Case Notes

(memorandum opinion)

In a commercial tenant's action for a declaration that its landlord is obligated to repair the roof of the premises, the landlord appealed from the New York Supreme Court's grant of summary judgment to the tenant. The Appellate Division modified to deny the summary judgment motion, holding that the lease was ambiguous and that the extrinsic evidence was not conclusive as a matter of law

In 1996, the landlord leased a substantial portion of its building to the tenant for operation of a car wash, automobile detailing shop and accessory showroom. The building had one other tenant. The lease provided that tenant “shall, at the Tenant's own cost and expense make all repairs.” The lease also provided that “[l]andlord need only repair the damaged structural parts of the [p]remises.” In 2012, the tenant brought this action for a declaration that the landlord was obligated to repair the roof. Both parties sought summary judgment, and the New York Supreme Court granted the tenant's motion.

In modifying, the Appellate Division emphasized that the lease provisions were inconsistent, especially because the lease never specified what repairs should be deemed structural. The court also discounted the deposition testimony of one of the tenant's principals indicating that the landlord had drafted the lease, noting that the landlord's principal had died before commencement of the action. The court held, therefore, that the Dead Man's Statute (CPLR 4519) precluded the court from relying on the tenant's testimony about communications between the tenant's principal and the landlord's principal.

The court also noted that both parties had made repairs to the roof during the term of the lease, so that intent could not be inferred conclusively from the parties' conduct. Accordingly, neither party was entitled to summary judgment.

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Existence of Outstanding Lease on Closing Date Did Not Excuse Purchaser

In a recent New York action by a commercial real estate purchaser for return of a down payment, the Appellate Division affirmed, holding that the existence of an outstanding lease on the closing date did not excuse the purchaser from its contract obligation. 1 Franklin Steel, LLC v. Mineola Garden City Co., Ltd., NYLJ 1/15/16, p. 32, col. 1 (N.Y. AppDiv, Second Dept.).

The purchaser contracted to buy a commercial building, and made a $125,000 deposit. A day before the scheduled closing, the purchaser's lawyer informed the seller's lawyer that the purchaser was canceling the contract due to the existence of a lease on the property, which by its terms expired 30 days after the closing date, affecting a portion of the subject building. The lease had a renewal option, but the tenant had not exercised the option, and had already vacated the building by the time the sale contract was signed. When the purchaser demanded return of its down payment, the seller refused and purchaser sued. The trial court awarded summary judgment to the seller, dismissing the complaint. Purchaser appealed.

In affirming, New York's Appellate Division focused first on the language of the sale contract, which gave the purchaser an option to extend the closing date if the tenant had not vacated the premises by the time of closing. The court held that this language was nothing more than an option to extend the closing date, not an option to cancel the contract. The court then held that, in any event, the alleged title defect caused by the lease was curable, and the purchaser therefore had an obligation to give the seller a reasonable time to cure. The purchaser's failure to do so resulted in forfeiture of its down payment.

Commentary

Unless a contract for sale of property is explicitly made subject to an outstanding lease, the lease constitutes an encumbrance on the title and excuses the purchaser from its contract obligations. When a title defect is curable, the purchaser is not excused from the sale contract unless the seller gives the purchaser notice of the defect and a reasonable opportunity to cure. Thus, in Cohen v. Kranz, 12 N.Y.2d 242, the Court of Appeals held that the purchaser's attempt to cancel the sales contract was unjustified when the purchaser did not initially specify the objections and only did so after the closing date. By contrast, where the purchaser does provide adequate notice of the defect, that purchaser is excused if the seller does not cure within a reasonable time. For instance, in Junius Const. Co. v. Cohen, 257 N.Y. 393, the court excused a purchaser from performance and awarded return of the down payment, finding that a two-year delay in clearing the title was unreasonable when the purpose of the transaction was to build a factory and the current financial condition of the purchaser rendered performance either impossible or burdensome.

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