CAVEAT EMPTOR APPLIES TO COMMERCIAL LEASES

ERMENEGILDO ZEGNA CORP. v. L&M 825 LLC, 2022 NY Slip Op 30578 - NY: Supreme Court 2022:

"Plaintiff Ermenegildo Zegna Corporation (plaintiff or Zegna), a commercial tenant, commenced the instant action on or about September 30, 2016 seeking to rescind the lease between it and the defendant-landlord L&M 825 LLC (defendant) on the grounds of mutual mistake (first cause of action). The complaint also asserts breach of contract in the second and third causes of action for the defendant's failure to deliver the premises as described in the lease and failure to cooperate with plaintiff in obtaining required permits and a certificate of occupancy. In the fourth and fifth causes of action, plaintiff asserts claims alleging breach of the implied covenant of good faith and fair dealing and unjust enrichment.

Defendant filed and served an answer asserting affirmative defenses and three counterclaims for plaintiff's breach of the lease in failing to pay rent and additional rent; a declaratory judgment that plaintiff breached the lease and must comply with the same; and attorneys' fees (see NYSCEF Doc No. 6). Plaintiff replied to the counterclaims, asserting various affirmative defenses (see NYSCEF Doc No. 10).^[1]

A nonjury trial was conducted on November 21, 2019 and January 28, 2020 before the Hon. Carol Ruth Feinman. The lease and other documents were admitted into evidence during the trial. Robert Aldrich, plaintiff's Chief Executive Officer for the Americas region and Giovanni Ballielo, Zegna's Corporate Store Planning Director, testified on November 21, 2019. Theodore Bodnar of Bodnar Architecture P.C., the defendant's architect, and William Friedland, a principal of Friedland Properties, testified on January 28, 2020.^[2] The matter was administratively re-assigned to the undersigned in January 2021 and, after conference with the Court, the parties stipulated to having the trial decided on the record rather than re-try the case (see NYSCEF Doc No. 102).

The Court credits the testimony of the witnesses and the documentary evidence to the extent indicated in the following findings of fact.

FINDINGS OF FACT

In late 2012, plaintiff began searching for a location in Manhattan to lease space for a retail store. In December 2012, plaintiff learned of retail space located at 823 Madison Avenue. At the time, the retail space on the first, second, and third floors of that location was combined with 825 Madison as a single space. Defendant advertised the retail space as two separate spaces, divided by a wall — a wall that did not yet exist and needed to be erected (the Wall). Plaintiff's representatives visited the location on two occasions and negotiated the terms of the lease between December 2012 and April 2013. Plaintiff was represented by the law firm Cleary Gottlieb Steen & Hamilton LLP for the lease negotiations and execution.

On April 12, 2013, the parties executed a lease for the space at 823 Madison, comprised of three levels on the first (ground), second, and third floors, totaling 5,225 square feet of space (the retail space), and part of a basement (together, the premises). The lease term commenced August 1, 2013 for a term of 10 years, expiring July 31, 2023, with annual base rent at $2.5 million per year in 2014 with annual increases until 2023. The lease contains relevant provisions as follows:

• The premises are leased for the purpose of the retail sale of goods and no other purpose;

• Plaintiff inspected the premises and takes the premises in its "as-is" condition;

• Defendant made no representation as to the condition of the premises, or fitness or sufficiency of the premises for "Tenant's use or requirements";

• Plaintiff assumed responsibility for costs and expenses for the plaintiff's work "necessary to enable Tenant to be open same for business in accordance with the Legal Requirements" and provisions of the lease;

• Such legal requirements included provisions related to the Certificate of Occupancy (CO) of the building;

• Plaintiff's work included constructing the demising Wall, constructing customer stairways and building exits such as fire exists or fire stairs in accordance with "Legal Requirements";

• Plaintiff acknowledged it reviewed and is familiar with the CO for the building; and

• Defendant shall cooperate with plaintiff in connection with obtaining required permits and CO.

Plaintiff admittedly had not reviewed the CO prior to signing the lease and failed to provide testimony as to any due diligence performed with respect to the CO, or alterations and work plaintiff assumed under the lease (Aldrich at 63-65). After signing the lease on April 12, 2013, plaintiff hired Space 4 as an architect and Code LLC was hired as a permit expediter.

At this time, it appears as though the parties believed that a CO dated November 6, 2003 governed the premises (Aldrich at 26; Bodnar at 29), which listed retail use of the first, second, and third floors (see pltf ex 5) (the 2003 CO).

In June of 2013, plaintiff's architect Space 4 and defendant's architect/expeditor, Bodnar, coordinated on an application for a permit to construct the Wall. The parties discussed what type of application should be filed. In e-mail correspondence dated June 19, 2013, Space 4 e-mailed Bodnar noting that "the current [CO] 823 Madison Avenue accessible on the BIS indicates retail use of the ground floor only"; and that the landlord should be responsible for establishing the retail use of the two upper floors, which could be done with an Alt 1 application (deft ex A, L&M 739-740 [emphasis in original]). Ultimately, following a meeting between Space 4 and Bodnar, plaintiff decided to submit an Alt 2 application. An Alt 2 application is filed by a professionally certified architect and implies that the work to be performed does not itself affect egress. As recapped in a June 21, 2013 e-mail by Space 4: "The application [for the Wall] will depict solely the partitions to be installed for the purpose indicated; it will not include or dictate the proposed layout of the tenant's space, nor illustrate egress, which will be addressed in the individual applications filed by the tenant's appointed professionals" (deft ex A, L&M 728). In other words, plaintiff's professionals would address the issues of "[e]gress, use, occupation" and "would need design drawings, construction drawings in order to ... address that" (Bodnar at 57). The Wall was subsequently constructed in August of 2013.

Around September or October 2013, plaintiff's expediter Code LLC advised plaintiff that the 2003 CO may have only governed 825 Madison and the prior COs for 823 Madison permitted retail use only on the first/ground floor but not the second or third floors. Further, the Wall had now cut 823 Madison off from 825 Madison, leaving only one code-compliant means of egress at the premises.

Plaintiff requested a meeting with defendant, which took place on or about October 30, 2013.^[3] Plaintiff advised defendant it was having problems obtaining permits for retail use of the second and third floors and requested defendant's assistance. Plaintiff claims that the defendant was dismissive of its concerns or requests and advised that plaintiff should be able to get the permits based on the 2003 CO (Aldrich at 39; see pltf ex 8). Following the meeting, plaintiff planned to submit two alternate applications, hoping that if the Department of Buildings (DOB) accepted the approach with the existing 2003 CO, then plaintiff might be able to avoid delays (see pltf ex 8). Plaintiff's experts also filed for three "determinations" with the DOB requesting permission for certain items in plaintiff's applications. The applications were either denied, or approved if certain conditions were met, such installing sprinklers (see pltf exs 12-14). Plaintiff appealed those determinations but was unsuccessful.

Plaintiff was unable to open its store in January 2014 as expected; rather plaintiff opened a temporary Zegna "pop-up" store on the first floor in July 2014.

About a year later, plaintiff requested a meeting with defendant, which was held on April 15, 2015. Plaintiff explained the impasse with respect to the DOB and defendant offered Bodnar to help. By November 2015, Bodnar was able to obtain approval regarding one of the objections from the DOB, permitting the use of the shared hallway and staircase as a required means of egress from the second and third floors (Bodnar at 35). Plaintiff would still have to "add[] fire resistance ratings, upgrad[e] fire resistance ratings and sprinklers throughout the building" (Aldrich at 49), which plaintiff understood to mean the residential apartment spaces located above the commercial floors. Ballielo testified that the additional work would have taken approximately a year to complete and would cost approximately $3 million (Ballielo 147-148).

Plaintiff vacated on September 30, 2016 because the required alterations would be too costly (Aldrich 50-52), and it commenced this action on the same day. Defendant refused to accept plaintiff's surrender and terminate the lease. Plaintiff has not paid rent since it vacated.

CONCLUSIONS OF LAW

I. RECISSION DUE TO MUTUAL MISTAKE

Plaintiffs complaint alleges that "[p]rior to and at the time Landlord and Zegna entered into the Lease, both Landlord and Zegna mistakenly believed that Zegna would be able to use floors 1, 2, and 3 of the Premises for retail sales immediately upon commencement of the Lease" (NYSCEF Doc No. 1 at ¶ 42).^[4]

"As a general rule, where a mistake in contracting is both mutual and substantial, there is an absence of the requisite `meeting of the minds' to the contract and relief will be provided in the form of rescission" (County of Orange v Grier, 30 AD3d 556, 556-57 [2d Dept 2006], quoting Sunlight Funding Corp. v Singer, 146 AD2d 625, 626 [2d Dept 1989] [internal quotation marks omitted]). "The mutual mistake must exist at the time the contract is entered into and must be substantial" (County of Orange, 30 AD3d at 557 [2d Dept 2006], quoting Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993]).

A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient (Restatement [Second] of Contracts § 154 [1981]).

The evidence suggests that the "mistake" was that both sides apparently believed that the 2003 CO governed not only 825 Madison but 823 Madison as well and that retail use of the space was permitted on the upper floors, and not just the ground floor.

