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

For those interested, here is the chronology:

May 2003: Tahari lease expiration
May 2003: Kronish Lieb exercised its option to lease the Tahari space
June 2003: Effective date of Kronish Lieb option
March 2004: Court orders Tahari to vacate; Tahari appeals
December 2004: Tahari loses appeal and vacates space

But delay here was an expensive proposition for Kronish. As reported, Kronish spent substantial sums leasing temporary space during this period and also got hit with a significantly higher construction bill once the space was made available, as costs had spiked during the years of delay. So Kronish sued for these and other specified and unspecified damages.

Interesting that the court held Tahari liable to Kronish under the “tort” (wrongful civil action) doctrine of trespass, as the traditional view has been that trespass involves an entry onto the lands of another. Here, Kronish did not “possess” that 48th-floor penthouse space, so the court ruled that even though Kronish lacked physical possession, it had standing to commence a legal action sounding in trespass based on its “right” to possess the space.

As the court said: “Contrary to defendant’s [Tahari’s] contention, as here the parties’ rights to possession have already been determined [Trizec, the landlord, had gotten a court ruling that Tahari had no right to stay in the space] it is not necessary that plaintiff be in actual possession.”

By the way, Kronish nailed the legal coffin shut with a second successful claim—that Tahari had engaged in “tortious interference” with the contractual relationship (i.e., the option to take the Tahari space) between Kronish and its landlord by intentionally holding over. Therefore, Kronish could seek recovery of damages from Tahari on this basis as well.

Knowledgeable readers might be wondering about the arsenal of traditional remedies commercial landlords have to prod that recalcitrant tenant out into the street—like double or triple rent during the holdover period, damages for loss of the bargain made with the new tenant (i.e., where new tenant’s rent was higher), guarantor liability or the cost of defending a losing battle in landlord-tenant court.

Well, to state what the Kronish Lieb case makes obvious, sometimes it just don’t matter a damn. Some tenants do what they will regardless of the consequences. The import of this case is that future Taharis will have to think twice, or at least move more cautiously, when the frustrated incoming tenant can sue for (substantial) damages. In the few years since this case was decided, the leasing community seems to be in accord that the decision benefits both landlord and tenants by creating a greater sense of certainty as to tenants honoring their legal commitments to move out the end of the term.  As Trizec’s in-house counsel was reported to say after this decision came down, “The good news is tenants can’t game the system and just stay there and try to negotiate a better deal, because they know they’ve got the landlord over a barrel.”

This is the first in a series of articles profiling important lease law cases.

Jeffrey A. Margolis, Esq., is founding principal of the Margolis Law Firm in New York City, where he specializes in “dirt law”—buying, selling and leasing. He writes monthly for The Commercial Observer on legal issues.

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