NYC Commercial Lease Litigation: Dangers of Being a Subtenant

It is not unusual for tenants to lease New York City commercial lease space as a subtenant. That means the main lease is between the property owner and the primary tenant. The primary tenant then gives a sublease to the party occupying the space. If you are considering signing a sublease, you should seek legal advice and counsel from experienced NYC commercial lease negotiation attorneys. There can be “positives” from a sub-lease arrangement, but there can be many dangers too. One risk is winding up in the middle of multi-party NYC commercial lease litigation.

A Sample Case

As described in this article from The Real Deal, this is what has happened recently to several restaurants along West 57th Street, the so-called billionaires’ row. As reported, outdoor dining has become very popular in NYC but has also become quite controversial. During the pandemic, New York City began the Open Restaurants program, which allowed about 12,500 restaurants to have outdoor seating. The City planned this to be a temporary measure but made it permanent in February 2022. The program saved many restaurants from going out of business, but since becoming permanent, the program has generated opposition from property owners and landlords. Detractors, particularly in upscale neighborhoods, say that the reputations of buildings and neighborhoods are being destroyed by the congestion caused by street seating and by the tables, signage, and other accouterments.

These issues recently came to a head with a building known as the Osborne on West 57th Street. The building is primarily luxury residential, but the lower floor has commercial space currently occupied by three restaurants and four other retail outlets. However, the main lease for the commercial space is between the Osborne Tenants Corporation, which owns the building, and a company called 57th and 7th Associates. As reported, they have been the primary commercial tenant at the Osborne since 1962. 57th and 7th Associates then subleases the retail space to three restaurants and four other retailers.

Because of the disagreement about outdoor dining, the Osborne Tenants Corporation (“OTC”) has sued the primary tenant — 57th and 7th Associates — to require that they dismantle the outdoor seating and remove various “unauthorized signage.” The OTC is threatening to terminate the main lease. Consequently, all the subtenants (including the restaurants) are embroiled in litigation about outdoor seating. One subtenant has already removed their outdoor seating and signage, but the others are still fighting.

The example shows some of the inherent dangers of leasing and subleasing situations. As in many cases, we have a property owner who is ultimately in a dispute with the subtenants. However, the property owner does not have a lease directly with the subtenants. As a result, the property owner seeks redress from the main tenant. This creates a spillover effect as the main tenant seeks to enforce some lease provision against its subtenants. In the end, much will depend on what can be negotiated, what rules and regulations will be implemented by New York City, what the main lease says, and what the subleases say.

A Few Things to Consider

If you are planning to enter into any subleasing arrangement, here are a few things to consider:

  • Rules and restrictions from the main lease that apply to the sublease
  • Hold harmless and other indemnity provisions that might result in the subtenant paying fees and costs if there is a dispute.
  • Default and termination provisions
  • Provisions related to what happens to the sublease if the property owner terminates the main lease

Contact the NY Business Litigators at Wright Law Firm NYC Today

Call the experienced New York City business lawyers and litigators at Wright Law Firm NYC for more information. We provide legal services for New York businesses. We can help get your startup off and running. To schedule a consultation, don’t hesitate to contact our office by e-mail or call us at (212) 619-1500.