Adam Leitman Bailey's Blog, page 2

One-Step Solution

When common-charge arrears keep piling up with no end in sight, condo boards typically make a motion to foreclose and then another to evict. But there’s a workaround you may not know about.

Slow going. When unit-owners fail to pay common charges after a notice to cure, condo boards commence an action similar to what a mortgage lender would to foreclose. You ask the court to appoint someone to calculate the amount owed and for permission to auction off the unit in order to satisfy the money you’re due. Then comes the problem of eviction. Once boards become owners of a unit, they typically go to a landlord-tenant attorney and move to evict. But the process can take years, and in the meantime you’re not getting your common charges.

A faster route. There is an alternative — a writ of assistance, which allows a board to make a motion to evict a tenant within the foreclosure action. In other words, you’re just acting within an action that already exists instead of having to commence a new one. But there are three requirements to be met before you can do this. One, there needs to be language in the judgment of foreclosure specifying that the purchaser be let into possession of the property. Two, when you commence the foreclosure action, you have to serve not only the unit-owner but also any tenant residing in the apartment. Three, you have to file a notice of pendency so that if a tenant comes in after the foreclosure judgment, that person is subject to eviction as well.

Forced out. So once a board becomes the unit-owner, it would make this motion for a writ of assistance. If the motion is granted, the board would automatically have a judgment of possession, which it can give to the police to evict the former owner from the apartment. But that can only happen if you take all the necessary steps during the foreclosure action, so you need to think ahead.

Limited Liability Company Transparency Act

On June 20, 2023, The New York legislature passed a bill called the LLC Transparency Act which would require the beneficial owners of limited liability companies (“LLC”) to disclose their identities. This disclosure of information could then be found in a newly created, public searchable database maintained by New York’s secretary of state.

Governor Hochul signed this bill into law on December 23, 2023, and it will be effective one year after. However, the bill was amended to remove the requirement of the public searchable database to preserve the privacy and security protections LLCs provide in real estate transactions. Instead, the collected information will be entered into a database only accessible internally to agencies of law enforcement.

An LLC is a business structure in the United States that protects its owners from personal responsibility for its debts or liabilities. A beneficial owner of an LLC is any person who exercises substantial control over the entity or owns or controls at least 25 percent of its ownership interests, directly or indirectly.

The LLC Transparency Act aims to provide the necessary information needed by law enforcement to tackle unlawful activities involving possible corruption, fraud, theft, money laundering, tax evasion, etc.

The database would include the full legal name of the beneficial owner(s) of New York organized LLCs as well as foreign LLCs qualified to do business in New York. This will include the entity’s full name, business address, date of birth, unique identification number from a passport or other government issued identification document and other detailed information.

The penalty imposed under the ACT for failure to comply with beneficial ownership within the required timeframe would be a fine of $250.00 as well as a non-compliance public listing.

New York Landlord Obligations in Notifying Residential Tenants of Flood Risk, History, and Insurance

Effective June 21, 2023, New York State Real Property Law (Section 231-B) has been amended to require landlords to disclose specific information regarding flood risk and history directly through their residential lease agreements. The statute covers residential leases, encompassing cooperative apartments, condominiums, and rental buildings. Additionally, landlords must include a notice in the lease about the availability of flood insurance through the Federal Emergency Management Agency (FEMA). The law affects all residential leases, and notice can be provided through an attached rider. Existing leases should be updated to include this information and notice to ensure compliance with the law.

This change in law aims at tenant safety as New York continues to face increased challenges related to flooding caused by geographic location, urban infrastructure, and the impact of climate change. Transparency and notice empower tenants with critical information to make informed decisions about safety. It will likely affect where tenants choose to rent and how they prepare when extreme weather events are predicted.

Section 231-B requires landlords to provide notice of the following:

1. Whether any or all of the Leased Premises is located wholly or partially in a Federal Emergency Management Agency (“FEMA”) designated floodplain. The Federal Emergency Management Agency’s website has a Flood Map Service Center which can be found here: https://msc.fema.gov/portal/home.

2. Whether any or all of the Leased Premises is located wholly or partially in the Special Flood Hazard Area (“SFHA”, “100-year floodplain”) according to FEMA’s current Flood Insurance Rate Maps for the leased premises’ area.

3. Whether any or all of the Leased Premises is located wholly or partially in a Moderate Risk Flood Hazard Area (“500-year floodplain”) according to FEMA’s current Flood Insurance Rate Maps for the leased premises’ area.

4. Whether the leased premises has experienced flood damage due to a natural flood event, such as heavy rainfall, coastal storm surge, tidal inundation, or river overflow, which is detailed as follows (attach addendum if needed)

Mandatory Notice of Flood Insurance

Flood insurance is generally available to renters through the Federal Emergency Management Agency’s (FEMA’s) National Flood Insurance Program (NFIP) to cover your personal property and contents in the event of a flood. Contact FEMA for rates. A standard renter’s insurance policy does not typically cover flood damage. You are encouraged to examine your policy to determine whether you are covered.

Penalties to Landlords Who Fail to Disclose

There is no explicit statutory remedy imposing a penalty or fine if landlords do not provide notice of the above stated items. However, there is speculation that landlords could be liable in civil court for actual flood related damages when they fail to provide notice of the above stated items. Sellers who have similar flood disclosure requirements under New York Real Property Law (Section 462(2)) effective March 20, 2024, will be liable for willful failure to perform the requirements on this law and actual damages suffered by the buyer in addition to existing equitable or statutory remedies.

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Who Bears Responsibility for Required Condo/Co-Op Apartment Repairs?

In cases where building management and the unit owner disagree on who bears responsibility for making the repairs and/or who bears the repair costs, the attorney’s role, whether in representing the cooperative or condominium board on the one side or the opposing apartment shareholder or condominium residential or commercial unit owner on the other, is to focus on the several important tasks, discussed here.

New York courts hold that repairs to the interior of residential apartments,  or to the commercial space of a building, and to all plumbing therein, whether it be a condominium unit or a  cooperative apartment, are the responsibility of the individual apartment unit owner or commercial unit owner, as the case may be. See, e.g., Davis v. Prestige Management Inc., 98 AD3d 909, 951 NYS2d 147  (1st Dept. 2012) (Held: “the condominium’s bylaws provide that repairs and replacements to the units are the responsibility of the unit owners”).

The condominium unit owner’s or cooperative shareholder’s specific repair obligations are respectively set forth in the condominium’s declaration and by-laws or in the cooperative’s offering plan, proprietary lease, and by-laws. See, e.g., Lorne v. 50 Madison Avenue LLC, 65 AD3d 879, 886 NYS2d 1 (1st Dept. 2009) (Held: “It was not unreasonable for the board to require plaintiffs to adhere to the same rules that apply to all other unit owners wishing to make structural repairs.”).

The Attorney’s Role

In cases where building management and the unit owner disagree on who bears responsibility for making the repairs and/or who bears the repair costs, the attorney’s role, whether in representing the cooperative or condominium board on the one side or the opposing apartment shareholder or condominium residential or commercial unit owner on the other, is to focus on the following important tasks: First, to carefully scrutinize ALL of the governing documents, to be certain of what rights and obligations the respective parties may either assert or contest, in relation to a board’s business judgment obligations, see Matter of Levanduskey v. One Fifth Avenue Apartment Corporation, 75 NY2d 530 (1990).

Second, to engage qualified forensic expert architects and engineers (a) to inspect the physical premises involved, (b) to provide credible expert opinions to support the interests of the attorney’s clients, and (c) to show how the physical evidence conforms or does not conform to the specifications of the governing documents.

Determining ‘Interior’ Space From the Common Elements

Determining what is “interior” to the co-op apartment or to the condominium unit (whether residential or commercial) is not always self-evident. Cases abound, such as Silverman v. Milford Management Corp, et al, 2023 WL 6153731 (Table), 2023 N.Y. Slip Op. 50992(U) (Sup. Ct., App. Term, 1st Dept., 2023),  where the court held “the evidence supports the trial court’s finding that the condominium bylaws require plaintiff unit owner to bear the repair cost for any damages occurring in her unit…caused by a ruptured pipe under her kitchen sink”) (Emphasis added).

However, cases like Perlbinder v. Board of Managers of the 411 East 53rd Street Condominium, 2016 WL 1597761 (N.Y. Sup.) (Trial Court), Affirmed, 154 AD3d 467, 62 NYS3d 110  (1st Dept. 2017), Leave to Appeal Denied, 30 NY3d 910, 71 NYS3d 3 (2018), where the question was whether the damaged areas of a garage unit were part of the condominium common elements, and, therefore, the responsibility of the condominium board, or whether the damaged areas were entirely within the garage unit and, therefore, the responsibility of the garage unit owner, require more intensive examination of the physical structure of the building and of the unit’s physical location within the building, before responsibility for the specific repairs required can be determined.

