 (2d rev 2008), (Liability Noncumulative). Suppose the available at http://www.tirsa.org/12-01- same title insurer issued three policies The author is an associate at 08IndexedTIRSARateManual.pdf. (The in the same project: an Owner’s Policy few enumerated exceptions therein do on the land, an Owner’s Policy on the Hamburger, Maxson, Yaffe, Wishod not apply here.) development rights purchase, and a & Knauer, LLP, in Melville, New 59. See AMERICAN LAND TITLE ASS’N Loan Policy on the entire project. Any York. A graduate of Universidad (“ALTA”), Owner’s Policy (June 17, payout on the Loan Policy will reduce Torcuato Di Tella, Buenos Aires, Ar- 2006) http://www.alta.org/forms/#2 coverage on both Owners’ Policies. Every (“Conditions,” subparagraph 10). dollar paid out on the Loan Policy would gentina, he received an L.L.M. from reduce coverage on each Owner’s Policy Benjamin N. Cardozo School of Law. 60. Id. (“Covered Risks,” subparagraph 4). by one dollar. The author thanks Daniel Sanchez, 61. This case is not the same as citing a 65. That the existence or life of an easement deed as source of title in schedule A Editor-in-Chief of St. John’s Uni- should be measured by the application and excepting a portion of it (e.g., the versity School of Law 2009 Student of a different law is no new concept. The covenants and restrictions) in schedule reader need only recall the ubiquitous Editorial Board, whose dedication B. The exception in question covers the easements for emergency egress which credits this Journal. entire document. It would be diffi cult

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NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 29 Protecting a Subtenant from Losing Its Leasehold upon Termination of the Prime Lease or Foreclosure of a Building Mortgage By L. Stanton Towne

In today’s real estate market, from and after the date Fourth, the Landlord a subtenant needs to consider the on which the subtenant Subtenant SNDA should possibility that the tenant (the sub- becomes a direct tenant of be recorded and should tenant’s sublandlord) will become the building landlord the either (a) not include a insolvent, leading to a termination subtenant shall pay rent provision subordinating of the lease to the tenant (herein the to the building landlord the Landlord Subten- “Prime Lease”) or that the building equal to the higher of the ant SNDA to mortgages landlord will become insolvent, lead- rent provided for in the granted after the date of ing to a foreclosure sale of the build- sublease or the rent for the the Landlord Subtenant ing landlord’s interest in the building, sublease premises which SNDA (the simpler and or that both of these possibilities will would have been payable common approach) or occur. In order to protect itself from under the Prime Lease if (b) provide that the Land- losing its leasehold in these situa- it had continued in effect. lord Subtenant SNDA shall tions, the subtenant should enter This obviously is not fa- not be subordinate to any into appropriate agreements with the vorable to the subtenant. mortgage granted after building landlord and the holder of the date of the Landlord Second, the building land- any mortgage on the building. Subtenant SNDA unless lord may prefer that the the mortgagee provides Landlord Subtenant SNDA Termination of the Prime Lease to the subtenant a Lender provide that from and Subtenant SNDA in a In order for a subtenant to be after the date on which form to be attached to the protected from losing its leasehold the subtenant becomes a Landlord Subtenant SNDA upon a termination of the Prime direct tenant of the build- or equivalent. Lease, the subtenant should enter ing landlord the non-rental into with the building landlord either terms of the Prime Lease A Standby Lease is an alterna- (a) a subordination non-disturbance shall be substituted for the tive to a Landlord Subtenant SNDA. and attornment agreement (the non-rental terms of the A Standby Lease is a lease of the “Landlord Subtenant SNDA”) or sublease. Often a subten- premises devised by the sublease (b) a contingent or standy lease (a ant has no reason to object which provides that its term shall “Standby Lease”) as described below. to this. commence upon (and only upon) the Although the former is more com- termination of the Prime Lease for Third, the Landlord mon, for reasons discussed below the any reason (with possible exceptions Subtenant SNDA should latter is to be preferred. for casualty or condemnation or other provide that the direct situations varying from transaction If a Landlord Subtenant SNDA lease arising between the to transaction) prior to the scheduled is used, it should provide that if building landlord and the expiration date of the sublease. A the Prime Lease terminates for any subtenant upon termina- suggested model term commence- reason (with possible exceptions for tion of the Prime Lease ment provision for a Standby Lease is casualty or condemnation or other shall have priority from set forth on Exhibit A to this Article. situations varying from transaction the date of the Landlord A Standby Lease is preferable to a to transaction) prior to the scheduled Subtenant SNDA and shall Landlord Subtenant for a number of expiration date of the sublease, the not be subordinate to any reasons: subtenant will become a direct tenant mortgage granted after of the building landlord for what date of the Landlord Sub- First, a Standby Lease would have been the balance of the tenant SNDA unless the eliminates the need for the term of the sublease. A number of mortgagee provides to the building landlord or its aspects of the Landlord Subtenant subtenant an SNDA in a counsel to review the sub- SNDA warrant special attention: form to be attached to the lease to determine whether First, building landlords Landlord Subtenant SNDA its provisions will work will generally prefer that or equivalent. properly when converted the Landlord Subten- into a direct lease as called ant SNDA provide that for by a Landlord Sub-

30 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 tenant SNDA. As noted the purpose of the Landlord Subten- article regarding termination of the above, some building ant SNDA or the Standby Lease the Prime Lease are also applicable in landlords seek to avoid Prime Lease shall not be deemed to this context, e.g., (i) the Lender may this problem by providing have terminated unless and until want to provide that the rent will be in the Landlord Subtenant such legal possession under Section the higher of the rent payable un- SNDA that the non-rental 365(h) terminates. The effect of a der the sublease or under the Prime terms of the Prime Lease building landlord bankruptcy upon a Lease, (ii) the Lender may want to are deemed substituted for subtenant is further discussed below. substitute the non-rental terms of the non-rental terms of the the Prime Lease for the non-rental sublease, but the Standby Foreclosure of a Building terms of the sublease. Of course, if a Lease offers a much more Mortgage Standby Lease has been used, rather direct route to accomplish In order for a subtenant to be than a Landlord Subtenant SNDA, this. protected from losing its leasehold the Lender Subtenant SNDA can be simpler because it can simply provide Second, the Standby Lease upon a foreclosure of a building that, in either Fact Pattern A or B appears (at least to this mortgage, the subtenant should enter above, upon foreclosure, the Standby author) to offer a better into a subordination non-disturbance Lease will become effective between method to achieve the and attornment agreement with the the purchaser in foreclosure and the goal of point Third above. holder of any mortgage on the build- subtenant. Although I’ve found no ing (a “Lender Subtenant SNDA”) cases on this, I think a existing at the time of the making of In order to protect the Subtenant subtenant’s lawyer would the sublease. in Fact Pattern C, the Lender Subten- rather defend the proposi- The Lender Subtenant SNDA ant SNDA should also provide that if tion that the delayed com- should be drafted with three different the Prime Lease is in effect at the time mencement date should fact patterns in mind: of the foreclosure and is not terminat- not cause the Standby ed in the foreclosure, then the Land- Lease to lose its priority Fact Pattern A: Foreclo- lord Subtenant SNDA or the Standby rather than the proposi- sure of the mortgage and Lease (whichever shall have been tion that the direct lease termination of the Prime used) shall continue in effect between arising under the Landlord Lease as a part of the fore- the purchaser in foreclosure and the Subtenant SNDA should closure process. subtenant. This protects the subten- have priority from the date Fact Pattern B: Foreclo- ant from a termination of the Prime of the Landlord Subtenant sure of the mortgage after Lease occurring after the foreclosure. SNDA. an earlier termination of Bankrupcty of the Landlord Third, because the the Prime Lease, which Standby Lease looks and termination previously led A Lender Subtenant SNDA reads like a regular lease to a direct lease relation- drafted as described above will in almost every detail, ship arising between the protect the subtenant from losing it should be easier (and building landlord and the its leasehold upon a foreclosure of a certainly no harder) to subtenant. building mortgage. However, if the process through the lender Fact Pattern C: Foreclo- building landlord commences (or approval process than sure of the mortgage and has commenced against it) a federal a Landlord Subtenant continuation of the Prime bankruptcy proceeding, there is at SNDA. Lease in effect between the least one fact pattern in which the purchaser in foreclosure subtenant is exposed to a possible Both the Landlord Subtenant loss of its leasehold. SNDA and the Standby Lease should and the tenant under the provide for avoidance of doubt Prime Lease, followed by a The federal bankruptcy code (a) that among the types of termina- subsequent termination of gives a bankrupt person or entity the tions of the Prime Lease covered by the Prime Lease right to reject any unexpired lease or the Landlord Subtenant SNDA or In order to protect the subtenant executory contract (by which perfor- the Standby Lease is a termination mance remains due to some extent on in Fact Pattern A and B, the Lender 1 of the Prime Lease by reason of the Subtenant SNDA should provide that, both sides). This right is commonly foreclosure of a superior mortgage, in either such case, upon foreclosure, invoked by tenants in bankruptcy, and (b) that if the building landlord a direct lease relationship shall arise but is also available to landlords rejects the Prime Lease in bankruptcy between the purchaser in foreclosure in bankruptcy. In order to protect and the sublandlord retains legal and the subtenant. All of the issues tenants from being evicted (and in possession under Section 365(h) of addressed in the prior section of this keeping with the notion that a lease the federal Bankruptcy Code, then for is, in part, a conveyance, not merely a

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 31 contract), Section 365(h) of the federal landlord the transaction could be agreement requiring the intend- Bankruptcy Code provides that if a restructured from the start as a true ed subtenant to make a monthly landlord rejects a lease the term of direct lease from the building land- payment to the tenant equal which has commenced, the tenant lord to the subtenant, as follows: to the profi t which the tenant would have made under the retains its rights under the lease and, • The building landlord and the sublease. Other deal economics while the landlord is released from its intended subtenant enter into would require more compli- affi rmative obligations (e.g., repairs, a direct lease (a “Replacement cated agreements. etc.), the tenant is entitled to set off Lease”) covering the intended against the rent its damages arising sublease premises for the in- Obviously the Replacement Lease from the failure of the landlord to tended sublease term. structure can only be employed if perform those affi rmative obliga- both the building landlord and the 2 • The building landlord and tions. For this reason, landlords do tenant are suffi ciently motivated. not as a rule reject leases in bankrupt- the existing tenant modify the cy because there is no economic ben- Prime Lease to exclude the Conclusion efi t for them to do so and even if they intended sublease premises for By following the approach out- do, tenants can remain in possession. the term of the Replacement Lease, i.e., for a term ending lined in this article, a subtenant can Although there is, as far as I upon the expiration or earlier protect itself from losing its leasehold know, no court decision on point, it is termination of the Replacement upon a termination of the Prime likely that a bankruptcy court would Lease. Lease or a foreclosure of a building consider a Landlord Subtenant SNDA mortgage, except in the very unusual to be an executory contract, not a • The intended subtenant as case in which the Landlord Subtenant lease, and therefore to be not entitled tenant under the Replacement SNDA or Standby Lease is rejected in to the benefi t of Section 365(h). Based Lease and the holder of the bankruptcy and then the Prime Lease on this, if the building landlord were existing mortgage enter into is subsequently terminated. If the to reject the Landlord Subtenant a traditional subordination, subtenant is unwilling to accept this SNDA, the subtenant would have non-disturbance and attorn- risk and the building landlord and a diffi cult to value and presumably ment agreement covering the the tenant are suffi ciently motivated, worthless unsecured damage claim Replacement Lease. the transaction can restructured as a against the building landlord, but • The existing tenant guarantees direct lease from the start, as outlined would not retain its rights under the the obligations of the intended above. Landlord Subtenant SNDA. The mere subtenant as tenant under the rejection of the Landlord Subtenant Replacement Lease. Endnotes SNDA would not necessarily result 1. 3 COLLIER ON BANKRUPTCY, ¶ 365.02 (Alan in the subtenant’s losing its leasehold • As necessary, the parties enter N. Resnick et al. eds., 15th ed. rev. 2007). into agreements to reproduce because, at the time of the rejection, 2. 11 U.S.C. § 365(h) (2009). the intended economics of the the Prime Lease might remain in ef- 3. Id. fect or the sublandlord might retain transaction using the modifi ed structure. For example, if (a) the 4. The parties should separately consider possession under Section 365(h), but each type of termination. For example, if the Prime Lease or such posses- intended subtenant was to have the tenant (subtenant) may want to sion under Section 365(h) were to paid a higher rent per square exclude termination of the Prime Lease by the Prime Lease Tenant by reason of be subsequently terminated (e.g., by foot, and (b) the landlord was to have received a portion of the Landlord default or may not want to reason of default thereunder by the exclude termination of the Prime Lease sublandlord) the subtenant would subleasing profi t, the econom- by the Prime Lease Tenant by reason of no longer be entitled to invoke the ics of this structure could be fi re or other casualty. Landlord Subtenant SNDA and thus reproduced by (i) setting the would lose its leasehold. per square foot rent under the Mr. Towne is a Senior Manag- Replacement Lease to be equal ing Director and Counsel at Studley, The Standby Lease does not offer to the sum of (x), the per square a commercial real estate brokerage a solution to this problem because, foot rent under the Prime Lease, and advisory fi rm specializing in as noted above, Section 365(h) only plus (y), the per square foot representing tenants and users of protects leases the terms of which profi t which the tenant would real estate. He is an adjunct profes- have commenced, and we are here have been required to pay to the sor at New York Law School and the concerned about a bankruptcy of the building landlord, (ii) exclud- former Chair of the Real Property building while the Prime Lease re- ing the per square foot profi t Law Committee of the Association mains in effect (and so the term of the from the tenant guaranty of the of the Bar of the City of New York. 3 Standby Lease has not commenced). Replacement Lease, and (iii) the In order to protect the subtenant tenant and the intended sub- © L. Stanton Towne 2009 from a bankruptcy of the building tenant entering into a separate

32 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Exhibit A

Suggested Model Term Commencement Provision for Standby Lease If (a) prior to [the scheduled expiration date of the Sublease], the term of the Prime Lease shall expire or be terminated with respect to the Premises [defi ned to mean the premises demised by the sublease and this Standby Lease] for any reason including but not limited to (i) termination by Landlord by reason of default by Prime Lease Tenant, (ii) termination by Prime Lease Tenant by reason of default by Landlord, (iii) exercise by Landlord or Prime Lease Tenant of any termination right or option provided for in the Prime Lease, (iv) voluntary surrender of the Prime Lease, (v) foreclosure of any mortgage (unless the Prime Lease continues in effect between the purchaser in foreclosure and Prime Lease Tenant), and (vi) termi- nation by Landlord by reason of rejection in bankruptcy by Prime Lease Tenant under 11 U.S.C. §365(g), excluding, however, any termination of the term of the Prime Lease arising out any exercise by Landlord or Prime Lease Tenant of any termination right or option arising out of any casualty or condemnation,4 and (b) immediately prior to such termination, the Sublease was in full force and effect (or Tenant was in legal possession of the Premises pursuant to 11 U.S.C. § 365(h)); then the term of this lease shall commence immediately following such expiration or sooner termination of the term of the Prime Lease and, unless sooner terminated as herein provided or by operation of law, shall expire on [the sched- uled expiration date of the sublease], it being understood that unless the conditions of clauses (a) and (b) above are satisfi ed the term of this lease will never commence. If Landlord shall reject the Prime Lease pursuant to 11 U.S.C. § 365(g) and Prime Lease Tenant shall remain in legal possession of the Premises pursuant to 11 U.S.C. § 365(h) then, for purpose of the preceding sentence, the term “Prime Lease” shall include such continuing legal possession.

