TENANT OR LICENSEE?

Are food vendors in malls tenants?

SHACK COLLECTIVE INC. v. DEKALB MKT. HALL, LLC, 2020 NY Slip Op 51156 - NY: City Court, Civil Court October 2, 2020:

"In March of 2016, the parties entered into a license agreement ("Agreement") for the use of three commercial spaces within Respondent's DeKalb Market Hall ("Market"). The Market is an open food hall with multiple vendors selling many varieties of food to the public. It is without any doors or walls between stations. In the petition, Petitioner describes the Market as a collection of more than thirty local and regional outposts. Petitioner occupied three of these vending spaces in the Market by its Agreement with Respondent. Among the provisions in the executed Agreement is that Petitioner maintain a Restaurant Letter A grade by the New York City Health Department (Resp. 2 Exh. A). In relevant part, paragraph 7 of the Agreement states:

"Licensee shall at all times during the License Term maintain at the Licensed Area a Restaurant Letter Grading grade of "A". For purposes of this Agreement, "Restaurant Letter Grading" shall mean the letter grade issued by the New York City Department of Health checking for compliance in, among other things, food handling food temperature, personal hygiene and vermin control" (Resp. 2 Exh. A pg. 2).

The Agreement also states in relevant part,

"if (i) Licensee fail to comply with any obligations imposed upon Licensee hereunder, or (iv) in the event of a change in the quality or caliber of the operation of Licensee's business in the Licensed Area, then and in any such event Licensor will have the right, after seven (7) business days' written notice to Licensee (and, in the case of any noncompliance pursuant to clause (i), above, if Licensee fails to remedy same within such seven (7) business day period (or, if such non compliance cannot be remedied within such seven (7) business day period) to terminate this Agreement on the date specified by Licensor in such notice as if such date were the date herein fixed for the expiration of the License Term, and Licensee will immediately quit and surrender the Licensed Area as required hereby" (Resp. 2 Exh. A pg. 8-9, ¶18).

In September of 2019, The New York City Department of Health issued a Restaurant Letter C Grade to Petitioner's spaces (Resp. 2 Exh. F). In October of 2019, the Department of Health issued second Restaurant Letter C Grade to Petitioner's spaces (id.). Among the numerous violations that that contributed to each of the Petitioner's "C" grade were "filth flies or food/refuse/sewage associated (FRSA) flies present in facility's food and/or non-food areas", "hot food item not held at or above 140øF", "live roaches present in facility's food and/or non-food areas", and "facility not vermin proof, harborage or conditions conducive to attracting vermin to the premises and/or allowing vermin to exist (id.).

On or about March 4, 2020, Respondent sent Petitioner a Notice of Termination based upon the failure to maintain a Letter A grade and cited to the violations issued by the Health Department, emphasizing among other issues, the sanitary violation of "filth flies or food/refuse/sewage-associated flies present in the facility's food and/or non-food areas" (Resp. 2 Exh. B).

As a result of the Notice of Termination, on March 12, 2020, Petitioner commenced an action for a declaratory judgment and sought a Yellowstone injunction in Kings County Supreme Court.^[1] In the application for a Yellowstone, the petitioner sought to toll the cure period and the termination of the license agreement between the parties and sought to enjoin any acts interfering with Petitioner's quiet enjoyment of the spaces (Pet. Aff. 1). Petitioner also sought damages from Respondent's alleged breach of implied covenant of good faith and fair dealing, as well as, a declaratory judgment that Petitioner was not in default under the terms of the Agreement. It is noted that Petitioner refers to the agreement as a "License" all throughout the Supreme Court Complaint.^[2]

On March 13, 2020, the Supreme Court granted a TRO pending the outcome of the application for the Yellowstone Injunction (Pet. Aff. 1). In a Decision and Order dated July 6, 2020, issued by Judge Ruchelsman, the Yellowstone Injunction was denied (Resp. 2 Exh. C). Judge Ruchelsman noted that even if the Agreement was a lease, Petitioner could not succeed in obtaining an injunction as they had not presented any basis for why the termination clause of the Agreement should not be enforced as written (id). The Decision further provided that that without the ability to cure, Petitioner could not succeed in obtaining an injunctive relief (id).

