New York Real Estate Lawyers Blog

January 30, 2014

Non-Compete Clauses in Commercial Leasing

464 PG 02.JPG A prior blog post discussed the legal issues relating to the sale of a business or professional practice. One issue mentioned in that article was that of a non-compete clause. This blog post will discuss that issue in further detail as it applies to commercial leasing.

As a great deal of commercial space in the New York metropolitan area involves shopping centers and strip malls in which the stores are in close proximity to each other, a non-compete clause may be essential for a tenant. A non-compete clause in a commercial lease involves an agreement between the landlord and the potential tenant that the landlord will not rent space to a competitor of the tenant, or to a business that draws the same customers who may choose to do business with one tenant as opposed to another. A non-compete clause also comprises the tenant’s promise not to engage in particular business activities. For example, if the tenant sells office supplies, then the tenant may ask for a clause in their commercial lease by which the landlord is prohibited from renting any space in the same shopping center to another store that sells office supplies. In subsequent leases with new tenants, the landlord needs to include the prohibition from selling office supplies so that new tenants do not violate the landlord’s promise to the office supply tenant.

Of course, it is essential that such a clause be drafted with specificity and contain language sufficient to make it clear which competitors, specific activity and types of businesses are prohibited. For example, using the office supply example above, a non-compete clause must be very specific in the types of sales that are prohibited. Many establishments such as grocery stores and drugstores sell items such as writing implements and stationery, even though it is not their primary business. A non-compete clause should be crafted for the specific inventory of the store in question while also providing the business with opportunity for growth and change in inventory as needed.

January 24, 2014

Trusts Part II: Specialized Trusts Play Role in Estate Planning

By Weiss & Weiss

In our last blog post , we described trusts in general terms. This blog post will define and describe particular specialized trusts, including their purposes and benefits.

A Medicaid Trust allows for the assets to be held in trust so that the settlor will qualify for Medicaid and other governmental benefits. If the assets are no longer held in the individual name of the settlor, they are not deemed assets for Medicaid purposes, thus permitting the individual to qualify for Medicaid benefits. Medicaid Trusts must be irrevocable and the settlor is not permitted to receive the return of the principal of the trust. The individual transfers assets to the trust, retaining the right to receive income generated by the trust, with the principal of the assets eventually being transferred to the beneficiaries such as the spouse or children of the individual. Medicaid Trusts protect assets in that the assets will not be required to be employed to pay for long-term care and qualification for Medicaid will result, assuming that the “look-back” period rules (length of time that assets need to be held in the Medicaid Trust in order to disqualify them from use for long-term care expenses) have been followed. Our attorneys will orchestrate the documentation required in order to navigate the “look-back” rules.

Life Insurance Trusts have the main purpose of removing the proceeds of a life insurance policy from estate taxes. The trust purchases the life insurance policy insuring the life of the settlor. At death, the proceeds of the life insurance policy are paid to the beneficiary. Like a Medicaid Trust, if the asset (the life insurance policy) is titled in the name of the trust, rather than in an individual name, it is deemed to be an asset that is not included in the estate and is exempt from estate taxes, so long as all events took place at least three years before death. Further, Life Insurance Trusts are useful to raise the money needed to pay estate taxes when the family does not want to sell an asset, such as a family business or farm, in order to raise the money to pay estate taxes.

January 17, 2014

Trusts Part I: Estate Planning for Astute New Yorkers

By Weiss & Weiss

Trusts provide a valuable tool in estate planning because they serve the purposes of preserving assets, protecting intended beneficiaries, and potentially saving or eliminating estate taxes. A trust is a legal document that conveys a “corpus”, or body of assets, from the settlor (the person who creates the trust and owns to assets) to a trustee (the individual or corporate entity with the responsibility of holding the assets) for the benefit of the beneficiary (the person who will ultimately receive the proceeds of the trust). A charitable organization may also be the beneficiary of a trust.

These documents should be drafted by skilled legal professionals and signed in accordance with New York State Law . Trustees selected should be responsible and qualified for the tasks required. In addition, the age of the trustee should be considered. It is not sensible to appoint a trustee who may be eighty years old when he needs to perform his duties, or a trustee who does not have a good working relationship with the beneficiary. In some cases, clients may decide to appoint a corporate trustee, such as a bank or brokerage, so that the beneficiaries do not outlive the individual trustee (requiring a Court procedure to appoint a new trustee if the trust does not name a substitute) or if they do not otherwise have an appropriate individual to act as trustee.

There are potential advantages and disadvantages of trusts that will be discussed in this blog post. If assets are in multiple states, a trust can more efficiently distribute assets as opposed to the alternative, a probate proceeding in one state followed by ancillary probate proceedings in other states to dispose of specific assets. It is a myth that trusts always allow for estate tax savings, as individual circumstances may vary. Further, trusts are separate taxable entities, and are required to file income tax returns, just as an individual would be required.

