Tenant Must Pay Holdover Rent Rate in 'Clear and Unambiguous' Lease

Facts: A law firm leased an entire floor in a commercial condominium building. The lease required the tenant to continuously maintain a letter of credit, and to replace that letter of credit if it was no longer valid at any point. A failure to do this would be a lease default. The lease gave the owner the right to terminate the lease in the event of such a default.

Around the same time that its letter of credit was about to expire, the tenant stopped paying rent. The tenant failed to obtain another letter of credit. The owner declared a lease default and drew down on the original letter of credit to cover back rent of nearly $125,000. The owner sent the tenant a notice terminating the lease. The tenant continued to occupy the space. The owner attempted to charge it rent at the holdover rate of 150 percent of the base rent.

The tenant and owner sued each other for several claims, among them holdover rent. The tenant argued that 150 percent was an unenforceable penalty that bore no relation to the damage that the holdover may have caused to the owner. The owner and tenant both asked a trial court for a judgment in its favor without a trial.

Decision: A New York trial court ruled in favor of the owner on the holdover rent claim. 

Reasoning: The trial court noted that it would grant a judgment in one party’s favor without a trial if there are no debatable issues. Here, the lease was clear and unambiguous; it obligated the tenant to surrender possession of the space and return the keys upon early termination, which had been caused by its default in this instance. The lease provided that the tenant’s continued occupancy would result in the higher holdover rate. The trial court pointed out that the tenant had continued to operate in the space after it received the termination notice—triggering the increased rent. In this case, the holdover rent claim wasn’t an issue that needed a jury determination.

• SPUSV5 1540 Broadway, LLC v. Whatley, Drake & Kallas, LLC, June 2015