Landlord & Tenant

Question of Fact About Whether Landlord Would Suffer Prejudice

Waterfalls Italian Cuisine, Inc. v. Tamarin

NYLJ 7/18/14, p. 27, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In commercial tenant's action for a judgment declaring that it is entitled to continued possession of the leased premises, tenant appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed, holding that questions of fact remained about whether tenant was excused from its failure to exercise its lease renewal option in writing.

In July 2002, tenant leased the premises for a 10-year term for operation of a restaurant. The lease included an option to renew, but required tenant to exercise the option in writing. In 2011, the original landlord conveyed the premises to Victory, and in October 2012, Victory conveyed the premises to Venetian Circle, the current owner.

Tenant then brought this action, contending that tenant's president had advised the original landlord's principal of tenant's intent to exercise the lease renewal option. Tenant contended that, in light of its notification, it was entitled to equitable relief from its failure to provide written notice, and sought a preliminary injunction restraining Venetian from taking any steps to terminate tenant's occupancy. Venetian moved to dismiss based on documentary evidence, and Supreme Court granted the motion.

In reversing, the Appellate Division acknowledged that the documentary evidence conclusively established that tenant had not provided written notice of exercise of its option to renew. But the court noted that equity sometimes relieves tenants of their failure to timely exercise a renewal option when nonrenewal would result in a substantial forfeiture and landlord would not be prejudiced by the renewal. The court concluded that fact questions remained about whether tenant would suffer a substantial forfeiture and about whether Venetian would suffer prejudice as a result of lease renewal.

COMMENT

Equity will generally provide relief for tenants who, after failing to comply with lease renewal provisions, can prove they have made substantial improvements into the property with the intent to renew the lease or can prove to have a long-standing interest in the location of the retail business. In J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392 at 398, the Court of Appeals reversed an award of possession to a landlord when tenant, who had invested $55,000 in improvements to the restaurant premises, failed to exercise a lease renewal option within the time specified in the lease. The court emphasized that the gravity of tenant's loss would be out of proportion to its fault in failing to exercise the option on time, but remanded to determine whether landlord had relied on tenant's failure to exercise. If, however, the improvements were completed early in the term of the lease, equity might not provide relief because the tenants will be deemed to have already “reaped the benefits” of those improvements and equity will not intervene. For instance, in Soho Dev. Corp. v. Dean & De Luca, Inc., 131 A.D.2d 385 at 386, the court, in awarding possession to the landlord when tenant failed to timely exercise its renewal option, emphasized that all of tenant's improvements had been made during the first two years of the lease, and had presumably been amortized during the term of the lease. The court also rejected tenant's argument that loss of its lease would entail a loss of good will, noting that Dean & DeLuca's relocation would have little effect on its customer base. Id. at 387.

As the remand in JNA illustrates, equity will not intervene if prejudice to a landlord would result. For instance, in 5 E. 41 Check Cashing Corp. v. Park & Fifth Owner, LLC, 44 A.D.3d 373 at 374, the court held that landlord was entitled to possession when, after the date for tenant's lease renewal passed, landlord demonstrated that an architect had been hired to construct an interior stairwell and that plans for the stairwell had been drawn .

Similarly, equity will not protect a delinquent tenant when landlord has completed, or nearly completed, negotiations for a new lease in reliance on tenant's failure to renew on time. Thus, in Dan's Supreme Supermarkets v. Redmont Realty Co., 216 A.D.2d 512 at 513, the court denied tenant's motion for an injunction precluding landlord from leasing to a new tenant, emphasizing that landlord had invested time and resources into negotiating a new lease with new tenants, and landlord's inability to enter into that new lease would be prejudicial to landlord.

By contrast, if landlord has made no commitment in reliance on tenant's delayed exercise, courts will not treat landlord as “prejudiced” even if landlord loses lucrative opportunities. For instance, in 527 Greenwich LLC v. Chista, Inc., 19 Misc.3d 1133(A), the court indicated that landlord's allegations that it had received offers to purchase the building, if vacant, were insufficient to establish prejudice.

