Opinion
LT-053560-20/QU
12-29-2020
GREATER NEW YORK AUTOMOBILE DEALERS ASSN, INC., Petitioner-Landlord, v. CITY SPEC, LLC, Respondent-Tenant
Petitioner's Counsel: The Law Firm of Candace C. Carponter, P.C., 31 Smith Street, Second Floor, Brooklyn, NY 11201 Respondent's Counsel: Hutchinson & Hutchinson, P.C., 127 South Street, Suite 2, Oyster Bay, NY 11771
Petitioner's Counsel: The Law Firm of Candace C. Carponter, P.C., 31 Smith Street, Second Floor, Brooklyn, NY 11201
Respondent's Counsel: Hutchinson & Hutchinson, P.C., 127 South Street, Suite 2, Oyster Bay, NY 11771
Rachel E. Freier, J.
Commencing on September 23, 2020, the petitioner, Greater New York Automobile Dealers Association, Inc. ("Petitioner"), and the respondent, City Spec, LLC ("Respondent"), (collectively, the "Parties") appeared by counsel before the Court for a bench trial. Due to the COVID-19 public health crisis and pursuant to the Administrative Order of the Honorable Anthony Cannataro, Administrative Judge of the Civil Courts of the City of New York, the Parties consented to appear for the trial virtually, first by Skype for Business and then by Microsoft Teams, and waived any in-person appearances. Following the trial, the Court reserved its decision. Upon deliberation and for the reasons set forth below, the Court finds in favor of PETITIONER in the amount of $82,196.26 .
PROCEDURAL HISTORY
The instant action is based on a five-year lease (the "Lease") signed on April 1, 2014, for the use of the commercial space located at 18-10 Whitestone Expressway, Whitestone, NY 11357 (the "Building") on the third floor (the "Premises"). The terms of the lease were extended and modified on March 1, 2019 (the "Lease Extension").
On January 24, 2020, Petitioner served the Notice of Petition and Petition on Respondents, Insparisk, Steven P., and Stephen K. for possession and nonpayment of rent from November 2019 through January 2020, as well as nonpayment of security deposit installments and several utility payments, in all totaling $46,268.67.
Due to the COVID-19 public health crisis and pursuant to the Administrative Order of the Honorable Anthony Cannataro, Administrative Judge of the Civil Courts of the City of New York, the Parties consented to participate in several virtual and phone conferences between June 2, 2020, and June 29, 2020.
On August 27, 2020, Respondent filed a motion to dismiss the case as against respondent Insparisk and respondents Steven P. and Stephen K. On September 4, 2020, Petitioner filed a response in opposition and cross-motion for summary judgment in favor of Petitioner. In a decision dated September 14, 2020, this Court granted Respondent's motion, dismissing the case as against respondents Insparisk, Steven P., and Stephen K., and denied Petitioner's motion for summary judgment.
Before the case proceeded to trial, on the consent of the Parties and of the Court, Petitioner served an Amended Petition on September 17, 2020, filed the following day, and Respondent served and filed an Amended Answer on or about September 18, 2020.
The case then proceeded to trial on September 23, 2020; the trial continued on September 29, 2020, and was completed on October 15, 2020. The Parties consented to appear for the trial virtually first via Skype and later via Microsoft Teams and to waive the right to appear in person for the trial (Court Exhibits III and IV).
TRIAL SUMMARY
At the start of the trial, the Parties stipulated to admit Respondent's Exhibits A (the Lease) and B (the Lease Extension) into evidence.
I. Petitioner's Case
a. Melissa F.
Petitioner first called to the stand Melissa F., Petitioner's financial controller of five years. Melissa F. laid the foundation for Petitioner's Exhibit 3, the ledger for Respondent's account with Petitioner, which was then moved into evidence with no objection. While Petitioner stipulated that no invoice had ever been generated for late fees, Melissa F. noted each late fee entry in the ledger and explained how, pursuant to the Lease, late fees are calculated. Finally, Melissa F. testified that any payment made by Respondent during the COVID-19 current health crisis from monies paid by the federal government under the Paycheck Protection Program were, by law, applied to rent for months during which COVID-19 had been declared a public health crisis, rather than to the earliest month's rent due.
b. Mark S.
Petitioner next called Mark S., President of Petitioner's organization to testify to the occupancy of the premises. However, Respondent offered no contention regarding the occupancy of the premises during the course of the lease until July 17, 2020. Respondent also stipulated to Petitioner's ownership of the Building.
After asking the Court to take judicial notice of the rent demand and Petition — which the Court did — Petitioner rested.
II. Respondent's Case
a. Howard N.
Respondent's first witness was Howard N., Respondent's broker. Howard N. testified that he was the person who brought Respondent to the premises, structured the original Lease, and worked on the lease renewal.
In 2019, Howard N. testified, Respondent contacted him to try to obtain a subtenant. Howard N.'s understanding was that paragraph 47 of the Lease required Respondent to obtain Petitioner's written permission before advertising for a subtenant. He testified that he attempted to work with Gail R., Petitioner's broker, to obtain such permission, but never received a response as to whether permission was granted or intentionally withheld. Respondent laid a foundation for each email from Howard N. to Gail R. (but not those from Gail R to Howard N.) in Respondent's Exhibit E, and those emails were moved into evidence.
