Landlord & Tenant

Tenant Obligated to Procure Insurance

DiBuono v. Abbey LLC

NYLJ 4/13/11, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action by neighbor for damages caused by leakage of petroleum stored in tanks located on a service station on landowner's land, landowner's tenant appealed from Supreme Court's award of summary judgment to landowner on landowner's third-party complaint for contractual indemnification. The Appellate Division modified to hold that tenant was not obligated to defend and indemnify for leakage that occurred before and after the lease period, but otherwise affirmed, holding that the lease provision requiring tenant to procure insurance was fully enforceable.

The lease explicitly required tenant to obtain insurance policies naming landowner an insured party. When neighbor brought this action against landowner, landowner discovered that tenant's policies did not name it as an insured. Landowner then brought this third-party complaint against tenant, alleging that tenant had breached the lease agreement and contending that tenant was in effect obligated to indemnify landlord for any damages neighbor recovered in its action. Landowner submitted a letter from tenant's insurer asserting that tenant's policies did not name landowner as an insured, and based on the lease and the letter, landowner sought summary judgment on the indemnification claim. Supreme Court granted landowner's motion.

In modifying, the Appellate Division first rejected tenant's claim that General Obligations Law section 5-321 made the lease provision unenforceable. Although the statute declares void any agreement purporting to exempt a lessor from its own negligence, the court emphasized that past decisions establish that the statute does not preclude enforcement of an indemnification provision in a commercial lease agreement entered into at arms length by sophisticated parties, at lease in those cases where the liability is to third parties and the indemnification provision is coupled with a requirement that the tenant procure insurance. The court reasoned that insurance procurement clauses do not seek to exempt landlord from liability, but to allocate the risk of liability between landlord and tenant. The court then noted, however, that tenant was under no obligation to indemnify landlord for damages assessed for the period before and after the lease, and held that tenant was entitled to summary judgment dismissing the claim for so much of the damages incurred outside the lease period.

Tenant's Tortious Interference Claim Fails

CCCLF, Inc. v. Bonin

NYLJ 4/19/11, p.33, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by former tenant against current tenant for conversion of corporate assets and tortious interference with a lease, former tenant appealed from Supreme Court's grant of current tenant's motion to dismiss. The Appellate Division affirmed, holding that the unrefuted evidence established current tenant's defense as a matter of law.

Former tenant operated a day care center, and listed the business for sale with a broker. Current tenant submitted an offer, but no deal was reached. Former tenant alleged that current tenant instead offered to pay the landlord to evict former tenant, and to then offer the lease to current tenant. Current tenant, by contrast, contends that it took possession of the premises only after former tenant had surrendered the premises and abandoned the business. Supreme Court dismissed plaintiff's causes of action based on documentary evidence.

In affirming, the Appellate Division relied on the surrender agreement by the terms of which tenant voluntarily surrendered the premises and relinquished its fixtures in return for being released from any obligations under the lease. Under these circumstances, the court held that current tenant had established a defense as a matter of law.

COMMENT

“In order for [a] plaintiff to have a cause of action for tortious interference of contract, it is axiomatic that there must be a breach of that contract by the other party.” Jack L. Inselman & Co. v. FNB Fin. Co., 41 N.Y.2d 1078, 1080. (affirming dismissal of plaintiff's tortious interference with contract claim because plaintiff failed to show breach of contract, where plaintiff repudiated contract before third party's alleged breach). In CCCLF, because the plaintiff had voluntarily surrendered the premises, it could not show that the landlord breached the lease, and the plaintiff's claim was therefore dismissed.

