REIMBURSEMENT OF ATTORNEYS’ FEES? NOPE.
In Molos Restaurants, Inc. v. Sayegh1, the plaintiff’s had previously commenced a declaratory judgment action seeking an interpretation of a provision of their lease granting them the right to exercise an option to purchase the property on which plaintiff business was located. After a full hearing, the court had determined that the provision was not an option but, in fact, a right of first refusal, granted judgment to the defendants and dismissed the plaintiff’s action.
Thereafter, defendants made demand upon the plaintiffs for reimbursement of legal fees incurred in defending the declaratory judgment action. The plaintiff refused to make payment, the landlord served notices terminating the tenancy and the plaintiff commenced the instant declaratory judgment action seeking an interpretation of the clause upon which the defendants relied for reimbursement of legal fees.
The plaintiff claimed that the landlord was not entitled to reimbursement in a declaratory judgment action but only upon the occurrence of certain defaults by the tenant. The defendants contended that they were entitled to reimbursement if they were successful in any litigation.
The provision in question appears in many commercial leases and is worth quoting in its entirety:
If tenant shall default in the observance or performance of any term or covenant on Tenant’s part to be observed or performed under or by virtue of any of the terms or provisions in any paragraph of this Lease, then, unless otherwise provided elsewhere in this Lease, Landlord may immediately or at any time thereafter and without notice perform the same for the account of the Tenant, and if Landlord makes any expenditures or incurs any obligations for the payment of money in connection with attorneys’ fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord within ten (10) days of rendition of any bill or statement to Tenant therefor.
In interpreting the foregoing provision, the Court relied on Frank B. Hall & Co. Of New York, Inc. v. Orient Overseas Associates2, in which the Appellate Division interpreted a virtually identical commercial lease provision.
In Hall, the Appellate Division held that the provision “requires that the tenant owe an obligation to a third party so that the landlord can perform it in the tenant’s stead.”3 Inasmuch as the obligation sought to be enforced ran from the tenant to the landlord and not to a third party, the Appellate Division held that the legal fees were not reimbursable to the landlord.
Holding that they were bound by the precedent set by the Appellate Division, the court in the instant action held in favor of the plaintiff and denied reimbursement of the legal fees to the defendants. YET ANOTHER TWIST ON“ROMEA4”
In Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carrol & Bertlotti5, the defendant law firm had sent a three-day notice to a tenant seeking recovery of rental monies owed to the landlord. The notice was signed by the managing agent on behalf of the landlord, but the top of the notice bore the law firm’s name and address as did the envelope in which the notice was sent to the tenant.
The tenant commenced a class action suit against the defendant law firm claiming a breach of the Fair Debt Collection Practices Act because the law firm was acting as a debt collector in sending the notice without complying with the provisions of the act which require, inter alia, (i) that the debtor be advised of and given a thirty (30)-day period in which to dispute the debt; and (ii) disclosure by the law firm that it was attempting to collect a debt.
The defendant law firm raised various defenses, only two of which survived the application of the Romea decision, namely: (i) profits from an illegal sublet arise from a commercial transaction by the tenant and, therefore, fall outside the definition of “debt” within the meaning of the FDCPA; and (ii) the FDCPA represents an unconstitutional taking if applied to three-day notices because it “abrogates the contract of lease”. Interestingly, the law firm provided no explanation of how the latter defense is supported.
Inasmuch as the Court determined that the foregoing defenses required further examination after completion of discovery, the law firm’s motion to dismiss was denied.
The concept that the subletting of the apartment is, in fact, a commercial transaction outside the purview of the FDCPA is an interesting one. We’ll keep you posted.
CONDITIONAL LIMITATION? NO NEED TO SERVE NOTICE PERSONALLY.
