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BLOG / 12.12.16 /Jack Malley

Commercial Landlord Can Waive “No-Waiver” Clause In Lease

Commercial leases typically contain a “no-waiver” clause that provides, among other things, that no payment by the tenant of less than the full monthly rent shall constitute a waiver of the right of the landlord to collect the full rent amount, and that the receipt by the landlord of rent with knowledge of the tenant’s breach of any covenant within the lease shall not be deemed a waiver of such breach. However, landlords should be aware that the rights that are set forth in such “no-waiver” clauses can be waived. TSS-Seedman’s Inc. v. Elota Realty Company, 72 N.Y.2d 1024, 1027, 531 N.E.2d 646, 648, 534 N.Y.S.2d 925, 927 (1988).

This principle was applied by the Hon. Saliann Scarpulla in her October 11, 2016 decision in Hamilton 65th Partners, LLC v. Smallbone Inc., No. 652414/15, 2016 WL 5944461, at *4 (Supreme Court, New York County Oct. 11, 2016) (the “Action”). In Hamilton, the landlord and tenant entered into a commercial lease in April 2009. The lease contained a holdover rent provision requiring the tenant to pay 2½ times the rent payable during the last month of the term. The lease expired on March 31, 2010. The tenant paid the regular rent provided for in the lease through March 2011, and then paid a reduced rate approved by a court appointed receiver in April and May 2011. The tenant remained in possession of the premises without paying rent into 2014. Later in 2014, the landlord commenced an eviction action by which it was awarded possession of the premises.

In 2015, the landlord commenced the Action in Supreme Court, New York County and moved for summary judgment seeking holdover rent pursuant to the terms of the lease in the amount of $3,399,999.58. In opposition, the tenant argued that the landlord’s acceptance of the regular monthly rent payable under the lease after the lease expired constituted a waiver of the landlord’s right to collect holdover rent. The landlord contended that the no-waiver clause within the lease barred the tenant’s waiver argument. Judge Scarpulla held that even contractual rights may be waived if they are knowingly, voluntarily, and intentionally abandoned. Based upon that holding, Judge Scarpulla rejected the landlord’s contention that the no-waiver clause barred the tenant’s argument, and found that the landlord waived its right to collect holdover rent.

The lesson to be learned from the Hamilton decision is that landlords must be careful to require the payment of the full rent amount every month. In the event a landlord provides a rent concession, it must do so in a written agreement that preserves all of the landlord’s rights under the lease, including all rights set forth in any no-waiver clause within it.