In Silverman, supra, it was not difficult for the court to find, on the evidence, that the repair of a leak, caused by a ruptured pipe under the plaintiff’s kitchen sink, was the responsibility of the plaintiff unit owner.

However, in Perlbinder, supra, the key issue was whether the structural slabs of the garage, “which includes the ramp from the cellar to the sub-cellar level of the garage, and serves as a partition separating the two stories of the garage,” were “inherently part of the condominium structure as a whole” 2016 WL 1597761, at *6, and, therefore, a common element to the extent “not expressly included as a part of the a unit.” (Id.). The answer to that question depended on whether the concrete slabs of the garage ramp served as “a bracing function with respect to the exterior foundation walls located at the perimeter of the Garage Unit.” (Id., at *7).

To decide the question, the court carefully examined the sworn testimony given by the engineers of both the board and of the garage unit owner. In relating their respective testimony to pertinent parts of the condominium declaration, the court concluded that:

the slab separating the two floors of the Garage, including its interior rebar and concrete, is located within the interior surfaces of the walls and ceilings of the Garage Unit and is expressly, by definition, part of the Garage Unit and excluded from the definition of a Common Element. Moreover, the [affidavit of the Garage Unit’s engineer] makes clear that the ramp does not support the Building because it is not on one level, i.e., has different elevations, [and] [t]his is consistent with the testimony of . . . the Board’s engineer, who testified that only a “portion” of the slab in the Garage was necessary to make it effective as bracing for a column…Moreover, there is no evidence that the ramp is used by anyone except the Perlbinders’ Garage. (Id., at *12) (Emphasis added).

Accordingly, the court held:

The slab is expressly included within the Garage Unit, pursuant to the description of its boundaries in [the declaration], is a partition separating its two floors, and is not a Common Element, [as defined in the declaration]. There is no question that the portions of the slab within the boundaries of the Garage Unit are exclusively used by the Perlbinders and are not for the common use of the other Unit owners. Nor does the ramp provide support, a fact admitted by the Perlbinders’ expert. (Id., at *13) (Emphasis added).

Likewise, in cases of fire or other casualties that cause widespread damage to a condo or co-op building, determining whether a fire or flood originated “within the ‘common elements’ or an area considered part of [the apartment unit],” is also likely to be litigated. See, e.g. Onetti v. The Gatsby Condominium, 111 AD3d 496, 975 NYS2d 27 (1st Dept. 2013). As noted below, the result is likely to determine whose insurance company pays to repair the damage.

When the Building Owner is Responsible for Interior Repairs

Although a condominium or cooperative board’s repair responsibilities are generally limited, by their governing documents, to repairing common elements of the building, the owner of the building (whether the sponsor of the condo or co-op involved, or the cooperative board of directors or condominium board of managers) has a nondelegable duty to the unit owners to keep the building in good repair.

The building owner’s nondelegable duty is rooted in Multiple Dwelling Law, §78(1), which provides that “[e]very multiple dwelling, including its roof or roofs, and every part thereof and the lot upon which it is situated, shall be kept in good repair.”

In Liberman v. Cayre Synergy 73rd LLC, 108 AD3d 426, 970 NYS2d 6 (1st Dept. 2013), the court held the sponsor liable for having breached that duty by installing a roof that did not render the condominium watertight, and which caused damage from water infiltration into plaintiff’s unit.

Similarly, in Smith v. Parkchester North Condominium, 163 Misc.2d 66, 67,  619 NYS2d 523 (NYC Civil Ct., Bronx Co., 1994) (94-607, HP 821/94), the court explained that, in addition to Multiple Dwelling Law, §78(1), the New York City Housing Maintenance Code §27-2004 (a)(45) “broadly defines the term owner and clearly reflects that the owner of the premises bears the legal responsibility of correcting violations,” and that “Multiple Dwelling Law, §78(1) parallels [New York City Housing Maintenance Code §27-2005] in holding the owner responsible for keeping the property in good repair….and removing existing violations which are within his control and consistent with the bylaws of the condominium.” (Emphasis added).

In addition to repairs required for leaks or other faulty maintenance issues, a co-op or condo board may be held liable for repairs required within an apartment that are necessitated by fire or other events deemed “casualties” under the co-op or condo governing documents, and to which the building’s and not the unit owner’s insurance coverage may apply. See, e.g., 45 Broadway Owner LLC v. NYSLA-ILA Pension Trust Fund, 107 AD3d 629, 970 NYS2d 1 (1st Dept. 2013), appeal denied, 22NY2d 852 (2013).

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Local Law 107: Landlords On The Hook For Unlicensed Smoke Shops

Local Law 107 was recently enacted to prohibit owners of commercial spaces from knowingly leasing to unlicensed sellers of marijuana or tobacco products, and imposing fines of up to $10,000 on landlords for violations. This new legislation is in response to the explosion of unlicensed smoke shops in NYC – currently there are an estimated 8,000 unlicensed smoke shops in NYC.    

Under Local Law 107, state enforcement agencies, such as the Attorney General or the New York State Office of Cannabis Management (“OCM”), conduct inspections for unlicensed marijuana or tobacco sales. If they find such activity has occurred, they may provide written notice to the property owner, requiring they ensure such unlicensed activity is ceased, serving as the basis of violation. Any subsequent inspection that finds continued violation would make the landlord/property owner subject to a $5,000 civil penalty, and a $10,000 penalty for each subsequent violation. The commencement of an eviction proceeding is considered an affirmative defense for a landlord/property owner. The law also requires the submission of quarterly reports to the Mayor and the Council a quarterly report on enforcement relating to illicit cannabis or unlicensed tobacco product sellers. 

By Rachel Sigmund McGinley, the Chair of Adam Leitman Bailey, P.C.’s Cooperative & Condominium Representation Group. 

Understanding the Anti-Harassment Housing Laws in NYC

For the first time since the passage of the first anti-harassment housing law, a comprehensive review of those laws and their applicability, purpose, penalties, and dates of effectiveness have been explained and analyzed in detail. The authors have sought to educate practitioners and their clients on this vastly misunderstood body of law. One of the most far ranging and most amended areas of New York City landlord-tenant law is the regulation of what constitutes “harassment” in the residential context.

A look at the current ordinance shows that there is a wide variety of prohibited conduct and, by the numbering scheme, a complex history of amendment. When a tenant brings a harassment suit for which allegations span over a period of years, the court examines both when the alleged misconduct took place and whether that particular behavior was forbidden at the time alleged by the tenant.

The ordinance in question is located in the Definitions section of the Housing Maintenance Code (Administrative Code §27-2004), despite the fact, as will be made clear, that many of the behaviors discussed in the section have absolutely nothing to do with the physical maintenance of residential property.

Rather, the City Council wrote these matters into the Housing Maintenance Code in order to enforce its provisions in the Housing Court. The full text of the harassment definitional provisions (Administrative Code §27-2004(a)(48)) appears at [New York City Administrative Code § 27-2004: Definitions]. This text sets forth each provision in the Code and when it was enacted. Because the Housing Maintenance Code was enacted by the New York City Council rather than the New York State Legislature, it is an ordinance rather than a statute.

The Current Ordinance

With a quick glance at the full ordinance, it becomes apparent that many of its provisions wander far from the core purpose of defining harassment and enter, indeed, into substantive prohibitions on certain conduct and requirements for other conduct. For example, it counts filing repeated false certifications of corrections of building code violations as “harassment” against every tenant in the building, despite the fact that tenants in the building might be unaware of the misconduct.

Thus, the definition for harassment set forth by the ordinance in its most recent iterations has little connection to definitions of “harassment” in standard English dictionaries, all of which require that the victim be aware of the behaviors. Indeed, some of the prohibited behaviors in the ordinance are not directed at people at all. The people, if they are at all affected, may be mere collateral damage.

Some of the provisions of the ordinance only count particular conduct as “harassment” if the landlord has engaged in such behavior repeatedly. For example, deprivations of essential services count as “harassment” if they are so severe as to impair habitability or if they happen repeatedly throughout the building.

Evolution of the Ordinance

In the original 2008 version of the ordinance, there were seven categories of misbehavior (surviving in the present ordinance as subsections a through g) and all of them required an intent to get a tenant to vacate to constitute harassment.