In what appears to be a case of first impression, the court in Bogatz v. Extra Touch International, Inc.6, held that a landlord need not personally serve a tenant with a Notice of Termination after the tenant’s default and failure to cure if the Notice of Termination is issued because of a conditional limitation contained in the lease. This, despite the statutory nature of summary proceedings. The court presents an interesting argument.
In Bogatz, the tenant had been served with a proper Notice to Cure, which Notice stated that the tenant was in default for failing to have insurance as provided in the lease. The Notice to Cure stated that if the tenant failed to cure within thirty (30) days a ten (10) day Notice of Termination would be served and upon the expiration of the Notice of Termination, the Lease would expire — in other words, a conditional limitation.
The court reviewed the statutes and the case law noting that Section 232-a of the Real Property Law requires the service of a thirty-day Notice of Termination for the termination of a month-to
month tenancy, which service must occur pursuant to Section 735 of the Real Property Actions and Proceedings Law (“RPAPL”) — in other words, personal service.
The court stated, however, that when the action is brought at the expiration of the lease, no notice is required because the lease and not Real Property Law §232-a controls. In the instant case, the Notice of Petition and Petition were served upon the expiration date of the Notice of Termination
- the equivalent of commencing an action at the expiration of the lease due to the conditional limitation provision of the lease.
Specifically, the court pointed out, §711(1) of the RPAPL provides that a proceeding may be maintained “to recover possession of real property by reason of the termination of the term fixed in the lease pursuant to a provision contained therein giving the landlord the right to terminate the time fixed for occupancy under such agreement if he finds the tenant objectionable....” — in other words, a conditional limitation.
Section 711 (1) of the RPAPL does not require the service of a predicate notice prior to the commencement of an action. On the other hand, § 711(2) of the RPAPL (nonpayment) does require the service of such a notice.
The court found it telling that the legislature found it necessary to require the personal service of notices with respect to so many other provisions of the RPAPL and not §711(1). Consequently, the court held that while the tenant may not, by the terms of the lease, waive the service of a statutorily required notice, §711(1) does not require service of a notice pursuant to RPAPL §735. The manner of service of a termination notice to the extent called for in the lease, then, will be dictated by the terms of that lease. However, to the extent the lease is silent as to the manner of service, service must be in accordance with RPAPL §735. Finally, where the lease provision is more stringent than the statute, the lease provision will control.
POST-FORECLOSURE NOTICE TO QUIT MAY NOT BE SIGNED BY COUNSEL
In Fannie Mae v. Lindo7, a post-foreclosure holdover summary proceeding, the respondent moved to dismiss on the sole ground that the ten-day notice to quit was defective because it was signed by the attorneys for the plaintiff and said attorneys were not known to the plaintiff.
The petitioner opposed the motion claiming that certain formalities as to who may sign notices do not apply to a post-foreclosure holdover under §713 of the RPAPL.
Drawing an analogy to cases dealing with the service of a three-day notice pursuant to §711(2) of the RPAPL, where there is a landlord/tenant relationship, the court held that the respondent was entitled to a reasonable, unambiguous and clear and certain notice as to who was making demand.
Even assuming, the court stated, that the respondent had been a party to the foreclosure proceedings, in that matter a different firm of attorneys was involved, and a new firm was handling the District Court eviction proceeding. Holding that the ten-day notice to quit was insufficient and jurisdictionally defective, the respondent’s motion to dismiss was granted.
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1 N.Y.L.J., Mar. 15, 1999 at 34, col. 6 (Putnam Supreme Mar. 15, 1999). 2 84 A.D.2d 338 (1st Dep’t 1982).
3 Id. 4 Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998). 5 N.Y.L.J., Mar. 24, 1999 at 35, col. 2 (S.D.N.Y. Mar. 24, 1999). 6 N.Y.L.J., Mar. 24, 1999 at 31, col. 3 (Kings Civ. Ct. Mar. 24, 1999). 7 N.Y.L.J., Sep. 16, 1998 at 24, col. 3 (Nassau Dist. Ct. Sep. 16, 1998).