M. Settlements and Stipulations in Landlord-Tenant Summary Proceedings Settlements and Stipulations in Landlord-Tenant Summary Proceedings

• Jurisdiction: New York

M. Settlements and Stipulations in Landlord-Tenant Summary Proceedings

Most landlord-tenant disputes settle before trial. The calendars of courts that hear housing matters would be overwhelmed if every case were tried. As the courts see it, "[u]nless public policy is affronted, parties to a civil dispute are free to chart their own litigation course,"¹⁸³⁵ and stipulations settling cases are not only encouraged but are necessary to keep the "summary" in housing proceedings.

This often leads to what has been termed "hallway justice," where parties proceeding pro se meet with their adversary's counsel and negotiate the terms of stipulations of settlement, usually drafted by the landlord's attorney, before meeting with a court attorney or the judge.¹⁸³⁶ Some courts treat a signed stipulation as a fait accompli.¹⁸³⁷ However, it "is well settled that enforcement of a stipulation remains subject to the supervision of the court, which is not necessarily bound by language in the stipulation stating that any default shall be deemed material, and which always retains the power to vacate a warrant of eviction prior to its execution for good cause shown." ¹⁸³⁸

Because summary proceedings are resolved predominantly through settlement, it is important to understand the dynamics of settlement and how the parties' bargaining positions are influenced by economic conditions, by the nature of the proceeding, by whether the rent-regulated status of the tenancy is rent-regulated or free-market, and by a working knowledge of the oftentimes chaotic experience of litigating summary proceedings in crowded courthouse corridors with over-calendared attorneys.

The landlord's primary consideration during resolution of a summary proceeding is frequently whether there is greater benefit to a continued tenancy or to a vacancy. However, if demand in the housing market is high and the tenancy is below market rate, as frequently occurs during a growing economy, the landlord has an incentive to vacate apartments, even if this requires a buyout, because potential renters might be willing to pay a substantially higher rent than the existing tenant.

Three amendments to the New York City Administrative Code have placed guidelines on buyouts that, if not followed, constitute tenant "harassment," which does not exist as a matter of common law, but solely as the result of these statutes,¹⁸³⁹ and generally only within the City of New York. Administrative Code § 27-2004(a)(48)(f-1) provides that if a landlord contacts a tenant about a buyout offer within 180 days after the tenant expresses in writing that he or she does not wish to be contacted about an offer, the landlord's contact will constitute tenant harassment. There are two exceptions: when a court authorizes a buyout offer or when a tenant expresses interest in receiving an offer.

Administrative Code § 27-2004(a)(48)(f-2) sets forth disclosure requirements a landlord must make in the context of a buyout offer, such as (1) the purpose of the contact, (2) that the tenant may reject a buyout offer, (3) that the tenant may contact an attorney, (4) that the offer is being made on behalf of the landlord, and (5) that the tenant may set forth in writing his or her refusal to be contacted, triggering the 180-day provision set forth in Administrative Code § 27-2004(a)(48)(f-1).

Administrative Code § 27-2004(a)(48)(f-3) prohibits landlords from using abusive or threatening language to buy tenants out. Prohibited behavior includes contacting tenants at the workplace or at odd hours without prior written consent, or falsifying information provided to the tenant.

Conversely, in a stagnant economic climate, the market for luxury rentals suffers, and more tenants are likely to default in their rental payments, regardless of the rental demographic. This results in a decrease in revenue for the landlord and an increase in the cost of recovering rent that is owed. The effect is that, in a slow economy, landlords are more willing to negotiate a settlement that permits a tenant to pay any arrears under a payout schedule, in the case of a nonpayment proceeding, and, in the case of a holdover proceeding, to permit the tenant to cure any default or breach, rather than pursuing eviction.

In a down economy, if the landlord is convinced that the tenant no longer has the financial wherewithal to pay the existing rent, the landlord might negotiate a rent reduction or permit the tenant to sublet the apartment, assign the tenancy, or even sublet the apartment for a lesser amount and pay the difference.

