All posts by Anthony Pasca

James Spiess Joins the Firm

The firm is pleased to announce that James Spiess, Esq., and McNulty-Spiess, P.C., have joined EHADP as “of counsel,” and will be now be working directly from the firm’s Main Office in Riverhead.

McNulty-Spiess, P.C. is one of the oldest surviving Eastern Long Island law firms, tracing its origins to 1959, when John McNulty joined the Riverhead practice of Gordon Lipetz.  James Spiess joined Mr. McNulty’s firm in 1983 and has been a principal thereof since 1987.  He has been practicing on the East End for nearly forty years, primarily in the areas of estate and trust litigation, commercial disputes, and real estate litigation.  Over that time, Jim and McNulty-Spiess, P.C often worked on the same cases with EHADP, which traces its origins to 1965, when William Esseks joined a predecessor firm and began working from the same Riverhead Office that the firm still maintains today.  The two historic firms have, over many decades, been both adversaries and co-counsel.

As of February 1, 2021, Jim and Mc-Nulty-Spiess, P.C. have united with EHADP through an “of counsel” association and integration of offices.  Jim can now be reached either through his long-term McNulty-Spiess number (631-727-8200) or EHADP’s number (631-369-1700), and he works at EHADP’s Riverhead office located at 108 East Main Street.  Jim’s personal bio can be viewed here.

“Truck Beach” Decision – 2/3/21

After eleven years of litigation, the Appellate Division, Second Department, has upheld the claims of five homeowner association plaintiffs to own the ocean beach areas adjacent to their developments, and has prohibited the Trustees and Town of East Hampton from issuing beach driving and parking permits over those beaches, in Seaview at Amagansett v. Trustees of Freeholders and Commonalty of Town of East Hampton.

The area in question, commonly referred to as the “truck beach,” was part of large tract of land that had been purchased from the Trustees by Arthur Benson in 1882.  The five homeowner associations were successors to a portion of Arthur Benson’s estate, including most of the beach area in question.  Though the beach has been privately owned since 1882, the Trustees and Town of East Hampton claimed, over a century later, that they had the right to allow the general public to use this private property for beach driving and parking.  In 2009, when the intensity of the parking and driving became a serious health and safety hazard for the homeowner associations, they joined together and commenced an action seeking a judgment declaring that they are the lawful owners of the beach area in question and that the Trustees and Town of East Hampton had no right to allow the general public onto this private property for beach driving and parking.  The case reached trial in 2016, and the trial court originally ruled in favor of the Trustees and Town.

On appeal, the Appellate Division disagreed with the trial court and concluded that the plaintiffs did in fact prove that they owned the beach areas in question and were entitled to an injunction prohibiting the beach driving and parking being allowed by the Trustees and Town.  With respect to the question of ownership, the Appellate Division found that the plaintiffs “produced all of the deeds in those respective chains of title, beginning with the Benson Deed, which is common to all of the homeowners associations’ chains of title,” and the plaintiffs therefore “established… that they owned title in fee simple absolute to the disputed portion of their respective properties.”

The Appellate Division also rejected the Trustees’ and Town’s theory that the beach driving and parking could be justified under a certain “reservation” in the original 1882 deed, which “reserved to the inhabitants of the Town of East Hampton the right to land fish boats and netts to spread the netts on the adjacent sands and care for the fish and material as has been customary heretofore…”  “Rather,” the Court reasoned, “the reservation is in the nature of an easement allowing the public to use the homeowners associations’ portion of the beach only for fishing and fishing-related purposes, as contemplated by the plain wording of the reservation.”  As a result, the Court concluded that “the reservation does not confer upon the Town and Trustees lawful governmental or regulatory power to issue permits allowing members of the public to operate and park vehicles on any portion of the beach owned by the homeowners associations.”

The Appellate Division remanded the matter back to the trial court for the entry of a final judgment against the Town and Trustees.

Zoning Case Decision – 12/2/20

The Appellate Division, Second Department has upheld a Zoning Board’s dismissal of a neighbor’s appeal from a building permit and certificate of occupancy, in Jane H Concannon Revocable Trust v. Building Department of Town of East Hampton.  The controversy involved a renovation of a motel in Montauk completed in 2015, where the neighbor in question argued that an earlier certificate of occupancy issued in 2005 was improperly granted.   In the ensuing proceedings before the Town’s Zoning Board, the Board found that the neighbor’s challenge was untimely, because the neighbor had constructive notice of the 2005 certificate of occupancy no later than 2010, five years before the appeal to the Zoning Board.  The Appellate Division’s decision, which upheld the Supreme Court’s dismissal of the neighbor’s Article 78 proceeding, agreed with the Supreme Court that the Zoning Board’s findings were rational and not arbitrary and capricious.

