Holy Properties Ltd., L.P. v. Kenneth Cole Productions, Inc.

• Decision Date: 07 December 1995
• Citation: 87 N.Y.2d 130,661 N.E.2d 694,637 N.Y.S.2d 964
• Parties: , 661 N.E.2d 694 HOLY PROPERTIES LIMITED, L.P., Respondent, v. KENNETH COLE PRODUCTIONS, INC., Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 964

637 N.Y.S.2d 964

87 N.Y.2d 130, 661 N.E.2d 694

HOLY PROPERTIES LIMITED, L.P., Respondent, v. KENNETH COLE PRODUCTIONS, INC., Appellant.

Court of Appeals of New York.

Dec. 7, 1995.

Appeal, by permission of the Appellate Division of the Supreme Court in the First Judicial Department, from an order of that Court, entered October 11, 1994, which affirmed a judgment of the Supreme Court (Jane S. Solomon, J.), entered in New York County after a nonjury trial, awarding plaintiff the total sum of $718,841.51 against defendant.

Holy Props. v. Cole Prods., 208 A.D.2d 394, affirmed.

Fischbein Badillo Wagner Itzler (Bruce H. Wiener, Bentley Kassal, Kenneth G. Schwarz and Deborah J. Locitzer, of counsel), New York City, for appellant.

Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P.C. (Jeffrey R. Metz, Robert D. Goldstein, David R. Brody and Steven L. Schultz of counsel), New York City, for respondent.

Carb, Luria, Glassner, Cook & Kufeld, LLP (James E. Schwartz and Carol W. Duffy of counsel), New York City, for The Real Estate Board of New York, Inc., amicus curiae.

OPINION OF THE COURT

SIMONS, Judge.

In 1985, defendant Kenneth Cole Productions, Inc. entered into a written lease for premises in a commercial office building located at 29 West 57th Street in Manhattan. The term was to commence on January 1, 1985 and end on December 31, 1994. In December 1991, following a change of owners and an alleged deterioration in the level and quality of building services, defendant vacated the premises. Shortly thereafter, the new owner, plaintiff Holy Properties Limited, L.P., commenced a summary eviction proceeding against defendant for the nonpayment of rent. It obtained a judgment and warrant of eviction on May 19, 1992 and subsequently instituted this action seeking rent arrears and damages. At trial defendant asserted, as an affirmative defense, that plaintiff had failed to mitigate damages by deliberately failing to show or offer the premises to prospective replacement tenants. Supreme Court entered judgment for plaintiff, holding that defendant had breached the lease without cause and that plaintiff had no duty to mitigate damages. The Appellate Division affirmed.

The issue is whether, on these facts, the landlord had a duty to mitigate its damages after the tenant's abandonment of the premises and subsequent eviction.

The law imposes upon a party subjected to injury from breach of contract, the duty of making reasonable exertions to minimize the injury (Wilmot v. State of New York, 32 N.Y.2d 164, 168-169, 344 N.Y.S.2d 350, 297 N.E.2d 90; Losei Realty Corp. v. City of New York, 254 N.Y. 41, 47, 171 N.E. 899). Leases are not subject to this general rule, however, for, unlike executory contracts, leases have been historically recognized as a present transfer of an estate in real property (see, Becar v. Flues, 64 N.Y. 518, 520; Reichert v. Spiess, 203 App.Div. 134, 139, 196 N.Y.S. 466; see also, Centurian Dev. v. Kenford Co., 60 A.D.2d 96, 400 N.Y.S.2d 263). Once the lease is executed, the lessee's obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet, or attempt to relet abandoned premises in order to minimize damages (2 Rasch, New York Landlord and Tenant § 26:22 [3d ed 1988].

When defendant abandoned these premises prior to expiration of the lease, the landlord had three options: (1) it could do nothing and collect the full rent due under the lease (Becar v. Flues, 64 N.Y. 518, supra; Sancourt Realty Corp. v. Dowling, 220 App.Div. 660, 222 N.Y.S. 288), (2) it could accept the tenant's surrender, reenter the premises and relet them for its own account thereby releasing the tenant from further liability for rent, or (3) it could notify the tenant that it was entering and reletting the premises for the tenant's benefit. If the landlord relets the premises for the benefit of the tenant, the rent collected would be apportioned first to repay the landlord's expenses in reentering and reletting and then to pay the tenant's rent obligation (see, lease para 18; Underhill v. Collins, 132 N.Y. 269, 30 N.E. 576; Centurian Dev. v. Kenford Co., supra ). Once the tenant abandoned the premises prior to the expiration of the lease, however, the landlord was within its rights under New York law to do nothing and collect the full rent due under the lease (see, Becar, 64 N.Y. 518, supra; Underhill v. Collins, 132 N.Y. 269, 30 N.E. 576, supra; Matter of Hevenor, 144 N.Y. 271, 39 N.E. 393).

Defendant urges us to reject this settled law and adopt the contract rationale recognized by some courts in this State and elsewhere. We...