Lease Surrender’s Liquidated Damages Provision Held Unenforceable

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A lease between the Plaintiff, as landlord, and the Defendant, as tenant, was terminated. Under the Settlement Agreement the Defendant paid the Plaintiff $261,751.73. The Agreement also required the Defendant to make monthly “Surrender Payments” and further provided that if the Defendant defaulted under the Agreement “the aggregate amount of all Fixed Rent, additional rent or other sums and charges dues and payable during the term of the Lease shall immediately thereafter become due and payable…”

The Defendant failed to timely make four monthly surrender payments and, notwithstanding that the Plaintiff re-let the premises one month after it was surrendered, the Plaintiff sued to enforce the liquidated damages provision, moving for summary judgment to collect $1,020,125.15, plus interest and other costs provided for under the lease.  Affirming the rulings of the trial court and the Appellate Division, First Department, New York’s Court of Appeals held that the liquidated damages provision was an unenforceable penalty

“because it is plainly disproportionate to the damages for the only contractual breach at issue in this appeal, i.e., overdue payment of the monthly surrender installments…The damages provision effectively reinstated defendant’s future rent liabilities under the terminated lease…even though those damages did not flow from a breach of the Surrender Agreement. Those damages were 7½ times what plaintiff would have received, if defendant had fully complied with the Surrender Agreement. Plaintiff cannot enforce a non-existent lease under the guise of damages for breach of a separate contract.”

The Trustees of Columbia University in the City of New York v. D’Agostino Supermarkets, Inc., 2020 NY Slip Op 06937, decided November 24, 2020, is posted at  http://nycourts.gov/reporter/3dseries/2020/2020_06937.htm.

Mike Berey
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