LATE JUNE – MID JULY 2004 REAL ESTATE NEWSLETTER

1.   PRICES WAY UP FOR MANHATTAN APARTMENTS

Despite the increase in interest and mortgage rates, the market for Manhattan apartments has soared. The condo market leads the way with the average price increasing by 38 percent, and East Side condos posting a remarkable 60 percent rise to an average of sale price of $1.4 million.

Co-op studios around Manhattan jumped 20 percent to an average $277,000 and a typical condo studio will cost around $396,000. Condos with three or more bedrooms went for an average of close $32 million – a 32 percent hike from the first half of 2003. Co-ops with three or more bedrooms had a smaller increase of 8 percent for an average price of $2.5 million. Co-ops generally sell for less than condos because of the hassles of getting approved by boards and having to give up highly personal financial and other information.

Townhouses, which were considered undesirable and expensive to maintain, now have soaring prices with an average of $5.8 million in the Upper East Side and $2.41 million in the West Side; that is a 23 percent and 17 percent increase respectively.

According to the Corcoran Group real-estate firm, the market is being propelled by “record Wall Street earnings.” Aside from Manhattan, Corcoran also reported that Brooklyn sales and prices are also continuing to surge. In the first half of 2004, the average price of all residences went up 16 percent. Sales were especially good in Fort Greene and Boerum Hill where prices increased 30 percent from one year ago. One of the fastest growing Brooklyn neighborhood is DUMBO, where the average price of condos jumped 42 percent to $1.1 million.

(N.Y. Post 7/2004)

2.   WIFE LIABLE FOR BOUNCED CHECK ISSUED AS PARTIAL RENT PAYMENT

This action consisted of one plaintiff – landlord, Lisa LaFrieda, and three defendants, David (tenant), Vincent and Monica Terrano (husband and wife)

A two year lease was entered into by David Terrano and Lisa LaFrieda. The rent was to be $8,000 per month. After the lease expired on March 13, 2003, until June 2003, unpaid rent accrued amounting to $36,714.43.

As partial payment, Vincent Terrano gave LaFrieda a check written by his wife, Monica Terrano, in the amount of $11,300. However, the check bounced due to insufficient funds and plaintiff was unable to deposit it. She then proceeded to bring a case against all three defendants asserting four causes of action: breach of contract, unjust enrichment, fraud and tortious interference.

First, as a matter of law, under Uniform Commercial Code, (“UCC”) 3-104(1), (2)(b), the instrument at issue is a valid check. “Unless specifically denied in the pleadings, each signature on an instrument is admitted.” (UCC 3-307(1)) The holder of an instrument may “enforce payment.” (UCC 3-301) Furthermore, “when signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense.” (UCC 3-307(2)) Lastly, under UCC 3-302, plaintiff is a “holder in due course” because she “took the instrument for value, in good faith and without notice that it… has been dishonored.”

Next, as a matter of public policy and basic fairness the Court held, “in commercial contexts, obligees should be allowed to rely on what are, in effect, signed, written promises to pay, embodied in negotiable instruments.” The Court further held, “any loss caused by the primary obligor’s failure to pay the underlying obligation should fall on the maker.”

Lastly, as a matter of precedent, the Court cited a 1972 case (Helman v. Dixon, 71 Misc. 2d 1057, 1059 (Civ. Ct., Queens Co. 1972)), which held, “when one delivers a check bearing the date of delivery, the recipient has the right to expect that the maker has sufficient funds with the drawee bank at the time to cover the amount of that check.” The Court also cited a 1995 case (Kane v. Kroll, 196 Wis 2d 389, 538 NW2d 605 (Wis App 1995)), which held that the plaintiff payee could enforce a check written by a defendant-maker to satisfy the pre-existing obligation of the maker’s son.“

(N.Y.L.J. 6/9/2004)

3.   JUDGMENT ENTRY A PREREQUISITE FOR REFEREE’S SALE

The case at bar revolves around a single parcel of commercial real property located at 33 West 149th Street, New York, NY. Defendant, Carlton Boiler, purchased it in 1995 and it has been used for business ever since. The plaintiffs are two elderly sisters who are holders of a first mortgage on the property. They took a purchase money mortgage when the property was sold to Carlton Boiler.

Carlton Boiler defaulted on its mortgage installment due on August 1, 1995, and each subsequent installment after for eight years. As a result, a mortgage foreclosure action was commenced on July 26, 2000.

Judgment of Foreclosure and Sale was entered for the plaintiff and was sent to the County Clerk’s office and placed in the file room to await the preparation of a judgment-roll and entry by the judgment clerk.

However, the signed judgment was never entered by the Clerk of the Court. Despite this fact, a Referees sale of the mortgaged property was conducted and the plaintiffs were the successful bidders.

Plaintiffs claim that for some inexplicable reason, the entry of the judgment appears not to have occurred. However, the Court notes that judgments are not automatically entered by the Clerk after they are signed by the Court. Further input from the counsel of the prevailing party is required. A bill of costs and a judgment roll must be prepared.

Since these steps were not taken, the question is whether or not the Referee’s sale is valid. Defendants claim that entry of a judgment is a prerequisite to execution. Plaintiff’s claim, however, that the defect can be cured by the Court.

The Court held that the sale was null and void due to the fact that the judgment was never entered by the Clerk and that it can not be cured by the Court.

(N.Y.L.J. 6/23/04)

4.   RENT CHARGE TO SUBTENANT IN EXCESS OF 100% OF STABILIZED RENT

The two plaintiffs, Bresin Corporation and C. Brian Breyre, are tenants in common in defendant, Thea Halo’s, apartment in New York City. The plaintiffs terminated their tenancy on December 31, 2002, alleging that defendant violated the Rent Stabilization Code and profiteered from the premises.

