Summary
notwithstanding lease nonwaiver clause, landlord's acceptance of rent waived tenant's default in payment of rent, and lease remained in effect
Summary of this case from RAY W CUT INC. v. 240 W. 37 LLCOpinion
Argued September 13, 1988
Decided October 25, 1988
Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, Harry H. Kutner, J.
Robert M. Calica and Myra P. Lapidus for appellant.
Ignatius John Melito and Susan C. Zuckerman for respondent.
MEMORANDUM.
The order of the Appellate Division should be affirmed, with costs.
Plaintiff tenant and defendant landlord entered into two leases for separate parcels of real property. Each lease contained a notice of default and termination clause which stated, in part, that, in the event the tenant defaults in its payment of rent, the landlord "may give written notice to the Tenant", specifying the default and stating that the lease shall expire and terminate on a prescribed date which must be at least five days after the giving of the notice. The clause further provided that "upon the date specified in such notice * * * this lease and the term hereby demised and all rights of the Tenant under this Lease shall expire and terminate". As a result of separate disputes, plaintiff, in violation of the leases, withheld partial payment of its rents. The landlord, however, did not serve notices as required by the termination clauses. When negotiations between the parties failed, plaintiff commenced the instant actions to enjoin defendant from taking any steps to declare plaintiff in violation of the leases. While the actions were pending, plaintiff paid defendant all withheld rents. We conclude that defendant's acceptance of the rental payments prior to serving the notices of default resulted in each lease remaining in full force and effect. Thus, the Appellate Division properly granted plaintiff's motions for injunctions and denied defendant's cross motions for summary judgment.
The termination clauses in the leases were conditional limitations. As such they provided that if a notice of default were sent, the leases would automatically expire on the happening of a specified contingency, the arrival of the termination date fixed in the notice (see, Perrotta v Western Regional Off-Track Betting Corp., 98 A.D.2d 1, 5; 2 Rasch, New York Landlord and Tenant §§ 23:29, 23:30 [3d ed]; 14 Carmody-Wait 2d, N Y Prac § 90:15). Under the particular clauses here, it is not the tenant's conduct which, at the option of the lessor, operates on the lease to effect its termination as in some termination clauses (see, Perrotta v Western Regional Off-Track Betting Corp., supra, at 5). Rather, it is by the passage of time — the period of time specified in the termination notice — that the lease automatically comes to an end; without service of a notice specifying the date of expiration of the lease there can be no termination and the lease remains in effect (see, 2 Rasch, New York Landlord and Tenant § 23:29 [3d ed]). It is undisputed that defendant accepted all withheld rent prior to service of the termination notices and thus the rental delinquencies were remedied. Since the notices were sent at a later time when there were no outstanding rental defaults to which the notices could apply, they were ineffective.
We reject defendant's contention that the notices were effective because the withheld rents were paid pursuant to a stipulation made before the motion court under which the parties reserved the rights being asserted in their respective motions. These reserved contentions related to the different issue being addressed by the parties — i.e., whether the tenant had been vested with an implied right to cure its defaults because of the past conduct of the parties and was, therefore, entitled to a Yellowstone injunction during which it could effect a cure (see, First Natl. Stores v Yellowstone Shopping Center, 21 N.Y.2d 630). As noted, defendant's acceptance of the rent resulted in the leases remaining in effect and removed any ground for implementing the conditional limitations by service of termination notices. The contested issue pertaining to the right to cure was thus rendered academic.
Finally, we reject defendant's contention that, because the leases contained "nonwaiver" clauses, acceptance of the withheld rents did not prevent it from terminating the leases. Under the circumstances present here, acceptance of the rent waived the default.
Chief Judge WACHTLER and Judges SIMONS, ALEXANDER, HANCOCK, JR., and BELLACOSA concur; Judge TITONE dissents and votes to reverse in an opinion; Judge KAYE taking no part.
Order affirmed, with costs, in a memorandum.
By holding that defendant landlord's right to send termination notices was extinguished by plaintiff's payment of past-due rents, the majority has rewritten the parties' agreement and, in effect, created a new cure period wholly outside the written understanding of the parties. Because this decision injects a level of uncertainty into the law governing landlord-tenant relations, I respectfully dissent.
The majority's holding rests on the fact that at the time plaintiff paid defendant the past-due rents it had improperly withheld, the leases had not yet been terminated. As the majority points out, termination of the leases could be effectuated only by the issuance of written notices specifying the nature of the defaults and setting forth the dates on which the leases would expire. Since no such notices had been issued, the lease remained in effect.
The issue in this case, however, is not whether the leases had actually been terminated prior to the tenant's payment of back rent, but rather whether the landlord's right to terminate could be extinguished by such tardy payment. That question may be answered affirmatively only if some lease provision — or legal tenet — gave plaintiff a right to cure a default in rent payment. Absent a source for a right to cure, plaintiff's defaults were irreversible and defendant had the right to proceed with its lease remedies regardless of plaintiff's subsequent actions.
Neither of the leases in issue provide a specific source for a right to remedy a default in rent payments, and the majority has not suggested otherwise. Both of the leases provided that "if default shall be made in the due and punctual payment of any net rent * * * and such default shall continue for a period of 5 business days * * * then and in any such event Landlord at any time thereafter may give written notice to Tenant * * * and upon the date specified in such notice * * * this Lease shall expire and terminate" (emphasis supplied). No further opportunity for "cure" beyond the five-day grace period specified in this paragraph was provided.