Ten years later, the intent to occasion a vacatur or other waiver of tenant rights received a rebuttable presumption in its favor. At no time was the ordinance amended to indicate what such rebuttal would look like. However, in some of the categories of forbidden behavior, rebuttal is logically obvious, such as, for example, when a landlord is moving heaven and earth to get the boiler repaired but is nonetheless failing to accomplish it.

The ordinance, originally passed in 2008, has seen amendments in 2015, 2017, 2018, 2019, 2020, and 2023. Thus, any tenant’s attorney who seeks to prosecute an action based on a violation of conduct proscribed by this ordinance must ensure that the supposedly illegal conduct was already illegal at the time the conduct took place.

Levels of Evil

Furthermore, the current drafting of the ordinance is a combination of provisions that are malum in se and those that are merely malum prohibitum. The former category refers to actions that are genuinely evil, such as “removing the door at the entrance to an occupied” apartment (Subdivision f from the original 2008 version of the ordinance).

The latter category refers to actions that are illegal, but not generally regarded as immoral, such as making a buyout offer to a tenant without informing the tenant of the webpage the City maintains, setting forth tenants’ rights (Subdivision f-2, from the 2019 amendment). The kind of punishments dealt to landlords should ideally be linked to the severity of the immorality of the behavior.

Pure malum prohibitum violations of the ordinance should prompt lighter punishment than those that are malum in se. This is not to say that the malum prohibitum violations should go unpunished (and certainly not unenjoined), but that the severity of the punishment should correlate with the severity of the action and should account for intentions of universally recognized evil.

Yet, as there are so many provisions in the ordinance in its current form, it is difficult to distinguish prohibited evil conduct from prohibited conduct when regulating a contentious industry. Indeed, the surprisingly sparse case law on this ordinance generally does not report at all on these morally benign violations.

Provisions that do not necessarily involve moral failings include:

• Making a false statement on an application for a building permit (where the landlord does not realize the statement is false) (Subsection (a)(2));

• Repeated interruptions of essential services (where a landlord is trying to provide the service but cannot, such as when a needed part is not shipping) (Subsection b, b-1, and b-2);

• Removing a lawful occupant’s possessions (where the landlord did not know that the person in question was a lawful occupant or even an occupant at all) (Subsection e);

• Trying to buy out a tenant (Subsections f-1, f-2, but not f-3 which does seem limited to immoral behavior);

• Trying to communicate with a tenant outside of normal business hours (Section f-4); and

• Requesting ID, where the ID would show citizenship status (Section f-6).

Additional Tools

Several of the provisions in the ordinance serve as extensions of other laws that regulate conduct having little or nothing to do with tenancy. Thus, the ordinance in its 2023 iteration (Subsection f-5), is one of the broadest prohibitions on discrimination found anywhere in legal literature. While it, of course, includes the classics of race, color, and creed, it goes on to prohibit vastly more forms of discrimination, including height and weight of the tenant. While neither of these categories is a recognized “disability” on its own, one could interpret this ordinance to require the installation of lower doorknobs for people who suffer from dwarfism. Indeed, the impact this section of the ordinance may have on kitchen cabinetry is completely open to speculation.

The full list of prohibited characteristics of persons threatened in the 2023 version is: “actual or perceived age, race, creed, color, national origin, gender, disability, marital status, partnership status, caregiver status, uniformed service, height, weight, sexual orientation, immigration or citizenship status, status as a victim of domestic violence or as a victim of sex offenses or stalking, lawful source of income or because children are, may be, or would be residing in such dwelling unit.”

Oddly in this list is “uniformed service,” which we can readily assume refers to the federal or state military and probably the police force of New York City or some other municipality. Still, there are a great number of jobs that require uniforms, including but not limited to governmental employees. The full extent of the enactment is difficult to ascertain.

The Buyout Provisions

Provisions regulating buyouts first appeared in the 2015 amendments, prior to the 2019 amendments to the Rent Regulatory laws, which disincentivized landlords to buy out tenants. These laws removed profitability from acquiring a new tenant, easing existing tenants’ concerns that the landlord will buy out their apartments.

What had been a highly profitable business for both landlords and tenants (and their respective attorneys) until 2019, vanished, leaving the elaborate requirements surrounding buyouts in the Harassment ordinance little more than an historic artifact.

However, any attorney who has landlords for clients must ascertain if the landlord does still do buyouts and if so, must point the clients to the full ritual requirements of the harassment law regarding them.

The COVID Provisions

In 2020, the City Council added provisions related to COVID-19. These provisions prohibited threats based on “such person’s actual or perceived status as an essential employee, status as a person impacted by COVID-19, or receipt of a rent concession or forbearance for any rent owed during the COVID-19 period.” (Subdivision f-7). In interpreting this paragraph, it is important to recognize that the phrase “such person’s actual or perceived status” encompasses both a person having the described quality, as well as a person lacking the described quality.

Thus, this paragraph prohibits threatening both persons who were essential employees and those who were not if such status was the basis of the threat. This provision is not quite as antique as it might appear since the Harassment ordinance does not include a statute of limitations. Under CPLR 213(1) this means that the limitations period for the damages provision of the ordinance may not be due to expire until some point in 2026 or even 2027 (and even later if an infant is involved).

Additionally, the ordinance speaks of rent concessions and forbearance “during” the COVID period and does not speak of rent concessions or forbearances caused by COVID. The wording only addresses the calendar, not what caused the landlord to forego some of the rent. Thus, there may still be some considerable litigation on this provision. (The authors’ office continues on a daily basis to handle litigation arising out of Covid time period rent concessions)

The Weird Contact Provisions

While we authors are not generally loath to criticize a legislative enactment, even if we were, we would still criticize the 2020 amendment that restricts the hours that a landlord may contact a tenant to normal business hours. Bearing in mind that this is an ordinance dealing entirely with residential tenancies, it only allows a landlord to contact a tenant during those times that the tenant is least likely to be home to receive the contact. While it is true in New York City that not all people have the 9 to 5 job that so many of us do, the time from 9 to 5 captures the hours an overwhelming majority is required to be at work.

The ordinance does not specify what the nature of the contact is. Any contact outside of normal business hours is prohibited. Thus, as a practical matter, the landlord is relegated to speaking only to those who work off hours and those who are unemployed and contacting tenants in writing rather than by phone or door knock.

Enforcement

Under the original 2008 enactment of the ordinance, seeking a judgment in Housing Court that enjoined violations of the Housing Maintenance Code was the only enforcement mechanism. It was not until the 2017 amendment that damages, punitive damages, and attorney fees could be awarded, thus allowing for the possibility of venues in addition to the Housing Court. Yet, the Housing Court has the authority to make those monetary awards as well. Presumably, an award of punitive damages is tied to the level of immorality of the landlord’s conduct.

Conclusion

The definitional section of the anti-harassment ordinance is a wild hodgepodge of prohibited conducts. Some prohibited conducts involve moral turpitude, some of them do not; some of them involve having a direct adverse effect on tenants, some of them do not. However, all of these provisions were enacted over a period of some 15 years. Thus, when deciding whether to bring suit, one’s first level of research should ascertain whether conduct was illegal at the time it was performed.

The second level of research should examine whether damages were authorized at that time. The final level of research should determine whether the conduct is illegal at the time of bringing the suit. The ordinance’s complexity leaves many questions unanswered. Prominent among those questions are those for which a landlord’s conduct is prohibited both in the presence and in the absence of the qualifying condition.

Adam Leitman Bailey is the founding partner and Dov Treiman is the landlord-tenant managing partner of Adam Leitman Bailey, P.C.

Read the original article on New York Law Journal 

Definitions of  New York City Administrative Code § 27-2004 

When Is an Attachment Levy Effective?

Trying times call for creative, aggressive lawyering by real estate litigators. Racing to find and attach and garnish a judgment debtor’s assets before they literally disappear is an old sport played, most recently, at a higher level due to the stressful economic real estate times.

This article reflects our war wounds and successes with the most important topical issues using the most relevant and authoritative case law and statutes.

Attachment is one of the provisional remedies provided by CPLR §6001 that is available to temporarily protect a creditor against the loss, dissipation, or diversion of the property of a debtor that might otherwise be used to satisfy a money judgment in the creditor’s favor.

The Attachment Process

As provided in CPLR §6201, An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants. (Emphasis added).

Attachment is appropriate, among other things, when the defendant is: (a) a non-domiciliary residing out of the state , or is a foreign corporation not qualified to do business in the state [CPLR §6201(a)], (b) a defendant residing or domiciled in the state who cannot be personally served despite diligent efforts to do so [CPLR §6201 (b)], or (3) a defendant who with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts” [CPLR §6201(3)].

