Commercial leases, like most contracts, are subject to interpretation. Clauses and terms that may seem clear at the time they are drafted can later become ambiguous, or subject to more than one understanding, especially when words on paper become applied to real life situations. Or the terms may be unclear on their face, and such lack of clarity is simply not recognized until the lease has commenced and the tenancy begun. This reality is something that all business people and their lawyers must deal with, and must understand is part of doing business. Oftentimes landlords and tenants, given the passage of time and over the course of an extended term of dealings come to an understanding on the meaning and applicability of certain lease terms and engage with one another pursuant to that understanding. In the best circumstances, the landlord and tenant work together to ensure neither party is deprived of the benefit they believed they were obtaining at the time of the lease. It is just good business to make it all work.
But what happens when a commercial building is sold and a new landlord takes over? While the words of that lease may stay the same, the new landlord’s understanding of what they mean (or its motivations in reviewing them) may be different – and perhaps be in conflict with that of the tenant and how it has been previously conducting its business under the lease. Or imagine where the previous landlord had tacitly (or even explicitly) agreed to disregard a lease a provision because it made good business sense to do so. What happens when the new landlord decides to adhere to – and enforce – the precise letter of the agreement?
Something like one of these scenarios appears to have happened in New York City where the high end health club Equinox had been operating its business under a lease for some fifteen years. Throughout that time it appears to have enjoyed a good relationship with its landlord and neighbors in a mixed used building in the Tribeca neighborhood of the City. Then, the building was sold and, earlier this year, the new owner served notice that Equinox was in breach of its lease due to the noise and vibrations its operations emitted. The landlord served Equinox with notice of default and sought to remove them from their long-standing home.
Equinox, not surprisingly, responded that nothing had changed in their operations and the prior landlord had never taken the position that the amount of noise and vibrations emanating from their business was in violation of the lease. Moreover, Equinox had renewed the lease and invested a great deal in the space in reliance on that long-standing position. The owners of the gym filed suit to stop any eviction and to seek a judgment that they can remain in the premises. They have also claimed millions in damages to account for the investment made in the space based on the understanding the gym would be permitted to remain.
In our practice, we increasingly see this situation arise with our restaurant clients as various real estate investment companies purchase shopping centers and retail buildings. Often smaller local landlords, who have long standing relationships with their tenants, are replaced by out-of-state investment trusts which may not have the same level of tolerance and flexibility when it comes to lease compliance. And in other instances, it may simply be that the new landlord wants the old tenant out for some reason (to renovate, to redevelop, to seek a new tenant mix, etc.) and takes a fresh look at lease to see where a point of leverage – or an opportunity to evict – may be.
For these (as well as many other) reasons, we advocate for a thorough and detailed reading of any commercial lease before our clients commits to it. And we caution against placing too much faith in the past reasonableness or forbearance of a certain landlord. At the end of the day, it is the lease language that controls and it is only that language which is permanent. As such, the only way to ensure the lease’s terms will be read in a manner that is in keeping with your understanding, and that such interpretation will persist for the life of the lease, is to make that language as clear and unequivocal as possible at the time you sign it.