By Patrick McCormick

There have been several interesting Appellate Court decisions in the past couple of months touching on a variety of issues. Cases discussing actual partial eviction, successor landlord liability and a tenant’s failure to timely cure an alleged default are discussed below.

In Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC,1 a commercial tenant sued its successor landlord alleging it was damaged because defendant landlord failed to remediate the “derelict” and “war-torn appearance” of the premises, which was caused by renovation work commenced by the prior landlord, in breach of the lease. Plaintiff commenced the action approximately five months after defendant bought the premises and assumed the lease. The Appellate Division reversed the lower court’s denial on landlord’s motion to dismiss the complaint.

The Court noted that lease paragraph 22.01 provided that “in the event of a transfer of title, the lease shall be deemed to run with the land and the transferee agrees to ‘assume’ and ‘carry out any and all such covenants, obligations and liabilities of Landlord hereunder.” Plaintiff apparently relied upon this lease provision to hold the new landlord liable for the conditions caused by the prior landlord. However, the Court relied upon lease paragraph 25.03 which it found “unequivocally provides that ‘under no circumstances shall the [lessor] . . . be (a) liable for any act, omission or default of any prior landlord; or (b) subject to any offsets, claims or defenses which [t]enant might have against the prior landlord.’” In finding that lease section 25.03 “trumps” section 22.01, the Court noted that section 25.03 was prefaced by stating “[a]nything herein contained to the contrary notwithstanding.”

While the Court did not engage in any detailed analysis, the lesson is clear—when representing purchasers, upon review of the existing leases to be assumed by the purchaser, counsel should look for exculpatory language similar to the language used in section 25.03 in this case. If such language does not exist, purchaser should be advised and cautioned that it could be liable for the acts or inaction of prior landlords and that an agreement by the prior landlord to indemnify purchaser for such claims may be warranted.

In a very brief decision in Darwin Management LLC v. Avenue C Food Corp.,2 the Appellate Term reminds tenants of the need to timely cure alleged defaults. In Darwin, landlord served a cure notice alleging tenant defaulted under the terms of the lease by installing an ATM outside the mixed-use premises. Tenant did not cure the alleged default until two weeks after the deadline set in the landlord’s cure notice.

In reversing the judgment of the lower court entered after a non-jury trial to dismiss the holdover petition, the Appellate Term held simply that “[t]he commercial lease terminated upon tenant’s failure to cure [citation omitted] and the court was without power to revive the terminated lease [citation omitted].” Simply stated, in the face of a default or cure notice, the tenant needs to unequivocally and timely cure the alleged default or timely obtain a Yellowstone injunction to toll the running of the cure period pending a determination of whether the tenant is in fact in default as alleged. The failure to cure or toll the cure period can result in the loss of possession of the demised premises.

Finally, the Appellate Term in Paris Lic Realty, LLC v. Vertex, LLC3 addressed a defense of actual partial eviction asserted by a tenant in a commercial nonpayment proceeding. The lease in question described the demised premises as “approximately 4,000 square feet on the third floor (including areas of the elevator and stairways).” Based on this description, the tenant cleverly argued it was ousted from part of the demised premises because it was not able to use the elevator for “extended periods of time during building construction.” The Appellate Term held that even if the elevator was part of the demised premises, there could be no actual partial eviction because the lease provided that there shall not be “any abatement or diminution of rent because of making repairs, improvements or decoration to the demised premises after the date for the commencement of the term.” If the lease did not contain this abatement provision, would the tenant have prevailed based on the description of the demised premises to include the elevator?

1 —N.Y.S.2d —, 2014 N.Y. Slip Op. 00279 (1st Dep’t 2014)
2 42 Misc.3d 132(A), 2013 N.Y. Slip Op. 52233(U) (App. Term 1st Dep’t 2013)
3 41 Misc.3d 145(A), 2013 N.Y. Slip Op. 52074(U) (App. Term 2d Dep’t 2013)