Take notice, commercial landlords: A new ruling by a New York City appellate court may discourage landlords from being overzealous in pursuing tenants on issues ranging from back rent to property maintenance to expelling illegal subtenants.
In the case of 542 Holding Corp v. Prince Fashions Inc., the Supreme Court Appellate Division in New York City found that a notice to cure and a notice of cancellation were legally defective. The notices’ flaw? They included unfounded claims along with valid ones.
“Sometimes landlords who are in a dispute may take an extremely aggressive approach and allege a broad array of violations, some of which are exaggerated, and in some cases, completely unfounded,” said Scott Mollen, a partner at the law firm Herrick, Feinstein LLP, who represented the tenant, Prince Fashions.
If a landlord does exaggerate the amount of money owed, the tenant may have trouble raising the money necessary to come into compliance with the lease, he said.
“If you have a slew of invalid claims, it makes it very hard to assess the true cost of preserving the lease,” Mollen said.
A notice to cure is essentially a warning document, which provides a tenant alleged to be in violation of a lease with the opportunity to come into compliance.
“The significance of this decision is that if a notice to cure contains allegations that are inappropriate or invalid, then the entire notice to cure is deemed to be defective and will be dismissed,” Mollen said.
He added, “The court’s really saying that it’s not asking too much from a landlord to be clear as to what the tenant has to do to preserve its lease.”
If a notice to cure is dismissed, the tenant is not off the hook—the first notice will probably be followed up by the landlord with yet another, slightly modified notice to cure. Yet the clock starts again with the new notice, so a dismissal and reissuance buys the tenant a breathing period, giving him or her more time to try to raise funds to comply or to file for an injunction.
As a result, it is in the best interest of a landlord to avoid drawing up catch-all notices, the kind that throw in everything but the kitchen sink.
And it is the best interest of a tenant facing a notice to cure to analyze it carefully, because if the tenant can poke a hole in any of the notice’s claims, he or she can cause the entire notice to be dismissed.
In the case of 542 Holding Corp. v. Prince Fashions, the tenant was alleged to owe more than six years of back rent, in arrears beyond the six-year statute of limitations for contracts.
The landlord issued a notice to cure that claimed defaults and sought additional rent, but didn’t specify when the sums became due or when the accountings required in the lease were allegedly delivered to Prince Fashions.
The trial court found that the landlord failed to delineate between the base rent and additional rent “and/or to specify with particularity when the rent became due.”
“Such substantive defect in a notice to cure renders the entire notice deficient,” wrote the Appellate Division in its Dec. 13 ruling.
Also at issue was a notice of cancellation of the lease, which was deemed ineffective because it was served prematurely.
The lawyers for the landlord, Robinson & McDonald LLP and Noel Dennis, a solo practitioner, are considering an appeal, Dennis said.
Adrian Zuckerman, a partner who leads the real estate practice at Epstein, Becker & Green, P.C., a law firm that typically represents landlords and institutions (sometimes as tenants), said the decision appeared to be a sound one, but that he didn’t believe it made any change in the law.
“The decision is consistent with other cases that have dealt with these issues, both in civil court and in Supreme Court, that require clear and concise notices,” he said.
One real estate lawyer familiar with the ruling, who did not want to be identified, said its significance may be in requiring a level of specificity in ejectment proceedings in state Supreme Court that had previously only been required in summary proceedings in the civil court system, the two legal remedies used by landlords to evict tenants.
Zuckerman pointed out that in either court system, landlords should be equally meticulous about their notices.
“My best advice to landlords is to act in a timely
and concise fashion, and give notices promptly,” he said. “Issues don’t get better with time when you have nonpayment situations.”