A&R Real Estate, Inc. v. Dorian New York LLC

Background

A&R Real Estate, Inc. sued Dorian New York LLC and Dorya USA, LLC over a commercial lease for space at 105 Madison Avenue in New York City. A&R asserted breach of contract against Dorian, enforcement of a guarantee against Dorya, and a claim for declaratory relief. A&R also moved for summary judgment on Dorian’s affirmative defenses and counterclaims.

The lease, executed on January 6, 2020, gave Dorian a ten-year-and-four-month tenancy for part of the building’s first floor and mezzanine. Dorya separately signed a “good guy guaranty” covering Dorian’s rent and lease obligations until a defined “Vacate Date.” The lease rider required A&R to perform “Owner’s Work,” consisting of installing a slab to close off an internal staircase connecting the mezzanine to the second floor. The rider also stated that Dorian would accept the premises in “as is” condition, except for completion of the Owner’s Work, and did not set a deadline for that work.

Dorian paid the required $260,000 security deposit in two installments. The parties disputed whether the lease ever commenced because the staircase remained in place and Dorian did not receive keys directly from A&R. Dorian later sent an April 30, 2020 letter stating that it was surrendering the premises because of the COVID-19 pandemic and treating the letter as its 90-day notice under the guaranty. Dorian removed a sign from the premises on May 28, 2020.

Summary-judgment ruling on the lease

The court granted A&R summary judgment on Dorian’s liability for breach of contract. It found the lease unambiguous and held that A&R tendered the correct premises. The existence of the staircase did not mean that A&R had tendered part of the second floor, because the lease covered only part of the ground floor and mezzanine and the second floor was not leased to Dorian.

The court held that completion of the Owner’s Work was not a condition that had to occur before Dorian accepted possession. The lease established the commencement date by reference to tender of possession and required Dorian to pay the security deposit on that date. Dorian paid the deposit after signing the lease despite knowing that the Owner’s Work had not been completed. The court also held that A&R’s obligation to perform the Owner’s Work remained subject to an implied reasonable-time requirement, but that obligation did not prevent the lease from commencing.

The court further held that A&R effectively provided keys to Dorian. Although A&R did not physically hand keys to Dorian, keys were left with the building’s doorman and were made available whenever Dorian’s representatives requested access. The court found that Dorian was not denied access and had not asked for a separate set of keys or permission to copy them.

Dorya’s guarantee

The court granted summary judgment enforcing Dorya’s guarantee for the period before the Vacate Date. The guaranty required Dorian to vacate, surrender possession, deliver the keys, and remove its property and installations. It also provided that, when written notice was given, the Vacate Date would occur 90 days later if the other conditions were satisfied.

The court held that Dorian’s April 30, 2020 letter supplied the required written notice. Although the sign remained in place when the letter was sent, Dorian removed it before the 90-day period ended. The court therefore held that the Vacate Date was July 29, 2020, and that Dorya’s obligations under the guaranty ended after that date. The court’s ruling did not state a damages amount.

Affirmative defenses

The court granted A&R’s motion for summary judgment on affirmative defenses 1–7 and 9. These included failure to state a claim; waiver, estoppel, or laches; unclean hands; A&R’s alleged material breach; lack of monetary loss; failure to mitigate damages; impossibility, impracticability, or frustration of purpose; and the reservation of additional defenses. The court concluded, among other things, that the lease did not require A&R to complete the Owner’s Work within the first four months, that New York commercial tenants generally remain obligated to pay rent despite alleged landlord breaches absent an express contrary provision, and that the defenses did not defeat liability at this stage.

The court did not grant summary judgment on affirmative defense 8 because it concerned an offset based on the counterclaims and therefore related to damages, which were not at issue in the partial summary-judgment motion. The court stated that defense 8 was moot because it dismissed the defendants’ counterclaims.

Counterclaims

The court rejected the defendants’ counterclaims seeking relief based on frustration of purpose, impossibility of performance, reformation of the lease and guaranty, and return of the security deposit.

The court held that the COVID-19 pandemic and related government orders did not frustrate the lease’s purpose. The lease expressly addressed disruptions caused by emergencies, and the ten-year lease was not completely deprived of value by temporary restrictions. The court also held that the pandemic did not excuse rent payments because the premises could still have been used for offices or other permitted purposes.

The court rejected the frustration argument based on A&R’s failure to complete the Owner’s Work because that work was not a condition precedent to possession and the delay during the first four months of a ten-year lease did not destroy the lease’s purpose. It rejected impossibility because obtaining keys through a doorman and the incomplete staircase work did not make use of the premises objectively impossible.

The court declined to reform the lease or guaranty. Reformation is a remedy that changes a written agreement to reflect the parties’ actual agreement, but the defendants had not shown that the written contracts differed from the parties’ mutual intent. The court also dismissed the security-deposit counterclaim because the defendants did not address it in their opposition to summary judgment and therefore abandoned it.

Disposition

The court granted A&R’s motion for partial summary judgment. The ruling established Dorian’s liability for breach of contract, enforced Dorya’s guarantee through July 29, 2020, granted relief on the specified affirmative defenses, treated the eighth defense as moot, and dismissed the defendants’ counterclaims. The opinion directed the parties to appear for a conference and directed the clerk to terminate the motion.