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Note: To secure its obligations under a commercial lease, Empire Room, LLC (Tenant) obtained a USD 136,080 letter of credit in favor of Empire State Building Company LLC (Landlord). The lease was for a ground-floor space within the Empire State Building to be used by Tenant as a bar and lounge for a fifteen-year period.

Subsequently, Tenant alleged that Landlord “effectively forced” Tenant to vacate the premises due to Landlord having installed an exterior elevator and scaffolding. Tenant claimed that the scaffolding and elevator materially restricted access to the leased space which “substantially damaged its business”. Landlord insisted that the temporary elevator and scaffolding were necessary as part of Landlord’s efforts to modernize the building. Landlord also claimed that the positioning and design of the elevator and scaffolding met New York regulations. Tenant also argued that Landlord wrongfully refused to return the LC. Accordingly, Tenant sued Landlord for breach of the lease and return of the LC. Landlord counterclaimed arguing that Tenant had breached the lease “by vacating without [Landlord]’s prior consent” and for failure to pay rent.

The trial court initially granted summary judgment in favor of Landlord regarding Tenant’s allegations that Landlord had breached the lease by “erecting scaffolding that materially impaired free access to the demised premises”. The trial court also rejected Tenant’s constructive eviction claim but declined to dismiss Tenant’s claim regarding return of the LC absent a full determination that Landlord had not breached the lease. Subsequently, the trial court modified its judgment and granted summary judgment in favor of Landlord finding as a matter of law that Tenant breached the lease by vacating the premises without Landlord’s prior consent and for failure to pay rent. After the trial court denied Tenant’s motion for reconsideration, Tenant appealed. The Supreme Court of New York, Appellate Division, Freidman, Tom, Kapnick and Singh, JJ., affirmed the modified opinion of the trial court.

The appellate court noted that Tenant had “failed to raise an issue of fact as to whether [Landlord] made commercially reasonable efforts to cause the scaffolding to be removed as soon as reasonably practicable” prior to Tenant’s vacating the leased space. Tenant’s constructive eviction claim was barred by the clear “exculpatory language” of the lease which precluded any liability of Landlord to Tenant in connection with the installation of the scaffolding and elevator. Ultimately, Tenant failed to establish any new facts warranting a reversal of the trial court’s modified judgment. Regarding the letter of credit, the appellate court concluded that “a hearing should be held to determine [Landlord]’s damages.”

[MJK]

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