Is Once Enough? When Illegal Activity Voids a Lease
An appellate court ruled one incident of illegal activity, in this case dealing in ivory, was enough to end an art and antique store’s lease. But the dealer’s attorney is going to a higher court.
NEW YORK CITY—An appellate court reversed a lower court’s ruling and declared that Metropolitan Fine Arts & Antiques’ lease at 10 W. 57th St. in Midtown Manhattan was void.
The Legal Story
The appellate division held that the landlord was entitled to immediately possess the premises noting under New York Real Property Law §231(1), whenever a lessee uses a building for any illegal trade, manufacture or business, the lease becomes void.
Metropolitan and two of its principals, Samuel Morano and Irving Morano, pleaded guilty to violating an Environmental Conservation Law that forbids the sale, purchase, barter or distribution of ivory without a license or permit. They acknowledged the store did not have a current license and permit from the New York State Department of Environmental Conservation to sell ivory.
A lower court had ruled that Real Property Law §231(1) required “a habitual pattern of illegal activity.” Thus, the judge held the lease was not void. The landlord, Solow Realty, had purchased the property from Gafisa SA for $120 million in March 2012, according to Real Capital Analytics.
Warren Estis and Norman Flitt, partners at the law firm Rosenberg & Estis, represented the landlord (through the corporation 10 West 57th Street Realty) and appealed this decision.
“Our argument was the statute automatically voids a lease for any illegal trade or activity on leased premises,” said Flitt in a GlobeSt.com interview. He described what happened as follows:
On August 12, 2014, an Environmental Conservation Law went into effect that prohibited selling ivory without a license. The dealer applied to renew its permit to sell ivory which was due to expire on August 4, 2015.
“They had the ability for one year to sell, with the goal of getting rid their inventory, ivory products through August 2015,” Flitt explained. However, he alleged the store continued to sell ivory for four to five months following the expiration of its license, knowing it was illegal. The landlord’s appellate brief states on November 30, 2015, the store sold ivory exceeding the value of $1,500, without a license or permit. Flitt also stated on December 28, 2015, executing a search warrant at 10 W. 57th St., New York State officers from the Department of Conservation discovered 126 ivory items. This included intricate carvings, and two pairs of uncarved elephant tusks, one that was seven feet long. The sales prices listed for the objects totaled $4.5 million, with one pair of tusks priced at $200,000.
The landlord’s appellate brief notes that on July 26, 2017, Metropolitan, Samuel Morano and Irving Morano, pleaded guilty to the illegal commercialization of wildlife, when on or about December 28, 2015 they offered for sale, purchased, traded, bartered and distributed ivory without a license or permit.
Estis said the ruling regarding New York Real Property Law §231(1) has larger consequences for the real estate industry. “It’s a safeguard for landlords to be able to keep control of their property to see that there is no illegal activity going on and if there is, they can resort to the court to terminate the lease.”
He added, “It was a great victory that finally an appellate court has ruled on the interpretation of the statute and that one incident alone is enough to void the lease. Crime doesn’t pay.”
However, the attorney for Metropolitan Fine Arts & Antiques, David Rozenholc, has another interpretation of the statute. No stranger to litigating against landlords, Rozenholc has been referred to as “the most feared tenant attorney in New York City,” by Crain’s and other publications. Some of his well-known victories with tenant hold-out cases include getting Tishman Speyer to pay a $25 million settlement to two tenants to give up their apartments for the Hudson Yards development. Back in the 1980s, he also prevented Donald Trump from evicting and demolishing the apartments of tenants at 100 Central Park South.
In a GlobeSt.com interview, Rozenholz said the appellate division’s decision is not supported by law and is wrong. “The law has been that one evidence of one illegal incident is not sufficient to cause an eviction of a commercial resident tenant. The proof has to be there was an ongoing, habitual, customary pattern,” he said.
There was a conviction for one sale after Metropolitan’s license expired, according to Rozenholc. He pointed out that the presence of the accumulation of ivory that was left over, including the seven-foot tusk, did not mean they were selling it. “They were selling ivory for many years as most antique dealers in New York did. The fact that they had ivory at the premises, in storage, does not mean that they sold it,” he said, distinguishing possession from selling.
The tenant’s lawyer differentiated the analogy of crack cocaine noting “You can’t have crack cocaine sitting around but you can have ivory sitting around.” He argues there was only one incident of selling ivory, which would be insufficient to void the lease that expires in 2023. And Rozenholc is taking the case to the Court of Appeals.
The Real Estate Story
Behind the legal issues, The New York Post compared the illegal selling of ivory with the neighborhood development issues. An August 2017 article noted Metropolitan is the last tenant preventing the landlord Sheldon Solow from demolishing the building to construct a 54-story condominium and hotel. The paper stated Solow built the large development at 9 W. 57th St., just across the street and noted the destruction of the block’s human scale. It stated the property at 10 W. 57th St. is the last of six adjoining buildings that Solow owns and needs to demolish. The New York Post opined Solow’s projects “doomed” five more retail storefronts for the development of skyscrapers.