Legal Matters: Kronish Lieb v. Tahari and the Case of the Holdover Tenant

While I’m not looking to take business from the mouths of the real estate bar, let’s face it: if you’re serious about being a player in this real estate game, there’s a fundamental body of law you must be familiar with. And the court’s interpretation and reinterpretation of that “corpus juris” is what requires us to visit important cases from time to time.

Over the next several months, The Commercial Observer will be reviewing 10 of the most significant leasing cases in ascending order of importance.
Today we’ll look at the Kronish Lieb case (technically, Kronish Lieb Weiner & Hellman LLP v. Tahari Ltd., 2006 N.Y. App. Div. Lexis 15862). This is a 2006 New York appellate court ruling that a commercial tenant who holds-over after the end of its lease term may be liable in damages to both its landlord (under lease contract law) and the incoming tenant (under the legal theories of trespass and tortious interference with contract rights) whose occupancy is frustrated by the failure to timely vacate in accordance with the lease.

The Kronish Lieb law firm (now Cooley LLP, for those into NYC law firms’ DNA) had taken an option on penthouse space at the Class A Grace Building on 42nd Street, then occupied by fashion design house Tahari Ltd., and was planning to occupy this space once Tahari’s lease term expired.Well, Tahari did not move as expected, and in fact waged an 18-month battle in landlord-tenant court, and so really frustrated Kronish Lieb and Trizec, the landlord. Kronish, sidelined and seemingly powerless, took a novel approach to this very costly impasse—it sued Tahari for damages based on the ancient doctrine of trespass. And the court agreed. Thus a holdover tenant was, in addition to traditional liability to its landlord under the no-holdover lease clauses, held liable in substantial monetary damages to the “new,” incoming tenant. While not unheard of, this was big news in the leasing community. For a tenant inclined to march to its own drummer in terms of vacating space at the end of the term, there was now a powerful incentive to get out on time.

Clearly this was a win for landlords and for incoming tenants who crave the comfort of contractual certainty. Now some details.

I’m sure we’ve all seen tenants come up with any number of reasons for not having the moving truck front and center at 11:59 p.m. on the last day of the lease term. For example, the tenant’s new space might not be ready, or the tenant hopes to negotiate a favorable extension or—for those who appreciate irony—perhaps the space the tenant plans to relocate to is not available as the tenant of that space has failed to move out. Here Tahari—in Guinness record book fashion—prolonged Kronish Lieb’s and its landlord’s agony for some 18 months, until it was finally evicted.