Pa Landlord Common Electrical Outlet Law - DOC

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					 Property II Outline
Professor Di Lorenzo
   Michael Ertel
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I. Protection for the T

A. The LL‘s Duties

  (1) The LL‘s Duty to Deliver Possession.
     (A) American Rule (Minority Rule, NY)
     (B) English Rule Jurisdiction (Majority Rule)
     (C) NY is Actually a Hybrid
     (D) Restatement 2nd §6.2

  (2) The LL‘s Duty to Deliver Fit Premises (Fit for Use)
     (A) General Rule (No covenant of Fitness.)
     (B) 2 Exceptions to the General Rule
         (1) Short-Term Lease of a Furnished Space
         (2) Building Under Construction

  (3) The LL‘s Duty to Protect the T During the Term (AKA The
  Covenant of Quiet Enjoyment)
     (A) General Rule (Quiet Enjoyment is Implied into Every Lease.)
     (B) 3 Requirements to Prove a Breach of Quiet Enjoyment
         (1) Wrongful act by the LL
         (2) T was disturbed
         (3) Disturbance was so bad, T had to vacate
     (C) 4 Types of Evictions

  (4) The LL‘s Duty to Deliver a Habitable Premises (AKA Warranty of
  Habitability)
     (A) C/L Rule
     (B) Statutory Rule
     (C) 3 Standards by which to measure breach
         (1) Javins Test
         (2) Pines Test
         (3) Essential Functions Test.
     (D) NY Statute for Warranty of habitability

 (5) The LL‘s Duty to Relet the Premises when the T Abandons.
     (A) Old C/L Rule
     (B) New C/L Rule
     (C) NY Rule




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B. The Tenant‘s Remedies
 (1) The T‘s Rights to Damages
    (A) 2 Requirements for ―Compensible Loss‖

 (2) The T‘s Right to Rent Abatement
    (A) General Rule
    (B) 5 Possible Formulas to tell how much Rent to Abate
    (C) NY Rule

 (3) The T‘s Right to be Released from Obligations Under the Lease
    (A) Frustration of Purpose
    (B) Destruction of the Premises

 (4) The T‘s Right to Termination

 (5) The T‘s Right to Rent Application

 (6) The T‘s Right to Rent Withholding

 (7) The T‘s Right to an Action in Ejectment

 (8) The T‘s Right to an Action in Rent

C. Review Questions

D. Discussion Problem A




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II. Protection for the LL
A. The T‘s Duties
(1) The T‘s Duty to Vacate
(2) The T‘s Duty not to Disturb Other Tenants
(3) The T‘s Duty to Repair
    (A) C/L Rule
    (B) NY Rule
(4) The T‘s Duty to Avoid Waste
    (A) General Rule
    (B) Alterations
    (C) C/L Affirmative Defenses to Changed Conditions
    (D) NY Statutory Defenses to Change Conditions.
(5) Hypos for T‘s Duties

B. The LL‘s Remedies
 (1) The LL‘s Right to Collect a Security Deposit
    (A) C/L Rule
    (B) NY Rule
 (2) The LL‘s Right to get Rent Acceleration
    (A) C/L Rule
    (B) 4 C/L Affirmative Defenses that Allow a T to Avoid Rent Acceleration
    (C) NY Codification of the Defense of Unconscionability
 (3) The LL‘s Right to Forfeiture
    (A) C/L Rule
    (B) 4 Affirmative Defenses that Allow a T to Avoid Forfeiture
 (4) The LL‘s Right to Self Help
    (A) C/L Rule
    (B) NY Rule
 (5) NY Statutory Rights of the LL
    (A) Article 6: Ejectment Action
    (B) Article 7-11(1): Holdover Proceedings
    (C) Article 7-11(2): Non-Payment Proceedings
    (D) Big Hypo
 (6) The LL‘s Rights When T Abandons the Premises
 (7) The LL‘s Rights When the T Holds Over
    (A) C/L Rule
    (B) NY Rule




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III. Assignments and Subletting
(A) Background
    (1) General Rule
    (2) Exception to the General Rule
    (3) When Parties DO Agree Otherwise
    (4) NY Rule
      (A) Assignment
      (B) Sublease

(B) Assignment
    (1) 3 Kinds of Assignments
    (2) Privity of K
    (3) Privity of Estate
      (A) Covenants that run with the land
    (4) Rule in Spencer‘s Case

(C) Sublease

(D) Review Questions

(E) Discussion Problem B




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IV. Conveyance of Real Estate

(1) Brokerage Agreements and Brokerage Commission
   (A) Exclusive Sales Agency
   (B) Exclusive Agency
   (C) LISTING AGENCY
      (1) Requirements for a Listing Agency to get Commission
          (1) Licensing
          (2) Principle Agency
          (3) All Conditions must be Satisfied

(2) The K of Sale

(A) Marketable Title
   (A) Agreements to the Contrary
   (B) NY Rule
   (C) Breach of Marketable Title

(B) Risk of Loss
    (A) C/L Rule
    (B) NY Rule
    (B-1) Material v. Non-Material
    (C) Who Gets the Rights to the Insurance Proceeds?

(C) Condition of the Property

(D) Remedies
   (1) Damages
   (2) Right to Terminate K
   (3) Specific Performance
   (4) Seller‘s Rights to Keep the Down Payment




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(3) The Deed

(A) Statute of Frauds
   (1) The Statute Itself
   (2) The Writing Necessary to Fulfil the Statute of Frauds
       (1)   Subscribe
       (2)   Parties
       (3)   Subject Matter
       (4)   Consideration
       (5)   All Other Essential Terms
   (3) Exception to When the Essential Terms Must be in Writing

(B) The Deed Itself
    (1) Requirements for an Effective Deed
       (A) Proper Instrument of Transfer
       (B) Deed Must be Accepted
       (C) Deed Must be Delivered

(C) Conditional Transfers
    (1) Donative Transfers
    (2) Non-Donative Transfers

(D) Warranties
    (1) General Warranty Deed
           3 Present Covenants
           (1) Covenant of Seizin
           (2) Right to Convey
           (3) Covenant of Encumbrances
           3 Future Covenants
           (4) Warranty
           (5) Quiet Enjoyment
           (6) Further Assurance
    (2) Special Warranty Deed
    (3) Quit Claim Deed
    (4) Covenant of Seizin
    (5) Covenant Against Encumbrances
    (6) For Present Covenants, Who is a Proper P?




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(4) After the Deed

(A) Recording Statutes
   (A) Three Kinds of Recording Statutes
       (1)   Race Recording Statute
       (2)   Notice Recording Statute
       (3)   Race-Notice Recording Statute
       (4)   C/L Rule
   (B) Three Kinds of Notice
       (1) Actual Notice
       (2) Inquiry Notice
       (3) Constructive Notice
   (C) Who is a Purchaser under the Recording Statutes?

(B) Restrictive Covenants
   (1) To Put a Burden on a Future Homeowner
      (1)    Intention
      (2)    Notice
      (3)    Touch and Concern
      (4)    Privity
             (a) Horizontal Privity
             (b) Vertical Privity
   (2) Requirements to Allow a 3rd Party to Enforce the Burden
      (1) Intention
      (2) Touch and Concern
      (3) Vertical Privity
   (3) Ways to End Restrictions

(C) Easements
     (1) Easement by Express Agreement
     (2) Easement by Implication
     (3) Easement by Necessity
     (4) Easement by Prescription




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Estate for Years:
(a) A fixed commencement and expiration date.
(b) Once expiration date comes, there is automatic termination.

Estate from Year to Year: (month to month)
(a) There is a commencement date, and then a period of time for which you are
    guaranteed living.
(b) Then there are successive automatic renewals.
(c) Rights do not come to an end unless either party terminates the lease.

Estate at Will:
(a) There is a fixed commencement date but no fixed expiration date or guaranteed
    period of time.
(b) It never ends, but either party can terminate at will any time.



A lease transaction is both a K and a Property transaction.
K transaction because it is an agreement to rights and obligations.
Property transaction because there is a right to possession.




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I. Protection For the Tenant
A. Landlords Duties

(1) The LL‘s Duty to Deliver Possession
 Possession is only for Day 1, if after Day 1 then use Quiet Enjoyment.

(A) American Rule Jurisdiction: (Minority, NY) [Commercial/Residential]
   (i)     In NY, you need only deliver the legal right of possession. (AKA legal title)
   (ii)    The lease is primarily thought of as a property transaction.
   (iii)   This deals only w/ LL obligations, nothing to do with tenant/Holdover
           obligations.

Teitelbaum v Direct Realty Co. (American Rule Jurisdiction): P made lease with LL.
There was a hold-over (said had an oral agreement w/ the LL to allow him to stay etc.)
LL did what he could to get the holdover out. In court the P is trying to get out of his
lease. P loses for two reasons:
(1) In NY there is only the duty to deliver legal possession.
(2) The court thinks that the P just wanted to get out of the high rent he agreed to.
Also a lease is under the statute of frauds so no oral agreement is acceptable.
Was there a duty here? NO. The owner has the legal right to alienate his own perpetual
ownership rights; he carved out a portion and validly conveyed his legal rights to the
tenant (T2). Now the tenant must get possession for himself, á la American Rule.

Policy behind why NY wants only the legal right of possession transferred:
Tenant is free to protect himself; the law need not/will not protect them.
Caveat Emptor
The tenant can:
       (a) Bring an action in ejectment.
       (b) Sue the Holdover for damages.
       (c) Force the LL to deliver actual possession by the terms of the K.

(B) English Rule Jurisdiction: (Majority)
   (i)     Duty to deliver possession meant the obligation to deliver actual possession.
   (ii)    The lease is primarily though of as a contract transaction. (K law asks what
           the parties expected; i.e., actual possession.)
   (iii)   This deals only w/ LL obligations, nothing to do with tenant/Holdover
           obligations.
   (iv)    2/3 of the states follow the English Rule.




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(C) NY is actually a Hybrid:
NYRPL §233(a): This statute applies only when seeking rescission. If seeking damages
or rent abatement then use C/L American Rule.
(1) For rescission, use English Rule, there must be no actual delivery of possession to
    get recovery. [Legislative history; don‟t want to hold the lessor liable for damages
    due to a 3rd party, but lessee should be able to rescind and get full money back.]
(2) For damages or rent abatement, use American Rule, there must be no delivery of
    legal title/legal right of possession in order to recover.

(D) Restatement 2nd §6.2: The duty of the LL to deliver possession. (English Rule)

((Ҥ6.2 Third person improperly in possession of leased property on date tenant entitled
of possession.
There is a breach of the LL‘s obligations (unless the parties agreed otherwise) if:
(1) A 3rd person is improperly in possession of the leased property on the date the tenant is
    entitled to possession, and
(2) The LL does not act promptly to remove the person, and
(3) The LL does not in fact remove him within a reasonable period of time.
        There are 2 standards for a reasonable period of time:
        (a) Decided on case by case basis depending on T‟s intended use.
        (b) For damages, must be the speediest available remedy under local law. If LL does
             this, he cannot be held for damages.

For that breach the tenant may:
       (1) Terminate the lease and recover damages [this all depends on the reasonable time
           in each situation including the tenant‟s intended use]; or
       (2) Affirm the lease and obtain equitable legal relief including:
           (a) Recovery of Damages
           (b) Rent abatement
           (c) The use of rent to cover costs of eliminating the possession of the 3rd person
           (d) Withholding rent

During the period of time following the date the tenant is entitled and before the time the LL is in
default, the tenant is entitled to appropriate relief from his obligations under the lease and is
entitled to recover from the 3rd person damages sustained by him during that period. Before or
after the landlord‟s default the tenant may recover the possession of the leased property from the
3rd person improperly in possession.”))

For §6.2 jurisdiction cases, the LL can be faced with a situation not due to his own fault
[fault of a 3rd person]. So it is only fair to give the LL a reasonable time to dispossess
before he is levied with damages.
The reasonable time is in reference to the Tenant‟s intended use of the land.
Hypo: A farmer signs a lease to T2. T1 holds over for a month until he finally leaves. By
the time T2 gets possession it is too late to plant his crops. Though only 1 month, in this
case T2 was deprived of all the use of the premises. What remedies can T2 get?
Termination/rescission: The overall rule is fairness. T2 was deprived of everything,
thus it is only fair to let him terminate.
Damages: Not if LL tried speediest remedy under local law.


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(2) The LL‘s Duty to Deliver Fit Premises (Fit for Use)
(A) General Rule: There is no covenant of fitness, absent deceit, fraud or
wrongdoing. Any covenant must be made expressly in the K. The tenant leases at his
own peril and has the onus of examining the property himself to determine whether it is
fit or not.
Fitness does not include noise, it only includes physical fitness.
Duty: To assure the premises is fit (whatever the express standard is).
Breach: The cause of the complaint, that the premises are not fit for the use as expressly
stated, must be either:
         (a) caused by the LL; or
         (b) under the control of the LL (LL had an opportunity to abate/remedy the
             situation and failed to do so.)
Remedies:
         (a) Can get compensible losses; i.e., the loss of the benefit of the bargain.
         (b) No rent abatement unless it is express; dependant promise never implied.
         (c) No termination unless it is express; essential promise never implied.
         Even if covenant of fitness in K, no right to rent abatement or termination
         unless subject matter was express and express remedy was cited.

(B) 2 Exceptions to the General Rule that there is no Implied Covenant of
Fitness:
(1) The Smith v. Marrable rule: There is an implied covenant of fitness for “the
short term lease of a furnished space.”
R.D. The premises in such an example are expected to be usable and inspection may be
unreasonable. E.g. renting a summerhouse 8 hours away for 2 weeks time.
Not a majority rule because not enough states follow it.

Hypo: Page 367 [17.4] L rents summerhouse to T1 for 3 months (250$ a month). T1
doesn‟t inspect the cottage. When T1 gets there, the windows are broken, the roof is
leaky and the furniture is in total disrepair.
What are T1‘s rights?
         -If the lease is silent as to covenants, then under the general rule there is nothing
T1 can do. There are two exceptions. This is not a house under construction. So… does
this fit under the Smith rule? “a short term lease of a furnished place” -Well, is 3 months
“short term?”
def of ―short term‖: Must be short term enough that a reasonable tenant would not
bother inspecting the place.
(1) Duty: the Smith exception; short term lease so implied covenant
(2) Breach: Cottage not fit for use
(2a) Was unfitness of use (A) caused by the LL or (B) under the LL‟s control?
         -YES, it was under the LL‟s control, so there was a breach.
(3) Damages: for a breach of implied covenant of fitness?
(3a) Compensible Loss: The loss of benefit of bargain. The loss of use.
The loss of [(the FMV of the “promised” cottage) – (the FMV of the cottage that was
delivered.)]


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Can T1 get Rent Abatement?:
(1) Duty/Breach: done above
(2) Dependant Promise: There is never impliedly a dependant promise. Must be express.

Can T1 get Termination?:
(1) Duty/Breach: done above
(2) Essential promise: Same as rent abatement, must be express.

Traditionally, there is no implied promise of fitness. There are no essential or dependant
covenants unless you expressly agree to them.
So in this hypo, only recovery of damages here.

(2) The Building Under Construction Rule: A covenant of fitness is implied when
construction has not reached the point where a tenant can judge fitness at the time
the lease is executed. [There is no way for the tenant to protect himself and therefore
fitness is implied.]
Hypo: At time of lease signing the sheet rock is up but the floors are not in. There is an
implied covenant of fitness for the floors but, for the sheet rock, there is no such implied
covenant of fitness.

Franklin v. Brown (page 363)
“[In NY there is] no implied covenant [of fitness], and that, in the absence of an express
covenant, unless there has been fraud, deceit, or wrong-doing on the part of the LL, the
tenant is without remedy, even if the demised premises are unfit for occupation.”

“It is uniformly held in this state [NY] that the lessee of real property must run the risk of
its condition, unless he has an express agreement on the part of the lessor covering that
subject.”

Dicta in Franklin states that there may be a C/A for fraud: [A tort remedy, not a
property remedy.]

Three requirements for a fraud C/A:
(1) Intention on the part of the LL; he knew of the defect and concealed it.
(2) The tenant could not have discovered the defect.
(3) The defect was a material defect that makes the property unfit for its intended use.




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(3) The LL‘s Duty to Protect Tenant During the Term (AKA
Covenant of Quiet Enjoyment)

(A) General Rule: Unless expressed to the contrary, a lease contains an implied
covenant for the quiet enjoyment of the leased premises. The covenant of quiet
enjoyment is an essential promise.
Duty: The LL has the duty to protect the tenant in the quiet enjoyment of the premises
Breach: Not protecting the tenant in the quiet enjoyment of the premises

(B) Three requirements to prove a breach of the covenant of quiet
enjoyment:

       (1) There must be a wrongful act of the LL. (a wrongful action by the LL)
          Wrongful means in violation of a covenant of the lease
          Act means that the LL either:
           (a) Directly caused the disturbance, or
           (b) Intentionally introduced the disturbance
          Majority Rule: Act of the LL himself, not 3rd parties.
          Minority Rule: (NY Rule) Act of 3rd parties counts as the act of the LL if the
           LL was aware of the problem and had either: (1) control, or (2) the ability to
           stop the action, and failed to do so.

       (2) The tenant was disturbed, as a result of the action. [An issue of fact at trial.]
          The tenant must be disturbed both
           (i)    grave and material: tantamount to an eviction [Barish]
           E.g. changing the locks, physically barring entry (can‟t just be uncomfy)
           (ii)   permanent: other than onetime or occasional [Milheim] (easy std.)

       (3) The tenant was disturbed so much that he actually had to vacate the
           premises. (disturbance so bad that tenant vacated) [Majority View] [Is an
        issue of law at trial.]
       This is an objective confirmation of the severity of the disturbance. If it was
        tantamount to an eviction there was no reason to stay.
       NY Rule (minority): Must vacate only in regards to the time and space that
        are infringed upon and can only get damages, no termination.
       Waiver: How long after the disturbance occurs can T wait before vacating?
        Must vacate w/in a reasonable time, if fail to do so then it is a waiver of the
        ability to bring the C/A.
        Ct will look at reason behind the delay, i.e., a housing shortage may make
        the delay reasonable.
        RD: If T delays, courts uncertain as to whether delay is serious.
As a matter of law you must have all 3 of these to get a breach of quiet
enjoyment.




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Examples of direct actions by a LL:
(1) In NY, while renovating old office buildings, the bigger elevator shafts took away
    from the square footage of the tenant.
(2) Barash: The LL‟s agent turned off the AC at 6 p.m.
(3) Blackett: The LL knew the tenant would be disturbed by the new tenant (the bar),
    nonetheless he still introduced the new tenant. Court held this to be an act by the LL
    himself, not a 3rd person.
(4) 17.7 (colicky baby): The LL did not know the baby was colicky so not a wrongful act.

Remedies:
(a) Rent Abatement:
Majority: Quiet enjoyment is a dependant promise
Minority: Only possession is a dependant promise for which you can get rent
abatement; cant get rent abatement for breach f quiet enjoyment.
(b) Termination: If deprived of possession at any time during the lease, that is a breach
    of an essential promise, thus you can get termination.
(c) Damages: If you suffer a compensible loss.

Deprived of Possession on the 1st day of the lease: Breach of covenant of
possession [can be actual or legal]. (A dependant promise.)

Deprived of Possession after the 1st day of the lease: Breach of covenant of
quiet enjoyment. (A dependant promise.) This protects you in possession foe the
entire term except for the 1st day.

Hypo on Quiet Enjoyment 17.7 (page 374)
T1 and T3 had lived in the apartment building for many years. T2 moves in w/ a cute but
colicky baby who cries and cries. T1 and T3 complain to LL that they cannot sleep. The
LL tells T2, but the baby doesn‟t listen.
T1 moves out. [Termination]
T3 stops paying rent. [Rent Abatement]

What is T2‟s duty. In order to be evicted, T2 must have breached a promise to the LL.

Does the tenant make an implied promise not to disturb the other tenants? NO.
(Property law is old and s l o w l y changing and developing, so that will not be implied
for a long while; if it is ever to be implied.)
So the LL cannot evict T2 for disturbing the other tenants (there could have been an
express promise, but there is no such promise here). T2 breached no promise to LL.

For what breach can a tenant be evicted? NONE. Even if he does not pay rent he
cannot be evicted. The “promise to pay rent” is the actual consideration in the lease. So
if no pay rent then still no eviction, UNLESS of course the lease agrees otherwise.




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Even if expressly said you cannot disturb or else you get evicted, then may still not get
thrown out in this case. Because they have to prove that the crying was a “disturbance.”
The crying must be bad enough and must be permanent.

Can T1 and T3 sue T2 for damages? Only in tort law for nuisance. Otherwise, even if
T2 made a promise not to disturb, it was to the LL, not to T1 and T3.

Can T1 sue the LL for damages and termination?
Duty: The right to quiet enjoyment of property.
General Rule: No promise of fitness is implied. It don‟t matter any way because fitness
does not include noise, instead it refers to physically fit.

If quiet enjoyment was promised, must prove three things:
(1) The LL cause the problem? (Did he intentionally introduce a tenant he knew would
    disturb you?)
(1a) The LL know of the problem or have control over the problem?
(2) Was the tenant disturbed (a) gravely and (b) permanently? Arguable.
(3) Did the tenant vacate? T1 moved out.

There is no talk of fitness is this case because: It (1) is not implied; (2) is only physical;
(3) the LL did not cause the baby to cry and (4) LL had no control over the baby crying
[He asked the baby to stop, but the baby would not listen .]
LL obligations: Did the LL have the obligation to (1) deliver possession (actual or
physical); (2) to deliver fit premises or (3) to protect the tenant in the quiet enjoyment of
the premises.

Blacket v. Olanoff (page 372) The P‟s wanted termination of the lease because the bar
below was very loud at night and into the early morning.
The act requirement of the LL: ―the LL must perform some act with the intent of
depriving the tenant of the enjoyment and occupation of the whole or a part of the leased
premises.‖
Apply Facts: ―[A]s a matter of law, the LL had the right to control the objectionable noise
coming from the lounge and the judge was warranted in finding as a fact that the LL could
control the objectionable noise.‖

Barash v. PA (page 493) Constructive Eviction
The tenant was told that the building was gonna be open after hours; and that the AC
would be on. The AC was not on. The tenant sued for breach of quiet enjoyment.
The C/A was dismissed because the tenant did not vacate. They must vacate as a matter
of law in order to get any remedy.

NY Rule: You do not have to totally vacate if the only remedy you want is damages.
[AKA diminished FMV]




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(C) Four Types of Evictions:
(1) Total Actual: Locks changed on you, total bar from premises
(2) Total Constructive: Have to leave all of the place because there is a swarm of
    termites and the temperature is 100 degrees and humid.
(3) Partial Actual: Elevator shaft takes away several feet. Deprived of a small % of the
    office space.
(4) Partial Constructive: Vacate only the part of the premises after 6 p.m. because it is
    too stuffy and hot. Must vacate after period you claim to be unbearable.
Partial Constructive eviction is very controversial, may states do not recognize it. To
get it, the problem must be very serious.

