LLC v. BK (2023)

This action concerns a dispute over a commercial lease for premises intended to house a restaurant. In July 2018, landlord-defendant 1 BK Street Corp. and tenant-plaintiff Empanada Fresca LLC entered into a 15-year commercial lease for the ground floor and basement space of the premises at 95 Greenwich Avenue, New York, New York 10012. Tenant intended to open a restaurant, as the preceding occupant had done.

On November 6, 2018, a Con Edison of New York, Inc., representative went to the building to initiate gas service for the premises. During his investigation, he discovered a leak in the house pipe and that the meter bar supporting the gas meter was defective and outdated. According to plaintiff's expert, "[t]he house pipe refers to the main gas distribution supply pipe after the meter" that, for the most part, is "not located within the subject Premises but, rather, in the common area cellar of the Building." (NYSCEF No. 192 at ¶ 18 [emphasis in original].) Because of these deficiencies, the representative placed a Class A Warning Tag (Red Tag) and a lock on the meter. Based on Con Edison's directions to restore gas service, tenant hired a licensed plumbing contractor to replace the defective equipment. (See NYSCEF No. 123 [Con Edison letter].)

On January 15, 2019, tenant's counsel sent a letter to landlord based on information from tenant's hired plumbing company, Ariel Services, Inc. The letter stated that "the following Pre-Existing Conditions are preventing Tenant from opening: (1) currently existing gas appliances on the Premises are not registered with the New York City Department of Buildings; (2) No plans or permits were filed since 1993; and (3) the utilization of existing gas appliances 'as is' is a DOB violation." (NYSCEF No. 130 at 1.) Tenant's counsel further wrote that landlord was required to bear any expenses due to correct these conditions under § 4.2 (j) (i) of the lease and that the letter acted as notice to activate that section's "rent commencement date suspension." (Id. at 2.) In response, landlord sent tenant a letter disputing tenant's claim that these issues represented "pre-existing conditions" as defined by the lease and disclaiming any responsibility for remedying them. (See NYSCEF No. 185 [January 31, 2019, response letter].)

In March 2019, tenant hired a new plumbing company, Hudson Plumbing & Mechanical, to fix the gas equipment and restore service. To do so, Hudson had to obtain a Limited Alteration Application ("LAA") permit from the NYC Department of Buildings (DOB). Hudson's efforts were allegedly frustrated when it was unable to locate the DOB registration filings for the premises' gas equipment. Tenant personally went to the DOB office "on two different occasions" to try to find proof of registration but was unsuccessful. He also hired an expediter who was similarly unable to locate any registration for the equipment. Then, on July 11, 2019, tenant's counsel discovered that "years before Plaintiff signed the Lease, the existing appliances had been registered with the DOB under the wrong address." (NYSCEF No. 180 at ¶ 39; see NYSCEF No. 186 [DOB Query Inspection Results] [listing the premises address as "87 Greenwich Avenue Manhattan"].)

After finding the proof of registration, tenant hired Kew Forest Plumbing and Heating, Inc., to repair the defective equipment and increase its energy capacity. But Kew was also unable to apply for an LAA permit because Kew discovered that "[t]he building owner . . . [had] an old work without a permit violation from 2002 with the Department of Buildings," and that the violation had incurred a $6,000 penalty that remained outstanding. (NYSCEF No. 127 [Kew's July 31, 2019 letter].)

On August 2, 2019, tenant sent landlord its "Tenant's Notice of Intent to Vacate" letter. (NYSCEF No. 131.) The letter notified landlord of tenant's intent to vacate the premises on November 2, 2019. Tenant then sent landlord a second letter on August 7, 2019, informing it of tenant's inability "to perform Tenant's Work and/or the Alterations as contemplated by the terms of the Lease" due to the building's outstanding 2002 Environmental Control Board (ECB) violation. (NYSCEF No. 132 at 1.) Landlord sent a reply letter to tenant informing it that landlord had retained the services of a professional expediting company to resolve the violation.

On November 2, 2019, tenant vacated the premises. Two months later, on January 14, 2020, landlord received an email from its hired corrections specialist that the violation was resolved. And, on June 28, 2021, landlord re-let the premises. (NYSCEF No. 128 at ¶ 23.)

In October 2019, tenant commenced this action against landlord. Tenant has asserted claims sounding in breach of contract, frustration of purpose, rescission, and negligence; and it seeks damages and a refund of rent paid to landlord. Landlord counterclaimed against tenant for unpaid rent allegedly owed by tenant (plus attorney fees). Landlord also counterclaimed against counterclaim-defendant Jose Rodriguez, tenant's guarantor, for all sums that tenant was determined to owe to landlord.

Landlord now moves under CPLR 3212 for summary judgment dismissing tenant's claims, and for judgment in landlord's favor on landlord's counterclaims against tenant and against guarantor. Tenant cross-moves for summary judgment dismissing landlord's counterclaim against guarantor in its entirety. Tenant also cross-moves under CPLR 3025 (b) for leave to serve an amended complaint.

Landlord's summary-judgment motion dismissing tenant's claims is granted in part and denied in part. The branch of tenant's cross-motion seeking summary judgment dismissing landlord's claims against guarantor is denied. The branch of tenant's cross-motion for leave to amend is granted.

DISCUSSION

A party bringing a motion for summary judgment "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986].) Once the movant establishes its prima facie entitlement, the opposing party must tender evidence showing the existence of a triable factual issue, with inferences drawn in the nonmoving party's favor. (See Zuckerman v City of New York, 49 NY2d 557, 560 [1980].)

Landlord contends on its motion that four provisions of the lease require dismissal of all of tenant's claims. Given the recurring importance of these provisions, the court sets them out in detail here.