Further, pursuant to CPLR §6202, in addition to attachments that may be made directly against property of the judgment debtor, money judgments are also enforceable, under CPLR §5201, against third-party garnishees, for debts of the debtor to said third parties or against a debtor’s interest in any property that can be assigned or transferred.

Pursuant to CPLR §5201(a):

A money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, to or from a resident or non-resident, unless it is exempt from application to the satisfaction of the judgment. A debt may consist of a cause of action which could be assigned or transferred accruing within or without the state. (Emphasis added).

Pursuant to CPLR §5201(b):

A money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment. (Emphasis added).

Following entry of a money judgment against a debtor or obligor, the creditor usually acts to enforce the judgment by serving restraining notices, under CPLR §5222(a) upon the judgment debtor and/or upon any other person, if, under CPLR §5222(b),

at the time of service, [the other person] owes a debt to the judgment debtor or obligor or [the other person] is in the possession or custody of property in which he or she knows or has reason to believe the judgment debtor or obligor has an interest * * *. (Emphasis added).

As noted in the Practice Commentaries to CPLR §5222 (at C5222:1), the restraining notice is “in effect an injunction that restrains the person served with it from making any transfer of the judgment debtor’s property except to the sheriff,” and, when it is issued by the judgment creditor’s attorney, acting as an officer of the court, “the restraint results without a court order or any other preliminary judicial authorization [and] is a rare example of an injunction, complete with contempt punishment as its sanction, not embodied in a court order or judgment.”

Determining the Proper Use of Attachment

As noted above, CPLR §5201(a) and CPLR §5201(b), respectively, require that a money judgment be enforceable only against a debt that is “past due or which is yet to become due, certainly or upon demand,” and only against “any property which could be assigned or transferred.”

It is clear, therefore, that a judgment cannot be enforced against “a general category of contingent debts and property rights based on contractual contingencies.” Verizon New England Inc. v. Transcom Enhanced Services, Inc., 98 AD3d 203, 207, 948 NYS2d 245 (1st Dept. 2012).

The following cases provide some examples of how courts decide the difference between (a) debts past due or which are yet to become due, certainly or upon demand, (b) property which could be assigned or transferred, and (c) contingent debts and property rights based on contractual contingencies.

(a) Debts Past Due or Yet To Become Due, Certainly or Upon Demand.  The leading case distinguishing the application of CPLR §5201(a) and CPLR §5201(b) to “debts past due” or to “property which could be assigned or transferred” is ABKCO v. Apple Films, Ltd., 39 NY2d 670 (1976).

In ABKCO, the plaintiff sought repayment of a loan made to Apple Films Ltd. (“Apple”), the English debtor-corporation over which it was unable to obtain personal jurisdiction.

To enforce its claim for repayment of the loan, ABKCO sued Apple Films, Inc., a New York corporation (“Apple NY”), by way of attachment against Apple’s rights in a license agreement Apple had granted to Apple NY in which the latter agreed to pay Apple 80% of the net profits received by Apple NY from promotion of the Beetles’ film “Let It Be.”

Apple NY, in turn, had transferred its rights and control to distribute the film to United Artists which agreed to pay Apple NY 50% of the adjusted gross receipts from distribution of the film.

The Court of Appeals explained that an attachment could not be effective unless “there is within the jurisdiction of our courts a debt or property of the debtor, here [Apple], within the meanings of subdivisions (a) or (b) of CPLR §5201.”

Apple and Apple NY argued that Apple’s right could only be classified as a debt within the meaning of CPLR 5201(a), and was therefore not attachable because the debt was then neither “past due” nor yet “to become due” because: (a) Apple NY “had not yet received any substantial sums from United Artists,” and (b) “it could not be known, or even reliably predicted, when if ever gross receipts from the film would reach the point of black balances in favor or [Apple against Apple NY].”

Contrary to such arguments, the court held “we conclude that the interest of [Apple] in the Licensing Agreement was property; it was assignable and hence attachable,” because Apple’s interests under the licensing agreement:

constituted property, composed of the bundle or all its rights under the agreement, of which, of course, the obligation of [Apple NY] to pay under the 80% clause was the principal feature of economic significance. That property was attachable because concededly it was assignable by [Apple NY].

The court further explained that ABKCO’s claim was not against “tangible personal property,” such as real estate, which “can only be attached where it is,” but was instead against the rights contained in the licensing agreement, which was “intangible property,” the situs of which, for purposes of attachment, is “the location of the party of whom performance is required by the terms of the contract.” Therefore, seeking to attach the licensing agreement by suing Apple NY in New York was entirely appropriate.

Finally, regarding whether or not Apple NY had already received “substantial sums” from United Artists, the court also noted that there was “no threshold requirement that the attaching creditor show the value of the attached property or indeed that it has any value,” or that “the garnishee is entitled to a vacatur of the attachment if it can be established that the property in question is valueless.”

(b) Property Which Could Be Assigned or Transferred. The Court of Appeals again addressed the distinction between a judgment debtor’s “debt” or “property” in Verizon New England, Inc. v. Transcom Enhanced Services, Inc., 21 NY3d 66 (2013).

In Transcom, plaintiff Verizon, judgment creditor of a money judgment awarded against judgment debtor Global Naps, Inc. (“GNAPs”), served a restraining notice, on April 2, 2009, upon garnishee Transcom.

In response to Verizon’s information subpoena, Transcom indicated it had a telephone switch service agreement with GNAPs, under which Transcom agreed to pay GNAPs $281,000 per month, on a week-to-week basis that allowed Transcom to decide weekly whether to engage GNAPs services.

Transcom also indicated that all payments “are made in advance or contemporaneously with service,” and testimony had established that GNAPs monthly invoices were sent for proposed services to be rendered the following month. On the day prior to receiving Verizon’s restraining notice, Transcom had received a $246,000 bill from GNAPs which was paid by four Transcom checks, each $61,500 in amount, issued on four dates in April 2009. Verizon sought a turnover of property and debts of GNAPs held by Transcom, equal to the amount paid by Transcom “in violation of the restraining notice” and a finding of civil contempt.

Transcom defended on the ground that it did not violate the restraining notice because GNAPs invoices were predated services and Transcom was under no obligation to accept any GNAPs services. Therefore, Transcom claimed it did not owe any debt to GNAPs and did not hold any property in which GNAPs had any interest at the time when the payments were made.

The court agreed that Transcom’s agreement was “wholly distinguishable from the agreement in ABKCO, and, thus, [could not] be deemed an attachable or assignable property interest.” It held that the Transcom-GNAPs agreement “was terminable at will, at any time, without prior notice, meaning that Transcom had no obligation after receiving one week’s worth of services.”

Moreover, the court noted (a) “not only could Transcom unilaterally eliminate any possibility of future revenue from the contract, but so could GNAPs,” (b) “the parties had no continuing contractual obligation to each other,” and (c) “there was no debt, and no obligation ‘certain to become due.’”

Therefore, “Transcom neither owed any debt to, nor possessed any property of GNAPs that could be subject to a restraining notice.

Similarly, because Transcom’s payments to GNAPs constitute neither a debt nor a present or future property interest, CPLR 5201(a) and (b) [were] not applicable.”

(c) Debts And Property Rights Based on Contractual Contingencies. The issue of contingency debt and property rights was addressed by In re Thelen, 24 NY3d 16 (2014). The question in Thelen was: who was entitled to the attorney fees generated by the “unfinished business” of a Chapter 7 dissolved law firm or of a law firm in Chapter 11 reorganization—the Chapter 7 trustee of the law firm’s bankruptcy estate, for the benefit of the estate’s creditors, or the Chapter 11 administrator of a law firm filing for protection from its creditors—or the law firm to which attorneys of either the dissolved firm or of the reorganizing firm had moved to finish those firms’ “unfinished business”?

Although Thelen did not require the Court of Appeals to decide a question of attachment, its opinion on what constitutes “property” under New York’s Partnership Law is illustrative of the kind of contractual contingency situations that can arise where the attachment remedy would be precluded.

The court noted that New York’s Partnership Law does not define property and “has nothing to say about whether a law firm’s ‘client matters’ are partnership property.”

It further noted that “clients have always enjoyed the ‘unqualified right to terminate the attorney-client relationship at any time’ without any obligation other than to compensate the attorney for ‘the fair and reasonable value of the completed services,” and, citing Verizon New England, supra,  explained that “no law firm has a property interest in future legal fees because they are too ‘too contingent in nature and speculative to create a present or future property interest,’ given the client’s unfettered right to hire and fire counsel.”

