BUSN120: Lease

For this week’s discussion, please review the following scenario & then answer the corresponding questions:

Scenario:

Invitation Homes rented a house in Chicago, IL to Rebecca for $3,000 per month. Rebecca paid the first six months’ rent (January through June), but then her furnace broke. She called and put in a service request at the end of June. After two more months of paying her rent (July and August), Invitation Homes has still not repaired it. It is now September and the weather is starting to get a bit cooler. She was not concerned at first, but has decided to refuse to pay rent for September in protest.

Questions:

1.  What are the rights and responsibilities of each party?

2.  What is the Warranty of Habitability in Illinois or more specifically Chicago? Research state and/or local leasing laws. Is there any law that requires a residential home that is leased to have working heat?

3.  Is it permissible for Rebecca to withhold her rent until the furnace is fixed? Why or why not?

4.  If this situation occurred in your state, what does the law state on the matter? Research state and/or local leasing laws.

7Landlord-Tenant Law
LEARNING OBJECTIVES
After studying this chapter, you will be able to:
•Explain the concept of a leasehold
•Define “lessor” and “lessee”
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•Explain a tenancy for years
•Understand the landlord’s right of reentry
•Explain a periodic tenancy
•Discuss a tenancy at will
•Define a tenancy at sufferance
•Discuss implications of the holdover doctrine
•List the different types of rent arrangements that may exist
•Explain what is meant by a “radius clause” in a lease
•Discuss a tenant’s duties with respect to a leasehold
•Define “mitigation of damages”
•Discuss a landlord’s duties with respect to a leasehold
•List the different types of evictions to which a tenant may be subject
•Explain the concept of a warranty of habitability
•Differentiate an assignment from a sublease
•Apply some practical tips to assist you in a landlord-tenant practice
CHAPTER OUTLINE
The Lease
Tenancy for years
Periodic tenancy
Tenancy at will
Tenancy at sufferance
Holdover doctrine
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Gross lease
Net rent lease
Tenant’s Duties
Mitigation of damages
Landlord’s Duties
Eviction
Actual
Partial
Constructive
Warranty of habitability
Assignments and Subleases
Practical Tips
CHAPTER OVERVIEW
As explained in Chapter 1, property is divided into two broad categories: freeholds and leaseholds. The
preceding chapters concentrated on various aspects of freehold estates; this chapter focuses on the second
group of estates—the leasehold.
A leasehold is a possessory interest in property, either real or personal, that is created and governed by the
terms of a lease. A lease is the contract that establishes the possessory rights and obligations and establishes
the relationship between the lessor and lessee and, for the most part, is governed by general contract law.
Various aspects of contract law have been discussed in earlier chapters and a detailed examination of the law
of contracts is beyond the scope of this text. However, the legal professional must always be cognizant of the
fact that the rights and obligations of the lessor and the lessee are determined by the provisions of the lease.
This chapter highlights the various types of leasehold arrangements that may exist, as well as the rights (and
responsibilities) of both the landlord and the tenant. Note that personal property as well as real property can
be subject to lease arrangements.
The Lease
The lessor is the person who has rights in the subject property sufficient to permit him or her to transfer a
right of possession. The lessee is the person who contracts for the right of possession of the leased property.
It must be borne in mind that the lessee, as such, only acquires a possessory right in the property.
EXAMPLE:
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A widow decides to take a one-year trip around the world and to let her house for that period. The widow
owns the house as a tenant in severalty, which gives her the right to transfer any estate up to the one she has
to another person. She rents her house for the one-year period to a middle-aged couple who, pursuant to the
terms of the lease, have the right to use and enjoy the house for the year, but they do not “own” the house,
and the lease has prohibitions against the couple transferring their interests (see below).
If the property that is subject to the lease is realty, it is referred to as a “leasehold”; leases of personalty are
referred to simply as “leases.”
Generally, there are four types of leaseholds that may be created:
1.Tenancy for years: These tenancies are created for a fixed period of time. If the leasehold period is
intended to exist for more than one year, the Statute of Frauds requires that the lease be in writing to be
enforceable, and the lease automatically terminates at the date specified in the lease. Furthermore, most
jurisdictions permit the landlord to retain a right of entry to gain access to the premises in the event the
tenant breaches any of the lease covenants. Landlord is the term generally employed to refer to the lessor of
realty.
EXAMPLE:
A student has enrolled in a law school in a city several hundred miles from her home. She enters into a lease
for an apartment near the school for a term of three years. At the end of three years, the l ease will
automatically terminate.
A tenancy for years may be terminated by the landlord earlier than the termination date if the tenant fails to
pay the specified rent (see below), or the tenant may surrender the property to the landlord prior to the
expiration of the lease, which will excuse further obligations if the landlord accepts such early termination.
The rights of early termination depend on the specific jurisdiction in which the property is located.
2.Periodic tenancy: This type of lease continues for successive periods specified in the lease until terminated
by notice of either party. Periodic tenancies may be created by:
(a)an express agreement;
(b)implication, if the lease specifies a monthly or weekly rental and no specific termination; and
(c)operation of law if a tenant remains in possession after the termination of a tenancy for years.
Periodic tenancies typically remain in effect until one party informs the other of its termination.
EXAMPLE:
A student rents an apartment for a one-year lease for a yearly rental of $6,000, payable in monthly
installments of $500. At the termination of the lease, the student does not leave, and the landlord continues to
accept the student’s rent check of $500 for each of the next three months. After the third month, the landlord
sends the student a notice of termination to be effective at the end of the current month. The tenancy for years
turned into a periodic tenancy, but was terminated by the landlord’s notice.
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3.Tenancy at will: This tenancy is created by the will and intent of either the lessor or the lessee, and must
be created by an express agreement (not necessarily a writing). This type of tenancy may be terminated at any
time without notice, or automatically by operation of law if one of the parties dies or the tenant acquires title
to the property.
EXAMPLE:
A writer who lives in the city wants to go into seclusion to complete his novel. His friend has a mountain
cabin that he uses infrequently, and the friend agrees to let the writer live in the cabin to finish the novel. In
consideration of this use, the writer agrees to pay all utilities and taxes due on the property while he is in
possession. After six months, the novel is complete and the writer quits the cabin. The writer is obligated for
utilities and taxes attributable to these six months, and the tenancy is terminated.
4.Tenancy at sufferance: A tenancy at sufferance is created when a tenant unlawfully remains in possession
of the property after the termination of a lawful tenancy. This tenancy only remains in effect until the lessor
takes steps to evict the tenant, and no notice of the termination is required.
EXAMPLE:
A tenancy for years has ended, but the tenant refuses to leave. The landlord commences eviction proceedings.
Until the tenant is evicted, the tenant is a tenant at sufferance.
If a tenant remains in possession after the termination of the lease, the lessor has two options:
(a)the lessor may commence proceedings in a court of competent jurisdiction to evict the tenant, meaning
that the court will order the tenant to quit the premises and have the order enforced by a marshal; or
(b)the lessor may bind the lessee to a new periodic tenancy, under the terms of the expired lease or at an
increased rent if the lessor has notified the lessee of an increased rental prior to the expiration of the valid
lease.
Be alert to the fact that these rights, known as the holdover doctrine, does not apply if the lessee only
remains in possession for a few hours after the lease expired or is delayed in quitting because of reasons not
the tenant’s fault, such as a severe illness.
The typical lease for realty will include the names of the parties; a description of the property to be rented,
referred to as the premises; the use to which the property may be put; and the termination of the lease.
Because the lease is a contract, the tenant’s right of possession or use is granted in consideration of the
tenant’s obligation to compensate the landlord. The most common form of such obligation is the payment of
money, referred to as rent.
Rent clauses fall into one of two categories: gross lease or a net rent lease. A gross lease requires the tenant
to pay rent, and all operating costs on the premises—taxes, water, utilities, and so forth—are the obligation of
the landlord. In a net rent lease the tenant pays the rent to the landlord and further is responsible for the
operating costs, which the tenant pays directly to the provider of such services.
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In many instances, residential rent may be regulated by the government, in which case rent renewals of the
lease may be guaranteed to the tenant, and rent increases for the new lease are established under the
provisions of the particular statute. In other locations and with commercial leases, the lessor may indicate a
rent escalation clause in which the parties agree to periodic rent increases based on either costs or inflation.
Many commercial leases contain a percentage rent that requires the tenant to pay the landlord a set
percentage of the tenant’s gross sales. With this type of lease, rent is usually due on a quarterly or annual
basis to correspond to the tenant’s payment of taxes. A variation on this type of lease is a percentage
breakpoint clause in which a set rent is established, but if the tenant’s gross receipts exceed a stated dollar
amount, called the breakpoint, the landlord is entitled to additional rent based on a percentage of the gross
sales above the breakpoint amount. In certain instances, this type of lease may also contain a radius clause,
which prohibits the tenant from operating a similar enterprise within a specific geographic distance from the
rented premises, which could limit the tenant’s gross sales at the leased location.
EXAMPLE:
A man rents an apartment under a net rent lease. According to the lease, he must pay the landlord a monthly
rental of $750 and is responsible for his own utilities—gas, electricity, and water. The landlord remains
responsible for taxes and insurance.
EXAMPLE:
A man rents a location to open a bookstore. Under the terms of the lease, the tenant must pay the landlord a
monthly net rent based on a yearly rental of $200 per square foot of leased space. Furthermore, if the
bookstore’s gross sales exceed $500,000, the tenant must pay the landlord an additional 1% of all sales in
excess of $500,000. This lease also restricts the tenant from opening another bookstore within 10 blocks of
this location. This is an example of a percentage breakpoint lease with a radius clause.
