Holdover Tenants May Be Liable To Incoming Tenants

April 20, 2007

A recent ruling potentially adds a new layer of protection for landlords. In Kronish Lieb Weiner & Hellman LLP v. Tahari, Ltd, a New York appeals court affirmed a trial court ruling that an outgoing tenant could be liable for the damages it caused to the incoming tenant by holding over.

For 18 months beyond the expiration of its lease, Tahari Ltd., a fashion company, refused to move out of its prestigious top-floor offices in the 48-story Grace Building in midtown Manhattan. The landlord, as is standard, commenced an eviction action and prevailed.

What was unusual, though, was that the incoming tenant, Kronish Lieb, subsequently sued Tahari. It claimed to have suffered damages including having to rent other temporary office space, the additional costs of having to operate out of two buildings (the company already rented lower floors in the Grace Building) and inflated construction costs thanks to the two-year delay.

The court permitted the new tenant’s lawsuit to proceed on two different theories. One was trespass. Normally trespass requires a defendant to have entered property that a plaintiff already possesses. However, the court concluded that “actual possession” is unnecessary where the respective “parties’ rights to possession have already been determined.” As there was no dispute that Tahari held over 18 months beyond its lease term, and Kronish was entitled to move in, Tahari’s holding over constituted a trespass.

Additionally, the court allowed a cause of action based on tortious interference with contractual relations. In other words, Tahari was aware that Kronish and the landlord had a lease agreement, and knew that it would interfere with that contract by intentionally holding over. Therefore, Kronish could seek recovery of damages from Tahari on this basis.

This ruling is relatively novel and will likely change outgoing tenants’ perspectives when considering whether to holdover. Whereas, traditionally, unlawful detainer and ejectment actions limited the economic remedies for a landlord, this opens a new avenue of potential liability against tenants who are considering remaining in a building after they are no longer legally entitled to do so. While this ruling only applies in New York, it could lead the way for other states such as California.

The case is Kronish Lieb Weiner & Hellman LLP v. Tahari, Ltd., 2006 N.Y. App. Div. Lexis 15862.