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NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 33 Disclosure and Disclosure-Like Devices in the New York City Housing Court By Gerald Lebovits, Rosalie Valentino, and Rohit Mallick

I. Introduction defenses are raised: rent overcharge, the motion papers, the courts might horizontal multiple dwellings, illu- deny the motion without prejudice Summary residential landlord- sory tenancies, succession rights, and to renew.2 The opposing party might tenant proceedings in the New York economic infeasibility. The article fur- take this procedural infi rmity a City Civil Court, Housing Part— ther considers privacy issues arising step further and move to preclude the Housing Court—give owners a from disclosing medical records and disclosure altogether. The required simple, expedited, and inexpensive Social Security numbers and informa- procedure preserves the purposes of way to regain possession of premises tion from video surveillance. Disclo- the summary proceeding: to avoid when occupants refuse to pay rent sure and disclosure-like vehicles such delay, promote judicial economy, and or wrongfully hold over without as subpoenas, notices to admit, and reduce the possibility of disclosure or permission or after the expiration of bills of particulars are also examined. trial by ambush. their term. In return for the benefi ts to an owner of pursuing a summary Disclosure should be germane proceeding, occupants benefi t from “The tension between the to the proceeding and suffi ciently procedural, jurisdictional, and sub- judicial economy flowing narrow to permit ready compliance.3 stantive defenses that do not exist in from summary proceedings Examinations Before Trial (EBTs)— plenary actions. called depositions in federal court— and preserving justice for can be intimidating, expensive, and Given the goals of summary parties in Housing Court time-consuming. Courts allow EBTs proceedings, courts must weigh the in summary proceedings only if the benefi ts of permitting disclosure comprises most of the movant demonstrates ample need— against the potential abuse and delay debate over disclosure justice should not be sacrifi ced for that disclosure causes. For some time in landlord-tenant speed. Document demands should now, the courts have favored and proceedings.” also be germane and narrow. Courts promoted disclosure—called dis- prefer not to prune overbroad dis- covery in federal court—in certain Although disclosure devices are closure requests. The motion court types of summary proceedings to available on notice without leave of might reject overbroad and oppres- help the parties litigate fairly and court in plenary actions and served sive requests for document produc- effi ciently. Fairness and effi ciency between parties, parties to a sum- tion with leave to move a more allow the sides seeking disclosure, or mary proceeding are not entitled to reasonable discovery demand. The from which disclosure is sought, to disclosure as a matter of right. Parties court’s goal when considering dis- prevail quickly, if appropriate. The must move under CPLR 408 to obtain closure demands is to avoid having tension between the judicial economy permission from the court to con- to cull the good from the bad while fl owing from summary proceedings duct examinations before trial, serve simultaneously protecting sensitive, and preserving justice for parties in demands to produce and interrogato- private information about the per- Housing Court comprises most of the ries, and conduct physical and mental son subject to disclosure.4 This goal debate over disclosure in landlord- examinations. A CPLR 408 request for encourages attorneys to tailor disclo- tenant proceedings.1 admissions, called a notice to admit, sure requests to avoid wasting time, Two types of cases—primary is the only disclosure device that does money, and effort. residence and owner’s-use proceed- not require leave of court. Although some Civil Court clerks ings—enjoy almost automatic permis- A motion for leave to conduct might prefer otherwise, most Hous- sion for disclosure in Housing Court, disclosure should contain an affi davit ing Court judges who grant disclo- while for other cases the likelihood of from the party seeking disclosure, sure will mark a case off calendar permission for disclosure is reduced be carefully tailored to the lawsuit’s pending the completion of disclosure or nonexistent. This article discusses pleadings, and annex a copy of the and allow either side to restore the disclosure in some Housing Court proposed document demand, inter- proceeding on notice. proceedings: owner’s use, nonpri- rogatories, and any other type of mary-residence, and illegal-sublet disclosure device sought to be used. Courts that hear disclosure must proceedings. The article also consid- If a movant fails to attach a copy of be sensitive to the needs and rights ers disclosure when the following the proposed disclosure device to of the unrepresented. For example,

34 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 many pro se litigants consent in stipu- court should consider to determine raises defenses for nonpayment, such lations to onerous, unfair disclosure. whether and when disclosure should as breaching the warranty of habit- The courts must examine and allocate be permitted in a summary proceed- ability, will increase the likelihood stipulations before they so-order ing. The factors are (1) whether the that the court will allow disclosure, as them. To assure compliance and to petitioner has asserted facts to estab- long as a party demonstrates ample make sure that the unrepresented will lish a cause of action; (2) whether the need. The court can allow disclosure understand their disclosure obliga- movant has demonstrated a need to in proceedings with no presumption tions, the courts should consider determine information directly relat- of disclosure if the party meets the setting out in its disclosure order the ed to the cause of action; (3) whether ample-need requirements. dates for the EBT and compliance the information requested is carefully with document production, which tailored and is likely to clarify the III. Types of Proceedings can occur about a week before the disputed facts; (4) whether granting A. Owner’s-Use Proceedings EBT. Courts should also consider disclosure would lead to prejudice; inquiring whether the should EBTs (5) whether the court can alleviate the In owner’s-use cases, the land- take place in the courthouse—neutral prejudice; and (6) whether the court lord seeks to recover a rent-regulated territory—rather than at the land- can structure disclosure to protect pro apartment based on the claim that lord’s lawyer’s offi ce. se tenants against any adverse effects the landlord or the landlord’s im- of a landlord’s disclosure requests. mediate family will reside in the Early disclosure in summary pro- apartment as their primary residence ceedings can yield benefi cial results. These factors must exist in a sum- after possession of the apartment is Disclosure might assist in rapidly mary proceeding to obtain a court obtained. Disclosure in the tenant’s disposing of or settling a case. Disclo- order permitting disclosure. They favor is presumed in owner’s-use sure helps both sides clarify issues to refl ect the court’s concerns with the proceedings. Tenants need not accept be presented at trial and might help availability of information relevant the landlord’s representations; they a party with a motion for summary to the material facts of a claim or may seek leave of court to conduct judgment. The historical hesitation defense in the context of special pro- disclosure to ascertain the truth of with granting disclosure, on the other ceedings, of which a landlord-tenant the landlord’s representations. No hand, is that disclosure mechanisms summary proceeding is an example. presumption exists that a tenant increase cost and confl ict with the The ample-need standard ensures possesses facts suffi cient to prepare purpose of summary proceedings by that an owner or landlord does not a defense to a proceeding predicated causing delay.5 The introduction of request disclosure simply to formu- on the landlord’s alleged good-faith the ample-need standard, however, late a cause of action and prevents the intent to use a tenant’s apartment as a has clarifi ed the usage of disclosure occupant or tenant from conducting personal, primary residence.8 The op- and preserved judicial discretion in a fi shing expedition to discern a de- erative facts are within the landlord’s granting disclosure in appropriate fense. Each party must demonstrate knowledge.9 Landlords’ mere decla- situations. ample need for disclosure, and the ration that they have the good-faith court will then tailor an order ad- intent to recover the space for person- II. The Ample-Need Standard dressing the party’s specifi c needs. al use is not enough: allegations are To obtain an order granting the Requiring a showing of ample need not dispositive of the landlord’s real right to proceed with disclosure, the in summary proceedings allows the intentions. The tenant is entitled to litigant must demonstrate “ample court to structure disclosure orders to conduct disclosure on the issue of the need” to prosecute or defend a safeguard both the effi ciency of sum- landlord’s intention to use the space. summary proceeding.6 The type of mary proceedings and each party’s To acquire information about a proceeding initiated will dictate the rights and defenses. landlord’s intentions, a tenant may showing needed to obtain disclosure. Although a presumption favors seek disclosure of the landlord’s Motions for disclosure require the disclosure in some proceedings, not building renovation plans to de- court’s attention to the particular fac- all cases are amenable to disclosure. termine whether the building can tual circumstances in each case. In a standard nonpayment proceed- convert into a single-family home.10 The seminal case of New York Uni- ing, no reason exists to allow disclo- Additionally, a tenant may conduct versity v. Farkas7 involved a summary sure for either side if no disputed disclosure when a landlord seeks to proceeding based on a landlord’s alle- factual issues arise—if, for example, recover the tenant’s apartment for gations that the tenant did not occupy the proceeding is about whether the use as a retirement home but the the premises as the tenant’s primary tenant either paid or did not pay and tenant suspects that the building will residence. The Farkas court identifi ed the movant wants to learn only what really be the landlord’s primary resi- and defi ned the ample-need stan- the other side knows or intends to dence.11 A landlord’s other properties dard, which consists of six factors a prove at trial. A more complicated are within the realm of disclosure. In nonpayment case in which the tenant an owner’s-use proceeding, a tenant

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 35 will be allowed to conduct disclosure If a summary proceeding in- But that is not a ground to get disclo- to ascertain whether the landlord will volves a landlord’s allegations of sure, and the information sought is in use the space as a primary residence nonprimary-residence, the court the tenant’s exclusive possession and or whether the landlord desires to re- will permit disclosure because the control in any event. place the tenant and charge a higher information is exclusively within the The parties in Farkas and 390 rent. Because the operative facts are respondent-tenant’s knowledge. This West—and in thousands of similar exclusively within the landlord’s exclusivity of knowledge drives the cases—have used disclosure devices knowledge, the tenant will be per- presumption favoring disclosure in to maximize the speed and effi ciency mitted to obtain disclosure on this nonprimary-residence cases.16 of the trial process. Abusing the issue.12 In 390 West End Associates L.P. v. disclosure process in nonprimary-res- B. Nonprimary-Residence Atkins,17 for example, the court illus- idence proceedings is limited because Proceedings trated the types of discoverable docu- leave of court is necessary, but some ments in a nonprimary-residence landlords can and do harass tenants In New York, the failure of a rent- action: driver’s licenses, vehicle through disclosure, a process that that regulated tenant to occupy an apart- registrations, employment/business forces tenants to turn over private ment as a primary residence con- records, tax returns, frequent-fl yer information and makes them spend stitutes incurable ground to evict.13 statements, bank statements, util- time, effort, and money. At the same The same is true for a market-rate or ity bills, and credit-card statements. time, disclosure, when used honestly, cooperative proprietary lessee who These documents are discoverable be- ferrets out the truth. agrees to that provision in a lease. cause they contain information show- The earlier-mentioned Farkas ing the extent and duration of the C. Illegal-Sublet Proceedings case involved a holdover proceeding respondent-tenant’s tenures at vari- Unlike nonprimary-residence based on the landlord’s allegations ous residences. Although most courts holdovers, cases regarding illegal that the tenant was not using the allow landlords to obtain documents sublets reserve no presumption favor- apartment as a primary residence. In going back about two years before the ing disclosure. In sublet cases, the Farkas, the landlord sought to depose Golub, or nonrenewal, notice (a predi- courts do not blindly grant disclosure the tenant and demanded documents cate notice often combined with the but, instead, safeguard the summary to support its claim that the tenant termination notice),18 facts particular proceeding by narrowly crafting dis- did not occupy the apartment as to each proceeding could lengthen closure orders. a primary residence. The landlord or shorten the relevant period for If a landlord incorrectly frames sought the production of the tenant’s which disclosure might be available. an illegal-sublet summary proceeding New York City Resident Income Tax The 390 West End court allowed the as a nonprimary-residence proceed- Returns and the address the tenant landlord to demand the documents ing, the court might deny permission listed on those returns. The landlord dating back from the inception of the for the landlord to seek disclosure. In also sought to ask questions about landlord-tenant relationship, a period Metropolitan Life Insurance v. But- what specifi c portion of time the ten- of fi ve years. The documents would ler,21 for example, the landlord in a ant lived at the subject apartment.14 let the landlord evaluate the tenant’s summary proceeding based upon In considering whether to grant an primary residence throughout the 19 the tenant’s illegal subletting of the order allowing the landlord to pro- period of the tenancy. subject apartment drafted a petition ceed with disclosure, the court noted Given that primary residence that never alleged that the tenants did that disclosure could be viewed as involves determining tenant intent, not use the apartment as their pri- inconsistent with the speedy determi- examining the tenant’s documents mary residence. Despite the petition’s nation of rights. But the court relied and subjecting the tenant and neces- illegal-sublet framework, the landlord on the rationale that disclosure, when sary, knowledgeable nonparties affi li- sought to disclose documents related used properly, aids the speedy dispo- ated with the tenant to examinations to a nonprimary-residence case. sition of a case because the informa- before trial and will supply evidence The proof the landlord sought was tion learned could clarify issues at to ascertain the purpose and duration inconsistent and inapplicable to the trial, possibly lead to settling the case, of the residence in dispute and any cause of action alleged in the petition, or present a successful motion for alleged alternative residence.20 and the court denied the landlord summary judgment15—which, when leave to depose the tenant. The court made without pretrial disclosure, Tenants, on the other hand, would not permit the landlord to is sometimes called “poor-person’s rarely if at all obtain leave to conduct “bootstrap” a nonprimary-residence disclosure” because it can be used to disclosure in nonprimary-residence case into an illegal-sublet proceeding. force the non-moving side to disclose proceedings. The tenant might seek Because the documents the landlord its proof. disclosure to learn about what evi- sought had nothing to do with its dence is in the landlord’s possession. theory and allegation of an illegal

36 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 sublet, the court held that disclosure Based on the Butler and Hartsdale fended on the basis that the premises under these circumstances would not proceedings, and many other cases, were a residential rent-stabilized promote judicial effi ciency. litigants should carefully craft their horizontal multiple dwelling, not petitions for summary proceedings commercial space. The court in that The ruling in Butler does not and requests for disclosure to cor- commercial landlord-tenant holdover stand for the proposition that courts respond with their specifi c causes of proceeding found that the only way will categorically deny disclosure in action. to resolve that proceeding was to illegal-sublet proceedings. To the con- 22 allow the tenant to discover evidence trary, in cases like Jane Street v. John, IV. Types of Defenses proving whether the subject premises the Appellate Term, First Department, A. Rent-Overcharge Cases was a de facto horizontal multiple reversed and granted the landlord’s dwelling. The court allowed the dis- motion for disclosure in a sublet When a landlord seeks to in- closure to demonstrate whether the proceeding because the “[l]andlord’s crease the tenant’s rent based on an subject premises had been converted assertion, in support of discovery, alleged substantial rehabilitation, the to residential use. that tenant does not primarily reside tenant may seek disclosure to deter- at the premises is consistent with the mine whether the rental increase is or C. Illusory Tenancy theory of illegal sublet or assignment was justifi able. Courts have granted An illusory tenancy exists if the alleged in the petition, and the nature tenants permission to depose the prime tenancy is a sham. The hall- of her relationship with the other landlord to ascertain whether the mark of an illusory tenancy is a sub- respondent and the extent to which landlord substantially rehabilitated tenancy set up to profi t improperly their occupancy is contemporane- the apartment or instead had made by violating rental laws.32 An illusory ous are related issues.” Rather, Butler 26 only minor alterations. Courts also tenancy exists if an owner creates a stands for the proposition that courts allow tenants to learn whether a rent residential leasehold in persons who will supervise and tailor disclosure increase was lawful relative to the do not occupy the premises for their orders. 27 improvements made. When a tenant own residential use and who then disputes the rent and claims a rent In Hartsdale Realty Company v. sublease it for profi t.33 To determine overcharge, the tenant’s ability to de- Santos, 23 the landlord alleged that the whether an illusory tenancy exists, fend at trial might be impaired with- tenant illegally sublet her apartment. courts will consider the extent of the out access to the landlord receipts In addition to a request to disclose the prime tenant’s dominion and con- and invoices.28 This is an example of apartment’s occupants’ identities, the trol over the premises,34 whether the one party’s having most of the opera- landlord sought disclosure helpful to subtenant reasonably expected to tive facts in its possession and the a nonprimary-residence case. Land- continue in possession indefi nitely courts’ attempt to balance the confl ict lords’ attorneys argue that landlords as a rent-regulated tenant when the between summary proceedings and in sublet cases must prove that the sublease ended, and whether the judicial fairness. prime tenant does not live in the landlord or its agents knew whether premises—that is the difference be- B. Horizontal Multiple Dwelling parties other than the prime tenants tween an unapproved sublessee and Cases were residing in the premises for a a lawful roommate—and thus that substantial period of time.35 Under they need disclosure akin to the kind A multiple dwelling is a dwell- illusory-tenancy doctrine, when the they can get in nonprimary-residence ing rented, leased, let, or hired as sublet is from a rent-stabilized apart- cases. But the courts have found that a home of three or more families ment, the subtenant in certain circum- nonprimary-residence disclosure is living independently of each other stances can be recognized as the legal in cities with populations of 325,000 rent-regulated prime tenant.36 irrelevant to the landlord’s cause of 29 action for an illegal sublet. Never- or more. The landlord of a multiple Disclosure in these cases is theless, landlords are given leave to dwelling has a non-delegable duty to crucial to the subtenant’s defense depose the tenant and the subtenant maintain the premises in a reasonably 30 because much is at stake for the in sublet cases. That deposition was safe and habitable condition. Recog- subtenant. For example, in 125 Church restricted in Santos to the landlord’s nizing the high stakes for tenants in Street Development Co. v. Grassfi eld,37 allegations that the tenant ille- summary proceedings, courts allow the landlord sought to remove the gally sublet the subject apartment.24 tenants to proceed with disclosure in prime tenant from the subject apart- Similarly, in Wong v. Khoo,25 the court horizontal multiple-dwelling cases. A ment because the prime tenant did permitted disclosure of the identity of horizontal multiple dwelling invokes not occupy the premises as a primary the apartment’s occupants and their the benefi ts of rent-stabilization residence. The subtenant sought to relationship to the tenant of record to protection. establish an illusory-tenancy defense aid the landlord’s illegal-sublet claim. In 480-486 Broadway LLC v. No on the basis that the prime tenant The landlord proved ample need by 31 Mystery Sound, Inc., the tenant de- engaged in illegal-rent profi teering submitting the managing agent’s affi davit.