Accordingly, the court held that “pending hourly fee matters are not partnership ‘property’ or ‘unfinished business’ within the meaning of New York’s Partnership Law” and that “[a] law firm does not own a client or an engagement, and is only entitled to be paid for services actually rendered.”

Other Issues Involving the Attachment Remedy

(d) Letters of Credit. A “letter of credit ‘is an executory contract that conditions performance of the issuer’s obligation (payment) upon performance by the beneficiary (delivery of specified documents).’” Supreme Merchandise Co., Inc. v. Chemical Bank, 70 NY2d 344, 350 (1987). (Citation omitted).

In Supreme Merchandise, the Court of Appeals reconfirmed that an order of attachment, issued under CPLR §6214, was ineffective against the proceeds of a letter of credit (“LOC”), where the draft on the LOC is “accepted” by the issuing bank prior to service of the attachment order. See First Commercial Bank v. Gotham Originals, 64 NY2d 287 (1985) (held: an issuing bank’s obligation to pay in a commercial letter of credit transaction “is fixed upon presentation of drafts and documents specified in the [LOC]. It is not required to resolve disputes or questions of fact concerning the underlying transaction”). Following “acceptance” of the draft, there is “nothing to attach at the time of service of the attachment order.”

However, the court also explained that where the attachment order is served prior to negotiation of the draft for value and “acceptance” of the draft against the LOC, “the LOC was therefore executory at the time the attachment order was served upon Chemical.”

As an “executory” LOC, if the judgment debtor’s interest was a “debt” (under CPLR §5201(a)), it “was plainly contingent and would not be subject to attachment,” but neither was the judgment debtor’s interest “property” (under CPLR §5201(b)). The Court noted that “property” is not defined in CPLR §5201(b), and the fact that the LOC was assignable did not make the judgment debtor’s interest less contingent than that of the judgment debtor in ABKCO, supra, but the contingency was “in a relevant sense even greater…than in ABKCO.”

The judgment debtor’s interest in the LOC is “dependent upon its own future performance,” and because “a beneficiary of a letter of credit retains the option to defeat the interest and render it worthless,” the court was “mindful that allowing attachment in this could serve as a disincentive to a beneficiary’s performance of the underlying contract as well as the terms of the letter of credit.”

In addition, “for policy reasons,” the Court said that the ABKCO rationale did not extend this far, and that the judgment debtor’s interest “for present purposes must be considered a contingent, non-attachable “debt” under CPLR §5201(a) rather than attachable “property” under CPLR §5201(b).”

Resting its decision “on the nature of [the Judgment debtor’s interest coupled with the policy considerations involved in negotiable letters of credit concerned with international sales transactions,” the court concluded “for the purposes of attachment, this interest is not “property” within the meaning of §5201(b).” Under the court’s analysis, finding the judgment debtor’s interest neither a “debt” nor “property,” it is not clear whether letters of credit are ever attachable.

(e) Fraud on Creditors. In Arzu v. Arzu, 1909 AD2d 87, 597 NYS2d 322 (1st Dept. 1993), the plaintiff was permanently paralyzed in an operation performed when he was 14 years old. Through his legal representative, he sued for malpractice and entered into a structured settlement. When he was 18 years old, his guardian turned over and deposited the remaining balance of the settlement ($161,718.33) into an account specified in the settlement. He then gave the funds to his father and stepmother. They represented that they would deposit the total amount and all future payments into an account for his sole use and benefit.

Ultimately, in 1984, a total of $618,891.33 was deposited in a joint account in the names of plaintiff and his father. In 1989, plaintiff learned that his father had withdrawn all but $45,000 from the account. Plaintiff sued his father and stepmother, alleging misrepresentation and fraud, seeking $573,891.33 in damages. At the same time, he obtained an ex parte order of attachment against the father’s personal property and three parcels of real property in the Bronx.

The defendants contended that they had spent $461,507.30 of the funds on plaintiff’s behalf and with his consent, allegedly for food, clothing, local transportation, credit cards, and other expenses. However, the Court noted “defendants’ claim that the money was used for plaintiff is entirely unpersuasive.”

Except for certain American Express checks, totaling approximately $10,000, “there [was] no documentation to substantiate any of these claimed expenditures or any credible explanation for the absence of such documentation,” even though “the father was able to set forth certain expenses in precise amounts.”

There was also evidence that the father had opened a cable television business in Belize, his native country, and admitted to using approximately $50,000 to $60,000 for that purpose.

On these facts, The First Department determined (a) that “as soon as the father withdrew funds from the account he held with plaintiff for an unauthorized purpose, the latter became his creditor within the meaning of CPLR §6201(3),” (b) it was “reasonable to infer that the defendants, in breach of their fiduciary duty, “disposed of or secreted at least some of plaintiff’s property,” and (c) defendants’ “failure to provide plaintiff with a contemporaneous record of the disposition of plaintiff’s funds entitle[d] [the court] to conclude that [defendants] acted with an intent to defraud plaintiff, their creditor.” (Emphasis added).

The court further concluded that “the inference that defendants are ‘about to do’ one of the acts specified in CPLR §6201(3) is warranted and that an attachment can therefore be justified on that ground as well.”

In Eaton Factors Co., Inc. v. Double Eagle Corp., 17 AD2d 135, 232 NYS2d 901 (1st Dept. 1962), it was alleged that individual sole stockholders and officers of the corporate defendant “caused or participated in the secreting, removal or disposal of corporate assets and its trucking business, including certain trucks and trailers or other assets owned by it and mortgaged to plaintiff,” and “that it was accomplished with the intent to defraud plaintiff.”

The First Department determined that an order denying a motion to vacate an attachment should be reversed. The court explained that “the property removed or secreted must be property of the defendant, and plaintiff’s allegations here of a disposal of corporate assets [and not personal assets of the individual named defendants] will not sustain a warrant of attachment.”

In addition, the court further explained that “[t]he mere removal or assignment or other disposition of property is not ground for attachment. There must coexist an intent of the debtor to defraud his creditors,” and “[f]rom disposition of the property no presumption of intent to defraud arises.” Moreover, “that the affidavits in support of attachment contain allegations raising a suspicion of an intent to defraud is not enough; it must appear ‘that such fraudulent intent really existed in the mind of the defendants, and not merely in the ingenuity of the plaintiffs.” Finally, “fraud is never presumed by a mere showing of the liquidation or disposal by a debtor of its business assets.”

(f) The Situs of Bank Accounts. In National Union Fire Insurance Company of Pittsburgh v. Advanced Employment Concepts, Inc., 269 AD2d 101, 703 NYS2d 3 (1st Dept. 2000), the issue concerned the proper bank branch upon which an attachment order may be served. A restraining order had been issued in New York against two bank accounts maintained by respondent (“AEC”) in the State of Florida. AEC had moved to vacate the order of attachment on the ground that the New York court was without authority to attach bank accounts outside of New York.

The First Department noted, to be subject to attachment, the property must be within the court’s jurisdiction (citing ABKCO, supra). “The mere fact that a bank may have a branch within New York is insufficient to render accounts outside of New York subject to attachment merely by serving a New York branch.”

The court noted “the long-standing general rule in New York that each bank is a separate entity and that in order to reach a particular bank account, the branch of the bank where the account is maintained must be served.” Although, “due to the advent of high-speed computers and sophisticated communications equipment, service of a restraining order upon a bank’s main branch is adequate,” but “only where the restraining notice is served on the bank’s main office; the main office and the branches where the accounts in question are maintained are within the same jurisdiction; and the back branches are connected to the main office by high-speed computers and are under its centralized control.” (Italics in original).

Conclusion

Attachment is a useful tool to enforce a monetary judgment, but, as shown in this article, attorneys need to be very careful in alleging the “debt” and/or “property” interest of the judgment debtor in drafting restraining orders or motions seeking orders of attachment.

It is important to consider whether the circumstances in any given situation will support attachment under both CPLR 5201(a) and CPLR 5201(b), because as shown above, courts may disagree with the choice selected by the attorney and reject either, or even both, of the statutory options, leaving the client without the means of securing the benefit of its monetary judgment.

Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C., and John M. Desiderio is a partner and Chair of the firm’s Real Estate Litigation Group. Mikaela Mahaney, a New York Law School summer extern, assisted in the preparation of this article.

Read the original article on NYLJ

Purchasing a Cooperative Unit in a Trust

Purchasing a cooperative (“Co-op”) unit in the name of a Trust has become more and more frequent in recent years. For a long time, many co-ops would not approve trust ownership. However, several co-ops have come to an understanding that if the proper protections are put in place, a trust does not have to pose a threat or burden to the co-op corporation and can be an effective means to estate planning or privacy protection for its shareholders.

