Adam Leitman Bailey, P.C. Steps in as Last-Minute Counsel and Achieves a Quick and Lucrative Resolution for Landlord Facing Potential Decades-Long Losses on Commercial Lease
The New York commercial real estate world is filled with cautionary fables, none more legendary than the tenant who sleeps on its rights and loses a sweetheart lease. That is the situation where, whether you are the tenant or landlord, having deeply experienced real estate counsel makes all the difference; and in this very situation, ALBPC was able to secure for our landlord client a multi-year rent increase that would likely, with lesser counsel, never have occurred.
ALBPC’s client is a small real-estate company that owns an extraordinarily well-situated commercial restaurant storefront in New York’s legendary Greenwich Village, with high foot traffic and consistently high sales for every occupant of the small space. The present occupant, a well-reviewed and trendy take out hamburger restaurant, had been in the space for nearly three years under an incredibly favorable five-year lease it assumed from a prior tenant. The lease, which was set to expire in December 2025, set rent for the premises at nearly 50% less than the going rate for similar spaces in 2025 and contained a strong option to renew for another 5 years at a mere 3% increase per year. Tenant requested a lease renewal, and, under normal circumstances, and with lesser counsel, this would be the end of the discussion and the landlord would need to face five years of lost income. However, after initially working with other counsel, the landlord engaged ALBPC to aggressively seek a means to avoid what seemed like an airtight renewal clause; and ALBPC quickly realized that the tenant’s past inactions and certain violations provided just such an out, which eventually cost the tenant its favorable lease.
Specifically, under the terms of the lease renewal clause, tenants were only entitled to a mandatory lease renewal if there were no uncured material defaults at the time tenant requested renewal. However, at the time it requested renewal, the tenant was a named defendant in a lawsuit concerning numerous violations at its storefront of the Americans with Disabilities Act (“ADA”), and the landlord – before engaging ALBPC – cited this as a basis for non-renewal. Tenant responded by filing a complaint declaring it had the right to renew the lease until 2030; and it then moved by expedited Order to Show Cause for what is called a Yellowstone Injunction, asking the New York County Supreme Court to enjoin the landlord from doing anything to eject the tenant – and ordinarily, such a motion can delay eviction for months or even years. With this new wrinkle, the landlord realized it needed more experienced counsel and engaged ALBPC to pursue an aggressive and novel litigation strategy.
ALBPC took a two-pronged approach to decimating tenant’s position: As is the practice in this Court, before the judge even signed the Order to Show Clause – which originally contained a temporary restraining order (“TRO”) clause that would have barred landlord from taking any action against tenant during the entire time the motion was pending – ALBPC was permitted to briefly outline landlord’s position before any formal papers were due to be filed. ALBPC used this opportunity to explain to the Court, first, that tenant’s motion was facially improper, because a Yellowstone Injunction exists solely to preserve a commercial tenant’s opportunity to cure an alleged default when there is a threat that the landlord will terminate the lease before its natural expiration date; and here, there was neither threat nor termination because the Lease was set to expire on its own, without any action by tenant, which was not seeking any extra time to cure any defaults. Second, ALBPC’s attorneys pointed out to the Court that tenants had been cited with multiple uncured Department of Building violations, some of which were at least two-years old, for among other things, improper electrical work, and failure to maintain the
premises in a clean and orderly condition, all of which were material violations of the tenant’s lease and – along with the ADA violations – voided the lease renewal clause under its own terms.
Based on this colloquy alone, the Court refused to issue the TRO and set a date nearly a month out for parties to fully brief their issues. ALBPC submitted extremely strong papers supporting their positions and; within a week of reviewing those papers, the Court essentially gave landlord the win, postponing even a hearing on tenant’s motion until nearly two months after the lease would expire under its own terms, during which landlord would still be able to pursue eviction without any court interference – a threat that ALBPC made known to tenant in no uncertain terms. At this point, tenant saw the writing on the wall; and, within days of the Court’s postponement on its motion, tenant approached landlord with a settlement offer to pay approximately 50% more rent per year than it would have been entitled to under the lease renewal, including numerous other terms that put the landlord in as good as, or better than, a position than it would have been with a new tenant.
The takeaway (pun intended) is that, with a deep understanding of New York real-estate law and day-to-interaction with every local court and judge on similar issues, ALBPC was able to craft an aggressive strategy that resulted in a quick and highly beneficial resolution where other firms and clients might still be struggling with motion practice and the real risk of losing half the potential rent for a decade or more. Although high stakes real estate litigation is never cheap, in this instance, it was a bargain by any standard.
Adam Leitman Bailey, P.C. partners Eric S. Askanase and Dov Treiman, and law clerk Nurie Metodieva, represented landlord in this significant win.