Landlord & Tenant

Rescission for Mutual Mistake About Zoning

S. C. Dandey Realty Corp. v. Nick's Hideaway, Inc.

NYLJ 6/29/09, AppTerm, 9th & 10th Districts

(2-1 decision; memorandum opinion; dissenting memorandum by Rudolph, J.).

In landlord's commercial nonpayment proceeding, tenant appealed from District Court's award of possession and unpaid rent to landlord. The Appellate Term reversed and dismissed the proceeding, holding that tenant was entitled to rescission of the lease for mutual mistake.

In 2005, landlord and tenant entered into a lease that contemplated use of the subject premises as a restaurant. The premises had been used as a restaurant for decades, and had a certificate of occupancy as an existing nonconforming use. At the inception of the lease, tenant began extensive renovation work. When tenant applied for a permit to do that work, it was discovered that 20 years earlier, landlord had expanded the building in violation of the rule that a landowner may not expand a pre-existing nonconforming use. Tenant then stopped paying rent. When landlord brought this nonpayment proceeding, tenant contended that the lease should be rescinded. District Court awarded landlord $174,713.40 in back rent, together with a judgment of possession. Tenant appealed.

In reversing, the Appellate Term majority noted that the purpose of the lease was to permit operation of a restaurant. Landlord's principal had credibly testified that he was unaware of any zoning problem that would preclude use of the premises as a restaurant, and tenant was unaware as well. As a result, the court held that the lease should be rescinded based on mutual mistake.

Justice Rudolph, dissenting, relied on a lease provision that gave tenant the option to cancel the lease if the lease were contingent on obtaining any zoning approval, and tenant were unable to obtain the approval. Justice Rudolph would have held that because tenant never exercised its right to cancel, tenant cannot now seek rescission as a defense in an action for back rent.

Provisions in Lease and Insurance Contract Require Insurer to Defend and Indemnify Landlord

Kassis v. The Ohio Casualty Insurance Co.

NYLJ 6/26/09, p. 35, col. 1

Court of Appeals

(Opinion by Lippman, J.)

In an action by landlord and tenant seeking a declaration that insurer is obligated to defend and indemnify landlord in a slip-and-fall case, landlord appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to landlord. The Court of Appeals reversed and awarded summary judgment to landlord, holding that the lease and the insurance agreement together established that the insurer had an obligation to defend and indemnify landlord.

The lease required tenant to pay for snow removal services on the premises, and to indemnify, defend, and hold the landlord harmless for liabilities arising out of acts of the tenant or its agents. The lease also required tenant, “at its sole cost and expense and for the mutual benefit of Landlord and Tenant” to maintain a general liability policy. Tenant then obtained a general liability policy providing coverage whenever “the insured is obligated to pay damages by reason of the assumption of liability” in a contract that qualifies as an “insured contract.” The policy also extends coverage to any person who the named insured is required to name as an additional insured. When an employee of tenant fell and injured himself, and sued the landlord, the insurer disclaimed coverage. Landlord then brought this declaratory judgment action, and Supreme Court granted summary judgment to landlord, concluding that the insurance contract obligated the insurer to defend and indemnify landlord. When the Appellate Division reversed, landlord appealed.

In reversing, the Court of Appeals held that it was clear under the terms of the lease that tenant was obligated to procure the same level of liability coverage for landlord as it obtained for itself. As a result, landlord fell within the policy's additional insured provision. Therefore, the insurer was obligated to defend and indemnify the landlord.

Rescission for Mutual Mistake About Zoning

S. C. Dandey Realty Corp. v. Nick's Hideaway, Inc.

NYLJ 6/29/09, AppTerm, 9th & 10th Districts

(2-1 decision; memorandum opinion; dissenting memorandum by Rudolph, J.).

In landlord's commercial nonpayment proceeding, tenant appealed from District Court's award of possession and unpaid rent to landlord. The Appellate Term reversed and dismissed the proceeding, holding that tenant was entitled to rescission of the lease for mutual mistake.

In 2005, landlord and tenant entered into a lease that contemplated use of the subject premises as a restaurant. The premises had been used as a restaurant for decades, and had a certificate of occupancy as an existing nonconforming use. At the inception of the lease, tenant began extensive renovation work. When tenant applied for a permit to do that work, it was discovered that 20 years earlier, landlord had expanded the building in violation of the rule that a landowner may not expand a pre-existing nonconforming use. Tenant then stopped paying rent. When landlord brought this nonpayment proceeding, tenant contended that the lease should be rescinded. District Court awarded landlord $174,713.40 in back rent, together with a judgment of possession. Tenant appealed.

In reversing, the Appellate Term majority noted that the purpose of the lease was to permit operation of a restaurant. Landlord's principal had credibly testified that he was unaware of any zoning problem that would preclude use of the premises as a restaurant, and tenant was unaware as well. As a result, the court held that the lease should be rescinded based on mutual mistake.

Justice Rudolph, dissenting, relied on a lease provision that gave tenant the option to cancel the lease if the lease were contingent on obtaining any zoning approval, and tenant were unable to obtain the approval. Justice Rudolph would have held that because tenant never exercised its right to cancel, tenant cannot now seek rescission as a defense in an action for back rent.

Provisions in Lease and Insurance Contract Require Insurer to Defend and Indemnify Landlord

Kassis v. The Ohio Casualty Insurance Co.

NYLJ 6/26/09, p. 35, col. 1

Court of Appeals

(Opinion by Lippman, J.)

In an action by landlord and tenant seeking a declaration that insurer is obligated to defend and indemnify landlord in a slip-and-fall case, landlord appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to landlord. The Court of Appeals reversed and awarded summary judgment to landlord, holding that the lease and the insurance agreement together established that the insurer had an obligation to defend and indemnify landlord.

The lease required tenant to pay for snow removal services on the premises, and to indemnify, defend, and hold the landlord harmless for liabilities arising out of acts of the tenant or its agents. The lease also required tenant, “at its sole cost and expense and for the mutual benefit of Landlord and Tenant” to maintain a general liability policy. Tenant then obtained a general liability policy providing coverage whenever “the insured is obligated to pay damages by reason of the assumption of liability” in a contract that qualifies as an “insured contract.” The policy also extends coverage to any person who the named insured is required to name as an additional insured. When an employee of tenant fell and injured himself, and sued the landlord, the insurer disclaimed coverage. Landlord then brought this declaratory judgment action, and Supreme Court granted summary judgment to landlord, concluding that the insurance contract obligated the insurer to defend and indemnify landlord. When the Appellate Division reversed, landlord appealed.

In reversing, the Court of Appeals held that it was clear under the terms of the lease that tenant was obligated to procure the same level of liability coverage for landlord as it obtained for itself. As a result, landlord fell within the policy's additional insured provision. Therefore, the insurer was obligated to defend and indemnify the landlord.