Limiting the commercial tenant to minimum right of quiet enjoyment.

(The following is the tenth in a 14-part series examining the standard Real Estate Board of New York form commercial lease. The series highlights particular clauses in the REBNY lease and how the courts have interpreted them. Parts one through nine are available by contacting the author, or by calling Real Estate Weekly at 212-679-1234.)

In common usage, the right to "quiet enjoyment" or "quiet possession" sounds like a general right to be left alone and at peace.

As used in commercial leases in New York, however, it is generally held to mean something else: it means little more than the right not to be "constructively evicted."

The REBNY Form Office Lease, in [paragraph] 23, limits the tenant's rights almost as far as is possible; and its restrictions are generally upheld.

As noted in Part 1, this results from a peculiarity in New York law, which generally combines the doctrine of breach of the covenant of quiet possession with the doctrine of constructive eviction.

Part 2 discusses whether a landlord can require a tenant to be current on its payment of rent as a pre-condition to asserting a breach of the covenant of quiet enjoyment as the REBNY form provides.

Part 3 discusses a problem where the landlord is really a sub-landlord, and addresses whether the sub-landlord is responsible where the overlandlord interferes with a subtenant's possession?

Last, Part 4 discusses whether the covenant of quiet enjoyment has independent significance as a basis for injunctive relief.

Background

In New York, a "Quiet Possession" covenant in a commercial lease gives a tenant virtually nothing more than a right not to be actually or constructively evicted.

One might think that a right of quiet possession means that a tenant has the right to claim damages, or a rent abatement, if the landlord causes or permits the existence of conditions that, as a practical matter, make the tenant's life miserable.

Under New York law, however, in a commercial lease, where the lease includes an express, but limited covenant of quiet possession - thereby precluding any broader implied covenants - it has consistently been held that a tenant can claim damages or a rent abatement, in the case of such conditions, only if tenant vacates from either the entire premises, or at a minimum from some discrete portion, within a reasonable time, See, for example. Anti-Defamation League Foundation v. Fine, Tofel, Saxl & Berelson, P.C., 4/1/92 NYLJ page 26 col. 5 (Civil Court. NY County), where the Court dismissed the tenant's claim. explaining:

"The sixth affirmative defense and fourth set-off, based on an alleged breach of the covenant of quiet enjoyment, is dismissed. The lease ([paragraph] 28) makes the payment of rent a condition precedent to the covenant of quiet enjoyment. In this commercial relationship where both sides were, and are, represented by experienced and attentive counsel, there is no reason for the Court to disturb the legal obligations which the parties and their attorneys chose to impose on themselves. Moreover, the claim for breach of the covenant of quiet enjoyment requires proof of an abandonment, not just a claim of a diminution in the value of the demised space. (See also, e.g., Zamzok v. 650 Park Avenue Corp., 80 Misc.2d 573, 363 N.Y.S.2d 868 (Sup. Ct. N.Y. Co. 1974).

In addition, to establish a constructive eviction, tenant must show, in addition to abandonment, all the other elements of such a claim/defense, including:

* A "grave and permanent" interference with tenant's beneficial enjoyment of the premises. See Anti-Defamation League Foundation, supra, (dismissing claim of constructive eviction based on landlord's building reconstruction work, where interference was, by its nature, "intermittent"); see also, Darnley v. Baab, 8/20/90 NYLJ page 20, col. 2, (Civil Court, Kings County), rejecting tenant defense of constructive eviction, explaining that "The deprivation of the beneficial use of the premises must be substantial and effectual, arising out of intolerable conditions caused by the landlord which cannot be remedied by the tenant; or a nuisance caused by the landlord, dangerous to life or health, which the tenant cannot easily remedy."