Section 4.1 (a), or the "As Is" Clause: "Tenant has inspected the Premises and agree (a) to accept possession of the Premises in their 'as is' condition . . . , (b) that neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises or the Building . . . , (c) that Landlord shall be under no obligation to Tenant with respect to the physical condition of the Premises and (d) that Landlord has no obligation to perform any work, supply any materials, furnish any type or kind of services or facilities, incur any expense or make any alterations or improvements to the Premises to prepare the Premises for Tenant's occupancy. . . . Tenant hereby assumes full responsibility for the condition, operation, repair, replacement, maintenance and management of the Premises." (NYSCEF No. 129 at § 4.1 [a].)

Section 3.4 (b), or the "Disclaimer of Representations" Clause: "Tenant has not been induced by and has not relied upon any promises, representations, warranties or statements . . . made by Landlord . . . concerning: (a) the physical . . . condition of any portion of the Premises and the Building; (b) the suitability, feasibility or legality of the use of the Premises for any particular purpose; (c) the . . . projected income from or development expense of the Premises; (d) the Premises compliance or non-compliance with any requirements of laws . . . ; or (e) any other matter whatsoever with respect to the Premises . . . including . . . those of fitness for a particular purpose, tenantability, habitability and use; and that all matters concerning the Premises and the Building have been and/or are to be independently verified by Tenant. Tenant acknowledges that it is leasing the Premises in its currently existing physical condition, in its currently existing state of repair, and subject to the Premises and/or Building's non-compliance, if any, with any requirements of laws. . . ." (NYSCEF No. 129 at § 3.4 [b].)

Section 16.3 or the "No Liability for Gas Interruption" clause: "Landlord shall not be liable . . . to Tenant for any failure, defect or interruption of, or change in the supply, character and/or quantity of . . . gas service furnished to the Premises for any reason, . . . and no liability shall arise on the part of Landlord by reason of inconvenience, annoyance or injury to business, whether electricity and/or gas is provided by public or private utility. . . ." (NYSCEF No. 129 at § 16.3.)

Section 36.5 or the "Merger" clause: "This Lease . . . contains the entire agreement between the parties and all prior negotiations and agreements are merged into this Lease." (NYSCEF No. 129 at § 36.5.)

This court begins by considering the branches of landlord's motion seeking dismissal of tenant's first and fifth causes of action, in particular. Consideration of the merits of those claims provides provide helpful factual background for the remaining causes of action.

Tenant's First Cause of Action

Tenant's first cause of action seeks a refund of all rent for "(a) Defendant's failure to disclose that the gas service had been turned off by Con Edison, that a faulty Meter Bar had been installed and that there was an open Violation against the Property; (b) Defendant's negligent installation of a defective and non-compliant Meter Bar; and (c) Defendant's failure to address or remedy the Violation." (NYSCEF No. 112 at ¶ 37.) Landlord's motion for summary judgment dismissing tenant's first cause of action is granted.

First Branch of First Cause of Action: Negligence

Tenant's causes of action, as pleaded, do not identify the specific legal theories on which it relies. This court understands tenant's first cause of action to sound in negligence and frustration of purpose, and evaluates this branch of landlord's summary-judgment motion accordingly.

Tenant contends that landlord "negligent[ly] install[ed] . . . a defective and non-compliant Meter Bar." (NYSCEF No. 112 at ¶ 37.)

It is a "a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." (Dormitory Auth. of the State of NY v Samson Constr. Co., 30 NY3d 704, 711 [2018] [internal quotation marks omitted].) An independent legal duty may arise based on the parties' relationship, the nature of the injury, and the resulting harm. (Id.) But if negligence allegations are "merely a restatement, albeit in slightly different language, of the implied contractual obligations asserted in the cause of action for breach of contract," the tort claim must be dismissed as duplicative. (Id. at 711-712 [internal quotation marks omitted].)

Tenant's allegations of landlord's negligent installation of the gas equipment mirror those of its breach-of-contract claims. Further, the facts underlying both claims, as well as the relief sought, are identical. The branch of tenant's first cause of action alleging negligence is dismissed as duplicative.¹

Second Branch of First Cause of Action: Frustration of Purpose

The second branch of tenant's first cause of action alleges that "[t]he purpose of the Lease was frustrated by Defendant as a result of its failure and refusal to replace the defective Meter Bar and correct the open Violation." (NYSCEF No. 112 at ¶ 34.)

To support a claim under the doctrine of frustration of purpose, "the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense." (Warner v Kaplan, 71 AD3d 1, 6 [1st Dept 2009] [internal quotation marks omitted].) The doctrine, however, "is not available where the event which prevented performance was foreseeable and provision could have been made for its occurrence." (Id. [internal quotation marks omitted].)

Landlord argues that the defective gas equipment was foreseeable because equipment defects were provided for in the lease's As-Is and No Liability for Gas Interruption clauses. The court agrees. Section 4.1 (a) provides that tenant has inspected the premises prior to entering the lease and agrees to accept it in "as is" condition. (NYSCEF No. 129 at § 4.1 [a].) And § 16.3 of the lease provides that "Landlord shall not be liable in any way to Tenant for any failure, defect or interruption of . . . gas service." (NYSCEF No. 129 at § 16.3.)

The 2002 violation was also foreseeable based on provisions of the lease. Indeed, tenant's August 7, 2019, letter cites § 4.2 of the lease as requiring landlord "to promptly take such actions which are commercially reasonable in order to cure the ECB Violation." (NYSCEF No. 132 at 1.) Even if, as landlord argues, the violation did not constitute a "Pre-Existing Condition" as defined in § 4.2, the lease's Disclaimer of Representations and Warranties clause also contemplated events like that of the 2002 violation. (See NYSCEF No. 129 § 3.4 [b] [providing that "[t]enant acknowledges that it is leasing the Premises . . . subject to the Premises and/or Building's non-compliance, if any, with any requirements of laws" and any applicable building codes, ordinances, or requirements].)

The court grants landlord's motion for summary judgment dismissing tenant's first cause of action.²

Tenant's Fifth Cause of Action

Landlord's motion for summary judgment dismissing tenant's fifth cause of action is granted in part and denied in part.