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 37 by overcharging the subtenant. The therefore occur in the proceeding if same facts the tenant in a nonprima- subtenant sought information ex- the notice or subpoena advises the ry-residence case will seek to prove: clusively within the prime tenant’s nonparty of the disclosure and the the customary indicia of continuous knowledge—whether the tenant gave reasons that disclosure is sought. residence, specifi cally the ongoing, up his primary residence in the sub- substantial, and physical nexus with Elevator operators and mainte- ject premises years ago and had since the regulated premises for actual liv- nance staff have also been subjected illegally profi ted from subletting the ing purposes.43 to EBTs to establish the subtenant’s apartment while holding onto the illusory-tenancy defense.40 Sub- The tenant may oppose the dis- space in hopes of a substantial buy- tenants can try to prove that from closure motion or move for a protec- out from the landlord. The court or- the inception of their sublease, the tive order under CPLR 3103 to limit dered that if the landlord proceeded owner’s employees knew about the scope of disclosure.44 Although a to take the deposition, the subtenant their occupancy and of the prime court will preclude irrelevant docu- would be allowed to appear at the de- tenant’s absence from the premises. ments, i.e., documents not addressed position to question the prime tenant The EBTs of the owner’s employees to ascertaining the time period in under CPLR 3113(c). might demonstrate that the owner which a respondent has lived on the Another way a subtenant can knew whether the elevator operators premises, a court will order that a establish a defense is by deposing the saw the subtenants every day and respondent provide all relevant docu- landlord’s employees. Leases, renew- whether maintenance personnel were ments evidencing billing and mailing als, rental log payments, correspon- on the premises several times to effect addresses. Specifi cally, addresses dence and papers about the tenants repairs. Whether the subtenant seeks listed on W-2 forms, federal and New or occupants of the apartment, pho- the EBT of a doorman or elevator York State income tax returns, mail- tographs and videos of the respon- personnel, no restriction is placed ing and billing addresses for credit dent’s presence in the building, and on which of the owner’s employees cards, monthly bank statements, the apartment’s maintenance records must be aware of the sublease for the Con Edison, New York Telephone are examples of relevant documents respondent to establish an illusory- Company bills, and voter registration to a respondent’s seeking to establish tenancy defense.41 The court is more might evidence a respondent’s ad- an illusory tenancy. These documents concerned with disclosing whether dress, and are all related to succession might show whether the landlord an illusory-tenancy defense might be rights.45 The court is concerned only knew or should have known about meritorious. with billing and mailing addresses. the occupancy agreement between Therefore, although a respondent the respondent and the prime tenant. D. Succession Rights will be ordered to provide copies of Courts allow disclosure in sum- medical bills, the respondent would Examinations before trial of the mary proceedings involving succes- not be required to disclose the basis landlord’s employees can be key dis- sion rights. In dispute in these cases is and type of treatment prescribed. closure devices to establish illusory- whether and when the prime tenants The respondent would be required, tenancy defenses. The examinations permanently vacated the apartment, however, to list the address to which might disclose the landlord’s actual whether and when the successor re- the medical bills were sent. The same or constructive notice of the subleas- sided in the apartment for two years is true for fi nancial information— ing arrangement.38 with the prime tenant, and whether and this is so in all cases, whether Courts have authorized the the successor tenant is either an im- a nonprimary-residence case or an examinations of nonparties in these mediate family member or a non- illegal-sublet case—in which a party types of cases. In 255 West 88th Co. traditional family member entitled seeks Housing Court disclosure. The v. Gelband,39 the subtenant lived in to succeed to the tenancy. Courts rationale behind producing these the subject apartment for 14 years. have found that documents relat- documents is that the respondent The subtenant sought to depose the ing to acquiring the tenant’s home, should disclose accurate information, building’s porter, superintendent, records of the tenant’s children’s but to limit their intrusive value, that and doorman to establish whether school attendance, telephone records, would substantiate whether or not the landlord had either actual or voter-registration records, newspaper succession rights apply. constructive knowledge of the illegal- and magazine subscriptions, utility E. The Economic-Infeasibility subletting scheme. Despite the land- bills, rent statements, bank and credit Defense lord’s attempt to oppose the motion records, motor-vehicle registration, for disclosure by offering an affi davit and use of the premises address for The affi rmative defense of that the landlord was unaware of the mail are all subject to disclosure.42 A economic infeasibility is available subtenant’s presence, the court grant- tenant asserting succession rights— to an owner in a Housing Part (HP) ed the tenant’s motion to obtain those an affi rmative defense—must make repair proceeding if the owner’s cost three EBTs. Nonparty disclosure can documents available to establish the to restore the premises and cure the

38 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 housing violations would exceed the use. The tenant sought to establish disability that, if true, would prevent value of the premises after restora- the landlord’s bad faith; according the landlord from refusing to renew tion. The owner may then demol- to the tenant, the landlord could not the lease unless, under Rent Stabiliza- ish the premises and pay the rent- use the third-fl oor apartment due to a tion Code § 2524.4(a)(2), the landlord regulated tenant(s) the value of their physical disability. The tenant sought offered the tenant an equivalent or rent-regulated premises. The burden the disclosure of an administrative superior housing accommodation at of this defense is placed on the owner, hearing before the Social Security the same or lower regulated rent in which must prove this defense by a Administration in which the land- a closely proximate area. In a motion preponderance of the evidence. If an lord testifi ed before an administra- for summary judgment, the tenant owner asserts economic infeasibil- tive law judge that he was unable to submitted expert medical testimony ity, a presumption favors disclosure climb the stairs without diffi culty. As establishing her disabilities, but the under CPLR 408, and the tenants will part of that proceeding, the landlord landlord did not offer any evidence be allowed to serve interrogatories on submitted medical records relating to contradict this testimony and thus this issue.46 The interrogatories can to the landlord’s ability to climb the create a triable issue of material fact. be tailored to ask about the assessed stairs. Those medical records became The issue whether to disclose value of the premises, the current of- material and necessary to the tenant’s medical records also arises in hold- fers for the property, and the fi nancial defense that the landlord had neither over proceedings based on nonpri- operating statements of the premises, an intention nor an ability to live in mary residence. Sometimes tenants including the rent roll. This infor- the third-fl oor apartment. Remain- are confi ned to nursing homes due mation is likely within the owner’s ing sensitive to the confi dentiality to a medical condition. In dispute exclusive knowledge and control. and privilege of the records, the court is whether a rent-regulated tenant allowed the landlord to redact any placed in a nursing home might have The economic infeasibility nonmedical, otherwise irrelevant ma- the ability or intention to return to defense might also arise in a nonpay- terial submitted to the Social Security the original primary residence. ment proceeding. In City of New York Administration. v. Cordero, the landlord instituted a A tenant’s severe mental condi- nonpayment proceeding, and the ten- A landlord is likewise able to tion can provide an excuse to pre- ant counterclaimed that the landlord seek disclosure of tenants’ medical vent a landlord’s petition to evict a breached the warranty of habitabil- condition when tenants put their tenant on the grounds of nonprimary ity.47 The court granted the tenant medical condition in issue. In Banchik residence. leave to conduct disclosure relevant v. Ruggieri,50 the landlord sought to to the landlord’s contention that recover an apartment for his personal If tenants place their mental dis- repairing the subject premises was use. The tenant claimed protection ability in issue by asserting the affi r- economically infeasible. The court under the Rent Stabilization Code mative defense that a mental disabil- found that disclosure would pro- due to a permanent and incurable ity shields the tenant from an eviction mote the overall effi ciency of the trial medical disability that prevented the and the tenants have already submit- process.48 This demonstrates that a landlord from ousting the tenant, ted to a psychiatric examination by petitioner-landlord does not have an but the tenant objected to providing their own doctor, the landlord will be exclusive right to obtain disclosure. her medical records to the landlord. given a reciprocal right to conduct a Disclosure necessary for a respon- The landlord’s motion seeking leave psychiatric examination of the tenant. dent’s defense will be granted. to disclose of the tenant’s medical, CPLR 3121(a) provides the basis for fi nancial, and business records was the statutory right to conduct a psy- V. Privacy Concerns granted, and the court entered an chiatric medical examination. A. Medical Records order directing the tenant to be sub- jected to a physical examination by If a tenant refuses to submit to A person’s medical records an independent physician. the landlord’s psychiatric examina- are generally privileged materials tion, the court has the power to grant not subject to disclosure. In sum- A landlord who does not move the landlord’s motion to strike the mary proceeding disputes involving for leave of court to obtain disclosure tenant’s affi rmative defense of mental medical conditions, however, courts to inquire into the validity of the ten- disability. The Appellate Division, have ordered disclosure of medical ant’s disability may not, on a tenant’s First Department, in TOA Construc- records. summary-judgment motion in an tion Co., Inc. v. Tsitsires, 52 for example, owner’s-use proceeding, argue that conditioned the striking of tenant’s In Stern v. Levine, 49 the land- he cannot disprove without a trial the affi rmative defense of mental dis- lord’s medical records were subject tenant’s disability claim. In Mozaffari ability on his production of medical to disclosure. The landlord sought 51 v. Schatz, the landlord sought pos- records pursuant to the landlord’s to recover the tenant’s third-fl oor session of the premises on owner’s- disclosure demands. The court apartment for the landlord’s personal use grounds. The tenant asserted a

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 39 compelled the tenant to submit to an of this confi dential information.55 A documents the landlord never moved independent psychiatric examination petitioner-landlord may not de- for disclosure but which the tenant to retain his affi rmative defense. mand that tenants reveal their Social voluntarily provided. The landlord Security numbers to complete a form already possessed the information Deposing a tenant’s physician detaining the number of occupants necessary to prove its case, if it could. has been found necessary to support in their apartment.56 Although the Granting the landlord’s request a landlord’s allegations of a tenant’s New York City Administrative Code for disclosure of the tenant’s Social nonprimary residence. In 65 Central permits landlords to inquire about 53 Security number would give the Park West, Inc. v. Greenwald, the EBT apartment occupants, 57 this does not landlord a free pass to obtain privi- of the tenant’s physician was relevant authorize the landlord to demand So- leged information like unredacted tax to determine whether the tenant’s cial Security numbers. The potential forms and bank records containing medical condition was grave enough for misusing Social Security numbers information not relevant to prov- to prevent the tenant from ever re- outweighs the benefi ts of disclosure ing the tenant’s primary residence. turning to the apartment. The tenant in a summary proceeding—obtaining The Alta Apartments court therefore was unable to assert a privilege in a Social Security number can lead to denied the unimpeded disclosure of this context because whether there is obtaining a person’s welfare or Social tenant’s documents. the possibility of a tenant returning Security benefi ts, credit-card infor- to the apartment is not a determina- mation, personal checks, or even a C. Video Surveillance tion that can be summarily decided person’s paycheck. without disclosure. Additionally, Debate fragmenting the Appel- the tenant relied on her physician’s A landlord is presumptively late Division’s four departments has statement that although the tenant’s entitled to disclosure of tax records arisen over disclosing video surveil- medical condition was grave, it was and bank records in a nonprimary- lance in personal-injury cases. The reasonable to expect that the tenant residence holdover proceeding. But First Department has treated surveil- would return to her apartment given a landlord is not presumptively lance fi lms as discoverable in their the substantial progress in her health. entitled to a tenant’s Social Security entirety. The Second and Fourth Because the physician’s statement number to obtain unredacted ver- Departments have treated surveil- was ambiguous, the court granted sions of a tenant’s tax records and lance tapes as material prepared for the landlord’s request to depose the bank records. litigation and held that a substantial physician to clarify this statement. need and undue hardship must be In Alta Apartments LLC v. Wain- This is an example of the court’s established to obtain disclosure. For wright,58 the landlord sought leave fi nding it appropriate for a landlord instance, the party seeking disclosure to renew and reargue its motion to depose a nonparty witness under must demonstrate that it will be un- for disclosure of the tenant’s Social CPLR 3101(a)(4). able to obtain the substantial equiva- Security number in connection with lent of the surveillance materials by Courts will allow disclosure to be its nonprimary-residence holdover any other means. conducted by both the landlord and proceeding. The landlord sought tenant depending on the nature of the the Social Security numbers to issue The Fourth Department had factual disputes. Litigants who place subpoenas on the New York State De- held that video surveillance tapes their physical or medical conditions partment of Taxation and the tenant’s are discoverable before trial, but only in issue waive the claim of privilege. banks. The purported ample need for after the party had submitted to de- A party may not assert a physical the disclosure was the landlord’s con- positions.59 Soon after that decision, or mental condition in a claim or a tention that these documents would the New York Legislature enacted defense and at the same time assert a demonstrate how much time the ten- CPLR 3101(i), which mandates the medical privilege to prevent the other ant spent at her New York address. full disclosure of fi lms, photographs, party from ascertaining the truth of The landlord’s alleged ample need videotapes, and audiotapes involving the claim, nature, and extent of the for the tenant’s Social Security num- a party to the action. Because CPLR injury.54 ber was dispelled by the persuasive 3101(i) is silent about the timing evidence of the tenant’s cooperation of videotape disclosure, that issue B. Social Security Numbers throughout the discovery process. remained open issue for the courts to Like medical records, an indi- The tenant had fully cooperated in decide. vidual’s Social Security number is disclosing evidence to the landlord. For a time, the Court of Appeals privileged information. The party The tenant disclosed over 400 pages had resolved this dispute in DiMichel asserting the privilege can success- of requested documents and was v. South Buffalo.60 The court found fully cite New York State General subjected to a three-hour EBT. Among that a court’s determining whether Business Law § 349(h), a consumer- the documents the tenant turned over surveillance tapes should be turned protection statute, to invoke the were the tenant’s redacted tax forms over before trial but after a plaintiff is protection and preclude disclosure and bank account information—

