NY Courts Tackle New Issues in a Post-COVID Court: Modification of Pre-COVID Court Orders

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As New York courts reopen and the mandatory stay-at-home order is lifted, what remains unclear is how the numerous Executive Orders issued by Governor Andrew M. Cuomo during the COVID-19 pandemic will affect individuals and businesses who, based on the economic effects of the crisis, may no longer be able to abide by previously issued court orders.

In a recent decision, Justice Lawrence Knipel addressed one of likely many present-day contractual issues brought on by the coronavirus pandemic.

In 538 Morgan Avenue Properties et al., v. 538 Morgan Realty LLC et al., Plaintiffs entered into a business sales contract with Defendants in 2015 whereby Plaintiff NY Stone purchased Defendant SD’s business.  At the same time, the parties entered into a separate real estate sales contract whereby Plaintiff 538 Morgan Avenue Properties purchased from Defendant the real property where SD’s business was located.  While Plaintiffs continued to make payments to Defendants under the contracts for the business and real property, Defendants cancelled the real estate contract, asserting a material breach by Plaintiffs based on their failure to pay a certain amount by the contract’s “as of date.”  In turn, Plaintiffs brought this action for breach of contract, claiming that all payments were made within a reasonable time and Defendants were in breach when they cancelled the real estate contract.

In 2017, the Court issued an order granting Plaintiffs’ motion for a preliminary injunction enjoining Defendants from interfering with their tenancy at the property under the condition that Plaintiffs pay a monthly use and occupancy fee in the amount of $22,986 along with a filing of an undertaking fee of $80,000.

Shortly before New York’s stay-at-home order was lifted in June 2020, Plaintiffs moved for an order modifying the preliminary injunction issued in the case concerning the use and occupancy payments due in light of the COVID-19 crisis.

In New York, although a landlord can recover use and occupancy costs for the reasonable value of the premises and use of those premises, the Court, ultimately, has broad discretion in awarding use and occupancy during the pendency of an action or proceeding (43rd St. Deli, Inc. v. Paramount Leasehold, L.P.).  When awarding use and occupancy, the Court takes into account the actual value of the property, whatever restrictions apply because of agreements between the parties, governmental decrees, and other factors (438 W. 19th St. Operating Corp. v. Metropolitan Oldsmobile, Inc.).

Here, to persuade the Court to modify the existing monthly use and occupancy payments due in light of the COVID-19 crisis, Plaintiff NY Stone argued that because it operates a stone fabrication store, which requires work to be done in person, the business was negatively affected by the government’s response to the COVID-19 pandemic through the Governor’s signing of numerous executive orders, including Executive Order 202.8, which forced Plaintiffs to first decrease their workforce and then completely forbid any of their employees from working on-site.  Accordingly, Plaintiffs asked the Court to waive any use and occupancy payments for the period from March 22, 2020 until such time as Plaintiffs are legally permitted to resume business operations.

Interestingly, Executive Order 202.8 (which Plaintiffs relied on in their motion) only prohibited “enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days.”  The Executive Order, however, had no bearing on a commercial tenant’s obligations to pay rent nor did it mention forgiveness of a commercial tenant’s debt owed.

The Court recognized that because the Executive Order at issue was silent on use and occupancy fees, the Court had the power to modify use and occupancy upon a proper showing, leaving room for the possibility that a tenant’s use and occupancy could be modified or completely forgiven.

However, the Court, ultimately, denied Plaintiffs’ request for modification as Plaintiffs in this case failed to bring forth any competent evidence in the form of financial documentation or an accountant’s affidavit with supporting evidence to demonstrate that Plaintiffs could not actually pay for use and occupancy for the months during which they could not operate on-site.

Takeaway:  Courts have deference in issuing and modifying some court orders.  Even so, attorneys must make every effort to prove with the necessary evidence why a previously issued court order is entitled to and worthy of modification.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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