Even where a breach has been shown, however, a plaintiff must still show proximate causation ' that it was the defendant who “induce[d] or intentionally procure[d] [the] third-party's breach of its contract with the plaintiff.” Beecher v. Feldstein, 8 A.D.3d 597, 598 (discussed infra). Although the alleged inducement cannot be “speculative,” courts will generally deem allegations of causation sufficient so long as the complaint contains adequate facts from which the court may infer that the lease would not have been breached “but for” the defendant's conduct. Madison Third Bldg. Cos. v. Berkey, 30 A.D.3d 1146. In Berkey, the First Department held that the plaintiff adequately pleaded “but for” causation despite the complaint's less-than-fully-detailed allegations. Id. The plaintiff-landlord alleged that the defendant-real estate brokers negotiated to obtain space elsewhere for plaintiff's lessee, despite their knowledge that the lessee already had a fully-executed lease with the plaintiff. Id. The court, in affirming the lower court's denial of defendants' motion to dismiss, held that the plaintiff's allegations were sufficient to provide an inference of “but for” causation between defendants' negotiations and the lessee's subsequent breach of the lease. Id. The court rejected the defendants' argument that the allegations were too speculative absent details showing when, how, and by whom the allegedly wrongful negotiations occurred. Cf. Washington Ave. Assocs. v. Euclid Equip., Inc., 229 A.D.2d 486 (dismissing complaint for failure to allege causation adequately where plaintiff “merely asserted that the appellant had conversations with” another party without “supporting this conclusory allegation with any relevant facts”).

But even where the plaintiff has adequately pleaded causation, the defendant may still defeat the plaintiff's claim by showing that significant factors unrelated to the defendant's actions ' such as the breaching party's own independent choices ' were, in fact, the cause of the breach. In Beecher v. Feldstein, 8 A.D.3d 597, for example, the Second Department held that the plaintiff-landlord failed to state a claim against the defendant for tortiously interfering with the tenant-automobile dealership's lease. The defendant had purchased the dealership from the tenant, but refused to assume the lease along with its purchase of the business. 8 A.D.3d at 598. The tenant subsequently defaulted on the lease. The court, in affirming dismissal of the complaint, explained that the actual cause of the breach was the tenant's own, independent decision to default on the lease, after it had already sold the business; “the defendant's actions did not procure and were merely incidental to the dealership's subsequent breach of the lease.” Id. The plaintiff therefore failed to allege the necessary causal link between the defendant's conduct and the breach. Similarly, in Forty Exchange Co. v Cohen, 125 Misc. 2d 475, the court held that the plaintiff, tenant's prior landlord, failed to show that the tenant's subsequent landlord tortiously interfered with the lease between tenant and prior landlord by inducing the tenant to relocate. 125 Misc. 2d at 483. The court found that the tenant's decision to relocate was principally the result of its dissatisfaction with its existing office space, and not any improper inducement by the subsequent landlord. Id.

Tenant Obligated to Procure Insurance

DiBuono v. Abbey LLC

NYLJ 4/13/11, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action by neighbor for damages caused by leakage of petroleum stored in tanks located on a service station on landowner's land, landowner's tenant appealed from Supreme Court's award of summary judgment to landowner on landowner's third-party complaint for contractual indemnification. The Appellate Division modified to hold that tenant was not obligated to defend and indemnify for leakage that occurred before and after the lease period, but otherwise affirmed, holding that the lease provision requiring tenant to procure insurance was fully enforceable.

The lease explicitly required tenant to obtain insurance policies naming landowner an insured party. When neighbor brought this action against landowner, landowner discovered that tenant's policies did not name it as an insured. Landowner then brought this third-party complaint against tenant, alleging that tenant had breached the lease agreement and contending that tenant was in effect obligated to indemnify landlord for any damages neighbor recovered in its action. Landowner submitted a letter from tenant's insurer asserting that tenant's policies did not name landowner as an insured, and based on the lease and the letter, landowner sought summary judgment on the indemnification claim. Supreme Court granted landowner's motion.

In modifying, the Appellate Division first rejected tenant's claim that General Obligations Law section 5-321 made the lease provision unenforceable. Although the statute declares void any agreement purporting to exempt a lessor from its own negligence, the court emphasized that past decisions establish that the statute does not preclude enforcement of an indemnification provision in a commercial lease agreement entered into at arms length by sophisticated parties, at lease in those cases where the liability is to third parties and the indemnification provision is coupled with a requirement that the tenant procure insurance. The court reasoned that insurance procurement clauses do not seek to exempt landlord from liability, but to allocate the risk of liability between landlord and tenant. The court then noted, however, that tenant was under no obligation to indemnify landlord for damages assessed for the period before and after the lease, and held that tenant was entitled to summary judgment dismissing the claim for so much of the damages incurred outside the lease period.

Tenant's Tortious Interference Claim Fails

CCCLF, Inc. v. Bonin

NYLJ 4/19/11, p.33, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by former tenant against current tenant for conversion of corporate assets and tortious interference with a lease, former tenant appealed from Supreme Court's grant of current tenant's motion to dismiss. The Appellate Division affirmed, holding that the unrefuted evidence established current tenant's defense as a matter of law.

