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GOTLIEB v. TACO BELL CORP.

December 13, 1994

DAVID GOTLIEB and ENID BLAYMORE, Plaintiffs, against TACO BELL CORPORATION, Defendant.


The opinion of the court was delivered by: MICHAEL L. ORENSTEIN

 ORENSTEIN, United States Magistrate Judge:

 This action involves a dispute arising from an alleged breach of a commercial ground lease, dated August 15, 1991, between the landlord plaintiffs Gotlieb and Blaymore, and tenant defendant Taco Bell Corporation ("Taco Bell").

 District Judge Arthur D. Spatt granted summary judgment in favor of the plaintiffs and referred this matter to the undersigned for a trial on damages. Order, dated January 15, 1994. Thereafter the parties consented to proceed before a Magistrate Judge for all purposes. Order, November 7, 1994; 28 U.S.C. § 636 (c)(1).

 Plaintiffs seek damages for: 1) rent, accrued and future; 2) the value of a building that was to have been built on the premises; and 3) attorney's fees and costs. Testimony and evidence on these issues was heard at trial before the undersigned on February 14-17, 1994. The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52(a).

 INTRODUCTION

 The parties entered into a twenty year lease, effective August 15, 1991, for the purpose of establishing a Taco Bell restaurant at 1532-54 86th Street, Brooklyn, New York. (Lease dated August 15, 1991, attached as exhibit A to complaint, hereinafter "Lease.") The lease provided that the defendant was required to exercise diligence to obtain the necessary permits and administrative approvals to construct and operate the Taco Bell restaurant on the premises. (Lease at PP 6, 69.) The defendant was entitled to cancel the lease if they were unable to obtain such permits and administrative approval within a six month "permitting period," ending on February 15, 1992. (Lease, at PP 6.)

 Sometime in September, 1991, local community and religious groups began an organized effort to oppose the construction and operation of the Taco Bell restaurant at the subject location, and against fast-food establishments in the community generally. (Affidavits of James A. Chronley, Christopher B. DeBolt and Mark W. Schaefer in opposition to Plaintiff's Motion for Summary Judgment.)

 This organized opposition included public demonstrations of protest with placards, handbiliing, and letter writing, telephone campaigns, and community meetings with local politicians. (Id.) Taco Bell attempted to assuage this community opposition by attending these meetings, proposing amendments to the design plans and suggesting alternative measures to address the community group's safety and environmental concerns. (Id.)

 During the intervening six month period, the Defendant engaged the services of local attorneys and engineers in an effort to develop plans and a permit application. Nevertheless, defendant did not file its permit application with the appropriate governmental entities until February 14, 1992, one day prior to the expiration of the contractual "permitting period" referred to in paragraph 6 of the lease.

 DISCUSSION

 A lessor has numerous options when a lessee attempts to repudiate a lease prior to the expiration of its term. See Centurian Development Ltd. v. Kenford Co., Inc., 60 A.D.2d 96, 400 N.Y.S.2d 263, 264 (App. Div. 1977); 74 N.Y. Jur.2d Landlord and Tenant § 108. The landlord may reject the repudiation and do nothing, in which case the tenant continues to remain liable under the terms of the lease, as there is no obligation for a commercial lessor to mitigate damages. See Sage Realty Corp. v. Kenbee Management-New York, Inc., 182 A.D.2d 480, 582 N.Y.S.2d 182 (App. Div. 1992); Mitchell Titus Assocs., Inc. v. Mesh Realty Corp., 160 A.D.2d 465, 554 N.Y.S.2d 136 (App. Div. 1990); Syndicate Bldg. Corp. v. Lorber, 128 A.D.2d 381, 512 N.Y.S.2d 674, 675 (App. Div. 1987) (this duty recently imposed on residential landlords, however the contrary is true in the context of commercial leases). The lessor could also elect to notify the tenant that it was entering the premises and re-letting for the tenant's benefit, in which case the tenant remains liable for any rent deficiency. Underhill v. Collins, 132 N.Y. 269, 30 N.E. 576 (N.Y. 1892). The lessor also has the option to accept the repudiation, re-enter the premises and re-let for its own benefit. In that event the lessee is generally relieved from any further liability under the lease. See Herter v. Mullen, 159 N.Y. 28, 53 N.E. 700, 701 (N.Y. 1899); Centurion Development, 400 N.Y.S.2d at 264; 59th & Park Assoc. v. Inselbuch, 68 A.D.2d 838, 414 N.Y.S.2d 537, 540 (App. Div. 1979) (Lupiano, J. concurring); see also 74 N.Y. Jur.2d Landlord & Tenant § 108. No further rent accrues because the landlord-tenant relationship no longer exists. See Hermitage Co. v. Levine, 248 N.Y. 333, 162 N.E. 97, 98 (N.Y. 1928).

 The defendant herein repudiated the lease by letter dated February 14, 1992, (Exhibit D to Complaint), sent in response to plaintiff's letter dated February 14, 1994 (Exhibit C to Complaint). Plaintiff's letter rejected defendant's February 10, 1992 request to alter the terms of the lease (Exhibit B to Complaint). The plaintiffs' February 14, 1992 letter explicitly stated that they would reject any attempt by the defendant to repudiate the lease ...


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