November 1, 2014
Itkowitz PLLC recently assisted a commercial landlord in terminating the leasehold of a problematic Quiznos franchisee-tenant after a protracted legal battle.
The problems began in 2011 when the tenant’s predecessor-in-interest fell on hard times and behind on rent. The parties executed second and third amendments to the lease agreement, enabling the tenant the time and ability to get back on track. In 2013, the lease agreement was assigned to a new tenant who assumed both the lease and ownership of the franchise establishment. Despite this, the business continued to suffer losses and within six months the new tenant fell behind on rent. At this time the parties executed a fourth amendment to the lease agreement, again with the intention of allowing the tenant the ability to become current on rent and get the business back on course. This time, however, a termination provision was strategically included to allow the Landlord to terminate the tenancy if Tenant failed to meet the terms of the new agreement.
When Tenant materially defaulted again five months later, the Landlord terminated the tenancy and Itkowitz PLLC initiated a summary holdover proceeding in Civil Court for the City of New York. Following Tenant’s repeated defaults, in both failing to answer the Petition and to appear in Court for scheduled appearances, an inquest was held at which Landlord was granted a judgment of possession and a money judgment. Landlord also instituted proceedings in New York Supreme Court to recover on the personal guaranty signed by Tenant’s Principal.
Up until this point, the Tenant had simply ignored Landlord. Tenant ignored Landlord’s attempt to negotiate, it ignored the summary proceeding, and it ignored the Supreme Court lawsuit. In fact, when our process server went to the store to serve the tenant’s principal with the guarantor action, a young woman behind the register pointed the principal out – he was the gentleman sitting in the luxury sedan outside the store. As our process server approached the car, the principal sped away — Nothing like fleeing a process server in your Mercedes!
Therefore, we took steps to execute on the money judgment by levying on the Tenant’s property located at the Premises (while waiting for the warrant of eviction to issue on the judgment of possession). When the Marshal showed up to execute the money judgment on the sandwich-making equipment, a shocked Tenant’s principal (who thought he had plenty of time before the warrant of eviction would executed) finally engaged counsel and attempted to vacate the default judgment.
Tenant filed an Order to Show Cause, which resulted in the default judgment being vacated and the matter restored to the trial calendar. At the conclusion of Day One of trial, the parties, at the Judge’s urging, agreed to an in-court mediation. Ultimately, after a three day mediation, the parties were able to execute a mutually agreeable stipulation which allowed Tenant the option to either pay the total amount of arrears in excess of $125k in order to remain in the space and to revive the lease, or alternatively, to quit and surrender the Premises within a prescribed amount of days. It is worth noting that Landlord’s primary objective throughout this matter was to terminate the tenancy and to make the space available for a new user. Thereafter, when Tenant failed to come up with the payment required to satisfy the arrears as prescribed by the stipulation, the Premises was vacated and formal Surrender Agreement signed—ultimately freeing up a highly lucrative commercial retail space on the newly renovated Chambers Street in downtown Manhattan and achieving Landlord’s objective.
