VT. TEDDY BEAR v. 538 MADISON

• Decision Date: 25 March 2004
• Citation: 775 N.Y.S.2d 765,807 N.E.2d 876,1 N.Y.3d 470
• Parties: VERMONT TEDDY BEAR CO., INC., Respondent, v. 538 MADISON REALTY COMPANY, Appellant.
• Court: New York Court of Appeals Court of Appeals

1 N.Y.3d 470

807 N.E.2d 876

775 N.Y.S.2d 765

VERMONT TEDDY BEAR CO., INC., Respondent, v. 538 MADISON REALTY COMPANY, Appellant.

Court of Appeals of the State of New York.

Argued February 10, 2004.

Decided March 25, 2004.

Jay Goldberg, PC, New York City (Jay Goldberg of counsel), and Greenberg Traurig, LLP (Israel Rubin and James W. Perkins of counsel), for appellant.

Reed Smith LLP, New York City (Andrew B. Messite of counsel), for respondent. Chief Judge KAYE and Judges G.B. SMITH, CIPARICK, ROSENBLATT, READ and R.S. SMITH concur.

OPINION OF THE COURT

GRAFFEO, J.

After substantial damage occurred to its retail store, the tenant in this case terminated its lease on the ground that the building owner had failed to provide timely written notice that the premises had been restored and were ready for occupancy. The courts below agreed with the tenant that the lease required the owner to give such notice. Because our long-standing contract interpretation principles prohibit us from adding a missing term to an unambiguous lease, we reverse the order of the Appellate Division and deny the tenant's motion for summary judgment.

Beginning in October 1996, plaintiff Vermont Teddy Bear Co., Inc. (VTB) leased first-floor retail space at 538 Madison Avenue in Manhattan from defendant 538 Madison Realty Company. The parties executed a Real Estate Board of New York standard form store lease and annexed a rider to the document. The lease term was for 10 years, with escalating rental payments beginning at $300,000 per year. On December 7, 1997, during the second year of the lease term, a wall of 540 Madison Avenue—a building adjacent to the leased premises—collapsed. The disaster caused considerable damage to 538 Madison Avenue and temporarily shut down the area.¹ In light of the extensive damage, the New York City Department of Buildings issued a "Vacate Order" that remained in effect for several months and required the discontinuance of occupancy at 538 Madison Avenue. The effect of damage or destruction to the rental premises on the parties' lease agreement is addressed in article 9 of the contract, which states that

"[i]f the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and other items of additional rent... shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner, ... subject to Owner's right to elect not to restore the same...."

This provision further establishes that "[t]enant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy."²

The rider that was incorporated in the lease contained a provision relating to casualty loss. Specifically, paragraph 3 of the rider gave VTB a limited tenancy termination option in the event of a fire or casualty. If VTB wished to invoke this termination right, the rider required it to

"provide Landlord within thirty (30) days of the fire or casualty, a written notice of Tenant's election to terminate the Lease if the Premises are not restored within one (1) year after Owner's receipt of such Tenant's notice. In the event the Premises are not restored within such one (1) year period the Lease shall be deemed terminated as of the end of the 12 mos. period and both Landlord and Tenant shall be released from all obligations which may arise after the Termination Date."

After the wall collapsed, VTB exercised its option under paragraph 3 of the rider and notified 538 Madison by letter dated December 16, 1997 that it intended to terminate the lease if the premises were not restored within one year.³ In response, 538 Madison demanded assurances that VTB intended to continue its tenancy pursuant to the terms of the lease. Despite this demand, VTB removed its remaining possessions from the store in July 1998 and surrendered its keys.

One year having elapsed since the casualty, VTB declared the lease terminated in December 21, 1998 correspondence to the owner stating: "[a]s of today's date we have not received any notice from Landlord advising Tenant that restoration of the Premises has been completed or advising Tenant to reoccupy the Premises or to recommence the payment of rent under the Lease." In addition, VTB demanded return of its $150,000 security deposit and the portion of its prepaid December 1997 rent for the balance of that month after the casualty. 538 Madison promptly rejected termination of the lease, asserting that VTB was aware that the premises had been substantially restored by July 1998 and the lease remained in effect.

In May 1999, VTB initiated this action seeking a declaration that its termination of the lease was effective and a judgment for the return of its security deposit and prepaid rent. 538 Madison answered, raising several counterclaims, and subsequently moved to dismiss the complaint. Supreme Court denied the motion, concluding that issues of fact existed with respect to whether and when the premises were restored. Following discovery, VTB moved for summary judgment. In its opposition to the motion, 538 Madison contended that the lease did not obligate it to provide written notice of restoration to avoid termination. Supreme Court granted the motion, dismissing 538 Madison's affirmative defenses and counterclaims and directing entry of judgment in VTB's favor in the amount of $170,161.29 plus interest.

A divided Appellate Division affirmed. The majority acknowledged that paragraph 3 of the rider "contains no explicit requirement of written notice of the completed restoration" (308 AD2d 33, 36 [1st Dept 2003]), but nevertheless concluded that article 9's written notice provision pertaining to resumption of rental payment obligated 538 Madison to issue notice of restoration to prevent termination. Two Justices dissented and voted to deny the motion for summary judgment, reasoning that "the majority's holding sanctions the judicial rewriting of the parties' lease by imposing a written notice requirement on the landlord that does not exist under the plain terms of that document" (id. at 42). The dissent asserted that a question of fact regarding the restoration of the premises further precluded a grant of summary judgment in VTB's favor. 538 Madison now appeals as of right (see CPLR 5601 [a]).

When interpreting contracts, we have repeatedly applied the "familiar and...