995 Manor Rd. LLC v Island Realty Holdings, LLC
Decided on April 20, 2007
Civil Court of the City of New York, Richmond County
995 Manor Road LLC, Petitioner/Landlord,
Island Realty Holdings, LLC d/b/a DUNKIN' DONUTS, Respondent/Tenant.
Counsel for Petitioner/Landlord:
Mark S. Friedlander, Esq.
15 Maiden Lane, Suite 2000
New York, NY 10038
Counsel for Respondent/Tenant:
Howard M. File, Esq.
260 Christopher Lane, Suite 102
Staten Island, NY 10314
Counsel for Third-Party Respondents:
Leonard Koerner, Esq.
MICHAEL A. CARDOZO
100 Church Street
New York, NY 10007
Philip S. Straniere, J.
Petitioner, 995 Manor Road LLC (995 Manor), commenced this summary proceeding against the respondent, Island Realty Holdings, LLC d/b/a Dunkin' Donuts(Island Realty), and "John Doe," "Jane Doe," "ABC Co., and "XYZ Corp." alleging that the respondent has failed to pay rent and additional rent as agreed. Respondent, Island Realty Holdings, LLC, answered and filed a third party petition against third party respondents, New York City Department of Buildings (Buildings) and James Molinaro, Borough President(Molinaro).
Currently before the Court is an Order to Show Cause by respondent Island Realty to compel Buildings to issue a final certificate of occupancy for the premises, 995 Manor Road, Staten Island, New York or, in the alternative, to permit respondent to remain open to conduct [*2]business until a final certificate of occupancy is issued. The Order to Show Cause also stayed various New York City agencies from issuing violations against the premises until this litigation is decided. Petitioner has submitted opposition papers to respondent's Order to Show Cause. Island Realty has offered a reply affidavit in that regard.
Buildings has filed a cross-motion to dismiss the third party petition. Island Realty has submitted opposition papers to Buildings application. Petitioner 995 Manor has filed papers in support of Buildings cross-motion.
There is a written lease agreement dated May 26, 2006, between 995 Manor Road LLC as the landlord and Island Realty Holdings LLC as the tenant.
LEGAL ISSUES PRESENTED:
A. Is the Petitioner the Proper Party?
The petition is brought in the name of 995 Manor Road, LLC, the same name that appears on the lease. A search of the Department of State, Division of Corporations Records, discloses the name of the corporation as "995 Manor LLC" and not the named petitioner. In order to maintain this proceeding, petitioner must establish what is its correct name. Since a LLC is a creature of statute, the name must be correct in order to maintain an action or proceeding (Limited Liability Company Law 202). A review of the pleadings also reveals that there may be an issue as to whether or not required predicate notices were served.
B. Is There an Enforceable Lease?
The parties concede that there is no final certificate of occupancy for the premises, 995 Manor Road. The property had been operated as a gas station and at one time was permitted to perform automobile repairs as well. The respondent, pursuant to the terms of the lease, had converted part of the building on the premises to be used as a "Dunkin' Donuts." Gasoline was still being sold at the pumps. Initially, the Buildings Department had issued permits for the alteration. However, the Buildings Department has not issued final sign-offs in regard to the alterations and no final certificate of occupancy has been issued. Petitioner contends that the lease required the respondent to obtain all municipal approvals, including the final certificate of occupancy and, since respondent is in possession of the premises and generating income, rent is due and owing. Respondent alleges that it did everything that initially was required by the Buildings Department and that the Buildings Department at the behest of the Staten Island Borough President has changed the requirements and refused to issue the final certificate of occupancy.
Paragraph 3 of the pre-printed lease and paragraph 48 of the rider requires the tenant to obtain all permits and certificates of final approval or certificates of occupancy in regard [*3]to alterations at the premises.
Before addressing the issue of which party is responsible for obtaining the final certificate of occupancy, the Court must analyze what is the effect of there not being a final certificate of occupancy for the premises.
The New York City Administrative Code contains several sections which are applicable to this situation. They provide:
It shall be unlawful to occupy or use any building erected or altered
after December sixth, nineteen hundred sixty-eight, unless and until
a certificate of occupancy shall have been issued by the commissioner,
certifying that such building conforms substantially to the approved
plans and the provisions of the building code and other applicable
laws and regulations. Nothing herein contained, however, shall be
deemed to prohibit the commissioner from permitting the temporary
occupancy and use of a building in accordance with and subject to the
provisions of the building code and paragraph three of subdivision (b)
of section six hundred forty-five of this chapter. (NYCAC 26-222).