Tenant's fifth cause of action asserts a breach-of-contract claim against landlord. Tenant alleges that landlord was required, but failed, to (i) "fully cooperate with Plaintiff in the obtaining of government approvals and permits to . . . reconnect the gas service"; and (ii) "take commercially reasonable actions to cure the Violation to enable Plaintiff to obtain a permit to . . . reconnect the gas service." (NYSCEF No. 112 at ¶¶ 63, 65, 67.)

To state a valid breach-of-contract cause of action, plaintiff must plead "the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of that contract, and resulting damages." (JP Morgan Chase v J.H. Elec. of NY, Inc., 69 AD3d 802, 803 [2d Dept 2010].)

When interpreting contracts, "[a] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." (Greenfield v Philles Records, 98 NY2d 562, 569 [2002].) An unambiguous contract is one that "is reasonably susceptible of only one meaning." (Id. at 570.) Silence alone does not constitute contractual ambiguity. (See id. at 573.)

Requirement that landlord fully cooperate.

Tenant claims that landlord was aware that the existing gas equipment and associated permits were filed with the DOB under an address different than that of the premises but that it failed to notify tenant. Tenant argues that landlord's refusal to do so violated §§ 4.2 (b) and 5.1 (iii) of the lease, under which landlord agreed to cooperate with tenant in its attempts to obtain government approvals, including by participating in any proceedings or in the execution of any required documents.

Landlord argues that tenant's claims "blam[ing] Landlord for the problems Tenant allegedly had accessing gas to serve the Premises . . . are barred by As Is, Disclaimer of Representations, Merger and No Liability For Gas Interruption Clauses as well as Section 21.1 of the Lease." (NYSCEF No. 142 at 15.) The court agrees with landlord that the lease assigns to tenant the primary responsibility for all work associated with repairing, replacing, and initiating gas service to the premises. But the lease does not provide that these provisions supersede the lease terms assigning to landlord the obligation to cooperate with tenant in its efforts to do so. And, as discussed below, landlord does not refute as a matter of law tenant's claims that §§ 4.2 (b) and 5.1 (iii) require cooperation from the landlord that it failed to provide to tenant.

Lease § 4.2 (j)'s requirement that landlord take commercially reasonable actions to cure pre-existing conditions.

Tenant argues that landlord was required—but failed—to take commercially reasonable actions to cure the 2002 ECB violation, to repair or replace the defective meter bar, and to provide tenant with a rent abatement until those issues were resolved. Tenant cites § 4.2 (j) of the lease, which provides that "if Tenant is unable to procure any governmental permit and/or license required in order to permit the Premises to be used for the Permitted Use . . . due to a Pre-Existing Condition, and Tenant notifies Landlord of same with reasonable details thereof, then . . . Landlord shall promptly take such actions which are commercially reasonable in order to cure such Pre-Existing Condition." (NYSCEF No. 129 at 17-18 § 4.2 [j].)

Landlord again contends that the As Is, Disclaimer of Representations, Merger and No Liability For Gas Interruption clauses preclude tenant's claims under its fifth cause of action. This court disagrees.

When interpreting contracts, a court must "examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby." (Kass v Kass, 91 NY2d 554, 566 [1998].) Here, the lease provisions relied upon by landlord do not provide that they supersede or override other potentially conflicting terms of the lease. Those provisions must be harmonized and read together, if reasonably possible, with § 4.2 (j). Thus, although the court agrees with landlord to the extent that it argues that the provisions it cites limit its responsibility to help prepare the premises for tenant's purposes, the court does not agree that they override its responsibility to cooperate as expressly delineated in other areas of the lease, including in § 4.2 (j).

Landlord argues that tenant's January 15, 2019, letter did not constitute the notice required by § 4.2 (j); that the conditions of which tenant complains do not constitute pre-existing conditions as defined in the lease; and that landlord took commercially reasonable actions to cure the 2002 ECB violation regardless. This court considers these arguments in turn.

Whether tenant notified landlord of the conditions.

The court concludes that tenant's January 15 letter was sufficient to notify landlord that the gas equipment was filed with the DOB under an address different than that of the premises and that this constituted notice of an asserted pre-existing condition under the lease.

Tenant's January 2019 letter expressly stated that tenant had "discovered 'Pre-Existing Conditions' defined under the Section 4.2 (j) of the Lease" for which landlord was solely responsible to remedy. (NYSCEF No. 130 at 1.) Further, tenant's letter attached its plumber's letter that explained that the "existing appliances in restaurant were not registered for gas at the NYC DOB and that there are no plans or permits dating back to 1993." (Id. at 3.) Landlord argues that the lease "provides that [Landlord] should promptly act fix a pre-existing [condition] if asked by Tenant, but the letter does not even ask Landlord to do any such thing." (NYSCEF No. 142 at 15.) Tenant's letter does not ask that landlord itself cure the defects, but it does request that landlord "bear the expenses for the" work. And landlord does not offer any reasons why this court should not conclude that a request from tenant that landlord reimburse it for fees incurred in curing pre-existing conditions falls within the scope of § 4.2 (j)'s required "actions."

In terms of the leaking house pipe, defective meter bar, and Red Tag, tenant argues that landlord was on notice of these conditions because (i) Con Edison was required under the NYCRR and its own internal procedures to notify landlord of the conditions and Red Tag; and (ii) Carlos Santos, Empanada's co-founder, represented in an affidavit that he personally spoke to landlord's property manager, Celine Negron, about the conditions.³ (NYSCEF No. 189 at ¶¶ 8-14.) Landlord does not submit any arguments to refute tenant's claim that Con Edison was required to notify landlord of the Red Tag and underlying conditions. Further, landlord does not provide the court with any admissible evidence in support of its claim that "[i]n truth Santos never spoke to Negron regarding any of these topics and did not give Negron the Red Tag and letter from Con Edison." (NYSCEF No. 213 at 12 [memorandum of law].) Thus, a genuine issue of fact remains as to whether tenant notified landlord of the Red Tag and related conditions.

