Source: https://www.alblawfirm.com/articles/most-influential-commercial-lease-cases/
Timestamp: 2019-04-21 19:08:35+00:00

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For almost two years, the attorneys at Adam Leitman Bailey, P.C. have been compiling a list of the greatest commercial leasing cases of all time. The authors have always been fans “greatest” lists—there being something special about choosing the best among so many great people, entertainers, athletes, composers, or, in our case, cases that have had the greatest effect on leasing law. “Greatest” lists permeate our entire culture and are the basis for entire institutions like the Academy Awards, Tonies, Grammys, and the various Halls of Fame. Cooperstown, New York is a city entirely based on “greatest” lists, housing both the Baseball Hall of Fame and the greatest of the American summer opera festivals, Glimmerglas.
Law, however, is a peculiar field which, like baseball, lends itself well to actual statistical analysis of “greatness.” These “greatest” are the cases are therefore those cases that are so heavily cited to that have demonstrated they have the most important impact on landlords’ and tenants’ businesses and are those cases in ignorance of which no litigator or drafter dares to enter either a courtroom or a lease negotiation. A mere handful of cases have achieved that kind of influence in commercial landlord-tenant relations. While across the United States of America there are a number of localities having enacted residential rent regulation, for the most part in the commercial arena, the principles of governing law are those of the common law finding their roots in its development over the past thousand years at first in Britain and then later here. These cases cover stability in leasing law, mitigation of damages, lease interpretation, lease enforcement, lease violations, attorneys’ fees, court stipulations, and actual and constructive eviction. While late night television talk show hosts would no doubt list these cases in inverse order of importance, we will use them to trace the lifetime of a leasehold from negotiation through breach and enforcement.
Of necessity, this holding sets the theme for this entire article. Yes, some jurisdictions will vary from other jurisdictions about their holdings on a particular point, but the principle of stability is so important to real property law, that these jurisdictions will not lightly be persuaded to abandon their own view and hold some better view. In ancient Egypt, this principle of stability was known as maat and endured for 5,000 years. Therefore, there is no reason to believe that in New York the principle of Holy Properties will be changed any time soon. Under Holy Properties, better is simply not good enough.
Holy Properties adhered to the common law, now minority rule held only in Alabama, Georgia, Minnesota, Mississippi, New York, and West Virginia that a landlord has no duty to mitigate damages when the tenant abandons the lease. After acknowledging its minority position, the New York high court felt that the adherence to maat was so important that it overrode any considerations of having a right or better rule. The majority view imposing such a duty is set forth in the Texas decision, Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293 (1997) which lists leading cases from all the states on the question and for that reason, Austin Hill makes it to the “greatest case” list. But, for its preservation of maat, Holy Properties is the leading case in the nation and Austin Hill for its violation of maat, is reduced to a mere footnote.
While it is perhaps more the business of economists and MBA’s than of lawyers to make these determinations, it cannot be doubted that maat in commercial transactions, especially commercial leasing, will make a State more economically attractive for businesses seeking a new location. Nobody likes the law to be an unknown commodity.
While leasing no doubt has a flavor of conveyancing to it and was certainly understood at common law to be such, Holy Properties, supra, modern commercial leasing law is vastly more inclined to look at the lease as a contract subject to the same kinds of principles that govern contracts generally. Austin Hill Country Realty, supra; For an extended discussion, see also, Foundation Development Corp. v. Loehmann’s Inc., infra (“The interplay of property and contract law in the landlord-tenant relationship is complex. Thus, before deciding whether the breach in this case could support a forfeiture, we must examine the common law nature of that relationship.”).
It has long been the rule that ambiguities in a contractual instrument will be resolved contra proferentem, against the party who prepared or presented it. Moreover, unless the terms of a lease are clear, no additional requirements or liabilities will be imposed upon a tenant.(citation omitted).
Vermont Teddy Bear Co. v. 538 Madison Realty Co.: strict adherence to the terms actually embodied in a lease.
