Opinion
Index No. 654168/2023
07-12-2024
Gur Associates LLC, v. Abraham Kassim, Defendant.
Mark S. Friedlander Esq., New York, NY (Mark S. Friedlander of counsel), for Plaintiff. Law Office of Marc Scolnick, Kew Gardens, NY (Marc Scolnick of counsel), for Defendant.
Mark S. Friedlander Esq., New York, NY (Mark S. Friedlander of counsel), for Plaintiff.
Law Office of Marc Scolnick, Kew Gardens, NY (Marc Scolnick of counsel), for Defendant.
Gerald Lebovits, J.
In February 2022, plaintiff, Gur Associates LLC, leased the ground floor of 584 Eighth Avenue in Manhattan, to Convenience on Eighth Corporation (tenant) for use as a convenience store for 120 months. (NYSCEF No. 15.) Defendant, Abrahim Kassim, tenant's owner, simultaneously executed an agreement personally guaranteeing the performance of the lease. (NYSCEF No. 2.) In September 2022, tenant began a pattern of late and delinquent rent payments. (NYSCEF No. 17.)
In June 2023, plaintiff received a letter from the New York County District Attorney giving notice that the tenant of 584 Eighth Ave was believed to be illegally selling marijuana. (NYSCEF No. 1 at ¶ 9.)
On August 24, 2023, plaintiff brought this action, seeking a money judgment against defendant for rent, holdover rent, liquidated damages, and attorney fees. (NYSCEF No. 1 at 5-8.) In his answer, defendant asserted 30 affirmative defenses and counterclaimed for harassment, disgorgement of rents, set-off and abatement, and lost-business damages. (NYSCEF No. 8 at 2-13.)
In September 2023, plaintiff brought an illegal-use holdover eviction proceeding in Civil Court (Richard Tsai, J.), relying on Real Property Law (RPL) § 231 (1) and Real Property Actions and Proceedings Law (RPAPL) 711 (5). (NYSCEF No. 30.) Following an inquest, on February 2, 2024, the court rendered a written decision awarding petitioner possession of the premises and issuing a warrant of eviction, finding that petitioner had established that the convenience store was used "solely or primarily for the unlicensed retail sale of cannabis." (NYSCEF No. 32 at 7-8.) On April 17, 2024, tenant was evicted. (NYSCEF No. 37.)
Plaintiff now moves for summary judgment and to dismiss defendant's counterclaims. (NYSCEF No. 11.) Defendant cross-moves for summary judgment dismissing plaintiff's claims. (NYSCEF No. 23.) Plaintiff's motion is granted except with respect to plaintiff's claim for attorney fees incurred in the Civil Court holdover proceeding. Defendant's cross-motion is denied.
DISCUSSION
I. Defendant's Cross-Motion for Summary Judgment and to Dismiss
Defendant argues that in light of the prior summary holdover proceeding, the lease is void ab initio, nullifying tenant's liability under the lease and defendant's liability under the guaranty. The question before the court is whether a landlord that prevails in a summary holdover proceeding based on a tenant's illegal use forfeits its entitlements under an otherwise-legal lease. The court holds it does not.
RPL § 231 (1) provides that when a lessee uses a premises "for any illegal trade, manufacture, or other business, the lease... shall thereupon become void." Generally, a void contract is treated as if it has no legal force. (Promise Prep Academy v JAZ, LLC, 144 A.D.3d 780, 781 [2d Dept 2016].)
Defendant relies on a string of cases to support its position that the voiding of a lease for illegal use extinguishes a tenant's or guarantor's rent liability. (See e.g. Doherty v Monroe Eckstein Brewing Co., 198 AD 708, 712 [1st Dept 1921]; Edelmuth v McGarren, 45 How Prac 191, 191-192 [Ct Common Pleas, NY County 1873].) But in all these cases, the underlying lease was either made exclusively for an illegal purpose or for a legal purpose that was later prohibited by law. A distinction must be drawn between leases made for an illegal purpose and leases that are legal but for the tenant's illegal conduct. In the former case, the discharge of the tenant's or guarantor's rent liability stems from the impossibility of the legal performance of the lease. (Adler v Miles, 69 Misc. 601, 603 [App Term 1910].) Additionally, in this scenario, the landlord, as a party to the lease, bears responsibility for the lease's illegality. The landlord, therefore, should not be able to profit from the illegal lease. In the latter case, the tenant carries out the illegal use unilaterally, outside the bounds of the lease and without the landlord's consent. No caselaw supports the proposition that a lease should be construed as void ab initio in those circumstances.
To the contrary, courts in dicta have dismissed the notion that a tenant could unilaterally absolve themselves of a lease's obligations by committing illegal acts. (See 220 W. 42 Assocs. v Cohen, 60 Misc.2d 983, 985-986 [App Term, 1st Dept 1969]; Hudsonview Co. v Jenkins, 169 Misc.2d 389, 391 n 2 [Civ Ct, NY County 1996].)