In terms of the 2002 ECB violation, neither party disputes that landlord first received notice of the 2002 violation after receipt of tenant's August 7, 2019, letter. (See NYSCEF No. 157 at 13; NYSCEF No. 180 at ¶ 43.)

Whether the Red Tag, leaking house pipe, meter, meter bar and 2002 ECB violation constitute pre-existing conditions.

Section 4.2 (j) defines "pre-existing conditions" for purposes of the lease as (i) "any noted violation of any applicable Requirements which either pre-dates this Lease or is a result of any work or filings done which pre-date this Lease"; (ii) any "hazardous materials"; and (iii) "any costs associated with the removal or correction of same."⁴ (NYSCEF No. 129 at 17 § 4.2 [j].) This definition includes two exceptions: (1) "conditions that the work or filings to be made by Tenant or any Tenant Party in connection with any Alterations contemplated hereunder would cure"; and (2) "any violation[ ] the compliance with which is the responsibility of Tenant in accordance with this Lease." (Id.)

Landlord argues that a "noted violation" means a formal written notice of a violation that has been issued by a governmental agency. Tenant responds that had landlord intended for "noted violation" to be limited to conditions that result in a government agency's formal issuance of a violation, landlord would have expressly said so in the lease. This court agrees with tenant. The lease does not include a contract-specific definition for "noted violation." (See NYSCEF No. 129 at 57 [Exhibit A].) Absent a term-of-art definition for that term, this court concludes that "noted" is properly read merely as being put down in writing (see "Noted," Black's Law Dictionary Online [11th ed 2019])—not, as landlord would have it, described in a formal notice of violation that carries independent legal effect.

ECB Violation. Landlord does not dispute tenant's claim that the ECB 2002 violation constituted a pre-existing condition under the lease.

Meter/Meter Bar. With respect to the meter and meter bar, this court agrees with landlord's argument that these alleged defects come within the scope of § 4.2 (j)'s tenant-alteration exception, among other things because tenant's planned build-out included the installation of new gas lines. (See NYSCEF No. 213 at 13-14.) Additionally, the lease allocates maintenance and repair of the meter and the meter bar to tenant.⁵ (NYSCEF No. 129 at § 16.2 ["Tenant, at Tenant's sole cost and expense, shall be responsible for the installation, maintenance and repair of such meters."].) As a result, tenant, not landlord, was responsible to bring into compliance violations related to the meter/meter-bar, bringing those violations within the tenant-responsibility exception of § 4.2 (j).

Leaking House Pipe. With respect to the leaking house pipe, leaking gas qualifies as a "hazardous material" under § 4.2 (j), the resolution of which is solely landlord's responsibility. "Hazardous material" is defined in the lease to include "[a]ny substances" defined in "any Requirements as 'hazardous substances' " (id. at 58); and the New York Fire Code, a qualifying Requirement, defines "Hazardous Materials" to include flammable liquids and gases. (See NYSCEF No. 157 at 14.) And landlord has not submitted evidence about when the house pipe leak began (and thus whether the condition pre-dated the lease).

Landlord does argue that the leaking house pipe is within the tenant-alteration exception, apparently because that leak would have been addressed during tenant's build-out. (See NYSCEF No. 213 at 13-14.) This court is unpersuaded that landlord has established the applicability of that exception to the house pipe as a matter of law. In particular, tenant's expert, Paul Angelides, attested to the fact that "the vast majority of the house pipe is not located within the subject Premises but, rather, in the common area cellar of the Building." (NYSCEF No. 192 at ¶ 18 [emphasis omitted].) It is therefore unclear on this record whether tenant's build-out of the premises would have resolved the leaking-pipe problem.

Red Tag. With respect to the Red Tag that Con Ed issued to Santos in November 2018, the question is whether the Red Tag constituted a "noted violation of any applicable Requirements" under the lease—i.e., a written violation of an ordinance, regulation, or code of an "instrumentality" of the Borough of Manhattan or the City of New York. (See NYSCEF No. 129 at 17 § 4.2 [j], 58.) Even assuming that Con Ed constitutes a governmental "instrumentality" for these purposes, tenant has not raised a material issue of fact about whether the Red Tag operated as a "noted violation" within the meaning of § 4.2 (j).

The state regulations governing gas utilities require each utility to "file and maintain warning tag procedures with the Gas Division of the New York State Department of Public Service" that are "designed to make customers aware of hazardous conditions relating to their gas appliances and piping installations." (16 NYCRR 261.51 [a]-[b].) This regulatory language suggests that "warning tags" are intended as just that—warnings of conditions, not of violations of governing ordinances, codes, or the like. The warning tag in this case reflected the presence of a "Class A condition" (see NYSCEF No. 190 at 2 [photograph of tag])—a condition "present[ing] an immediate hazard requiring the operator to shut off the gas and lock the meter." (16 NYCRR 261.57 [a].) This language, again, speaks in terms of whether or not use of a gas supply is safe (or hazardous), not whether it is compliant with other regulatory requirements. No fine or other sanction is imposed when gas has been shut off and a warning tag issued. Rather, if the utility "is not advised by the customer within 10 calendar days that the condition has been corrected" such that the gas should be turned back on," the utility must then "contact the customer . . . to determine the status of service." (Id. § 261.63 [a] [1].) These warning tags may serve a vital safety function that is closely regulated by state statute and regulation. But tenant has not established a material dispute about fact about whether the tags themselves reflect violations of other provisions of law, as required to implicate the "noted violation" clause of § 4.2 [j] of the lease.⁶

For clarity, that no factual dispute exists about whether the Red Tag is itself a preexisting condition for § 4.2 (j) purposes is immaterial to whether the conditions leading to issuance of the Red Tag did, or did not, constitute preexisting conditions. As discussed above, this court concludes that (i) landlord has shown as a matter of law that the meter/meter bar are not pre-existing conditions under the lease, and (ii) landlord has not made that showing with respect to the leaking house pipe.

Whether landlord took commercially reasonable steps to cure the leaking house pipe and the 2002 ECB violation.

