Ejectment of Boxing Gym: Throw in the Towel!

Posted on April 6, 2021 by Richard Klass

COVID-19 has had a deleterious effect on New York’s commercial landlords. Due to the pandemic, many tenants have been unable to meet their lease obligations; in turn, this has resulted in the domino effect of landlords being unable to meet their mortgage obligations. Landlords have been hampered from evicting non-paying commercial tenants because of the Governor’s executive orders placing a moratorium on commercial evictions for over a year.

Caught up in the current quagmire, landlords whose tenants have defaulted under their commercial leases for reasons other than nonpayment of rent have had a difficult time removing them from the premises.

Boxing gym with troubling lease violations

According to the landlord, a fitness center specializing in boxing, martial arts and MMA-inspired workout routines was violating the terms of its lease prior to the pandemic. The allegations against the fitness center included:

Lack of special fitness center permit: NYC Zoning Regulations §12-10 define a “physical culture or health establishment” as “any establishment or facility, including commercial and non-commercial clubs, which is equipped and arranged to provide instruction, services, or activities which improve or affect a person’s physical condition by physical exercise or by massage.” The NYC Department of Buildings requires that businesses operating as a physical culture establishment or facility have a special permit in order to operate. The tenant never obtained the special permit and was alleged to have abandoned the application process;
Failure to obtain a health club license: The tenant agreed in the lease to “file any and all applications for permits and licenses required by any local, federal, state or city municipal agency for the conduct of tenant’s business and the operation and maintenance of the demised premises.” The lack of the license was alleged to be a breach of the lease;
Dissolution of corporation: The tenant was operating the fitness center despite the corporation having been dissolved by the New York Secretary of State years ago;
Lack of insurance: The lease required the tenant to maintain general liability insurance to cover any claims for bodily injury or death or property damage occurring on the premises of at lease $2 million per occurrence. The tenant did not provide the landlord with proof of insurance;
Non-payment of rent: The landlord claimed substantial rent arrears were due from the tenant for many months’ worth of rent and taxes owed.

Immediate Request for Order of Ejectment

The landlord retained Richard A. Klass, Esq., Your Court Street Lawyer, to bring an action against the fitness center to regain possession of the premises. An action for “ejectment” of the tenant from the premises was commenced and an Order to Show Cause was immediately filed, asking the judge to issue an Order of Ejectment.

Preliminary injunction request

Under CPLR 6301, a court is authorized to grant a preliminary injunction where it appears that the defendant threatens or is about to do an act in violation of the plaintiff’s rights regarding the subject of the action, which would tend to render any judgment ineffectual. The court may also grant a temporary restraining order (“TRO”) where it appears that there is the potential for immediate and irreparable injury, loss or damage. The plaintiff must show that: (1) there is a likelihood of the plaintiff’s success on the merits; (2) irreparable harm will occur without an injunction; and (3) a balancing of the equities tips in the plaintiff’s favor. See, Hoeffner v. John F. Frank Inc., 302 AD2d 428 [2 Dept. 2003].

Likelihood of success on the merits: The landlord alleged that the tenant remained in possession of the premises, continuing to operate its fitness center, despite the lease having been terminated; the tenant owing substantial rent arrears; the corporation having been dissolved; there being no license or permit to operate as a health club; and the lack of insurance coverage. The landlord made a prima facie showing of its right to relief. See, Terrell v. Terrell, 279 AD2d 301 [1 Dept. 2001].
Irreparable harm or injury: The tenant allegedly continued operating as a fitness center to the detriment of not only the landlord but also its gym patrons and the general public. The landlord urged that the threats to the public included the lack of liability insurance, operating an unlicensed facility with lack of proper permits, and the potential exposure of bodily injury or damage claims. These were alleged to be of actual, imminent harms to be suffered and were not remote possibilities or speculation. See, Khan v. State University of New York Health Science Center at Brooklyn, 271 AD2d 656 [1 Dept. 2000].
Balancing of the equities: The landlord asked the judge to consider the harms each side would suffer and that they would tilt in favor of ejecting the tenant. In balancing the equities of the situation, “it must be shown that the irreparable injury to be sustained … is more burdensome [to the plaintiff] than the harm caused to the defendant through imposition of the injunction.” McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan & Co. Inc., 114 AD2d 165 [2 Dept. 1986].

The judge considered the landlord’s request and granted the Order of Ejectment. The New York City Sheriff immediately issued process on the fitness center and, acting on the Order of Ejectment, delivered possession of the boxing gym to the landlord.

