Opinion
No. 50311/10.
2010-07-23
KIOP FOREST AVE., L.P., Petitioner, v. SOUTHERN SMOKEHOUSE OF STATEN ISLAND, INC., Respondent.
Stark & Stark, New York, Attorney for Petitioner/Landlord. Corash & Hollender, P.C., Staten Island, Attorney for Respondent/Tenant.
Stark & Stark, New York, Attorney for Petitioner/Landlord. Corash & Hollender, P.C., Staten Island, Attorney for Respondent/Tenant.
ORLANDO MARRAZZO, J.
In this commercial nonpayment summary proceeding, petitioner owner of commercial strip and mall seeks $339,376.40, due in rental arrears due through July 31, 2010. Respondent, is a 12,000 square foot buffet style restaurant that features Chinese and American cuisine.
Respondent moves under CPLR § 3212 seeking summary judgment on the grounds that petitioner unreasonably withheld its consent to respondent's request to assign the lease. Petitioner cross-moves for summary judgment seeking a final judgment and a warrant of eviction. As is set forth below, respondent's motion is denied in its entirety, and petitioner's motion is granted in its entirety.
Relevant Background
On or about February 29, 2008, respondent entered into an assignment of lease and assumption agreement with OCB Restaurant Company, LLC. This assignment of lease between respondent and OCB was procured and facilitated through OCB's filing a petition for relief under Chapter 11 of the Bankruptcy Code. The assignment of lease with OCB, dated February 29, 2008, required among other things, that respondent assume all obligations and responsibilities as tenant under a written lease between OCB d/b/a “Hometown Buffet, Inc.”, and petitioner, KIOP Forest Ave., LP, dated May 15, 1996, and that the respondent Ching Ho personally guaranty all sums due to petitioner under the lease. The lease provided for a term of 15 (fifteen) years running from Tenant's fiscal year 1996 through fiscal year 2011. Respondent was obligated under the lease commencing April 1, 2008.
At or around December 2008, the respondent alleges that he began to experience a major downturn in sales as a result of the struggling economy. As a result of this economic hardship the respondent formally requested a rent reduction. On January 12, 2009, the respondent sent a correspondence together with supporting documentation, to Mr. Thomas Pira, Director of Real Estate for Kimco Realty Corporation. The sum and substance of the correspondence sets forth a request for a rent reduction. Respondent in the correspondence attributed the need for a rent reduction for the duration of the lease period due to the decline to customers discretionary spending resulting from the recession.
Respondent further stated that another contributing factor requiring a reduction was the decline in sales volume due to petitioner's loss of several anchor stores previously located in the shopping plazas.
On May 8, 2009, respondent submitted a follow up correspondence to petitioner again requesting a rent reduction. Sometime towards the end of June 2009, Mr. Pira on behalf of the petitioner called respondent and denied respondent's request for a rent reduction, on the grounds that petitioner's pension partner declined the request. However, based on the tenor of the conversation, Mr. Pira advised respondent that he would talk it over again with his pension partner.
On July 9, 2009, the respondent sent a correspondence via email to Mr. Pira memorializing their phone conversation. Ultimately petitioner declined respondent's request for a rent reduction. Thereafter, in September 24, 2009, respondent sought to sell their business and to assign the lease. Petitioner declined to accept the purported assignment. Respondent fell in arrears, and petitioner commenced this nonpayment proceeding.
Respondent alleges that the petitioner found the proposed assignee's financial statement to be sound, but the sole issue was that the proposed assignee's sushi buffet concept may overlap with an existing Chinese Takeout restaurant already located in the shopping plaza. Respondent alleges had petitioner accepted the proposed assignment then this nonpayment proceeding would have been avoided. Respondent further alleges, that by denying the assignment they have incurred $80,000.00 in damages. Incidently, respondent seeks a judgment for that amount. The court denies that request.
Legal Standard for Summary Judgment
It is well settled that a proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986].)
Once the movant has satisfied this burden, the burden shifts to the [opponent] to lay bare his or her proof and demonstrate the existence of a triable issue of fact (Chance v. Felder, 33 AD3d 645, 645–646 [2d Dept 2006]; Zuckerman v. City of New York, 49 N.Y.2d 557 [1980].)
