Summer 23' Newsletter

IN THIS ISSUE

•LOCAL LAW 97 CLIMATE MOBILIZATION ACT: PENALTIES BEGIN IN 2024 ..……….3

•THE TROUBLE WIH TREBLES -TROUBLE FOR OWNERS: THE IMPACT OF OLD RENT REDUCTION ORDERS ON RENT OVERCHARGE LIABILITY ……………5

•HOW NOT TO DEREGULATE A LOFT UNIT………………………………………………….7

•AVOIDING THE ERAP TRAP: SUMMARY NONPAYMENT PROCEEDINGS WITHIN THE EMERGENCY RENTAL ASSISTANCE PROGRAM MADE SIMPLER...…..9

•A RARE GRANT OF A FINAL JUDGEMENT OF POSSESSION IMMEDIATELY AFTER AN INJUNCTIVE RELIEF HEARING……………………...……..10

• PARKING GARAGES UNDER LOCAL LAW 126 OF 2021………………………………….11

•DOES A COMMERCIAL TENANT’S ALLEGED “SURRENDER” RELEASE THE TENANT AND GUARANTOR FROM THEIR CONTRACTUAL OBLIGATIONS?………..12

•THE EFFECT OF THE 2019 AMENDMENT TO REAL PROPERTY ACTIONS AND PROCEEDINGS LAW (“RPAPL”) SECTION 749 ON BANKRUPTCY CASES…………….13

Local Law 97 Climate Mobilization Act: Penalties Begin in 2024

In just a few short months Local Law 97 (“LL97”), the centerpiece of New York City’s 2019 Climate Mobilization Act, will officially take effect. In an effort to target the largest source of carbon emissions in the City, LL97 will apply to buildings that exceed 25,000 square feet as well as smaller buildings where there are two or more buildings on the same tax lot which exceed 50,000 square feet. LL97 will also cover certain affiliated condominium buildings. Owners of buildings subject to compliance with LL97 will be required to annually report the greenhouse-gas emission levels of their buildings. If carbon emission exceed certain levels, based upon their excess emissions, owners will be subject to yearly fines.

The emissions limits established by LL97 are determined based upon a building’s usage, subject to proration for different occupancy types in mixed use buildings. Emissions compliance requirements will begin as of January 1, 2024, with the first written reporting data due May 1, 2025, including certification by a registered design professional. While 80% of properties are already in compliance with the 2024 emissions limits, it is estimated that approximately 70% of properties will fail the 2030 tests. The emissions limits for each occupancy type will become more restrictive in subsequent phases as LL97 aims to achieve a 40% reduction of carbon output from covered buildings by 2030, and an 80% reduction by 2050.

Penalties for Noncompliance

Failure to comply with the applicable emissions limits can result in significant penalties, with excess emissions fined at the rate of $268 for each metric ton of emissions over a building’s permitted limit. According to a study commissioned by the Real Estate Board of New York (REBNY), even with significant attempts to come into compliance, more than 3,700 buildings could fail to meet 2024 cap goals. This number jumps to 13,500 buildings by 2030, at which point fines could collectively reach $900 million annually. The study concluded that “substantial investment in energy efficiency will not be enough for many buildings . . .” The law also imposes considerable fines for failure to timely file annual reports, equal to $0.50 per building square foot per month. Owners that file false statements can be subject to misdemeanor charges, a fine of $500,000, and civil penalties of up to $500,000.