So in Barash, was the disturbance caused by an act of the LL, permanent and grave?
(1) An act by the LL or his agent, the AC was in his control.
(2) Permanent? During the summer is “more than one time or occasionally.”
(3) Grave? Was it “so serious as to be tantamount to an actual eviction?” Well, after 7pm,
    is this enough? Court did not dismiss for this reason.
When we define grave we define it in reference to the same area and the same time.
So if it is unusable for the time after 7pm, this is sufficient. It need not be unusable for
the whole 24-hour period, just the time of the partial eviction.

In NY:
(1) Vacating and graveness must all be defined in reference to the actual part (time/area).
(2) NY will recognize partial eviction and will grant partial rent abatement.
(3) If deprived of 90% or more of the space  a total eviction.
(4) If deprived of 90% or less of the space  a partial eviction.

Remedies for Partially Evicted Tenants:
(1) Damages: The rental value of the area lost due to actual/constructive eviction.
(2) Rent Abatement: Cts that recognize partial eviction will not allow the LL to apportion
    his own wrong, so the entire rent will be abated. [Or is it just partial RA?]
(3) Termination/Rescission: Cts that recognize partial eviction will not allow termination
    for a partial eviction because it is not serious enough. T still has possession of the
    land.

The decision in Barash:
The LL directly caused the AC to be turned off after 6pm; It was grave after 7pm; It
was vacated after 7pm; It was permanent because it happened every day.

The thing in Barash was that the LL‟s act was not wrongful because the lease did not
provide for AC after 7pm. The LL only promised AC till 6pm.

For Pontification: Isn‟t the covenant of quiet enjoyment, the covenant of the lease that
was violated? No, it cannot be the promise. There must be a wrongful act, the wrongful
act cannot be the covenant you are trying to prove. So this case not dismissed because
there was not a promise in the lease that was breached.


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(4) The LL‘s Duty to Deliver a Habitable Premises (Warranty of
Habitability)

(A) C/L Rule: The LL does not impliedly covenant the premises to be in a (1)
    tenantable, (2) fit or (3) suitable condition.

(B) Statutory Rule: All states have Habitability Statutes, so C/L no longer applies.
Duty: State statutes imply a warranty of habitability into every residential lease. That
the premises be (1) tenantable, (2) fit, or (3) in suitable condition.
The parties cannot agree otherwise. This is the only covenant to which the parties
are unable to agree otherwise. [This protects the tenant with no bargaining power from
being taken advantage of.]
Does not apply to commercial leases because businesses can protect themselves.

Policy Reasons for Warranty of Habitability:
(a) As a matter of law, the court will hold the LL to whatever shared expectations they
    shared with the T in the formation of the lease.
(b) Caveat Emptor no longer applies. T‟s don‟t have know-how or ability to check stuff
    out, or to fix it if it gets broken.

(C) 3 Standards by Which to Measure Breach:
(1) The Javins standard: The failure to follow housing codes.
Rule: There must be a material violation of the housing code; materiality is decided on a
case by case basis.
Breach of any of the codes is prima face evidence that there has been a breach of the
warranty of habitability.
Reasons for this:
       (a) A lease is a K, a K implies the laws of where you are. To imply terms into a K
           you must have shared expectations; the tenant expected the LL to do certain
           things.
       The tenant expected:
               (i)     The premises to habitable,
               (ii)    In the beginning position,
               (iii)   That the LL comply with the housing codes, and
               (iv)    There be a package of services including; heat, light, ventilation,
                       plumbing, sanitation and proper maintenance.
       The LL expected:
               (i)     To comply w/ the housing codes (statute says so); this is why
                       Javins limited its decision to housing codes.
               (ii)    LL may say he only thought he would be liable to the municipality,
                       but DC recognizes both public and private causes of action for the
                       enforcement of codes.
How serious must the violation be?
―The jury should be instructed that one or two minor violations standing alone which do
not affect habitability are de minimis and would not entitle the tenant to a reduction in
rent.‖ AKA it must be a material violation.


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(2) The Pines Standard (Restatement §501): The failure to provide a premises fit for
    occupancy.
Rule: The standard is that:
        (1) there must be a condition such that the premises is not fit for occupancy; and
        (2) the defects must pose a threat to life, health or safety to the tenants.
The Pines court impliedly said that the warranty of habitability is a dependant and an
essential promise.

(3) The Essential Functions Test (California Test):
Rule: There must be a sustained deprivation of an essential function.
Tenants do not just expect mere possession, they also ―seek a well known package of
goods and services,
a package which includes not merely walls and ceilings, but also adequate heat,
light and ventilation, serviceable plumbing facilities, secure windows and doors,
proper sanitation and proper maintenance….‖
The must be a sustained deprivation of these above functions to constitute a breach.

Remedies for Breach of Warranty of Habitability:
(1) Damages: the P can get the benefit of the bargain lost.
At C/L (the FMV promised/expected – the FMV as rented) will equal the damages.
(2) Rent Abatement: is allowed because the implied warranty of habitability is a
    dependant promise.
To get Rent Abatement one must find two things:
    (a) Whether the alleged violations existed during the period for which past due rent is
        claimed.
    (b) What portion, if any or all, of the tenant‟s obligation to pay rent was suspended by
        the LL‟s breach?

(D) NY Statute for Warranty of Habitability:

NYRPL §235-b: For every written/oral residential lease.
Parties cannot agree otherwise.
This is what the NY legislature adopted to recognize the implied warranty of
habitability.
(1) The LL covenants the apartment and all common areas shall be fit for human
    habitation.
    (a) Substantial violation of building codes is prima facie evidence of a breach of
        habitability.
    Building codes are a minimum standard, but not the only standard.
    (b) If a condition endangers life, health or safety, it is a breach irregardless of whether
        it violates a code.
(2) The LL covenants that the premises be fit for the uses reasonably intended by the
    parties.
    (a) Interpreted broadly to include essential services.
If in the eyes of a reasonable person, defects in dwelling deprive the tenant of those essential
functions which a residence is expected to provide, a breach of habitability has occurred.



                                                19
                                             20


(3) T‟s are not to be subjected to any condition that would be dangerous to life, health or
    safety.
(4) Similar to the Essential Functions Test: Tenants do not just expect mere possession, they
    also ―seek a well known package of goods and services—a package which includes not
   merely walls and ceilings, but also adequate heat, light and ventilation, serviceable
   plumbing facilities, secure windows and doors, proper sanitation and proper
   maintenance….‖
(5) ―Any agreement [to the contrary] shall be void as a contrary to public policy.‖


Remedies for Breach of §235-b: The statute is silent as to remedies, but courts
interpreted the usual remedies into the statute.
(1) Damages:
[[Normally: The typical measure (not for warranty of habitability) of damages is the
benefit of the bargain lost:
        [The FMV w/o breach – The FMV w/ breach.]
        Thus is you pay $750/month in rent, the apt is worth 1k/month in rent on the open
        market and the FMV w/ breach is $700. Then normally you should get $1,000 –
        $700 = $300 in damages.]]
Statute: BUT, Parkwest Management changed this.
For the warranty of habitability it is (FMV as measured by rent – FMV w/ breach)
so the damages would be $750 – $700 = $50 in damages.
         The C/L rule gets you $300
         Parkwest rule gets you $50

To determine damages, the court:
   (a) ―Need not require any expert testimony; and
   (b) If breach by reason of a strike or other labor dispute which (not caused primarily
       by the individual landlord) then such damages are not recoverable against the LL.
       Except for the LL‘s net savings, if any, because of the strike; provided, however,
       that the LL has made a good faith attempt, where practicable, to cure the breach.‖
(2) Rent Abatement: [Full or Partial] Barash said all or none rent abatement, but now
    NY allows partial rent abatement.
(3) Termination: Can be given if expressly stated.

The warranty of habitability developed because it is harder for the tenant to protect
himself:
(1) The tenant can no longer inspect the premises like he used to. Can you actually
    inspect a boiler? Jump up on a roof like Cascino?
(2) The tenant can no longer remedy any defects on his own. After a storm can you jump
    up on the roof and patch the hole like Cascino? In modern society, most tenants no
    longer have the requisite skills. People can hire others to repair, but high prices
    makes this alternative impractical.
(3) The tenant can no longer negotiate certain promises into the lease. Often in housing
    shortage situations, the LL has a take it or leave it attitude.




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                                             21


Court of Appeals case 265 east 65th street
The tenants declared a rent strike because of a breach of the warranty of habitability [an
affirmative defense to the LL‟s action for rent].
There was a package room where the super stored garbage; and it released a stench.
On occasion there was a fixture removed leaving exposed wiring.
From time to time, the AC in the lobby did not work.
In the 46-story building, sometimes only 2 of the 4 elevators were in working
condition.
On 46th floor in the laundry room, there were roaches and some acoustical tiles were
missing.
So, are these sufficient to find a violation of NYRPL §235(b)?
(1) It is a residential premises so §235(b) applies in that sense.
(2) §235(b) applies to both apartments and common areas.
(3) The tenants did not cause the problems, so §235(b) applies.

We must examine whether the LL obeyed his 3 major promises under §235(b):
        (a) To provide premises fit for human habitation.
        -includes substantial/material violations of a building code
        (b) To provide premises fit for uses reasonably intended by the parties.
        (c) To not subject tenants to any conditions that would be dangerous, hazardous
            or detrimental to their life.
Minimum requirement for all three promises is that the premises ―are fit for human
occupation at the inception of the tenancy and that they will remain so throughout
the lease term.‖ Park West, 47 N.Y.2d 316.

Park West Management (Supplement 1-21)
The LL‟s staff striked and the lessees lost services to the point where they said that the
building was no longer habitable. Because it was a union strike the NYC Dep‟t of
Sanitation did not want to cross the lines and the garbage piled up in the high-rise. A
health emergency was declared.

So was this problem under the control of the LL? Was the LL responsible?
The court said it was a non-delegable and non-waivable duty; it does not matter if it
was beyond the LL‟s control.
―[A]s the statute places an unqualified obligation on the LL to keep the premises habitable,
conditions occasioned by ordinary deterioration, work stoppages by employees, acts of 3rd
parties or natural disaster are [still] within the scope of the warranty [of habitability].‖
AKA, no matter if the LL caused the problem or can control the problem, they are still
at fault regardless.

―[The] landlord is not a guarantor of every amenity customarily rendered in the LL-tenant
relationship. The warranty of habitability was not legislatively engrafted into residential
leases for the purpose of rendering LL‘s absolute insurers of services which do not affect
habitability.‖




                                             21
                                              22

―[The] standards of habitability set forth in local housing codes will often be of help in
resolution of [whether the warranty of habitability was breached]. Substantial violation of
a housing, building or sanitation code provides a bright-line standard capable of uniform
application and, accordingly, constitutes a prima facie [case that the premises are not fit for
habitability].‖ (There must be a substantial violation to fit into §235(b).)

―[The] violation of a housing code or sanitary regulation is not the exclusive determinant of
whether there has been a breach. Housing codes do not provide a complete delineation of
the LL‘s obligation, but rather serve as a starting point in that determination by
establishing minimal standards that all housing must meet.‖ (So this means that defects not
stated in the code may still be sufficient to find the premises unfit for habitability.)

―A residential lease is essentially a sale of shelter and necessarily encompasses those services
which render the premises suitable for the purpose for which they are leased.‖ (This
includes the “bundle of services” and “the purpose reasonably intended.”) No need to be
perfect here, just reasonable.

―If, in the eyes of a reasonable person, defects in the dwelling deprive the tenant of those
essential functions which a residence is expected to provide, a breach of the implied
warranty of habitability has occurred.‖ (This is like the “essential functions test” of
California.) This is a way to prove breach.

For this case, the statute does not examine what these luxury tenants would expect in
these luxury apartments; instead, the LL only promises to provide the essential terms a
residential tenant is expected to be provided with. (heat, HOH, garbage removal, etc.)

So what is a danger to life, health or safety?
(1) Parker 77th Street: The LL provided no heat or hot HOH for January or February.
    This was considered a danger to health.
(2) Pleasant East Associates: A HOH leak next to an electrical outlet was considered a
    danger to life.
(3) Perkowitz: The odor of cat urine permeated the apartment. The court said this posed
    a danger to health.

When is a premises not fit for human habitation?
(1) Islip v. Mulligan: The apartment was a breeding ground for roaches and rats. The
court said it was unfit for human habitation.
General Rule: If the LL was notified or the LL should reasonably discover the problem
on his own; and he fixes the problem promptly, then there is no breach of the warranty of
habitability. (To date, only lower NY court decision have given this rule; no such case
has yet made it to the court of appeals.)
(2) When a cesspool backed up, the LL was immediately notified, and the LL promptly
installed a new system. This was not a breach of the warranty of habitability.
(3) Younger Realty: The lock on the front door was broken. The LL was never notified
and could not have reasonably discovered the situation on his own. Therefore, there was
no breach of the warranty of habitability.



                                              22
                                             23



(5) The LL‘s Duty to Relet the Premises When T Abandons Premises

(A) Older C/L Rule: The LL has no duty to mitigate when the T abandons the
premises unless there is an agreement to the contrary. RD: A lease is a property
conveyance, the LL fully performed thus should be paid all.

(B) Newer C/L Rule: About 43 States now recognize a LL‟s duty to mitigate when T
abandons the premises. A majority of the states that do recognize a duty to mitigate limit
the duty to residential premises.

(C) NY Rule: No duty to mitigate for residential or commercial premises except to the
extent that parties agree otherwise.

If there is a duty to mitigate, then there must be Reasonable Efforts:
(1) A reasonable period of time before LL‟s efforts must begin.
(2) During the reasonable time, T is liable for rent whether LL finds a T or not.
(3) If LL can only find a T2 for a longer lease, then the LL need not rent to that T2.
Remember: Duty to mitigate only when lease has not yet been terminated.


Holy Properties v. Kenneth Cole (1995) A commercial lease.
An office building on West 57th, during the lease period T said there was a deterioration
of building services. So T left, and the LL wants the remaining rent for the unexpired
term. T says that the LL had a duty to mitigate.
The T urges the court to reject the settled law (no duty to mitigate) and adopt a K
rationale from the lower courts and elsewhere. The court declined to do so.
―Because parties who engage in transactions based on prevailing law must be able to rely on
precedent. In business transactions, settled rules ate more important than whether the
settled rule is a better rule or even a correct rule.‖
Attorneys try to argue that this holding is limited to only commercial leases.




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                                             24


Hypo 19.6: If LL re-enters and takes possession of the leased premises for non-payment
of rent when the lease contains a covenant permitting such action, what are LL‟s rights
against T under the following circumstances?

(a) LL makes no attempt to relet the premises:
NY Rule: “Unless parties agree otherwise, the LL is under no duty to relet.” So if LL
does not relet, T is required to pay all the rent.
Majority: More info needed.
-Commercial: No duty to mitigate damages.
-Residential : There is a duty to mitigate damages.

(b) LL unable to relet premises except for a term longer than original lease and so he
     refuses to relet:
Here spot the issue, assume it is residential so there is a duty to mitigate. Now; Does LL
have to make a good faith or reasonable effort attempt?
Rule: The LL must use reasonable efforts to mitigate.
If the LL finds a T who wants a lease that the LL does not want, must the LL accept it?
If the LL could only find an unacceptable T then that is unreasonable burden for the LL
to have.
Rule: If there is a duty to mitigate (by K or Law) then you only need to use “reasonable
efforts,” so this means that you do not have to relet for a longer term.

(c) LL relets the premises at a ridiculously low rental price:
Has the LL complied with the obligation to use reasonable efforts?
Since a duty to mitigate, the law says it must be reasonable. If no duty to mitigate, the
law presumes that the LL would have gotten FMV.
FMV higher than rent, then LL gets nothing from T.
FMV lower than rent, then LL gets money from the T.

Another way to look t 19.6 is as a forfeiture, not an abandonment. Without a court
order, this can be the case only if there was an automatic forfeiture clause in the lease. So
if default by T invoked the automatic forfeiture, then there is absolutely no duty to
mitigate because the lease is terminated, there is no longer a K.




                                 Implied in the     Can it be modified by
                                      K?              an Agreement?
              Promise of              NO                     YES
                Fitness
           Promise of Quiet           YES                    YES
              Enjoyment
              Promise of              YES                     NO
             Habitability




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         25




Notes on LL‘s Duties




         25
                                            26


B. Tenant‘s Remedies

(1) The Tenant‘s Rights to Damages
In order to recover damages you must prove three things:
(1) This D owes a duty to this P.
(2) There was a breach of that duty.
(3) There was a ―compensible loss‖ [The key issue].
You must have all three or no damages will be awarded.

(A) Two basic requirements to be a compensible loss as a matter of law:
       (1) The loss must be within the contemplation of the parties. They expected ―this
           type of loss,‖ not necessarily the exact amount. The loss was expected as of
           the day they contracted.
        Inventory can be reasonably expected
        Advertising
        Costs and Expenses
       (2) The loss must be provable within a reasonable certainty to be compensible.
**Lost profits are not recoverable for a new business that is not yet established**

Whitaker v. Buffalo Construction (NY ct of appeals 1984)
Buffalo owned property near parkway and leased it to Whitaker to put up Billboard, and
also gave P 1st option to erect more billboards. Buffalo then leased to others to put up
boards w/o giving 1st dibs to Whitaker.
In appellate court a CPA testified to the lost future profits from not having a billboard.
The court gave 152K in dams. The NY Court of Appeals reversed saying:
“You cannot recover profits that eventually would have been earned. They are way too
speculative.”
Rule: You cannot recover lost profits for a new business that is not yet established.

(2) The Tenant‘s Right to Rent Abatement
(A) General Rule:
Must prove three things:
(1) This D owes a duty to this P.
(2) There was a breach of that duty.
(3) The breach was one of a ―dependant promise.‖
A dependant promise is one that is so important that no rent need to be paid if it is
broken. [Much leeway for interpretation here.]
Examples include promise of possession, quiet enjoyment and habitability.
Dependant Promise: Answers the question: “Under what promise were you willing to
pay rent?” (RENT ABATEMENT) [The obligation to pay rent depends on the fulfillment
of this particular promise.]
Majority: T can only get Rent Abatement for 3 things (a) possession, (b) quiet
enjoyment and (c) habitability.
Minority: The significant inducement test treats the lease as a K.



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NY Rule for Rent Abatement: (NY Rule 6.1)
Rejects total non-payment of rent as a remedy for partial eviction.
Rejects the requirement that the tenant abandon the leased property before claiming a
constructive eviction.

(B) 5 Possible Formulas to Tell how Much Rent to Abate:
Hypo: L grants T a 10-year lease for 2,000$/month. T gets storefront (90%) and storage
area (10%). Two years into the lease L puts X-mas decorations in T‟s storage area. The
FRV of the storefront and storage space is now 5,000$/month; and storefront only is
4,000$/month. What abatement should T be allowed?

(1) The Decline in FMV Rule: If there is a lower FMV then you can get:
   [FRV (w/o breach) – FRV (with the breach)]
―Can retain possession of the premises and deduct from the rent the difference between the
rental value of the premises as it would have been if the lease had been fully complied with
by the LL and the rental value in the condition it actually was.‖
       $5,000 -- $4,000 = $1,000

(2) The Proportionate Value Test: Most commonly used by the courts.
Use the FRV to find what % you lost in the FRV, then apply that % to the actual rent
in the K.
        FRV (with breach) X   RENT = The value the T should receive.
        FRV (w/o breach)

       $4,000/$5,000 (.80) X $2,000 = $400

(3) Floor Area Test: Take the % of the floor area you lost and multiply the RENT.
If you lose 10% of the floor area then you don‟t have to pay 10% of the rent.
The problem here is that it assumes every square foot is of equal value.
       10% ($2,000) = $200
(4) A jurisdiction that does not recognize partial eviction would give $0.00 in rent
abatement.

(5) What rule would allow you to have100% rent abatement (pay no rent at all). Because
the LL can‟t apportion their own wrong, this very small minority allows 100% abatement
for any breach.

(6) NY Rule: The Randall Smith Case. The lease of 6,800 square feet of the 8th floor of
an office building. The LL enlarges the elevator shaft and takes out 269 square feet. So
this is a partial actual eviction. This court recognizes a partial eviction to give T‟s
remedies that would look close the floor area test.
―If T submits proof of the percentage value lost, that is the rule we will apply.‖ Restatement
―If there is no proof we will just assume that every area is of the same value.‖




                                             27
                                              28


(3) The Tenant‘s Right to be Excused From Obligations Under the
Lease (AKA The Right to Terminate Based on External Events Not
Within Control of the LL.)

(A) Frustration of Purpose: 4 Requirements
(1) Must be the main purpose of the lease for which the T entered the lease.
(2) Must be the total or near total destruction of this purpose. (Performance is possible,
    but the expected value of performance to the party seeking to be excused has been
    destroyed by a fortuitous event.)
(3) Must be without Tenants Fault.
(4) The T could not have assumed the risk. [See if an unanticipated circumstance, the risk
    of which should not be fairly thrown on the promisor, has made performance vitally
    different from what was reasonably to be expected.]

Lloyd (1944, page 459) (Frustration of purpose case.)
T claims a frustration of purpose so that he is not bound to the lease.
 The court said that he could still sell autos (and gas) only it was restricted. The
restriction will have a substantial effect on the high profits but the rule is that there must
be a total frustration of purpose.
―The governmental acts that make performance unprofitable or more difficult or expensive
do not excuse the duty to perform a contractual obligation.‖
Was the government restriction due to the T? NO
Did the T assume the risk? YES, the T knew the governmental restrictions were
coming. ―If it was foreseeable, there should have been a provision for it in the K, and the
absence of such a provision gives rise to the inference that the risk was assumed.‖

(2) Destruction of the Premises:
[Zorro Pizza Fire, the whole premises was destroyed and the T, under the C/L, still had to
pay rent.]
Rule: Unless there is an agreement to the contrary, T is not excused from obligations
even when the premises is destroyed.
RD: (a) Soil stays behind and serves as consideration. Greenfield
        (b) Equity says LL should not bear the entire loss, let T bear a little.
Exception to the General Rule: (Majority Rule) If only a portion of the building is
leased, the total destruction relieves T of his obligation to pay rent. (Residential and
Commercial)
RD: Since T only had air rights, soil ain't consideration for the rent.

Minority Rule: When parties bargain for use of building, the soil is usually of little
consequence, our laws should develop to reflect this.
 It is no longer reasonable to assume that in the absence of a lease provision to the
contrary, the lessee should bear the risk of loss.




