New Henry John Corp. v. Rainbow Rest., Inc.

Full title: NEW HENRY JOHN CORPORATION, Claimant(s)/Plaintiff(s)/Petitioner(s), v…

Court: Civil Court of the City of New York. Queens County

Date published: Jun 29, 2006

2006 N.Y. Slip Op. 51245 (N.Y. Civ. Ct. 2006)

Opinion

55720/06.

Decided June 29, 2006.

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] HOWARD G. LANE, J.

This is a commercial holdover proceeding commenced by New Henry John Corporation (hereinafter the "petitioner" or "landlord") by service of a Three Day Notice of Cancellation of the Lease on Rainbow Restaurant, Inc. (hereinafter the "respondent" or "tenant") on January 31, 2006, which notice was followed by the service of a holdover petition and notice of petition upon the respondent on February 28, 2006. Thereafter, on April 31, 2006, respondent answered the petition. The matter was tried before the Court without a jury on April 26, 2006. The parties were directed to file with the Court post trial memorandum by May 12, 2006.

FINDINGS OF FACTS

The following constitutes the court's findings of fact based on an evaluation of the credibility of the witnesses and the exhibits.

Petitioner is the owner and landlord of the building known as 36-09 Main Street, Flushing, New York, in which a portion of commercial space in the building was leased to respondent (hereinafter the "subject premises"). The respondent is Rainbow Restaurant, Inc. and the tenant in possession of the subject premises. The testimony at trial established that on June 1, 2001 the parties entered into a commercial space lease for respondent to conduct a restaurant business for a term of 5 years, with a 5 year option to renew. By the terms of lease, respondent was required to pay the petitioner $20,000.00 as a security deposit.

The subject premises is a storefront restaurant on the ground floor of a multiple dwelling building. The restaurant space is comprised of a large dining area, a bar, storage, bathroom and kitchen. All the testimony, the photographs and other exhibits clearly indicate that the kitchen area is less than 25% of the total lease space. (Exhibits 4, C and D). In the lease it was stipulated that the premises were to be used and occupied as a restaurant and for no other purpose. Respondent was the successor tenant to a prior tenant who also used the space as a restaurant.

On or about December 27, 2005, a fire occurred in the kitchen area in the subject premises. According to the testimony of Gregory G. Georges, an expert in the field of structural engineering, the fire was started inside the exhaust duct in the kitchen due to the over accumulation of grease and oil in the duct. The grease and oil caught fire, and the heat from the burning grease and oil in the duct caused the wood beams in the roof and ceiling to catch fire. The wooden ceiling and roof beams were burned beyond repair. The walls enclosing the kitchen were superficially charred, but they remained in good condition with respect to structural strength. The kitchen floor was superficially damaged from the water used to extinguish the fire. The portion of the roof immediately surrounding the duct in the kitchen was burned, but the balance of the roof remained intact. There was no visible fire damage to the subject premises in the interior dining, storage, bar and bathrooms areas. There was no visible fire damage to the exterior of the subject premises or the adjoining storefront commercial premises. Petitioner presented no expert testimony or other evidence concerning the estimated cost to repair or rebuild, or the fair market value of the building or subject premises.

On or about January 30, 2006, petitioner notified respondent in writing that pursuant to the "fire clause" of the lease, petitioner demanded that respondent vacate the premises and surrender the lease within three days of receipt of the notice. (Exhibit B). Respondent contends, inter alia, that the petitioner is in violation of the lease because the fire clause under the lease obligated the petitioner "to repair the fire damage at [its] cost regardless of the fault." (Answer ¶ 6).