December 13, 2013

Actions for Damages After a Closing for Property Conditions

By Weiss & Weiss

Our firm recently defended the sellers of a house located in Westchester County. When the property was originally inspected by the buyers, prior to a contact being entered into, a rodent infestation was discovered in the attic of the house. The buyers and sellers agreed that the infestation would be remedied prior to the closing. Our client hired an exterminator, who removed the offending creatures, and sealed off the access point through which they had entered the attic of the house.

Several days prior to closing, a “walk-through” was conducted. For inexperienced buyers, a walk-through usually is scheduled immediately before the closing. The purpose of a walk through is for the buyers to check the condition of the house and appliances, and make sure that the sellers have performed any and all repairs, such as re-painting, replacement of broken appliances, or, in the case we discussed, removal of any unauthorized animals residing at the premises. At the time of the walk-through in question, no rodents were seen by the buyers, and the closing occurred as scheduled.

A few months after the closing, the buyers alleged that they discovered a “new” rodent infestation in another part of the attic. Of course, it is beyond anyone’s knowledge as to whether these creatures were part of the group discovered at the original inspection, or a new group of animals who took up residence after the closing. The buyers made a demand on the sellers for compensation for damages caused by the creatures (they had chewed through some electrical wires and insulation in the attic), as well the cost of removing them from the attic. Our clients refused, stating that they had complied with the terms of the original Contract of Sale, requiring extermination pre-closing. The buyers then filed a lawsuit in Westchester County Supreme Court for damages.

December 5, 2013

Actions Under New York State Religious Corporation Law

By Weiss & Weiss

Our firm is often retained to represent parties in disputes regarding the control of religious institutions. Such disputes are usually governed by the New York Religious Corporation Law. The law governs all religious institutions, including the so-called “major” religions, Christianity, Judaism, Islam, and Hindu.

Religious institutions in New York are generally formed as non-profit religious corporations. This provides tax-exempt status under state and federal law. A religious institution may encompass more than just a place of worship. Many religious institutions also run parochial schools, summer camp programs, pre-schools, and cemeteries. Although these programs may turn a profit over time, they are still considered as part of the religious institution and are considered non-profit and tax-exempt.

In certain situations, disputes may arise over the legal control of such religious corporations. For example, our firm has handled cases in which a dissident group has challenged the Board of Trustees who were in control of the institution. Under the Religious Corporation Law, the Board of Trustees is generally manages the temporal (non-spiritual) business of the institution. This would include the hiring of employees, and business decisions relating to the Church, Synagogue, or Mosque in question. The Board of Trustees is usually elected by the congregation. However, the “devil” may be in the details. Disputes can arise over who is a member, and thus allowed to vote in any such elections. Congregants or members are usually defined under the law as those who are over 18 years old, and who worship regularly at the institution in question. Certain Churches may define congregants as those who receive communion regularly at the Church. If there are disputes, Courts may appoint an independent mediator to determine who is a member.

November 26, 2013

Wishing Our Readers a Joyous Thanksgiving

By Weiss & Weiss

November 14, 2013

Eviction Actions After Foreclosure in New York State

By Weiss & Weiss

Some of our prior blog posts have dealt with the legal issues relating to foreclosure prosecutions and defenses in New York State. As discussed in these posts, foreclosures are legal actions in which a mortgage holder will legally obtain title to real property from a defaulting borrower. After obtaining a foreclosure judgment, the property is auctioned to the highest bidder, which is usually the lender bringing the action. The Referee will then prepare a Referee’s Deed transferring title to the successful bidder.

One question that often arises is when the owner continues to occupy the foreclosed property, or when there are tenants in the foreclosed property. What happens to these occupants when the foreclosure procedure is complete and title is transferred? There are several answers to this question.

When the original owner continues to live in the property after a lender has obtained title by a Referee’s Deed in foreclosure, the new owner must take legal action to evict the occupant. In New York State, such evictions can be accomplished under New York Real Property Actions and Procedures Law § 713. This section provides grounds for eviction “where no landlord-tenant relationship exists.” Subsection 5 provides that if the property has been sold in foreclosure, then a certified copy of the deed in foreclosure must be exhibited to the persons to be evicted from the premises.

October 31, 2013

Purchases of Distressed Mortgages on Foreclosed Properties in New York

By Weiss & Weiss

Some of our firm’s clients are in the business of purchasing notes and mortgages encumbering properties which are being foreclosed. This blog post will discuss the legal necessities behind such transactions. Careful planning, as well as consultation with legal counsel, can ensure that such acquisitions comply with all legal requirements and ensure that the purchaser obtains marketable title so that properties so acquired can be resold expeditiously if desired.

