Top 2019 legal developments affecting New York real estate - by Thomas Kearns

***Editor’s Note: After this article went to press the New York State legislature passed Real Property Law Section 235-h to overturn the 159 MP Corp. v. Redbridge Bedford, LLC decision. Commercial lease clauses that purport to waive a tenant’s right to seek a declaratory judgment are against public policy and are no longer enforceable. 

Among the numerous legal developments affecting New York’s real estate industry during 2019, the industry-rocking changes to the rent stabilization rules and several other notable developments stand out: 

“Yellowstone” Injunctions. New York’s highest court upheld a lease clause containing a waiver of the tenant’s ability to obtain a so-called Yellowstone Injunction. The injunction (named after the case that created the right) permits the tenant to toll a lease cure period so that it may litigate an alleged non-monetary lease default.  Three out of seven of the judges joined an extensive dissent which says that public policy should protect tenants. In this tenant friendly political environment, you should expect to see movement to overturn the decision by legislation.  But in the meantime, tenants should review proposed leases to make sure the tenant does not waive the right. (159 MP Corp. v. Redbridge Bedford, LLC)

Zombie Residences. The New York state legislature passed a statute requiring mortgagees holding the first lien on one-to-four family residential properties to maintain the property when the mortgagee has a reasonable basis to believe that the property is “vacant and abandoned.” (RPAPL Section 1308)

Mitigation of Residential Lease Damages. In 1995, New York’s highest court held that landlords had no duty to attempt to mitigate damages when a commercial tenant vacates a space before the lease term is up.  Over the years, some lower courts applied the same rule to residential leases.  This year, the New York legislature overturned these residential decisions — it is now the rule by statute that a landlord must take “reasonable and customary actions” to rent a vacated residential property at the lower of fair market value or the rent in the abandoned lease. (RPL Section 227-e)

Security Deposits. Security deposits or other advance rent for residential properties is now limited by statute to one month.  In addition to the typical situation to which it was addressed, the statute is also causing concern for co-op boards who like to take big escrows for co-op buyers with limited financial wherewithal and for seasonal homeowners who would always get summer rent paid in full in advance.  Expect further statutory clarifications.

Rent Stabilization. Numerous very serious changes were made to the state’s rent stabilization statute, including the ending of vacancy decontrol and high-income deregulation.  The legislature included several other changes including caps on late fees and application fees. Several lawsuits have been started to overturn the changes. 

Thomas Kearns is a partner with Olshan Frome Wolosky LLP’s real estate department, New York, N.Y.