                                              28
                                             29


(4) The Tenant‘s Right to Termination/Rescission
Must prove three things:
(1) This D owes a duty to this P.
(2) There was a breach of that duty.
(3) There must be a failure of an ―essential condition.‖
Failure: Means a substantial breach of an essential condition.
Examples of Essential Promises:
       (a) Possession (includes quiet enjoyment, which is breach of possession after the
           first day.
       (b) Habitability (fitness of premises for residential use).
       (c) Anything that the lease expressly makes essential.
Essential Promise: Answers the question: “For what reason did you sign the lease?” or
“Absent what reason would you refuse to sign the lease?” (TERMINATION)

(5) The Tenant‘s Right to Rent Application
C/L: There is no implied right to rent application in any lease.
Statutory: About 20-30 states statutorily implied a right to rent application into leases.
The T takes the rent payable to the LL and uses it to cure the LL‟s default. Not saying
that we owe the LL less, we re paying the LL the full amount; some is cash and some to
cure the default. We are spending money on the LL‟s behalf.
Rule: Before the T cures, he must first give LL notice and a reasonable time to cure.
Only after this notice can the T cure á la rent application.
How much can the T spend on the LL‘s behalf?
(1) Many states impose a specific dollar amount.
(2) Restatement 11.2 The amount that can be expended must be reasonable and never
    exceed the amount of rent still owed by this T to this LL.
(3) Some states say it must be an amount reasonable in light of the leasehold.

Marini (page 451) When the LL is in fault, the T may cure it and deduct from the rent.
In this case there was a breach of the implied covenant of habitability. Here the court
used the California Essential Functions test.
―If the LL fails to repair the toilet, which is necessary to maintain the premises in a
livable condition within a period of time adequate to accomplish such repairs, the T may
use rent application.‖
―[The T may spend an amount of money] reasonable in the light of the value of the
leasehold against the rent.‖
If a T is entitled to rent abatement, he should be entitled to the lessor remedy of rent
application.




                                             29
                                             30


(6) The Tenant‘s Right to Rent Withholding
Not abatement, T is just saying I will not pay you until you cure your default. I am
holding it temporarily for leverage. As soon as LL cures, he gets the money.
This is not used much anymore because rent abatement has expanded and the T would
rather not pay at all than to put off paying. (Commercial T would rather withhold.)

(1) Old C/L: No implied right to withhold rent, the lease must give you the rights
expressly.

(2) New C/L: Restatement 5.1-5.4, If the T is entitled to rent abatement for a breach of
warranty of habitability then he should also be entitled to rent withholding.
―If the T is entitled to withhold rent, the T, after proper notice to the LL, may place in
escrow the rent thereafter becoming due until the default is eliminated or the lease
terminates, whichever first occurs. Whenever there has been a proper abatement of rent,
only the abated rent is placed in escrow.‖

(3) NYRPAPL §755: Only residential leases, construed for breach of habitability or
breach of quiet enjoyment, it specifically allows for rent withholding.

(7) The Tenant‘s Right to an Action in Ejectment
The P has a right of possession and the D is preventing the possession.
2 requirements to allow ejectment:
(1) P must prove a legal right of possession that T is interfering with. [T has an implied K
    duty to vacate.]
(2) The lease must expressly state that the LL had the right to evict.


(8) The Tenant‘s Right to an Action in Rent
Between T1 and Holdover there is no property transfer and no K (not even implied).
There is no relationship between the two to oblige anyone to pay rent.
Holdover has a duty in tort not to trespass; not to interfere with T1‟s right of
possession.


Review of Dependant and Essential Promises:
Parties can agree to make any promise dependant or essential as long as it is
contained in very clear language in the lease.
        You can make any promise a dependant promise; if broken then you don‟t
           have to pay rent.
        You can make any promise an essential promise; if broken then you can
           terminate the lease.
        Property law says that the only implied essential promise is possession. So if
           lease says premises will be fit, but says none of what will be fit, then we rely
           on property law [only possession is promised in this instance].




                                             30
               31




Notes on Tenant‘s Rights/Remedies




               31
                                           32


(C) Review Questions on Protection of Tenant
Page 361 [17.1]: LL rents apartment to T2, the term beginning at the end of T1‟s term.
T1 wrongfully holds over. LL sues T1 to recover for possession of the apartment and T1
defends by saying that LL is no longer entitled to possession because the lease L made
with T2 gives T2 the possessory rights, therefore, LL cannot maintain a suit to recover
possession against T1.
What‘s the decision for action by L against T1?
 Look to see if there is a duty under property law and then under K law:
 LL is a proper P and thus can maintain an action against T1.
 K law: Says there is an implied duty that T1 must leave.
 Property law: Says that the rights of T1 have ended.
Can T2 sue T1 for rent?
 T2 has possessory property rights that it can enforce against T1.

Page 363 [17.3]: LL signs a ten-year lease with T2 to start September 1st. The rent is
5K a month (60K a year) and 5% of sales in excess of 1.2 million per year. T1‟s rent was
3K a month. T1 wrongfully holds over and LL brings suit to evict the T from possession.
T1 defends during the back to school and Christmas season; which account for 60% of
the annual sales. LL finally wins. T1 not actually evicted till December 29th. T2
purchases 200K in stock and 20K in advertising, all of which is absolutely useless and
waste. (So T2 lost 220K) This is a Restatement 2nd §6.2 jurisdiction.

Can LL sue T1 for damages, and if so, on what theories and for what amount?
(1) Duty: The lease (K) implied a duty to vacate.
(2) Breach: The failure to vacate as implied in the K.
(3) Compensible Loss: Yes, rent lost from T2, due to rent abatement.
    (3a) What did LL lose?: All the rent $ that T2 did not pay.
- LL can get all evicting costs and consequential damages.
- Any loss LL will have to pay T2, T1 will have to pay back to LL.
- Maybe the lost 5% from the 1.2 million.
Can T2 sue T1, and if so, on what theories and for what amount?
(1) Duty: T1 owes T2 a duty in tort not to interfere with T2‟s right of possession.
(2) Breach: T1 remained in possession.
(3) Losses to T2: §6.2 allows recovery from 3rd person for damages sustained. The tort
    duty gives right to recover damages.
(4) Compensible?: Expenses are compensible if they are foreseeable.
    -May include 200K in inventory and 20K in ads if they are “foreseeable.”
    -T2‟s rent, T2 may get the 5K. T2 is entitled to rent abatement.
    -Consequential Losses: including maintaining inventory and the like.
 Breach of K. T1 interfered w/ the K of T2 and LL. T2 should have gotten possession,
    which is worth 5K a month.
 If the FMV is higher than the K price, then T2 can get the difference between the
    FMV and the price on the K. T2 may actually make extra money on the deal.



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Can T2 sue the LL, and if so, on what theories and for what damages?
(1) Duty: To deliver actual possession.
(2) Breach: Not delivering actual possession. If a 3rd person is improperly in possession
    on the date the D is entitled to possession, then this constitutes a breach.
For the LL to breach: Need all three of these for a breach.
        (a) LL did not deliver actual possession.
        (b) LL did not act within a reasonable time to remove.
        (c) LL did not evict w/in a reasonable time (actually remove).
(3) Damages: C/A for damages can be against T1 or LL as of day one of the holdover.
    -inventory                                         -ads
    -law suit                                          -loss of benefit of bargain
    -loss of profits

Where losses compensible?
Should T1 have expected that LL would get 5% over 1.2 million?
(1) Was it in contemplation? Was it typical in this location and in this type of store?
(2) Provable? Maybe…probably not.

Breach: Not removing the T w/in a reasonable amount of time. Reasonable time is all
relative and is decided on a case by case basis.




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(D) Discussion Problem A
Ray Camel is a tenant of a store, in State X (i.e. C/L), which is owned by XYZ
Enterprises. The terms of the lease are as follows:
       Premises: 5,000 square feet
       Term: 5 years (unexpired term of 3 years)
       Rent: $60,000 per year, payable monthly in advance
       Use: “…solely as a restaurant”
       Provision: “LL covenants the premises shall be useable for the conduct of a
       restaurant business.”

        The store is served by old drainage lines, which have recently caused sewage to
back up whenever there is rainy weather. This had not occurred at any previous time.
During the last 6 months, the Camel Café experienced such sewage backup
approximately 5 days each month. On these days the odor permeated the restaurant
which made it unusable.
        Ray Camel notified XYZ of the problem, but XYZ has advised him that they have
no obligation to repair or replace the drainage lines.
        Currently there exists a shortage of retail space in State X.
        Profits of the Camel Café have been declining during the last 18 months. They
have dropped 30% during this period, with half of that decline occurring during the last 6
months.
        Ray Camel notifies XYZ that the sewage backup permits him to terminate the
lease, that he intends to vacate at the end of the month, and that thereafter he has no
further obligations under the lease.
        Advise XYZ as to its rights and possible exposure to liability.

Remember: In answering fully discuss governing law, and then relate the facts to the
governing law. Don‟t just discuss each piece separately, relate each fact to a particular
requirement.

ANSWER

(1) There is no talk of warranty of habitability because this is a commercial lease, not a
residential lease. Warranty of habitability only applies to residential leases.
Majority Rule: The warranty of habitability only applies to residential tenants.

(2) There is no problem with the warranty of possession because that only requires that
there be a breach on day one of the lease. In this case, there is no mention of any
problem on day one of the lease.
English Rule (Majority): Would be satisfied if Camel got actual possession on day one.
American Rule (Minority)[NY]: Would be satisfied if Camel got legal possession on day
one.

Now we will discuss (1) the covenant of fitness and (2) the covenant of quiet
enjoyment.


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For each of these [Fitness and Quiet Enjoyment] we have 3 parts to the question:
(a) Is a duty owed?
(b) Has that duty been breached?
(c) What remedy is available to the tenant?

COVENANT OF FITNESS
LAWThe general rule is that a lease contains no implied covenant for the fitness of
use and absent any fraud, deceit or wrongdoing by the LL, the tenant is w/o remedy even
if the demised premises is found to be unfit for use; however, the parties can agree
expressly in the lease to impose an obligation of fitness.
In this case the parties did include an express statement which stated that the “LL
covenants the premises shall be useable for the conduct of a restaurant business.”

DUTY In this case the duty is the particular express covenant, the duty that the “LL
covenants the premises shall be useable for the conduct of a restaurant business.”

BREACH The majority rule is that the condition (in this case the sewer problems)
must be either:
        (a) caused by the LL; or
        (b) in the LL‟s control whereby the LL had an opportunity to abate the condition
            but failed to do so
Applying the Facts: The LL had the financial and physical capability to fix the sewer
lines. The LL was notified of the problem, had the ability to fix it, and then refused to fix
the problem.
Who controls the sewer lines? Are they private/public; we need more information.

If we decide that there was a breach of the covenant of fitness, what remedy is available?

Can Camel terminate the lease?
LAWAn express promise of fitness [even if express] is not impliedly an essential
promise. To be made an essential promise it must be expressly agreed upon by the
parties. As a matter of law, there is no implied right to terminate merely because a
covenant of fitness was made express.
Applying the Facts: No language of the parties indicated that the parties intended the
covenant of fitness to be an essential promise.

New Issue: Does the “use clause” make the covenant essential?
The courts have said that a “use clause” is not explicit, you would be asking to imply
the right to terminate. No go, it cannot be implied; must be express.

Can Camel get damages? (Are the losses compensible?)
LAW To get compensible losses 3 basic criteria must be met:
     (1) The loss must be within the contemplation of the parties. They expected “this
         type of loss,” not necessarily the exact amount; and
     (2) The loss was expected as of the day they contracted.
     (3) The loss must be provable within a reasonable certainty to be compensible.



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Applying the Facts:
Must find evidence that the possible loss could have been w/in the contemplation of
the parties and that the loss was expected as of the day the K was signed.
Because the café had been operating for quite some time, it is probable that the court
will find that the a dollar amount would not be so speculative.
So, for damages: [FMV w/o breach – FMV w/ breach = The loss of the benefit from
the renter‟s bargain]

Can Camel get rent abatement?
LAWIn order for a tenant to get rent abatement there must be a breach of a dependant
promise. A covenant of fitness is not impliedly a dependant promise but the parties may
agree otherwise.

Applying the Facts:
No remedy is mentioned in the lease for a breach of that promise, thus that remedy will
not be implied by the courts. (The right to rent abatement must be express, or it will not
be recognized.)

COVENANT OF QUIET ENJOYMENT
General Rule: Unless expressed to the contrary, a lease contains an implied covenant for
the quiet enjoyment of the leased premises. The covenant of quiet enjoyment is an
essential promise.
Apply the Facts: There is no exclusion in the warranty of quiet enjoyment in the
language of the lease and there is no modification of any remedy if there is a breach of
quiet enjoyment. Therefore, there is, implied in this lease, a covenant of quiet enjoyment.

Duty: The LL has the duty to protect the tenant in the quiet enjoyment of the premises.


Breach:
To Prove a Breach: Three requirements to prove a breach of the covenant of quiet
enjoyment:

       (1) There must be a wrongful act of the LL. (a wrongful action by the LL)
          The LL must be aware. A failure to act by the LL is sufficient. The LL must
           have both (1) knowledge and (2) control of the action w/ the ability to stop it.
          Majority Rule: Act of the LL himself must cause the disturbance, not 3rd
           parties. Or he can intentionally introduce the disturbance.
          Minority Rule: (NY Rule) Act of 3rd parties counts as the act of the LL if the
           LL had either (1) control or (2) the ability to stop the action.
          Wrongful: to be wrongful there must be a violation of a covenant in the lease.

Applying the Facts: The LL did not actually cause the rain; i.e., he did not actually
cause the overflow.



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Try to argue a “cause” can be an omission (or a failure to act). So if LL knew sewer
lines were old, his failure to replace them may be the cause of the problem.
The court may reject this cause it is too close to the minority rule “control and ability to
stop.”

       (2) As a result of the action, the tenant was disturbed. (action disturbed
           tenant)
          The tenant must be disturbed in both ways:
           (i) grave and material: tantamount to an eviction [Barash]
           E.g. changing the locks, physically barring entry (cant just be uncomfy)
           (ii) permanent: other than onetime or occasional [Milheim]

Apply the Facts: Is 5 days/month for the last 6 months sufficient to find it was more than
one time or occasional? Also, is it sufficient to find that such a time period is so grave as
to be tantamount to an eviction?
We must now examine if it was a total or partial eviction and the measure the
“permanence” and “graveness” in relation to that time period if it is indeed a partial
eviction.

       (3) The tenant was disturbed so much that he actually had to vacate the
           premises. (disturbance so bad that tenant vacated) [Majority View]
           This is an objective confirmation of the severity of the disturbance. If it was
            tantamount to an eviction there was no reason to stay.
         NY Rule (minority): Must vacate only in regards to the time and space that
            are infringed upon and can only get damages, no termination
LAWThere is a trend (not yet a majority rule) that courts recognize partial
constructive eviction, but we are unsure if State X recognizes it.
Apply: It looks as if it may be a partial eviction in which case we can look at the
graveness and permanence in respect to “space and time.”
If we decide to label it a partial eviction, then the tenant cannot terminate. Can only
terminate for a total eviction.
LAWA total eviction is sufficient to allow a tenant to get a lease terminated. A total
conviction does not have to be 100%, if you lost substantially all it is sufficient to be a
total conviction.
Apply: 5 days/month; odor permeated the restaurant; lost a % of profits. The odor can
deter customers from returning later when there is no odor.

So, is it a partial eviction?
LAWThe tenant must vacate (1) during the time and (2) with respect to the area of the
possible disturbance.
Apply: Did they actually shut down the doors, did they actually/physically vacate the
premises?

CONCEPT OF WAIVER
What if they had not left last time the sewer backed up, but now the next time the sewer
backs up they leave and try to get rent abatement?


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General Rule: You can‟t leave years/significant time after the fact. You must vacate
w/in a reasonable time after the disturbance commenced. If you fail to vacate w/in a
reasonable time, then you have waived the covenant of quiet enjoyment.

Is 6 months enough time?
Well, you have a rule of law, it‟s a bit ambiguous so look to the legislative intent.
The reason the courts do not want the tenants to delay is because if they delay, then the
courts are uncertain as to the seriousness of the condition; thus does it warrant
termination or rent abatement?
So, if there is an explanation of the delay that pleases the courts, then it may be OK.
If the explanation does not please he court, then too bad soo sad.

So is there an explanation for the 6 month delay?
         Shortage of rental properties.
         Did not realize then problem would recur; 1st time sewer had a problem.
         Had to tell the LL; LL said not his responsibility; needed time to realize that
            the LL was legally incorrect; then begin to look for a replacement space; etc.

Assuming LL did break the covenant of quiet enjoyment what remedy can we get?:
[Unsure covenant was broken because we don‟t know (1) if it was an act and (2) if it was
a total eviction.]
Termination: Not available
Damages: Yes
Rent Abatement: Maybe, because breach of quiet enjoyment is a breach of a dependant
promise; even in a partial conviction.
But, probably not because it is probably not a real act that caused the damages.

So only probably get damages here!




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II. Protection For the Landlord

A. Tenant‘s Duties
(1) The Tenant‘s Duty to Vacate: There is an implied duty in every lease that
the T must surrender the premises at the end of the lease.

(2) The Tenant‘s Duty Not to Disturb Other Tenants:
Duty: Must be an express promise by the T not to disturb the other T‟s (never implied).
Breach: Must be of an express provision.
At C/L the disturbance was not a breach unless:
        (a) excessive, and
        (b) deliberate
Remedies:
(1) Termination: Both (a) express promise not to disturb and (b) express provision of an
    essential promise allowing termination must be present in the K or no termination is
    available.
(2) Damages: Must be express promise not to disturb and the LL must have had a
    compensible loss to collect damages here.

Louisiana Leasing v. Sokolow (1966) [page 396]
There is an express promise/provision in the lease.
―15. No tenant shall make or permit any disturbing noises in the building … that will
interfere with the rights, comforts or convenience of other tenants.‖
The court read into this lease, the terms “excessive and deliberate.”
Never a right to terminate unless very explicitly stated in the lease. In paragraph 9 of
this lease it expressly states that, ―Any violation of any said rules and regulations set forth
[in] this lease … shall be deemed a substantial violation by the tenant of this lease and of
this Tenancy.‖ The term “substantial violation” in this case is not specific enough to
allow the rights of termination.
To allow termination it must be included expressly and explicitly in the lease.
Held: ―Since upon the evidence the overhead noise has been shown to be neither excessive
nor deliberate, the court is not constrained to flex its muscles and convict the respondents.‖




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(3) The Tenant‘s Duty to Repair:
(A) C/L Rule:
(1) C/L Rule for LL: The LL has no duty to repair when the lease is silent. The parties
can always agree otherwise. Any duty of the LL to repair must be explicit in the lease.
(2) C/L Rule for T (Majority Rule): If the lease is silent, then T had an implied duty to
make tenable (ordinary) repairs.
Tenable Repairs: Those necessary to prevent waste or decay and only call for a slight
effort and slight cost to the T.
(3) C/L Rule for Extraordinary Repairs: No one, neither LL nor T had a duty to make
extraordinary repairs. If lease said anything regarding T‟s duty to repair, then T must
make both ordinary and extraordinary repairs.

T still has a duty to pay rent even if the premises becomes untenable.
T can protect itself by putting an express provision in the lease shifting obligations.
Permanent injury to the premises must 1st occur before T‟s obligation to repair is
triggered.

(B) NY Rule:
NY Rule: NYRPL §227; if the premises becomes untenable and unfit for occupancy
because of injury or destruction by the elements, then T don‟t have to pay rent once T
surrenders possession (unless expressly agreed to otherwise).
Tenant must vacate (surrender property) to get rent abatement [use the statute].
Destroyed or Injured: This is an ambiguous term. The NY Courts interpret it by saying
“it must be a sudden event, not a gradual deterioration.”
(1) If a lease waives the right to terminate under §227 then, …
(2) Ct. said any obligations in the lease clearly inconsistent w/ rights and obligations in
    §227 are also a waiver.

NY Multiple Dwelling Law §78:
(1) Only applies to a residential building with 3 or more tenants.
(2) The LL has the duty to keep the premises, including the common areas in “good
    habitable repair.”
(3) The parties cannot agree otherwise.
(4) If the tenant willfully caused the disrepair, then the LL is not responsible for fixing it.
    [Tenant cannot be guilty of active waste or willful intentional injury.]
(5) Beyond active waste, the LL is responsible even for ordinary repairs.

Polack v. Pioche (1868)
A covenant to repair was included in the lease; but it excluded the repairing of ―damages
by the elements or acts of Providence [God]‖
In this case the flood was caused because man-made measure to keep the waters at bay
had failed; thus causing the flood which damaged the demised premises.
LawAt C/L if a tenant said nothing in the lease, then he was held to make ordinary
repairs; if he said anything about repairs in the lease then he was required to make
extraordinary repairs.
Apply: So the tenant must repair the damage because it is extraordinary repair and it is
not an act of God.


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(4) The Tenant‘s Duty to Avoid Waste:
This is a separate obligation from the duty to make repairs.
This protects any reversionary interests.
(A) General Rule:
Rule: There is always an implied duty to avoid waste by the tenant. The tenant must
return the premises at the commencement date in the same condition as when it was
received [minus any ordinary wear and tear].
Active Waste: The deliberate/intentional destruction or injury of the real estate. (This is
different from the duty to repair.)
Passive Waste: The failure to make minor repairs that lead to material damage to the
property. This failure can be due to negligence; does not have to be intentional or
deliberate.
         The LL‟s C/A for waste accrues as soon as the injury is permanent, the LL
            need not wait for the end of the term.

(B) Alterations:
Rule: The lessee must get the LL‟s consent to make alterations. The LL cannot
unreasonably withhold consent.
All alterations become property of the lessor upon installation.
At the end of the term the LL may require the lessee to restore the premises to the
original condition.
Every alteration is tricky, the court may later find it is permanent injury and that T had
committed waste.
There cannot be waste unless T has performed a culpable act; the injury cannot be
unforeseeable or beyond the T‟s control.


Sigsbee Holding v. Canavan (page 419) (1963) [NY]
The tenant replaced the old cabinets with new ones. The LL sued for waste but the court
said that it was not waste. [Not because they were newer or they increased the value of he
premises.]
Held: Because the changes ―did not materially or permanently alter the nature and the
character of the building‖ the tenant was not guilty of waste. You are guilty of waste if it
is impossible to restore the premises to the same condition at the expiration of the term.
You can alter the premises with the LL‟s consent; make sure you get in writing.
Even if you increase the value you can be held for waste.

[If you put concrete over wood floors probably permanent, if you tiled over wood floors
it would be closer.]




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(C) C/L Affirmative Defense of Changed Conditions for Active
Waste:
3 Requirements:
(1) There must be a permanent and material change of conditions; must be complete.
    (a) Neighborhood can change from residential to commercial.
    (b) Can be a change in the law.
    (c) Can be a permanent change in market conditions.
(2) The change must be beyond the tenant‘s control; not produced by the tenant.
(3) The change must render the present estate PERMANENTLY unproductive and of
    no use at all; absolutely unprofitable [not merely less profitable].
The tenant does not have to stand by and preserve the useless premises so that they can
turn over the useless house to the LL at the end of the term.
Must make sure that the conditions are permanent. The change in neighborhood, the
change in market conditions, etc… Need strong evidence at trial to prove this.

