Haslacha, Inc. v Jubilee, Inc.
Annotate this CaseDecided on June 15, 2005
Civil Court of the City of New York, New York County
Haslacha, Inc., Petitioner
against
Jubilee, Inc., Respondent
74646/00
Eileen N. Nadelson, J.
This case is a nightmarish example of a summary proceeding gone bad. What began as an expedited holdover proceeding evolved into protracted litigation for more than five years. The history of the case follows.
In December 1993, Respondent executed a Lease with the former owner of the building. The term expires in January 2009. The Lease describes the rented premises as a "store on ground floor and southeasterly portion of basement thereunder (approximate dimensions of said basement being 18 feet by 10 feet)" for the purposes of operating a restaurant.
In May 1998, Petitioner purchased the building and recorded the deed with the New York County Register in August 1998. In September 1998, Petitioner served a Notice to Cure, alleging a number of violations of the Lease. These violations were enumerated in the Notice as follows:
You have utilized the residential lobby of the Building to gain access to a basement door which is located in said lobby.
You have been observed allowing certain contractors and vendors to enter the residential portion of the Building to deliver merchandise to the Premises.
You have stored certain merchandise in the lobby of the residential portion of the Building.
You have utilized the entire basement of the Building in which the Premises is located notwithstanding that the Lease provides that you are only entitled to utilize the south easterly [*2]portion of the basement which is approximately eighteen feet by ten feet.
You have utilized the basement of the Building to effectuate certain work, to wit, the cutting of stone and you have refused to remove the debris caused by this work.
Additionally, in violation of paragraph "3" of the Lease, you have performed alterations to the Building and Premises without the permission of the Landlord. The facts supporting these conclusions, include, but are not limited to, the following:
You have erected an iron gate in the basement of the Building, which impedes access to the plumbing within the Building.
You have constructed a door between the Premises and the lobby of the residential portion of the Building.
You have painted the exterior of the Building.
Furthermore, in violation of paragraph "2" of the Lease and in violation of Subchapter 20 of Title 20 of Chapter 2 of the New York City Administrative Code, you have used the Premises for live musical entertainment and/or have used the Premises as a "cabaret." The facts supporting these conclusions include, but not limited to [sic], the following:
Employees and principals of the Landlord have observed the performance of musical entertainment by more than three persons in connection with the operation of a restaurant. The use of the Premises in said manner constitutes a violation of Paragraph "2" of the Lease and/or the use of the Premises as a cabaret in violation of law.
The Notice required that the Respondent cure the alleged violations no later than September 25, 1998. The day before the expiration date of the Notice to Cure, on September 24, 1998, Respondent sought injunctive relief in Supreme Court, New York County. An order to show cause was signed and served on September 25, 1998, temporarily extending the time to cure pending the hearing of the Yellowstone application. Petitioner challenged the service of the order to show cause, which led to a traverse hearing before the Honorable Franklin Weissberg. In its order of July 6, 1999, the court found that proper service was not effectuated. Because Respondent served its restraining notice on the last day of the period to cure, there could be no opportunity to remedy the defect in service. Therefore, the Yellowstone injunction failed.
In August 1999, Respondent was granted a further stay for the time to cure pending its appeal to the Appellate Division. In March 2000, the tolling period was lifted when the Appellate Division panel unanimously affirmed the dismissal of the Supreme Court action for Yellowstone relief.
In April 2000, Petitioner served a three-day Notice to Terminate Lease, effective April 17, 2000. Thereafter, in May 2000, a Holdover proceeding was commenced for possession of the [*3]premises. In June 2000, Respondent moved to dismiss the proceeding, alleging that:
(i) the Notice to Cure is vague and ambiguous and also stale, and
(ii) that said Notice was improperly served.
In September 2000, the court denied dismissal and ordered a traverse hearing. Respondent appealed that portion of the decision that denied dismissal of the action. An interim stay was not requested and the traverse proceeded, continuing over a number of days in November and December 2000. Service was found proper and trial was set for January 29, 2001. Shortly thereafter, in February 2001, the Appellate Term affirmed the lower court's ruling denying dismissal and held that the Notice to Cure was sufficient and contained "all necessary information."