To be sure, the leases made the formal issuance of a notice of default a condition precedent to the lease's termination. However, this procedural requirement should not be confused with the landlord's substantive right to terminate the tenancies. Under the plain language of the leases, this right became fixed and unconditional after the tenant defaulted and failed to remedy the default during the five-day grace period. Thereafter, defendant was privileged to issue notices of default, and thereby terminate plaintiff's tenancies "at any time."
The notice provisions of the leases, which required that the date specified for lease termination be no less than five days after the date of the notice (see, majority mem, at 1026), were apparently designed to ensure the tenant at least five days' notice of termination, presumably so that the tenant could make arrangements to vacate the premises in an orderly fashion. In contrast, the entirely separate reference in the leases to a continuance of the default "for a period of 5 business days" was evidently intended to afford the tenant a short grace period for paying its rent.
Under this analysis, it makes no difference that "the rental delinquencies were remedied" prior to the service of the default notices (majority mem, at 1027). Under the terms of the lease, plaintiff's breaches were complete long before such payment was made. In the absence of a cure provision, those breaches could no longer be "remedied," and it is irrelevant that "there were no outstanding rental defaults to which the notices could apply." The notices were properly applicable to the completed default resulting from plaintiff's failure to pay rent within the required five-day grace period.
The majority begs the question when it posits that before the default notices were sent "the rental delinquencies were remedied" (majority mem, at 1027), "there were no outstanding rental defaults" (id.) and the tenant had "removed any ground for implementing the conditional limitations" (id.). All of those conclusions rest on an assumption that the tenant had a right to cure — an assumption which I find unjustifiable in light of the leases' language.
The majority's ultimate conclusion — that the notices were ineffective because the breaches had previously been remedied — can be reached only by reading into the parties' leases a post-grace-period right to cure that neither party contemplated at the time the leases were executed. In effect, the majority has held that, regardless of the lease provisions, the law will imply a right to cure that extends until such time as the landlord acts upon the tenant's default. I cannot agree to such a result, however, since it violates the well-established principle that, absent a showing of fraud, mutual mistake or other acceptable basis of reformation, the court is powerless to read into a lease a right to cure beyond the rights specified in the lease itself (First Natl. Stores v Yellowstone Shopping Center, 21 N.Y.2d 630, 637; cf., Mann Theatres Corp. v Mid-Island Shopping Plaza Co., 94 A.D.2d 466, affd 62 N.Y.2d 930 [right to cure created through the parties' subsequent writings]; Wuertz v Cowne, 65 A.D.2d 528 [same]).
The majority's holding assumes that the parties' agreement was as follows: "[I]f default shall be made in the due and punctual payment of any net rent * * * and such default shall continue for a period of 5 business days * * * then and in any such event Landlord at any time thereafter may give written notice to Tenant * * * and upon the date specified in such notice * * * this Lease shall expire and terminate unless the tenant has previously remedied its default" (emphasized words added).
Equally flawed is the majority's conclusion that defendant's acceptance of past-due rent constituted a waiver of its already vested right to issue default notices and terminate the leases. First, apart from a cryptic reference to "the circumstances present here" (majority mem, at 1027), the majority does not explain why the leases' "nonwaiver" clauses do not foreclose a finding of waiver (cf., Jefpaul Garage Corp. v Presbyterian Hosp., 61 N.Y.2d 442). Second, even assuming that the "nonwaiver clauses" are ineffective in this situation, the majority's conclusion ignores the plain terms of the court-ordered stipulation, under which the payments were made and accepted. The stipulation provided that "neither the plaintiff nor the defendant have waived the respective rights that they have asserted in their respective motions, including the landlord's claim that it is entitled to serve a notice terminating the leases" (emphasis supplied). In view of this clear language, treating defendant's acceptance of past-due rents as a waiver of its right to terminate the leases by sending notices of default is patently unfair (cf., Jefpaul Garage Corp. v Presbyterian Hosp., supra, at 446-447).
There is no support for the majority's assertion that the "reserved contentions" referred to in the parties' stipulation related only to the question whether the tenant had an implied right to cure that could provide a predicate for a Yellowstone injunction (majority mem, at 1027). As the above-quoted language makes clear, the parties reserved all of "the respective rights that they have asserted in their respective motions". While the plaintiff tenant's motion may have been confined to requests for injunctive relief, the defendant landlord's cross-motions for summary judgment clearly encompassed the contentions that (1) the tenant "ha[d] breached the lease[s]"; (2) "there is no curative period for the correction of such admitted failure to pay"; and (3) "the defendant landlord is entitled to take [the] steps permitted by the lease * * * to declare the lease terminated" (defendant's notice of cross motion). I am at a loss to understand why the majority has not treated the stipulation reserving rights as extending these contentions.
In sum, neither defendant's acceptance of past-due rents nor its delay in sending notices of default divested defendant of its absolute right under the terms of the leases to hold plaintiff to its defaults. Accordingly, I would reverse the order of the Appellate Division and reinstate the judgments at Special Term, which declared that defendant had a right to terminate plaintiff's leases.