On cross-examination, Howard N. conceded that he had never presented Petitioner with any proposed sublease or details about a proposed subtenant. Howard N. maintained that the lease required Petitioner's permission be obtained before advertising for a subtenant and therefore he could not possibly have had a potential subtenant to propose. Howard N. also acknowledged that Gail R. had sent him an email on January 10, 2020, informing him that Petitioner wanted to deal with Respondent directly on the issue rather than through the brokers.
On re-direct, Howard N. asserted that he had never received consent from Petitioner to advertise for a subtenant and that he was not familiar with any clause in the lease that required him to provide information about a specific subtenant for approval.
b. Stephen K.
Respondent's next witness was Stephen K., one of Respondent's three operations managers. Stephen K. testified that Respondent closed their offices at the beginning of the COVID-19 pandemic in compliance with Governor Andrew Cuomo's Executive Order (Executive Order [A. Cuomo] No. 8.202.8) and that the pandemic was an unanticipated event. Stephen K. also testified that he was not involved in the lease negotiation, signing the Lease, or the request to list the Premises for a sublease.
Stephen K. laid the foundation for the outgoing emails contained in Respondent's Exhibits F, G, and H, which were his communications with Petitioner regarding which steps Petitioner would take to ensure the Building would be in compliance with COVID-19 safety procedures. According to Stephen K., Petitioner did not take all necessary precautions, as the maintenance worker who sat at the front desk was not wearing a mask for the duration of the pandemic, no traffic patterns were indicated in the hallways, and a sign instructing social distancing on the elevator was only posted several months into the pandemic. Sanitation was limited, per Stephen K., to the main corridor and the elevator.
Additionally, Stephen K. testified that he was on the Premises every weekday during the pandemic to check the mail and do a few hours of work on site. During his time in the office, Stephen K. noted that his waste bin was never emptied and deduced that there was no longer daily cleaning of the office during the pandemic as, he said, the lease required.
Stephen K. also testified that around the end of June or early July, Respondent had expressed to Petitioner an intention to return their employees to the building; however, Respondent chose instead to vacate the Premises.
Stephen K. testified that, once all Respondent's items were removed from the Premises and the Premises cleaned, he surrendered the keys along with a surrender document (Respondent's Exhibit C) (the "Surrender Agreement"), to the maintenance worker who sat at the front desk. Exhibit C was later stipulated into evidence with Respondent's stipulation that the Surrender Agreement was not signed by Petitioner. Stephen K. did not remember the exact date on which he delivered the Surrender Agreement and the keys, but said it was a Friday, possibly July 18, 2020.
The Court notes that July 18, 2020, was a Saturday.
Finally, Stephen K. testified that Respondent never received a bill for late fees and never received any CAM charges for 2020.
On cross-examination, Stephen K. conceded that Respondent already owed money in rent (around $35,000 to $40,000, but he was not sure of the exact number), before March 22, 2020 when the Executive Order, which closed in-person operations of non-essential businesses, became effective. Further, Stephen K. admitted that Respondent had no reason for not paying the rent from November 2019 through mid-March 2020, other than simply not having the funds available.
Stephen K. conceded that, as he and Steven P. had keys to the front door of the building, they were never locked out during the pandemic, even though the front door remained locked. He testified that Respondent's field services were considered essential and acknowledged that nothing in the Executive Order prohibited office support for essential field work. He reiterated, when asked, that he went into the Premises every day during the pandemic to collect the mail and that one or two staff members occasionally came to the office as well to collect things necessary for their work. Finally, he conceded that Respondent did not clean or pay for any cleaning of their office space themselves.
On re-direct, Stephen K. testified that some rent payments were made during the course of the pandemic from monies obtained under the federal Paycheck Protection Program.
c. Steven P.
Finally, Respondent called Steven P., another of Respondent's operations managers. Steven P. testified that he attempted to speak with Mark S. in January 2020 regarding subleasing the space but was unable to get in touch with him. He also testified that, during the pandemic, he came into the office occasionally to check on things and would sometimes work in the office for a few hours during the day. When in the Building, he testified, he did not see social distancing, signage, nor cleaning, and that not everyone in the Building wore a mask or wore one correctly.
On cross-examination, Steven P. testified that he would sometimes work for five to six hours a day in his office during the pandemic. He also testified that he had a key for access to the Building and that the Premises leased to Respondent was approximately 6300 square feet in area.
d. Security deposit counterclaim
In their amended Answer, Respondent counterclaimed for the return of their security deposit, which they alleged was impermissibly comingled with Petitioner's accounts. However, Petitioner objected, arguing that the return of a security deposit is a replevin action over which this Court has no jurisdiction, especially as any comingling was cured during the term of the lease.
The Court agreed with Petitioner and ruled that there was no jurisdiction to hear Respondent's counterclaim.
Respondent, after noting an exception to the Court's ruling, rested.
III. Petitioner's rebuttal
a. Gail R.
