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Self-Help Eviction in 2020/2021

Fifteen years after their article, “Self Help Evictions: The Neglected Commercial Remedy,” Adam Leitman Bailey and John Desiderio address and update the law on the self-help remedy that enables commercial landlords to regain possession of leased premises from tenants in material breach of one or more lease covenants.

By Adam Leitman Bailey and John M. Desiderio

Fifteen years ago, on Aug. 10 2005, the authors wrote an article for this newspaper titled “Self Help Evictions: The Neglected Commercial Remedy.” www.law.com/newyorklawjournal/almID/900005434523/selfhelp-evictions/. Since the publication of this article, it has been unanimous by all lower and appellate courts that self-help evictions are enforceable. As of the time of this writing, commercial judicial evictions are banned but extra-judicial evictions such as self-help are not only being used as an effective way to evict a commercial tenant but have been the only means since the pandemic started to garner a legal eviction.

This article addresses and updates the law on the self-help remedy 15 years later that enables commercial landlords to regain possession of leased premises from tenants in material breach of one or more lease covenants. As demonstrated below, courts continue to enforce its proper use, as it provides a useful and available means for landlords to regain immediate possession of rental property despite the pandemic and governmental moratoriums and court rules restricting the commencement of summary commercial eviction proceedings.

Limits on Government Power to Halt Evictions

Although the New York Governor’s executive orders prohibit “the initiation of a proceeding or enforcement of an eviction of any commercial tenant for nonpayment of rent,” Executive Order 202.28 issued May 7, 2020 (as further continued through January 8, 2021 by subsequent orders, including Executive Order 202.80, issued December 9, 2020), it is important that commercial landlords and their attorneys understand that the governor’s orders relate to evictions sought to be effected through judicial proceedings ONLY.

The governor’s orders imposing the moratorium on initiation of commercial eviction proceedings rest on the authority given him, under Section 29-a of Article 2-B of the Executive Law “to temporarily suspend any statute, local law, ordinance, or orders, rules or regulations, or parts thereof, [such as Article 7 of the Real Property and Proceedings Law which governs the initiation and conduct of summary proceedings to recover possession of real property] during a state disaster emergency,” including “epidemics.” (Emphasis added). Accordingly, Executive Law, Section 29-a, does not provide the governor with authority to prohibit, alter, or suspend the non-judicial, contractual self-help remedies included in commercial leases.

The limitations that exist on the governor’s authority to issue executive orders affecting the landlord-tenant relationship is well illustrated by the recent decision in Schack Collective Inc. v. DeKalb Market Hall, LLC., 63 Misc.2d 1202(A), 130 NYS3d 925 (Table)(NY City Civil Ct., Oct. 2, 2020). The petitioner, a licensee of three commercial spaces within respondent’s market, failed to comply with its license obligation to “maintain at the Licensed Area a Restaurant Letter Grading grade of ‘A’—receiving a Restaurant Letter Grade ‘C’ grade in two separate inspections of the leased space, in September and October 2019.

Citing the violations issued by the NYC Health Department, on March 4, 2020, respondent-landlord, in accordance with the terms of the license, sent petitioner-tenant a seven-day notice of termination. Petitioner sought but was denied a Yellowstone injunction. In an order issued on July 6, 2020, the court held that respondent “had not presented any basis for why the termination clause should not be enforced as written.” The respondent then shut off the gas and electric to the space, the petitioner’s equipment was removed, and, the police escorted the petitioner off the premises.

In a subsequent proceeding brought on by an emergency order to show cause, the petitioner contended that respondent had wrongfully used self-help to remove petitioner and its equipment from the premises. The petitioner also contended that the respondent had “acted in contravention of the Governor’s Moratorium on evictions in effect during the COVID-19 pandemic.” The court disagreed, holding that:

The moratorium’s references to “non-payment” of rent or mortgage clearly establish that its purpose was to protect individuals experiencing financial hardship as a result of the COVID-19 pandemic. Here, the issue is not based on non-payment. Accordingly, the Governor’s moratorium does not apply. (Emphasis added).

While the court hearing the emergency order to show cause found that the agreement between petitioner and respondent was indeed a license, and not a lease, the court also held, as had the court that denied the Yellowstone injunction, that “[e]ven if petitioner could be deemed a tenant, it could not affect the court’s denial of this application.” The respondent’s use of self-help to re-enter and regain possession of the restaurant space was upheld on the basis of respondent’s contractual rights, and the governor’s moratorium did not override those rights.

In another recent case in which a landlord, represented by our law firm, used self-help to regain possession of leased space, the right to the use of contractual, non-judicial self-help during the pandemic was approved without any question, and without even a reference to the governor’s moratorium. The court held that “the parties’ lease expressly grants the landlord the right to re-enter upon a plaintiff’s breach of substantial obligations of tenancy or nonpayment of rent. It is well settled even were a court to determine self-help was not peaceable, a tenant is relegated only to a suit for damages, but not restoration of the subject premises where restoration would be futile because the landlord is entitled to seek judgment evicting the plaintiff.”

The Law of Self-Help

In light of such rulings, it is useful for practitioners representing commercial landlords to review the law applicable to self-help evictions, to be able to utilize this important legal tool, at a time when summary proceedings are either unavailable or otherwise delayed by government edict. In this respect, it is important to note that New York courts, at all levels, have found self-help evictions to be enforceable when done properly.

The decision in Sol de Ibiza, LLC v Panjo Realty, Inc., 29 Misc.3d 72, 911 NYS2d 567 (1st Dept., Appellate Term, 2010), sets forth the elements generally recognized as the basis for a proper commercial self-help eviction: (1) the subject lease specifically reserves the landlord’s right to re-enter the premises upon tenant’s breach of its obligation to pay rent, (2) prior to re-entry, landlord serves upon tenant a valid rent demand, (3) re-entry was effected peaceably, and (4) tenant was in fact in default in its obligation to pay rent. See also Bozewicz v Nash Metalware Co., 284 A.D.2d 288, 725 N.Y.S.2d 671 [2d. Dept. 2001); Matter of Lee v. Ho-Park, 16 AD3d 986 (3d Dept. 2005); Jovana Spaghetti House v. Heritage Co. of Massena, 189 A.D.2d 1041 (App. Div. 3rd Dept. 1993).

Reserving the Right to Re-enter in the Lease

It is clear that, if the lease does not reserve the right of the landlord to re-enter upon default in payment of rent or other material breach of the lease, use of self-help by the landlord is not only precluded, but it will be deemed a trespass. See N. Main Street Bagel Corp. v. Duncan, 6 AD3d 590, 775 NYS2d 362 (2d Dept. 2004), and will subject the landlord to treble damages under RPAPL §853 which provides:

If a person is disseized, ejected, or put out of real property in a forcible or unlawful manner, or, after he has been put out, is held and kept out by force or by putting him in fear of personal violence or by unlawful means, he is entitled to recover treble damages in an action therefore against the wrongdoer.

Moreover, given that RPAPL §853 includes evictions undertaken in an “unlawful manner” in addition to those executed by force, “treble damages can be sustained without a showing of physical force or violence in ejecting the tenant.” Matter of Lee v. Ho-Park, supra.

