DESAI v. NINETY FIVE WALL STREET LLC (2026)

Order, Supreme Court, New York County (Lyle E. Frank, J.), entered July 3, 2025, which granted defendants' motion pursuant to CPLR 3211(a)(1) and (7) to dismiss plaintiff's amended complaint, unanimously modified, on the law, to deny the motion as to the putative class claims for breach of the covenant of good faith and fair dealing and a declaratory judgment declaring that the lease's reletting fee and the lease buyout agreement are void, and otherwise affirmed, without costs.

Plaintiff alleges that the “reletting fee” under paragraph 11 of his lease and the two-month “leasebreak” fee in the accompanying lease buyout agreement constitute a breach of the covenant of good faith and fair dealing because it attempts to circumvent defendants' duty to mitigate their damages under Real Property Law § 227–e. Paragraph 11 states in relevant part, “You agree that the reletting charge is a reasonable estimate of such damages and that the charge is due whether or not our reletting attempts succeed.” The lease buyout agreement appended to the lease requires the payment of two months of rent in order to vacate before the end of the term, even if defendants were to find a new tenant to take over the lease immediately and at the same rate.

Defendants assert that these provisions are a reasonable and fair bargain struck by the parties, and maintain that because the tenant did not breach the lease, there were no damages to mitigate. However, Real Property Law § 227–e expressly provides, “Any provision in a lease that exempts a landlord's duty to mitigate damages under this section shall be void as contrary to public policy.” Under Real Property Law § 227–e, if a landlord's reletting efforts succeed expeditiously, a tenant may not owe anything at all, as plaintiff alleges should have been the case here.

At this stage the allegations are sufficient to sustain plaintiff's claim that the lease's reletting fee and the lease buyout agreement violate Real Property Law § 227–e, which, if established, would constitute a breach of the covenant of good faith and fair dealing. The covenant, implied in all New York contracts, requires the parties to avoid doing “anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract” and includes all “promises which a reasonable person in the position of the promisee would be justified in understanding were included” (Singh v. City of New York, 40 NY3d 138, 145–146 [2023] [internal quotation marks omitted]). As the amended complaint adequately alleges, a promise not to charge amounts barred by Real Property Law § 227–e is among those promises.

Defendants maintain that neither the reletting fee nor the lease buyout agreement constitutes a liquidated damages clause. However, a lease provision that circumvents a statutory duty should be deemed void both under the statute and as a matter of public policy (see Real Property Law § 227–e; see also Trustees of Columbia Univ. in City of N.Y. v D'Agostino Supermarkets, Inc., 36 NY3d 69, 78 [2020] [“a settlement agreement, like any other agreement, cannot be enforced if it violates public policy”]). Whether or not the fees constitute liquidated damages, they still have to be enforceable in light of this State's public policy, which includes Real Property Law § 227–e (see id. at 71).

The declaratory relief is not duplicative of the breach of the covenant of good faith and fair dealing claim. There is a justiciable controversy warranting the reinstatement of the putative class wide declaratory judgment claim as to whether these provisions are enforceable under Real Property Law § 227–e, separate from whether defendants were required to and did comply with the statute in plaintiff's specific circumstances (see CPLR 3001).

Considering our finding that the breach of the covenant of good faith and fair dealing claim should have been sustained, the unjust enrich claim was properly dismissed as falling within the scope of the parties' agreements (see Goldman v. Metropolitan Life Ins. Co., 5 NY3d 561, 572 [2005]).