JANUARY AND FEBRUARY - REAL ESTATE NEWSLETTER

1. NEW YORK REAL ESTATE MARKET CONTINUES TO SHOW SIGNS OF WEAKNESS

It is pretty clear-the New York real estate market is indeed showing signs of weakening. There is a noticeable drop in sales and decrease in appreciation (depreciation in some cases) rates. According to a recent MSNBC article (Jan. 5, 2006), sales volume of Manhattan apartments fell 21.12 percent from the prior quarter. The article notes, citing a Prudential Douglas Elliman Manhattan Market Overview report, that the median price of apartments only increased by 1.3 percent from the third quarter.

Furthermore, referring to feedback from brokers and other professionals, the article indicates that purchasers are now taking much longer to decide whether to make a purchase. A subsequent February 7, 2006 article from the same source echoes similar forecasts of a slow down in the housing market for 2006. The article cites comments from the National Association of Realtors' chief economist, David Lereah, who predicts that sales of existing U.S. homes should slide 4.7 percent and that, sales of new homes are expected to decrease by 8.5 percent. The apparent weakening market seems now to be consistently acknowledged by real estate professionals and relevant statistics.

According to a recent real estate pricing forecast from Fiserv Lending Solutions (as reported in CNNMoney.com, February 3, 2006) the median home price in New York is expected to decline by 2.3 percent in 2006, in comparison to the very modest 5 percent projected national increase. Even New York City Mayor Michael Bloomberg recently acknowledged, while unveiling his fiscal 2007 preliminary budget, that "New York's real estate market is expected to slow." Bloomberg also noted "...a 10 percent decline in home prices, a 14 percent decline in home sales over the next few years…" (As reported in The Real Deal, February 1, 2005).

On a positive note, however, notwithstanding sliding prices and reduced sales in New York, most experts agree that the overall U.S. real estate market is unlikely to experience any cataclysmic drops. In fact according to the MSNBC article, Mr. Lereah expects the housing market to "remain strong by historic standards. " And, similarly, the Fiserv Lending report expects median home prices overall to "inch up by only 1.5 percent this year. "

2. LANDLORD NOT ENTITLED TO INDEMNIFICATION FROM THIRD PARTY FOR DAMAGES CAUSED TO HIS TENANT'S APARTMENT

The case of Edge Management Inc. v. Blank, 2006 N.Y. App. Div. Lexis 143 (NY App. Div. 1st Dept. 2006), involved the owner (Blank) of a unit in a condominium building leased to a tenant (Edge), which was subsequently damaged (including growth of mold, mold spores and mushrooms) from water leaks during renovations to the upstairs apartment. Upon the owner's failure to fix the problems in their unit, tenant sued the owner for damages, who in turn sought indemnification from the owner of the upstairs apartment.

After a complex analysis of indemnification law, third party contracts and vicarious liability issues, one of the Appellate Division's holdings was to dismiss the landlord's indemnification claim. The court observed the landlord's failure to repair the damages upon notification by landlord to be a breach of his own duties as an owner and, therefore, found him to be participant in the wrongdoing; a wrong doer, and, therefore, not entitled to receive benefits under the indemnification doctrine.

The court found that "common law-indemnification is predicated in "vicarious liability without fault," which necessitates that a "a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefits of the doctrine." Here, since the landlord had a contractual and statutory duty to keep his premises in good repair and has failed to do so, any liability imputed to him from the tenant's action against him would be because he failed in performing his required duties. Hence, he, the landlord, "consequently shares part of the blame. Therefore, he (landlord) is barred from obtaining indemnification,"

3. HOME INSPECTORS IN NEW YORK STATE NOW REQUIRED TO HOLD PROFESSIONAL LICENSE

Pursuant to the requirements of a recent amendment to New York State Real Property law, Article 12-B §444-d, home inspectors will now be required to obtain a license from the NY Department of State (NYDOS). The law, which became effective as of December 31, 2005, provides that no person shall conduct a home inspection for compensation unless they are licensed as a home inspector by the NYDOS. Licensed architects, engineers and certain governmental employees working within the scope of their official employment, however, are exempt from this licensing requirement.

4. NEW TENANT DIRECTLY SUES HOLDOVER TENANT FOR DAMAGES

The Wall Street Journal recently reported on a New York real property dispute involving the Grace Building in Manhattan, which may open up new opportunities for lawsuits-between prospective new tenants and holdover tenants, who have yet to vacate their premises.

This reported involved a certain Tahari, Lt.d., a fashion design company, who overstayed its lease at the Grace Building. Upon Tahari's failure to vacate, the landlord, Trizec Properties, Inc., filed an action to eject. Notwithstanding a court judgment ordering Tahari to vacate, the firm remained until the issuance of a final order from an appellate court denying its appeal.

Subsequently, the new tenant filed a separate action for monetary damages against the holdover tenant, which according to the Trizec's general counsel is "...new law in New York and New law in the United States." The unique concern and potential call for joy, depending on what side you are on, raised by this case is that holdover tenant's usually are responsible to the landlord for damages, not necessarily the new tenant. Should potential future holdover tenants now fear more than just a disgruntled landlord?

(Wall Street Journal, 2/22/06)