Serving a Valid Rent Demand

As explained in 542 Holding Corp. v. Prince Fashions, Inc., 46 A.D.3d 309 (App. Div. 1st Dept. 2007), citing Filmtrucks, Inc. v. Express Industries and Terminal Corp., 127 AD2d 509, 511 NYS2d 862 (1st Dept. 1987), “[t]he purpose of a notice to cure is to specifically apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if the claimed default is not cured within a set period of time.” Where such defaults include unpaid rent, a “proper demand for rent must fairly afford the tenant, at least, actual notice of the alleged amount due and of the period for which such claim is made. At a minimum, the landlord or his agent should clearly inform the tenant of the particular period for which a rent payment is allegedly in default and of the approximate good faith sum of rent assertedly due for each such period.” Schwartz v Weiss-Newell, 87 Misc 2d 558, 561, 386 NYS2d 191 (NYC Civil Court 1976).

Where the rent demand overstates the amount of rent owed, see 133 Plus 24 Sanford Ave. Realty Corp. v. Xiu Lan Ni, 57 Misc. 3d 158(A), 72 NYS3d 517 (2d Dept., Appellate Term, 2017), or fails to separate base rent and additional rent owed, see 542 Holding Corp. v. Prince Fashions, Inc., supra, the rent demand will be deemed invalid, and a subsequent self-help eviction will likewise be invalid.

Moreover, the rent demand must be served in accordance with the requirements of the lease. Some lease agreements require that tenants be notified of the default with an opportunity to cure; others may permit the landlord to terminate the lease automatically upon tenant’s breach. Failure to terminate the tenancy in accordance with the lease will result in a wrongful eviction. See Matter of Lee v. Ho-Park, supra; Stivers v. Brownell, 63 A.D.3d 1516, 881 NYS2d 239 (4th Dept. 2009).

The Tenant in Default

It is clear without question that, if the tenant is not in material breach of the lease, the landlord may not use self-help to regain possession of the leased premises. See, e.g., Sol de Ibiza, LLC v Panjo Realty, Inc., supra. If there is any possible question of whether or not the tenant is in default, self-help should definitely not be employed. Otherwise, as noted previously, the landlord is at risk of being held liable for trespass and for incurring treble damages awarded under RPAPL §853.

Peaceable Eviction

For a landlord’s entry to be “peaceable,” the action of eviction should not entail the use of any activity that is unusual and would tend to bring about a breach of the peace, such as “an entry with a strong hand, or a multitude of people, or in a riotous manner, or with personal violence, or with the threat and menace to life or limb, or under circumstances which would naturally inspire fear and lead one to apprehend danger or personal injury if he stood up in defense of his possession.” Fults v. Munro, 202 NY 34, 42 (1911).

In the absence of force that tends to breach the peace, hiring trucks and men and even a garbage company to evict a tenant does not constitute forcible entry. See Liberty Industrial Park Corp. v. Protective Packaging Corp., 71 Misc.2d 116, 335 NYS2d 333 (Special Term, Kings. Co., 1972), affirmed, 43 Ad2d 1020 351 NYS2d 944 (2d Dept. 1974). Even where police are called to escort the tenant off the property, the eviction is still deemed peaceable. See Shack Collective, Inc. v. DeKalb Market Hall, supra.

To ensure that the use of self-help is “peaceable,” the authors recommend that the landlord arrange for the re-entry to occur during late night/early morning hours when the tenant’s business is closed. The landlord’s agents should be certain that no one is present on the leased premises before entering. Upon re-entry, the landlord may change the locks or padlock the doors. To thwart any damage claims, (a) The entire re-entry operation should be videotaped, (b) all items of tenant property removed from the premises should be photographed and inventoried, and (c) the tenant’s property should then be placed in storage for a reasonable period of time, in accordance with a lease provision that contemplates such action in the event of an eviction.

Conclusion

Under the governor’s executive orders and related judicial administrative orders, landlords’ right to evict defaulting tenants through summary proceedings is severely restrained and limited. Nevertheless, those landlords, whose leases properly reserve the right to use self-help to lockout a defaulting tenant and re-enter the leased premises, may still exercise their contractual rights peaceably, and the courts will enforce their right to do so.

 

Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C. and John M. Desiderio is a partner of the firm’s real estate litigation group. Meaghan Hassan, a Hofstra law student and fall extern at the firm, assisted in the preparation of this article.

Original Article

Update: Creative Methods for Closing During COVID-19

Adam Leitman Bailey, P.C. published an article in the fall about the creative methods its firm implemented to conduct closings during the spring and summer months. The transactional world continues to face many challenges with the increasing rise of new COVID-19 cases and the frigid winter months to come. This article is an update to the evolving methods that will be used amidst closing during the continued pandemic in New York.

Temperatures are rapidly declining and it is no longer plausible to conduct a “curbside closing” outside. Many closings have returned to the “traditional” method of closing inside at the conference table. Adam Leitman Bailey, P.C. always offers to host closings at our office since we have strict building COVID-19 policies. Our procedures include temperatures taken upon arrival and masks worn at all times. Adam Leitman Bailey, P.C. has multiple large conference rooms, and it is possible to safely social distance during the closing. If a refinance borrower is unable to come to our office in Manhattan for the closing, Adam Leitman Bailey, P.C. will make arrangements for the closing to take place at a local branch. Bank branches follow strict COVID-19 protocol and their conference rooms are equipped with glass to ensure a safe closing for all parties.

In addition, there has been a rise in the use of power of attorneys (“POA”). The use of a POA decreases the number of attendees present at the closing. Adam Leitman Bailey, P.C. helps to facilitate lender POA approval and if needed our office can prepare a POA. Transfer agents for cooperative purchases and refinances have been sending the collateral to be held in escrow and not attending the closings in person. Adam Leitman Bailey, P.C. can act as escrow agent if needed.

Seller’s attorneys have been increasingly asking for documents in advance so their client’s can pre-sign. This eliminates their need to attend the closing in person. Seller’s attorneys also have been requiring proceeds and payoffs to be sent by wire. Our Adam Leitman Bailey, P.C. team works around the clock to send our lender documents in advance and verbally confirms wire instructions prior to the closing time in an effort to facilitate a smooth transaction.

Technology continues to play an extremely important factor throughout the transaction. A handful of lenders already allow the use of remote notarization.

Teamwork and communication among professionals is the number one key to success. During these times we have all had to come together in the transactional industry to promote the common goal which is to successfully and safely close a transactions for our clients.

Landlord Laws, Tenant Moratoriums; Where We Are Now

By Adam Leitman Bailey and Dov Treiman

The Adam Leitman Bailey, P.C. landlord-tenant attorneys have been navigating the constant flow of changing laws and Executive Orders under COVID19 to serve tenants with notices and bring tenants to court, getting landlords their rents in spite of the eviction moratoriums.

ADAM BAILEY

These moratoriums, in one form or another, have been at all levels of government, federal, state, and city and all three branches of government: executive, legislative, and judicial.

Here is an update on the state of the landlord tenant practice in New York State as of October 1, 2020.

