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A lease means what it says

Real Estate Weekly, April 5, 2000 by Edward L. Schiff

In 1964 Waldbaums signed a lease to occupy a store in a shopping center in Orangetown, New York which was under construction by the landlord, Allan Z. Rose. When the construction was completed, Waldbaums took possession of the store, which consisted of 19,000 square feet, and commenced the payment of an annual rent of $43,000. The lease was for a term to expire on December 31, 1991. Additional rent was to be computed on a percentage of gross income in a formula set forth in the lease.

The lease was amended in 1986 to enable Waldbaum to expand the store area and to increase the annual rental to $85,000. The amendment provided that construction of the expanded space must begin within twelve months thereafter.

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Waldbaums later decided 'that it was not economically desirable to construct the expanded space and therefore it did not build or otherwise use that space. However, Waldbaums did pay the increased rent of $85,000 per year.

The amendment to the lease stated that the expansion area was to become part of the demised premises (the store) subject to all of the terms and conditions of the lease; and it also stated that in the event there was default by the tenant in respect to the construction and operation of the expanded space, the landlord could not cancel or terminate the lease but was relegated only to the recovery for damages or for injunctive relief which would force the tenant to construct the additional space.

In February, 1988 Waldbaums assigned the lease to Great Atlantic & Pacific Tea Company ("A&P") and the landlord sold his interest in the lease to Orangeburg Associates in April 1990. Orangeburg Associates accepted rent payments from A&P until August 1990, at which time the new landlord notified A&P that it was in default of the lease in failing to have constructed the expanded area as required under the amendment to the lease.

The landlord commenced an action for a declaratory judgment that A&P is default of the lease, that the landlord should be given possession of the property and that the landlord should be allowed damages.

A&P responded by asserting that the landlord waived its right to declare a default and that in any event, the lease itself provides that the landlord may not seek to terminate the lease, but can only claim damages or a mandatory injunction for specific performance.

Shortly thereafter, A&P gave the landlord the notice required under the lease to exercise the tenant's right to renew the lease for a five year period. The landlord then amended its complaint to include a declaration that the renewal notice of the tenant was ineffective.

Justice Joan B. Lefkowitz of the Supreme Court, Rockland County, defined the issues to be decided. She stated that first, is the tenant in default of the lease by not building and using the expanded space; second, if there was a breach, could the landlord cancel the lease; and finally, was A&P's attempt to renew the lease effective.

Justice Lefkowitz stated that a court, in reviewing a lease for its meaning, must attempt to discern the intention of the parties by the language employed in the lease itself. The law is clear that when parties set down their agreement in a clear and complete document, the writing should be enforced according to its terms. The court must place a fair and reasonable construction on the language used in the lease so as to carry out the parties' intentions. The court cannot rewrite a contract under the guise of interpretation but an interpretation that produces an absurdly harsh result is to be avoided.

Justice Lefkowitz held that it was clear from the language of the lease that the intention of the parties was to include the expanded area as a part of the lease and that the tenant was required to complete the construction of the expanded area. In support of this proposition, Justice Lefkowitz observed that the payment by the tenant of a substantial increase in rent from $43,000 to $85,000 acknowledged that the tenant was required to build that space. Thus the Court concluded, the tenant was in breach of the lease.

Justice Lefkowitz went on to the second proposition and ruled. that although the tenant was in default, the landlord could not use that default as a basis to cancel or terminate the lease. Rather, the landlord's remedy is limited to damages or possibly specific performance, requiring the tenant to build out the space.

Moreover, the Court stated that even if the landlord would be entitled to terminate the lease, the landlord is bound by the doctrine of waiver and therefore cannot terminate the lease by reason of tenant's default because so many years elapsed before the landlord took any action. From 1987 until 1990, the prior landlord and the current landlord accepted rent from the tenant without ever declaring a default; well knowing that the area to be expanded remained vacant during all that time. Under the circumstances, the landlord must be deemed to have waived its rights to declare the lease to be terminated.

Business Services Industry

A lease means what it says

Real Estate Weekly, April 5, 2000 by Edward L. Schiff

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