To start, an interested purchaser may want to review the proprietary lease and/ or by-laws for language pertaining to the permittance of trust ownership as some co-ops still do not allow it. The co-op’s attorney or management co. could also advise to this. If allowable, each co-op will likely have certain fees to be paid and steps to be taken to effectuate the trust transfer which will include, but not limited to, a legal review of the trust, the submission of an attorney opinion letter and executing a Trust Occupancy Agreement/Guaranty.

The Attorney Opinion Letter will likely come from the trust and estates attorney who initially prepared the trust. The letter, accompanied by a true copy of the trust for review, will confirm the name and date of the trust as well as the date of any and all amendments made thereto. Additionally, the letter will confirm the state in which the trust was validly created in accordance with its laws. Lastly, the opinion letter will include any necessary information requested by the individual co-op.

The Trust Occupancy Agreement will be drafted by the co-op attorney and is specific to each transaction. The Agreement is signed by the co-op, trust, guarantor, and unit occupants to, among other things, limit the occupancy of the unit to specific individuals specified in the agreement and provide detailed protections and indemnities to the co-op including any personal guaranty if required.

Lastly, the shareholder or purchaser wishing to transfer or purchase shares in a trust will be responsible for any legal fees in connection with the review of the trust and preparation of the accompanying legal agreements.

The Surfside Condo Collapse: Lessons for New York

The disastrous condo collapse in Surfside, Florida of the 40-year-old Champlain Towers South condominium tower should set off alarm bells in New York City, wherein it is estimated there presently are more than 1 million buildings, many of which are more than 100 years old, including several in Manhattan that were converted to cooperative apartment buildings in the 1970s and 1980s, in addition to the hundreds of high-rise condominium buildings built more recently, in the 1990s and 2000s, primarily in Manhattan, Brooklyn and Queens.

NEW YORK LAWS

Overall, New York has a much better governance system of the exterior (and a few interior items) of tall buildings than does Florida. At the same time, although we will not have buildings collapsing into the ocean, we do have major potential problems that need to be addressed. Since 1980, New York City, unlike Florida, has had laws in place requiring mandatory inspection and repair of building facades. The latest iteration of the law, the Façade Inspection and Safety Program (FISP) (formerly known as Local Law 1), RCNY § 103-04 (“Periodic Inspection of Exterior Walls and Appurtenances of Buildings”) was recently updated in February 2020, to include additional inspection items, increased levels of inspection and more comprehensive documentation. The law requires that all buildings in New York City higher than six stories have all of their exterior walls and appurtenances (including, among other things, fire escapes, exterior fixtures, ladders to rooftops, parapets, copings, balcony and terrace enclosures, greenhouses and solariums, and any other equipment attached to or protruding from the façade) inspected in five-year cycles. The current cycle 9 (2-21-20 to 2-21-25) requires that all buildings be inspected, on a staggered schedule, in one of three sub-cycles: 2020–2022, 2021–2023, and 2022–2024. Inspections must be conducted by Qualified Exterior Wall Inspectors (QEWI) with at least seven years of relevant experience to be qualified.

However, while FISP scaffolds or other observation platforms are a routine fact of life on the streets of New York, there is currently no law, in either New York City or anywhere else in New York state, that mandates inspection and repair of the interior structural elements of any building whatever its size. FISP provides no assurance that the type of structural defects that led to the Champlain Towers collapse will be detected unless the structural elements of all buildings are subject to regular routine inspection. Indeed, the mandatory evacuation of a 70-year-old three-story building, a few blocks away from the Champlain Tower site, one month after the headline-grabbing event,[1] evidences the need for mandated, comprehensive and regularly scheduled inspections of both interior and exterior structural elements of buildings of all sizes. The FISP law needs to be expanded to cover major components and the ability to identify interior of buildings as well as their exteriors.

CONSIDERATIONS REGARDING BUILDING STRUCTURAL INTEGRITY AND REPAIRS

In the meantime, in the absence of mandated governmental requirements for interior structural inspections (other than for elevators, boilers and gas piping, which are subject to regularly scheduled inspections) building owners (including both commercial and private landlords, cooperative apartment corporations and condominium boards) must themselves assume the burden and responsibility of implementing the prudential actions necessary to ensure the continuing structural stability of their buildings.

However, the cost of maintaining and repairing interior structural building elements, for both old and new structures, can be daunting. Nevertheless, landlords (whether commercial or residential, including cooperatives and condominiums), as a matter of prudent management, and/or pursuant to any applicable statutory or contractual lease obligations, need to maintain sufficient reserve funds to address capital repairs, improvements and replacements required for their existing tenants’ health and safety.

Similarly, sponsors seeking to convert buildings with residential tenants to condominium ownership must comply with New York City’s Reserve Fund Law,[2] which mandates that they provide sufficient funds to create the reserves that will be necessary for capital repairs, improvements and health and safety items required in the future operation of the condominium. The law requires that sponsor-created reserve funds be at least equal to a statutorily calculated minimum of no less than 3% of the total price that was offered to tenants in occupancy prior to the effective date of the conversion plan regardless of the number of sales made. This law should be expanded to all cooperatives and condominiums and not only buildings converting to condominium, as too many buildings do not carry enough reserves or refuse to spend money to repair buildings, putting its residents in danger.

Nevertheless, aside from normal maintenance costs, which either rent, maintenance payments or common charges are expected to cover, the potential costs, which could be incurred in repairing the kind of structural damage that would cause a similar Champlain Towers-like disaster, are formidable and most likely would be well in excess of whatever amount of reserve funds a building’s management is likely to accrue, even over several years. This is especially true of buildings with residents and board members who have fixed incomes and are reluctant to assess unit owners for the kind of sums necessary to do any extraordinary structural repairs. It is reported that the Champlain Towers president had told residents in April, when there was only $700,000 in the building’s reserve fund, that the building was in desperate need of repair and that $15 million in assessments were needed for the work that was required.3

Apparently, there was unit owner resistance to any assessment of that size at Champlain Towers, and such resistance to assessments of any size is often found in any number of condos and co-ops in New York City. Bylaws often include provisions requiring a 66 2/3 (or higher) percentage of owners or shareholders to approve costs for necessary repairs or renovations above specified limited amounts. The Champlain Tower experience should spur condo and co-op boards to revisit their bylaws and consider amending them to be less restrictive. There should be minimum approval required when there is evidence certified by independent engineers and architects that more than “Band-Aid” repairs are necessary to protect the structural integrity of the building. Moreover, assessments are likely to be less burdensome at the early stages of a detectible structural defect than later when, after the situation has been left to fester for several years, the defective condition has reached a critical level.

It is therefore incumbent on building owners to seek ways of accumulating the reserve funds needed to address the kind of extraordinary structural repairs without which a Champlain Towers-like disaster could occur. However, in the event that the likely causes of such a tragedy go undetected and the unthinkable does occur, building owners need to be prepared for the aftermath and have protection, not only against the property losses and damages that they will suffer, but also respecting the personal and property damages for which they could be held liable by their residents and other third parties. The actions building owners should implement are similar to those prudential steps that many building owners have taken in the aftermath of terrorist acts, catastrophic hurricanes, and other severe weather events.[4].

LITIGATION CONSIDERATIONS IN BUILDING DISASTER CASES

In any litigation arising from a Champlain Towers-like disaster, a court is likely to consider all of the above factors in assessing the various liability issues that will affect the owners and lessees of the real estate (landowners as individuals and ground lessors, landlords, cooperative apartment corporations and incorporated condominiums), officers of landlords, board members of cooperative apartment corporations and condominiums, officers and property managers of managing agencies, contractors who constructed the building, architects and engineers who designed or certified the project, building inspectors who signed-off on the project and all of the respective insurance companies of each of them.

The primary liability issues for each potential plaintiff and defendant will be the foreseeability of the event and what actions the particular party defendant, third-party defendant or cross-claim defendant did or failed to do when apprised of evidence of the structural defects that likely caused the resulting building disaster. Such issues are not unlike those the court examined in connection with the duties of the owners of buildings and the duties of other defendants involved in the 1993 World Trade Center terrorist bombing.[5] In addition, New York’s Multiple Dwelling Law § 78 (Repairs) mandates that “[e]very multiple dwelling, including its roof or roofs, and every part thereof and the lot upon which it is situated, shall be kept in good repair,” and that the “owner shall be responsible for compliance with the provisions of this section, but the tenant also shall be liable if a violation is caused by his own willful act, assistance or negligence . . . .”

