Graham Court Owner's Corp. v. Kyle TaylorGraham Court Owner's Corp. v. Kyle Taylor
Kucker & Bruh, LLP, New York City (Nativ Winiarsky and Patrick K. Munson of counsel), for appellant. I. The lease in this matter does not provide for an award of attorneys’ fees to the petitioner and it was error for the Appellate Division to find that the reciprocal provisions of
Bierman & Palitz LLP, New York City (Mark H. Bierman of counsel), for respondent. I. The order of the Appellate Division holding that tenant is entitled to an award of attorneys’ fees under the lease between the parties and the provisions of
OPINION OF THE COURT
RIVERA, J.
We hold that
I.
The parties’ current dispute arose from a holdover proceeding commenced by the landlord, appellant Graham Court, against tenant, respondent Kyle Taylor. The apparent basis for the holdover proceeding can be traced back to the tenant‘s successful rent overcharge complaint filed with the New York State Division of Housing and Community Renewal (DHCR). There, the landlord denied the overcharge, contending that the apartment was properly deregulated under the law, based on various renovations allegedly conducted by the landlord. Tenant, in turn, asserted that it was he who had performed electrical upgrade work on the premises for which the landlord sought to take credit. DHCR eventually found that the landlord misrepresented the facts, and concluded that the apartment was subject to regulation, and the landlord had overcharged the tenant. By way of relief, DHCR ordered a rent reduction and repayment for the overcharges, and awarded the tenant treble damages in accordance with Administrative Code of the City of New York § 26-516. The Appellate Division subsequently affirmed Supreme Court‘s dismissal of the landlord‘s CPLR article 78 challenge to
Approximately four months after DHCR rendered its decision in favor of the tenant, and while the landlord‘s article 78 was pending in Supreme Court, the landlord commenced the underlying summary holdover action against the tenant seeking to evict the tenant and regain possession of the premises, and demanding rent arrears and $3,000 in legal fees. In support of its claims, the landlord alleged that the tenant breached the lease by failing to obtain the required prior written consent to install a new electrical system in the kitchen—the same electric upgrade work disputed by the parties in the matter before DHCR. When the tenant failed to cure the breach or vacate the premises, the landlord commenced the holdover proceeding.
For his part, the tenant denied that he breached the lease, and asserted a defense of retaliatory eviction under
Civil Court dismissed the proceeding, finding the tenant had not breached the lease because the landlord‘s agents authorized the tenant‘s electrical work. Moreover, the court concluded the landlord‘s principal lied repeatedly during the course of the nonjury trial, and the proceeding was commenced in retaliation for the tenant‘s successful DHCR rent overcharge claim. Thus, the court awarded the tenant attorneys’ fees as part of the damages for the retaliatory eviction under
In a split decision, the Appellate Division modified, on the law, by granting the tenant‘s claim for attorneys’ fees pursuant to
The Appellate Division subsequently granted the landlord‘s motion for leave to appeal, certifying a question whether its order was properly made. We now hold that
II.
Under
“Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform any covenant or agreement contained in such lease, or that amounts paid by the landlord therefor shall be paid by the tenant as additional rent, there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease.”
In order for the tenant to be eligible for attorneys’ fees under this section, the parties’ lease must permit the landlord, in any action or summary proceeding, to recover attorneys’ fees as a result of the tenant‘s breach. Where a lease so provides, the court must interpret the lease to similarly permit the tenant to seek fees incurred as a result of the landlord‘s breach or the tenant‘s successful defense of a proceeding by the landlord.
Paragraph 15 of the lease, titled “Tenant‘s default,” sets forth the landlord‘s remedies and the tenant‘s liabilities upon the tenant‘s failure to comply with a term or rule in the lease. According to this paragraph, where a properly notified tenant fails to cure a default the landlord may cancel the lease and retake possession of the premises, if necessary, by way of an eviction proceeding or other lawsuit. Upon cancellation of the lease and the landlord‘s repossession of the premises the tenant is liable for rent for the unexpired term. The landlord‘s rights to attorneys’ fees are set forth in clause (D) (3) of this paragraph, which states, in part,
“D. If this Lease is canceled, or Landlord takes back the Apartment, the following takes place: . . .
