The Leasing Hotline

Landlord Permitted to Cancel Lease After Tenant's Merger

A landlord may cancel a lease if the lease permits cancellation by the landlord after an assignment, and the tenant's merger into another corporation constitutes an assignment of a lease. Cellular Telephone Company, et al. v. 210 East 86th Street Corp., Index 101582/05, Supreme Court of New York, Appellate Division, First Department, June 28, 2007.

Cellular's lease with the landlord provided that the tenant could not assign the lease without the landlord's approval and that the landlord could withhold approval for any reason, or no reason whatsoever. The lease further provided that the transfer or other disposition of more than 25% of the issued and outstanding capital stock of Cellular or any corporate tenant or subtenant, or the transfer in excess of 25% of the total interest in any other entity would be deemed an assignment. An exception to acquiring the landlord's consent existed, permitting assignment of the lease to an 'affiliate, parent or successor of the tenant.' The lease further provided that the landlord could cancel it in the event of an assignment.

Several transactions occurred. In the first transaction, Cingular Wireless LLC acquired all of the stock of AT&T. Then LIN Corporation acquired 100% of Cellular, and Cellular ceased to exist. As a result, LIN became the tenant instead of Cellular. LIN Corporation then merged into an affiliated entity owned by LIN Broadcasting (formally wholly owned by AT&T and now wholly owned by Cingular Wireless). As a result, Cingular became the new tenant. Thereafter, the landlord sent a notice to Cingular of its election to cancel the lease.

Cingular commenced a declaratory action, seeking a declaration that the lease had not been validly cancelled. The court disagreed and held that the landlord had the right to cancel the lease. It held that the lease, in unambiguous terms, granted the owner the right to cancel upon a transfer or assignment. The court also considered previous case holding that the transfer of a corporation's ownership by merger with new stockholders constitutes an assignment of the joint venture interests of the original corporation.

Landlord Permitted to Cancel Lease After Tenant's Merger

A landlord may cancel a lease if the lease permits cancellation by the landlord after an assignment, and the tenant's merger into another corporation constitutes an assignment of a lease. Cellular Telephone Company, et al. v. 210 East 86th Street Corp., Index 101582/05, Supreme Court of New York, Appellate Division, First Department, June 28, 2007.

Cellular's lease with the landlord provided that the tenant could not assign the lease without the landlord's approval and that the landlord could withhold approval for any reason, or no reason whatsoever. The lease further provided that the transfer or other disposition of more than 25% of the issued and outstanding capital stock of Cellular or any corporate tenant or subtenant, or the transfer in excess of 25% of the total interest in any other entity would be deemed an assignment. An exception to acquiring the landlord's consent existed, permitting assignment of the lease to an 'affiliate, parent or successor of the tenant.' The lease further provided that the landlord could cancel it in the event of an assignment.

Several transactions occurred. In the first transaction, Cingular Wireless LLC acquired all of the stock of AT&T. Then LIN Corporation acquired 100% of Cellular, and Cellular ceased to exist. As a result, LIN became the tenant instead of Cellular. LIN Corporation then merged into an affiliated entity owned by LIN Broadcasting (formally wholly owned by AT&T and now wholly owned by Cingular Wireless). As a result, Cingular became the new tenant. Thereafter, the landlord sent a notice to Cingular of its election to cancel the lease.

Cingular commenced a declaratory action, seeking a declaration that the lease had not been validly cancelled. The court disagreed and held that the landlord had the right to cancel the lease. It held that the lease, in unambiguous terms, granted the owner the right to cancel upon a transfer or assignment. The court also considered previous case holding that the transfer of a corporation's ownership by merger with new stockholders constitutes an assignment of the joint venture interests of the original corporation.