Tenant with Stairwell Access Could Not Terminate Over Broken Elevator

Facts: A garment manufacturer tenant signed a lease for the seventh-floor of a building. The tenant and owner acknowledged that because the building's elevator was undergoing renovations, it might not be available for service at the start of the lease term. To account for the possible delay, the tenant and owner included in the lease a secondary commencement date that the tenant could wait until to move into the space.

The elevator work was not completed until several weeks after the second commencement date. Meanwhile, the tenant had already moved into the building and had begun installing new hardwood flooring. The tenant already had paid the first month's rent and a security deposit, but stopped paying rent after the elevator was not completed by the secondary commencement date. The tenant argued that the lease had been terminated because of the delay, prompting the owner to send its own notice of termination for nonpayment of rent to the tenant.

The owner sued the tenant, demanding that it vacate the space and pay the rent that it owed. The tenant asked the court for a judgment in its favor without a trial. The court ruled in favor of the tenant, and the owner appealed.

Decision: The appeals court reversed the lower court's ruling.

Reasoning: The appeals court noted that the tenant couldn't show that it had lost any expected sales, revenue, or customers due to the lack of elevator service. Thus, the tenant had not been deprived of the “expected and intended use of the premises” it was owed under the lease, despite the seven-week delay in service.

Furthermore, the court noted that the tenant's installation of the hardwood flooring reflected its active cooperation in getting the space ready for future business, which rendered its argument that it had not been given the possession contemplated by the lease inaccurate, the appeals court said.

The lease language also stated that the elevator renovations might not be complete at the time of the secondary commencement date and made adjustments accordingly, which the court explained was an acceptable provision for such a possibility. Finally, the court found that the tenant's principal, employees, and contractors could—and did—gain access to the premises from the stairway.

• Pacific Coast Silks v. 247 Realty, LLC, July 2010

Insider Sources

Craig Ingber, Esq.: Partner, Belkin Burden Wenig & Goldman, LLP, 270 Madison Ave., New York, NY 10016; www.bbwg.com.

Justin W. Leach, Esq.: Attorney, Waller Lansden Dortch & Davis, LLP, 511 Union St., Ste. 2700, Nashville, TN 37219; www.wallerlaw.com.

Marie A. Moore, Esq.: Partner, Sher Garner Cahill Richter Klein & Hilbert, L.L.C., 909 Poydras St., 28th Fl., New Orleans, LA 70112; www.shergarner.com.

LESSON LEARNED: Use Precise Definitions

While the outcome of this case was favorable for the owner, it could have been different if the tenant had been able to show that the lack of elevator service had caused any harm. As New York real estate attorney Craig Ingber noted in the Insider’s 2009 Special Issue, “Imprecise definitions—or perhaps too many definitions within a lease—can result in unintended consequences.” In many cases, those consequences are harmful to the owner, not the tenant.