Immediate Actions for Meeting Emissions Limits

As noted above, while most buildings subject to LL97 will already be in compliance for 2024, the opposite will be true with respect to 2030 limits. As a result, most property owners will have to take significant steps over the next 7 years to reduce carbon emissions. Presently, fewer than 13% of commercial buildings are in compliance with 2030 limits, and nearly threequarters of such commercial buildings have emissions levels more than double the permitted amount for 2030. Since they rely more on electricity rather than fossil fuels, it is anticipated that commercial buildings will benefit the most from statewide grid decarbonization without needing to undertake significant upgrades. For residential buildings subject to the law, representing the majority of those buildings presently over the 2024 limits, compliance will often translate into expensive retrofitting of gas and oil furnaces and mechanical systems with more energy-efficient technology. This will likely present a major engineering challenge in many older buildings. A low cost first step is training building operations staff on energy efficiency best practices, as well as making changes to equipment schedules and temperature set points. Operational changes such as heating plan conversions from oil to natural gas can significantly reduce a building’s heating and cooling expenses. Changing old lighting to energy efficient lighting can provide a quick payback. Buildings with commercial spaces should also give thought to a prospective tenant’s energy usage when negotiating leases and may want to consider passing a portion of any emissions penalties for exceeding emissions limits through to commercial tenants.

Brandon James

Local Law 97 Climate Mobilization Act: Penalties Begin in 2024 (cont.)

Current Exceptions and Pending Modifications

Notably, LL97 currently exempts certain properties, including those buildings with 35% or more rent regulated apartments. However, buildings containing rent regulated accommodations must still demonstrate by December 31, 2024, that they are either (i) in compliance with the applicable emissions limits, or (ii) otherwise have implemented certain energy efficiency measures as specified in LL97. The energy efficiency measures include, but are not limited to, adjusting temperature set points, repairing system leaks, insulating pipes and tanks, installing temperature sensors, upgrading lighting, weatherizing and air sealing. Nevertheless, cooperatives and condominium buildings with 35% or more rent regulated apartments would be prudent to plan for compliance with LL97, given that boards cannot control whether apartments will remain subject to regulation. Legislation has been passed since 2019 to further modify and limit this exemption. Buildings with one or more rent regulated apartments that constitute less than 35% of the total number of units are not exempt but have an additional two years until 2026 to comply with emission limits

As the exact requirements of LL97 are still fluctuating, it is important for property owners to stay informed in the coming months and years. Earlier this year, the New York City Department of Buildings released additional rules further elaborating upon LL97 implementation and requirements, with more rules on the horizon for later this year. As part of such future rules, the city will be considering the grounds under which individual buildings may be given reductions in penalties if they can show “good faith efforts” have been made to comply with the law. On the other end of the spectrum, there is also an effort to restrict the amount of Renewable Energy Credits a building will be permitted to purchase to offset any excess emissions. In addition to these evolving rules, there is a recent proposed bill to delay implementation of the LL97 requirements by seven years, and a lawsuit challenging the enforcement of the law outright. However, such efforts appear unlikely to delay or prevent the implementation of the law.

Resources and Recommendations

No property owner should wait to get into compliance, as the demand for qualified contractors to perform work to make buildings more energy efficient is only increasing. As the demand for work outstrips the supply of available labor, contract prices will naturally increase. Additionally, property owners who wait too long may find that they are not able to get the work done in time. Accordingly, a carbon efficiency assessment should be performed as soon as possible, and a program of upgrades should be phased in over a period of years. Low interest financing may be available, including loans to cooperatives and condominiums provided by the New York City Energy Efficiency Corporation, and loans to owners of multifamily properties through the NYCE Accelerator Pace Program where the debt service costs appear on a building’s New York City property tax bill. However, restrictions contained in existing mortgages may prohibit the taking of such loans or, at a minimum, require the consent of the existing lender.

Attorneys at Borah Goldstein stand ready to assist our clients as they navigate the evolving LL97 requirements. We have attorneys who are qualified to help property owners with the preparation of contracts for capital improvements as well as the financing of properties to fund the cost of such projects.

The Trouble with Trebles – Trouble for Owners: The Impact of Old Rent Reduction Orders on Rent Overcharge Liability

I. DHCR Reveals A Change In Policy Which Reiterates The Importance of Due Diligence

II. The Erosion of the Statute of Limitations

Is Old News. So, How Is It Creating A New Liability?