Stipulation of Settlement Vacated

45-48 47th Street Corp. v. Murphy

NYLJ 8/5/14, p. 23, col. 5

AppTerm, 2nd, 11th and 13th Districts

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

In landlord's summary holdover proceeding, a rent-stabilized tenant appealed from Civil Court's denial of her motion to vacate a stipulation of settlement. The Appellate Term reversed and granted the motion, concluding that the tenant did not receive the benefit of her bargain and demonstrated a potentially meritorious defense.

Landlord brought this holdover proceeding based on tenant's failure to sign a renewal lease. In May, 2012, the parties entered into a stipulation of settlement by the terms of which tenant agreed to vacate by June 30, 2012 in return for landlord's waiver of four months' rent. Civil Court entered a judgment of possession, with execution of the warrant stayed in accordance with the stipulation. Tenant subsequently sought an extension of time, and entered into a second stipulation allowing her more time to vacate, in return for her payment of the four months' rent previously waived. Tenant then moved to vacate the initial stipulation on the ground that she had executed it under great pressure and that she had not properly been offered a renewal lease. Civil Court denied the stipulation, noting that tenant was an intelligent educator capable of negotiating her rights. Tenant appealed.

In reversing, the Appellate Term majority concluded that tenant never received the benefit of her bargain because she ultimately paid the four months' rent, that tenant had a potentially meritorious defense that landlord did not provide a renewal lease with proper notice, and that tenant might have inadvertently waived her right to cure her failure to sign a renewal lease.

Justice Weston, dissenting, argued that the majority's position places in jeopardy all so-ordered stipulations between landlord and tenant, no matter how much time is spent negotiating them. He emphasized Civil Court's better opportunity to observe the tenant firsthand, and argued that tenant did obtain the benefit of her bargain, which she later bargained away in return for more time in the apartment. He argued that the majority's conclusion encourages tenants to agree to terms they would not fulfill in the hope that courts will ultimately relieve them of their obligations.

'

Question of Fact About Whether Landlord Would Suffer Prejudice

Waterfalls Italian Cuisine, Inc. v. Tamarin

NYLJ 7/18/14, p. 27, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In commercial tenant's action for a judgment declaring that it is entitled to continued possession of the leased premises, tenant appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed, holding that questions of fact remained about whether tenant was excused from its failure to exercise its lease renewal option in writing.

In July 2002, tenant leased the premises for a 10-year term for operation of a restaurant. The lease included an option to renew, but required tenant to exercise the option in writing. In 2011, the original landlord conveyed the premises to Victory, and in October 2012, Victory conveyed the premises to Venetian Circle, the current owner.

Tenant then brought this action, contending that tenant's president had advised the original landlord's principal of tenant's intent to exercise the lease renewal option. Tenant contended that, in light of its notification, it was entitled to equitable relief from its failure to provide written notice, and sought a preliminary injunction restraining Venetian from taking any steps to terminate tenant's occupancy. Venetian moved to dismiss based on documentary evidence, and Supreme Court granted the motion.

In reversing, the Appellate Division acknowledged that the documentary evidence conclusively established that tenant had not provided written notice of exercise of its option to renew. But the court noted that equity sometimes relieves tenants of their failure to timely exercise a renewal option when nonrenewal would result in a substantial forfeiture and landlord would not be prejudiced by the renewal. The court concluded that fact questions remained about whether tenant would suffer a substantial forfeiture and about whether Venetian would suffer prejudice as a result of lease renewal.

