Mann Theatres Corp. of California v. Mid-Island Shopping Plaza Co., MID-ISLAND

Decision Date20 June 1983
Docket NumberNo. 1,No. 2,MID-ISLAND,1,2
Citation464 N.Y.S.2d 793,94 A.D.2d 466
PartiesMANN THEATRES CORPORATION OF CALIFORNIA, et al., Plaintiffs-Respondents, v.SHOPPING PLAZA CO., (a partnership), Successor to Mid-Island Shopping Plaza, Inc., Appellant, Mid-Plaza Associates (successor to Mid Plaza Cinema Inc.), et al., Respondents. (Action)SHOPPING PLAZA CO., Appellant, v. MID PLAZA CINEMA ASSOCIATES, et al., Respondents. (Action)
CourtNew York Supreme Court — Appellate Division

Jaspan, Kaplan, Levin & Daniels, Garden City (A. Thomas Levin and Theodore Daniels, Garden City, of counsel), for appellant.

Raftery, Grainger, Rosenbloom & Drew, New York City (John Drew and Edmund C. Grainger, III, New York City, of counsel), for respondents Mann Theatres Corp. of California and Brighton Theatre Corp. Milton Popper, Long Beach, for respondent Mid Plaza Cinema Associates.

Before MOLLEN, P.J., and LAZER, MANGANO and NIEHOFF, JJ.

LAZER, Justice.

The principal issue in these consolidated actions for declaratory relief and to recover possession of real property is whether a theatre lease which prohibited the tenant from assigning, subletting or permitting the premises to be "used by others" was violated by an "operating agreement" under which a permitted subtenant arranged for another entity to occupy and operate the demised twin theatres. Although we conclude that the lease was violated to a degree that warranted cancellation, time to cure the violation still remains.

I

In March of 1963 Mid-Island Shopping Plaza, Inc., as landlord, and Sidney Sinetar and Seymour Frank, as tenant, executed a 25-year ground lease which gave the tenant a 15-year renewal option but required it to construct a movie theatre at its own expense. At the time of the events in current issue, the theatre originally built by the tenant had been transformed into twin theatres with a seating capacity of 2,000. The lease contained the following paragraph:

"11. Tenant and Tenant's distributees and legal representatives, successors and assigns, shall not assign, mortgage or encumber this agreement, mortgage, underlet or use or permit any part of the demised premises to be used by others, whether voluntarily or by operation of law or otherwise, without the prior written consent of Landlord in each instance. Any consent by Landlord to an assignment or underletting shall not in any manner be construed to relieve Tenant or any assignee or undertenant from obtaining the consent in writing of Landlord to any further assignment or underletting."

The tenant subsequently assigned the ground lease to Mid-Plaza Cinema, Inc., which, in 1966, sublet the premises to Fox Theatres Corporation pursuant to an agreement which provided for an annual minimum rent and an overage deriving from the subtenant's operations. In 1973 the sublease was assigned to Mann Theatres Corporation of California. All of these transactions had the landlord's consent.

By 1980 Mann, whose business involved the operation of numerous motion picture theatres, decided to discontinue its east coast activities. In April of 1980, to effectuate this intention, Mann assigned all of its east coast leases, including the instant one, to Brighton Theatres Corporation. The assignment agreement specified that if Mann were unable to procure any landlord's consent to assignment, Mann and Brighton would execute an "operating agreement" relative to the theatre involved. Thereafter, without obtaining the landlord's consent to Mann's assignment of its sublease, Mann entered into an agreement dated May 2, 1980, by which it granted Brighton the "irrevocable right to operate" the twin theatres on Mann's behalf for the remaining term of the sublease including any extensions. The agreement provided for Brighton to perform all of the subtenant's obligations under the sublease, furnish a liability policy in the amount of $5,000,000 and pay the rent, including the overages, to Mann, which would in turn pay these sums to the master tenant. All profits from the theatre operations were to be retained by Brighton, which was also responsible for all losses and expenses. The agreement became effective immediately, with Mann theatre personnel becoming the employees of Brighton.

On July 10, 1980 the landlord's attorneys sent notices to the master tenant, and to Mann and Brighton, asserting that "has come to our client's attention that the sublease has been further assigned, transferred, underlet or sold by Mann Theatres Corp. to another or different entity which is presently operating the Twin Theatres". The notices went on to say that under the terms of the lease, and specifically paragraph "11", the sublease was "not permitted to be assigned or underlet without the prior written consent of our client". The landlord declared the lease in default, gave the tenant 10 days to cure the deficiency, and stated that if the tenant failed to do so, the lease would end on July 23, 1980. In a letter dated July 21, 1980 the time to cure was extended to August 8, 1980.