On the instant emergency Order to Show Cause, the parties appeared before the undersigned on September 25, 2020, via Skype, and fully argued their positions. Petitioner claims that the Agreement between the parties is a lease and that they were illegally locked out of possession. Petitioner states that on July 16, 2020 Respondent shut off their gas and electric services causing their stored food to spoil. On the following day, July 17, 2020, Petitioner was confronted by Respondent's representatives who informed them that the Agreement was terminated and proceeded to remove equipment. Petitioner claims that several pieces of their equipment were damaged, including "scratching and banging" countertops and other fixtures (Pet. 1 Sanz Aff.). Petitioner called the police but the police proceeded to escort Petitioner out of the premises (id). Petitioner claims that the Respondent wrongfully resorted to self-help in removing Petitioner from possession of the premises and circumvented the filing of a Petition and service of a Notice of Eviction. They are silent as to the Department of Health's Letter Grade C violations. They merely argue that the quality and caliber of its food has not changed. They further claim that the Respondent acted in contravention of the Governor's Moratorium on evictions in effect during the COVID-19 pandemic.

Respondent argues that Petitioner is a licensee and, as such, may not benefit from the provision of RPAPL § 713(10). They argue that the Agreement executed by the parties requires that the petitioner maintain a Restaurant Grade A rating by the New York City Department of Health. They note that Petitioner does not contest that they received a C grade on September of 2019 and again on October of 2019. Respondent maintains that under the Agreement they, as Licensor, have the right to terminate the Agreement after seven business days written notice of such non-compliance and, upon such notice, Petitioner, as the licensee, must quit and surrender the licensed area.

A threshold issue is whether the Governor's moratorium on commercial evictions precludes Respondent's action vis a vis the Petitioner. Executive Order 202.64, issued on September 18, 2020 which is presently in effect, states in relevant part:

"The directive contained in Executive Order 202.48, which modified the directive in Executive Order in 202.28 that prohibited the initiation of a proceeding or enforcement of an eviction of any commercial tenant for nonpayment of rent or a foreclosure of any commercial mortgage for nonpayment of such mortgage is continued through October 20, 2020" (emphasis added).

As it may pertain herein, and as referred to by the Order 202.64, Executive Order 202.48 (issued July 6, 2020) states:

"The directive contained in Executive Order 202.28, as extended, that prohibited initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, is continued only insofar as it applies to a commercial tenant or commercial mortgagor" (emphasis added).

The moratorium's references to "nonpayment" of rent or mortgage clearly establishes that its purpose was to protect individuals experiencing financial hardship as a result of the COVID-19 pandemic. Here, the issue is not based on non-payment. Accordingly, the Governor's moratorium does not apply.

RPAPL §713(10) provides that a special proceeding may be maintained where

"The person in possession has entered the property or remains in possession by force or unlawful means and he or his predecessor in interest was not in quiet possession for the years before the time of the forcible or unlawful entry or detainer and the petitioner was peaceably in actual possession at the time of the forcible or unlawful entry or in constructive possession at the time of the forcible or unlawful detainer"

It is well established that a document is a lease "if it grants not merely a revocable right to be exercised over the grantor's land without possessing any interest therein but the exclusive right to use and occupy that land" (Miller v. City of New York, 15 NY2d 34, 38 [1964]). "It is the conveyance of `absolute control and possession of property at an agreed rental which differentiates a lease from other arrangements dealing with property rights'" (Feder v. Caliguira, 8 NY2d 400, 404, [1960]). "A license, on the other hand, is a revocable privilege given `to one, without interest in the lands of another, to do one or more acts of a temporary nature upon such lands'" (Union Square Park Community Coalition, Inc. v. New York City Dept. of Parks and Recreation, 22 NY3d 648, 656 [2014]).

