New York Law Review

Tag: Lease Assignment

  • Symphony Space, Inc. v. Pergola Properties, Inc., 88 A.D.2d 422 (N.Y. App. Div. 1982): Lease Assignment and Rights of Subsequent Purchasers

    Symphony Space, Inc. v. Pergola Properties, Inc., 88 A.D.2d 422 (N.Y. App. Div. 1982)

    A subsequent purchaser of property has rights superior to an assignee of a lease if the assignment refers to a later, substantively different lease that is deemed void as to the purchaser, especially if the assignment makes no mention of the original lease.

    Summary

    Symphony Space sought to enforce a lease against Pergola Properties, the purchaser of the building. Symphony Space’s claim was based on an assignment of a lease from a prior tenant, Pussycat. The assignment referred to a lease dated October 29, 1979, which omitted a crucial paragraph acknowledging an earlier lease dated April 10, 1979. Pergola’s contract to purchase the property predated the assignment. The court held that the October 29, 1979, lease was void as to Pergola and that Symphony Space, as an assignee, acquired no rights against Pergola. This was because the subsequent lease was significantly different and the assignment only referenced the later lease, not the original one.

    Facts

    Pussycat, a tenant, had a lease agreement with the property owner, including a rider paragraph recognizing an earlier lease. Pussycat then purportedly assigned a lease to Margin Call, and Margin Call assigned it to Symphony Space (plaintiff). However, the assigned lease was dated October 29, 1979, and crucially omitted the rider paragraph acknowledging the original lease. Pergola Properties contracted to purchase the building on September 19, 1979, before the assignment to Symphony Space. Pergola later acquired the property. Symphony Space sought to enforce the lease against Pergola. The assignments made explicit reference to the lease dated October 29, 1979, but made no reference whatsoever to the original lease dated April 10, 1979.

    Procedural History

    The Supreme Court initially ruled against Symphony Space. The Appellate Division affirmed the Supreme Court’s decision. The case was then appealed to the Court of Appeals.

    Issue(s)

    Whether Symphony Space, as an assignee of the October 29, 1979 lease, acquired rights to possession against Pergola Properties, the subsequent purchaser of the property, when the assignment made no reference to the original lease and Pergola’s purchase contract predated the assignment.

    Holding

    No, because the October 29, 1979 lease, which the assignment referenced, was void as to Pergola Properties, whose rights related back to the date of their contract to purchase the property (September 19, 1979), which predated the assignment.

    Court’s Reasoning

    The court focused on the fact that the assignment from Pussycat to Margin Call and then to Symphony Space only referred to the October 29, 1979, lease, which was substantively different from the original lease and lacked the rider paragraph recognizing the prior lease. The court emphasized that Pergola’s contract to purchase the property predated the assignment to Symphony Space. Therefore, Pergola’s rights as a purchaser were superior. Justice Jones, in his dissent, noted, “In any event, the assignments from Pussycat to Margin Call and from Margin Call to plaintiff made explicit reference only to the lease dated October 29, 1979, no reference whatsoever was made to the original lease dated April 10, 1979 or to any rights of the assignors thereunder.” Because the assigned lease was considered a replacement lease and lacked any reference to the original, it implied that the earlier lease had been surrendered. Consequently, Symphony Space acquired no rights against Pergola based on the assignment of the later, flawed lease.

  • Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62 (1978): Implied Covenants Against Assignment in Leases

    Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62 (1978)

    A covenant limiting the right to assign a lease will only be implied if it is clear that a reasonable landlord would not have entered into the lease without such an understanding, and failure to recognize such a covenant would deprive the landlord of the benefit of their bargain.

    Summary

    Rowe, the landlord, sought to prevent A&P, the tenant, from assigning its lease to Southland Corp. Rowe argued that the lease contained an implied covenant against assignment without the lessor’s consent because the rental included a percentage of gross receipts. The New York Court of Appeals held that no such implied covenant existed. The court reasoned that the base rent was substantial, the percentage clause was not a material part of the lessor’s fundamental expectations, and Rowe, an experienced attorney, could have negotiated an express restriction on assignment. The court emphasized that restrictions on the free alienation of land are disfavored and construed strictly.

    Facts

    In 1964, Robert Rowe leased property to A&P for a supermarket. The lease had a base rent of $14,000 per year for 10 years with renewal options, and no restrictions on assignment. In 1971, the parties renegotiated, resulting in a new 15-year lease with a higher base rent of $34,420 plus 1.5% of gross receipts exceeding $2,294,666. The lease still lacked any restriction on assignment. A&P later decided to close the store and assigned the lease to Southland Corp. Rowe objected, claiming A&P breached an implied covenant against assignment.