As their first rebuttal witness, Petitioner called Gail R., Petitioner's broker. Gail R. was the broker who had coordinated the lease with Howard N. for Respondent. She testified that Respondent was often in default and, as a result, both she and Howard N. were owed commission for the premises. To that end, both she and Howard N. were involved in trying to resolve Respondent's financial issues with paying for the space — for instance, by trying to arrange for a subtenant.
Gail R. testified that Howard N. reached out to her in early December 2019 about seeking permission from Petitioner to advertise for a subtenant for the premises. She acknowledged she responded, not with a definite answer, but with an email informing Howard N. that Petitioner wished to work directly with Respondent on the issue (Exhibit 8, which was admitted into evidence).
On cross-examination, Gail R. acknowledged that she had told Mark S. about the sublease request.
b. Frida M.
Petitioner next called Frida M., Petitioner's office manager. She testified that, during the pandemic, "one of the Stevens" (either K. or P., she could not remember which) had told her that their employees were working from home, but both Stephen K. and Steven P. were coming in to the office regularly. Frida M., during the conversation, wanted to ensure that after the offices had been cleaned at the start of the pandemic, the personal offices of every other employee would remain closed.
Frida M. also laid the foundation for her email to Stephen K. on May 11, 2020 at 11:30 a.m. (found in Respondent's Exhibit H and moved into evidence), wherein she informed Stephen K. that Petitioner would not be deep-cleaning the Building, that high-touch points on the first and second floors were disinfected every day, and that the third floor Premises would be cleaned twice a week.
On cross-examination, Frida M. conceded that Petitioner changed the cleaning services provided in the middle of March, due to the pandemic.
c. Mark S.
Finally, Petitioner recalled Mark S., who testified as to Petitioner's COVID-19 compliance at the Premises. Mark S. also testified as to Exhibit 10 (which was stipulated into evidence), an email he received from Steven P. dated January 27, 2020, at 7:32 a.m., wherein Steven P. acknowledged receipt of the rent demand and wished to have a conversation with Mark S. about Respondent's "intentions to get rent/additional security/water escalation fee paid up in full in the earliest possible timeframe."
After Mark S.'s testimony, Petitioner rested again.
The Court ordered the Parties to file post-trial memoranda with proposed findings of fact and caselaw in support of their legal arguments.
FINDINGS OF FACT
Following the trial in the instant action and review of the Parties' proposed findings of fact and caselaw, the Court finds as follows:
Petitioner was the owner of the property located at 18-10 Whitestone Expressway, Whitestone, NY 11357, in the County of Queens (the "Building"), and on or about April 1, 2014, the Parties entered into a lease agreement (the "Lease") for the third floor of the Building (the "Premises") for a term of five (5) years. On or about March 31, 2019, the Parties agreed to extend the Lease for a term of an additional five (5) years (the "Lease Extension").
Respondent occupied the Premises from the commencement of the Lease until July 17, 2020.
Respondent did not tender rent for the months of December 2019, January 2020, part of February 2020, and June 2020 through the date of trial. Respondent did not tender any late fees, calculated at .06 cents per dollar overdue in each instance where the rent was not paid within ten days of its due date, from January 2017 through the date of trial. No bill or demand was ever made for late fees. Respondent did not tender payment of CAM charges for the March 2019 through March 2020 Common Area Maintenance year.
In December 2019, Respondent, through their broker, Howard N., contacted Petitioner, through their broker, Gail R., to ask for Petitioner's consent to list part of the Premises for sublease. Gail R. informed Howard N. that Petitioner wished to discuss the matter directly with Respondent, rather than through brokers. However, Petitioner never replied to Respondent.
On July 17, 2020, Respondent tendered the keys to an employee of Petitioner, along with a Surrender Agreement signed only by Respondent, and vacated the Premises in broom-swept condition.
DISCUSSION
At the conclusion of the trial in the instant action, several issues remained before the Court: Petitioner's failure to respond to Respondent regarding a sublease; nonpayment of rent during the period from December 2019 through March 2020; nonpayment of rent during the period from March 2020 through July 2020; the effect of Respondent's vacatur of the Premises and nonpayment of rent from August 2020 through September 2020; nonpayment of late fees; and nonpayment of CAM charges.
I. Petitioner's failure to respond to Respondent regarding a sublease
The Parties do not dispute that Respondent reached out, through their broker, Howard N., to Petitioner's broker, Gail R., to request Petitioner's consent to list a portion of the Premises for a sublease. Nor do the Parties dispute that Gail R. told Howard N. that Petitioner would prefer to speak directly to Respondent regarding the matter and that Petitioner never responded.
Respondent therefore contends that Petitioner was in breach of paragraph 47 of the Lease, which provides that "Tenant shall not assign or sublet all or a portion of the entire Premises of this Lease without Landlord's prior written consent, which consent shall not be unreasonably withheld or conditioned." According to Respondent, this provision required Respondent to obtain Petitioner's consent in order to first list a portion of the Premises for sublease. Petitioner's unreasonably withholding consent — as Petitioner offered no excuse for doing so — and refusal to respond to Respondent's request at all were both in breach of the Lease, Respondent argues.