Even if the "mistake" was mutual, the Court first finds that the risk of the putative mistake was allocated to the plaintiff. The lease states that the plaintiff takes the space "as is"; and that it had reviewed the CO and that it was responsible for its use of the space, including construction of basic building exits in accordance with legal requirements, including obtaining DOB permits, approval and compliance with the CO and related issues. Notably, there is nothing in the lease that states the defendant had reviewed the applicable CO, or made any representations of the same, or that defendant was responsible for any of the work/alternations that plaintiff needed to do to legally use the space for retail use (see generally Kosher Konvenience, Inc. v Ferguson Realty Corp., 171 AD2d 650, 651 [2d Dept 1991] ["The lease will be considered a valid contract if the bar to legal use of the premises is readily correctible and the language used in the lease indicates that the parties intended that the defect be corrected and the premises legally occupied"]; cf. P.K. Dev. v Elvem Dev. Corp., 226 AD2d 200, 201-02 [1st Dept 1996] [where there was no express provision and the court allocated the risk of the mistake regarding occupancy to the defendant-landlord, who was in the best position to ascertain the existence of the fact]).

Additionally, the doctrine of mutual mistake "may not be invoked by a party to avoid the consequences of its own negligence" (P.K. Dev., 226 AD2d at 201; see Restatement [Second] of Contracts § 154[b] [1981]). Thus "[w]here a party `in the exercise of ordinary care, should have known or could easily have ascertained' the relevant fact[,] ... that party is deemed to have been `[c]onscious[ly] ignoran[t]' and barred from seeking rescission or other damages" (Eisenberg v Hall, 147 AD3d 602, 604-05 [1st Dept 2017] [internal citations omitted], quoting P.K. Dev., 226 AD2d at 202). "Even where a party must go beyond its own efforts in order to ascertain relevant facts (such as obtaining experts' reports), courts have held that the party must bear the risk of mistake if it chooses to act on its otherwise limited knowledge" (P.K. Dev., 226 AD2d at 202).

Thus, the Court finds that the plaintiff is also barred from rescinding the lease based on the putative mistake due to its own lack of due diligence. Plaintiff admittedly testified it did not do any due diligence prior to signing the lease. The fact that the 2003 CO did not apply to demised premises, i.e., 823 Madison, could have been discovered prior to signing the lease. Notably, it could have been looked up on the DOB website and, indeed, Space 4 found and shared links to the CO which appeared to be applicable to 823 Madison as early as June 2013. Further, when a wall is put up in between a space, it is not unreasonable to expect that legally compliant egress may be at issue and might change the legal or permitted occupancy.

Moreover, there is nothing in the record to infer that plaintiff should have reasonably relied on Bodnar or his Alt 2 application to the extent plaintiff suggests. The plaintiff's architect was coordinating on the Wall application with Bodnar and recognized the differences in the types of applications it could submit. Both sides are highly sophisticated and were represented by counsel in the lease negotiation and execution (cf. Lakshmi Grocery & Gas, Inc. v GRJH, Inc., 138 AD3d 1290, 1292-93 [3d Dept 2016] ["Supreme Court credited [plaintiff-tenant's representative's] testimony that a level of trust existed between them [defendant's representatives] and found that plaintiffs exercise of due diligence, although minimal, was reasonable"]).

Had plaintiff reasonably inquired as to the applicable CO for the premises it leased and realized the implications of the obligations it assumed in the lease, prior to signing the lease, as it had done in June of 2013 after hiring an architect and expeditor, the confusion may have been avoided. Even knowing in June of 2013 that the construction of the Wall may change the legal use of the space, and plaintiff's actions in proceeding on the hope that the DOB would approve plaintiff's plans to use the premises for retail use on the upper floors, irrespective of such apparent conflict with the applicable CO, falls on the plaintiff (see generally P.K. Dev., 226 AD2d at 202 ["The failure of events to develop or continue as expected — no matter how well-founded the expectation — does not entitle the disappointed party to rescission or avoidance of the contract"] [internal citation omitted]; In re Schenck Tours, Inc., 69 BR 906, 914 [Bankr EDNY 1987], affd 75 BR 249 [EDNY 1987] ["Contract avoidance on the grounds of mutual mistake is not permitted just because one party is disappointed in the hope that the facts accord with his wishes"]).

II. BREACH OF LEASE: FAILURE TO DELIVER PREMISES

To sustain a cause of action for breach of contract, plaintiff must prove the existence of a contract, plaintiff's performance, defendant's breach, and damages (see Harris v Seward Park Hous. Corp., 79 AD3d 425, 426 [1st Dept 2010]).

Plaintiff's second cause of action alleges that defendant failed to deliver the premises. Plaintiff claims that the lease defines the premises as the first, second and third floors, and that those spaces could only be used for "the sale at retail" and "no other purpose whatsoever." In asserting that the 2003 CO did not permit retail use of the upper floors, plaintiff claims that defendant failed to deliver the premises.

The Court finds that defendant did not breach its obligation to deliver the premises. Plaintiff began occupying the space as the parties intended. That the plaintiff had to comply with various legal requirements to use the space for retail is clearly set forth in the lease as part of plaintiff's obligation(s). The Court declines to construe a reading of the lease that essentially negates or undermines what the parties explicitly set forth in the lease as to each party's respective obligations (see Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002] ["`The best evidence of what parties to a written agreement intend is what they say in their writing.' Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms"], quoting Slamow v Del Col, 79 NY2d 1016, 1018 [1992]; Greenfield, 98 NY2d at 569-70 ["if the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity"]).

III. BREACH OF LEASE: FAILURE TO COOPERATE

Plaintiff's third cause of action asserts that defendant failed to cooperate with plaintiff in violation of the lease which states that defendant "shall cooperate with [plaintiff] in connection with [plaintiff] obtaining the required permits and a Certificate of Occupancy for [plaintiff s] alterations."

The additional findings of fact relating to this claim are as follows:

Aldrich testified that Friedland "was not cooperative, he didn't offer to assist us"; rather Friedland believed that they could all move forward with the 2003 CO, which was "obviously ... the wrong prescription for the problem" (Aldrich at 112). Aldrich also believed that defendant was in the better position to know more about the building "to at least shed some light to point [plaintiff] in the right direction" (Aldrich at 112-113).

Friedland testified that after the October 2013 meeting and until April 2015, defendant was not aware of any request for help or assistance in working with the DOB (Friedland at 100-101).

Aldrich and Friedland both testified that defendant never refused to sign off on anything requested by plaintiff, including e.g., plans submitted by plaintiffs design professionals (Aldrich at 61; Friedland at 115).

Plaintiff references its request for an easement in October of 2014, citing Friedland's testimony at 101-103, wherein he testified that an easement between 825 Madison and 823 Madison was requested by plaintiff and received two months later, but there is no apparent reason why it took two months. The other document plaintiff cited in support, exhibit 34, is an October 16, 2014 internal e-mail between plaintiff and its agents indicating that an easement was going to be requested. There is no proof as to when the easement was granted, whether it was two months, more, or less, or any proof as to why two months would or would not be reasonable under the circumstances.

During the April 15, 2015 meeting, Ballielo testified that defendant asked Bodnar to help and that defendant "would support [plaintiff] in obtaining a favorable outcome of the determination" before the DOB (2019 tr at 139). Bodnar allegedly represented it would be "quick" because he had good relations with the DOB. Plaintiff contends that Bodnar's failure to move on the request for "help" was a lack of cooperation. Although plaintiff contends that Bodnar had come up with excuses for failing to move on the request, and only ultimately did so under a threat of litigation in November of 2015, plaintiff submits no evidence that this delay was unreasonable. Rather Bodnar testified that, once he was requested to help in April of 2015, he began researching and analyzing how to approach the objection; met with the borough commissioner in July of 2015; created drawings as requested by the commissioner that verified information that was previously missing in plaintiff's application; went back in twice to verify additional items; and ultimately requested an emergency appointment, which took place in November, to get the approval on the objection (Bodnar at 35, 39-41).

Although the parties failed to provide case law as to what "cooperate" means under a lease,^[5] the Court finds that under this record, the Court cannot say that defendant failed to "cooperate" with plaintiff — plaintiffs idea of cooperation would impose burdens that go well beyond what is contemplated in the clear terms of the lease (see generally Greenfield, 98 NY2d at 569-70). Notably, plaintiff conceded that the permitted use for retail sales by plaintiff as set forth in the lease was conditioned upon plaintiff complying with the legal requirements including the CO (Aldrich at 102, 109). Plaintiff also conceded that if the tenant could not comply with the existing CO, it would have to apply for a new CO or a temporary CO (Aldrich at 109-110). Nowhere does it state that defendant is supposed to be doing it for them. Further, once the approval on the objection regarding egress was obtained by Bodnar, plaintiff would have to address the remaining items of the application, which plaintiff failed to do (see Bodnar at 35-36).

IV. IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING

"Implicit in every contract is a promise of good faith and fair dealing that is breached when a party acts in a manner that ... would deprive the other party of receiving the benefits under their agreement" (Sorenson v Bridge Capital Corp., 52 AD3d 265, 266 [1st Dept 2008]). The implied covenant will be enforced "only to the extent it is consistent with the provisions of the contract" (Phoenix Capital Invs. LLC v Ellington Mgt. Group, L.L.C., 51 AD3d 549, 550 [1st Dept 2008]). To the extent the claim "merely restates [a] breach of contract claim," it will be dismissed (Brook v Peconic Bay Med. Ctr., 152 AD3d 436, 438 [1st Dept 2017]).

The Court finds that this claim is duplicative of the breach of contract claim for failing to cooperate. In any event, it is without merit given the same facts above. To be sure, plaintiff's contentions that defendant incorrectly represented to plaintiff that the 2003 CO would still govern after constructing the Wall and Bodnar's filing for the Wall would not impact egress from the premises are untenable as those issues fall squarely within plaintiff's lease obligations. "The covenant of good faith and fair dealing cannot be construed so broadly as to effectively nullify other express terms of the contract, or to create independent contractual rights" (National Union Fire Ins. Co. of Pittsburgh, Pa. v Xerox Corp., 25 AD3d 309, 310 [1st Dept 2006]).

