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Posted: July 21, 2017

Alleged Faulty Notice of Lease Renewal States Breach of Implied Covenant Claim

On July 13, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Foscarini, Inc. v. Greenestreet Leasehold Partnership, 2017 NY Slip Op. 31493(U), holding that allegations that a defendant gave a faulty notice of lease renewal intending to prevent the plaintiff from finding another tenant but without intending actually to renew a lease states a claim for breach of the covenant of good faith and fair dealing, explaining:

A11 contracts imply a covenant of good faith and fair dealing in the course of performance. To state a claim of breach of the implied covenant of good faith and fair dealing, a party must allege (1) a specific implied contractual obligation, (2) a breach of that obligation by the defendant, and (3) resulting damage to the plaintiff.
A claim for breach of the implied covenant of good faith and fair dealing cannot substitute for an unsustainable breach of contract claim. Further, a claim for breach of the implied covenant cannot survive where it is duplicative of a breach of contract claim.

. . .

Foscarini’s alleged bad faith attempt to renew the lease when it had no intention of staying in the premises [successfully states] a cause of action. Greenestreet argues that, implied from the strict conditions for renewing the lease, was an obligation that Foscarini only send a renewal notice if it truly intended to renew. Greenestreet alleges that Foscarini purposefully sent a faulty renewal notice, not to renew the lease, but to make Greenestreet believe that it was renewing while it was searching for an alternate property.

The strict notice period provided for renewing the lease is alleged to have been part of the fruits of Greenestreet’s bargain, allowing it the necessary time to relet the premises if Foscarini decided not to renew the lease. Foscarini’s faulty notice impeded Greenestreet’s ability to lease the premises once the lease expired. Indeed, Greenestreet alleges that the faulty renewal notice was merely the beginning of Foscarini’s attempts to prolong its occupancy while searching for new space, as shown by Foscarini’s principaltelling a real estate broker in June 2015 that it would either renew the lease or look for new space. Greenestreet has successfully alleged that Foscarini breached its implied obligation to send a renewal notice only if it genuinely meant to renew the lease, and that Greenestreet was damaged in its inability to relet the premises upon Foscarini’s departure. These allegations are sufficient, on a motion brought under CPLR 3211(a)(7), to sustain the counterclaim. Foscarini’s factual arguments to the contrary go to the merits of the counterclaim and cannot be resolved on a motion addressed to the sufficiency of the pleadings.

Further, Greenestreet does not claim that the improper renewal of the lease is a basis for both its breach of contract and implied covenant counterclaims, only the implied covenant counterclaim. 1 While Foscarini is correct that the claims may be duplicative if they arise out of the same facts and seek the same damages, Foscarini’s proposed interpretation of “arise out of’ is so broad as to prevent there ever being an implied covenant claim that runs in tandem with an express breach claim. Greenestreet’s claim of a bad faith renewal could not be brought as an express breach claim. The lease does not place any express, stated conditions on Foscarini’s decision to exercise its right to renew, nor, despite Greenestreet’s argument to the contrary, does the lease provide that Foscarini’s exercise of its right to renew the lease is irrevocable. While Greenestreet pleads similar damages for both claims, the factual bases thereof are distinct and independent such that they may be pleaded together.

(Internal quotations and citations omitted).

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