Mortgagee-Tenant Decision – 11/19/20

The Appellate Term, Second Department, has ruled in favor of tenants against a purchaser at a mortgage foreclosure sale, in Lakeland v. Uvino.   The East Hampton Justice Court had issued two judgments against tenants, who had been in possession of the property at the time of the foreclosure sale, and in favor of the purchasers, totaling over $174,000.  On appeal, the Appellate Term found that the judgments were improperly awarded, because the purchaser, who was also the mortgagee who commenced the foreclosure action, had not properly “voided” the leases after the foreclosure sale.

Downpayment Dispute Decision – 5/26/20

The Supreme Court, Suffolk County (Hon. Denise M. Molia) has granted summary judgment to a seller on a breach of contract action over the downpayment, in Fryer v. Murphy.   The action involved a contract to purchase property in Water Mill, NY.  The purchaser refused to close on the purchase, citing an alleged finding of mold as her excuse.   The seller brought an action to recover the down payment as “liquidated damages” and moved for summary judgment on the ground that the purchaser agreed to take the property in “as is” condition and did not negotiate for any mold-free clause in the contract.  Justice Molia agreed with the seller, found the purchaser in breach of the contract, and awarded the seller the full amount of the down payment as liquidated damages.

Co-op Law Decision – 5/7/21

The Supreme Court, Suffolk County (Hon. Carmen Victoria St. George) has dismissed an action against a cooperative community’s Board, in Bonati v. Primiani.  The plaintiffs were homeowners in the community and shareholders of the corporation that owned all the community, and they claimed that the community’s governing Board breached its fiduciary duty to them by failing to follow the community’s regulations.   Justice St. George concluded that the plaintiffs could only have brought their claims in a “derivative” capacity, as shareholders, but instead they incorrectly brought the action in their individual capacities.  The action was dismissed in its entirety.

Covid-19 Landlord-Tenant Update

On July 6, 2020, Governor Andrew Cuomo signed Executive Order 202.48.  This Order ended the directives contained in Executive Order 202.28 regarding prohibition on residential eviction and foreclosure proceedings.  Executive Order 202.48, however, did not affect the protections for commercial tenants and commercial mortgagors which were put into place under Executive Order 202.28.  Thus, the moratorium on commencing a commercial eviction or commercial foreclosure proceeding against tenants/mortgagors who are eligible for unemployment insurance or benefits under federal or state law or otherwise facing financial hardship due to COVID-19 remains in place until August 20, 2020.

As to residential eviction proceedings, a landlord may commence an action for non-payment against a tenant, whether the tenant is experiencing a COVID-19 financial hardship or otherwise.  Tenants experiencing a COVID-19 financial hardship, however, can now raise such financial hardship as an affirmative defense in the eviction proceeding under the protections of the Tenant Safe Harbor Act (the “Act”).  The Act was signed into law by Governor Andrew Cuomo on June 30, 2020 and it provides that, “No court shall issue a warrant of eviction or judgment of possession against a residential tenant or other lawful occupant that has suffered a financial hardship during the COVID-19 covered period for the non-payment of rent that accrues or becomes due during the COVID-19 covered period.”  The Act goes on to define the “COVID-19 covered period” as commencing March 7, 2020 and ending on the “the date on which none of the provisions that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals of any size for any reason in Executive Orders 202.3, 202.4, 202.5, 202.6, 202.7, 202.8, 202.10, 7 202.11, 202.13 or 202.14, as extended by Executive Orders 202.28 and 202.31 and as further extended by any future Executive Order, issued in response to the COVID-19 pandemic continue to apply in the county of the tenant’s or lawful occupant’s residence.”  In the context of the NYForward reopening guide, the end of the COVID-19 covered period described in the Act equates to the time in which a County enters Phase 4 in the reopening of the economy.

In determining whether a tenant has experienced a COVID-19 financial hardship, the Act provides for several factors which shall be considered by the court, e.g. the tenant’s lawful income prior to COVID-19 versus the tenant’s lawful income during the COVID-19 covered period, the tenant’s liquid assets, and their eligibility to receive cash assistance, disability and/or unemployment benefits from New York State.  If the tenant successfully illustrates the COVID-19 financial hardship, the landlord cannot obtain a warrant of eviction or judgment of possession.  Such landlord, however, if successful in their petition, can obtain a money judgment against the tenant.