V. UNJUST ENRICHMENT

Unjust enrichment is "the receipt by one party of money or a benefit to which it is not entitled, at the expense of another" (Abacus Fed. Say. Bank v Lim, 75 AD3d 472, 473 [1st Dept 2010]). To state a claim for unjust enrichment, "plaintiff must show that (1) the other party was enriched; (2) at that party's expense; and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" (Kramer v Greene, 142 AD3d 438, 442 [1st Dept 2016] [internal quotation marks and citation omitted]). Plaintiff may plead both breach of contract and quasi-contract as alternative theories of recovery where "there is a bona fide dispute as to the existence of a contract, or where the contract does not cover the dispute at issue" (Hochman v LaRea, 14 AD3d 653, 654-655 [2d Dept 2005]). However, where a valid and enforceable written contract governing the subject matter exists, plaintiff is precluded from recovery on a quasi-contract claim (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987]). Although plaintiff contends that it is inequitable to permit defendants to benefit from plaintiff's rent paid for the entire premises when it was only able to use the first floor for retail use, the claim is precluded by the existence of the lease and its applicable remedies (see Wachovia Sec., LLC v Joseph, 56 AD3d 269, 271 [1st Dept 2008] ["The record does not support Wachovia's allegations of injustice or unjust enrichment, but only supports a finding that Wachovia made a costly error due to its own conduct"]).

Accordingly, all of plaintiff's claims are dismissed.

VI. DEFENDANT'S COUNTERCLAIMS

Defendant asserted three counterclaims: breach of lease in failing to pay rent; declaratory judgment; and attorneys' fees.

The Court finds that defendant must prevail on its counterclaim for declaratory judgment that the lease remains in full force and effect, particularly in light of the Court's finding that plaintiff is not entitled to rescind the lease.

As for the breach of lease counterclaim, defendant must show "(i) the existence of a valid, binding lease, (ii) landlord's performance thereunder, (iii) tenant's failure to pay rent (or other breach), and (iv) damages suffered by landlord as a result of the breach" (A/R Retail LLC v Hugo Boss Retail, Inc., 149 Misc 3d 627, 637 [Sup Ct, NY County 2021]; see Markov v Katt, 176 AD3d 401, 402 [1st Dept 2019]).

It is undisputed that plaintiff stopped paying rent after it vacated the premises on September 30, 2016. However, in its post-trial brief, plaintiff requests that the Court conform its pleading to the evidence presented at trial to assert a constructive eviction, impossibility of performance, and frustration of purpose.

An application pursuant to CPLR 3025(c) to conform the pleadings to the evidence is "a matter within `the sound discretion of the court and should be determined in the same manner and by weighing the same considerations as upon a motion to amend pursuant to subdivision (b), except that under (c) the possibly increased effect on orderly prosecution of the trial might be a factor to be taken into account' (Loomis v Civetta Corinno Const. Corp., 54 NY2d 18, 23 [1981], quoting Murray v City of New York, 43 NY2d 400, 405 [1977]). "Prejudice, of course, is not found in the mere exposure of the defendant to greater liability. Instead, there must be some indication that the defendant has been hindered in the preparation of his case or has been prevented from taking some measure in support of his position" (Loomis, 54 NY2d at 23).

The Court first notes that no formal application has been made to amend the pleadings before the trial justice. Even if an application had been made, the defendant has not been given an opportunity to oppose it. The Court declines to amend the pleadings sua sponte as, upon review of the record, the proposed defenses and potential claim do not appear to have been brought up before (see generally DuBose v Velez, 63 Misc 2d 956, 957-59 [Civ Ct, NY County 1970] ["why insist upon pleadings at all? Why not try the case first and write the pleadings later? ... Self-evidently, we need pleadings — so that litigants may know what claims or defenses they must prepare to meet, so that issues are defined for trial, so that parties will be discouraged from tempering their testimony to meet the needs of the occasion"]). The last-minute attempt to bring in new defenses and a claim for constructive eviction are interposed so late that the Court finds there would be prejudice to the defendant if the Court permitted it, particularly now in 2022, nearly 6 years after the action was filed and 2 years since being tried (cf. Padro v Bertelsman Music Group, 278 AD2d 61, 62 [1st Dept 2000]).

Plaintiff did not otherwise sufficiently contest the defendant's counterclaim for money due under the lease, nor the provision for attorneys' fees. The parties stipulated to submit a document setting forth the back rent due under the lease and the Court issues its judgment accordingly.

CONCLUSION

It is hereby ORDERED that judgment is granted in favor of the defendant on the plaintiff's complaint, and the complaint is dismissed in its entirety; and it is further

ORDERED that defendant's second counterclaim for declaratory judgment is granted; and it is further

ORDERED and ADJUDGED that the parties' lease is not rescinded and remains in effect; and it is further

ORDERED that defendant is granted judgment on its first counterclaim for rent and additional rent and fees due under the lease through November 30, 2019 and shall recover from plaintiff the amount of $13,242,279.80 together with costs and disbursements as taxed by the Clerk upon submission of an appropriate bill of costs; and it is further

ORDERED that that defendant's third counterclaim for attorneys' fees is severed and the issue of the amount of reasonable attorney's fees that defendant may recover against the plaintiff pursuant to the lease is referred to a Special Referee to hear and report; and it is further

ORDERED that counsel for the defendant shall, within 30 days from the date of entry of this order, serve a copy of this order with notice of entry, together with a completed Information Sheet,^[6] upon the Special Referee Clerk in the General Clerk's Office (Room 119), who is directed to place this matter on the calendar of the Special Referee's Part for the earliest convenient date; and it is further

ORDERED that such service upon the Special Referee Clerk shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases.^[7]

[1] Plaintiff's post-trial memorandum requests that the Court conform the proof to the pleadings so that plaintiff may assert affirmative defenses that were not originally plead, which is discussed infra (see NYSCEF Doc No. 97 at 42, n 4).

[2] Citations to the witnesses' testimony is referred by the witnesses' last name and transcript page, without the transcript date as it is understood that the four witnesses testified on the above-referenced dates.

[3] Additional findings of fact related to the failure to cooperate and breach of the implied covenant of good faith and fair dealing are set forth in the legal discussion infra.

[4] Although the complaint states "for retail sales immediately upon commencement of the Lease," the lease commenced when plaintiff took possession in August of 2013 and it has been plaintiff's position that it would not actually engage in retail sales until January 1, 2014 because the work had to be performed (e.g., erection of the Wall and other alterations to fit the space to plaintiff's specifications).

[5] Plaintiff's post-trial brief cites Long Term Capital Holdings v United States, 330 F Supp 2d 122, 168 [D Conn 20041), which concerned a taxpayer's statutory obligation to "cooperate" with the government's request for information. The District Court there noted that there was no definition of the term in the statute, but referred to a dictionary definition, stating that the "ordinary meaning of the word is `to act or operate jointly with another or others— (id., citing Webster's New International Dictionary 585 [2d ed. (Unabridged) 1961]).

[6] Available on the court's website at www.nycourts.gov/supctmanh under the "References" link on the navigation bar.

[7] The Protocol is accessible at the "E-Filing" page on the court's website: www.nycourts.gov/supctmanh."

EXEMPTING PARTY FOR HIS OWN NEGLIGENCE PROHIBITION HAS AN EXCEPTION

TITUMIR v. BARKER AVE. ESTATES LLC, 2022 NY Slip Op 50073 - Bronx Supreme Court 2022:

"In this action for, inter alia, breach of a non-delegable duty, defendants move seeking an order granting them summary judgment. Saliently, defendants aver that the lease between the parties precludes liability for the alleged water leak in the complaint, such that summary judgment is warranted. Plaintiff opposes the instant motion, procedurally asserting that discovery is not yet complete such that the instant motion is premature. Substantively, plaintiff contends that the portion of the lease upon which defendants rely does not bar liability against defendants, because to the extent it bars liability for defendants' negligence, General Obligations Law § 5-321 renders the relevant portion of the lease unenforceable.

For the reasons that follow hereinafter, defendants' motion is granted.

The instant action is for money damages arising from the failure to maintain a premises. The complaint alleges that the plaintiff and defendants' predecessor in both ownership and interest entered into a commercial lease for the premises located at Store No.7DE, 671 Allerton Avenue, Bronx NY 10467 (Store #7DE), whose term was from December 1, 2007 to November 30, 2022. Plaintiff was a merchant of discount hardware, discount housewares, a paint supplier and a seller of household goods, who would operate a store at Store #7DE. On July 24, 2017, water began to leak from apartments above Store #7DE, causing the store's ceiling to collapse and causing water to enter the store. The water flooded the store causing damage to plaintiff's goods, merchandise, the floor, the electrical wiring, the pipes and the light fixtures. As a result, plaintiff was forced to close the store, causing a loss of business. Plaintiff notified defendants, who after a protracted period of time attempted to fix the leak. Despite the repair, water nonetheless continued to leak into the store. Based on the foregoing plaintiff alleges that defendants failed to comply with their non-delegable duty to maintain and make repairs within Store #7DE (First Cause of Action). Plaintiff also alleges that based on the foregoing, despite having to close the store, he nevertheless continued to pay rent such that defendants breached the implied warranty of quiet enjoyment (Second Cause of Action). Lastly, plaintiff alleges that despite notifying defendants of the water condition within Store #7DE, defendants nonetheless failed to repair the same and then when they made repairs, they failed to ameliorate the condition. As such, plaintiff alleges that defendants were negligent (Third Cause of Action).

