Landlord & Tenant

Commencement Upon Completion Clause Does Not Violate Rule Against Perpetuities

Tourneau LLC v. 53rd and Madison Tower Devel., LLC

NYLJ 3/17/10, p. 26, col. 1

Supreme Ct., N.Y. Cty.

(Fried, J.)

In commercial tenant's action for declaratory and injunctive relief and for money damages based on the theory that the lease violated the Rule Against Perpetuities, both parties moved for partial summary judgment on the issue of the lease's validity. The court granted landlord's summary judgment motion, holding that the lease's “commencement upon completion” clause did not violate the Rule Against Perpetuities.

Landlord and tenant entered into an agreement dated July 9, 2008 for the lease of the ground floor of a commercial building on Madison Avenue and 53rd Street. The lease required landlord to do some initial work before tenant could build out its own interior space. The lease also provided that upon substantial completion of landlord's initial work, the lease term would commence. That commencement date would, in turn, trigger a rent commencement date and an expiration date. The lease required landlord to substantially complete the initial work by Jan. 31, 2009, and imposed an outside deadline of Dec. 31, 2009 for completion of landlord's initial work. On Feb. 9, 2009, when landlord was still engaged in the initial work, a fire caused damage that delayed landlord's work. Landlord wrote to tenant informing it of the delay, and invoking the lease's force majeure delay clause, extending the delivery cancellation date on a day-to-day basis. Tenant wrote back contending that the lease violated the Rule Against Perpetuities because the substantial completion date might not occur within 21 years of the date of the lease. Tenant asked for return of its letter of credit. When landlord refused, tenant brought this action.

In awarding summary judgment to landlord, the court relied on the statutory savings provision in EPTL Section 9-1.3, which provides that where vesting of estate depends upon the happening of a “specified” contingency, it shall be presumed that the contingency was intended to occur within 21 years. The court concluded that it should be presumed that the contingency in this case ' completion of the landlord's work ' would be completed within 21 years, avoiding any violation of the Rule Against Perpetuities.

Landlord Met Burden of Establishing Individual Apartment Increase

Jemrock Realty Co. v. Krugman

NYLJ 4/8/10, p. 35, col. 3

AppDiv, First Dept.

(memorandum opinion)

On remand from the New York Court of Appeals, the Appellate Division reconsidered whether landlord had established an entitlement to enough of an individual apartment increase (IAI) to bring the apartment above the luxury decontrol threshold. The court concluded that landlord had met its burden.

Landlord initially brought this proceeding for nonpayment of rent. Tenant responded by asserting that the rent was illegal because the apartment remained subject to rent stabilization. Landlord contended that improvements made to the apartment while it was vacant before tenant signed his lease entitled landlord to an IAI large enough to bring the legal rent above the $2,000 threshold for luxury decontrol. Although landlord proved expenditures in excess of $50,000, Civil Court held that landlord had not adequately broken down the expenditures between repairs and improvements. The Appellate Term reversed, holding that no breakdown was necessary where landlord's work involved extensive renovations, and the Appellate Division affirmed. The Court of Appeals, however, held that all three courts had improperly applied inflexible rules to determine whether a breakdown was necessary. That court held that, instead, the question should be resolved by the fact-finder based on the persuasive force of the evidence submitted by the parties. The court then remanded for a fact-finding.

In holding that the landlord was entitled to the IAI, the Appellate Division emphasized that the improvements included installation of new kitchen cabinets, appliances, and countertops, replacing plumbing in the kitchen and bathroom, installing a ceramic tile floor, and rewiring. In the court's view, the undisputed evidence established that landlord's expenditures for improvements were at least equal to the $30,000 necessary to bring the apartment above the luxury decontrol threshold.

Right of First Refusal Requires Compliance with Loan Condition

Lester's Activewear, Inc. v. Combine Distributing Inc.

NYLJ 4/14/10, p. 27, col. 3

Supreme Ct., Kings Cty.

(Demarest, J.)

Commercial tenant whose lease gives it a right of first refusal sought a preliminary injunction preventing landlord from selling the building in which its store is located. The court granted the injunction, conditioned on tenant's willingness to purchase the premises on the same terms as reflected in a sale contract landlord had negotiated with a third party.

Tenant's lease requires landlord to notify tenant of any third party offer to purchase the property, and gives tenant the privilege to purchase the property, within 30 days, for the same price and on the same terms as offered by the third party. Landlord received an offer from a third party for $1,625,000, and provided tenant with a copy of the sale contract, which obligated the purchaser to lend the seller an amount of up to $400,000 to enable the purchaser to buy a replacement property in Michigan. Purchase of the replacement property would reduce seller's tax liability for gains on the subject property. When confronted with the sale contract, tenant agreed to exercise its first refusal option, but contended that exercise did not bind tenant to make the $400,000 loan, which tenant contended was unrelated to the sale contract.

The court rejected tenant's argument, concluding that the loan provision was rational and was an element of the consideration for sale of the property. As a result, the court conditioned tenant's relief on tenant's execution of a sale contract that included the loan provision, and on tenant's payment of a 10% deposit.

