Landlord & Tenant

Tenant Excused from Late Exercise of Renewal Option

Popyork, LLC v. 890 Court St. Corp.

NYLJ 11/28/05, p. 24, col. 6

AppDiv, Second Dept

(memorandum opinion)

In tenant's action for a judgment that tenant had effectively exercised its option to renew its lease, landlord appealed from Supreme Court's denial of landlord's summary judgment motion. The Appellate Division modified by granting tenant's cross-motion for summary judgment, and otherwise affirmed, holding that equitable principles would excuse tenant's late exercise of its renewal option.

In 1998, landlord leased the subject premises to the Jesson Group for a 5-year term. The lease gave Jesson the option to renew for six additional 5-year terms. Jesson later sold its rights under the lease for $550,000, and tenant subsequently took an assignment of those rights. In addition, tenant made $300,000 in improvements to the premises, which now house a fast food restaurant. The lease required tenant to provide landlord with notice of an intention to exercise the first renewal option by Sept. 1, 2002. Tenant, however, did not send its renewal notice until Nov. 18, 2002. Landlord rejected the notice as untimely, and tenant brought this declaratory judgment action. Both landlord and tenant sought summary judgment, and Supreme Court denied both motions. Landlord appealed.

In modifying to grant summary judgment to tenant, the court emphasized that landlord had come forward with no evidence to refute tenant's contention that its failure to send the notice on time was inadvertent. The court also noted the uncontroverted evidence that non-renewal would cause tenant to suffer a substantial forfeiture. Finally, the court concluded that landlord had suffered no prejudice as a result of tenant's delay, because tenant's notice was received more than 4 months before expiration of the initial 5-year term. On these facts, the court concluded that tenant was entitled to summary judgment, even though tenant did not appeal Supreme Court's order. The court remitted to Supreme Court for entry of a judgment declaring that tenant had effectively exercise its option to renew.

COMMENT

A number of New York courts have said that equity entitles a tenant to renew a lease, despite an accidental failure to exercise the lease renewal option on time, when landlord would not be prejudiced by the award of equitable relief. See, eg, Dutchess Radiology Associates, P. C. v. Narotzky, 192 AD2d. 1049; Nanuet National Bank v. Saramo Holding Co., 153 AD2 957; Grunberg v. George Associates, 104 A.D.2d 745. But landlord is always prejudiced by the exercise of equitable relief: landlord loses the opportunity to rent to a new tenant at higher rent. What these courts undoubtedly mean — and what the Court of Appeals said with greater care in Sy Jack Realty Co. v. Pergament Syosset, 27 NY2d 449, 452-53 – is that equitable relief is not available when landlord has been prejudiced by the delay in receiving notice. Thus, in Grunberg and Duchess, equitable relief was warranted because tenant exercised the option late, but before landlord had entered into serious negotiations with another tenant. As a result, landlord was no worse off than if tenant had exercised on time. In Grunberg, landlord asserted that negotiations had begun for a new lease with another party, but the court found insufficient evidentiary support for the assertion. Similarly, in Duchess Radiology, the court granted equitable relief because the landlord's assertions of a prospective new tenant were unsupported by the record. The assertion, and nothing more than a mere assertion, was not enough evidence to prove prejudice.

By contrast, when tenant's exercise comes after landlord has expended time and effort negotiating with another tenant, or has signed a lease with another tenant, tenant's delay has caused the landlord to suffer a loss landlord would not have incurred if tenant had exercise on time. In that situation, courts withhold equitable relief. Dan's Supreme Supermarkets v. Redmont Realty Co., 216 A.D.2d 512. In Dan's Supreme, tenant attempted to exercise the option 9 months after the deadline; landlord declined the renewal. Moving for a preliminary injunction to prevent landlord from renting to another party, tenant presented evidence that its untimely renewal was due to an oversight, that it had made major improvements to the property, and that it would sustain substantial forfeiture from lease termination. Landlord presented evidence that it had negotiated with another supermarket chain and that a deal was complete, at a higher rental amount, except for the removal of the existing tenant. The court emphasized the fact that the new tenant supermarket's real estate department had approved the new lease and the parties had negotiated many lease terms. On those facts, allowing tenant's untimely renewal would have constituted prejudice to landlord, which was enough to preclude equitable relief.

