In P.A. Building Co. v. City of New York , the City rented space in P.A. Building Company's Manhattan building from 1978 and 1994.
The parties' lease defined "operating expenses" as any "costs charged to P.A. 'for services, materials and supplies furnished in connection with the operation, repair and maintenance of ... the Building.'"
When a new law was passed, and P.A. charged the City for its "asbestos abatement project" as an operating expense, a multi-year battle ensued.
After the New York County Supreme Court deemed the pass-along improper, the Appellate Division, First Department, found the parties' lease "partially shift[ed] responsibility for asbestos abatement from the landlord to the tenant." When the dispute reached our state's highest court, the Court of Appeals sided with the tenant.
If a lease doesn't "expressly shift" a burden -- such as asbestos abatement -- to a tenant, it remains a landlord's ultimate responsibility to provide for the "safe maintenance of a building and its facilities."
While the operating expense clause was meant to shift some responsibility from P.A. to the City, when this lease was signed, asbestos abatement wasn't "generally recognized" as an operating expense and hadn't been contemplated by the parties.
A lone dissenter -- Justice Smith -- was of the opinion escalation clauses "are supposed to protect against unforeseen developments that make running a building more expensive." As far as Smith was concerned, it didn't matter whether asbestos abatement had been anticipated since it was indistinguishable from "normal" operating expenses such as window guard installations, or paying higher wages.
How do you operate with a decision like that?
To download a copy of the Court of Appeals's decision, please use this link: P.A. Building Co. v. City of New York