Elizabeth A. Lentini

DHCR has revealed a change in its policy with respect to rent overcharges caused by old rent reduction orders. In 2019, the New York State Court of Appeals drew a clear line in the sand which the law that applies to a rent overcharge case depends on when the allegations arise. By now, we all know the mantra, "the law in effect at the time the alleged overcharge occurred, must apply " See, Matter of Regina Metropolitan Co., v. New York State Div. of Hous. & Community Renewal, 35 N.Y. 3d 332 (2020). But DHCR's recent actions demonstrate that the same considerations are not necessarily given to the Rent Stabilization Code ("RSC") and DHCR policies regarding treble damages.

In rent overcharge cases, Borah Goldstein has recently seen an uptick in the examination of old rent reduction orders, even when it is not alleged by the complainant tenant. In many cases, this has resulted in a financial windfall for tenants, who never actually experienced the reduction in services. Addionally, DHCR has begun automatically applying treble damages to these overcharges, penalizing owners for not being able to provide evidence of repairs that were made decades before. This marks a stark change in DHCR’s treble damages policy and requires us to ask the whether the DHCR circumventing the spirit of Regina?

Prior to the 2019 change in the Rent Stabilization Law ("RSL") the lookback period for rent overcharges and record keeping requirement was limited to four (4) years. This restriction was also applicable to rent reduction orders. See, In the Matter of Woodruff Avenue 80, L.P. DHCR Adm. Rev. Dckt. No. ES-21005-RO (March 13, 2017). In 2010, the New York State Court of Appeals modified the policy, and directed the DHCR to examine all rent reduction orders for the purposes of establishing rent, even when the order went beyond the applicable four (4) year lookback period, See, Cintron v. Calogero, 15 N.Y.3d 347 (2010), 938 N.E.2d 931,912 N.Y.S.2d 498 (2010).

At the time, an owner’s delay in filing a rent restoration application was not treated as a willful overcharge by the DHCR. In fact, it is – or was - DHCR policy that rent overcharge cases arising out of Cintron did not warrant the imposition of treble damages. See, In the Matter of 1466 GC Realty LLC, DHCR Adm. Rev. Dckt. No.: EW-610080-RO (September 13, 2017) and In the Matter of 197 Madison Holdings, LLC, DHCR dm. Rev. Dckt. No.: JX-410021-RO (March 23, 2022).

The Trouble with Trebles – Trouble for Owners: The Impact of Old Rent Reduction Orders on Rent Overcharge Liability (cont.)

DHCR’s recent rent overcharge calculations break away from this policy and apply treble damages for those old rent reduction orders for which the owner did not file a rent restoration application. This is true, even where the record clearly shows that the repairs were timely completed or the service was restored, (i.e., a subsequent order was issued in a non-compliance proceeding). Simply stated, the DHCR is increasing owners’ liability for past conduct and penalizing owners with treble damages for their failure to produce decades old documentation.

III. The Importance of Due Diligence

The inherent conflict between Regina and Cintron raises a lot of legal questions. But what does it mean for you? Borah Goldstein’s recent experiences have compelled us to issue a warning to all clients and friends. Do your due diligence, even if you have owned the building for decades. Before you commence that nonpayment, before you purchase that building, before you file for that rent increase, it is imperative that you look back into the records – we mean - as far back as they exist- and make sure that there are no outstanding rent reduction orders. The DHCR’s lookback is unlimited, and your due diligence should be also.

Attorneys at Borah Goldstein standby ready to help. If you believe that you may have an outstanding rent reduction order, or purchased a property and are unsure, contact our office to assist you.

How Not To Deregulate A Loft Unit

The Loft Law provides that a loft owner may purchase tenant’s rights with the result that the tenant’s unit is then deregulated. The Loft Law requires loft owners

to use, and per regulation, its form along with a signed agreement and which must be filed with the Loft Board within thirty (30) days of the completion of the sale. In recent years the Loft Board is also requiring that proof of payment be filed. If done correctly, the result is that the unit is deregulated and becomes a free market unit with the Loft Board’s remaining interest limited to requiring its legalization.

