Ejectment of Boxing Gym: Throw in the Towel!

Two men in business suits in boxing ring, one unconscious on the mat, one standing. Illustrating article by Richard Klass about ejectment of a boxing gym.

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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#ejectment, #commercial-landlord, #landlord-tenant, #eviction

Scales of justice illustrating article about legal malpractice.

Joint Venture Agreements – I would do anything for [my partners] but I won’t do that…

Three business partners arguing to illustrate an article by Richard Klass about Joint Venture Agreements

Acrobat PDF Version

Two partners owned vacant lots in Manhattan and wanted to build on them. They found two developers who pitched building townhouses on the lots. The four of them entered into a joint venture agreement (“JVA”). [1] Essentially, the agreement was that, in return for the developers paying off debts owed on the lots, refinancing an existing mortgage and obtaining a new construction loan, the lot owners would transfer the property to a limited liability company (“LLC”) to be jointly owned by all four of them.

Joint Venture Agreement

According to the JVA, ownership of the new LLC would be equally divided among the four partners (25% each). The LLC was supposed to refinance the property. The funds from the refinance would first be utilized to satisfy the existing mortgage on the property and then finance all of the construction costs for three single-family townhouses. The developers were to use their best efforts to obtain a construction loan to perform the purpose of the joint venture, and the lot owners were to fully cooperate in these efforts.

Formation of the LLC

One of the developers formed an LLC into which title to the lots would be transferred. The LLC was initially formed with him as the sole member for convenience purposes until the prospective refinance and closing were to take place, at which time all four partners would constitute the members.

Lack of cooperation

In order to comply with the mortgage lender’s requests about the property, the developers needed certain back-up documentation from the lot owners concerning expenses. The lot owners did not provide the requested items. Ultimately, they stopped cooperating with the developers. The developers retained Richard A. Klass, Esq., Your Court Street Lawyer, to pursue their rights under the joint venture agreement, including suing for breach of contract and to enforce a constructive trust over the vacant lots.

In response to the developers’ claims, the lot owners contended that they properly rejected the demand to transfer title to the property to the new LLC. They claimed that they were never provided with an operating agreement that named all four of the partners as members. The lot owners declared, “There was no way it was either reasonable or pursuant to the terms of the JVA that we were going to transfer the property worth at least $4,000,000.00 to an LLC in which we had no ownership interest and no control.”

The developers asserted that this defense was pretext — the lot owners never intended on complying with the joint venture agreement from the start. As fully laid out before the arbitrator, both in testimony and documentary evidence, the developers established that this defense was unfounded based on several facts: (1) the transfer tax documents, prepared by the title company, reflected all four joint venturers’ names and respective 25% interests in the new LLC; [2] (2) One of the lot owners himself emailed the title company the names of all four people for the new LLC; (3) the developer emailed the mortgage lender that all four people were partners in the new LLC; (4) the developer informed the lot owner that the mortgage lender needed a draft of the operating agreement, Excel spreadsheet and all checks following; and (5) the developers made various, substantial payments in furtherance of their joint venture prior to any deed transfer.

The developers claimed that the lot owners wrongfully breached their fiduciary duty that was created when they entered into the joint venture.[3] As joint venturers, the developers asserted the lot owners owed them a fiduciary duty to supply financial information which was within their exclusive control and they breached their duty by intentionally failing to cooperate and disclose pertinent information. Cooperation on the part of both sides to a contract is implied in every contract. See, Madison Pictures, Inc. v Pictorial Films, Inc., 6 Misc 2d 302, 324-25 (Sup. Ct. 1956) (“Where a matter is particularly within the knowledge of one party, it is his duty to supply the information.”); see also Weeks v. Rector of Trinity Church in City of New York, 56 App.Div. 195, 67 N.Y.S. 670, 672 (1st Dept. l900) (“The rule of law is that, when the obligation of performance by one party to a contract presupposes the doing of another act by the other party prior thereto, there arises an implied obligation of the second party to do the act which the performance of the contract necessarily…”).

The arbitrator determined that the developers were entitled to compensation from the lot owners for their substantial investment of time and money into the project. The arbitrator awarded half of the value of the property along with reimbursement for all of their expenses.