* "In consequence of which" tenant was "justified" in vacating (and in fact did vacate the premises), see Rasch, New York Landlord and Tenant (3d ed. 1988) [section] 28:21 at 351; see also 28:23 at 353; or "a clear segregated and distinct part," Parkchester Apartments Co. v. Metropolitan Retail Recovery, Inc., 11/23/94 NYLJ page 27, col.4, (Civil Court, Bronx County); and

* That tenant has given notice to landlord of the alleged evicting conditions, and a reasonable opportunity to cure. See Friedman on Leases, [section] 29.301 at 1494; Kayser-Roth Corp. v. Heckler Manufacturing and Investment Group, Inc., Index No. 28277/92 (Supreme Court, NY County, decision dated June 11, 1993).

If the lease does not contain any express covenant, the Court might "imply" a broader covenant in favor of tenant. Accordingly, a landlord should write something. The most minimal express clause is true that gives tenant no more than no-constructive-eviction. No clause can go farther.

The doctrine of constructive eviction is based on the fundamental principle of failure of consideration: If one party to a contract is materially deprived of the benefits of the contract by the other party, the first party in turn may correspondingly suspend performance. Since this is a "first principle," it exists in every contract, whether or not articulated in the contract.

Friedman on Leases [section] 29.4 argues that New York's equation of the doctrines of constructive eviction and breach of quiet enjoyment, while longstanding, is a mistake, founded on sloppy language in some old decisions. After all, that treatise argues, this covenant says something, whereas, as noted above, the doctrine of constructive eviction is one that needs no statement. Nevertheless, the New York position is so well-entrenched that the Courts are very unlikely to change it now. See generally, e.g., the Court of Appeals' recent decision in Holy Properties v. Kenneth Cole, explaining that stability in interpretation of standard clauses in commercial leases is particularly important.

Part II

Under the REBNY Form lease, a tenant may only allege such a breach if it is paying the rent. The REBNY Form Office Lease, [paragraph] 23, provides:

"Owner covenants and agrees with tenant that upon tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on tenant's part to be observed and performed, tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 31 hereof [i.e., the so-called exculpatory clause, under which a landlord is no longer liable, once it sells its interests] and to the ground leases, underlying leases and mortgages hereinbefore mentioned."

Typically, a landlord sues for rent; the tenant then raises a defense of breach of the covenant of quiet enjoyment; and landlord moves to dismiss, on the grounds, inter alia, that under the REBNY form office lease, whatever the tenant's claim might be, it is precluded because tenant has not paid rent.

The landlord's argument is generally accepted. See, e.g., Anti-Defamation League Foundation, supra; see also, e.g., 2212 Nostrand Enterprises Inc. v. McClure, 12/24/91 NYLJ page 24, col. 4, applying this rule even in the case of an actual partial eviction, and stating:

"Although distasteful to this court, the court is constrained by the law to disallow any abatement for the actual partial eviction, since at the time of the breach of the covenant of quiet enjoyment respondents were in default in the payment of the rent."

The conceptual basis for permitting landlords to thus pre-condition the quiet possession covenant is that such a precondition is simply analogous to a parallel principle and potential trap for the unwary tenant - in the doctrine of constructive eviction, the principle of "election of remedies." See, e.g., Roma Shopping Plaza, Inc. v. Victory Carpets, Inc., 6/12/91 NYLJ page 25, col. 6 (Civil Court, Richmond County).

This doctrine was illustrated recently in Cy Mann Designs, Ltd. v. 305 East 63rd Street Associates, where a commercial tenant (a) filed an answer in an L&T proceeding, defending its refusal to pay rent based on constructive eviction, and (b) then, the next day, filed a Supreme Court action for damages for constructive eviction. The Supreme Court wrote:

"When a tenant asserts a partial or total constructive eviction as a defense to the non-payment or rent, the tenant's refusal to pay rent constitutes an election of remedies, and the tenant has no claim for damages. 487 Elmwood, Inc. v. Hassett, 107 A.D.2d 285, 288 (1st Department 1985); Frame v. Horizons Wine & Cheese, Inc., 95 A.D.2d 514, 518-519 (1st Department 1983). One of the defenses the tenant asserts in the summary proceeding is the defense of constructive eviction, and the assertion of that defense preceded the commencement of the Supreme Court action, in which the tenant asserts an affirmative claim for damages based on constructive eviction.

