In Bailey v. Suarez, the tenant sought to dismiss a residential holdover proceeding on the grounds that the building's leases had been assigned to a lender as security for a mortgage and that the assignment prohibited the owners from altering, modifying or changing the terms of those leases or from canceling or terminating same.

Neither the Kings County Civil Court nor the Appellate Term, 2nd and 11th Judicial Districts, was receptive to that posture and disposed of the argument as follows:

When the assignment of a lease is given as security for a mortgage, it is the assignor, not the assignee, who retains the right to maintain a summary proceeding against a tenant .... Accordingly, landlords have standing to maintain the instant proceeding. Since the mortgage was intended to protect the mortgagee bank's interests, not any interest of tenant, tenant is not a third-party beneficiary of the mortgage and cannot claim rights thereunder .... Finally, because the assignment does not affect landlords' standing to bring the instant proceeding and is not determinative of the parties' rights, the notice was not defective, and the petition adequately stated the interest of the landlords in the premises pursuant to RPAPL 741 (1) ....

Interesting, no?

One reader vehemently disagreed with the outcome and opined that the mortgage documents had divested the landlord of the authority to terminate the lease. And, without the lender's consent, a necessary condition precedent to the maintenance of the holdover proceeding had not been satisfied.

Spare us any squealing, please.

To view a copy of the Appellate Term's decision, please use this link: Bailey v. Suarez

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (5)

Just because someone is found to have breached an agreement with you doesn't mean you'll recover anything. 

You've got to be able to prove -- to a judge's satisfaction -- damages were suffered.

By way of example, in F & D Bagel Corp. v. Wald Realty, F & D Bagel d/b/a Bernie's Bagels, sued its landlord for refusing to consent to an assignment of the store's lease to a prospective purchaser. (The lease provided that the owner would not "unreasonably" withhold its approval to such a transaction.) 

Although the Rockland County Supreme Court found the landlord had violated the agreement, it ultimately dismissed the case due to Bernie's inability to prove damages. And, on appeal, the Appellate Division, Second Department, affirmed.

Despite Bernie's claim that the failed deal was the landlord's fault, the evidence demonstrated that the buyer had only executed a "letter of intent" to acquire the business for $275,000. And, that the document afforded the purchaser a 30-day due diligence period and was also subject to a formal contract of sale. (Isn't that an "agreement to agree?")

Without a "valid and enforceable agreement to sell the business," Bernie was unable to prove he had been damaged by the landlord's misconduct.*

We're at a loss to figure out why it took a trial to get to that point. Wouldn't that have been an issue readily disposable by way of motion practice? 

(Something to nosh on, no?)

For a copy of the Appellate Division's decision, please use this link: F & D Bagel Corp. v. Wald Realty

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*It didn't help Bernie's case that he was a bit "fast and loose" with his facts and figures. When presented with a copy of the deli's tax returns -- which revealed that the business's income generation had been "significantly overstated" -- the purchaser testified at trial that had that information been made know to him he never would have purchased the deli nor made an offer.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Most leases have "use clauses" -- provisions which govern what a tenant may do with its space.*

By way of example, owners of residential buildings will ordinarily prohibit commercial activity within their structures. While commercial leases will typically discourage residential occupancy and may also require that tenants engage in a particular profession or activity.

In Futurist 1952, Inc. v. Westbeth Corp. Hous. Dev. Fund Co., Inc., the lease allowed Futurist 1952, Inc. (the tenant) to utilize its space as "a photography studio with darkroom shop, and for no other purpose." The agreement further provided that an "illegal" sublet or assignment was triggered whenever the premises were "used or occupied by others (whether for desk space, studio space, darkroom privileges or otherwise) for more than ten (10) days in any given month or more than seventy-five (75) days in any given year."

Notwithstanding those restrictions, the Futurist hired out its space for "special events," which included weddings and bar mitzvahs. When the landlord objected to the agreement's breach and served a notice to cure, the tenant filed a lawsuit in the New York County Supreme Court claiming that the lease's use restrictions were unclear.

Finding no ambiguity in the parties' agreement, the Appellate Division, First Department, affirmed the Supreme Court's finding (made after a hearing), that the tenant had violated its lease.

Let's just say, the future doesn't bode well for the Futurist.

For a copy of the Appellate Division's decision, please use the following link: Futurist 1952, Inc. v. Westbeth Corp. Hous. Dev. Fund Co., Inc.

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*In the absence of a delineated restriction in a lease, a tenant may usually use the premises in any legally permissible manner.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)

Absent some prohibition or restriction, most contracts -- including commercial leases -- are freely assignable.*  As a result, lease forms will typically discourage transfers of all or part of a tenant's space to another, without the owner's consent.  In the commercial context, this prohibition tends to be stringently enforced (and, if violated, can result in a tenant's eviction).

Foreseeing problems with such an unconditional restraint, savvy tenant representatives will request (during the initial lease negotiation process) that the form be modified to allow for assignments and subletting of the space subject to the owner's consent, which will "not be unreasonably withheld."  When this latter language exists, the basis upon which a landlord may decline a subleasing or assignment request is circumscribed.

By way of example, in Logan & Logan, Inc. v. Audrey Lane Laufer, LLC., the tenant sued in the Suffolk County Supreme Court to compel its landlord to agree to the assignment of its commercial lease.  Although the Supreme Court granted the tenant's prayer for summary judgment -- a disposition of the case on papers, or motion practice -- the Appellate Division, Second Department, reversed.  In addition to finding "issues of fact," which warranted a formal hearing or trial, the appellate court's decision succinctly outlined the following considerations of pertinence:

When a commercial lease provides that the landlord will not unreasonably withhold consent to its assignment, the landlord may refuse to consent to an assignment based only on "consideration of objective factors, such as the financial responsibility of the [proposed assignee], the [proposed assignee's] suitability for the particular building, the legality of the proposed use and the nature of the occupancy, i.e., office, factory, retail" ... Thus, "subjective concerns and personal desires cannot play a role in a landlord's decision to withhold its consent to an assignment of a lease" ....

Give a little as a landlord, and you may be giving away a lot.  (How's that for subjectivity?)

For a copy of the Appellate Division's decision in Logan & Logan, Inc. v. Audrey Lane Laufer, LLC, please click on the following link: http://www.nycourts.gov/reporter/3dseries/2006/2006_08220.htm

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*Exceptions include, but are not limited to, personal-service contracts, options and requirements contracts.

Posted by Lucas A. Ferrara, Esq. at 8:25 AM | Permalink | TrackBacks (0) | Comments (0)