A 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 tenants. Our 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.
Unless 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 actions. Our 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.
A recent decision in a case in upstate New York discusses issues relating to the denial of an application for a foreclosure judgment. In a foreclosure case, the plaintiff, who is usually a bank or other lending institution, must apply to the Court for a judgment. Often, after the case has first been referred to the settlement conference part, and then, in Westchester County, assigned to the Mandatory Appearance Part, the plaintiff will move for summary judgment.
In a summary judgment action, the moving party argues to the Court that there are no issues of fact which would require a trial. This may occur in several situations. The first is when the defendant fails to file an Answer to the foreclosure Complaint. If the defendant’s time to answer has expired, then the plaintiff may move for a judgment of foreclosure and sale on default. However, the plaintiff must show to the Court that it has met the elements of proof to obtain a foreclosure judgment.
The first element is to show to the Court that they are the proper party and the holder of the mortgage and note in question. This is usually done by having an officer of the lender submit an Affidavit in Support of the motion showing that the mortgage is being held by the plaintiff. In support of the Affidavit, complete copies of the Mortgage and Note should be annexed as exhibits. In addition, if the loan has been assigned to a different lender than the one listed on the Mortgage and Note, complete copies of the assignment documents should also be annexed as exhibits.
News 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. 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.
Most of us have been recently inundated by reports of the Coronavirus pandemic. 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.
New York State has passed several laws that protect homeowners who may be subject to a foreclosure action. One of these laws requires that a settlement conference be held for a homeowner when his primary residence is in foreclosure, due to his failure to pay their mortgage, taxes, or other amounts due to the lender.
Prior blog posts have discussed what may occur at a foreclosure settlement conference. We recommend engaging experienced counsel to appear at the foreclosure settlement conference. At this conference, attempts will be made, with the Court’s assistance, to resolve this matter, often through a modification of the existing mortgage.
However, there may be cases in which the parties are unable to reach a resolution in the settlement part. There may be several conferences held, but, for various reasons, the parties are unable to reach a resolution. What happens at that point? The first step is that the Court will generally release the case from the settlement part. Under the law, when the case is in the settlement part, all litigation, including motions, are “stayed” by the Court, which means that no litigation can occur in the action until the case is released by the settlement part. Depending on the overall circumstances of the case, the settlement part may order that the stay on litigation be extended for a period of time after the case is released, generally 30, 45, or 60 days. This may give the party being foreclosed additional time to negotiate a resolution, or, if there is sufficient equity, to sell the property and use the proceeds to pay off any amounts due, thus ending the foreclosure suit.
We have posted previously about the change of use of properties in the region served by this law firm. Real estate developers may be interested in such properties because they envision a potentially new profitable use for the property, especially if the use changes. For instance, an existing swim club has a dwindling membership base or a nursery business is no longer viable. These obsolete properties have large acreage and could be used for assisted living facilities or multi-family housing. Let’s imagine that an owner of a single-family house is next door or overlooks such a site. It is not hard to believe that the homeowner would not want to live through the rock blasting and noise created by bulldozers and years of construction. Also, the assisted living facility or multi-family housing may change the character of the neighborhood or make it otherwise undesirable to the homeowner. This post will address the options available to such a homeowner.
Usually a developer in this scenario needs to apply to the applicable municipality to request the change of use for the property. There may be valid objections that the neighbors can raise, such as increased traffic and roads that do not accommodate those who will visit and use the facility. If the homeowner does not believe that objecting to zoning changes and the like would be successful or if the homeowner merely wishes to negotiate a deal for himself, there are other options available. One option may be to sell the house to another individual who may not be aware of the potential development of the neighboring property.
Developers who want a particular building site are financially well equipped. If it makes monetary sense, a developer may consider buying the single-family home that stands in the way of his development. If the homeowner is willing to leave his house, he should hire an experienced attorney to negotiate the most favorable terms. The best deal for the homeowner may be to sell the house and to have a qualified attorney include certain provisions in the contract. All seller expenses should also be paid by the developer. These expenses include payment of the seller’s transfer taxes, attorney fee , broker commission and any other costs of the sellers. In addition, the negotiated price should also be high enough to pay off the seller’s mortgage so that the seller is not out-of-pocket at the closing.
Most 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.
The 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.