HOLDOVER ON COMMERCIAL LEASE

This is a commercial holdover proceeding commenced by landlord by
service of a Three Day Notice of Cancellation of the Lease on Tenant


from New York Law Journal, July 26, 2006


"The parties entered into a commercial space lease for respondent to
conduct a restaurant business for a term of 5 years, with a 5 year
option to renew.

In the lease it was stipulated that the premises were to be used and
occupied as a restaurant and for no other purpose. Respondent was the
successor tenant to a prior tenant who also used the space as a
restaurant. The kitchen area is less than 25% of the total lease space.
On or about December 27, 2005, a fire occurred in the kitchen area in
the subject premises. According to an expert in the field of structural
engineering, the fire was started inside the exhaust duct in the kitchen
due to the over accumulation of grease and oil in the duct. The grease
and oil caught fire, and the heat from the burning grease and oil in the
duct caused the wood beams in the roof and ceiling to catch fire. The
wooden ceiling and roof beams were burned beyond repair. The walls
enclosing the kitchen were superficially charred, but they remained in
good condition with respect to structural strength. The kitchen floor
was superficially damaged from the water used to extinguish the fire.
The portion of the roof immediately surrounding the duct in the kitchen
was burned, but the balance of the roof remained intact. There was no
visible fire damage to the subject premises in the interior dining,
storage, bar and bathrooms areas. There was no visible fire damage to
the exterior of the subject premises or the adjoining storefront
commercial premises. Landlord presented no expert testimony or other
evidence concerning the estimated cost to repair or rebuild, or the fair
market value of the building or subject premises.
Landlord notified tenant in writing that pursuant to the fire clause of
the lease, landlord demanded that tenant vacate the premises and
surrender the lease within three days of receipt of the notice. Tenant
contends that landlord is in violation of the lease because the fire
clause under the lease obligated the landlord:


to repair the fire damage at [its] cost regardless of the fault.
Paragraph "Fourth" is the key provision in the lease concerning the
instant dispute. This paragraph provides:
If the demised premises shall be partially damaged by fire or other
cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired
by and at the expense of Landlord and the rent until such repairs shall
be made shall be apportioned according to the part of the demised
premises which is usable by Tenant. But if such partial damage is due to
the fault or neglect of Tenant, Tenant's servants, employees, agents,
visitors or licensees, without prejudice to any other rights and
remedies of Landlord and without prejudice to the rights of subrogation
of Landlord's insurer, the damages shall be repaired by Landlord but
there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of
insurance on the part of Landlord and/or Tenant, and for reasonable
delay on account of labor troubles, or any other cause beyond Landlord's
control. If the demised premises are totally damaged or are rendered
wholly untenantable by fire or other cause, and if Landlord shall decide
not to restore or not to rebuild the same, or if the building shall be
so damaged that Landlord shall decide to demolish it or to rebuild it,
then or in any such events Landlord may, within ninety (90) days after
such fire or other cause, give Tenant a notice in writing of such
decision, which notice shall be given as in Paragraph Twelve hereof
provided, and thereupon the term of this lese shall expire by lapse of
time upon the third day after such notice is given, and Tenant shall
vacate the demised premises and surrender the same to Landlord. If
Tenant shall not be in default under this lease then, upon the
termination of this lease under the conditions provided for in the
sentence immediately preceding, Tenant's liability for rent shall cease
as of the day following the casualty. Tenant hereby expressly waives the
provisions of Section 227 of the Real Property Law and agrees that the
foregoing provisions of this Article shall govern and control in lieu
thereof. If the damage or destruction be due to the fault or neglect of
Tenant the debris shall be removed by, and at the expense of, Tenant.
At the outset it is clear that the fire clause constitutes an express
agreement which excludes the operation of section 227 of the Real
Property Law. The fire clause in the lease also provides that:


(1) if the subject premises should be partially damaged by fire by no
fault of the tenant (they should be repaired by the landlord, and until
such repairs are made the rent shall be abated or shall be apportioned
according to the part of the subject premises which is usable by tenant;


(2) however, if the subject premises should be partially damaged by fire
by the fault or neglect of the tenant they should be repaired by the
landlord, and the tenant shall pay rent without apportionment or
abatement; and


(3) if, however, in the event subject premises should be totally damaged
or rendered wholly untenantable by fire and the landlord decide[s] not
to restore or not to rebuild the [demised premises], or if the building
is so damaged the Landlord decide[s] to demolish it or to rebuild it,
then the landlord may elect to terminate the lease by written notice
sent to the tenant by regular and certified mail.
The fire clause of the lease is divided into two categories of damage to
the demised premises and/or the building: the first category is partial
damage, and the second is total destruction or substantial destruction.
Only the category of total or substantial destruction gives rise to the
landlord's right to terminate the lease.
The specific language in the fire clause in the lease that covers total
and substantial destruction provides:
If the demised premises are totally damaged or are rendered wholly
untenantable by fire or other cause, and if Landlord shall decide not to
restore or not to rebuild the same, or if the building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it, then
or in any such events Landlord may, within ninety (90) days after such
fire or other cause, give Tenant a notice in writing of such decision,
which notice shall be given as in Paragraph Twelve hereof provided, and
thereupon the term of this lese shall expire by lapse of time upon the
third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to Landlord.