Federal Moratorium 

The Federal moratorium has small New York impact. On September 2, 2020, the Centers for Disease Control issued a declaration banning evictions in residential buildings with Federal involvement (loans, Section 8, etc.). It does not apply where there is equal or greater local government tenant protection. This moratorium expires on December 31, 2020, but as we shall see, for the most part, New York’s tenant protections are greater. The Federal ban only applies to eviction by reason of nonpayment of persons with an income of $99K per year or less. The burden is on the tenant to establish entitlement to the protection.

State Moratoriums

The State Legislature passed two major laws on this. Executive Law 29-a gives the governor the power to suspend laws for no longer than 30 days. However, Governor Cuomo has been using this power without the Legislature’s involvement to modify laws and to create brand new laws for longer than 30 days. At least one judge has ruled this illegal. The other is the “Tenant Safe Harbor Act” (L. 2020 Ch. 127) which was not enacted into the Consolidated Laws, making it difficult to find. This too is a law that Governor Cuomo amended on his own. Under this law, if a residential tenant has a financial hardship during COVID, and raises and proves it as a defense, there can be no eviction during the covered period which is now, by Executive Order, extended through December 31, 2020. This law only bars evictions. The landlord can still get a money judgment and pursue the tenants’ assets.

By Executive Order, the Governor directed, “There shall be no initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent … rented by someone … facing financial hardship due to the COVID-19 pandemic …” However, when the Tenant Safe Harbor Actpassed, the governor lifted the restrictions on residential evictions from that order. However, he has continued through December 31, 2020 the restrictions on commercial nonpayment proceedings and for residential proceedings, the restrictions found in the Tenant Safe Harbor Act. This means that you can proceed with evictions proceedings in either Housing Court or State Supreme Court, but in Housing Court your case will be adjourned into 2021 and in State Supreme Court, you can process the case, but cannot yet get an actual eviction until at least January 1, 2021.

The Courts

The Chief Administrator of the Courts has suspended all landlord-tenant cases filed in the New York City Civil Court since the onset of the pandemic. No date has been given when these cases will ever be heard. Thus, New York City Civil Court is not realistically available for any new landlord-tenant cases.

Ejectment Actions, Replenishment Notices, Self Help Evictions

For residential cases, we have been serving rent demands. For commercial cases, we have looked to other provisions in the leases that avoid the Governor’s prohibition on nonpayment cases and have brought those, even though they are ultimately based on the tenant’s not paying rent. Chief amongst these have been provisions allowing a landlord to draw down security for nonpayment of rent and then demand the tenant replenish the security. This sets the landlord up for bringing a case.

DOV TREIMAN

All the cases we bring, we bring in State Supreme Court. These have included ordinary nonpayment proceedings that we have specially adapted, holdover proceedings we have specially adapted, and ejectment actions.

“Ejectment actions” sound unfamiliar to most landlords, but they are centuries old evictions proceedings and are familiar enough to Supreme Court judges that these judges do not look for ways to throw the case out, claiming that it should be brought in the Civil Court. In normal times, they are much slower than ordinary nonpayment proceedings, but in the current crisis, they are much faster and have been getting the case in front of a judge in a month, unlike the year’s delay likely in the Civil Court. These cases have, for the most part, brought the tenants to the table and made them realize that if they are going to stay in business at all, they are going to have to make some arrangements for paying their rent. Some few of these cases are still being litigated in the courts, although we are bringing new ones every week. If need be, we can speed them along with summary judgment motions since the tenants have no legal defenses to paying rent.

When the lease has specifically provided for it, we have successfully utilized peaceful self-help evictions.

Original Article

Reviewing New York’s Commercial Lease Defenses to Paying Rent

New York is in one of its worst depressions since the American Revolution. Few landlords and commercial tenants have been completely immune from the governmentally imposed economic shutdown and COVID-19’s wrath. Not including what may have been negotiated in a commercial lease, there are three traditional theories under which commercial tenants could seek to assert entitlement to forgiveness of their rent: frustration of purpose, impossibility of performance, and force majeure.

One of our partners recently participated in a lecture with two other judges where one of the judges announced that the courts would be kept very busy while these tenant weapons were litigated. That may be true but the reality from the past precedents since its first use in New York during World War II and recently, from the decisions coming down from the state supreme courts is that their ability to terminate a lease or vitiate the payment of rent will occur in very, very, few cases.

Frustration of Purpose

Formally defined, the doctrine of frustration of purpose applies when a change in circumstances makes one party’s performance virtually worthless to the other, thereby frustrating the purpose in making the contract. PPF Safeguard, LLC v. BCR Safeguard Holding, LLC, 85 A.D.3d 506 (1st Dept. 2011). What this means in real world terms is that regardless of fault, if circumstances arise in which there is (for at least one side) no purpose to the contract, that side’s performance is excused.

The elements of frustration of purpose require consideration of (1) whether the frustrated purpose is the basis of the contract, (2) whether the frustrating event was foreseeable, and (3) whether the frustration of purpose is substantial. Rockland Development Assocs. v. Richlou Auto Body, Inc., 173 A.D.2d 690 (2d Dept. 1991); Crown IT Services, Inc. v. Koval-Olsen, 11 A.D.3d 263 (1st Dept. 2004).

Frustration of purpose is “limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party.” U.S. v. Gen. Douglas MacArthur Senior Village, Inc., 508 F.2d 377 (2d Cir. 1974). It is not enough that the transaction has become less profitable for the affected party or even that the affected party will sustain loss. Rockland Development, supra.

In Crown, supra, the court said that the doctrine is a narrow one and that “in order to invoke this defense 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.” PPF Safeguard, supra.

In Jack Kelly Partners LLC v. Zegelstein, 140 A.D.3d 79 (1st Dept. 2016), an owner and a tenant entered into a commercial lease agreement to use the rental space for general offices of an executive recruiting firm and so as not to violate the certificate of occupancy. However, the certificate of occupancy was for exclusive residential use. When the landlord refused to amend the certificate of occupancy, the court, finding frustration of purpose, allowed the tenant to terminate the lease.

In Mr. Ham, Inc. v. Perlbinder Holdings, LLC, 116 A.D.3d 577 (1st Dept. 2014), the lease provided that the premises were to be used for the preparation and retail sale of various food items and that the tenant would do the build out. The found that the owner’s unanticipated renovation of the premises, preventing the build out, deprived plaintiff of its consideration and frustrated the purpose of the contract, allowing rescission.

In Benderson Dev. Co. v. Commenco Corp., 44 A.D.2d 889 (4th Dept. 1974), a tenant leased premises to run a restaurant and could not do so until a sewer was constructed years later. The court allowed the tenant to rescind the contract based on frustration of purpose.

In none of these cases did the court address a situation where the duration of the frustrating event is expected to be considerably shorter than the expected duration of the lease. None of them consider the idea of forgiving some months of rent in the middle of the lease term when things are expected eventually to go back to normal. The “cataclysmic” standard of U.S. v. Gen. Douglas MacArthur Senior Village, Inc., supra, could therefore find that the temporary interruptions of the pandemic do not qualify for the rent forgiveness.

