CHELSEA 8TH AVENUE LLC v. CHELSEAMILK LLC (2023)

Order, Supreme Court, New York County (Suzanne J. Adams, J.) entered April 10, 2023, which denied plaintiffs’ motion for summary judgment on their claims for unpaid rent and attorneys’ fees and dismissing the affirmative defenses, unanimously modified, on the law, to grant plaintiffs’ motion as to the first and third affirmative defenses, and otherwise affirmed, without costs.

The motion court properly denied plaintiffs’ motion for summary judgment seeking a lump sum of $444,220.49 representing unpaid rent for the balance of the lease term together with attorneys’ fees.  Plaintiffs are correct that following the tenant's abandonment, “the landlord was within its rights under New York law to do nothing and collect the full rent due under the lease” (Holy Props. v. Cole Prods., Inc., 87 N.Y.2d 130, 134, 637 N.Y.S.2d 964, 661 N.E.2d 694 [1995]).  However, a party may not seek “to obtain all future rent due in one lump sum, undiscounted to present-day value, and also enjoy uninterrupted possession of the property,” as that would transform the purported liquidated damages provision into a penalty (172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Assn., Inc., 24 N.Y.3d 528, 536–537, 2 N.Y.S.3d 39, 25 N.E.3d 952 [2014]).

Here, although styled as a liquidated damages clause, paragraph 18(c) of the parties’ standard form of store lease specifically states that defendant's liability after plaintiffs are restored to possession of the premises is limited to “any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease,” and future installments continue to become due on the usual rent date specified in the lease.  Therefore, an award of rents that have not yet become due under the lease could impermissibly render the requested award disproportionate to plaintiffs’ actual losses, warranting denial of summary judgment in plaintiffs’ favor (see e.g. 812 Park Ave. Corp. v. Pescara, 268 A.D. 436, 441, 51 N.Y.S.2d 538 [1st Dept. 1944], affd 294 N.Y. 792, 62 N.E.2d 234 [1945]).  As the Court of Appeals determined in 172 Van Duzer Realty Corp., in those circumstances, defendant should have “the opportunity to present evidence that the undiscounted accelerated rent amount is disproportionate to [the owners’] actual losses, notwithstanding that the landowner had possession, and no obligation to mitigate” (24 N.Y.3d at 537, 2 N.Y.S.3d 39, 25 N.E.3d 952).

Turning to the affirmative defenses, we agree with plaintiffs that the court should have dismissed the first affirmative defense asserting that the “[c]omplaint should be dismissed pursuant to CPLR 3211” as “bare legal conclusions are insufficient to raise an affirmative defense” (see Robbins v. Growney, 229 A.D.2d 356, 358, 645 N.Y.S.2d 791 [1st Dept. 1996]).  In any event, defendant failed to address it in its opposition (see Knickerbocker Retail LLC v. Bruckner Forever Young Social Adult Day Care Inc., 204 A.D.3d 536, 538, 167 N.Y.S.3d 462 [1st Dept. 2022]).  We also dismiss the third affirmative defense asserting that plaintiff Chelsea 261 W21–RT LLC lacked standing as a stranger to the lease, as paragraph 33 of the lease expressly defines “owner” to be whoever owns the building and land and includes successors and assigns, conferring standing to both plaintiffs here as tenants in common.  However, the motion court did not need to dismiss the second affirmative defense of failure to state a claim because that defense may be asserted at any time, even if not pleaded (CPLR 3211[e];  San–Dar Assoc. v. Fried, 151 A.D.3d 545, 545–46, 54 N.Y.S.3d 273 [1st Dept. 2017]).