Former tenant operated a day care center, and listed the business for sale with a broker. Current tenant submitted an offer, but no deal was reached. Former tenant alleged that current tenant instead offered to pay the landlord to evict former tenant, and to then offer the lease to current tenant. Current tenant, by contrast, contends that it took possession of the premises only after former tenant had surrendered the premises and abandoned the business. Supreme Court dismissed plaintiff's causes of action based on documentary evidence.

In affirming, the Appellate Division relied on the surrender agreement by the terms of which tenant voluntarily surrendered the premises and relinquished its fixtures in return for being released from any obligations under the lease. Under these circumstances, the court held that current tenant had established a defense as a matter of law.

COMMENT

“In order for [a] plaintiff to have a cause of action for tortious interference of contract, it is axiomatic that there must be a breach of that contract by the other party.” Jack L. Inselman & Co. v. FNB Fin. Co., 41 N.Y.2d 1078, 1080. (affirming dismissal of plaintiff's tortious interference with contract claim because plaintiff failed to show breach of contract, where plaintiff repudiated contract before third party's alleged breach). In CCCLF, because the plaintiff had voluntarily surrendered the premises, it could not show that the landlord breached the lease, and the plaintiff's claim was therefore dismissed.

Even where a breach has been shown, however, a plaintiff must still show proximate causation ' that it was the defendant who “induce[d] or intentionally procure[d] [the] third-party's breach of its contract with the plaintiff.” Beecher v. Feldstein, 8 A.D.3d 597, 598 (discussed infra ). Although the alleged inducement cannot be “speculative,” courts will generally deem allegations of causation sufficient so long as the complaint contains adequate facts from which the court may infer that the lease would not have been breached “but for” the defendant's conduct. Madison Third Bldg. Cos. v. Berkey, 3 0 A.D.3d 1146. In Berkey, the First Department held that the plaintiff adequately pleaded “but for” causation despite the complaint's less-than-fully-detailed allegations. Id. The plaintiff-landlord alleged that the defendant-real estate brokers negotiated to obtain space elsewhere for plaintiff's lessee, despite their knowledge that the lessee already had a fully-executed lease with the plaintiff. Id. The court, in affirming the lower court's denial of defendants' motion to dismiss, held that the plaintiff's allegations were sufficient to provide an inference of “but for” causation between defendants' negotiations and the lessee's subsequent breach of the lease. Id. The court rejected the defendants' argument that the allegations were too speculative absent details showing when, how, and by whom the allegedly wrongful negotiations occurred. Cf. Washington Ave. Assocs. v. Euclid Equip., Inc., 229 A.D.2d 486 (dismissing complaint for failure to allege causation adequately where plaintiff “merely asserted that the appellant had conversations with” another party without “supporting this conclusory allegation with any relevant facts”).

But even where the plaintiff has adequately pleaded causation, the defendant may still defeat the plaintiff's claim by showing that significant factors unrelated to the defendant's actions ' such as the breaching party's own independent choices ' were, in fact, the cause of the breach. In Beecher v. Feldstein, 8 A.D.3d 597, for example, the Second Department held that the plaintiff-landlord failed to state a claim against the defendant for tortiously interfering with the tenant-automobile dealership's lease. The defendant had purchased the dealership from the tenant, but refused to assume the lease along with its purchase of the business. 8 A.D.3d at 598. The tenant subsequently defaulted on the lease. The court, in affirming dismissal of the complaint, explained that the actual cause of the breach was the tenant's own, independent decision to default on the lease, after it had already sold the business; “the defendant's actions did not procure and were merely incidental to the dealership's subsequent breach of the lease.” Id. The plaintiff therefore failed to allege the necessary causal link between the defendant's conduct and the breach. Similarly, in Forty Exchange Co. v Cohen, 125 Misc. 2d 475, the court held that the plaintiff, tenant's prior landlord, failed to show that the tenant's subsequent landlord tortiously interfered with the lease between tenant and prior landlord by inducing the tenant to relocate. 125 Misc. 2d at 483. The court found that the tenant's decision to relocate was principally the result of its dissatisfaction with its existing office space, and not any improper inducement by the subsequent landlord. Id.