Tenant Vacates but Fails to Restore Premises at End of Lease

This was originally posted on the SGR Blog.

Was Tenant Liable for Increased Holdover Monthly Rent?

Many commercial leases require a tenant who makes alterations to the premises to restore the space to its pre-alteration condition at the end of the lease term. But what is the consequence where the tenant timely vacates but fails to restore?

605 Fifth Property Owner LLC sought damages from Luxottica Holding Corp. arising out of an alleged breach of a commercial lease. On December 1, 2009, Luxottica’s predecessor, Sunglass Hut Trading, LLC, executed a lease to take possession of a commercial space located at 605 Fifth Avenue, New York, New York. At the time the original lease was signed, the premises consisted of the basement, ground floor, mezzanine, and second floor portions of the building.

Pursuant to an assignment that occurred after the original ease was executed, 605 5th became the successor landlord of the premises. Additionally, pursuant to a subsequent merger, Luxottica of America Inc. became the successor-in-interest to Sunglass. Luxottica U.S. Holdings Corp. guaranteed the lease.

On July 20, 2011, the parties signed a first amendment to the store lease. On December 28, 2012, the parties executed a further agreement arising out of the tenant’s’ request to perform alterations to the premises. The letter agreement, which incorporated by reference both the original lease and the first amendment, stated, in pertinent part:

Tenant hereby requests Landlord’s consent to alter the Premises in accordance with the plans (the Plans) prepared by Create Architecture Planning & Design PLLC and submitted to Landlord on November 9, 2012. The Plans contemplate, among other things, that the mezzanine at the Premises (the Mezzanine) would be removed.Landlord has advised Tenant that it is willing to consent to the Alterations described in the Plans on the following conditions:1. That the Alterations are performed by Tenant at its sole cost and expense… That Tenant shall, at its sole cost and expense, replace or restore the Mezzanine upon the expiration or sooner termination of the Lease such that the Mezzanine is fully restored prior to the Expiration Date (or sooner termination of the Lease). Any such restoration shall constitute an Alteration and shall be performed in accordance with the terms of the Lease and all applicable laws; and 7. Landlord may, at its option in its sole discretion, waive Tenant’s obligations to so restore the Mezzanine (and Tenant acknowledges that any such waiver shall be in writing). In the event of such waiver, Tenant shall not restore the Mezzanine or perform any Alterations in connection therewith. Absent such waiver, Tenant shall, at its sole cost and expense, replace or restore the Mezzanine to substantially the same condition existing prior to its removal on the terms set forth in this letter.

The lease expired on January 31, 2020, but Luxottica did not vacate and surrender the premises until February 4, 2020. Luxottica did not dispute that, when it vacated the premises, it had not taken any actions to replace or restore the mezzanine.

605 5th sued and moved for summary judgment that sought: (1) a judgment in the amount of $291,402.00 on its first cause of action for breach of contract arising out of Luxottica’s holdover; (2) a judgment on liability on its second cause of action for damages arising out of Luxottica’s failure to restore the mezzanine; and (3) attorney’s fees.

Luxottica cross-moved to dismiss the complaint and for attorney’s fees.

On its first cause of action, 605 5th sought damages for Luxottica’s holdover in the amount of $291,402.00, representing twice the amount of the monthly rent for the previous month. Luxottica argued that 605 5th was not entitled to damages for the entire month, as the holdover was only for a period of four days. However, section 11.03 of the Original Lease stated as follows:

Section 11.03. Holding Over. (A) If Tenant shall hold-over or remain in possession of the Premises after the Expiration Date or sooner termination of the Term, then, at Landlord’s option, Tenant shall be deemed to be occupying the Premises as a month-to-month tenant only, at a monthly rental equal to two (2) times the Base Rent payable hereunder during the last month of the Term. Tenant shall also pay all Additional Rent payable under this Lease, prorated for each month during which Tenant remains in possession. Such month-to-month tenancy may be terminated by Landlord or Tenant effective as of the last day of any calendar month by delivery to the other of notice of such termination prior to the first day of such calendar month.

Once Luxottica failed to vacate and surrender the premises by January 31, 2020, 605 5th was within its right to treat Luxottica as a month-to-month tenant at the holdover rate contracted for in the original lease. Luxottica’s argument that the damages should be prorated to only include the 4 days of the month that Luxottica remained in possession of the premises ran counter to authority.

Accordingly, 605 5th prevailed on summary judgment on its first cause of action and was entitled to a judgment against Luxottica in the amount of $291,402.00, plus interest from February 1, 2020.

It was undisputed that Luxottica did not restore the mezzanine as required by the letter agreement. So 605 5th was also entitled to a judgment on liability only on its second cause of action.

And, as the prevailing party, 605 5th, was entitled to recover reasonable attorney’s fees pursuant to the original lease. However, the Court held that request in abeyance pending disposition of the trial on  the failure to restore damages.

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