Tenant Not Estopped from Enforcing Modification Agreement

555 Prospect Associates LLC v. Interfaith Medical Center Inc.

NYLJ 12/2/05, p. 20, col. 3

Supreme Ct., Kings Cty

(Bluth, J.)

In landlord's summary holdover proceeding, both parties moved for summary judgment. The court granted tenant's summary judgment motion, holding that tenant's requests to landlord did not, in the absence of reliance by landlord, estop tenant from enforcing a provision in a modification agreement.

When tenant sold the subject premises to landlord in 2002, the parties entered into a possession agreement that would permit tenant to remain in the premises until April 10, 2005. If tenant held over past that date, tenant would become liable for $2000 per day. In 2004, an entity affiliated with landlord, agreed to develop new space that tenant would occupy. The parties entered into an “occupancy lease” for the new space. At the same time, landlord and tenant entered into a modification agreement for the subject premises, which extended tenant's term to the later of April 10, 2005 or the “commencement date” as defined in the occupancy lease. The occupancy lease defined the commencement date as 30 days after developer gives tenant notice that the space is ready or the date on which tenant opens for business in the new space. The new space has not yet been completed. Four months after executing the modification agreement, tenant requested that developer stop construction on the new space due to unforseen financial issues. Two months later, tenant repeated that request. When April 10, 2005 passed, landlord brought this holdover proceeding, contending that tenant was estopped by its conduct from enforcing the terms of the modification agreement.

In awarding summary judgment to tenant, the court emphasized that reliance is essential to an estoppel claim, and held that landlord had not alleged or demonstrated any reliance on tenant's request that the developer stop work. The court emphasized that landlord had not taken any action in anticipation of tenant's departure from the old premises; landlord had not sought a new tenant, and had not sought to sell the building. Moreover, the court also indicated that the developer's failure to complete the new space was not necessarily related to tenant's stop-work requests; developer “could have temporarily stopped construction for many reasons even if it fully believed that the deal would eventually go through.” In the absence of reliance, the landlord could not maintain its equitable estoppel claim, leading the court to dismiss the petition. In a footnote, the court observed it had not decided whether landlord could prevail on another theory such as tenant's alleged breach of the modification agreement.

Tenant Excused from Late Exercise of Renewal Option

Popyork, LLC v. 890 Court St. Corp.

NYLJ 11/28/05, p. 24, col. 6

AppDiv, Second Dept

(memorandum opinion)

In tenant's action for a judgment that tenant had effectively exercised its option to renew its lease, landlord appealed from Supreme Court's denial of landlord's summary judgment motion. The Appellate Division modified by granting tenant's cross-motion for summary judgment, and otherwise affirmed, holding that equitable principles would excuse tenant's late exercise of its renewal option.

In 1998, landlord leased the subject premises to the Jesson Group for a 5-year term. The lease gave Jesson the option to renew for six additional 5-year terms. Jesson later sold its rights under the lease for $550,000, and tenant subsequently took an assignment of those rights. In addition, tenant made $300,000 in improvements to the premises, which now house a fast food restaurant. The lease required tenant to provide landlord with notice of an intention to exercise the first renewal option by Sept. 1, 2002. Tenant, however, did not send its renewal notice until Nov. 18, 2002. Landlord rejected the notice as untimely, and tenant brought this declaratory judgment action. Both landlord and tenant sought summary judgment, and Supreme Court denied both motions. Landlord appealed.

In modifying to grant summary judgment to tenant, the court emphasized that landlord had come forward with no evidence to refute tenant's contention that its failure to send the notice on time was inadvertent. The court also noted the uncontroverted evidence that non-renewal would cause tenant to suffer a substantial forfeiture. Finally, the court concluded that landlord had suffered no prejudice as a result of tenant's delay, because tenant's notice was received more than 4 months before expiration of the initial 5-year term. On these facts, the court concluded that tenant was entitled to summary judgment, even though tenant did not appeal Supreme Court's order. The court remitted to Supreme Court for entry of a judgment declaring that tenant had effectively exercise its option to renew.

