Itkowitz PLLC Causes Stay of Commercial Eviction to be Vacated in Kafkaesque Battle When Landlord Purchased Building Out of Foreclosure and Receiver Stuck Him with an Illegal Ten-Year Lease
January 20, 2017
We represented a commercial landlord in Brooklyn who had purchased a building at a foreclosure sale. The receiver went and made a ten-year lease with a tenant, even though to do so far outpaced the receiver’s authority. What a mess for the new owner when he discovered this sweetheart deal.
The Kafkaesque case (you will see what I mean) involved a landlord who purchased a building out of foreclosure in February 2015. Upon purchasing the premises, the new owner learned that the tenant had signed a five-year lease with a five-year option to renew. The problem? The court appointed receiver was only authorized to enter into leases with a term no longer than one year. Here, the receiver inexplicably violated the terms of his appointment by, in effect, granting a ten-year deal to the tenant. Not surprisingly, the rent for the space was fifty percent (50%) of the fair market value.
Last spring, we obtained summary judgment invalidating the lease on the grounds thatits execution exceeded the receiver’s authority. The tenant then filed a notice of appeal. The landlord then commenced a holdover proceeding. In July, the tenant applied to the Appellate Division for a stay of eviction proceedings pending the outcome of the appeal. The stay application was denied. The tenant then applied to the Supreme Court seeking to stay the eviction proceedings. That stay application was denied.
In the meantime, the tenant had defaulted in the Civil Court eviction proceeding and in September moved to open the default on the ground that the tenant was never served with the notice of petition and petition and did not find out about the potential eviction until a notice of eviction was served by the marshal. (My office did NOT handle the Civil Court part of the case.)
In November, the tenant again argued for a stay of eviction proceedings in the Supreme Court. This time, the Court actually granted a stay against the eviction proceedings pending the outcome of the appeal. Itkowitz PLLC then moved to reargue the decision. In the meantime, the Civil Court denied the tenant’s motion to vacate the eviction in part on the ground that the tenant and the tenant’s counsel had misrepresented to the Civil Court that the tenant had no notice of the eviction proceeding until a marshal’s notice had been served.
At oral argument on Supreme Court re-argument, the tenant argued the stay should be maintained and the Civil Court eviction proceedings should be stopped until the outcome of the appeal of the Supreme Court decision invalidating the lease with the Court-appointed receiver. However, the Supreme Court Justice determined that the Civil Court proceedings should proceed.
See what I mean – Kafkaesque!
What’s the lesson? The lesson is that when you buy a property out of foreclosure it’s like opening a present on your birthday when you have no idea what’s in the box! Sometimes you like the contents of such packages, and sometimes you get tent-year sweetheart leases that the receiver had no business making, and tenants who will do anything to hold on to such great deals as long as possible.