COMMENT

Equity will generally provide relief for tenants who, after failing to comply with lease renewal provisions, can prove they have made substantial improvements into the property with the intent to renew the lease or can prove to have a long-standing interest in the location of the retail business. In J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392 at 398, the Court of Appeals reversed an award of possession to a landlord when tenant, who had invested $55,000 in improvements to the restaurant premises, failed to exercise a lease renewal option within the time specified in the lease. The court emphasized that the gravity of tenant's loss would be out of proportion to its fault in failing to exercise the option on time, but remanded to determine whether landlord had relied on tenant's failure to exercise. If, however, the improvements were completed early in the term of the lease, equity might not provide relief because the tenants will be deemed to have already “reaped the benefits” of those improvements and equity will not intervene. For instance, in Soho Dev. Corp. v. Dean & De Luca, Inc., 131 A.D.2d 385 at 386, the court, in awarding possession to the landlord when tenant failed to timely exercise its renewal option, emphasized that all of tenant's improvements had been made during the first two years of the lease, and had presumably been amortized during the term of the lease. The court also rejected tenant's argument that loss of its lease would entail a loss of good will, noting that Dean & DeLuca's relocation would have little effect on its customer base. Id. at 387.

As the remand in JNA illustrates, equity will not intervene if prejudice to a landlord would result. For instance, in 5 E. 41 Check Cashing Corp. v. Park & Fifth Owner, LLC, 44 A.D.3d 373 at 374, the court held that landlord was entitled to possession when, after the date for tenant's lease renewal passed, landlord demonstrated that an architect had been hired to construct an interior stairwell and that plans for the stairwell had been drawn .

Similarly, equity will not protect a delinquent tenant when landlord has completed, or nearly completed, negotiations for a new lease in reliance on tenant's failure to renew on time. Thus, in Dan's Supreme Supermarkets v. Redmont Realty Co., 216 A.D.2d 512 at 513, the court denied tenant's motion for an injunction precluding landlord from leasing to a new tenant, emphasizing that landlord had invested time and resources into negotiating a new lease with new tenants, and landlord's inability to enter into that new lease would be prejudicial to landlord.

By contrast, if landlord has made no commitment in reliance on tenant's delayed exercise, courts will not treat landlord as “prejudiced” even if landlord loses lucrative opportunities. For instance, in 527 Greenwich LLC v. Chista, Inc., 19 Misc.3d 1133(A), the court indicated that landlord's allegations that it had received offers to purchase the building, if vacant, were insufficient to establish prejudice.

Stipulation of Settlement Vacated

45-48 47th Street Corp. v. Murphy

NYLJ 8/5/14, p. 23, col. 5

AppTerm, 2nd, 11th and 13th Districts

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

In landlord's summary holdover proceeding, a rent-stabilized tenant appealed from Civil Court's denial of her motion to vacate a stipulation of settlement. The Appellate Term reversed and granted the motion, concluding that the tenant did not receive the benefit of her bargain and demonstrated a potentially meritorious defense.

Landlord brought this holdover proceeding based on tenant's failure to sign a renewal lease. In May, 2012, the parties entered into a stipulation of settlement by the terms of which tenant agreed to vacate by June 30, 2012 in return for landlord's waiver of four months' rent. Civil Court entered a judgment of possession, with execution of the warrant stayed in accordance with the stipulation. Tenant subsequently sought an extension of time, and entered into a second stipulation allowing her more time to vacate, in return for her payment of the four months' rent previously waived. Tenant then moved to vacate the initial stipulation on the ground that she had executed it under great pressure and that she had not properly been offered a renewal lease. Civil Court denied the stipulation, noting that tenant was an intelligent educator capable of negotiating her rights. Tenant appealed.

In reversing, the Appellate Term majority concluded that tenant never received the benefit of her bargain because she ultimately paid the four months' rent, that tenant had a potentially meritorious defense that landlord did not provide a renewal lease with proper notice, and that tenant might have inadvertently waived her right to cure her failure to sign a renewal lease.

Justice Weston, dissenting, argued that the majority's position places in jeopardy all so-ordered stipulations between landlord and tenant, no matter how much time is spent negotiating them. He emphasized Civil Court's better opportunity to observe the tenant firsthand, and argued that tenant did obtain the benefit of her bargain, which she later bargained away in return for more time in the apartment. He argued that the majority's conclusion encourages tenants to agree to terms they would not fulfill in the hope that courts will ultimately relieve them of their obligations.

'