SECOND DEPARTMENT RECONCILES TWO “SEEMINGLY CONTRADICTORY” PROVISIONS IN COMMERCIAL LEASE SO AS TO GIVE EFFECT TO BOTH

• Posted on: Dec 11 2020

The New York Court of Appeals has described as “familiar and eminently sensible,” the proposition of law “that, when parties set down their agreements in a clear, complete document, their writing should be enforced according to its terms.”  159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353, 358 (2019) (citation, internal quotation marks and ellipses omitted).  The same Court has also explained the particular importance of such a rule in the context of real property transactions “‘where commercial certainty is a paramount concern and where … the instrument was negotiated between sophisticated counseled business people negotiating at arms length.’”  159 MP, 33 N.Y.3d at 359 (quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004).)

Another established principle of contract interpretation is that whenever possible, “a contract should be interpreted to avoid inconsistencies and to give meaning to all of its provisions, giving a practical and reasonable interpretation to the language employed and the parties’ reasonable expectations with respect thereto.”  Zullo v. Varley, 57 A.D.3d 356 (2^nd Dep’t 2008) (citations and internal quotation marks omitted).  “Therefore, a court should not adopt an interpretation which would leave any provision without force and effect.”  Zullo, 57 A.D.3d at 357 (citation and internal quotation marks omitted).

On December 9, 2020, the Appellate Division, Second Department, decided 1710 Realty, LLC v. Portabella 308 Utica, LLC, and addressed the above described principles.  The plaintiff in 1710 was a landlord that, on December 16, 2015, entered into a commercial lease with defendant Portabella, as tenant.  In explaining the relevant portions of the lease, the 1710 Court stated:

Section 13.1 of the lease, titled “Landlord’s Work,” provides that the plaintiff “agrees to deliver to [Portabella] the Demised Premises on the Commencement Date as is,” while section 1.2 of the lease, titled “Term,” provides that the lease term shall commence on the Commencement Date. Section 2.1 of the lease, titled “Commencement of the Term,” provides: “The ‘Commencement Date’ shall mean the date which is the later to occur of the date that (i) Tenant is delivered occupancy of the Demised Premises in the Delivery Condition (hereinafter defined), (ii) Tenant has been issued permits from the Department of Buildings of New York City in connection with Tenant’s Work and (iii) January 15, 201[6]. If the Demised Premises is not delivered within 90 days of the date of this Lease, then Tenant shall have the right to terminate the Lease. The payment of Rent, including without limitation, Fixed Rent (as hereafter defined) and Additional Rent (as hereinafter defined), shall commence on the date which is two hundred and seventy days after the Commencement Date (‘Rent Commencement Date’). For purposes herein, the Delivery Condition shall mean vacant, broom clean and free of the prior tenants[’] personal property and fixtures.” The lease contains a merger clause.

1710 Realty commenced the action after tenant, Portabella, exercised “its right of termination pursuant to section 2.1 on the ground that the plaintiff had not delivered the premises in the Delivery Condition within 90 days of the date of the lease.”  Tenant moved for summary judgment arguing that the premises were “not made broom-clean within 90 days of the date of the lease” as a considerable amount of trash and debris remained from the prior tenant.  Landlord opposed the motion and cross-moved for summary judgment and:

acknowledged that a portion of the premises was not broom-clean but categorized that portion as “de minimus.” [Landlord] asserted that, pursuant to section 13.1 of the lease, it agreed only to deliver the premises “as is” and that the parties did not intend the premises to be broom-clean because Portabella was to undertake demolition and renovation work provided for in the lease.

Supreme court denied tenant’s motion and granted summary judgment to landlord, reasoning that the provision in section 2.1 requiring the plaintiff to deliver the premises broom-clean was modified by the provision in section 13.1 that the premises were to be delivered “‘as is.’”

The Second Department modified and, in so doing, recognized that “courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include. Hence, 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.  In the absence of any ambiguity, we look solely to the language used by the parties to discern the contract’s meaning.”  (Citations and internal quotation marks omitted.)  Further, the Court reiterated that “[w]here two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect.”  (Citations omitted, emphasis in original.)

The Court disagreed with the landlord’s argument and supreme court’s determination that the “as is” provision in the lease “modified and effectively eliminated, the ‘broom clean’ requirement set forth in section 2.1.”  The Court found that such an interpretation “renders the Delivery Condition provision meaningless or without force or effect by excising the requirement that the plaintiff deliver possession vacant, broom-clean, and with the prior tenant’s property removed before Portabella’s obligation to pay rent begins to run.”  (Citations omitted.)  In resolving the “two seemingly contradictory positions” and giving effect to both, the Court stated:

The Delivery Condition operated as a condition precedent to the triggering of the Commencement Date. Until the Commencement Date, as defined in the subject lease, occurred, by the plain terms of section 2.1, the lease term did not commence, and Portabella’s obligation to pay rent did not begin. In order to trigger the happening of the Commencement Date, the plaintiff had to meet the specific requirements of the Delivery Condition by delivering the premises vacant, broom-clean, and free of the prior tenant’s property and fixtures. Section 13.1 is not to the contrary since it required that the premises be delivered on the Commencement Date “as is” and the Commencement Date would not arrive unless the premises were vacant, broom-clean, and free of the property of the prior tenant. Stated differently, the fallacy in the plaintiff’s position is that the “as is” condition referred to in section 13.1 is the condition of the premises on the Commencement Date, not the condition of the premises on the date of the lease.

Additionally, we attach significance to the fact that section 13.1, a one-sentence paragraph, is immediately followed by section 13.2, which sets forth in some detail demolition and renovation work to be undertaken by Portabella. The term “as is” as used in section 13.1 can be given its full and intended effect by reading it, together with sections 2.1 and 13.2, as setting forth the parties’ agreement that the premises would be rendered vacant and broom-clean by the plaintiff on the Commencement Date, would be delivered “as is” on that date to Portabella, and it would be Portabella, not the plaintiff, that would be responsible for any further work required for Portabella to be able to utilize the premises as intended.

Because tenant validly terminated the lease due to landlord’s failure to deliver the premises in vacant and broom-clean condition within 90 days of the lease signing, tenant was entitled to summary judgment and the return of its security deposit and the first month’s rent, with interest.