R. A. Klass
Your Court Street Lawyer

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When Do Two Feet Matter? When $16,728,000 Rides on It!

Posted on April 7, 2012 by Richard Klass

In 2006, a developer entered into a contract to purchase a large industrial warehouse in Greenpoint, Brooklyn, in order to convert the property into residential housing. The Contract of Sale provided for a purchase price of $16,728,000.

The contract was amended and extended eight times in order to provide for several issues to be resolved. Among those issues, there were tenant buy-out agreements concerning the several remaining commercial tenants. During the entire process, the developer was required to make several types of payments to the seller (separate from the large down payment) towards the operating costs of the property. The developer made substantial payments to the seller, including Surrender Agreements, Tenant Buy-Outs, Operating Expenses, and Security Costs. The property finally became completely vacant, and a closing was to be scheduled in 2007.

Title Defects Raised – Especially Chimney Protrusion

As is common in real estate contracts, there was a clause that all title “defects” were to be cured before closing. A title defect is generally defined as an issue relating to ownership or possession of the property, the legal description of the property to be sold or liens affecting the property – or, more to the point, a title defect is one that a reputable title company believes would render title unmarketable. In this case, the survey revealed that a chimney from an adjoining property was protruding two feet into the property to be sold.

The title defect was raised to the seller’s attorney by the developer. In response, the seller’s attorney claimed that the title defect was insignificant and was being raised as a delay tactic and was without merit. To that end, the seller declared a certain date as the “time of the essence” date for the closing. If the developer did not close on that date, then the down payment and all of the operating costs would be deemed forfeited to the seller. Needless to say, that date came and passed, and the seller declared the developer in breach of the contract, entitling the seller to retain the moneys.

Your Court Street Lawyer, Richard A. Klass, was then retained by the developer to ensure that the down payment moneys would not be lost and title would transfer to the buyer under the Contract of Sale.

Quick Action Was Needed

The first step was to file, along with the Summons and Complaint, a Notice of Pendency (also known as a Lis Pendens) against the Block and Lot of the property. This is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This document gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of the buyer from a seller transferring title to the property in contract, as whoever buys the property is deemed to have knowledge of the dispute.

Simultaneously, the Complaint against the seller was filed with the County Clerk’s Office, which contained several allegations against the seller, including that:

the developer fully complied with the Contract of Sale and was entitled to “specific performance” because real estate is considered a “unique” asset that cannot be replicated (the law recognizes that each piece of real estate is distinct);
the electronic communication from the seller’s attorney to the buyer’s attorney concerning the “time of the essence” closing date did not comply with the “notice” provision of the Contract of Sale (it is always important to check the notice provision of any contract to see how notices to the other side are to be sent, e.g. certified mail, overnight delivery, etc.);
the seller failed to actually “tender” the Deed to the property by coming to the place of closing, as required by the contract (the non-breaching party to a real estate contract must show that it showed up at the place and time indicated in the contract to deliver the Deed, even if the other side does not come; thus, recognizing that the breaching party could potentially show up at the last minute to actually close the transaction); and
the title defects rendered title to the property unmarketable and uninsurable; thus, the developer was entitled to the return of all of its down payment and operating costs.

In New York, it is well settled that in order to place a contract vendor (seller) in default for a claimed failure to provide clear title, the purchaser must first tender performance and demand good title. See, Capozzola v. Oxman, 216 AD2d 509. Following that line, a tender of performance by the purchaser is excused only if the title defect is not curable. See, Cohen v. Kranz, 12 NY2d 242. The law also recognizes that a purchaser may opt to waive a title defect concerning the property in order to close title.

The end result of this case was that, despite the claim of the seller that the developer breached the contract and it was entitled to retain all of the moneys paid, the seller agreed to extend the date of closing for an additional month to facilitate the closing of title to the developer.

by Richard A. Klass, Esq.

copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Making Sure the Guarantor is a “Good Guy.”

Posted on September 14, 2011 by Richard Klass

In 1997, a landlord rented a commercial space to a tire company pursuant to a commercial lease agreement. The tenant defaulted in the payment of rent, owing the landlord the claimed arrearage sum of $157,000. To collect the rent arrears, the landlord came to Richard A. Klass, Your Court Street Lawyer to recover.