[1] Under New York law, five elements are necessary to form a joint venture: “(1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses.” Dinaco, Inc. v. Time Warner Inc., 346 F.3d 64, 67-68 (2d Cir. 2003).

[2] It was noted that both the Joint Venture Agreement and the NYC Real Property Transfer (RPT) Tax Return served as documentary evidence of the respective LLC ownership interests of the parties. As held in Matter of Pappas v Corfian Enterprises, Ltd., 22 Misc 3d 1113(A) [Sup Ct 2009], affd, 76 AD3d 679 [2d Dept 2010]: “In the real world, particularly that in which close corporations operate, clear evidence of share ownership is often not found in the corporate books and records, for any number of reasons. Other evidence must be found, and the lodestar for admissibility and probative value must be the contractual foundation for shareholder status. A court may consider the intent of the parties, particularly evidence of an agreement to form a corporation. (See Matter of Estate of Purnell v. LH Radiologists, 90 N.Y.2d at 530, 664 N.Y.S.2d 238, 686 N.E.2d 1332; Blank v. Blank, 256 A.D.2d at 689, 681 N.Y.S.2d 377.) * * *

Documentary evidence may be particularly probative when the documents were created under circumstances in which there was no incentive to fabricate. Among the types of documents that courts have considered, and that have been proffered in this case, are corporate and personal tax returns, bank loan documents, and financial statements. (See Matter of Capizola v. Vantage International, Ltd., 2 A.D.3d at 845, 770 N.Y.S.2d 395; Blank v. Blank, 256 A.D.2d at 694, 681 N.Y.S.2d 377; Hunt v. Hunt, 222 A.D.2d at 761, 634 N.Y.S.2d 804.

[3] It is well settled that joint venturers are governed by the same good-faith requirements as co-partners and the creation of a joint venture “imposes a fiduciary relationship, and not a simple contract.” Learning Annex Holdings, LLC v Whitney Educ. Group, Inc., 765 F Supp 2d 403, 412 [SDNY 2011]. In order to demonstrate a breach of fiduciary duty, there must be: “(i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” N. Shipping Funds I, LLC v Icon Capital Corp., 921 F Supp 2d 94, 101 (S.D.N.Y. 2013)(Citing Johnson v. Nextel Communications, Inc., 660 F.3d 131, 138 (2d Cir. 2011)).

R. A. Klass
Your Court Street Lawyer

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#CourtStreetLawyer, #LegalMalpractice, #joint-venture-agreement

Scales of justice illustrating article about legal malpractice.

License to Enter and RPAPL 881: New Booklet by Richard A. Klass

A Man’s Home Is (Not Always) His Castle:
RPAPL 881 License to Enter Neighbor’s Property
by Richard A. Klass, Esq.

Download the free E-Book version in PDF format.
A free on-line web-book is available here.
12 pages/830 KB

Summary

A Man’s Home Is (Not Always) His Castle

In the current economic and political climate in New York City, which encourages building more and more housing units for the multitudes, it is not surprising that property owners are experiencing “growing pains.” Among those “growing pains” are the inconvenience and annoyance to neighboring property owners when a developer buys land next door, then seeks to build on that land, and must gain access through the adjacent owners’ property in order to do the work. Access may be needed to move equipment, build up to the property line, or deliver material to the building site.

RPAPL 881 grants a license to enter property:

New York law seeks to find middle ground between the property developer and the neighboring owner so that the developer may build its structure while the neighbor can be left relatively undisturbed.

R. A. Klass
Your Court Street Lawyer

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A Man’s House is (Not Always) His Castle

© Thomas Wolf, www.foto-tw.de. CC BY-SA 3.0 de. The photo shown here is a low resolution version of the original photo. A New York City college bought an old garage on a residential street with the intention of eventually tearing it down and using the vacant lot in the development of a 17-story building. The owner of the adjacent apartment building was more than glad to have the college demolish the garage, which had become an eyesore. In order to demolish the garage, however, the college needed to enter the adjacent property to erect bridge scaffolding around the apartment building. But the college offered little protection to the owner other than promising to pay for any damage it might cause to the apartment building during the demolition.