(D) NY Statutory Affirmative Defense:
Can be used when T alters or permanently destroys the building.
Much less restrictive than C/L affirmative defense of changed conditions.

NYRPL §803:
(1) A true owner of a future interest cannot recover damages if the T complies with the
    following requirements:
    (a) The alteration or replacement is one a prudent owner would most likely make in
        view of the existing conditions, and
    (b) The alteration or replacement will not reduce the market value, and
    (c) The alteration or replacement is not in violation of any regulations on the conduct
        of the owner, and
    (d) There must be a 5-year lease for T to avail himself to §803, and
    (e) The person making the alteration or replacement must give notice to each person
        with a future interest no less than 30 days prior to the action.
The owner may receive a security to assure work will be completed.
If all these requirements are fulfilled then T can take advantage of the statute.




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Notes on Tenant‘s Duties




           43
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(5) Big Hypos for Tenant‘s Duties

(A) [17.15 (page 412)]
The original lease said this:
―T shall make or pay for all necessary repairs in, on, or to the demised premises, whether
interior or exterior, structural or nonstructural, ordinary or extraordinary, regardless of
cause.‖
After negotiation the above sentence was rewritten to say this:
―T shall make or pay for interior, non-structural, ordinary repairs caused by T‘s use and
occupancy of the demised premises.‖

Facts The roof is decaying, the sprinkler and AC are inoperative, and the support beam is
weakened. Expert testimony said that this damage was considered exterior, structural or
extraordinary and would cost about 250K to fix.

Issue What duty does the LL owe the tenant?
LAWWhen the lease is silent, the LL has no obligation to repair. If there is an express
covenant then the LL may have a duty or if there a state statute imposes and obligation
the LL may have a duty. [LL has no duty to repair at all unless express in lease or state
statute tells him he does; Multiple Dwelling Law §78.]
Facts There is an express agreement for T to make ordinary repairs caused by the tenants
use and occupancy. This lease is silent as to the LL‟s obligations.

New Issue How express/explicit must the LL‟s promise be?
If the tenant‟s obligations are very narrow (only ordinary repairs); does that mean the LL
is responsible for all the rest of the repairs? NO
Imposing an obligation on the tenant means nothing regarding the LL‟s obligations.
The LL is not responsible for the repairs that the tenant is not responsible for.

Also 1st sentence of the lease said ―T has carefully … inspected … [and accepts] the
demised premises in their ‗as is‘ condition.‖

Waste:
LAWEvery tenant impliedly promises to avoid waste. The injury must be a
permanent, (foreseeable) culpable act w/in the tenants control.
There are 2 types of waste:
       (1) active waste: intentional injury
       (2) passive waste: negligent injury

Kennedy v. Kid (page 403)
In a month to month tenancy, T dies and his decomposing body releases a stench that
permeates the premises. The LL wants the estate to pay for the clean-up.
Held: The court said that there was no actual culpable act by the tenant; he was dead. He
actually did no wrongdoing – he just died.




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Melms v. Pabst Blue Ribbon (page 413)
Melms (P)(owner) is bringing an action against Pabst (D)(life estate) for waste.
A life tenant has the same obligation as a normal tenant to prevent waste.
In this case the tenant was culpable for failing to return the demised premises in original
condition; however, the tenant was still not liable because:
(1) There was a change of conditions that rendered the property unproductive.
What change of conditions justified leveling the house?
The neighborhood became industrial; no longer residential. No one would ever want to
live there again. [Must make sure that the neighborhood change is permanent.]
LAWGeneral Rule: A change of conditions can be an excuse for active waste by a
tenant.

Brokaw Case: Reason why §803 was established.
There was a large one family mansion from the 19th century on the upper east side. The
old man died; he left the house to his son for life and the remainder to his grandkids. The
son wanted to sell because the upper eastside was turning into apartments and it would be
much better to tear it down and build apartments. The grandkids enjoined him.
There was a change in the neighborhood, not caused by the son.
The house was very unprofitable; but unprofitable is not the same as useless.
So the change of neighborhood in the case did not allow the son to destroy, thus NY
adopted §803.

(B) [17.16] (page 418)
LL and T have a 50 year lease. A provision in the lease allows T the option to buy the
leased premises for the sum of 10,000$ at any time during the lease as long as 60 days
notice is given. 30 years before the end of the lease, T demolishes the building to make a
parking lot, although the premises could be used to make profit by not demolishing the
building. LL sues T to recover for the damage to the leased premises resulting from T‟s
acts. What defense would you advance for T?
(1) T increased the value of the premises; thus T is not liable.
Waste argument. There was a change in the nature of the premises, the value did not
diminish; thus the property will not be returned to the owner in the same condition as
when T 1st got it (minus wear and tear; not demolition)
(2) There was a change of conditions.
The market changed, there was little parking in the area; thus the value of the property
was much higher as a parking lot. But the property w/ building was not totally useless
and it was not extremely unproductive.
(3) NYRPL § 803 (has important ambiguity to give the courts leeway in their
    interpretations of cases before them)
Would a prudent owner have make such change?
The option to buy clause makes T a possible future owner (T has possible future
interest). If there was no reversionary interest, is there an act of waste?
New Issue: Is T‟s possible future interest relevant; thus making T‟s destruction excusable
because of his option to buy.
Rule: Waste only protects a reversionary interest in the land in question.
Rule: An option to buy does not eliminate LL‟s reversionary interest, only a obligation
to buy would do that.


                                             45
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B. The LL‘s Remedies (AKA Remedies Available to the LL)
(1) The LL‘s Right to Collect a Security Deposit
Rule: The LL has the right to collect a security deposit.

(A) C/L Rule: When the LL collects a security deposit, only a creditor/debtor
relationship is created. The LL can use the money in any matter he wishes so long as he
returns it on the specified date. The LL can co-mingle funds, and the money is not held
in trust for T.
Implied in every lease at C/L: After a default by the T, the LL has the right to apply the
deposit money to reduce any of the losses/damages incurred. The tenant is then obligated
to pay for any additional damages above the deposit; and then to replenish the deposit
back to its original amount.

The C/L Rule was no good for the T:
     (a) No interest on their $.
     (b) No assurance or guarantee the $ would be returned.
     (c) Big corps incorporate every building so hard to reach much money.

(B) NY Rule:

NYRPL §233:
(1) The security will be held in trust by the LL for the tenant, and
(2) The LL shall not intermingle the security deposit with his own funds, personal
    money, etc., and
(3) The parties CANNOT AGREE OTHERWISE. Any agreement whereby the tenant
    waives this provision will be considered absolutely void.
LL not required to put $ in a bank but usually do because cant co-mingle anyway.
If LL does deposit $ in a bank, it must be a NY bank and the T must be notified of its
whereabouts. (remember LL is not obligated to put the $ in a bank)

General Obligations Law §7-103: [Adds to NYRPL §233.]
(4) In a building with 6 or more units: [only 6 or more units]
         This applies only for residential leases.
         The money must be deposited in a bank.
         The money must be in an interest bearing account for the benefit of the tenant
        (minus administration charge for the LL).
        T gets interest only if the lease says so, otherwise the LL gets it.




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(2) The LL‘s Right Get Rent Acceleration

(A) C/L Rule: There is no implied right to rent acceleration in a lease. If, however, the
right is explicitly in the lease, then it is generally enforced (only after the triggering
event).

(B) Four C/L Affirmative Defenses that Allow a Tenant to Avoid Rent
Acceleration:
(1) If the breach is trivial or technical, then rent acceleration will not be allowed.
In 50 States, the not paying of rent because of mailing error may have been trivial.
But, when the D did not correct the situation when it could, then that made is very non-
trivial.
(2) If the breach is due to a good faith mistake which is promptly cured; then
     regardless of what the lease says, the LL is not entitled to rent acceleration.
In this case, clerical error was not good faith cause they could have remedied the
situation but failed to do so.
(3) The remedy of rent acceleration is unenforceable as a matter of law if it is a penalty.
Penalty: The amount is disproportionate to the actual loss incurred. Its primary function
is to coerce performance.
Liquidated Damages: When the amount is close/an estimate of the actual loss incurred.

2 Questions to Ask in Deciding if it is a Penalty or Liquidated Damages:
(1) Are the LL‘s losses uncertain?
If YES, then court may allow rent acceleration.
If NO, then the remedy is limited to the actual loss.
(2) If losses are uncertain, is the remedy a reasonable estimate of the LL‘s loss?
If YES, and (1) was YES, then the court will allow Rent Acceleration.
If NO, then the remedy is to coerce performance and thus no Rent Acceleration.

Hypo: If triggering event is rent default, and LL want Rent Acceleration, it will not be
considered a penalty:
       (a) LL uncertain as to how many months T will continue in default.
       (b) LL uncertain as to how long he will have to wait for his money.
       (c) LL uncertain as to how much it will cost to collect the money.
       (d) Rent Acceleration is a reasonable estimate of the LL‟s losses.

(4) The remedy of rent acceleration is unenforceable as a matter of law if it is
    unconscionable.

Affirmative Defense of Unconscionability:
―Absent some element of fraud, exploitive overreaching or unconscionable conduct on the
part of the LL to exploit a technical breach, there is no warrant, either in law or equity, for
a court to refuse enforcement of the agreement of the parties.‖




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(C) NY codification of C/L defense of unconscionability:
NYRPL 235(c):
If the court finds that as a matter of law, a provision of the lease is unconscionable, the
court may either:
        (a) Refuse to enforce the whole lease; or
        (b) Enforce the lease without the unconscionable clause.
The term “unconscionable” is not defined in the statute so we look to the C/L to give us a
definition. There are 2 types of unconscionablity:
(1) Substantive Unconscionability: The term is grossly unfair.
For example:
    (a) “For the violation of any default, the LL can ask for rent acceleration;” this is
        grossly unfair. [Can call it a penalty, unconscionable, etc.]
    (b) “For a rent default, the LL can ask for rent acceleration;” this can be arguable.
    (c) “LL can get compensated for any losses;” not grossly unfair.

(2) Procedural Unconscionability: The parties did not actually agree on the K.
For example:
    (a) Adhesion K: There was no opportunity to bargain so the clause was forced upon
        you.
    (b) Tenant Incapable of Understanding: Not just this particular tenant, but any
        (reasonable) tenant. If you don‟t know what a lease says then you couldn‟t have
        agreed to it.
    (c) Provision was Hidden: The tenant did not know the lease was there so he could
        not have agreed to it.

NY Rule: Need both procedural and substantive unconscionability to be unconscionable.
Other States: Other states may allow one or the other.
Thus, NY gives leeway to allow T‟s to make “bad” leases.

Why was there no procedural unconscionability in 50 States? Because it was not
boilerplate, it was the result if extensive negotiations. Also an attorney helped out, so he
knew what was up.




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(3) The LL‘s Right to Forfeiture

(A) C/L Rule: There is never an implied right of forfeiture/termination in any lease;
any such right must be expressly stated in the lease [there must be an express triggering
event].
There is no obligations of T to LL that are impliedly essential, even if the tenant does
not pay rent there is no right to forfeiture.
Generally, explicit forfeiture clauses are enforced, but courts do so reluctantly
Because the courts say that forfeiture clauses are never a penalty, they are enforceable.


(B) There are 4 Affirmative Defenses that Allow a tenant to Avoid
Forfeiture:
(1) Strict Construction: Because forfeiture is disfavored, the courts will strictly construe
    the remedy in the lease itself.
    (a) There can be ambiguity in what the triggering event actually is.
    (b) There can be ambiguity in whether the LL has the remedy of forfeiture or not.
E.G. ―LL may sue for same, or re-enter said premises, or resort to any legal remedy.‖ The
court said that this was not clear enough to say that the LL could terminate the lease.
(2) Waiver: (Not limited to forfeiture, but most commonly used in forfeiture.) If the LL
    waives a default once, he waives the remedy forever (unless he reserves the right).
E.g. accepting rent after the due date one time can be considered a waiver of the future
ability to forfeit.
(3) The triggering event must be a material violation of a substantial provision of the
    lease. (It can‟t be a stupid/trivial triggering event or forfeiture will not be enforced.)
(4) Demand: If you want forfeiture for a default of rent payment, and the remedy is
    sufficiently valid under the terms of the lease; then the LL must 1st make a demand
    for the rent. The demand must be (a) refused or (b) not cured.
The lease does not have to say “demand” is necessary, the courts imply ―demand‖
into every lease because forfeiture is a very drastic remedy that courts don‟t take lightly.




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(4) The LL‘s Right to Self Help
All the statutory remedies require going to the courts; courts are slow and take a long
time.
(A) C/L Rule: If a default occurred and the lease allowed for automatic
termination/forfeiture, the LL can physically dispossess the tenant (Self Help) by any
means short of serious injury or death.
        Don‟t worry about the courts, just to break in and throw the tenant out 

(B) NY Rule: No NY statute has abolished the C/L remedy of Self Help. NYRPL §7-
11 is an additional remedy but is does not effect Self Help.

NYRPL §7-11: Summary Dispossess (An additional remedy to Self Help.)

Forcible Entry: Abolished in most states, including NY.
When NY abolished forcible entry it did not abolish Self Help

NYRPAPL §853: Abolished Forced Entry in NY and allows for treble damages.
―If a person is put out of real property:
(1) in a forcible or unlawful manner, or
(2) after he has been put out, is held out 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 against the wrongdoer.‖
Forcible is not defined in the statute so look to the C/L for the definition.
C/L definition of Forcible: Any threat of personal injury or death.
So the LL has room to maneuver, do self-help, and not pay treble damages.
C/L definition of Unlawful: When the lease does not allow for termination and/or re-
entry.

Many other states that abolished forcible entry said that they also abolished self help.

Freeman (1986)
In a residential property rent is not paid for May. The LL calls the locksmith, opens the
door, has locks replaced. Tenant returns and objects, LL says get out or you'll be arrested.
Forcible? No harm of personal injury.
Unlawful? Lease allowed for re-entry.
Court said no treble damages because no force or unlawfulness.
The holding is strictly limited to the facts in this case.

So in NY, the C/L right to self-help is still allowed. But it is not advisable because if any
violence erupts, then the LL can be liable for treble damages.
You can be forcible even if you only threat personal violence.




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(5) NY Statutory Rights of the LL
There are 2 major rights under NY Statutory Law:

(A) Article 6: Ejectment Action ―When you have a right to recover possession as a
LL (i.e., after the expiration of the lease), you can bring an action under Article 6.‖
This action is NOT CURABLE, and is allowable at any time after the expiration of
the lease (when the LL has a right of possession).
Any use clause in a lease is not an impliedly essential promise as a matter of law; it
must be made explicitly essential or it is not essential at all.
This is a normal civil proceeding so it takes much longer than an Article 7 proceeding.
There is a delay form the time the verdict is handed in and when it is effectuated.
Any explicitly essential promises will be recognized.
         For the Tenant: Enjoyment and Habitability were promises from the LL that
            allowed the tenant to seek termination.
         For the LL: There is no implied promise from the T that allows for the LL to
            seek termination.
Hypo: Camel has a lease and he violates one of the use terms, there is no mention in the
lease for remedies. Can LL get ejectment under Article 6? Because ejection/termination
are very serious, it must be extremely express and explicit to allow for such remedy. In
this case there is no explicit statement so no ejectment.

(B) Article 7-11(1): Holdover Proceedings
The substantive law is the C/L, the procedural law is §711(1).
The T has no right to cure here, so LL‘s prefer 7-11(1) instead of 7-11(2)
Rule: The T cannot be removed except by special proceedings that can be maintained on
the following grounds:
(a) T is a holdover, present after the expiration of the lease term. (Automatic Forfeiture
    Clause ~ the lease comes to an end on its own terms.)
(b) Acceptance of rent does not terminate or effect these proceedings in any way.
(c) If a lease provision allows for termination, the LL by competent evidence must
    establish to the court that the T is objectionable.
The LL may waive his right to proceed by this method, but only by an express writing.
This waiver is revocable at will, however, if the LL brings an action he cannot collect
money for the time he had waived.
The automatic forfeiture clause must not be ambiguous or the court will refuse to
enforce it. The courts will stretch and try to create ambiguity to avoid forfeiture:
         (a) Courts don‟t like forfeiture clauses.
         (b) Courts want to protect the T‟s.
         (c) Courts want to preserve the T‟s absolute right to cure.
If there is no automatic termination clause then you have to use an Article 6 Action for
a court ordered termination.
The court will interpret “may terminate” to mean “may terminate with a court order,”
thus any clause must be very specific or will be construed away.
NYC exception to T having no right to cure: §753
For a hold over proceeding, of a residential premises, in NYC the court will grant a 10-
day stay during which the T is given time to cure.


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(C) §7-11(2): Non-Payment Proceedings
7-11(2) is both the substantive and the procedural law.
The T has an absolute right to cure at any time before the issuance of the
warrant; if T cures then the case is dismissed. Thus, LL‟s prefer holdover proceedings
because 90% of the time there is no right to cure.
Rule: The T cannot be removed except by special proceedings that can be maintained on
the following grounds:
(a) There must be a default in payment of rent (pursuant to the terms of the lease).
(b) There must be a demand for the rent by the LL.
(c) The T must be notified and given 3 days to correct the rent situation.
So here, the lease need not be ended; only (a) and (b) need to be met.
 This changes the C/L for default of rent payment, this statute allows you to evict the
tenant.
The LL may waive his right to proceed by this method, but only by an express writing.
This waiver is revocable at will, however, if the LL brings an action he cannot collect
money for the time he had waived.

(D) Big Hypo: In Camel lease there was a use clause and then this clause, “In the event
of a default in the payment of rent, or in compliance with the use clause, the LL may
terminate Camel‟s lease.”

There are 3 Possible Proceedings:
(1) Article 6: Generally
(2) Article 711(2): For non-payment, Ray did pay so this does not apply.
(3) Article 711(1): For a hold-over. This must be after the expiration of the lease. If
    term is ended, 711(1) is always available.
If there is an early default and no express clause, then there is no implied right of
forfeiture.

In Jamaica, the lease read as follows, [Contains an automatic forfeiture clause.]
“The T shall pay rent at the time and in the manner above provided without demand therefor.
  This lease is given and accepted upon the express understanding that in the event of a breach
of any condition or covenant herein (i.e. rent), or if the LL shall deem the tenancy an
undesirable one, the LL may terminate the lease by giving 5 days written notice of an
intention to terminate, and the term of this lease shall in that event run to, and expire upon
the date therein mentioned (in the notice, so it will end early), and any rent paid by the T, in
advance for a period extending beyond the termination date, shall and may be retained by LL for
liquidation of damages (not penalty or forfeiture).”
So, the next day after the lease is over by these terms, the T may bring 711(1) holdover
proceedings.
But the above terms were boilerplate, there was also typewritten terms which shed doubt
on the automatic forfeiture. The typewritten terms are as follows:
“In the event that rent shall not be paid to the LL w/in 5 days of the due date, the LL by his
attorney shall institute summary proceedings based on non-payment of rent.” This would be a
711(2) proceeding that would allow for the T to cure.
So these terms are conflicting but the typed beats the boilerplate because it is most
likely to reflect the true intentions of the parties.


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Policy: The court does not like automatic forfeiture. Want to preserve the statutory right
to cure if possible.
(1) The LL drew up the lease so construe it against him.
(2) By avoiding holdover action; making at a non-payment of rent, the court allows the T
    the absolute right to cure.

First National v. Yellowstone Shopping Centers: (1968, page 1-8 supplement)
The LL got a notice from the fire department that by statute he needed to install
sprinklers in the T‟s premises. The LL and T are arguing over who has to install them.

If lease was silent, would LL have the obligation to install them?
NO, C/L gives the LL no obligation at all. The LL owes a duty to the municipality to
install them but not to the T.

If lease was silent, would the T have the obligation to install them?
Must look at (1) ordinary v. (2) extraordinary.
Ordinariness test: Need to know the cost in relation to the value of the lease.
         If the cost is low in relation to the lease  Ordinary.
         If the cost is high in relation to the lease Extraordinary.
Big problem here is that this is not even a repair. To have a repair, there must first be a
permanent injury to the premises.
Overall, neither the LL nor the T had the obligation to install the sprinklers.

Paragraph 5:
―Lessor further agrees … to make all repairs to or alterations of the leased premises which
may be required by governmental authority‖ [This alone would appear to pin the burden on
the LL, however the article continues.]
―Lessee agrees to observe and comply with all governmental authority relating to matters
affecting the [premises] and its use in the normal course of business, the lessee shall not be
required to make any exterior or structural repairs, additions, alterations or changes or any
other repairs, additions, alterations or changes made necessary by any requirements of
governmental authority, or amendments thereto, pertaining to matters which affect retail
establishments generally and over which lessee would not exercise control during the normal
course of its business operations.‖ (emphasis added)

The Appellate Division interpreted this as meaning that the lessee had to make repairs
required by a governmental authority that coincided with its specific use of the premises.

On 2/24, the LL sent T a 10-day notice of default pursuant to the lease which stipulates
―[If] lessee defaults … and such default shall continue for 10 days after receipt by the lessee
of written notice given by the lessor, the lessor may declare the term of the lease ended, and
may re-enter on the premises either with or without process of law, and remove all person
therefrom.‖
The court says this is clear enough to say the parties intended automatic forfeiture.

By the terms of the 10-day notice, the lease will come to and end on March 6th.



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On February 28th, the T starts action for declaratory judgment to decide who has to install
the sprinkler.
The parties went through lawsuits and appeals and finally the court said it was the T‟s
responsibility.
After all this, the LL said, too bad so sad, it is too late. Your lease terms ended March
6th, several months ago. The declaratory judgement proceedings did not stop the 10-day
time period.
―Here, the lease had been terminated in strict accordance with its terms. The tenant did not
obtain a temporary restraining order (―TRO‖) until after the LL had acted. The TRO
merely preserved the status quo as of the date it was obtained.‖

Yellowstone Injunction: The lesson in this case is that if your client is in default and
facing an automatic forfeiture clause, ask for a TRO (AKA temporary restraining
order AKA Yellowstone Injunction). It will preserve the status quo as of the time it was
entered.

If in this case the T put in a TRO February 28th, and then the verdict said T is obliged,
then the T would have 6 more days to cure or at least agree or begin commencing
performance.

(6) LL‘s Right‘s When the Tenant Abandons the Premises
C/L Rule: For residential and commercial premises, there is no implied promise that the
T will remain in possession during the lease term. (They can pay rent and live elsewhere.)
Law: When T abandons premises, LL has 3 options:
(1) LL can treat abandonment as an offer of surrender and if LL wants to he can accept
    the offer. Thus, the lease has ended.
Absent clear evidence to the contrary, the LL is deemed to accept option #1.
(2) The LL can ignore the abandonment [implicit here is no duty to mitigate damages].
    Both K and Property law have no duty to mitigate loss.
(3) The LL can attempt to relet on T‟s behalf. Here the lease ain't at an end, instead, you
    are just reletting as an agent of the T.
If LL wants to exercise #3, he must notify T of his intent.
If LL informs T he is reletting on behalf and gets more money than the lease price, the
LL gets to keep the excess rent. The T is a wrongdoer and the law does not want a
wrongdoer to benefit from his wrongdoing.