Standard of Review

The proponent of a motion for summary judgment carries the initial burden of tendering sufficient admissible evidence to demonstrate the absence of a material issue of fact as a matter of law (Alvarez v Prospect Hospital, 68 NY2d 320, 324 [1986]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). Thus, a defendant seeking summary judgment must establish prima facie entitlement to such relief by affirmatively demonstrating, with evidence, the merits of the claim or defense, and not merely by pointing to gaps in plaintiff's proof (Mondello v DiStefano, 16 AD3d 637, 638 [2d Dept 2005]; Peskin v New York City Transit Authority, 304 AD2d 634, 634 [2d Dept 2003]). There is no requirement that the proof be submitted by affidavit, but rather that all evidence proffered be in admissible form (Muniz v Bacchus, 282 AD2d 387, 388 [1st Dept 2001], revd on other grounds Ortiz v City of New York, 67 AD3d 21, 25 [1st Dept 2009]). Notably, the court can consider otherwise inadmissible evidence, when the opponent fails to object to its admissibility and instead relies on the same (Niagara Frontier Tr. Metro Sys. v County of Erie, 212 AD2d 1027, 1028 [4th Dept 1995]).

Once movant meets his initial burden on summary judgment, the burden shifts to the opponent who must then produce sufficient evidence, generally also in admissible form, to establish the existence of a triable issue of fact (Zuckerman at 562). It is worth noting, however, that while the movant's burden to proffer evidence in admissible form is absolute, the opponent's burden is not. As noted by the Court of Appeals, [t]o obtain summary judgment it is necessary that the movant establish his cause of action or defense `sufficiently to warrant the court as a matter of law in directing summary judgment' in his favor, and he must do so by the tender of evidentiary proof in admissible form. On the other hand, to defeat a motion for summary judgment the opposing party must `show facts sufficient to require a trial of any issue of fact.' Normally if the opponent is to succeed in defeating a summary judgment motion, he too, must make his showing by producing evidentiary proof in admissible form. The rule with respect to defeating a motion for summary judgment, however, is more flexible, for the opposing party, as contrasted with the movant, may be permitted to demonstrate acceptable excuse for his failure to meet strict requirement of tender in admissible form. Whether the excuse offered will be acceptable must depend on the circumstances in the particular case (Friends of Animals v Associated Fur Manufacturers, Inc., 46 NY2d 1065, 1067-1068 [1979] [internal citations omitted]). Accordingly, generally, if the opponent of a motion for summary judgment seeks to have the court consider inadmissible evidence, he must proffer an excuse for failing to submit evidence in admissible form (Johnson v Phillips, 261 AD2d 269, 270 [1st Dept 1999]).

When deciding a summary judgment motion the role of the Court is to make determinations as to the existence of bonafide issues of fact and not to delve into or resolve issues of credibility. As the Court stated in Knepka v Talman (278 AD2d 811, 811 [4th Dept 2000]), [s]upreme Court erred in resolving issues of credibility in granting defendants' motion for summary judgment dismissing the complaint. Any inconsistencies between the deposition testimony of plaintiffs and their affidavits submitted in opposition to the motion present issues for trial(see also Yaziciyan v Blancato, 267 AD2d 152, 152 [1st Dept 1999]; Perez v Bronx Park Associates, 285 AD2d 402, 404 [1st Dept 2001]). Accordingly, the Court's function when determining a motion for summary judgment is issue finding, not issue determination (Sillman v Twentieth Century Fox Film Corp., 3 NY2d 395, 404 [1957]). Lastly, because summary judgment is such a drastic remedy, it should never be granted when there is any doubt as to the existence of a triable issue of fact (Rotuba Extruders v Ceppos, 46 NY2d 223, 231 [1978]). When the existence of an issue of fact is even debatable, summary judgment should be denied (Stone v Goodson, 8 NY2d 8, 12 [1960]).

Contract Law and Leases

It has long been held that absent a violation of law or some transgression of public policy, people are free to enter into contracts, making whatever agreement they wish, no matter how unwise they may seem to others (Rowe v Great Atlantic & Pacific Tea Company, Inc., 46 NY2d 62, 67-68 [1978]). Consequently, when a contract dispute arises, it is the court's role to enforce the agreement rather than reform it (Grace v Nappa, 46 NY2d 560, 565 [1979]). In order to enforce the agreement, the court must construe it in accordance with the intent of the parties, the best evidence of which being the very contract itself and the terms contained therein (Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002]). It is well settled that "when the parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms" (Vermont Teddy Bear Co., Inc. v 583 Madison Realty Company, 1 NY3d 470, 475 [2004] [internal quotation marks omitted]). Moreover, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms" (Greenfield at 569). Accordingly, courts should refrain from interpreting agreements in a manner which implies something not specifically included by the parties, and courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing (Vermont Teddy Bear Co., Inc. at 475). This approach serves to preserve "stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses [and] infirmity of memory" (Wallace v 600 Partners Co., 86 NY2d 543, 548 [1995] [internal quotation marks omitted]).

The proscription against judicial rewriting of contracts is particularly important in real property transactions, where commercial certainty is paramount, and where the agreement was negotiated at arm's length between sophisticated, counseled business people (Vermont Teddy Bear Co., Inc. at 475). Specifically, in real estate transactions, parties to the sale of real property, like signatories of any agreement, are free to tailor their contract to meet their particular needs and to include or exclude those provisions which they choose. Absent some indicia of fraud or other circumstances warranting equitable intervention, it is the duty of a court to enforce rather than reform the bargain struck (Grace v Nappa, 46 NY2d 560, 565 [1979]).

Leases are nothing more than contracts and are thus subject to the rules of contract interpretation, namely, that the intent of the parties is to be given paramount consideration, which intent is to be gleaned from the four corners of the agreement, and that of course, the court may not rewrite the contract for the parties under the guise of construction, nor may it construe the language in such a way as would distort the contract's apparent meaning (Tantleff v Truscelli, 110 AD2d 240, 244 [2d Dept 1985]).

In the absence of fraud or other wrongful act, a party who signs a written contract is presumed to know and have assented to the contents therein (Pimpinello v Swift & Co., 253 NY 159, 162 [1930]; Metzger v Aetna Ins. Co., 227 NY 411, 416 [1920]; Renee Knitwear Corp. v ADT Sec. Sys., 277 AD2d 215, 216 [2d Dept 2000]; Barclays Bank of New York, N.A. v Sokol, 128 AD2d 492, 493 [2d Dept 1987]; Slater v Fid. & Cas. Co. of NY, 277 AD 79, 81 [1st Dept 1950]). In discussing this long-standing rule the court in Metzger stated that [i]t has often been held that when a party to a written contract accepts it as a contract he is bound by the stipulations and conditions expressed in it whether he reads them or not. Ignorance through negligence or inexcusable trustfulness will not relieve a party from his contract obligations. He who signs or accepts a written contract, in the absence of fraud or other wrongful act on the part of another contracting party, is conclusively presumed to know its contents and to assent to them and there can be no evidence for the jury as to his understanding of its terms. This rule is as applicable to insurance contracts as to contracts of any kind. (Metzger at 416 [internal citations omitted]).

Generally, pursuant to GOL § 5-321, a provision in a lease seeking to exempt a party for his own negligence is void and unenforceable as against public policy (Great N. Ins. Co. v Interior Const. Corp., 18 AD3d 371, 372 [1st Dept 2005], affd, 7 NY3d 412 [2006]; Tormey v City of New York, 302 AD2d 277, 278 [1st Dept 2003]; Gibson v Bally Total Fitness Corporation, 1 AD3d 477, 479 [2d Dept 2003]; Radius, Ltd. v Newhouse, 213 AD2d 614, 615 [2d Dept 1995]). To be sure, GOL § 5-321 states that

[e]very covenant, agreement or understanding in or in connection with or collateral to any lease of real property exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable.

However, case law has carved an exception to the prohibition described in the GOL §5-321. Specifically, it is well settled that an indemnification agreement in a lease shall be enforceable even if the lessor seeks to have the lessee indemnify him for his own negligence when the lease is the product of "sophisticated parties negotiating at arm's length," and "have agreed to allocate the risk of liability to third parties between themselves, essentially through the employment of insurance" (Great N. Ins. Co. at 372; see Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153, 161 [1977]. In explaining why GOL §5-321 does not apply in the foregoing circumstances, the court in Hogeland stated that [t]he legislative history and the statute's express invalidation of any agreement `exempting the lessor from liability for damages for injuries resulting from the negligence of the lessor' strongly suggests that is was directed primarily to exculpatory clauses in leases whereby lessors are excused from direct liability for otherwise valid claims which might be brought against them by others. It and several parallel provisions prohibit agreements which free landlords (or others in comparable relationships) from all responsibility to a tenant (or others) for negligence; the former are thus compelled at their own peril to retain the incentive to act prudently. It is against this background of declared purpose that the indemnification clauses before us must be considered. So analyzed, Berenson is not exempting itself from liability to the victim for its own negligence. Rather, the parties are allocating the risk of liability to third parties between themselves, essentially through the employment of insurance. Courts do not, as a general matter, look unfavorably on agreements which, by requiring parties to carry insurance, afford protection to the public (internal citations omitted)(Hogeland at 160-161). Thus, in both Hogeland and Great N. Ins. Co., the lessees were obligated to indemnify the lessors, even though they had been found negligent Hogeland at 158; Great N. Ins. Co. at 372).

