SECOND DEPARTMENT SIDES WITH COMMERCIAL LANDLORD AFTER IMPROPER ASSIGNMENT OF LEASE

• Posted on: May 15 2020

In VRA Family Limited Partnership v. Salon Management USA, LLC, decided on May 6, 2020, the Appellate Division, Second Department, affirmed the motion court’s grant of summary judgment in favor of a commercial landlord as against a tenant that abandoned the subject premises and improperly assigned its rights under the subject lease.

The facts of VRA are simple, plaintiff, as landlord, and Salon Management USA, LLC, as tenant, entered into a 10-year commercial lease.  At the same time, two of Salon’s members executed limited personal guaranties of the lease.  VRA commenced the action against Salon and the guarantors after Salon, inter alia, failed to pay rent, made renovations without VRA’s consent causing damage to the premises, and abandoned the premises.  Accordingly, VRA’s complaint sought to recover damages for unpaid rent, late fees, unpaid insurance premiums and for physical damage to the premises.

In opposition to VRA’s motion for summary judgment, defendants argued that they had no liability under the lease because Salon “assigned the lease to nonparty Ocean Beach Spa, Inc. (hereinafter OBS), with the plaintiff’s knowledge and consent, and therefore, the defendants could not be liable for any breach of the lease agreement.”  Supreme court granted VRA’s motion as to liability and directed that “all remaining issues, including damages, would proceed to trial.”  The Second Department affirmed.  In so doing, the Court held that VRA made its prima facie case for liability against defendants by proffering “a signed copy of the lease, as well as evidence of unpaid rent, late fees, unpaid insurance premiums, and damage to the premises.”  (Citations omitted.)  The Court also found that VRA established that “the assignment of the lease without the plaintiff’s written consent was prohibited by the express terms of the lease and that the plaintiff did not provide the required consent.”

Salon’s waiver argument was flatly rejected by the Court.  A waiver is “an intentional relinquishment of a known right and should not be lightly presumed.”  Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966 (1988) (citation omitted).  See also, Jefpaul Garage Corp. v. Presbyterian Hosp., 61 N.Y.2d 442, 446 (1984).  Relying on, inter alia, Jefpaul, the Court noted that while waiver can sometimes be inferred from the acceptance of rent “it may not be inferred, and certainly not as a matter of law, to frustrate the reasonable expectations of the parties embodied in a lease when they have expressly agreed otherwise” (quoting Jefpaul, 61 N.Y.2d at 446).  The subject lease, however, expressly provided that it shall not be deemed a waiver if landlord accepts rent with knowledge of a breach and that there can be no waiver of any provision of the lease unless “expressed in writing and signed by the landlord.”  In addition, the lease provided that “if the lease were assigned, or if the premises were occupied by anyone other than Salon, then the plaintiff may collect rent from the assignee, under-tenant or occupant, but ‘no such collection shall be deemed a waiver of the covenant herein against assignment and underletting or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of the tenant from the further performance by the tenant of the covenants herein contained on the part of the tenant.’”  Based on the unambiguous language of the lease, the Court found that “the plaintiff’s acceptance of rent from OBS cannot be deemed a waiver or acceptance of OBS as the assignee of the lease…” (citations omitted).  

Nor was the Court moved by defendants’ argument that Plaintiff’s “direct communications with OBS indicated a clear manifestation of intent to waive the nonassignment and nonwaiver provisions of the lease.”  The Court went on to note that even if an inferred consent to the assignment was found, defendants would not be relieved of their obligations under the lease “absent an express agreement to that effect or one that can be implied from facts other than the lessor’s mere consent to the assignment and its acceptance of rent from the assignee” (citations omitted).