No change shall be made in the occupancy of or use of an existing building
which is inconsistent with the last issued certificate of occupancy for such building,...unless a new certificate of occupancy is issued.... (NYCAC 27-217).
Except as permitted under the provisions of section 27-218 of this article,...
and no building hereafter altered for which a certificate of occupancy has not theretofore been issued, shall be occupied or used unless and until a certificate
of occupancy shall have been issued certifying that the alteration work for
which the permit was issued has been completed substantially in accordance
with the approved plans and the provisions of the code and other applicable
laws and regulations. If the building was not required to be vacated, either in
whole or part, during the course of the alteration work, the occupancy or use
of the building shall not continue more than thirty calendar days after completion
of the alteration work, unless a certificate of occupancy has been issued, as above provided (NYCAC 27-215).
A search of Buildings Department records discloses a certificate of occupancy being issued on April 25, 1947 for a "gasoline service station, office and one family" (Certificate No. 5351). A second certificate of occupancy was issued on April 18, 1963 for "Gasoline Service Station, Lubitorium, Minor Auto Repairs with hand tools only-Service room, car wash (Non-automatic), Office and parking area for more than five (5) cars awaiting service"(Certificate #24322). This is the certificate of occupancy that was in effect when the parties entered into the lease. Although there was a permit issued on July 26, 2006 for [*4]conversion to a "Dunkin ' Donuts," no final certificate of occupancy has been forthcoming.
There is no showing that even a "temporary certificate of occupancy" was ever issued for the premises as permitted by NYCAC 27-218. This statute provides: "The commissioner may, upon request, issue a temporary certificate of occupancy for a part or parts of a building before the entire work covered by the permit shall have been completed, provided that such part or parts may be occupied safely prior to completion of the building and will not endanger public safety, health, or welfare,..." Presumptively, because there is neither a temporary nor final certificate of occupancy, the premises is not safe.
The failure to have a final certificate of occupancy makes the current use by the respondent illegal. This Court has previously held that in order to have landlord-tenant relationship, the parties must be able to enter into a legal contract for the exclusive use and occupancy of the premises, a document commonly referred to as a lease. Since there is no certificate of occupancy permitting the tenant's anticipated use, the subject matter of the contract is illegal and no landlord-tenant relationship can be created (Fazio v Kelly, 2003 WL 22227363(2003)). The Court will not enforce an illegal agreement. Without a final certificate of occupancy it is impossible for the Court to determine that the building may be safely occupied by the tenant without danger to the public.
The lease is unenforceable. The respondent must cease and desist and immediately vacate the premises.
C. Which Party is Responsible for Obtaining the Certificate of Occupancy?
As stated above, paragraph 3 of the pre-printed lease and paragraph 48 of the rider to lease both require the tenant to obtain any municipal approvals and final certificates in regard to alterations of the premises. In addition, paragraph 6 of the pre-printed lease requires the tenant to comply with "all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law,... or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises...."
Petitioner alleges that the respondent has failed to obtain the required certificate of occupancy, yet continues to operate the business, and has ceased paying rent. Respondent claims that the Buildings Department has refused to issue the final certificate of occupancy and seeks to compel the Buildings Department to do so by court order. Respondent alleges that some of the items that the Buildings Department claims must be completed are in the control of the petitioner, so that no rent is due and owing. Petitioner claims that all of the open requirements are solely within the respondent's control and even if not, respondent agreed to do whatever is necessary in order to obtain final municipal approval.
Of interest is paragraph 23 of the pre-printed lease which states:
If the Owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof,...because such
building has not been sufficiently completed to make the premises
ready for occupancy or because of the fact that a certificate of occupancy
has not been procured or for any other reason, Owner shall not be subject
to any liability for the failure to give possession on said date and the validity
of the lease shall not be impaired under such circumstances, nor shall the
same be construed in any wise to extend the term of the lease, but the rent
payable hereunder shall be abated (provided the Tenant is not responsible
for the inability to obtain possession or complete construction) until after
Owner shall have given Tenant written notice that the Owner is able to
deliver possession in the condition required by this lease.
These various lease provisions seem to be contradictory when applied to this situation. The lease and rider require the tenant to obtain all municipal permits and certificates of occupancy. However, the inclusion of paragraph 23 in the lease, appears to recognize the possibility that owing to the actions of third parties outside the control of the tenant, legal occupancy of the premises might be delayed. What complicates the situation, is the fact that the petitioner has allowed the respondent to commence occupancy and operate its business prior to the issuance of a final certificate of occupancy. The rider to lease requires the tenant to begin paying rent forty-five days following the date "permits for the Tenant's Work" are issued by the Buildings Department. The "work permit" was issued on July 25, 2006 and expired on November 30, 2006. This means that as of September 8, 2006 the tenant was responsible for paying rent. Petitioner's demand for base rent begins with October 2006 and the pleadings indicate that the respondent paid and the petitioner accepted rent before that date even though the occupancy was illegal.
