NY Court Delivers Knockout Punch to Commercial Fitness Tenant and Guarantor

The Supreme Court, New York County, recently awarded damages to a commercial landlord in the amount of $412,483.63 plus reasonable attorney’s fees for the fitness club tenant’s alleged breach of contract in a case entitled Lithe Method LLC v. YHD 18 LLC, 2014 WL 6907472 (2014).

The relevant facts are as follows: Landlord and tenant entered into a lease agreement in 2012 whereby the tenant was permitted to build out and use a “white box” commercial condominium unit as a boutique fitness studio. Tenant intended to use the space for its “innovative and proprietary blend of cardiovascular, aerobic and strength training exercising system, using loud music and specialized equipment such as plaintiff’s signature Higher Power Band System® suspended from the ceilings.”

The lease stated that tenant’s use was subject to the condominium Board of Managers’ (“Condo Board”) approval. The lease included a good guy guaranty whereby tenant could surrender the space on six months’ notice provided it met certain conditions. The lease also included a merger clause whereby Tenant was not permitted to rely on any representations or covenants except those set forth in the lease.

Tenant claimed that the Condo Board’s sound proofing requirement precluded tenant from using its Higher Power Band System® which violated Section 4.2.1 of the lease which provides that, “nothing in the Condominium Documents shall deprive Tenant of any material right granted to Tenant under this lease nor materially increase Tenant’s obligations” thereunder.

The Court held that the tenant failed to prove that the Condo Board’s soundproofing requirement precluded tenant’s use of the premises for a fitness studio and the fact that the sound-proofing might have increased tenant’s build out costs did not warrant rescission. The record indicated that the Condo Board allowed the tenant’s use subject to the soundproofing requirements and tenant did not allege that such requirements were unreasonable. While tenant claimed the lease did not evidence a meeting of the minds because tenant required its signature Higher Power Band System® to be suspended from the ceiling, the four corners of the lease agreement did not contain any reference to such System and furthermore, the lease expressly stated that it was subject to the Condo Board’s approval.

The Court essentially held that tenant could not reasonably rely on any purported misrepresentations made by landlord and that a sophisticated tenant in an arms-length transaction is expected to have performed its due diligence and negotiated more favorable lease language if the ceiling mounted suspension system was a material deal term.

The Court also held that the Guaranty was binding on the Guarantor and that the Guarantor failed to raise a viable issue of fact with respect to damages.

Based on the foregoing, the Court granted landlord’s motion for summary judgment on its counterclaims and cross claim against the Guarantor and ordered an inquest as to reasonable attorneys’ fees owed to the landlord.

If you have any questions about commercial lease agreements or other real estate matters, please do not hesitate to contact an experienced attorney at (914) 338-8050. For more information about our firm please visit www.betenskylaw.com.

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