The next issue is whether landlord took commercially reasonable steps to cure the leaking house pipe and the 2002 ECB violation, as required by § 4.2 (j) of the lease.

With respect to the leaking house pipe, landlord does not contend that they took commercially reasonable steps to cure this condition (or that its efforts were successful)—only that addressing this condition was tenant's responsibility.

With respect to the 2002 ECB violation, landlord argues that tenant's "request to cure the 2002 Violation was moot because Tenant was not operating its business and had notified Landlord that it would be vacating the Premises," but that, nonetheless, landlord cured the violation in accordance with the lease's requirements. (NYSCEF No. 213 at 16-17.)

On that point, this court disagrees with landlord. The only condition precedent to landlord's obligation to cure in § 4.2 (j) is that tenant not be "in monetary or material non-monetary default." (NYSCEF No. 129 at § 4.2 [j].) Tenant's notice to vacate did not constitute a default under the lease. And the lease expressly disavows any right to surrender and states that any attempt to do so, including tenant's delivery of keys to landlord, "shall not operate as a termination of this Lease or a surrender of the Premises." (Id. at § 23.1.) Thus, at the time landlord received notice of the 2002 violation, the lease was still in effect and the tenant's request to cure the violation was not moot.⁷

The question remains whether landlord satisfied its obligation to take "commercially reasonable actions" to cure the violation. The lease does not expressly define that term. This court concludes that under the best reading of the lease term, landlord's obligation entailed at least "some conscious exertion to accomplish the agreed goal, but something less than a degree of efforts that jeopardizes one's business interests." (InspiRx, Inc. v Lupin Atlantis Holdings SA., 554 F Supp 3d 542, 556 [SD NY 2021] [internal quotation marks omitted] [applying New York law].) Here, landlord received notice of the 2002 violation upon receipt of tenant's August 7, 2019, letter. On August 15, 2019, landlord notified tenant that it had retained the services of a professional expediting company and that the violation "will be removed shortly." (NYSCEF No. 138.) On January 8, 2020, landlord "felt the expediter was not moving fast enough to cure the violation, and threatened to replace her with a different expediting company." (NYSCEF No. 141 at ¶ 54.) Six days later, landlord's expediter confirmed that the "violation has been resolved." (NYSCEF No. 133 at 1.)

The court concludes that landlord's efforts to cure the 2002 violation were "commercially reasonable" and that the time taken by the landlord to cure was reasonable under the circumstances. (See Savasta v 470 Newport Assoc., 82 NY2d 763, 765 [1993] ["When a contract does not specify time for performance, the law implies a reasonable time. What constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case."] [internal citation omitted].) Indeed, tenant's own plumbing company informed tenant that it would take landlord at least this amount of time to cure the violation. (See NYSCEF No. 180 at ¶ 42 [Rodriguez affidavit] ["Lundin told me that it would likely take the Landlord at least six (6) months to resolve the violation."].)

Whether landlord breached § 4.2 (j) of the lease

Given the analysis set forth above, the court concludes as follows on whether material issues of fact exist on tenant's claims that landlord breached § 4.2 (j) of the lease—and the implications for tenant's claim of entitlement to a rent credit.

The court grants the branch of landlord's motion for summary judgment dismissing tenant's claim that landlord was responsible for curing the Red Tag under the lease. Though tenant raised an issue of material fact on whether tenant notified landlord of the Red Tag, tenant did not raise an issue of material fact on whether the Red Tag constituted a pre-existing condition under § 4.2 (j).

The court grants the branch of landlord's motion for summary judgment dismissing tenant's claim that landlord was responsible under § 4.2 (j) for curing the defective meter and meter bar. Though tenant raised an issue of material fact on whether tenant notified landlord of these conditions, tenant did not do so on the question whether the meter and meter bar constituted pre-existing conditions under that provision of the lease.

The court grants the branch of landlord's motion for summary judgment dismissing tenant's claim that landlord breached its § 4.2 (j) obligation to use commercially reasonable actions to cure the 2002 ECB violation.

The court denies the branch of landlord's motion for summary judgment dismissing tenant's claim that landlord was responsible under § 4.2 (j) for curing under the leaking house pipe yet failed to do so. Tenant has submitted sufficient evidence to raise issues of material fact about whether tenant notified landlord of this condition and whether the leak constituted a pre-existing condition.

The court therefore also concludes that an issue of fact exists on whether tenant's obligation to pay rent was suspended as of the date of tenant's counsel's January 15, 2019, letter, "through and including January 14, 2020," the date that landlord's expediter cured the violation. (NYSCEF No. 157 at 17.) Section 4.2 (j) provides that "the Rent Commencement Date shall be delayed, and the Term shall be extended, by one (1) day for each day from and after the date on which" tenant notifies landlord of its inability to open for business due to the Pre-Existing Condition. (NYSCEF No. 129 at § 4.2 [j].) The record reflects that landlord was notified of the leaking house pipe that led Con Ed to place the Red Tag no later than January 15, 2019, the date of tenant's counsel's letter. (See NYSCEF No. 189 at ¶¶ 8-17 [Santos affidavit].) And tenant's August 7, 2019, letter notified landlord of the 2002 ECB violation and referenced the § 4.2 (j) abatement provision.

The court thus concludes that tenant has created an issue of material fact as to its right to a refund for the rent paid from January 15, 2019, to January 14, 2020.

Tenant's Second Cause of Action

Tenant's second cause of action alleges that it was unable to use the premises as intended because of landlord's failure to perform under the lease. Tenant seeks rescission of the lease and, as a corollary, the return of its security deposit. Landlord argues that tenant's cause of action should be dismissed on the ground that recission is not available because tenant has an adequate remedy at law.

The equitable remedy of recission "is to be invoked only when there is lacking complete and adequate remedy at law and where the status quo may be substantially restored." (Rudman v Cowles Communications, 30 NY2d 1, 13-14 [1972].) Here, tenant has an adequate remedy at law: the money damages it seeks in its first, third, fourth, and fifth causes of action. The court grants the branch of landlord's motion for summary judgment dismissing tenant's second cause of action.

