Pryor Cashman Wins Major Appellate Victory in Case Involving Commercial Leases and Attorneys' Fees
Pryor Cashman attorneys Todd E. Soloway, Joshua D. Bernstein and Ross Bagley recently achieved a significant victory from the N.Y. State Appellate Division, First Department, on behalf of its client, 229 West 28th Owner, LLC (“229 West”), the owner of a commercial building on West 28th Street in Manhattan. The appellate decision reaffirmed the long standing doctrine that the obligation to pay rent in a commercial lease is an independent covenant and awarded 229 West its attorneys’ fees.
The plaintiff in the case, Universal Communications Network, Inc. (“Universal”), entered into a lease with 229 West for two floors in the building. The lease granted Universal six months of “free rent” and required 229 West to contribute over $800,000 towards Universal’s construction of its new premises.
When delays occurred in the build-out of the premises and the free rent period in the lease expired before Universal completed construction, Universal commenced an action alleging that 229 West caused the delays in construction by its purported refusal to approve Universal’s plans. Universal argued that, by virtue of 229 West’s conduct, it was relieved of its obligation to pay rent.
On behalf of its client, Pryor Cashman moved to dismiss Universal’s complaint, arguing principally that each of its causes of action were barred by the doctrine that the covenant in a commercial lease to pay rent is independent of the landlord’s obligations and therefore cannot, as a matter of law, provide a commercial tenant with a basis to withhold rent. Pryor Cashman further requested that the Court grant 229 West recovery of its attorneys’ fees incurred in the defense of the action pursuant to the prevailing party attorneys’ fees clause in the lease.
Justice Charles E. Ramos of the Commercial Division of the Supreme Court of the State of New York, County of New York, agreed with Pryor Cashman’s arguments and dismissed the complaint with prejudice. The Judge failed, however, to award 229 West its attorneys’ fees.
Universal appealed Justice Ramos’ decision and 229 West cross-appealed seeking recovery of its attorneys’ fees.
In its decision affirming the trial court’s dismissal of Universal’s complaint with prejudice, the Appellate Division reaffirmed the long standing principal that “the obligation to pay rent pursuant to a commercial lease is an independent covenant, and thus, cannot be relieved by allegations of a landlord’s breach, absent an express provision to the contrary.”
Holding that “Plaintiff’s day of reckoning is upon it,” the Appellate Division further ordered Universal to pay 229 West over $350,000 in back rent that had been held in escrow during the pendency of the action and granted 229 West’s request for recovery of the attorneys’ fees it expended in defense of the litigation.
The Appellate Division rejected Universal’s argument that an award of attorneys’ fees was improper where the landlord prevailed on a motion to dismiss before asserting a counterclaim for recovery of its attorneys’ fees and held that “[b]ecause the lease provided for payment of reasonable attorneys’ fees, the court erred in failing to grant [229 West’s] application for such an award … and the matter should be remanded for calculation of attorneys’ fees.”
The case is now pending before Justice Ramos for a determination of the amount of attorneys’ fees 229 West is entitled to recover from Universal.
To read the Appellate Division’s decision, please click here.