Discussion

Defendants' motion seeking summary judgment is granted. Significantly, on this record, defendants establish that the lease and rider which bind the parties contains a provision which exempt defendants from any liability arising from the water leak alleged in the complaint. The record also establishes that insofar as this is a commercial tenancy, the lease falls within the ambit of the exception to the rule prescribed by GOL § 5-321, which renders unenforceable a lease provision such as the one in the lease and rider between the parties, which exempts defendants from all liability, which necessarily includes their negligent acts.

In support of the instant motion, defendants submit an affidavit by Arie Weissman (Weissman), defendants' Managing Agent, who states that the lease and rider appended to defendants' motion are true and accurate.

Defendants provide the lease and rider between the parties^[1]. The lease is dated November 29, 2007, is between plaintiff and Solomon Management Co., LLC., and is for Store #7DE^[2]. Paragraph two of the lease makes plaintiff responsible for the maintenance of the "premises, fixtures, and appurtenances," requiring that plaintiff "make all repairs in and about the same necessary to preserve them in good order and condition." Paragraph thirteen of the lease states that

[t]he Landlord shall not be liable for any failure of water supply or electrical current, sprinkler damage, or failure of a sprinkler service, nor for injury or damage to a person or property caused by the elements or by other tenants or persons in said building, or resulting from steam, gas, electricity, water, rain or snow, which may leak or flow form any part of said building, or from pipes, appliances or plumbing works of the same, or from the street or sub-surface, or from any other place nor for interference with light or other incorporeal hereditaments by anybody other than the Landlord, or caused by operations by or for a government authority in construction of any public or quasi-public work, neither shall the Landlord be liable for any latent defect in the building.

The rider is also dated November 29, 2007. Paragraph 13 of the rider reiterates paragraph two of the lease and paragraph 10 of the rider reiterates paragraph thirteen of the lease. Significantly, paragraph 2 of the rider states that

[t]he Tenant shall, at-his own cost and expense, during the whole term of this Lease and of any renewal agreements, have ready before the commencement of this Lease his own fire and liability insurance including the Broad Form Comprehensive Liability endorsement covering the demised premises; general public liability insurance with limits of not less than $750,000 with respect to death or personal injury to any one person and any one occurrence; for bodily injury and property damage, in the amounts not less than $350,000; and shall maintain the same in full force and effect throughout the entire term of this Lease and of any renewal thereof.

Based on the foregoing, defendants establish prima facie entitlement to summary judgment.

Preliminarily, contrary to plaintiff's assertion, he fails to establish that the instant motion is procedurally premature pursuant to CPLR § 3212(f) on grounds that discovery has not yet been completed.

Pursuant to CPLR § 3212(f), a motion for summary judgment will be denied if it appears that facts necessary to oppose the motion exist but are unavailable to the opposing party. Denial is particularly warranted when the facts necessary to oppose the motion are within the exclusive knowledge of the moving party (Franklin National Bank of Long Island v De Giacomo, 20 AD2d 797, 797 [2d Dept 1964]; De France v Oestrike, 8 AD2d 735, 735-736 [2d Dept 1959]; Blue Bird Coach Lines, Inc. v 107 Delaware Avenue, N.V., Inc., 125 AD2d 971, 971 [4th Dept 1986]). However, when the information necessary to oppose the motion is wholly within the control of the party opposing summary judgment and could be produced via sworn affidavits, denial of a motion for summary judgment pursuant to CPLR § 3212(f) will be denied (Johnson v Phillips, 261 AD2d 269, 270 [1st Dept 1999]).

A party claiming ignorance of the facts critical to defeat a motion for summary judgment is only entitled to further discovery and denial of a motion for summary judgment if he or she demonstrates that reasonable attempts were made to discover facts which, as the opposing party claims, would give rise to a triable issue of fact (Sasson v Setina Manufacturing Company, Inc., 26 AD3d 487, 488 [2d Dept 2006]; Cruz v Otis Elevator Company, 238 AD2d 540, 540 [2d Dept 1997]). Implicit in this rationale is that the proponent of further discovery must identify facts, which would give rise to triable issues of fact. This is because a court cannot condone fishing expeditions and as such, "[m]ere hope and speculation that additional discovery might uncover evidence sufficient to raise a triable issue of fact is not sufficient" (Sasson at 501). Thus, additional discovery should not be ordered where the proponent of the additional discovery has failed to demonstrate that the discovery sought would produce relevant evidence (Frith v Affordable Homes of America, Inc., 253 AD2d 536, 537 [2d Dept 1998]).Notwithstanding the foregoing, CPLR § 3212(f) mandates denial of a motion for summary judgment when a motion for summary judgment is patently premature, meaning when it is made prior to the preliminary conference, if no discovery has been exchanged (Gao v City of New York, 29 AD3d 449, 449 [1st Dept 2006]; Bradley v Ibex Construction, LLC, 22 AD3d 380, 380-381 [1st Dept 2005]; McGlynn v Palace Co., 262 AD2d 116, 117 [1st Dept 1999]). Under these circumstances, the proponent seeking denial of a motion as premature need not demonstrate what discovery is sought, that the same will lead to discovery of triable issues of fact or the efforts to obtain the same have been undertaken (id.). In Bradley, the court denied plaintiff's motion for summary judgment as premature, when the same was made prior to the preliminary conference (Bradley at 380). In McGlynn, the court denied plaintiff's motion seeking summary judgment, when the same was made after the preliminary conference but before defendant had obtained any discovery whatsoever (McGlynn at 117).

Here, the parties attended a preliminary conference on January 25, 2021, which resulted in an order prescribing discovery that very day. Thus, the instant motion is not premature on grounds that no discovery conferences have yet been held. Moreover, to the extent that plaintiff's sole assertion on this issue is merely that "[d]iscovery has not been completed," he fails to establish, as required, what attempts were made to discover the facts he needs, which are critical to defeat this motion, and which are in defendants' possession (Sasson at 488; Cruz at 540).

Substantively, defendants establish that the commercial lease between the parties bars any liability as against defendants for the water leak alleged in the complaint. As noted above, leases are nothing more than contracts and are thus subject to the rules of contract interpretation, namely, that the intent of the parties is to be given paramount consideration, which intent is to be gleaned from the four corners of the agreement, and that of course, the court may not rewrite the contract for the parties under the guise of construction, nor may it construe the language in such a way as would distort the contract's apparent meaning (Tantleff at 244).

Here, paragraph two of the lease and 13 of the rider establish that plaintiff agreed to completely maintain Store #7DE. More significantly, paragraph 13 of the lease and 10 of the rider establishes that with regard to water leaks emanating from pipes within Store #7DE, and causing damage, as alleged in the complaint, defendants would bear no liability whatsoever. Thus, per the clear and unambiguous language of the lease and rider, the instant action is barred.

While it is true that pursuant to GOL § 5-321, a provision in a lease seeking to exempt a party for his own negligence is void and unenforceable as against public policy (Great N. Ins. Co. at 372; Tormey at 278; Gibson at 479; Radius, Ltd. at 615), it is equally true that an indemnification agreement in a lease shall be enforceable even if the lessor seeks to have the lessee indemnify him for his own negligence when the lease is the product of "sophisticated parties negotiating at arm's length," and "have agreed to allocate the risk of liability to third parties between themselves, essentially through the employment of insurance" (Great N. Ins. Co. at 372; see Hogeland at 161).

Here, while a fair reading of paragraph thirteen of the lease and 10 of the rider clearly insulates defendants from all liability from the conditions alleged therein, such that liability is barred for their own negligent conduct, paragraph 2 of the rider brings paragraph thirteen of the lease and 10 of the rider within the ambit of the exception to GOL § 5-321. To be sure, insofar as paragraph 2 of the rider mandates that plaintiff purchase insurance insuring it for property damage, it is clear that the parties to this commercial lease sought to allocate plaintiff's risk, the very same for which he sues, to a third-party, namely the insurance company.

Accordingly, defendants establish that even if they were negligent in the maintenance of the Store #7DE, the lease between the parties bars this action (Great N. Ins. Co. at 372; see Hogeland at 161). By operation of law, this is necessarily true for the second cause of action for breach of the implied warranty of quiet enjoyment, since to hold otherwise, would render paragraph 13 of the lease and 10 of the rider meaningless. Indeed, a violation of the implied warranty of quiet enjoyment would impose the very liability upon defendants that they sought, through negotiation, to avoid.

The Court also holds, as urged by defendants, that the first cause of action, premised on an alleged non-delegable duty requiring defendants to maintain Store #7DE, fails as a matter of law. As noted by the lease and rider, the tenancy at issue is commercial and not residential. As such, the non-delegable duty pleaded by plaintiff and the legal authority for which he never identifies, does not exist. To be sure, while Multiple Dwelling Law § 78(1) states that "[e]very multiple dwelling, including its roof or roofs, and every part thereof and the lot upon which it is situated, shall be kept in good repair. .. [and that] [t]he owner shall be responsible for compliance with the provisions of this section," Multiple Dwelling Law § 4(4) defines a "dwelling" as "any building or structure or portion thereof which is occupied in whole or in part as the home, residence or sleeping place of one or more human beings." Thus, while it is true that the duty imposed by MDL § 78 (1) is non-delegable (Mas v Two Bridges Assoc. by Nat. Kinney Corp., 75 NY2d 680, 687 [1990]), by the express language of the statute, it does not apply to commercial tenancies(Ortiz v CEMD El. Corp., 123 AD3d 463, 464 [1st Dept 2014] ["Multiple Dwelling Law § 78 is inapplicable because the building at issue is not a multiple dwelling but a commercial building."]).

