157 v. 157 LP (2023)

This action is a commercial-lease dispute between plaintiff-tenant 157 Enterprises Inc. and defendant-landlord 157 West 47th Street Hotel Owner LP. In January 2020, tenant leased from landlord space to open a restaurant, located near Times Square. Due to COVID-19-related complications, tenant was not able to open its restaurant until September 2022.

In December 2022, tenant brought this action. Tenant alleges that landlord was claiming that tenant owed approximately $1.45 million in rent for the 2020-2022 period that landlord had previously agreed it would not charge. Tenant also alleges that landlord breached the lease's implied covenant of good faith and fair dealing by putting up construction-related scaffolding on the building in September 2022 that obscured tenant's façade—thereby gravely damaging tenant's ability to bring in customers from foot traffic in the neighborhood. (See NYSCEF No. 1 at ¶¶ 14-28.) Landlord counterclaimed in breach of contract for rent accrued under the lease from January 2020 to March 2023, which landlord alleged to be at least $1.7 million. (See NYSCEF No. 19 at ¶¶ 14-42.)

In March 2023, landlord brought this motion on by order to show cause. The motion seeks an order requiring tenant to pay interim use and occupancy (U&O) pending the resolution of the action. (See NYSCEF No. 33 [order to show cause].) The motion also includes a request for an interim order directing immediate payment of U&O into escrow pending the determination of the motion. (Id. at 2.) This court granted landlord's request for interim relief. (Id.)

It is undisputed that tenant has not made interim U&O payments, as required by this court's order. Tenant's explanation, essentially, is that it cannot afford to make those payments because the restaurant was bringing in no money, for which tenant blames "the lack of visibility and proper signage caused by [l]andlord's scaffolding at the building." (NYSCEF No. 40 [letter from tenant's counsel to the court].)

On April 3, 2023, tenant closed its restaurant and vacated the premises. (See NYSCEF Nos. 47 at 1, 48 at 1.) Landlord, taking the position that tenant's vacatur of the premises constituted a material breach of the lease, served tenant on May 4, 2023, with a notice of termination of the lease, effective May 17. (NYSCEF No. 47 at 1.) The question, then, is how service of that notice of termination, and the other developments since this court's signing of the order to show cause, should affect the court's resolution of this motion.

1. Landlord suggests in its reply papers that the proper remedy for tenant's admitted failure to pay court-ordered U&O is entry of a money judgment for the unpaid U&O accruing between entry of the order to show cause on March 17, 2023, through the end of April 2023. (See NYSCEF No. 46 at ¶¶ 4-5.) This court disagrees.

Landlord is correct that entry of a money judgment may be an appropriate remedy for a tenant's violation of a U&O order—in circumstances, for example, where that order is in substance imposing a condition on the tenant's right to remain in the premises at issue. (See Rose Assocs. v Johnson, 247 AD2d 222, 223 [1st Dept 1998].) But awarding a landlord a money judgment for the unpaid U&O presupposes landlord's entitlement to the sums at issue. Here, as reflected in tenant's claims and landlord's counterclaim, the parties hotly contest whether landlord is entitled to collect from tenant the full amounts of monthly rent that landlord claims. This court's grant of interim relief recognized this distinction: It did not direct tenant to pay U&O to landlord directly, but rather required only payment of U&O into escrow. (See NYSCEF No. 33 at 2.) Granting landlord the requested money judgment for six weeks of U&O in the amount of the monthly rent owed under the lease would prematurely resolve the parties' underlying dispute about landlord's entitlement (or not) to that sum.

This court concludes, instead, that the proper course is to deny the current motion as academic. The denial of the motion is without prejudice to either party's moving to determine whether, and to what extent, landlord is entitled to the full $1.7 million-plus it claims from tenant in rent under the lease.

2. That said, the scope of landlord's rent claim is limited slightly by the parties' actions following the signing of the order to show cause—in particular, landlord's service on May 4 on tenant of a notice of termination, following tenant's vacatur of the premises on April 3. Service by a landlord of a notice to terminate a lease, following a tenant's vacatur of the premises, is plainly "inconsistent with the landlord-tenant relationship." (Riverside Research Inst. v KMGA, Inc., 68 NY2d 689, 692 [1986].) Indeed, service of the notice is the clearest possible indication of landlord's "intent to terminate the lease and use the premises for its own benefit." (Deer Hills Hardware, Inc. v Conlin Realty Corp., 292 AD2d 565, 565 [2d Dept 2002].) That service, therefore, constituted landlord's acceptance of tenant's surrender of the lease by operation of law, cutting off the lease, and any obligation of tenant to pay rent, as of the date of the notice. (See id. at 565-566; accord Center for Specialty Care, Inc. v CSC Acquisition I, LLC, 187 AD3d 46, 54-56 [1st Dept 2020].) As a result, landlord may not claim entitlement from tenant to rent accruing after May 4, 2023.

Accordingly, it is

ORDERED that landlord's motion for an award of U&O is denied as academic, without prejudice to the parties' moving on notice to determine the amount in unpaid rent to which landlord is entitled under the parties' lease before the surrender of that lease by operation of law on May 4, 2023.

DATE 5/26/2023

Gerald Lebovits, J.