Rent deposit ordered in commercial case.

Just when owners were getting sideswiped by Legal Aid in the residential arena, a Civil Court judge has ordered the deposit of rent in a commercial rent dispute.

While the tenant's counsel is claiming the section is unconstitutional because his client has to put up money to dispute a rental claim, he is not, so far, disputing that the law also applies to commercial rent actions. Owner's counsel also claims the Real Property Actions and Proceedings Law (RPAPL) applies to commercial cases.

The judge. Hon. Debra A. James, ordered that the office tenant deposit money for its use and occupancy under the new deposit of rent section of the RPAPL that went into effect in mid-October.

Jack Freud, executive vice president of the 25,000-member Rent Stabilization Association (RSA), said they always believed the statute applied to commercial cases, "and now, someone else agrees."

The holdover proceeding at 100 Wall Street was brought by Cushman & Wakefield against Eastern Marine Management, which rents a portion of the 25th floor, coincidentally where the brokerage has its Downtown offices.

"Based on a substantial lease obligation, they didn't pay what they were supposed to pay," said M. Teresa Daley, counsel to Tenzer Greenblatt, who represented Cushman Wakefield. "We exercised our rights."

The attorney for Eastern Marine, Keith Rubenstein, claims when the tenant was doing well, it expanded its space, part of which was sublet at a rent of $4,250.

But Cushman & Wakefield took down signage, he asserts, and "forced the subtenant out." According to Rubenstein the tenant - with management approval - then downsized and was paying $1,750. But he says they were not able to even use all of that space because Cushman & Wakefield took over parts of it with their "stuff." Rent was withheld, and then the petition was served, which asked for the full $4,250 rent.

"We say we were paying the rent until they took the signs down," said Rubenstein.

The petition was served on November 5th, and at that time, Rubenstein agrees the November rent had not been paid.

At the first appearance, the company's principal requested an adjournment to obtain counsel. Since Daley was not available for the first date requested, Rubenstein says the judge also ordered payment of use and occupancy directly to Cushman & Wakefield.

"November's rent wasn't paid. What the judge ordered was to pay a month's rent to get a longer adjournment," Rubenstein claims. That payment, which he asserts was actually the December rent, was paid on or about November 25th, he said.

On the next appearance, when Rubenstein, a partner with Rubenstein & Cohen, made a second application for an adjournment, Daley asked Justice James to direct the tenant to pay the use and occupancy under the new law.

Daley says the RPAPL applies to both residential and commercial rent disputes.

"It governs the action before the court in summary proceedings and it was not just enacted to go after residential tenants," she explained.

The tenant was scheduled to make a payment to the court this past Monday, December 22nd, but Rubenstein said he will appeal the ruling.

"The tenant already paid the use and occupancy directly to the landlord," Rubenstein said. He claims that since the November rent was requested in the petition, the use and occupancy paid in November was really for December. Since the judge has requested another month's rent be paid, and it is still December, he says the tenant does not owe the money.

The petition also claimed the full $4,250 per month, which Rubenstein says was the prior rent amount and not the current one. So he says Cushman & Wakefield is asking for more than they are entitled to, and that is one of the reasons the tenant needs to litigate.

Besides, he said, they already paid the December rent as was asked for by the judge in November.

"We're saying we already complied prior to the order. Now they will be getting more than they are entitled to," if the judge requires another month's rent deposit before the trial date of January 5th, Rubenstein said.

But doesn't the tenant also owe November's rent'?

Yes, agreed Rubenstein, but that is demanded in the petition and therefore shouldn't be subject of a deposit order because only the rent accrued from the date of the petition is supposed to be deposited.

Section 745 subdivision 2a reads in part: ...the court "shall" direct "deposit with the court within five days sums of rent or use and occupancy accrued from the date of the petition and notice of petition are served upon the respondent and all sums as they become due for rent and use and occupancy.

Daley says that although the statute is mandatory by the use of the word "shall," "everyone is missing a portion of the statute that appears to turn it into discretion."

If the tenant claims papers were not served properly or if there is a jurisdictional dispute, the court is required to conduct an immediate hearing to establish the validity of the defenses.

Among the defenses are, "(A) actual eviction, or (B) actual partial eviction, or (C) constructive eviction; and respondent has quit the premises, ..."

Commercial owner Audrey Block Heckler, president of Gray-Block Corporation, said she has always found it "ridiculous" that the rents that are owing are not put into escrow.

"The tenants continue to operate their business and make a profit while the owner, whose business is operating the building, is not collecting any money," she said.

Still, Rubenstein says, "To condition someone's right to litigate on the payment of an unproven amount is unconstitutional.

Daley, who has been following the residential cases where a stay based on unconstitutionality claims was stayed on the filing of a notice of appeal by the New York State Attorney's General's office, said "The law will give us a couple of good issues to litigate between now and the end of the century."