Court Opinion

ID: 2780292
Source: CourtListenerOpinion
Date Created: 2015-02-19 14:04:32.614058+00
Date Added: 2024-06-11T11:28:15.272102
License: Public Domain

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 18
Graham Court Owner's Corp.,
            Appellant,
        v.
Kyle Taylor,
            Respondent.

          Nativ Winiarsky, for appellant.
          Mark H. Bierman, for respondent.

RIVERA, J.:
          We hold that Real Property Law § 234, which imposes a
covenant in favor of a tenant's right to attorneys' fees, applies
to a lease that authorizes the landlord to cancel the lease upon
tenant's default, repossess the premises and then collect
attorneys' fees incurred in retaking possession.   Such lease

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permits the landlord to recover fees that result from the
tenant's breach, and therefore serves as the basis for the
tenant's statutorily implied rights to attorneys' fees.    Here, we
agree with the Appellate Division that Real Property Law § 234
applies to the parties' lease and that the tenant is entitled to
attorneys' fees as the prevailing party in this summary holdover
proceeding.
                                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 Rental (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 the Administrative Code of the City of

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New York § 26-516.    The Appellate Division subsequently affirmed
Supreme Court's dismissal of the landlord's CPLR Article 78
challenge to DHCR's determination (Graham Ct. Owners Corp. v
Division of Hous. and Community Renewal, 71 AD3d 515 [1st Dept
2010]).
             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 $3,000.00 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
terminate 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 Real
Property Law § 223-b seeking all appropriate relief under that
provision.    Tenant also counterclaimed for attorneys' fees and
damages under sections 234 and 233-b.    The landlord responded in
a post trial memorandum that Real Property Law § 234 did not
apply because the statute only recognized a tenant's implied

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right to attorneys' fees if the lease provided for landlord's
fees incurred in an action for the tenant's breach, and that the
parties' lease lacked such a provision.
           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 Real
Property Law § 223-b (5), but denied fees under section 234.
Both parties thereafter appealed.    Appellate Term modified,
denying the tenant attorneys' fees under Real Property Law §
223-b, and otherwise affirmed.
           In a split decision, the Appellate Division modified,
on the law, by granting the tenant's claim for attorneys' fees
pursuant to Real Property Law § 234 and remanding for a hearing
on the fee amount, and otherwise affirmed (Graham Ct. Owner's
Corp. v Taylor, 115 AD3d 50 [1st Dept 2014]).1   The court
concluded that the lease provides that in any action or summary
proceeding the landlord may recover attorneys' fees incurred as a
result of the tenant's failure to perform a covenant or agreement

     1
      The Appellate Division did not address whether, in the
alternative, the tenant is entitled to attorneys' fees under Real
Property Law § 223-b.

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contained in such lease, and therefore fits within the statute's
coverage.   The dissent argued that section 234 should be strictly
construed, and as such could not be extended to apply to the
lease which merely allows for an offset of rents collected when
the landlord relets the premises.
            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 Real
Property Law § 234 applies to the lease and answer the question
in the affirmative.

                                 II.
            Under Real Property Law § 234,
            "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 a
            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

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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.
Here, we hold that paragraph 15 provides the basis for the
tenant's claim for reciprocal rights to attorneys' fees within
the meaning of Real Property Law § 234.
           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 cancelled, 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

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          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 Real Property Law § 234 that the lease provide "in any action
or summary proceeding" for the landlord's recovery of attorneys'
fees "incurred as the result of the failure of the tenant to
perform any covenant or agreement contained in such lease."
          The landlord argues that the lease is outside the
coverage of Real Property Law § 234 because under clause D. (3)
the landlord may collect attorneys' fees from rents received by
rerenting the premises to another tenant, and not from the
original defaulting tenant as fees incurred in an action for the
tenant's violations of the lease.   In essence the landlord seeks
to distinguish the attorneys' fees provision on two grounds: the
fees permitted under the lease constitute costs for reletting of
the premises and not for litigating the tenant's breach; and the
amount recouped as fees is applied as an offset of the amount
owed by the tenant, and thus serves to beneficially mitigate the
tenant's debt.   We find unpersuasive these arguments which seek
to avoid the application of Real Property Law § 234 by ignoring
the terms of paragraph 15, and the practical implications of

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clause D. (3).
           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 Real Property Law § 234 (see Duell v Condon, 84 NY2d 773,
783 [1995] ["Real Property Law § 234 contains no limitation,
stating that its terms apply '[w]henever a lease of residential
property' includes an attorneys' fees and expenses clause in
favor of the landlord"]).   Rather, the issue is whether the lease
provides that "in any action or summary proceeding" the landlord
may recover attorneys' fees incurred as the result of the
tenant's breach of a leasehold covenant or agreement.   That is
what the lease here provides by permitting recovery of attorneys'
fees for getting possession and reletting only when the tenant
breaches the lease.
           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 "any rent received by Landlord
for the re-renting shall be used first to pay Landlord's expenses