A CASE ILLUSTRATING THE VARIOUS LIABILITIES

The case of Fitzgerald v. 667 Hotel Corp.[6] provides a useful example of how the liabilities of the various parties involved in a building collapse are likely to be determined by the courts. This also, most likely, would determine the liabilities of the parties’ respective insurance carriers. In 667 Hotel Corp., 43 consolidated actions arose out of the collapse on August 3, 1973 of the Broadway Central Hotel, located at 673 Broadway – a building constructed in the 1850s, which had undergone various alterations over the years. Four persons were killed in the wreckage, many others injured and a number of businesses incurred substantial property damage. The defendants were, among others, the owners of the building, the net lessee, the mortgagee, a tenant who was having structural renovation done on its portion of the premises, and the contractor the tenant employed for that purpose. The City of New York was also named as a defendant, as the Department of Buildings had been made aware of the hazardous state of the building and had failed to act to cause the defect to be remedied or the building to be vacated.

Extensive renovations had been done to the building by the net lessee. In January 1973, the president of the net lessee called the attention of the managing engineer of the building to cracks that were extending through the interior bearing wall and buckling the frames of the double doors going through it. The lessee’s own contractor and architect, who inspected the cracks, concluded that the cracking was a structural danger. The chief building inspector for the Borough of Manhattan then personally inspected the premises on January 29, 1973. He agreed that the bulging of the exterior wall and the diagonal crack through the weight-bearing wall was a serious defect in the bearing wall and that an architect or engineer should take immediate remedial action. He opined that the building was not in imminent danger of collapse, but that, if the condition were not remedied, it would gradually become more dangerous. However, the inspector failed to observe that the crack extended all the way up to the eighth floor. He did not issue any violation respecting the crack in the weight-bearing wall and made no personal effort to follow up. A violation was issued only for the bulging front façade and made no mention of the cracked weight-bearing wall. A consulting architect proposed several plans for correcting the bulge and crack in the front wall, but the lessees of the hotel opted for the cheapest solution. Nevertheless, no plan had been approved by the Department of Buildings by the date of the collapse.

At trial, the Kings County borough superintendent of the Department of Buildings testified that the failure of the city building inspectors to write a comprehensive building order on the day the bearing wall cracks were observed, and to have made no explicit mention of it in the violation order, was a departure from proper procedure. As a result, a hazardous building violation was not issued and a court order was not obtained for immediate vacating of the building and repair within 10 days. By July, the conditions were observably worsening and, on August 3, the need for an immediate building evacuation was clear, as there was pressure on the sprinklers, cracking sounds within the building and rumbling noises that continued until 5:10 p.m. when there was an explosive sound, the lights went out, the sprinklers broke and the building collapsed.

The Supreme Court held the owners of the building 25% liable, the net lessee 45% liable and the City of New York 30% liable. Although the premises were under a net lease, the owners had a right to enter and inspect the premises and make repairs, and the court held them liable (citing Appell v. Muller[7]), for failing in the duties imposed upon them under Multiple Dwelling Law § 78. The net lessee, 667 Hotel Corporation, was held liable because  simply retaining an architect after the building inspection did not satisfy its duties. No repairs were undertaken, and such plans as were filed with the building department, even if they had been implemented, would not have prevented the collapse. The mortgagee defendant was not held liable because it never became a mortgagee in possession, nor assumed possession or control over the premises, and, therefore, never assumed any obligation under Multiple Dwelling Law § 78 for the necessary repairs that were required. The court held the city liable for “its total lack of action in the face of danger” that would have prevented the collapse, and its failure “[gave] rise to tort recovery.” On appeal the Appellate Division affirmed, but modified the judgment, holding that the city was entitled to be indemnified by the owners. However, the Court of Appeals held that the city should not have been held liable, explaining that “in the absence of some special relationship creating a duty to exercise care for the benefit of particular individuals, liability may not be imposed on a municipality for failure to enforce a statute or regulation . . . even though [the building inspectors] knew of the dangerous structural conditions in the building.”[8]

INSURANCE ISSUES

Cases against insurance carriers by property owners are determined primarily by the language of the insurance contracts. In Rector St. Food Enters., Ltd. v. Fire & Cas. Ins. Co. of Connecticut,[9] the subject policy specifically defined its additional collapse coverage for collapse with respect to buildings as meaning “an abrupt falling down or caving in” and provided that “[a] building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, leaning, settling, shrinkage or expansion.” The court held that, although the building was demolished by its owner after the city declared an immediate emergency and “even though the building required demolition, the event resulting in the loss was not covered by the provision of defendant insurer’s policy insuring against loss attributable to ‘abrupt’ collapse.”[10]

In contrast, in Hudson 500 LLC v. Tower Ins. Co. of New York,[11] the policy did not expressly require that there be an “abrupt falling down or caving in.” The carrier nevertheless contended that the insured did not suffer a compensable “collapse,” as that term was used in the policy “because no part of the building ever fell down.” Nevertheless, the court held that the term “collapse” “does not require the total destruction of the building, but, rather, only a substantial impairment of the structural integrity of a building,” citing Royal Indemity Company v. Grunberg,[12] and noting that “where a collapse has occurred, the fact that cracking and bulging also occur should not prevent coverage for collapse since it would be hard to imagine a collapse that did not include some cracking or bulging of walls.”[13]

In D’Agostino Excavators, Inc. v. Globe Indemnity Company,[14] where an insured excavator sought to recover from its liability carrier, because of a judgment against the excavator for damages to walls and structure following negligent operation of insured’s bulldozer, the court held that the policy rider was limited to coverage for collapse or injury to any building structure directly due solely to excavation or filling or backfilling and did not include injury due to impact between the insured’s bulldozer and the affected property.

In Burack v. Tower Insurance Company of New York,[15] the court held that genuine issues of fact existed as to whether the insured’s building collapsed because of the shifting of earth by actions of third parties on the adjoining property’s construction site, which would fall within the policy’s exclusion provisions, and not because of the movement of earth from natural phenomena, which was the hazard covered by the policy.

These cases show that property owners need to scrutinize the exclusion provisions of the policies they purchase to ensure that they are covered for conditions that may lead to collapses, so as to be able to recover the cost of repairing such conditions before an “abrupt falling down or caving in” actually occurs.

CONCLUSION

The above discussion shows that the Champlain Towers building disaster clearly raises issues for New York property owners and lessees because of the many buildings of advanced age within the five boroughs. Although many protections are in place in New York, the additional protections proposed would greatly fortify our state. It is also important, therefore, that all parties subject to potential liabilities that could arise from either complete or partial building collapses take prudential action to maintain their buildings “in good repair” and to obtain insurance policies that will provide the coverage required for all possible forms of structural building defects, to ensure that there will be sufficient funding available to remedy hazardous conditions before they reach critical stages and to protect against the liabilities that will follow if a disaster that could have been avoided should ever occur.

Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C., and John M. Desiderio is the chair of the firm’s real estate litigation group.

[1] https://www.wsj.com/articles/another-surfside-fla-condo-is-evacuated-after-building-deemed-unsafe-11626895331.

[2] Local Law 70 of 1982, Title 26, Chapter 8 of the New York City Administrative Code, 26-701 et seq.

[3] Alex Leary, Miami-Area Condo Collapse Sparks Calls for Tighter Laws, Wall St. J., July 10, 2021,  https://www.wsj.com/articles/miami-area-condo-collapse-sparks-calls-for-tighter-laws-11625922002.

[4] See Adam Leitman Bailey and John M. Desiderio, Preparing Practitioners for the Next Disaster, https://www.alblawfirm.com/articles/preparing-practitioners.

[5] See, In re World Trade Center Bombing Litig., 3 Misc. 3d 440 (Sup. Ct., N.Y. Co. 2004).

[6] 103 Misc. 2d 89 (Sup. Ct., N.Y. Co. 1980), aff’d sub nom., Worth Distributors, Inc. v. Latham, 88 A.D.2d 814 (1st Dep’t 1982), aff’d as modified, 59 N.Y.2d 231 (1983).

[7]  262 N.Y. 278 (1933).

[8] Worth Distributors, Inc., 59 N.Y.2d at 237.

[9] 35 A.D.3d 177 (1st Dep’t 2006).

[10] Id. at 178.

[11] 22 Misc. 3d 878 (Sup. Ct., N.Y. Co. 2008)

[12] 155 A.D.2d 187, 189 (3d Dep’t 1990).

[13] Hudson 500, LLC, 22 Misc. 3d at 885.

[14] 7 A.D.2d 483 (1st Dep’t 1959).

