ERNIE OTTO CORPORATION v. INLAND SOUTHEAST THOMPSON MONTICELLO LLC

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ERNIE OTTO CORPORATION, Appellant, v. INLAND SOUTHEAST THOMPSON MONTICELLO, LLC, Respondent.

Decided: January 19, 2012

Before: SPAIN, J.P., MALONE JR., STEIN, McCARTHY and EGAN JR., JJ. Ingber & Ingber, L.L.P., Monticello (Keith G. Ingber of counsel), for appellant. Segel, Goldman, Mazzotta & Siegel, P.C., Albany (Jeffrey A. Siegel of counsel), for respondent.

Appeal from an order of the Supreme Court (Sackett, J.), entered September 9, 2010 in Sullivan County, which, among other things, granted defendant's cross motion for summary judgment dismissing the complaint.

In January 1997, defendant, then owner of Monticello Mall, entered into a lease agreement with plaintiff to rent space within the mall for a greeting card store. The lease contained a restrictive covenant that prohibited defendant from renting “[d]uring the term of this [l]ease ․ to another [t]enant dedicated primarily to the sale of greeting cards.” The lease defined such tenant as one with “more than thirty-six (36) feet of rack for the sale of greeting cards.” At the time plaintiff signed the lease, however, defendant was already renting to Kim's Mountain Gifts Corporation.1 Kim's and defendant entered into a lease in 1993, four years prior to plaintiff's lease taking effect. The lease agreement with Kim's gave Kim's the right to sell, among other things, greeting cards and did not restrict that right in any way. In 2000, Kim's doubled in size, increasing its rack space for greeting cards from 30 feet to between 120 and 150 feet. Plaintiff did not commence this action until 2004, when Kim's renewed its lease, increased its rack size another 20 feet, and entered into a contract with Hallmark to carry its products.

Plaintiff moved for summary judgment against defendant, seeking a permanent injunction and enforcement of the restrictive covenant. Defendant cross-moved for summary judgment dismissing the complaint. Supreme Court denied plaintiff's motion, granted defendant's cross motion for summary judgment, dismissed plaintiff's complaint, and awarded defendant counsel fees. Plaintiff appeals.2

Supreme Court did not err in awarding defendant summary judgment. “[T]he law favors ‘free and unencumbered use of real property, and covenants restricting use are strictly construed against those seeking to enforce them’ ” (Van Schaick v. Trustees of Union Coll., 285 A.D.2d 859, 860, 728 N.Y.S.2d 275 [2001], lv. denied 97 N.Y.2d 607, 738 N.Y.S.2d 291, 764 N.E.2d 395 [2001], quoting Witter v. Taggart, 78 N.Y.2d 234, 237, 573 N.Y.S.2d 146, 577 N.E.2d 338 [1991]; accord Dever v. DeVito, 84 A.D.3d 1539, 1542, 922 N.Y.S.2d 646 [2011], lv. dismissed ––– N.Y.3d ––––, 2012 WL 15941 [Jan. 5, 2012]; see Bear Mtn. Books v. Woodbury Common Partners, 232 A.D.2d 595, 595–596, 649 N.Y.S.2d 167 [1996] ). “Moreover, courts will enforce such restraints only where the party seeking enforcement establishes their application by clear and convincing evidence” (Dever v. DeVito, 84 A.D.3d at 1542, 922 N.Y.S.2d 646 [citations omitted] ). “[W]here the language used in a restrictive covenant is equally susceptible of two interpretations, the less restrictive interpretation must be adopted” (Ludwig v. Chautauqua Shores Improvement Assn., 5 A.D.3d 1119, 1120, 774 N.Y.S.2d 240 [2004], lv. denied 3 N.Y.3d 601, 782 N.Y.S.2d 404, 816 N.E.2d 194 [2004]; see Bear Mtn. Books v. Woodbury Common Partners, 232 A.D.2d at 596, 649 N.Y.S.2d 167).

The restrictive covenant at issue provides that “[d]uring the term of this [l]ease, [defendant] will not rent to another [t]enant dedicated primarily to the sale of greeting cards.” Plaintiff had the burden of showing that the language “to another [t]enant” applied not only to new tenants, but also included tenants under lease with defendant prior to plaintiff executing its lease. The less restrictive interpretation of the language at issue here limits the covenant's application to future tenants only. Any other reading would force defendant to breach its agreement with Kim's, which was under no obligation to limit its sale of greeting cards under the terms of its lease. Thus, defendant was entitled to summary judgment dismissing the complaint.

Supreme Court also properly found that the covenant did not apply to Kim's. A “restrictive covenant cannot be enforced against a competing tenant whose lease predates the covenant's execution” (Fratelli's Pizza & Rest. Corp. v. Kayzee Realty Corp., 74 A.D.3d 481, 481, 902 N.Y.S.2d 534 [2010] ). There is no dispute that the lease that Kim's had predated plaintiff's lease by four years. Plaintiff, however, contends that the expansion by Kim's in 2000 amounted to a new lease agreement between the parties and, thus, put Kim's on notice of the restrictive covenant. We find this argument unavailing. Mere amendments to a preexisting tenant's lease, that do not materially affect the rights of the parties under it or otherwise work to annul the prior agreement, do not constitute a new agreement (see L'Art de Jewel Ltd. v. Hudson Sheraton Corp., LLC, 46 A.D.3d 418, 420, 850 N.Y.S.2d 3 [2007] ). When Kim's executed the 2000 amendment to the original lease, the only material terms altered were the square footage and base rent. Because none of the substantive terms of the agreement changed, specifically the items that Kim's was permitted to sell, the amendment did not constitute a new lease agreement (see id.).

As the prevailing party, defendant was properly awarded counsel fees consistent with the agreement between the parties. If either party commences an action against the other, the rider to plaintiff's lease provides that “the prevailing party in such action shall be entitled to all expenses incurred therein including reasonable attorney's fees.” Because plaintiff's claim was dismissed and summary judgment was properly awarded to defendant, Supreme Court did not err in finding that defendant was the prevailing party.

ORDERED that the order is affirmed, with costs.

McCARTHY, J.

SPAIN, J.P., MALONE JR., STEIN and EGAN JR., JJ., concur.

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