In addition, a lease will usually indicate which party is responsible for the maintenance and repair of the
premises and, for commercial leases, may specify that one of the parties must maintain minimum insurance
on the property. See Exhibit 7.1 at the end of this chapter for a sample lease.
Tenants’ Duties
Under a typical lease agreement, the tenant warrants to maintain the property in good repair. In this context,
the tenant is precluded from committing waste on the property (see Chapter 2). If the tenant, under the lease
contract, has specifically covenanted to make repairs, the tenant’s duty will be higher than that imposed
under the law of contract, and she may even be obligated to reconstruct the property if the property is
destroyed, even if the property is destroyed without the fault of the tenant or the landlord. Furthermore, even
absent such a contract, if the premises are destroyed without fault, in most jurisdictions, the tenant, absent an
agreement to the contrary, is still obligated to continue paying rent for the duration of the lease.
EXAMPLE:
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A man enters into a lease to rent a house for a two-year period. Three months later, the house is destroyed by
a tornado. In most jurisdictions, the tenant may still be liable to pay rent on the now nonexistent house for the
next 21 months. If the tenant had specifically contracted to make repairs, he might be obligated to rebuild the
house. In this type of contract, the tenant is usually further obligated to maintain insurance on the property,
for obvious reasons.
A tenant is precluded from using the leased premises for an unlawful purpose. Such unlawful use gives the
landlord the right to terminate the lease, sue for damages, and/or seek injunctive relief.
EXAMPLE:
A woman rents a large apartment. She then uses that apartment as a brothel. When the landlord finds out, he
may either terminate the lease and evict the tenant or seek an injunction, a court order requiring the woman
to stop using the premises for an unlawful purpose.
The primary obligation of a tenant is to pay the agreed-upon rent at the time and manner specified in the
lease. A landlord may also require the tenant to give a security deposit to cover a portion of the rent in the
case of a default. At the termination of the lease, the tenant’s rent obligation terminates and the tenant is
entitled to the return of the security deposit, less any amount deducted for damage to the premises caused by
the tenant. Also, the tenant is entitled to receive interest accruing on the security deposit during the tenancy.
If the tenant fails to pay the rent when due, the landlord, in most states, is entitled to one of two options:
1.the landlord may sue the tenant for money damages for the amount of rent that was due and unpaid; or
2.the landlord may sue to have the tenant evicted.
If the tenant abandons the premises without justification, most states require the landlord to attempt to re-rent
the property to lessen the amount of rent the tenant owes under the lease. This obligation is known as the
duty of mitigation of damages. If the new tenant pays less rent than the abandoning tenant, the abandoning
tenant is obligated to the landlord for the difference. Conversely, if the new tenant pays a higher rent, the
abandoning tenant is discharged. Note, though, that if the landlord accepts the surrender of the premises, the
tenant will not be obligated for rent under the lease.
EXAMPLE:
The owner of a two-family house rents one of the units to a family. However, the man and the family have
constant arguments over matters not concerned with the property. The family decides to move with nine
months left on the lease. If the man accepts their departure, they are not obligated under the lease. If the man
does not accept their departure, he must attempt to re-rent the property, and the family will only be obligated
for the difference between their rent and the new rent if it is less. If the man refuses to attempt to find a new
tenant for the property, he may be denied relief from the court for failure to mitigate damages.
Landlord’s Duties
Absent a statutory or contractual obligation, under the general law, a landlord is under no duty to repair or
maintain leased premises. Basically, a landlord’s obligations fall into three categories:
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1.The landlord has a duty to deliver actual possession to the tenant on the date agreed upon. If there are
holdover tenants or squatters on the premises, it is the landlord’s duty to see that they are evicted so that the
tenant may take possession.
2.The landlord, under all lease agreements, has imposed a covenant of quiet enjoyment (see Chapter 5),
meaning that the landlord guarantees that no one, including the landlord, will interfere with the tenant’s use
and possession of the property. This covenant may be breached in one of the following ways:
(a)actual eviction, which occurs when the tenant is evicted from the entire property, at which time the
tenant’s rent obligation is considered terminated;
(b)partial eviction, which occurs when the tenant is precluded from possession of a portion of the property.
If the partial eviction is caused by the landlord, as opposed to a third person, the tenant’s obligation to pay
rent on the entire property is terminated.
EXAMPLE:
A man rents a house with a garage. There is a mechanic’s lien on the garage and the contractor who holds the
lien attaches the garage. This is an example of a partial eviction. Because the partial eviction was caused by
the landlord’s failure to pay the contractor, the tenant is relieved from paying rent on the property.
(c)constructive eviction, which occurs if the landlord does anything that renders the property uninhabitable,
such as failing to provide essential services. The tenant may terminate the lease and seek damages from the
landlord. However, to terminate the lease and seek damages, the tenant must vacate the property and the
condition that caused the problem must be the fault of the landlord, not a third party.
EXAMPLE:
A man rents a house under a gross rent lease. The landlord refuses to pay any utility bills even though it is his
obligation, and all utilities are turned off in the house, rendering it uninhabitable. The tenant may terminate
the lease by vacating the house and then suing the landlord for damages, or he may pay the utilities himself
and sue the landlord for reimbursement.
1.Most jurisdictions impose an implied warranty of habitability on residential leases, which is deemed to be
non-waivable (exclusively) by the tenant. What is considered “habitable” is determined by local housing
codes. If this warranty is breached, the tenant may:
(a)terminate the lease;
(b)make the necessary repairs and offset the cost against the rent;
(c)seek an abatement, whereby the rent is proportionately reduced for lack of use; or
(d)remain in possession but sue for damages.
If a tenant attempts to assert his or her legal rights, the landlord is prohibited, in most states, from terminating
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the lease or otherwise penalizing the tenant in retribution. Any attempt to do so is considered retaliatory
eviction, which, depending on the jurisdiction, may entitle the tenant to certain legal remedies against the
landlord. Each state’s statutes must be individually analyzed.
If the entire property is condemned by the government, or taken over under a right of eminent domain (see
Chapter 3), the lease is deemed terminated. However, a partial or temporary taking does not relieve the tenant
of his or her obligation under the lease.
Assignments and Subleases
Unless the parties have agreed to the contrary, tenants are typically permitted to assign or sublease their
rights. An assignment is a transfer of all rights the tenant has under the lease. A sublease is a transfer of a
portion of the tenant’s rights under the lease. If the tenant retains the right to return to the property any time
prior to the termination of the lease, including the right to renew the lease, the transfer is deemed to be a
sublease.
EXAMPLE:
Three young women share an apartment but do not get along. One of them finds a fourth young woman to
take over her portion of the lease. When the dissatisfied tenant transfers all of her rights to the fourth woman,
she has effectuated an assignment; however, if she retained the right to renew the lease in her own name, this
is considered a sublease.
The effect of an assignment is to make the assignee (the transferee) primarily obligated to the landlord for the
rent. The assignor (the transferor) remains secondarily liable, meaning that if the assignee defaults, the
assignor will be liable for the rent to the landlord.
With a sublease, the original tenant remains obligated to the landlord, and he or she is the only one who can
enforce the lease’s covenants against the landlord. The tenant and the sublessee are contractually obligated to
each other, and the sublessee’s only remedies are against the tenant/sub-lessor.
A lease may contain a provision prohibiting assignments and subleases, but such provisions are generally
construed against the landlord. In jurisdictions that provide for regulated residential leases, such provisions
may be prohibited, but each state’s statutes must be independently analyzed. If a transfer is made in violation
of the lease, and the landlord knows about it but does not object, the lease provision prohibiting the transfer is
deemed waived. If the landlord does object, the landlord may be able to terminate the lease.
EXAMPLE:
A lease contains a non-assignment provision. Six months after the lease starts, the tenant must move to a new
city, and she assigns her lease to a friend. The landlord accepts the friend’s rent check. Under these
circumstances, the law will assume that the landlord has waived his right to object to the assignment.
The landlord may assign any and all of his or her rights without the tenant’s consent. The tenant’s obligation
will be to the landlord’s assignee, and the tenant must be given a notice to attorn (see Chapter 5).
Practical Tips
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•Leases for rentals exceeding one year must be in writing, and longterm leases may be recorded to protect the
parties.
•If a lease is going to be recorded, only record a memorandum of the lease provisions. It is not necessary to
record all the terms of the lease itself.
•Review all leases in the same manner in which a contract would be reviewed—it must meet all the
requirements of a valid contract to be enforceable.
•Only use a form lease as a guide; make sure to personalize each lease to protect the client.
Chapter Review
Landlord-tenant law is a subset of general real property law that is governed by contract. This contract,
known as a “lease,” determines the rights and obligations of the parties.
There are four types of lease agreements generally in effect: a tenancy for years, in which property is leased
for a fixed period of time; a periodic tenancy, created for successive periods; a tenancy at will, which is
formed by agreement and which may be terminated at any time without notice; and a tenancy at sufferance,
which comes about when a tenant remains in unlawful possession of a formerly leased premise.
The consideration given to the landlord to support the contract is known as “rent,” and the tenant may be
obligated for utilities, or they may be the landlord’s responsibility. For commercial tenants, the landlord may
also contract for a portion of the tenant’s gross sales or profit.
The tenant is required to maintain the premises in good repair, absent an agreement or statute to the contrary,
and may even have to rebuild a premise that is destroyed.
Leases, as a general rule, are freely assignable, which means all the tenant’s rights are transferred, and
capable of being sublet, which means the tenant retains some interest in the lease, even if only the ability to
renew the contract.
Ethical Concern
Leases are fairly common legal documents, and most law offices maintain a form lease on file. It is unethical
to charge every client the cost of creating the same lease. This is known as “double billing.” However, it is
permissible to charge each client for the particular work that was performed to personalize that form lease for
the client.
