Commercial Tenant Forfeits Lease for Failure to Maintain Insurance

In NY Great Stone, Inc. v. Two Fulton Square, LLC, 47 Misc. 3d 720 (N.Y.Sup.Ct. Queens Co. 2015), the New York State Supreme Court held that a commercial tenant’s failure to prove that it maintained insurance throughout the term of the lease constituted an incurable material, default resulting in lease forfeiture.

This action arose out of defendant/landlord’s 10–day notice to cure.  The defaults in the notice pertained to the plaintiff/tenant’s failure to conduct a hydrostatic pressure test on the sprinkler system as a violation of Article 6 of the lease and a separate violation of Article 8 of the lease and Article 6 of the rider for failure to obtain comprehensive general liability insurance.

The subject lease and rider imposed an obligation on the tenant to procure and maintain general liability insurance from the commencement of the lease throughout the term of the tenancy that named the landlord as an additional insured. Plaintiff/tenant annexed a Certificate of Liability Insurance which provided coverage effective April 7, 2014 to April 7, 2015 and indicated defendant/landlord was an additional insured. Notwithstanding defendant/landlord’s contention that the failure to deliver actual insurance policies rather than a certificate is also a violation of the lease, the court found that plaintiff/tenant’s submission was “clearly inadequate to evidence the maintenance of insurance coverage during the entire term of the lease” which commenced on March 10, 2011.

The court found that a tenant’s failure to maintain insurance constituted a material default of the terms of the lease.  A default of this type was deemed incurable because “a prospective insurance policy does not protect a landlord against unknown claims that might arise during the period in which no coverage existed.”  Although plaintiff/tenant pointed to that portion of the notice to cure which directs it to obtain general public liability insurance, it did not “alter the specific terms of the lease which require insurance be maintained from the inception of its tenancy.”

In light of the foregoing, the court denied plaintiff/tenant’s request for Yellowstone relief, resulting in lease forfeiture.  As a result, the court did not need to address the validity of the other alleged defaults.

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