Recently, numerous cases have been filed in New York courts trying to terminate commercial leases or stop the payment of rent under this theory and one of the questions the courts will have to decide for the first time since these cases were first filed in New York during World War II is whether they can stand when the business is closed for a few months during a 10 or 20-year lease. I have named this theory temporary frustration of purpose. No court to date has allowed a tenant to stop paying rent based on these set of facts but the courts being closed for several months except for emergencies and the inability once the courts have been open to expedite or move a case through the system has limited the ability of practitioner’s to receive decisions.

Foreseeability

Neither frustration of purpose nor impossibility of performance apply if the circumstances preventing the performance were foreseeable. Warner v. Kaplan, 71 A.D.3d 1, (1st Dept. 2009); Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900 (1987). One author, Dov Treiman, notes that it can be argued that COVID-19 was foreseeable since Ebola gave a comparatively mild rehearsal, showing what could happen. https://www.healthline.com/health-news/how-deadly-is-the-coronavirus-compared-to-past-outbreaks. Yet, others would argue that the ferocity of this pandemic sees its only parallel in the Spanish flu of a century ago and prior to that, only in the Bubonic Plague from centuries earlier and therefore no commercial lease could have been written in our lifetimes predicting this event.

In addition, COVID-19 and the governmental responses to it are distinct issues. Whether or not the virus itself was foreseeable, there can be frustration of purpose or impossibility of performance if the government’s response defied prediction. J.H. Labaree Co. v. Crossman et. al, 100 A.D. 499 (1st Dept. 1905).

In Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900 (1987), the parties were expected to see and predict the instability of the insurance industry and to make provision in their contract for the tenant’s inability to procure the required insurance.

Impossibility of Performance

The elements of impossibility of performance require a showing that (1) the event rendering the performance impossible was unforeseeable, (2) that said event destroyed the subject matter of the contract or the means of performance, and (3) it was the event that made performance objectively impossible. Kolodin v. Valenti, 115 A.D.3d 197, 200 (1st Dept. 2014); Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (1987).

The standards for unforeseeability are no different for impossibility of performance than they were for frustration of purpose.

Key to impossibility of performance is that a party should be excused from the performance required of it on a contract when it is objectively impossible to do the act the contract requires of the performer. The Reed Foundation, Inc. v. Franklyn D. Roosevelt Four Freedoms Park, LLC, 108 A.D.3d 1. Extreme difficulty of performance does not satisfy that condition, such as the nonpayment of money when one has no income. Even in an economy where no one is lending money, the cases conclusively presume that someone who needs money can always come up with it. 407 East 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275 (1968). However, the doctrine has no place when the other party has not actually required the performance. Walnut Place LLC v. Countrywide Home Loans, Inc., 96 A.D.3d 684 (1st Dept. 2012).

Prohibited Performance

Where the law prohibits the performance, it is excused. (Labaree, supra). However, while the government has prohibited certain facilities from being open (thus excusing the landlord), it has not prohibited the tenants from continuing to pay their rent (thus not excusing the tenants). Crown Embroidery Works v. Gordon, 190 A.D. 472 (1st Dept. 1920). What the case law has not provided definitive guidance on is whether a business is truly shut down by governmental operation if the only part that is shut down is the face-to-face aspect of the business while the on-line presence thrives. See Crown Embroidery, supra.

Causation

In the element of impossibility of performance as above stated, “it was the event that made performance objectively impossible,” Kolodin, supra, is contained the idea that the catastrophe was the cause of the inability to perform. Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (1987). Indeed, with many retail businesses, it will be a difficult matter of proof that their collapse was COVID-19 caused and not merely part of the ongoing shift to consumer preferred on-line shopping.

A decade after the 1918 flu, courts engaged the problem of causation, in Palsgraf v. Long Island Railroad Co., 248 N.Y. 339 (1928) where an exploding package on a railroad platform caused scales to fall on the plaintiff at some distance. The court found the cause and effect too attenuated to cast blame on the defendant.

While there is a direct cause and effect for a tattoo parlor ordered closed in response to the COVID-19 crisis, consider a negligence litigation law firm that occupies rented space, finding its income shut down by the closure not of their office space, but of the court system. This does not square with Palsgraf’s ideas of causation.

There is a line of authority that just because the disaster made the supplied party lacking a need for the product it undertook to buy, it was not excused from paying the full amount. See, Constellation Energy Services of New York, Inc. v. New Water Street Corp., 146 A.D.3d 557 (1st Dept. 2017). Thus, the law firm that did not need to use its office would not be excused from paying the rent.

Tenants seeking rent relief because of impossibility of performance will thus encounter barriers in causation, and objective impossibility.

Impossibility for Landlords and Tenants

The question of impossibility in light of COVID-19 reaches both ways in the landlord-tenant relationship, both as to the landlord’s inability to provide the space and the tenant’s inability to serve customers. Baron Leasing Corp. v. Raphael, 103 A.D.3d 763 (2d Dept. 2013) a case with a leased taxi medallion owned by a decedent, holds that governmental regulations prohibiting the use of the medallion excuse the owner from damages for requiring its nonuse. Thus, the owner is excused from damages arising from obedience to the law.

Force Majeure

The other doctrines with which we have been dealing are common law in nature. MacArthur, supra. Force Majeure, however, is entirely contractual in nature. To establish an effective force majeure defense, these elements must be present: (1) The specific language used is a force majeure clause, (2) The event sought to excuse performance must fall within the scope of the clause, and (3) It is the event that renders performance actually impossible, rather than merely financially imprudent. Kel Kim, supra; Route 6 Outparcels, LLC v. Ruby Tuesday, Inc., 88 A.D.3d 1224 (3d Dept. 2011); Macalloy Corp. v. Metallurg, Inc., 284 A.D.2d 227 (1st Dept. 2001).

A contract may have a clause excusing performance of one of more of the contracting parties upon the occurrence of certain listed events. In the absence of such a clause, those events—typically storms, insurrections, earthquakes, and the like—do not excuse either party’s performance under the lease, unless they fall within the other doctrines discussed herein. General Electric Co. v. Metals Resources Group Ltd., 293 A.D.2d 417 (1st Dept. 2002).

What all these events have in common is that they are usually disastrous in nature, but since parties are free to contract as they will, Constellation Energy Services of New York, Inc. v. New Water Street Corp., 146 A.D.3d 557 (1st Dept. 2017) they could be something relatively benign in nature, such as a building becoming X% vacant or a party is unable to acquire the materials it needs. Route 6 Outparcels, LLC, 88 A.D.3d 1224.

However, force majeure clauses, as they actually appear in nearly all leases, where present, specify that a force majeure event does not excuse the payment of rent. Courts will not rewrite what the parties themselves have contracted. Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470 (2004) and give the tenant an excuse from paying rent when the lease specifies that these catastrophes are not an excuse from paying rent.

Often these clauses include language on the order of “or other similar.” Team Marketing USA Corp. v. Power Pact, LLC, 41 A.D.3d 939 (3d Dept. 2007). In order for an event to be “similar” to one listed, it has to be more particularly similar than also being a disaster. Reade v. Stoneybrook Realty, LLC, 63 A.D.3d 433 (1st Dept. 2009). While a volcano would likely be deemed similar to an earthquake, a pandemic is not similar to a labor strike. Kel Kim, supra.