Tenant's Third Cause of Action

Tenant's third cause of action seeks recoupment of the expenses it incurred while renovating and improving the premises in reliance on landlord's fulfillment of its obligations under the lease. Landlord argues that any claim premised on tenant's alleged reliance on landlord's promises or representations is barred by the lease's disclaimer of representations clause, and § 21.1 of the lease (see NYSCEF No. 129 at § 21.1 ["Tenant is entering into this Lease after full investigation, and is not relying upon any statement or representation made by Landlord not embodied in this Lease."].)

Though tenant does not identify its cause of action as such, the court reads the claim as based on promissory estoppel. To establish a viable cause of action for promissory estoppel, a movant must establish "(i) a sufficiently clear and unambiguous promise; (ii) reasonable reliance on the promise; and (iii) injury caused by the reliance." (Castellotti v Free, 138 AD3d 198, 204 [1st Dept 2016].) The court agrees with landlord that to the extent tenant argues that landlord is liable for any acts or representations it made outside the four corners of the contract, this argument is precluded by the lease's disclaimer of representations and no representations clauses. Moreover, tenant's third cause of action does not properly plead that a "legal duty independent of the contract—i.e., one arising out of circumstances extraneous to, and not constituting elements of, the contract itself—has been violated." (MatlinPatterson ATA Holdings LLC v Federal Express Corp., 87 AD3d 836, 842-843 [1st Dept 2011] [internal quotation marks omitted].) Thus, tenant's third cause of action alleging promissory estoppel would be precluded by its breach of contract claim regardless. (See id. at 842.)

The branch of landlord's motion for summary judgment seeking dismissal of tenant's third cause of action is granted.

Tenant's Fourth Cause of Action

Tenant's fourth cause of action alleges breach of the implied covenant of good faith and fair dealing. Tenant asserts that it reasonably relied on landlord's "representations that the Premises was fit to be occupied and operated as a restaurant . . . notwithstanding that [landlord] was aware that the gas service had been disconnected[ ] and could not be reconnected due to the faulty Meter Bar and the open Violation." (NYSCEF No. 112 at ¶¶ 55, 56.) Tenant argues that, as a result, it was deprived of its right to receive its benefits under the lease. Landlord argues that this cause of action should be dismissed as duplicative. This court agrees with landlord.

In every contract, there is an implied "covenant of good faith and fair dealing in the course of performance. This covenant embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153 [2002] [internal citation omitted].) But where a party's claim is "based on the same allegations and seek[s] the same damages as" a breach of contract claim, it must be dismissed as duplicative. (Ullmann-Schneider v Lacher & Lovell-Taylor, P.C., 121 AD3d 415, 416 [1st Dept 2014].)

Here, landlord has asserted that tenant's claim is based on the same allegations and damages as those in its breach-of-contract claim. And tenant has not submitted any evidence to create an issue of material fact. Thus, the court concludes that tenant's fourth cause of action must be dismissed.

Sixth Cause of Action

Tenant's sixth cause of action seeks attorney fees under § 19.4 of the lease, which provides that if a party employs an attorney to enforce the lease's conditions or covenants or the party's "rights, remedies, privileges or options under this Lease . . . , the prevailing party shall be entitled to reimbursement" of reasonable attorney fees. (NYSCEF No. 112 at ¶ 75.) Landlord argues that because "tenant has no grounds to prevail in the action," it has no right to attorney fees. But landlord does not argue that should tenant prevail, it would not be entitled to attorney fees. Because there are grounds on which tenant could prevail in this action, that branch of landlord's motion seeking dismissal of tenant's sixth cause of action is denied.

Landlord's First Counterclaim

Landlord moves for summary judgment as to its first counterclaim against tenant, which alleges a breach-of-contract claim for tenant's surrender of the premises on November 2, 2019. Landlord asserts that because the surrender did not terminate the lease, tenant remains liable for the remainder of the rent and additional rent through the expiration of the lease on July 31, 2033. Tenant argues that landlord's own breaches of the lease excused tenant's performance under it. In reply, landlord simply argues that it "did not breach Section 4.2 (j)." (NYSCEF No. 213 at 18.)

The court denies the branch of landlord's motion for summary judgment on its first counterclaim. Tenant raised an issue of material fact concerning whether landlord's failure to correct the leaking house pipe constituted a breach of § 4.2 (j). (See Section II.b.iv, supra.)

Landlord's Second Counterclaim

The court denies the branch of landlord's motion for summary judgment on its second counterclaim. Tenant's cross-motion for summary judgment on landlord's second counterclaim is also denied.

Landlord moves for summary judgment as to its second counterclaim against tenant's guarantor, Jose Rodriguez, seeking to hold guarantor liable for tenant's damages, including court costs and attorney fees. Tenant and guarantor cross-move for summary judgment dismissing landlord's second counterclaim, on the grounds that (1) tenant did not breach the lease, (2) guarantor satisfied its obligations under the good-guy guarantee, and (3) to hold otherwise would be "an egregious injustice to Rodriguez," who "justifiably relied on Landlord's words and conduct" to conclude that landlord would not hold him liable. (NYSCEF No. 157 at 20, 25-26.)

As previously discussed (see Section VII, supra at 15), there remains an issue of material fact about whether tenant breached the lease by surrendering the premises before the lease's expiration. The court therefore denies the first branch of tenant's cross-motion claiming that landlord's counterclaim must be dismissed because tenant did not breach the lease.

The second branch of tenant's cross-motion claims that guarantor is not liable for damages because tenant satisfied the requirements of the lease's good-guy guarantee clause, which limits guarantor's obligations under the guaranty. The good-guy guarantee provides that if the tenant satisfies certain conditions, then the guarantor's liability will be limited to the six months following landlord's receipt of tenant's written notice of its intent to vacate. (See NYSCEF No. 129 at 68-69 ¶ 14 [H].) The parties, however, dispute whether tenant satisfied the guarantee's first condition, which requires that "Landlord has received at least three (3) months written notice from Tenant of Tenant's intent to vacate the Premises." (Id. at 68.)