When the lease was entered into, the president of the tenant executed the lease agreement both as president of the tenant and as personal guarantor of performance and payment of rent. The initial term of the lease agreement was for two years, and it provided for two-year renewal periods, with all of the terms and conditions of the original lease expressly reserved. The president of the tenant signed letter agreements extending the lease four times, the last time being December 20, 2004.

The landlord brought a motion for summary judgment against the personal guarantor of the lease, seeking payment of all outstanding arrears; the guarantor cross-moved for summary judgment, seeking to dismiss the case. The guarantor contended that he was not a proper party, claiming that he notified the landlord in February 2005 that the tenant was going out of business and all of its assets were being transferred to a different entity, effective March 2005. The landlord refuted receiving this notice from the guarantor.

Motion for Summary Judgment:

The term “summary judgment” means that a litigant is claiming that there is no reason to have a trial (either by judge or jury) because the case can be decided based upon application of the law. A “motion” is basically a request for a judge to take some sort of action.

Summary judgment is a drastic remedy, as it deprives a party of his day in court, and should be granted when it is clear that there are no triable issues of fact. See, Alvarez v. Prospect Hospital, 68 NY2d 320 [1986]. The burden is upon the moving party (the landlord in this case) to make a prima facie (Latin term for “by its first instance”) showing that the movant is entitled to summary judgment as a matter of law by presenting evidence in admissible form demonstrating the absence of any material facts. See, Giuffrida v. Citibank, 100 NY2d 72 [2003]. The failure to make that showing requires the denial of the motion regardless of the adequacy of the opposing papers. See, Ayotte v. Gervasio, 81 NY2d 1062 [1993]. Once a prima facie showing has been made, the burden of proof shifts to the opposing party (the tenant in this case) to produce evidentiary proof sufficient to establish the existence of material issues of fact which necessitate a trial.

In this case, the judge decided that the landlord laid out its case that the tenant owed rent arrears. This was based upon the evidence submitted with the motion, including the written lease agreement, the letters extending the lease for several additional terms, and the rent ledger. The judge dismissed the evidence presented by the guarantor, which amounted to his affidavit and the supposed notice that the tenant was ceasing business and a new company would be the tenant going forward.

Restriction on Assignment of Lease:

The argument that the tenant had given notice of assignment of the lease to a new company was refuted by the specific provisions of the lease. A provision in a lease which restricts assignment or subletting, and requires the consent of the landlord prior to doing so, is enforceable. See, Matter of Clason Management Co. v. Altman, 40 AD2d 635 [1 Dept. 1972]. The lease agreement at issue had such a restriction, which explicitly barred the tenant from assigning or transferring the lease or subletting the premises unless the tenant obtained the prior written consent of the landlord. Thus, even if the landlord did receive the letter from the guarantor in February 2005, there was no showing that the mandated consent was ever procured from the landlord.

Enforceability of Personal Guaranty:

It is no secret to landlords that, unless the incoming tenant is a large corporation, a commercial tenant is essentially a shell entity whose assets can disappear overnight (nowadays, even large corporations could qualify). So, landlords insist upon obtaining signed personal guaranties from the principals of the corporate tenants. Sometimes, the guaranty will be for all lease obligations through the end of the lease term, and sometimes, the guaranty will be effective through the date the tenant physically moves out of the premises – the proverbial “good guy clause.”

In this case, the landlord obtained the guaranty through the end of the lease term, but still expected the guarantor to be a “good guy” and pay the rent. Generally, a guaranty is to be interpreted in the strictest manner. See, White Rose Food v. Saleh, 99 NY2d 589 [2003]. But it is also the case that a personal guaranty which contains language of a continuing obligation is enforceable and survives payment of the original indebtedness. USI Capital and Leasing v. Chertock, 172 AD2d 235 [1 Dept. 1991]. Thus, termination of a continuing personal guaranty requires compliance with the provisions governing termination expressly set forth in the guaranty. In the absence of some writing which addresses termination, a guaranty which is silent on that issue remains in full force and effect. See, Chemical Bank v. Geronimo Auto Parts Corp., 224 AD2d 461 [1 Dept. 1996]. In this case, the personal guaranty could not be canceled merely by the president of the tenant sending a notice, indicating that the old company was going out and a new one was coming in.

In granting the landlord’s motion for summary judgment, the judge held that the personal guarantor is liable to the landlord, based upon his guarantee of the tenant’s lease obligations. Ribellino v. Fleet 2000, Inc. and Rosenfeld, Sup. Ct., Kings Co. Index No. 7501/2008 [Decision dated October 7, 2009].

Richard A. Klass, Esq.