Generally, contracts permitting a party to render services within an enterprise conducted on premises owned or operated by another, who has supervisory power over the method of rendition of the services, are construed to be licenses. That a writing refers to itself as a license or lease is not determinative; rather, the true nature of the transaction must be gleaned from the rights and obligations set forth therein. Finally, a broad termination clause reserving to the grantor "the right to cancel whenever it decides in good faith to do so" is strongly indicative of a license as opposed to a lease. (Union Square Park Community Coalition, Inc. v. New York City Dept. of Parks and Recreation, 22 NY3d 648 at 656 quoting Miller v. City of New York, 15 NY2d at 38.) A license connotes use or occupancy of the grantor's premises, a lease grants exclusive possession of designated space to a tenant, subject to rights specifically reserved by the lessor (American Jewish Theatre v. Roundabout Theatre Co., 203 AD2d 155, 156 [1st Dept. 1994]; Prospect Owners Corp. v. Sandmeyer, 62 AD3d 601 [1st Dept. 2009].

"While it is true that tenants as defined in RPAPL 711 may be evicted only through lawful procedure, others, such as licensees and squatters, who are covered by RPAPL 713 are not so protected" (P & A Bros. v. City of NY Dept. of Parks & Recreation, 184 AD2d 267, 268 [1st Dept. 1992]; see, Morillo v. City of New York, 178 AD2d 7, [1st Dept. 1992]). RPAPL §713 merely permits a special proceeding as an additional means of effectuating the removal of non-tenants, but it does not replace an owner's common-law right to oust an interloper without legal process (see, Bliss v. Johnson, 73 NY 529 [1878]; P & A Bros. v. City of NY Dept. of Parks & Recreation, 184 AD2d 267). Indeed, "(s)ince a licensee does not have "possession," he cannot maintain an unlawful entry and detainer proceeding (Andrews v. Acacia Network, 59 Misc 3d 10, 12, [App. Term, 2d Dept. 2d, 11th & 13th Jud. Dists. 2018] [internal citations omitted]; RPAPL 713 [10]). A mere licensee is subject to an owner's common-law right to oust them without legal process (see Coppa v. LaSpina, 41 AD3d 756 [2d Dept 2007]; Visken v. Oriole Realty Corp., 305 AD2d 493, 494 [2d Dept. 2003]; Starr v. Akdeniz, 162 AD3d 948 [2d Dept. 2018]). A mere licensee cannot maintain an RPAPL 713(10) application (see; Brown v. 165 Conover Assoc., 5 Misc 3d 128[A] [App. Term, 2d Dept., 2d & 11th Jud. Dists 2004]; P & A Bros. v. City of NY Dept. of Parks & Recreation, 184 AD2d 267; World Evangelization Church v. Devoe Street Baptist Church, 27 Misc 3d 141[A] [App.Term, 2d Dept. 2d, 11th & 13th Jud. Dists. 2010]).

In determining that the agreement between the parties was a license, the Appellate Term in East Ramapo Cent. School Dist. v. Mosdos Chofetz Chaim, Inc., noted the short-term duration of the agreement, the limitations on the premises' use, the agreements' non-assignability, and the rights of licensor to enter at any time without notice, and to revoke the permits without notice in the event occupant failed to comply with any of its terms (East Ramapo Cent. School Dist. v. Mosdos Chofetz Chaim, Inc., 52 Misc 3d 49 [App. Term. 2d Dept., 9th & 10th Jud. Dists. [2016]).

