Henry v. Hamilton Equities, Inc., 72

• Citation: 114 N.Y.S.3d 21,34 N.Y.3d 136,137 N.E.3d 476
• Decision Date: 24 October 2019
• Docket Number: No. 72,72
• Parties: Carol HENRY, Appellant, v. HAMILTON EQUITIES, INC., et al., Respondents.
• Court: New York Court of Appeals

34 N.Y.3d 136

137 N.E.3d 476

114 N.Y.S.3d 21

Carol HENRY, Appellant,

v.HAMILTON EQUITIES, INC., et al., Respondents.

No. 72

Court of Appeals of New York.

October 24, 2019

OPINION OF THE COURT

STEIN, J.

In Putnam v. Stout, this Court recognized a limited exception to the general rule that an out-of-possession landlord is not liable for injuries resulting from the condition of the demised premises where, among other things, the landlord "covenant[s] in the lease or otherwise to keep the land in repair" ( 38 N.Y.2d 607, 617, 381 N.Y.S.2d 848, 345 N.E.2d 319 [1976] [citation omitted] ). The issue presented on this appeal is whether that exception applies to a regulatory agreement between defendants, as owners of the property, and the United States Department of Housing and Urban Development (HUD), as guarantor of the mortgage on defendants' premises. We hold that the regulatory agreement at issue here is not such a covenant, and decline to expand the exception in Putnam to these facts.

I.

Plaintiff, a nurse, was injured when she allegedly slipped and fell on water that had leaked in through the roof and pooled on the top floor of a nursing home operated by her employer, Grand Manor Nursing and Rehabilitation Center. Defendants Hamilton Equities Company (Hamilton Company) and Suzan Chait–Grandt owned the property in which the nursing home operated, defendant Hamilton Equities Inc. (Hamilton Inc.) was the general partner of Hamilton Company, and defendant Chait–Hamilton Management Corporation (Chait–Hamilton) managed it.¹ In 1974, Hamilton Inc. entered into a lease agreement with Grand Manor's predecessor for the soon-to-be-constructed nursing home facility. The 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 Hamilton Inc. 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 [Hamilton Inc.] to make such repairs or perform such work." Rather, the lease provided that Hamilton Inc. "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."

A 1978 amendment to the lease acknowledged that Hamilton Inc. would finance the project "through the Federal Housing Administration (‘FHA’)" and, in the event of inconsistencies between the lease and any regulatory agreements related to this financing, the "regulatory agreements [would] prevail and govern the rights of the parties." Hamilton Company thereafter secured a mortgage from Regdor Corporation in connection with the construction of the facility; the mortgage was insured by the FHA, which is part of HUD. Plaintiff's expert in the current action averred that the purpose of the regulatory agreement was to "protect both the physical asset, as well as the fiscal integrity of the property." The regulatory agreement between Hamilton Company and HUD provided that Hamilton Company, as the owner, was required to "maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition." Consequences of Hamilton Company breaching its duties under the regulatory agreement included HUD accelerating the indebtedness due, collecting rent from the nursing home, taking possession of the nursing home and applying for an injunction. The agreement stated that it was entered into "[i]n consideration of the endorsement for insurance by the Secretary" of HUD and that its requirements were "paramount and controlling as to the rights and obligations set forth and supersede[d] any other requirements in conflict therewith."²

Notably, the regulatory agreement required Hamilton Company to establish a "reserve fund" to be used for, among other things, "effecting replacement of structural elements[ ] and mechanical equipment" at the facility. As the mortgagee, Regdor controlled the reserve fund; however, "disbursements from such fund" could be made only "after receiving the consent in writing" of the Secretary of HUD. The 1978 amendment to the lease also referenced the reserve fund. Although the "paramount and controlling" regulatory agreement required Hamilton Company to deposit approximately $4,100 per month into the reserve fund, the lease amendment provided that two-thirds of the required amount would be paid by the tenant and one-third would be paid by Hamilton Inc. The amendment to the lease also specified that "only Lessee" – i.e., Grand Manor – "may withdraw from such fund for the purposes for which such fund is established." Consistent with its obligations under the lease to maintain the facility in a state of good repair and the dictates of the lease amendment providing that only Grand Manor could make withdrawals from the reserve fund established as a source to pay for the repairs, Grand Manor applied for and received HUD's authorization for the release of money from this fund for the purpose of improving the facility's fire alarm and sprinkler system (see Grand Manor Health Related Facility, Inc. v. Hamilton Equities, Inc., 941 F.Supp.2d 406, 412 [S.D. N.Y.2013] ).³