When interpreting contracts, we have repeatedly applied the familiar and eminently sensible proposition of law that, when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms… We have also emphasized this rule’s special import in the context of real property transactions, where commercial certainty is a paramount concern.
Again we find that same concern we saw in Holy Properties, supra, the idea of “commercial certainty,” stability, or maat. And the kicker in Vermont Teddy Bear is the phrase, “In the absence of any ambiguity, we look solely to the language used by the parties to discern the contract’s meaning.” In short, if the clause is clear, it need not be sensible to be enforced.
Vermont Teddy Bear stands as something of an unsung hero of capitalism. Its proposition that a written agreement two people entered into shall be enforced no matter the severity of the consequences or the lunacy of the terms actually monumentally strengthens business relationships. Business people will only do business in a reliable province where the laws are stable and justice is invoked fairly. But fairness can only be achieved when courts enforce the agreements before them without relying on the equities or any prejudices–hence the importance of this animal of a case.
Fifty States Mgt. Corp. v Pioneer Auto Parks: Enforcement of leases as written and acceleration of rent upon default.
Cummings Properties, LLC v. National Communications Corp.: Enforcement of leases as written and acceleration of rent upon default.
Foundation Development Corp. v. Loehmann’s Inc.: Equitable non enforcement of lease acceleration clause.
In sum, the facts of this case do not justify equitable intervention. The parties freely bargained for the inclusion of a clause in their lease whereby the rent for the remainder of the lease term would be accelerated upon breach of tenant’s covenant to pay rent. … That honoring at least this aspect of its bargain may cause Pioneer fiscal hardship does not, standing alone, serve as a basis for construing the acceleration clause as a penalty under the guise of applying equitable principles to a routine commercial transaction.
In short, in a commercial transaction, the parties are to be held to the terms they negotiated, even if harsh. Cummings Properties, LLC v. National Communications Corp., 869 N.E.2d 617 (Mass. Supreme Jud. Court 2007); contra, Foundation Development Corp. v. Loehmann’s Inc., 788 P.2d 1189 (Arizona Supreme 1990) (refusing to apply a forfeiture statute or lease clause where the default is brief).
Foundation Development is a particularly important case in this entire area which not only states the view contrary to that of Fifty States and Cummings Properties, but masterfully gathers the historical and judicial precedents nationwide for the purpose.
Greenblatt v. Zimmerman: Use of “practical construction” to interpret a lease.
The ideas associated with enforcing leases are tightly tied with the ideas of interpreting them. Frequently cases discussing how a lease is to be enforced will of necessity also deal with the rules of how one is to be interpreted. Since commercial leases tend to be for longer terms than residential leases, there can be some considerable lapse in time from when a clause is written to when it falls upon a court to interpret it. So, in commercial leasing, one often comes across the idea of “practical construction” whereby a court, rather than taking a fresh look at the language in the lease itself, will look instead to how the parties actually lived under that language in the early years of the lease. Greenblatt v. Zimmerman, 132 A.D. 283, 117 N.Y.S. 18 (NY 1st Dept. 1909). If the landlord suddenly departs from that interpretation, such as in calculating the rent, the courts will rarely sustain that departure.
For example, common in commercial leases are so-called “pay now—fight later” clauses. In these, the lease contains a component of the payments that the tenant must make usually called “additional rent.” However, unlike the “base rent,” the actual numbers are not set forth in the lease. Instead, the landlord has to examine the operating expenses of the building, typically including real estate taxes and compute which of the operating expenses are properly passed along to the tenant as additional rent. Where either the lease is unclear in its writing as to which expenses count as “operating expenses” and which don’t or where there are expenses that could be characterized either way, depending on one’s point of view, disputes will arise as to how much additional rent the tenant owes.