In this regard, the court is enjoined to accept the evidence tendered by the opposing party as true, and must deny the motion if there is even arguably any doubt as to the existence of a triable issue (Fleming v. Graham, 34 AD3d 525 [App.Div., 2nd Dept, 2006]; quoting Barker v. Briarcliff School Dist., 205 A.D.2d 652, 653 [App.Div., 2nd Dept, 1994].)
Rule on Assignments of Leases
It is well settled that a landlord has the right to control the uses to which their property may be put, and where a lease expressly limits and restricts the use of property to a specific purpose, such provision will be given effect ( see, Kem Cleaners v. Shaker Pine, 217 A.D.2d 787, 788 [App.Div., 3rd Dept, 1995].)
However, this principle does not necessarily apply with equal force to covenants seeking to limit the right to assign or sublet since such covenants are restraints on the free alienation of land which courts do not favor ( see, Rowe v. Great Atl. & Pac. Tea Co., 46 N.Y.2d 62, 69 [1978 ];East Best Food Corp., v. N.Y. 46th LLC., 56 AD3d 302, 303 [App.Div., 1st Dept, 2008].)
Accordingly, “[t]hey are construed with the utmost jealously, and very easy modes have always been countenanced for defeating them” (Riggs v. Pursell, 66 N.Y.193, 201 [1876].)
Nevertheless, where a landlord affirmatively promises not to unreasonably withhold its consent, its refusal can only be based upon a consideration of objective factors, such as the financial responsibility of the subtenant, the subtenant's suitability for the particular building, the legality of the proposed use and the nature of the occupancy, i.e., office, factory, retail ( see, F.H.R. Auto Sales v. Scutti, 144 A.D.2d 956, 958 [App.Div., 4th Dept, 1988]; Ontel Corp. v. Helasol Realty Corp., 130 A.D.2d 639, 640 [App.Div., 2nd Dept, 1987]; Sayed v. Rapp, 10 AD3d 717, 720 [App.Div., 2nd Dept, 2004]; Logan & Logan, Inc., v. Audrey Lane Laufer, LLC., 34 AD3d 539 [App.Div., 2nd Dept, 2006].)
Therefore, “subjective concerns and personal desires cannot play a role in a landlord's decision to withhold its consent to an assignment of a lease” ( Ontel Corp. v. Helasol Realty Corp., 130A.D.2d 639, 640 [App.Div., 2nd Dept, 1987]; International Chefs v. Corporate Prop. Investors, 240 A.D.2d 369, 370 [App.Div., 2nd Dept, 1997]; Athar v. Hudson Services Management, Inc., 48 AD3d 721, 722 [App.Div., 2nd Dept, 2008].)
Rule on Novation of Leases
It is well established that a party to a contract is not released from liability under the contract simply by the assignment of the contract ( see Worldcom, Inc. v. Prepay USA Telecom, Corp., 294 A.D.2d 157, 158 [App.Div., 2nd Dept, 2002]; Mandel v. Fisher, 205 A.D.2d 375, 376 [App.Div., 1st Dept, 1994]; Matter of Auerbach v. State Tax Commn., 142 A.D.2d 390, 394 [App.Div., 3rd Dept, 1988]; John W. Cowper Co. v. CDC–Troy, Inc., 50 A.D.2d 1076 [App.Div., 4th Dep, 1975]; Toroy Realty Corp., v. Ronka Realty Corp., 113 A.D.2d 882, 883 [App.Div., 2nd Dept, 1985]; Iorio v. Superior Sound, 49 A.D.2d 1008 [App.Div., 4th Dept, 1975]; Goldome v. Bonuch, 112 A.D.2d 1025, 1026 [App.Div., 2nd Dept, 1985]; Absolute Financial Services, LLC., v. 535 Broadhollow Realty, LLC., 292 A.D.2d 327, 328 [App.Div., 2nd Dept, 2002]; S & L Paving Corp. v. MacMurray Tractor, 61 Misc.2d 90, 93 [Sup Ct, Onondaga County, 1969].)