40 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 deposed prevents parties from with- provide videotapes and better quality tion include (1) increased pedestrian holding tapes and tailoring testimony photographs.62 The court has found traffi c at unusual hours, (2) broken and protects the other party’s need that this clarifi cation is a reasonable front-door locks, (3) noise complaints, to authenticate the videotape. But request for a landlord seeking to (4) strange cars parked in front of the the legislature’s enactment of CPLR defeat claims that a roof had not been building, (5) unfamiliar people loiter- 3101(i) overruled DiMichel’s disclo- fi xed and to demonstrate whether a ing about, (6) tenants who pay or sure rule. Under CPLR 3101(i), vid- rent abatement is an appropriate rem- prepay rent in cash, (7) holes in apart- eotapes and other specifi ed materials edy.63 Requiring the tenant to provide ment doors to pass money and drugs, are now subject to full disclosure. A clearer photographs and videotape and (8) evidence of drug parapherna- party seeking to disclose any of the will clarify the substance of the claim lia.66 Video surveillance of the lobby, specifi ed items under CPLR 3101(i) and promote the ends of justice.64 elevators, stairways, and hallways need not make a showing of “sub- could provide support of this evi- stantial need” and “undue hardship.” “Because most subpoenas dence and could help a landlord evict The provision compels the disclosure a tenant on grounds of illegal use. of all listed materials, including “out- do not need to be court- Video surveillance is also often takes,” regardless whether the mate- ordered unless directed used to prove a nonprimary-resi- rials will be used at trial. Therefore, at a government agency, dence holdover. Reliable tapes will a party must disclosure all portions subpoena requests face prove how often the tenant came to of this material, including outtakes, and left the apartment as well as the rather than only those portions the less scrutiny than disclosure duration of the tenant’s stays in the party intends to use at trial. motions.” apartment. The Court of Appeals in DiMichel Video recordings and photo- VI. Disclosure-Like Devices agreed with the Fourth Department graphs can also help proving whether and held that surveillance tapes a tenant violated a stipulation settling A. Subpoenas should be treated as material pre- an eviction proceeding. Practitioner pared in anticipation of litigation and Subpoenas are not regulated by should be mindful that spoliation- the disclosure provisions in CPLR 408 thus subject to a qualifi ed privilege of-evidence issues can emerge in the that a factual showing of substan- or 3102, but they serve discovery pur- context of a summary proceeding. In poses similar to the disclosure mecha- tial need and undue hardship can Russell Place Associates LLP v. Super,65 overcome. nisms described above. Subpoenas the landlord sought to introduce into are required to be closely tailored to In Tran v. New Rochelle Hospital evidence a video demonstrating that the case’s particulars.67 Because most Medical Center,61 the Court of Ap- the tenant allowed her daughter to subpoenas do not need to be court- peals later clarifi ed the open issue enter into a building in violation of ordered unless directed at a govern- presented in DiMichel: whether the stipulation of settlement. But the ment agency, subpoena requests face CPLR 3103(i) overruled that aspect landlord’s building manager inadver- less scrutiny than disclosure motions. of DiMichel allowing defendants to tently erased the fi lm and destroyed withhold surveillance tapes until af- the evidence. The court found that Practitioners regularly draft sub- ter a plaintiff has been deposed. The these actions amounted to spoliation poenas duces tecum and subpoenas Tran court found that CPLR 3101(i) of evidence and therefore drew a ad testifi candum. The former requires requires full disclosure of videotapes negative inference that the daughter the production of books, papers, and with no limitation as to timing. The was not observed entering or leaving other physical objects and papers; court refused to declare otherwise the building. As a result, the landlord the latter requires the witness atten- until the Legislature acted again. To was unable to prove that the tenant dance to give testimony. Each type of date, the Legislature has not acted, violated the stipulation. Russell Place subpoena must be drafted carefully and the Court of Appeals decision in demonstrates that the existence of and strictly served in accordance with Tran is good law. video surveillance requires landlord the CPLR’s rules and procedures. A to preserve relevant evidence before careless practitioner who abuses the Video recording and photographs and during litigation. A failure to do subpoena system will face sanctions are helpful in nonpayment proceed- so can lead to consequences. and discipline and might lose the ings if the tenant contends that the informational benefi ts of a subpoena. apartment is in disrepair. When a A landlord may evict a ten- tenant seeks to rely on video record- ant on the ground that the tenant is In a summary proceeding, CPLR ings or photographs and refers to using the subject premises for ille- 2301 allows a party to issue a subpoe- them in motion papers, the landlord gal purposes—for example, selling na duces tecum ordering production will be allowed, at the landlord’s illegal drugs. Examples of the type of of documents for trial. CPLR 2303(a) expense, to require the tenant to evidence that would support an evic- provides that subpoenas be promptly

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 41 served on each party so that they are B. Demand for Bills of Particulars provided is deemed an admission received after service on witnesses CPLR Article 31 provides a com- of the truth or genuineness of the and before producing books, papers, prehensive list of disclosure devices. notice. A notice to admit may be used and other things. Unlike disclosure A demand for a bill of particulars is to dispose of uncontested questions mechanisms, the subpoena produces not a disclosure device under Article of fact or those easily provable. The material for trial and not for pretrial 31, and CPLR 408 does not require notice to admit should not be used to proceedings. The subpoena should leave of court for its use in a spe- compel admissions of fundamental not direct the witness to turn over the cial, summary proceeding.76 A bill or ultimate facts that can be resolved 82 documents directly to the attorney of particulars is an amplifi cation of only after a full trial. for whichever party served the sub- a pleading rather than a disclosure The notice to admit does not offer poena.68 Courts have criticized this device and can help ascertain the the same breadth of inquiry as do practice, known as “back-door dis- facts on which a special proceeding other disclosure devices: It does not covery,” as circumventing the CPLR’s 77 is based. Only the party bearing the allow a party to obtain any type of requirement to produce documents burden of proof on a disputed issue document or testimony from witness- for the court.69 must provide a bill of particulars with es, and it cannot be used in another 78 A trial subpoena may not be used respect to that disputed issue. action or proceeding against the 83 as a fi shing expedition to acquire In City of New York v. Valera, 79 the party making the admission. Thus, materials obtainable through pretrial court endorsed the use of the bill of a party may not use a notice to admit 70 disclosure. The subpoena should be particulars to provide a statement of or a bill of particulars as a disguised tailored to the nature of the Housing facts in connection with a holdover disclosure device to obtain eviden- Court proceeding to ensure that a proceeding based on nuisance. The tiary matters, and neither device may court will not quash it. If an attorney landlord was required to produce a be used as a tactic to delay a speedy drafts and serves a subpoena that bill of particulars to notify the ten- proceeding. fails to comply with the express terms ant of any potential defenses it may Given the advantage of not hav- of a court order, the subpoena will be 80 have. A bill of particulars is a useful ing to obtain a court order to serve quashed.71 tool for the tenant in preparing a de- a notice to admit, some parties have Notice requirements must be fense in a summary proceeding. disguised interrogatories in the form strictly observed when nonparties are A respondent-occupant demand of notices to admit. In Blanca Realty 72 84 subpoenaed. The failure to provide for a bill of particulars, if granted, re- Corp. v. Espinal, the 72-paragraph- the statutory notice might preclude quires the petitioner-owner to refi ne long notice to admit that the landlord that party from introducing into evi- and formally detail its claim against served on the tenant was a red fl ag dence any information illegitimately the respondent. Respondents may use to the court that ultimate issues of obtained, and the court may also the motion to limit the items at trial to fact were in dispute. That notice to impose sanctions and award costs gain detailed information about all al- admit was found improper because it and attorneys’ fees incurred by the legations that the petitioner will raise. essentially mirrored an interrogatory aggrieved party in connection with Like a subpoena, a bill of particulars subject to leave of court under CPLR 73 a motion to quash the subpoena. If is an alternative pretrial disclosure 408. As Blanca Realty explained, an aggrieved party’s substantial right method that can streamline the While there may be a has been prejudiced as a result of an judicial process. It is improper to use couple of items in the improper subpoena, the court might the bill of particulars as a disclosure Notice that are proper, it is preclude any improperly or irregu- device to disclose evidentiary mat- unwise and unnecessary larly obtained disclosure.74 ters. Leave of court will be necessary for the court to prune the It is improper for an attorney to serve a disclosure device disguised requests to construct for 81 to use letter requests urging a ten- as a bill of particulars. counsel and the parties a ant to send subpoenaed documents proper notice to admit C. Notices to Admit directly to the attorney, rather than to . . . . Accordingly, the the court, in this way subverting the The one disclosure device ex- respondent’s motion to court’s procedure for receiving, main- pressly permitted in a special pro- strike the notice to admit taining, and releasing subpoenaed ceeding without court order under and for a protective order records.75 An attorney’s soliciting CPLR 408 is a notice to admit as is granted.85 and obtaining documents through a provided in CPLR 3123. Under CPLR subpoena circumvents the Housing 3123(a), a failure to respond to the VII. Compelling Disclosure and Court’s rules and procedures meant notice to admit, to deny any portion Penalties for Failing to to protect parties from subversive thereof, or to explain why neither Disclose an admission nor a denial can be layering practices. If a party fails to comply with a court order and frustrates the CPLR’s

42 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 disclosure scheme, the resolution court denied the motion to strike landlord’s disclosure to interrogato- judge may dismiss the petition or the answer.92 Striking an answer is a ries. The court determined that the strike the answer.86 This power paral- drastic remedy. Requiring a pattern of interrogatories would be suffi cient lels the wide discretion that courts non-compliance assures that it is used for the landlord to investigate the retain over crafting and granting dis- solely in the most appropriate and nature of the tenant’s nursing-home closure orders. To combat a common narrow manner. residency without forcing the tenant scenario of ignoring court orders, the to appear at a deposition.96 No penalty may accrue against a Court of Appeals unanimously stated party who legitimately does not have the following in a 1999 decision: IX. Conduct at EBTs the document. Parties subject to dis- Part 221 of the Uniform Rules a litigant cannot ignore closure need not produce documents, for Trial Courts went into effect On court orders with impuni- such as tax returns or other offi cial October 1, 2006. The new modifi ca- ty. Indeed, the Legislature, forms, they do not have or never had. tions expand the scope of disclosure recognizing the need for Instead, they may sign an affi davit during EBTs.The rules create new courts to be able to com- averring the lack of possession and limitations about objections. Objec- mand compliance with a notarized release authorizing the tions are noted and not ruled on their disclosure directives, moving party to acquire the docu- during a deposition.97 The court will has specifi cally provided ment from its original source. not rule in advance on whether a par- that a ’court may make ticular question is proper. Instead, the such orders . . . as are just,’ VIII. Use of Interrogatories if a question is posed, the objection taken, including dismissal of an Person Cannot Appear at and, with exceptions noted below, the action. . . . [C]ompliance an EBT answer given, and then the court may with a disclosure order Requiring the deposition of some rule on the question at trial. Each ob- requires both a timely individuals can be unduly burden- jection shall be stated succinctly and response and one that some due to a person’s age, health, framed so as not to suggest an an- evinces a good-faith effort and location. In 65 Central Park swer to the witness and shall clearly to address the requests 93 West, the court rejected the land- state the defect in form or other basis meaningfully . . . .87 lord’s request for an EBT because the of error or irregularity.98 This avoids In response to a failure to dis- elderly tenant’s residence in a nurs- manipulating the facts during de- close, except with notices to admit, a ing home created an unnecessary bur- position and seeks to improve EBTs’ party may move under CPLR 3124 to den to appear at the EBT. Instead, the effi ciency as a disclosure mechanism. compel disclosure properly requested court allowed the EBT of a nonparty If the deponent refuses to answer a under the other provisions of Article physician to determine the tenant’s question based on privilege, to en- 94 31. If the original request was proper, primary residence. force a limitation set forth in a court a motion to compel is a proper order, or when the question is plainly method to enforce disclosure. “When permitted, improper, the refusal to answer must disclosure allows the be accompanied with a succinct and Often the court will strike plead- clear statement of the basis.99 Because ings conditionally, giving the liti- parties to press their cases Housing Court tailors discovery gant one more chance. But the court forward, to force the other methods in summary proceedings, may strike pleadings or preclude side to reveal otherwise this is the most common ground of if a failure to comply with disclo- objection at a deposition. Attorneys sure demands is willful, deliberate, hidden facts, and to avoid 88 and pro se litigants should be aware and contumacious. Answers are trial by ambush.” of this right to refuse to answer based stricken only in cases of severe non- 89 on the court’s order to preserve their compliance. In Miller v. City of New In a different type of proceeding, rights, further the goals of discovery, York, the Supreme Court struck the facts might be disclosed by inter- and effectuate a court’s order. defendant’s answer after determining rogatories. In Lewis v. Katzev, 95 the defendant had failed to comply with court denied the landlord’s motion X. Conclusion 90 fi ve different orders, displaying a to compel an elderly tenant to submit pattern of non-compliance.91 In 305 Summary landlord-tenant to a pretrial EBT and physical and proceedings are designed to move Riverside Corp. v. Parnassus, the court mental examinations connected to explained that although the tenants quickly and effi ciently. Disclosure, the landlord’s nonprimary-residence although requiring leave of the court failed to comply with two disclosure holdover proceeding. In consider- requests, the evidence displayed no to obtain, is available in some cases ation of the tenant’s physical condi- in which ample need is shown. When proof of deliberate non-cooperation tion and two-year residence in a and non-compliance; thus, the permitted, disclosure allows the par- nursing home, the court limited the ties to press their cases forward, to