Key Terms
Abatement
Assignee
Assignment
Assignor
Constructive eviction
Evict
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Gross lease
Holdover doctrine
Landlord
Lease
Leasehold
Lessee
Lessor
Mitigation of damages
Net rent lease
Partial eviction
Percentage breakpoint
Percentage rent
Periodic tenancy
Premises
Radius clause
Rent
Rent escalation clause
Retaliatory eviction
Right of entry
Security deposit
Sublease
Tenancy at sufferance
Tenancy at will
Tenancy for years
Warranty of habitability
Exercises
1.Using the library or the Internet, determine whether your locality provides for residential rent regulation. If
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so, analyze its provisions.
2.Obtain a form lease for your jurisdiction and analyze its provisions.
3.Determine what constitutes “habitability” in your locality.
4.Many states have a landlord-tenant court for housing disputes. Find out whether such a court exists for your
state, and if so, list its jurisdictional requirements.
5.Briefly discuss how the parties could determine “gross sales” under a percentage lease.
Situational Analysis
A tenant leases a two-bedroom apartment in a major city. She is the only tenant on the lease. To meet
expenses, she lets one of the bedrooms to another woman by an oral agreement. The other woman is not
listed on the lease. Each woman pays her half of the rent by check, and the landlord accepts these checks.
After one year, they begin to have problems living with each other, and the woman named on the lease asks
the other woman to leave, but she refuses. What are the rights of the parties? How would you advise each
woman?
Edited Cases
Inklovich v. Johnson is a Pennsylvania case discussing the warranty of habitability and security deposits, and
the Tsitsires decision concerns the eviction of a mentally ill tenant.
Inklovich v. Johnson
2014 Pa. Dist. & Cnty. Dec. LEXIS 3406 *; 42 Pa. D. & C.5th 338 (2014)
On June 5, 2011 Defendant Phil Johnson (“Landlord” hereinafter) and Plaintiff Joshua Inklovich (“Tenant”
hereinafter) entered into a written agreement for the rental of the residence located at 218 Frederick Ave
FRONT, Sewickley, Pa 15143. See exhibit A from 7/22/2014 trial (“exhibit A” hereinafter). The term of the
agreement was three years, from July 1, 2011 to June 30, 2014, with a $1,500 security deposit and monthly
rent of $1,500. The agreement required Tenant to pay Landlord $1,500 for the last month’s rent prior to
occupancy and then an additional $3,000 after occupancy in $250 per month installments for the $1,500
security deposit and a second month’s rent in advance. See exhibit A, pp. 7-8. Hence, Tenant had to provide
Landlord with a total of $4,500, or the equivalent of three months of rent, for security against damage to the
residence and default in the payment of rent. Landlord requested the provision for payment of two months of
rent in advance when he found Tenant had a low credit score, and Tenant was agreeable to satisfying
Landlord’s concern over the credit score by paying the two months of rent in advance. See transcript of
Non-Jury Trial, 7/22/2014 (“T.” hereinafter), pp. 55-58.
Tenant paid Landlord $1,500 prior to occupancy and each of the $250 per month installment payments after
occupancy until Landlord received the additional $3,000. Tenant also paid Landlord each $1,500 monthly
rental payment when due until a dispute arose between them. Landlord testified credibly that Tenant seemed
satisfied until July of 2012 when lightning felled a tree near the residence, damaging Tenant’s automobile,
and Tenant’s losses were not covered by either Landlord’s or Tenant’s insurance. T., pp. 81-84. In December
of 2012, while continuing to occupy the residence, Tenant stopped paying his rent to Landlord and allegedly
paid the rent into an “escrow” account in Tenant’s name at a bank. T., pp. 154-155; exhibit D from 7/22/2014
trial.
On December 13, 2012 Tenant sued Landlord in a Magisterial Court. After the Magisterial District Justice
decided the dispute in favor of Landlord, Tenant appealed to the Court of Common Pleas of Allegheny
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County. Tenant filed a complaint against Landlord on April 22, 2013 requesting monetary damages arising
from Landlord’s alleged breaches of warranties of habitability and quiet enjoyment as well as a declaration
that the rental agreement was void and unenforceable. Landlord filed a counterclaim requesting $1,500 per
month rent from December of 2012. On August 30, 2013, Tenant’s counsel notified Landlord’s counsel that
Tenant had vacated the residence. A compulsory arbitration panel then heard the dispute but awarded Tenant
no monetary damages and instead found Tenant owed Landlord $12,300.
Tenant then filed an appeal from the arbitration award, and I presided over the non-jury trial. I also found
Tenant was not entitled to any monetary damages but that Tenant owed Landlord $9,250.Tenant filed a
motion for post-trial relief, which I denied. Tenant then filed a notice of appeal to the Superior Court of
Pennsylvania and a “rule 1925(b) concise statement of errors complained of on appeal” (“concise statement”
hereinafter). This opinion will next address each error that Tenant alleges I made. See Pa. R.A.P. No.
1925(a).
Tenant first argues that Landlord “breached Paragraph 42(b) of the Lease” (Concise statement, ¶ nos. 2 and
3), which obligates Landlord to comply “with all State, County and/or Municipal Codes.” I agree with Tenant
that Landlord breached this provision since the Pennsylvania Landlord and Tenant Act prohibits security
deposits in excess of two months during the first year and in excess of one month during the second year of
any residential lease. See 68 Pa.C.S.§ 250.511a. I do not, however, agree with Tenant’s implicit argument
that because of this breach Landlord forfeits his claim to all rent due him under the Lease. The Pennsylvania
Landlord and Tenant Act provides no guidance on an appropriate remedy when a landlord requires too large
of a security deposit. Id. I decided a partial forfeiture was appropriate and reduced Landlord’s damages by the
“unpaid rent between the date Tenant vacated the premises and the end date of the lease.” 7/23/2014 findings.
Thus, as a result of the security deposit exceeding the amount permitted by law, I prohibited Landlord from
claiming any rent from September 1, 2013 to June 30, 2014, a forfeiture of as much as $15,000 (ten months
at $1,500 per month equals $15,000).
The doctrine of “substantial performance” protects Landlord’s right to compensation for at least the rent
during Tenant’s occupancy unless the breach amounts to a material failure of performance. See Sgarlat v.
Griffith, 349 Pa. 42, 36 A.2d 330 (1944). Tenant testified he needed the excess security deposit to move out
of the residence before the end of the term and be able to invoke the “opt-out” provision of the lease. See
Exhibit A, p. 7, ¶ no. 50(g) (“This contract may be terminated by Tenant without cause or additional penalty
at any time . . . between 07-02-2013 and 08-02-2013 with 30 days written notice AND a liquidated damages
payment of $1,550.00. . . .”) However, Tenant failed to prove any damages from being unable to leave the
residence sooner, since Tenant testified only that he was able to purchase a home, but not that the purchase
reduced his housing expense. T., p. 65. In any event, Tenant’s testimony on the issue was not credible but
instead was merely an “after-the-fact” effort to establish financial injury when none was incurred. Thus, the
holding of the excess security deposit was a technical, inadvertent, or unimportant defect and not a material
failure of performance. Id. Hence, even though Landlord technically breached the contract, my decision to
compensate him for rent during Tenant’s occupancy was correct.
Tenant next argues that Landlord breached the implied “warranty” of quiet enjoyment. See concise statement,
¶ nos. 4 and 6. A landlord breaches the covenant of quiet enjoyment by wrongful conduct that interferes with
the tenant’s possession of the leased premises. See Kohl v. PNC Bank Nat. Ass’n, 590 Pa. 151, 912 A.2d 237
(2006). A classic example of a breach of the covenant of quiet enjoyment is when a landlord locks a tenant
out of the leased premises. See Minnich v. Kauffman, 265 Pa. 321, 108 A. 597, 33 York Leg. Rec. 134
(1919). In these proceedings, Tenant did not specify particular conduct of Landlord that interfered with
Tenant’s possession of the residence during the trial, and the motion for post trial relief and the concise
statement generally allege a breach of the covenant without specifying any wrongful conduct. The complaint
identifies seven items that allegedly violate the covenant, but none involve any interference by Landlord with
Tenant’s possession of the leased premises. Since Tenant failed to specify any conduct that interfered with
Tenant’s possession of the premises, I properly found the covenant of quiet enjoyment was not breached.
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Tenant next argues that Landlord breached the implied warranty of habitability and paragraph 42(a) of the
Lease, which similarly obligates Landlord to keep the premises habitable. See concise statement, ¶ nos. 5 and
6. A defect that prevents a dwelling from being used for habitation constitutes a breach of the implied
warranty of habitability. Pugh v. Holmes, 486 Pa. 272, 405 A.2d 897 (1979). A breach of the implied
warranty of habitability claim is not valid unless the tenant gives the landlord notice of the defect and a
reasonable opportunity for repair. Id. Between Tenant’s testimony and the Allegheny County Health
Department October 24, 2012 Inspection Report admitted into evidence at trial (see trial Exhibit C), at least
twelve items are described that could be defects. However, none of Tenant’s testimony about alleged defects
was credible. In addition, the Health Department’s January 22, 2013 Inspection Report (trial exhibit F), made
after Landlord had a reasonable opportunity for repair, noted that the only two items remaining are “minor”
and are “not used to determine fitness for human habitation.” Trial Exhibit C. In any event, Landlord
provided credible testimony that those two items remaining, a loose heat duct and a screen that allegedly
allowed squirrels to enter the attic, were either repaired by contractors or never a problem. See T., pp. 51,
78-80 and 84-87. Therefore, my determination that Landlord did not breach the implied warranty of
habitability or the Lease habitability provision was correct.
