Tenant Wins Legal Fees Against Landlord in Panel Ruling

, New York Law Journal

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1925 Adam Clayton Powell Blvd., the center of a tenant-landlord dispute in which an appeals panel narrowly awarded legal fees to the tenant.
1925 Adam Clayton Powell Blvd., the center of a tenant-landlord dispute in which an appeals panel narrowly awarded legal fees to the tenant.

A divided state appeals panel has awarded attorney fees to a tenant who prevailed against his landlord in a holdover proceeding, ruling that language in his lease allowing the landlord to recover attorney fees by re-renting the apartment was enough to create a reciprocal right for the tenant.

The 3-2 Appellate Division, First Department, panel ruled Tuesday in Graham Court Owners Corp. v. Taylor, 70520/10, that even though the lease provision never obligates the tenant to pay the landlord's fees if the landlord prevails, it does implicitly obligate the landlord to pay the tenant's fees if the tenant prevails.

Justice Dianne Renwick (See Profile) wrote the majority opinion, joined by Justices Karla Moskowitz (See Profile) and Judith Gische (See Profile). Justice Leland DeGrasse (See Profile) dissented, joined by Justice John Sweeny (See Profile).

The tenant's attorney, Mark Bierman of Bierman & Palitz, said he had not calculated what the fees would be, but said they would be "substantial."

The tenant, Kyle Taylor, moved into what he was told was an unregulated apartment at 1925 Adam Clayton Powell Blvd. in Manhattan in 2004, paying $2,200 per month. He subsequently filed an overcharge claim with the Division of Housing and Community Renewal, alleging that the apartment was in fact regulated.

The landlord, Graham Court Owners Corp., claimed that it had spent $60,000 renovating the apartment, which deregulated it. Taylor responded that the landlord had not renovated the apartment, and that, in fact, he had made electrical improvements to the apartment himself. DHCR ultimately found in favor of Taylor.

In April 2007, the landlord told Taylor that his lease would be terminated because he had made unauthorized changes to the apartment. Taylor didn't leave, and in May 2007, the landlord filed a holdover proceeding. Taylor testified that he made the electrical improvements before moving in with the permission of the landlord.

Following a non-jury trial, Housing Court Judge Jean Schneider dismissed the case, finding that the landlord's story was "entirely incredible" and that the landlord's key witness had "lied repeatedly and obviously" during the trial.

Taylor sought attorney fees under Real Property Law §223-b, which allows such fees to be awarded when an eviction proceeding is retaliatory.

He also sought fees under §234, which says that if a lease provides that "the landlord may recover attorneys' fees and/or expenses incurred as the result of the failure of the tenant to perform" any part of the lease, a reciprocal covenant "shall be implied" allowing the tenant to recover fees.

Taylor's lease said, if the lease is terminated as a result of the tenant's default, the landlord "may relet the Apartment and anything in it," and that "rent received by Landlord for the re-renting shall be used first to pay Landlord's expenses and second to pay any amounts Tenant owes under this Lease." Those expenses include legal fees, according to the lease.

Schneider awarded Taylor fees under §223-b, but ruled that he was not entitled to fees under §234.

On appeal, the Appellate Term, First Department, upheld the dismissal of the proceeding, but reversed Schneider's fee award.

The Appellate Division panel on Tuesday agreed with the Appellate Term that Taylor was not entitled to fees under §223-b, but ruled that he was entitled to them under §234.

Renwick wrote that, even though the lease did not include any obligation for the tenant to pay the landlord's fees, it "literally fits within the language of Real Property Law §234" by allowing the landlord to take back an apartment and recover fees by re-renting it, and that as a remedial statute, the law must be "accorded its broadest protective meaning consistent with legislative intent."

Renwick cited the First Deparment's 1992 decision in Bunny Realty v. Miller, 180 AD2d 460, which awarded fees to a tenant in light of a similar lease provision.

Renwick noted that Tuesday's decision resolved an "apparent conflict" between Bunny Realty and two 2009 First Department decisions.

In one of those, Oxford Towers Co., LLC v. Wagner, 58 AD3d 422, a unanimous panel that also included Renwick and Moskowitz, ruled that an almost identical lease provision was "not the type of provision covered by Real Property Law §234." That case was distinguishable, Renwick said, because the underlying dispute was not triggered by breach of the lease, but of a later agreement. The court's statement about the lease provision in that case was therefore dicta, she wrote.

In the second case, Madison-68 Corp. v. Malpass, 65 AD3d 445, a First Department panel reversed an award of attorney fees pursuant to an identical lease provision, citing Oxford Towers. Renwick said that case did not explicitly address Bunny Realty, and thus did not overturn it.

DeGrasse, who sat on the panel in the Madison-68 decision, said that the lease provision did not actually allow the landlord to recover fees from the tenant, but "merely provides for an offset of rents collected in the event of a reletting."

"The result reached by the majority enables tenant to recover attorneys' fees by virtue of a determination in his favor," DeGrasse wrote. "At the same time, there can be no doubt that the language of the lease would not have provided for a similar recovery by landlord if it had prevailed."

"Today's ruling makes for the mutuality of a 'heads, I win; tails, you still don't win' coin toss," he added.

DeGrasse said that Bunny Realty should simply have been overturned.

Bierman, Taylor's attorney, said that the decision reestablished the clear precedent of Bunny Realty after recent decisions appeared to drift away from it.

"I think the decision effectuates the legislative intent of Real Property Law §234," he said.

Similar lease language "comes up fairly often," Bierman added, and the ruling will discourage retaliatory litigation by landlords in the future.

The landlord is represented by Nativ Winiarsky and Patrick Munson, partners at Kucker & Bruh. Munson said he was disappointed by the ruling but that his client had not decided on an appeal.

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