This article will address two recent appellate court rulings involving commercial leases and the tenant’s liability for certain damages incurred by the landlord. The first, from the Appellate Division, First Department, involves an action by a landlord against a tenant for damages resulting from a flood caused by a rusted gauge on tenant’s supplemental HVAC system. The second case is from the Appellate Division, Second Department and involves tenant’s liability for post-termination rent.
In 45 Broadway Owner, LLC v. NYSA-ILA Pension Trust Fund1, the tenant’s predecessor installed a supplemental HVAC system that connected to the building’s water risers. The lease provided that the parties’ respective insurance policies would each contain an endorsement by which their respective insurance companies would “waive subrogation or permit the insured, prior to any loss, to waive any claim it might have against the other.” The lease also provided that “each party releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property by fire or other casualty . . . occurring during the terms of this lease.” In April 2010, in connection with certain work to be performed, the landlord notified the tenants that they were required to shut down any supplemental HVAC systems. During the work, the lobby of the building flooded and it was determined that a rusted and corroded pressure gauge on defendant/tenant’s supplemental HVAC system burst, allowing water to flow out. The landlord suffered total damages (exclusive of attorney’s fees and costs) of $136,055.22. The landlord’s motion for summary judgment was granted and the tenant’s cross-motion for summary judgment was denied.
The Appellate Division, First Department noted that the release language contained in the lease “constitutes an enforceable reflection of the parties’ decision to allocate the risk of liability for these claims [resulting from negligence] to third parties through the device of insurance – a choice that contracting parties are permitted to make as long as their intent to do so is clear and unequivocal.” The Court then found that the concept of “casualty” as used in the parties’ lease included “the flood resulting from the rusted gauge . . .” The Court held that the lease “does not suggest that ‘casualty’ is an event resulting only from an ‘act of God.’” The Court confirmed that “‘casualty’ may be defined as an ‘accident’ or an ‘unfortunate occurrence.’”
In Patchogue Associates v. Sears, Roebuck and Co.2, plaintiff/landlord commenced an action to recover damages sustained by landlord after the termination of the landlord/tenant relationship which occurred before the end of the lease term. The trial court granted defendant/tenant’s to dismiss the first cause of action to the extent it sought post-termination damages under the lease and declaring that defendant/tenant had no liability to plaintiff/landlord for breach of contract, holding that “a landlord may not recover such claimed post-termination damages in the absence of a lease provision that specifically makes a tenant responsible for the payment of rent to the landlord after the landlord-tenant relationship ends.” In reversing, the Appellate Division held that the absence of a “survival-of-rent” or “acceleration” clause “does not foreclose a landlord from seeking, after mitigation, its actual contract damages resulting from the breach . . .” Thus, the Appellate Division concluded that “although the landlord has already recovered pre-termination rent from the tenant pursuant to a summary eviction proceeding, the terms of the lease did not limit the landlord to recovery only of pre-termination rent in the event it commenced a summary eviction in the District Court to regain possession of the subject premises.”
The lesson to be learned from these cases is that disputes involving liability for various types of damages may be avoided with carefully negotiated and specific lease clauses addressing damages.
1 107 A.D.3d 629, 2013 Slip Op. 04895 (1st Dep’t 2013)
2 108 A.D.3d 659, 2013 Slip Op. 05305 (2d Dep’t 2013)