Tenant next argues I should have awarded him attorney fees under paragraph 32(a) of the Lease, which
provides that Landlord is “responsible for all legal and collection costs associated with a breach of this
Agreement by Landlord provided written Notice of such breach has been given Landlord and Landlord has
failed to cure.” See concise statement, ¶ no. 7; exhibit A. However, Landlord cured the habitability defects
that Tenant gave notice of in Tenant’s 11/26/12 letter (see trial exhibit D) and in the Health Department’s
October 24, 2012 Inspection Report. While the excess security deposit constitutes a technical breach of
contract, Tenant’s four page 11/26/12 letter admitted into evidence as trial exhibit D neither notifies Landlord
of this breach or requests that all or part of the security deposit be returned. Tenant then initiated litigation
against Landlord, and due to Tenant’s decision to withhold payment of rent while occupying the residence for
nine months, it was Landlord who incurred “collection costs.” Since Landlord cured any breach of the lease
that he was notified of and Tenant had no “collection costs,” my decision to deny Tenant an award of
attorney fees was correct.
Tenant next argues I should have found “the Lease to have been terminated pursuant to Paragraph 40.”
Concise statement, ¶ no. 8. Lease paragraph no. 40 states:
Any items of this Agreement that are not followed will result in a termination of this Agreement. The
remaining payments of this contract become due and payable upon such termination.
Hence, had I found the Lease was terminated, the rent until the end of the Lease remains due. Therefore,
whether or not the lease was terminated is inconsequential, and my failure to make such a finding was not
erroneous.
Tenant next argues I should not have awarded Landlord damages. See concise statement, ¶ no. 9. Since
Tenant does not provide further elaboration on this argument, I must presume the reason Tenant argues
Landlord should not have been awarded damages is Landlord’s alleged breaches of the warranties and of the
Lease. As explained above, the technical breach of the Lease from the excess security deposit does not justify
a forfeiture of rent owed Landlord during Tenant’s occupancy and there was no breach of either the covenant
of quiet enjoyment or the implied warranty of habitability. Therefore, my decision to award Landlord
damages was correct.
Tenant’s final argument is that my decision to offset the security deposit from Landlord’s damages was
incorrect because I should have doubled the amount of the Security deposit. Tenant makes this argument in
reliance on 68 P.S. §250.512(c). For a proper analysis of this argument, 68 P.S. §250.512 subsections (a) and
(b) must be scrutinized along with subsection (c). Here are all three subsections:
(a) Every landlord shall within thirty days of termination of a lease or upon surrender and acceptance of the
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leasehold premises, whichever first occurs, provide a tenant with a written list of any damages to the
leasehold premises for which the landlord claims the tenant is liable. Delivery of the list shall be
accompanied by payment of the difference between any sum deposited in escrow, including any unpaid
interest thereon, for the payment of damages to the leasehold premises and the actual amount of damages to
the leasehold premises caused by the tenant. Nothing in this section shall preclude the landlord from refusing
to return the escrow fund, including any unpaid interest thereon, for nonpayment of rent or for the breach of
any other condition in the lease by the tenant.
(b) Any landlord who fails to provide a written list within thirty days as required in subsection (a), above,
shall forfeit all rights to withhold any portion of sums held in escrow, including any unpaid interest thereon,
or to bring suit against the tenant for damages to the leasehold premises.
(c) If the landlord fails to pay the tenant the difference between the sum deposited, including any unpaid
interest thereon, and the actual damages to the leasehold premises caused by the tenant within thirty days
after termination of the lease or surrender and acceptance of the leasehold premises, the landlord shall be
liable in assumpsit to double the amount by which the sum deposited in escrow, including any unpaid interest
thereon, exceeds the actual damages to the leasehold premises caused by the tenant as determined by any
court of record or court not of record having jurisdiction in civil actions at law. The burden of proof of actual
damages caused by the tenant to the leasehold premises shall be on the landlord.
Landlord’s credible, undisputed testimony established that Tenant left the premises in good condition and the
security deposit was not withheld due to physical damage. T., pp. 145-146. Subsection (c) above, which
doubles a landlord’s liability for an improperly held security deposit, applies only to a security deposit
withheld due to physical damages to the premises. A Landlord is not obligated to provide a written list to the
tenant and there is no doubling of any part of the security deposit when it is withheld due to the tenant’s
nonpayment of rent. See McEvilly v Tucci, 239 Pa. Super. 474, 479 n. 4, 362 A.2d 259, 261 n. 4 (1976).
Therefore, I was correct in not doubling the security deposit amount that I offset from Landlord’s damages.
Case Questions
1.What were the tenant’s claims regarding the implied warranty of habitability?
2.Why was the tenant not successful on his breach of implied warranty of habitability claim?
3.Why does the court say that the landlord could not retain double the security deposit?
TOA Construction Co., Inc. v. Tsitsires
54 A.D.3d 109, 861 N.Y.S.2d 335 (1st Dept 2008)
The laws of rent stabilization do not allow for the indefinite retention of the right to rent-stabilized premises
by a tenant who does not actually reside in the premises and has no intent to return to reside there at any point
in the future. This is no less true where, as here, the tenant’s inability to ever reside there is caused by his
mental illness. An apartment used by the tenant solely as a mail drop and storage space and occupied, when it
is occupied at all, only by the tenant’s companion, should not be treated as the tenant’s residence. Unless
there is evidence at trial supporting a conclusion that the tenant will at some point be able to actually reside in
the apartment, his absence should not be deemed excusable, and his abandonment of the premises as his
residence should be acknowledged as such.
The facts of this case were fully presented to the trial court, and that court’s findings were not disputed,
challenged, or altered by Appellate Term. Indeed, Appellate Term explicitly declined to second-guess either
the trial court’s assessment of credibility or its conclusion that respondent’s mental illness prevented him
from actively using the apartment. Although it reversed the trial court’s holding, the reversal was based only
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upon the application of the law to the facts found by the trial court. Yet, our dissenting colleagues would
make an entirely new set of findings, based upon their own assessment of the evidence, after rejecting
consideration of certain materials upon which they say the trial court improperly relied. Further, the dissent
would rely upon materials entirely outside the record, including assertions contained in recent newspaper
articles. We reject the implicit suggestion that we adopt the dissent’s alternative assessment of the evidence
instead of the trial court’s assessment. Rather, we rely upon the previously undisturbed findings of the trial
court, especially its rejection of respondent’s testimony that he resided in the unit for extended periods of
time during the Golub period (see Golub v. Frank, 65 NY2d 900, 483 N.E.2d 126, 493 N.Y.S.2d 451 [1985]).
The sad facts of this case, as found by the trial court, naturally incline one’s sympathies toward respondent
tenant, who suffers from debilitating mental illness that has propelled him into the life of a homeless person,
despite his rights as a tenant in petitioner’s deteriorating single-room occupancy (SRO) building. However,
the tone employed by the dissent, accusing this Court of “facilitating a notorious slumlord’s 20-year effort to
empty its building of all tenants by evicting respondent tenant from his rent stabilized apartment,” is
misguided. It is the responsibility of this Court to dispassionately apply the law to the facts as found,
notwithstanding the well-intentioned impulse to protect the interests of a mentally ill individual or the desire
to rule against the interests of a party characterized by newspapers as a “slumlord.” It is incumbent upon us to
correctly frame the rules of law that apply in this primary residence litigation. When the law is accurately
stated, and applied neutrally to the facts as found by the trial court, it becomes clear that the findings of fact
and conclusions of law of the trial court should have been upheld. We therefore reverse the order of
Appellate Term, which, contrary to the ruling of the trial court, held that the tenant’s extended absence from
the subject premises was excusable and that he had not abandoned the tenancy.
This holdover proceeding to terminate respondent’s tenancy, on the ground that the apartment was not his
primary residence, was commenced on December 7, 2000, following the landlord’s service on July 14, 2000
of a Golub notice of expiration of respondent’s tenancy as of November 30, 2000.
Respondent has been a rent-stabilized tenant in the SRO since 1970. Over the years, the building fell into a
state of chronic disrepair, and the trial court found the apartment to be uninhabitable when it inspected the
premises on April 27, 2005. But, this litigation does not turn on the habitability of the apartment, or even on
the nefariousness of the landlord; it simply concerns whether petitioner established that respondent did not
maintain his primary residence there during the Golub period, December 1, 1998 through November 30,
2000.
Although his exact diagnosis was disputed, it is established that respondent suffers from a mental illness,
which includes a panic disorder, that has resulted in his feeling compelled to spend virtually all his time away
from the subject apartment. The credible evidence established that respondent lived the lifestyle of a
homeless person in a psychologically “safe” area within a 20-block radius of the building. He kept his
personal possessions in the apartment, and his mail was delivered there, but notwithstanding his testimony to
the contrary, which the trial court rejected as incredible, he rarely went there. He did not even maintain
possession of the key, having given it into the custody of his girlfriend of 35 years, who used the apartment
somewhat more frequently, as a place to shower and for storage of her personal possessions. The testimony
that the trial court found to be credible, which Appellate Term left undisturbed, reflected that during the
relevant period respondent stopped in at the apartment a handful of times but cannot be said to have resided
there.
To begin the necessary analysis, we must first consider the landlord’s initial burden in this unusual situation.
The Rent Stabilization Code permits a landlord to recover possession of a rent-stabilized apartment that “is
not occupied by the tenant . . . as his or her primary residence” (9 NYCRR 2524.4[c]). Respondent suggests
that to do so the landlord has the legal obligation to establish not only that the tenant does not reside in the
subject apartment but also that the tenant has an alternative primary residence. In this regard, respondent
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relies upon this Court’s holding that “[i]n a nonprimary residence case, the burden is on the landlord to
establish that the tenant maintains a primary residence in a place other than the subject premises” (Sharp v.