While challenges to buyouts were relatively infrequent prior to 2015, since then the number of challenges to buyouts, especially those involving unrepresented tenants, has increased significantly and continues to do so with a primary focus being buyouts that were done between 2010 and 2015. Having tried and settled a number of these proceedings which are brought by subsequent tenants of these bought out units, the mistakes made in prior buyouts provide significant educational fodder for landlord and tenant lawyers alike such that we now know why buyouts can be successfully challenged.

A first point of attack by tenant’s attorneys has been ten-dollar buyouts. A reasonable rationale for these ten-dollar buyouts was that, if the tenant was vacating anyway, what value would those rights have to that tenant who is departing anyway? While the Loft Board initially determined that very inexpensive buyouts were no good, the Loft Board

modified this stance to the effect that very inexpensive buyouts were subject to a heightened scrutiny. The heightened scrutiny includes such items as:

 Whether the agreement states that the tenant is selling his Loft Law rights;

 Whether the tenant understood what it was they were selling (i.e., whether the tenant “knowingly and willingly sold those rights”);

 A return of security deposit is not a sale of rights, and telling a tenant that they must sign a buyout to receive the return of the security deposit likewise undermines the buyout.

Recent case law has tacked on several more requirements. There is the apparently obvious requirement that the tenant must be in possession to sell rights. There is the less obvious (and it is being challenged) decisional law that states that the tenant should be a primary resident at the time of sale.

Moreover, it is the loft owner’s burden to prove that the sale was effective. This requirement is particularly problematic because, if the tenant vacated five, ten, twenty years ago, finding the tenant for testimony may be difficult. If the tenant has moved out of state, the tenant cannot be compelled to appear at a hearing to give testimony. If the former tenant does appear at hearing to give testimony, frequently the tenant will have no particular memory of the facts of the buyout to the detriment of the owner. The result of the loss in one of these proceedings can be anywhere from mildly to extraordinarily painful.

David R. Brody

How Not To Deregulate A Loft Unit (cont.)

The challenging tenant becomes a rent regulated tenant as the buyout is determined not to be effective. Moreover, if there have been rent increases, the rent is reduced to the last legal rent, and the tenant is entitled to a refund all overcharges paid in the four years prior to the commencement of the proceeding.

So today the checklist for increasing the likelihood of a successful buyout is:

 Use of the Loft Board’s form;

 A written agreement that makes mention of the law pursuant to which rights are being purchased and requires the tenant to acknowledge in some way shape or form an adequate understanding of the Loft Law and the meaning of the sale of rights;

 A more generous buyout, notwithstanding the desire to have an inexpensive buyout;

 Proof of payment (i.e., tenant confirming receipt);

 An affidavit from the tenant including some documentary proof that the unit is the tenant’s primary residence at the time of the sale space.

Finally, and as a related different circumstance, various Loft buildings require Certificates of No Harassment predicate to obtaining building permits. The relevant local law includes written requirements for discussing/offering buyouts to tenants. The Department of Housing Preservation and Development’s approach to these requirements is that, if the proper paperwork is not completed, and the tenant has been harassed, and the owner is not entitled to a Certificate of No Harassment (although various of the types of Certificates of No Harassment programs allow dispensation so long as the owner commits to submit a certain percentage of the building to affordable housing).

If you have questions about deregulating lofts, please contact our office to discuss how we can assist you in this endeavor.

Avoiding the ERAP Trap: Summary Nonpayment Proceedings within the Emergency Rental Assistance Program Made Simpler

The general rule is that without a current lease, a property owner cannot commence a nonpayment proceeding against a residential tenant seeking rents that have accrued after expiration of the lease. Typically in a nonpayment proceeding, a property owner is only entitled to a money judgment for use and occupancy accruing after expiration of the lease and not a possessory judgment based on nonpayment of those amounts.

