Vermont Teddy Bear Co. v. 538 Madison Realty Co.

308 A.D.2d 33, 761 N.Y.S.2d 620, 2003 N.Y. App. Div. LEXIS 6199
Appellate Division of the Supreme Court of the State of New York·Decided June 3, 2003·Published·Cited by 2 cases

Opinions

OPINION OF THE COURT

Saxe, J.

The central issue on this appeal is the correct construction of the parties’ commercial lease regarding their respective rights and obligations after a substantial casualty rendered the leased premises unusable. Its resolution requires consideration of competing rules of contract construction.

Defendant 538 Madison Realty Company owns the five-story building located at 538 Madison Avenue in midtown Manhattan. The Vermont Teddy Bear Co., Inc. was the tenant of the building’s first-floor retail space under a 10-year lease agreement dated October 24, 1996. On December 7, 1997, a large portion of the southern facade of the adjacent building collapsed onto 538 Madison, causing substantial structural damage to 538 as well as a shutdown of the surrounding area. It is undisputed that the collapse rendered the leased premises unusable by the tenant.

Pursuant to article 9 of the lease, if the premises were rendered wholly unusable, the tenant’s rent obligation would cease from that time forward, and would not resume until five days after written notice from the landlord that the premises were substantially ready for reoccupancy. Moreover, paragraph 3 of the rider to the lease gave the tenant, in these circumstances, the option to furnish the landlord with written notice of the tenant’s election to terminate the lease if the premises were not restored within one year after the landlord’s receipt of the notice.

On December 16, 1997, plaintiff wrote a letter to defendant’s managing agent in which plaintiff, among other things, provided notice that, pursuant to paragraph 3 of the lease rider, it intended to terminate the lease if the premises were not restored within one year.

An initial question is raised by defendant as to whether this letter may even serve as the requisite predicate for termina[35] tion, since it was not sent in accordance with the lease provisions concerning notice, which require that notice be sent by certified or registered mail to the landlord at a specified address as well as to designated counsel. However, defendant’s failure to object promptly to the form or manner of delivery of plaintiffs notice, and, indeed, its response to the substance of the notice, demonstrates a waiver of the defect (see Rower v West Chamson Corp., 210 AD2d 7 [1994]).

Having determined that plaintiffs notice was sufficient, the question is whether defendant’s subsequent conduct successfully forestalled the contemplated termination in the manner required by the lease.*

In a January 19, 1998 letter, defendant’s managing agent advised plaintiffs counsel, among other things, that repairs to the premises had begun and that the managing agent would notify plaintiff “as soon as the building is ready for occupancy.”

Defendant relies upon the affidavit of its contractor, maintaining that plaintiffs ground floor space was actually restored as of July 7, 1998, less than seven months after the tenant’s termination letter dated December 16, 1997. It concedes, however, that no formal notice of the restoration was sent. In support of its assertion that plaintiff was aware of the completed restoration in July 1998, defendant relies upon letters in which an officer of Vermont Teddy Bear stated the company’s understanding that its obligation to pay rent would resume when the landlord’s casualty insurance coverage for lost rent ran out. However, none of these letters even mentioned the undisputed contract term that the tenant’s rent obligation would be reinstated only upon five days’ written notice, nor did any of them mention the progress of the restoration work, referring only to the exhaustion of insurance benefits for lost rent.

Since it is undisputed that defendant landlord did not give the tenant written notification that the premises were restored, this appeal turns on whether the tenant’s one-year notice of termination was averted by the actual restoration of the leased premises, regardless of whether the tenant was given notice of the restoration. Or, was it necessary, in order to avert the termination, to provide written notice to the tenant of the completed restoration of the premises?

The relevant language of lease rider paragraph 3 merely states that, once the tenant has given notice of its election to [36] terminate, “[i]n the event the Premises are not restored within such one (1) year period the Lease shall be deemed terminated as of the end of the 12 [month] period and both Landlord and Tenant shall be released from all obligations which may arise after the Termination Date.” The provision contains no explicit requirement of written notice of the completed restoration. The defendant suggests, and the dissent agrees, that this wording requires the conclusion that the act of restoration of the premises is sufficient by itself to successfully avert the termination of the lease, and that the absence of written notice to the tenant of the completed restoration is immaterial. Indeed, the dissent reasons that if the parties had intended to require written notice in order to avert the termination within one year, that requirement would have been set forth in the lease provision, when in fact, it was not. In short, the dissent would apply the rule that a term lacking from a contract may not be supplied by the courts under the guise of construction or interpretation (see 22 NY Jur 2d, Contracts § 218, at 260-261).

Indeed, if our examination were limited to the words contained in paragraph 3 of the lease rider, we would agree with the dissent’s proposed interpretation. However, the parties’ agreement must be read as a whole; one term should not be interpreted in a vacuum (see Zodiac Enters, v American Broadcasting Cos., 81 AD2d 337, 339 [1981], affd 56 NY2d 738 [1982]; 22 NY Jur 2d, Contracts § 251, at 307). When viewed as such, it becomes clear that paragraph 3 of the lease rider arises out of, and relates to, article 9 of the original standard form lease. Both concern the parties’ rights and obligations under the lease after a substantial casualty renders the leased premises unusable. Indeed, the two provisions are interrelated and should be read in conjunction. Consequently, the rule that a term lacking from a contract may not be supplied by the courts is inapplicable because the contract provision under consideration is interrelated with another provision, one which contains the term at issue, that is, the requirement of written notice of restoration by the landlord.

Article 9 is part of the standard form store lease issued by the Real Estate Board of New York, which was used and adapted by the parties; it sets out the parties’ rights and obligations in the event that a casualty causes damage to the leased property. Subsections (c) and (d) of article 9 relate to the event that a casualty renders the premises wholly unusable, and they read in full as follows:

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Vermont Teddy Bear Co. v. 538 Madison Realty Co., 308 A.D.2d 33, 761 N.Y.S.2d 620, 2003 N.Y. App. Div. LEXIS 6199 (N.Y. Ct. App. 2003).

308 A.D.2d 33 (Vermont Teddy Bear Co. v. 538 Madison Realty Co.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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