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

Articles Posted in Landlord and Tenant

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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.

openworkWe 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.

baseballmoney-300x133A 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.

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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 majeureForce 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.

eviction-300x165A prior blog post discussed the effects of the coronavirus situation on real estate in New York.  Since that post, things have certainly escalated quickly.  Most of the economy, not just in New York, but throughout our entire country and the rest of the world, has shut down, as governments have ordered people to stay isolated, observe “social distancing”, and avoid large crowds.  Most people are working from home or are out of work because their place of business has been ordered closed until the crisis passes.

The New York Times recently posted an article which discusses the effect of the current situation on landlords and tenantsOur firm is rare in that it represents both landlords and tenants.  We will discuss the effects from a landlord’s perspective. The New York State government has ordered a three-month moratorium on evictions.  In addition, the local courts which would have handled such eviction cases are also closed until further notice.  This means that all pending eviction matters have been adjourned.  For example, an eviction petition could have been served on a tenant prior to the Court shutdown, but with a return date after the shutdown.  The Courts will have to reschedule these cases when they reopen.  This will inevitably lead to a backlog of cases, especially in the busier New York City Courts.  Westchester town courts, with their smaller caseloads, are likely to be less affected when they reopen but will still experience a backlog.

Since the Courts are closed and there is a New York State moratorium, no new cases can be started.  An eviction Petition is generally commenced by filing it with the Court clerk in the local Court in which the property is located.  The clerk will assign a Court date and stamp the Notice of Petition and Petition as filed.  It will then be formally served on the tenant by a licensed process server.  Because the Courts are currently closed, it is not possible for a new action to be commenced.  Without court clerks and regularly scheduled hearings, no new eviction cases can be brought until the Courts reopen.  Of course, once the Courts do reopen, expect a large number of new cases to be filed because of the growing backlog and situations that have arisen due to a tenant’s inability to pay.

virus-300x225Unless you have been living in isolation on a deserted island, you are aware of the recent coronavirus situation.  In order to avoid contaminating large numbers of people, many businesses have closed, and many individuals are remaining at home rather than venturing outside.

This blog post will discuss the effects of coronavirus on our legal system.  The first change relates to eviction actionsOur firm is rare in that it represents both landlords and tenants in Court.  On March 15, 2020, the Chief Administrative Judge for the State of New York Unified Court System issued a Memorandum in which it was stated that effective March 16, all eviction proceedings and pending eviction orders shall be suspended statewide until further notice.

This means that landlords will be unable to commence new proceedings against defaulting tenants.  Most courts have closed due to the health crisis, including lower level Courts which generally handle evictions in New York State, such as City Courts and Town and Village Courts.  Since these Courts are closed until further notice, there are no Court Clerks or other officials which whom to file a new eviction petition.  Nor are Courts open to assign return dates for such petitions, or hold hearings for eviction matters.

homeless-300x156News outlets have recently reported that Lady Gaga’s father is refusing to pay the rent due on the commercial restaurant space occupied by him in Grand Central Terminal.  gct  Essentially, he has claimed that physical conditions interfere with the successful operation of his business.  These conditions allegedly include a growing homeless population that monopolizes seating intended for customers consuming food, rodents and aging facilities such as bathrooms and seating.  This post will discuss whether the tenant in this instance has a valid defense for refusing to pay his rent and other options that may be available to him.

In this case, the particular restaurant is in the center of the food court and does not require a patron to enter an area exclusively used by those being served.  It inherently allows for non-customers to occupy the restaurant space along with paying customers and may legitimately adversely affect business conditions.  The landlord in this case, the MTA, owns and manages the rest of Grand Central Terminal, making it potentially able to control adverse business conditions.

Generally, commercial leases negotiated by this author anticipate a tenant’s potential request for a rent reduction when property conditions deteriorate and forbids such action.  Most commercial leases provide that the landlord does not warrant property conditions and that a tenant therefore cannot withhold rent for diminished property conditions and the like.  Also, since this restaurant space was readily viewable and accessible prior to its being rented, the tenant could have anticipated the issues that he has recently raised and was aware of property conditions.

sickMost of us have been recently inundated by reports of the Coronavirus pandemic.      virus Although many of our readers do not travel to some of the afflicted locations, fear has a way of becoming contagious in its own right and can have negative business consequences.  Fundamentally, the fear is based upon not only becoming sick but also on the effect that widespread contagious illness can have upon the economy.  This post will address how our attorneys  respond to unfavorable financial times and the strategies to be rendered.

Real estate transactions  tend to be voluntary business activities.  For instance, a proposed buyer may be renting an apartment and be in the market to potentially purchase a house.  Typically, a buyer needs liquid cash assets to post a downpayment and have the cash needed to close.  If the stock market continues its losses of the past few days, a buyer may decide not to move forward because he needs to sell additional assets than previously intended in order to raise the cash needed.  An experienced attorney  would advise such a person that real estate is an investment that can be sold at a future date, hopefully at a profit.  However, continuing to rent an apartment does not provide an asset to be sold at a future date or potential tax benefits such as deducting mortgage interest and real estate taxes paid.  Now that we are about the enter the Spring market , new inventory and opportunities for buyers are available.  Perhaps if a seller is concerned that her house will not sell as readily in this economy, the price may be reduced to attract additional buyer interest.

