Rockland County, New York is an area served by our firm. Surprisingly, this area has become a hotbed of competition for the hot dog consuming customer. Perhaps the contestants in the annual 4th of July hot dog eating contest sponsored by Nathan’s could even practice for the big event in Rockland.
All kidding aside, there is a classic commercial leasing issue that has arisen in this area. A fast food restaurant known as Dawg House developed and was enjoying financial success selling its popular hot dogs. Recent news outlets have reported that the large national chain Shake Shack is planning to lease space in the same center where Dawg House is located. Dawg House engaged skilled counsel when it negotiated its lease. This issue was foreseen and an exclusivity clause was included in the final lease.
In this case, the exclusivity clause provided that the landlord was forbidden from leasing another space in the same center to a tenant whose primary business is the sale of hot dogs and wieners. Certainly, Shake Shack sells hot dogs. However, it also sells burgers, chicken sandwiches, french fries, frozen desserts and particular alcoholic beverages, which menu items Dawg House also sells. These overlapping menu items are not necessarily forbidden by the exclusivity clause, but common sense dictates that the businesses of Dawg House and Shake Shack overlap. It may be a matter of litigation as to whether the overlapping menu items as opposed to the primary business in selling hot dogs and wieners triggers the exclusivity clause and its ramifications.
A recent Court decision from the Civil Court of the City of New York (Kings County) involves a dispute regarding possession of real property located in Brooklyn, New York. More importantly, the building which is the subject of the litigation houses a synagogue which also serves as headquarters for the Lubavitch movement, a Chasidic (Jewish Orthodox) sect.
The Court decision is quite lengthy (over 100 pages), which is quite unusual for a landlord-tenant matter. It discusses the history of the dispute, as well as the controlling law. This blog post will summarize the pertinent issues, and how they may apply to similar situations in New York State.
The Agudas Chasidei Chabad of the United States is a religious corporation which was incorporated in 1940 to establish, maintain, and conduct a place of worship in accordance with the Chasidic ritual and mode of worship of the Jewish Orthodox faith. In order to do so, they acquired property located at 770 Eastern Parkway in Brooklyn. The organization later acquired adjacent properties and joined them together to form one building.
We hope that our readers have been fortunate enough to have stayed healthy during these trying times. Finally, our home region has commenced the post-Covid re-opening process. We are currently in Phase II. Our attorneys hope that all business activities will return to “normal” as soon as possible, just as baseball fans want to hear the “crack of the bat” as their favorite player hits a home run. Since it is time for us to catch up on routine medical care, it is also prudent to consider returning to meeting your legal needs. This post will address the specific areas that can be covered by our lawyers at this time.
New real estate transactions have diminished in recent months. This author anticipates a delayed Spring market, meaning that contracts that may have been signed in March and April will likely be signed in the upcoming weeks instead. Covid shutdown regulations forbid in-person showings by real estate agents. Property owners were scared to allow potential buyers into their homes for viewings. Phase II allows real estate agents to show properties in person, rather than merely virtually. Sellers have become aware that buyers concerned with diminished quality of city life may now crave serene suburban living. It is potentially an optimal time to sell one’s house.
Restrictions on retail establishments have started to loosen, allowing for curbside pickup and potential additional shopping options. Restaurants are permitted to serve with outside seating. While these sound like positive developments, the income stream to the commercial tenant with such restrictions is severely limited. As such, it may be time to request that your attorney review your commercial lease and seek a modification. Tenants are otherwise expected to pay full rent, without being able to fully occupy the space and generate the same amount of income per square foot.
A recent news story in New York relates to New York Mets right-hander Noah Syndergaard and his lease for a New York City apartment. It appears that the pitcher, nicknamed “Thor”, signed a lease for a penthouse in the Tribeca area of downtown New York City for ten months, starting in March of this year. His rent was $22,500 a month and the $17,000 broker’s commission was to be paid by the tenant. The lease was signed in February, before the coronavirus pandemic shut New York City down a month later. In addition, the hurler then discovered in early March that he would need the dreaded “Tommy John” surgery to replace a ligament in his elbow, and would miss the entire baseball season, which, at that point, was scheduled to begin in late March.
We therefore have a situation where the tenant’s circumstances changed a great deal after he signed the lease. The pandemic shut down much of New York City. Then, because of injury, he probably no longer needed an apartment in New York City, because he will most likely rehabilitate his injury at the Mets training facilities in Florida, and will not need to live in New York City during the upcoming season (which, due to the pandemic, has not even started, and may not happen at all). On top of it all, Major League Baseball has recently proposed a plan to re-start the season with players being forced to accept major cuts in salary, which would limit Snydergaard’s ability to pay the agreed-upon rent.
There are several legal issues raised in this situation. One issue concerns using the media to attempt to obtain publicity for one’s legal conflicts, as the parties have done in the Syndergaard case. Our firm disagrees with litigating through the media, as we believe it is best for the parties to attempt to work out disputes privately, through counsel, rather than by using media outlets to espouse their positions. If negotiations are unsuccessful, then the Court system remains the best avenue for resolving such disputes.
Prior blog posts have discussed the concept of surplus monies in foreclosure proceedings. To summarize, when a foreclosed property is sold at public auction, it is possible that the highest winning bid may exceed the sum owed to the entity foreclosing on the property. For example, an individual defaults on his mortgage, and the Referee determines that the amount due to the mortgage holder is $300,000.00. The property is sold at a foreclosure sale, and a third party bids and pays $350,000.00 for the property. In that situation, the foreclosing lender would be paid the first $300,000.00. But who is legally entitled to the remaining $50,000.00?
