Tenant Could Be Off Hook from Owner That Took Control of Premises

March 8, 2018
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Often, when a tenant vacates a premises before the lease term expires, it’s either a breach of the lease or the tenant is responsible for that space until it’s released. However, you might be off the hook if the owner took control of that space for its own use. A recent New York case explains why it can become the owner’s problem when a tenant leaves its space.

There, an owner and tenant signed a lease for a four-story parking garage with two retail spaces below it. The owner served the tenant with a written notice to cure 21 lease violations primarily related to the physical deterioration of the building caused by the tenant. In response, the tenant asked a trial court for a Yellowstone injunction to prevent the owner from taking any steps to terminate the tenancy until the matter could be resolved.

However, a month before the scheduled Yellowstone injunction hearing was to take place, the tenant advised the owner that it was vacating the premises. The owner then sued the tenant for: (1) damages for the tenant’s alleged failure to maintain the property as required under the lease leading to code violations; and (2) rent for the remainder of the lease term. The owner asked the trial court for a judgment in its favor without a trial. The trial court ruled in its favor. The tenant appealed. A New York appeals court reversed.

The tenant argued that there had been an acceptance of surrender of the lease by operation of law, since the owner had assumed dominion and control of the building for its own benefit after the tenant gave written notice that it was vacating the premises. The tenant claimed that it returned the keys to the owner when it vacated the property, and that the owner retained a full-time garage operator and collected the parking income and sent bills directly to the subtenants. Finally, the tenant asserted that the owner had placed the property for sale.

The appeals court found that the tenant had raised issues that required a trial, as to whether a surrender of the premises was effected by operation of law. More specifically, the tenant raised a viable issue as to whether the owner took dominion and control of the building for its own benefit. The tenant submitted evidence that, after it returned the keys to the owner and vacated the premises, the owner took possession of the premises, and not only sent bills directly to the subtenants, but also entered into its own contract with a parking operator to operate the parking garage and to pay the owner each month all the income received from the garage operations. The tenant submitted further evidence that the owner placed the property for sale at some juncture. “These facts support an inference that, upon the tenant’s abandonment, the owner intended to take dominion and control of the premises for its own benefit,” the appeals court said. It ordered a trial to determine the outcome [176 PM, LLC v. Heights Storage Garage, Inc., January 2018].