Landlord & Tenant Law

Tenant Who Stopped Paying Rent May Not Recover Damages
20 Broad Street Owner, LLC v. Sonder USA, Inc. 2024 WL 4292552 AppDiv, First Dept. (memorandum opinion)
In landlord’s action for rent, tenant appealed from Supreme Court’s grant of landlord’s motion for summary judgment dismissing tenant’s affirmative defenses and counterclaims. The Appellate Division to reinstate the counterclaim for breach of contracts and to grant discovery on issues of damages, and otherwise affirmed because tenant had failed to establish that it had abandoned the premises.
In response to landlord’s action, tenant raised affirmative defenses for constructive eviction, breach of the covenant of quiet enjoyment, frustration of purpose, breach of the implied warranty of habitability, breach of contract, and conversion arising from Legionella contamination of the building. Supreme Court granted landlord’s motion to dismiss the affirmative defenses and counterclaims based on tenant’s failure to vacate the premises.
In modifying, the Appellate Division agreed with Supreme Court’s conclusion that tenant’s surrender agreement and subsequent letter contradicted its assertion that it had abandoned the premises. The court emphasized that ceasing operations is insufficient to constitute vacating the premises. The court, however reinstated the breach of contract counterclaim based on landlord’s failure to maintain the building’s plumbing system which might have contributed to Legionella contamination. But the court also held that once tenant stopped paying rent tenant elected a remedy which precluded a claim for damages after the date on which rent payments stopped
Comment
Unless a lease states otherwise, a tenant who elects to withhold rent waives any claims for damages for the period during which it withheld the rent. In Frame v. Horizons Wine & Cheese, 95 A.D.2d 514, the Second Department, in reversing a judgment for landlord and remitting for a new trial on tenant’s counterclaim for damages, held that the tenant was entitled to damages only for the period before tenant elected to withhold rent, and not for subsequent months. In addition to difficulties with the heating system in the leased restaurant premises, a chimney collapsed, leading the building department to prohibit occupation of the premises, and leading tenant to stop paying rent, asserting partial actual eviction. The court held that withholding rent constituted an election of remedies, and foreclosed damage recovery for the months subsequent to the partial actual eviction. Similarly. in E-Z Eating 41 Corp. v. H.E. Newport, LLC, 171 A.D.3d 415, the First Department granted a landlord’s motion for summary judgment dismissing the tenant’s cause of action for breach of lease and breach of the covenant of quiet enjoyment because tenant’s decision to vacate the premises and cease rental payment constituted an election of remedies and barred the tenant’s claim for damages.
By contrast, if tenant continues to pay rent after landlord breach, the Frame court indicated that tenant may claim damages, including consequential damages, lost profits, and the difference between actual rental value and rent paid by the tenant. Similarly, in 487 Elmwood v. Hassett, 107 A.D.2d 285, the Fourth Department held that when a shopping center owner deprived a major tenant of parking area covered by the lease, Supreme Court improperly limited tenant to nominal damages when tenant had elected to pay rent and remain in possession. The court held that if, on remand, tenant could establish, through expert testimony, that the actual rental value of the portion of the premise from which it was evicted was greater than the proportionate part of the rent allocable to it, tenant could recover the difference. The court also held that although a tenant who remains in possession would generally be entitled to recover lost profits and consequential damages, the shopping center tenant in this case had failed, at the initial trial, to establish these damages
A tenant’s withholding of rent is not an election of remedies in cases where there is an express provision in the lease entitling tenant to withhold rent for landlord breach In Fifth Line, LLC v. Fitch, 167 A.D.3d 847, the Second Department granted the tenant’s summary judgment motion dismissing the landlord’s election of remedies affirmative defense, concluding that tenant’s withholding of rent was not an election of remedies because the lease contained an express provision stating that tenant could withhold rent if the premises were damaged and not repaired. Tenant had withheld rent because of a long-standing water condition that had damaged the floor of the premises.