Locon Realty Corp. v Safisas Corp.
Annotate this CaseDecided on November 15, 2021
Civil Court of the City of New York, Kings County
Locon Realty Corp., Plaintiff,
against
Safisas Corp., Defendant.
Index No. LT-309912-20KI
Nicholas W. Moyne, J.
Petitioner, Locan Realty Corp, has brought this holdover proceeding against respondent, Safisas Corp., seeking to terminate a commercial lease and obtain a judgment of possession and warrant of eviction. The petitioner has moved for summary judgment and dismissal of the respondent's affirmative defenses. Respondent cross-moves, pursuant to CPLR §3212, for an order granting summary judgment and dismissing the petition or, in the alternative, pursuant to CPLR §3211(a)(2), for an order dismissing the petition due to lack of subject matter jurisdiction. Additionally, the plaintiff has moved to challenge the hardship declaration filed in this case. Both motions for summary judgment are denied for the reasons set forth below. The motion challenging the hardship declaration is granted to the extent that a hearing is ordered.
The petitioner and the respondent entered into a lease dated September 1, 2019 for premises located at 2670 Coney Island Avenue, Brooklyn, New York. The respondent alleges that it utilized the premises as a catering hall. The lease contains an enforceable conditional limitation clause allowing for the petitioner to seek termination of the lease if the respondent fails to timely pay rent three times in a twelve-month period. The petition alleges that the respondent failed to make timely payments of rent and additional rent three times between July and October 2020. Respondent was served with a Notice to Cure and a Notice of Termination, the latter of which indicated that the lease would expire on December 21, 2020. Respondent has remained in possession since the lease purportedly expired.
Respondent's motion to dismiss for lack of subject matter jurisdiction.
The respondent's motion to dismiss for lack of subject matter jurisdiction is denied.
There is nothing in the currently applicable Executive Orders which prohibits the initiation of a summary proceeding to recover possession of leased premises, irrespective of [*2]whether the proceeding is plead as a holdover or non-payment proceeding. This case is governed by Executive Orders 202.57 and 202.48, which provide that a landlord can commence a summary proceeding and if the tenant files a hardship, the case is stayed. The Landlord may challenge the hardship and the court can order a hearing as to whether the hardship stay should be vacated. That is exactly what has happened here. Accordingly, there is no merit to the respondents' argument that the court lacks subject matter jurisdiction because the action was unlawfully commenced. Indeed, to hold otherwise would deprive the landlord of its due process rights to pursue remedies against tenants who are financially able to pay their rent but, without legal justification, fail to honor their contractual obligations under the lease (see SRI Eleven 1407 Broadway Operator LLC v Mega Wear Inc., 71 Misc 3d 779, 806-07 [NY Civil Ct. 2021 Tsai, J]). It would mean that a tenant could simply file a self-certified declaration of hardship without the landlord having any recourse to challenge it, thereby permitting the tenant to become "a judge in his own case" (see Chrysafis v Marks, 594 US _,2021 WL 3560766; 141 S. Ct. 2482, 2483 [2021]). This is not consistent with due process as found by the United States Supreme Court (id.).
Respondent's motion for summary judgment.
The Respondent's motion for summary judgment is denied. There are questions of fact regarding the frustration of purpose defense.
The respondent raises the defense of impossibility of performance in their summary judgment motion. Under New York law, impossibility of performance is a valid excuse for failing to perform contractual obligations only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible (see Kel Kim Corp. v Cent. Markets, Inc., 70 NY2d 900, 902 [1987]). A financial hardship or economic difficulty, no matter how acute, cannot, by itself, excuse performance (see 407 East 61st Garage, Inc. v Savoy Fifth Ave. Corp., 23 NY2d 275, 281 [1968]). This rule applies even when the financial hardship or difficulty is caused by governmental intervention (see Stasyszyn v Sutton E. Assoc., 161 AD2d 269, 271 [1st Dept 1993]). Here, the subject matter of the lease, the leased premises, remains intact. Therefore, the respondent is not entitled to summary judgment on the impossibility defense.