For example, a roof repair is typically an operating expense, but a roof replacement is typically not. It therefore becomes a disputable item as to whether a particular repair was so extensive as to be essentially a replacement and therefore outside of the tenant’s fiscal obligation. Leases will often call for arbitration to resolve such disputes. However, in a “pay now—fight later” clause, the tenant must first pay the disputed amount as a prerequisite to demanding arbitration as to whether it was, in fact, owed. However, if the landlord abuses that process, the courts will enjoin the landlord’s improper calculations. See, Morgan Guaranty Trust Co. of NY v. Solow d/b/a Solow Building Co., 32 HCR 276A, 68 NY2d 779, 498 NE2d 147, 506 NYS2d 674, HCR Serial #00014289, TLC Rent 6, TLC Serial #0279 (NY Court of Appeals: 1986).
Ran First Assocs. v. 363 E. 76th St Corp.: Tenants’ entitlement to the benefit of tax abatements procured by landlord.
Clauses like the “pay now—fight later” clauses are part of the generally common phenomenon in commercial leasing of the rent being broken out into the tenant paying a base rent plus increases in the rent itself and a share of the operating expenses of the building. Often these expenses include real estate tax escalations. While leases often call for such things, they are generally silent about whether the tenant gets to share in the benefit of tax decreases the landlord manages to procure. Unless the lease says to the contrary, the tenants do indeed get such benefit. Ran First Assocs. v. 363 E. 76th St Corp., 30 HCR 520A, 297 AD2d 506, 747 NYS2d 13, NYLJ 9/16/02, 19:2, HCR Serial #00013353, TLC Taxes 1, TLC Serial #0230 (NY 1st Dept. 2002).
41 Fifth Owners Corp. v. 41 Fifth Equities Corp.: Fixtures defined.
While many leases call for fixtures becoming the property of the landlord, almost no lease attempts even a decent job at defining just what is and what is not a fixture. 41 Fifth Owners Corp. v. 41 Fifth Equities Corp., 33 HCR 30C, 14 AD3d 386, 787 NYS2d 326, NYLJ 1/18/05, 26:5, HCR Serial #00014723, TLC Fixtures 1, TLC Serial #0300 (AD1 Tom; Andrias, Saxe, Williams, Sweeny) takes the lead in filling that gap, albeit somewhat tersely. While it may no attempt to provide a comprehensive definition of the term fixture, at least it stated, “The dedicated purpose of the unit, its size and the extent of its connection to the structure render it a fixture.” We would have to conclude that a vastly smaller unit would also be a fixture if indeed it was of dedicated purpose and extensively connected to the structural fabric of the building itself. Apparently the equipment in 41 Fifth had fairly complex connections to the structure.
Jefpaul Garage Corp. v. Presbyterian Hospital in the City of New York: Definition of waiver, acceptance of rent not constituting a waiver.
Homstead Enterprises v. Johnson Products, Inc.: Acceptance of rent not constituting a waiver.
Dunbar Housing Authority v. Nesmith: Acceptance of rent not constituting a waiver.
Closely tied to the ideas behind enforcing leases are the ideas associated with when they are breached. While it is generally an ordinary exercise in lease interpretation to determine if the tenant has technically breached the lease, it is a more fact laden question to determine whether the landlord has waived that breach. The first and most important concept with waiver is its very definition. For that purpose, the leading case is Jefpaul Garage Corp. v. Presbyterian Hospital in the City of New York, 61 NY2d 442, 462 NE2d 1176, 474 NYS2d 458, TLC Waiver 1, TLC Serial #0084 (Ct of Appeals 1984) that defines a breach as a voluntary relinquishment of a known right. The two key words in that definition are “voluntary” and “known.” If the landlord is acting under compulsion, there is no waiver. However, much more importantly, if the landlord is unaware of either the right itself or the breach of it, then the landlord cannot be said to have relinquished a known right.
