Landlord & Tenant

Tenant Entitled to Install Exhaust Vent Outside of Demised Premises

Second on Second Caf', Inc. v. Hing Sing Trading Inc.

NYLJ 7/24/09, p. 25, col. 4

AppDiv, First Dept.

(Opinion by Friedman, J.)

In commercial tenant's action for a mandatory preliminary injunction requiring landlord to permit tenant to install a kitchen exhaust vent on the roof landlord's building, landlord appealed from Supreme Court's order granting the injunction. The Appellate Division modified, holding that tenant was entitled to install the exhaust vent because the premises could not be used as contemplated by the lease without the installation, but holding that tenant was not entitled to install an air conditioning unit on the roof.

In 2002, landlord leased the premises to tenant for use as a bar, with a provision that “fast food cooking on the premises is permitted.” The lease also provided that tenant accepted the space from landlord “as is,” and that landlord made no representations about the physical condition of the premises. Tenant then spent $500,000 renovating the premises and bringing it up to code. Among tenant's improvements was installation of a new kitchen with an exterior vent required by the building code. Landlord's principal had signed a work permit application that included the vent, which was installed on ths south side of the building. Subsequently, however, landlord's immediate neighbor began constructing an apartment building adjacent to landlord's building, and complained to landlord that the vent encroached on the neighboring parcel. For a payment of $25,000, landlord gave the neighbor a license to remove the flue pipe and vent. Neighbor provided notice to tenant of its intent to remove the vent, and informed tenant that its kitchen would no longer comply with the code. Neighbor then did the work, making it impossible for tenant to continue cooking on the premises. Tenant consulted an architect, who concluded that the only feasible location for a substitute vent would be through the roof of the building, which would require ductwork to run through the second floor, which is not part of the demised premises. The architect also drew up plans to relocate tenant's air conditioning units to the roof. Landlord refused to permit the requested alterations, and tenant brought this action for a mandatory injunction. Supreme Court granted a preliminary mandatory injunction, and landlord appealed.

In holding that tenant was entitled to install the exhaust vent on the roof, the Appellate Division acknowledged the reluctance of courts to award preliminary mandatory injunctions, but emphasized that in this case tenant had demonstrated a likelihood of success on the merits of its claim for injunctive relief. The court emphasized that the lease authorized tenant to conduct fast food cooking, that landlord gave its consent to installation of the kitchen, and that landlord signed an application to change the occupancy group designation to “restaurant.” The court held that these facts created an implied right in tenant to appurtenances outside the demised premises when such an implied right is necessary to the beneficial use of the premises actually conveyed. here, because there was no other feasible means of venting the kitchen, tenant had established a likelihood that it would succeed in establishing a right to the vent. Moreover, the court also found that tenant had established irreparable harm, because inability to operate its kitchen jeopardized both its liquor license and its business. The Appellate Division held, however, that tenant was not entitled to a mandatory injunction for relocation of air conditioning units because tenant had produced no evidence to establish that the air conditioning units could not remain within the existing premises, while being vented through the new ductwork to the roof. As a result, the Appellate Division modified the injunction awarded by Supreme Court to exclude a right by tenant to relocate the air conditioning units.

COMMENT

Where a tenant leases premises for a particular use, tenant implicitly gains rights appurtenant to the leased premises, which include the right to use surrounding premises not expressly included within the lease terms if that use is necessary for the full enjoyment of the leased premises. In Greenblatt v. Zimmerman, 132 A.D. 283, for example, the court held that tenant, who had leased premises “to be occupied and used as a restaurant, with the appurtenances,” was entitled to use the building's cellar to store coal since stores of coal were essential to running a restaurant. Although the lease did not explicitly grant tenant a right to use the basement, the lease did provide that tenant would use the premises as a restaurant, and it would have been unreasonably expensive and/or inconvenient to expect tenant to use the premises for the lease's stated purpose without storing coal in the cellar. Id. at 285. Similarly, in Riccardo's Lounge Inc. v. Maggio, 9 Misc. 3d 1112A (2005), the court held that a restaurant tenant was entitled to maintain pipes and a grease trap in the basement because tenant could not lawfully run a restaurant without them. Although it is not clear from the opinion in Riccardo's Lounge whether the lease required operation as a restaurant, it was clear that the landlord was aware that it would be used as a restaurant, since it had been used as a restaurant, with the basement pipes and grease trap, since the 1920s.