For the same reasons, the New York City Administrative Code does not impose a duty upon defendants to keep a commercial premises such as Store #7DE in good repair. While pursuant to the New York City Administrative Code, "[t]he owner of a multiple dwelling shall keep the premises in good repair" (New York City, NY, Code § 27-2005[a]), NY, Code § 27-2004[a][3] defines a dwelling as "any building or structure or portion thereof which is occupied in whole or in part as the home, residence or sleeping place of one or more human beings."

Nothing submitted by plaintiff in opposition raises an issue of fact sufficient to preclude summary judgment. It is hereby

ORDERED that the complaint be dismissed with prejudice. It is further

ORDERED that defendants serve a copy of this Order with Notice of Entry upon plaintiff within thirty days (30) hereof.

This constitutes this Court's decision and Order.

[1] In light of Weissman's affidavit, which establishes the authenticity of the lease and rider, they are before the Court in admissible form. To be sure, leases are nothing more than contracts (Tantleff at 244). A contract "has independent legal significance and need only be authenticated to be admissible" (Brand Med. Supply, Inc. v Infinity Ins. Co., 51 Misc 3d 145(A) [App Term 2016]; All Borough Group Med. Supply, Inc. v GEICO Ins. Co., 43 Misc 3d 27, 28 [App Term 2013]; see, Fairlane Fin. Corp. v Greater Metro Agency, Inc., 109 AD3d 868, 870 [2d Dept 2013] ["A private document offered to prove the existence of a valid contract cannot be admitted into evidence unless its authenticity and genuineness are first properly established."]; NYCTL 1998-2 Tr. v Santiago, 30 AD3d 572, 573 [2d Dept 2006]).

[2] The complaint concedes that the lease and rider in question binds defendants insofar as the instant premises changed ownership after the foregoing documents were executed."

A DIFFERENT APPROACH TO COVID AND THE COMMERCIAL NON-PAYING TENANT AND THE GUARANTOR

Compare this case with COVID AND THE COMMERCIAL NON-PAYING TENANT AND THE GUARANTOR

267 DEV., LLC v. BROOKLYN BABIES & TODDLERS, LLC, 2021 NY Slip Op 30796 - Kings Co. Supreme Court March 15, 2021:

"Plaintiff, 267 DEVELOPMENT LLC, moves this Court for an Order pursuant to CPLR § 3212 (a), CPLR § 3211 (a) (7) and/or CPLR § 3211(a) (1) granting summary judgment in its favor and dismissing the affirmative defenses and counterclaim contained in Defendants' answer. Defendants cross-move for summary judgment pursuant to CPLR § 3212 dismissing Plaintiff's 4th and 5th causes of action and for summary judgment in its favor on their counterclaim for commercial tenant harassment.

BACKGROUND

Plaintiff owns the property that is leased to Defendants and commercial tenant, Brooklyn Babies and Toddlers, LLC ("BB") with Defendant, Mary Ann O'Neil acting as guarantor. Governor Cuomo signed Executive Orders § 202.3, § 202.6 and § 202.7 closing certain businesses throughout New York State in response to the Covid-19 pandemic. BB was one of the businesses forced to close pursuant to these Executive Orders. Additionally, Governor Cuomo initiated a moratorium on residential and commercial evictions and foreclosures in 2020 that has been extended through May 21, 2021.

Plaintiff commenced the instant action against BB, as Tenant, and Mary Ann O'Neil, as guarantor, seeking payment in the amount of $93,554.94 in total as rent arrears and attorneys' fees pursuant to their 10-year lease agreement. In opposition to Plaintiff's motion for summary judgment, Defendants rely in part upon New York City Administrative Code § 22-1005 ("§ 22-1005"), also referred to as Local Law 55. Pursuant to § 22-1005, commercial Landlords cannot seek monies for lease arrears from a non-tenant who personally guarantees a lease agreement on behalf of a business that meets the criteria as set forth in the provision. Specifically, this law refers to businesses that were forced to close as a result of the Executive Orders signed by Governor Cuomo.

However, this newly enacted provision protects only the guarantors of commercial leases and not the Tenant itself. While Governor Cuomo has signed executive orders that establish a moratorium on residential as well as commercial evictions and foreclosures, there is no law preventing a Landlord from seeking arrears from a commercial Tenant. On September 23, 2020 the New York City Council amended § 22-1005 and extended the prohibition against enforcement of guarantor provisions in commercial leases, through March 31, 2021. Additionally, the amendment clarifies its intent by stating that it applies to all personal guarantor agreements, regardless of whether those agreements were contained in the original lease or not.

Defendants contend that Plaintiff's motion must be denied because the lease has been suspended as a result of force majeure, frustration of purpose and/or impossibility of performance. In the case at bar, a force majeure clause was not included in the lease agreement and therefore cannot be asserted as a defense to a breach of contract claim. Gen. Elec. Co. v. Metals Res. Grp. Ltd., 293 A.D.2d 417, 418 (1st Dept 2002). Defendants also argue alternatively that since their business was closed by the Governor's Order, performance under the contract was made objectively impossible.

New York law recognizes the common law doctrine of impossibility as an avenue to excuse performance when there have been extraordinary intervening events. It is not enough to show that an event has rendered performance prohibitively expensive or impractical. Rather, the party invoking the doctrine must prove that the subject matter of the contract or the means of performance have been "destroyed," such that performance is "objectively impossible." Kel Kim Corp.v Central Markets, 70 N.Y.2d 900, 902 (1987). The Court of Appeals explained therein, "the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract." Id. at 902. Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible. Kolodin v Valenti, 115 AD3d 197, 200 (1st Dept 2014).

The doctrine of impossibility was applied after the September 11th terrorist attacks in Bush v. Protravel International, Inc., 192M.2d 743, 747-748 (Civ. Ct., Richmond County 2002). Telephone communications had been disrupted throughout New York City after 9/11. As a result, the Plaintiff in the aforementioned case was precluded from timely canceling travel reservations. The Civil Court found that performance of the travel contract was rendered impossible for a period of time immediately following the 9/11 attack where New York City was in virtual lockdown. Id. at 747.

In a recent article entitled, "New York Contract Law Remedies in the Face of Disruption Caused by COVID-19", Ropes & Gray Newsletter 200:100, 2020 by Gregg Weiner, Adam Harris, Christian Reigstad, Dielai Yang and Andrew Todres, the issues before this Court were discussed and the authors concluded:

In the context of the coronavirus outbreak, impossibility may provide grounds for excusing performance if, for example, government responsive measures such as shutdowns, travel bans, or quarantines entirely preclude a party from performing its contractual obligations. However, even then, the party invoking the doctrine must show that the measures were unforeseeable and the risk associated with them could not have been built into the contract. The sheer magnitude of COVID-19's impact has left businesses large and small scrambling in search of relief from contractual obligations. Affected parties to contracts governed by New York law may be able to use the doctrines of force majeure, impossibility, or frustration of purpose to exit contracts or protect themselves from liability for non-performance.

In the case at bar this Court finds that the shutdown of BB's business has precluded it from performing its contractual obligations. The government shutdown was unforeseeable and could not have been built into the contract. Under the circumstances presented, this Court finds that performance under the subject lease was made impossible.

Defendants cross-move for summary judgment on their counterclaim for "commercial tenant harassment." New York City Administrative Code § 22-902(a) was also amended to define commercial tenant harassment. The amendment sets forth that a landlord may be held liable for "commercial tenant harassment" for attempting to enforce a personal liability guarantee that they know or reasonably should know is not enforceable pursuant to § 22-1005. § 22-902(a)(11)(14). Defendants claim that Plaintiff's inclusion of the 4th and 5th causes of action in their complaint against Ms. O'Neil constitutes commercial tenant harassment under the law. After review of the submissions in the instant motion, this Court agrees and finds that Defendants are entitled to summary judgment on their counterclaim for commercial tenant harassment."

SUPREME COURT OPEN TO COMMERCIAL LANDLORDS?

Rather than pursue a non-payment in housing court, this commercial landlord, due to Covid restrictions and considerations, commenced an action for money damages only in Supreme Court, NY County on August 4, 2020 seeking rent due since March 2020. An Answer was filed in October 2020 and landlord moved for summary judgment on December 10, 2020. Here is the decision.

111 FULTON ST. INVS., LLC v. FULTON QUALITY FOODS LLC, 2021 NY Slip Op 30348 - NY: Supreme Court February 5, 2021:

"The motion by plaintiff for summary judgment against defendant Fulton Quality Foods LLC ("Fulton Quality") and dismissing this defendant's counterclaims is granted.

Background

Plaintiff is the landlord for a commercial space located on the ground floor in a building in Manhattan. Fulton Quality entered into a lease for the premises in 2011 for a twelve-year term. Fulton Quality runs a restaurant at the site. Plaintiff insists that Fulton Quality is in default of the lease and points to an October 30, 2019 letter allegedly sent to Fulton Quality that sets forth the basis of the default. Fulton Quality later cured its defaults but stopped making payments in March 2020. Another default letter was sent in June 2020. Plaintiff moves for summary judgment seeking the amount it claims is due.

In opposition, Fulton Quality raises numerous reasons why the motion should be denied. Fulton Quality argues that plaintiff failed to attach the pleadings to the motion, that there is no affidavit of merit and that plaintiff did not send bills and notices to both the tenant and its attorney in accordance with the lease.