On the eve of trial, January 25, 2001, Respondent moved to stay the proceeding in order to complete discovery, which included a response to the Bill of Particulars and the deposition of Petitioner. In February 2001, the court denied the motion and Petitioner moved to restore the matter to the trial calendar. In March 2001, Respondent served an order to show cause to renew and reargue the motion denying discovery. In April 2001, that motion was denied and the matter was again set down for trial on May 10, 2001.
The last adjourned date noted in the file is January 15, 2002. On February 13, 2002, the trial finally commenced with Petitioner taking the stand armed with video tapes depicting alleged Lease violations by Respondent.
The ultimate decision in this case hinges on the allegations listed in the Notice to Cure. The issue before the court is whether Respondent violated its Lease and in failing to remedy those violations has effectually terminated its rights to the premises. We turn our attention to the list of the alleged improper activities as noted above in the Notice to Cure.
Numbers 1 - 3 in the first set of violations cite activities regarding merchandise in "the residential lobby of the Building ..." Petitioner provided real-time videotapes and still photographs of the alleged deliveries and storage of Respondent's merchandise through the vestibule and in the hallway of the residential section of the building.
The Lease provides in its Rules and Regulations, which follow the standard provisions, that: "1. The ... vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress to and egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Owner."
Petitioner contends that such deliveries were not prompt or efficient and were excessive. [*4]In fact, Petitioner testified that he does not want Respondent to use the residential entry and lobby for any purpose and wants all deliveries directly through the outside hatch or through Respondent's restaurant. The court is faced with determining whether Respondent's use of the lobby violated the terms of the Lease.
Following the purchase of the building, Petitioner began to photograph Respondent's use of the residential lobby and vestibule to demonstrate the alleged improper use by Respondent of those areas of the building. Some of these photographs were taken in July 1998, before the Notice to Cure; others were taken during the period of October through December 1998, and a few more were taken in February 1999 and May 2000. Additionally, Petitioner videotaped deliveries being made to Respondent on various occasions, beginning in December 1999 and continuing to January 2001.
The videotapes, along with some intermittent photos, bolster Petitioner's argument that Respondent used the lobby area on a continual and relatively routine basis. This included deliveries through the vestibule on varying days as well as Respondent's employees using the Restaurant's hall door to carry out trash bags or exit through the lobby to the street. Respondent claims that use of the lobby was acknowledged and orally conceded to by the former owner. That argument is unavailing, since whatever license that may have been granted was terminated by the new Landlord's Notice to Cure.
Where a Lease contains express language that the commission or omission of certain conduct is a material obligation, any violation of such conduct is more easily determined. That is not so in the instant case. The term "material breach" as defined in Ballentine's Law Dictionary is "[a] breach of contract which goes to the whole consideration; a breach which gives to the injured party the right to rescind the contract ...", the relief requested here by Petitioner. See, also, Corbin on Contracts, Vol. 9, Section 946 (declaring that a total breach is so material and important that it justifies regarding the whole transaction at an end.)
The only reference to the subject lobby is found in Rule 1 of the Lease, which applies a dual requirement for delivery of merchandise in the common area. The analysis, therefore, is twofold:
(i) whether such delivery was "prompt and efficient", and
(ii) whether the passageways utilized were "designated for such delivery by Owner."
From the position of the Petitioner, who denies the right to any use of passageways for delivery in the common area, it would appear that Respondent is in violation of the Lease and subject to eviction. However, as with any other contract, the breach must be examined to determine whether the violation is material enough to justify, in this case, the forfeiture of a long-term lease.
It is well-settled that the law abhors forfeitures. Madison 52nd Corp. v. Ogust, 49 Misc2d 663, 268 NYS2d 126 (Civ.Ct.), aff'd 52 Misc2d 935, 277 NYS2d 42 (1st Dept 1966); See, [*5]Friedman on Leases, 4th ed., Section 16.2, Tenant's Breach and Forfeiture (1997). Courts have routinely held that in order to secure an eviction, there must be a violation of a substantial obligation of the tenancy. See, Madison 52nd Corp. v. Ogust, supra , 49 Misc2d 663; Friedman on Leases, supra , Section 16.2.