By contrast, tenants are not entitled to use premises not included within the terms of the lease where the use of the non-demised premises is not essential to using the demised premises in for the purposes specified in the lease. Thus in Mammy's Inc. and Pappy's Inc. v. All Continent Corp., 106 N.Y.S.2d 635 (1951), the court held that restaurant tenant was not entitled to use neighboring premises to dispose of garbage when the demised premises had several exits to the street from which garbage could have been removed for collection. Id. at 638. While dumping garbage from the roof onto trucks located on neighboring premises was more convenient for Tenants, doing so was not essential to removing the garbage. Id. at 638. Prospect Owners Corp. v. Sandmeyer, 62 A.D.3d 601 (First Dept. 2009) illustrates this principle in a different context. Tenants leased an apartment and had used a portion of the building's roof that was not demised in the lease, for storage and for recreation. Id. at 603. The First Department held that tenant was not entitled to use the non-demised premises because use was not essential to Tenants' full enjoyment of their apartment. Id. at 603.

Second on Second Caf' Inc., 2009 NY Slip Op 5913, addresses facts that fall between these two categories created by the case law. In Second on Second, the lease contemplated two uses for the demised premises: bar and restaurant. Id. at 3. The use of the non-demised premises for the exhaust vent was essential to one of the uses permitted by the lease (restaurant) but not to the other (bar). Id. at 3. Second on Second suggests that even if use of particular non-demised premises may not be necessary to the enjoyment of every use, so long as it is necessary for at least one of those uses, tenants have a right to use the non-demised premises. How far this doctrine will extend remains to be seen.

Subtenant May Not Recover for Main Tenant's Surrender of Premises

Health Insurance Plan of Greater New York v. Photobition New York, Inc.

NYLJ 8/4/09, p. 34, col. 1

AppDiv, First Dept.

(memorandum opinion)

In an action by subtenant against main tenant for breach of the terms of the sublease, tenant appealed from Supreme Court's order finding that tenant had breached and awarding attorney's fees to subtenant. The Appellate Division reversed and awarded attorneys' fees to main tenant, concluding that subtenant's surrender agreement with landlord did not constitute a breach of the sublease.

In 1998, main tenant leased several floors of an office building from landlord. In April 2002, main tenant leased a portion of the 16th floor to subtenant at a rental price lower than the amount main tenant had agreed to pay to landlord. The sublease provided that main tenant would not voluntarily terminate, modify, or amend the prime lease without subtenant's consent. In May 2002, landlord, main tenant and subtenant executed a consent to sublease. That consent agreement provided that if landlord should come into possession of the subleased space as a result of termination of the main lease or by any other means, landlord would not disturb subtenant's possession, but subtenant would assume tenant's obligations under the main lease, including the rent obligations under the main lease, which exceeded subtenant's obligations under the sublease. In December 2002, main tenant made a release payment of $1 million to landlord when it surrendered its interest in the 16th floor, together with other space tenant had leased from landlord. Main tenant testified that the release payment was to cover the difference between the rent reserved under the main lease and the lower rent specified in subtenant's lease, and in subleases executed with other subtenants. Despite main tenant's belief that the $1 million payment extinguished landlord's claim for higher rent from subtenants, Landlord then sent an attornment agreement to subtenant requiring that subtenant, in the future, pay the higher rent provided in the main lease. Subtenant informed landlord that it was aware of the $1 million payment, and that it was not obligated for additional rent “that has been prepaid” by main tenant. Although landlord wrote back to reiterate its position that tenant was obligated to pay the higher rent, subtenant continued to pay, and landlord continued to accept, the lower rent tenant had paid to main tenant.

Landlord sold the building in December 2003, and the building was resold to Penn Tower in 2004. None of the landlords sought to collect additional rent until fall 2004, when subtenant sought consent to sublet its space so that it could relocate. Penn Tower took the position that it would not consent to sublet unless tenant paid the difference between the sublease rent and the rent payable under the terms of the main lease. Subtenant then paid Penn Tower nearly $113,000, and agreed to pay the new rent going forward. Subtenant then brought this action against the main tenant and the original landlord, contending that main tenant had breached the sublease by terminating the prime lease without subtenant's prior consent, and that Greeley had wrongfully refused to credit main tenant's payment as an offset against the higher rent tenant would become liable for under the consent agreement. Greeley did not answer the complaint or appear in the action. With respect to main tenant, Supreme Court concluded that main tenant had breached its agreement by not obtaining subtenant's prior written consent before surrendering possession, but concluded that subtenant could not prove damages because landlord might never have pursued a claim for higher rent but for subtenant's need to relocate. Supreme Court did, however, award attorneys' fees to subtenant pursuant to the terms of the sublease.