How does ignorance of the breach take the situation out of the definition? Let us illustrate this by way of an example. Under a rather common lease clause, if the tenant fails to have certain insurances naming the landlord as an additional insured, the tenant is in breach of the lease. It would stand to reason and indeed the law charges the landlord with knowledge of the contents of its own lease. So there is no real question that the landlord knows of the right that the tenant’s insurance insures the landlord. However, if the landlord does not know that the tenant is breaching this clause, as, for example, by fraudulently claiming that certain insurances are in place when in fact the insurance certificates are forged, then the landlord has not waived this breach if the landlord is fooled by the certificates. Why? Because the lease gives the landlord a remedy for the tenant’s breach. That remedy is itself one of the landlord’s rights, but if the landlord is kept in the dark about the breach, the landlord, while knowing of the right to be insured, does not know of the right to evict to which the breach of the insurance clause had given rise. Thus, with the falsified insurance the landlord’s right to terminate the lease is an unknown right which landlord cannot be said to have waived. The other key point of Jefpaul is that the conduct on the part of the landlord cannot be accidental or inadvertent but must have been specifically intended as a waiver. The key phrase from the decision is, “While waiver may be inferred from the acceptance of rent in some circumstances, it may not be inferred… as a matter of law, to frustrate the reasonable expectations of the parties embodied in a lease when they have expressly agreed otherwise.” To the same effect are Homstead Enterprises v. Johnson Products, Inc., 540 A.2d 471 (Supreme Maine 1988) and Dunbar Housing Authority v. Nesmith, 400 S.E.2d 296 (Supreme W. Va. 1990).
TSS-Seedman’s, Inc. v. Elota Realty Company: Difference in remedies allowed by conditional limitations and conditions subsequent.
Summary proceedings, while generally regarded a derogation of common law, are now approaching the conclusion of their second century since their invention and have had ample time to develop a common law of their own. For most of that period, the courts have shown a decided hostility to the invocation of the summary remedy and the proceedings have, in many jurisdictions, betrayed a certain fragility. This is no less true in the State of New York, the geography of their invention, than anywhere else. Generally in garden variety commercial summary proceedings, especially those of the nonpayment kind, a landlord can get the relief sought. However, in summary proceedings brought not to recover funds, but rather to recover the property itself, many courts will find in the summary proceedings common law ample doctrine relegating suitors to the long, slow, and expensive common law ejectment proceeding.
The legal theory here is between two ostensibly different kinds of contingencies in leases in the event (typically) of a default by the tenant in fulfilling some obligation under the lease. In the one kind, the conditional limitation, upon the occurrence of the triggering event, the termination of the lease is automatic without any further actions by the landlord. In the other kind, the condition (a/k/a condition subsequent) the default gives the landlord the option to terminate the lease. There is nothing automatic. The landlord must exercise the option for it to take effect. TSS-Seedman’s, Inc. v. Elota Realty Company, 72 NY2d 1024, 531 NE2d 646, 534 NYS2d 925, TLC Conditions and Conditional Limitations 8, TLC Serial #0075 (Court of Appeals 1988). While it is generally easy to state this theory, it is remarkably difficult to apply it by using any kind of analytical means. But, if one applies the mechanical method of finding that the presence of a notice to cure creates a conditional limitation and the absence of one creates a condition subsequent, one will most generally come up with the correct result. However, a notice to cure will often provoke a Yellowstone injunction (see next section) and one is therefore better off with a naked termination notice, set up as a conditional limitation – if the jurisdiction where the property is located allows for it. For undeniably obsolete reasons, while conditional limitations can be the predicate of a summary proceeding, a condition subsequent can only be enforced through an ejectment action.
For all of the reasons commercial litigators condemn badly written leases and their drafters, no complaint rings louder or more justifiably than when a landlord finds its case can no longer can be maintained as a summary proceeding designed to last a few months but instead must proceed in the longer more cumbersome common law ejectment action lasting typically a few years before an order of eviction. Hence, no lesson is more important to the lease drafter than understanding, drafting and implementing conditional limitations and staying far away from the ocean of dangerous conditions subsequent.
First National Stores, Inc. v. Yellowstone Shopping Center, Inc.: Tenant’s right to litigate whether it is in breach prior to actual forfeiture of the lease.
Food Pantry, Ltd. v. Waikiki Business Plaza, Inc.: Tenant’s right to litigate whether it is in breach prior to actual forfeiture of the lease.