[15] 12 A.D.3d 167 (1st Dep’t 2004).

 

Learn more about New York Real Estate here: https://realestatetitlesbook.com/

Terminating An Easement in 2021

On July 1st, Governor Cuomo signed a bill allowing the implementation of a new method of protecting land after the Town of Guilderland was granted the power to dole out easements. The new law (S.6469/A.7096) states that towns in New York State must request the authority to apportion easements, which then must be approved through state law. According to the NY State Senate website, the bill…

Authorizes certain towns to adopt a local law to provide that, real property whose interests or rights have been acquired for the purpose of the preservation of an open space or an open area may be partially exempt from local real property taxation, provided that the owner or owners of such real property enter into a conservation easement agreement with the municipality.1

An easement is “an interest in land in the possession of another which (a) entitles the owner of such interest to a limited use or enjoyment of the land in which the interest exists; (b) entitles…protection…against third persons from interference in such use or enjoyment; (c) is not subject to the will of the possessor of the land and (d) is capable of creation by conveyance.”2

The implementation of this bill, as well as recent easement-related disputes across the country, has resulted in an increase of inquiries on how to remove restrictions on property—including easements.

This article examines the eight ways to terminate an easement: abandonment, merger, end of necessity, demolition, recording act, condemnation, adverse possession, and release.

ABANDONMENT

Although an easement can arise in a variety of ways, any easement can be extinguished by the easement’s abandonment by the owner of the dominant estate. In order to prove abandonment, it is necessary to establish not only an intention by the dominant estate holder to abandon the rights to the easement, but also some overt act or failure to act; this carries the implication that the owner neither claims nor retains any interest in the easement. However, the act must unequivocally reference the intent to abandon the easement and clearly demonstrate that the dominant estate owner is permanently relinquishing all right to the easement and not merely deserting it for some temporary period.3 Mere nonuse is not enough to constitute abandonment, even if for a long period of time.

MERGER

An easement, once granted, may be ended by a merger. Under the merger doctrine, an easement will terminate when the dominant and servient estates become vested in one person. To satisfy this, there must be a complete unity of the dominant and servient estates, meaning that one person or entity owns the entire plot of land. When only a portion of the servient or dominant estate is acquired, there is no complete unity of title. Therefore, the easement still stands.4

Many easements find their origins in situations where one party owned the entirety of a piece of property that the owner subsequently decided to subdivide into various lots.5 The overall development plan may or may not have included the specific plan to burden some lots with the obligation to provide various easements for the benefit of other lots, such as the common easement of passage required for a landlocked inner lot. A merger is one of the most important means for destroying an easement as it allows a developer a financial means to extinguish an easement as long as a willing seller is available.

END OF NECESSITY

Easements created by necessity terminate when the necessity comes to an end.6 The most common example of easement by necessity best illustrates how this may occur. Imagine a landowner has a fairly substantial piece of acreage and decides to subdivide it into lots. One of the lots the owner creates is completely landlocked inside the other lots. As the owner sells off those lots, the sale creates an easement of access on those lots, enabling the owner of the landlocked lot to access the highway. This is an easement of necessity. Even when no agreement exists as to the right of access, the owner requiring access has a right to it. But, when a new means of access becomes available and the original necessity perishes, the landowner loses its right of access.[image error]

DEMOLITION

An easement in a building or land will terminate when that burdened building or land is completely destroyed. This doctrine arises out of 357 East Seventy-Sixth St. Corp. v. Knickerbocker Ice,7 a case involving a party wall.

In Knickerbocker, parties were adjacent property owners. Plaintiff demolished the building on its property except for the party wall. Plaintiff intended to use the party wall for support of a garage. Before plaintiff built the garage, defendant demolished its building and the entire party wall. Consequently, plaintiff built an independent wall on its own premises, even though the party wall was suitable for continued use. The court found that when plaintiff demolished its building, it put an end to the necessity of support on its side of the wall. Defendant put a definitive end to the easement when it demolished its entire building and put an end to the necessity of the support on its side of the wall. By demolishing his structure, he demolished his need for the easement and therefore, in effect, demolished the easement.

RECORDING ACT

A good faith purchaser for value is not bound by an easement which is not properly recorded prior to a purchase of the encumbered property.8 The easement does not terminate notwithstanding a failure to record the easement if the good- faith purchaser possessed actual knowledge and notice of any facts which would lead a reasonably prudent purchaser to make inquiries.9

CONDEMNATION

A government can create an easement by way of condemnation. However, Strnad v. Brudnicki notes that a governmental agency can also abolish an easement by condemning it.9 This could take a number of forms, depending on the facts of the situation. One such set of facts would be when the government has condemned a plot of land, which plot is subject to an easement in favor of the adjoining property owner, and the government removes the easement by condemning it.

ADVERSE POSSESSION

Adverse possession may extinguish an easement. For example, in Spiegel v. Ferraro,11 the Court of Appeals discussed a situation in which there was a particular driveway that was the subject of an easement. However, the burdened estate owner fenced off that driveway and patrolled it with guard dogs.12 The court found that after 10 years of that fencing in, the land was now free of the burden of the easement.

The July 2008 Amendments to Article 5 of the Real Property Actions and Proceedings Law (RPAPL), which made sweeping changes to the adverse possession law, made no mention of easements. This author personally believes this was a mere oversight; however, as a result, the new law does not apply at this time, making all adverse possession of easement cases subject to the old law.

RELEASE

An easement once granted may be ended by a release in writing stating that the owner of the easement gives away all rights and remedies including the ability to sue under the easement.13

The termination of an easement is one of the most misunderstood areas of real estate law. This, accompanied by an increase of easement-related disputes, naturally results in the exponential rise of easement termination inquiries. These aforementioned 8 ways to terminate an easement – abandonment, merger, end of necessity, demolition, recording act, condemnation, adverse possession, and release – may determine the efficacy of one’s dispute.

It is also important to note that abusing the rights one has under an easement is not a ground for extinguishing said easement. The mere use of the easement for a purpose not authorized, the excessive use or misuse, or the temporary abandonment thereof, are not of themselves sufficient to constitute an abandonment which would extinguish the easement.14 That is not to say that the servient estate owner is without a remedy, but destruction of the easement is not that remedy.

The attorneys at Adam Leitman Bailey, P.C. have a strong and demonstrated history of winning their clients’ easement- related cases. By uniting many of the best real estate attorneys of its generation, Adam Leitman Bailey, P.C. has become one of New York’s most prominent real estate law firms. The firm excels by solely practicing real estate law and only taking on projects and cases where it is among the best in the field. Adam Leitman Bailey, P.C. has achieved groundbreaking results in the courtroom, in the board room, at the closing table, in the lobbies of legislative bodies, and in every other venue where talented legal advocacy is key to its clients’ interests.

 

Endnotes:

NY state Senate Bill S6469. NY State Senate. (2021, July 1). https://www.nysenate.gov/legislation/... of Prop. §450 (1944).Gerbig v. Zumpano, 7 N.Y.2d 327, 165 N.E.2d 178, 197 N.Y.S.2d 161 (1960).Will v. Gates, 89 N.Y.2d 778, 784, 680 N.E.2d 1197, 1200, 685 N.Y.S.2d 900, 903 (1997).Will v. Gates, 89 N.Y.2d 778, 680 N.E.2d 1197, 685 N.Y.S.2d 900 (1997).The law requires that such an implied easement be actually necessary for the use and enjoyment of theproperty, not merely convenient to the owner of the dominant estate. Paine v. Chandler, 134 N. Y. 385 (1892).263 N.Y. 63, 188 N.E. 158 (1933).Webster v. Ragona, 704 A.D.3d 850, 776 N.Y.S.2d 347 (2004).As the Court of Appeals stated in Simone v. Heidelberg, an encumbrance must be “record[ed] in the servientchain [of title]…so as to impose notice on subsequent purchasers of the servient land.” Simone v. Heidelberg, 9N.Y.3d 177, 877 N.E.2d 1288, 847 N.Y.S.2d 511 (2007).200 A.D.2d 735, 606 N.Y.S. 913 (2009), accord Zutt v. State, 99 A.D.3d 85, 949 N.Y.S.2d 402 (2d Dept. 2012).73 N.Y.2d 622, 543 N.Y.S.2d 15 (1989).Perhaps the most extreme example ever of satisfying the “hostility” requirement of adverse possession.Andrews v. Cohen, 221 N.Y. 148, 116 N.E. 862 (1917).Gerbig v. Zumpano, 7 N.Y.2d 327, 165 N.E.2d 178, 197 N.Y.S.2d 161 (1960).