“(3) Any 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. Landlord‘s expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs.”
Thus, clause (D) (3) anticipates that after a tenant‘s default leads to the reletting of the premises, the landlord is entitled to collect attorneys’ fees incurred in gaining possession. Under these circumstances, clause (D) (3) complies with the requirements of
The landlord argues that the lease is outside the coverage of
Here, the lease provides for the landlord‘s right to cancel the lease, retake possession and relet the premises only upon the tenant‘s failure to cure a default. Thus, the landlord‘s attorneys’ fees under paragraph 15 (D) (3) for “getting possession and re-renting” are incurred as a result of the tenant‘s breach. The issue is not whether the attorneys’ fees are available in the landlord‘s underlying proceeding against the tenant for the breach of the lease. There is no such limitation found in the text of
The landlord‘s other contention that the statute should be treated as a form of mitigation that reduces the amount owed by the tenant to the landlord disregards the import of clause (D) (3). That clause states that “[a]ny 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.” By its language, clause (D) (3) must be read to assume that, but for this sequenced payment of attorneys’ fees, the tenant would be entitled to demand credit for the full rent collected by the landlord for reletting the premises, and to have that credit applied against any amount the tenant owed under the lease. Thus, because the amounts received are initially used to pay the landlord‘s attorneys’ fees, less money remains for reducing the tenant‘s outstanding debt. The landlord argues otherwise, but the tenant is effectively paying the landlord‘s attorneys’ fees by way of this “relet and collect” lease provision.
We are mindful that
“[t]he overriding purpose of
Real Property Law § 234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense. The statute thus grants to the tenant the same benefit the lease imposes in favor of the landlord” (id. at 780).
The Court also identified an additional purpose of
Of particular relevance to the parties’ dispute in this appeal, the Court in Duell rejected a challenge analogous in kind to that asserted by the landlord herein. In Duell, the landlord argued that the underlying eviction proceeding fell outside the scope of
Our interpretation of paragraph 15, and clause (D) (3) in particular, furthers the legislative purposes that favor the tenant‘s right to attorneys’ fees. In contrast, acceptance of the landlord‘s interpretation of
Moreover, this interpretation permits a landlord to escape the statute‘s coverage by recharacterizing the landlord‘s attorneys’ fees as costs incurred by reletting, contracting the statute‘s coverage by limiting its scope. It also encourages creative ways to structure recovery of fees so as to appear attenuated from the tenant‘s breach. As the Appellate Division recognized, this would “reward ‘artful draftsmanship’ and undermine the salutary purpose of section 234” (Graham Ct. Owner‘s Corp., 115 AD3d at 59, quoting Matter of Casamento v Juaregui, 88 AD3d 345, 357 [2d Dept 2011], quoting Bunny Realty v Miller, 180 AD2d 460, 463 [1st Dept 1992]).
The landlord argues, like the Appellate Division dissent, that we must interpret
The Court in Gottlieb held that
The landlord fares no better by pointing to a statutory construction rule that limits judicial expansion of a remedial
Turning to the landlord‘s alternative argument that the tenant is not a prevailing party, we conclude that the courts below properly determined that the tenant did not substantially breach the lease because the landlord‘s agent authorized the tenant‘s conduct (see Nestor v McDowell, 81 NY2d 410, 415-416 [1993] [only a prevailing party, who has achieved “the central relief sought,” is entitled to attorneys’ fees]; cf. Ram I v Stuart, 248 AD2d 255, 256 [1st Dept 1998] [attorneys’ fees denied where outcome of litigation was not substantially favorable to either side]). Since the tenant succeeded in his defense against the landlord‘s holdover proceeding, he is entitled to fees under
Accordingly, the order should be affirmed, with costs, and the certified question answered in the affirmative.
Chief Judge LIPPMAN and Judges READ, PIGOTT and ABDUS-SALAAM concur; Judges STEIN and FAHEY taking no part.
Order affirmed, with costs, and certified question answered in the affirmative.