Melendez, 139 A.D.2d 262, 264, 531 N.Y.S.2d 554 [1988]).
Respondent also emphasizes the word “primary” in the phrase “primary residence,” arguing that the concept
implicitly requires the existence of a second residence, rendering one residence primary and the other
secondary, and that the concept of primary residence is therefore, by definition, inapplicable when the tenant
concededly has no other residence. Where there is only one residence, respondent contends, that residence is
necessarily the tenant’s primary residence.
We conclude, however, that the dissenting justice at Appellate Term in this case is correct: The statement
made in Sharp v. Melendez imposing on the landlord the burden of establishing that the tenant maintains a
primary residence in a place other than the subject premises is simply inapplicable to circumstances such as
these. Importantly, Sharp v. Melendez and similar cases involved situations in which the basis of the
landlord’s claim was that the tenant resided in different premises than the one at issue. But, as the trial court
here explained, establishing that the tenant has an alternative primary residence is merely one way for the
landlord to meet its evidentiary burden; it is not the only way.
The essence of the nonprimary residence claim is that the tenant lacks an “ongoing, substantial, physical
nexus with the controlled premises for actual living purposes” (Emay Props. Corp. v. Norton, 136 Misc 2d
127, 129, 519 N.Y.S.2d 90 [App Term, 1st Dept 1987]). The terms of the Rent Stabilization Code do not
require proof that the tenant maintain an alternative primary residence (see 9 NYCRR 2524.4[c] , supra). A
prima facie showing of nonprimary residence could be successfully made simply by proof that a rent-paying
tenant was absent from the apartment and kept no belongings there during the relevant period, without the
introduction of any information about where the tenant had gone.
The majority at Appellate Term, without rejecting the finding that respondent did not actually live in the
apartment, held that his absence must be deemed excusable for purposes of nonprimary residence analysis
because the record showed that “there was no abandonment of the premises or establishing of any new
residence” (quoting Katz v. Gelman, 177 Misc 2d 83, 84, 676 N.Y.S.2d 774 [App Term, 1st Dept 1998]). But,
the facts here are not comparable to those in Katz v. Gelman or other cases in which tenants established that
their extended absences from their apartments were excusable (see e.g. Coronet Props. Co. v. Brychova, 122
Misc 2d 212, 469 N.Y.S.2d 911 [1983], affd 126 Misc 2d 946, 488 N.Y.S.2d 1020 [App Term, 1st Dept 1984]
). In Brychova the tenant demonstrated that she had to be away from home due to the exigencies of her
profession. In Katz, the tenant was absent because of his health. Importantly, in each instance it was
established that the tenant fully intended to return to and reside in the apartment as soon as practicable. In
Brychova, the tenant was an itinerant professional soprano and voice teacher who spent all but a handful of
days each year away from home at professional engagements. In Katz the tenant was absent from his leased
premises while he was institutionalized in various transitional residential facilities for treatment of depression
and substance abuse, with the intent of preparing to return to independent living.
While, as in Katz (177 Misc 2d at 84), it is clearly a mental health problem that causes respondent to be
absent from the subject premises, unlike the situation in Katz, there is no credible evidence indicating that
respondent will ever return to and reside in the subject premises, or even that he has any intent to do so.
Indeed, there is no reason to conclude, based upon the credible evidence in the record, that respondent can be
cured of his need or compulsion to stay out of the subject premises. Regardless of how understandable is his
decision to decline any offered medication or treatment, nothing in the record supports a conclusion that
respondent had any true intent or ability to achieve a cure for his illness that would allow him to take up real
residence in the apartment. Since there is no credible basis in the record to conclude that respondent might in
the future be willing or able to resume actual residence in the apartment, the logic of Katz v. Gelman has no
application to this case.
The dissent, while agreeing with the conclusion of Appellate Term that respondent’s absence is excusable
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and that he did not abandon the premises, also emphasizes testimony rejected by the trial court to the effect
that respondent actually resided in the apartment during the period in question. While paying lip service to
the rule that the trial court’s findings of fact should not be disturbed unless they could not be reached under
any fair interpretation of the evidence, the dissent essentially relies on the testimony of respondent and his
companion to find, contrary to the trial court’s finding, that respondent intends to reside in the premises in the
future, and, indeed, that he has resided there since at least 2001. The dissent even cites the testimony that the
trial court squarely rejected, in which both respondent and his companion stated that during the Golub period
respondent was present in the apartment every day.
However, we decline to make new findings of fact upon our own review of the record, despite our authority
to do so. There are important reasons for the deference with which we generally approach the findings of a
trial court, particularly regarding credibility. A decision by a trial court adds up to more than the sum of its
parts; it takes into account the judge’s firsthand impressions, as well as the judge’s experience with similar
cases, particularly in specialized courts such as the Housing Court.
The trial court’s finding regarding respondent’s credibility should stand; by the same token, we should defer
to the court’s rejection of respondent’s and his companion’s testimony as to their continued presence in the
apartment during the Golub period. Reliance on respondent’s telephone bills to buttress the conclusion that
respondent did not abandon the apartment is misplaced. It is already established that respondent’s companion
frequently uses the apartment and that respondent keeps personal possessions there and uses it as a mail drop.
None of these facts establish his intent to return to live there, and neither do his telephone bills. The manner
in which respondent uses the subject premises, as a storage facility and mail drop, should be recognized, and
treated, as tantamount to an abandonment of the premises for residential purposes.
The dissent’s citation to recent newspaper articles to support its assertion of facts regarding respondent’s
recent residence at the premises should not be countenanced. When we review an order on appeal, we do so
on the evidence presented in the record on appeal, not on purported facts gleaned from newspaper articles.
Indeed, in this matter the relevant time period of residency was December 1, 1998 through November 30,
2000. To the extent the respondent’s future intent to reside in the premises was relevant, such intent had to be
established before the trial court, not in assertions extraneous to the record and not even introduced by the
parties. Furthermore, judicial notice of facts is reserved for “matter[s] of common and general knowledge,
well-established and authoritatively settled” (Prince, Richardson on Evidence §2-201 [Farrell 11th
ed][internal quotations marks and citation omitted]). Judicial notice of a fact such as a tenant’s residency in a
building may not properly be based upon a factual assertion simply because the assertion is contained in a
newspaper article.
The evidence contained in the record that was accepted as credible by the trial court shows that respondent
did not reside in the apartment during the Golub period, that he did not intend to return to reside there, and
that there is no reason to believe he will be able to reside there in the future. However sympathetic
respondent’s plight, the concept of rentstabilized tenancy is warped beyond recognition if a tenant who is
permanently absent from the apartment, using it only as showering facilities for his companion and as storage
space and mail drop for himself, without any indication that he will ever be able to reside there again, may
nevertheless be entitled to be treated as a rent-stabilized tenant who has not abandoned the apartment.
It should be noted that when we conclude that a tenant who does not reside in his apartment may not properly
be said to be using it as his primary residence, we are not “finding” that the tenant’s primary residence is a
park bench. I think we all agree that a person cannot maintain a primary residence on a park bench. But, the
question for the court is solely whether the tenant has maintained an “ongoing, substantial, physical nexus
with the controlled premises for actual living purposes” (see Emay Props. Corp. v. Norton, 136 Misc 2d 127,
129, 519 N.Y.S.2d 90 [1987], supra), or whether, instead, he has abandoned the premises that served at some
earlier time as his residence. The answer is, during the relevant period respondent did not maintain the
required substantial physical nexus with the premises for actual living purposes, and he had no expectation of
doing so.
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Having determined that respondent failed to counter petitioner’s showing with his own credible evidence
demonstrating either that during the Golub period he used the premises as his primary residence or that his
absence is excusable, we may not allow respondent to claim the rights of primary residency based solely
upon the use of the apartment by his longtime companion. This is not because we find that she is some sort of
“transient girlfriend,” as the dissent implies, but because the record does not establish tenancy rights on her
part, despite her longtime relationship with respondent. As the dissent acknowledges, this proceeding did not
raise or address any claim to succession rights or any other rights invested directly in respondent’s
companion.
I recognize that part of the impetus for the dissent’s view is that the landlord here allowed the premises to
become uninhabitable with the intent of emptying the SRO building of all tenants. Yet, the landlord’s
conduct and intentions, whatever we think of them, had no impact on respondent’s virtual abandonment of
the apartment as his residence. Had respondent successfully demonstrated that his absence from the
apartment was due to its uninhabitable condition, and that he would return and reside there if it were made
habitable, the landlord’s conduct would have been relevant to the question whether respondent’s absence
from the premises should be considered “excusable” for purposes of primary residence analysis. But, the
evidence established that respondent’s absence from the premises was due to his mental illness, not the
condition of the apartment.
Additionally, the fact that respondent applied for public housing that would accommodate his disability,
stating on the application that he was homeless, but failed to take the necessary action to accept the ultimate
offer of an apartment within his “safe area” of the city lends further credence to the conclusion that his
mental illness was the substantial impediment to his maintaining his residence in the subject apartment, or
any apartment. Had he been motivated by the need for a clean and habitable apartment, rather than impelled
by his mental illness, he would have done what was necessary to take the offered apartment.
The dissent correctly observes that the goal of the rent stabilization framework, “to alleviate the shortage of
housing in New York City by returning underutilized apartments to the market place” (Matter of Herzog v.
