Even Though Tenant Was in Default on Commercial Lease, It Did Not Lose Option to Renew, Which was Revived When the Tenant Cured the Default

On March 3, 2021, the Second Department issued a decision in Karr Graphics Corp. v. Spar Knitwear Corp., 2021 NY Slip Op. 01250, holding that even though a tenant was in default on its commercial lease, it did not lose the option to renew the lease, which was revived when the tenant cured the default, explaining:

Here, the tenant demonstrated that it has a likelihood of success on the merits of its claim for a judgment declaring that it validly exercised its option to renew the lease, which thus has been extended and expires on November 30, 2022, and is in full force and effect. Contrary to the landlord's contention, the first sentence of the lease renewal provision, which states that the tenant shall have the option to renew the lease provided Tenant is not in default in the performance of its obligations under the terms of this Lease, cannot reasonably be interpreted as providing that the tenant's default under the lease permanently extinguishes its option to renew regardless of whether the tenant cures the default. Rather, interpreting the first sentence of the lease renewal provision according to the plain meaning of the language employed, it provides simply that the tenant may not exercise its option to renew while in default under the lease. In that regard, assuming that the tenant was, in fact, in default under the lease at the time it served its first notice to renew, and, therefore, that the first notice to renew was not valid, the tenant subsequently cured its default prior to serving its second notice to renew on August 18, 2017. While the lease modification provided that the tenant must give the landlord notice that the tenant is exercising its renewal option not earlier than 365 days but not later than 300 days prior to November 30, 2017, that option window only applied if the landlord first notified the tenant of its intent to enforce the option window, which the landlord did not do. Further, the tenant demonstrated that it will suffer irreparable injury absent a preliminary injunction, and that a balance of the equities likewise favors the granting of preliminary injunctive relief to maintain the status quo pending the resolution of the action. Accordingly, the Supreme Court providently exercised its discretion in granting the tenant's motion for a preliminary injunction.

(Internal quotations and 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.