As Team Marketing, supra, explained, “the precept of ejusdem generis as a construction guide is appropriate—that is, words constituting general language of excuse are not to be given the most expansive meaning possible, but are held to apply only to the same general kind or class as those specifically mentioned.” In Team Marketing the court declined to give the phrase “for any reason, including, without limitation” a reading that “any” meant “all” regardless of the types of disastrous events specifically listed.

It is not enough for the event to occur for it to excuse the performance. There must be a nexus between the event and the inability to perform. Phillips Puerto Rico Core, Inc. v. Tradax Petroleum Ltd., 782 F.2d 314, 319 (2d Cir. 1985) and the event in question must be beyond the control of the party seeking to have performance excused. Svenska v. Harris Corp., 3 F.3d 576, 580 (2d Cir. 1993); United Equities Co. v. First Nat. City Bank, 52 A.D. 2d 154 (1st Dept. 1976). This gives rise to the same questions about causation we discussed earlier.

Act of God

If the force majeure clause contains “act of God” language, the party may run into the issue of whether COVID-19 is an act of God. “Acts of God” are generally understood to include accidents caused by forces of nature. According to Black’s Law Dictionary, an “act of God” is “an overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood or tornado.” See Hernandez-Ortiz v. 2 Gold, LLC, 170 A.D.3d 465 (1st Dept. 2019); Chittur v. Briarcliff Woods Condominium Ass’n, Inc., 15 A.D. 3d 329 (2nd Dept. 2005); Merritt v. Earle, 29 N.Y. 115 (1864). The courts have also said that for a loss to be considered the result of an act of God, human activities cannot have contributed to the loss in any degree. See Moore v. Gottlieb, 46 A.D.3d 775 (2d Dept. 2007); Woodruff v. Oleite Corporation, 199 A.D. 772 (1st Dept. 1922). Since the loss of business upon which tenants seek to rely for rent relief is not based on the disease itself, but the governmental order to shut down, this could prove to be a problem for them.

Conclusion

While there have been some rulings in the Midwest (see, for example, In re Hitz Restaurant Group, 68 Bankr.Ct. Dec 22, 2020 WL 2924523) where commercial tenants have had a measure of success in seeking relief from their rent obligations, as to these three doctrines, and a lot of talk and threats and misunderstandings of the power of these three legal arsenal, application of them in accordance with New York’s understandings will make relief for tenants extremely difficult.

Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C. Dov Treiman is a partner at the firm. Allissa Kerr, a summer associate at the firm, assisted in the preparation of this article.

Adam Leitman Bailey, P.C. Defeats Broker’s Commission Action

In this matter, Adam Leitman Bailey, P.C. represented a husband and wife who had recently purchased a home in the Hamptons, and were being sued for a broker’s commission. The client purchasers were baffled as they had limited involvement with the broker who was suing them, and ultimately used another broker to consummate the transaction.

The involvement of the suing broker/plaintiff in the action was limited to the following:  sending email listings to our clients and meeting with our clients on two or three occasions to view homes. In fact, our  clients were actually the ones who introduced the property they ultimately purchased (and was the subject of the litigation) to the suing broker, not the other way around.

After a month or two of emailing with the plaintiff and viewing a few homes with her, our  clients ultimately felt that the plaintiff would not be able to close the deal for them on their desired property, as she was unable to gain any information from the listing agent as to the seller’s mindset on pricing or what an acceptable offer might be. Our clients lost confidence in the plaintiff and began to question where her primary loyalty rested, as her advice was not sound and with our clients’ best interests in mind.  The clients never signed an agreement with the plaintiff. Also, the plaintiff worked for the same company as the listing agent and never had our clients sign the required dual agency disclosure.

Our clients formally advised the broker/plaintiff that they would no longer be viewing homes with her, and that they would be engaging another broker.  That new broker was successful in consummating the transaction on our clients’ behalf and, as a result, obtained the commission. The original broker/plaintiff continued sending listings to our clients even after being told her services were no longer needed. Shortly after the home was sold to our clients, the original broker filed suit against our clients alleging that she was owed commission on the sale as the “procuring cause” for our clients’ purchase.

ALBPC jumped into action and prepared a comprehensive motion to dismiss, objecting to the frivolous allegations on numerous grounds, including (a) lack of written agency agreement, (b) no dual agency disclosure, (c) lack of capacity to sue (plaintiff sued in her own name, and only the brokerage company that she worked for is entitled to sue, and that agency had already collected a commission on the sale as the listing broker), (d) failure to properly name our clients in the action (plaintiff named them as defendants in their individual capacities and not in the LLC capacity in which they purchased the property), and (e) that the documentary evidence established that plaintiff was not the procuring cause of our clients’ purchase of the property. On this last point, ALBPC took the time to introduce each and every email between the plaintiff and defendants to establish that plaintiff did not introduce the premises to the defendants, and did not ever relay an offer on the defendants’ behalf, or engage in any contract negotiations. All of this was done by the second broker that our clients worked with, and who rightfully obtained a commission on the sale.

When presented with our motion, the plaintiff crumbled, and decided to withdraw her action altogether, without even attempting to oppose the motion. The case was then formally discontinued, and our clients are now able to fully enjoy their new home without any litigation looming overhead.

Adam Leitman Bailey, Rachel Sigmund McGinley, and John M. Desiderio represented the purchasers in this matter.

How Can a Landlord Rent Their Summer Home After HSTPA 2019?

Q. A luxury condominium owner purchased their unit in 2018 and was previously allowed to rent the unit out for the summer to visitors without any issues. Since the passing of the new tenant protection laws, landlords are no longer allowed to accept deposits or advances that exceed more than one month’s rent. How can a landlord attempting to rent out their condo unit only for the summer months still do so without violating these new laws?

A. The Housing Stability and Tenant Protection Act of 2019 passed on June 14th has created major issues for landlords across New York, especially those who normally rent out their condominiums or cooperatives over the summer months to live in their summer homes. In order to stay in check with the new laws you could make the summer rent one fee and one payment rather than a three month rental due on the first of the month. For example, you could make the rent for July and August free and charge all of the money in June’s rental payment. You could also use a third party guarantor to get around this law.

 

This was originally published on ALBlawfirm.com.

An Update On Suing For Rent

Since the Covid-19 crisis hit, there has been a series of directives from the New York State Governor, the Chief Administrative Judge of the New York Courts, and the New York State Legislature.

These mutually contradictory proclamations have taken the already complex procedures for suing for rent (made more complex with last June’s overhaul of the rent laws) and made them not only more confusing, but more certain to frustrate a landlord seeking to get paid rent, even rent that has nothing to do with Covid-19.

While we could go through the wretched four month history of these pronouncements, it is best to tell you where things are at the moment we are writing to you and to leave the past to the past, as much as possible.

The current situation starts with two laws the Legislature passed: one, passed at the beginning of the crisis, giving the Governor authority to temporarily amend any New York law at all on his own without legislative oversight, the other passed only a few days ago, changing the procedures for suing in residential proceedings, but having no effect on the Governor’s Executive Orders regarding commercial nonpayment proceedings.