Technically, Respondent's use (or misuse) of the lobby was in violation of the governing Rules and Regulations in the Lease. However, is such violation substantial enough to warrant the drastic remedy of extinguishing the long-term Lease? In Nissen v. Wang, 105 Misc2d 251, 431 NYS2d 984 (Civ.Ct. 1980), the court established a three-pronged test to determine whether a breach is to be considered sufficiently material so as to warrant forfeiture of the entire contract. The Nissen case involved only residential tenants and no cases were found that applied the same guidelines to commercial tenants. Nevertheless, the court opines that such guidelines are applicable to the case at bar, particularly in light of the fact that Respondent occupies the only commercial premises within Petitioner's residential building.
The three questions Nissen posits to determine whether the alleged violations substantially affect the rights of the landlord are:
"1. Does the use materially affect the character of the building?
2. Does the use materially damage or burden the landlord's property?
3. Does the use materially disturb the building's other tenants in the peaceful use of their apartments?" Nissen v. Wang, 105 Misc2d at 253.
When applied to the use of the lobby in the instant case, the answers to all three questions are negative. Certainly, the character of the building is not changed. With respect to the other questions, no evidence was presented at trial to substantiate any significant damage or burden to the property. While Petitioner testified that the appearance and encumbrance of Respondent's boxes discouraged prospective tenants, it did not claim any losses of rentals. Further, the tenants who testified on behalf of Petitioner mentioned that they saw the deliveries in and out of the lobby, but stopped short of complaining about them.
The failure to comply strictly with the term(s) of a Lease must be viewed in light of its impact and importance. Where no substantial injury to the landlord has been shown, the court is reluctant to grant a forfeiture of the Lease based upon the unauthorized usage of the building's common areas. All of the judicial decisions reviewed by this court on the issue of forfeiture dealt with violations inside Respondent's actual premises as opposed to usage of the common areas. Even in those cases, forfeiture was disfavored. Despite its incorporation by reference through the Rules and Regulations, the lobby is not a part of the leased premises. Therefore, a violation of its use cannot be construed as a material breach to invoke the harsh remedy of termination of the Lease. See, Malloy III v. Club Marakesh, Inc., 71 AD2d 614, 418 NYS2d 135 (2d Dept 1979).
Number 4 of the alleged Lease violations appearing in the Notice to Cure claims [*6]violations in the space allotted in the basement for Respondent. The Lease designates use of the "southeasterly portion of basement thereunder (approximate dimensions of said basement space being 18 feet by 10 feet)." No diagram or other tangible configuration accompanied the Lease. Petitioner argues that the Lease logically intended that Respondent's usage in the basement run east-west along the southern wall or front of the building. Respondent counters that usage may also be construed as running north-south along the eastern wall. Therefore, Respondent asserts, the alleged violation is vague and unenforceable. This may have created an interesting issue, except that neither party denied that Respondent had used more than the allotted area of 18 x 10 in the basement, no matter what direction was applied.
The question now is whether the extended use of the basement is a violation of the provisions of the Lease, or whether it is a trespass outside or beyond the terms of the Lease. Trespass in the context of property is generally defined as a "wrongful entry on another's real property." Black's Law Dictionary (8th ed. 2004). While both violation and trespass involve a contravention of the law, a violation in the context of a holdover proceeding is construed under the terms of a landlord/tenant agreement. In contrast, the basis for a trespass lies in the absence of a landlord/tenant agreement. See, Alcoa Residences v. Association of Tenants of LincolnTowers, 28 AD2d 831, 281 NYS2d 567 (1st Dept 1967); See, also, Padded Accessories Corp. v. Five Herriot Street Corp, 16 Misc2d 1060, 184 NYS2d 244 (1959).