This language is the choice of the parties and must be construed
accordingly.
This is not a case of total destruction, or substantial destruction, as
has been considered in other cases.
The Landlord concedes that the subject premises was not totally damaged
and that the building was not so damaged that Landlord… decided to
demolish it or to rebuild it. Instead, landlord contends that the fire
rendered the subject premises wholly untenantable.
What did the parties intend to mean when they chose the words wholly
untenantable. A review of Friedman on Leases some guidance in defining
the meaning of untenantable. It provides as follows:
"Premises are not untenantable merely because damage has made them
unsatisfactory for the normal conduct of a tenant's business.
Untenantability is like destruction in that it means substantial damage
to a structure. Untenantability…has been defined as damage of such
nature that the premises cannot be used for the purpose for which they
were rented and cannot be restored to a fit condition by ordinary
repairs made without unreasonable interruption of the tenant's use…
Thus, the term wholly untenantable contemplates circumstances where the
fire damage was so extensive that it consumed and totally destroys a
substantial part of the building itself, or the subject premises, and
the premises no longer existed as a restaurant for the purpose for which
it was intended by the parties. The word untenantable is preceded by the
qualifying word wholly. By the use of this qualifying adjective, the
parties intended to reinforce the notion that the parties intended that
the damage be substantial and total in nature, and not partial. The
phrase wholly untenantable, is placed in the agreement in that part that
contemplates total or substantial destruction of the premises. By
placing the phrase where it has been placed in the fire clause, for the
purpose of characterizing the extent of damage which was to give rise to
the right to terminate the lease, the parties must have intended it to
mean more than partial damage, and more than the destruction of only a
part of the subject premises, as shown by the evidence here.
Friedman on Leases states:


structural damage is essential to untenantability. Damage that makes use
of leased property unpleasant and inconvenient for the conduct of a
tenant's business is not untenantability. Neither is damage that makes
the premises completely, but briefly, unusable . . . In all the
situations where structural damage is slight and restoration is possible
within perhaps a couple of weeks, . . . claims of untenantability are
denied.


In this case, the structural damage was slight and limited to the
ceiling and roof, and restoration was possible. Although, the fire
damage and smoke may render the use of the subject premises unpleasant
and inconvenient for the conduct of respondent's restaurant business
temporarily until properly repaired, such damage does not render the
premises untenantable. The subject premises was not untenantable merely
because the fire damage made the premises completely, but briefly,
unusable.
Here, the right of the landlord to terminate the lease arises only if
the subject premises is either totally or substantially destroyed such
that in a practical sense it loses its character as a restaurant. The
evidence here does not establish such total or substantial destruction
such that the premises lost its character or identity as a restaurant,
to the degree that it could not readily be restored within a reasonable
time by repair.
Finally, the Court notes that this matter does not turn solely upon the
wishes of the landlord or its apparent financial interest. The interests
of both parties must be considered by the Court. In the five month
period that respondent was in possession of the subject premises, prior
to being forced to close its business due to the fire, there was some
evidence that respondent invested substantial funds into the business,
including expenses such as renovations, and leasehold improvements
(i.e., installation of a HVAC system). The forfeiture of respondent's
long-term leasehold may provide a windfall to the landlord, while at the
same time, cause the respondent to suffer substantial economic loss.
As there is here little or no structural damage, and there is no
evidence of a health or public safety reason for terminating the lease,
the Court finds that the demised premises was only partially damaged by
the fire and that the fire damage was not so severe as to render the
premises wholly untenantable, entitling the landlord to terminate the
lease. Except for the incidental inconvenience and temporary
interruption of the conduct of respondent's business that may be caused
to perform repairs, landlord presented insufficient evidence to show by
a fair preponderance of the evidence that respondent could not continue
in occupancy and use substantially in the manner and extent as it had
occupied and used the subject premises prior to the fire. Therefore,
landlord has failed to establish the factual prerequisites that would
entitle it to terminate the lease pursuant to the lease agreement.


Conclusion: Accordingly, judgment in favor of the respondent and the
petition is dismissed."

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