Wednesday, January 25, 2017

ILLEGAL COMMERCIAL LEASES



JACK KELLY PARTNERS LLC v. ZEGELSTEIN, 2014 NY Slip Op 33673 - NY: Supreme Court 2014:

"It is well settled that a mere lack of certificate of occupancy for the use contemplated by a lease agreement does not absolve a tenant from its obligation to pay rent and justify abandonment of the demised premises, nor does the lack of conforming certificate of occupancy alone cause the lease to be void for illegality or result in a failure of consideration (see 56-70 58th St. Holding Corp. v Fedders-Quigan Corp., 5 NY2d 557 [1959]; Jordache Enters. v Gettinger Assoc., 176 AD2d 616 [1st Dept 1991]; see also Silver v Moe's Pizza, 121 AD2d 376 [2d Dept 1986]; Cutler-Hammer, Inc. v One Lincoln Assoc., 79 AD2d 512 [1st Dept 1980]; Shawkat v Malak, 38 Misc 3d 52, 54 [NY App Term 2013]). The cases are also legion in which the courts held that even if the certificate of occupancy and zoning regulations preclude the tenant from using the premises for the purpose specified in the lease, this does not absolve the tenant of its obligation to pay rent for the period of time when the tenant has occupied the premises, including where the landlord made no representation concerning the certificate of occupancy for the intended use under the lease (see e.g. Phillips & Huyler Assoc. v Flynn, 225 AD2d 475 [1st Dept 1996]; Only Props., LLC v Cavlak, 30 Misc 3d 129[A], 2010 NY Slip Op 52300[U] [NY Sup App Term 2010]; All Metro Corp. v Fit Laundromat, 13 Misc 3d 131[A], 2006 NY Slip Op 51858[U] [NY Sup Ct App Term 2006]). Therefore, the Court finds that plaintiff's argument that the lease is illegal for want of a conforming certificate of occupancy must fail. Plaintiff's argument regarding the failure of consideration is also unavailing for the reasons stated below.

Plaintiff asserts that there exists no support in the documentary evidence submitted which placed on plaintiff the obligation to take affirmative steps to revise or alter the certificate of occupancy. In response, defendants point out to paragraph 57(D) of the lease and the 2009 Order. In the 2009 Order, the Court already determined[1] that paragraph 57(D)[2] places the responsibility on plaintiff to seek a change of the certificate of occupancy for the demised premises, which is part of the certificate of occupancy for the entire building (Sava Affirm., exhibit J).

Notwithstanding the foregoing, plaintiff avers that nowhere in the lease is an affirmative obligation placed on plaintiff to procure a certificate of occupancy. Plaintiff argues further that to the extent that any ambiguity as to the meaning of the lease provisions can be found, such ambiguity must be resolved against the landlord, who drafted the lease. These arguments are defeated by the plain language of paragraph 65 of the lease agreement, which provides that "[the] Lease shall be deemed to have been jointly prepared by both the Landlord and Tenant and any ambiguities or uncertainties herein shall not be construed for or against either of them" (Sava Affirm., exhibit R, at page 18 of 21) (see also Madison Ave. Leasehold, LLC v Madison Bentley Assoc. LLC, 8 NY3d 59, 66 [2006] [a commercial lease should be enforced according to its terms when parties set down their agreement in a clear, complete document and extrinsic and parol evidence is not admissible to create an ambiguity]; Farrell Lines v City of New York, 30 NY2d 76, 165 [1972] ["(a)n agreement of lease possesses no peculiar sancity requiring the application of rules of construction different from those applicable to an ordinary contract"] [internal quotes omitted]).

Furthermore, defendants made no covenant in the lease agreement to procure a conforming certificate of occupancy, or obtain a zoning variance, and plaintiff enjoyed undisturbed right to possession of the demised premises (see Silver, 121 AD2d at 377-378, citing 56-70 58th St. Holding Corp. v Fedders-Quigan Corp., 5 NY2d 557 [1959]; cf. Multiple Dwelling Law § 302[1][b]; Kosher Konvenience, Inc. v Ferguson Realty Corp., 171 AD2d 650 [2d Dept 1991]). Moreover, the terms of the lease do not condition plaintiff's promise to pay the rent on either explicit or implied covenant that defendants have a proper certificate of occupancy for the demised premises (see Raner v Godberg, 244 NY 438 [1927]). In the 2009 Order, this Court held that the lease clearly delivered the premises in "as is" condition and paragraph 57(C) of the lease, should have placed plaintiff on notice to check the certificate of occupancy, and applicable laws, codes, and zoning regulations (Sava Affirm., exhibit J, at page 3).

Paragraph 57(C) provides that:
Landlord makes no representations that the use to be made of the Demised Premises, as specified herein, is consistent with permitted uses under the existing certificate of occupancy issue[d] for the Building. In the event that such use is inconsistent with said certificate of occupancy and further, that the Department of Buildings or other governmental agency having jurisdiction, issues a violation based on such inconsistent use, this Lease, shall be terminable by Landlord in accordance with the provisions for notice set forth herein, on thirty (30) days' prior written notice to Tenant (Sava Affirm., exhibit R, at page 12 of 21).
As defendants correctly contend, paragraph 57(C) of the lease contains disclaimer of warranty that the contracted for use of the premises, as strictly specified in the lease, is consistent with the permitted uses under the existing certificate of occupancy for the demised premises (see Sava Affirm., exhibit R, at page 12 of 21). Based on this language of the lease, defendants argue, that plaintiff's claim of fraud and misrepresentation is deficient and cannot sustain the cause of action for rescission. Once again, in the 2009 Order, this Court found that the documentary evidence conclusively established a defense, as a matter of law, to plaintiff's claim that the landlord breached an alleged promise that the premises may be legally used and occupied as a commercial space, and to plaintiff's claim that defendants falsely represented that the premises could be used for commercial purpose (Sava Affirm., exhibit R, at page 3). "Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance upon these contrary oral representations" (Danann Realty Corp. v Harris, 5 NY2d 317, 320-321 [1951]).

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