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Posted: November 28, 2013

Court of Appeals Enforces Lease as Written, Even Though it Leads to Harsh Result for Commercial Tenant

On October 7, 2013, we noted that on October 8, 2013, the Court of Appeals would hear argument in Eujoy Realty Corp. v. Van Wagner Communications, LLC, Docket No. 179. On November 26, 2013, the Court of Appeals issued its decision in Eujoy Realty Corp. v. Van Wagner Communications, LLC, 2013 NY Slip Op. 07823, strictly enforcing the written terms of a lease even though that resulted in a commercial tenant forfeiting almost a year’s rent.

The commercial lease at issue in Eujoy, provided that the yearly rent for a billboard was to be paid “in advance on January 1” and that if the lease were “terminated for any reason prior to the date of its expiration,” the tenant advertising company would “not be entitled to the return of . . . any basic rent paid in advance and covering a period beyond the date on which the Lease is terminated,” with exceptions not relevant here.

“In early January 2007,” the tenant sent the landlord a check for the “annual basic rent,” but soon thereafter stopped payment on the check. A few weeks later, the tenant termminated the lease. The landlord sued for the unpaid rent.

The Court of Appeals held that the tenant owed the annual rent, even though the year was only two weeks old when the tenant terminated the lease. The court explained:

Under the common law, rent is consideration for the right of use and possession of the leased property that a landlord does not earn until the end of the rental period. This presumption may be altered, however, by the express terms of the parties’ lease such that rent is to be paid at the beginning of the rental period rather than the end. When a lease sets a due date for rent, that date is the date on which the tenant’s debt accrues. These rules reflect the strong preference for freedom of contract in the creation of leases, and although it may seem harsh for tenants, the courts assume that the parties have knowingly bargained for the provisions of their agreement. This is especially true in the case of arms-length commercial contracts negotiated by sophisticated and counseled entities.

(Internal quotations and citations omitted).

As to the tenant’s argument that the landlord had orally agreed to return unused rent if the lease were terminated, the Court of Appeals held that the no oral modification clause in the lease prohibited the modification to the lease that the tenant alleged.

Eujoy provides a stark reminder that–for commercial contracts at least–New York’s courts will enforce contracts as written, even if that leads to a harsh result. Moreover, it illustrates the danger of making an oral amendment to a written contract, particularly a contract that prohibits such modifications. Negotiated resolutions of business problems are good; failing properly to document those resolutions is often bad business.

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