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Case Notes

'No Representations' Lease Clause May Not Absolve Landlord

A New York appeals court has reversed the dismissal of a suit brought by a tenant seeking recission of his commercial lease and a declaration that he was not bound by it after finding that a clause in the contract purporting to negate the landlord's responsibility for having a certificate of occupancy that conformed to the needs of the leaseholder's business was not dispositive. Jack Kelly Partners v. Zegelstein , 600351/08.

Recruiting firm Jack Kelly Partners leased a floor of the Lenox Hill Townhouse property in New York City for a term of five years, for $4,000 per month. About two years later, the tenant discovered that the certificate of occupancy for its floor said that only residential uses could be made of it. The tenant asked the landlord to try to update the certificate of occupancy to reflect its use as a commercial property, but the landlord refused, citing to a clause in the lease, which stated, the landlord “makes no representation that the use of the premises specified herein is consistent with permitted uses under the certificate of occupancy.” The tenant vacated the premises in May 2009. The landlord refused to return the tenant's $12,000 deposit, and also threatened to sue for the rents due under the remaining lease term.

Manhattan Supreme Court summarily dismissed the tenant's case seeking recission after finding that the disclaimer in the lease was definitive on the subject of whether the landlord had a duty to provide the lessee a space whose certificate of occupancy conformed to the tenant's planned use of the property. This, despite the fact that the tenant alleged the landlord advertised the property for commercial use and the lease indicated that the only permitted use of the premises was commercial.

On appeal, the Appellate Division, First Department, determined the case should go forward. The appeals panel unanimously concluded that the landlord “should not be able to hide behind the 'no representations' clauses included in the lease while at the same time having represented to plaintiff that the premises are suitable for commercial use.”

The defendant landlord in this matter used a standard form lease that is published by the Real Estate Board of New York. According to real estate specialist Dani Schwartz of Rosenberg & Estis, this same form is used extensively by landlords city-wide. “The lesson here is that landlords who specify how commercial tenants can use their leased space should make sure that the use specified in the lease matches up with the building's certificate of occupancy,” Schwartz said.

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