Commencement Upon Completion Clause Does Not Violate Rule Against Perpetuities

Tourneau LLC v. 53rd and Madison Tower Devel., LLC

NYLJ 3/17/10, p. 26, col. 1

Supreme Ct., N.Y. Cty.

(Fried, J.)

In commercial tenant's action for declaratory and injunctive relief and for money damages based on the theory that the lease violated the Rule Against Perpetuities, both parties moved for partial summary judgment on the issue of the lease's validity. The court granted landlord's summary judgment motion, holding that the lease's “commencement upon completion” clause did not violate the Rule Against Perpetuities.

Landlord and tenant entered into an agreement dated July 9, 2008 for the lease of the ground floor of a commercial building on Madison Avenue and 53rd Street. The lease required landlord to do some initial work before tenant could build out its own interior space. The lease also provided that upon substantial completion of landlord's initial work, the lease term would commence. That commencement date would, in turn, trigger a rent commencement date and an expiration date. The lease required landlord to substantially complete the initial work by Jan. 31, 2009, and imposed an outside deadline of Dec. 31, 2009 for completion of landlord's initial work. On Feb. 9, 2009, when landlord was still engaged in the initial work, a fire caused damage that delayed landlord's work. Landlord wrote to tenant informing it of the delay, and invoking the lease's force majeure delay clause, extending the delivery cancellation date on a day-to-day basis. Tenant wrote back contending that the lease violated the Rule Against Perpetuities because the substantial completion date might not occur within 21 years of the date of the lease. Tenant asked for return of its letter of credit. When landlord refused, tenant brought this action.

In awarding summary judgment to landlord, the court relied on the statutory savings provision in EPTL Section 9-1.3, which provides that where vesting of estate depends upon the happening of a “specified” contingency, it shall be presumed that the contingency was intended to occur within 21 years. The court concluded that it should be presumed that the contingency in this case ' completion of the landlord's work ' would be completed within 21 years, avoiding any violation of the Rule Against Perpetuities.

Landlord Met Burden of Establishing Individual Apartment Increase

Jemrock Realty Co. v. Krugman

NYLJ 4/8/10, p. 35, col. 3

AppDiv, First Dept.

(memorandum opinion)

On remand from the New York Court of Appeals, the Appellate Division reconsidered whether landlord had established an entitlement to enough of an individual apartment increase (IAI) to bring the apartment above the luxury decontrol threshold. The court concluded that landlord had met its burden.

Landlord initially brought this proceeding for nonpayment of rent. Tenant responded by asserting that the rent was illegal because the apartment remained subject to rent stabilization. Landlord contended that improvements made to the apartment while it was vacant before tenant signed his lease entitled landlord to an IAI large enough to bring the legal rent above the $2,000 threshold for luxury decontrol. Although landlord proved expenditures in excess of $50,000, Civil Court held that landlord had not adequately broken down the expenditures between repairs and improvements. The Appellate Term reversed, holding that no breakdown was necessary where landlord's work involved extensive renovations, and the Appellate Division affirmed. The Court of Appeals, however, held that all three courts had improperly applied inflexible rules to determine whether a breakdown was necessary. That court held that, instead, the question should be resolved by the fact-finder based on the persuasive force of the evidence submitted by the parties. The court then remanded for a fact-finding.

In holding that the landlord was entitled to the IAI, the Appellate Division emphasized that the improvements included installation of new kitchen cabinets, appliances, and countertops, replacing plumbing in the kitchen and bathroom, installing a ceramic tile floor, and rewiring. In the court's view, the undisputed evidence established that landlord's expenditures for improvements were at least equal to the $30,000 necessary to bring the apartment above the luxury decontrol threshold.

Right of First Refusal Requires Compliance with Loan Condition

Lester's Activewear, Inc. v. Combine Distributing Inc.

NYLJ 4/14/10, p. 27, col. 3

Supreme Ct., Kings Cty.

(Demarest, J.)

Commercial tenant whose lease gives it a right of first refusal sought a preliminary injunction preventing landlord from selling the building in which its store is located. The court granted the injunction, conditioned on tenant's willingness to purchase the premises on the same terms as reflected in a sale contract landlord had negotiated with a third party.

Tenant's lease requires landlord to notify tenant of any third party offer to purchase the property, and gives tenant the privilege to purchase the property, within 30 days, for the same price and on the same terms as offered by the third party. Landlord received an offer from a third party for $1,625,000, and provided tenant with a copy of the sale contract, which obligated the purchaser to lend the seller an amount of up to $400,000 to enable the purchaser to buy a replacement property in Michigan. Purchase of the replacement property would reduce seller's tax liability for gains on the subject property. When confronted with the sale contract, tenant agreed to exercise its first refusal option, but contended that exercise did not bind tenant to make the $400,000 loan, which tenant contended was unrelated to the sale contract.

The court rejected tenant's argument, concluding that the loan provision was rational and was an element of the consideration for sale of the property. As a result, the court conditioned tenant's relief on tenant's execution of a sale contract that included the loan provision, and on tenant's payment of a 10% deposit.