Trial Needed to Determine Whether Consent Was Unreasonably Withheld

Facts: A building with residential space for a cooperative (plaintiff) and commercial space on the ground floor that the plaintiff leased to 11 tenants was located in an historic district, meaning that changes could be made to its exterior only with the approval of a preservation committee. The plaintiff had a 75-year lease with the building’s owner, under which the plaintiff and its commercial tenants had a right to install new storefronts, awnings, and signs on the exterior of the commercial space upon consent from the owner—which couldn’t be “unreasonably withheld or delayed.”

Without approval, a tenant put up a replacement awning. The committee issued a violation and notified the building’s owner that the replacement of the awning without a permit was in violation of local law. The plaintiff then submitted a plan for a new replacement awning for its tenant’s storefront to the owner, requesting its consent to the plans. The owner denied the request, asserting that in its opinion the awning plan wouldn’t be consistent with the views of the commission regarding the historic architectural character of the building.

Shortly after, the owner filed a proposed “master plan” for the storefronts with the committee, requesting that the committee require uniform signs and prohibit awnings for all 11 tenants. The plaintiff asked a trial court for a preliminary injunction to stop the owner from pursuing the master plan, as well as to direct it to consent to the proposed awning change. The trial court granted the preliminary injunction solely to the extent that the owner was directed to withdraw its master plan application before the committee. But the trial court declined to direct the owner to consent to the awning request. The plaintiff appealed. It asked the appeals court for a judgment in its favor without a trial and for a permanent injunction.

Decision: A New York appeals court refused to grant a permanent injunction and ordered a trial.

Reasoning: The court stated that it was well settled that when a commercial lease provides that the owner will not unreasonably withhold consent to an act, it may refuse to consent to the act only by considering “objective factors.” The plaintiff provided evidence to the trial court that the owner’s refusal to consent to the proposed changes to the storefronts was on the grounds that it believed the committee wouldn’t approve of the plans, even though it hadn’t asked the committee whether this was true. The denial letter that the owner sent to the plaintiff noting this made it seem as though its decision was based on subjective concerns, which wouldn’t be a proper basis for refusing to consent to the exterior change to the storefront, said the court.

However, the owner presented new evidence raising a material issue of fact as to whether its refusal to consent was actually based on legitimate objective business considerations that hadn’t been expressed in the denial letter. The owner produced an affidavit from a real estate expert who said that the awning change wouldn’t be consistent with the awnings/signs on commercial properties connected to first-class apartment houses in the historic district, and that it would diminish the property value.

Because an owner may properly consider whether proposed signage or awnings would detract from the overall appearance of its property or whether they could lead to a decrease in the property’s rental values, a trial was needed to determine whether the owner’s refusal to consent was reasonably based on the legitimate objective business concerns that the affidavit raised. A judgment without a trial in the plaintiff’s favor wasn’t appropriate.

• 136 East 64th Street, L.P. v. 136 East 64th Street Corporation and the New York City Landmarks Preservation Commission, September 2013