“Quiet Enjoyment” May Not Work, But New York Law and Leases May Provide Other Avenues for Relief for Commercial Tenants

Sign up for our Coronavirus roundup email.
Visit our Coronavirus resource page.

As set forth in our prior update (which you can read here), commercial tenants in New York may not be able to establish a breach of the covenant of quiet enjoyment because of the ongoing pandemic, subject to specific lease language.[1]  In New York, the covenant is broad, applying not only to title defects or other impediments to the tenant’s possessory rights, but also to conditions that limit the tenant’s full use, such as extensive damage to the property.[2]  The covenant is only breached, however, when the tenant’s possession or use of the premises is interfered with by reason of a wrongful act by the landlord that amounts to an actual or constructive eviction of the tenant, subject to lease language to the contrary.[3]  Accordingly, as we discussed in our prior update, a commercial tenant’s inability to utilize the property due to the COVID-19 pandemic, e.g., because of government shutdown orders relating to the pandemic, is unlikely to be sufficient to establish a breach of the covenant.  Moreover, the same general rule applies in residential leases with covenants of quiet enjoyment, including in proprietary leases in cooperative buildings.[4]

Commercial tenants in New York may, however, be able to mount other arguments for rent abatements or other forms of relief where they are unable to use the leased premises.  For example, Section 227 of the New York Real Property law provides that

[w]here any building, which is leased or occupied, is destroyed or so injured by the elements, or any other cause as to be untenantable, and unfit for occupancy, and no express agreement to the contrary has been made in writing, the lessee or occupant may, if the destruction or injury occurred without his or her fault or neglect, quit and surrender possession of the leasehold premises, and of the land so leased or occupied; and he or she is not liable to pay to the lessor or owner, rent for the time subsequent to the surrender.[5]

Although the focus of the provision is on destruction or injury to the premises, through no fault of the tenant, the statute also refers to “any other cause” that renders the property “untenantable.”  For example, New York courts have held that cancellation of an easement providing egress from a property and a severe mice infestation were enough to render premises “untenantable” and to invoke the statute.[6]  But mere inconveniences, such as foul odors from a garbage dumpster or the presence of fleas at the premises, have been held insufficient to invoke the statute.[7]

The statute expressly contemplates that parties may agree to waive or modify the protections of Section 227.  Leases often do so, either waiving Section 227 altogether or providing that the tenant is entitled only to a rent abatement during the period of untenantability, rather than vacate the premises entirely.[8]

Subject to specific lease language, Section 227 and corresponding lease provisions may provide an argument for commercial tenants seeking to terminate their leases or obtain rent abatements as a result of the COVID-19 pandemic.  The statute provides that its protections apply to any event not caused by the tenant that renders the premises “untenantable,” and, as set forth above, some courts have interpreted the statute broadly.  Courts could therefore find that the COVID-19 pandemic, and government orders resulting therefrom, are sufficient to invoke the statute or corresponding lease provisions, to the extent the tenant is prevented from using the premises in the manner provided for in the lease. 

Nevertheless, depending upon the specific lease language or other extending facts and circumstances, landlords could argue that the COVID-19 pandemic is insufficient to invoke the statute or similar lease provisions, given the absence of physical damages to the premises and the fact that government orders may prevent a tenant from running its business, but do not necessarily prevent tenants from otherwise occupying the premises.  Tenants and landlords should review their leases carefully to see how or if the statute or other lease provisions might apply in their particular circumstances.

 

[1] The analysis in this update and our prior update is based upon general considerations regarding covenants of quiet enjoyment in leases under New York law, but the precise lease language should be taken into account in individual instances for the full meaning and import of the covenant in those cases, including considerations relating to lease provisions regarding essential services, casualty, and waiver.

[2] E.g., 16 A.D.3d at 580 (severe water leak sufficient to invoke breach of the covenant); 165 Misc.2d 10, 16 (N.Y. City Ct. 1995) (constructive eviction for purposes of breach of covenant of quiet enjoyment is usually based on “noise and water damage,” but can also be based on landlord’s lack of “legal authority to rent the premises” (citing 14 A.D.2d 607 (3d Dep’t 1961)).

[3] E.g., 26 N.Y.2d 77, 83 (1970).

[4] E.g.,107 A.D.3d 546, 547 (1st Dep’t 2013); 257 A.D.2d 218, 224 (1st Dep’t 1999); 2008 N.Y. Misc. LEXIS 9376, at *6 (N.Y. Sup. Ct. Sept. 10, 2008).  Residential leases may be subject to other protections not found in commercial leases, either by operation of law or by specific lease language, such as the warranty of habitability.

[5] NY Real Prop. L. § 227.

[6] 2015 N.Y. Misc. LEXIS 3139, at *20-23 (N.Y. Sup. Ct. Aug. 26, 2015); 183 Misc. 754, 754-55 (App. Term. 1st Dep’t 1944).

[7] 188 Misc.2d 278, 279 (App. Term. 2d Dep’t 2001); 163 Misc. 114, 116 (N.Y. City Ct. 1937).

[8] E.g., 180 A.D.2d 235, 237 (3d Dep’t 1992); 2004 N.Y. Misc. LEXIS 1544, at *10-11 (N.Y. Sup. Ct. Aug. 9, 2004).