Background
Monica Iken and Ordinary Faces LLC leased space from Bohemian Brethren Presbyterian Church to operate a preschool. Their lease required the church to cooperate in obtaining governmental approvals. Section 18(a) addressed that obligation, while a rider required both sides to act expeditiously and diligently to obtain permits, perform the work needed for a proper fire-alarm system, and secure inspections and sign-offs. The tenant also received a 50% rent abatement for part of 2015 while approvals remained outstanding.
The project stalled. The New York City Department of Buildings denied the preschool's initial request for a letter of no objection, an approval needed to operate, because the premises lacked a functional fire-alarm system. The Fire Department did not sign off on that system until July 2016, nearly two years after the lease was signed. Separate building violations involving a defunct dumbwaiter or elevator shaft also remained active, even though the cited areas were outside the leased premises.
The tenants claimed those delays kept the preschool from operating as planned and sued for breach of the lease and rider. After trial, a jury awarded them $1,216,177.36, including $734,353 in lost profits. Supreme Court denied the church's request under CPLR 4404 to set aside the verdict. The landlord also challenged the tenants' jury demand, the available remedies, the proof of lost profits, and brief trial testimony concerning Iken's status as a September 11 widow.
The Court’s Holding
The First Department unanimously affirmed the judgment. Applying the demanding legal-sufficiency standard, it found a valid line of reasoning supporting both breaches. The landlord never arranged for its elevator company to file the paperwork needed to clear the violations and did little beyond sending two letters asserting that the building had no elevator. Trial exhibits stated that active violations generally defeat a letter-of-no-objection request, and Iken testified that those violations were the last obstacle to permanent approval.
The court also found sufficient evidence that the church failed to act diligently on the fire-alarm work. The alarm deficiency caused the initial denial, and final sign-off did not arrive for almost two years. The rent-abatement language did not make that concession the tenant's exclusive remedy. Nothing in the rider specifically foreclosed damages if the landlord continued to withhold the cooperation the agreement required.
The lost-profit award was not speculative. The tenants linked their inability to operate to the landlord's breaches, used operating data from a preschool that had occupied the same location for nearly 40 years, and showed that first-year results corresponded with the projections. The church itself had supplied the predecessor's figures, and the tenants' business plan—prepared at the landlord's request—showed that profits were within the parties' contemplation. The landlord offered no competing evidence demonstrating that the projections were unreliable.
A lease clause limiting recovery to the landlord's interest in the building and its rents and profits did not defeat the award after the church sold the property. Such language can permit recourse to sale proceeds representing the owner's equity, and the church did not prove that the verdict exceeded its profit from the sale. The landlord also waived the lease's jury-waiver provisions by waiting until four months after the note of issue and after counsel stated on the record that the right to a jury was undisputed.
Key Takeaways
- A landlord's contractual duty to cooperate with permits and cure building-wide violations can support substantial consequential damages when delay prevents the tenant's intended use.
- Lost profits may be proven without expert testimony when reliable operating history, actual performance, and the parties' own projections establish causation and reasonable certainty.
- Rent abatements and remedy limitations must be drafted expressly if they are intended to be exclusive, and a contractual jury waiver can itself be waived by litigation conduct.
Why It Matters
The decision is important for New York commercial landlords and tenants because approval obligations often determine whether a specialized use can open at all. A landlord cannot assume that violations outside the demised premises are irrelevant when they block an agency approval promised in the lease. Owners should assign responsibility for filings, document follow-up with contractors and agencies, and address long-stop dates and termination rights before delays accumulate.
For commercial litigators, Iken is also a practical lost-profits roadmap. Contemporary business plans, predecessor operating data, early actual results, and evidence that the counterparty reviewed or supplied the projections can establish reasonable certainty. Parties that want an abatement or asset-limitation clause to cap exposure should say so unmistakably and preserve procedural rights, including jury waivers, before the case reaches the trial calendar.