In reversing, the Appellate Division concluded that the May 2002 consent agreement, which obligated subtenant to pay the rent under the main lease if landlord regained the right to possession, constituted the consent subtenant was required to give main tenant for any termination or modification of its main lease. As a result, according to the Appellate Division, main tenant had not breached at all by surrendering possession, and subtenant was not entitled to prevail on its claim. The court therefore held that main tenant, not subtenant, was entitled to attorney's fees as the successful party in the litigation.

Tenant Failed to Exercise Renewal Rights

221-06 Merrick Boulevard Associates, LLC v. Crescent Electric Acquisition Corp.

NYLJ 7/31/09, p. 43, col. 6

AppTerm, 2nd, 11th and

13th Districts

(memorandum opinion)

In commercial landlord's summary holdover proceeding, landlord appealed from Civil Court's dismissal of the petition. The Appellate Term reversed and directed entry of a judgment awarding possession to landlord, holding that tenant had failed to timely exercise its right to renew the lease.

In 2002, landlord's predecessor entered into a five-year commercial lease for the subject premises. The lease gave tenant options to renew for two additional three-year periods. To exercise those options, tenant was required to provide landlord with written notice at least 120 days prior to expiration of the prior lease term. Two months before the deadline for exercising the first option to renew, tenant sent landlord an e-mail asking about procedures for exercising the option to renew. Landlord replied by stating that strict compliance with the lease term would be necessary. Tenant took no action before the leasehold deadline, but sent landlord a letter a month later purporting to exercise the lease option. Landlord replied by informing tenant that the letter had been received too late, and that the lease would not be renewed. After expiration of the initial lease term, landlord brought this holdover proceeding. Civil Court dismissed the petition, concluding that the lease had been renewed. Landlord appealed.

In reversing, the Appellate Term indicated that an election to renew must be exercised strictly in compliance with the lease terms. Here, despite landlord's warning to tenant that tenant would be held to the lease terms, tenant failed to exercise in time. The court found no basis for affording equitable relief to tenant because tenant had not established that tenant had made improvements to the premises that would result in forfeiture, and had not established that it would lose any goodwill if it had to change location. As a result, landlord was entitled to a judgment of possession.

COMMENT

Although courts will consider the nature of tenant's mistake, and potential prejudice to landlord, they will not award equitable relief to a tenant who failed to timely exercise its lease-renewal option unless tenant can demonstrate that the non-renewal of the lease would result in a substantial forfeiture by the tenant. See generally J.N.A. Realty v. Cross Bay Chelsea, 42 N.Y.2d 392, 397-99. A court will find forfeiture in cases where the investment made by the tenant is one that no reasonable tenant would have incurred absent the expectation of renewing the lease. Thus, where the tenant recently expended a substantial amount of money that tenant could not possibly recover during the initial lease term, courts will treat loss of the renewal right as a forfeiture. For instance, in Popyork, LLC v. 80 Court St. Corp., 23 AD2d 538, the court found that loss of renewal terms would constitute a forfeiture where tenant, whose predecessor had leased a commercial space for an initial five-year term with the option to renew the lease for six additional five-year terms, spent close to $300,000 improving the premises to accommodate for a fast-food restaurant. The court granted equitable relief from tenant's failure to timely renew.

Conversely, expenditures made for maintenance and general improvements to a leased property are generally insufficient to trigger a finding of forfeiture because those expenditures can be amortized or depreciated over the span of the lease. In Soho Dev. Corp. v. Dean & DeLuca Inc., 131 AD2d 385, 387, the court held that the tenant, having leased the property for 12 years and having incurred the majority of the improvement costs during the first two years of the lease, would not suffer a substantial forfeiture. Similarly, the court in Trieste Group, LLC. v. Ark Fifth Avenue Corp., 13 AD2d 307, found that a tenant's $67,000 cost of improvements, expended three to five years prior to the expiration of the lease, did not amount to a substantial forfeiture because the tenant, presumably, either recouped or depreciated their value during the lease term.

When tenant's expenditures are on items that are easily removable, courts are less likely to find that loss of a renewal right will cause forfeiture. For example, in Dean & DeLuca, the court concluded that tenant would not suffer forfeiture even though tenant had expended a significant amount of money on fixtures, because the fixtures could be easily relocated. Dean & DeLuca Inc., 131 A.D.2d at 387. On the other hand, in Dutchess Radiology Associates, P.C. v. Narotzky, 192 AD2d 1049, 1050, the court found a forfeiture because removing an MRI machine would require breaking a wall and cost of thousands of dollars to alter new premises to its necessary specifications.