Joy, 74 A.D.2d 372, 374, 428 N.Y.S.2d 1 [1980], affd 53 N.Y.2d 821, 422 N.E.2d 582, 439 N.Y.S.2d 922
[1981]), is not served by permitting the ouster of this tenant, since the landlord’s interest is in emptying the
building of all tenants, rather than in replacing this tenant with a tenant who will actually reside there.
Nevertheless, application of the primary residence rules is not limited to those landlords who can establish
that they are acting in good faith to return underutilized housing to the market. Whether the tenant maintains
an “ongoing, substantial, physical nexus with the controlled premises for actual living purposes” (Emay
Props. v. Norton, 136 Misc 2d at 129), depends upon the tenant’s conduct in relation to the property, not the
landlord’s intended future use of the building.
The questions the Court must answer are: (1) did the petitioner establish that the tenant lacked an “ongoing,
substantial, physical nexus with the premises for actual living purposes,” and (2) if so, did the tenant establish
an intent to resume living in the premises when it became possible? Here, petitioner made the requisite
showing, and respondent failed to establish an intent to return so as to overcome the prima facie showing. On
the evidence before it, the trial court correctly determined that the apartment was not being used as
respondent’s primary residence and would not be so used in the future.
We conclude that petitioner’s claim is established, based upon the facts as found by the trial court, that
respondent does not, and will not in the future, use the subject premises “for actual living purposes,” and that
therefore it is not his residence.
Accordingly, the order of the Appellate Term of the Supreme Court of the State of New York, First
Department, entered December 21, 2006, which reversed a final judgment of the Civil Court, New York
County (Gerald Lebovits, J.), entered July 7, 2005, awarding possession after non-jury trial to petitioner
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landlord in a nonprimary residence proceeding, and awarded final judgment to respondent tenant dismissing
the petition, should be reversed, on the law, without costs, and the judgment of possession awarded in favor
of petitioner landlord reinstated.
Case Questions
1.What is your opinion of the court’s ultimate decision to displace a mentally ill tenant?
2.Should the court have provided a guardian for the respondent? Discuss.
Additional Case Analysis
1.Two individuals reside in apartments that are not subject to any rent-regulation law. The parties never
signed a lease with the current owner of the property, but the individuals did have an oral agreement to rent
the apartments from the property’s former owner. The current owner sues the individuals to gain possession
of the apartments, claiming that they are holdover tenants. What arguments would you present for each side?
Who should prevail? See Ballesteros v. Rosello, 183 Misc. 2d 448, 703 N.Y.S.2d 686 (1999).
2.Premises were leased for a period of 10 years, with a provision that the landlord may terminate the lease
upon 30 days’ written notice to the tenant that the property had been sold. The landlord transferred the
property to a new owner, who then served notice on the tenants that the lease was being terminated. Did the
new owner have the right to terminate the lease when he purchased the property from the original owner? See
what the court said in Rosemberg v. Brens, 19 Misc. 3d 1142 (A) (Civ. Ct. 2008).
Quick Quiz
(Answers can be found in the Appendix on page 268.)
1.What is the holdover doctrine?
2.If a tenant stays on the premises after the lease expires and the landlord does not take legal action, this is
what type of tenancy?
3.Are rent escalation clauses typical provisions in residential leases?
4.How must a landlord mitigate a tenant’s damages?
5.How does a sublease differ from an assignment?
Exhibit 7.1: Sample Commercial or Residential Lease
This lease made in____ [city], state of ____ [date] between ____ of ____ as lessor, and ____ of ____ as
lessee, witnesses:
Lessor, for and in consideration of the agreements of lessee mentioned below, hereby leases to lessee, and
lessee hereby leases from lessor, the premises [or as the case may be] located at ____ [ city], state of ____
described as follows: ____ excepting and reserving to lessor ____ including the right to ____ .
This lease is for the terms of ____ years [or as the case may be], beginning ____ [date], and ending ____ [
date], unless sooner terminated as provided below.
A. Agreements of Lessee
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211
Lessee, in consideration of the leasing, agrees:
1. To pay as rent for premises the sum of $ _ per month [or as the case may be], payable on the day of ____
each month [or as the case may be] during the term of this lease, at ____ .
2. To pay all charges for light, heat, fuel, power and water furnished or supplied to or on any part of
premises.
3. To pay all taxes and assessments, ordinary and extraordinary, general and specific, including the same for
____ [year], which may be levied or assessed on premises.
4. To pay all reasonable costs, attorneys’ fees and expenses that shall be made and incurred by lessor in
enforcing the agreements of this lease.
5. To use and occupy the premises for ____ purposes only, and for no other object or purpose without written
consent of lessor, and to not use premises for any unlawful purpose or purpose deemed extra hazardous.
6. To keep the premises in as good repair as the same shall be at the commencement of the term, wear and
tear arising from the reasonable use of the same and damages by the elements excepted.
7. To keep the buildings and improvements on the premises insured in a responsible insurance company or
companies for not less than $ _ payable, in case of loss, to lessor as lessor’s interest may appear.
8. To permit lessor and lessor’s agents to enter on the premises or any part thereof, at all reasonable hours, for
purpose of examining or exhibiting same or making such repairs or alterations as may be necessary for safety
or preservation thereof; also to permit lessor to place on premises notice of “For Sale” and “To Rent” and not
interfere with same.
9. To deliver to lessor within ____ days from execution of this lease a surety bond in amount of $ _ from a
reputable bonding company, guaranteeing faithful performance by lessee of all terms and conditions of this
lease.
10. Not to assign this lease nor sublet the premises or any portion thereof without written consent of ____ .
11. Not to make any contract for construction, repair, or improvements on, in, of, or to premises, or any part
thereof, or for any work to be done or materials to be furnished on or to premises, or any part thereof, without
providing in such contract or agreement that no lien of mechanics or materialmen shall be created or shall
arise against above-described land and/or the building or improvements at any time located thereon. All
persons furnishing any work, labor or materials, as well as all other persons whatever, shall be bound by this
provision and by the notice of it from and after date of this lease, and notice is hereby given that no
mechanic’s lien, materialmen’s lien, or any other incumbrance made by or obtained against lessee, or lessee’s
interest in demised land and/or the building or improvements thereon, shall in any manner or degree affect
the title or interest of lessor in land and/or the building or improvements thereon. To that end, lessee agrees
not to make any contract or agreement, either oral or written, for any labor, services, fixtures, material or
supplies in connection with altering, repairing or improving any building or improvement on premises
without providing in such contract or agreement that contractor or contractors waive all right to a mechanic’s
lien, and waive all right of any subcontractor or subcontractors to mechanics’ liens, by reason of furnishing
any labor, services and/or material under such contract or contracts, whether written or oral, and that such
contract or contracts shall, upon execution, be immediately filed in office of recorder ________ of deeds of
________ county, ________ and a copy thereof lodged with lessor.
12. Lessee has examined and knows condition of premises, and has received same in good order and repair,
except as otherwise specified in this lease, and no representations as to condition or repair thereof have been
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made by lessor or lessor’s agent, prior to, or at execution of, this lease.
13. Lessor shall have a lien on all of property of lessee used or situated on premises, to secure payment of
rent (and other indebtedness owing from lessee to lessor at any time during existence of this lease) to become
due under this lease, and in default of payment may take possession of and sell such of the property as may
be sufficient to pay delinquent rent [or indebtedness].
14. Lessor shall have the right to sell premises, provided, however, that notice of such contemplated sale shall
be given in writing to lessee at last prior to time fixed for vacation of premises by lessee, and provided,
further, that during such period lessee shall have option to buy premises at price and on terms of such
contemplated sale. In event of a sale of premises by lessor, after such notice and failure of lessee to exercise
the option to purchase, lessee agrees to vacate and give possession of premises within ________ days after
written notice of sale, given by lessor to lessee, and after payment by lessor to lessee of $ ________ on or
before the expiration of ________ days’ notice.
15. If lessee shall abandon or vacate the premises, they may be relet by lessor for such rent and on such terms
as lessor may see fit; and, if a sufficient sum shall not be thus realized, after paying all expenses of such
reletting and collecting to satisfy the rent hereby reserved, lessee agrees to satisfy and pay all deficiency.
16. At expiration of this lease, to give peaceable possession of premises to lessor, in as good condition as
they now are, the usual wear, inevitable accidents, and loss by fire excepted.
17. The lease may be terminated by lessor in the event of the breach of any of the agreements of lessee
contained herein, in which case lessor may reenter on the premises, and this lease shall immediately
terminate.
18. This lease, at option of lessor, shall terminate in case lessee shall by any court be adjudged as bankrupt or
insolvent, or in case lessee shall make an assignment for benefit of creditors.
19. To observe and comply with all rules, regulations and laws now in effect or which may be enacted during
the continuance of this lease by any municipal, county, state or federal authorities having jurisdiction over the
premises, and to indemnify lessor for any damage caused by violation thereof.
20. In case lessor, by reason of the failure of lessee to perform any of the agreements or conditions contained
herein, shall be compelled to pay or shall pay any sum of money, or shall be compelled to do or shall do any
act which requires payment of money, the sum or sums so paid or required to be paid, together with all
interest, costs, and damages, shall be added to installment of rent, next becoming due or to any subsequent
installment of rent, and shall be collectable as additional rent in same manner and with same remedies as if it
had been originally reserved. On failure of lessee to make repairs, as provided for herein, lessor may make
necessary repairs, and add the amount of cost of such repairs to the rent due on the first month following date
of repairs, and such cost of repairs shall be and constitute such rent together with the rent above provided for.
21. Failure of lessor to insist on the strict performance of the terms, agreements and conditions contained
herein, or any of them, shall not constitute or be construed as a waiver or relinquishment of lessor’s right to
enforce any such term, agreement or condition, but the same shall continue in full force and effect.