First, we note, that although the Civil Court (of which Housing Court and Commercial Part are both parts) is continuing to prosecute landlords for violations, it is still not accepting new cases landlords try to bring as either commercial or residential proceedings. As ever, all landlord-tenant cases start with buying an “index number.” The Civil Court says that it will only sell index numbers to people who apply for them by mail (with no indication as to how long it will take for the mail to be processed) or by ordering them on-line through the New York Court System’s electronic service, NYSCEF.  However, there is no NYSCEF in the Civil Court at all at present, although its implementation has been promised to take place within the next two weeks. Even with NYSCEF in place, however, in order for a case to run purely electronically, the tenant has to consent. If there is no consent, the case will be on paper only and it is expected that all paper-driven cases will take an extremely long time to process. Thus, as a practical matter, no cases can be started in the Civil Court (except to prosecute landlords for repairs or lockouts). However, most commercial proceedings are against business entities like corporations and LLC’s, which are required by law to be represented by attorneys. Lawyers are likely to consent to completely electronic cases as it is much more efficient for them.

The Civil Court is now beginning to work on old cases (both residential and commercial) by video conference, but only if there are lawyers on both sides and only for the purpose of settling the case. There are no trials until the end of July. Those will only be in Brooklyn and only for cases that were ready for trail before the Covid crisis hit. Since there are no trials on new matters, tenants have no motivation to settle. Under the new law the legislature passed, if a residential tenant proves financial distress (Covid-19 or otherwise), the landlord can only get a money judgment, not an eviction. The tenant does not have to prove that the financial distress is Covid related, only that it happened during the Covid crisis period. The Civil Court’s administration has announced that once it does start selling index numbers again, it will automatically adjourn all cases for a “very long time,” without specifying how long. We do not anticipate the Civil Court allowing any nonpayment based evictions (commercial or residential) to take place for the rest of 2020.

It has also been reported that the State Attorney General has prosecuted firms for serving rent demands because the Governor’s order prohibits “initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent.” We believe this is wrong for two reasons: First, rent demands are not initiating a proceeding. They are only taking the steps necessary to initiate a proceeding. Second, there is a precedent from a Suffolk County judge stating that the Governor’s order with respect to eviction proceedings is illegal.

This office continues to serve rent demands.

Since the Civil Court is not a realistic place to sue for rent, this office is using a provision from the New York State Constitution that allows all cases to be brought in State Supreme Court. Supreme Court does have NYSCEF, does have authority to hear these cases, and is selling index numbers (although very slowly). While the Governor’s Executive Order continues to prohibit commercial cases for nonpayment of rent and that prohibition would theoretically apply in Supreme Court, we will continue to challenge the legality of that Order. Thus, this office will be bringing both residential and commercial nonpayment cases in State Supreme Court.

No new laws have been passed and no Executive Orders have been issued with regard to bringing holdover proceedings. Since a tenant whose security deposit is applied to pay rent is the subject of a holdover proceeding, we recommend applying the security deposits in this manner. In the holdovers that we bring based on an obligation to replenish security deposits, there are no known Covid related defenses available, neither in the residential nor in the commercial context.

This article was originally posted on ALBarticles.com.

Understanding Residential Building Laws Within a Pandemic Context

Though almost universally deemed as “unprecedented,” the operational difficulties posed by COVID-19 are not entirely unknown to history. The owners, managers and boards of New York City’s multifamily buildings faced similar challenges a hundred years ago, when the so-called Spanish Flu of 1918 swept the globe. Now, as then, the social distancing rules and restrictions imposed by governments at all levels have compelled boards and residents alike to question the responsibility and duties of both the managers and occupants of residential buildings.

In an effort to gain a better understanding of the short- and long-term legal implications and issues affecting multifamily living during COVID-19, we’ve taken a look back through similar historical events. We researched and analyzed court cases relating to the aforementioned Spanish Flu as well as the Scarlet Fever epidemic of the mid-1800s and today’s COVID-19-related executive orders and federal and state case law and legislation.

Who Bears Responsibility for Protecting the Health of Building Occupants?

It is the primary responsibility of building managers — regardless of whether they own rental buildings or serve as the board members or managers of co-ops or condos — to maintain the health and safety of their properties and residents. Thus, owners and managers are expected by law to maintain their buildings’ common areas in compliance with the public health code.

To quote the NYC Administrative Code §17-133 [Penalties], “Every person, corporation, or body that shall violate or not conform to any provisions of the health code of the City of New York, or any rule or sanitary regulation made, shall be liable to pay a penalty not exceeding the maximum amount allowed by the health code of the City of New York.”

Contextualized within the COVID-19 pandemic, this means that it is the duty of owners and managers to maintain the building and take all necessary and reasonable precautions to prevent disease spread and protect occupants.

This isn’t a new or unexpected delegation of responsibility. The duty of limiting infectious spread in common areas was recognized long ago in Majestic Hotel v. Eyre, 53 AD 273, 65 NYS 745 (1st Dept. 1900), a case involving an epidemic of scarlet fever. In that instance, the Court declared:

“We doubt not, if the landlord was guilty of affirmative negligence, or negligently suffered acts to be done by which a contagious disease was introduced into a thickly-populated hotel or tenement house, or, upon the breaking out of a contagious disease upon the premises, if he, retaining and exercising a general control over the public parts of the house, should negligently omit to take precautions to prevent the spread of the epidemic, or otherwise to protect the tenants from contagion, when the means lay within his power so to do, a case might be made which would avail as a justification for the surrender of the premises.”

Establishing the Rights and Responsibilities of Residents

Residents bear a similar, if different, obligation to prevent the spread of infection. Tenants, shareholders, unit owners, and all other occupants living in or otherwise present in buildings within a pandemic zone are subject to all of the federal, state, and local social distancing guidelines and restrictions.

In New York State, the most significant restrictions on residents’ personal freedom of movement and social interaction stem from the Governor’s executive orders. The Governor’s authority on this matter stems from his preexisting authority to declare a disaster emergency and to — as per Executive Law §§28 and 29-a — “issue any directive during . . . [an] epidemic, disease outbreak” that “must be necessary to cope with the disaster and may provide for procedures reasonably necessary to enforce such directive.”

As such, Governor Andrew Cuomo has issued a total of 20 executive orders between the pandemic’s arrival in March and the date that this article was written. En masse, those orders have impacted the operations of hundreds of thousands of buildings in New York City. They have mandated the closing of the bars and restaurants that operate as commercial tenants — many of them in apartment buildings — as well as all gym facilities in and beyond residential properties, until further notice.

Moreover, while some residents may chafe at being barred from valued amenities or forced to comply with pandemic-related movement restrictions, the clear authority of the law undergirding gubernatorial executive orders — as well as the clarity of the Condominium Act — will likely ensure that any claims that these restrictions are in breach of the warrant of habitability or contract will most likely fail in court.

To conclude: building managers and administrators must make all reasonable effort to adhere to the Governor’s orders and do their part to both slow the spread of COVID-19 and preserve the health and safety of their residents. Both management and building occupants are subject to the enforcement of those orders by local law enforcement.

Leveraging the Lessons of the Past in Current Considerations

As noted at the top of this article, the current pandemic — and the legal considerations stemming from it — are not entirely unprecedented. There are, in fact, court rulings from generations past that provide some insight into how cases arising out of the COVID-19 experience may be dealt with when social distancing restrictions relax and the courts reopen.

