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Tenant assignors and their guarantors should beware!

Unless tenant-assignors express an intention to be released, they will continue to be liable under the lease. The assignment must bear an express provision that upon consent of the landlord, the assignor and its guarantors are relieved of any liability accruing after the date of assignment.

In the absence of language to that effect, the tenant will continue to be liable for any rent, additional rent or damages accruing under the lease after the date of assignment. It is immaterial that the tenant is current on its rent and additional rent payments on the date of the assignment.

It is no defense that the landlord consented to the assignment. It is equally unavailing that the landlord accepts rent from the assignee. None of these actions are considered an acceptance by the landlord of the assignor's surrender.

The repercussions of this liability extends to guarantors of the tenant/assignors.

It is well settled that in order to relieve the original tenant-assignor from its continuing liability after assignment, it must be expressly shown that the lessor not only consented to the assignment, but accepted the assignee in place of the tenant and such release of the tenant must be either express or implied from facts other than the lessor's mere consent to the assignment and its acceptance of rent from the assignee.

185 Madison Associates v. Ryan, 174 A.D.2d 461,571 N.Y.S.2d 244 (1st Dep't 1991); 74 N.Y.Jur.2d, Landlord and Tenant, [section] 692.

In 185 Madison Associates, the court held that the assignment is solely an agreement between the tenant and its assignee and that the landlord's consent to the assignment does not relieve the original tenant from its obligations under the lease or the guarantor under his obligations. Id., A.D.2d at 461, N.Y.S.2d at 245.

Surrender as Releasing the Assignor

The assignor may be tempted to argue that there was an implied acceptance of the tenant's surrender. After reviewing the case law, I have concluded that this is a lot easier said than done. Some cases in which the tenant successfully argued an imphed surrender having the effect of releasing the tenant from future liability are reviewed below.

The court in Jay-Ess Realty Co. v. Rusinova, 6 Misc.3d 312, 788 N.Y.S.2d 839 (N.Y.Cty. Civ.Cty 2004), found that the landlord's actions impliedly accepted the tenant's surrender. The surrender had the effect of releasing the tenant from any future liability arising after the surrender. However, in that case, the lease had expired, the landlord accepted the keys from the tenant, waited "several" years before commencing the plenary action to recover rent, and the Court found no valid lease renewal or extension. The landlord alleged that the tenant executed a lease renewal, extending the lease, but court accepted the tenant's testimony that the signature on that document was forged. Citing Gorlin v. Hrvatsky Publishing Co., Inc. 126 Misc. 570, 214 N.Y.S.45 (lst Dep't 1926), the court also found further actions consistent with a surrender--that the landlord waited an unreasonable period of time to demand rent from an out of possession tenant.

Implied Surrender

Landlords should be advised that their conduct upon a tenant's abandonment of a premises may lead a court to determine it acted consistently with accepting a surrender without a reservation of rights. In Wofford v. Adams, 299 A.D.2d 249, 750 N.Y.S.2d 286 (1st Dep't 2002), the Court found that the landlord's acceptance of the tenant's abandonment of the premises and delivery of the keys cut off the tenant's liability as of the date of the surrender because the landlord used the apartment for her own benefit. The tenant was still liable, however, for rent and additional rent accruing up to the date of the surrender.

In Altamuro v. Capoccetta, 212 A.D.2d 904, 622 N.Y.S.2d 155 (3rd dep't 1995), the landlord's sale of the premises after the tenant surrendered was held conduct consistent with terminating the landlord-tenant relationship, and the landlord was precluded from seeking damages accruing after the date of surrender.

Possible Solution

Leases should define a surrender as being a tenant's execution and tender of a Blumberg form surrender agreement and a tendering of the keys. It should not be necessary that the Landlord accept either for a valid surrender.

Landlords and Tenants should not leave out the effect of surrender in their drafting. The Lease should also include in the definition whether a surrender reserves the landlord's rights to pursue any rent, additional rent or damages accruing under the other Lease terms.

This will dispose of any concerns that the tenant may try to argue the existence of an ambiguity. If the Lease reserves the landlord's fights, the surrender agreement should also bear a broadly worded reservation of rights which should be inserted into the lease. The lease should provide that the Blumberg form including this language shall be the form accepted by the landlord.

Negotiating the definition of surrender is beneficial to all parties, especially where the tenant's principal executed a good guy guaranty and is looking to define when personal liability under that instrument is cut off.

Conclusion:

Attorneys representing tenants and landlords alike have the opportunity to minimize their client's exposure to unintended liability at the negotiating stages throughout the term of the lease. These should be viewed as opportunities not to be passed up.

During the intake of a client that is being sued for liability incurred by an assignee, and if the facts fall squarely under the 185 Madison Associates v. Ryan case, the attorney may considering being blunt and suggest to the client that his money is better spent on offering a settlement than litigating a suit that the client cannot win.
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Title Annotation:INSIDERS OUTLOOK
Comment:Tenant assignors and their guarantors should beware!(INSIDERS OUTLOOK)
Author:Rakowski, Henry E.
Publication:Real Estate Weekly
Date:Feb 6, 2008
Words:972
Previous Article:On the web.
Next Article:A broker's loyalty when serving two principals.
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