Lease Guaranty | Pregnancy Discrimination | Subtenant Rights

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Guarantors Of A Lease Cannot Get The Benefit Of A Re-letting

Guarantors Of A Lease Cannot Ge t The Benefit Of A Re-letting

In Royal Equities Operating, LLC v. Rubin, a landlord brought an action against a commercial tenant’s guarantors, seeking to enforce the “absolute and inconditional” guarantees on a commercial lease. The Supreme Court, New York County, denied the landlord’s motion for summary judgment in lieu of complaint. On appeal, the Supreme Court, Appellate Division, reversed, holding that: (1) the landlord made a prima facie showing of the tenant’s default and the amount owed under the lease’s accelerated rent provision, (2) the guarantors failed to raise a triable issue of fact in opposition, and (3) the guarantors were precluded from contending that rent could not be accelerated because the premises had been re-let.

New York’s civil procedural rules recognize that some claims have greater presumptive merit than others, and should have easier access to resolution than an ordinary action gets. New York singles out these claims and permits them to be brought on by an initial summary judgment motion, instead of the usual complaint accompanying the summons. This is more commonly known as a “motion for summary judgment in lieu of complaint.” Instead of having the defendant answer the complaint in the normal course, the motion papers pick out a specific return date and require the defendant to answer the motion and argue why judgment should not be immediately granted. In addition to eliminating the requirement of answering a complaint, this procedure also sidesteps what is often a long, expensive, and somewhat tortuous discovery process.

The type of claims which may benefit from this expedited treatment are those based on “an instrument for the payment of money only” or based upon “any judgment.”

Here, the Supreme Court denied the landlord’s motion for summary judgment in lieu of complaint in the amount of $1,740,818.60, plus interest and attorneys’ fees. In reversing, the Appellate Division directed the Clerk of the Court to enter judgment in that sum, with interest, and remanded the matter to the Supreme Court on the amount of attorneys’ fees to be awarded the landlord. “In moving for summary judgment in lieu of complaint to enforce absolute and unconditional guarantees on a commercial lease, plaintiff made a prima facie showing of the tenant’s default and the amount owed—$1,740,818.60—under the lease’s accelerated rent provision. In opposition, the guarantor defendants failed to refute plaintiff’s calculations as to the amount owed, or challenge any specific line-item on the ledger submitted by plaintiff, entitling plaintiff to summary judgment as to the amount of damages. Defendants’ nonspecific argument that plaintiff’s calculations were flawed and uncertain is conclusory, and insufficient to raise a triable issue.” As for the guarantors’ claim that rent could not be accelerated because the premises had been re-let, the Appellate Division rejected that argument because under New York law they were “foreclosed from raising all defenses which are personal to the obligor tenant, except a failure of consideration,” which did not apply here. “As guarantors who expressly waived all rights and remedies generally accorded under law, defendants’ liability can be greater than that of the obligor tenant, as the lease and guaranties were separate undertakings, and the latter are enforceable without qualification or reservation.”

Pregnant Or Not, Poor Performance Of A Medical Technician Defeated Her Discrimination Claim

Discrimination Suit Over Denial of Public Housing’s Rental Dismissed

In Castillo v. Montefiore Med. Ctr., a patient care technician who was terminated a day after telling her supervisor she was pregnant, failed to raise any triable issues needed to survive a motion for summary judgment, because she could not point to facts demonstrating that her pregnancy was the cause of her firing.

According to the decision, Sherma Castillo was hired by Montefiore Medical Center on August 6, 2012, as a patient care technician, subject to a 90-day probationary period. After she started, the administrator of the clinic observed her at work and noticed that she “did not show that she wanted to work.” Two physicians also provided negative feedback to the administrator about Castillo’s employment, including that the physicians were unhappy with her, that “she’s not working,” and that she did not meet the standards expected in the department. On September 12, 2012, the administrator met with Castillo to inform her of their concerns regarding her job performance, and advised her that she needed to improve and show initiative. On September 19, 2012, Castillo learned that she was pregnant. On September 21, 2012, the administrator scheduled a call with Castillo and her unit supervisor, and the administrator terminated her employment.

On Castillo’s appeal to the Appellate Division, First Department, after the Supreme Court granted the Medical Center’s motion for summary judgment dismissing the complaint, the Appellate Division ruled that the Medical Center had established that Castillo received negative feedback about her performance during her probationary period, and was told to improve and show initiative, and that in response, Castillo had failed to raise a triable issue to support her claims of pregnancy-based employment discrimination under the New York State and New York City Human Rights Laws. “Plaintiff admitted that she was not aware of any facts that would support her claim that she was terminated because of her pregnancy, and she conceded that she did not inform the administrator of her pregnancy. In addition, the administrator stated at her deposition that she did not have any knowledge of plaintiff’s pregnancy prior to plaintiff’s termination. On September 20, 2012, plaintiff told her unit supervisor that she was pregnant, but did not tell the administrator. Moreover, the unit supervisor did not tell anybody that plaintiff was pregnant. Plaintiff has failed to show that the reason proffered by defendant is merely a pretext for discrimination against her.”