For example, previous rulings suggest that residents who leave their “uninhabitable” New York City apartments to weather the pandemic in upstate or Hamptons-area retreats while hoping for an abatement or forbearance on their lease, maintenance, or common charges obligations will find themselves disappointed.

In the Majestic Hotel v. Eyre decision mentioned above, judges provided the following comments to a tenant who fled his New York City apartment to ride out the pandemic elsewhere:

“So far as physical surroundings were concerned, the apartments were as habitable when the defendant voluntarily vacated them as when they were leased. It is also clear that after the fever was discovered the usual precautions known to science were taken to isolate the cases and prevent the spread of the disease. There were about 400 persons occupying apartments under lease in the hotel at the time of the breaking out of the fever; and for the most part [they]…continued to remain and occupy their apartments, without detriment to either health or comfort. The defendant abandoned his apartments on account of the fear of contagion to himself and family. We are, therefore, to see if this is sufficient to excuse the payment of rent. We know of no ground upon which the payment of rent can be successfully resisted.”

Other challenges regarding the constitutionality of the Governor’s actions will inevitably arise. Can the courts be closed but for a select list of emergency actions? Can a governor effectively shut down a city and order its citizens to remain in their homes? The current crises — both public health and economic — have prompted these and a host of other complex questions at all levels of governance and community administration.

Originally published on SCORE.

City Council’s relief for COVID afflicted guarantors

On May 27, 2020, the New York City Council enacted Int. 1932/2020 into law, an ordinance that is “in relation to personal liability provisions of leases for commercial tenants impacted by COVID-19.”

As to rent and other financial obligations that arose from March 7, 2020 through September 30, 2020 (“the Covid period”), landlords may never enforce personal guaranties of certain commercial tenants.  Under the law, the guarantor is again liable for any rent or other charge defaults arising on or after October 1, 2020.  This does not bar landlords from suing guarantors for rent and other financial obligations that arose either before or after the Covid period. A lawsuit that includes such financial obligations from both inside and outside the Covid period would, under this ordinance, be invalid as to the Covid period rents and charges, no matter when the lawsuit is brought.

ADAM LEITMAN BAILEY

The economic defaults from which the guarantors are relieved of enforcement include, “utility expenses or taxes owed by the tenant under (the lease or rental agreement), or fees and charges relating to routine building maintenance owed by the tenant under” the lease or rental agreement.

The bar on enforcement of the guaranty is permanent. While some might believe otherwise, the enforcement is not postponed until October 1, 2020. The law’s bill jacket states, “This bill would temporarily prohibit the enforcement of personal liability provisions in commercial leases or rental agreements involving a COVID-19 impacted tenant.” However the phrase “temporarily prohibit the enforcement” is false. The prohibition on enforcement set forth in the law is unlimited and therefore permanent.

However the law is limited to very few categories of commercial businesses. The law only applies to commercial leases that are in these categories: (1) restaurants and bars banned by the Governor’s orders from on-premises food service; (2) retail establishments shut down for being “non-essential”; (3) gambling facilities; (4) gym, fitness centers and classes, and movie theaters; (5) hair dressers and other cosmetic establishments. As to all of these, the enactment protects their guarantors whether or not the business actually sustained a loss of income due to Covid.

The only guarantors this law protects are actual human beings, regardless of whether they are good guy guarantors or full guarantors. If the guarantor is another business entity, such as a corporation, limited partnership, or LLC, this law gives it no relief.

The law has no application to commercial leases outside of the ones we have described. For example, it does not apply to residential occupancies, office space, medical and quasi-medical establishments, religious facilities, spiritual consultants, repair shops other than automobiles and bicycles, cleaners, storage facilities, museums, galleries.

Guarantors of businesses that are considered “essential” receive no relief under this law. In addition to those listed in government web sites as being “essential,” providers of essential services are also those who are necessary for the operations of recognized essential services. So, for example, lawyers who are essential to banks are also deemed essential.

The guarantors of all of these providers of essential services of any kind described in this article receive no relief from this new law.

All of the guarantors who do not qualify for relief under this new law, get no relief from their guaranties, regardless of whether Covid did or did not impair their financial condition.

Many guarantees are not in the lease and are separate documents. Whether this law, if enforced at all, is enforced with respect to these separate document guaranties or even guaranties immediately next to the lease, but not referenced inside the lease will be questions the courts will have to take up.

DOV TREIMAN

The actual effect of the law may be relatively small, even for the few categories of business to which it applies. Since the Covid period under the law starts in the middle of March, under most commercial leases, the March rent was due in full on March 1 and the March default therefore arose before the Covid period. This means that the only defaulted rent would normally be April through September (six months). Under most leases, the landlord is allowed to draw down security whenever the rent is in default. In the kinds of commercial leases that have personal guaranties, two months of security is common, leaving only four months owed. Those tenants who sought and receive a federal Covid loan (“PPP”) have to use 25% of it to pay rent. After all of these calculations, it might be as little as one or two months of rent default with the useless guaranty. However, even with only two months off the table, it will make it harder for the landlord and tenant to enter deferment agreements because the landlord will say, “But you already have a deferment under this law. Why should I give up more than that?”

The new provision also make it commercial harassment against the tenant when, in spite of this new law, the landlord seeks to assert its rights against the guarantor. These are two different people, as there is no such thing as guaranteeing your own obligation. In order to enforce its rights, the tenant but not the guarantor may sue for an injunction, damages, punitive damages and reasonable attorneys’ fees. court costs, and a civil penalty of between one and ten thousand dollars. The new law does not explain just how enforcing a guaranty meets the anti-harassment law’s requirement that in order to qualify for relief from the court, the tenant must show that the prohibited conduct is intended to get commercial tenants to surrender the tenancy or waive rights. Tenants will also not be able to show they are damaged by landlords seeking to collect the rent to which they are entitled. It may therefore be impossible to enforce the harassment aspect of the new law.

This law is probably unconstitutional, but that is another discussion for another article.

By Adam Leitman Bailey and Dov Treiman, of Adam Leitman Bailey, PC

This was originally published on Real Estate Weekly.

The Pandemic, Personal Privacy & the Law

Editor’s note: This article is Part 2 of a two-part series from the authors examining some of the many legal questions and considerations raised by the global pandemic for co-op, condo, and HOA boards, as well as landlords and building owners. Click here to read Part 1:  https://cooperator.com/article/residential-building-laws-the-covid-19-pandemic

Among the many complex questions raised by the ongoing coronavirus pandemic are those that lie at the intersection of personal privacy rights and the right of individuals to information they can use to protect their health and that of their families. With accurate information and clear, consistent communication so crucial in the fight against COVID-19, multifamily boards and managers are faced with a legal dilemma: risk claims of privacy violation by disclosing information about individual residents’ health, or risk claims of negligence for not informing their constituents of infections within their building or HOA. With residents understandably concerned about both their privacy and their safety, the pressure on boards and managers is acute. Given the stakes, it’s important to understand both the extent and limitations of what boards can mandate in their communities, and make decisions based on the law, rather than misinformation or personal preference.