Tenant alleges that it mailed its letter notifying landlord of its intent to vacate on August 2, 2019, via certified mail. (NYSCEF No. 131.) The guaranty, however, provides that "[a]ll Notices shall be deemed given or served when personally delivered or, if served by mail, on the third (3rd) day after the date of mailing." (NYSCEF No. 129 at 67 ¶ 11.) Tenant's letter, then, was not deemed "given or served" under the lease until August 5, 2019. Because the date on which tenant intended to vacate was November 2, 2019, landlord argues that tenant failed to provide it with three months written notice.⁸ In reply, tenant contends that "there is no dispute that the Vacate Notice was timely sent, and received by Landlord's counsel on August 2, 2019," and, as proof, tenant cites to a copy of the emailed notice to vacate that it also sent to landlord on that date. (NYSCEF No. 157 at 22.) But the guaranty provides for only two methods of serving notice: "by hand or by registered or certified mail, return receipt requested, prepaid, addressed to the party to receive such Notice at its address first above set forth." (NYSCEF No. 129 at 67 ¶ 11.) Under the express terms of the lease, emailed notice does not suffice.

Tenant further claims that landlord waived its right to challenge the purported untimeliness of the vacate notice by acknowledging receipt and accepting tenant's surrender, both without objection.⁹ (NYSCEF No. 157 at 23.)

A party may "waive enforcement of a contract term notwithstanding a provision to the contrary in the agreement. Such waiver may be evinced by words or conduct, including partial performance." (Bank Leumi Trust Co. of NY v Block 3102 Corp., 180 AD2d 588, 590 [1st Dept 1992] [internal citation omitted].) But "waiver is an intentional relinquishment of a known right and should not be lightly presumed." (EchoStar Satellite L.L.C. v ESPN, Inc., 79 AD3d 614, 617 [1st Dept 2010] [internal quotation marks omitted].) Indeed, "[s]uch intention must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act," like mere silence or inaction. (Id. at 618-619 [internal quotation marks omitted].)

Here, tenant can point to no affirmative act on the part of landlord that would constitute its intentional waiver of any future challenge to the timeliness of tenant's notice. Rather, tenant's argument is predicated on landlord's silence on the issue after receiving tenant's notice and in subsequent communications with tenant governing its surrender. But as the First Department has established, mere silence is not enough to establish a party's waiver of a contractual provision. And this court sees nothing in the record that necessitates making an exception to this rule here.

The third branch of tenant's cross-motion alleges that landlord must be "equitably estopped from holding Rodriguez liable under the Guaranty because of a purported minor deviation in the method and timeliness of the notice." (NYSCEF No. 157 at 25.) But because this court concludes that guarantor was not justified in assuming that landlord would not enforce the timeliness condition of the good-guy guarantee, tenant's equitable estoppel claim fails. (See EchoStar Satellite L.L.C., 79 AD3d at 619 [dismissing EchoStar's equitable estoppel defense where "EchoStar was not justified in relying on its perception that Disney had decided not to enforce the [late-rent] interest provisions, because nothing about Disney's conduct permitted such an inference"].)

Although the court concludes that guarantor is liable for tenant's default under the guaranty, it denies landlord's motion for summary judgment on its second counterclaim, because genuine issues of material fact remain concerning the liability of the parties in this action and who will prevail.

Tenant's Cross-Motion for Leave to Serve a Further Amended Complaint

Tenant cross-moves for leave to serve a further amended complaint under CPLR 3025 (b). (NYSCEF No. 155.) Tenant requests to amend the complaint to add factual allegations about the Red Tag and Santos's providing information to landlord about the Red Tag; and also to allege tenant's entitlement to recover consequential damages resulting from landlord's breaches of the lease.

In terms of tenant's request to add facts related to the Red Tag, landlord argues that tenant's request must be denied because tenant has already filed the note of issue. But "the fact that a motion to amend is made after a note of issue does not of necessity call for its denial." (Jacobson v Croman, 107 AD3d 644, 645 [1st Dept 2013] [internal quotation marks omitted].) This is not to say that a party's filing of the note of issue plays no part in a court's analysis. As the First Department has noted, "where the amendment is sought after a long delay, and a statement of readiness has been filed, judicial discretion in allowing the amendment should be discreet, circumspect, prudent and cautious." (Id. [internal quotation marks omitted].) A court may deny the motion to amend where the length of the delay resulted in "significant prejudice to the other side." (See id.)

Here, landlord does not provide proof of its prejudice were this court to grant tenant's motion to amend—particularly given tenant's representations that landlord was notified of the Red Tag by Santos in 2018. Further, in response to tenant's allegations about that notification, landlord submits only conclusory allegations from its attorney that "Mr. Santos did not give [Ms. Negron] any such documents and she did not have any such conversations with" him. (NYSCEF No. 209 at ¶ 14.) That limited showing is insufficient to demonstrate that the additional allegations are irrelevant or inadequate to support tenant's breach-of-contract claims. Indeed, this court's discussion above of the fifth cause of action concludes otherwise.

With respect to tenant's request to add a request for consequential damages, tenant argues that "[l]andlord's conduct in refusing to repair or remedy a dangerous gas leak in the Building . . . is grossly negligent and . . . 'smacks of intentional wrongdoing.' " (NYSCEF No. 157 at 28.) Thus, tenant asserts that the lease's waiver of consequential and indirect damages is against public policy. (See Obremski v Image Bank, Inc., 30 AD3d 1141, 1141-1142 [1st Dept 2006] [[P]ublic policy forbids a party from attempting to avoid liability for damages caused by grossly negligent conduct."].) Landlord replies that tenant's allegations amount to nothing more than "conclusory and false" statements. (NYSCEF No. 213 at 22.) But landlord does not show that tenant's proposed amendment is devoid of merit as a matter of law, nor demonstrate that it would be significantly prejudiced by that amendment.