Tenant Maintained Primary Residence in New York While Caring for Parents in California

542 E. 14th St. LLC v. Lee

NYLJ 7/9/09, p. 33, col. 1

AppDiv, First Dept.

(Opinion by Tom, J.)

In landlord's nonprimary residence proceeding, both Civil Court and the Appellate Term concluded that the proceeding should be dismissed because tenant had continued to maintain her primary residence in her rent-stabilized New York apartment. On landlord's appeal, the Appellate Division affirmed, holding that dismissal was proper, and that the Appellate Term had correctly denied landlord's motion to vacate Civil Court's award of attorneys' fees to tenant.

Tenant first entered into a rent-stabilized lease in 1997, and subsequently renewed the lease. Beginning in the spring of 2001, tenant began to spend most of her time in California to care for her ailing parents. She obtained a California driver's license, obtained employment in California doing research, and stayed in a residence owner by her sister, and later at a friend's house. Tenant's daughter, then in high school, remained in the New York apartment. When tenant did not return for a considerable period, landlord served tenant with a notice of termination, effective Oct. 31, 2002, on the ground that tenant did not maintain the apartment as her primary residence. When tenant failed to surrender possession, landlord brought this proceeding. Civil Court dismissed and awarded tenant $39,052 in attorney's fees, and the Appellate Division modified to reduce the fee award to $34,053. Landlord appealed.

In affirming, the Appellate Division rejected landlord's argument that an adverse inference should be drawn from tenant's failure to offer medical or testimonial proof about the nature of her parents' afflictions. Landlord had contended that those afflictions were mere pretext to excuse tenant's absence from the apartment, but the Appellate Division emphasized that in light of the liberal discovery available in nonprimary residence proceedings, landlord could have obtained information refuting tenant's contention that her parents were receiving medical treatment. Moreover, the court noted that tenant's decision to leave her daughter in the apartment during her absence established a connection that supported her contention that the apartment remained her primary residence.

Landlord Established Nondiscriminatory Reason for Refusing to Lease to AIDS Victim

Kennedy v. Related Management

NYLJ 8/5/09, p. 39, col. 3

U.S.Dist. Ct., S.D.N.Y.

(Crotty, J.)

In an action for discrimination under the Fair Housing Act, rejected tenants and landlord each sought summary judgment. The court awarded summary judgment to landlord, concluding that landlord had established a valid, non-discriminatory reason for rejecting the application.

Landlord operates a luxury rental property on Roosevelt Island. Landlord participated in an inclusionary housing program that awarded landlord a bonus of 20% more square footage in return for using some of the units of affordable apartments for income-eligible tenants. Rejected tenants applied for one of the unit. The applicant family included a husband with AIDS, a visually impaired wife, and their 27-year-old son. When they applied for the apartment, their application failed to disclose that husband was receiving public assistance from the New York City Human Resources Administration (HRA). Based on the facts disclosed in their application, an affordable-housing co-ordinator determined that they qualified for the apartment. When HRA informed landlord of the entitlement to public assistance, applicants contended that the assistance would end if they rented the apartment, so that they would remain eligible for the apartment. Moreover, landlord learned that in applying to HRA for assistance, husband had not disclosed his wife's income, a fact he was required to report if she lived with him. At that point, landlord denied the application based on provision of false information regarding income or failure to supply requested information. When landlord denied applicants' appeal, applicants brought this action, and both parties moved for summary judgment.

In awarding summary judgment to landlord, the court started by finding that the applicants were in fact qualified to rent the subject apartment. But the court then noted that landlord has a policy requiring all members of an applicant family to provide complete financial and household information to all necessary agencies. Because applicants in this case had not provided complete information, landlord had a valid, non-discriminatory reason for denying the application. The court then rejected the argument that a fact-finder could conclude that landlord's reason was pretextual, and that landlord had actually denied the application because husband has AIDS. The court emphasized that landlord's need for a thorough investigation of the application and income verification arose because failure to meet program requirements could expose landlord to serious penalties from the city. In this case, where there were clear discrepancies between applicants' disclosures to landlord and to HRA, no reasonable jury could find landlord's decision pretextual, especially since landlord has numerous tenants with AIDS. The court then held that applicants had not established any evidence of disparate impact, or of failure to accommodate wife's visual impairment. As a result, landlord was entitled to summary judgment.

