Understanding commercial tenant-landlord litigation.

There are three types of litigation situations that commercial landlords commonly face:

1. You want the tenant out, either because of non-payment or holding over, but the tenant won't leave voluntarily;

2. You want the tenant to stay and keep paying rent for the remainder of the lease term, but instead he disappears; or

3. You want the tenant to stay and keep paying rent, but you also want to enforce additional lease rights, such as a right of access to the premises to rehabilitate adjoining premises.

There are cost-effective litigation strategies, but, according to the law firm of Seiden, Stempel & Bennett, these generally require advance planning: If you wish to get the undesired tenant out, there are two alternative avenues the landlord can pursue: Going into L&T court; or, if the lease permits, triggering the "conditional limitation" clause, which permits a landlord, after some relatively short notice period, to declare a lease terminated by reason of tenant's defaults.

Taking this second route may offer important advantages to the landlord. For example: If a lease is terminated prior to the tenant filing its bankruptcy petition, even if it has not yet vacated possession, the lease is generally not considered an asset of the bankruptcy estate, so that even the bankruptcy court cannot revive the lease; and, if the tenant wishes to contest the landlord's assertion of a default, it must go into the Supreme Court and obtain a so-called "Yellowstone" stay, which will often be conditioned on the tenant posting an appropriate bond.

If the decision is made to go into the commercial L&T court, advance planning is important. For example, the statute permits a holdover case to be brought before the court on as little as two hours notice, if the landlord begins the case "on the day of the expiration of the lease or the next day thereafter," and the landlord can show a need for immediate repossession.

If you have a problem tenant, there are various alternatives. For example, in the case of the disappearing tenant, it is important to establish as quickly as possible the identity of all the other parties that might be responsible for paying the rent-and these include some persons who might not appear on first glance to be subject to liability - and whether those parties have assets worth pursuing. This allows you to determine, at the earliest possible stage, whether litigation is worthwhile.

In one case handled by Seiden, Stempel & Bennett, the existing tenant was an assignee; its assignor, a corporation, had dissolved years before. The law firm obtained, over vigorous opposition, at the commencement of the case, a discovery order requiring the assignor to disclose what its assets were upon dissolution, and the identity of the shareholders receiving those assets. The landlord then was able to sue those individuals, and shortly achieved a favorable settlement with those shareholders.

Once the landlord has made the determination that litigation is worth while, it is best to try to formulate the relevant issues in a way that is conducive to disposition by summary judgment motion. Following are some examples:

In another case, the tenant/sublandlord went bankrupt. The subtenant was a viable entity, but was interested in relocating out of New York, and breaking the lease. The overlandlord entered into an agreement in Bankruptcy Court to take over the sublease. The sublessee argued that this was improper, on a variety of grounds, presenting a mix of technical bankruptcy and landlord-tenant issues. The motion for summary judgment for rent and liquidated damages was granted by the Federal District Court and affirmed by the Second Circuit Court of Appeals.

These and other issues, such as how to enforce various lease rights-for example the right to enter the tenant's premises to make various improvements without giving the tenant an excuse to get out of an above-market rate lease - require advance planning by the commercial landlord. If handled efficiently and expertly, the landlord will prevail with favorable outcomes and settlements, thereby justifying the cost of litigation.