"By refusing to pay rent, asserting constructive eviction first as a defense in the summary proceeding, and persisting in that posture on the cross-motion for summary judgment in that proceeding, the tenant has elected its remedy and waived its alternative claim for damages for the constructive eviction."

A Problem for a Sub-Landlord

Suppose you are a sub-landlord, and the overlandlord does something to interfere with your (sub)tenant. Can the sub-tenant suspend its rent payments to you, or sue you for damages?

As a general matter, no. For example, in Kayser-Roth v. Heckler, supra, the subtenant claimed that the overlandlord wrongly entered the premises to do plumbing construction for another floor. The Court wrote:

"Alleged interference by an overlandlord with a sub-tenant's possession does not support an allegation of constructive eviction in defense of an action by the sublessor (Jones & Brindisi v. Bernstein, 119 Misc. 697 [At 1st Dept. 1922]).

"Thus, in Jones & Brindisi v. Bernstein, supra, the overlandlord, on a certain day, refused to allow a second-floor sub-tenant, a dealer in furniture, to use a hallway to bring in furniture, and declared that it would not permit such use in the future. The Court held that "It is unnecessary, however, to pass upon the sort of conduct of a lessor that would entitle his immediate lessee to vacate as the rule that relates to the interference with a lessee by his lessor has no applicability."

This result is strengthened where, as in the Kayser-Roth case, the quiet enjoyment clause provided:

"Quiet Enjoyment: Landlord covenants and agrees that, for the term of this sublease, tenant, upon paying all the rents hereunder and performing and observing all of the terms, covenants, conditions and provisions of this sub-lease on its part to be performed or observed, as applicable, shall and may peaceably and quietly have, hold and enjoy the sub-leased premises free of any act or acts of landlord or anyone claiming by, under or through landlord, subject to the terms of this sub-lease."

Friedman on Leases, [section] 29.202, at 1469-70, and n. 10, explains that such a covenant limits sub-landlord's liability to its own conduct, and excludes responsibility for interference by overlandlord, stating:

"Interruption of the quiet enjoyment of a sub-tenant by the prime landlord is not an interruption by a person claiming by, through or under the sub-tenant's lessor, because the superior lessor does not claim by, through or under his own lessee."

Accordingly, if the landlord is really a sub-landlord, consideration should be given to narrowing the standard REBNY clause, to make clear that the sub-landlord is only covenanting as to its own conduct, and not the overlandlord's.

Can Covenant of Quiet Possession Be Used to Support an Injunction?

As noted above, the covenant of quiet possession adds little if anything to a claim by tenant for rent abatement or damages. But, can the tenant rely on this clause to support a request for an injunction against the interfering behavior?

First, if the "interference" is an alleged failure by the landlord to perform (e.g., to make repairs), the tenant is likely to run into the principle that the Court will not mandate affirmative performance by a landlord.

And even in cases where the tenant seeks to restrain the landlord from some interfering act, an injunction is not warranted simply because a lease of real property is involved. Thus, in Van Wagner Advertising Corp. v. S&M Enterprises, 67 N.Y.2d 186, 501 N.Y.S.2d 628 (1986), the Court of Appeals held that: "specific performance o f real property leases is not in this State awarded as a matter of course"; and affirmed the lower court's refusal to order specific performance there in favor of tenant. See also, generally, Herman Miller Inc. v. Thom Rock Realty Col., L.P., 46 F.3d 183 (2d Cir. 1995), suggesting that tenant's sole remedy, where the landlord, in a breach of restrictive covenant, sought to change use of building, was for damages.

Conclusion

The Courts have consistently interpreted the quiet enjoyment covenant in favor of landlords. The standard form is basically fine for landlords, subject to refinement where the landlord is a sub-landlord. Conversely, if a tenant has particular concerns as to matters important to the conduct of its business, it should seek to have those articulated in the lease: the form lease provision does not have the broad meaning that "common-sense" might suggest.