Attached as an exhibit to respondent's motion papers are the violation notices issued by Buildings. The first is a "stop order" effective August 29, 2006 issued because the premises failed an audit. On August 24, 2006, Buildings issues a "Notice of Objections" listing five problems with the project. Thereafter, violations were issued on a regular basis alleging that the premises was being occupied in violation of the existing certificate of occupancy. Most of the summonses were issued to Joseph Marino a member of the petitioner's LLC and not to the respondent.
It seems clear that paragraph 23 of the lease anticipated this problem. It provides that the lease will remain in full force and effect with the rent payment abated until the occupancy is legalized. It also presumes that the tenant will not continue to operate the premises in violation of the Buildings Department's orders as it continues to do so.
When read together it must be concluded that if the lease were in effect, the tenant had by contract, obligated itself to obtain all necessary permits, complete the required renovations [*6]and secure a final certificate of occupancy.
The only equitable solution is to order the Buildings Department to close the premises until there is compliance with that agency 's orders or a Court determines that no compliance is necessary and the occupancy is legal. In the meantime, all rent that is to come due in the future is to be abated while the premises is shuttered. However, since the respondent continues to operate in violation of the law, respondent must pay rent to the petitioner, otherwise it is being unjustly enriched by its own wrongful actions. Respondent cannot have it both ways, operate illegally and not pay the rent.
D. Does Civil Court Have the Jurisdiction to Compel the Issuance of a Certificate of
The third party defendant, Buildings Department, has cross-moved to vacate the stay this Court issued when the initial Order to Show Cause was signed. Buildings contends that the Civil Court lacks jurisdiction to grant injunctive relief and that it and other agencies should be permitted to issue violations against the premises so long as the Dunkin' Donuts remains in operation without a final certificate of occupancy. Respondent has cited prior decisions of this Court in which the Court held that the Civil Court did in fact have such jurisdiction in relation to residential certificates of occupancy (Minchew v City of New York, 6 Misc 3d 1038A (2005) revsd 12 Misc 3d 144A (2006)). In deciding that and other cases involving the failure of the Buildings Department to issue final certificates of occupancy, this Court relied on an interpretation of the Civil Court Act that since CCA 203 and 110 gave the Court jurisdiction to hear cases brought by municipal agencies in regard to code violations, a reciprocal right must exist for the public to have access to the Civil Court to prevent or compel those agencies to act when housing standards were involved. The Appellate Term has rejected this assertion of reciprocal jurisdiction.
No such similar language appears in the Civil Court Act in reference to non-residential occupancies. Therefore the Court must agree with the Buildings Department that the Civil Court cannot issue injunctions to municipal agencies in regard to violations being issued because the premises lacks a final certificate of occupancy. In the residential certificate of occupancy cases, Buildings had permitted the home owner to occupy the premises with a temporary certificate of occupancy. This indicated that, except for minor outstanding items to be completed, the premises substantially complied with the building code. In this commercial setting, no such presumption exists. Buildings has never said the occupancy was legal. In fact, within a few weeks of the issuance of the alteration permit, Buildings withdrew its consent.
CCA 209(b) sets forth specific situations when the Civil Court may issue injunctive relief. None of the reasons designated in this section apply to the facts of this case. Injunctive relief is only available in limited situations for enforcement of housing standards and not for other building safety issues affecting commercial premises (CCA 209(b)(4)). Therefore the [*7]Civil Court cannot grant the respondent the relief it is seeking under either CCA 203 or 209.
None of the parties however have addressed the issue of whether the Court has jurisdiction pursuant to CCA 212. This statute provides:
"In the exercise of its jurisdiction the court shall have all of the powers that
the Supreme Court would have in like actions and proceedings."
Civil Court Act 204 states:
"The court shall have jurisdiction over summary proceedings
to recover possession of real property located within the city of
New York, to remove tenants therefrom, and to render judgment
for rent due without regard to amount,..."
This does not mean that the Civil Court has exclusive jurisdiction. As the Supreme Court is the court of general jurisdiction, it too can resolve summary proceedings.
It seems that the two-pronged analysis should be: One, could this summary proceeding have been brought in Supreme Court? The answer is "yes." And two, could the Supreme Court grant the respondent the relief it is seeking and enjoin the activities of the Buildings Department and other municipal agencies? This answer also is "yes." Therefore, because CCA 212 grants to the Civil Court the same authority the Supreme Court has in this situation, the Civil Court can in fact enjoin the activities of the Buildings Department.