There is nothing in the record to suggest that, for the period of approximately 30 years following construction of the property until plaintiff's accident, the Hamilton defendants ever made repairs to, or even visited, the property. HUD periodically inspected the facility, including in 2007, 2008, and 2009, and provided either Chait–Hamilton or Hamilton Company with summary reports after each inspection. The reports revealed that the facility required maintenance and repair work each year, with the 2007 and 2008 reports indicating that repairs were necessary due to water and mold damage. However, the 2009 inspection report indicated that the facility's condition had significantly improved, resulting in the facility being excused from inspection for the next three years. Although none of the reports mentioned a roof leak, it is undisputed that Grand Manor hired contractors to repair roof leaks, once in 2009 and, again, in 2011 – shortly before plaintiff's accident.

Following her accident, plaintiff commenced the instant action alleging, in pertinent part, that defendants, as the owners and managers of the property, were aware of leaks in the roof at the facility and failed to cure the defective condition for an unreasonable length of time. The Hamilton defendants moved for summary judgment dismissing the complaint and all cross claims as against them on the ground that plaintiff had not established an exception to the general rule that out-of-possession landlords are not liable for the condition of the subject premises. In opposition, plaintiff countered that the regulatory agreement with HUD imposed on the Hamilton defendants a non-delegable duty in tort, in favor of third parties, such as plaintiff, to maintain the facility, including the roof, and that defendants had actual notice of the facility's defective condition through the HUD inspection reports.

Supreme Court, as relevant here, granted the motion and dismissed the complaint and all cross claims asserted against the Hamilton defendants. The court held that the Hamilton defendants were out-of-possession landlords and were entitled to the protection of the general rule that such landlords will not be liable for injuries caused by dangerous conditions on the lease premises. While the court recognized that an exception to the general rule exists when an out-of-possession landlord "is contractually obligated to make repairs and/or maintain the premises," the court concluded that there was "no reasonable argument that the HUD regulatory agreement was designed to afford Grand Manor, as tenant, the benefits discussed in Putnam, " and that plaintiff did "not allege[ ] that Grand Manor, as tenant, was aware of the contractual obligation imposed by HUD or relied on it."

The Appellate Division unanimously affirmed Supreme Court's order insofar as appealed, concluding that inasmuch as "[t]he social policy considerations cited by the Court of Appeals in Putnam ..., are promoted only where the landlord had a contractual obligation directly to the tenant," the Hamilton defendants were not liable for the condition of the facility ( 161 A.D.3d 418, 419, 76 N.Y.S.3d 520 [1st Dept. 2018] ). This Court granted plaintiff leave to appeal.

II.

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 (see Gronski v. County of Monroe, 18 N.Y.3d 374, 379, 940 N.Y.S.2d 518, 963 N.E.2d 1219 [2011] ). 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’ " (id., quoting Butler v. Rafferty, 100 N.Y.2d 265, 270, 762 N.Y.S.2d 567, 792 N.E.2d 1055 [2003] ). 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" (id.; see Chapman v. Silber, 97 N.Y.2d 9, 19, 734 N.Y.S.2d 541, 760 N.E.2d 329 [2001] ). There are, however, exceptions.

For example, out-of-possession landlords may be held liable "for dangerous conditions on the leased premises" if "a duty to repair the premises is imposed ... by contract" in certain, limited instances ( Rivera v. Nelson Realty, LLC, 7 N.Y.3d 530, 534, 825 N.Y.S.2d 422, 858 N.E.2d 1127 [2006] ). Historically, this was not so: Even where there was a covenant to repair made by the property owner directly with the tenant, "upon the landlord's breach of the covenant to repair, the tenant obtained only an action in contract for the breach" and, therefore, "third persons not parties to the...