Pac. Coast Silks, LLC v. 247 Realty, LLC

• Decision Date: 01 July 2010
• Citation: 904 N.Y.S.2d 407,76 A.D.3d 167
• Parties: PACIFIC COAST SILKS, LLC, Plaintiff-Respondent, v. 247 REALTY, LLC, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

904 N.Y.S.2d 407

76 A.D.3d 167

PACIFIC COAST SILKS, LLC, Plaintiff-Respondent,

v.247 REALTY, LLC, Defendant-Appellant.

Supreme Court, Appellate Division, First Department, New York.

July 1, 2010.

Smith & Shapiro, New York (Harry Shapiro of counsel), for appellant.

Adam M. Peska, White Plains, and Aibara & Reed, PLLC, New York (Blake W. Reed of counsel), for respondent.

ANGELA MAZZARELLI, J.P., RICHARD T. ANDRIAS, DAVID B. SAXE, JAMES M. CATTERSON, ROLANDO T. ACOSTA, JJ.

SAXE, J.

The impact of a building-wide renovation and upgrade on the rights of an incoming commercial tenant is the subject of this appeal. Whatever regrets the tenant may have had later about the wisdom of agreeing to a tenancy of seventh-floor premises in a building whose only elevator was then out of service due to substantial renovations should not form a predicate for judicial solicitude, in the face of a commercial lease that delineates the rights and obligations of both landlord and tenant and provides only limited protection of the tenant's interests in the event of a long delay in the completion of the ongoing elevator renovation.

On September 5, 2006, plaintiff tenant and defendant landlord entered into a commercial lease for the seventh-floor premisesat 247 West 36th Street in Manhattan, to be used "for silk garment fabric sales." The building is serviced by a single elevator, which opens directly onto the premises; the only other means of access to the premises is through a stairwell. At the time the lease was executed, the elevator was in the midst of a major renovation that had begun in July 2006, leaving the building without elevator service.

The parties' agreement was comprised of a standard lease form, a rider, and an attached work letter. It provided for a one-year term from October 1, 2006 through September 30, 2007, with options to renew for five additional years. The parties acknowledged the possibility that the elevator would not be in service by the lease's commencement date of October 1, 2006, in rider paragraph 41.02, which provided that "in the event the elevator installationis not completed by October 15, 2006, the Commencement Date [of] the lease shall be adjusted to October 15, 2006." According to the landlord's principal, Shrage Rokosz, at the time the lease was executed both parties expected that the work would be completed by October 15, 2006. In fact, however, the work was not completed and the elevator not functioning until December 4, 2006.

The work letter attached to the lease rider required the landlord to perform certain repairs to the premises, including the installation of new hardwood flooring that the tenant would provide; it expressly provided that "[n]otwithstanding anything to the contrary contained herein, any items in the Lease or in this work letter that require Landlord to do work, the incompletion of any item same [ sic ] shall not toll the Commencement Date and Tenant shall pay the entire Annual Rental Rate and additional rent without any offsets or abatement on the Commencement Date." As agreed in the work letter, the tenant had hardwood flooring materials delivered to the premises in early November 2006. Rokosz testified that when he had the old flooring removed in preparation for installation of the new flooring, he saw that the subflooring in place was running in the same direction as the tenant wanted the new floor to be installed, and he advised the tenant's principal, Joseph Ricci, that the floor would be stronger if the subfloor ran in a different direction. Ricci instructed Rokosz to hold off on installing the provided flooring, and plywood for new subflooring was subsequently delivered on December 13, 2006.

At the time the lease was executed on September 5, 2006, the tenant paid the first month's rent of $7,500 and a security deposit in the amount of $22,500. However, no further rent payments were made by the tenant after that initial payment. On December 18, 2006, the landlord sent a letter denominated a "Notice of Termination," demanding that the tenant vacate the premises by December 27, 2006 for non-payment of rent, and demanded that the tenant pay the rent arrears. The tenant responded by letter dated December 27, 2006, claiming that possession had never been delivered to it due to the lack of elevator service until December 4, 2006. In addition, the tenant claimed that the lack of elevator service would constitute a constructive eviction if it had been in possession, and that therefore no rent was due and there existed no legitimate basis for landlord to terminate the lease. It nevertheless agreed to surrender the premises, but demanded return of its security deposit and first month's rent, since it considered the lease to have been cancelled.

By letter dated January 3, 2007, the landlord pointed out that the tenant had been aware that the elevator was out of service when it entered into the lease. The landlord also stated that, even though the tenant had complied with the demand that it surrender possession of the premises, it was not relieved of its obligation to pay the rent, and informed the tenant that it would not return the security deposit and first month's rent and would hold the tenant liable for all rent due under the lease as it accrued. This action followed.

At trial, only two witnesses were offered by the tenant. The first was an attorney, who established that in response to the landlord's December 18, 2006 letter terminating the tenancy, the tenant sent the letter dated December 27, 2006. The second witness was an employee of the elevator company that installed the upgraded elevator in the building, who testified about when the work began and said that it was completed and a certificate for its use obtained on December 4, 2006. Essentially,the tenant's case consisted of proof that the elevator was not in service until December 4th and the contention that this constituted a constructive eviction. The landlord offered the testimony of its principal, Rokosz, who testified as to the parties' lease negotiations and subsequent events.

The trial court found that the tenant was constructively evicted from the leased premises, based on the landlord's failure to provide elevator service for the first seven weeks of the leaseterm. It also held, although no such cause of action was pleaded or sought in the context of conforming the pleadings to the proof, that the tenant was subjected to actual partial eviction due to the denial of access to a necessary appurtenance, namely, the elevator as a means of ingress and egress. Further, notwithstanding the rule that once the conditions creating a constructive eviction no longer exist a tenant in possession may not rely on those conditions to avoid its lease obligations, the trial court concluded that the tenant had not been given possession of the premises within a reasonable time and that therefore its obligation to pay rent never arose. It awarded the tenant the return of its security deposit and first month's rent.

Based on our review of the trial record, the parties' written contract and their undisputed conduct, we find insufficient support for the trial court's findings and conclusions, and, accordingly, we reverse. In our view, while it is true that the renovation of the building's elevator was incomplete on the lease's delayed commencement date of October 15, 2006, and remained so until December 4, 2006, that circumstance did not justify treating the lease as cancelled and relieving the tenant of all its obligations under the lease.

To establish constructive eviction, a tenant need not prove physical expulsion, but must prove wrongful acts by the landlord that "substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises" ( see Barash v. Pennsylvania Term. Real Estate Corp., 26 N.Y.2d 77, 83, 308 N.Y.S.2d 649, 256 N.E.2d 707 [1970] ). Partial actual eviction requires that the tenant be physically prevented from using a portion of the leased premises ( id.). For the reasons that follow, neither claim was made out here.

The tenant presented nothing to establish that elevator service was necessary for it to operate its business during that time period; indeed, no one testified as to exactly what the operation of the business entailed or when the tenant had expected to open for business. The trial court seems to have extrapolated from the description of the business as "for silk garment fabric sales" that the tenant had intended to use the premises as a showroom from which to sell silk garment fabric to customers and that for its successful operation the business required personal visits by potential customers who would not visit a seventh-floor showroom without an elevator; it also seems to have assumed that the tenant had intended to proceed with such operations immediately upon the commencement of the lease term and before its floor was installed. All this may havebeen...