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Tuesday, January 18, 2011

Anyone Need a Leaseholds Exam Question?

Cause I gotta beauty for ya, right here.

The New York Times reports that real estate developers have made such a visually appealing $80 million alteration to the facade and entrance of 112 West 34th Street in Manhattan that they are candidates for a prestigious development award.

The problem: they are tenants, not owners of the building, and the 1963 lease that the then-owners and then-tenants signed (both current owners and tenants are assignees) provides that the tenants must get prior written approval from the owner before making structural changes worth more than $100,000.  As a result, the owner wants the lease terminated and the tenants out.  The lease isn't supposed to expire until 2077.

Why on earth would a landlord object to a tenant making -- at its own expense -- $80 million dollars worth of awarding-winning improvements to a property, you ask?

Because the lease provides that the annual rent for the property is $840,000 per year.  This, for a 26-story building that sits across from Macy's.  This, for a building the tenants lease out to office and retail tenants for many, many times that sum.

So are the owners being unfairly opportunistic in trying to terminate a lease so they can capture the building's increase in market value?  Or are the tenants being hypocritical in arguing that a literal reading of the lease applies to the rent, but not the alterations clause?  How will a court likely decide the issue and why, or is it more likely that a market solution will be found, and how?

Life doesn't throw perfect hypotheticals at us very often.  Take it!

Mark A. Edwards

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Comments

That's great Mark -- thanks for posting!

Posted by: Tanya Marsh | Jan 18, 2011 1:51:45 PM

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