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 43 force the other side to reveal other- Antillean Holding Co., Inc. v. Lindley, 76 31. 11 Misc. 3d 1056(A), 815 N.Y.S.2d 494 wise hidden facts, and to avoid trial Misc. 2d 1044, 1047, 352 N.Y.S.2d 557, 561 (Civ. Ct. N.Y. County 2006), aff’d, 16 Misc. (Civ. Ct., N.Y. Co. 1973). 3d 1056(A), 851 N.Y.S.2d 57 (App. Term by ambush. Practitioners have in their 1st Dep’t 2007) (per curiam). arsenal numerous aids to enable their 7. New York Univ. v. Farkas, 121 Misc. 2d 643, 648, 468 N.Y.S.2d 808, 811–12 (Civ. Ct., 32. 270 Riverside Dr., Inc. v. Wilson, 195 Misc. clients’ theories to prevail. Disclosure N.Y. Co. 1983). 2d 44, 50, 755 N.Y.S.2d 215, 220 (Hous. Part Civ. Ct., N.Y. Co. 2003). and disclosure-like devices remain at 8. Smilow v. Ulrich, 11 Misc. 3d 179, 184, 806 the top of the arsenal. N.Y.S.2d 392, 396 (Civ. Ct., N.Y. Co. 2005) 33. Partnership 92 LP v. N.Y. St. Div. of Hous. (Gerald Lebovits, J.). & Comm. Renewal, 46 A.D.3d 425, 429, 849 N.Y.S.2d 43, 47–48 (1st Dep’t 2007) 9. Miller v. Vosooghi, N.Y.L.J., Apr. 18, 2001, Endnotes (mem.). at 18, col. 1 (App. Term 1st Dep’t) (per 1. For good articles on disclosure, see Dov curiam). 34. See, e.g., Art Omi Inc. v. Vallejos, 15 Misc. Treiman, Discovering Disclosure—Parts 3d 870, 832 N.Y.S.2d 915 (Hous. Part Civ. 10. Smilow, 11 Misc. 3d at 187, 806 N.Y.S.2d at 1-4, Volume 2, Issues 2-5, Landlord- Ct., N.Y. Co. 2007) (Gerald Lebovits, J.), 398. Tenant Monthly (Feb., Mar., Apr. & aff’d, 21 Misc. 3d 129(A), 2008 N.Y. Slip May 2004), and Anthony J. Fiorella, 11. Teichman v. Ciapi, 160 Misc. 2d 182, 185, Op. 52012(U) (App. Term 1st Dep’t 2008) Outside Counsel, A Judicial Perspective 612 N.Y.S.2d 293, 295 (App. Term 1st (per curiam). on Permissible Discovery in Summary Dep’t 1994) (per curiam). 35. Treasure Tower Corp. v. Chen, 20 Misc. 3d Proceedings, N.Y.L.J., Aug. 19, 1999, at 1, 12. Miller, N.Y.L.J., Apr. 18, 2001, at 18, col. 1. 1109(A), 2008 N.Y. Slip Op. 51288(U), col. 1. For a good disclosure outline from 2008 WL 2548796, at *2 (Hous. Part Civ. which some research in this article was 13. See Hughes v. Lenox Hill Hosp., 226 Ct., N.Y. Co. 2008) (Gerald Lebovits, J.). borrowed, see Samuel J. Himmelstein & A.D.2d 4, 7-8, 651 N.Y.S.2d 418, 421 (1st David M. Skaller, Disclosure in Housing Dep’t 1996), lv. denied in part & dismissed 36. Primrose Management v. Donahoe, 253 Court Proceedings (unpublished outline in part, 90 N.Y.2d 829, 683 N.E.2d 17, A.D.2d 404, 405, 676 N.Y.S.2d 585, 586 for the 2008 Summer Judicial Seminars in 660 N.Y.S.2d 552 (1997); see also N.Y.C. (1st Dep’t 1998) (mem.); Avon Furniture Rye Brook, New York). The authors thank Admin. Code § 26-504(a)(1)(f). Leasing, Inc. v. Popolizio, 116 A.D.2d 280, Mr. Skaller, Mr. Himmelstein, and Mr. 14. Farkas, 121 Misc. 2d at 644, 468 N.Y.S.2d 284, 500 N.Y.S.2d 1019, 1023 (1st Dep’t Santo Golino for kindly reviewing a draft at 810. 1986). of this article. 15. See Id. at 645-49, 468 N.Y.S.2d at 811-13. 37. 170 Misc. 2d 31, 34, 648 N.Y.S.2d 515, 2. But see Alan D. Kucker & Santo Golino, 518 (Civ. Ct., N.Y. Co. 1996); accord 545 Real Estate and Title Insurance Trends, 16. Id. at 647, 468 N.Y.S.2d at 811. Eighth Ave. Assocs. LP v. Shanaman, Discovery in Summary Landlord-Tenant 17. N.Y.L.J., June 3, 1998, at 26, col. 3 (Hous. N.Y.L.J., Feb. 4, 2004, at 21, col. 3 (Hous. Proceedings: Some Controversies Still Exist, Part Civ. Ct., N.Y. Co.). Part Civ. Ct., N.Y. Co.) (permitting N.Y.L.J., Mar. 20, 2000, at S2, col. 1 (citing disclosure to establish illusory tenancy by 18. See, e.g., Profi le Enters., N.Y.L.J., July 13, unstated inference from Hart v. Blackwood, demonstrating unlawful rent profi teering 2005, at 21, col. 3 (“At the deposition N.Y.L.J., July 23, 1998, at 21, col. 2 (App. through prime tenant’s over-collection of petitioner’s inquiry is limited to facts that Term 1st Dep’t) (per curiam) in arguing electricity charges from the subtenant), have occurred from two years before the that disclosure is warranted even if the aff’d, 12 Misc. 3d 66, 819 N.Y.S.2d 813 date of the notice of termination.”). movant does not append the document (App. Term 1st Dep’t 2006) (per curiam). 19. N.Y.L.J., June 3, 1998, at 26, col. 3. demand as an exhibit). 38. Goldman v. Richards, N.Y.L.J., Jan. 17, 2004, 3. Bouton v. DeAlmo, 12 Misc. 3d 132(A), 20. See Heller v. Joy, N.Y.L.J., Feb. 22, 1984, at at 18, col. 3 (Hous. Part Civ. Ct., N.Y. Co.). 6, col. 1 (Sup. Ct., N.Y. Co.). 2006 N.Y. Slip Op. 51166(U) at *1 (App. 39. 255 W. 88th Co. v. Gelband, N.Y.L.J., Jan. Term 1st Dep’t 2006) (per curiam); 21. N.Y.L.J., Dec. 19, 2001, at 24, col. 2 (Hous. 5, 2005, at 20, col. 1 (Hous. Part Civ. Ct., Benjamin Shapiro Realty Co. v. Henson, Part Civ. Ct., N.Y. Co.), aff’d, 2002 WL N.Y. Co.). 162 Misc. 2d 1, 9, 615 N.Y.S.2d 570, 575 83691, 2002 N.Y. Slip Op. 50014(U) (App. 40. Goldman, N.Y.L.J., Jan. 17, 2004, at 18, col. (Civ. Ct., N.Y. Co. 1994) (“Courts have Term 1st Dep’t) (per curiam). permitted narrowly tailored disclosure 3. 22. N.Y.L.J., Apr. 25, 1991, at 25, col. 4 (App. in summary proceedings upon a 41. Id. demonstration of ’ample need.’”). Term 1st Dep’t) (per curiam) (citations omitted). 42. See, e.g., Cox v. J.D. Realty Assocs., 217 4. See, e.g., Profi le Enters. LP v. Sanzo, AD.2d 179, 185, 637 N.Y.S.2d 27, 31 (1st 23. 170 A.D.2d 260, 260, 565 N.Y.S.2d 527, 528 N.Y.L.J., July 13, 2005, at 21, col. 3 (Civ. Dep’t 1995). Ct., N.Y. Co.) (denying disclosure (1st Dep’t 1991) (mem.). 43. Emay Props. Corp. v. Norton, 136 Misc. 2d motion as overbroad and oppressive 24. See id., 565 N.Y.S.2d at 528. but allowing petitioner to make more 127, 128-29, 519 N.Y.S.2d 90, 92 (App. 25. N.Y.L.J., Jan. 23, 1997, at 27, col. 3 (App. reasonable disclosure demand without Term 1st Dep’t) (per curiam). Term 1st Dep’t) (per curiam). Social Security numbers and fi nancial 44. See Cohen & Zerenowitz Realty Corp. v. information); see also Grotallio v. Soft 26. See, e.g., Herman v. Lancaster, N.Y.L.J., Mar. Asero, N.Y.L.J., Nov. 29, 1991, at 26, col. 5 Drink Leasing Corp., 97 A.D.2d 383, 383, 27, 1991, at 22, col. 6 (Hous. Part Civ. Ct., (App Term 1st Dept) (per curiam). 468 N.Y.S.2d 4, 5(1st Dep’t 1983) (mem.) N.Y. Co.). 45. E.g., id. (discussing overbroad subpoena request). 27. See, e.g., Singh v. Pierson, N.Y.L.J., Aug. 46. See 153-155 Essex Street Tenants Assocs. v. 5. See Atkinson v. Trehan, 70 Misc. 2d 612, 11, 1999, at 28, col. 4 (Hous. Part Civ. Ct., Kahan, N.Y.L.J., June 9, 2004, at 22, col. 1 613, 334 N.Y.S.2d 291, 292 (Civ. Ct., N.Y. Kings Co.). (Hous. Part. Civ. Ct., N.Y. Co.). Co. 1972) (“One purpose of requiring 28. Clark v. Kellogg, N.Y.L.J., July, 28, 1982, 47. See City of New York v. Cordero, N.Y.L.J., parties to proceed by motion is to prevent at 6, col. 1 (App. Term 1st Dep’t) (per Apr. 14, 1999, at 29, col. 4 (Civ. Ct., Kings an unwarranted delay in proceeding curiam). intended to be summary. . . . ”). Co.). 29. See N.Y. Mult. Dwell. L. § 3. 6. Dubowsky v. Goldsmith, 202 A.D. 818, 48. Id. 818-19, 195 N.Y.S. 67, 67 (2d Dep’t 1922); 30. See id. § 78.

44 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 49. Stern v. Levine, 10 Misc. 3d 129(A), 809 68. See, e.g., Building Mgmt. Co., Inc. v. 87. Kihl v. Pfeffer, 94 N.Y.2d 118, 123, 700 N.Y.S.2d 484, 2005 N.Y. Slip Op. 51931(U) Schwartz, 3 Misc. 3d 351, 353-54, 773 N.Y.S.2d 87, 89, 722 N.E.2d 55, 58 (1999) (App. Term 2d Dep’t 2d & 11th Jud. Dists. N.Y.S.2d 242, 244-45 (Civ. Ct., N.Y. Co. (quoting CPLR 3126). 2005) (mem.). 2004). 88. See, e.g., Dexter v. Horowitz Mgmt., 267 50. Banchik v. Ruggieri, N.Y.L.J., Nov. 18, 1998, 69. Id.; see also CPLR 2301. A.D.2d 21, 21, 698 N.Y.S.2d 33, 34 (1st Dep’t 1999) (mem.). at 29, col. 4 (Civ. Ct., N.Y. Co.). 70. Mestel & Co. v. Smythe Masterson & Judd, 51. Mozaffari v. Schatz, N.Y.L.J., Oct. 8, 2008, 215 A.D.2d 329, 637 N.Y.S.2d 37 (1st Dep’t 89. 305 Riverside Corp. v. Parnassus, 2008 WL at 26, col. 1 21 Misc. 3d 1103(A), 2008 WL 1995) (mem.). 2548754, 2008 N.Y. Slip Op. 51287(U) at *4-5 (Civ. Ct., N.Y. Co. 2008) (Gerald 4355437, 2008 N.Y. Slip Op. 51942(U) (Civ. 71. See, e.g., 1050 Tenants Corp. v. Lapidus, 17 Lebovits, J.). Ct., N.Y. Co.) (Gerald Lebovits, J.). Misc. 3d 133(A), 851 N.Y.S.2d 64, 2007 52. TOA Construction Co., Inc. v. Tsitsires, 4 N.Y. Slip Op. 52049(U) (Civ. Ct., N.Y. Co. 90. See Miller v. City of New York, 15 Misc. A.D.3d 141, 142, 772 N.Y.S.2d 24, 25–26 2007) (Gerald Lebovits, J.). 3d 1127(A), 841 N.Y.S.2d 219, 2007 WL 1238601, 2007 N.Y. Slip Op. 50882(U) (1st Dep’t 2004) (mem.). 72. Henriques v. Boitano, N.Y.L.J., Oct. 27, (Sup. Ct., Bronx Co. 2007). 53. 127 Misc. 2d 547, 551, 486 N.Y.S.2d 668, 1999, at 30, col. 3 (Civ. Ct., N.Y. Co.). 91. Id. at *3; accord Figdor v. City of New York, 672 (Civ. Ct., N.Y. Co. 1985). 73. See 22 N.Y.C.R.R. 130-1.1. 33 A.D.3d 560, 561, 823 N.Y.S.2d 385, 386 54. Koump v. Smith, 25 N.Y.2d 287, 295, 250 74. See generally, N.Y. CPLR 3101(c). (1st Dep’t 2006) (mem.) (striking answer N.E.2d 857, 861, 303 N.Y.S.2d 858 (1969). 75. See Henriques, N.Y.L.J., Feb. 2, 2000, at 5, because defendant resisted myriad court 55. Meyerson v. Prime Realty Services, LLC, 7 col. 1; see also CPLR 2301, cmt. 4. discovery orders over two years). Misc. 3d 911, 917-18, 796 N.Y.S.2d 848, 92. See 305 Riverside Corp., 2008 N.Y. Slip Op. 854 (Sup. Ct., N.Y. Co. 2005). 76. See Tower Properties, Inc. v. Castro, 99 Misc. 2d 405, 406–07, 416 N.Y.S.2d 508, 509-10 51287(U) at *4-5. 56. Goldman, N.Y.L.J., Jan. 17, 2004, at 18, col. (Rockland County Ct. 1979). 93. See 127 Misc. 2d at 549, 486 N.Y.S.2d at 3. 77. See David D. Siegel, New York Practice, 670–71. 57. See N.Y.C. Admin. Code § 27-2075(c). § 555, at 772. 94. Id., 486 N.Y.S.2d at 670–71. 58. 4 Misc. 3d 1009(A), 791 N.Y.S.2d 867, 2004 78. See Holland v. St. Paul Fire & Marine Ins. 95. N.Y.L.J., Dec. 11, 1996, at 25, col. 1 (Civ. N.Y. Slip. Op. 50797(U), 2004 WL 1717573, Co., 101 A.D.2d 625, 475 N.Y.S.2d 156, 157 Ct., N.Y. Co.). at *5 (Civ. Ct., N.Y. Co. 2004) (Gerald (3d Dep’t 1984). Lebovits, J.). 96. See id. 79. 216 A.D.2d 237, 238, 628 N.Y.S.2d 695, 696 97. See id. at 221.3. Because an attorney 59. Id.; see DiMichel v. South Buffalo, 80 (1st Dep’t 1995) (mem.). N.Y.2d 184, 196, 604 N.E.2d 68, 70, may not interrupt a deposition to N.Y.S.2d 1, 196 (1992) (discussing 80. Id. communicate with a deponent without rule in the Second, Third, and Fourth 81. Tower Properties, Inc. v. Castro, 99 Misc. permission of the other party, a skillful Departments). 2d at 406-07, 416 N.Y.S.2d at 509–10. objection can advise a deponent of an appropriate answer to a diffi cult 60. Id. 80 N.Y.2d at 197, 604 N.E.2d at 68, 590 (Rockland County Ct. 1979). question. The rules are designed to defeat N.Y.S.2d at 2. 82. See Meadowbrook-Richman, Inc. v. this type of EBT manipulation. 61. 99 N.Y.2d 383, 390, 786 N.E.2d 444, 451, Cicchiello, 273 A.D.2d 6, 6-7, 709 N.Y.S.2d 98. Id. at 221.1(b). 756 N.Y.S.2d 509, 515 (2003). 521, 521–22 (1st Dep’t 2000) (mem.). 99. Id. at 221.2. 62. Katz v. Bellmore Kickboxing Academy, Inc., 83. Richard T. Walsh, Outside Counsel, 16 Misc. 3d 1108(A), 847 N.Y.S.2d 897, Disclosure in Special Proceedings Under CPLR § 408, N.Y.L.J., Dec. 5, 1995, at 1, 2007 N.Y. Slip Op. 51340(U) at *2-3 (Dist. Gerald Lebovits is a judge of the Ct., Nassau Co.). col. 1. New York City Civil Court, Hous- 63. Id. at *2. 84. N.Y.L.J., Apr. 5, 2006, at 17, col. 1 (Hous. Part. Civ. Ct., N.Y. Co.). ing Part, and an adjunct professor 64. Id. at *2. 85. Id. (quoting Berg v. Flower Fifth Ave. Hosp., at St. John’s University School of 65. N.Y.L.J., July 21, 2004, at 17, col. 2 (Dist. 102 A.D.2d 760, 761, 476 N.Y.S.2d 895, 896 Law. Rosalie Valentino is an associ- Ct., Nassau Co.). (1st Dep’t 1984) (mem.)). ate at Goetz Fitzpatrick LLP in New 66. Scott E. Mollen, Realty Law Digest, 86. See Zletz v. Wetanson, 67 N.Y.2d 711, 713, York, New York. Rohit Mallick is Landlord/Tenant, Eviction Based on Illegal 499 N.Y.S.2d 933, 934, 490 N.E.2d 852, 853 Activity, N.Y.L.J., Dec. 6, 1989, at 4, col. 3. a second-year student at Fordham (1986) (mem.). University School of Law. 67. See Discovering Disclosure, Part 2, at 1, and cited cases.