The respondent also raises frustration of purpose. In order to properly invoke the doctrine of frustration of purpose as a defense to the failure to pay rent due under a lease, "the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense" (Warner v Kaplan, 71 AD3d 1, 6 [1st Dept 2009] [internal quotation marks omitted], lv denied 14 NY3d 706 [2010]; see Jack Kelly Partners LLC v Zegelstein, 140 AD3d 79, 85 [1st Dept 2016], lv dismissed 28 NY3d 1103 [2016]). Examples of a lease's purposes being declared frustrated have included situations where the tenant was unable to use the premises as a restaurant until a public sewer was completed, which took nearly three years after the lease was executed (see Benderson Dev. Co. v Commenco Corp., 44 AD2d 889 [4th Dept 1974], affd 37 NY2d 728 [1975]), and where a tenant who entered into a lease of premises for office space could not occupy the premises because the certificate of occupancy allowed only residential use and the landlord refused to correct it (Jack Kelly Partners LLC v Zegelstein, 140 AD3d 79, 81 [1st Dept 2016]).
Here, there is a question regarding whether the respondent could have operated in any [*3]capacity, such as offering takeout or delivery food, during the period covered by covid related executive orders. As the Supreme Court New York County has stated, "[t]hat the executive order required tenant to rearrange its operations to take-out-and-delivery services, which turned out to be less profitable, does not render performance of tenant's financial obligations impossible" (45-47-49 Eighth Ave. LLC v Conti, 72 Misc 3d 1210(A) [Sup Ct NY County 2021]). The respondent characterizes itself as a catering hall which was completely prohibited from operating due to covid related executive orders which prohibited catered events until March 15, 2021. The petitioner however characterizes the respondent as a restaurant, which would have been able to operate at a limited capacity throughout much of the pandemic. The lease states that the premises are only to be used as a restaurant and related offices (NYSCEF Doc. No. 15). The Certificate of Occupancy lists "Banquet Hall Establishment" as the permitted use of the premises. The respondent has not demonstrated that a "Banquet Hall" is substantially different from a restaurant or otherwise prohibited from selling food for takeout, or for guests in an outdoor setting, as many restaurants in the city were able to do. The subject matter of the contract — the premises — remained intact and useable.
Furthermore, a question exists as to whether the respondent has been operating, even at a diminished capacity, throughout the period in question. "Economic hardship and reduced revenues alone, even if occasioned by an arguably unforeseeable circumstance such as a pandemic, do not warrant application of the frustration of purpose doctrine" (The Ruxton Tower Ltd. Partnership v Cent. Park Taekwondo, LLC [NY Sup Ct, New York County 2021]). Jonathan Chiaro — the vice president of the petitioner — swears that his office is across the street from the premises, that he passes the premises nearly every day, and that aside from a short period at the start of the pandemic, he and an employee have seen the principals of the respondent enter the facility nearly every day, that several times a week they see large packages (presumably food) delivered to the premises, and that at least since July 2021, the respondent has been open for events approximately 2-4 times per week (see Chiaro Aff. ¶ 8). This raises a question of fact, sufficient to defeat the motion for summary judgment, as to whether the respondent has been operating.
Accordingly, as there are questions of fact, the respondent's motion for summary judgment is denied.
The petitioner's motion for summary judgment.
As stated, there exists questions of fact as to whether the respondent has a valid defense. Therefore, the petitioner's motion for summary judgment and to dismiss the affirmative defenses is denied.
Hardship.
Having determined that the respondent's motion - which, had it been granted would have rendered consideration of the respondent's hardship declaration moot — is denied. The petitioner has made sufficient factual allegations regarding the respondent's operations during the pandemic to entitle it to a hearing to challenge the hardship declaration in this case. Accordingly, the matter is adjourned for a hearing regarding the respondent's hardship declaration.
[*4]Conclusion
For the reasons stated herein, it is hereby
ORDERED that the petitioner's motion for summary judgment and to dismiss the affirmative defenses is denied; and it is further
ORDERED that the respondent's motion for summary judgment is denied, and it is further
ORDERED that the petitioner's motion challenging the hardship declaration is granted to the extent that a hearing on the respondent's hardship shall be held in Part 67 on December 16, 2021 at 10:30 AM.
This constitutes the decision and order of the court.
Dated: November 15, 2021
Brooklyn, NY
___________________________
Hon. Nicholas W. Moyne, J.C.C.
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