“[I]n order to relieve the original ... assignor from its continuing liability after assignment, it must be expressly shown that the [other contracting party] not only consented to the assignment, but accepted the assignee in place of the [assignor]” (185 Madison Assocs. v. Rejan, 174 A.D.2d 461 [App.Div., 1st Dept, 1991] ). Such release of the assignor must either be expressly stated by an agreement between the contracting party and the assignor “specifically provid[ing] for a release of liability upon assignment” (Matter of Auerbach, 142 A.D.2d at 394;Mandel, 205 A.D.2d at 376), or “implied from facts other than the [other contracting party's] mere consent to the assignment and its acceptance of [performance] from the assignee” (185 Madison Assocs., 174 A.D.2d at 461;see also Mandel, 205 A.D.2d at 376).
A Novation” is a contract which works as an immediate discharge of previously existing contractual duty. It creates a new contractual duty, and includes as a party to the new contract, one who was not entitled to receive, nor obliged to perform the previous contractual duty. Component parts of a novation are (1) Mutual Assent; (2) Immediate Discharge of the Old Obligation; (3) Consideration; and (4) Presence of a New Party. ( See, Kasper v. Roberts, 119 Misc.2d 829, 831 [Civ Ct, Queens County, 1983].)
Clearly, New York courts have set a stringent standard for the novation of a contract. The requirements are: (1) a previously valid obligation; (2) an agreement by the parties to: (a) extinguish the old contract; and (b) enter a new contract; and (3) consideration for the new contract ( see, Old Oak Realty, Inc., v. Polimeni, 232 A.D.2d 536,537 [App.Div., 2nd Dept, 1996]; Wasserstrom v. Interstate Litho Corp., 114 A.D.2d 952, 955 [App.Div., 2nd Dept, 1985]; Kinsella v. Merchants National Bank $ Trust Co. Of Syracuse, 34 A.D.2d 730, [App.Div., 4th Dept, 1970].)
The point being is that the party claiming a novation must prove that all parties to a valid existing contract agreed that it would be extinguished and they would be bound by the terms of a new agreement. Both parties must have clearly expressed their intention that the subsequent agreement supersede or be substituted for the old agreement. The assertion of a novation usually is raised as a defense to a breach of contract claim.
Finally under New York Law, it is firmly established that if a lease does not impose a constraint on a landlord's right to decline consent to a novation then the landlord has no contractual obligation not to withhold that consent, unreasonable or otherwise.
In the words of the Appellate Division, “Tenant's proposed payment of a sum of money in exchange for landlord's release of tenant's lease obligations and consent to the assignment would have transformed the proposed assignment into a novation, for which landlord was not required to act reasonably ...” ( see, NNA Restaurant Management LLC., v. Mahrokh Eshaghian, 29 AD3d 384, 384–385 [App.Div., 1st Dept, 2006].)
Analysis
In the light most favorable to the respondent, after diligently searching the record herein, the court determines that there are only issues of law and not fact before the court. Accordingly, the court awards summary judgment in petitioner's favor.
The court determines that the respondent sought a novation and not an assignment, and that the lease herein contains no constraints on petitioner's right to decline consent to a novation.
Paragraph 10) ASSIGNEE RELEASE of the proposed, “Assignment of Lease And Assumption Agreement” states:
“Assignee does hereby and for its affiliates, successors, and assigns, release, acquit, and forever jointly and severally discharge Assignor, its affiliates, agents, servants, successors (not including Assignee), heirs, executors, and administrators (the “Affiliated Parties”) of and from any and all rights claims or causes of action which now have or which may hereafter accrue, whether known or unknown, in any way relating to the Lease.”
Paragraph 11) ASSIGNEE'S CONTINUING LIABILITY TO LANDLORD:
“On the Effective Date, Assignee shall be responsible directly to Landlord for all rent and other tenant charges under the Lease that become due under the Lease following the Effective Date in accordance with the terms of the Lease notwithstanding the date such liabilities and obligations accrued.”