Most purchases involve notes and mortgages obtained from banks or other major institutional lenders. Although private mortgages can be purchased, a potential buyer may encounter more issues when buying a mortgage from a private lender, as opposed to a large financial institution. The first step in such a transaction is agreeing on the purchase price. The purchaser must determine the overall value of the property, usually through an appraisal as well as an inspection of the premises. Other financial information can also be obtained, such as rent rolls, which show rental income for commercial or other rental properties, such as apartment buildings. The purchaser then offers to buy the outstanding mortgage from the lender for a price lower than the amount owed by the defaulting current owner.

Major financial institutions will generally have a form contract that the purchaser of the mortgage in question must execute. Such agreements are usually not subject to substantial negotiation. The seller of the mortgage needs to agree to provide an assignment of the mortgage to the purchaser of the mortgage. The seller should also be obligated to provide the original note and mortgage documents as signed by the mortgagor. It is essential that the original loan documents be obtained in such a transaction. Without them, the right to collect on the mortgage by the purchaser may be challenged in Court, creating a major issue for a purchaser.

October 21, 2013

Rent Stablization and Bankruptcy in New York State

By Weiss & Weiss

An article in today’s New York Times discussed a case currently pending before the United States Court of Appeals for the Second Circuit. The litigation discussed involves a rent stabilized tenant who filed for Chapter 7 personal bankruptcy. Although the details of bankruptcy law are beyond the scope of this post, Chapter 7 bankruptcy involves a liquidation of the debtor’s assets, and will extinguish most debts of the debtor, making them uncollectible by the creditors.

In this case, the debtor filing bankruptcy was a tenant in a rent stabilized apartment. Rent stabilization is a type of rent regulation in larger cities in New York State that fixes the rent which a landlord may charge to tenants. It is most prevalent in New York City, but not every apartment will qualify for rent stabilization protection. For example, when one rents a cooperative apartment from the owner, rent stabilization will not apply. In addition, tenants whose income level exceeds a certain threshold may be disqualified from rent stabilization protection.

Rent stabilization protects the tenant in several ways. First, it limits the annual amount by which a landlord may increase the rent for the apartment. This amount is set each year by the Rent Guidelines Board, and their decisions are subject to annual predictable controversy as tenant groups lobby for smaller or no increases, and landlord groups request larger increases. Secondly, a tenant in a rent stabilized apartment is legally entitled to a lease renewal when their current lease expires.

October 9, 2013

Where’s the Bellhop?

By Weiss & Weiss

Regional news outlets in the New York metropolitan area recently reported on Airbnb, an online search engine used to locate short term rentals for those wishing to occupy an apartment in New York City. The Environmental Control Board of the City of New York evaluated whether an Airbnb rental of a room in an apartment, while one of the permanent residents remained in the apartment, constituted illegal use of a residential apartment. The Administrative Law Judge who heard the matter found that “temporary occupancy of the apartment by a paying boarder with a permanent occupant present was consistent with the occupancy of the apartment for permanent residence purposes.” New York State’s Multiple Dwelling Law permits occupancy for fewer than thirty days if the permanent occupant is also present OR incidental occupancy for fewer than thirty days without the presence of the permanent occupant so long as no monetary compensation is paid. Notwithstanding the case at issue, State Senator Krueger maintained that “short-term rentals of apartments in residential buildings without any permanent residents present remains unambiguously illegal.”

The Airbnb case reminds this author of a case that she litigated several years ago entitled Hoffman v. 345 East 73rd Street Owners Corp. (New York Law Journal 10/2/1992 p. 26 col. 4). The Hoffman case involved a shareholder in a cooperative building who was renting out his apartment as a “bed and breakfast” accommodation, without his presence, in order to cover his expenses in maintaining the apartment. The cooperative board discovered his illegal arrangement when one of his guests, with suitcase in hand, asked the doorman “where’s the bellhop?” Mr. Hoffman sued the cooperative for interfering with his right to use his apartment as he wished, but did not prevail in the lawsuit.

The focus of the recent press concerning this issue is whether apartment owners or renters are illegally maintaining a hotel business and, in doing so, failing to pay the hotel occupancy tax to the authorities that collect same. While these are important topics, they are outside of the scope of this blog post. We wish to discuss occupancy rules and restrictions contained in documents to which apartment owners and renters are subject. The proprietary lease at issue in the Hoffman case is very similar to most proprietary leases in New York City. It allows occupancy as a personal residence by the shareholder and (emphasis added) persons of particular relationship to the shareholder, as well as guests for no more than one month if (emphasis added) the shareholder is in residence at the same time. Standard proprietary lease language does not contemplate commercial use in this manner, being paid by someone to use the apartment while the owner is not also present.