In both Alcoa Residences and Padded Accessories cited above, the Respondents extended their uses of the building beyond the provisions of the Lease and were deemed to have trespassed. As in the instant case, the Tenant in Padded Accessories used additional space for storage for a number of years. That did not create a right to the space, according to the court. At best, the Respondents enjoyed a mere license, which was revocable at will and without notice. Once revoked, any further use constitutes a trespass. Padded Accessories Corp. v. Five Herriot Street Corp., 16 Misc2d 1060.
Similarly, when the tenants in the case of Alcoa Residences hung notices from their windows, the court held that such use of the building was not part of the rental agreement and was in effect a trespass on that portion of the building reserved to the landlord. Alcoa Residences v. Association of Tenants of Lincoln Towers, 28 AD2d 831.
The same principles apply to the case at bar. This court deems that the use of additional space in the basement is not part of the rental agreement and is not a violation under the provisions of the Lease. Although damages may be awarded for the value of the additional usage, no such relief was requested by Petitioner.
Number 5 in the Notice to Cure addresses the cutting of stone in the basement, which appears to have been a short-lived project. The alleged violation was given short shrift and little attention by the parties and so will the court.
The next set of violations consists of unauthorized alterations pursuant to paragraph "3" [*7]of the Lease. Number 1, erecting an iron gate, was part of Respondent's use of additional space in the basement and so is deemed a trespass as discussed above.
Number 2 in the second set alleges that Respondent constructed a door through the common wall of the hallway, which violates the terms governing alterations. Petitioner claims that Respondent constructed the door leading from the restaurant into the hallway without obtaining the required permits, thereby causing violations against the building. Testimony given by both parties reveals that the door was there when Petitioner purchased the building in May 1998. Further, Respondent and two of its witnesses testified that the subject door had been constructed prior to Respondent's possession of the premises in December 1993. Petitioner, in fact, during cross examination, conceded that it did not know for sure who had constructed the door. In the glaring absence of any probative evidence pertaining to the construction of the door, that allegation in the Notice to Cure must fail.
Number 3 in the second set of violations claims that Respondent "painted the exterior of the Building". This alleged violation is subsumed under Rule 6 of the Rules and Regulations incorporated into the Lease, which states that "[n]o Tenant shall mark, paint, ... or in any way deface any part of the demised premises or the building of which they form a part." The facts establish that Respondent painted the outside face of the restaurant premises. There was no evidence presented as to when the facade of the restaurant was painted, only that it occurred during the time of the previous owner and that Petitioner purchased the building in that condition. Thereafter, Petitioner enumerated the violation in its Notice to Cure.
As in the violation of the lobby, the court weighs the size and importance of the breach of Rule 6 in the Lease, prohibiting the painting of the building. See, Corbin on Contracts, Vol.9, Section 945. Does it warrant termination? In this instance, the breach was made against the prior owner of the building, who did not challenge the breach. Nevertheless, in the absence of any evidence, a waiver of the owner's right cannot be presumed. See, 255 Fieldston Buyers Corp. v. Michaels, 196 Misc2d 105, 761 NYS2d 762 (2003). What happens, however, if a new owner purchases the building "as is"? Would the existing violation, more specifically, the painting of the restaurant's facade by Respondent be deemed waived?
Surprisingly, case law answers that question with a resounding, yes. A landlord may waive its rights to the compliance of provisions in the Lease even in the face of a nonwaiver clause. Dice v. Inwood Hills Condominium, 237 AD2d 403, 655 NYS2d 562 (2d Dept 1997). In fact, a waiver by the former owner will not only bind a subsequent owner, but also leave the latter with no remedy for a breach by the tenant. See, Friedman on Leases, 4th ed., Section 36.5, Effect on Subsequent Owner of Waivers of Tenant Obligations and Modifications of Lease (1997).
Whether a landlord has waived its rights is determined by the circumstances and conduct of the parties. Urban Horizons Tax Credit Fund v. Zarick, 195 Misc2d 779, 761 NYS2d 795 (Civ.Ct, Bronx 2003); Apfel v. Kocher, 61 NYS2d 508 (Sup.Ct. 1946). It is undisputed that the [*8]building in this case was painted under the aegis of the prior owner who died sometime in 1996. The new owner (Petitioner) purchased the real property from the estate in 1998. Therefore, there is no way to verify any oral modifications or waivers, if any, by the previous owner. It cannot be gainsaid, however, that the restaurant facade was extant at the time of the new purchase.