The above being the conclusion, the issue remains, should the Court grant the relief requested. Injunctive relief is an equitable remedy. In order to receive such a remedy, the party requesting it should have "clean hands." Respondent has knowingly opened its "Dunkin' Donuts" store without a final certificate of occupancy. The initial permit was issued on July 26, 2006 and by August 10, 2006 the Buildings Department notified both the owner, Joseph Marino, and the architect, Frank Vaccaro, that the permit was being revoked for failure to comply with the administrative code. In spite of this notice, both the petitioner and respondent continued to allow the renovations to go forward. The parties chose to ignore the orders from the Buildings Department. They cannot now ask the Court to intervene on their behalf. Petitioner and respondent should have pursued their administrative remedies first and, if that failed, brought an appropriate legal action.
Instead, petitioner commenced a "non-payment" proceeding seeking rent due and owing from an illegal premises. It must be questioned as to why the petitioner did not file a "holdover" proceeding since the respondent was in breach of the terms of the lease in that the respondent had not obtained a final certificate of occupancy. Obviously, petitioner is being guided by the adage that when it comes to damages "money makes you whole," or in this situation involving a "Dunkin' Donuts" franchise, "holes make you money."
Although the Civil Court does have the jurisdiction to grant the relief being sought by the respondent, it will not do so since the parties have "unclean hands." The parties, if having a dispute with the Buildings Department, must first exhaust their administrative remedies. If that relief is unsatisfactory or unavailable, then the proper procedure is a CPLR Article 78 proceeding in Supreme Court, rather than a summary proceeding and reliance on CCA 212 to compel Buildings to act.
E. Street Widening Issue.
Respondent has alleged that one of the requirements to obtain a final certificate of occupancy that the Buildings Department and the Borough President sought to impose on both the petitioner and the respondent was for them to agree to widen both Ocean Terrace and Manor Road at either of their expense in order to obtain its final certificate of occupancy.
Attached as an exhibit is a final location survey dated November 25, 1995. It shows the lot to be 100 feet by 100 feet, a total of ten thousand square feet. The survey also discloses widening lines. Ocean Terrace is to be widened up to 18.64 feet (approved January 12, 1961) and Manor Road up to 13.19 feet (approved February 8, 1945). If these streets were expanded to their mapped widths, the premises would be reduced by the above cited distances. If there is a "one dollar condemnation" clause filed by the City of New York running against the premises, the City could take the property by paying the owner $1.00, but then the City would have to undertake the expense of paving the streets to the mapped width. If there is no such clause, then the City would have to condemn the property, embark on an eminent domain proceeding and pay "just compensation" to the owner.
Can the City require, as a condition of issuing the final certificate of occupancy for use as a "Dunkin' Donuts", direct the landlord, or if obligated by the lease, the tenant to "voluntarily" complete the widening? It must be concluded that it cannot do so. Such a procedure would be a taking of private property for a public purpose without just compensation. Absent some constitutional or statutory authority to do so, the City cannot legally engage in such a procedure.
The Court cannot resolve this issue because there is insufficient documentation as to whether this allegation is actually a requirement being imposed to obtain the final certificate of occupancy and whether or not there is a one dollar condemnation clause.
What also complicates this matter is the fact that the use as a gas station has, under current zoning regulations, become a "non-conforming" use subjecting the alterations to greater scrutiny perhaps then had the modifications been made "as of right." In such a situation, if there is a widening which would reduce the number of parking spaces, the proposed use as a "Dunkin' Donuts" might now be adversely affected.
This summary proceeding is dismissed. The lease is unenforceable since the occupancy is illegal. The Court will not enforce illegal agreements.The equitable relief sought by the respondent is denied because of the respondent's unclean hands in continuing to occupy the presumptively unsafe building without a final certificate of occupancy.
The Buildings Department is directed to issue a vacate order and close down the respondent's business until a final certificate of occupancy is issued. All stays issued prohibiting the Buildings Department and other municipal agencies from acting are vacated. The City may continue to issue violations and enforce resulting penalties.
Upon the issuance of a final certificate of occupancy, petitioner will be entitled to collect rent or use and occupancy for each month the respondent operated in violation of the certificate of occupancy by bringing a plenary action in that regard. Petitioner must also clarify its corporate status.
The foregoing constitutes the decision and order of the Court.
Dated: April 20, 2007
Staten Island, NY
HON. PHILIP S. STRANIERE
Judge, Civil Court
ASN by ______ on _____________.