The plaintiffs were paying $1,200 a month for rent. The Court found that the proper rent for this Premises is $1,085.41. This is the maximum collectible rent. However, the rented space only constituted 1/3 of the loft. The defendant occupied 2/3 of the premises.

In her argument, defendant used the terms subtenant and roommates interchangeably. The “co-occupants” were not allowed use or access to the other 2/3 of the Premises. There were no shared areas except for their allowed use of the washer and dryer for which they were expected to compensate the defendant. They lived completely separate from defendant.

Whether this situation is looked at as a sublet or roommate situation, the end result remains the same. Under this theory it is clear that profiteering has occurred. Rent charged to a subtenant shall not exceed the legal regulated rent plus no more than a 10 percent surcharge if the housing accommodation is sublet fully furnished. The statute contemplates the sublet of the entire housing accommodation, not simply a portion of it, when fixing what may be charged a subtenant. The monthly legal regulated rent for the Premises was $1,085.41.

The defendant is subletting 1/3 of her apartment and charging as if she had sublet it entirely. The legal regulated rent attributed to 1/3 area of the Premises would be $361.80. Adding 10 percent or $36.18 for furnishings would bring the amount to $397.98. Therefore, the defendant profited each month in the amount of $802.02 ($1,200–$387.98 = $802.02).

Whether viewed as subtenants or roommates, it is clear that the defendant utilized the Premises for commercial exploitation. She was living rent free and collecting in excess of 100 percent of the stabilized rent for the entire housing accommodation and still enjoying two thirds of the Premises.

(N.Y.L.J. 6/23/04)

5.   AUTOMATED CITY REGISTRAR SYSTEM (ACRIS): ONLINE TAX FORMS

On July 5, 2004, the New York City Register plans to implement online tax applications. The new system will be called Automated City Register System (ACRIS) Phase 2.1 E-Tax Application.

Queens, Kings, Bronx and Manhattan counties will be affected. The four counties will be required to complete certain transfer documents, including the City’s Real Property Tax Return (NYC-RPT), the New York State Real Estate Transfer Tax Return (TP-584), the New York State Real Property Transfer Report for New York City (RP5217-NYC) and the smoke detector affidavit, online, prior to closing.

For more information on these forms and how to complete them you can visit www.nyc.gov/ACRIS.

6.   BREACH OF ‘TIME OF ESSENCE’ AGREEMENT

The plaintiffs and defendants herein entered into a purchase contract of real property, which made a “time of the essence” closing to occur no later than February 10, 2004. The defendants were duly notified that time would be of the essence and that the closing would be held no later than that date.

The closing advanced to February 9, 2004, one day before the law date at the request of the defendants. The contract provided for a purchase price of $2,450,000 plus an additional $950,000 to be paid to plaintiff in consideration of her surrendering her option to purchase the same property from remaining plaintiffs. The contract was then amended, adding an additional $100,000 to the purchase price. The final price was $350,000, the total amount due at closing was $3,150,000.

On the day of closing plaintiffs were ready and willing to deliver title. The defendants, however, refused to pay the balance of $3,150,000 insisting they would only pay $2,200,000. The plaintiff’s counsel deemed the defendants in default and said they may cure on the law day, February 10, 2004. However, the defendants failed to appear on that date.

The Court held that the plaintiffs demonstrated as a matter of law that the defendants agreed to pay an additional $950,000 by tendering the agreement, duly executed by defendant, to pay plaintiff $950,000 by certified or bank checks at closing, and unless this amount was paid, the purchaser shall be considered in default of the Contract of Sale. In this holding the Court further notes that “the down payment of $350,000, securing the transaction at issue, which is 10 percent of the total contract price of $350,000 claimed by plaintiffs, lends further credence to the plaintiff’s contention.”

Lastly, the Court also held the plaintiffs demonstrated as a matter of law that the defendants breached the contract for the purchase of the property. “The defendants’ failure to tender the full balance of the contract price at the closing on the law day constituted a breach of the “time of essence” agreement, thereby permitting the plaintiffs/sellers to retain the defendants’/purchasers’ down payment of $350,000.”

(N.Y.L.J. 7/14/04)

7.   TRUMP ENTITLED TO $8 MILLION DOWN PAYMENT

After suffering a defeat in the lower courts, Donald Trump is victorious in the NY State Court of Appeals. On Tuesday, June 15, 2004, the Appellate Division ruled that the 25% deposit of $8 million tendered by two fugitive Turkish brothers (the Uzans) on four condominium apartments being built by Trump’s company would remain in his possession.

The Court’s reasoning for this decision was that a simple contract was made before the building was completed.

The Contract was made in 1999. It stated that the two brothers would purchase four apartments, (2 on the 89th floor and 2 on the 90th floor), for $32 million.

The two brothers tried to claim “fraud” and “deceptive sales practices” due to the fact that Trump did not notify them beforehand of the risk of terrorist attacks associated with 9/11.

These claims, however, were not even addressed by the Appellate Court.

The two brothers also argued that if their deposits were not returned it would be an “unconscionable, illegal and unenforceable penalty.”

The Appellate Court struck down this argument. The Court cited two cases, the first in 1881, which was reaffirmed by the second in 1986, holding that anyone “who defaults on a real estate contract without lawful excuse can not recover his or her down payment.”

The Court of Appeals also concluded that the brothers are subject to arrest if they enter the U.S. due to the fact that they were found in an unrelated federal case to have defrauded Motorola, Inc. out of about $1 billion when making a cellular telephone deal in Turkey.

(N.Y.L.J. 6/9/2004)