Certainly, commercially leased properties  may see reduced customer traffic if consumers are afraid to be in public places and prefer to order products online or not visit restaurants where ill persons may be present.  If such conditions persist, a tenant may need a seasoned lawyer to negotiate a lease modification or lease surrender , thus assisting the tenant in not being required to continue in a lease that is not consistent with current economic conditions.  If such a modification cannot be negotiated, the tenant may be advised to “go dark” .  Should the landlord not be willing to accept these options, he may seek to bring a landlord-tenant proceeding against the tenant.

evict-300x200Most eviction matters handled by our firm involve conventional landlord-tenant relationships.  Either in a residential or commercial context, a property owner rents property to a tenant, who pays rent to the landlord on a monthly basis.  Usually, there is a written lease between the parties that delineates their rights and responsibilities to each other.  When one party violates the lease, an action can be brought in the appropriate Court.  For example, if the tenant fails to pay the rent due, a non-payment proceeding can be brought.  If the lease has expired by its terms, and the tenant refuses to vacate, a holdover proceeding should be brought to evict the tenant.

However, there are two common situations in which the ordinary landlord-tenant relationship does not apply, which will be discussed in this blog post.  The first is when a property is sold at foreclosure.  The purchaser of the property at the foreclosure sale generally buys the property “as is”, which may mean that the original owners of the property still occupy the premises.  The former owners are not “tenants” in the traditional sense, as they do not have a lease with the new owner and are not paying rent to the new owner.  How do the Courts handle this situation?

New York Real Property Actions and Proceedings Law, Section 713 provides the “ground rules” for eviction where no landlord-tenant relationship exists.  Subsection 5 of this law relates to situations where the property has been sold in foreclosure, and there are still occupants at the premises.  In this situation, the new owner of the property must first serve a ten-day notice to quit on the occupant or occupants.  This is a legal notice, usually prepared by the attorneys for the new owners.  It states that the occupant must vacate within ten days, or an eviction action will be brought.  If the former owner refuses to vacate the premises after receiving the notice to quit, then counsel will commence an eviction action in the appropriate landlord-tenant court.  The Notice to Quit must also include a certified copy of the Referee’s Deed in Foreclosure to prove the new owner’s ownership.

exitThe region served by this law firm certainly has its share of vacant commercial spaces.  An unproductive business environment at times leads to the consideration of closure by other businesses.  When a commercial lease ends prior to its termination date, it is know in the industry as “going dark”.  It is not unusual for commercial lease terms to extend for anywhere from five to twenty years.  Of course, during such a lengthy timeframe, business conditions can change drastically, making the continued conduct of business to be impractical and not profitable.  There may have even been a lease modification between the landlord and tenant which has still not assisted the tenant in the successful conduct of its business at the premises.  Perhaps the business involves a particular food or fitness craze that is no longer desired by potential customers.  When this occurs, experienced legal counsel  should be consulted to develop the optimal strategy for the tenant’s early exit.

The tenant’s attorney  should first review the fully signed commercial lease to determine the exact date of lease termination.  If the date is far into the future, different advice may be rendered.  The lease may contain a provision as to whether the tenant has the option to terminate the lease prior to its stated termination date.  Potentially a payment will be required by the tenant in order to leave the premises early.  Such a payment may amount to a set number of months and the waiver of the refund of the security deposit.  For instance, if the early termination payment is three months rent and the waiver of the refund of one month’s security deposit, the tenant may be best served to end the lease early rather than continue with the lease that has another four years to run.  In addition, the tenant’s attorney  should make sure that any notice to the landlord regarding early termination is consistent with the notice requirements in the lease, or such notice may not be deemed to be valid.  The notice requirement may be of a certain number of days before it is effective, need to be sent by a certain method such as certified mail and may also need to be delivered to the landlord’s attorney.

Lease guarantors may also need to be considered when early termination is considered by the tenant.  Most tenants sign leases under an entity name such as a limited liability company or corporation.  In such cases, a landlord will typically seek an individual person to guaranty performance by the tenant.  Such an individual may be the principal of the entity or a third party backing the tenant’s business.  In the case of a guarantor who is the principal of the entity, such a guaranty may take the form of a “good guy” guaranty.  This type of guaranty provides that if the tenant leaves the premises in the condition as required at the end of the lease and pays all sums due to the landlord through the vacate date, then the guarantor is released from further obligation to the landlord.  When there is a good guy guaranty, terminating the lease early is low risk to the parties involved.  However, if the guarantor is a third party backing the tenant’s business, such a third party may challenge the tenant’s early vacate because it may have to fulfill the tenant’s obligations after it leaves the premises.  It is prudent to have a separate agreement between the tenant and third party guarantor to define obligations if the lease ends early.

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