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Court sides with landlord for $500,000 in back rent.

Court sides with landlord for $500,000 in back rent

The New York Supreme Court ruled in favor of a landlord for withheld rents by a tenant amounting to over $500,000, according to Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P.C. which represented the owner.

In this case, the lessee of several stores in a New York shopping mall was served with a notice of default for non-payment of rent. In response to the notice, the tenant moved before the Supreme Court for the State and County of New York seeking a preliminary injunction staying the running of the notice and thereby forestalling the tenant's time to cure the rent default.

Although such preliminary injunctions are routinely granted by New York state courts, the co-op landlord in this case took an aggressive position by demanding that the court condition any preliminary injunction upon the tenant's posting of a substantial undertaking (bond) in order to protect the co-op's interests from resulting damage. In addition, the co-op cross-moved requesting that the court specifically direct the tenant to pay rent for (or use and occupancy), directly to the co-op, each month, during the pendency of the litigation.

In support of its position, the co-op outlined the substantial services it provided as landlord to the commercial tenant. The severe economic hardship to residential proprietary shareholders resulting from the tenant's withholding of commercial rent was also stressed by the co-op. This commercial rent was over $40,000 per month, comprising at least 10 percent of the co-op's income.

The court heard the co-op's plea and specifically conditioned the preliminary injunction upon the tenant's posting an undertaking of $500,000.00. In addition, while directing the co-op to maintain certain services previously provided, the court directed the tenant to pay use and occupancy (arrears as well as prospective amounts) directly to the co-op, each month, during the pendency of the litigation.

When the tenant failed to comply by paying the directed use and occupancy, the co-op was granted a monetary judgement, against the commercial tenant, for defaulted use and occupancy amounting to $520,182.64 plus statutory interest of another $19,506.85. Though the tenant appealed the orders and judgment to the Appellate Division, the lower court's two orders and the resultant $520,182.64 monetary judgement were unanimously affirmed by the appellate court.

With regard to the $500,000 undertaking required in addition to the payment of use and occupancy, the Appellate Division found that "the amount of the undertaking was not excessive, but was rationally related to the quantum of damages which the plaintiff would sustain in the event that the defendant is later determined not to have been entitled to the injunction."

The court's decision, according to FBSA&G partner Melissa Ephron, may be seen as a warning to commercial tenants who withhold rent and attempt to forestall their leasehold obligations that the price of such actions may be costly. Ephron continued to note that the decision may also be seen as "an incentive for coops to vigorously and aggressively pursue their legal rights in the face of defaulting commercial tenants."

The defaulting commercial tenant in this case sought leave for further appeal from the Appellate Division and was recently denied this motion.

The case was won at the trial court level by Lewis A. Lindenberg, Esq., Melissa G. Ephron, Esq. and at the appellate level by Jeffrey R. Metz, Esq.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Real Estate Weekly
Date:Aug 21, 1991
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