22. Lessor shall not be liable for any damage to persons or property occurring or arising on premises from
any cause whatever.
23. [add any other affirmative or negative provisions which lessor and lessee have agreed on].
B. Agreements of Lessor
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Lessor, in consideration of the agreements of lessee set forth above, agrees as follows:
1. To keep leased building [or as the case may be] in good repair.
2. Lessee may make such alterations, additions, or improvements in such parts of building as lessee deems
necessary, provided, however, written consent of lessor is first obtained.
3. Lessee shall have the right to assign this lease or sublet the premises or any part thereof, subject to the
following limitations, viz.:
4. To extend the term of this lease for a further term of ________ years, at the same rental, payable in like
manner, and subject to same agreements as are contained in this lease, provided lessee gives written notice to
lessor of a desire to renew lease, at least ________ days [or “months”] before expiration of terms of this
lease, and provided lessee is not in default in performance of terms and conditions of this lease, and provided
this lease is not terminated before expiration of term thereof as provided for herein.
5. In event that at any time during the term of this lease, ________ [state occurrence], lessee shall have the
right to terminate this lease on the giving of at least ________ days’ written notice to lessor.
6. All fixtures erected in or attached to premises by lessee may be removed by lessee at the termination of
this lease, provided (a) lessee shall not then be in default in the performance of any of the agreements herein,
(b) that such removal shall not permanently injure the building, and (c) that removal shall be made before the
expiration of this lease or any extension thereof.
7. Lessee shall have the right, at the end of the term of this lease, or at any time during the term thereof, to
purchase property from lessor, or lessor’s heirs, executors, administrators and assigns, for $ ________ and,
on tendering of such amount in lawful money of United States by lessee as above provided, lessor agrees
immediately to deliver to lessee a sufficient warranty deed of premises.
8. Should any more favorable condition be included in any other leases on space in this building, during the
life of the instrument, pertaining to termination of lease or rate of rental per square foot, in particular or other
conditions in general, these same conditions are made a part of the contract.
9. Not to engage, during the life of this lease, in the city of ________ directly or indirectly, whether as owner,
partner, stockholder, or otherwise, in the ________ [rival] business.
10. Not to rent, during the term of this lease, the adjoining premises [or as the case may be], owned by lessor,
for a business in competition with that of the lessee which is ________ .
C. Mutual Agreements of Lessor and Lessee
1. Lessee agrees to deposit with lessor, on signing of this lease, $ ________ in cash as security for payment
of rent herein received and faithful performance by lessee of all terms, conditions and agreements of lease, as
well as to indemnify lessor for any costs or expense to which lessor may be put by reason of any default by
lessee. Lessor agrees to pay interest to lessee on before-mentioned security deposit of $ ________ at rate of $
________ per annum and to repay lessee the $ ________ so deposited as security, by crediting same on
account of payment of rent for last ________ months of demised term, provided that all terms, conditions and
agreements of lease shall have then been fully complied with by lessee.
2. If during the term of this lease the premises shall be destroyed by fire, the elements, or any other cause,
this lease shall cease and become null and void from date of such damage or destruction and lessee shall
immediately surrender premises to lessor and shall pay rent only to time of such surrender. If premises shall
be damaged by fire or other cause so as to be capable of being repaired within a reasonable time, lessor shall
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have to option to repair the same and during time that repairs are being made lessor shall remit to lessee a just
and fair portion of rent according to nature of damage sustained and according to extent that lessee is
deprived of use of premises.
3. This lease shall be deemed renewed and extended for the further term of ________ from expiration of term
hereby granted, unless either lessor or lessee, at least ________ months prior to termination thereof, shall
give written notice to the other of an intention to take possession of, or to surrender, as the case may be, the
premises on date fixed herein for the expiration of term. The rent during such extended term shall be at same
rate as rate provided for herein, and extension shall be on the terms, conditions and agreements contained in
this lease, including this clause.
4. If default be made in the payment of the rent above reserved, or any part thereof or in any of the
agreements herein contained, to be kept by lessee, it shall be lawful for, and lessee hereby requests lessor
without notice, to declare said term ended, and to reenter premises or any part thereof, either with or without
process of law, and lessee or any other person or persons occupying the same, to expel, remove and put out,
using such force as may be deemed necessary in so doing, and premises again to repossess and enjoy as in
lessor’s first estate; and in order to enforce a forfeiture of this lease for default in any of its conditions it shall
not be necessary to make demand or to serve notice on lessee, and lessee waives all right to any demand or
notice from lessor of lessor’s election to declare this lease at an end or of declaring it so to be; but the fact of
nonperformance of any of the agreements of this lease, shall in itself at election of lessor, without notice or
demand, constitute a forfeiture of lease, and at any and all times after such default, lessee shall be deemed
guilty of a forcible detainer of the premises and all notices required by any statute of the state of or otherwise
are hereby waived.
5. If lessee shall hold over, after expiration of the term hereby created, with consent of lessor, if shall be
deemed a renewal of this lease, and of all the conditions and agreements therein contained for term of
________ and so on from year to year until lease is terminated by either party giving to the other not less than
________ days’ notice of termination prior to end of any term.
6. Notices and demands by either lessor or lessee may be given by registered mail with prepaid postage
addressed to lessor at ________ or to lessee at ________ subject to the right of either the lessor or lessee to
designate by notice in writing a new address to which such notices or demands must be sent. The agreements,
conditions and undertakings herein contained shall extend to and be binding on the representatives, heirs,
executors, administrators, successors and assigns, of respective parties hereto as if they were in all cases
named.
7. Wherever the words “lessor” and “lessee” are used herein they shall be read as “lessors” and “lessees” in
all cases where there is more than one lessor or lessee and with necessary grammatical changes as if duly
made herein. In witness whereof, the parties have set their hands [and seals] the day and year first above
written.
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6Condominiums, Cooperatives, and Commercial Property
LEARNING OBJECTIVES
After studying this chapter, you will be able to:
•Define “condominium”
•Understand how a condominium homeowners’ association works
Copyright 2019. Aspen Publishing.
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.
•Define “cooperative”
•Understand the considerations that must be addressed when the property in question is commercial property
•Apply some practical tips for guidance in dealing with cooperatives, condominiums, and commercial real
estate
CHAPTER OUTLINE
Condominiums
Condominium declaration
Homeowners’ association
Articles of incorporation
Board of directors
Cooperatives
Commercial Property
Description
Physical inspection
Estoppel letter
Proration
Practical Tips
CHAPTER OVERVIEW
At this point, it would be beneficial to briefly examine certain hybrid situations that are commonly
encountered in a real estate law practice. These special situations include condominiums, cooperatives, and
commercial property.
Condominiums and cooperatives first appeared over one hundred years ago, exclusively in urban settings.
Land had become increasingly scarce with the growth of cities brought about by the Industrial Revolution.
People who wanted to own their own homes had to share their houses with others because of escalating land
values on limited space. Landowners began to construct taller buildings to increase the number of units that
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could be rented, further reducing the availability of land for single-family homes. Eventually, the owners of
multi-story buildings decided to sell units rather than renting so that people could, in some way, own their
own homes. The result was the condominium and the cooperative. This form of ownership is now popular in
suburban and rural areas, as well as the cities in which it began.
Although its title tracks the titles of all other property, commercial property involves several additional
aspects with regard to its sale, basically because most commercial property involves leases with tenants in
possession who have certain rights and obligations that must be taken into consideration when the property is
sold.
This chapter briefly examines these three specific situations involving the sale of real property.
Condominiums
A condominium is a form of ownership of real property in which the condominium owners hold title
outright to a specifically designated unit and, at the same time, hold title as joint tenants with all other
condominium unit owners in the development for what are considered to be the “common areas.” These areas
include hallways, entryways, roofs, stairways and elevators, and recreational areas such as a common
swimming pool, tennis courts, and health center. Basically, any area that is used by all of the unit owners may
be deemed to be a common area.
EXAMPLE:
A woman wants to retire to the Sun Belt and no longer wants to worry about maintaining her own home. She
purchases a two-bedroom unit in a condominium development that has a golf course. The woman holds title
to her unit (basically an apartment or a townhouse) as a tenant in severalty, and is a joint tenant with all other
unit owners for the golf course and common walkways and areas.
The concept of a condominium did not exist under the common law, and consequently is a creature of statute.
Every state has enacted laws that provide for the creation and regulation of condominiums (and
cooperatives), and therefore each jurisdiction’s statutes must be individually analyzed to determine particular
rights and obligations. In addition to statutory regulation, the person who develops the condominium must
also prepare a condominium declaration that is recorded with the deed to the land in the county recorder’s
office. This declaration details the specific rights and obligations of the unit owners (see Exhibit 6.1 at the
end of this chapter for an example of a Sales Contract for a Condominium).
When creating a condominium, the developer must, usually by statutory mandate, establish rights and
regulations for the governance of the condominium, and furthermore must prepare a plat description that
shows the physical size and location of each of the units (see Chapter 4). Also, a homeowners’ association
must be formed to oversee the regulation of the condominium and to have authority to maintain the common
areas. Before any units in the condominium can be sold, the condominium declaration, plat description, and
homeowners’ association must be established.
The homeowners’ association, sometimes referred to as the condominium association, is formed as a
non-profit corporation, and therefore, in order to be legally organized, it must file articles of incorporation
with the state secretary of state. These articles act as the association’s creating document. The association
must also adopt bylaws that detail the day-to-day operations of the association. The condominium unit
owners elect some of the residents to act as members of the association’s board of directors who manage the
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association for a stated period of time, at which point a new board will be elected by the unit owners. The
unit owners pay an assessment to cover the cost of maintaining and repairing the common areas of the
condominium.