Whether the tenancy is rent-regulated or free-market determines the parties' settlement posture. Because a lease is a binding contract between the parties, the landlord has a strategic advantage in negotiations with a tenant who wishes to break the lease. Although for a time some courts held that a landlord had a duty to mitigate its damages by reletting an apartment,¹⁸⁴⁰ the controlling case law now permits a landlord to allow it to remain vacant and bring an action to recover any rents that accrue over the balance of the term.¹⁸⁴¹ This gives the landlord increased leverage in negotiating a lease-break settlement. The leverage might include a buyout for the remaining term or a personal guarantor for the remaining rental payments.

The leverage afforded the landlord by the absence of a duty to mitigate is counter-balanced by the reality that litigation to recover current and prospective rental arrears is costly. Although the governing lease usually entitles a prevailing landlord to recovery of its attorney fees and costs, the landlord must cover its costs until a judgment is obtained. If the tenant is insolvent or otherwise "judgment proof," the landlord may be forced to incur further expenses to collect the judgment. The tenant can parlay the inherent cost and uncertainty of litigation into a negotiating strategy. This creates immense strategic differences in settlement negotiations, depending on the socioeconomic status of the tenant and, perhaps more rarely, that of the landlord.

Although a landlord is similarly under no obligation to release a rent-stabilized tenant from the lease, landlords have a greater incentive to do so in the rent-stabilization context because the landlord can, upon vacancy, apply rent hikes, including a vacancy increase of up to 20% on the regulated rent and, if the legal rent exceeds a statutorily defined threshold, the apartment may be eligible for deregulation.¹⁸⁴² This deregulation threshold for the legal rent was recently raised from $2,500 a month to an initial $2,700 a month, subject to annual adjustment starting January 1, 2016 by legislation effective June 15, 2015. Under §§ 7–16 of the Rent Act of 2015, the threshold on January first of each year is adjusted in an amount equal to the local Rent Guidelines Board authorized increase for one year lease renewals effective the previous October. While the first two years of such increases were 0% leaving the threshold rent at $2,700, 2017 saw an annual increase of 1.25%, effective January 1, 2018. The threshold had previously been increased from $2,000 to $2,500 by legislation that took effect June 24, 2011. One practical effect of the Rent Act of 2015 is that, as amended, the rent regulations provide that, if a tenant's income qualifies for luxury income deregulation, but the rent is not above the threshold, the tenant may avoid high income deregulation by taking one year increases each renewal such that the rent never exceeds the threshold. Luxury deregulation is not available in buildings where the landlord voluntarily accepted rent regulation in exchange for tax benefits.¹⁸⁴³

Stipulations can settle cases with or without providing for a possessory judgment and warrant of eviction. Tenants prefer not to have judgments. If there is to be a judgment, tenants prefer that the warrant not issue quickly. Landlords prefer final judgments, with warrants to issue forthwith and to execute quickly. In a nonpayment case, a settlement without a judgment is better for the tenant's credit rating.¹⁸⁴⁴ Moreover, if the money is not paid timely, the tenant gets more time to pay because the landlord must, in some way contemplated by the stipulation, move for a final judgment in the event of a default. Evictions generally occur more quickly if the stipulation provides for a final judgment and the forthwith issuance of the warrant of eviction.¹⁸⁴⁵

A stipulation in a nonpayment proceeding should contain a rent breakdown and a payment schedule, and enunciate what repairs, if any, must be made and when, with access and completion dates. Unless paying arrears is made contingent on making repairs, the two are separate obligations.¹⁸⁴⁶ Tenants can stipulate to waive personal jurisdiction and defenses. Landlords can stipulate to waive arrears and agree to allow orders to show cause to extend the tenant's time to pay on good cause or even without good cause. The parties may stipulate to resolving any attorney-fee issues. The parties, for consideration, may even convert a nonpayment proceeding into a holdover proceeding. The permutations are nearly endless. However, while the parties may enter into stipulations that...