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(7) The LL‘s Rights When the Tenant Holds Over
(A) C/L Rule: When the lease comes to an end and the T is holding over, the T can
become either (a) a trespasser or (b) a new T from period to period; at election of the LL.
          The parties can agree otherwise.
          Once the LL “elects” (makes his decision) he cannot rescind.
If T is a Trespasser: LL recovers loss from the T for the period that LL is deprived of
possession.
If T is a Holdover: T becomes a renewed T from period to period (periodic tenancy)
Period is the same as the period in the original lease, but never more than a year.
Rent is whatever the LL decides it is. LL can send a note to T telling T he is not a
trespasser but a renewed T and the new rent is __$.
All the promises/covenants from the 1st lease carry over to the 2nd renewed lease.
There is no mercy for the T. LL can consider him a holdover if he is in possession
even one second after the lease term has expired. No Excuses!

3 Rationales for Giving the LL this Unusual Power:
(1) ―The rule is sometimes stated to be based on the theory that the T holding over
    presumably intends to prolong the duration of his tenancy by another term.‖ The
    facts in most cases do not allude to this. So holdover is treated as an offer by the T
    that the LL can choose to accept if he wishes.
(2) ―The rule imposes a penalty upon the individual T wrongfully holding over, but
    ultimately operates for the benefit of T‘s as a class by its tendency to secure the
    agreed surrender of terms to incoming T‘s.‖ This gives incentive to T to leave on
    time and also assures that T1 will get possession of premises when he has the legal
    right to do so.
(3) ―[I]t seems the better view, to regard the liability of the T wrongfully holding over
    as one imposed by law on the T, w/o his express or implied consent, and enforceable
    in an action at law as a quasi-contractual obligation [so that justice can be done
    between parties].‖

For K obligation, you pay because you promised to.
For quasi-K obligation, you pay because you‟ve been given the benefit, i.e., restitution.

(B) NY Rule (NY Limits the LL‟s Power)
NYRPL §232(c):
(1) LL no longer has power to create holdover tenancy. Now the T has the power to
    create a holdover tenancy if he so decides.
(2) If T pays rent to the LL, and the LL accepts the rent, a month to month tenancy is
    created.
(3) All else from C/L remain, i.e., all promises/covenants carry over.
C/L: If it is a month to month tenancy, then to terminate you must give 1 months notice;
if quarter to quarter, then give 1 quarter notice; but this time period never extends past 6
months.
NY Rule: You need not give any prior notice whatsoever, you can notify up to the last
hour of the K.



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NYRPL §232(b): Applies everywhere is NY, except NYC.
For a period to period tenancy to be terminated, the LL or the T must notify the other at
least one month before the expiration of the term.
For tenancy of a definite term, no notification to terminate is necessary.
Notice must be given 1 month in advance and the termination date must be the last date
of a period. So if give notice on March 11th, then cannot terminate until April 30th.
NYRPL §232(a): Applies only in NYC.
For a period to period tenancy, the obligation is on the LL to provide notice 1 month in
advance.
T‟s obligation is not changed so follow C/L, AKA T can notify at any time even 1-hour
before termination.
Notice must be given 1 month in advance and the termination date must be the last date
of a period. So if give notice on March 11th, then cannot terminate until April 30th.
NYRPL §229: Holding over Statute. If T gives LL notice of intention to leave the
premises and does not deliver the premises on that date, he must pay the LL double rent
during the holdover period.
The case-law says that this statute only applies to a tenancy at will. It does not apply to
a tenancy of fixed term or a periodic tenancy. Tenancy at will is very rare so this statute
rarely applies.

Jaraslow: In NY, after 1965, if there is a holdover periodic tenancy, unless there is an
agreement providing otherwise, it becomes a month to month tenancy. (NYRPL §232(c))
In Jaraslow, the court said that no periodic tenancy was created because no rent was
either offered or accepted
Because the lease expired, the LL had the right of possession, the holdover interfered
with this right, so the LL can get damages for not having possession.
Here the LL can get (1) incidental and (2) use & occupation damages; probably get the
FRV of the premises for the time deprived of possession.

Problem 21.2 (Page 593): LL and T had a 1-year lease. A clause allowed for 2x the rent
in the event of a default by the T. T tells LL he is vacated and begins doing so. The
night the lease expires, everything was not moved out, T sleeps there and moves out the
next morning. LL says a holdover for another year.
This is holding over not because there was stuff still left, not cause they slept there, but
because they locked the door and excluded the LL from possession.
At C/L: The General Rule would allow it. ―[Absent] qualifying circumstances implying
consent to a holding under some new arrangement, the holding over is a legal trespass, and
does not depend upon the intention of the T. It is a wrongful holding, whatever the cause,
though perhaps not culpable in a moral sense, and the rights of the LL are definitely fixed
by the law. There is uniformity in the decisions against the contention that the intention to
vacate as soon as possible can affect the right of the LL to elect to treat the holding over as a
renewal of the lease for a year.‖

T argues that there is only a 1-month tenancy created. Because the K says double
damages for the “period held over.” This seems to curb the LL‟s rights.



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Notes on the LL‘s Rights/Remedies




               57
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III. Assignments and Subletting
(A) Background Information
(1) General Rule
Subletting: When the tenant just carves out some of its possessory rights.
Assigning: When the tenant transfers all of the space for all of the remaining term.

General Rule: When the lease is silent, the T need not get the LL‟s consent in order to
assign or sublet. The parties may agree otherwise.
Policy: The courts want to encourage free alienability (the right to transfer property).

(2) Exception to the General Rule: When the LL enters into a lease relying on
the special identity of the T, there is an implied agreement not to transfer.
A percentage lease with a low fixed rent and almost all of the rent coming from % of
gross sales is proof of this “special identity.”

(3) When Parties do Agree Otherwise: Remember, Courts like Free
Alienability.
Techniques by which courts get around agreements to the contrary:
(1) Strict Construction: Try to make free alienability.
(2) Waiver: Try this when strict construction is fruitless and does not let you get around
    the restriction. ―T will not assign/sublet w/o LL prior written consent.‖
Courts can try to get around this phrase by waiver.
        (a) Expected Waiver: T sublets and LL never consents. LL continues to accept
            rent from the new T and never complains.
        The LL has waived his rights so long as he had
                 (i)    Knowledge of the transfer, and
                 (ii)   Some act of acceptance of the transfer.
        (b) Unexpected Waiver: If one time the LL allowed a transfer w/o consent and he
            never retained the right to consent to all future transfers; then the LL has
            waived his right to ever require consent again.
When a LL‟s Consent is Necessary it Cannot be Unreasonably Withheld:
(1) An Objective Standard: Any LL would find this T objectionable. For financial
    responsibility, nature of occupancy (factory, MD office, etc.), suitability for particular
    building (1st class building with a 3rd class T).

(4) NY Rule: RPL §226(b) For Residential T‘s Only
(A) Assignment under §226(b):
(a) If the lease is silent, the LL‟s consent is necessary (Not necessary at C/L unless the
    lease said so).
(b) LL can unconditionally w/hold consent provided that the LL release the T from the
    lease within 30 days.
(c) If the LL reasonably w/holds consent, there is no assignment and the LL does not
    have to release the T from the lease. The statute does not define “reasonableness” so
    we go to the C/L.



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C/L Definition of Reasonableness: The objective standard is applied. Any LL would
find this T objectionable. For financial responsibility, nature of occupancy (factory, MD
office, etc.), suitability for particular building (1st class building with a 3rd class T).

(2) Subletting under §226(b):
(a)   This restriction applies to dwelling of four or more residential units
(b)   If the lease is silent then the LL‟s consent is necessary in order to sublease.
(c)   The LL‟s consent shall not be unreasonably withheld.
(d)   If the LL reasonably w/holds consent, there shall be no subletting and the T shall not
      be released from the lease.

In general, parties can agree to give the T more rights, but parties cannot agree to
give the T less rights.

Hypo: Chase merged with Chemical: Chase closed its space at 101 Park Ave. 1 floor,
20K square feet, the lease was from July 1, 1995  June 30, 2005. It is 1998 and Chase
no longer needs the space. Chase is paying 30$ a square foot. They find a Denver Law
firm that will pay Chase 40$/ foot.
(1) Does Chase have the right to transfer occupancy w/o the LL‟s consent?
-Look at the lease; see if it is silent. If there is an express provision then just follow that.
If Silent: For a sublet one does not need LL‟s consent because T1 is just carving out
some of its possessory rights.
A & P: If the lease is silent then the T has the right to transfer w/o restriction.

 ―An implied covenant limiting the right to assign will often be found in those situations in
which it is evident that the LL entered into the lease in reliance upon some special skill or
ability of the lessee which will have a material effect upon the fulfillment of the LL‘s
reasonable contractual expectations.‖ Sometimes the T has a special identity/skill that is very
important to the LL and no other T would be acceptable.
(2) Who is entitled to the extra 10$ per foot?
-If need LL‟s consent then he will say its his.
-If no need LL‟s consent then T1 will claim it as his own.

LL‟s consent is necessary but cannot be unreasonably withheld.




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(B) Assignment
Definition: The T transfers all of the space for all of the remaining term
When there has been an Assignment:
(1) The (T1) assignor no longer holds the estate, the (T2) assignee now holds it.
(2) The LL is not in POE with T1 (is in POK).
(3) The T1 is not in POE with T2 (may be in POK).
(4) The LL is in POE with T2 (not in POK).

The court says that when there is an assignment from T1 to T2, T1 impliedly, as
a matter of law, assigns to T2 all of T1‟s K rights (not T1‟s K obligations). This
implied assignment gives POK b/w T2 and LL [so a C/A can occur here].

(1) 3 Kinds of Assignments:
(1) Pure Assignment:
    (a) The assignor transfers all of his interest, everything.
There is POK b/w LL and T1.
There is no POK b/w T1 and T2, because T2 never promised to perform any of the
obligations under the lease.

(2) Assignment plus an Assumption:
    (a) The assignor transfers all of his interest, and
    (b) The assignee promises to perform all of the obligations of the assignor under the
        lease.
There is POK b/w T1 and T2.
There is POK b/w LL and T1. The LL cannot lose POK with T1 unless the LL
actually releases T1.
         T2‟s assumption of T1‟s obligation is not sufficient to release T1.

(3) Assignment, Assumption and Release:
    (a) The assignor transfers all of his interest, and
    (b) The assignee promises to perform all of the obligations of the assignor under the
        lease, and
    (c) The LL releases the assignor from all of its obligations under the lease.
There is no POK b/w the LL and T1 because of the release. This (#3) is the only
instance where the LL cannot sue the original T because the K is at an end and the 3rd
requirement for POK is not met.




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(2) When is there Privity of Contract Between the 2 Parties?
There are 3 Requirements to get Privity of Contract:
(1) Agreement: Looking to the parties to the lawsuit, is there an agreement between
    these two parties?
3rd Party Beneficiary Exception: When the 2 parties to a K agree that a stranger (not a
party to the K) will be able to enforce the K. If the parties intend the LL to be a 3rd party
beneficiary, then the LL will be able to bring a suit when there is technically no
agreement between the LL and T2. (So LL is now in POK w/ T2)
         When the LL‟s consent is necessary for an assignment, the court holds that
            this is sufficient to label the LL as a 3rd party beneficiary.
T1 cannot sue T2 under a pure assignment because T2 never promised to perform any
obligations under the lease. For T1 to be able to sue T2, there must be at least an
assignment plus an assumption.
(2) Subject Matter: In the agreement, is there an express term that is the subject matter
    of the lawsuit? [Must be express, cannot be implied.]
(3) Release: Was there any extinguishment, termination or release of the K?
General Rule: An assignment is not a release of T1.
Any release must be expressly stated.

(3) When is there Privity of Estate Between the 2 Parties?
There are 3 Requirements to get Privity of Contract:
(1) Created Estate: One of the parties to the lawsuit created the estate.
(2) Holds Estate: One of the parties to the lawsuit holds that very estate.
When there is an assignment, T2 holds the estate created by the LL, not T1.
(3) Promise Runs with the Land: The promise that is the subject matter of the
    lawsuit runs with the land.

(A) What covenants do run with the land?
Rule: A covenant runs with the land if it “sustains the estate and the enjoyment of it.”
This requires a 2-part test:
(1) Look at the nature of the covenant; its primary purpose should be to benefit the
    estate (i.e., sustain the estate and the enjoyment of it); instead of being primarily for
    the personal benefit of the LL or the T.
(2) Look to the intentions of the parties, if it is clearly expressed that the covenant does
    not run with the land then it does not. [If clear that covenant will run with the land,
    yet it does not sustain the estate, then the covenant does not run with the land.]
Intention need not be proven by party who wants the covenant to run with the land but
must be disproven by the party who does not want the covenant to run with the land.
Sustain estate: Benefit for the one who owns the land or holds the lease, not a personal
benefit for the LL or T. A close distinction so must look at the primary benefit.
Rule: The rent always runs with the land.
A promise to repair would most likely run with the land.
A promise to insure plus an obligation rebuild  Runs with the land.
A promise to insure w/o obligation to rebuild may primarily benefit the LL or the T,
depending on who gets the $  Does not run with the land.


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(4) Rule in Spencer‘s case: This as been around for centuries.
It does not matter if the promise sustains the estate, it only matters if the parties intend
that the assignee be bound. We find intention in the lease; see if the lease says „binding
to T, successors and assigns.‟
T2 is presumed to be bound by a promise that relates to an improvement in existence
when the lease is made. [Improvement: Anything not part of the land.]
―When the covenant extends to a thing in esse, parcel of the demise, if the thing to be done
by force of covenant is in any manner annexed and appurtenant to the thing demised, it
shall go with the land and bind the assignee, although he be not bound by express words;
but where the covenant extends to a thing which is not in being at the time of the demise
made, it cannot be appurtenant or annexed to the thing which hath no being.‖

Samuels (page 553, 1915)
The LL leased to T1, T1 assigns to T2. T2 defaults and does not pay T1. LL sues T1 for
the $. Is this possible?
There are 2 legal basis for this suit  (1) privity of K and (2) privity of estate.
So in the Samuels case,
(1) Yes, there was the lease b/w LL and T1.
(2) Yes, there was an express promise to pay rent in the lease, and rent is the subject
    matter of the lawsuit.
(3) When there is an assignment, does the original K come to and end?
So the answer is no because no release was expressly stated, the original K is still viable.
Because all these requirements are met, there is privity of K b/w the LL and the T.

Reid (page 557, 1898)
Original K is Reid to Miller. Day 1, Miller assigns to Wiessner. Wiessner then assigns
to Jones. (Reid  Miller [T]  Wiessner [T1]  Jones [T2])
Miller to Wiessner was valid.
The court said that Wiessner to Jones was also OK, because the LL no longer had the
right to consent. [Waiver]
Can Reid sue Wiessner based on privity of K? NO, Reid only had an agreement with
Miller. (Possibly try a 3rd Party Beneficiary course of action.)
Can Reid sue Wiessner based on privity of Estate? YES
(1) Reid created, (2) Wiessner holds, (3) Rent runs with the land.
Minority View: LL must commence action while Wiessner still holds estate, before he
assigns to Jones.
3 C/A for assignment:
(1) LL v. T1  Privity of K
(2) LL v. T2  Privity of Estate
(3) T1 v. T2  No privity of estate (neither party created the estate)
     For (#3), sometimes privity of K if (2) assign and assumption or (3) assign,
    assumption and release. [Whenever an assumption, broad promise to perform all
    duties under the lease.]
    If it is a pure assignment, then T1 cannot sue T2; if either of the other 2 (with an
    assumption), then T1 can sue T2.



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(C) Sublease
Definition: T1 just carves out some if his possessory rights and transfers them to T2.

Owner‘s Rights: The right of possession is perpetual; it never ends.


Can the LL sue T2?
(1) POK: NO; no agreement b/w LL and T2.
3rd party beneficiary concept does not apply to subleases. (only for assignments)
(2) POE: NO; T1 created the estate T2 has. (LL did not create this estate.)
 The owner created a 5 year right of occupancy for T1. T1 took his piece and carved
out a 1-year right of occupancy for T2. So LL cannot sue T2 on Privity of K or Privity of
Estate.


Can the LL sue T1 (original tenant)?
(1) POK: YES; always. [Assuming all requirements are met.]
(2) POE: Sometimes; if the covenant runs with the land.


Can the T1 sue T2?
(1) POK: As long as there is no release. [There is an agreement and an express promise.]
(2) POE: As long as the promise runs with the estate. [One created and one holds.]
So Original T always has a C/A against T2 based on either privity of K or privity of
estate.




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Notes on Assignments and Subletting




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(D) Review Questions
Page 567, Problem 20.3
 L and T enter into lease whereby L covenants to keep the premises in repair. T
assigns to T1. After assigning, the premises need repairs.

New Issue: Factually, this is different from what we are used to. Can the assignors or
assignees have the right to bring a C/A against the LL?
This deals not with T‘s obligations, but with T‘s rights.

T sues LL for breach of covenant to repair:
First we must see if there is privity of K; look at the 3 criteria:
(a) Is there an agreement between the 2 parties to the lawsuit?
Yes, there is the lease between T and the LL.
(b) In the agreement, was there express language relating to the subject matter of the
    lawsuit?
Yes, in the lease there was an express covenant that the LL would keep the premises in
repair. The “repair” is the subject matter of this suit.
(c) Was there a distinguishment, release or termination of the K?
There was no mention of release of an express promise; neither T nor T1 ever released
the LL. So this criteria is satisfied.

Second, we must look at privity of estate, 3 criteria:
(1) LL created the estate.
(2) T does not hold the estate.
(3) The covenant does run with the land.
So there is no C/A based on privity of estate.

  So, there is a C/A based on privity of K but this makes no sense. T has no interest
   in what is going on with the estate, no interest to justify bringing the LL into court.
 The LL does have an interest in getting T or T1 into court when there is an
   assignment.
There is a difference between privity of K when the T is (1) asserting his rights or (2)
asserting his obligations.

Rule: The courts say that there is an implied assignments of all the T‟s K rights to the
subtenant when T  T1 [None of the obligations, just the rights.]
So, no longer privity of K b/w the T and the LL, cause impliedly (as a matter of law) T
has transferred/assigned all of its K rights to T1. The LL can still sue T1, unless there is
a release.

T1 sues L for breach of covenant to repair:

First we must see if there is privity of K; 3 requirements:
(a) Is there an agreement between the 2 parties of the lawsuit?
(One would think there are no agreements between LL and T1, however:



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Because as a matter of law, the T transferred/assigned all of its K rights to T1, there is an
express agreement between the 2 parties [T1 and the LL]
(2) Repair is the subject matter of the suit.
(3) Was there a release? NO. Not stated so we assume no release.

Now we will look at privity of estate and its 3 requirements:
(1) One of the parties to the lawsuit created the estate.
Yes, this criteria is met because the LL created the estate in its original K with T.
(2) The other party holds that very estate.
Yes, T1 by its assignment, now holds that estate created by the LL.
(3) The promise/covenant runs with the estate of the land.
General rule: A covenant runs with the land if it sustains the estate and the enjoyment of
it. This requires a 2-part test:
(1) The nature of the covenant must benefit the estate, and not be for the benefit of the
    LL or the T.
This covenant may benefit both the estate and the parties, but its primary purpose is to
benefit the estate. Therefore, this requirement is satisfied
(2) If the intention of the parties is clearly that they don‟t intend for the covenant to run
    with the land then that must be upheld.
There is no such clear intention in this case. Therefore it should run with the land.

Because all 3 requirements are met for each, T1 may sue LL on the basis of privity of
estate and privity of K.

Problem 20.4

LL and T enter into lease which contains a covenant that T is to make repairs. T assigns
to T1, and then the premises needs repairs. T1 does not make them.

Can T sue T1? Either Privity of K or Privity of Estate.
First we must see if there is privity of K; look at the 3 criteria:
(a) Is there an agreement between the 2 parties to the lawsuit?
Yes, there is the assignment between T and the T1.
(b) In the agreement, was there express language relating to the subject matter of the
    lawsuit?
There was an assignment, an assignment can be one of three kinds:
         (1) A pure assignment whereby the assignor transfers all of their interest.
         (2) An assignment plus an assumption whereby (a) the assignor transfers all of his
             interest and (2) the assignee promises to perform all the obligations under the
             lease
         (3) An assignment, assumption, and release whereby (a) the assignor transfers all
             of his interest (2) the assignee promises to perform all the obligations under
             the lease and (3) the LL releases the assignor.
This depends on what type of assignment this was, we need more information. If is
was a pure assignment then no agreement, however, if it was either an assignment plus
assumption or an assignment plus assumption plus release then there is probably express



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language by the assignment K. The subtenant must explicitly promise to the T that he will
do all.
(c) Was there a distinguishment, release or termination of the K?
NO, because no mention of release, we assume no release.

So may be a C/A under privity of K if T1 expressly assumed the promise.

Second we will look at Privity of Estate, 3 criteria:
(1) The LL created the estate, so this fails
(2) T1 does hold the estate
(3) And repairs probably runs with the lease.
No C/A based on Privity of Estate.

So if there is a C/A based on privity of K, what Remedies are available?
T can sue T1 for damages, not specific performance
There is no compensible loss to T, only to the LL so T cannot get damages.
SO, even if there is a legal basis for the C/A T suffered no loss because after the
assignment T no longer has an interest.

Can LL sue T1?
There is no privity of K here because the first requirement which requires an agreement
between the 2 parties to the lawsuit is not met. There was no agreement between LL and
T1. (T1 Gets the Rights of T, Not the Obligations of T!)

Now we will look at privity of estate and its 3 requirements:
(1) One of the parties to the lawsuit created the estate.
Yes, this criteria is met because the LL created the estate in its original K with T.
(2) The other party holds that very estate.
Yes, T1 by its assignment, now holds that estate created by the LL.
(3) The promise/covenant runs with the estate of the land.
General rule: A covenant runs with the land if it sustains the estate and the enjoyment of
it. This requires a 2-part test:
        (1) The nature of the covenant must benefit the estate, and not be for the benefit
            of the LL or the T.
This covenant may benefit both the estate and the parties, but its primary purpose is to
benefit the estate. Therefore, this requirement is satisfied
        (2) If the intention of the parties is clearly that they don‟t intend for the covenant
            to run with the land then that must be upheld.
There is no such clear intention in this case. Therefore it should run with the land.

Because all 3 requirements are met, LL may sue T1 on the basis of privity of estate.




