By Thomas R. Newman
Duane Morris LLP
Freedom of contract is a strong and deeply rooted public policy of New York,[1] and it is bolstered by the law “regarding the sanctity of contracts [that] has been long established and rests upon ‘a solid foundation of reason and justice.’”[2]
That law “requires parties to do what they have agreed to do . . . [and] does not allow a contract fairly made to be annulled, . . .”[3]
One would expect our courts to be especially mindful of these lofty principles when a tenant-shareholder in a residential cooperative apartment building seeks to hold the landlord to strict conformance with the terms of the proprietary lease defining what interior space constitutes the “apartment.” That was not the result in Goldstone v. Gracie Terrace Apt. Corp.[4]
There, the Appellate Division, First Department, recently affirmed the denial of a motion by plaintiff, the proprietary lessee (owner) of a duplex penthouse in defendant’s building, for a preliminary injunction to prevent defendant from making certain repairs to her apartment in a manner that the Court found “will constitute a breach of the proprietary lease, because defendant does not dispute the assertion by plaintiff’s expert that the plan will create a diminution of apartment space and necessitate some reconfiguration and alterations.”[5]
Plaintiff was denied injunctive relief because she had not “made a clear showing of irreparable harm,” since the Court found that “any costs incurred in making alterations to built-in cabinetry or replacing structural items or components of the apartment or in addressing any other difficulties that are engendered by any necessary adjustments are largely compensable in money damages.”[6]
The Appellate Division recognized that “the anticipated diminution of square footage alone constitutes an injury,” but agreed with the court below that “in itself the injury is de minimis insofar as a claim of irreparable harm is made.”[7]
Although it applied a de minimis standard, the Court expressly noted that it was not relying on Eastside Exhibition Corp. v 210 E. 86th St. Corp,.[8] “since that case concerned a landlord’s alteration of leased commercial space, which raises different concerns from those raised by an alteration that reduces a residential tenant’s leased space.”[9]
A commercial tenant does not reside in the apartment at issue and his interest involves “only the potential loss of his investment, as opposed to the loss of his home or a unique piece of property in which he has an unquantifiable interest.”[10] Whereas a residential tenant’s home is his castle.[11]
The Court cited, but did not follow, two cases “in which the landlord’s interference was sufficient to justify either injunctive relief or orders preventing the work from proceeding.”[12]
In one, Forest Close Assn., Inc. v. Richards,[13] the plaintiff homeowners’ association was granted a permanent injunction prohibiting defendants from constructing a proposed brick addition to the rear of their home that would alter Forest Close’s interior garden quadrangle and would be difficult to remove. The Appellate Division, Second Department, held that altering the plaintiff’s interior garden space constituted irreparable harm and, under such circumstances, the plaintiff could not be made whole with an award of damages.
In the other, In re Lite View LLC v. New York State DHCR,[14] the landlord proposed installing an elevator shaft within a tenant’s apartment by reconfiguring the apartment and adding some 66 square feet at the rear of the apartment to compensate for the loss of space in the front of the apartment. The proposed alterations would have reduced the existing kitchen space, eliminated 3 feet of kitchen counter space, narrowed the aisle, and eliminated a pantry and a small clothes closet. The landlord offered to renovate the entire apartment and relocate the tenant to a comparable apartment for the time needed to complete the alterations, all at the landlord’s expense, and to reduce the tenant’s rent by 10% to compensate for loss of the portion of the backyard taken up by the proposed extension. The First Department found the “Owner’s proposal would change the shape and character of tenant’s existing apartment from the one he rented” and did not allow the owner to make the proposed alterations.
The First Department stated that these decisions “do not preclude the possibility that interference in other circumstances may be so minimal as to fail to justify injunctive relief.”[15] While that may be so, no reported New York decision has applied a de minimis standard to a landlord’s unauthorized taking of any part of a residential tenant’s apartment.