As to residential foreclosure proceedings, Governor Andrew Cuomo signed a new law into effect on June 17, 2020 which offers permanent protections for certain residential mortgagors facing COVID-19 financial hardship during the COVID-19 covered period as defined above.  The law does not apply to all mortgage loans; for instance, it does not affect mortgage loans made by any agency or instrumentality of the United States or any government sponsored enterprise, such as FHA loans.  For those qualifying mortgagors, the law requires the lender to offer different forbearance options to the mortgagor for mortgage payments missed during the COVID-19 covered period for up to a period of 180-days with an option to extend for an additional 180-days.  For example, the mortgagor can chose to extend the term of the loan for the period of forbearance and tack on the miss payments to the end of the loan; they can chose “to have the arrears accumulated during the forbearance period payable on a monthly basis for the remaining term of the loan without being subject to penalties or late fees incurred as a result of the forbearance,” or they can defer the missed payment(s) as a non-interest balloon payment payable at the maturity of the loan.  The lender must illustrate that it adhered to the provisions of this law and made these different forbearance options available to the mortgagor before the lender can commence a foreclosure action arising from missed payments during the COVID-19 covered period.  A mortgagor may raise the lender’s failure to comply with this new law as a defense to the foreclosure action.

SBA Loans Under the CARES Act

Posted April 3, 2020

Last updated July 9, 2020

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020.  Title I (“Keeping American Workers Paid & Employed Act”) addresses two types of loans available to small businesses, both of which greatly expand SBA loan eligibility.  The SBA has issued several Interim Final Rules, with the most recent published in the Federal Register on June 26, in connection with the Paycheck Protection Loan Program described below.  The SBA has provided additional guidance to address borrower and lender questions through its Frequently Asked Questions (“FAQs”), which are updated periodically.  Borrowers and lenders may rely on the guidance provided in the FAQs.  The FAQs can be accessed at  https://www.sba.gov/document/support–faq-lenders-borrowers

Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) on June 3, 2020, which the President signed into law on June 5.   The PPPFA provides more flexibility for borrowers under the Paycheck Protection Program discussed below and makes it easier for such borrowers to qualify for loan forgiveness for a greater portion of their loans.  The PPP loans section below (most notably the “Forgiveness” section) has been updated to reflect the provisions of the PPPFA.  The changes to the CARES Act made by the PPPFA are retroactively applicable as if they were included in the original CARES Act, except for the change to the term of the loan (see “Term” below).

A brief summary of each of the two types of loans is provided below.

Paycheck Protection Program under Section 7(a) of the Small Business Act- to help employers maintain payroll to prevent job loss & small business failure; 100% federally guaranteed; $670 billion made available for loans; for more information go to https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-7

  • Eligibility: in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern with not more than 500 employees, including sole proprietors, non-profits, and eligible self-employed individuals; eligible companies must have been in operation on February 15, 2020 and have had employees for whom it paid salaries & payroll taxes or paid independent contractors as of such date; the borrower must certify in good faith that the loan request is necessary, taking into account their business activity and their ability to access other sources of liquidity; any borrower that received a loan for less than $2 million will be deemed to have made the required certification in good faith; SBA will review all loans made in excess of $2 million (see “forgiveness” below)
  • Application: small businesses and sole proprietorships could apply beginning Friday, April 3; independent contractors and self-employed individualscould apply beginning Friday, April 10; apply directly with SBA-approved lender by August 8, 2020 (the president signed a new law on July 4 extending the deadline, which had previously been June 30); the Department of Treasury has authorized FDIC-insured banks and credit unions, certain Farm Credit System institutions, and certain other depository or non-depository financing providers to provide loans in addition to already approved SBA lenders; applicants are advised to contact all lending institutions with whom they do business to gauge such institution’s readiness to provide application and process the loan; applicant may apply with only one bank, however; all lender & borrower fees are waived
  • Coverage Period: February 15, 2020 to December 31,
  • Loan Amount: Maximum amount of loan is the lesser of $10 million or 2.5 times the average monthly payroll costs based upon the prior year’s payroll
  • Interest Rate: 1% fixed
  • Permitted Uses for Loan:
  1. Payroll Costs (including costs related to healthcare benefits and premiums, payments for vacations and sick, family and medical leave (to the extent a credit is not allowed under the Families First Coronavirus Response Act), salaries (salaries of over $100,000/year are capped at $100,000), wages, commissions, tips and similar compensations, state and local taxes on compensation (NOT available for federal employment taxes imposed or withheld from 2/15/2020-6/30/2020, including FICA, Railroad Retirement Act taxes and income taxes required to be withheld from employees);
  2. interest payments on mortgage obligations;
  3. rent (lease must have been in force as of February 15, 2020);
  4. utilities for which service began prior to February 15, 2020
  • Forgiveness: amounts spent during the Covered Period (the period beginning on the date of origination of a covered loan and ending the earlier of (A) the 24-week period beginning with the origination date or (B) December 31, 2020, unless such borrower shall elect to keep the Covered Period at 8 weeks, as the Act initially provided) on rent, payroll costs, mortgage interest & utilities may be forgiven; 60% of the qualified spending must consist of Payroll Costs, including payments to furloughed employees and bonuses or hazard pay to employees during the Covered Period, not to exceed $100,000 cap (no more than 40% of amount forgiven may be for non-payroll costs); amount forgiven may be reduced if the borrower reduces the number of full-time employees or salaries and wages during the Covered Period; borrowers may seek forgiveness for payroll costs for the applicable covered period beginning on either:  (i) the date of disbursement of the loan (i.e., the start of the Covered Period) or (ii) the first day of the first payroll cycle in the Covered Period; amount forgiven reduced in proportion to reduction in number of employees & reduction in total salary or wages of employee in excess of 25% (excluding employees with salaries greater than $100,000);  reduction penalty does not apply to the extent the borrower restores their workforce count and salaries/wages by December 31 , 2020 during the period from February 15, 2020 to December 31, 2020 the amount of loan forgiveness shall be determined without regard to a reduction in the number of full-time equivalent employees if the borrower is (A) unable to rehire an individual who was employee on or before February 15, 2020, (B) able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020 or (C) able to demonstrate an inability to return to the same level of business activity as the business was operating at prior to February 15, 2020); must apply to lender for forgiveness and include documents verifying the number of full-time equivalent employees and pay rates, along with payments on eligible mortgage, lease and utility obligations; borrower may apply for forgiveness any time on or before the maturity date of the loan (including before the end of the Covered Period) if the borrower has used all of the loan proceeds for which it is requesting forgiveness; must apply within 10 months after the end of the Covered Period; lender must make decision on loan forgiveness within 60 days and then issue such decision to SBA; amount forgiven may not exceed the principal of the loan; amount forgiven is not included in gross income; SBA will review all loans in excess of $2 million following submission of the borrower’s loan forgiveness application; if SBA determines that the borrower lacked an adequate basis for the required certification, SBA will seek repayment of the outstanding loan balance and will inform the lender that the borrower is not eligible for loan forgiveness; if the borrower repays the loan, SBA will not pursue administrative enforcement; SBA will be issuing further guidance on loan forgiveness
  • Term: to the extent not forgiven, 2 years if the loan was originated before June 5; 5 years if the loan was originated June 5 or later; lenders and borrowers may mutually modify the 2-year term of existing PPP loans
  • Deferral: deferral period begins on loan date and ends on the date that the SBA remits the amount of forgiveness to the lender; if borrower does not apply for forgiveness within 10 months after the last day of the Covered Period, the deferral period ends on that date
  • Guarantees/Collateral: no personal guarantee or collateral required
  • The PPPFA provides that borrowers may now defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022

