Legal fees, late charges approved in recent non-payment proceeding

Real Estate Weekly, Dec 20, 1995 by Sherwin Belkin

Unfortunately, many owners who have relied upon the plain language of their leases have found that demanding the payment of legal fees and/or late charges in the rent demand or petition has often led to a dispute as to the validity of the owner's underlying notices. As a result, many owners have refrained from demanding either the legal fees that they have incurred or the late charges that the lease permits them to impose when a tenant falls behind in the payment of rent. A recent decision by the Appellate Term, First Department, seems to put this issue to rest.

In Brusco v. Miller, reprinted in the New York Law Journal on December 1, 1995, the Appellate Term unanimously reversed an Order of the Civil Court (Kibbie F. Payne, J.) that had dismissed the Owner's underlying petition. The Owner had brought a non-payment proceeding against a rent-stabilized tenant that then owed five months rent. In the Owner's rent demand, the Owner carefully enumerated the outstanding rent payable (at the rate of $850 per month for the specific five-month period.) In addition, the Owner set forth in its demand specific amounts for legal fees and late charges, which were then included within the aggregate sum that was stated in the Three-Day Rent Demand.

The Civil Court granted the tenant's motion to dismiss, finding that the Rent Demand was rendered "fatally defective" by virtue of the Owner having included reference to both the attorney's fees and the late charges.

On appeal, the Appellate Term noted that modern pleading practice mandate that both the threshold notices and the pleadings in summary proceedings be liberally construed. The Court noted that the purpose of the liberal pleading practice is to have cases disposed of on the merits, rather tan being embroiled in protracted and unnecessary procedural disputes.

The appellate court found that the rent demand and petition met the requirements of law; that is, the tenant was given clear, concise and actual notice of the amount due and the period that the claim pertained to; that additional "ancillary charges" for attorneys' fees and late fees were also itemized in the rent demand did not, in the Appellate Term's view, represent a demand for illegal rent in excess of the rent stabilized maximum. To the contrary, the Court found that reference to the ancillary charges "permissibly gives notice of landlord's additional claim for contractual damages provided for in the parties' lease." The Court also found that such ancillary charges were a "proper subject of recovery in the summary proceeding." One caveat noted by the Court, such ancillary charges are limited to being the predicate for a money judgment in the case of the regulated tenancy; as opposed to a possessory judgment.

As a result, the Court found that the Owner's rent demand was sufficient, such that the petition was reinstated and the matter remanded to the Civil Court for further proceedings.

The Appellate Term, in a pointed footnote, offered cautionary words to property owners and legal practitioners. The Appellate Term stated that: "To avoid any possibility of confusion or prejudice, a claim for rent should be segregated from landlord's other charges and separately totaled."

Prudent owners should re-visit their leases to determine if they have an appropriate legal fees and/or late charge clause. Assuming that such provisions are present, and the rent demand is properly drafted in accordance with the Appellate Term's cautionary words, Owners should no longer be hesitant to demand the costs that they have incurred as a result of the tenant's default or the late fees that may be imposed as a binding contractual obligation under the lease.