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 45 The Most Infl uential Commercial Lease Cases in the Last Century That Every Drafter and Litigator Must Know By Adam Leitman Bailey and Dov Treiman

For almost two years, the attor- talk show hosts would no doubt list of Holy Properties will be changed any neys at Adam Leitman Bailey, P.C. these cases in inverse order of impor- time soon. Under Holy Properties, bet- have been compiling a list of the tance, we will use them to trace the ter is simply not good enough. greatest commercial leasing cases of lifetime of a leasehold, from negotia- Holy Properties adhered to the the past century. The authors have tion through breach and enforcement. common law; now a minority rule always been fans of “greatest” lists— held only in Alabama, Georgia, Min- there being something special about Holy Properties Ltd. v. Kenneth nesota, Mississippi, New York, and choosing the best among so many Cole Productions, Inc.: Stability West Virginia that a landlord has no great people, entertainers, athletes, in commercial leasing law and duty to mitigate damages when the composers, or, in our case, decisions mitigation of damages tenant abandons the lease.4 After that have had the greatest effect on Of these leading cases, probably acknowledging its minority position, leasing law. “Greatest” lists permeate the most essential one to understand the New York high court felt that the our entire culture and are the basis is Holy Properties Ltd. v. Kenneth Cole adherence to ma’at was so important for entire institutions like the Acad- Productions, Inc.,1 for it is this case that it overrode any considerations of emy Awards, Tonys, Grammys, and that erects the entire dominant theory having a right or better rule.5 the various Halls of Fame. Cooper- of commercial leasing law. The court stown, New York, is a village entirely wrote: While it is perhaps more the based on “greatest” lists, housing profession of economists and MBAs Parties who engage in both the Baseball Hall of Fame and than of lawyers to make these deter- transactions based on the greatest of the American summer minations, it cannot be doubted that prevailing law must be opera festivals, Glimmerglass. stability in commercial transactions, able to rely on the stabil- especially commercial leasing, will Law, however, is a peculiar fi eld ity of such precedents. In make a state more economically at- which, like baseball but unlike opera, business transactions, par- tractive for businesses seeking a new lends itself well to actual statistical ticularly, the certainty of location. No one likes the law to be analysis of “greatness.” These “great- settled rules is often more an unknown commodity. This, along ests” are therefore those cases that are important than whether with the sheer number of business so heavily cited that they have dem- the established rule is bet- contacts physically nearby, no doubt onstrated to have the most important ter than another or even substantially contribute to New impact on landlords’ and tenants’ whether it is the “correct” York’s attractiveness as a business businesses, and they are those cases rule. This is perhaps true environment and continue to make in ignorance of which no litigator or in real property more than New York one of the great economic drafter dares to enter either a court- any other area of the law, engines of the nation, indeed, of the room or a lease negotiation. where established prec- world. edents are not lightly to be A mere handful of cases have set aside.2 achieved that kind of infl uence in Interpreting Leases commercial landlord-tenant relations. This holding sets the theme for In New York, few areas have residen- this entire article. Yes, New York will 151 West Associates v. Printsiples tial rent regulation, but for the most vary from other jurisdictions about Fabric Corp.: Construction of leases part in the commercial arena, the its holdings on a particular point, against their drafters principles of governing law are those and the view expressed in some other While leasing no doubt has a of the common law, fi nding their jurisdiction may be eminently logi- fl avor of conveyancing to it and was roots in its development over the past cal, but the principle of stability is so certainly understood at common thousand years, fi rst in Britain and important to real property law, that law to be such, modern commercial then later, here. These cases cover New York will not lightly be persuad- leasing law is vastly more inclined to stability in leasing law, mitigation of ed to abandon its own view to hold look at the lease as a contract subject damages, lease interpretation, lease some better view. In ancient Egypt, to the same kinds of principles that enforcement, lease violations, attor- this principle of stability was known govern contracts generally.6 neys’ fees, bankruptcy, court stipula- as ma’at3 and endured for 5,000 years. tions, and actual and constructive Therefore, there is no reason to be- Among the most important eviction. While late night television lieve that in New York the principle of these principles is that of contra

46 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 proferentem, the idea that contracts are and eminently sensible may not be considered construed most strongly against their proposition of law [ ] that, unless the document itself drafters.7 This doctrine is somewhat when parties set down is ambiguous. Further, stronger in the residential leasing their agreement in a clear, “extrinsic and parol evi- context than in the commercial leas- complete document, their dence is not admissible to ing context because in all but very writing should be enforced create an ambiguity in a few residential leasing markets, the according to its terms.” We written agreement which leases are presented to the tenants es- have also emphasized this is complete and clear and sentially as take-it-or-leave-it. In com- rule’s special import “in unambiguous upon its mercial leasing, however, the amount the context of real prop- face.” Since the meaning of participation by the tenant can erty transactions, where of “premises” is clear and vary widely. The mere fact, however, commercial certainty is a unambiguous in the lease, that a lease says that it was jointly paramount concern.”10 extrinsic evidence such as drafted by the landlord and the ten- the conduct of the parties Again we fi nd that same concern ant will not foreclose the tenant from may not be considered. we saw in Holy Properties.11 And the offering proof that this was simply IBM’s conduct—placing kicker in Vermont Teddy Bear is the not true. The clause reciting that a underground storage phrase, “In the absence of any ambi- contract is not one of adhesion may tanks in the surround- guity, we look solely to the language be no less a contract of adhesion than ing land and cleaning the used by the parties to discern the the rest of the contract. As a practi- resulting pollution—is contract’s meaning.”12 In short, if the cal matter, therefore, any landlord not suffi cient to create clause is clear, it need not be sensible who wants to elude the doctrine is an ambiguity in the lease to be enforced. going to have to have and maintain a where the language is paper trail demonstrating the tenant’s Vermont Teddy Bear stands as clear. Neither may the actual participation in the drafting something of an unsung hero of capi- conduct of IBM in paying process. For landlord’s counsel, this talism. Its proposition that a written all real estate taxes pursu- may well mean letters that begin, agreement entered into by two people ant to a lease provision “This is to memorialize your request shall be enforced regardless of the create an ambiguity. The that the lease say.” The leading case severity of the consequences or the contract, read as a whole, discussing all these ideas is 151 West lunacy of the terms monumentally clearly and consistently Associates v. Printsiples Fabric Corp., in strengthens business relationships. uses the term “premises” which the court wrote: “It has long Business people will only do business to refer only to interior been the rule that ambiguities in a in a reliable province where the laws space and we cannot rely contractual instrument will be re- are stable and justice is invoked fairly. on extrinsic evidence to solved contra proferentem, against the But fairness can only be achieved fi nd otherwise.15 party who prepared or presented it. when courts enforce the agreements Fifty States Mgt. Corp. v. Pioneer Moreover, unless the terms of a lease before them without relying on the Auto Parks: Enforcement of leases are clear, no additional requirements equities or any prejudices—hence the as written and acceleration of rent or liabilities will be imposed upon a importance of this animal of a case. tenant.”8 upon default South Road Assocs., LLC v. IBM Yet, in spite of their importance, Vermont Teddy Bear Co. v. Corp.: Strict adherence to the terms Vermont Teddy Bear and South Road 538 Madison Realty Co.: Strict actually embodied in the lease in Assocs. can hardly be regarded adherence to the terms actually spite of practical construction as unique. They stand in a line of embodied in a lease South Road Assocs., LLC v. IBM increasingly powerful cases bind- In Vermont Teddy Bear Co. v. 538 Corp.,13 takes Vermont Teddy Bear one ing landlords and tenants to the Madison Realty Co., the court takes step further. Not only does it adhere actual wording of their leases. One this idea to the next step, holding that to the strict meaning of the terms of the most signal cases of all time, it does not matter what the parties used in the lease itself, but it forbids Fifty States Mgt. Corp. v. Pioneer Auto meant to say or what they should interpretation of those words by Parks,16 examined whether a clause in have said.9 When it comes to a lease, reference to practical construction14 a lease making the rent for the entire the parties will be bound by the clear when the words themselves are clear. term of the lease due upon a single meaning of the words actually em- The key passage in the case is to be default could be enforced. While ployed. As the court put it: found in the words: there were earlier cases that had argued that such a drastic result was When interpreting con- Whether a contract is inequitable and an unenforceable for- tracts, we have repeat- ambiguous is a question of feiture, New York’s high court in Fifty edly applied the “familiar law and extrinsic evidence States cut through all of that, holding:

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 47 In sum, the facts of this as in calculating the rent, the courts While leases often call for such case do not justify equi- will rarely sustain that departure. things, they are generally silent about table intervention. The whether the tenant gets to share in For example, common in com- parties freely bargained for the benefi t of tax decreases the land- mercial leases are so-called “pay the inclusion of a clause lord manages to procure. Unless the now—fi ght later” clauses.19 In these, in their lease whereby the lease says to the contrary, the tenants the lease contains a component of the rent for the remainder of do indeed get such benefi t.23 payments that the tenant must make the lease term would be usually called “additional rent.”20 accelerated upon breach of 41 Fifth Owners Corp. v. 41 Fifth Unlike the “base rent,” however, the tenant’s covenant to pay Equities Corp.: Fixtures defi ned actual numbers are not set forth in rent. . . . That honoring While many leases call for fi x- the lease. Instead, the landlord has at least this aspect of its tures becoming the property of the to examine the operating expenses of bargain may cause Pioneer landlord, almost no lease attempts the building, typically including real fi scal hardship does not, even a decent job at defi ning just estate taxes, and compute which of standing alone, serve as what is and what is not a fi xture. 41 the operating expenses are properly a basis for construing the Fifth Owners Corp. v. 41 Fifth Equi- passed along to the tenant as ad- acceleration clause as a ties Corp.24 takes the lead in fi lling ditional rent. Where either the lease penalty under the guise of that gap, albeit somewhat tersely. is unclear in its writing as to which applying equitable prin- While it makes no attempt to provide expenses count as “operating expens- ciples to a routine com- a comprehensive defi nition of the es” and which don’t, or where there mercial transaction.17 term fi xture, at least it stated, “The are expenses that could be character- dedicated purpose of the unit, its size In short, in a commercial transaction, ized either way, depending on one’s and the extent of its connection to the the parties are to be held to the terms point of view, disputes will arise as to structure render it a fi xture.”25 We they negotiated, even if harsh. how much additional rent the tenant would have to conclude that a vastly owes. For example, a roof repair is smaller unit would also be a fi xture if typically an operating expense, but Enforcing the Lease indeed it was of dedicated purpose a roof replacement is typically not. and extensively connected to the Greenblatt v. Zimmerman: Use of It therefore becomes a disputable structural fabric of the building itself. “practical construction” to interpret item as to whether a particular repair Apparently the equipment in 41 Fifth a lease was so extensive as to be essentially had fairly complex connections to the a replacement and therefore out- Morgan Guaranty Trust Co. of structure. NY v. Solow d/b/a Solow Building side of the tenant’s fi scal obligation. Co.: Adherence to “practical Leases will often call for arbitration Lease Violations construction” to interpret a lease to resolve such disputes. In a “pay now—fi ght later” clause, however, The ideas associated with enforc- Jefpaul Garage Corp. v. the tenant must fi rst pay the disputed Presbyterian Hospital in the City ing leases are tightly tied with the amount as a prerequisite to demand- ideas of interpreting them. Fre- of New York: Defi nition of waiver, ing arbitration as to whether it was, acceptance of rent not constituting quently, cases discussing how a lease 21 in fact, owed. If the landlord abuses a waiver is to be enforced out of necessity also that process, however, the courts deal with the rules of how one is to will enjoin the landlord’s improper Closely tied to the ideas behind be interpreted. Since commercial calculations.22 enforcing leases are the ideas associ- leases tend to be for longer terms ated with when they are breached. than residential leases, there can be Ran First Assocs. v. 363 E. 76th St. While it is generally an ordinary some considerable lapse in time from Corp.: Tenants’ entitlement to the exercise in lease interpretation to when a clause is written to when it benefi t of tax abatements procured determine if the tenant has techni- falls upon a court to interpret it. So, in by landlord cally breached the lease, it is a more commercial leasing, one often comes Clauses like the “pay now—fi ght fact-laden question to determine across the idea of “practical construc- later” clauses are part of the generally whether the landlord has waived that tion” whereby a court, rather than common phenomenon in commercial breach. The fi rst and most important taking a fresh look at the language leasing of the rent being broken out concept with waiver is its very defi ni- in the lease itself, will look instead to into the tenant paying a base rent tion. For that purpose, the leading how the parties actually lived under plus increases in the rent itself and case is Jefpaul Garage Corp. v. Presbyte- 26 that language in the early years of a share of the operating expenses of rian Hospital in the City of New York, 18 the lease. If the landlord suddenly the building. These expenses often which defi nes a breach as a voluntary departs from that interpretation, such include real estate tax escalations. relinquishment of a known right. The two key words in that defi nition are

48 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 “voluntary” and “known.”27 If the TSS-Seedman’s, Inc. v. Elota Realty often provoke a Yellowstone injunction landlord is acting under compulsion, Company: Difference in remedies and one is therefore better off with a there is no waiver. However, much allowed by conditional limitations naked termination notice, set up as more importantly, if the landlord is and conditions subsequent a conditional limitation—although unaware of either the right itself or Summary proceedings, while wording the lease just right to achieve the breach of it, then the landlord generally regarded a derogation of that result is exceptionally diffi cult. cannot be said to have relinquished a common law, are now approaching For undeniably obsolete reasons, known right. the conclusion of their second century while conditional limitations can be since their invention and have had the predicate of a summary proceed- How does ignorance of the ing, a condition subsequent can only breach take the situation out of the ample time to develop a common law of their own. For most of that period, be enforced through an ejectment defi nition? Let us illustrate this by action.31 way of an example. Under a rather the courts have shown a decided hos- common lease clause, if the ten- tility to the invocation of the summa- For all of the reasons commercial ant fails to have certain insurances ry remedy and the proceedings have, litigators condemn badly written naming the landlord as an additional in many jurisdictions, betrayed a cer- leases and their drafters, no com- insured, the tenant is in breach of the tain fragility. This is no less true in the plaint rings louder or more justifi - lease. It would stand to reason and state of New York, the geography of ably than when a landlord fi nds its indeed the law charges the landlord their invention, than anywhere else. case can no longer be maintained as with knowledge of the contents of its Generally in garden variety commer- a summary proceeding designed to own lease. So there is no real question cial summary proceedings, especially last a few months but instead must that the landlord knows of the right those for nonpayment, a landlord can proceed in the longer, more cumber- that the tenant’s insurance insures obtain the relief sought. In summary some common law ejectment action the landlord. If the landlord, how- proceedings brought to recover the lasting typically a few years before an ever, does not know that the tenant is property itself, rather than to recover order of eviction. Hence, no lesson is breaching this clause, as, for example, funds, many courts will fi nd in the more important to the lease drafter by fraudulently claiming that certain summary proceedings common law than understanding, drafting and insurances are in place when in fact ample doctrine relegating suitors to implementing conditional limitations the insurance certifi cates are forged, the long, slow, and expensive com- and staying far away from the ocean then the landlord has not waived this mon law ejectment proceeding. of dangerous conditions subsequent. breach if the landlord is fooled by the The legal theory here is between Dulac v. Dabrowski: Landlord’s certifi cates. Why? Because the lease two ostensibly different kinds of gives the landlord a remedy for the ability to bring nonpayment contingencies in leases that occur in proceeding without violating tenant’s breach. That remedy is itself the event (typically) of a default by one of the landlord’s rights, but if the automatic stay in bankruptcy the tenant in fulfi lling some obliga- proceedings landlord is kept in the dark about the tion under the lease. In the fi rst, the breach, the landlord, while knowing failure of the tenant to abide by a There can be no doubt that the of the right to be insured, does not lease obligation triggers a conditional most important incident of the land- know of the right to evict to which limitation whereby the termination lord-tenant relationship is the land- the breach of the insurance clause had of the lease is automatic without any lord’s ability to collect rent. While given rise. Thus, with the falsifi ed further action by the landlord. In the many things can frustrate this ability, 32 insurance the landlord’s right to ter- other, the condition (a/k/a condition under Dulac v. Dabrowski, the pres- minate the lease is an unknown right subsequent), the default, gives the ence of a bankruptcy proceeding is which landlord cannot be said to landlord the option to terminate the no bar to the bringing of an ordinary have waived. The other key point of lease. There is nothing automatic. The nonpayment proceeding—provided Jefpaul is that the conduct on the part landlord must exercise the option for one seeks only possession and not the of the landlord cannot be accidental it to take effect.30 While it is generally back rent. However, what the deci- or inadvertent but must have been easy to state this theory, it is remark- sion leaves unstated is just exactly 28 specifi cally intended as a waiver. ably diffi cult to apply it by using any how one is to go about wording the The key phrase from the decision kind of analytical means. But, if one demand for such a proceeding. The is, “While waiver may be inferred applies the mechanical method of statute says that one must demand from the acceptance of rent in some fi nding that the presence of a notice rent or possession in the alternative, circumstances, it may not be inferred to cure creates a conditional limita- but this decision only allows for the . . . as a matter of law, to frustrate the tion and the absence of one creates a demand for possession. No reported reasonable expectations of the parties condition subsequent, one will most case has yet declared what the correct embodied in a lease when they have generally come up with the correct wording for the demand would be. 29 expressly agreed otherwise.” result. A notice to cure will, however,