COMMENT

A number of New York courts have said that equity entitles a tenant to renew a lease, despite an accidental failure to exercise the lease renewal option on time, when landlord would not be prejudiced by the award of equitable relief. See, eg, Dutchess Radiology Associates, P. C. v. Narotzky, 192 AD2d. 1049; Nanuet National Bank v. Saramo Holding Co., 153 AD2 957; Grunberg v. George Associates, 104 A.D.2d 745. But landlord is always prejudiced by the exercise of equitable relief: landlord loses the opportunity to rent to a new tenant at higher rent. What these courts undoubtedly mean — and what the Court of Appeals said with greater care in Sy Jack Realty Co. v. Pergament Syosset, 27 NY2d 449, 452-53 – is that equitable relief is not available when landlord has been prejudiced by the delay in receiving notice. Thus, in Grunberg and Duchess, equitable relief was warranted because tenant exercised the option late, but before landlord had entered into serious negotiations with another tenant. As a result, landlord was no worse off than if tenant had exercised on time. In Grunberg, landlord asserted that negotiations had begun for a new lease with another party, but the court found insufficient evidentiary support for the assertion. Similarly, in Duchess Radiology, the court granted equitable relief because the landlord's assertions of a prospective new tenant were unsupported by the record. The assertion, and nothing more than a mere assertion, was not enough evidence to prove prejudice.

By contrast, when tenant's exercise comes after landlord has expended time and effort negotiating with another tenant, or has signed a lease with another tenant, tenant's delay has caused the landlord to suffer a loss landlord would not have incurred if tenant had exercise on time. In that situation, courts withhold equitable relief. Dan's Supreme Supermarkets v. Redmont Realty Co., 216 A.D.2d 512. In Dan's Supreme, tenant attempted to exercise the option 9 months after the deadline; landlord declined the renewal. Moving for a preliminary injunction to prevent landlord from renting to another party, tenant presented evidence that its untimely renewal was due to an oversight, that it had made major improvements to the property, and that it would sustain substantial forfeiture from lease termination. Landlord presented evidence that it had negotiated with another supermarket chain and that a deal was complete, at a higher rental amount, except for the removal of the existing tenant. The court emphasized the fact that the new tenant supermarket's real estate department had approved the new lease and the parties had negotiated many lease terms. On those facts, allowing tenant's untimely renewal would have constituted prejudice to landlord, which was enough to preclude equitable relief.

Tenant Not Estopped from Enforcing Modification Agreement

555 Prospect Associates LLC v. Interfaith Medical Center Inc.

NYLJ 12/2/05, p. 20, col. 3

Supreme Ct., Kings Cty

(Bluth, J.)

In landlord's summary holdover proceeding, both parties moved for summary judgment. The court granted tenant's summary judgment motion, holding that tenant's requests to landlord did not, in the absence of reliance by landlord, estop tenant from enforcing a provision in a modification agreement.

When tenant sold the subject premises to landlord in 2002, the parties entered into a possession agreement that would permit tenant to remain in the premises until April 10, 2005. If tenant held over past that date, tenant would become liable for $2000 per day. In 2004, an entity affiliated with landlord, agreed to develop new space that tenant would occupy. The parties entered into an “occupancy lease” for the new space. At the same time, landlord and tenant entered into a modification agreement for the subject premises, which extended tenant's term to the later of April 10, 2005 or the “commencement date” as defined in the occupancy lease. The occupancy lease defined the commencement date as 30 days after developer gives tenant notice that the space is ready or the date on which tenant opens for business in the new space. The new space has not yet been completed. Four months after executing the modification agreement, tenant requested that developer stop construction on the new space due to unforseen financial issues. Two months later, tenant repeated that request. When April 10, 2005 passed, landlord brought this holdover proceeding, contending that tenant was estopped by its conduct from enforcing the terms of the modification agreement.

In awarding summary judgment to tenant, the court emphasized that reliance is essential to an estoppel claim, and held that landlord had not alleged or demonstrated any reliance on tenant's request that the developer stop work. The court emphasized that landlord had not taken any action in anticipation of tenant's departure from the old premises; landlord had not sought a new tenant, and had not sought to sell the building. Moreover, the court also indicated that the developer's failure to complete the new space was not necessarily related to tenant's stop-work requests; developer “could have temporarily stopped construction for many reasons even if it fully believed that the deal would eventually go through.” In the absence of reliance, the landlord could not maintain its equitable estoppel claim, leading the court to dismiss the petition. In a footnote, the court observed it had not decided whether landlord could prevail on another theory such as tenant's alleged breach of the modification agreement.