Tenant Entitled to Install Exhaust Vent Outside of Demised Premises

Second on Second Caf', Inc. v. Hing Sing Trading Inc.

NYLJ 7/24/09, p. 25, col. 4

AppDiv, First Dept.

(Opinion by Friedman, J.)

In commercial tenant's action for a mandatory preliminary injunction requiring landlord to permit tenant to install a kitchen exhaust vent on the roof landlord's building, landlord appealed from Supreme Court's order granting the injunction. The Appellate Division modified, holding that tenant was entitled to install the exhaust vent because the premises could not be used as contemplated by the lease without the installation, but holding that tenant was not entitled to install an air conditioning unit on the roof.

In 2002, landlord leased the premises to tenant for use as a bar, with a provision that “fast food cooking on the premises is permitted.” The lease also provided that tenant accepted the space from landlord “as is,” and that landlord made no representations about the physical condition of the premises. Tenant then spent $500,000 renovating the premises and bringing it up to code. Among tenant's improvements was installation of a new kitchen with an exterior vent required by the building code. Landlord's principal had signed a work permit application that included the vent, which was installed on ths south side of the building. Subsequently, however, landlord's immediate neighbor began constructing an apartment building adjacent to landlord's building, and complained to landlord that the vent encroached on the neighboring parcel. For a payment of $25,000, landlord gave the neighbor a license to remove the flue pipe and vent. Neighbor provided notice to tenant of its intent to remove the vent, and informed tenant that its kitchen would no longer comply with the code. Neighbor then did the work, making it impossible for tenant to continue cooking on the premises. Tenant consulted an architect, who concluded that the only feasible location for a substitute vent would be through the roof of the building, which would require ductwork to run through the second floor, which is not part of the demised premises. The architect also drew up plans to relocate tenant's air conditioning units to the roof. Landlord refused to permit the requested alterations, and tenant brought this action for a mandatory injunction. Supreme Court granted a preliminary mandatory injunction, and landlord appealed.

In holding that tenant was entitled to install the exhaust vent on the roof, the Appellate Division acknowledged the reluctance of courts to award preliminary mandatory injunctions, but emphasized that in this case tenant had demonstrated a likelihood of success on the merits of its claim for injunctive relief. The court emphasized that the lease authorized tenant to conduct fast food cooking, that landlord gave its consent to installation of the kitchen, and that landlord signed an application to change the occupancy group designation to “restaurant.” The court held that these facts created an implied right in tenant to appurtenances outside the demised premises when such an implied right is necessary to the beneficial use of the premises actually conveyed. here, because there was no other feasible means of venting the kitchen, tenant had established a likelihood that it would succeed in establishing a right to the vent. Moreover, the court also found that tenant had established irreparable harm, because inability to operate its kitchen jeopardized both its liquor license and its business. The Appellate Division held, however, that tenant was not entitled to a mandatory injunction for relocation of air conditioning units because tenant had produced no evidence to establish that the air conditioning units could not remain within the existing premises, while being vented through the new ductwork to the roof. As a result, the Appellate Division modified the injunction awarded by Supreme Court to exclude a right by tenant to relocate the air conditioning units.

COMMENT

Where a tenant leases premises for a particular use, tenant implicitly gains rights appurtenant to the leased premises, which include the right to use surrounding premises not expressly included within the lease terms if that use is necessary for the full enjoyment of the leased premises. In Greenblatt v. Zimmerman, 132 A.D. 283, for example, the court held that tenant, who had leased premises “to be occupied and used as a restaurant, with the appurtenances,” was entitled to use the building's cellar to store coal since stores of coal were essential to running a restaurant. Although the lease did not explicitly grant tenant a right to use the basement, the lease did provide that tenant would use the premises as a restaurant, and it would have been unreasonably expensive and/or inconvenient to expect tenant to use the premises for the lease's stated purpose without storing coal in the cellar. Id. at 285. Similarly, in Riccardo's Lounge Inc. v. Maggio, 9 Misc. 3d 1112A (2005), the court held that a restaurant tenant was entitled to maintain pipes and a grease trap in the basement because tenant could not lawfully run a restaurant without them. Although it is not clear from the opinion in Riccardo's Lounge whether the lease required operation as a restaurant, it was clear that the landlord was aware that it would be used as a restaurant, since it had been used as a restaurant, with the basement pipes and grease trap, since the 1920s.