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 49 First National Stores, Inc. v. is the judicial stipulation, and they F & F Restaurant Corp. v. Wells, Yellowstone Shopping Center, Inc.: save taxpayers hundreds of millions Goode & Benefi t, Ltd.: Subletting Tenant’s right to litigate whether of dollars annually. Therefore, judicial and assignment, landlord bound it is in breach prior to actual stipulations are highly favored by the not to withhold consent without a forfeiture of the lease courts and, when crafted by attor- valid reason New York leads the nation in neys on all sides, should be almost Among the most common clauses devising a procedure allowing a invulnerable to attack. Indeed, absent in commercial leases are those deal- tenant who has received a notice to notice of lack of authority to the other ing with subletting and assignment. cure the opportunity to contest prior side, it is conclusively presumed that At common law, tenancies are freely to the declaration of the termination an attorney’s stipulation binds his or sublettable and leases freely assign- of the lease whether there really has her client. able. So, if the lease is silent on the 33 been a lease violation. Jurisdictions 1029 Sixth LLC v. Riniv Corp.: Strict issue, the tenant can do as it wishes. allowing such a procedure accord the enforcement of stipulations Most leases are not silent on the tenant an enormous safeguard per- issue of subleasing, however, and mitting the tenant the opportunity to However, the attack can be either prohibit or restrict it. The most fi nd out if the landlord was right and somewhat subtle. The parties may common form of restriction is that to put things to right before losing a continue to avow that the stipulation sublets or assignments must only be valuable leasehold. However, there is binds them while one side seeks to be on consent of the landlord. Also, most a cost to that benefi t. The same line of excused from a de minimis departure typically, consent “shall not [be] un- authority holds that unless the tenant from the obligations undertaken in reasonably with[e]ld.”38 This phrase utilizes this procedure to obtain a toll- the stipulation. Courts will gener- has come to mean that consent will ing of the cure period actually during ally allow such departures unless the be deemed given unless the landlord that period, by way of a declaratory stipulation by its own terms forbids can articulate a valid reason to refuse 35 judgment action, if the tenant actu- such. consent. The two key concepts in that ally was in default of the lease, once sentence are “articulate” and “valid.” 379 Madison Avenue, Inc. v. The the cure period is up, the courts If the landlord is silent, the law Stuyvesant Company: Attorneys’ themselves have no power to fi x it. deems consent to have been given. If fees clause in favor of landlord The Yellowstone injunction, as it has the landlord simply says “no” with- enforceable come to be known, is the single most out stating a reason, the law again powerful weapon in a tenant’s arse- Sykes v. RFD Third Ave. I Assocs., deems consent to have been given. nal and fear of its employment has LLC: Stipulated victory suffi cient If the landlord says “no” and gives a guided many a landlord’s decisions. predicate for an award of reason that is not valid, the law still attorneys’ fees again deems the consent to have been It is now generally agreed that given. As F & F Restaurant Corp. v. Stipulations 39 a lease clause calling for the tenant Wells, Goode & Benefi t, Ltd. states: Hallock v. State of New York and to pay for the landlord’s attorneys’ Power Authority of State of New It is enough on this point fees in the event of litigation is fully York: High favor to which attorney to note that Neuman as enforceable.36 stipulations are entitled and equitable owner had the authority of attorney Although New York allows vic- right to withhold consent tory in the litigation in chief to be the only if he had a reasonable Although not itself a decision ground for doing so and from the realm of commercial leasing, basis of an award of attorneys’ fees when authorized by the lease, there that the existence of a rea- the single most infl uential decision in sonable ground must be the realm of commercial litigation is is some controversy as to whether a “win” achieved by means of a stipu- proved by Neuman’s suc- Hallock v. State of New York and Power cessor, the present owner, Authority of State of New York.34 The lation is enough of a win to justify the attorneys’ fees award. Some writers and will not be presumed. theme of this article is that of case For like reason, the assign- law. Yet, it is obvious that there can believe that such a doctrine discour- ages parties from stipulating to their ment from Margin Call be no case law without litigation. to plaintiff must be given As soon as one deals with any kind own defeat, but others maintain that it encourages the winner to win at the effect unless the landlord of litigation, it is preferable for the can establish a reasonable parties, for the courts, and for society, bargaining table, knowing that the win will not be diminished by it hav- ground for withholding that parties arrive at some kind of res- consent.40 olution of the matter without requir- ing been achieved through a stipula- ing the court to go to judgment. The tion. The dominant view is that a chief mechanism of such resolution stipulated win will, in fact, support an award of attorneys’ fees.37

50 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Actual and Constructive Eviction rent. To put this in realistic terms, let commercial leasing law is not such a fi eld. Barash v. Pennsylvania Terminal us say that the landlord rents the ten- ant some 2,000 square feet and then Real Estate Corporation: Defi nition Many of the above cases help reduces the square footage to 1,980 and distinctions of actual and commercial leasing practitioners for the purpose of installing a utility constructive eviction avoid land mines. Other cases as- closet to which the tenant is forbid- sist in understanding the essence At the other end of the spec- den access. At common law, such de- and important rules of commercial trum from stipulations resolving privation of the 20 square feet would leasing. Other cases are simply core litigation, is self-help. This comes deprive the landlord of all entitle- elements of the always developing in two principal species. The fi rst, ment to rent until the premises are common law of commercial leasing. actual eviction, is where the landlord restored to their previous condition. Although many other cases could without benefi t of judicial process In Eastside Exhibition, however, the and should be added to this body of deprives the tenant of actual posses- court ruled that a de minimis depriva- law, these cases will give the reader sion of the premises in whole or in tion will not forfeit the landlord’s enough weapons and shields to enter part—by means of physically depriv- entitlement to rent.43 ing the tenant of some or all of the the friendly battle of commercial leased space. The second, construc- Note the important distinction lease representation. The practitioner tive eviction, is where the tenant, also here: actual eviction, whether it is who does not master at least the cases without benefi t of judicial process, actual total eviction or actual partial discussed in this article and keep an deems itself to have been deprived eviction, entitles the tenant to total eye open for further developments of the use of the premises and aban- forgiveness of the rent. Eastside holds works at peril. dons them in whole or in part. If the that where the actual partial eviction tenant only abandons a portion of the is de minimis, the tenant is not entitled Endnotes to total forgiveness, but only an as- used space, deeming it unusable, this 1. 87 N.Y.2d 130, (1995), TLC Mitigation 1, is a “partial constructive eviction.” sessment of the damages actually TLC Serial #0095 (1995). sustained.44 Constructive eviction, on In sum, actual eviction is a self-help 2. Holy Properties, 87 N.Y.2d at 134. remedy employed by landlords; the other hand is where the tenant has deemed the premises to have 3. See New World Encyclopedia, http:// constructive eviction is a self-help www.newworldencyclopedia.org/entry/ remedy employed by tenants. Barash become so unusable that the tenant Ma’at (last visited Mar. 19, 2009) (stating v. Pennsylvania Terminal Real Estate has abandoned them in whole or in that ma’at was a divine order which Corporation states, “To be an eviction, part. Under constructive eviction, the designated the meaningful and orderly nature between man and gods). constructive or actual, there must be amount of forgiveness of rent the ten- ant receives varies with the amount 4. See Holy Properties, 87 N.Y.2d at 130 a wrongful act by the landlord which (stating that the lease expressly provided deprives the tenant of the benefi cial of space the tenant has abandoned. that landlord was under no duty to enjoyment or actual possession of the Those watching the development mitigate damages if tenant abandons 41 property). demised premises.” From this point of commercial leasing law are keep- 5. Id. at 134 (“the certainty of settled rules is of view, the action is in either case re- ing a careful eye focused on how and garded as being taken by the landlord, often more important than whether the whether Eastside’s doctrine spreads established rule is better than another but this is a faulty perception. It is the across the state. That it violates ma’at or even whether it is the ’correct’ rule”) inaction of the landlord and the action cannot be denied. (citing Maxton Builders Inc. v. Lo Galbo, of the tenant that makes one real- 493 N.Y.S. 825 (1986)). ize a constructive eviction has taken 6. See generally 151 West Assoc. v. Printsiples, place. It is the opposite for an actual Conclusion 61 N.Y.2d 732, 734 (1984) (discussing the eviction. rule of interpreting a contract in the case As we saw with our analysis of of ambiguities). Holy Properties, the principle of ma’at Eastside Exhibition Corp. v. 210 7. Id. (citing Taylor v. U.S. Casualty Co., 269 is critical in the study of commercial E. 86th St. Corp.: Landlord’s N.Y. 360 (1936)). leasing law. Yet, as we see from East- entitlement to rent in spite of de 8. Id. side Exhibition, common law doctrines minimis permanent deprivation of 9. 1 N.Y.3d 470 (2004), TLC Leases 5, TLC do, from time to time, get thrown out leased space Serial #0256. or severely modifi ed. 10. Id. at 475 (quoting W.W.W. Assoc. v. Returning to our theme of ma’at, Giancontieri, 77 N.Y.2d 157, 162 (1990)). East- There are fi elds of law in which we fi nd it seriously upset by 11. Supra note 4. side Exhibition Corp. v. 210 E. 86th St. one can rely on ancient doctrines 12. Vermont Teddy Bear, 1 N.Y.3d at 475. Corp.42 The common law rule had and not worry about their changing been that an actual partial eviction, much. One can keep practicing law 13. 4 N.Y.3d 272 (2005), TLC Leases 12, TLC Serial #0306 (2005). no matter how small, deprives a at the end of one’s career essentially the way one did at the beginning. But 14. Id. (concluding that when an agreement landlord of the entire entitlement to is a clear and complete document, the

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 51 agreement should be binding according in the calculation of additional rent 37. See Sykes v. RFD Third Ave. I Assocs., 833 to those terms which are stated). because “real estate taxes” as defi ned in N.Y.S. 76 (1st Dep’t 2007). the lease does not include tax exemptions 15. Id. at 278. 38. F & F Restaurant Corp. v. Wells, Goode & or abatements, and the assessment of tax Benefi t, Ltd., 61 N.Y.2d 496 (1984). 16. 46 N.Y.2d 573 (1979). required actual payment by landlord). 39. 61 N.Y.2d 496 (1984). 17. Id. at 579. 24. 787 N.Y.S. 326 (1st Dep’t 2005), TLC 40. Id. at 503. 18. See Greenblatt v. Zimmerman, 117 N.Y.S. 18, Fixtures 1, TLC Serial #0300. 20 (1st Dep’t 1909) (holding that in order 25. Id. at 387. 41. 26 N.Y.2d 77 (1970). to give a fair construction of the lease, 26. 61 N.Y.2d 442, 446 (1984), TLC Waiver 1, 42. 801 N.Y.S.2d 568 (1st Dep’t 2005). great weight should be placed on the TLC Serial #0084 (1984). practical construction placed on the lease 43. Id. at 570. in the prior years). 27. Id. at 446. 44. Id. 19. Morgan Guaranty Trust Co. of NY v. Solow, 28. Id. at 445. 68 N.Y.2d 779 (1986), TLC Rent 6, TLC 29. Id. Serial #0279. Adam Leitman Bailey is the 30. TSS-Seedman’s, Inc. v. Elota Realty Co., 72 20. Id. founding partner and Dov Treiman N.Y.2d 1024, (1988). is the landlord-tenant managing 21. Guaranty Trust, 68 N.Y.2d at 780. 31. See discussion infra note 36. partner of Adam Leitman Bailey, 22. See id. (discussing how landlord 32. 774 N.Y.S.2d 487 (1st Dep’t 2004). P.C. Leni Morrison, an associate of submitted different calculations of the additional rent for each year it was 33. First National Stores, Inc. v. Yellowstone that fi rm, assisted in researching this due. This court affi rmed the decision of Shopping Center, Inc., 21 N.Y.2d 630 (1968). article. Mr. Bailey and Mr. Treiman the arbitrators in choosing the correct 34. 64 N.Y.2d 224 (1984). recently collaborated to produce the calculation.). 35. See 1029 Sixth LLC v. Riniv Corp., 777 fi rst 21st-century residential leases 23. Ran First Assoc. v. 363 E. 76th St. Corp., N.Y.S. 122 (1st Dep’t 2004). for BlumbergExcelsior. 747 N.Y.S. 13 (1st Dep’t 2002), TLC Taxes 1, TLC Serial #0230 (holding that the tax 36. 379 Madison Avenue, Inc. v. The Stuyvesant abatement should not have been included Co., 275 N.Y.S. 953 (1st Dep’t 1934), aff’d 268 N.Y. 576 (1935).

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The NYSBA leadership and staff extend thanks to you and our more than 76,000 members — from every state in our nation and 109 countries — for your membership support in 2009.

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52 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 A Message from the Outgoing Section Chair (continued from page 4) will prohibit you from acting as an Kerwin who worked hard in guid- and thanks much. We would not have agent for a title company in the same ing us and arranging for meetings the Journal we have without you. transaction in which you represent with the appropriate Senators and Thanks in particular to George the buyer, thereby making it almost Assemblypersons—we met with the Haggerty for all his efforts in present- fi nancially impractical if not impos- Chair of both the Senate and Assem- ing the issue of the unlawful prac- sible to carry on a residential real bly Insurance Law Committees—to tice of law and to Mindy Stern for a estate law practice. Specifi cally, this present our position. We had a group number of items, particularly helping bill contains a controlled-business that went to Albany, including Karl with our effort to honor Lorraine defi nition—if we primarily do title and Steve Alden, Gerry Antetomaso, Tharp. insurance for our own clients and Tom Hall, George Haggerty, myself, not for others, that is a controlled- Kevin and Ron, and we believe we As I mentioned above, we have business situation and we would were effective in pointing out that all heard voices this year which we be prohibited from engaging in that lawyers should be excluded from the were not used to hearing, at least not scenario. controlled-business provisions. This with such forcefulness. What keeps is not a new problem. Harry Meyer, coming back to me is Dorothy Day There is no question about this. in his fi nal message, also addressed and her words. In a book entitled Their solution in order to mollify us this issue, stating specifi cally, “Unfor- Dorothy Day Selected Writings—Orbis was to state, “Well, all right, we want tunately, this well-organized practice Books, 1983, 1992, 2005, at p. 106, it is to kick you all out but what we will is under attack by a coordinated written: do is we will compromise—we will effort mounted by the New York State put in a provision that if you are cur- Land Title Association to pass legisla- It is hard to write about rently practicing when the law takes tion.” He went on to talk about the poverty. We live in a slum effect or two years thereafter, we will efforts of our Title Insurance and Title neighborhood. It is becom- let you continue to do it but after that and Transfer Committees to address ing ever more crowded all the rest of the lawyers are out.” the issue. This year our efforts went with Puerto Ricans, those Yes, they really mean to keep us out to a new level. But if any of you out who have the lowest of the business. This is unheard of. there are reading this, please call wages in the city, who do There is another bill sponsored by your legislator, call your senator, or the hardest work, who are the Insurance Department, which is a anyone you know who might know small and undernourished superior bill in many respects to the them. It is unconscionable that non- from generations of priva- New York State Land Title Associa- lawyers would presume to defi ne tion and exploitation. tion’s bill but also has this controlled- our practice of law. business aspect. We have fought this It is hard to write about with every bit of energy and effort we One of the, if not the, main proj- poverty when the back- can muster. In a considerably unusual ects of mine this year was to open up yard at Chrystie Street still development, Bernice Leber, who has the meetings of all the Committees has the furniture piled to just fi nished her term as President of to phone attendance. We were slow one side that was put out our Bar, has taken steps to expedite getting started and it had its glitches on the street in an eviction the Bar’s approval process and call but it is up and running now, and for in a next-door tenement into session a special meeting of the everyone out there again I say please . . . . We need always to be Executive Committee of the main fi nd a committee you want to work thinking and writing about Bar to back us in our efforts. Thank with and, if you cannot be physically poverty. . . . We must talk you, Bernice. It shows the leadership present, call in—it is just a tremen- about poverty, because that she has exercised throughout her dous resource. Special thanks to Ira people insulated by their term as President and we do so need Goldenberg for his taking on the task own comfort lose sight of it. Within our Section, Tom Hall and and together with others developing it. So many decent people Gerry Antetomaso have done much a code of ethics for phone attendance. come in to visit and tell us to prepare memorandums, to review Thanks to Lori Nicoll, whose job was how their families were legislation, to get out reports to all of made a great deal more complex by brought up in poverty, and us so that we knew where we were this effort but who came through how, through hard work going on an almost daily basis. The swinging. and cooperation, they Executive Committee itself took a managed to educate all the Thanks to the Co-Editors of this strong-line position. Karl worked to children. . . . They contend Journal and to the Student Editorial see that we went forward, and I want that healthful habits and Board. Hi to everybody at St. John’s to thank Ron Kennedy and Kevin a stable family situation