We must also note that in some jurisdictions, including New York and Hawaii, a procedure has been developed allowing a tenant who has received a notice to cure the opportunity to contest prior to the declaration of the termination of the lease, whether there really has been a lease violation. First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 NY2d 630, 237 NE2d 868, 290 NYS2d 721, TLC Lease Violations 1, TLC Serial #0003 (Court of Appeals 1968); Food Pantry, Ltd. v. Waikiki Business Plaza, Inc., 575 P.2d 869 (Supreme Hawaii 1978). Jurisdictions allowing such a procedure accord the tenant an enormous safeguard permitting the tenant the opportunity to find out if the landlord was right and to put things to rights before losing a valuable leasehold. Food Pantry, supra. However, there is a cost to that benefit. The same line of authority holds that unless the tenant utilizes this procedure to obtain a tolling of the cure period actually during that period, by way of a declaratory judgment action, if the tenant actually was in default of the lease, once the cure period is up, the courts themselves have no power to fix it. These Yellowstone injunctions, as they have come to be known, are the single most powerful weapon in a tenant’s arsenal and fear of their employment has guided many a landlord’s decisions.
Hallock v. State of New York and Power Authority of State of New York: High favor to which attorney stipulations are entitled and authority of attorney.
Koval v. Simon Telelect, Inc.: High favor to which attorney stipulations are entitled and authority of attorney.
Luethke v. Suhr: High favor to which attorney stipulations are entitled and authority of attorney.
Although not itself a decision from the realm of commercial leasing, the single most influential decision in the realm commercial litigation is Hallock v. State of New York and Power Authority of State of New York, 64 NY2d 224, 474 NE2d 1178, 485 NYS2d 510, 1 TLC Stipulations 1, TLC Serial #0017 (NY Court of Appeals 1984). The theme of this article is that of case law. Yet, it is obvious that there can be no case law without litigation. As soon as one deals with any kind of litigation, it is preferable for the parties, for the courts, and for society itself that the parties arrive at some kind of resolution of the matter without requiring the court to go to judgment. The chief mechanism of such resolution is the judicial stipulation and they save taxpayers hundreds of millions of dollars annually. They are therefore highly favored by the courts and when crafted by attorneys on all sides should be almost invulnerable to attack. Indeed, absent notice of lack of authority to the other side, it is conclusively presumed that an attorney’s stipulation binds his or her client. Koval v. Simon Telelect, Inc, 693 N.E.2d 1299 (Supreme Indiana 1998), but see, Luethke v. Suhr, 650 N.W.2d 220 (Supreme Nebraska, 2002).
1029 Sixth LLC v. Riniv Corp.: Strict enforcement of stipulations.
However the attack can be somewhat subtle. The parties may continue to avow that the stipulation binds them while one side seeks to be excused from a de minimis departure from the obligations undertaken in the stipulation. Courts will generally allow such departures unless the stipulation by its own terms forbids such. 1029 Sixth LLC v. Riniv Corp., 32 HCR 340A, 9 AD3d 142, 777 NYS2d 122, HCR Serial #00014343, TLC Stipulations 22, TLC Serial #0281 (NY 1st Dept. 2004).
379 Madison Avenue, Inc., v. The Stuyvesant Company: Attorneys’ fees clause in favor of landlord enforceable.
Sykes v. RFD Third Ave. I Assocs., LLC: Stipulated victory sufficient predicate for an award of attorneys’ fees.
It is now generally agreed that a lease clause calling for the tenant to pay for the landlord’s attorneys’ fees in the event of litigation is fully enforceable. 379 Madison Avenue, Inc., v. The Stuyvesant Company, 242 A.D. 567, 275 N.Y.S. 953 (NY 1st Dept. 1934), affirmed on opinion below 268 N.Y. 576, 198 N.E. 412 (NY Court of Appeals 1935).
In those jurisdictions which allow victory in the litigation in chief to be the basis of an award of attorneys’ fees when authorized by the lease, there is some controversy as to whether a “win” achieved by means of a stipulation is enough of a win to justify the attorneys’ fees award. Some hold that such a doctrine discourages parties from stipulating to their own defeat, but others hold that it encourages the winner to win at the bargaining table, knowing that the win will not be diminished by it having been achieved through a stipulation. The dominant view is that a stipulated win will, in fact, support an award of attorneys’ fees. Sykes v. RFD Third Ave. I Assocs., LLC, 35 HCR 361A, 39 AD3d 279, 833 NYS2d 76, HCR Serial #00016522, TLC Attorneys’ Fees 66, TLC Serial #0428 (NY 1st Dept. 2007).