Notwithstanding the general rule, two Housing Court cases from Manhattan and Brooklyn have enhanced property owners’ ability to prevail in nonpayment proceedings against residential tenants receiving assistance from the Emergency Rental Assistance Program (“ERAP”). In JSB Properties, LLC v. Yershov, a Manhattan judge clarified that receipt of ERAP funds constitutes an extension of a lease, meaning that an owner can recover unpaid rent accruing after lease expiration in a nonpayment proceeding instead of commencing a second proceeding for the holdover period, under the particular facts of the case.

The tenant applied for ERAP on June 7, 2021, after lease expiration. The court permitted the owner to include post-expiration rent even though a nonpayment proceeding is limited to unpaid rent accruing while a lease is in effect. By accepting ERAP funds, the owner agreed not to evict based upon the expired lease or holdover tenancy. Therefore, where the lease expired but ERAP funds were accepted, the owner could commence a nonpayment proceeding for the rents accruing after lease expiration. Without this, the tenant could live rent free for one year and the owner would have no remedy. The court rejected tenant’s belief that owner’s acceptance of ERAP allows them to live in the apartment rent free.

In Harbor Tech, LLC v. Correa, a Brooklyn judge in a nonpayment proceeding also allowed recovery of unpaid rent accruing after the lease expired because a successful ERAP application after the lease expires shows an intent to continue a landlord/tenant relationship. The court also noted that a tenant pursuing remedies under the warranty of habitability for months after lease expiration shows a belief that the landlord/tenant relationship remains in effect, further allowing the owner to recover post-expiration rent in a nonpayment proceeding.

Our law firm has been successful in a similar situation. It is important to note that not all Housing Court judges will follow the same theory as in Yershov or Correa. If you have a situation in which the lease has expired and use and occupancy is not being paid, please contact our office so we can evaluate the best course of action.

Craig M. Notte

Kimberly Dukhan

A Rare Grant of A Final Judgement of Possession After An Injunction Relief Hearing

In an unusual twist, we recently obtained a final judgment of possession of a Queens property for our client following a hearing for injunctive relief. In DEB Property v. John Doe, Supreme Court, Queens County, Index #701977/2023, we brought an ejectment action on behalf of an entity that purchased a vacant two-family house.

The entity was planning to convert the home into a non-profit community center. Unfortunately, squatters broke into the vacant home and proceeded to, among other things, perform unauthorized alterations to the hot water heating system and steal gas and electrical services. The squatters’ actions presented a danger to the home and to the residential neighborhood at large.

Because the squatter changed the house’s locks, the entity did not have access. The squatter’s presence also stymied the entity’s ability to move forward with its renovation plans. The New York City Department of Buildings will not grant permit applications unless an owner demonstrates that it has removed asbestos in the property at issue. Due to the squatter’s presence, the entity could not remove the asbestos that had been found in the house.

We brought an ejectment action and immediately moved for injunctive relief directing, among other things, that the squatter provide access, stop any alteration work in the house and stop stealing gas and electric services. The Court, after an inquest in which we examined the entity’s owners, its architect, and the asbestos contractor, granted our motion.

Almost immediately afterward, the Court reached out to us and instructed us to provide it with a draft “writ of assistance” for signature. Based on the Court’s instruction, we drafted a final judgment of possession. The Court signed the judgment, and an eviction took place shortly afterwards.

What made this case so unusual was that the Court granted us the “ultimate” relief (ejectment) after an inquest on the injunctive relief. We believe it was due to our clear presentation of the case, and we were pleased to assist our client in this surprise victory.

If you need our help in this arena, please feel free to reach out to us.

David R. Brody

Parking Garages Under Local Law

126 of 2021

Becoming rarer every day in New York City is a “QPSI” with time for you— or more specifically, your parking garage. A QPSI is a Qualified Parking Structure Inspector, and with the parking garage inspection report filing deadline approaching at the end of this year, parking garage owners (or owners of properties with parking garages) are having a hard time finding a QPSI who can fulfill the requirements of the new law.