In effect, the First Department has granted private landlords the power of eminent domain. This is a cataclysmic change in New York law under which the power of eminent domain belongs to the sovereign, the State or a political subdivision thereof, and can only be exercised for a “dominant public purpose.”[16]
While the Court stated that plaintiff’s failure to make a clear showing that the possible square footage reduction was more than de minimis “does not preclude compensation by other means,”[17] that is no solace to a residential tenant who is not interested in a modest rent abatement or the landlord’s money. Instead, the tenant does not want any change whatsoever to be made to the dimensions and configuration of the rooms in her home as they were on the date that she received a signed proprietary lease.
Moreover, if the landlord’s challenged action is to be subjected to a de minimis standard, it will inevitably burden the trial courts and Appellate Division with litigation over whether, as a matter of fact, the proposed (or actual) taking is de minimis. A rule that undermines the fundamental principle of certainty of contracts and encourages more litigation should not have been adopted by the Appellate Division.
In addition to being a breach of contract,[18] the landlord’s taking of any part of a residential tenant’s apartment is an actual partial eviction and the “remedy of total abatement of rent for an actual partial eviction is one of very long standing in New York” which the majority in the Court of Appeals did not “jettison or overrule” in Eastside Exhibition.[19] “Eviction . . . suspends the obligation of payment . . . because it involves a failure of the consideration for which rent is paid . . . If such an eviction, though partial only, is the act of the landlord, it suspends the entire rent because the landlord is not permitted to apportion his own wrong.”[20]
The majority in Eastside Exhibition explained its failure to apply the so-called “one inch” rule.[21] “Given the inherent inequity of a full rent abatement under the circumstances presented here and modern realities that a commercial lessee is free to negotiate appropriate lease terms, we see no need to apply a rule, derived from feudal concepts, that any intrusion–no matter how small–on the demised premises must result in full rent abatement. Rather, we recognize that there can be an intrusion so minimal that it does not prescribe such a harsh remedy.”[22]
That is not true of a residential tenant who lacks bargaining power to “negotiate appropriate lease terms.” Such tenants require protection from a landlord who is not deterred by the prospect of damages from making changes to a tenant’s apartment in breach of the lease. The tenant is not interested in obtaining damages. She wants the apartment she rented and not another apartment of some other configuration and size. Moreover, in the case of a cooperative building, every tenant-shareholder must be given the identical proprietary lease, with the only differences being the name of the tenant, the apartment number and the number of shares allocated to it and the inception date of the lease.[23]
The Goldstone decision also is at odds with the “‘familiar and eminently sensible proposition of law . . . that, when parties set down their agreement in a clear, complete document, their writing should … be enforced according to its terms’ . . . We [the Court of Appeals] have also emphasized this rule’s special import ‘in the context of real property transactions, where commercial certainty is a paramount concern, and where . . . the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length.’”[24]
The day after the Appellate Division’s decision, the Goldstone case was settled thanks to any amazing effort by David Geronemus, Esq., a full-time neutral at JAMS, who conducted a 17-hour non-stop mediation.[25] Therefore, it cannot provide an opportunity for the Court of Appeals to say whether the de minimis standard made applicable to commercial leases by Eastside Exhibition may also be applied to a taking of part of a residential tenant’s home. That novel question of New York law is of statewide importance and, hopefully, another case will bring it before the Court of Appeals in the not too distant future.
[1] The author argued the appeal for Maro A. Goldstone, his wife, and was a plaintiff in Goldstone v. Gracie Terrace Apt. Corp., 2013 N.Y. App. Div. LEXIS 5637 (1st Dept. Aug. 27, 2013).
[1] New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74, 81, 538 N.Y.S.2d 217, 221 (1989).
[2] Second Nat’l Bank of Toledo v. M. Samuel & Sons, Inc., 12 F.2d 963, 966 (2d Cir. 1926). For “the recognition of the sanctity of contracts,” see also, Yehle v. New York C. R. Co., 267 A.D. 301 , 312, 46 N.Y.S.2d 5, 14 (4th Dept 1943), and Russian Socialist Federated Soviet Republic v. Cibrario, 235 N.Y. 255, 263 (1923).
[3] Ibid, quoting Dermott v. Jones, 2 Wall. 1, 8, 17 L. Ed. 762 (1865).
[4] 2013 N.Y. App. Div. LEXIS 5637 (1st Dept. Aug. 27, 2013).