In response, Petitioner argues that this is a misinterpretation of the Lease; rather, the Lease requires Petitioner's consent before a sublease or assignment actually takes place, i.e., for a specific sublessor. Respondent never presented Petitioner with a prospective sublessor nor a proposed sublease. Furthermore, Petitioner argues, even if Petitioner had unreasonably withheld consent at the proper stage of the sublease process, Respondent's remedy was to seek injunctive relief or damages, not to withhold rent.
Both the Court's interpretation and existing caselaw align with Petitioner's interpretation of the Lease provision: a landlord could not reasonably be expected to determine whether to consent to subleasing a premises without information about which entity specifically might take up the sublease (see e.g. Logan & Logan, Inc. v. Audrey Lane Laufer, LLC , 34 AD3d 539 [2d Dept 2006] ["the landlord may refuse to consent to an assignment based only on ‘consideration of objective factors, such as the financial responsibility of the [proposed assignee], the [proposed assignee's] suitability for the particular building, the legality of the proposed use and the nature of the occupancy, i.e., office, factory, retail’ "]; 200 Eighth Ave. Rest. Corp. v. Daytona Holding Corp. , 293 AD2d 353 [1st Dept 2002] [Defendant's consent was reasonably withheld where a prospective sublessor's financial background information was not timely provided]).
Even if Petitioner's consent was not required before listing the Premises for sublease, Respondent argues that Petitioner's failure to consider the request "expeditiously," pursuant to paragraph 77 of the Lease, was a breach of the implied covenant of fair dealing, citing Gelder Medical Group v. Weber (41 NY2d 680 [1977] ).
However,
[w]here a landlord has agreed not to withhold consent unreasonably and violates such agreement, the Courts have held that the tenant may ignore the restrictive covenant and sublet the premises or sue for a declaratory judgment under CPLR 3001 to determine whether such consent was withheld unreasonably or possibly maintain an action for damages, if the covenant is that of the landlord rather than a negative qualification of the tenant's covenant
( Kruger v. Page Mgt. Co., Inc. , 105 Misc 2d 14, 23-24 [Sup Ct, NY County 1980] ).
In the instant case, even upon the belief that Petitioner had unreasonably withheld consent to list a portion of the Premises for sublease, Respondent did not avail themselves of any of these remedies: ignoring the restrictive covenant and listing for sublet, suing for declaratory judgment, nor suing for damages. Rather, Respondent did not act upon the alleged breach at all but continued their occupancy of the Premises. Certainly, Respondent could not expect to take no action upon the alleged withheld consent, remain in occupation of the Premises for over half a year following, and then disavow any rent obligation at the end of that period.
" ‘Where a contract is broken in the course of performance, the injured party has a choice presented to him of continuing the contract or of refusing to go on.’... If the injured party chooses to go on, he loses his right to terminate the contract because of the default." ( Emigrant Indus. Sav. Bank v. Willow Builders , 290 NY 133, 144 [1943] [citing 3 Williston on The Law of Contracts, Rev.Ed., § 683]). While contractual rights may only be deemed waived where they are knowingly and intentionally abandoned, such abandonment need not be express and may instead be established by a party's failure to act on the breach ( Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P. , 7 NY3d 96, 104 [2006] ). Whether a party has waived their contractual rights is therefore generally a question of fact (id. ).
Waiver of a breach may be found where the non-breaching party continues with performance under the contract, including continuing to accept benefits thereunder (New York Racing Ass'n, Inc. v. Meganews, Inc. , 97 CV 1091 (SJ) [EDNY 2000]). However, "[a] party to an agreement who believes it has been breached may elect to continue to perform the agreement and give notice to the other side rather than terminate it" ( Capital Med. Sys. Inc. v. Fuji Med. Sys., U.S.A. Inc. , 239 AD2d 743, 746 [3d Dept 1997] ).
In the instant case, upon the alleged breach of contract, Respondent was faced with a choice whether to proceed with the contract — especially in light of Petitioner's Notice of Petition for possession filed two weeks after Gail R. informed Howard N. that Petitioner wished to speak directly to Respondent regarding the sublet. Alternatively, Respondent may have ignored the restrictive clause, filed for a declaratory judgment, or sued for damages. Respondent did not choose any of these options, despite hiring an attorney to defend them in the possession suit; rather, Respondent chose to remain on the Premises, to oppose Petitioner's suit for possession, and not to seek any remedies. This course of conduct certainly supports the view that Respondent intentionally and knowingly waived any breach regarding consent to a sublease and Respondent did not present any evidence that, following Petitioner's failure to respond in January 2020, Respondent put Petitioner on any notice regarding their view that the lease had been breached.
The Court therefore finds that Petitioner did not unreasonably withhold consent to a sublease, as no proposed sublessor or sublease was ever presented to them and, even if consent had been unreasonably withheld, Respondent effectively waived the breach and there is no effect on Respondent's obligation to pay rent under the Lease.
