In what is believed to be the first decision in a commercial lease case arising out of the devastating losses to landlords and tenants from Superstorm Sandy, the Civil Court of New York County found that a retail tenant of a lower Manhattan property was not entitled to a rent abatement from its landlord based on the tenant’s loss of electricity following the storm. In Maiden Lane Properties v. Just Salad Partners, 056312/13, N.Y.L.J. 1202598292879 (Civ., NY, Decided April 29, 2013), landlord Maiden Lane Properties, LLC (“MLP”) sued tenant Just Salad Partners LLC (“Just Salad”) based on tenant’s failure to pay rent for the months of December and January. Just Salad alleged that its failure to pay rent was justified, claiming that it was entitled to a rent abatement because MLP had failed to provide it with electricity during that time period. Further, Just Salad alleged that the property’s commercial tenants were not permitted to use the generator that MLP had provided for the residential units at the property. Therefore, Just Salad purchased its own generator in early December, which allowed it to resume business operations, albeit with “occasional lack of power,” until it reconnected to the property’s electricity at the end of January. Id. at *2. Just Salad further claimed that it was entitled to the costs of renting the generator and of mitigating its damages as part of the rent abatement.
In support of its claimed right to a rent abatement, Just Salad pointed to the casualty provisions found in Section 9 of its lease, which was based on a standard Real Estate Board of New York lease form commonly used in commercial leases in New York City. Section 9 provided that “[I]f the [Premises] are totally damaged or rendered wholly unusable by fire or other casualty, then the 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 [MLP]…” Id. at *3. Therefore, Just Salad argued that it was entitled to a rent abatement from the time it was unable to connect to the building’s electricity until it received a reoccupancy notice from MLP. Id. at *4. MLP countered that Section 9 was inapplicable because the loss of electricity did not trigger the casualty provision and because Just Salad had failed to give immediate notice of a casualty as required by the terms of the lease. Id. The court agreed with MLP.
As a preliminary matter, Justice Jennifer Schecter stated that Just Salad’s failure to give notice of the “casualty” was “fatal to its argument that it is entitled to a rent abatement.” Id. More significantly, Judge Schechter stated that the casualty provisions of Section 9 were not implicated because there was no evidence that the leased premises were “physically damaged by the storm.” Id. at *5. Justice Schechter noted that MLP was not required to perform any repair work to the leased premises due to flooding from the storm, and MLP had no obligation to give Just Salad notice that the premises were substantially ready for occupancy because Just Salad never vacated the premises. Id.
The court further noted that the parties had specifically addressed the issue of loss or lack of electricity in a separate provision of the lease, which provided that “if either the quantity or character of the electrical services is changed by the public utility or other company supplying electrical service to the Building or is no longer available or suitable for [Just Salad's] requirements, no such change, unavailability or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle [Just Salad] to any abatement or diminution of rent, or relieve [Just Salad] from any of its obligations under this Lease, or impose any liability upon Landlord….” Id. at *6. Therefore, the court held that the parties’ “had anticipated and accounted for” precisely the type of scenario that occurred in the aftermath of the storm, which made clear that Just Salad was not entitled to a rent abatement for the loss or lack of electricity.
Although the court noted that Superstorm Sandy undoubtedly created hardship for Just Salad, it made clear that the provisions of the lease, which clearly placed the risk of this type of loss on the tenant, would control regardless of the hardship. The decision in this case reflects the Judge’s application of the plain language of the lease to the particular facts of the case. The outcomes of the other rent abatement suits arising from Superstorm Sandy should similarly depend on a combination of the particular facts of the case and the language of the applicable lease. This underscores the importance of a carefully worded lease, with due consideration given to the provisions, such as rent abatements and appropriate insurance coverage, addressing loss of services, including by reason of force majeure.
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