Landlords may accept rent while simultaneously pursuing an eviction for illegal use under RPL § 231 (1). Neither the acceptance of rent nor the commencement of a nonpayment proceeding waives an illegal-use holdover. (Murphy v Relaxation Plus Commodore, Ltd., 83 Misc.2d 838, 840 [App Term, 1st Dept 1975]; Hudsonview Co. v Jenkins, 169 Misc.2d 389, 394-395 [Civ Ct, NY County 1996].) In Bel Air Leasing L.P. v Kuperblum (15 Misc.3d 986, 992 [Civ Ct, Kings County 2007]), a respondent tenant moved to dismiss a nonpayment proceeding on the ground that the lease was made void ab initio by a later illegal use holdover brought against her. The court denied the motion, reasoning that if a nonpayment proceeding did not vitiate an illegal-use holdover, an illegal use holdover should not require the dismissal of a nonpayment proceeding. (Id. at 992). This court agrees.
The legislative history of RPL § 231 (1) suggests that the statute was enacted to facilitate the swift eviction of illegal-use tenants. (See New York Housing Authority v Lipscomb-Arroyo, 2008 NY Slip Op 51085[U], at *7-8 [Civ Ct, Kings County 2008].) For instance, the use of the term "void," rather than "terminated," has been held to mean that a landlord need not issue a standard notice of termination. (New York City Hous. Auth. v Harvell, 189 Misc.2d 295, 296 [App Term, 1st Dept 2001]; Murphy, 83 Misc.2d at 839-840.) Over time, RPL § 231, RPAPL 711(5), and RPAPL 715, the so-called Bawdy House laws, have been continuously amended to broaden the scope of illegal uses and expand the number of people eligible to bring an action under the laws. (See 1165 Broadway Corp. v Dayana of NY Sportswear, Inc., 166 Misc.2d 939, 945-947 [Civ Ct, NY County 1995].) RPL § 231 (2) and RPAPL 715 (1) impose liability on a landlord that knowingly leases to a tenant for illegal use. As here, the District Attorney can oblige landlords to initiate illegal-use holdover proceedings, or face liability themselves. This legislation is intended to eliminate the illegal use of property efficiently and effectively.
This court finds that when an otherwise-legal lease agreement is made void under RPL § 231 (1) by a tenant's illegal use of the property, the lease should be treated as voidable rather than void ab initio. To hold otherwise would have the perverse effect of rewarding the illegal-use tenant and punishing the landlord by nullifying the tenant's rent obligations under the lease. Tenants would then be incentivized to conduct illegal activity, and landlords would be discouraged from bringing illegal-use holdover proceedings, for fear of forfeiting their entitlement to rent. New York has enacted a substantial legislative scheme intended to curb the widespread illegal sale of cannabis. This court declines to interpret RPL § 231 (1) in a way that would undermine the purpose of these laws by encouraging their violation.
It is true that should a lease be construed as void ab initio, a tenant would still be liable for use and occupancy pursuant to RPL § 220. But a guarantor cannot be held liable for use and occupancy unless the guaranty explicitly requires it. (Archives L.L.C. v Volpe, 220 A.D.3d 560, 560 [1st Dept 2023].)
See e.g. Cannabis Law art 1, § 2 ("The intent of this act is... to reduce the illegal drug market... [and] reduce participation of otherwise law-abiding citizens in the illicit market."); RPAPL 715-a (4) ("The use or occupancy of premises customarily or habitually for the unlicensed retail sale of cannabis or products marketed or labeled as such shall constitute an illegal trade, manufacture, or other business for the purposes of section two hundred thirty-one of the real property law.")
For the above reasons, tenant's rent liability under the lease continues in full force, and the guaranty is not void. Defendant's cross-motion for summary judgment and motion to dismiss is denied.
II. Plaintiff's Motion for Summary Judgment
Plaintiff moves for summary judgment in its favor on its claims for rent, holdover rent, liquidated damages, and attorney fees under defendant's guaranty. "On a summary judgment motion to enforce an unconditional guaranty, the creditor must prove the existence of the guaranty, the underlying debt and the failure to perform under the guaranty." (Davimos v Halle, 35 A.D.3d 270, 272 [1st Dept 2006].) Here, defendant does not dispute that he executed an absolute and unconditional guarantee of the lease (NYSCEF No. 43 at ¶¶ 2-4); that the lease calls for tenant's payment of rent, holdover rent, damages and attorney fees (NYSCEF No. 15); and that defendant has not paid plaintiff anything under the guaranty. (NYSCEF No. 16-20.)
Outside the validity of the lease and guaranty, defendant has one other argument in opposition to plaintiff's motion for summary judgment. Defendant argues that plaintiff's untimely filing of its statement of material facts unfairly prejudiced defendant. (NYSCEF No. 43.) Although plaintiff failed timely to file a statement of material facts to support its motion, it has since filed a statement of material facts and counterstatement of material facts. (NYSCEF No. 37 and 38.) Failure to file a statement of material facts timely is not necessarily fatal to a motion for summary judgment. (See Taveras v Incorporated Village of Freeport, 225 A.D.3d 822, 823 [2d Dept 2024].) Plaintiff's statements of material facts do not introduce new information not already found in defendant's own statement of material facts and plaintiff's reply affirmations. (NYSCEF No. 12, 13, and 33.) Therefore, the untimely filing was not prejudicial.