By contrast, tenants are not entitled to use premises not included within the terms of the lease where the use of the non-demised premises is not essential to using the demised premises in for the purposes specified in the lease. Thus in Mammy's Inc. and Pappy's Inc. v. All Continent Corp., 106 N.Y.S.2d 635 (1951), the court held that restaurant tenant was not entitled to use neighboring premises to dispose of garbage when the demised premises had several exits to the street from which garbage could have been removed for collection. Id. at 638. While dumping garbage from the roof onto trucks located on neighboring premises was more convenient for Tenants, doing so was not essential to removing the garbage. Id. at 638. Prospect Owners Corp. v. Sandmeyer, 62 A.D.3d 601 (First Dept. 2009) illustrates this principle in a different context. Tenants leased an apartment and had used a portion of the building's roof that was not demised in the lease, for storage and for recreation. Id. at 603. The First Department held that tenant was not entitled to use the non-demised premises because use was not essential to Tenants' full enjoyment of their apartment. Id. at 603.

Second on Second Caf' Inc., 2009 NY Slip Op 5913, addresses facts that fall between these two categories created by the case law. In Second on Second, the lease contemplated two uses for the demised premises: bar and restaurant. Id. at 3. The use of the non-demised premises for the exhaust vent was essential to one of the uses permitted by the lease (restaurant) but not to the other (bar). Id. at 3. Second on Second suggests that even if use of particular non-demised premises may not be necessary to the enjoyment of every use, so long as it is necessary for at least one of those uses, tenants have a right to use the non-demised premises. How far this doctrine will extend remains to be seen.

Subtenant May Not Recover for Main Tenant's Surrender of Premises

Health Insurance Plan of Greater New York v. Photobition New York, Inc.

NYLJ 8/4/09, p. 34, col. 1

AppDiv, First Dept.

(memorandum opinion)

In an action by subtenant against main tenant for breach of the terms of the sublease, tenant appealed from Supreme Court's order finding that tenant had breached and awarding attorney's fees to subtenant. The Appellate Division reversed and awarded attorneys' fees to main tenant, concluding that subtenant's surrender agreement with landlord did not constitute a breach of the sublease.

In 1998, main tenant leased several floors of an office building from landlord. In April 2002, main tenant leased a portion of the 16th floor to subtenant at a rental price lower than the amount main tenant had agreed to pay to landlord. The sublease provided that main tenant would not voluntarily terminate, modify, or amend the prime lease without subtenant's consent. In May 2002, landlord, main tenant and subtenant executed a consent to sublease. That consent agreement provided that if landlord should come into possession of the subleased space as a result of termination of the main lease or by any other means, landlord would not disturb subtenant's possession, but subtenant would assume tenant's obligations under the main lease, including the rent obligations under the main lease, which exceeded subtenant's obligations under the sublease. In December 2002, main tenant made a release payment of $1 million to landlord when it surrendered its interest in the 16th floor, together with other space tenant had leased from landlord. Main tenant testified that the release payment was to cover the difference between the rent reserved under the main lease and the lower rent specified in subtenant's lease, and in subleases executed with other subtenants. Despite main tenant's belief that the $1 million payment extinguished landlord's claim for higher rent from subtenants, Landlord then sent an attornment agreement to subtenant requiring that subtenant, in the future, pay the higher rent provided in the main lease. Subtenant informed landlord that it was aware of the $1 million payment, and that it was not obligated for additional rent “that has been prepaid” by main tenant. Although landlord wrote back to reiterate its position that tenant was obligated to pay the higher rent, subtenant continued to pay, and landlord continued to accept, the lower rent tenant had paid to main tenant.

Landlord sold the building in December 2003, and the building was resold to Penn Tower in 2004. None of the landlords sought to collect additional rent until fall 2004, when subtenant sought consent to sublet its space so that it could relocate. Penn Tower took the position that it would not consent to sublet unless tenant paid the difference between the sublease rent and the rent payable under the terms of the main lease. Subtenant then paid Penn Tower nearly $113,000, and agreed to pay the new rent going forward. Subtenant then brought this action against the main tenant and the original landlord, contending that main tenant had breached the sublease by terminating the prime lease without subtenant's prior consent, and that Greeley had wrongfully refused to credit main tenant's payment as an offset against the higher rent tenant would become liable for under the consent agreement. Greeley did not answer the complaint or appear in the action. With respect to main tenant, Supreme Court concluded that main tenant had breached its agreement by not obtaining subtenant's prior written consent before surrendering possession, but concluded that subtenant could not prove damages because landlord might never have pursued a claim for higher rent but for subtenant's need to relocate. Supreme Court did, however, award attorneys' fees to subtenant pursuant to the terms of the sublease.