II. Nonpayment of rent during the period of December 1, 2019-March 22, 2020
Respondent does not contest they did not pay any rent for the months of December 2019 and January 2020 and paid only part of the monthly rent due for the month of February 2020 and offers no justification for the failure. However, per Petitioner's ledger, Respondent did tender rent for the month of March 2020. Pursuant to the Lease Extension, the base monthly rent during the period of April 1, 2019, to March 31, 2020, was $12,781.00. Therefore, the rent due and owing for December 2019 is $12,781.00 and for January 2020 is $12,781.00 . The balance due and owing for February 2020 is $7,487.05 , and no rent remains due for March 2020. Accordingly, the total rent due and owing for the period from December 1, 2019, through March 22, 2020, amounts to $33,049.05 .
III. Nonpayment of rent during the period of March 23, 2020, through July 16, 2020
On March 20, 2020, Governor Andrew Cuomo issued an Executive Order, effective March 22, 2020 at 8:00 p.m., which ordered all non-essential businesses to close in-person operations due to the COVID-19 public health crisis (Executive Order [A. Cuomo] No. 8.202.8) (the "Executive Order"). Because of that order, Respondent argues that they do not owe rent from March 23, 2020, until they vacated the premises on July 17, 2020. In support of their argument, Respondent relies on the doctrines of frustration of purpose, impossibility of performance, and legal prohibition of performance. Furthermore, Respondent argues that their performance should be excused because Petitioner allegedly failed to maintain the Premises and the Building in accordance with the Center of Disease Control guidelines issued in response to the COVID-19 public health crisis.
A. Frustration of Purpose
Frustration of purpose is the first of several equitable defenses set forth by Respondent in light of the COVID-19 public health crisis.
Respondent argues that the Executive Order meant that their staff could not come to work in the Premises. Therefore, because of the Executive Order, Respondent contends, the known, underlying purpose of the contract — to lease a 6300 square foot office space — was frustrated and rent should be excused or reduced during the period of closure pursuant to the Executive Order.
In response, Petitioner contends that Respondent's business is an essential business under the Executive Order — confirmed by Respondent at trial — and, therefore, no obstacle other than their own decision-making kept Respondent from bringing their staff into the Premises to work as always. Additionally, Petitioner noted that Stephen K. and Steven P., by their own testimonies, continued to use their offices on the Premises during the period of the Executive Order closure. Therefore, Petitioner argues, Respondent's affirmative defense of frustration of purpose is without merit.
Where a party's principal purpose in making a contract is substantially frustrated by an unforeseen event, that party's remaining principals under the contract may, generally, be discharged ( Restatement [Second] of Contracts § 265 [1981] ). To establish frustration of purpose, a party must make three showings: (1) The purpose was the principal purpose in making the contract (( Crown IT Services, Inc. v. Koval-Olsen , 11 AD3d 263, 265 [1st Dept 2004] ["[T]he frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense"]); (2) the frustration must be substantial ( Rockland Dev. Assoc. v. Richlou Auto Body, Inc. , 173 AD2d 690 [2d Dept 1991] ); and (3) the frustrating event must be unforeseen, so that its non-occurrence was a basic assumption underlying the contract ( Fifth Ave. of Long Is. Realty Assoc. v. KMO-361 Realty Assoc. , 211 AD2d 695 [2d Dept 1995] ).
The frustration need not make performance impossible under this principle. "Rather, the party seeking discharge on frustration grounds (the paying party in the non-barter transaction) can still do that which the contract requires, but no longer has the motivation to do so which originally induced its participation in the bargain" [Nicholas R. Weiskop, Frustration of Contractual Purpose-Doctrine or Myth?, 70 St John's L Rev 239, 240 [1996] ]. However, frustration of purpose will only apply where the frustration is not due in any way to the party seeking discharge ( Restatement [Second] of Contracts § 265 [1981] ; Morpheus Capital Advisors LLC v. UBS AG , 105 AD3d 145, 148 [1st Dept 2013], rev'd on other grounds , 23 NY3d 528 [2014] ).
Respondent contends that the three requirements for frustration of purpose have been met in the instant case. Petitioner does not contest that Respondent has met the first or third requirements: the use of the Premises as an office space for employees to come to work was the principal purpose in Respondent's entering into the contract and the COVID-19 pandemic was unforeseen at the time the contract was made. However, Petitioner argues that the frustration was not substantial, as two employees still came to the Premises regularly, and other employees stopped by from time to time, thereby continuing to use the Premises as an office space. To a greater extent, Petitioner argues that the Executive Order did not frustrate Respondent's purpose because Respondent was an essential business under the Executive Order and therefore permitted to continue in-person operations. Therefore, there was no frustration except of Respondent's own making.
The Court finds Petitioner's latter argument more convincing than the former. The Executive Order decreed, "Any essential business or entity providing essential services or functions shall not be subject to the in-person restrictions. An entity providing essential services or functions whether to an essential business or a non-essential business shall not be subjected to the in-person work restriction, but may operate at the level necessary to provide such service or function."
While Respondent argues that their field inspection services were essential but the in-office support services were not, the Court notes that the Executive Order makes no distinction between services or staff among essential businesses, rather only between essential and nonessential businesses. In fact, Respondent admits in their post-trial memorandum that "their determination of their status was that the inspections were ‘essential’ but their administrative operations not ‘essential’ " (Respondent's Post-Trial Memorandum at 7).