In defendant's response to plaintiff's statement of material facts, defendant admits to all facts alleged except those dependent on his liability under the guaranty that he claims to be void. (NYSCEF No. 43) Therefore, there is no triable issue of fact.
Plaintiff is entitled to unpaid rent for February 1, 2023, through August 30, 2023, at the rate of $20,600 per month. (NYSCEF No. 15 at Article 42 [A].) Plaintiff is also entitled to interest on unpaid rent at the rate of 18% accruing from May 15, 2023, until August 30, 2023. (See id. at Article 44.)
Plaintiff asserts that the lease was terminated by its filing of the holdover petition. (NYSCEF No. 13 at ¶ 13.) The petition was filed on August 16, 2023. (See Index No. LT-316464-23/NY, NYSCEF No. 1.) As mentioned above, RPL § 231 eliminates the need for a landlord to send a notice of termination. Thus, although plaintiff did not send a notice of termination, this court agrees that plaintiff's filing of the holdover petition provided sufficient notice of plaintiff's intention to end the lease. Therefore, plaintiff is entitled to holdover rent at the rate of $41,200 per month (NYSCEF No. 15 at Article 58), from September 1, 2023, until tenant's eviction on April 17, 2024 (NYSCEF No. 37). Plaintiff is entitled to interest on the unpaid holdover rent at the rate of 18% (see NYSCEF No. 15 at Article 44) accruing from December 22, 2023 until April 17, 2024.
This petition was dismissed when petitioner failed to appear on September 11, 2023, but petitioner filed a new petition on September 12, 2023. (NYSCEF No. 6 at ¶ 12.) The court concludes that for purposes of notice to defendant of plaintiff's intent to terminate the lease, the date of the initial petition controls.
Plaintiff is further entitled to late fees on rent not paid within five days of when it became due, in the amount of $0.10 per $1.00 due. (NYSCEF No. 15 at Article 59.) Late fees amount to $2,000 per month from September 1, 2022, until January 31, 2023, and $2,600 per month from February 1, 2023 until September 30, 2023. (NYSCEF No. 17.) Plaintiff is entitled to late fees on unpaid holdover rent in the amount of $4,120 per month from September 1, 2023 until March 31, 2024. Plaintiff is entitled to a late fee in the amount of $233.26 for the holdover rent from April 1, 2024 until April 17, 2024.
Plaintiff seeks attorney fees from both the prior summary holdover proceeding and the present suit. Plaintiff's claim for attorney fees incurred in the summary holdover proceeding are foreclosed by the bar on claim-splitting, which requires a party to "seek attorneys' fees within the action in which they were incurred, not a subsequent action." (O'Connell v 1205-15 First Ave. Assoc., LLC, 28 A.D.3d 233, 234 [1st Dept 2006].) Plaintiff is entitled to reasonable attorney fees incurred during this action. To date, they total $16,987.63. (See NYSCEF No. 20.)
Plaintiff's motion for summary judgment is granted, except with respect to plaintiff's claim for attorney fees that were incurred in the Civil Court holdover proceeding.
III. Plaintiff's Motion to Dismiss Defendant's Counterclaims
Plaintiff moves to dismiss defendant's counterclaims of harassment, disgorgement of rent, offset and abatement, and breach of lease. Guarantors may not avail themselves of a cause of action belonging to the principal of a guaranteed agreement. (Ettlinger v National Surety Co. 221 NY 467, 469 [1917].) Here, defendant's four counterclaims are all based on harm to tenant's business or a breach of the lease agreement between tenant and plaintiff. Defendant is not party to the lease agreement and is not entitled to bring these claims. Plaintiff's motion to dismiss all counterclaims is granted.
Accordingly, it is
ORDERED that defendant's cross-motion for summary judgment dismissing plaintiff's claims is denied; and it is further
ORDERED that the branch of plaintiff's motion seeking dismissal of defendant's counterclaims is granted, and the counterclaims are dismissed; and it is further
ORDERED that plaintiff's motion for summary judgment is granted, except with respect to the branch of the motion seeking attorney fees incurred in the Civil Court holdover proceeding, which is denied, and plaintiff is awarded a judgment against defendant for (i) $144,200 in unpaid rent, with interest on that sum at 18%, running from May 15, 2023, through August 30, 2023; plus (ii) $311,746.67 in unpaid holdover rent, with interest on that sum at 18%, running from December 22, 2023, through April 17, 2024; plus (iii) $53,493.26 in late fees; plus (iv) $16,987.63 in attorney fees; plus (iv) costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that plaintiff serve a copy of this order with notice of its entry on defendant and on the office of the County Clerk (by the means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/courts/1jd/ supctmanh/E-Filing.shtml), which shall enter judgment accordingly.