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Real Property Law
Purchaser of Mixed-Use Building, Not Master Lessee of Residential Units, Liable for Rent Overcharges
Walsam 316, LLC v. 316 Bowery Realty Corp., NYLJ 1/24/22, p. 19, col. 4, AppDiv, First Dept. (memorandum opinion)
In an action by purchaser of a mixed-use building seeking indemnification and contribution from its seller and from lessee of the residential units, purchaser and lessee cross-appealed from Supreme Court's order limiting purchaser's remedy against seller to amounts specified in the contract, and granting purchaser summary judgment on its counterclaim against lessee. The Appellate Division modified to deny purchaser summary judgment on the counterclaim against lessee, holding that purchaser took subject to lease provisions that imposed liability for rent overcharges on the seller-lessor, not the lessee of residential units.
Seller initially contracted to convert the building to a condominium, and to sell the residential units in the building to lessee, but when the conversion was not completed, seller executed a 99-year master lease of the residential units to lessee. The lease represented that the rents did not exceed those permitted by law, and also provided that in the event of a sale of the leased premises, it would be deemed that the purchaser would assume all covenants and obligations of the master lease. After residential tenants began rent overcharge litigation, seller entered into a purchase and sale agreement with purchaser covering all of seller's interest in the premises, subject to the terms of the master lease. The purchase and sale agreement contained a carveout providing that seller would continue to pay counsel fees in the rent overcharge litigation up to $100,000, and would indemnify purchaser for any liability arising from that litigation up to a total of $250,000. In this action purchaser sought indemnification and contribution from both seller and lessee for any liability for rent overcharges. Lessee counterclaimed for breach of contract. Supreme Court awarded purchaser summary judgment against seller, but only up to the contractually limited amount, awarded lessee summary judgment on its breach of contract counterclaim against purchaser, and awarded purchaser summary judgment on its claim for indemnification and contribution claims against lessee. Purchaser and lessee appealed.
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