Paragraph "Fourth" is the key provision in the lease concerning the instant dispute. This paragraph provides:

FOURTH

If the demised premises shall be partially damaged by fire or other cause without the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors or licensees, the damages shall be repaired by and at the expense of Landlord and the rent until such repairs shall be made shall be apportioned according to the part of the demised premises which is usable by Tenant. But if such partial damage is due to the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors or licensees, without prejudice to any other rights and remedies of Landlord and without prejudice to the rights of subrogation of Landlord's insurer, the damages shall be repaired by Landlord but there shall be no apportionment or abatement of rent. No penalty shall accrue for reasonable delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant, and for reasonable delay on account of" labor troubles", or any other cause beyond Landlord's control. If the demised premises are totally damaged or are rendered wholly untenantable by fire or other cause, and if Landlord shall decide not to restore or not to rebuild the same, or if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then or in any such events Landlord may, within ninety (90) days after such fire or other cause, give Tenant a notice in writing of such decision, which notice shall be given as in Paragraph Twelve hereof provided, and thereupon the term of this lese shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the demised premises and surrender the same to Landlord. If Tenant shall not be in default under this lease then, upon the termination of this lease under the conditions provided for in the sentence immediately preceding, Tenant's liability for rent shall cease as of the day following the casualty. Tenant hereby expressly waives the provisions of Section 227 of the Real Property Law and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof. If the damage or destruction be due to the fault or neglect of Tenant the debris shall be removed by, and at the expense of, Tenant. (Italics, bold and underline supplied).

CONCLUSIONS OF LAW

A. PETITIONER'S PRIMA FACIE CASE

At the outset it is clear that the fire clause (paragraph Fourth of the lease) constitutes an express agreement which excludes the operation of section 227 of the Real Property Law (see Matter of Manufacturers Trust Co. v. Bach, 32 Misc 2d 858 and cases cited therein). The fire clause in the lease (paragraph Fourth) provides the following effect: (1) if the subject premises should be partially damaged by fire by no fault of the tenant (they should be repaired by the landlord, and until such repairs are made the rent shall be abated or shall be apportioned according to the part of the subject premises which is usable by tenant; (2) however, if the subject premises should be partially damaged by fire by the fault or neglect of the tenant they should be repaired by the landlord, and the tenant shall pay rent without apportionment or abatement; and (3) if, however, in the event subject premises should be totally damaged or rendered wholly untenantable by fire and the landlord "decide[s] not to restore or not to rebuild the [demised premises]", or if the building is so damaged the Landlord "decide[s] to demolish it or to rebuild it," then the landlord may elect to terminate the lease by written notice sent to the tenant by regular and certified mail.

The fire clause of the lease is divided into two categories of damage to the demised premises and/or the building: the first category is partial damage, and the second is total destruction or substantial destruction. Only the category of total or substantial destruction gives rise to the landlord's right to terminate the lease.

The specific language in the fire clause in the lease that covers total and substantial destruction provides:

If the demised premises are totally damaged or are rendered wholly untenantable by fire or other cause, and if Landlord shall decide not to restore or not to rebuild the same, or if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then or in any such events Landlord may, within ninety (90) days after such fire or other cause, give Tenant a notice in writing of such decision, which notice shall be given as in Paragraph Twelve hereof provided, and thereupon the term of this lese shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the demised premises and surrender the same to Landlord. (Italics, bold and underline supplied).

This language is the choice of the parties and must be construed accordingly.

This is not a case of total destruction, or substantial destruction, as has been considered in other cases ( Leone v. Russo, 190 Misc 984, affd. 275 AD 674 [2nd Dept 1949]; Corbett v. Spring Garden Ins. Co., 155 NY 389; General Outdoor Advertising Co. v. Wilson, 276 AD 63 [3rd Dept 1949]). Indeed, the petitioner concedes that the subject premises was not "totally damaged" and that the building was not "so damaged that Landlord . . . decided to demolish it or to rebuild it." Instead, petitioner contends that the fire rendered the subject premises "wholly untenantable."