Fulton Quality also claims that it has meritorious defenses that should compel the Court to deny the instant motion. It claims that the ongoing pandemic forced it to shut down its restaurant and, therefore, the purpose of the lease was frustrated. Fulton Quality also points to a "casualty clause" and the "eminent domain clause" of the lease as reasons to deny the instant motion.

In reply, plaintiff claims that the frustration of purpose defense fails as a matter of law, that Covid-19 was not a "casualty" and it was not a "taking" under the eminent domain provision of the lease.

Discussion

To be entitled to the remedy of summary judgment, the moving party "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 from the case" (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853, 487 NYS2d 316 [1985]). The failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of any opposing papers (id.). When deciding a summary judgment motion, the court views the alleged facts in the light most favorable to the non-moving party (Sosa v 46th St. Dev. LLC, 101 AD3d 490, 492, 955 NYS2d 589 [1st Dept 2012]).

Once a movant meets its initial burden, the burden shifts to the opponent, who must then produce sufficient evidence to establish the existence of a triable issue of fact (Zuckerman v City of New York, 49 NY2d 557, 560, 427 NYS2d 595 [1980]). The court's task in deciding a summary judgment motion is to determine whether there are bonafide issues of fact and not to delve into or resolve issues of credibility (Vega v Restani Constr. Corp., 18 NY3d 499, 505, 942 NYS2d 13 [2012]). If the court is unsure whether a triable issue of fact exists, or can reasonably conclude that fact is arguable, the motion must be denied (Tronlone v Lac d'Amiante Du Quebec, Ltee, 297 AD2d 528, 528-29, 747 NYS2d 79 [1st Dept 2002], affd 99 NY2d 647, 760 NYS2d 96 [2003]).

Procedural Issues

As an initial matter, the Court finds that plaintiff has met its prima facie burden. The fact that plaintiff did not attach a copy of the pleadings to the motion is of no moment because this an e-filed case and the docket is readily accessible. The Court also finds that the "certification" of Mr. Rosenberg, officer for plaintiff, satisfies the requirement that plaintiff file an affidavit of merit in support of its motion. Moreover, plaintiff established that it sent the proper notices concerning a default pursuant to the lease and that it has standing to bring this case.

Frustration of Purpose

The doctrine of frustration of purpose requires that "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"(Crown IT Services, Inc. v Koval-Olsen, 11 AD3d 263, 265, 782 NYS2d 708 [1st Dept 2004]). "[T]his doctrine is a narrow one which does not apply unless the frustration is substantial"(id.).

The Court finds that this doctrine is inapplicable. The record on this motion shows that Fulton Quality only made a partial payment of rent on March 1, 2020. Restaurants were not shuttered for indoor dining until March 20, 2020. Even if the Court were to entertain the notion that frustration of purpose could help a tenant avoid paying any rent while still operating a takeout business, it appears that Fulton Quality had financial issues before the pandemic devasted the restaurant industry. On March 1, 2020, the pandemic did not prevent Fulton Quality from paying its rent and it only paid $10,000 of the $34,097.23 due. While the pandemic certainly reduced Fulton Quality's ability to improve its business, it was not the cause of the initial failure to pay the full amount due. Therefore, this common law defense does not raise an issue of fact.

Casualty and Eminent Domain Clauses of the Lease

Fulton Quality insists that Section 10.1 of the lease (the casualty clause) renders its performance under the lease as impossible. The Court disagrees. That provision references damage to the building (such as a fire) that renders the commercial space unusable. A deadly infectious disease is not a "casualty." Throughout 2020, Fulton Quality was able to operate by doing takeout and delivery, outdoor dining if it acquired the proper permits and limited indoor dining during certain months. The physical space (and kitchen) was available to this defendant. That customers decided not to place as many orders does not lead to a conclusion that the pandemic qualifies as a casualty under the terms of the lease.

The Court also declines to find that pandemic-related restrictions qualifies as a taking sufficient to invoke Section 11.1 of the lease concerning Eminent Domain. No physical portion of the restaurant was taken for public or quasi-public use. Rather, governmental restrictions designed to save lives limited the operations of Fulton Quality. Under Fulton Quality's view, any regulation that limits the operation of a business would constitute a taking. The Court declines to endorse such a broad and expansive view of the definition of a taking.

Because Fulton Quality does not dispute the amount sought by plaintiff, the Court awards plaintiff the amount sought in its motion. The Court also dismisses the case against defendant Nikas as this Court has already found that plaintiff failed to properly serve this defendant (NYSCEF Doc. No. 26).

Accordingly, it is hereby

ORDERED that the motion by plaintiff for summary judgment, to strike the answer and counterclaims of defendant Fulton Quality Foods LLC is granted and the Clerk is directed to enter judgment in favor of plaintiff against this defendant in the amount of $410,864.71 plus interest from June 26, 2020 along with costs and disbursement upon presentation of proper papers therefor; and it is further

ORDERED that the issue of reasonable legal fees is severed and a hearing will be held by the court to determine the amount due to be scheduled by the clerk of this part; and it is further

ORDERED that the case is dismissed as against defendant Nikas for failure to timely serve this defendant."

LIQUIDATED DAMAGES OR PENALTY - THE DISSENT

TRUSTEES OF COLUMBIA UNIV. IN CITY OF NY v. D'AGOSTINO SUPERMARKETS, INC., 2020 NY Slip Op 6937 - NY: Court of Appeals November 24, 2020:

"DiFIORE, Chief Judge (dissenting).

After D'Agostino Supermarkets, Inc., the lessee of property owned by Columbia University, breached the lease by failing to pay rent for more than seven months, the parties settled their dispute by entering into a Surrender Agreement which contained certain conditions. If D'Agostino made timely installment payments totaling about $262,000, representing the rent it already owed but had failed to pay, it would be relieved of certain other obligations stemming from its breach of the lease. However, if it failed to timely make the payments, D'Agostino would not "be released and relieved from" the claims Columbia possessed as a result of the breach of the lease, particularly the right (as described in the Surrender Agreement) to collect "the aggregate amount of all Fixed Rent, additional rent or other sums and charges due" during the remainder of the lease term (about two years). It is undisputed that, after entering the Surrender Agreement, D'Agostino again failed to uphold its end of the bargain, breaching the condition to timely make the back-rent installment payments. Yet the majority concludes, as a matter of law, that D'Agostino—a well-counseled, sophisticated party who freely negotiated the terms of the settlement—should be relieved of its obligation to accept the consequences of that second breach. This result is incompatible with our freedom of contract precedent and the strong public policy favoring enforcement of settlement agreements. Worse yet, I fear it will chill future efforts to resolve lease disputes without litigation—to the detriment of distressed tenants. Therefore, I respectfully dissent.

As this Court recently reaffirmed in 159 MP Corp. v Redbridge Bedford, LLC, "`[f]reedom of contract prevails in an arm's length transaction between sophisticated parties . . ., and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain'" (33 NY3d 353, 359 [2019], quoting Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 695 [1995]). The public policy underlying freedom of contract is twofold: "[b]y disfavoring judicial upending of the balance struck at the conclusion of the parties' negotiations" it "both promotes certainty and predictability and respects the autonomy of commercial parties in ordering their own business arrangements" (159 MP Corp., 33 NY3d at 359-360). Accordingly, "`when parties set down their agreement in a clear, complete document, their writing should . . . be enforced according to its terms'" (159 MP Corp., 33 NY3d at 358, quoting Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004]). This principle of New York contract law has "special import" in real property transactions where, as here, "commercial certainty is a paramount concern" (159 MP Corp., 33 NY3d at 359, quoting Vermont Teddy Bear, 1 NY3d at 475).

The public policy favoring freedom of contract applies with particular force to the Surrender Agreement—which is a settlement agreement crafted by the parties to resolve their dispute without litigation. Settlement agreements "are judicially favored and may not be lightly set aside" (IDT Corp. v Tyco Group, S.A.R.L., 13 NY3d 209, 213 [2009] [citation omitted]). Strict enforcement of settlement agreements serves multiple important purposes, consistent with those underlying freedom of contract. There is a "societal benefit in recognizing the autonomy of parties to shape their own solution to a controversy" and assurance that their agreements will be honored provides them "finality and repose upon which [to] order their affairs" (Denburg v Parker Chapin Flattau & Klimpl, 82 NY2d 375, 383 [1993]). Moreover, settlement agreements are favored because they also promote "efficient dispute resolution" (IDT Corp., 13 NY3d at 213), "avoid[ing] potentially costly, time-consuming litigation and preserv[ing] scarce judicial resources" as "courts could not function if every dispute devolved into a lawsuit" (Denburg, 82 NY2d at 383; see also IDT Corp., 13 NY3d at 213). As Columbia has consistently argued throughout this litigation, these policies, and the significant interests they protect, should guide the resolution of this dispute between two sophisticated, counseled commercial entities.

The majority casts these principles aside, failing to acknowledge that the Surrender Agreement constituted a settlement of the claims Columbia possessed upon D'Agostino's breach of the lease, which included a right to collect—not only unpaid back rent—but also future rent owed until the conclusion of the lease term, even if D'Agostino vacated the premises (Columbia had no obligation under the lease to relet the property). Columbia agreed to settle under terms that significantly discounted the amount it would collect on account of D'Agostino's breach of the lease, but did so only on the condition that D'Agostino timely make eleven installment payments representing the back rent D'Agostino already owed at the time the parties entered the Surrender Agreement. Because that rent was several months overdue, it is no surprise that Columbia required the inclusion of a clause that "TIME SHALL BE OF THE ESSENCE with respect to the [due] dates" for those installment payments. The parties' agreement could not be clearer that Columbia waived certain claims it possessed arising from D'Agostino's breach of the lease only if this condition—timely payment of the installments—was met. Under the plain language of the agreement, upon D'Agostino's default or failure to timely cure upon notice, two things would occur: D'Agostino would immediately be obligated to pay the future rent due under the lease (among other associated payments) and it would "no longer be entitled to be released and relieved from and against any Released Claims." Of course, it is undisputed that D'Agostino breached yet again.