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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 Real Property Law § 234 is a
remedial statute intended to "equalize the power of landlords and
tenants" (Duell, 84 NY2d at 783).    As this Court stated in Duell
v Condon,
            "[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
section 234 "to discourage landlords from engaging in frivolous
litigation" intended to "harass tenants, particularly tenants
without the resources to resist legal action, into terminating
legal occupancy" (id.).    With this understanding, the Court
broadly interpreted Real Property Law § 234, giving expansive

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meaning to the definition of tenants and the types of landlord
actions covered under the statute, and applying the statute
retroactively to preexisting leases to extend the reach of the
statute.
           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 Real Property Law § 234 because the proceeding was based
on the tenant's failure to occupy the premises as a primary
residence, a requirement mandated by law, not by the terms of the
lease.   The Court found that violation of the statutory residency
requirement terminated the tenancy, and obligated the tenant,
pursuant to a covenant in the lease, to quit and surrender the
premises (Duell, 84 NY2d at 782).   Since the tenant's failure to
quit resulted in the landlord's proceeding to evict, the Court
concluded that the eviction proceeding constituted litigation
arising out of the lease, within the meaning of Real Property Law
§ 234 (id.).   Similarly, here, the provisions of paragraph 15
permit the landlord to cancel and relet based on the tenant's
default, and provide the nexus between the specific authorization
for the landlord's recovery of attorneys' fees by re-renting and
the tenant's breach.
           Our interpretation of paragraph 15, and clause D. (3)
in particular, furthers the legislative purposes that favor the

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tenant's right to attorneys' fees.    In contrast, acceptance of
the landlord's interpretation of Real Property Law § 234 and
clause D. (3) requires that we approve language in this lease
whereby the landlord is allowed to recover attorneys' fees that
result from the tenant's breach, while at the same time denying
the tenant a similar right of recovery, merely because the
landlord will recoup the fees by reletting the premises.    This
construction of the statute and the lease agreement would once
again favor the landlord, in contravention of the legislative
intent to place the parties on an equal footing (see Duell, 84
NY2d at 783).
          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 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 Real Property Law § 234 narrowly
because it is in derogation of the common law rule that disfavors

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attorneys' fees for prevailing parties.    In support, the landlord
relies on this Court's decision in Gottlieb v Kenneth D. Laub &
Co., Inc. (82 NY2d 457, 464 [1993]).     We disagree that Gottlieb
requires an outcome in favor of the landlord.
          The Court in Gottlieb held that Labor Law § 198 did not
authorize recovery of attorneys' fees for a common law
contractual claim.    In reaching this conclusion, the Court held
that the statute's terms and cumulative legislative history
evinced an intent to limit its application to "actions for wage
claims founded on the substantive provisions of Labor Law article
6" (id. at 465).     Then, only two years after Gottlieb, this Court
interpreted Real Property Law § 234 broadly in Duell, citing the
statutory language, purpose and history, for example, in support
of extending the statute's coverage to include as "tenants"
nonsignatories to the lease (84 NY2d at 779-782).    Notably the
Court made no mention of Gottlieb, presumably because, unlike
Labor Law § 198, the statutory language and the legislative
history of Real Property Law § 234 demonstrate an intent to
abrogate the common law.    Thus, Gottlieb does not constrain us
from recognizing the tenant's implied right to attorneys' fees
based on the language in the lease.
          The landlord fares no better by pointing to a statutory
construction rule that limits judicial expansion or remedial
statute to the "fairly expressed provisions of the act"
(McKinney's Cons Laws of NY. Statutes Law § 321, Comment at 492).

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As the Court held in Duell, section 234 requires the landlord and
tenant be placed on equal footing, a task made easier in this
case by the simple fact that paragraph 15 D. (3) explicitly
provides for attorneys' fees.    Moreover, this rule of
construction is inapplicable here where the parties themselves
have adopted a provision allowing for attorneys' fees.    Having
agreed to this provision, the landlord cannot now complain that
Real Property Law § 234 imposes an unwelcome displacement of the
common law rule.
           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 [1993]
[only a prevailing party, who has achieved "the central relief
sought" is entitled to attorneys' fees]; cf. Ram I, LLC 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 Real
Property Law § 234.
           Accordingly, the order should be affirmed, with costs,
and the certified question answered in the affirmative.

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*   *   *   *   *   *   *   *     *      *   *   *   *   *   *   *   *
Order affirmed, with costs, and certified question answered in
the affirmative. Opinion by Judge Rivera. Chief Judge Lippman
and Judges Read, Pigott and Abdus-Salaam concur. Judges Stein
and Fahey took no part.

Decided February 19, 2015

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