A Settlement Did Not Create Voluntary Surrender By Tenant To Permit Subtenants’ Possession

New Law on “Exhibition” in Post-Foreclosure Action

In NRP LLC I v. Elo Management LLC, a landlord appealed from a decision of the New York City Civil Court, which denied the landlord’s motion for summary judgment for possession against certain sub-tenants in a nonpayment summary proceeding, and granted the cross motions of the sub-tenants, with the exception of one, for summary judgment dismissing the petition as against them. The one remaining sub-tenant cross-appealed.

According to the decision, in the 1970’s, Elo Management LLC (“Elo”) became the net lessee of the commercial building located at 1674 Broadway in Manhattan. The lease contained a mechanism, including arbitration, to set the rent of the net lessee after the initial 35-year term. Following an arbitration award that was confirmed by Supreme Court, Elo’s yearly rent was increased from $241,999 to $3.15 million, commencing December 20, 2014. As a result, Elo was now obligated to pay the landlord rent in an amount far greater than the amount of rent Elo collected from its subtenants.

When Elo could not pay the increased rent, the landlord served a 10-day notice dated October 15, 2015, specifying that Elo owed rent arrears totaling approximately $2.7 million. The landlord then commenced this nonpayment summary proceeding against Elo; the nonpayment petition also named all of Elo’s subtenants. Pursuant to a January 2016 so-ordered settlement stipulation between Elo and the landlord, Elo consented to a final judgment of possession and the issuance of the warrant of eviction, with execution of the warrant stayed through February 1, 2016 to allow Elo to peaceably move out.

However, upon the remaining parties’ respective cross motions for summary judgment, the Civil Court dismissed the petition against all the sub-tenants, except for respondent Jay Jay Cabaret, Inc., concluding, inter alia, that Elo’s voluntary surrender of possession did not affect the right of the subtenants to remain in possession. This decision of the Civil Court was based on the principal of law that where a landlord and prime tenant enter into an agreement to “voluntarily” terminate the paramount (i.e., the main lease between the tenant and landlord), any subtenant becomes the immediate tenant of the original landlord, and the interest of the subtenant and terms of the sublease continue as if no termination occurred. This is an exception to the general principle of law that every sublease terminates upon the termination of the main lease.

The Appellate Court disagreed with the application of the exception to the rule. “The underlying settlement stipulation between Elo and landlord did not constitute a voluntary surrender agreement that would permit the subtenants to continue in possession. To the contrary, the summary judgment record conclusively establishes that Elo’s net lease was terminated by landlord based upon Elo’s breach of the covenant to pay rent, pursuant to a stipulation entered into in the instant summary nonpayment proceeding against Elo, which proceeding arose because of the significant shortfall between the amount of rent Elo now owed landlord and the amount of rent Elo was entitled to receive from its subtenants. Accordingly, rather than a voluntary surrender by Elo, the net lease was terminated based upon Elo’s breach. In these circumstances, the termination of the net lease terminated the interests of each of the subtenants. A sublease is dependent upon and limited by the terms and conditions of the paramount lease from which it is carved, and a subtenancy is terminated by the expiration of the term of the prime tenant, or a re-entry by the landlord for a condition broken.”

The subtenants had argued that, upon Elo’s default, they became the direct tenants of landlord by operation of paragraph 28 of the net lease. That provision, titled “Contingent Assignment of Subleases,” specifies that if the net lessee is in default in the payment of rent for 10 days after notice, the net lessee assigns all subleases and rents to landlord “until such default shall have been made good” or “cur[ed].” The court rejected this argument. “The subtenants’ reliance upon paragraph 28 is misplaced, both because of the absence of privity, and the fact that the subtenants were not third party beneficiaries as landlord never undertook a duty toward them or intended to confer benefits on them. In this regard, the subtenants were not parties to or named in the net lease, and their subleases were not yet in existence when the net lease was executed. In fact, any interpretation of paragraph 28 as creating tenancy rights for unnamed, future subtenants would be contrary to the reasonable expectation of the parties to the net lease and would, as a practical matter, eviscerate landlord’s rights therein to increase the rent to market level and recover possession in the event of the net lessee’s rent default, by binding the owner to subleases of the tenant. Since the subtenants did not enter into any non-disturbance agreements with landlord, the subtenants had no greater rights to possession than those possessed by the sublandlord/net lessee whose tenancy was terminated.

The Court also noted that pursuant to New York’s Real Property Actions and Proceedings Law §749(3), the net lease, including its paragraph 28, was cancelled upon the issuance of the warrant of eviction against the net lessee, and there was no language in the lease indicating that paragraph 28 or any assignment created thereunder was to survive the termination of the lease.

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