Commercial building owners often perform elective construction work on their buildings to enhance the structures and promote asset appreciation. By its nature, such work often interferes with the business operations of tenants in the building. That interference could entitle a tenant to a rent abatement if the owner’s performance of the work is not authorized by the terms of the parties’ lease and the work results in the tenant’s inability to use, and/or the tenant’s physical removal from, all or a portion of its leased premises. However, where a tenant does not abandon any portion of its leased premises during the construction period, or where the lease expressly bars a claim for a rent abatement based on construction work, the tenant’s obligation to pay its full rent due under the lease continues unabated.
In a recent case litigated by our Firm on behalf of a commercial owner, the owner had elected to perform certain construction work on various floors of its building, to improve and enhance the building’s common areas. One of the office tenants withheld its rent, claiming that the construction work had significantly interfered with the operation of its business, thus entitling the tenant to a rent abatement despite the fact that the tenant’s lease contained various provisions stating that the owner was entitled to perform construction work in the building and that the tenant would not be entitled to a rent reduction, set-off or abatement as a result. The parties heavily litigated the case, which ultimately proceeded to trial.
Following the trial, the Court held that, despite the tenant’s continued occupation of the premises throughout the construction period, the tenant had been actually evicted from the premises as a result of the owner’s construction work and its interference with the tenant’s business operations, and the tenant was therefore entitled to an abatement of rent. Notably, the trial Court did not address the various lease provisions expressly providing that the construction work was permissible and that the tenant would not be entitled to a rent abatement due to the resultant business interference.
The owner appealed the trial Court’s ruling, and the Appellate Term panel unanimously reversed, holding that the tenant was not entitled to any rent abatement because the lease provisions authorizing the construction work barred a finding that the work constituted “wrongful” conduct by the owner. The absence of any wrongful conduct by the owner rendered the tenant’s claim of actual or constructive eviction baseless and unavailing. The Appellate Term also found that there had been no actual or constructive eviction because the tenant had failed to establish that the owner had actually barred the tenant from any portion of the premises or that the tenant had physically abandoned any portion of the premises as a result of the construction work.
This case demonstrates the importance of having lease provisions that protect an owner in the event of building improvements and other work, so as to defeat rent abatement claims by tenants affected by the work. BBG’s transactional and litigation departments work together to counsel owners in preparing commercial leases to afford effective protections and address all commercial lease disputes that may arise following execution.