City of New York v. Pennsylvania Railroad Co., 37 N.Y.2d 298 (1975)
When a tenant remains in possession of property after the expiration of a lease or permit, a holdover tenancy is created, and the terms of the original agreement, including covenants to repair, remain in effect.
Summary
The City of New York sued Pennsylvania Railroad for failing to maintain a pier in good condition as required by the terms of expired permits. The railroad had occupied the pier for over 70 years under various permits and a lease, all requiring maintenance. After the last permit expired, the railroad remained in possession for 11 years, paying rent but without a new agreement. The City sued three years after the railroad vacated the pier. The Court of Appeals held that the railroad was a holdover tenant, and the covenant to repair remained in effect during the holdover period, making the railroad liable for the cost of repairs.
Facts
Pennsylvania Railroad erected Pier 77 on New York City land in 1888. The railroad had exclusive possession of the pier for over 70 years. From 1888 to 1891, occupancy was by permit. From 1891 to 1921, occupancy was under a 10-year lease, twice renewed. For the next 30 years, occupancy was under annual or semi-annual permits. The last permit expired on December 31, 1949. The railroad remained in possession until June 1961, paying rent, but without a new agreement. All agreements required the railroad to maintain the pier in good condition. The City sued in 1964 for failure to maintain the pier.
Procedural History
The City sued for damages. The railroad argued that the City’s plan to replace the pier precluded damages, that the statute of limitations had expired, and laches. The trial court initially granted the City summary judgment but later vacated the judgment and ordered a hearing to assess damages. The Appellate Division reversed, dismissing the complaint, holding that the relationship was a licensor-licensee arrangement, to which the repair covenant did not attach. The City appealed to the New York Court of Appeals.
Issue(s)
Whether the Pennsylvania Railroad’s continued occupancy of Pier 77 after the expiration of its permits constituted a holdover tenancy, thereby continuing the applicability of the covenant to maintain the pier in good repair.
Holding
Yes, because when a tenant remains in possession after the expiration of a permit granting exclusive possession, it becomes a holdover tenant, and the tenancy continues on the same terms and conditions, including the covenant to maintain the pier.
Court’s Reasoning
The court determined the true character of the agreement by looking at the nature of the right conveyed, not just the name given to it. If the agreement gives exclusive possession against the world, including the owner, it creates an interest in land, not a license. Since the railroad had exclusive possession, it was a tenant, not a licensee. The court applied the common-law rule that a tenant who remains in possession after a lease or permit expires becomes a holdover tenant. The court quoted Kennedy v. City of New York, 196 N.Y. 19, 23 stating that a holdover tenancy implies “a continuance of the tenancy on the same terms and subject to the same covenants as those contained in the original instrument”. Therefore, the covenant to maintain the pier remained in force while the railroad was in possession, and the City’s cause of action for breach of that covenant was timely brought after the railroad surrendered possession. The court emphasized the damages were measured by the cost to put the premises in the required state of repair, citing Farrell Lines v City of New York, 30 NY2d 76, 84, regardless of the City’s subsequent demolition of the pier.