In 2021, over a year before the tragic and shocking parking garage collapse at

57

Ann Street in downtown Manhattan, New York City passed Local Law 126 which mandates the annual inspection of parking garages and the filing of an inspection report once every six (6) years. These new requirements do not apply to unenclosed, unattached outdoor parking lots, auto repair shops, parking garages serving one- and two-family homes or garages with a capacity of four or fewer cars.

Owners of parking garages in Manhattan Community Board districts 1 through 7 must file their garage inspection reports by December 31, 2023. Owners of parking garages in Manhattan Community Board districts 8 through 12 and all of Brooklyn must file their inspection report by December 31, 2025. Owners of parking garages in Bronx, Queens and Staten Island must file their inspection report by December 31, 2027.

The inspection must be performed by an engineer who has gone through a training course offered by Department of Buildings (“DOB”), certifying the engineer as a QPSI. The DOB mandates that the QPSI inspect the garage every year according to a checklist DOB created. Any ‘unsafe condition’, as defined by DOB, must be reported to DOB and repaired within ninety (90) days. The QPSI and the owner must keep a copy of the annual inspection report.

Once every six years the QPSI is required to file his/her report with DOB. The filing schedule is listed above and repeats every six years. Similar to façade inspection reports, a parking garage inspection report can only be filed as “Safe”, “Safe with Repairs and/or Engineering Monitoring” (“SREM”), or “Unsafe”. Since the first deadline comes at the end of this year, the race is now on to secure the professionals and contractors who can properly inspect the parking garage and repair it to meet the requirements of this new law.

If you have any questions about whether your building/structure is included in Local Law 126 of 2021 or have questions about how to comply with the law, please contact our office.

Sarah Fiona Phillips

Does A Commercial Tenant’s Alleged “Surrender” Release the Tenant and Guarantor from their Contractual Obligations?

Words are important. They convey meaning. This is particularly true in the legal context where the specific language used in a contract carries legal implications. These “word” issues often arise when a commercial tenant unilaterally vacates a leased space claiming that it is “surrendering” possession of the premises.

Typically, a guaranty agreement is signed simultaneously with a commercial lease, in which the guarantor agrees to be personally liable for the tenant’s lease obligations. Many guaranty agreements contain certain conditions that, if satisfied, limit the guarantor’s obligations and release it from any further liability. For example, the agreement may state that the guarantor is released from liability, provided the tenant gives ninety (90) days’ notice of its intent to vacate and pays all rents due through the vacate date. Frequently, one of the conditions that must be satisfied for a guarantor to be released from any further liability is the tenant’s “surrender” of possession of the premises.

Joshua Nadelbach

The word “surrender” is noteworthy because there is a difference between a tenant surrendering possession of the premises, and unilaterally vacating and handing the keys to the owner. The former means the tenant is released from its lease obligations and the latter means the tenant remains liable through the lease term. Courts have explained that a “mere yielding up or surrender of possession by a tenant in and of itself does not terminate a lease” because it is nothing more than an abandonment of possession. (See Lane NY Realty Holding LLC v. CLDC Inc., 54 Misc. 3d 564 (Dist. Ct. Nassau Cnty, 2016)). Therefore, a “surrender” can terminate a lease only by an agreement between the owner and the tenant.

Many leases require a surrender agreement to be in writing by expressly stating something such as, “no act or thing done by Owner or Owner’s agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises, and no agreement to accept such surrender shall be valid unless in writing signed by Owner.” When a lease contains such a provision, a tenant’s unilateral act e.g., returning the keys and moving out, will not release it from the lease. In addition, if the guaranty agreement states that for the guarantor to be released under the guaranty the tenant must “surrender” possession as required by the lease, the guarantor will not be released from its obligations under the guaranty because there is no signed writing by the owner accepting the tenant’s “surrender.”