After argument and review of the submissions of the parties in this matter, the court finds that Petitioner is a licensee, not a tenant, and that it was bound by the terms of the Agreement. The wording substantially supports Respondent's control and authority to dictate the terms of all business operations. The Agreement dictated which days of the week and hours of the day the spaces were to open and operate. The Agreement prohibited "going out of business sales", fire or bankruptcy sales or auction by the licensee food vendor. It also prohibited assignment to "chain" food outlets. The Agreement reserved the Market's right to engage in construction/building activities throughout the building which may limit the licensee's use and enjoyment of the building. It required Petitioner—licensee to install a grease trap and the installation of a low temperature dishwasher. As mentioned previously, the Agreement reserved the right of the Respondent—Market to terminate the Agreement after seven days-notice upon a breach of any of its provisions. The Agreement also limited the Petitioner's access to other areas of the Market and that such permission to access would be subject to the Market's approval. Petitioner merely had use of the designated spaces and was subject to the Market's management directives for openings and closings. The Petitioner himself acknowledges the Market's control over the premises. He averred that, in particular during the COVID-19 shutdown in New York City, their food service activities, openings and closings were guided by the Market's management (Pet. 1 Sanz Aff.).

It is well settled that an agreement's characterization is not determinative of the nature of the transaction; "rather, the true nature of the transaction must be gleaned from the rights and obligations set forth therein" (Union Sq. Park Community Coalition, Inc. v. New York City Dept. of Parks & Recreation, 22 NY3d 648 at 656; see American Jewish Theatre, Inc. v. Roundabout Theatre Co., Inc., 203 AD2d 155, 156). It is also noted that throughout Petitioner's previous filings in Supreme Court arising out of this Agreement, Petitioner has consistently referred to the Agreement as a "License Agreement." However, in this Civil Court matter, Petitioner argues that the Agreement is a lease. Yet, the nature, interests and obligations set forth in the Agreement evidences that it is a license and not a lease. As a licensee, Petitioner may not invoke the use of RPAPL §713(10) and the common-law remedy of self-help can be used peacefully against Petitioner as a non-tenant (Almonte v City of New York, 166 Misc 2d 377 [App Term 2d Dept. 1995]).

Even if Petitioner could be deemed a tenant, it could not affect the court's denial of this application. In 110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, the Appellate Division held that "the law permits a commercial landlord to reserve its common-law right to peaceably re-enter commercial premises upon termination of the lease, but only if the reentry can be effected peaceably. Forcible entries are not permissible" (110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, 265 AD2d 415 [2d Dept.1999] [internal citations omitted]). Again, in Martinez v. Ulloa, the Appellate Term reiterated that "`it is well established that a landlord may, under certain circumstances, utilize self-help to regain possession of demised commercial premises' (Sol De Ibiza, LLC v. Panjo Realty, Inc., 29 Misc 3d 72, 75 [App Term, 1st Dept 2010]; see Bozewicz v. Nash Metalware Co., 284 AD2d 288 [2001]; Matter of 110-45 Queens Blvd. Garage v Park Briar Owners, 265 AD2d 415; Matter of Jovana Spaghetti House v Heritage Co. of Massena, 189 AD2d 1041 [1993]; see also Matter of Ga Young Lee v Charl-Ho Park, 16 AD3d 986 [2005]; North Main St. Bagel Corp. v. Duncan, 6 AD3d 590 [2004]; 2 Dolan, Rasch's Landlord and Tenant—Summary Proceedings §§ 29:1, 29:11 [4th ed])" (Martinez v. Ulloa, 50 Misc 3d 45, 47 [App. Term 2d Dept., 2nd, 11th & 13th Jud. Dists. 2015]). The Appellate Term further noted that the provisions of the lease reserved the landlord's right to reenter and regain possession of the premises upon a breach of a condition of the lease, provided that landlord serve a five-day notice to cure and a three-day notice of termination (Martinez v. Ulloa, 50 Misc 3d 45). The Appellate Term found that the tenants' pleadings failed to state that the tenants were not in breach of a condition of the lease, that the that landlord had not complied with the lease provisions requiring notice, or that reentry by landlord was not accomplished peaceably (Martinez v. Ulloa, 50 Misc 3d 45).