ARTICLE 22. Of the Lease Dated May 15, 1996, between petitioner and respondent is entitled, “Assignment and Sublease” and it states:
“Section 22.01. Except as otherwise specifically provided herein, Tenant shall not, without the express prior written consent of Landlord (which consent shall not be unreasonably withheld) sublet, assign or transfer this Lease or the Demised Premises or any part thereof, or the interest of Tenant in the Demised Premises or any sublease or rental thereunder. This prohibition includes any subletting or assignment which would otherwise occur by operation of law, and any assignment or subletting to or by a receiver or trustee in any federal or state bankruptcy, insolvency or other proceeding. Neither the making (whether with Landlord's consent or not) of any assignment or subletting, in whole or in part, nor the acceptance by Landlord of rent from any assignee, subtenant, or other third party shall constitute consent by Landlord to any assignment or subletting nor a waiver of any rights or remedies of Landlord nor shall operate to relieve Tenant from Tenant's obligations under this Lease and, notwithstanding any such assignment or subletting, Tenant shall remain liable for the payment of all Rent and for the due performance of all the covenants, agreements, terms and provisions of this Lease to the full end of the Term of the Lease, whether or not there shall have been any prior termination of this Lease by summary proceeding or otherwise. Any breach of this section by Tenant shall constitute a material default hereunder entitling Landlord to all rights and remedies in respect thereto, including without limitation the right to terminate this lease.”
Here, the respondent disguised the novation as a proposed assignment. Respondent sought a complete release, a novation from the lease, and not to remain responsible for the rent or for any other lease obligations for the duration of the lease period. In essence, the respondent did not seek an assignment, but rather the complete extinguishment of the old lease and to the entry of a new one to which the petitioner had no contractual obligation to agree to.
Additionally, there is no proof in competent proper evidentiary form before this court that indicates that the petitioner unreasonably withheld consent to respondent's request for an assignment. However, assuming that the petitioner had unreasonably withheld consent as respondent alleges it was to the novation masked as an assignment and not to facially reasonable assignment. Moreover, even if respondent presented a facially reasonable assignment the respondent has failed to demonstrate how the petitioner unreasonably withheld its consent.
Moreover, under Section 745(2) of the RPAPL provides that in the Civil Court of New York City, upon the respondent's second request for an adjournment or after a thirty day period, whichever comes first, the court “shall direct that the respondent post “rent or use and occupancy accrued from the date the petition and notice of petition [were] served upon the respondent and all sums as they become due (RPAPL 745(2); Lang v. Pataki, 271 A.D.2d 375 [1st Dep't 2000], appeal dismissed,95 N.Y.2d 886 [2000].)
The remedy for a failure to pay court-ordered use and occupancy depends upon whether the respondent has failed to comply with the initial payment requirement or has failed to make subsequent payments.
If the respondent fails to make the initial payment of use and occupancy, then the court may “dismiss without prejudice the defenses and counterclaims interposed by respondent and grant judgment for petitioner (RPAPL section 745(2)(c)(I); Planned System Installers Co. v. Network American Systems, Inc., 175 Misc.2d 958 [Civ.Ct., New York, County, 1998].)
On the other hand, should the respondent fail to make subsequent payments, then the court “shall order an immediate trial of the issues raised in the respondent's answer (RPAPL 745(2)(c)(ii)). Such an interpretation of RPAPL 745(2)(c) comports with section 14:451 of the treatise Landlord and Tenant Practice in New York by Finkelstein and Ferrara.
Here, the petitioner has not received any rent payments from respondent since December 2009. On April 7, 2010, the parties herein entered a two-attorney “So Ordered” stipulation where, “Tenant to deposit $10,000.00—per month rent to Landlord commencing April 16, 2010 and the first date of each month thereafter. Upon default, Petitioner Landlord may seek relief in accordance with RPAPL 745.”
The respondent was given a rent reduction without prejudice to petitioner's claim for the full rent to only pay $10,000.00 for the continuance of this summary nonpayment proceeding. Notwithstanding this, respondent since April 7, 2010, has not paid one cent to the petitioner in rent. Accordingly, under RPAPL § 745 the court strikes respondents answer and all affirmative defenses and counterclaims therein.
Accordingly, final judgment for petitioner in the sum for $339,376.40. Warrant of eviction to issue forthwith, execution stayed for 5 (five) days from the date that petitioner serves a copy of this order with notice of entry on respondent for payment of the $339,376.40.