Before the time to cure elapsed, Mann and Brighton commenced this action against the landlord, the master tenant and the original tenants, seeking a declaration that the execution of the May agreement did not constitute a default under the ground lease. The landlord's answer alleged violation of the ground lease, but the master tenant failed to answer. * Mann and Brighton also moved for a preliminary injunction and obtained a temporary restraining order tolling the cure period pending the hearing of the motion. But when the motion was heard on August 14, 1980, the toll was not extended, and it was not until September 3, 1980 that Special Term granted the preliminary injunction and ordered the cure period tolled pending determination of the action. Treating the cure period as having expired during the time between the return date of the motion and its determination, the landlord commenced a summary proceeding in the Nassau County District Court against the master tenant, Mann and Brighton (all hereafter referred to as the tenancy interests) seeking to recover possession of the premises. The tenancy interests answered by contending that the lease had not been violated because the agreement between Mann and Brighton did not constitute an assignment, subletting, or permission for use of the premises by others. The summary proceeding was subsequently removed to the Supreme Court for joint trial with the declaratory judgment action.

On January 1, 1981, before the trial took place, Mann and Brighton entered into a second agreement which superseded the May 2, 1980 agreement. The new agreement provided that it was to be effective for five years and annually thereafter unless terminated by written notice given at least six months before the end of a lease year. Brighton was to collect all receipts, make all repairs (with permission required for expenditures in excess of $10,000), employ all personnel on terms and conditions comparable to other Long Island theatres, obtain insurance and necessary permits, buy and book motion pictures, and pay all expenses (except rent). If theatre receipts became insufficient at any time to pay current expenses, Mann was to advance Brighton the necessary funds. While Brighton could commingle receipts from the Mid-Island theatres with its other funds, net profits were to be forwarded to Mann quarterly, less a fee of 6% of the gross receipts which Brighton was to retain. Brighton was given complete authority over the booking of films and the entertainment policy of the theatres.

Following the trial, Special Term rendered judgment declaring that the agreement of May 2, 1980 did not constitute an assignment or sublease and that the ground lease had not been defaulted. The court also declared that exclusive possession of the premises had not been transferred to Brighton under the agreement and it dismissed the summary proceeding. This appeal is from that judgment.

II

It scarcely bears repetition to note that in the absence of statute or an express restriction in a lease, a tenant has the unrestricted right to assign or sublet (Eten v. Luyster, 60 N.Y. 252). But where the lease contains an express provision restricting assignment or subletting without the landlord's consent, the landlord may arbitrarily refuse consent for any or for no reason (Dress Shirt Sales v. Hotel Martinique Assoc., 12 N.Y.2d 339, 239 N.Y.S.2d 660, 190 N.E.2d 10; but see Real Property Law, § 226-b as to residential leases), unless the provision requires that consent not be unreasonably withheld. Since provisions limiting assignment or underletting are a restraint on the free alienation of land, they are not favored by the law, and are to be strictly construed (Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62, 69, 412 N.Y.S.2d 827, 385 N.E.2d 566; Riggs v. Pursell, 66 N.Y. 193, 201). Nevertheless, landlords are entitled to the enforcement of such provisions because of their substantial interest in controlling the assignability of leases (Glauberman v. University Place Apts., 188 Misc. 277, 66 N.Y.S.2d 335, affd. 272 App.Div. 758, 70 N.Y.S.2d 139). Restrictions against alienation provide landlords with the opportunity to assess the financial responsibility and "business character" of any proposed assignee or subtenant, as well as the legality of the proposed use and the nature of the occupancy (American Book Co. v. Yeshiva Univ. Dev. Foundation, 59 Misc.2d 31, 33, 297 N.Y.S.2d 156). We spurn as pure sophistry the tenancy interests' claim that the restrictions effect only the ground lease and not the sublease. A subtenant is always bound by the terms of the underlying lease, which is the source of its rights (World of Food v. New York World's Fair 1964-1965 Corp., 22 A.D.2d 278, 254 N.Y.S.2d 658; Bartholdi Realty Co. v. Robard Realty Co., 156 App.Div. 528, 141 N.Y.S. 353), and the instant restriction is broad in scope, binding the tenant's assignees or...

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