Where the frustration of purpose is due to a party's own actions, their obligations under the contract are not excused (see 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp. , 23 NY2d 275, 282 [1968] ; Doyle v. Turner , 167 LRRM (BNA) 2839 [SDNY June 13, 2001] ; VJK Productions, Inc. v. Friedman/Meyer Productions, Inc. , 565 F Supp 916, 920-21 [SDNY 1983] ["While frustration of purpose is a legitimate defense to nonperformance when, after a contract is made, a party's principal purpose is substantially frustrated without his fault it is not available where, as here, the defendant itself, through the conduct of its principals, was responsible for the events which transpired"]). Furthermore, where the purpose may be affected but is still permissible under law, frustration of purpose does not apply ( Colonial Operating Corp. v. Hannan Sales & Serv. , 265 AD 411 [2d Dept 1943] ).
In the instant case, New York State law would have permitted Respondent, as an essential business under the Executive Order, to continue its in-person operations. Respondent themselves, without any indication that they had consulted an attorney or the Governor's Office, determined to reinterpret the Order to apply not to essential businesses, but to essential functions. In essence, therefore, Respondent frustrated their own purpose.
Additionally, the Court notes that, even if Respondent were forced by the Executive Order to close in-person operations at the Premises, a four-month closure out of a five-year lease did not frustrate the overall purpose of the Lease (Cf. BKNY1, Inc. v. 132 Capulet Holdings, LLC , 2020 WL 5745631, 2020 NY Slip Op 33144[U] [Sup Ct, Kings County 2020] [holding that a nine-year restaurant lease was not frustrated by a two-month state-mandated COVID-19 closure]).
Additionally, as discussed supra with regard to the alleged unreasonably withheld consent, the Court notes that Respondent was exceedingly dilatory in exercising what they believe to be their rights under the circumstances. After their interpretation of the Executive Order and instructions to their employees to work from home beginning on March 23, 2020, Respondent offers no evidence nor testimony that they broached the subject of frustration of purpose with Petitioner, nor that they asked for several months' rent to be excused, nor that they asked for a cancellation of the contract. Respondent offers only emails to Petitioner inquiring about their COVID-19 cleaning practices.
Respondent continued to occupy the Premises with their belongings and with the regular appearances of Stephen K. and Steven P. Respondent even tendered rent payments for several months during the closure, paid from Payment Protection Program funds; as Petitioner noted at trial, those funds were required by federal law to apply to the months affected by COVID-19 closures, not to arrears.
Therefore, during the period in which Respondent contends that the Executive Order frustrated the purpose of the contract, they had employees working on the Premises and tendered rent. Finally, in August, six months after the Executive Order closure began, Respondent raised the issue of frustration of purpose in their Amended Answer.
Claims for rescission, for instance, require prompt action on the part of a contracting party after discovery of the basis (§ 57:6. Timing of rescission, 4A N.Y.Prac., Com. Litig. in New York State Courts § 57:6 [(5th ed.]). The Court can see no reason why the same principle should not apply to frustration of purpose. Even the cases cited by Respondent, where the courts applied the frustration of purpose doctrine to leases, were all instances where either the tenant was the plaintiff, seeking to cancel the contract due to the frustration of purpose ( Jack Kelly Partners LLC v. Zegelstein , 140 AD3d 79 [1st Dept 2016] ; Mr. Ham, Inc. v. Perlbinder Holdings, LLC , 116 AD3d 577 [1st Dept 2014] ), or where the landlord was suing the tenant for having cancelled the contract ( Benderson Dev. Co., Inc. v. Commenco Corp. , 44 AD2d 889 [4th Dept 1974], affd , 37 NY2d 728 [1975] ). In each instance cited by Respondent, the tenant promptly asserted their rights under the frustration of purpose doctrine. In the instant case, Respondent has not.
Respondent, therefore, has not established their right to excused or reduced rent from March 23, 2020, through July 16, 2020, under frustration of purpose.
B. Impossibility of Performance
"Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract" ( Kel Kim Corp. v. Cent. Markets, Inc. , 70 NY2d 900, 902 [1987] ).
Respondent argues that Respondent's performance was rendered impossible as the Executive Order made it a violation of law to occupy the premises.
However, occupancy of the premises is not the performance obligated by either party under the Lease; rather, it is the benefit Respondent sought under the Lease. Notwithstanding the Court's findings under frustration of purpose, supra , that Respondent was permitted under the Executive Order to work on the Premises, the Court finds that the Executive Order rendered neither Petitioner's obligation to render the Premises for Respondent's use nor Respondent's obligation to pay rent under the Lease impossible. Accordingly, the impossibility of performance doctrine is inapplicable to the instant case.
C. Prohibited performance under the law
As under impossibility of performance, the Executive Order prohibited neither party's obligations under the Lease, and therefore is inapplicable to the instant case.
D. COVID-19 guidelines and cleaning of the Premises
Respondent also argues that Petitioner failed to provide cleaning services as required under paragraph 31 of the Lease and did not bring the Building within CDC guidelines for COVID-19 safety.
As with Respondent's claim that Petitioner breached the Lease by allegedly unreasonably withholding consent to sublease and Respondent's claim of frustration of purpose, Respondent had several remedies available to them. Instead, however, Respondent chose to remain on the Premises for several months and later demand a reduction in rent.
