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Note: The Empire Room, LLC (Tenant/Applicant) and Empire State Building Company LLC, (Landlord/Beneficiary) executed a fifteen-year lease whereby Tenant/Applicant was to occupy commercial storefront ground floor space at the Empire State Building for use as a bar and lounge. As a requirement under the lease, Landlord/Beneficiary required Tenant/Applicant to pay its security deposit with either cash or a letter of credit. The Tenant/Applicant chose the latter in the form of a USD 136,080.00 standby letter of credit.

Tenant/Applicant vacated the premises before the expiration of the lease, claiming it was forced out through Landlord/Beneficiary’s construction which substantially damaged its business. Landlord/Beneficiary responded asserting that Tenant/Applicant wrongfully abandoned the premises after it was sued by the City of New York for allegedly employing unlicensed security guards and selling an alcoholic beverage to an underage patron.

Tenant/Applicant sued Landlord/Beneficiary to compel the return of the standby letter of credit that Tenant/Applicant had obtained as a security deposit. Landlord/Beneficiary moved for summary judgment granting its counterclaims and dismissing Tenant/Applicant’s claims. The Supreme Court of New York, New York County, O. Peter Sherwood, J., denied Landlord/Beneficiary’s motion for summary judgment on the letter of credit issue until the question of breach and damages was answered.

Landlord/Beneficiary argued that it owed nothing because it “holds no [actual] security deposit” on behalf of Tenant/Applicant and, instead, holds a standby letter of credit from Tenant/Applicants bank pursuant to the Lease. Landlord/Beneficiary further argued that Tenant/Applicant is not entitled to return of the deposit because Tenant/Applicant's breach of the Lease entitled Landlord/Beneficiary to draw on the letter of credit. Tenant/Applicant contended that an issue of fact remained regarding what portion of the security deposit to which each party was entitled.

The Judge ruled that whether Landlord/Beneficiary breached the Lease remains to be determined and, therefore, granting summary judgment is inappropriate. The Judge reasoned that Tenant/Applicant, too, may be entitled to damages for breach of contract.

[JK/JPJ]

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