Grill and Schieber Prevail on Interpretation of Co-Tenancy Provision

January 21, 2020 | Real Estate, Zoning & Land Use | Commercial Litigation

David M. Grill and Evan R. Schieber received an extremely important victory for the landlord of a well-known Long Island shopping center regarding the interpretation of a co-tenancy provision. In Morton Village Realty Co., Inc. v. Sleepy’s LLC, et al., Supreme Court, Nassau County Index No. 610652/2018, the Court rejected Mattress Firm’s attempt to prematurely terminate its commercial lease.

The tenant attempted to validate its lease termination pursuant to a “co-tenancy” provision in the lease. A provision found in many leases of shopping center tenants, the co-tenancy clause permits a tenant to terminate its lease in the event that the specified anchor tenant ceases operations in the shopping center. The tenant argued that the co-tenancy provision requires that: (i) the lease for a replacement tenant be signed within one year after the prior anchor tenant ceased operations in the shopping center, and (ii) the new anchor tenant open for business within one year after the prior anchor tenant ceased operations in the shopping center.

We rejected the tenant’s purported termination arguing that the lease did not permit the tenant to terminate its lease because a lease with a new anchor tenant was, in fact, executed within one year after the prior anchor tenant vacated from the shopping center. Our position was that, contrary to tenant’s interpretation, the co-tenancy provision did not also require that the new anchor tenant open for business within the same one-year period.

Relying on black letter rules of contract construction, the Court rejected the tenant’s interpretation that it was permitted to terminate its lease. The Court, instead, adopted our interpretation, and held that the tenant was not permitted to terminate its lease because the co-tenancy provision only required that landlord enter into a lease with a new anchor tenant within one year after the prior anchor tenant ceased business operations.

This case is significant to the owners of shopping centers in the ever-changing retail landscape.

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