Voluntary Payment Doctrine Prevents Tenant From Recovering Overpayments to Landlord

On February 28, 2020, Justice Borrok of the New York County Commercial Division issued a decision in A&B Deli Inc. v 251 Sixth Ave., LLC, 2020 NY Slip Op. 30650(U), holding that the voluntary payment doctrine prevented a tenant from recovering overpayments to its landlord, explaining:

The common-law voluntary payment doctrine bars recovery of payments made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law. Where a party pays overcharges without protest or inquiry, was not acting under a mistake of fact, and the overpayment was the result of the party's lack of diligence, the payments are deemed voluntary and cannot be recovered.

The First Department's decision in Eighty Eight Bleecker is instructive. In Eighty Eight Bleecker, the plaintiff tenant sued the defendant landlord alleging, among other things, that the defendant had overcharged the plaintiff for real estate tax escalation charges (i.e., the very same claim made in this case) as additional rent over the course of the lease term. The First Department held that the voluntary payment doctrine precluded the plaintiff from recovering for its overpayments because the plaintiff failed to make any inquiry during the term of the lease and a review of the tax bills, which the plaintiff was entitled to receive under the lease, would have revealed the proper amount of the tax escalation payments. In this case, like in Eighty Eight Bleecker, A&B Deli made real estate tax escalation payments to 251 Sixth Ave in excess of the amounts due under the lease over the course of several years without making any inquiry. In addition, as in Eighty Eight Bleecker, A&B Deli was entitled to receive copies of the tax bills for each year of the lease term, but failed to request them. And, just like in Eighty Eight Bleecker, a simple review of the tax bill in this case would have allowed A&B Deli to ascertain the proper amount of the real estate tax escalation payments that it was obligated to pay as additional rent. Therefore, the voluntary payment doctrine bars A&B Deli from recovering for its overpayments.

(Internal citations omitted).

We frequently litigate disputes over the sale or leasing of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.