MH&H Landlord & Tenant Newsletter-December 2011 Issue

In this issue, you will learn about the recently enacted Rent Act of 2011; an Appellate Court decision which ruled that the landmark Court of Appeals involving Stuy-Town and Peter Cooper Village should apply retroactively; an exception to the statute of limitations in calculating rent overcharges; and a recent case concerning a commercial tenant's obligation to replenish its security rent deposit.

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Commercial Landlord Not Entitled To Replenishment Of Security Deposit From Tenant Or Guarantors That Was Credited To Unpaid Rent

In 413 West 14 Associates v. Santorelli, Harris and Dogmatic, Inc., 101303/10, Supreme Court Justice Gische held that neither the tenant, Domatic, Inc., nor the guarantors, Michael Santorelli and Laurel Harris, were required to replenish the security deposit that the landlord had credited to unpaid rent before the tenant vacated the premises. In this case, the tenant notified the landlord pursuant to a written ninety (90) day notice that it intended to vacate the premises.

The landlord thereafter notified the tenant prior to tenant's vacatur that the landlord was crediting the security deposit to the rent arrears and that the security deposit had to be replenished. When the tenant did not replenish the security deposit, landlord served tenant with a notice to cure. When the tenant still did not replenish the security deposit, landlord served tenant with a notice of termination. Tenant thereafter vacated the premises. Landlord then commenced the instant action seeking among other things, unpaid rent and replenishment of the security deposit by the tenant and guarantors.

Although the provisions of the lease required that the tenant replenish the security deposit within ten (10) days of notice from the landlord, the guaranty held that the guarantors were only liable until the tenant vacated the premises and that the security deposit would be credited to any monies due by tenant. The court held that the security deposit was not "additional rent" but rather "liquidated damages" held in escrow that is used to ensure that the tenant complies with the terms of the lease, and as such, it was axiomatic that neither the tenant, nor the guarantors, would be required to replenish the security deposit upon vacating the premises.

Practice Tip: Never apply security deposit to rent arrears; when rent remains unpaid have your attorneys prepare and serve a rent demand as a predicate notice to a...