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(E) Discussion Problem B
In 1995, Leland (a LL) and Tri-Star (a T), entered into a written lease of land and improvements
(the premises) LL owned located in Carson City in the state of X. The improvements was a 100-
room hotel (the Hotel). The terms of the lease are as follows:
      Term: June 1, 1995  May 31, 2005 (10-year lease)
      Rent: Fixed rent of $5,000/month plus additional rent of 5% gross receipts.
      Other covenants: T covenants to include in all advertisements for the Hotel, the
      following notice: “Owner: Gloria Leland.”
The lease did not contain any covenant regarding T‟s rights to assign or sublet.

On September 15, 1998 T executed a “transfer” of all of its rights and interest in and on
the premises to Sub-tropic Associates (SA). The transfer agreement contained a covenant
by SA to perform all obligations of T under the lease. L was not notified of the transfer
and her consent was not sought. L became aware of the transfer in late September, 1998.
Since September 1998, T has continued to pay rent directly to LL, while SA paid rent to
T.
T owns and operates numerous luxury hotels. SA owns or operates numerous budget
hotels.
In March, 99 SA defaulted in its obligations to pay rent to T, and in turn, T defaulted in
its obligations to pay rent to L. In addition, SA has not included on any of its
advertisements for the Hotel and notice that said, “Owner: Gloria Leland.”

First decide any necessary preliminary questions:
(1) Was this “transfer” an assignment or a sublease?
Rule: To be an assignment there must be a transfer of all of the premises for all of the
remaining term.
In this case, “all of its rights or interest in all of the premises. Sounds like an
assignment.
(2) Was the LL‟s consent necessary?
Rule: If the lease is silent there is no obligation to obtain the LL‟s consent unless the T
has a special identity/skill important to the LL that the LL relies on.
―An implied covenant limiting the right to assign will often be found in those
situations in which it is evident that the LL entered into the lease in reliance upon
some special skill or identity of the lessee which will have a material effect upon the
fulfillment of the LL‘s reasonable contractual expectations.‖
Fact: Lease is silent regarding necessity.
Fact: A 5% of gross for a luxury hotel will probably bring in more $ than 5% gross of a
budget hotel.
Apply: Because 5% is a large part of the LL‟s take for the month ($5,000/month for a 100
unit hotel is nothing) The 5% represents a large amount of the LL‟s monthly take.
Therefore the identity of the T as an operator of luxury hotels is very important.
Conclusion: Preliminary conclusion is that the LL‟s consent is most likely necessary.




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(3) Did the LL waive his right to consent?
Rule: There are 2 types of consent:
(a) expected waiver: The LL (1) must be aware of the transfer and (2) voluntarily consent
    to it.
The voluntary consent can be waived because the LL accepted rent for 6 months.
These facts suggest that it is quite possible that the LL waived his right of consent.
(b) unexpected waiver: Dumperz case rule, nothing to do with this case so forget it.

So, the assignment is valid and enforceable; on to the rights of the parties.

(1) Discuss T‘s liability to L, if any.
(1-A) Can LL sue T for rent?
Privity of K:
(a) Yes agreement b/w two parties. (original 1995 lease)
(b) Yes, express promise. (rent clause in the lease)
(c) No release. (only transferred, no mention of release so assume no release)
So there is a C/A for the LL v. the T based on privity of K.

Privity of Estate:
(a) create, yes.
(b) Hold, NO.
(c) Run, yes.
No privity of estate cause the T no longer holds the estate.
(1-B) Can LL sue for advertisement covenant?
Privity of K: same law, facts just change a bit.
(a) yes, 95 lease
(b) yes, express covenant “to include in all ads the following notice „owner: Gloria
    Leland‟”
(c) No release.
So, there is a C/A based on privity of K.


(2) Discuss SA‘s liability to L, if any.
(2-A) Can LL sue SA for rent?
SA can be liable to L if there is either privity of K or privity of estate.

Privity of K: (For Rent)
(1) Is there an agreement between the 2 parties in the suit?
NO, there is no direct agreement between SA and LL, only between SA and T.
Because there is no express agreement, there is no reason to go on, so now we will
examine any rights under privity of estate.
(2) Express promise made to T, not SA.
No C/A based on privity of K




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Can 3rd PB apply here to allow LL to sue SA?
Law: If it was the intention of the parties to allow the LL to enforce the K.
General Rule: If there is a promise by the transferee and the LL‟s consent is necessary to
transfer, then the promise must be intended to benefit the LL.
Conclusion: This could possibly apply here, but we are unsure because on the face, there
is no right to consent, but it is a % lease so maybe it can be implied by law or fact?
That was a new issue of law, the possibility of a C/A based on privity of K based on
3PB Doctrine.

Privity of Estate: (For Rent)
(1) One of the parties in the suit created the estate.
Yes, the LL created the estate.
(2) The other party holds the estate?
Yes, SA holds the estate.
(3) Does the promise run with the land? [This is the problem one]
Rule: A covenant runs with the land if it sustains the estate and the enjoyment of it. This
requires a 2-part test.
        (1) The nature of the benefit must benefit the estate primarily, not either of the
            parties.
This covenant may benefit both the estate and the parties, but its primary purpose is to
benefit the estate. Therefore, this requirement is satisfied
        (2) If the intention of the parties is clearly that they don‟t intend for the covenant
            to run with the land then that must be upheld.
Rule: rent runs with the land.

 So there is a C/A for LL to sue SA based on privity of estate.

(2-B) Can the LL sue SA based on the covenant to advertise?
Privity of Estate:
(a) LL created
(b) SA holds
(c) Run with Land? (1) benefit estate and (2) intention clear
LL argue- It benefits the estate cause she is well known so it draws clients to the hotel.
SA/T argue- It only benefits Leland‟s ego
This one is a close call. We need more information to see if the failure to advertise
gets a C/A based on privity of estate.

Privity of K:
Very weak, same conclusion as above based on 3rd Party beneficiaries.




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(3) T suing SA.

Privity of K:
(1) Agreement b/w the 2 parties to the suit?
Yes, the assignment created an agreement b/w the 2 parties.
(2) Express language in the agreement?
Yes, to (1) pay rent and (2) to put into advertisements. Was an assignment and an
assumption, thus a broad promise to cover all obligations.
(3) Distinguishment, release or termination of the K?
SA was never released, there is no information to indicate extinguishment or release.

This allows the T to maintain a suit against SA based on privity of K. T can get any
damages it has to pay to LL for rent and the FMV of the advertisements.

Privity of Estate:
(1) Because it is an assignment, the LL created the estate. (If it were a sublease then it
    would be a different story.)
(2) Yes SA holds
(3) Unsure, it depends, see above.
Because this requirement is not met, there is no privity of estate and therefore the L
cannot sue SA under privity of estate for anything.




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IV. Conveyance of Real Estate
(1) Brokerage Agreements and Brokerage Commission
3 Types of Brokerage Agreements Exist:

(A) Exclusive Sales Agency (ESA): The broker is entitled to a commission whenever the
property is sold, by or through the efforts of anyone.
     (a) Even if seller sells the property w/o the brokers help; the broker still collects a
         commission.
     (b) Courts are not very willing to find a ESA; parties must make their intention
         clear, otherwise the courts will say it is a Listing Agency.

(B) Exclusive Agency (EA): The broker is entitled to a commission when the property is
sold by or through the efforts of any broker.
     (a) The owner (principle) does not have to pay a commission if he finds a buyer
         without the help of the any broker.
     (b) Similarly to an ESA, the courts are not willing to find EA without clear intention
         by the parties. If no clear intention it is considered a Listing Agency.

(C) Listing Agency (LA): The broker gets the commission only if he is the procuring
cause of finding a buyer who is ready, willing, and able to buy the house on terms
acceptable to the owner.

For a (1) ESA, or (2) EA broker to get their commission, the sale must be
completed.
For a Listing Agency to get a commission, a sale need not be made, but several
requirements must be met.

Requirements for a Listing Agency to get Commission:
(1) Licensing: The Listing Agency must prove it has a license to sell Real Estate.
NY RPL §442(d)&(e): There is no recovery unless broker is a licensed real estate broker
or salesman.
If you try to serve as a broker and charge a fee when you are not licensed, you can be
penalized up to 4X the amount paid in commission [at the discretion of the court].

(2) Principle Agency: Listing Agent must prove a principle agency agreement exists.
GOL §5-701: An agreement to pay compensation to a licensed broker is exempt from the
statute of frauds, therefore it can be oral.
     (a) The principle is whoever made the agreement with the broker. [The principle is
         whoever hired the broker to serve on their behalf and agreed either expressly or
         impliedly to pay the broker for their services.
     (b) It can be either the buyer or the seller but typically the seller is the principle.




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(3) All Conditions for Recovery Must be Satisfied:
     (a) The condition can be express “No commission until closing.”
     (b) The law implies the following conditions:
As a General Rule, when parties are silent, the Listing Agent earns his commission if:
        (A) He is a procuring cause,
        (B) Of a buyer who is ready, willing, and able to buy,
        (C) On the terms acceptable to the seller.
Burden of proof is on the broker for all 3 requirements.

(A) Procuring Cause: Merely introducing the parties and initiating negotiations is prima
facie evidence of being a procuring cause. (Easy standard)
Merely pointing a piece of property out to a buyer is not enough.
Rule: If parties have abandoned negotiations, the original involvement of the broker is at
an end. If the parties later resume negotiations, the broker may no longer be the
procuring cause. This brings up issues of fact whether the negotiations were actually
abandoned or if the parties were just thinking it over and were temporarily stalling.

(B) Of a Buyer who is Ready, Willing, and Able to Buy:
Ready and Willing: This is proved at the moment you enter into a sale agreement.
Able: Proved at the closing. When principle signs the sale contract, this is evidence of
the buyer‟s ability to buy.

RD: Courts believe that before a seller signs a contract of sale he would actually
investigate the buyer‟s financial ability to buy the house. The court will presume that the
seller did investigate (whether the seller actually investigated or not), and by signing the
contract of sale, the seller is saying that the buyer is able to buy. This is whether they
buyer is actually able to buy or not.
Very few sellers actually investigate the buyer‟s ability to buy, but the law presumes
that the buyer is financially able to buy when a contract is signed by the seller.

(C) On Terms Acceptable to the Seller:
        (a) 90% of the time we know what terms are acceptable to the seller because
            the broker asked the seller which terms were acceptable. [Whatever the
            seller answered are the “terms acceptable to the seller.”]
        (b) If the broker never asks, courts say that the seller can decide which terms
            are acceptable. [So, can be easy for the seller to avoid paying commission.
            Sufficed to say, the broker ALWAYS ASKS!]




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(4) When all these requirements have been fulfilled: The broker does not bear the
risk if the non-principle (buying) party defaults before the sale.
Parties can always agree otherwise and it will be enforced:
         (a) Broker could agree that they are not entitled to commission unless the title
             closes. AKA “As, if and when title closes.”

Non-Performance of the Buyer:
      (a) Good faith requirement typically comes up. If a seller, who has agreed to pay
          the broker‟s commission when title closes, refuses to close even if there is a
          buyer, this is intentionally preventing the requirement of sale from being
          fulfilled (bad faith). In this case the “as, if and when” requirement is ignored
          and the broker is entitled to the commission.
      (b) If there is no express agreement as to the amount recoverable the broker is
          entitled to reasonable compensation, which is the normal brokerage
          commission for this kind of property in this locale.

Non-Performance of the Seller (Principle):
    (a) If principle is unable to close because of good faith: Broker does not receive
        commission. [e.g. seller finds out he doesn‟t have good title]
    (b) If principle refuses to close because of bad faith: Broker receives commission.




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(2) The K of Sale
(A) Marketable Title: There is an implied promise of marketable title.             Parties
can, and do often agree otherwise.
[AKA “good title,” “sound and marketable title,” and “good and marketable title.”]

Express Agreement to the contrary: If the parties do vary the promise of marketable
title, the most typical variation is that the seller will convey only insurable title.
      (a) If title insurance company is unwilling to promise that title is good because they
          are not sure as to whether there are actually easements or mortgages on the
          premises, they may choose to insure the title nonetheless.
      (b) Title Insurance: The title company will: (1) clear up any future mortgage
          problems at its own expense and (2) will clear up any easements if possible (or
          pay buyer for their “loss” due to the easement.)

Implied agreement to the contrary: The court implies the term “marketable title,
subject to all visible easements.”
If an easement is visible, buyer is presumed to take title subject to that easement.
     (a) Standard for Visible Easement: Buyer was (1) aware of the easement or (2)
         would have discovered the easement upon a reasonable inspection.
Parties Can Agree Otherwise: This requires clear evidence that the seller promises title
which is not subject to any easements, even visible easements.
 “Free from all encumbrances…”  This is not clear enough.
 “Free from all encumbrances, even visible ones…” This is clear enough.

NY Rule (Majority Rule): The type of deed that the seller furnishes has no effect on the
implied promise of marketable title.
       (a) Just because it is a quitclaim deed, does not mean that there are no promises in
           the K.
       RD: Promises in contract of sale come to an end when the lease is signed so the
       deed has no effect until the closing anyway.

A seller who Promises Marketable Title Promises 3 Things Which Must be True
at the Time of the Closing:
[A Failure of Any of These at Time of Closing is a Breach of Marketable Title.]
(1) He is reasonably free from doubt that he has title to the property in fee simple
    absolute. [Unless otherwise stated.]
(2) He is reasonably free from doubt that there are no encumbrances on the title.
(3) If there are encumbrances, a reasonable buyer would still close. [Even with such
    encumbrances.




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Encumbrance: a right existing in a 3rd party that an owner would find detrimental.
Easements generally are encumbrances.
An easement will not be an encumbrance if:
       (1) The easement is beneficial to the parcel (value to the parcel would be much
           lower w/o the easement e.g. water and sewer lines), or
       (2) If the easement has only a minor negative effect on the usefulness of the
           property. (The negative effect is merely minor.)
NY Rule: If an encroachment is 6 inches or less, then the owner need not move his
property, he only need to pay nominal damages. [This would now make it such that a RP
would buy the property.

Breach of Marketable Title:
A seller breaches the promise of marketable title when he does not comply with one of
the 3 promises:
(1) He is reasonably free from doubt that he has title to the property in fee simple
    absolute. [Unless otherwise stated.]
(2) He is reasonably free from doubt that there are no encumbrances on the title.
(3) If there are encumbrances, a reasonable buyer would still close. [Even with such
    encumbrances.]
For a buyer to terminate the K, he must prove that one of these criteria is not met.
Remember: Parties can agree otherwise.
If there is an encumbrance, but a reasonable buyer would still buy, then buyer cannot
terminate, he must go through with the deal and then can sue for damages.
If the seller is willing to put aside an escrow fund to protect the buyer, this may be a
circumstance where a RP might be persuaded to buy (requirement #3). [Must know
mortgage amount and amount in escrow of course!]

Determination of Breach: Breach is determined at the time of closing; not as of the
signing of the contract of sale.
       (a) Actually, seller has a reasonable time after closing to clear any defect in title.
       (b) If the breach is incurable, the buyer may terminate upon learning of the breach
            and does not have to wait until closing.
         Incurable as a matter of law: Immediate Default
         Incurable as a practical matter: Here, it is not impossible to cure breach,
         however, as a practical matter, the burden to cure the breach in time for closing
         is too high. [This is more of a gray area. Difficult to Cipher.]

Doctrine of Merger: Once parties go to closing, all promises contained in the contract
are no longer enforceable. Any promises vanish into thin air.
     (a) Only promise found in the deed will survive.
     (b) If contract promises marketable title but deed does not (e.g. quitclaim deed).
         When the parties close and title is later found to be defective, the buyer has no
         redress.
     (c) Parties can agree otherwise to have a promise survive closing.
RD: So the seller does not have to be liable years after the sale.




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(B) Risk of Loss
(A) C/L Rule: “Absent any agreement to the contrary, the risk of destruction of property
between the time the K of sale was entered into and the passing of title onto the buyer is
cast upon the buyer.”
     (1) Seller makes no promise as to the condition of the property.
     (2) Buyer takes the property on the closing date no matter what condition it is in.
     (3) It does not matter if the damage is material or non-material.

When the parties do agree otherwise: The seller will bear the risk of loss for the
promises that were made in the sales contract.
    (1) Any agreement regarding condition of the property as of the closing date is an
        agreement concerning allocation of the risk of loss. (e.g. “roof is free from
        leaks”, seller bears the risk of damage to the roof)
Remedy when the risk of loss is on the seller:
When the premises are damaged, the buyer may get:
   (a) Specific performance, and
   (b) Abatement (for the damaged premises).

(B) NY Rule: [NY GOL §5-1311] This changed the allocation of risk from the buyer
    to the seller.
Risk of loss only passes to the buyer whenever (1) title or (2) possession passes:
     (1) Title: Passes as of the time of the closing.
     (2) Possession: Case law interpreting the term “possession” as used in the statute
         gives 2 possible standards for determining when possession has passed to buyer.
        (A) Possession has passed to buyer whenever buyer is a substantial owner.
           He must have most of the rights that an owner normally has.
        (B) Possession has passed to the buyer whenever the buyer controls the factors
            that may lead to damages.
          He must control most of the causes that lead to damages, not necessarily the
          particular factor which caused the damage that just occurred. (e.g.‘s: electricity,
          heating)
As soon as possession has passed to buyer, risk of loss has also passed to buyer.

Parties can agree otherwise to have possession mean whatever the parties agree it to
mean.
NY Rule: [GOL §5-1311] In order to have the risk of loss pass to the buyer when the
contract for sale is signed, the following requirements must be met:
       (1) Parties must expressly agree otherwise.
       (2) Any promises “expressly agreed to otherwise” in the sales K do not effect any
            promises which were not made by the parties.
          The parties are simply reconfirming the allocation of the risk of loss that the
       statute would imply anyway.




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(B-1) Material v. Non-Material Under NY GOL §5-1311: Gives one set of rights
when a material part has been destroyed and another set of rights if a non-material part
has been destroyed.

(1) Material Loss:
      (A) Loss of Substantial Value: When you are deprived of substantial value.
               Look at the % of the value lost, not the value that buyer has retained.
      (B) Deprived of Intended Use: A material loss has also occurred when:
            (1) Both parties knew of the intended use of the parcel, and
            (2) The loss that occurred is such that it deprives the buyer of his intended
                 use of the parcel.
      (C) Agree Otherwise: Parties can define a material loss in any way they want,
          i.e., they can agree otherwise.

(2) Rights of Parties When There has Been a Material Loss:
       (A) Seller cannot enforce the contract.
       (B) Buyer may terminate and get the down payment.
       (C) Buyer need not terminate and may instead get specific performance with the
           damages abated. (Lucenti)

If R.O.L. is on the Seller: [Either statute put the R.O.L. on the seller, or under C/L the
parties agreed otherwise to put the R.O.L. on the seller.]
The Seller must deliver the premises in an undamaged condition.
(1) If damages do occur, the damages will be abated.
(2) Specific Performance with Abatement is always allowed (when R.O.L. is on the
    seller).

(3) Rights of Parties When There has Been a Non-Material Loss:
Neither party can terminate, but damages will be abated.

(C) Who Gets the Rights to the Insurance Proceeds?

(1) C/L: There is an implied assignment of insurance payments under the C/L.
     (A) Insurance payments are held in trust by the seller and impliedly assigned to the
         buyer.
     (B) If insurance exists, it will be assigned to the buyer.
     However, CL did not require that the seller have enough insurance (or even any
     insurance for that matter) to repair/replace the house.

(2) NY Rule: NY never followed the C/L rule of implied assignment.
    (A) If the risk of loss on the buyer [parties must have agreed otherwise to GOL §5-
        1113], then the buyer will not get the insurance payments.
     Of course, parties could agree otherwise and allow the buyer who bears the risk of
     loss to receive the insurance payments.
Remember: In NY, you can do anything you want. Define “possession” or
“mutual loss. You can always agree otherwise.


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(C) Condition of the Property
Rule: There is no implied representation made as to the condition of the property
In real estate law the rule is Caveat Emptor.
The seller impliedly represents absolutely nothing.
 The buyer has the right to investigate.
 Buyers should get engineering and termite inspections before the contract for sale is
   made, or the buyer should put a condition in the sales contract that the contract is
   conditional on a satisfactory report from inspectors.

New trends in Real Estate Law:
(1) Many states (not NY) have embraced a disclosure requirement.

(2) NY: Has embraced a rule that a seller cannot actively conceal defects of which they
    are aware.
    (a) Active Concealment: Creating a situation where the buyer‟s inspection could not
        locate the defect.
     Absent any active concealment, the seller is not liable.
     So, there is still no duty to disclose.

(3) Broker‟s Responsibility:
     (a) C/L Trend: Is that brokers must disclose defects of which they are aware.
     (b) NY Rule: The broker must disclose facts known to him which materially affect
         value of property.

(4) Obligations of Builders: This modifies the general rule of Caveat Emptor.
     (a) Builders of new homes make implied warranties which survive closing. This
         changes the doctrine of merger.
        The builder promises that there are no material defects and that the building
     complies with local building codes.




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(D) Remedies
(1) Damages:
3 Requirements:
(1) Promise: There must be a promise to convey.
(2) Breach: Refusal to close and deliver deed.
(3) There must be a Compensible Loss.
The compensible loss cannot be speculative.


Damages If Seller Breaches:

(1) Buyer can collect consequential damages. (hiring an attorney, title search, deposits to
    lender, etc.)
(2) Buyer can also collect benefit of the bargain lost. (in some circumstances)
 This is a Unique Rule for Conveyances of Real Property.
    (a) In sales where the prices can get very high, the seller subjects himself to a
        substantial liability.
    (b) Seller Acts in Bad Faith: Courts will allow the buyer to receive the benefit of the
        bargain
    (c) Seller Acts in Good Faith: Courts will not allow the buyer to receive the benefit of
        the bargain. (e.g. seller breaches cause of defect in title)

(2) Right to Terminate the K:
There is a right to terminate if an essential promise is breached.

Substantial Performance Rule: If you have substantially performed your obligations,
the other side can not terminate, however, you must pay them damages for the deficiency.

  (1) The parties can define what substantial performance is in the contract. The court
      will enforce this. (e.g. If the roof leaks the buyer is allowed to terminate)

   (2) If K is silent (as to what constitutes substantial performance) the law implies that
   the parties can not terminate if there has been substantial performance. [Can only
   accept the K and then sue for damages for the deficiency.]
      (a) An overwhelming amount of promised performance must be performed.
Under the UCC (sale of goods) we use the perfect tender rule. The seller is now
screwed.
Hypo: If a K conveyed (1) land, (2) building, and (3) exterior structure. And then the
roof leaked, may be able to say substantial performance because all else (a majority of
what was promised) was in order.




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(3) Specific Performance: A party must suffer an irreparable injury and money
damages must be inadequate.
Rule: Every real estate parcel is unique. [Thus, damage is always irreparable.]
Rule: Both the Buyer and the Seller are always entitled to specific performance.
  (a) Buyer: Has lost the unique opportunity to purchase this unique piece of property.
  (b) Seller: Has lost the unique opportunity to take the money from the sale and use it
      to buy another unique real estate parcel.

(4) The Seller‘s Right to Keep the Down Payment After the Buyer
Terminated:
C/L: If there is no mention of the seller‟s remedy in the contract (i.e., no liquidated
damages clause) and the buyer breaches, the seller may keep any down payment made as
long as the amount kept is reasonable.
Buyer Backs Out: Seller can keep down payment as long as it is reasonable.

NY Rule: “Adherence to precedent is more important than a correct or even a
better rule of law.”

Seller Backs Out: Buyer can get the down payment back.
Rule is based on an equity principle that a party who defaults on a contract can not
bring an action to recover the down payment.
(1) A down payment below 10% is prima facie reasonable.
         (a) This rule is designed to keep the courts from getting clogged.
(2) If the down payment is above 10%, the seller has to prove reasonableness.




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(3) The Deed
(A) Statute of Frauds
(1) The Statute Itself:
NY GOL §5-703: The Statute has a Very Broad Scope.
Scope: “An Estate or interest in real property…must be in writing”
Estates and Interests in Real Property Include:
     (a) transfer of title are estates in real property
     (b) leases are estates in real property
     (c) easements are estates in real property
     (d) architectural restrictions are interests in real property
     (e) ½ interest in land is an agreement for a sale of real property
There is no minimum monetary threshold for the statute, any contract for the sale of an
interest or an estate in real property must be in writing.

Exception: When these transactions do not have to be in writing.
(1) If the lease term is for 1 year or less, then it does not have to be in writing.
(2) If there is a 1-year lease with an option to buy:
    (a) Lease need not be in writing [1 year or less].
    (b) Option to buy must be in writing because of underlying purpose of SOF.
    Courts Close their Doors: If a K for a sale in an interest in land is void because it is
    not in writing (SOF), the court will close their doors to the parties in almost all
    circumstances and the parties can not get Specific Performance.
         Exception: If buyer has paid a down payment and is willing to perform but the
      seller is objecting to the lack of writing, the court will allow the buyer to get back
      the down payment.
      If it is the buyer who is objecting to the lack of a writing, the court will not help
      the buyer because the court considers him to be a wrongdoer. (Specific Performance
      is a remedy at equity  Clean Hands do Apply)

(2) The Writing Necessary to Fulfill the Statute of Frauds: The writing must
contain the following essential terms to be sufficient:

(1) Subscribe: the writing must be signed at the end.
      (a) The signature must be sufficient to identify the party who is signing.
      (b) The writing must be signed by the party against whom specific performance is
          being sought.
After a K is signed, the parties don‟t want more terms added.
 If they do wish to add more terms than the contract contains, they must (1) attach a
    rider, (2) incorporate the rider into the contract by reference, and (3) sign the rider at
    the end.




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(2) Parties: The court must have sufficient information regarding the identity of the
parties so they can feel comfortable that they are ordering specific performance against
the proper party.
     (a) Both individuals to the contract must be identified; however, the roles that they
         play need not be mentioned.
     (b) If just the persons name is mentioned, the court might not be sufficiently certain
         that this is the correct party “John Smith of New York;” more is needed “John
         Smith of 1313 Mockingbird Lane etc.” makes the court more certain.
     (c) For a Company: The company and state of incorporation must be mentioned.
The court has great leeway here depending on how certain they may be as to the
identity of the party.

(3) Subject Matter: The subject matter must be identified so that a court can be
reasonably certain that it is ordering specific performance for the proper parcel.
     (a) Meets and Bounds Description, Lot #, Street address, Ertel Farm in Barker‟s
         County.
     (b) The interest being conveyed (e.g. a ½ interest) need not be mentioned, only the
         parcel. The rest of the information can be later filled in by oral agreements and
         parol testimony.
     (c) If K is silent regarding the estate being transferred, the law presumes that the
         parties meant for title to pass in fee simple absolute.

(4) Consideration: The seller does not have to sell for FMV, but whatever consideration
is agreed upon must be in the writing.
     (a) Must provide the court with concrete evidence of the terms of the sale so that the
         courts know how much they can order to be paid.
     (b) Court has to be reasonably certain as to the terms of the sale. Therefore the
         consideration must be recited with sufficient particularity.

(5) All Other Essential Terms: Any other requirement, which if not fulfilled, the
(buyer) would refuse to sign the K.
  (a) If the parties would not agree to be bound except for this condition/term; then it
      must be in writing.
  (b) Time of closing does not need to be written in the contract, courts will always
      imply that closing will occur in a reasonable time.




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(3) Exception to When These Essential Terms Must be in Writing: In this case,
all the essential terms need not be in the writing.

Part performance §5-703(4):
(1) Embraces C/L part performance exception: In some cases it is not fair to invoke the
    statute of frauds in order to refuse to enforce an oral contract.

3 Requirements to use Part Performance to Avoid SOF:
(1) There must be a benefit to the seller.
(2) The buyer must have suffered an unrestorable loss.
(3) These benefits and losses are Referable to a K.

Ways to be referable to a K:
      (a) A reasonable explanation for these parties actions is that an oral contract
          existed.
      (b) This serves as some evidence that there actually was a written document and
          therefore can substitute for a written document.
      Majority Rule: The actions are referable to a contract if a reasonable
      interpretation of the parties actions is that an oral contract existed.
      NY Rule: The actions are referable to a contract if the actions are “unequivocally
      referable to an oral agreement”. The ONLY possible explanation for the parties
      actions is that an oral contract existed.

   If the total of all the payments that were made is less than the FMV of the house, an
    alternate explanation is that the P was paying rent.

   If the total of all the rent payments is high above that which would be charged in rent,
    it is highly possible that the unequivocal reference standard has been satisfied.




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(B) The Deed Requirements
(1) Requirements for an Effective Deed:

(A) Proper Instrument of Transfer: It must comply with the statute of frauds.
Requirements for a “Proper Instrument of Transfer”:
    (a) Parties must be identified.
    (b) Parcel must be described. [Can be by a Meets and Bounds description.]
    (c) There must be Words of Conveyance such as, “I hereby give, grant, bargain, sell
    and convey.”
    (d) The deed must be signed by the party transferring/creating the interest.
    (e) Consideration does not have to be in the deed.
       (i)     Most deeds do not contain consideration because deeds are a matter of
               public record and you don‟t want people knowing what you paid for your
               land.
    (f) The type of estate transferred/created does not have to be in the deed.
       (i)     If the deed is silent, the law implies fee simple absolute.
       (ii)    If you want to convey less, you must expressly say so.
    (g) Some deeds have extra parts which are included because these are necessary to
comply with recording requirements, not because they are necessary to have the deed
comply with the statute of frauds.

(B) Deed Must be Accepted: An interest in real estate can not be thrust upon someone
without their consent.
Rule: Delivery is a consensual act, it requires acceptance to be effective.

(C) The Deed Must be Delivered: This does not require physical delivery of the deed
but rather a present intention by the grantor to transfer title.
Definition: ―Anything which clearly manifests the intention of the grantor that the
deed shall presently become operative and effectual and that the grantor looses all
control over it.‖  Intention must be determined on a case by case basis.

Prima Facie Evidence of Intention to Transfer Title Includes: (None are conclusive, they
are only evidence.)
      (1) The deed was actually delivered.
      (2) The deed was signed.
      (3) The deed has been recorded.
If any of these are not present, it is, at worst, equivocal evidence concerning intention.
(None of these are necessary to make delivery effective.)
Prima Facie Evidence of Delivery can be rebutted by evidence against delivery,
including:
   (a) Grantor keeping possession of the premises,
   (b) Grantor keeping proceeds.




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(C) Conditional Transfers
To avoid the possibility of fraud, conditional deliveries will only be recognized in 2
ways:
(1) The condition is physically written on the face of the deed, or
(2) If it is an oral condition, it will only be recognized when:
    (a) The deed is physically given to a 3rd party, and
    (b) The 3rd party is notified of the condition. (if not notified, it ain't recognized)

(1) Donative Transfers: (AKA Gift Transfers) They can be a present transfer if the
gift is intended to be effective now.
A Present Transfer of a future interest is still a present transfer if:
         (a) The grantor did not retain a right to recall. Then there is a present transfer.
            The deed must be intended to be effectuated now.
            If part of the deed is a future interest and the grantor cannot change his mind,
            there is still a present transfer.

A Present Transfer of a future interest is not a present transfer if:
     (a) The grantor retained a right to recall.

To Decide if the Grantor Intended a Right to Recall:
The court must look at the grantor‟s intention, not a 3rd parties understanding of the
grantor‟s intention.

For a Donative Transfer, the Right of Recall Must be Express.

(A) Present Transfer Rule: (Typical in Donative (Gift) Transactions)
The date of transfer takes place immediately when the deed is 1st given to the escrow
agent.
Thereafter the grantor merely retains the right to use.

De Facto Right to Use: (A legal fiction to get around calling it a life estate.)
(1) Once the condition occurs, there is no transfer, instead, the right to use ends.
(2) If the condition is never satisfied, there is a reversion back.


(2) Non-Donative Transfers: (AKA Sale Transfers)
For a Non-Donative Transfer, the Right of Recall is Implied.
The right of recall is always implied in sales transactions.

(A) Relation Back Doctrine: (Typical is Non-Donative (Sale) Transactions)
There are two possibilities for date of transfer here:
(A) First, the court says that the date of transfer is the date the condition is fulfilled.
(B) Second, only if it makes a difference, then the court will relate the date back to the
    original date when the deed was given to the escrow agent.
    (1) It makes a difference when it matters when the deed was delivered.


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Oral Conditions: What happens if the oral condition given to the escrow agent gets all
screwed up?
If the escrow agent just ignores the instructions, then the transfer is OK, and there is
only a K C/A.

However, if the deed passes by any wrongdoing then we have a different story.
Here are 3 examples we will look at for wrongdoing in the passing of a deed:
(1) If the grantee gets the deed from the escrow agent by force, or
(2) If the grantee gets the deed from the escrow agent by fraud, or
(3) If the grantee gets the deed because of the escrow agent‟s wrongdoing.

   In each of these cases, the seller retains the right to recall because it is a sale transfer.
   In each of these cases, no title passes, not even in a subsequent sale to a BFP.
    A BFP cannot get rights greater than what his grantor has.

Estoppel Defense: (An alternate C/A)
1st: BFP claims he has title as a matter of law. (If this don‟t work then go to #2)
2nd: BFP claims that although I have no title, I estop the owner from asserting his title.
(So BFP ain't dispossessed.)

Definition of Estoppel: An act by the owner (not the escrow agent) that would make an
innocent 3rd person, in good faith, rely on such an act.

Examples of what acts would be sufficient to allow estoppel:
(1) Possession prior to having the deed.
(2) Knowledge by the grantor that the deed has been surrendered and recorded, and
    inaction on his part.
    (a) Remember: The grantor gets reasonable time to “act” before it is called inaction.
(3) Ratification of the delivery.
(4) Any act constituting an estoppel. (A general Catch-All phrase.)

Requirements for Estoppel: It is a C/A in equity so the courts can be flexible.
(1) The grantor must have knowledge that the deed was delivered, and
(2) There must be inaction on the part of the grantor (reasonable time is given to act).




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(D) Warranties
 There are 3 major kinds of deeds.
The K will stipulate which deed you should deliver at closing.
General Rule: If the K is silent, you must deliver a general warranty deed.
If you want to deliver less, the parties must agree otherwise and it must be expressly
stated.
NY Rule: If the K is silent, you can deliver any deed sufficient to convey title.
Duhhh, a Quit Claim Deed. [In NY, the K‟s are never silent.]

(1) General Warranty Deed (In NY: Warranty Deed):
In all general warranty deeds there are 3 present covenants, and 3 future covenants.

The 3 Present Covenants:

(1) Covenant of Seizin: “I covenant that I am Lawfully Seized of all the area.”
I own this land; I have the title and interest I am purporting to convey.
A breach would include:
        (a) No title at all.
        (b) Only partial title (even 95%).
        (c) Title, but not the type described. [e.g. fee simple absolute]
If the grantor does not have title, it is a breach immediately as of time of closing. [Thus, it
is called a present covenant.]

(2) Right to Convey: “I covenant that I have the right to sell and convey the
    property.”
This covenant usually goes hand in hand with the covenant of seizin.
It may not go hand in hand with the covenant of seizin: A trustee can have legal title
without the right to sell.

(3) Covenant of Encumbrances: “I covenant that the premises are free from
all encumbrances.”
(A) An interest of a 3rd party that is detrimental [if beneficial, it ain't an encumbrance].
(B) If grantor knows of any encumbrances, they can make the deed subject to those
    encumbrances and not be in breach.
(C) If have a life estate, you can make the deed subject to the life estate.

For these 3 present covenants, if a representation is false, you are in breach
immediately at the closing.




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The 3 Future Covenants:

(4) The Covenant of Warranty: “I promise to pay you for any loss if title
conveyed falls short.”
Breach: Occurs whenever you are dispossessed; can be by an eviction or non-payment of
an outstanding claim.

(5) The Covenant of Quiet Enjoyment: “I promise that you will not be
disturbed by anyone who has a superior claim.”
Breach: Occurs when you are disturbed; when he who has an interest disturbs you.

(6) Covenant of Further Assurance: “I promise that I will take all reasonable
steps to cure defects in the title.”
(a) Later learn of an outstanding mortgage that was paid; I will take time and expense to
    get rid of it.
(b) If there is an easement; I will get the release to comply with the promise.
Breach: When the grantor refuses to take reasonable steps to cure the defect in title.

In NY, there are rarely (1) general warranty or (2) quit claim deeds. In NY, the
deeds are usually “special warranty” deeds.

(2) Special Warranty Deed (In NY: Bargain and Sale Deed with
Covenants):
This warranty has the same 6 covenants as a general warranty deed with some
difference in the warranties.
Here, the warrant only defends against the defects made by the grantor.
If any of the warranties are broken by an act not caused by the grantor, then the grantor
is not liable. [In other words, the grantor is liable only if his act caused the breach of the
warranty.]
“by, through, and under me”  Only defects that I created, not others.

(3) Quit Claim Deed (In NY: Bargain and Sale Deed without
Covenants):
“I Warranty Nothing!”
Grantee gets whatever the Grantor had. Grantor could have all or absolutely nothing.

Doctrine of Merger: All representations in the sales K vanish upon closing. Thus at
closing, a quit claim deed makes no new representations so the grantor can never be sued
again for this particular property.




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                                              90


(1) Covenant of Seizin:

Burden of Proof:
(1) For breach of marketable title: The proof needed is reasonable doubt.
(2) For breach of no title at all: The proof needed is actual failure of title. [Not mere
    doubt.]

Recovery: COURTS ARE SPLIT
(1) NY Rule (Minority): For the breach of covenant of seizin, whether you are
    dispossessed or not, you can recover full FMV (at the time of conveyance) of the area
    you lost.
(2) Majority Rule: If you are not dispossessed you can only recover nominal damages.

The courts want to limit the grantor‟s liability, so when the grant full FMV damages in
NY (measured at time of conveyance AKA closing), the damages can never exceed the
compensation the grantor received.

For a Partial Breach: Take the % of the FMV cost at the time of the conveyance (it can
never be more than what the grantor receivedbeach front turns out not to be yours).
(1)Here, the interest of the % of money is also recoverable. (Compensation for the use
of the money.)
(2)Also, consequential damages are recoverable on top of this price.
May include (1) attorney‟s fees, (2) cost of buying the parcel, etc…

(2) Covenant Against Encumbrances:
If grantee was not disturbed by the encumbrance [i.e., didn‟t pay the encumbrance
(mortgage)], then he can only get nominal damages.
RD: The covenant of encumbrances is treated as a promise of indemnity only, unlike
seizin.

To recover for breach of the covenant of encumbrances, there must be actual loss:
(1) Mortgage makes the sale difficult, must sell for less and can prove encumbrance is
    the reason for the lower price.
Here the grantor can be liable for damages being the difference in the price w/
encumbrances and the price the grantee could have gotten w/o encumbrances.




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                                            91


For the ―Present Covenants‖ of Title, Who is the Proper P?
(A) Solberg:
Robinson (1906)  Smith (warranty deed w/ seizin)  Solberg (warrant deed w/ seizin)
Now Vesey (true owner) comes and said the supposed deed to Robinson was a forgery.

Held: The covenant of Seizin does not run with the land. Robinson had the covenant of
seizin breached in 1906, when the deed was delivered. At that moment it was no longer a
promise but a C/A.

Majority Rule: The C/A vests in the original grantee only. AKA C/A‟s are not assigned
when property is subsequently sold (expressly or impliedly). Instead, only the grantee
has a C/A before the deed is delivered.
RD: For years it was just not legally possible to assign C/A‟s.

Minority Rule: Upon the sale of land, a C/A for breach of covenant is assigned.
RD: Public Policy wants to allow the 1st person who suffers an injury to have a C/A.
RD: Old school did not allow any C/A‟s to be assignable. But now they are assignable
so the underlying reasoning for this rule is now moot.

NY Rule (Minority Rule): The C/A for present covenants is impliedly assigned to a
subsequent grantee.
RD: This comports with the purpose to allow the 1st person who suffers injury to have a
C/A.
RD: It ain't illegal to assign C/A‟s anymore so c-ya.

# 27.18:
A  B (for 5K, w/ seizin)  C (for 4K) Now O ousts C, cause O has better title since
he was before (A B).     [Assume Seizin does not run with the land in this jurisdiction.]

First we will look in a Majority Jurisdiction:

(a) Does B have a C/A against A?: ((BC) has a seizin covenant & A quitclaim deed.)
Yes, in this majority jurisdiction, the C/A for breach of a present covenant (seizin) vests
in B, and no one else; no assignment here.
Now, how much is recoverable? Here, nothing is recoverable.

General Rule: The recovery is the FMV at the time of the conveyance by A (the
defendant). This recovery is limited by 2 things:
       (1) It cannot be more than the amount the grantor actually received (5K).
       (2) It cannot be more than the P‟s loss.
If the Plaintiff‟s (B) loss is zero, he can only get nominal damages.

In this case, B‟s loss was zero. When B sold to C, B got 100% of what an owner would
get when he sold the land, so loss was zero. [Even though he lost 1K, he sold at the FMV
at that time.]


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(Maybe if B  C and C had doubts of ownership and took off 1k, then could get
damages.)

Does it matter what kind of deed was transferred? A quit claim deed? NO. The C/A is
just not assignable, this has nothing to do with:
        (1) B‟s intention, or
        (2) B‟s deed.
It only matters if the C/A is assignable or not.

(b) Does B have a C/A against A here?: C sued B for seizin and got 4K, can B sue A?
Yes, The C/A against A is vested in B
RD: This has nothing to do with the action that C brought against B (it is irrelevant).

How much can B get?: 4K + interest. B can get the FMV at the time of A‟s conveyance
(5K), but not more than B‟s loss. So only 4K (+ interest), what B paid to C.

Now same questions in a Minority Jurisdiction (NY):
(a) The C/A B had was impliedly assigned to C, so B no longer has a C/A against A.
B no longer has a C/A, the nature of the deed is irrelevant.
RD: 1st person to suffer an injury should be able to recover, B‟s intention and type of
deed are irrelevant.
(b) Can B indemnify A, for B‘s loss to C?
Issue: Has B still lost B‟s C/A?
Policy: Person who suffers should have the C/A.
Held: The C/A that was originally impliedly assigned from B to C, is re-assigned back to
B. So B has an implied reassignment C/A. B cannot recover more than B lost AKA 4K
plus interest. [Same limitations: never more than (1) paid or (2) lost.]

B could have sued A for quiet enjoyment.
C did not have to sue the immediate grantor, he could have a C/A against several in a
long line of grantors. (P can choose whomever to get the money he deserves.)

(c) Quiet Enjoyment:
C/L: C/A are not assignable, but promises were.
Thus, if a covenant was not yet broken when B  C, then it was not yet a C/A but it
was still a promise.
Rule: So the covenant runs with the land, but a C/A does not.




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                                            93


# 27.21:
A  B (10K, general warranty)  C (8K, quitclaim)  D (10K, general warranty)
Now O (the real owner) comes in to oust D at the time when the FMV is 14K.

(1) Can D sue C for Seizin or Quiet Enjoyment?
A general warranty deed says “I have title” and “You won‟t be dispossessed.” A
breach of this would be any one else with superior title or anyone who dispossesses you.
For Q.E.: You get full FMV at time of ouster (14K)
For Present Covenant: You get full FMV at time of conveyance (10K)

But wait! The court wants to protect the grantor‟s. So they limit recovery to FMV at time
of conveyance, but never more than (1) grantor received or (2) the grantee lost. [This is
true for all present and future covenants.]

(2) Can D sue A for Seizin or Q.E.?
Seizin: If it is a majority rule state, then the C/A is not assignable. The C/A against A
vests only in B.
Q.E.: A promise runs with the land until it turns into a C/A. The covenant of Q.E. only
turned into a C/A when O sued D. Therefore, beforehand it was impliedly assigned as a
promise down the line.
(3) If D sues A for QE, how much money can D get?
FMV at time of conveyance, but no more than (1) grantor received or (2) P lost. (AKA
10K)

(4) If D made improvements, should D‘s recovery against C or A be limited to the
FMV?
Mistaken Improvement Rule: If valuable improvements have been made (not minor)
and made in good faith (D believed he was the owner), then O who ousts D has a choice:
    (A) O can sell land to D at the unimproved value (14K), or
    (B) O can purchase the improvements from D [otherwise O would get improvements
        for free].




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(4) After the Deed

(A) Recording Statutes
In these questions, ONLY look at the 2 parties to the suit (no one else).
These statutes allow you to claim that another‟s interest is void even though it came 1st.
(A) There are 3 kinds of recording statutes:
(1) Race Recording Statutes: (Only in 2 States.)
In this jurisdiction, the person who 1st records has the benefit of the statute.
This gives a later BFP good title and makes an earlier title void so long as the BFP
recorded his title 1st.

(2) Notice Recording Statute: (½ the States.)
In this jurisdiction, the person who is the last in time, so long as he is w/o notice of the
earlier conveyance, gets the benefit of the statute.
If the P has actual/constructive knowledge of the earlier conveyance, then they do not
get the benefit of the statute.
Notice: This includes constructive notice. Anything that a search of the public record
would reveal (even if you actually did not search).
Notice is until the day of conveyance only.

(3) Race-Notice Recording Statute: (NY Statute)
In this jurisdiction, (1) the 1st to record (2) w/o notice of the earlier conveyance, gets the
protection of the statute.
In some jurisdictions recording the deed can take weeks or even months, so w/ the time
lag a second claimant could record after the 1st claimant and still say they had no notice.
The statute can give them priority.

Often, purchasers get title insurance to protect themselves from such snafus.

(4) Common Law Rule:
Rule: The 1st in time is the 1st in right.
But every state has a recording statute. The C/L only comes into play when statute
does not protect the clients.

Hypo: Corporation in FL is selling vacant lots from its hue parcel. They sell lot #157 to
A who pays 10K. The deed was never recorded. Next year, the same lot, #157, is sold to
B who pays 10K for it. The deed is not recorded.
Notice Recording: Benefit goes to B, because he was the last in time w/o notice. He
had no actual notice, and no constructive notice (earlier deed not recorded).
Race Recording Statute: Neither claimant has the benefit of the statute. Benefit goes to
A and B‟s deed is void. “The 1st in time, the 1st in right.”




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                                               95


Fiske: (p.806)
   1864: Nancy  Ben and Elizabeth for life; remainder to Mary
   1865: Nancy dies (deed not yet recorded)
   1866: Nancy‟s heir is Ben and he sells the whole title to Earl (not just the life estate).
    Ben claims as heir he inherited all of it.
   1867: The earlier deed was recorded
       Earl: 1866 deed
       Mary: 1864 deed

(1) If Earl was not in the picture, would the deed from Nancy to Mary be valid?
Yes it is valid, does not have to be recorded to be valid.
Rule: A deed duly signed, sealed and delivered is sufficient, as between the original
parties to it, to transfer the whole title of the grantor to the grantee, even if the instrument
of conveyance is not recorded.
So, the earlier 1864 conveyance was valid and thus so was the transfer. Earl is trying to
claim that the earlier deed is void as to him.

This jurisdiction has a notice statute. Earl had no notice; actual or constructive.
So Earl was a later purchaser, w/ no notice in a notice statute jurisdiction. Thus the
earlier deed is void as to Earl. So Earl wins!

(B) There are 3 Kinds of Notice
(1) Actual Notice: Self-Explanatory. One must be told on the day of the conveyance,
or before, that there exists another deed. [It cannot be after.]
(2) Inquiry Notice: (will do next class)
(3) Constructive Notice: You must have knowledge of all matters in the public
records.
All transfers of interest in real estate are dropped off at the office to be put in the public
record. (lease, easement, restriction, sale, etc…)
When You Drop Off a Title: You drop it off at the office, they make a photocopy. They
send you back the original, and file the copy in book 2,794, page 4,397.

Tract Index (In NYC only): The index has NYC broken down into blocks which are
sub-divided into lots. So in one central location (book) are all the deeds to that lot.

Grantee/Grantor Index (Rest of Country):
Grantee Index: Tells you who received the title.
Grantor Index: Tells you who gave the title.
There is an index for every year and each the grantor and grantee division all in
alphabetical order [What the F@%K!]. So to be thorough you must check every year.
Always check the original deed and make sure all is legitimate.

So first look in the grantee index to see who received title, and get a chain of title. Then
look up all these names in the grantor index to see if any of them have made any
transfers.


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How Far Back do you have to go for clean title?: Back to Indians and the English?

(1) Marketable Title Statutes (Minority): Some states have a statute that says “if you
    have a clean chain of title for 40 years, then as a matter of law it becomes a
    marketable title.”

(2) Majority Rule: Most states do not have Marketable Title Statutes. So technically
    they can go back forever. But alas, since Callie‟s title company does they search they
    make a business decision to only go back 50-60 years and insure it. If clean for 50-60
    years then it is likely to be totally clean and if not, well adverse possession anyway.

What is the Period of your Search?:
Rule: You must read the conveyances of your grantor that relate to your lot. You need
not read his other conveyances.

# 28.14:
7/1/65: O  A (deed not recorded)
2/1/66: O  B (B has notice of earlier deed and records immediately)

7/1/80: A records.
Later: B  C

So, O  B  C; and you represent C.
Go to grantee index and see B (grantor was O). Then see if O was a grantee (look in
grantee index).
So look at O‟s name in the grantor index on the date O acquired title.

When do you stop searching O in the grantor index?:
(1) Majority Rule: You search under O‟s name from the date he acquired title to the
    date your client receives title. So look until the present.
In the Hypo, C did have notice because he would find the 1980 recording of A. So C
cannot get title.
(2) Minority Rule: Search under O‟s name on the date O received title, until you find the
    1st recorded conveyance; then you can stop.
In the Hypo, when C searches O‟s name and sees the 1966 transfer to B. O is now a
stranger to title and C wont even get to the 1980 recording.




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# 28.6:
O  A: (not recorded)
O  B: (B is a good faith purchaser, B not recorded)
A Records: (cause wants to sell property)
A  C: (C is a good faith purchaser)

O  B ; and O  A  C         Between B and C, who owns the land?

In a Race Jurisdiction: Neither has recorded, but there is a new rule.
Rule: If your grantor (or grantor in your chain of title, but not a common grantor with
your foe) recorded 1st, then you can get their benefit.
In the Hypo, C got all the rights of A who recorded 1st, therefore C wins!
It could have been easier if one of them just went and recorded themselves.

In Notice Jurisdiction: Must be last in time w/o notice.
C is last in time. A good faith buyer so no actual notice. Since B never recorded, no
constructive notice. C wins!

In Race-Notice Jurisdiction: Must prove 2 things:
       (1) 1st to record: Use new rule to give C rights of A who recorded 1st.
       (2) W/O notice: Just did it in notice jurisdiction. No actual or constructive.

# 28.7:
O  A: (A no record)
O  B: (B has actual knowledge and B records)
B  C: (C is a good faith purchaser)

A Records
C Records

So we have (1) O  A; and (2) O  B  C.

Who has rights A or C?

Race: A was 1st to record, but C gets the benefit of B‟s recording which occurred before
A recorded. C wins!

Notice: Is C last in time w/o notice? Not C himself, but B had notice.
Rule: The grantee does not have the burden of his grantor‟s earlier notice of a defect in
the title (only the benefit of the grantor‟s earlier recording.

Race-Notice:
(1) 1st to record: C gets it because B recorded 1st. (C gets benefit of B‟s recording)
(2) w/o notice: Yes, no actual or constructive, and C ain't charged w/ B‟s notice.




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#28.16 (page 828):
 O got property in 1960
 O  A: (no record) Jan 95
 O  B: (B buys in good faith) Nov 95
 A records: Dec 95
 B records: Feb 96
 A  C: (no actual knowledge by C) 1999
So we have: (1) O  A  C ; and (2) O  B [B or C]

Race Jurisdiction: ―The 1st to Record Wins!‖
Because C gets the benefit of A‟s recording, C wins.

Notice Jurisdiction b/w A & B: ―Last in Time W/O Notice Wins!‖
B is the last in time (and has no actual [good faith] or constructive [no record] notice)
so B wins over A.

Notice Jurisdiction b/w C & B (Minority Jurisdiction): ―Last in Time W/O Notice
Wins!‖
C is the later purchaser.
Is C w/o notice? C has no Actual notice.
Does C have constructive Notice?
(1) Constructive Notice in a NY Minority Jurisdiction:
C‟s chain of title is O  A  C. In this minority jurisdiction, the search begins on day
one O acquired title and ends on the day the 1st conveyance from O was found. The 1st
conveyance is the O  A because that is the 1st one recorded. So C can stop looking
there. So as to C, B‟s title is not constructive knowledge in this minority jurisdiction.
Thus C is the later purchaser w/o notice, C wins!

Race-Notice Jurisdiction b/w C & B (Minority Jurisdiction): ―1st to Record W/O
Notice Wins!‖
C is 1st to record because he gets the benefit of A‟s earlier recording.
C has no actual or constructive knowledge (see explanation above).

Notice Jurisdiction b/w A[C] & B (Majority Jurisdiction): ―Last in Time W/O
Notice Wins!‖
B was last in time w/o Notice, so B wins! [This is a defect in title to C.]
C was truly last, but was on notice that B exists because in a Majority Jurisdiction, C
must search till the present date and C would thus uncover B. Thus B wins.

Race-Notice Jurisdiction b/w A[C] & B: ―1st to Record W/O Notice Wins!‖
1st to record: A was 1st.
Was A w/o notice?: A was w/o notice cause B had not recorded yet.
So A Wins!
So the deed into B is annoying to C, but not necessarily a defect in title.



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Inquiry Notice:
2 Requirements for Inquiry Notice:
(1) Do I have a Duty to Inquire?
Rule: When a RP would become suspicious concerning a possible defect in title, then
there is a duty to inquire.
If NO, then no inquiry notice.
If YES, then go to #2.
(2) What Information Would I Obtain from a Reasonable Inquiry?
Rule: You are charged with whatever information a reasonable inquiry would reveal
whether you have actually inquired or not.
This is decided on a case by case basis.

General Rule: If you know someone is in possession as a tenant, you must also ask them
if they have any other rights.
If buy an office building need an letter of estoppel from all 20 tenants.
If buying a apartment building, law requires a letter of estoppel from all 200 tenants.
Most purchasers do not do this; this is a great risk to them. They are charged with any
information such a search would have revealed.

Sanborn The land owner has no constructive or actual notice of the restriction.
However, he was put on inquiry notice because of: the strictly uniform character of the
community, the 20-foot set backs, that all was residential, that all the houses were mucho
money.
Rule: Even if you check your land and see no restrictions, you are still charged with a
reasonable inquiry.

Does a Quit Claim Deed Require Inquiry?
If a grantor only gives a quit claim deed should this make a RP suspicious?
NO!!!!!!!!!!!!!!!!!!!!!
RD: The only reason for a quit claim deed is so you do not expose yourself to any
liability. You do not necessarily have to believe that anything is wrong.




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                                            100


(C) Who is a Purchaser Under the Recording Statute?
Statutes say they protect: “any person,” “any purchaser,” “any creditor” etc… The courts
have interpreted these terms to mean PURCHASER ONLY!!!!!! (No one else.)

If you fit all the other criteria of any recording statute, you must also prove that
you are a purchaser.

Rule: The statutes protect only purchasers. (No matter who it actually says.)
Rule: To be a purchaser, you must:
       (1) Part with value,
       (2) In reliance on the public record.
Part With Value: Means money value, or property trade for other property. It does not
mean love and affection.

Majority Rule: You must part with substantial value to be a purchaser protected by the
recording statute.
Minority Rule: These courts will not inquire as to the adequacy of the value given by the
purchaser.

Who is Not a Purchaser?
One who receives the property as a gift.
One who receives the property in a will.

Is a Creditor a Purchaser?
Rule: A pre-existing creditor who later receives [a mortgage] as a security interest is not
a purchaser because he did not part with his money at the time, on reliance of the public
record. Because he would have lent the money w/o a security interest. (Actually he did!)
Rule: A creditor who lends money and secures it with [a mortgage] as a security interest
is a purchaser. Because he would not have lent the money if there was no security.
There was reliance on the public record.

Hypo:
O  A: (deed recorded, mortgage not recorded) 1992
A  B: (deed recorded, deed says “subject to mortgage held by O) 1996
B  C: 1999

Now O goes to C and says pay up or I‟ll foreclose.
Did C have Notice?
Actual  NO.
Constructive  YES. C must look up all the deeds in the chain of title, and then look at
the originals. The mortgage was on an original deed so C is charged with knowledge.
Inquiry  Because C has constructive knowledge of the mortgage, this puts him on
inquiry notice and he has the duty to make a reasonable inquiry regarding the mortgage.




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                                            101


(B) Restrictive Covenants on the Use of Land.
  One can stipulate the kind of use permitted. ―Only as a residential premises.‖
  Can stipulate power to another. ―The association must agree to the color before
   you paint your house.‖
With the rise in the number of homeowner associations, these restrictions are becoming
more common.
Are these restrictions binding on future homeowners?
-  The 1st owner is definitely bound, but to bind the 2nd owner, many requirements must
   be satisfied.
Policy: The law does not like restrictions on the use of land.

(1) Requirements to have the Burden Run to a Future Homeowner:
  Intention
(1)
  Notice
(2)
  Touch and Concern
(3)
  Privity
(4)
  (4a) Horizontal Privity
  (4b) Vertical Privity
All 5 must be proven before a future homeowner is bound to the burden.
Then we must prove that the P has the right to enforce the restriction.

(1) Intention: Here we must focus on the parties who created the restriction.
Rule: They must both intend that the promise/obligation run with the land. [The opposite
would be that they intended the obligation to be only personal.]
2 Places to Look to See of the Intention is Proven:
(1) The Language of the Restriction Itself. (If it is clear…GREAT, if not go to (2))
(2) Look to the purpose behind the restriction.
Is the purpose better served by saying that it binds future homeowners?
(2) Notice: This is a fairness issue.
Rule: A future homeowner is only bound if he had notice/knew of the restriction.
Rule: Notice is the same as with the recording statute. One has notice if he has either (1)
actual notice, (2) constructive notice (restriction is recorded), or (3) inquiry notice (sees
all the common areas are meticulously kept).

(3) Touch and Concern: For both (A) Benefited Parcel and (B) the Burdened Parcel.
(A) Benefited Parcel: The restriction in question must benefit the parcel by enhancing its
    value. [Not the person, but the Real Estate]
(B) Burdened Parcel: You are bound to the covenant just because you are a homeowner
    (AKA you own the Real Estate).
Affirmative Obligation: I promise to do…
Negative Obligation: I promise not to do…
Majority Rule: Either a negative or an affirmative obligation may touch and concern.
NY Rule: If an obligation is used directly for the improvement of the real estate, then the
court will allow both affirmative and negative obligations to touch and concern.


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(4) Privity:
(4a) Horizontal Privity: The focus here is on the original parties to the covenant.
Rule: At the time the covenant was made, there must have also been a transfer of interest
in real estate from one party to the other.
So 1st homeowner must not only agree to the restriction, but must also be involved in
some transfer of an interest in real estate.
(4b) Vertical Privity: The later homeowner who is now bound to the burden, must hold
the same exact type of estate as the individuals who created the restrictions.
[This is not a restriction on the people, but on the land. It is only a restriction on people
so far as they are land owners.]
Hypo: So if A and B created restriction on land (both had fee simple) and then B gave
life estate to C with remainder to D. Who has the burden? C or D?
D does, because of vertical privity, only D has the same exact estate as A and B.

Now that all 5 requirements are met, we must prove that the P is the correct person
to enforce the restriction.
To prove this, we ask: “To whom does the benefit run?”

(2) 3 Requirements for Running of the Benefit:
(1) Intention
(2) Touch and Concern
(3) Vertical Privity

(1) Intention: The party to enforce the restriction must be of the class of persons
    intended to enforce the restriction. (Usually explained in the restriction.)
(2) Touch and Concern: Same as earlier requirement, but now only focus on the
    benefited parcel.
Rule: To be able to enforce a restriction, one must be the owner of a parcel that is
enhanced by the restriction.
(3) Vertical Privity (Relaxed): [Need not be the exact estate as before.]
Rule: The party trying to enforce the restriction must hold an interest in real estate that
one of the original parties held.
 Thus a life tenant of a parcel enhanced in value is a proper P. (The life tenant cant be
    forced to pay, but can force others to pay.)
 A tenant in a home can also be a proper P.
Majority: Homeowner Associations who do not own anything cannot be a proper P.
NY Rule: If acting on behalf of an owner of a parcel that is benefited, then that is good
enough to be a proper P.

So, there are 8 Requirements in all that must be met for a Covenant that restricts
the use of the land to run to a future homeowner.




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There are some instances where all 8 Requirements are not met, but the Restrictive
Covenant still runs to the future owner. This occurs when there is a Remedy in
Equity.

Remedy in Equity: Even if the law would not allow the restriction to be enforced, a
court in equity can enforce the restriction by ignoring some of the covenants.
The court may:
(1) Ignore Horizontal Privity
(2) Ignore Intention
(3) Redefine Vertical Privity as holding any estate.
In equity, the concept is fairness so the court has much leeway in interpreting here. So
it may not be a safe bet if you have a good case. Might be better off at law cause if you
meet all 8 requirements you win. At equity, if you meet all 6 you may still lose.
Remember: There must always be a restriction on the land so Touch and Concern is a
necessity.

Policy: When these requirements are met, the restrictions last forever. The courts do not
like this so will try to make them end.

(3) Ways that Restrictions can come to and End:
(1) Express Terms: Can state in the deed, K, agreement that the restrictions end on a
    certain date.
(2) Merger: If developer #1 comes and subdivides a huge parcel and makes the same
    restrictive covenants with all the sales, assuming requirements are met these
    restrictions are enforced. If developer #2 comes and buys up all the parcels that make
    up the original lot of developer #1, then the old restrictions, which originally existed,
    no longer exist as a matter of law. [The concept of Merger.]
(3) Express Release: Can get a later express release if it is signed by the homeowner of
    every parcel benefited that is a proper P.
(4) Concept of Neighborhood Change: If the value to the benefited estate no longer
    exists at all (no value) or it is a very substantial change, then the court may terminate
    the restriction. [This is very difficult to prove.]
(5) State Statutes (Rare): Some states have statutes that limit the years of restrictions.
    This is very rare.




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(C) Easements
(A) There are 4 Ways to Recognize Easements:

(1) Easement by an Express Grant: (A Writing)
Because an easement is an interest in real estate, it must comply with:
(a) The SOF: Must have a writing, be signed, have the essential terms of the easement
(easement area, rt. of way, that you maintain, etc.)
(b) The Recording Statute: If it is not recorded, then a subsequent purchaser w/o notice
can claim the easement is void as to him.
An express easement is rather easy, just look to the language.
Remember: The easement should be drafted with extreme care so as to spell out fully the
understandings of the parties involved. It should also say whether it is appurtenant or in
gross.

There are two major categories of easements that can be given:
(1) Appurtenant: An easement where you intend to bind every future homeowner. Here
    the rights attach to the land, not the particular person so if he moves, then he no
    longer has the rights. Instead, the new homeowner has the rights.
“Easement to grantee, heirs, successors, and assigns.”
(2) In Gross: An easement where you intend that only the original parties to the K have
    rights and are bound. This attaches to the person; thus even if original party to the K
    sells the land, he still has the rights. The rights attach to his body, not to the land.
    The future homeowner would obtain these rights.
“The grantor gives the grantee a right of way.”

Test to prove whether ―Appurtenant‖ or ―In Gross‖:
(1) INTENTION: Look to the intention of the parties at the time the easement was
    created.
    (A) First: look to the actual language, see if you can cipher what is going on.
    (B) Second: look to the attendant circumstances, the reason and purpose why the
    easement was created, then decide what type of easement would best serve that
    purpose.




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(2) Easement by Implication:
This is needed when those involved in a land transaction have not done a thorough job in
manifesting their intentions regarding easements.
There must be a single common owner to the land that was later subdivided and
conveyed.
General Rule: If an easement is not in writing, the SOF says it is unenforceable.
This ‗Easement by Implication‘ is an exception to the S.O.F.
Quasi Easement: When it was one lot, the common owner can not have an “easement”
against himself.
5 Requirements for a Quasi Easement:
(1) There must be a Common Owner.
(2) Prior use of a Common Owner: This relates to the notion of intention. The
    intention was already formed by the common owner that a right of way/easement
    would exist.
“Manifest the intention that when the common owner divides the property, he intends
the right of use to continue.”
(3) The ―USE‖ is apparent: If the new owner had actual or inquiry notice (not
constructive or would be an express easement) that the “use” existed, then when the
parcel was divided it is reasonable that the new owner intended the use to continue.
New owner must be either told of the use, or have inquiry notice of the use.
(4) The ―USE‖ is continuous: If the common owner‟s use was continuous, then the use
should keep on keeping on (AKA continue).
“Should be regular enough so that when the owner sells the other partition, the
easement should remain/continue.”
The regularity and frequency should be compared to that of an easement holder, not an
owner.
(5) The ―USE‖ must be Necessary or Beneficial: This requirement depends on
whether the Owner kept easement himself (reservation) or gave it away (grant).
(A) Easement by Reservation: When the common owner keeps the easement for
    himself, then the easement is only recognized if it is beneficial and necessary.
2 Kinds of Necessity for Easements by Reservation (CTS ARE SPLIT):
(1) Disproportionate Expense: Easement is allowed only when the cost to get a substitute
    is not disproportionate in relation to the value of the lot.
(2) Appreciable Expense (NY Rule): Easement is allowed only when the cost to get a
    substitute is an appreciable expense for the owner (a lesser standard, but still
    demanding).
(B) Easement by Grant: When the common owner sells the land with the easement to
    another (the easement is implied by grant), then the easement is only recognized if it
    is beneficial.
So in general, in seeking an easement by implication, to justify ignoring the SOF:
(1) We argue that the parties intended to create the easement anyway.
(2) We argue that the real estate needs the easement because it would be too
    disproportionate an expense to the land if the easement were not recognized.


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(3) Easement by Necessity: (Very Rare!)
There must be a common owner and a division of the lot followed by a sale.
After the sale, the easement must be necessary for one of the parcels of land.
Strict Necessity: The parcel must be absolutely useless and valueless, i.e., ―LAND
LOCKED.‖
Here, the court will recognize an easement even though it does not comply with the
S.O.F.

Review Questions for Easement by Implication:
#32.19: O divides his land into 2 parcels and sells 1 to N. N‟s plot has a house and a
garage, only N needs to use 4 feet of O‟s property to get his car back to the garage. N had
a right of possession before the K of sale, so N had been using the 4 feet. O also used the
4 feet. O finally executes a deed to N. Can O now enjoin N from using the „easement?‟
Traditional Way:
(1) Common Owner? Yes (0)
(2) Prior Use by Common Owner? Yes (by O)
(3) The Use was Apparent? Yes (To O and N)
(4) The Use was Continuous? Yes (by O)
(5) Reservation or Grant? Grant (O sold lot to N)
    (A) Was easement beneficial? Yes, to get to garage is beneficial or it is just a storage
        shed.
New Issue Way: Look at these questions in regard to N.
(1) Yes.
(2) Prior use by N.
(3) Use apparent to O and N.
(4) Use continuous by N.
(5) Grant to N.




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(4) Easement by Prescription: Similar to Adverse Possession (same S.O.L.)
Requirements for Easement by Prescription:
(1) There must be Actual Use.
(2) The use must be Adverse.
(3) The use must be Open and Notorious.
(4) The use must be Continuous.
    (A) Use is not interrupted.
    (B) Use is regular and frequent as for an easement holder.

#32.23: A and B were neighbors. Between them decided to build a common driveway
for both to use. A later sold to C and B later sold to D. C and D got into a fight and D
outs up a fence in the middle of the driveway so C cant use it. Is there an easement here?
There was no express easement.
There was no implied easement. (No Common Owner)
There was no necessity easement. (No Common Owner and No Necessity)
Was there an easement by prescription? Lets see…

(1) Actual Use: Yes.
(2) Regular Use: Yes.
(3) Interrupted Use: Not till years later. (enough years for S.O.L.)
(4) Open and Notorious: Neighbor had actual knowledge.
(5) Adverse?: Can be either (a) hostile intention or (b) under claim of right.
If not adverse then it is permissive; the neighbors did agree. If mutual permission then
no adversity.
So Sorry, get it in writing next time. No access for you!!!




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Description: Pa Landlord Common Electrical Outlet Law document sample