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 53 enable people to escape from the poverty class, no matter how mean the slum they may once have been The N.Y. Real Property forced to live in. So why can’t everybody do it? No, Law Journal is also these people don’t know about the poor. Their available online conception of poverty is of something neat and well ordered as a nun’s cell. Occasionally, . . . we dream of going out on our own, living with the destitute, sleeping on park benches or in the city shelter, living in churches, sitting before the Blessed Sacrament as we see so many do- ing from the Municipal Lodging House around the corner. And when such thoughts come on warm spring days when the children are playing in the park, and it is good to be out in the city streets, we know that we are only deceiving ourselves, for we are only dreaming of a form of luxury. What we want is the warm sun, and rest, and time to think and read, and freedom from Go to www.nysba.org/RealProperty the people who press in Journal to access: on us from early morning until late at night. No, it is • Past Issues (1998-present) of the N.Y. Real not simple, this business of poverty. Property Law Journal* It was a great experience and • N.Y. Real Property Law Journal Searchable Index thank you all. (1998-present) Peter V. Coffey • Searchable articles from the N.Y. Real Property Law Journal that include links to cites and statutes. This service is provided by Loislaw and is an exclusive Section member benefi t*

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54 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 BERGMAN ON MORTGAGE FORECLOSURES: So You Want to Sell the Co-op Back to the Borrower By Bruce J. Bergman

Lenders recognize that settlement To fi nance the borrower was also delinquent to discussions often reach their peak of the purchase the co-op in remitting his monthly intensity when the borrower fi nally of an apart- maintenance charges. So while the realizes that the end is in sight—often ment (in fact, lender (now made whole) had no when the foreclosure sale is immi- the purchase problem selling back to the former nent. This, of course, creates time of shares in the borrower, the co-op did. problems and not infrequently leads corporation) a to a sale the parties hoped would borrower exe- When the issue went to court, the not happen. In turn, this generates a cutes a security ruling was that the co-op did indeed common lender or servicer question: agreement (not have the power to reject the borrower “Can we undo the sale because the a mortgage) as an owner. The co-op is bound only borrower just sent us the money to pledging the shares and the lease as by what is called the business judg- reinstate?” The answer in New York security. Upon default, a foreclosure ment rule, which in a nutshell means is maybe, but that dilemma is for proceeds according to the UCC and that a court cannot interfere with another day. For now, let’s focus that is quite similar to the non-judicial decisions made by a co-op (or condo) inquiry upon an even more elusive foreclosure non-New York mortgage board taken in good faith and in the subject—the co-op. servicers are comfortable employing exercise of honest judgment. in many states. Co-ops are weird animals for So, the borrower was out and most lenders and servicers—in part Noting that a critical overriding stayed out; a concept for REO and because they are not seen so often element of cooperative ownership is loss mitigation staff of mortgage and also because they aren’t even real that the co-op board retains virtually lenders and servicers to know estate. (Most mortgage servicers are sovereign authority over the build- from outside New York State, which ing—particularly over who can buy Mr. Bergman, author of the explains the common unfamiliarity shares—what happens if after a co-op three-volume treatise Bergman on with the co-op form of ownership.) foreclosure the lender takes back the New York Mortgage Foreclosures apartment (that is, the co-op issues The co-op, of course, is personal (Matthew Bender & Co., Inc., rev. shares and a lease to the lender, now property and here is a momentary 2004), is a Partner with Berkman, “owner”) the borrower settles every- refresher. A building (typically an Henoch, Peterson & Peddy, P.C., thing and wants the apartment back? apartment building) is converted to Garden City, New York; an Adjunct It is very symmetrical if the lender cooperative ownership when title Associate Professor of Real Estate joins in this desire and, because no is conveyed to a co-op corporation. with New York University’s Real court is involved with this, who could Shareholders of that corporation Estate Institute, where he teaches object? are then eligible to receive what are the mortgage foreclosure course; and called proprietary leases to a par- The co-op could, and has [see a special lecturer on law at Hofstra ticular apartment. We think of that Hochman v. 35 Park West Corporation, Law School. He is also a member of person as an owner of the unit, but in 293 A.D.2d 650, 741 N.Y.S.2d 261 (2d the USFN and the American College actuality that person is a tenant. (The Dep’t 2002)]. There, the reason for the of Real Estate Lawyers. more accurate term is proprietary foreclosure in the fi rst place was non- lessee.) payment. Perhaps not surprisingly, © Copyright 2009 Bruce J. Bergman

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NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 55 Section Committees & Chairs The Real Property Law Section encour ag es members to participate in its programs and to volunteer to serve on the Commit- tees listed below. Please contact the Section Offi cers or Committee Chairs for further information about the Committees.

Attorney Opinion Letters Ira S. Goldenberg Low Income and Affordable Housing Gregory P. Pressman Goldenberg & Selker, LLP Richard C. Singer Schulte Roth & Zabel LLP 399 Knollwood Road, Ste. 112 Hirschen Singer & Epstein LLP 919 Third Avenue White Plains, NY 10603 902 Broadway, 13th Floor New York, NY 10022 [email protected] New York, NY 10010 [email protected] [email protected] Continuing Legal Education Charles W. Russell Joseph M. Walsh Steven J. Weiss Harris Beach PLLC Walsh & Walsh, LLP Cannon Heyman & Weiss, LLP 99 Garnsey Road 42 Long Alley 726 Exchange Street, Ste. 516 Pittsford, NY 14534 Saratoga Springs, NY 12866 Buffalo, NY 14210 [email protected] [email protected] [email protected]

Awards Lawrence J. Wolk Membership John G. Hall Holland & Knight LLP David L. Berkey The Law Firm of Hall & Hall, LLP 195 Broadway Gallet Dreyer & Berkey LLP 57 Beach Street, 2nd Floor New York, NY 10007 845 Third Avenue, 8th Floor Staten Island, NY 10304 [email protected] New York, NY 10022 [email protected] [email protected] Land Use and Environmental Law Commercial Leasing Matthew F. Fuller Laura Ann Monte Bradley A. Kaufman FitzGerald Morris Baker Firth, PC Hodgson Russ LLP Pryor Cashman LLP 3019 State Route 4 The Guaranty Building 410 Park Avenue Hudson Falls, NY 12839 140 Pearl Street Ste. 100 New York, NY 10022 [email protected] Buffalo, NY 14202 [email protected] [email protected] John C. Armentano David J. Zinberg Farrell Fritz PC Not-for-Profi t Entities and Concerns Ingram Yuzek Gainen Carroll 1320 RexCorp Plaza Leon T. Sawyko & Bertolotti LLP Uniondale, NY 11556 Harris Beach PLLC 250 Park Avenue [email protected] The Granite Bldg. New York, NY 10177 130 E. Main St. [email protected] Landlord and Tenant Proceedings Rochester, NY 14604 Edward J. Filemyr IV [email protected] Condemnation, Certiorari and Real 11 Park Place, Ste. 1212 Estate Taxation New York, NY 10007 Mindy H. Stern Donald F. Leistman fi [email protected] Schoeman Updike & Kaufman LLP Koeppel Martone & Leistman LLP 60 East 42nd Street, 39th Floor PO Box 863 Gerald Lebovits New York, NY 10165 Mineola, NY 11501 New York City Civil Court [email protected] [email protected] 111 Centre Street Part E, Room 107 Professionalism Karla M. Corpus New York, NY 10013 Alfred C. Tartaglia Hiscock & Barclay LLP [email protected] 720 Milton Road, Apt. L3 One Park Place Rye, NY 10580 300 South State Street Legislation [email protected] Syracuse, NY 13202 Karl B. Holtzschue [email protected] Law Offi ce of Karl B. Holtzschue Public Interest 122 East 82nd Street, Apt. 3c Michael L. Hanley Condominiums & Cooperatives New York, NY 10028 Greater Upstate Law Project, Inc./Empire Dennis H. Greenstein [email protected] Justice Center Seyfarth Shaw 1 West Main Street, 2nd Floor 620 Eighth Avenue Kathleen A. Lynch Rochester, NY 14614 New York, NY 10018 Western New York Law Center [email protected] [email protected] 237 Main Street, Ste. 1130 Buffalo, NY 14203 [email protected]

56 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 Raun J. Rasmussen Jr. Real Estate Workouts and Bankruptcy Task Force on Alternative Legislation Legal Services NYC Garry M. Graber for Low Income, Worker & Affordable 350 Broadway, 6th Floor Hodgson Russ LLP Housing New York, NY 10013 The Guaranty Building John R. Nolon [email protected] 140 Pearl Street, Ste. 100 Pace University School of Law Buffalo, NY 14202 Land Use Law Center Publications [email protected] 78 North Broadway William A. Colavito White Plains, NY 10603 One Robin Hood Road Richard S. Fries [email protected] Bedford Hills, NY 10507 Bingham McCutchen LLP [email protected] 399 Park Avenue, 26th Floor Task Force on Fraudulent Practices New York, NY 10022 Peter J. Battaglia Marvin N. Bagwell [email protected] Ticor Title Insurance Company Bagwell & Assoc. Title Agency LLC 424 Main Street, Ste. 200 380 Rector Place Robert M. Zinman Buffalo, NY 14202 New York, NY 10280 St. Johns University School of Law [email protected] [email protected] 8000 Utopia Parkway Queens, NY 11439 Harold A. Lubell William P. Johnson [email protected] Bryan Cave LLP Nesper, Ferber & DiGiacomo, LLP 1290 Avenue of the Americas 501 John James Audubon Pkwy Title and Transfer New York, NY 10104 One Towne Centre, Ste. 300 Gerard G. Antetomaso [email protected] Amherst, NY 14228 Gerard G. Antetomaso, PC [email protected] 1674 Empire Boulevard, Ste. 200 Elizabeth A. Wade Webster, NY 14580 Gateway Title Agency LLC Vincent Di Lorenzo [email protected] 250 Osborne Road St. John’s University School of Law Albany, NY 12205 8000 Utopia Parkway Thomas J. Hall [email protected] Belson Hall, Room 4-46 The Law Firm of Hall & Hall, LLP Jamaica, NY 11439 57 Beach Street Task Force on Hydrofracking/Wind [email protected] Staten Island, NY 10304 Power [email protected] John E. Jones Real Estate Construction Hinman Howard & Kattell, LLP Susanna S. Fodor Joseph D. DeSalvo 700 Security Mutual Jones Day First American Title Insurance Company 80 Exchange Street 222 East 41st Street of New York Binghamton, NY 13901 New York, NY 10017-6702 633 Third Avenue, 17th Floor [email protected] [email protected] New York, NY 10017 jdesalvo@fi rstam.com Elizabeth A. Holden David Pieterse Hodgson Russ LLP Nixon Peabody LLP Unlawful Practice of Law The Guaranty Building 1100 Clinton Square Robert W. Hoffman 140 Pearl Street Suite 100 Rochester, NY 14604 Hoffman & Naviasky, PLLC Buffalo, NY 14202 [email protected] 1802 Eastern Parkway [email protected] Schenectady, NY 12309 Real Estate Financing [email protected] Task Force on Increasing Participation Steven M. Alden of Section Members in Committee Debevoise & Plimpton LLP George J. Haggerty Meetings 919 Third Avenue George Haggerty & Assoc., PC Ira S. Goldenberg New York, NY 10022 500 North Broadway, No. 128, Ste. 580 Goldenberg & Selker, LLP [email protected] Jericho, NY 11753 399 Knollwood Road, Suite 112 [email protected] White Plains, NY 10603 Heather C. M. Rogers [email protected] Davidson Fink LLP Nancy M. Langer 28 East Main Street, Ste. 1700 Law Offi ces of Nancy Langer Task Force on Taxation of Recorded Rochester, NY 14614 115 Woodbridge Avenue Documents hrogers@davidsonfi nk.com Buffalo, NY 14214 Peter V. Coffey [email protected] Englert, Coffey, McHugh & Fantauzzi , LLP 224 State Street P.O. Box 1092 Schenectady, NY 12305 [email protected]

NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 57 Section Officers N.Y. Real Property Law Journal Chair Co-Editors Joel H. Sachs Keane & Beane, P.C. William A. Colavito, Esq. 445 Hamilton Avenue One Robin Hood Road 15th Floor, Suite 1500 Bedford Hills, NY 10507 White Plains, NY 10601 [email protected] [email protected] William P. Johnson Nesper Ferber & DiGiacomo, LLP 1st Vice-Chair 501 John James Audubon Parkway Anne Reynolds Copps One Towne Centre, Suite 300 Law Office of Anne Reynolds Copps Amherst, NY 14228 126 State Street, 6th Floor [email protected] Albany, NY 12207 Marvin N. Bagwell [email protected] Bagwell & Associates Title LLC 380 Rector Place 2nd Vice-Chair New York, NY 10280 Edward Baer Belkin Burden Wenig & Goldman, LLP [email protected] 270 Madison Avenue Prof. Vincent Di Lorenzo New York, NY 10016 St. John’s University School of Law [email protected] 8000 Utopia Parkway Belson Hall, Room 4-46 Secretary Jamaica, NY 11439 Heather C. M. Rogers [email protected] Davidson Fink LLP 28 East Main Street, Suite 1700 Rochester, NY 14614 hrogers@davidsonfi nk.com St. John’s University School of Law 2009 Student Editorial Board N.Y. Real Property Law Journal Editor-in-Chief Submission Guidelines Mike Rozea The Journal welcomes the sub mis sion of ar ti cles of timely interest to members of the Section in addition to Executive Managing Director comments and sug ges tions for future is sues. Articles Kelly Glass should be submitted to any one of the Co-Editors whose names and addresses appear on this page. Co-Managing Editors For ease of publication, articles should be sub mit ted Mike Vigliotta via e-mail to any one of the Co-Editors, or if e-mail is not Jonathan Bartov available, on a disk or CD, pref er a bly in Microsoft Word Associate Managing Editor or WordPerfect (pdfs are NOT acceptable). Accepted Dan Sanchez articles fall generally in the range of 7-18 typewritten, double-spaced pages. Please use endnotes in lieu of foot- Executive Articles and Notes Editor notes. The Co-Editors re quest that all sub mis sions for Kate Jewell con sid er ation to be pub lished in this Journal use gender- neutral terms where ap pro pri ate or, al ter na tive ly, the Research Editor mas cu line and fem i nine forms may both be used. Please Linda Wang-Lee contact the Co-Editors re gard ing further re quire ments for the sub mis sion of ar ti cles. Articles and Notes Editors Unless stated to the contrary, all pub lished ar ti cles Molly Corcoran represent the viewpoint of the author and should not be Ashley Laurie regarded as rep re sent ing the views of the Co-Editors, Robert Seewald Board of Editors or the Section or sub stan tive approval of the con tents there in. This Journal is published for mem bers of the Real Property Law Section of the New York State Bar Association. We reserve the right to reject any advertisement. The New York State Bar Association is not re spon si ble for typographical or other errors in advertisements. Copyright 2009 by the New York State Bar As so ci a tion. SSN 1530-3918 (print) ISSN 1933-8465 (online) Cite as: N.Y. Real Prop. L.J.

58 NYSBA N.Y. Real Property Law Journal | Summer 2009 | Vol. 37 | No. 3 From the NYSBA Book Store New York Residential Landlord-Tenant Law and Procedure*

AUTHORS Hon. Gerald Lebovits, New York City Civil Court, Housing Part, New York, NY

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New York residential landlord-tenant law is daunting to newcomers and the experienced alike, given its patchwork PRODUCT INFO AND PRICES statutory framework, discordant case law, and emotion- 2008-2009 / 108 pp., softbound laden disputes involving homes, money, and the charged PN: 4169 landlord-tenant relationship. This monograph introduces the NYSBA Members $72 fundamentals of residential landlord-tenant law and offers Non-members $80 a guide to the procedural mechanics practitioners face in landlord-tenant disputes. Free shipping and handling within the continental U.S. The cost for shipping and handling outside the The 2008-2009 release is current through the 2008 New York continental U.S. will be added to your order. Prices do not include applicable sales tax. State legislative session.

* The titles included in the NEW YORK PRACTICE MONOGRAPH SERIEs are also available as segments of the New York Lawyer’s Deskbook and Formbook, a five-volume set that covers 27 areas of practice. The list price for all five volumes of the Deskbook and Formbook is $650. Get the Information Edge NEW YORK STATE BAR ASSOCIATION 1.800.582.2452 www.nysba.org/pubs Mention Code: PUB0534 NEW YORK STATE BAR ASSOCIATION NON-PROFIT REAL PROPERTY LAW SECTION U.S. POSTAGE PAID One Elk Street, Albany, New York 12207-1002 ALBANY, N.Y. PERMIT NO. 155 ADDRESS SERVICE REQUESTED

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