A recent case from the New York Appellate Division, Second Department helps answer this question. In that action, a homeowner on Staten Island failed to pay his taxes, resulting in a tax lien being filed against his property. As is often the case, the tax lien was sold to a third party, who brought a foreclosure action to sell the property at public auction in order to satisfy the tax lien. When the property was sold at public auction in 2000, it resulted in a surplus of $42,986.00. That is, the winning bid at the foreclosure auction exceeded the amount of the tax lien (plus costs, penalties, and interest) by $42,986.00.
The Appellate Division had to determine which of two claimants was entitled to this surplus money. The first claimant was the original homeowner. The other claimant was a mortgage holder on the property, the New York City Department of Housing Preservation and Development (HPD). HPD held a first mortgage on the property securing a fifteen year loan in the sum of $56,250. The homeowner defaulted on the HPD mortgage in April, 1997. HPD claimed that, as of 2017, the homeowner owed it $148,096.30 (the unpaid balance of the mortgage, plus interest), and sought to claim the surplus funds to partially satisfy this debt.
Commercial leases in New York are not immune to the effects of COVID. Enforced shutdowns of “non-essential” businesses by governmental authority has led to mass closure of many retail stores and restaurants and record-high unemployment rates. Even restaurants limited to the restriction of takeout and delivery service are suffering severely reduced revenue. The current business climate has inherently altered the lease obligations that a tenant can maintain. This post will address how the parties to a lease should be addressing the changes to New York’s commercial lease landscape.
It is not unusual for commercial leases to contain a requirement by the tenant to maintain business interruption insurance. Tenants with such coverage should file a claim with their insurer. Many insurers may initially deny the claim on the basis that pandemics are not included in their coverage. This tactic is likely to be subject to future litigation. Ultimately, the insurers may be required to cover such losses.
A tenant should have an experienced attorney review the particular lease that has been signed to determine whether a force majeure clause may excuse the tenant from its rent obligations. This clause excuses a tenant from obligations for circumstances beyond its control such as terrorist attack, war, famine, strikes, catastrophic weather conditions and acts of God. A particular lease needs to be evaluated to determine whether a pandemic is considered to be a force majeure. Force majeure may also provide the tenant with a defense if conditions prevented it from obtaining a building permit, completing a build-out according to an established schedule, opening for business by a particular date and the like.
A prior blog post discussed inheritance of real property. For example, a parent passes away and leaves a house in equal shares to her three children. The three children are now co-owners of the property. Of course, each co-owner may be in a different life situation. For example, one of the adult children may have been living with the last parent to pass away, and wishes to remain residing at the property indefinitely. The other co-owners may have moved from f the property many years ago, and simply want to sell the property and receive their respective one-third of the net proceeds from the sale. All of the co-owners have certain legal rights, which rights have now been modified by a recent (2019) amendment to existing New York law on partitions and inherited property.
Under the original New York Real Property Actions and Proceedings Law (Article 9), any co-owner of the property who wishes to no longer own the property has an absolute right to petition the Court for a sale of the property. As long as the party can prove that he is the valid owner of a portion of the property, and that the property could not be physically divided between the co-owners, the Court would order a sale of the property, assuming the parties could not work out a resolution to the situation among themselves, or through their counsel.
Therefore, the only way for the parties to avoid a Court-ordered sale and public auction of the property would be to agree to a buyout by the party who wishes to retain the property exclusively, or for all parties to agree to sell the property to an unrelated person and share the proceeds in the same proportion as their ownership interests, without further Court intervention. This is what happens in the majority of partition actions handled by our firm. However, the absolute right to have the property sold led to an abuse of the partition law, resulting in the 2019 amendment. What was occurring was that third parties would purchase a small stake in an inherited property, and then use their newly-acquired ownership share to force an unwanted sale, or use the threat of same to extort above-market settlements from their fellow co-owners. For example, an individual inherits a small share (10%) of a property. They then sell that share to a third party. That third party now threatens a partition sale, is her right, unless she is “bought out” for an amount much larger than her share would be worth on the open market. The co-owners are forced to acquiesce so as to avoid losing the property in a Court-ordered sale.
Despite current conditions, the purchase and sale of real estate in New York is continuing. This post will discuss how COVID-19 has changed the “nuts and bolts” of an ordinary transaction, from start to finish. First, let’s assume a homeowner wishes to list her home for sale. Due to social distancing expectations, mass showings of properties, such as “open houses,” would be frowned upon, if not prohibited. However, individual showings by appointment of properties, by licensed real estate brokers, may continue. Another option being utilized is virtual showings of properties on various online platforms. This allows potential buyers to view the property while maintaining safety. Younger or first-time homebuyers may be more comfortable with the virtual option, as they usually have more familiarity with online services.
Once there has been an accepted offer, the next step is often the hiring of a home inspector to inspect the property. Currently, this is being allowed, but with the restriction that the inspector will inspect the property alone, without being accompanied by the potential buyer. Once the inspector completes his work and issues a report, the buyer can use this information in contract negotiations.
The parties will then negotiate a Contract of Sale, which is traditionally prepared by the seller’s attorney. As contracts are prepared and transmitted online, current conditions will not affect this portion of the transaction a great deal. The attorneys, buyer, seller, and brokers can still exchange information and offers online or by telephone without violating any social distancing restrictions.