Possession as Constructive Notice of Rights of Tenants:
Arcane, Possibly Archaic
The concept of "Possession as Constructive Notice of Rights of Tenants" is often considered by "arcane" and "archaic". In the two decisions discussed here, opposite and possibly contradictory results are represented. These decisions illustrate the dilemma of a rather old concept that possession and occupancy of premises by a tenant gives rise to rather extensive benefits, unrelated to the recording act.
First, in Vitale v. Pinto (118 A. D. 2d 744, 500 N.Y.S. 2d 283 (1986)), the plaintiff lessee leased the subject premises in Kings County from the defendant for a six-year term commencing November 1976. The lease included an option to purchase the property free of all encumbrances. The lease also granted the defendant the right to mortgage the property up to $15,000 during the term of the lease.
The plaintiff did not record this lease and the defendant owner subsequently mortgaged the property in January 1981 for approximately $38,000. The mortgagee, despite not having record notice of the lease containing the option to purchase and mortgage limitation, was aware that the property was tenant occupied. The mortgagee did inquire as to the tenant's rights from the landlord who told him that the plaintiff was month-to-month tenant with no written lease. The mortgagee did not, however, attempt to ascertain the tenant's rights directly from the tenant.
In August of 1982 the plaintiff attempted to exercise his option to purchase. Upon the landlord's refusal, plaintiff instituted action for specific performances of the option and for a declaratory judgment declaring the mortgage void. The plaintiff was successful under both actions and the defendants appealed.
The court on appeal held that the plaintiff's failure to record the lease did not protect the mortgagee. The mortgagee was on notice of all rights to the property that the plaintiff could establish since the plaintiff was in open possession of the property. Thus, the mortgagee was not a bona fide purchaser, which is a requisite to coming under the protection of New York's Recording Act. (Real Property Law Section 291).
The appellate court did, however, hold that the mortgagee's interest was subordinate to the plaintiff's interest only to the extent that it exceeded the $15,000 which the lease expressly permitted the lessor to mortgage.
In a more recent case, the fact pattern was similar to Vitale v. Pinto with respect to the failure of the tenant to record. In that case, there was a 99-year lease. The court in Wright v. King (Civil Ct. Housing Part 18E, Kings County, NYLJ, November 8, 1995 Page 29 Column 1) held that the lease was void as against the purchaser of the premises from the successful bidder at a foreclosure sale.
Both the Vitale v. Pinto and Wright v. King cases cite the leading case of Phelan v. Brady (119 N.Y. 587, Ct. of Appeals 1880) for the proposition that a tenant in possession establishes actual notice or at least creates a duty of inquiry which if not pursued, establishes constructive notice of tenant's rights to the extent of what might have been ascertained.
However, in the Wright v. King case the title of the owner came out of the chain of title through a foreclosure of a mortgage. The mortgage foreclosure was commenced with the filing of a lis pendens and the 99-years lease was not recorded until years after the lis pendens was filed. In fact, the referee's deed was recorded July 15, 1994 and the lease dated October 21, 1988 was not recorded until April 28, 1995.
Justice Baynes of the Civil Court points out that the lease of over three years is a conveyance which is controlled by the second part of Real Property Law Section 291, which states that the unrecorded deed is void as against good faith purchasers. The court added the following:
The Court in Sam & Mary Housing, supra went on to rule that "once actual notice of conveyance exists...the failure of a lessee to record loses all pertinence since the purpose of recording acts is to furnish constructive notice Id.468 N.Y.S. at 298. As previously noted, however, this Court is regrettably resigned to here disagree. While CPLR 6501 pertaining to lis pendens relates to constructive notice, RPL 291 does not. Said provision expressly states that an unrecorded conveyance "is void" as against subsequent purchasers who met all of the criteria set forth therein. This Court does not have general equity jurisdiction, and is obligated to strictly apply the applicable statues of this state."
The distinguishing feature between these two cases is the filing of the lis pendens. Should Section 6501 of the CPLR which relates to the effect of a lis pendens be the basis of holding tenant's possession as irrelevant? Should possession alone in a complex world of landlord/tenant relations be the basis for decisions based on duty of inquiry? In this age, this concept may be an anachronism, thereby obviating the requirements of Section 291 of the R.P.L.
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