Daily Development for
Wednesday, May 1, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; RESIDENTIAL; IMPLIED WARRANTY OF HABITABILITY; REMEDIES: Residential tenants can defend against eviction by foreclosure receiver for breaches of implied warranty of habitability. Apple Bank for Savings v. One Arden Street Associates, 630 N.Y.S.2d 1012 (S.Ct. 1995).

In a case of apparently first impression, the Court held that tenants in a residential apartment building have a cause of action to bring a claim and raise warranty of habitability defenses against a receiver in a foreclosure proceeding.

Comment: Although the case seems straightforward and unsurprising, there are a number of questions left unresolved. It is surprising that there appears to be so little authority on the point.

Here the court holds that the tenants could raise the implied warranty defensively in response to an eviction action. But the traditional notion of the implied warranty defense is that it is in fact an offsetting damages claim. What if the damages exceeded the rent claim? Would the receiver be liable for amounts beyond the stipulated rent? Would the receiver be personally liable for amounts that exceeded monies in the rental accounts?

Of course, receivers might be able to "cloak" their actions from liability claims by getting specific court orders as to difficult management decisions. But court orders appointing receivers often are rather sketchy at the outset, and often it would be impractical to get the court's approval on every decision concerning the proper allocation of available funds for maintenance.

Another interesting issue is the liability of tenants to pay rent over to mortgagees or receivers under rent assignments in cases in which there is no assertion of possession and control over the premises. The theory says that such practices protect the mortgagee or receiver from any liability for mismanagement or other claims based upon possession. But should the tenant in an unhabitable apartment be liable for 100% of the rent in such cases? One would assume the answer would be that the tenant would be able to offset the "damages" against the rent, even though otherwise a tenant outside of the habitability context might not be able to make such an offset.

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