Herrick Litigators Help Chelsea Building Owner Achieve $1 Million Victory Against Commercial Tenant Who Failed to Vacate Prime Retail Space
When a commercial tenant breached its contractual obligation to vacate our client’s prime, street level space in Chelsea, our litigators took action.
Under the terms of a surrender agreement made between the tenant and the building’s prior owner, the tenant was granted a license to occupy the space for a full year without any obligation to pay fixed rent, and was to be paid a $1 million termination fee at the end of the term. The $1 million payment was broken up into an $800,000 deposit to an escrow agent; and a $200,000 cash advance that was individually guaranteed by the tenant’s principal, if it failed to comply with its obligation to vacate the premises on the termination date, time being of the essence.
The building was sold to a new owner after the agreement was executed, and the new owner made the $1 million in payments. At the end of the license term, the tenant requested an extension, failed to vacate the premises and went so far as to openly operate and sell to customers for another five days.
After we demanded the return of the $1 million, the tenant commenced a declaratory judgment action against our client. Last Thursday, a New York Supreme Court, Commercial Division justice agreed with our position that the Court may not rewrite the plain terms of the parties’ agreement. Accordingly, the Court ordered the escrow agent to release $800,000 to our client, and the tenant was ordered to pay $200,000 to our client plus interest.
The decision shows that New York courts will enforce the strict terms of surrender agreements that entitle tenants to termination fees, only if the tenants vacate by the agreed upon deadline, time being of the essence.