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New York Commercial Lease Agreements Require Careful Review

In a recent commercial landlord-tenant dispute in New York City, the owner of a new business slated to open where a Chinese restaurant once operated is seeking $22 million from the landlord due to a termite infestation, as well as other structure problems that have so far required extensive repairs.
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The BBQ restaurant plaintiff alleges in the New York State Supreme Court filing that the landlord first lied about the condition of the First Avenue structure, and then attempted to initiate an eviction of the tenant when repairs were demanded.

The series of structural issues with the building has delayed the opening of the business for several months, leading to hundreds of thousands of dollars in lost revenue. That’s in addition to the $600,000 monthly rent it pays, as well as the $3.1 million it has so far invested in repairs on structural deficiencies that were “almost too many to count,” the plaintiff said.

When the plaintiff stopped paying rent while attempting to work out a deal on the costs of repairs, the landlord filed papers to evict. That’s when the tenant sued.

In addition to the termites and the building deficiencies, the tenant also alleges that the landlord failed to transfer the liquor license as promised, despite the fact that the tenant had already paid $500,000 for the transfer.

The landlord doesn’t deny the infestation or structural problems, but said those issues were never hidden. She said there was nothing stopping the tenant from conducting an inspection of the space prior to signing the lease and moving in. She also argues that she had full intentions to rid the space of termites and address the structural damages.

With regard to the liquor license, the landlord said she has tried. She attended a recent Community Board 3 meeting, in which she advocated for the transfer of the liquor license. However, the license is still pending, according to the State Liquor Authority.

This case illustrates why it is so important for commercial tenants (and landlords) to seek legal review of all leases and contracts prior to signing. Litigation may be necessary in the end, but it can turn into a costly, drawn-out process. If parties can get ahead of any potential problems by having their commercial contracts reviewed, this is always preferred.

Generally speaking, the procedure for commercial landlord and tenant disputes is the same as for residential landlord-tenant disagreements. Still, residential tenants have many rights guaranteed by law. Commercial tenants may have fewer rights, and for the most part, if the obligation or right isn’t expressly spelled out in the lease, it’s probably not enforceable.

For example, while residents can expect entitlement to a safe, sanitary and decent apartment, commercial tenants have no warranty of habitability. Unless it is in some way required by the lease, landlords are generally not under obligation to maintain or repair the premises, as long as they are compliant with building codes and laws.

This is why the contents of the lease are so important. Commercial lease negotiation, or at least review, should involve an experienced attorney. Some of the lease terms that require special review:

  • Description of the rental space, including in some cases diagrams of the lease space.
  • Cost of rent, which is absolutely negotiable. Bear in mind that New York has no commercial rent regulation, so a landlord can ask as much as he or she wants, so it helps to have someone with market knowledge to aid in these negotiations.
  • The lease terms, which typically run 3 to 5 years or 5 to 10 years, depending on the kind of business, with options to renew. Recognize that you have no right to lease renewal unless it’s spelled out in the lease.
  • Lease termination. This is one tenants must be especially cautious about because many lease agreements grant landlords the right to terminate if they wish to sell, rehabilitate or demolish the structure, giving tenants only 3- to-6-months notice.
  • Permissible uses of space.
  • Alterations to your space.
  • Details regarding who is responsible for repairs.
  • Insurance requirements.
  • Sublease terms.
  • Lease default, notices and services provided by the landlord.

The ultimate goal is to prevent the kind of situation with which the BBQ restaurant on First Avenue is now coping.

The Law Offices of Ira S. Newman provides commercial lease dispute representation in New York City, Long Island, Great Neck and throughout the area. Call 516-487-7375 or send us an e-mail.

Additional Resources:
BBQ Joint Sues Lucky Cheng’s Owner for $22M Over Termites and Repairs, Feb. 14, 2014, By Serena Solomon, DNAinfo New York
Commercial Leases: Lease Strategies for Tough Times… Or Any Time, New York City Small Business Services
More Blog Entries:
Rent-Stabilized, but Storm-Damaged: An NYC Landlord-Tenant Dispute, Aug. 24, 2013, New York City Landlord-Tenant Law Blog