EXAMPLE:
A condominium developer has filed all necessary papers to create a condominium, and has sold almost all the
units. The developer has also filed a certificate of incorporation for the homeowners’ association with the
secretary of state. At this point, the developer calls a meeting of the unit owners for the purpose of electing a
board of directors. Five people are elected to the board. The board then has the unit owners pay the yearly
assessment so that it can maintain the common areas.
With a condominium, each unit owner is liable for the maintenance and repair of his or her own individual
unit, and is liable for any injuries that result from the failure to maintain the requisite standard of care
associated with property ownership (see Chapter 4). The unit owner is also a joint tenant for the common
areas, and the owner is jointly liable for any injuries resulting from the failure of the homeowners’
association to maintain the common areas in good repair.
Because the condominium represents individual ownership of the unit, the unit owner is free to sell, gift,
devise, or rent his or her unit without restriction, unless there is some prohibition in the condominium
declaration, which is rare. Condominium ownership typically provides for the free transferability of the
property.
Cooperatives
A cooperative differs from a condominium. Cooperative ownership is considered to be ownership of
personal property, not real property, because the owner purchases a share in a cooperative association, and
the share entitles the holder to possess a specified unit that is owned by the cooperative. In other words,
cooperative ownership is similar to ownership of a corporation. The shareholder owns a share that represents
a percentage of corporation, and the share entitles the holder (with the cooperative) to possess, not own, a
particular unit. Cooperatives are very popular on the East Coast of the United States.
Because the cooperative owner only holds a share, the shareholder has limited rights with respect to the
transferability of that share. The cooperative is managed by a board that is responsible for the financial and
physical well-being of the property. As a consequence, the board reviews all prospective purchasers for
financial resources and personality, to determine whether the potential owner would be an appropriate tenant
in the cooperative. Therefore, if an owner wishes to sell his or her share, the prospective buyer must be
approved by the cooperative board. In the case of a stalemate, the cooperative agreement often provides that
the cooperative will repurchase the shares from the owner, but the price is usually set at a rate below market
value.
EXAMPLE:
The owner of a cooperative wants to move and has found a prospective buyer for his shares, a well-known
rock musician. Although the transaction would be financially sound, the board refuses to approve the
musician because they do not want “theatrical people” in the building. Therefore, the board may block this
potential sale.
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Because the units are owned by the cooperative, not the shareholders, financing of the property is made by
and through the cooperative, and each shareholder pays an assessment to the board to cover the financing. If
a shareholder defaults, the other shareholders must make up the shortfall to maintain the property’s financing.
Cooperatives, because of their restrictions on transferability, are usually less expensive than condominiums.
See Exhibit 6.2 at the end of this chapter for an example of a Sales Contract for a Cooperative.
Condops
In the past few years, a hybrid of the cooperative and the condominium has developed, known as a “condop.”
Legally, a condop is a condominium with two units: (1) a commercial space, which, though treated as a
single unit, may be divided into multiple stores, and (2) a residential unit, which typically consists of many
apartment units and is owned by a cooperative that sells shares and gives out proprietary leases. In other
words, a condop consists of two condominiums, one of which is owned by a cooperative. Simply put, a
residential condop has a cooperative legal structure, but limited regulation and restrictions on the residential
units and virtually no board approval requirements.
EXAMPLE:
An individual buys a residential unit in a condop, purely as an investment. Although she only owns shares in
the cooperative corporation that entitle her to reside in a particular unit, she is not planning on living in the
apartment; rather, she intends to rent it on a continual basis to have income. Because the unit is in a condop,
she does not have any restrictions on renting the apartment and does not need the board to approve her tenant.
Commercial Property
The term “commercial property,” as used in the context of this book, refers to real estate that has been
developed for commercial use, such as office and apartment buildings and shopping centers, and
consequently has tenants already in situ. Certain additional considerations must be addressed with any sale of
this type of property:
•When the property is described in the contract for sale, items of personal property that are used in the
operation of the commercial venture are also usually included, such as landscaping and snow removal
equipment. If not included in the description of the property being transferred, they must be specifically
excluded if the items are not intended to be part of the sale.
•Purchasers of commercial property are entitled to a physical inspection of the property prior to the sale. This
inspection can include review of all contracts and financial documents associated with the property, and the
buyer typically has the right to withdraw from the contract at this time if there are problems with the property
that the seller refuses to remedy.
•In addition to the general covenants discussed in the previous chapter, if the sale involves commercial
property, the seller is usually required to provide certain guarantees with respect to any leases that exist on
the property, as well as all services and utilities in effect with respect to the property. The seller usually
warrants that he or she will not enter into any new lease or contract before the closing date without the
buyer’s consent.
•If the property is leased to tenants at the time of the sale, the tenants may be required to sign an estoppel
letter, a document that warrants the accuracy of the tenant’s lease that is provided for the buyer by the seller.
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A copy of the purported lease is attached to the estoppel letter for this purpose.
•If the commercial property being sold is subject to a mortgage, and the buyer is taking title subject to the
mortgage, the buyer will require the mortgagee to provide an estoppel certificate that details all the terms of
the note and mortgage, indicating the amount of the outstanding balance and any amount in default as of the
date of the signing of the estoppel certificate.
•For commercial property that is leased to tenants, the contract for sale will usually require a proration of the
rent—a delineation of the amount of rent that will belong to the seller and the amount that will belong to the
buyer. Furthermore, the contract must specify the taking over of any security deposits made by the tenants to
the seller, which represent an amount that must be maintained in a trust account for the benefit of the
property owner if the tenant defaults on the rent.
•Usually the buyer will require the seller to include an indemnification clause, whereby the seller agrees to
indemnify, or reimburse, the buyer for any cause of action on the property that was occasioned by events that
occurred prior to the closing that are attributable to the seller’s breach of a legal obligation.
See Exhibit 6.3 at the end of this chapter for a Land Description of a Commercial Property.
Practical Tips
•Make sure that all requirements of the co-op or condominium board to effectuate a transfer have been met.
•For commercial property, if dealing with an artificial entity, make sure that the entity has been lawfully
formed; otherwise, the transaction may be invalid.
•For commercial sales, make sure all tenants have received and/or prepared all necessary documents.
Chapter Review
Condominiums, cooperatives, and commercial property present special problems for anyone involved in the
purchase and sale of realty.
The condominium represents a dual title to property: individual ownership for a given unit and joint tenancy
for the common areas. Condominiums are easy to transfer, but the unit owner has individual liability for his
or her own unit and is jointly liable with the other unit owners for injuries resulting from poor maintenance of
the common areas.
Cooperatives represent ownership in personal property of a share certificate that entitles the holder to
possess, not own, a given unit. Liability for the cooperative owner is joint with all the other shareholders, and
transferability of the share is difficult because alienation is restricted and subject to approval by the
cooperative board.
Both condominiums and cooperatives are managed by boards pursuant to their certificates of incorporation.
The sale and purchase of commercial real estate, although following all the other categories of realty, require
special attention for certain matters that apply only to property that is occupied by tenants who have rights
and obligations with respect to the property. These considerations must be addressed in the contract for the
sale of all commercial realty.
Ethical Concern
It is an unethical practice to represent both sides in a legal transaction unless both parties are aware of the
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representation and agree to it. This means that in a real estate transaction, the same law office cannot
represent the buyer and the seller unless they both agree. Even if both sides agree, however, it still may be
wise to decline such representations to avoid even the appearance of impropriety.
Key Terms
Articles of incorporation
Assessment
Board of directors
Bylaws
Condominium
Condominium association
Condominium declaration
Condop
Cooperative
Estoppel certificate
Estoppel letter
Homeowners’ association
Indemnification
Proration
Security deposit
Exercises
1.Review your state’s statutes governing cooperatives and condominiums.
2.Briefly discuss the reasons a person might wish to purchase a cooperative rather than a condominium.
3.At the county recorder’s office, search for an estoppel letter that appears with a deed to a commercial
building.
4.Obtain from a local bank a copy of a mortgage application to purchase a cooperative and analyze its
provisions.
5.Briefly discuss the additional factors that must be addressed with the purchase of commercial property.
Situational Analysis
A group of townhouses were constructed as a condominium. After several years, the board decides that the
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exteriors of some of the houses need to be repainted, and it assesses all the unit owners, claiming that this is a
common area. Your client is one of the unit owners so assessed whose house is not being painted, and she
claims this is not a common area. Argue both sides and decide the case.
Edited Cases
The first case, Lioi v. Westview Equities, involves the imposition of a “flip tax” imposed when the owner of a
cooperative sells his shares. The second case, Fore L Realty Trust v. McManus, concerns the conversion of
rental units to condominiums.
Lioi v. Westview Equities
8 Misc. 3d 719, 795 N.Y.S.2d 442 (2005)
In this small claims action, the plaintiff is seeking the return of a “flip tax” of $2,760 (2% of the $138,000
sale price) from the defendant cooperative association that he was required to pay when he sold his unit on
December 23, 2004.
The plaintiff entered into the contract of sale in October of 2004, which required a down payment of five
percent. It contained a form provision that the seller would pay the flip tax, if any. The imposition of a flip
tax arose from a resolution of the board of directors passed on October 28, 2004, which read as follows: “A
flip tax of 2% of the sale price of a unit was approved by the board, effective November 1, 2004.”
On November 30, 2004, the resolution was approved by over 75% of the voting shares required for a change
to the proprietary lease. The plaintiff contends that the flip tax should not apply to him because the contract
of sale was entered into prior to the effective date of the resolution. The defendant counters that the date of
sale which took place after the flip tax came into effect is determinative. But by the time the flip tax became
effective, the plaintiff had already entered into t…