In reversing, the Appellate Division concluded that the May 2002 consent agreement, which obligated subtenant to pay the rent under the main lease if landlord regained the right to possession, constituted the consent subtenant was required to give main tenant for any termination or modification of its main lease. As a result, according to the Appellate Division, main tenant had not breached at all by surrendering possession, and subtenant was not entitled to prevail on its claim. The court therefore held that main tenant, not subtenant, was entitled to attorney's fees as the successful party in the litigation.

Tenant Failed to Exercise Renewal Rights

221-06 Merrick Boulevard Associates, LLC v. Crescent Electric Acquisition Corp.

NYLJ 7/31/09, p. 43, col. 6

AppTerm, 2nd, 11th and

13th Districts

(memorandum opinion)

In commercial landlord's summary holdover proceeding, landlord appealed from Civil Court's dismissal of the petition. The Appellate Term reversed and directed entry of a judgment awarding possession to landlord, holding that tenant had failed to timely exercise its right to renew the lease.

In 2002, landlord's predecessor entered into a five-year commercial lease for the subject premises. The lease gave tenant options to renew for two additional three-year periods. To exercise those options, tenant was required to provide landlord with written notice at least 120 days prior to expiration of the prior lease term. Two months before the deadline for exercising the first option to renew, tenant sent landlord an e-mail asking about procedures for exercising the option to renew. Landlord replied by stating that strict compliance with the lease term would be necessary. Tenant took no action before the leasehold deadline, but sent landlord a letter a month later purporting to exercise the lease option. Landlord replied by informing tenant that the letter had been received too late, and that the lease would not be renewed. After expiration of the initial lease term, landlord brought this holdover proceeding. Civil Court dismissed the petition, concluding that the lease had been renewed. Landlord appealed.

In reversing, the Appellate Term indicated that an election to renew must be exercised strictly in compliance with the lease terms. Here, despite landlord's warning to tenant that tenant would be held to the lease terms, tenant failed to exercise in time. The court found no basis for affording equitable relief to tenant because tenant had not established that tenant had made improvements to the premises that would result in forfeiture, and had not established that it would lose any goodwill if it had to change location. As a result, landlord was entitled to a judgment of possession.

COMMENT

Although courts will consider the nature of tenant's mistake, and potential prejudice to landlord, they will not award equitable relief to a tenant who failed to timely exercise its lease-renewal option unless tenant can demonstrate that the non-renewal of the lease would result in a substantial forfeiture by the tenant. See generally J.N.A. Realty v. Cross Bay Chelsea, 42 N.Y.2d 392, 397-99. A court will find forfeiture in cases where the investment made by the tenant is one that no reasonable tenant would have incurred absent the expectation of renewing the lease. Thus, where the tenant recently expended a substantial amount of money that tenant could not possibly recover during the initial lease term, courts will treat loss of the renewal right as a forfeiture. For instance, in Popyork, LLC v. 80 Court St. Corp., 23 AD2d 538, the court found that loss of renewal terms would constitute a forfeiture where tenant, whose predecessor had leased a commercial space for an initial five-year term with the option to renew the lease for six additional five-year terms, spent close to $300,000 improving the premises to accommodate for a fast-food restaurant. The court granted equitable relief from tenant's failure to timely renew.

Conversely, expenditures made for maintenance and general improvements to a leased property are generally insufficient to trigger a finding of forfeiture because those expenditures can be amortized or depreciated over the span of the lease. In Soho Dev. Corp. v. Dean & DeLuca Inc., 131 AD2d 385, 387, the court held that the tenant, having leased the property for 12 years and having incurred the majority of the improvement costs during the first two years of the lease, would not suffer a substantial forfeiture. Similarly, the court in Trieste Group, LLC. v. Ark Fifth Avenue Corp., 13 AD2d 307, found that a tenant's $67,000 cost of improvements, expended three to five years prior to the expiration of the lease, did not amount to a substantial forfeiture because the tenant, presumably, either recouped or depreciated their value during the lease term.

When tenant's expenditures are on items that are easily removable, courts are less likely to find that loss of a renewal right will cause forfeiture. For example, in Dean & DeLuca, the court concluded that tenant would not suffer forfeiture even though tenant had expended a significant amount of money on fixtures, because the fixtures could be easily relocated. Dean & DeLuca Inc., 131 A.D.2d at 387. On the other hand, in Dutchess Radiology Associates, P.C. v. Narotzky, 19 2 AD2d 1049, 1050, the court found a forfeiture because removing an MRI machine would require breaking a wall and cost of thousands of dollars to alter new premises to its necessary specifications.

