COVID-19 Update: How we are serving and protecting our clients.

divide-300x225Our firm often handles partition matters where two or more people co-own a property.  Under New York law, no one is forced to co-own property if they do not want to.  As a result, a partition action may be brought to have the property sold by the Court and the proceeds fairly divided between the co-owners.

Most, if not all, of partition actions are settled without actually having a Court-ordered sale of the property.  Usually the parties reach an agreement to either sell the property to a third party or arrange to have one of the parties buy the other’s interest in the property.

However, the question usually arises regarding what may be a fair division of the proceeds in the resolution of a partition case.  This post will explore the various factors which may arise in such a situation.

auction-300x206Some of our prior blog posts have dealt with foreclosure actions concerning real property.  A recent New York Supreme Court case, however, deals with a different type of foreclosure, and the effects of the COVID-19 pandemic on the same.

Most foreclosure cases in New York State are of the judicial type, and deal with the foreclosure of real property.  In a judicial foreclosure, the owner of real property gives a mortgage and note to a lender, in exchange for a loan.  The real property is collateral for the loan.  If the borrower fails to repay the loan, or otherwise defaults on the loan by failing to follow the loan terms, the lender may file a foreclosure action in the appropriate New York State Court, which would be the Supreme Court in the county in which the property is located.

New York State currently has a moratorium, due to the effects of the coronavirus, on judicial foreclosures.  Under this Administrative Order, “no auction or sale of property in any residential or commercial matter shall be scheduled to occur prior to October 15, 2020.”  However, not every foreclosure case in New York is a judicial foreclosure, requiring a Court proceeding.  Non-judicial foreclosures occur most commonly in coop matters.  An owner of a cooperative apartment does not own real property, but, rather, shares in the cooperative corporation, which, in turn, owns the real property on which the building is located.  As a result, if the shareholder defaults on a share loan, the lender may foreclosure on the shares without Court intervention.  The lender can issue notices under the Uniform Commercial Code (UCC), which is integrated into New York law, and have an auction sale under the UCC rules, without going to Court.

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We  note that recent news concerning New York’s commercial real estate landscape has been rapid and stunning.  Iconic businesses such as Sears, JC Penney, Modell’s and Brooks Brothers have filed for bankruptcy protection or closed retail stores, office spaces remain underutilized and the restaurant business is experiencing significant challenges.  Tenants that remain are rethinking their need for expensive commercial space.  Landlords are considering converting properties to new uses in order to fully lease available space.  This post will examine some of the current trends in commercial leasing and provide suggestions as to how such challenges may be overcome.

Century 21, the iconic downtown Manhattan retail fixture, announced that it is closing all of its stores.  As we reflect on the 9/11 terrorist attacks today, we also recall that Century 21 was committed to operating near the World Trade Center, rebuilt and reopened.  Unfortunately, the effects of Coronavirus on its business could not be overcome due to the tenant’s inability to collect on its claim for business interruption insurance.  Such insurance may be required by a landlord in a commercial lease.  It provides that if a tenant’s business is interrupted, that lost revenues and the like will be paid and will cover the rent that the tenant could not pay due to lost revenues.  Business interruption insurance covers lost revenues due to physical damage from terrorist attack or casualty, but often contains exclusions for matters such as a pandemic.  Even though common sense dictates that coronavirus has interrupted business to the extent that insurers should cover the claims, many tenants have been unable to collect on such insurance and use those funds to become current on their rent obligations.  Without revenues, tenants have been otherwise unable to pay their rent and have decided to vacate space.

In the office market, Covid 19 has frightened corporate leaders and employees, leading to many expecting to work from home for months to come.  This is leading to high office vacancy rates and new leases (if any) for shorter terms.  Subleases may become more prevalent so that tenants do not have to commit to long-term financial obligations.

supcourt-300x141As we are all aware, the effects of the COVID-19 virus on commercial leases will be quite substantial.  Many businesses have been forced to limit their hours, or have been forbidden to open at all during this time.  Of course, a business whose income has been limited in this manner will have problems meeting its rent obligations under its lease.

When this occurs, there may be potential liability for the guarantors of such leases.  Under many commercial leases, the principals of the business may be required to personally guarantee payment of the business’ rent obligations.  This means that if the corporate leaseholder fails to pay the rent, the guarantors may be sued personally to remit the sums due under the lease.

There are different types of guarantees under commercial leases, as has been explained in a prior blog postExperienced counsel should carefully review the lease to determine its exact terms and the potential obligations of the guarantors.

saw-300x225Our firm is frequently asked to bring partition actions on behalf of property owners.  For those who have not read all of our blog posts, a partition action is brought when a co-owner of property no longer wishes to own the property, and the other co-owner refuses to sell the property or buy the other out of her share.  A Court will eventually order the property sold, and the proceeds divided among all of the owners.  Our experience is that the parties will usually settle the matter before this occurs, either by agreeing to sell the property to a third party, or by having one of the owners buy the share of the other owner.

There are two common scenarios in partition actions, which have different effects on the action and the specific elements of how it may be resolved.  The first situation is when individuals inherit property after the death of a loved one. Usually, the last of two parents passes away, and leaves property, such as a house, to two or more siblings.  The siblings now co-own a house, for which they may or may not have a use.  One of the siblings may want to live in the house, or may have already been living at the premises as an adult.  That person may wish to remain at the property.  However, in such a situation, his sibling may have married and moved out the house, and may even live out of New York State.  The sibling who has “moved on” has no use for the property, and wants to have it sold so that he may receive a share of the proceeds for his own needs.

The resolution of this situation may be that the sibling remaining at the property will have to purchase the share of the sibling who does not want the house.  If the house has been fully paid for, with no mortgage encumbering it, the sibling remaining at the house may be able to obtain a mortgage and use part of the mortgage proceeds to buy out the interest of their sibling.  Such a transaction should be conducted by experienced counsel, as title would need to be transferred to the remaining sibling at the same time that the funds are obtained from the mortgage.  At that point, the sibling who does not want the house will transfer her interest, and obtain funds to compensate her for her share of the property.

justice-300x200At the start of the coronavirus pandemic, all of the Courts in New York State closed for health and safety reasons.  Recently, as the numbers of those afflicted in New York continue to decrease, some Courts are reopening.  This blog post will discuss the current situation as of the writing of this post, and how this effects certain practice areas covered by our firm.

Foreclosure matters, generally heard in New York State Supreme Court, are still subject to a stay from Governor Cuomo’s executive order.  It is possible that the stay may be lifted next month, but, at this point, no foreclosure cases are proceeding in the Courts.  This stay also applies to the filing of new foreclosure actions.

Other real estate litigation, such as partition actions, are proceeding, generally as usual.  A partition action occurs when a co-owner of real property no longer wishes to co-own the property.  Litigation is commenced by the co-owner, which will allow the property to be sold with the proceeds shared between the owners.  If an owner does not want to sell, they must agree to purchase the interest of the other owner at a fair price.  Courts are accepting new partition actions for filing, and cases are proceeding relatively normally through the Court system.  However, due to health concerns, in-person appearances at courthouses are being limited.  As a result, many appearances are being made by telephone or video-conferencing.  In addition, motions and pleadings can be filed through e-courts, limiting the need for attorneys to physically appear at courthouses.  Whether this situation will change in the future, as conditions to continue to improve in New York, is unknown at this point.

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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.

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