LEGAL FACTS & BOARD OBLIGATIONS

While much of the guidance around staying home, social distancing, and wearing masks has been presented in the form of ‘recommendations’ or ‘strongly suggested,’ the fact is that occupants of New York City buildings who are infected with the coronavirus and who do not self-quarantine under the existing social distancing rules and guidelines may be subject to mandatory quarantine under NYC Administrative Code §17-104, which spells out measures to prevent the spread of disease.

According to NYC Administrative Code, §17-106, If a person who is “apparently or presumably sick of any communicable disease,” but refuses to self-quarantine is reported to the New York City Department of Health, that person is subject to inspection by “any officer or employee of the department,” and could then potentially be subject to detention in a public hospital. (See City of New York v. Mary Doe, 205 AD2d 469, 614 NYS2d 8 [1st Dept. 1994], which held that a patient’s multidrug resistant tuberculosis could not be treated and public health protected by less restrictive means.)

Buildings should report all known residents who are “apparently or presumably” infected with COVID-19 but who fail to self-quarantine either to the Department of Health — by calling 311 — or report to their local police precinct. In such cases, landlords or boards who either negligently or intentionally fail to make the required report could not only be subject to penalties for violating the New York City health code, but could also be subject to possible damage claims by other persons within the building who become infected as a result.

TO DISCLOSE, OR NOT DISCLOSE?

To be clear: there is no law requiring COVID-19-infected residents to advise their board or building management of their condition, so long as the infected residents self-quarantine in accordance with mandated social distancing rules and guidelines. That said, as a matter of prudence building owners and managers should protect the confidential health status of any residents who are known to be infected, but who are also complying with self-quarantine requirements.

According to the case of Doe v. City of New York, 15 F3d 264, 267 (2d Cir. 1994), “Information about one’s body and state of health is matter which the individual is ordinarily entitled to retain within the ‘private enclave where he may lead a private life’” and which is recognized as matter “the dissemination of which one would prefer to maintain greater control over.”

Aside from the non-disclosure protections given to certain medical records provided for under Public Health Law §§2782(k) and 2785, and under the Mental Hygiene Law §33.13, New York State does not constitutionally or statutorily protect a “right of privacy” when it comes to a person’s interest in keeping his or her health status confidential.

What New York’s “Right of Privacy” statute (Civil Rights Law, §§50, 50-c) does do is protect a living person’s “name, portrait or picture…” from disclosure “for advertising purposes, or for purposes of trade” only, “without having first obtained the written consent of such person.”

That said, there is a federal constitutionally protected “zone of privacy” — perhaps more accurately described as “a right to ‘confidentiality’” — that protects a person’s  “interest in avoiding public disclosure of personal matters,” which may be required to be reported to governmental authorities, see, e.g., Whalen v. Roe, 429 US 589, 599 (1977), but where the governmental authority publicly discloses the sensitive personal health information, even where that health information is otherwise required to be disclosed by law. This federally protected “right to confidentiality” is separate and apart from the protections provided under the more well-known Health Insurance Portability and Accountability Act of 1996 (HIPAA), which mandates that healthcare providers and insurance companies maintain confidentiality and not disclose a person’s health information.

Whether or not this federal, constitutionally protected “right to confidentiality” could be extended to protect self-quarantined COVID-19 patients from having their condition disclosed to their neighbors by the managers of their buildings is an open question. Accordingly, whether a landlord, co-op/condo board, or their respective property managers may lawfully disclose the identity of an individual person infected with the coronavirus to other residents in their building is presently undetermined.

However, there appears to be general consensus among real estate attorneys that management may disclose the fact that persons infected with COVID-19 are residing in the building, but should not identify specific infected individuals. There is no general consensus on whether buildings should identify, say, the floor on which an infected resident lives. For our part, we believe that those in close proximity to a diagnosed person must know the unit number that the person lives in to ensure that uninfected neighbors are taking extra precautions to avoid catching the coronavirus themselves. Otherwise, buildings may open themselves to negligence claims.

At the same time, and to the greatest degree possible, those responsible for the management of rental buildings, condos, and co-ops should respect and maintain the confidential health information of all of their residents’ who are complying with the mandated governmental social distancing rules — including self-quarantine where that applies. In some cases, the managers of buildings with residents known to have tested positive for COVID-19 but who refuse to self-quarantine have issued advisories to community members, letting them know that there are residents in their building who are violating the law by not complying with the orders to self-quarantine — but without identifying non-compliant individuals by name.

NO EASY ANSWERS?

Nevertheless, as previously noted, it is important to keep in mind that while disclosing a COVID-positive resident’s health status to his or her neighbors may result in claims of privacy violation, management may also run the risk of violating the law by not reporting such individuals to the Health Department. Our firm recently started an emergency action in New York State Supreme Court against a resident for their refusal to follow the governor’s executive order mandating social distancing inside the building.

Finally, it should also be noted that, aside from management’s obligation to report any COVID-positive residents who either fail or refuse to self-quarantine, management would be wise to not implement or take any action that treats an infected resident differently from his or her neighbors. Persons with communicable or contagious diseases are deemed handicapped or disabled persons under federal law. Therefore, treating persons infected with a disabling communicable disease in a discriminatory fashion because of that disease would violate the federal Fair Housing Act (FHA), 42 USC §3604(f)(1)(B). Both New York State and New York City civil rights statutes also prohibit discrimination  “against any person because of . . . disability . . . in the terms, conditions or privileges of the sale, rental or lease of any . . . housing accommodation or in the furnishing or facilities or services in connection therewith.” New York Executive Law §296(5)(a)(2); New York City Administrative Code, Title 8, Civil Rights, §8-107(5)(1)(a)(b).(Emphasis added).

In addition, without an order from a governmental agency permitting a given tenant’s exclusion from his residence, any action a landlord might take to evict a tenant after the end of the current eviction freeze for having been infected would violate New York City Administrative Code §26-521, which pertains to unlawful eviction and makes it “unlawful for any person to evict or attempt to evict an occupant of a dwelling unit who has lawfully occupied the dwelling unit for 30 consecutive days . . .except to the extent permitted by law.” See Daniels v. Christofoletti, 143 Misc.2d 857, 542 NYS2d 482 (NYC Civil Court, Queens County 1989).

As the legal and ethical ramifications of this once-in-a-century event continue to emerge, it’s crucial that landlords, managers, and co-op and condominium boards stay in close contact with their legal counsel, and avoid acting on fear or impulse. Striking a defensible balance between transparency and discretion can be challenging in the best of times; add in a global public health crisis, and the stakes are increased substantially. While in some cases there may seem to be no good answer to the dilemmas facing multifamily owners and administrators, sound, professional legal guidance can help guide your community during this trying time.

Adam Leitman Bailey is the founding partner of New York City-based law firm Adam Leitman Bailey, P.C., and John M. Desiderio is a partner with the Firm’s Real Estate Litigation Group. This advisory is offered as a service to clients and friends of Adam Leitman Bailey, P.C. and The Cooperator and is intended as an informal summary of certain recent legislation, cases, rulings and other developments. This advisory does not constitute legal advice or a legal opinion and is not an adequate substitute for the advice of counsel.

This article was originally published in the Cooperator on 5/14/20.