Notwithstanding the context of the Surrender Agreement and its plain language, the majority mistakenly concludes that the Surrender Agreement should be interpreted without reference to the prior breach of the lease and that D'Agostino was relieved of all obligations under the lease even if it failed to timely make the installment payments. Although the Surrender Agreement "terminated the lease," it most certainly did not unconditionally release the tenant of all obligations flowing from its breach of that prior agreement, and the majority's assertion that Columbia seeks to "enforce a non-existent lease under the guise of damages for a breach of a separate contract" (majority op at 8) misses the mark. Columbia does not attempt to enforce the lease—instead, it seeks to enforce the contingent remedy the parties adopted in the Surrender Agreement in the event D'Agostino failed to timely make the Surrender Payments.

The practical result of the majority's holding is that Columbia University received nothing in exchange for its agreement (1) to give the tenant additional time to make back rent payments that were already overdue, provided those payments were timely made, and (2) to forfeit its right to collect future rent from D'Agostino for its breach of the lease. Under the majority's analysis, the carefully negotiated consequence of D'Agostino's continued failure to pay the back rent is unenforceable; indeed, there is no consequence for D'Agostino's breach of the Surrender Agreement and D'Agostino is rewarded for serial breaches of valid and binding contracts. The majority accomplishes this result through a strained application of this Court's precedent related to liquidated damages clauses, reasoning that the provision reinstating D'Agostino's obligation to pay future rent in the event of a second breach operates as an unenforceable penalty because the damages D'Agostino would be obligated to pay upon breach of the Surrender Agreement were substantially greater than the discounted damages Columbia agreed to accept in the form of promptly tendered installment payments. This remedy provision in the contract is best understood as a component of a settlement after a breach—not a liquidated damages clause crafted at the beginning of a contractual relationship. Nonetheless, even viewing the contingent language as a liquidated damages clause, when properly interpreted in the context of the entire agreement, it is not an unenforceable penalty justifying a deviation from application of our bedrock freedom of contract principles.

As we have recognized, the public policy favoring freedom of contract can be "overridden by another weighty and countervailing public policy" (159 MP Corp., 33 NY3d at 360). The majority concludes that such a countervailing public policy is at play here, viewing the contingent remedy as an unenforceable liquidated damages clause. But "[a]s a general matter parties are free to agree to a liquidated damages clause `provided that the clause is neither unconscionable nor contrary to public policy'" (172 Van Duzer Realty Corp. v Globe Alumni Student Assistance Assn., Inc., 24 NY3d 528, 536 [2014], quoting Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 424 [1977]). Liquidated damages provisions serve an important purpose because they allow parties to estimate—in advance of a default—the extent of the injury resulting from the breach of the agreement and are, therefore, particularly useful "where it would be difficult, if not actually impossible, to calculate the amount of actual damage" (Truck Rent-A-Ctr., 41 NY2d at 424). Nevertheless, "public policy is firmly set against the imposition of penalties or forfeitures for which there is no statutory authority" (id.)—and thus, a liquidated damages clause that operates as a penalty will not be enforced. A liquidated damages clause operates as an impermissible penalty only when it provides for damages "plainly or grossly disproportionate to the probable loss," as such a penalty "is not intended to provide fair compensation" (id. at 425). By comparison, it is enforceable when "the amount liquidated bears a reasonable proportion to the probable loss" (id.).

In this case, although the parties referred to the contingent remedy as a "liquidated damages clause," the label is ill-fitting. The public policy underlying our liquidated damages jurisprudence is simply not implicated in circumstances where, as in this case, there is no need to estimate the damages that might result in the event of a future breach because the breach has already occurred and the parties are crafting a settlement agreement. But even viewing the contingent remedy as a liquidated damages clause, the majority's conclusion that the provision reinstating D'Agostino's obligation to pay future rent is an unenforceable penalty because it provides for damages "exponentially disproportionate" to D'Agostino's outstanding Surrender Payments (approximately $1 million versus $176,000) adopts an overly simplistic view of the Surrender Agreement and fails to "giv[e] due consideration to the nature of the contract and the circumstances" in which it was entered, as our precedent requires (172 Van Duzer Realty Corp., 24 NY3d at 536)^[6] . It is evident from the Surrender Agreement that the parties understood that D'Agostino's liability for breach of the lease was much greater than the value of the Surrender Payments. The obligations triggered if those payments were not timely made were not included merely as compensation for breach of the Surrender Agreement but were also intended to compensate Columbia for D'Agostino's earlier breach of the lease. Thus, an analysis of whether the damages set forth in the Surrender Agreement are grossly disproportionate to Columbia's probable losses requires consideration not only of the value of the Surrender Payments that D'Agostino failed to make, but also of the probable damages already set in motion by D'Agostino's prior breach of the lease, viewed from the time the Surrender Agreement was executed and not the date of the breach (see Truck Rent-A-Ctr., 41 NY2d at 425).

When the agreement was executed, Columbia possessed a right to pursue the full value of future rent payments until the conclusion of the lease term. At that time, there was no assurance that Columbia would sign a new tenant (and what costs might be incurred in that process), nor did the parties know the amount of rent Columbia might be able to negotiate or whether a new tenant would timely pay during the remainder of the original lease term. Thus, the remedy negotiated by the parties in the Surrender Agreement was directly premised on Columbia's rights under the lease, bears a "reasonable relation" to Columbia's probable actual harm, and was intended to fairly compensate Columbia for that breach (see generally Truck Rent-A-Ctr., 41 NY2d 420). Measured in a way that adequately recognizes the nature of the bargain struck in the Surrender Agreement, D'Agostino has not met its burden to show that the damages set forth in that agreement are so disproportionate as to operate as an unenforceable penalty (see generally JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 380, 385 [2005]).

It is irrelevant that Columbia's actual damages here may ultimately be different than the amount D'Agostino agreed to pay in the contingent remedy provision of the Surrender Agreement. The enforceability of a liquidated damages clause does not turn on whether the remedy that the parties contemplated before the breach occurred is identical to the damages actually suffered. To impose such a requirement would obviate the entire purpose of such provisions, which is to reasonably estimate the damages that might result, permitting the parties to avoid the costs and uncertainty of litigating damages in the event of a future breach. For this reason, the rough relationship between the remedy in the contract and the damages flowing from a breach must be assessed based on the terms of the agreement and the information the parties possessed at the time it was executed—not with the benefit of hindsight based on post hoc proof of damages actually incurred.

Refusing to enforce the contingent remedy that the parties contracted for in their settlement agreement injects uncertainty into commercial tenancy agreements and the settlement of disputes thereunder, increasing the parties' transaction costs. It also rewards a sophisticated, represented party for breaching its validly-entered agreements. This will discourage commercial landlords from agreeing to settlements of this nature, to the detriment of defaulting tenants like D'Agostino; limiting the damages recoverable when such settlements are breached to the discounted amount provided for in the restructured contract, even in the event of a new breach, removes any incentive for landlords to agree to settle by permitting tenants who have already defaulted to default again without recourse.

Because there was nothing unfair about the settlement crafted by these well-counseled sophisticated parties, public policy affords no basis to alter their contract. Since the back rent payments were already substantially overdue, Columbia reasonably sought assurance that D'Agostino would uphold its end of the bargain under the Surrender Agreement (something it failed to do under the lease). As reflected in the plain language of the agreement, Columbia was willing to forego pursuit of its then-existing right to collect both unpaid back rent and future rent only if D'Agostino timely made the back rent installment payments (the owner gave up its right to receive more money overall but would be assured of prompt payment of a discounted amount on a regular schedule, without the need for litigation). Of course, that is not what happened. By eliminating the element that induced the owner to give up its rights, the majority creates a distorted, one-sided settlement in which—despite its default—D'Agostino was able to enjoy the full benefit of the bargain. Because freedom of contract should "prevail[] in [this] arm's length transaction between sophisticated parties" (159 MP Corp., 33 NY3d at 359) and there is no countervailing public policy basis that would justify relieving D'Agostino of the bargain it struck in the Surrender Agreement, I respectfully dissent.

Order affirmed, with costs.

......

[6] The majority reasons that the circumstances here are like that in 172 Van Duzer—but it then fails to grant the relief provided in that case, which did not declare the provision unenforceable but, rather, remitted for a hearing to explore whether the damages were "grossly disproportionate." In fact, 172 Van Duzer does not stand for the proposition that a provision is unenforceable merely because it required immediate payment of all future rent due under a lease. There, the acceleration clause was negotiated in advance of any breach, the default occurred early in the course of a long-term lease and, as the Court observed, strict enforcement of the provision would have resulted in a lump sum payment of eight years of future rent, not discounted to present value (24 NY3d at 536). Even then we did not void the clause but directed further litigation of the issue—a remedy Columbia seeks in the alternative here. The majority inexplicably fails to explain why the hearing deemed necessary in 172 Van Duzer is not afforded here, where the purported liquidated damages clause was negotiated after the tenant's initial breach with only about two years remaining on the lease.