Justice Cannataro explained this principle in 214 West 39th Street LLC v. Fashion Transcript LLC, 2019 N.Y. Slip Op. 31934(U) (Sup Ct, NY Cnty, 2019). There, the guaranty agreement obligated the guarantor “through to the date of surrender if such surrender is performed as required under the lease.” The Court determined that the guarantor remained liable under the guaranty because the lease provided “that the only valid form of surrender is an agreement that is in writing and signed by the landlord … [and] Tenant did not do that here, so the guarantor’s liability extends to the end of the lease term.”

Courts generally enforce contracts as they are written and bargained for between the parties. Should you have any questions about language to be used in an agreement, enforcing a current agreement, or any other issues, please feel free to contact me.

The Effect of the 2019 Amendment to Real Property Actions and Proceedings Law (“RPAPL”) Section 749 on Bankruptcy Cases

The Housing Stability and Tenant Protection Act of 2019 (the “HSTPA”) amended various provisions of law, including RPAPL Section 749, to eliminate the clause that the issuance of the warrant of eviction terminates the tenancy. Therefore, for any summary proceedings commenced on or after June 14, 2019, HSTPA’s effective date, the warrant of eviction no longer terminates the tenancy.

Now, the mere existence of the warrant of eviction does not afford an owner with grounds to vacate the stay; upon the filing of the bankruptcy petition, the lease is assumable, provided that the lease is unexpired and has not been terminated for some other reason.

Jeffrey C. Chancas

In a recent bankruptcy case in this district, In Re Payam, Inc., the court discussed how the change in the state law would affect bankruptcy cases. Before the amendment of RPAPL §749(3), the issuance of the warrant of eviction, even if execution was stayed, cancelled the lease and annulled the owner-tenant relationship. Therefore, upon the bankruptcy filing, the lease was not considered property capable of being “assumed," the bankruptcy term meaning that the debtor elects to cure all lease defaults and remain in possession of the premises under the terms and conditions of the controlling lease.

If the debtor was in possession of the premises at the time of the bankruptcy filing, the possessory interest was sufficient to trigger the automatic stay, which prevented the eviction from proceeding, but the bankruptcy court could not reinstate the debtor’s leasehold; only the state court could do so. At times, when an owner would move to vacate the stay, the court would leave the automatic stay in place while the debtor returned to state court seeking to have the warrant of eviction vacated and the lease reinstated. Unless the state court reinstated the lease, which rarely happened, the debtor could not assume the lease.

This change in New York law will not affect all situations equally. If the warrant of eviction was issued in the context of a holdover proceeding, in which the state court determined that the lease had expired by its own terms or had been properly terminated by the owner due to the tenant’s lease breaches, there is no leasehold interest to be “assumed” in the bankruptcy case. However, the law’s change will affect cases in which the warrant of eviction was issued in a nonpayment proceeding, since the lease still is in effect and defaults can be cured by payment of the past due amounts under a bankruptcy plan of reorganization.

A tenant’s bankruptcy filing does not terminate an unexpired lease, even where the lease expressly provides for the automatic termination of the tenancy upon insolvency or bankruptcy.

To assume the lease, the debtor must cure all material defaults, including the payment of past due rent and additional rent, and must provide “adequate assurance of future performance” under the lease, that is whether there is a likelihood, not a certainty, that the rent and other lease-related obligations will be met.

If you have questions about bankruptcy, please feel free to contact us.

Please Note: This newsletter is intended for informational purposes only and should not be construed as providing legal advice. This newsletter provides only a brief summary of complex legal issues. The applicability of any or all the issues described in this newsletter is dependent upon your particular facts and circumstances. Prior results do not guarantee a similar outcome. Accordingly, prior to attempting to utilize or implement any of the suggestions provided in this newsletter, you should consult with your attorney. This newsletter is considered “Attorney Advertising” under New York State court rules.