LANDLORDS AND SECONDHAND SMOKE COMPLAINTS: THE APPELLATE DIVISION CLEARS THE AIR By Joseph Rapice and Arthur P. Xanthos This Firm recently won a successful appeal concerning whether a co-op has an obligation to guarantee an odor free apartment for a shareholder. The appellate decision, Reinhard v. Connaught Tower Corporation, is available on this website under Publications. Shareholder-tenant Susan Reinhard sued her co-op, the Connaught Tower Corporation, alleging that a cigarette smoke odor condition rendered her apartment uninhabitable for nine years, thereby forcing her to live in another premises. Prior to trial, plaintiff had made a settlement demand of $600,000.00, essentially making settlement impossible and forcing a trial. At a three-day non-jury trial, plaintiff testified that she, her family, and a close family friend smelled cigarette smoke in the apartment on a handful of occasions over a nine year period, although the source of the odor was never identified. Plaintiff also proffered the testimony of an expert industrial hygienist, who testified that air passageways existed behind the walls in plaintiff’s apartment, implying that offensive odors could have been entering the apartment via those passageways. The industrial hygienist also testified that he too smelled a smoke odor in the apartment during his inspections. In defense, we noted at trial that plaintiff’s expert, although he could have done so, failed to do a nicotine test. We pointed out as well via cross-examination that such tests are inexpensive and easy to do. We further demonstrated that without such objective testing and data, plaintiff could show no threshold amounts of any toxin (i.e.,secondhand smoke) in the apartment. Essentially, we proved that the only objective evidence presented by plaintiff was that yielded by her nose – she smelled something she did not like. At trial we also introduced other critical facts: plaintiff was a full time resident of Connecticut, never actually inhabited her apartment, and instead desired to use the apartment as a Manhattan pied a terre. Despite these facts, the trial court ruled that the co-op had breached the proprietary lease and the statutory warranty of habitability, thereby constructively evicting Plaintiff. The trial court awarded plaintiff a full return of nine years of maintenance payments in an amount of $120,000.00, and an award of attorneys fees. In so ruling, the trial court found that “significant cigarette smoke permeates and pollutes the apartment,” that the apartment was “infiltrated by secondhand smoke”, and that the apartment was “smoke-polluted.” We appealed that decision. On May 4, 2017, the Appellate Division First Department unanimously reversed the trial court’s decision, dismissed plaintiff’s complaint in its entirety, and awarded attorneys’ fees to our client – the co-op. The appellate court held that the evidence failed to show that the subjective odor of cigarettes on a few occasions over nine years rendered plaintiff’s apartment uninhabitable. Critically, the appellate court reasoned that plaintiff failed to show that the alleged odor was present on a consistent basis and that it was sufficiently pervasive as to affect the health and safety of the occupants. (The Court also noted that plaintiff lived in Connecticut and only intended to stay in the apartment occasionally.) The Reinharddecision marks a significant victory for building owners, cooperatives, and condominium boards, as well as for their insurers. The trial court’s ruling had temporarily opened a Pandora’s Box with regard to habitability claims, as it seemed to imply that a tenant need only claim a subjective odor to recover a full rent abatement. (Indeed, this Firm had seen an uptick in smoke odor cases following that decision.) The Appellate Division First Department’s decision, however, reaffirmed two rules: (i) that a plaintiff-tenant must present objective evidence of the presence of a toxin, a threshold level of it, and proof of a causal connection to health and safety of an occupant; and (ii) that a claim based upon the habitability of an apartment dwelling requires proof that the plaintiff occupied the dwelling. Arthur Xanthos
, attorneys fees
, co-op and condo
, Joseph Rapice
, premises liability
, proprietary lease
, secondhand smoke
, toxic tort
, warranty of habitability
The Legal Fees Sword, by Arthur Xanthos Permalink
Many proprietary leases between a Co-op and a shareholder-tenant contain a boilerplate legal fees provision, obligating the shareholder-tenant to pay reasonable attorneys fees if the Co-op has to sue to enforce a provision of the lease. Because most lawsuits between Co-ops and shareholders are relatively quick summary proceedings in landlord-tenant court, the attorneys fees in question tend to be modest.
Sounds great, right? Except that sometimes it’s the shareholder-tenant who sues the Co-op (e.g., on a claim that the Co-op has breached the warranty of habitability), and by operation of the Real Property Law it is the shareholder-tenant who will be owed the reasonable attorneys fees if he or she prevails. These shareholder initiated lawsuits usually are plenary actions in Supreme Court, take years to litigate, and the attorneys fees in question can be substantial. Our Firm's experience is that most Co-ops are willing to take that risk; thus, the boilerplate legal fees provision remains, well, boilerplate in most proprietary leases.
We believe however that serious consideration should be given to removal or modification of the legal fees provision in proprietary leases. Here is why. Assume a shareholder-tenant’s apartment is flooded due to a burst pipe from inside a wall. For whatever reason (inattentive Board, inexperienced managing agent), the apartment is not repaired for several months, and the shareholder-tenant relocates to a hotel. Disillusioned with the slow pace of repair, the shareholder-tenant repairs the apartment herself and sues the Co-op in Supreme Court for out-of-pocket expenses (the hotel bills, dry cleaning cost), the cost of repair (putting up new walls and ceiling), the damage to her personal property (furniture, artwork), a refund of maintenance payments for the period in question, and attorneys fees under the proprietary lease. The shareholder-tenant's lawsuit is based, in part, on the allegation that the Co-op breached the proprietary lease. If the shareholder-tenant prevails on her claim, she is likely entitled to attorneys fees, and the amount will be far more than the typical amount generated in the usual summary proceeding. That is because a fully litigated plenary action almost always generates significantly more legal fees than a summary proceeding generates. Worse for the Co-op, the award of attorneys fees to the shareholder-tenant (and for that matter, any award refunding maintenance payments) is almost never covered by the Co-op’s general liability insurance policy. Thus, a Co-op that has the boilerplate legal fees provisions in its proprietary lease and loses such a case will, (a) have to pay with out-of-pocket, non-insurance dollars, and (b) have to explain to its shareholders the reason for the hit to the Co-op's finances.
With no attorneys fees provision in the proprietary lease, the Co-op never faces this scenario; but must a Co-op forgo entirely the right to collect attorneys fees in all cases involving shareholder-tenants? Maybe not. Consider this: a proprietary lease that allows recovery of legal fees but only up to a specified dollar amount, say $15,000.00. In the majority of non-payment proceedings against shareholder-tenants, the Co-op will in most instances be made whole, as the legal fees generated will not exceed the specified dollar amount (i.e., $15,000.00). On the other hand, the maximum exposure the Co-op would face in Supreme Court if a shareholder-tenant prevailed would similarly be limited to $15,000.00, and most likely result in a “savings” of tens of thousands of dollars. In this light, a modified attorneys fees provision can be considered an additional insurance policy for the Co-op. We are unaware of any reported case addressing the validity of such a modified attorneys fees provision, but there is no good reason why a well-drafted limited attorneys fees provision wouldn’t be enforced in accordance with ordinary contract principles.