F & F Restaurant Corp. v. Wells, Goode & Benefit, Ltd.: Subletting and assignment, landlord bound not to withhold consent without a valid reason.
It is enough on this point to note that Neuman as equitable owner had the right to withhold consent only if he had a reasonable ground for doing so and that the existence of a reasonable ground must be proved by Neuman’s successor, the present owner, and will not be presumed. For like reason, the assignment from Margin Call to plaintiff must be given effect unless the landlord can establish a reasonable ground for withholding consent.
Echo Consulting Services, Inc. v. North Conway Bank: tenant’s entitlement to declare itself sufficiently deprived of essential use of premises to abandon them.
Barash v. Pennsylvania Terminal Real Estate Corporation: definition and distinctions of actual and constructive eviction.
At the other end of the spectrum from stipulations resolving litigation is self-help. This comes in two principal species. The first, actual eviction, is where the landlord without benefit of judicial process deprives the tenant of actual possession of the premises in whole or in part – by means of physically depriving the tenant of some or all of the leased space. The second, constructive eviction, is where the tenant, also without benefit of judicial process, deems itself to have been deprived of the use of the premises and abandons them in whole or in part. If the tenant only abandons a portion of the used space, deeming it unusable, this is a “partial constructive eviction.” In sum, actual eviction is a self-help remedy employed by landlords; constructive eviction is a self-help remedy employed by tenants. Barash v. Pennsylvania Terminal Real Estate Corporation states, “To be an eviction, constructive or actual, there must be a wrongful act by the landlord which deprives the tenant of the beneficial enjoyment or actual possession of the demised premises.” 41 From this point of view, the action is in either case regarded as being taken by the landlord, but this is a faulty perception. It is the inaction of the landlord and the action of the tenant that makes one realize a constructive eviction has taken place. It is the opposite for an actual eviction.
Eastside Exhibition Corp. v. 210 E. 86th St. Corp.: Landlord’s entitlement to rent in spite of deminimis permanent deprivation of leased space.
den access. At common law, such deprivation of the 20 square feet would deprive the landlord of all entitlement to rent until the premises a rerestored to their previous condition.In Eastside Exhibition, however, the court ruled that a de minimis deprivation will not forfeit the landlord’s entitlement to rent.
Note the important distinction here: actual eviction, whether it isactual total eviction or actual partial eviction, entitles the tenant to total forgiveness of the rent. East side holds that where the actual partial eviction is de minimis, the tenant is not entitled to total forgiveness, but only an assessment of the damages actually sustained.44Constructiveeviction, on the other hand is where the tenant has deemed the premises to have become so unusable that the tenant has abandoned them in whole or in part. Under constructive eviction, the amount of forgiveness of rent the ten-ant receives varies with the amount of space the tenant has abandoned.Those watching the development of commercial leasing law are keeping a careful eye focused on how and whether Eastside’s doctrine spreads across the state. That it violates ma’at cannot be denied.
As we saw with our analysis of Holy Properties,the principle of ma’at is critical in the study of commercial leasing law. Yet, as we see from East-side Exhibition,common law doctrines do, from time to time, get thrown out or severely modified.There are fields of law in which one can rely on ancient doctrine sand not worry about their changing much. One can keep practicing law at the end of one’s career essentially the way one did at the beginning. But commercial leasing practitioners avoid land mines. Other cases assist in understanding the essence and important rules of commercial leasing. Other cases are simply core elements of the always developing common law of commercial leasing.Although many other cases could and should be added to this body of law, these cases will give the reader enough weapons and shields to enter the friendly battle of commercial lease representation. The practitioner who does not master at least the cases discussed in this article and keep an eye open for further developments works at peril.

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