Lease's Rent Credit Provision Unenforceable Penalty

On February 28, 2019, the First Department issued a decision in Free People of PA LLC v. Delshah 60 Ninth, LLC, 2019 NY Slip Op. 01505, holding that a lease's rent credit was an unenforceable penalty, explaining:

The trial court correctly determined, giving due consideration to the nature of the contract and the circumstances, that the rent credits provision in the parties' lease constituted an unenforceable penalty. The rent credit sought by plaintiff as liquidated damages under the lease agreement was grossly disproportionate to its estimated and actual loss, creating a windfall for plaintiff, and the damages flowing from the breach were readily ascertainable at the time the parties entered into the lease.

(Internal citations omitted).

A key element in commercial litigation is proving damages. As this decision shows, agreeing beforehand on the damages that will result from a breach of contract does not always result in an enforceable agreement. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding proving damages.