Landlord & Tenant

In reversing, the Appellate Term relied on an HUD publication on Section 8 renewal policy, which indicates that tenants have a “right to remain” in section 8 housing, and that owners must continually renew section 8 leases unless landlord has cause for terminating the tenancy. Because landlord did not allege that landlord had lost the right to remain, tenant was entitled to dismissal of the proceeding.

Questions of Fact About Acceptance of Surrender

176 PM v. Heights Storage Garage, Inc.
NYLJ 1/12/18, p. 23., col. 2., AppDiv, First Dept (memorandum opinion).

In commercial tenant's action to prevent landlord from terminating its tenancy, tenant and guarantor appealed from Supreme Court's grant of summary judgment awarding landlord $1,199,162.94 on landlord's counterclaim for rent, late charges, and interest. The Appellate Division reversed and denied the summary judgment motions, holding that questions of fact remained about whether landlord had accepted surrender of the premises, and about the damages landlord suffered from any breach.

In 1996, landlord and tenant entered into a 28-year lease of the subject Manhattan building, which included a four-story parking garage with two retail subtenants. In 2011, landlord served tenant with a notice to cure 21 lease violations arising from alleged physical deterioration of the building caused by tenant. Tenant then brought this action to prevent landlord from terminating the tenancy, and sought a Yellowstone injunction. A month before the hearing on the Yellowstone injunction, tenant advised landlord it was vacating the premises, and tenant vacated on Aug. 31, 2013. In September 2013, landlord answered tenant's complaint, and asserted counterclaims for damages to the premises, for rent for the 10-year balance of the lease term, and for rent for the period between Sept. 1, 2012 and Aug. 31, 2013. Landlord moved for summary judgment on these counterclaims. Tenant opposed the summary judgment motions, arguing that landlord had accepted surrender of the premises as a matter of law when it retained another entity to operate the garage, collected the parking income, and billed the retail subtenants directly. Supreme Court awarded summary judgment to landlord, finding no acceptance of surrender because landlord had continued to demand rent from tenant for a year after tenant vacated. The court also held guarantor liable on its good guy guaranty. Tenant and guarantor appealed.

In reversing, the Appellate Division first noted that there was no dispute about the liability of tenant and guarantor for rent accruing before tenant vacated the premises. But the court then held that, giving tenant every benefit of the doubt, tenant had raised a triable question of fact about whether landlord's actions in contracting with another entity to operate the parking garage, accepting rent directly from the subtenants, and placing the property for sale at some juncture, were sufficient to establish an acceptance of surrender as a matter of law. The court also held that tenant and guarantor had raised triable issues of fact about the quantum of damages, noting disputes about how landlord had accounted for payments actually made, and about whether the damages, including late fees, were disproportionate to landlord's actually losses resulting from the breach.

COMMENT

In general, when a landlord relets a property after tenant surrenders the premises before expiration of the lease term, landlord has accepted surrender as a matter of law, terminating tenant's lease obligations. In Amyell Development Corp. v. Ikon Office Solutions, Inc., 18 Misc. 3d 1126(A), the court held that landlord had accepted surrender as a matter of law when landlord executed a new lease with the original tenant's because the original tenant was not a party to the new lease and had no knowledge of its terms. In holding that landlord had impliedly indicated an intention to accept surrender of the existing lease upon the giving of a second lease, the court emphasized that a landlord cannot legally execute a second lease of the same property during the time of a first lease.

However, where the lease expressly authorizes a landlord to re-let as agent for the tenant, landlord's reentering and re-letting does not excuse an abandoning tenant from liability, although landlord may have to wait until the end of tenant's lease term to collect from the original tenant. In Hermitage v. Levine, 248 NY 333, the Court of Appeals held that landlord's claim against a tenant who had failed to pay rent was premature when the claim was brought before expiration of tenant's lease term. Judge Cardozo, writing for the court indicated that a lease provision requiring tenant to make monthly payments would be enforceable, but in the absence of express language, “[t]he deficiency is to be ascertained when the term is at an end.” Id. at 338. In Hermitage, the original tenant had to be dispossessed, but courts have also enforced lease provisions allowing tenant to relet in cases involving abandoning tenants. See, e.g. Lane NY Realty Holding LLC v. CLDC Inc., 54 Misc.3d 564 (enforcing lease provision allowing landlord to relet on tenant's account).

Even if the lease does not expressly authorize landlord to relet the premises on tenant's account, an agreement by tenant may be implied when landlord has informed the abandoning tenant that landlord will relet the premises on tenant's account. In Underhill v. Collins, 132 NY 269, the Court of Appeals held that landlord was entitled to collect rent from an abandoning tenant, less the amount landlord received from a new tenant, when landlord had expressly informed the abandoning tenant that he would continue to hold tenant liable for the rent, but would lease the premises for tenant's benefit. More recently, in dictum affirming the right of a landlord to relet on tenant's account, the Court of Appeals has cited Underhill with approval. See, Holy Properties Limited, L.P. v. Kenneth Cole Productions, Inc., 87 NY2d 130, 134.