A Manhattan landlord’s attempt to collect more than $186,000 in unpaid rent from an Indian restaurant was stopped by a technicality. The case was dismissed because of how the lawsuit was served, revealing a gap in the law that may have been overlooked for years.
Judge Allison Greenfield of New York Civil Court dismissed the lawsuit from landlords UNG 3 Realty and 36 East 20th Street Realty against Passerine LLC, finding that the legal papers were not served correctly. The landlords delivered the documents to someone at the restaurant, which is allowed for corporations, but Judge Greenfield said this method does not meet the requirements for limited liability companies.
The main issue comes from New York’s Real Property Actions and Proceedings Law Section 735. This law allows landlords to serve corporations and similar groups by simply leaving papers with any employee at the business. However, LLCs are not included in this list. Because of this, Judge Greenfield said landlords must follow Civil Practice Law and Rules Section 311-a for LLCs, which requires serving a member or manager directly, or going through the Secretary of State.
In his usual landlord-tenant practice, many LLCs have been served with the simpler drop-off method. Lawyers and judges have not usually treated LLCs differently from other business types when it comes to serving legal papers, even though the laws are technically different. Judge Greenfield pointed out that there is little past case law on this topic, citing only one similar case from Staten Island in which the judge reached the opposite conclusion. Her decision is one of the first of its kind. If other courts follow this ruling, landlords may need to be more careful during lease negotiations, making sure they know who manages the LLC or requiring tenants to name an agent for legal papers. Without this planning, landlords might have trouble pursuing unpaid rent cases.
For tenants, this decision gives them new ways to defend themselves. LLC tenants and their lawyers now have stronger grounds to challenge rent claims if the landlord did not serve the papers correctly. If more courts agree with Judge Greenfield, tenant lawyers will have more tools to fight cases where landlords use the usual drop-off method. This ruling clearly makes things more complicated for landlords and gives tenants more chances to defend themselves.
Judge Greenfield said the law likely left out LLCs by accident, since LLCs were created long after RPAPL Section 735 was written. She stressed that only lawmakers, not courts, can change the law to fix this gap. When serving an LLC tenant, landlords should hope that RPAPL 735 is updated to include LLCs in the list of entities that can be served with the more straightforward method. He sees no good reason to treat LLC tenants differently, primarily since lawyers have been serving LLC tenants like corporations for years without problems. The main goal of summary proceedings is to resolve disputes quickly, and making things harder for one type of business goes against that purpose.
For now, the landlords have a few choices. They can try to serve Passerine LLC again, following Judge Greenfield’s instructions by delivering the papers to an LLC member or through the Secretary of State. They could also appeal the decision. No matter what they decide, this case has highlighted a technical issue that may need lawmakers to address, so future landlord-tenant cases in New York are less confusing and more efficient.
If you are a commercial landlord or tenant involved in an eviction of a limited liability company, please consult the Wright Law Firm at (212) 619-1500 to discuss your options, defenses, and best practices.