Tenant Maintained Primary Residence in New York While Caring for Parents in California

542 E. 14th St. LLC v. Lee

NYLJ 7/9/09, p. 33, col. 1

AppDiv, First Dept.

(Opinion by Tom, J.)

In landlord's nonprimary residence proceeding, both Civil Court and the Appellate Term concluded that the proceeding should be dismissed because tenant had continued to maintain her primary residence in her rent-stabilized New York apartment. On landlord's appeal, the Appellate Division affirmed, holding that dismissal was proper, and that the Appellate Term had correctly denied landlord's motion to vacate Civil Court's award of attorneys' fees to tenant.

Tenant first entered into a rent-stabilized lease in 1997, and subsequently renewed the lease. Beginning in the spring of 2001, tenant began to spend most of her time in California to care for her ailing parents. She obtained a California driver's license, obtained employment in California doing research, and stayed in a residence owner by her sister, and later at a friend's house. Tenant's daughter, then in high school, remained in the New York apartment. When tenant did not return for a considerable period, landlord served tenant with a notice of termination, effective Oct. 31, 2002, on the ground that tenant did not maintain the apartment as her primary residence. When tenant failed to surrender possession, landlord brought this proceeding. Civil Court dismissed and awarded tenant $39,052 in attorney's fees, and the Appellate Division modified to reduce the fee award to $34,053. Landlord appealed.

In affirming, the Appellate Division rejected landlord's argument that an adverse inference should be drawn from tenant's failure to offer medical or testimonial proof about the nature of her parents' afflictions. Landlord had contended that those afflictions were mere pretext to excuse tenant's absence from the apartment, but the Appellate Division emphasized that in light of the liberal discovery available in nonprimary residence proceedings, landlord could have obtained information refuting tenant's contention that her parents were receiving medical treatment. Moreover, the court noted that tenant's decision to leave her daughter in the apartment during her absence established a connection that supported her contention that the apartment remained her primary residence.

Landlord Established Nondiscriminatory Reason for Refusing to Lease to AIDS Victim

Kennedy v. Related Management

NYLJ 8/5/09, p. 39, col. 3

U.S.Dist. Ct., S.D.N.Y.

(Crotty, J.)

In an action for discrimination under the Fair Housing Act, rejected tenants and landlord each sought summary judgment. The court awarded summary judgment to landlord, concluding that landlord had established a valid, non-discriminatory reason for rejecting the application.

Landlord operates a luxury rental property on Roosevelt Island. Landlord participated in an inclusionary housing program that awarded landlord a bonus of 20% more square footage in return for using some of the units of affordable apartments for income-eligible tenants. Rejected tenants applied for one of the unit. The applicant family included a husband with AIDS, a visually impaired wife, and their 27-year-old son. When they applied for the apartment, their application failed to disclose that husband was receiving public assistance from the New York City Human Resources Administration (HRA). Based on the facts disclosed in their application, an affordable-housing co-ordinator determined that they qualified for the apartment. When HRA informed landlord of the entitlement to public assistance, applicants contended that the assistance would end if they rented the apartment, so that they would remain eligible for the apartment. Moreover, landlord learned that in applying to HRA for assistance, husband had not disclosed his wife's income, a fact he was required to report if she lived with him. At that point, landlord denied the application based on provision of false information regarding income or failure to supply requested information. When landlord denied applicants' appeal, applicants brought this action, and both parties moved for summary judgment.

In awarding summary judgment to landlord, the court started by finding that the applicants were in fact qualified to rent the subject apartment. But the court then noted that landlord has a policy requiring all members of an applicant family to provide complete financial and household information to all necessary agencies. Because applicants in this case had not provided complete information, landlord had a valid, non-discriminatory reason for denying the application. The court then rejected the argument that a fact-finder could conclude that landlord's reason was pretextual, and that landlord had actually denied the application because husband has AIDS. The court emphasized that landlord's need for a thorough investigation of the application and income verification arose because failure to meet program requirements could expose landlord to serious penalties from the city. In this case, where there were clear discrepancies between applicants' disclosures to landlord and to HRA, no reasonable jury could find landlord's decision pretextual, especially since landlord has numerous tenants with AIDS. The court then held that applicants had not established any evidence of disparate impact, or of failure to accommodate wife's visual impairment. As a result, landlord was entitled to summary judgment.