Accordingly, it is

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's first cause of action is granted; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is denied as to plaintiff's claim that landlord breached the lease by failing to cooperate as required under §§ 4.2 (b) and 5.1 (iii) of the lease; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is granted as to tenant's claim that landlord was responsible for curing the Red Tag under the lease; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is granted as to tenant's claim that landlord was responsible for curing the defective meter and meter bar; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is denied as to tenant's claim that landlord was responsible for curing the leaking house pipe; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is granted as to tenant's claim that landlord failed to use commercially reasonable actions to cure the 2002 ECB violation; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fifth cause of action is denied as to tenant's claim that landlord breached the lease by refusing to grant tenant a rent abatement or rent refund for the period from January 15, 2019, through and including January 14, 2020; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's second cause of action is granted; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's third cause of action is granted; and it is further

ORDERED that the branch of landlord's motion for summary judgment dismissing tenant's fourth cause of action is granted; and it is further

ORDERED that landlord's motion for summary judgment on its first counterclaim is denied; and it is further

ORDERED that landlord's motion for summary judgment on its second counterclaim is denied; and it is further

ORDERED that plaintiff's cross-motion for summary judgment dismissing defendant's second counterclaim is denied; and it is further

ORDERED that plaintiff's cross-motion for leave to amend its complaint is granted; and it is further

ORDERED that defendant's request to submit a sur-reply memorandum of law is denied; and it is further

ORDERED that defendant serve a copy of this order with notice of its entry on all parties.

4/10/2023

FOOTNOTES

1.   Even if the claims were not duplicative, the court would still grant summary judgment dismissing tenant's negligent-installation claim brought under this cause of action. A permit for the premises, submitted by tenant (see NYSCEF No. 193), reflects that the meter and meter bar were originally installed in 2013 by the premises' prior occupant, Nourish New York LLC, not by landlord.

2.   Tenant's first cause of action also states in passing that tenant was unable to open its restaurant in part due to "Defendant's material omissions in failing to inform Plaintiff that the gas service to the Premises could not be reconnected." (NYSCEF No. 112 at ¶ 35.) To the extent this statement is intended to support a claim of liability sounding in fraud, the claim fails because tenant does not allege that any such material omission was knowing or intentional.

3.   Tenant also argues that landlord was notified of the leaking house pipe by tenant's January 2019 letter, because the attached cost estimate and scope of work from Ariel—tenant's plumber—included the following: "Replace Leaking House Pipe in Order to Facilitate Con Edison Gas Turn On." (NYSCEF No. 130 at 4.) But other than this listing in the cost estimate, the leaking house pipe is not mentioned in either tenant's or Ariel's attached letter. The court doubts whether this meets the lease's requirement that tenant's notice include "reasonable details thereof." (NYSCEF No. 129 at § 4.2 [j].) However, because the court concludes that landlord has not refuted tenant's claims that landlord was notified by Con Edison and Santos, the court need not resolve this alternative argument.

4.   "Requirements" are "[a]ll present and future laws, rules, orders, ordinances, regulations, statutes, requirements, codes and executive orders . . . of (i) all Governmental Authorities . . . [and] any applicable fire rating bureau or other body exercising similar functions." (NYSCEF No. 129 at 59.) And "Governmental Authority" includes "the City, County or State of New York or any political subdivision, agency, department, commission, board, bureau or instrumentality of any of the foregoing." (Id. at 58.)

5.   Indeed, as noted above, the meter and meter bar were originally installed by the prior tenant in the premises, not by landlord. (See NYSCEF No. 193.)

6.   Landlord requests permission (NYSCEF No. 217) to submit a sur-reply memorandum of law in opposition to assertedly new claims about the Red Tag made in tenant's expert's affidavit. Because this court's decision does not rest on any of those claims, landlord's sur-reply request is denied as academic.

7.   Section 4.2 (j) provides that landlord take actions to cure a pre-existing condition "so as to enable Tenant to obtain such permit and/or license to open for business in the Premises for the Permitted Use." (NYSCEF No. 129 at § 4.2 [j] [emphasis added].) To the extent landlord bases its argument for mootness on this provision, its argument fails. This provision creates a condition on the manner in which landlord cures, not on whether it is required to do so.

8.   Landlord submitted this argument in its memorandum of law in support for its motion for summary judgment. (See NYSCEF No. 142 at 14; NYSCEF No. 128 at ¶ 34.) Tenant argues that landlord did not raise this argument again in its opposition papers to tenant's cross-motion and that, as a result, it has abandoned this argument. (NYSCEF No. 216 at 5 n.1.) The court disagrees. Landlord's opposition papers on tenant's cross-motion includes its reply to tenant's claim that landlord waived its right to enforce the terms of the good guy guarantee. (NYSCEF No. 213 at 20.) The court concludes that landlord has not abandoned this argument.

9.   Tenant also alleges, "as further evidence of Landlord's waiver," that landlord failed properly to plead a counterclaim against guarantor for the rent in its answer. But the guaranty expressly prohibits limitation on guarantor's liability pursuant to a claim of waiver. (NYSCEF No. 129 at 66 ¶ 7.) Notwithstanding this provision, the court concludes that landlord's second counterclaim was sufficient to put guarantor on notice of its liability for tenant's default. Landlord's second counterclaim alleges that "Rodriguez personally guaranteed Empanada Fresca's obligations under the Lease" and that "Rodriguez agreed to pay to 1BK all damages that arise in consequences of a default under the Lease." (NYSCEF No. 113 at ¶¶ 127, 128.) The "absolute and unconditional" guaranty at issue in this case is unambiguous in assigning concurrent liability to Rodriguez for tenant's default in rent. To the extent tenant asserts that landlord's second counterclaim seeks to hold Rodriguez liable for court costs and fees, but not tenant's rent arrears, the court is unpersuaded.

Gerald Lebovits, J.