Alleging that the apartment building owner refused to consent, the college brought a petition for a court order to allow its contractor to enter upon the adjacent property to erect the scaffolding. The adjacent apartment building owner retained Richard A. Klass, Esq., Your Court Street Lawyer, to oppose the petition and negotiate a license agreement with the college to grant access, but only upon meeting certain, reasonable conditions.

In the current economic and political climate in New York City, which encourages building more and more housing units for the multitudes, it is not surprising that current property owners are experiencing “growing pains.” Among those “growing pains” are the inconvenience and annoyance they experience when a developer buys land next to their property, seeking to build on that land, and needs to gain access to the neighboring property to do the work. Such access may be needed to move equipment, build up to the property line, or deliver material to the building site.

RPAPL 881 grants a license to enter property

New York law seeks to find middle ground between the property developer and the neighboring owner so that the developer may build its structure while the neighbor can be left relatively undisturbed. Real Property Actions and Proceedings Law (RPAPL) Section 881 provides as follows:

When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry.

Essentially, if a developer must gain access to the adjacent property, it must first make a request upon that property owner. If turned down, the developer can then file a petition to ask the court to grant a license to enter the premises for a reasonable period of time.

Courts apply a ‘balancing test’

The court must balance the competing interests of the parties and should grant the issuance of the license when necessary, under reasonable conditions, and where the inconvenience to the adjacent property owner is outweighed by the hardship of its neighbor if the license is refused. In Rosma Development LLC v. South, the court granted a developer a license to enter the adjacent property, recognizing that the developer’s property interests in completing its project (and as quickly as possible in order to avoid unnecessary delay and expense) outweighed the temporary inconvenience to the neighbor.

Provisions of a license agreement

Courts have held that reasonable conditions of a license agreement under RPAPL 881 may include:

  1. Providing the owner with the details and schedule of the work to be done;
  2. Conducting pre-construction inspections and monitoring for cracks, vibrations, and noise during construction;
  3. Paying the owner’s fees for engineers, attorney’s fees, and other expenses;
  4. Imposing penalties in the event of noncompliance with the license, including the failure to complete the work in a timely fashion;
  5. Taking steps after construction is complete to close up lot-line windows or resolve any structural wall issues; and
  6. Ensuring that an adequate liability insurance policy is in effect in the event that actual damages occur.

In resolving the college’s petition, the parties negotiated an extensive agreement that ultimately allowed the judge to approve the license to enter the adjoining property.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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The Result when a Foreclosing Mortgagee Fails to Comply with RPAPL Section 1304

In Real Property Actions and Proceedings Law [RPAPL] Section 1304, a pre-commencement notice to a borrower-homeowner is required to be served by registered or certified mail and also by first-class mail at least ninety days prior to commencement of the foreclosure action. Further, pursuant to RPAPL Section 1304, the pre-commencement notice must be sent by the lender or mortgage loan servicer. In the RPAPL Section 1306, the lender, assignee, or mortgage loan servicer has to file another notice with the Superintendent of Banks within three days of mailing the notice.

The Second Department held in Aurora Loan Services LLC v. Weisblum, 85 A.D.3d 95, 103 [2 Dept. 2011], that, ” [P]roper service of the RPAPL Section 1304 notice containing the statutorily-mandated content is a condition precedent to the commencement of the foreclosure action. The plaintiff’s failure to show strict compliance requires dismissal. ” Moreover, the Second Department stated in Aurora Loan Services LLC v. Weisblum, that the co-mortgagor (who signed the mortgage but not the note, as in this case) was deemed a “borrower” under RPAPL Section 1304 who was also entitled to receive the 90-day notice prior to the commencement of the action.

In Deutsche Bank National Trust Company v. Spanos, 102 A.D.3d 909 [2 Dept. 2013], further upheld its findings in the above Aurora Loan Services case, adding that a cross-motion for summary judgment dismissing the action should include proof that the plaintiff failed to comply with the statute.

Where there is a failure to comply with the above condition precedent, the court lacks subject matter jurisdiction over this action. Thus, the mortgage foreclosure proceeding should be dismissed in its entirety (and the cross-motion granted) based upon the Plaintiff’s complete and utter disregard of the requirements under RPAPL Section 1304 and lack of subject matter jurisdiction. See, Binkley v. O’Connor, 58 A.D.3d 834 [2 Dept. 2009].

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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