Part 6 of our series addresses rental disputes and examines the legal theories that tenants will likely assert once NY PAUSE and related Executive Orders are lifted.
Earlier Parts of this series can be found here: 1 (rent issues in the midst of COVID-19), 2 (repairs, security deposits, move-ins/move-outs), 3 (rent gouging, non-primary residence, minimizing COVID exposure), 4 (restricted access and wrongful eviction) and 5 (commercial and residential tenant harassment).
- What will happen once Governor Cuomo’s moratorium ends?
Currently, New York landlords have a limited ability to pursue claims against defaulting tenants. Part 1 of our series covered the ramifications of New York’s eviction moratorium -- which temporarily suspended court eviction proceedings across the state. Although owners are not permitted to evict tenants before August 20, 2020, they can, under the right circumstances, bring lawsuits for unpaid rent. Remember: the moratorium does not forgive or cancel the obligation to pay all rent that may be due. It is only suspending or delaying the collectability.
If you are able to honor your lease obligations, you certainly should do so. If you are a residential tenant and cash flow is an issue, you can also have a portion of your security deposit applied to unpaid rent, as we discussed in Part 2.
Once the eviction moratorium is lifted, property owners will have the option to bring eviction cases. Exactly how that all will unfold remains to be seen. Courts may elect to adjourn new cases in an effort to stem the flow of applications and to preserve stability of the residential and commercial-leasing markets. Although several bills aimed at preventing wide-spread displacement are being proposed at various levels of government, no formal rent relief package has yet been announced.
- What defenses can I assert if my landlord sues me?
Ideally, tenants seeking temporary or permanent relief from performing their lease obligations should reach out to their landlords to discuss potential rent reduction and/or lease termination options. Absent such a discussion or dialogue, an owner will likely commence an eviction case. While the type of case may vary (depending on the type of lease and the provisions contained therein), we anticipate that many landlords will file nonpayment proceedings.
New York State’s “Housing Stability and Tenant Protection Act” (HSTPA) requires that landlords first serve a fourteen (14) day written demand for the rent. Furthermore, landlords cannot recover late fees, penalties, or other charges in summary nonpayment proceedings. (As an aside, the pandemic does not discharge landlords from satisfying this prerequisite and a failure to comply with this step will likely result in such cases being dismissed.)
If a nonpayment proceeding has been properly commenced, a tenant may wish to consider one or more of the following defenses/claims:
- Force Majeure: Some leases contain language excusing parties from performing their contractual duties upon the occurrence of a pre-defined external circumstance. Because such an “event” must be clearly identified in the lease, whether this clause will apply to the current pandemic will largely depend upon the specific terms of the parties’ agreement. This kind of clause may expressly refer to an “epidemic” or a “pandemic” or, more likely, it may generally reference an “act of God” or other cause beyond a party’s control. While these provisions have historically been interpreted narrowly, and will only excuse performance triggered upon clearly delineated events (and will often only excuse the landlord’s performance, but not the tenant’s obligation to pay rent), the courts’ view and interpretation of these provisions may now be in flux.
- Quiet Enjoyment and Casualty Provisions: Leases often contain provisions providing a contractual basis for surrendering a lease and/or ceasing to pay rent. And there may also be a basis for ending the relationship pursuant to common law. For example, the “covenant of quiet enjoyment” provides that a tenant is entitled to the undisturbed use and enjoyment of its premises. A landlord’s violation of this promise may permit the tenant to vacate its space (in whole or in part) and may excuse the payment of rent. A “casualty” provision addresses physical damage to the property, and is often limited to damage by a fire, water damage or other covered occurrence. And since the landlord is normally insured against loss of income resulting from such an incident, the tenant is usually permitted to stop paying the rent until the premises are restored.
- Other Common Law Defenses: Tenants may be able to justify nonperformance of their lease obligations based on other common law doctrines such as a government “taking” – for example, when a federal, state and/or local body opts to repurpose a property so that it can serve as a COVID-19 testing site. Takings are typically addressed in a lease and provide for a full or partial lease termination or rent abatement. Landlords may also be liable for an “actual” or “constructive eviction” if they fail to adequately protect tenants and were negligent or otherwise remiss with ensuring occupants’ health and safety and such misconduct deprived tenants of the full use of their commercial or residential spaces.
As we noted in Part 3, residential tenants may also be able to assert that there has been a breach of the statutory “warranty of habitability” if their landlords neglected to keep their buildings in good condition. Property owners have an absolute and unqualified duty, even amidst a pandemic, to provide safe, habitable housing which would include the continued provision of essential services (such as heat and hot water), and any lapse or failure to do so may violate that state law.
- Quasi-Contract Remedies: If not specifically waived by the terms of your lease, you may also be able to assert defenses of “impossibility,” “impracticability,” and/or “frustration of purpose.” While, in the past, these claims or defenses have been narrowly construed, there is considerable uncertainty as to how the courts will now interpret and apply prior law, given the pandemic.
Generally, “impossibility” and “impracticability” excuse performance when it is objectively impossible to fulfill a contract’s terms. Although New York courts have historically taken a dim view of such claims, in this environment, it is entirely possible that there will be a departure from existing precedent and that courts may determine that these standards are now applicable. Commercial tenants, for example, could argue that lease performance is no longer commercially viable or practical – that the COVID-19 pandemic, the ensuing restrictive governmental orders, and, the resulting global economic downturn, have made paying the rent (and/or compliance with such other contract terms) impracticable or infeasible.
Tenants may also invoke “frustration of purpose” as a potential defense or claim. Because the global pandemic has resulted in a massive global economic downturn, that combined with increasingly restrictive governmental measures (such as “shelter-in-place” and "social distancing" directives) designed to limit transmission of the virus may be found to be the kind of events which excuse contract performance. While the government’s response to the pandemic is still evolving, if a tenant has been, or is, mandated by law to cease or limit operations, that may arguably constitute a “complete frustration,” particularly when recovering from such curbs may ultimately not be economically feasible or otherwise possible (such as in the instance of a restaurant that based its rent on a delineated seating capacity and is now unable to honor its obligations because of new use and occupancy restrictions).
If you should have any questions or concerns about your rights in this challenging economic environment, please feel free reach out to one of our attorneys for assistance.
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DISCLAIMER: As COVID-19 related developments change daily, this must be viewed as an exceptionally fluid situation. Accordingly, prior to taking any action, we strongly urge you to contact our office to ascertain whether there has been any change that would impact any recommendations made, or whether there are discrete facts or developments which would warrant undertaking a different tact or course.