    Procedural History

    The Supreme Court dismissed Rowe’s petition, finding no bad faith and an unqualified right to assign absent express restrictions. The Appellate Division reversed, stating that the lower court placed too heavy a burden on the petitioner. The Appellate Division reasoned that the percentage rent clause indicated the landlord’s reliance on the tenant’s abilities. A&P appealed to the New York Court of Appeals.

    Issue(s)

    Whether a real property lease agreement, which includes a percentage of gross receipts as part of the rental payment but does not contain an express restriction on assignment, contains an implied covenant limiting the lessee’s power to assign the lease without the lessor’s consent.

    Holding

    No, because the base rent was substantial, the percentage clause was not a material part of the lessor’s fundamental expectations, and the landlord was an experienced businessman who could have negotiated an express restriction on assignment.

    Court’s Reasoning

    The court emphasized the principle of freedom of contract, subject to limitations like public policy and good faith. It noted that courts disfavor covenants restricting assignment because they restrain the free alienation of land. Such covenants are construed strictly, even if expressly stated. An implied limitation on assignment should only be recognized if failure to do so would deprive a party of the benefit of their bargain. The court distinguished this case from Nassau Hotel Co. v. Barnett & Barse Corp., 212 NY 568, where the landlord received only a percentage of gross receipts. Here, the base rent was substantial, and the percentage clause was triggered only after a high sales threshold. The court noted that Rowe was an experienced attorney who could have negotiated an express restriction on assignment. The court quoted Mutual Life Ins. Co. of N.Y. v. Tailored Woman, 309 NY 248, 253, stating, “such lack of foresight does not create rights or obligations”. The court stated, “It has long been the law that covenants seeking to limit the right to assign a lease are ‘restraints which courts do not favor. They are construed with the utmost jealousy, and very easy modes have always been countenanced for defeating them’ (Riggs v Pursell, 66 NY 193, 201)”.

  • Gillette Bros. v. Aristocrat Restaurant, Inc., 239 N.Y. 87 (1924): Liability of an Assignee for Lease Obligations Upon Taking Possession

    Gillette Bros. v. Aristocrat Restaurant, Inc., 239 N.Y. 87 (1924)

    An assignee of a lease, by taking possession of the leased property, becomes liable for the lease obligations, especially when the rent is already due and payable.

    Summary

    This case addresses the liability of a party who takes possession of leased property as an assignee but may not have explicitly assumed the obligations of the lease. The court determined that by taking possession of the leased property, especially when aware that the rental balance was already due, the assignee becomes liable for payment of the outstanding rent. This principle applies even without a formal assumption of the lease, based on the benefit derived from possessing the leased asset.

    Facts

    Aristocrat Restaurant leased property from Gillette Bros. At some point, Aristocrat Restaurant defaulted on the lease. Another party, having knowledge of the existing lease agreement and the outstanding rental balance, acquired the property and took possession of the leased assets. The new possessor, referred to as the appellant, retained possession of the leased property.

    Procedural History

    The lessor, Gillette Bros., sued the appellant for the accelerated balance of rent due under the lease. The lower court ruled in favor of Gillette Bros., holding the appellant liable for the rent. The appellate division affirmed the lower court’s ruling. The New York Court of Appeals then reviewed the appellate decision.

    Issue(s)

    Whether an assignee of a lease, who takes possession of the leased property with knowledge that the rental balance is already due, becomes liable for the payment of that rent, even without a formal assumption of the lease.

    Holding

    Yes, because by taking and retaining possession of the leased equipment with knowledge of the already due rental payments, the appellant became, in effect, an assignee of the lease and thereby bound to pay the accrued rent for the balance of the term.

    Court’s Reasoning

    The court reasoned that the appellant’s act of taking possession of the leased property, knowing that the rent for the balance of the term was already due, created an implied assignment of the lease. The court relied on precedent, citing cases like Frank v. New York, L. E. & W. R. R. Co. and Mann v. Munch Brewery to support the principle that taking possession under these circumstances implies acceptance of the lease’s obligations. The court emphasized that there was no illegality in the acceleration clause that made the rent due before the appellant’s entry into possession. The court stated, “Regardless of whether appellant be deemed to have assumed the lessee’s obligations under this lease of air-conditioning equipment, the cases hold that having taken possession of the leased property under the circumstances disclosed by the record, appellant became at least an assignee, and, therefore, liable for payment of the accelerated balance of rent without assumption of the lease”. By retaining possession of the equipment, the appellant benefited from the lease and thus became obligated to fulfill its financial terms. This is consistent with the general principle that one cannot accept the benefits of a contract without also accepting its burdens.