Court Determines If Sublandlord Failed to Mitigate Damages
Valerie Kikade owned cooperative unit 7C at 242 East 25th Street. She authorized her daughter, Angeli Kakade, to negotiate a sublease of the unit after a subtenant paying $3,300.00 per month was to move out at the end of March 2020. Angeli attested that, on February 17, 2020, Evan Newman and his wife returned to her the executed sublease that Valerie previously had signed, setting the rent at $3,250.00 per month for the unit. The sublease required that the Newmans pay a security deposit to Valerie and that their failure to take possession of the unit after the sublease commenced would constitute a breach of the sublease. The Newmans neither paid the security deposit nor took possession of the unit. Litigation and cross-motions for summary judgment ensued.
In reliance on the executed sublease, Angeli attested that she paid the $500 fee for the Newmans’ application to the cooperative corporation’s board of directors and made efforts to expedite consideration of the application, which the board approved March 18, 2020. Angeli immediately notified the Newmans that they were approved to take possession of the sublet unit. On April 1, 2020, acknowledging the sublease was in effect, the Newmans notified Valerie they did not intend to take possession.
Beginning April 9, 2020, through a broker, Valerie listed the unit for rent at $3,300.00 per month, the rent that the subtenant preceding the Newmans had paid, but $50.00 per month more than Angeli negotiated with the Newmans. Angeli attested that her broker advised that $3,300.00 per month was the fair market value, but this advice was inadmissible hearsay if offered for its truth.
Angeli admitted that no one even inquired about the unit at that rent. Only after Valerie, through the broker, dropped the listed price to $2,900 per month on July 7, 2020, did Valerie receive any applications to sublet the unit, and she finally entered a new sublease July 23, 2020, to rent the unit at $2,800 beginning August 15, 2020. The Newmans did not dispute the rent they owed under their sublease, nor that Valeries sublet the unit four months after their breach of the sublease for $450 per month less than the monthly rent owed under the Newmans’ sublease.
New York Real Property Law § 227-e requires that, upon the breach of a residential lease as Valerie claimed, a landlord shall, in good faith and according to the landlord’s resources and abilities, take reasonable and customary actions to rent the premises at fair market value or at the rate agreed to during the term of the tenancy, whichever is lower. Even if the court considered the advice the broker gave to Angeli as evidence of good faith in renting the premises at a fair market value of $3,300 per month, Valerie did not dispute that the rate was still $50 higher than the rate agreed to during the term of the sublease the Newmans breached: $3,250 per month.
While Real Property Law § 227-e requires only that the landlord “take reasonable and customary actions,” “in good faith and according to the landlord’s resources and abilities,” to rent the premises, the statute unambiguously required the listed rent to be the rate agreed to under the parties’ sublease if that rate is lower than the fair market value. The “reasonable and customary actions,” “in good faith and according to the landlord’s resources and abilities,” refer to how the landlord markets the premises: that it need not use brokerage services beyond its resources, for example, but, on the other hand, it must do more than advertise the unit on its building’s bulletin board or to a few acquaintances.
Valerie insisted that she agreed to rent the premises to the Newmans at $3,250 per month rather than the same rate as the prior subtenant paid, $3,300 per month, because she negotiated with the Newmans without a broker, saving brokers’ fees. The onset of the coronavirus pandemic and Valerie’s inability to rent the premises or even generate an inquiry about the premises until she lowered the rate to under $3,000 per month raised a question whether the fair market value was even lower than the rate agreed to during the term of the sublease the Newmans breached: $3,250 per month. Thus Valerie met her burden under Real Property Law § 227-e to show that she mitigated her damages once she lowered the unit rent to $2,900 per month July 7, 2020, and immediately began receiving inquiries, but not before.
The Newmans cross-moved for summary judgment on the ground that Valerie never mitigated her damages. Valerie admitted she did not list her unit for rent at the rate agreed to during the sublease the Newmans breached, which was lower than Valerie’s claimed market value, and did not explain why she could not have negotiated without a broker, saving brokers’ fees, as she did with the Newmans. Therefore the court granted the Newmans summary judgment on Valerie’s failure to mitigate her damages between April 3, 2020, when the Newmans’ first rental payment was due, and July 7, 2020, when she lowered the rent to $2,900 per month. While Valerie might have claimed that hiring a broker and listing the unit at $50 per month more was a reasonable course of action more likely to produce a new subtenant than proceeding without a broker at a lower listed rent, she did not make, let alone support, such a claim. Her admitted experience listing the unit at $3,300 per month through a broker and receiving not a single inquiry belied such a claim.
But, on the other hand, the Newmans did not demonstrate that Valerie failed to mitigate her damages after she lowered the rent to $2,900 per month on July 7, 2020. The Newmans presented the affidavit of Samantha Behringer, a real estate broker with 20 years’ experience specializing in residential leases, who was familiar with the rental market in the area of 242 East 25th Street. She attested that in March 2020, at the onset of the coronavirus pandemic, rental rates for apartments in the area dropped by approximately 30%. If the fair market value immediately before March 2020 was $3,300 per month, as Valerie and her prior subtenant’s rent indicated, that decline would reduce the fair market value to $2,310, even lower than the $2,900 per month rent at which Valerie listed the unit on July 7, 2020, or the $2,800 per month rent at which she sublet the unit July 23, 2020.
Behringer, however, provided no details whether the 30% decline applied to all apartments, regardless of size, features, or the building’s common elements. She did not explain why Valerie’s unit, which she did not indicate she ever observed, and which she did not describe, necessarily would suffer the same decline as other apartments. The very fact that Valerie did sublet her unit at $2,8000 per month within 16 days after she lowered the rent to $2,900 per month strongly suggested that the actual rate under the new sublease was the fair market value.
Consequently, the court denied the Newman’s summary judgment based upon Valerie’s failure to mitigate her damages after July 7, 2020, when she lowered the rent to $2,900 per month. Although Behringer’s affidavit raised a factual question whether Valerie mitigated her damages after that date, the issue was of minimal significance, as Real Property Law § 227-e provided that, once the unit was relet, the new subtenant’s sublease terminated the Newman’s sublease and mitigated the damages otherwise recoverable..
The Court granted Valerie’s motion for summary judgment on the Newmans’ liability for the breach of the parties’ sublease by refusing to pay the security deposit or rent due under the sublease beginning April 3, 2020, or to take possession of the sublet unit. The Court granted the Newmans’ cross-motion for summary judgment to the extent of determining that Valerie failed to mitigate her damages until at least July 7, 2020.