Additionally, Respondent fails to specify any provision of the Lease which would require Petitioner to comply with CDC recommended guidelines during a pandemic.
In sum, Respondent has provided no basis for absolving them of rent obligations due to their arguments regarding cleaning and COVID-19 guidelines compliance.
While Respondent has not established any defense for nonpayment of rent during the period of March 23, 2020, through July 16, 2020, the Court notes that Respondent made payments for March 2020, April 2020, and May 2020 (Petitioner's Exhibit 3). For the period of June 1, 2020, through July 16, 2020, the base monthly rent pursuant to the Lease Extension was $13,164.43. Accordingly, the Court finds, for the period of June 1, 2020, through June 30, 2020, the rent due and owing in the amount of $13,164.43 . Finally, the Court finds the amount of rent due and owing for the period of July 1, 2020, though July 16, 2020, in the pro-rated amount of $6,794.54 . Therefore, the total amount of rent due and owing for the period of March 23, 2020, through July 16, 2020, amounts to $19,958.97 .
IV. Nonpayment of rent July 17, 2020, through September 22, 2020
It is uncontested that no rent was paid for the period of July 17, 2020, through September 22, 2020. However, Respondent argues that such rent is not due because their tender of the keys and Surrender Agreement, as signed by Respondent, was sufficient to terminate the Lease and all their responsibilities thereunder.
In response, Petitioner argues that Petitioner did not accidentally fail to sign the Surrender Agreement, but intentionally refused to sign. Petitioner contends that the Lease could not be unilaterally terminated and, therefore, remained in effect until the time of the trial in the instant action. Therefore, according to Petitioner, rent continued to accrue until that date.
Respondent points to paragraph 67 of the Lease provides for the three requirements upon which surrender of the premises and termination of the Lease are conditioned: (1) Respondent vacated the Premises; (2) Respondent delivered all keys to the Landlord (i.e., Petitioner); and (3) Respondent has executed and delivered to Petitioner "an agreement in form and substance reasonably satisfactory to Landlord pursuant to which Tenant agrees that the Lease and any right of Tenant to use or occupy the demised premises shall have terminated" (¶ 67). Respondent argues that the Surrender Agreement tendered to Petitioner's employee, along with the keys, and the vacatur of the Premises is sufficient to meet the requirements of the Lease for terminating their responsibilities thereunder.
However, as Petitioner notes in their post-trial memorandum, paragraph 67 is not the only paragraph in the Lease to discuss the requirements for termination. Paragraph 25 states, "No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Owner." That paragraph continues to state that no employee of Petitioner shall have the power to accept the keys prior to termination and delivery of the keys to an employee of Petitioner will not operate to terminate the Lease or as a surrender of the Premises.
Furthermore, the Court notes that paragraph 67 does not describe the requirements for surrender, but rather a description of the qualifications for the Surrender Date, which is the end date for the Guarantors' responsibilities. Additionally, paragraph 67 requires an agreement "reasonably satisfactory to Landlord"; here, the Surrender Agreement was not reasonably satisfactory to Petitioner, as evidenced by their refusal to sign the Agreement.
Additionally, as Petitioner cites, "In order to constitute a surrender by operation of law, there must not only be an abandonment of the premises by the tenant, but also an acceptance thereof by the landlord as a surrender" ( Dagett v. Champney , 122 AD 254, 256 [3d Dept 1907] ). Whether or not a surrender by operation of law has occurred in a particular case is a factual determination ( Ford Coyle Properties, Inc. v. 3029 Ave. V Realty, LLC , 63 AD3d 782 [2d Dept 2009] ).
In the instant case, the Lease requires an agreement to surrender signed by Petitioner and states that delivery of the keys prior to termination to an employee of Petitioner does not operate to terminate the Lease or surrender the Premises. Respondent offered into evidence a Surrender Agreement signed only by Respondent (Deft. Ex. C); Petitioner noted that they, in fact, refused to sign the Agreement. Additionally, Stephen K. testified that he delivered the Agreement and the keys to the maintenance man who sat at the front desk.
By the express terms of the Lease, therefore, Respondent's actions did not constitute a surrender of the Premises and termination of the Lease. Therefore, Respondent's obligation under the Lease continued until the time of trial. The pro-rated rent due and owing for the period of July 17, 2020, through July 31, 2020, amounts to $6,369.89 . The rent due for the month of August 2020 is $13,164.43 . The pro-rated rent due and owing for the period from September 1, 2020, through September 22, 2020, amounts to $9,653.92 . The total rent due and owing for the period from July 17, 2020, through September 22, 2020, therefore amounts to $29,188.24 .
Therefore, the total amount of rent due and owing is $82,196.26 .
V. Late Fees
The Lease provides, "Should Tenant fail to pay any installment of Base Monthly Rent, Additional Rent, or any other sum payable to Landlord under the terms of this Lease, within ten (10) days after the date it is due Tenant shall pay such sum, together with a late charge of six cents ($.06) cents [sic ] per dollar overdue" (¶ 55). Petitioner contends that late charges are due from January 2017 through September 2020, with the exception of four months.
