721 BORROWER LLC v. PREMIER DIGITAL EQUIPMENT SERVICES INC (2026)

Order, Supreme Court, New York County (Gerald Lebovits, J.), entered on or about May 23, 2024, which, to the extent appealed from, denied plaintiff landlord's motion for summary judgment dismissing defendants’ counterclaims, unanimously modified, on the law, to dismiss the counterclaims of defendants guarantors Sanford Schneiderman and Rhona Schneiderman in their entirety and so much of the counterclaims of defendant tenant Premier Digital Equipment Services Inc. as are based on insufficient or deficient elevator service, and otherwise affirmed, without costs.

We note initially that although the landlord's briefs before Supreme Court did not raise arguments about the counterclaims, the landlord's submissions on the motion included the lease, the guaranty, and an August 2020 stipulation, and this Court is empowered to search the record and award judgment if appropriate (Chateau D'If Corp. v. City of New York, 219 A.D.2d 205, 209–210, 641 N.Y.S.2d 252 [1st Dept. 1996], lv denied 88 N.Y.2d 811, 1996 WL 670019 [1996]).  Likewise, this Court is empowered to review the landlord's argument regarding the counterclaims, as it is a purely legal argument apparent on the face of the record and could not have been avoided if brought to the adverse party's attention (id. at 209, 641 N.Y.S.2d 252).

As to the merits of the argument, we agree with the landlord that the guarantors waived their right to interpose counterclaims, as they agreed in their guaranty that they would “in no manner interpose any counterclaim of whatsoever nature or description whatsoever in any ․ action” brought by the landlord against them “on any matters whatsoever arising out of, under, or by virtue of the terms of the Lease or this Guaranty” (see Fortress Credit Corp. v. Hudson Yards, LLC, 78 A.D.3d 577, 912 N.Y.S.2d 41 [1st Dept. 2010];  Red Tulip, LLC v. Neiva, 44 A.D.3d 204, 205–206, 209–210, 842 N.Y.S.2d 1 [1st Dept. 2007], lv dismissed 10 N.Y.3d 741, 853 N.Y.S.2d 283, 882 N.E.2d 896 [2008], lv denied 13 N.Y.3d 709, 2009 WL 3349931 [2009];  Gannett Co. v. Tesler, 177 A.D.2d 353, 353, 577 N.Y.S.2d 248 [1st Dept. 1991]).  This language makes clear that the waiver applies to all counterclaims, not just to claims existing as of the date of the guaranty.

Although in the August 2020 stipulation the tenant did waive all affirmative defenses except for payment, it did not waive counterclaims (see P.J.P. Mech. Corp. v. Commerce & Indus. Ins. Co., 65 A.D.3d 195, 199–200, 882 N.Y.S.2d 34 [1st Dept. 2009]).  Furthermore, although Supreme Court properly dismissed the affirmative defense of breach of the covenant of quiet enjoyment in light of the waiver, dismissal of that affirmative defense does not, contrary to the landlord's position otherwise, compel dismissal of the first counterclaim on the merits.  Even if the tenant remained in possession of the premises, the landlord may still be found to have breached the covenant of quiet enjoyment if the tenant can show that the landlord's conduct substantially and materially deprived the tenant of the beneficial use and enjoyment of the premises (see River Park Assoc. [1972] L.P. v. Richman Plaza Garage Corp., 178 A.D.3d 422, 424, 115 N.Y.S.3d 13 [1st Dept. 2019]).

However, the tenant's counterclaims which are based on insufficient or deficient elevator service should have been dismissed, as the lease provides that the landlord “shall not be liable for any loss of business by Tenant due to a breakdown of the elevator.”

Finally, the landlord is not entitled to summary judgment dismissing the tenant's remaining counterclaims, as issues of fact preclude summary judgment.  We cannot conclude that the tenant wrongfully failed to perform under the lease, as the record is not clear whether the tenant was the first party to breach the lease by failing to pay rent, or whether the landlord was the first party to breach the lease by failing to keep the public halls and public portions of the building clean, thereby breaching the covenant of quiet enjoyment (cf. EXRP 14 Holdings LLC v. LS–14 Ave LLC, 228 A.D.3d 498, 215 N.Y.S.3d 1 [1st Dept. 2024]).