Economic Injury Disaster Loan Program under Section 7(b) of the Small Business Act (“EIDL” Program)- existing program but expanded by CARES Act with $10 billion of additional funding for emergency grants, expansion of entities eligible for such loans and waivers of certain requirements; for more information go to https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

  • Eligibility: in addition to already eligible small business concerns, private nonprofit  organizations, and small agricultural cooperatives, sole proprietors, independent contractors, and any cooperative, ESOP or tribal small business with 500 or fewer employees; must have suffered “substantial economic injury” from COVID-19; usual EIDL requirement that borrower must demonstrate it is unable to obtain credit elsewhere is waived
  • Application: through the SBA website at: https://covid19relief.sba.gov/#/
  • Coverage Period: January 31, 2020 to December 31, 2020
  • Loan Amount: based upon company’s actual economic injury as determined by the SBA up to $2 million
  • Interest Rate: 3.75% fixed rate for small businesses; 2.75% for nonprofits
  • Permitted Uses for Loan: payroll, to cover increased costs due to supply chain interruption, rent and mortgage payments, obligations that cannot be met due to revenue loss
  • Term: up to 30 years
  • Grants: any entity applying for such a loan may request an advance of up to $10,000 to pay allowable working capital needs; the advance is to be paid by the SBA within 3 days of administrator’s receipt of application, subject to verification that entity is eligible under program; is not required to be repaid, even if the application for the loan is denied (but amount of advance must be deducted from any loan forgiveness amounts under a Paycheck Protection Program Loan)
  • Guarantees: no personal guarantees required for loans up to $200,000; SBA must make determination that applicant has ability to repay the loan; can be based solely upon applicant’s credit score (submission of tax returns not required)

Companies may obtain loans under both programs but cannot cover the same costs with both loans; may also apply for other SBA financial assistance as long as there is no duplication in the uses of funds

In addition to availability of the loans discussed above, the CARES Act allocates an additional $17 billion to subsidize certain existing loans guaranteed by the Small Business Administration under Section 7(a) of the Small Business Act; the Administration will pay principal, interest and fees on such loans for a period of six months and is encouraging lenders to provide payment deferments and extend maturity dates.

For more information on how to apply for assistance, visit the U.S. Chamber of Commerce website at https://www.uschamber.com/co/small-business-coronavirus