What did the parties intend to mean when they chose the words "wholly untenantable." A review of Friedman on Leases § 9.5 offers some guidance in defining the meaning of "untenantable." It provides as follows:

Premises are not untenantable merely because damage has made them unsatisfactory for the normal conduct of a tenant's business. Untenantability is like destruction in that it means substantial damage to a structure . . . Untenantability. . . . has been defined as damage of such nature that the premises cannot be used for the purpose for which they were rented and cannot be restored to a fit condition by ordinary repairs made without unreasonable interruption of the tenant's use . . . 1 Friedman on Leases § 9.5, at 542 [4th ed]. (Bold supplied)

Thus, the term "wholly untenantable" contemplates circumstances where the fire damage was so extensive that it consumed and totally destroys a substantial part of the building itself, or the subject premises, and the premises no longer existed as a restaurant for the purpose for which it was intended by the parties. See, Einstein v. Levi, 25 AD 565 (1st Dept 1898). Furthermore, the word "untenantable" is preceded by the qualifying word "wholly." By the use of this qualifying adjective, the parties intended to reinforce the notion that the parties intended that the damage be substantial and total in nature, and not partial. Furthermore, the phrase "wholly untenantable," is placed in the agreement in that part that contemplates total or substantial destruction of the premises. By placing the phrase where it has been placed in the fire clause, for the purpose of characterizing the extent of damage which was to give rise to the right to terminate the lease, the parties must have intended it to mean more than partial damage, and more than the destruction of only a part of the subject premises, as shown by the evidence here.

Friedman on Leases § 9.5 further provides that "structural damage is essential to untenantability. Damage that makes use of leased property unpleasant and inconvenient for the conduct of a tenant's business is not untenantability. Neither is damage that makes the premises completely, but briefly, unusable . . . In all the situations where structural damage is slight and restoration is possible within perhaps a couple of weeks, . . . claims of untenantability are denied." 1 Friedman on Leases § 9.5, at 546 [4th ed]. In this case, the structural damage was slight and limited to the ceiling and roof, and restoration was possible. Although, the fire damage and smoke may render the use of the subject premises unpleasant and inconvenient for the conduct of respondent's restaurant business temporarily until properly repaired, such damage does not render the premises untenantable. The subject premises was not untenantable merely because the fire damage made the premises completely, but briefly, unusable.

Here, the right of the petitioner to terminate the lease arises only if the subject premises is either totally or substantially destroyed such that in a practical sense it loses its character as a restaurant. The evidence here does not establish such total or substantial destruction such that the premises lost its character or identity as a restaurant, to the degree that it could not readily be restored within a reasonable time by repair.

Finally, the Court notes that this matter does not turn solely upon the wishes of the petitioner/landlord or its apparent financial interest. The interests of both parties must be considered by the Court. General Outdoor Advertising Co. v. Wilson, 276 AD 63 (3rd Dept 1949). "[T]he law construes termination clauses such as the one here strictly against the landlord." Kal Associates v. Ben-Tom Restaurant, Inc., 99 AD2d 1002 (1st Dept 1984). In the five month period that respondent was in possession of the subject premises, prior to being forced to close its business due to the fire, there was some evidence that respondent invested substantial funds into the business, including expenses such as renovations, and leasehold improvements ( i.e., installation of a HVAC system). The forfeiture of respondent's long-term leasehold may provide a windfall to the landlord, while at the same time, cause the respondent to suffer substantial economic loss.

As there is here little or no structural damage, and there is no evidence of a health or public safety reason for terminating the lease, the Court finds that the demised premises was only "partially damaged" by the fire and that the fire damage was not so severe as to render the premises "wholly untenantable," entitling the petitioner to terminate the lease. Except for the incidental inconvenience and temporary interruption of the conduct of respondent's business that may be caused to perform repairs, petitioner presented insufficient evidence to show by a fair preponderance of the evidence that respondent could not continue in occupancy and use substantially in the manner and extent as it had occupied and used the subject premises prior to the fire. Therefore, petitioner has failed to establish the factual prerequisites that would entitle it to terminate the lease pursuant to the lease agreement dated June 1, 2005. (Exhibit 1).

CONCLUSION

Accordingly, judgment in favor of the respondent and the petition is dismissed.

This constitutes the decision and order of the Court.