Owner Can’t Stop Tenant’s Rent Escalation Challenge

A lease’s notice clause required an owner to send notices to the tenant and its attorney. The clause said that a notice would be binding on the tenant if the tenant didn’t challenge it within 120 days. The owner sent annual rent escalation statements to the tenant, but not to the tenant’s attorney. The tenant didn’t challenge any of them within 120 days. Later, the tenant challenged the owner’s rent escalations and sent the dispute to arbitration. The owner claimed that there was no dispute because the rent escalation statements were binding on the tenant, and asked a court to stop the arbitration. The tenant argued that the 120-day period requirement didn’t apply because the owner never sent the rent escalation statements to its attorney.

A New York court ruled that the owner couldn’t stop the tenant’s challenges to the rent escalation statements or the arbitration process. The court determined that the rent escalation statements were a type of “notice,” so the owner had to comply with the notice clause for them. But the owner had violated that clause by not sending the rent escalation statements to the tenant’s attorney. Since the lease’s rent escalation provisions were very detailed and complicated, it was reasonable for the tenant to want its attorney to get and review those statements, the court said. And the owner couldn’t choose to ignore the notice clause or consider the tenant to have given up its rights under the clause by not objecting to the owner’s failure to follow it [Lazlo M. Tauber Assoc. I LLC v. Alliance Capital Management LP].