As 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 post. Experienced counsel should carefully review the lease to determine its exact terms and the potential obligations of the guarantors.
Our 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.
At 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.
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.