Implied Good Faith and Fair Dealing Doesn’t Trump Temporary Lease Agreement

Implied Good Faith and Fair Dealing Doesn’t Trump Temporary Lease Agreement

Q: I operate a kiosk at a shopping mall under a temporary lease agreement. I think that the owner is shirking maintenance for the common areas near my location. My agreement doesn’t specifically mention the owner’s obligation to maintain these areas, but I think that the implied covenant of good faith and fair dealing should govern the situation, meaning that regardless of the agreement, the owner should do its best to help tenants do well at its property. Which is more likely to apply, the agreement or the covenant?

A: The terms of the agreement are key in a case like yours. A New York case explains this in a ruling with facts similar to your situation. There, a tenant that operated two retail kiosks within a mall property thought that the owner of the center wasn’t providing adequate security. It sued the owner for breach of the implied covenant of good faith and fair dealing and constructive eviction after the owner took possession of the kiosks and refused to let the tenant use them. The owner claimed that the tenant hadn’t paid rent and that was why it had shut down the kiosks. The tenant asked a trial court for a Yellowstone injunction to prevent the owner from terminating the leases until the matter was resolved. The owner asked a trial court to dismiss the claims against it for the tenant’s “failure to state a cause of action”—specifically, that the claim for breach of the implied covenant of good faith, which is premised upon the allegation that the owner failed to provide adequate security in its mall, cannot be sustained because the lease does not require the owner to provide any security.

A New York trial court ruled in the owner’s favor. The trial court explained that the purpose of the Yellowstone injunction is to “preserve the status quo such that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.” It noted that the party requesting a Yellowstone injunction—here, the tenant—must demonstrate that: (1) it holds a commercial lease; (2) it received from the owner either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure—that is, fix—the alleged default by any means short of vacating the premises.

The owner contended that the lease agreements with both kiosks is a “temporary tenant lease agreement” that provides both parties the right to an early termination of the lease. With respect to the owner’s option to terminate, the agreement provides that the owner may elect to terminate the lease upon 30 days’ advance written notice to the tenant. Further, the owner sent a Notice of Lease Termination letter to the tenant, but the tenant refused to leave after the 30-day period. The owner argued that the tenant couldn’t satisfy the requirements supporting an injunction because the lease has been properly terminated pursuant to the parties’ agreement. In other words, there is nothing to “cure” or fix on the tenant’s part and it was merely a holdover at this point.

The trial court determined that the tenant failed to demonstrate its entitlement to a Yellowstone injunction. First, the tenant failed to show an ability or intention to cure its default in paying past due rent totaling over $75,000. The respective temporary tenant leases were properly terminated with the requisite notice pursuant to the terms of the lease.

Additionally, there was no indication that the agreements obligated the owner to provide any security at the mall, so the trial court dismissed the claim for the breach of the implied covenant of good faith and fair dealing [Serpin Intl. Gourmet Foods, Inc. v. Brooklyn Kings Plaza, LLC, January 2018.]