Respondent argues that Petitioner, having failed to demand the late fees or send an invoice for them, has allowed these charges to become stale. Therefore, Respondent says Petitioner cannot collect on these charges.
In response, Petitioner notes the language of the Lease: "Tenant shall pay" (emphasis added). Petitioner, therefore, contends that the late fees are due expressly under the Lease without regard for whether a demand was ever made for them.
In Gordon v. Eshaghoff , the Second Department upheld the Supreme Court's decision not to impose late fees where the lease provided that the landlord "may" impose the late fee and there was no evidence that the late fee was ever imposed ( 60 AD3d 807 [2d Dept 2009] ). Conversely, in the instant case, the Lease provides that Respondent "shall pay" late fees where any other rent is overdue. Therefore, the imposition of the late fees is expressly provided for in the Lease.
However, the Court does not find that Respondent's argument is entirely without merit:
Under the laches doctrine, equitable relief is barred where a party unreasonably or inexcusably delays in undertaking to enforce rights, with resulting prejudice to the opposing party. While the two essential elements of laches are unexplained delay and prejudice, these elements have been more specifically articulated as follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complainant seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event that relief is accorded to the complainant or that the suit is not barred
( Marriott v. Shaw , 151 Misc 2d 938, 940 [Civ Ct 1991] [citations omitted]).
The burden to prove that any rent has become stale lies first with the tenant; once that burden is met, the burden shifts to the landlord to show a reasonable excuse for the delay ( id. at 941 ).
In the instant case, the conduct of the Respondent — a failure to pay rent and late fees — clearly gives rise to the underlying Petition. While there is no unreasonable delay in Petitioner's filing a Petition against Respondent for most recent arrears, the Court finds that seeking late fees for overdue rent as far back as January 2017 where no invoice was sent nor demand made is certainly unreasonable. Respondent contends, and Petitioner does not deny, that no demand nor invoice was ever made for late fees and so, while included under the Lease, Respondent had no notice that Petitioner intended to actually impose the late fees. Petitioner did not even include late fees in their original Petition; late fees do not appear in the pleadings until the Amended Petition, filed September 18, 2020. Certainly, after nearly three years of paying rent past its due date with no notice of late fees and no mention of late fees even after Petitioner had filed a petition, Respondent could reasonably believe that Petitioner had no intention to assert its right to those fees.
The Court also notes that the Lease provides, in paragraph 70, "Provided Tenant is not then in default Tenant shall have the option to renew and extend the term of this Lease for an additional five (5) year period on the terms herein [except for an increase in base monthly rent]." Therefore, by permitting Respondent to renew and extend the Lease pursuant to paragraph 70 on April 1, 2019, Petitioner implied that Respondent was not in default — which, according to paragraph 17 of the lease, includes additional rent, e.g., late fees. Respondent could easily, then, believe that as of the date of renewal, no monies were due to Petitioner.
Finally, as evidenced by Respondents failure to pay rent from December 2019 until the time of trial (except with money provided to them under the Payment Protection Program during the COVID-19 public health crisis), Respondent's financial condition has changed significantly in the past few years. To allow Petitioner to recover late fees dating back over three years without having ever given Respondent notice they were due would be to make tens of thousands of dollars suddenly due as against Respondent that might have been far more easily paid by them at the earlier date.
Therefore, the Court finds that the late fees in the instant case are stale rent pursuant to the doctrine of laches and no late fees are due.
VI. CAM Charges
Petitioner contends that Common Area Maintenance ("CAM") charges are due for the 2019-2020 year. Although Petitioner states in their post-trial memorandum that CAM charges are provided for under the Lease, they do not specify which paragraph so provides, and the Court is unable to find any reference to CAM charges in the Lease. Petitioner does not provide any other basis for Respondent's responsibility to pay CAM charges.
Accordingly, the Court finds that no CAM charges are due.
CONCLUSION
Petitioner has properly established that Respondent owed rent for the months of December 2019, January 2020, June through August 2020, and partial payment for the months of February 2020, and September 2020.
Respondent has failed to demonstrate that consent to sublease was unreasonably withheld at the juncture at which the Lease requires such consent. Additionally, Respondent failed to establish that equitable arguments regarding the COVID-19 public health crisis and Executive-mandated closure are applicable in the instant action. Furthermore, in both situations, Respondent failed to act timely to seek the proper remedies that may have been available to them. Accordingly, the Court finds the total rent due and owing amounts to $82,196.26 .
Respondent has, however, shown that Petitioner allowed its claims for late fees to become stale and barred by the doctrine of laches. Petitioner failed to make any demand or to put Respondent on notice that such charges would be imposed pursuant to the Lease for over three years, including upon filing their first Petition. Accordingly, the Court finds that no late fees are due.
Additionally, Petitioner has failed to demonstrate that CAM charges are provided for in the Lease and therefore, no such charges are due.
Accordingly, the Court finds judgment in favor of Petitioner in the amount of $82,196.26 . As in the attached Order and Judgment, it is ORDERED that the Parties shall appear for a virtual hearing regarding attorney's fees in the instant action, via Microsoft Teams, on January 21, 2021 , at 2:30 pm .
This constitutes the Decision and Order of the Court.