[5] Id. at *6. The proprietary lease defines “the apartment” as “the rooms in the building as partitioned on the date of the execution of this lease . . . together with their appurtenances and fixtures and any closets, terraces, balconies, roof, or portion thereof outside of said partitioned rooms, which are allocated exclusively to the occupant of the apartment.” Id. at *5
[6] Id. at *7-*8.
[7] Id. at *8. The Appellate Division also found that “the balance of the equities does not weigh in plaintiff’s favor. Although plaintiff proposed an alternative method of performing the work on the exterior, she failed to respond to defendant’s assertion that this method would entail substantial extra expenses that defendant was under a fiduciary duty to avoid imposing on the other cooperative shareholders (see Bryan v West 81 St. Owners Corp., 186 AD2d 514, 589 N.Y.S.2d 323 [1st Dept 1992]). The claimed impact to plaintiff of the planned modifications to her apartment, most of which will be compensable based on plaintiffs’ breach of contract theory, is far outweighed by the expense to the co-op of demolishing and rebuilding exterior walls, especially when those walls have already been repaired and treated for waterproofing.” Id. at *9. It would have cost GTAC only an extra $120,000 (or $1.50 per share spread among approximately 150 tenant-shareholders) to reconstruct the exterior walls of PH-B, as requested by Plaintiff, in a Code-compliant manner that did not take away any interior or exterior space.
[8] 18 N.Y.3d 617, 942 N.Y.S.2d 19, cert. denied ___ U.S. ___, 133 (2012).
[9] 2013 N.Y. App. Div. LEXIS 5637 at *8.
[10] Lombard v Station Sq. Inn Apts. Corp., 94 A.D.3d 717, 721, 942 N.Y.S.2d 116, 121 (2d Dept 2012).
[11] “A man’s home is his castle. The storm and wind may enter, but the King cannot enter, and all the forces of the Crown cannot cross the threshold of his ruined tenement.” Pledger v. State, 257 Ga. App. 794, 797, 572 S.E.2d 348, 351 (2002), quoting Lord Eldon, Lord Chancellor of Great Britain between 1801 and 1827.
[12] Forest Close Assn., Inc. v Richards, 45 A.D.3d 527, 529, 845 N.Y.S.2d 418 (2d Dept 2007); Matter of Lite View, LLC v New York State Div. of Housing & Community Renewal, 97 A.D.3d 105, 945 N.Y.S.2d 49 (1st Dept 2012). See also, Tompkins v Jackson, 20 Misc 3d 1108[A] at *3, 866 N.Y.S.2d 96, (Sup. Ct. N.Y. Co. 2008)(“courts have found that the loss of one’s ownership and possessory rights in one’s home is irreparable harm in and of itself”).
[13] 45 A.D.3d 527, 529 (2d Dept 2007).
[14] 97 A.D.3d 945 (1st Dept. 2012).
[15] 2013 N.Y. App. Div. LEXIS 5637 at *8-*9.
[16] Matter of Goldstein v New York State Urban Dev. Corp., 13 N.Y.3d 511, 519 (2009).
[17] 2013 N.Y. App. Div. LEXIS 5637 at *9.
[18] See note 5, supra.
18 18 N.Y.3d at 622.
[20] 18 N.Y.3d at 622, quoting Fifth Ave. Bldg. Co. v Kernochan, 221 NY 370, 372-73 (1917).
[21] See Judge Read’s dissent, 18 N.Y.3d at 624.
[22] 18 N.Y.3d at 623 (emphasis added).
[23] A cooperative may not discriminate in favor of one tenant-shareholder over another. A “prima facie case of unequal stockholder treatment is made out where there is a departure from precisely uniform treatment of the stockholders and a resulting violation of their fiduciary obligation to treat stockholders fairly and evenly.” Aronson v. Crane, 145 A.D.2d 455, 456, 535 N.Y.S.2d 417, 418 (2d Dept 1988); Bryan v. West 81 St Owners Corp, 186 A.D.2d 514, 515, 589 N.Y.S.2d 323, 324 (1st Dept 1992).
[24] Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 767 (2004)(citations omitted).
[25] The decision was issued on August 27, coincidentally, the day before the scheduled second day of the parties’ mediation.
