On September 14, 2016 in 1357 Tarrytown Road Auto, LLC, v. Granite Properties, LLC, the Second Department of the Supreme Court, Appellate Division held that a landlord did not breach the implied covenant of good and fair dealing by failing to inform a commercial tenant of local laws that would directly affect its business and subsequently refusing to let the tenant out of the lease (37 N.Y.S. 3d 341). This case reaffirms that a commercial tenant must perform its own due diligence.

Plaintiff Tarrytown Road sought to purchase an existing car dealership and take over a lease to a portion of real property owned by Granite. The parties entered into two lease amendments in June and July 2013, whereby Tarrytown Road rented the entire property, including the portion previously leased by the dealership.

In September 2013, Tarrytown Road performed a title search and found that a local law prohibited parking vehicles without license plates on the premises, a practice it claimed was essential to the business of selling cars. When Granite refused to release it from the lease, Tarrytown Road brought an action alleging fraudulent inducement and breach of the implied warranty of good faith and fair dealing, and for rescission of the lease. Granite moved to dismiss the complaint.

The trial court granted Granite’s motion to dismiss the complaint, but only as to the claim of fraudulent inducement. Granite appealed from the denial of its motion to dismiss the claims for breach of implied covenant of good faith and fair dealing and for rescission.

On appeal, the Second Department found that the trial court should have dismissed the cause of action alleging breach of the implied covenant of good faith and fair dealing, and for rescission.

The court described how the implied covenant of good faith and fair dealing is breached when a party acts in a manner that would deprive the other party of the benefit of its agreement with respect to any promise reasonably expected to be part of the agreement. However, the Second Department found that the implied covenant cannot be relied on where the obligation is inconsistent with or contradicts the explicit and unambiguous terms of the lease.

The Second Department concluded that the specific language of the amended lease supported Granite’s motion because it expressly provided that:

The court determined that imposing a duty on the landlord to disclose zoning or other local law restrictions would render the express representations in the lease ineffective. Finding that the express and specific provisions in the lease conclusively established a defense to breach of implied covenant of good faith and fair dealing, the Second Department reversed the lower court and dismissed the action.

This case is significant for any party considering entering into a commercial lease. A New York appellate court held that the duty of good faith and fair dealing may not be implied or applied when it directly contradicts the written or express provisions of the lease.

A party looking to enter into a commercial lease should: