NEW YORK COURT OF APPEALS REAFFIRMS THAT LEASE LANGUAGE DETERMINES OUT OF POSSESSION LANDLORD’S LIABILITY TO THIRD PARTIES

• Posted on: Nov 1 2019

There has been a lot of litigation regarding an out of possession landlord’s tort liability to third parties.  Generally, an out of possession landlord “is not liable for injuries resulting from the condition of the demised premises….”  Henry v. Hamilton Equities, Inc. (Ct Appeals October 24, 2019).  An exception exists where “the landlord covenants in the lease or otherwise to keep the land in repair.”  Henry (citing , Putnam v. Stout, 38 N.Y.2d 607 (1976)) (internal quotation marks and brackets omitted).  The general rule and its exception have a long history in the Court of Appeals and English law.

In Cullings v. Goetz, 256 N.Y. 287 (1931), overruled by Putnam v. Stout, 38 N.Y.2d 607 (1976), plaintiff, after being injured while attempting to open defective sliding entrance doors at a garage, sued the lessee of the automobile repair shop where he was injured as well as the lessor/owner of the property.  The tenancy was subject to an oral lease.  “The trial judge left the question to the jury whether as one of [the oral leases] provisions the owners had agreed to make the necessary repairs [to the doors].”  Cullings, 256 N.Y. at 289.  The trial court instructed the jury that, in the event such an agreement was found, and a “failure to repair after notice of the need, owners as well as lessee were to be held for any negligence in the unsafe condition of the doors.”  Cullings, 256 N.Y. at 289.

The Cullings lessor appealed after a jury found in favor of the plaintiff as against both defendants.  The Appellate Division reversed the trial court and dismissed the complaint as against the lessor holding that the failure of the owners to keep the promise to repair was unavailing to charge them with liability in tort.”  Cullings, 256 N.Y. at 289.  The Appellate Division ruled that “liability in tort must be confined to the lessee, whose possession and dominion were exclusive and complete.”  Cullings, 256 N.Y. at 289 – 90.

The Cullings Court of Appeals, in concurring with the Appellate Division, held that “in this country as in England, a covenant to repair does not impose upon the lessor a liability in tort at the suit of the lessee or of others lawfully on the land in the right of the lessee.”  Cullings, 256 N.Y. at 290 (citations omitted).  “Liability in tort is an incident to occupation or control [and] … occupation and control are not reserved through an agreement that the landlord will repair.”  Cullings, 256 N.Y. at 290 (citations omitted).

The Court of Appeals, in Putnam v. Stout, 38 N.Y.2d 607 (1976), had occasion to reconsider the reasoning of, and overruled its decision in, Cullings.  The plaintiff in Putnam was injured when her foot got stuck in a hole in the driveway of a supermarket.  Plaintiff sued the lessee supermarket and the lessor property owner.  The Putnam Court of Appeals affirmed the liability rulings of the trial court and Appellate Division that both the lessee and lessor were liable for plaintiff’s injuries.

Among other things, the lease in Putnam provided:

the Tenant covenants and agrees that it will make all necessary incidental repairs to the interior of the demised premises. All other necessary repairs the Landlord agrees to make. * * * Should the Landlord neglect or refuse to make any such repairs * * * within a reasonable time after notice that the same are needed, the Tenant without liability or forfeiture of its term hereby demised may have such repairs made at the expense of the Landlord and may deduct from the rent the cost thereof.

Putnam, 38 N.Y.2d at 613 (internal quotation marks and brackets omitted).  Because the tenant had the right and control to repair the defects in the driveway, the Court concluded that the tenant was properly found liable.  Putnam, 38 N.Y.2d at 613.

The landlord in Putnam, relying on Cullings, argued that it had no liability for plaintiff’s injuries.  The Court of Appeals stated that the time to “reevaluate our adherence to the Cullings rule and reappraise the modern trend toward assessing liability solely upon the basis of the covenant to repair” has come.  Putnam, 38 N.Y.2d at 614 (citation omitted).  In overruling Cullings, the Putnam Court stated:

We overrule Cullings … and adopt the Restatement formulation as the law rule to be applied. The Restatement rule rests on a combination of factors which, we think, more accurately and realistically place an increased burden on a lessor who contracts to keep the land in repair: First, the lessor has agreed, for a consideration, to keep the premises in repair; secondly, the likelihood that the landlord’s promise to make repairs will induce the tenant to forego repair efforts which he otherwise might have made; thirdly, the lessor retains a reversionary interest in the land and by his contract may be regarded as retaining and assuming the responsibility of keeping his premises in safe condition; finally, various social policy factors must be considered: (a) tenants may often be financially unable to make repairs; (b) their possession is for a limited term and thus the incentive to make repairs is significantly less than that of a landlord; and (c) in return for his pecuniary benefit from the relationship, the landlord could properly be expected to assume certain obligations with respect to the safety of the others.

Putnam, 38 N.Y.2d at 617 – 18 (citations omitted).  Thus, the Putnam Court held that “a landlord may be liable for injuries to persons coming onto his land with the consent of his lessee solely on the basis of his contract or covenant to keep the premises in repair.”  In determining that, in light of the holding, the lessor in Putnam was liable to the plaintiff, the Court stated:

… it is clear that the landlord is also liable to plaintiff. It is undisputed, of course, that plaintiff was on the land with the permission of [lessee], that [lessor] covenanted to keep the driveway in repair, that the disrepair created an unreasonable risk of harm to plaintiff, which performance of the covenant would have prevented, and that since [lessee] had not even attempted to repair the driveway, he failed to exercise reasonable care to perform his contract. We conclude, therefore, that [lessor is] liable to plaintiff.

The Henry Court of Appeals had the opportunity to revisit Putnam.  In reiterating the general rule of liability, the Court stated:

Landowners generally owe a duty of care to maintain their property in a reasonably safe condition, and are liable for injuries caused by a breach of this duty. The duty is premised on the landowner’s exercise of control over the property, because the person in possession and control of property is best able to identify and prevent any harm to others. In contrast, a “landowner who has transferred possession and control [i.e., an out-of-possession landlord] is generally not liable for injuries caused by dangerous conditions on the property.

(Citations, quotation marks and brackets omitted.)

The plaintiff in Henry was a nurse who was injured after slipping on water caused by a leaking roof in the nursing home where she worked.  As to the parties’ repair obligations:

[t]he lease stated that the tenant would, at its “sole cost and expense, maintain and keep all parts of the leased premises . . . in a good state of repair and condition.” Moreover, although [landlord] maintained the right to enter the facility to make repairs if the tenant failed to do so, the lease specified that it was not to be construed “as making it obligatory upon the part of [landlord] to make such repairs or perform such work.” Rather, the lease provided that [landlord] “shall not be required to maintain, repair or replace any part of the leased premises or any of its fixtures, furniture, machines, equipment or appurtenances.

Therefore, under the subject lease, it was the tenant who was obligated to make the repairs that related to the accident.  Accordingly, under a straightforward Putnam analysis the landlord should have no liability to the plaintiff.  The plaintiff in Henry, however, tried to use additional facts to confer liability on the landlord.  The subject nursing home was financed with a mortgage insured through the Federal Housing Administration, which is part of HUD.  Among other things, the agreements with HUD, which were incorporated into amendments to the lease, required the landlord to maintain the “mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition.”  Significantly, “the HUD regulatory agreement, as incorporated into the 1978 amendment to the lease, did not alter the contractual relationship between the [landlord] and [tenant] regarding control of the premises or replace [tenant]’s contractual duty to perform maintenance and repairs at the facility.”

As explained by the Henry Court of Appeals, “[t]he issue presented on this appeal is whether [the covenant to repair] exception applies to a regulatory agreement between defendants, as owners of the property, and … HUD, as guarantor of the mortgage on defendants’ premises.  After analyzing Putnam, the Court concluded that “it is the relationship between those two parties — the landlord and the tenant — as reflected in their agreements regarding the maintenance of the property, that drives the analysis.”  In this regard, the Henry Court stated:

Critically, the HUD regulatory agreement, as incorporated into the 1978 amendment to the lease, did not alter the contractual relationship between the [landlord] and [tenant] regarding control of the premises or replace [tenant]’s contractual duty to perform maintenance and repairs at the facility. Although the terms of the HUD agreement were to supersede all other requirements in conflict therewith, the regulatory agreement did not conflict with, or absolve [tenant] of, its responsibilities under the original lease. Indeed, as previously noted, the amendment continued all terms from the lease that did not conflict with the regulatory agreement. Given the absence of a conflict on the issue of [tenant]’s duties to make repairs, the HUD agreement, as incorporated into the lease amendment, was not a covenant that could be said to displace [tenant]’s duties or alter the relationship between landlord and tenant in the manner contemplated by [landlord].

In that regard, an analysis of the Court’s rationale in Putnam for adopting the rule further indicates that the exception does not apply to (and should not be expanded to cover) the HUD regulatory agreement. In particular, the Putnam Court’s emphasis on the likelihood that the landlord’s promise to make repairs will induce the tenant to forgo repair efforts which it might otherwise have made clearly is not implicated by that agreement. The record reflects that [tenant] regularly performed repairs (although perhaps negligently), including repairs to the alleged injury-causing roof condition in 2009, and retained a contractor to make further repairs to the roof two weeks before the accident. In addition, the regulatory agreement required monthly deposits into a reserve fund to be used for replacement of structural elements and mechanical equipment at the facility, and the 1978 amendment to the lease permitted only [tenant] to withdraw money from the fund “for the purposes for which such fund is established.” Significantly, [tenant] successfully sought HUD’s authorization for the release of money from this fund for the purpose of maintaining the facility’s sprinkler system, whereas nothing in the record suggests that defendants ever performed any repairs.

After its analysis, the Henry Court determined that the Putnam exception to the general rule regarding out of possession landlords was inapplicable to the case and, therefore, the landlord had no liability to plaintiff.  It should be noted that Justice Rivera filed a lengthy dissenting opinion in Henry.

TAKEAWAY

Lease language requiring a landlord to make certain repairs to leased premises could operate to make the landlord liable for personal injuries.

Tagged with: Commercial Leases, Commercial Litigation, Court Of Appeals, Landlord and Tenant, Out of Possession Landlords, Premises Liability, Real Estate Litigation