Additionally, in both the commercial and residential context, a petitioner in an RPAPL 713(10) proceeding should not be awarded possession if it would be "futile" to do so (Cordova v. 1217 Bedford Realty LLC, 67 Misc 3d 1206[A] [Civ. Ct. Kings Cty. 2020] citing 110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, 265 AD2d 415]; see Bernstein v. Rozenbaum, 867 N.Y.S.2d 372 [App. Term. 2d Dept. 2d & 11th Jud. Dists 2008]). In 110-45 Queens Blvd, the Second Department found that it was clear from the record that restoring the petitioner to possession would be futile, because the appellants would prevail in a summary proceeding to evict the petitioner (110-45 Queens Blvd. Garage, Inc. v. Park Briar Owners, 265 AD2d 415). Similarly, in Corbo v. West Side Travel, the Appellate Term held that even if the tenant had shown sufficient grounds for relief, restoration would be inappropriate because it would be futile Corbo v. West Side Travel, 20 Misc 3d 126 [A] [App. Term 2d Dept., 2d & 11th Jud. Dists. 2008]). In that case, the tenant faced impending eviction as the landlord intended to terminate tenant's month-to-month tenancy and had served a termination notice on tenant (id.).

Here, Respondent reserved their right to terminate the Agreement and take possession of the premises as a consequence of a breach. The executed agreement provides for termination of the use of the premises based upon the Petitioner's breach of any of its obligation after seven days' written notice of termination to the Petitioner (Resp. 2 Exh. A). Petitioner does not contest the issuance of a Restaurant Grade C grade or its violations. No evidence has been submitted that the Letter C grade has been changed by the Health Dept. Indeed, respondent submitted a recent report from the New York City Department of Health website showing that the C grade is still in effect (Resp. 2 Exh. F). It bears noting that the Restaurant C grade has been in effect since September 2019, months prior to the COVID-19 shutdown of New York City. There is no showing that in the months prior to the shutdown petitioner either, at the very least, improved the Health Department grading or brought it up to an "A" as was required by the Agreement.

There is no question that Petitioner received seven days written notice of termination; in fact, the notice was served on March 4, 2020, over six months ago. Additionally, the Agreement reserved Respondents' rights to terminate the arrangement. Lastly, although Petitioner avers that the police were called when the gas and electric services were cut off, there is no evidence that the ouster was forcible. In fact, this occurred on July 16, 2020 after Petitioner's Yellowstone Injunction was denied in the July 6, 2020 Decision and Order. Based upon the aforementioned, it is futile to restore Petitioner to the spaces at the Market.

Lastly, as Petitioner's ouster was lawful, they cannot prevail on a RPAPL §853 claim. RPAPL 853 provides:

"If a person is disseized, ejected, or put out of real property in a forcible or unlawful manner, or, after he has been put out, is held and kept out by force or by putting him in fear of personal violence or by unlawful means, he is entitled to recover treble damages in an action therefor against the wrong-doer."

"If a person is ejected in an unlawful manner, "he is entitled to recover treble damages in an action therefor against the wrong-doer" (Lyke v. Anderson, 147 AD2d 18, 26 [2d Dept. 1989]). As Respondent's action were not illegal or constitute a wrongful eviction, Petitioner is not entitled to treble damages pursuant to RPAPL §853 (Salem v. U.S. Bank N.A., 82 AD3d 865 [2d Dept. 2011]; see generally Video Voice, Inc. v. Local T.V., Inc. Eyeglasses, 156 AD3d 848 [2d Dept. 2017]).

Accordingly, the application is Denied and the Petition is Dismissed.

This constitutes the decision and order of this court.

[1] Kings County Supreme Court Index No. 506326/20

[2] In the first paragraph of the Complaint, Petitioner states, "The Shack Collective holds highly valuable long-term licenses from Dekalb Market to operate three separate vendors at the DeKalb Market Hall (the "Market" or "Licensor"), located in the City Point development in downtown Brooklyn." The Complaint also referred to a Reformation action that Petitioner commenced in Kings County Supreme Court on April 29, 2019, in which they sought they sought a reformation of the licenses between them and the Respondent."