As early as the case of Phelan v. Brady, in 1890, the court set down the rule that a purchaser is subject to the rights of a possessor of the premises. Phelan v. Brady, 119 NY 587 (1890). In Tehan v. Thos. C. Peters Printing Co., Inc., the court applied that precept to a leasehold. It granted relief to the new owners and terminated the tenancy, but not before establishing that the purchaser as successor-in-interest is only held to those conditions and/or waivers which may reasonably be indicated by an inspection of the premises. Tehan v. Thos. C. Peters Printing Co., Inc., 71 AD2d 101, 421 NYS2d 465 (4th Dept. 1979).
In Tehan the former landlord permitted the tenants to make late rent payments. The new owners would not agree and sought to terminate the lease when the tenant continued its delinquent habit. The tenant argued that the new purchaser was subject to the predecessor's implied waiver of strict compliance with the lease terms. The court applied the general rule that possession of the premises grants certain rights. However, it asserted that the new landlord is under no obligation to inquire and is only accountable for any waivers of which it has notice. It is precisely because the pattern of late payments could not be revealed upon inspection that the court determined that the purchaser had no notice. Id., supra .
In the case at bar, the painting of the restaurant portion was readily apparent. Even without imputing acquiescence to the prior owner, the patent presence of the condition of the painted building fits squarely within the four corners of the rule demanding requisite notice to a new successor. Petitioner, therefore, cannot prevail on the issue of painting in the Notice to Cure.
The final item in the Notice alleges a violation pursuant to Paragraph 2 of the Lease, regarding use of the premises as a "cabaret." According to Petitioner, musical entertainment was performed in the premises by more than three persons. The thrust of Petitioner's argument is that any additional performers in "eating or drinking places"violate the New York City Cabaret Law. Administrative Code, Section 20-359(3). Further, not only did Respondent violate the licensing requirements of the Cabaret Law, but it also violated the Lease as to the improper use of the premises.
Respondent admits that once a week it provided what both parties described as background jazz music with the dinner fare. Respondent, however, did not violate the law or its Lease in doing so. A cabaret, as defined in the Administrative Code, is an eating and drinking place where music or dancing or entertainment are provided. Administrative Code, Section 20-359(3). Such categories of local establishments require a license, issued by the City of New York. An exception to the licensing requirement is termed the "incidental music exception", which applies only to "eating or drinking places, which provide incidental musical entertainment, [*9]without dancing, either by mechanical devices, or by not more than three persons playing piano, organ, accordion or guitar or any stringed instrument." Admin. Code, Section 20-359(3).
The seminal case of Chiasson v. New York City Dept. of Consumer Affairs, 138 Misc2d 394, 527 NYS2d 649 (1st Dept. 1988), radically altered the incidental music exception by declaring that the limitation of three musicians was unconstitutional. With the elimination of the restriction on the number of musicians who may provide incidental musical entertainment, Respondent falls within the exception of the cabaret rule no matter how many musicians performed at the restaurant. Further, the Lease, itself, carries no explicit directives as to any restrictions on the operation of the restaurant, musical or otherwise.
Most importantly for the disposition of this issue, no violation was ever placed nor was one ever reported against the premises. Petitioner cannot unilaterally determine that a violation of the Administrative Code has taken place. Only the agency overseeing the cabaret regulations can determine an infraction of the rules. Also, in light of the Chiasson decision, it appears most likely that a violation would never have been imposed.
In summing up, the court finds that Respondent has not violated the terms of the Lease as alleged in the Notice to Cure. Where some violations were established, they were not substantial enough to warrant the abhorred remedy of forfeiture. The court is further apprised that even those violations alleging extended use of the lobby and basement have been cured, albeit beyond the requisite date of the Notice. While the hoary adage, "better late than never", would not excuse a finding of default, it may weigh in on the side of equity in the interest of justice.
Judgment for Respondent.
Dated: June 15, 2005
______________________________
EILEEN N. NADELSON, J.C.C.
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