Was Tenant Permitted to Operate Unlicensed Cabaret?
Use clauses in commercial leases are intended to unambiguously define and delineate the business purposes contemplated for the space. But, as a recent case illustrates, the landlord and tenant may disagree on whether or not the actual use is permitted.
39-50 24th St. Realty Corp, as landlord, and Ol’ Bridge Cafe Inc., as tenant, entered into a commercial lease agreement for 39-48/50 24th Street, Ground Floor Store, Long Island City, for a term of five (5) years commencing February 1, 2016.
The premises was to be utilized as a restaurant. Pursuant to the terms of the lease, Bridge Cafe was responsible for real estate taxes and late fees in the amount of 10% of the monthly rent. Bridge Cafe was also liable for legal fees in the event of a default requiring the commencement or defense of an action or proceeding resulting from the default.
Realty Corp. alleged that, rather than using the premises as a restaurant, Bridge Cafe rented the premises out for use as an event space within which to host various parties and large gatherings in violation of the lease. Realty Corp. also claimed that such use was tantamount to an unauthorized sublet. And Realty Corp. alleged that Bridge Cafe was not compliant with relevant law pertaining to its use of the premises. After the expiration of the deadlines set forth in the predicate notices, Bridge Cafe did not vacate the premises and allegedly did not cure the lease violations.
Realty Corp filed a summary eviction holdover proceeding. Bridge Cafe interposed an answer in which it raised numerous affirmative defenses, mainly devoid of facts and based upon alleged procedural deficiencies.
For several months and over the course of numerous adjournments, the parties attempted to settle the dispute without success. The matter went to trial.
At trial, Realty Corp. made out its direct case through two witnesses. Realty Corp.’s first witness was Michael Christopher, the president of Proactive Management, the management company for the building. And the superintendent of the building, Allen Durakovic, testified and gave first-hand accounts of events that transpired at the premises.
While the Court attempted to keep the testimony restricted to events transpiring pre-petition, that became fruitless because the acts alleged had been of an ongoing nature. The testimony and documentary evidence included events that transpired up to and between the trial dates. Therefore, while there might otherwise have been a valid procedural reason to limit the testimony and evidence to pre-petition activities, those that were alleged to have occurred after the date of the petition were merely a continuing pattern of practice.
Through Christopher, the landlord-tenant relationship was established, as well as the amount of money due and owing for base rent/use and occupancy. Realty Corp. also admitted several photographs through Christopher. Many of the photographs were advertisements for “Event Space 2440” posted by Bridge Cafe on Instagram, Facebook, and most blatantly, signage right over the entrance door to the premises. The advertisements suggested uses for the premises including receptions, bridal showers, engagement parties, and even a Super Bowl Party. The Super Bowl Party was advertised as being hosted by Zoe’s Place and offering Premium Beverages. An open house was also advertised in which the premises was described by its size of 2,500 square feet “featuring a grand marble bar”. Some of the photographs also depicted the interior of the premises as raw open space and others showed tables with place settings including wine glasses and balloons.
The advertising photographs appeared to have been posted prior to September 11, 2019, the date of the underlying notice to cure. The NTC listed a deadline for cure of October 4, 2019. That date was notable as a marker in time, beyond which there ought not to have been any violative behavior.
Aside from the impermissible use of the premises as an event space, the NTC also alleged Bridge Cafe violated §5.02 of the lease which stated in pertinent part,
Tenant shall not suffer or permit the Demised Premises or any part thereof to be used in any manner, or anything to be therein, which would in any way . . . (iii) constitute a public or private nuisance or disturb the quiet enjoyment of other tenants in the building . . . (vi) impair or interfere with any of the building services or the proper servicing of the Building or the Demised Premises or impair or interfere with the use of any of the other areas of the Building or occasion discomfort, annoyance or inconvenience to, Landlord or any of the tenants or occupants of the Building (ix) violate any law, ordinance regulation or statute of any governmental agency or (x) permit any noise to be audible outside of the Demised Premises audible in the Building or Premises of any other tenant.
In addition to the advertising photographs, Realty Corp. entered numerous photographs demonstrating a continuing pattern of practice. Several of the pictures introduced depicted people milling about directly outside the premises. One of those photographs had as many as 15 people in several groups engaged in conversation, some with beverage glasses in their hands at approximately 12:30 am on September 26, 2020. The deadline to cure that activity expired nearly a full year earlier. And yet, one of the photographs date and time-stamped as just after midnight on October 4, 2020, a year to the day later, showed three individuals outside the front of the subject premises engaged in conversation with two gentlemen in uniforms with badges.
The next sequence of photographs depicted a van on the sidewalk in front of the premises advertising “Luxury Chairs Party Rental”, a man carrying a table out onto the sidewalk in front of the space joining other tables already sitting there and one photograph where five round tables were sitting on the sidewalk. Most of that series of photographs were taken after 2 am on October 4, 2020.
The photographed activities did not end with October 4, 2020. On October 10, 2020, at nearly 2 a.m., there were photographs which showed people entering, exiting, and milling about directly in front of the premises. The Court was cognizant of the fact that, as listed on the multiple dwelling registration, the space was situated within a residential building with 31 dwelling units, whose residents’ time, space, and quietude were infringed upon by the activities of Bridge Cafe.
Once the cure period set forth in the NTC expired without cure, Realty Corp. served its notice of termination dated October 22, 2019. The lease termination date stated in the NOT was November 5, 2019.
The photographs annexed to the petition were merely advertising for the potential events and usage to be made of the premises. They gave a literal snapshot of the activities taking place both in and around the space. The photographs admitted into evidence that post-dated the expiration of the NTC demonstrated a continuing practice of behaviors outside the norm of a restaurant operating in a residential community.
With respect to the rent, Christopher demonstrated through his rent ledger combined with his testimony that Bridge Cafe stopped paying rent in February 2020. According to Realty Corp.’s records, the amount of base rent/use and occupancy in arrears was $54,600.90 through September 2020. Additionally, as recited in Realty Corp.’s records, Bridge Cafe owed real estate taxes, together with late fees due to its nonpayment of rent/use and occupancy, as well as its late payment of real estate taxes to Realty Corp. However, Realty Corp. severed its claims for real estate taxes to be sought in a plenary action. Realty Corp. preserved its claim for legal fees and late fees to be determined later in the pending proceeding.
After Christopher, the superintendent testified. Durakovic lived in the building’s basement. As a super for the building, he was present 24 hours a day. He gave eyewitness accounts of parties taking place in the premises from late in the evening until early in the morning on Fridays, Saturdays, and Sundays, but no activity Mondays through Thursdays for at least the 11-month period leading up to the date of the petition, i.e. November 26, 2019. He approximated that the parties began at 6 pm and continued until 3 am. Durakovic also testified that the most recent party took place on Halloween, less than a week before the second trial date in the proceeding.
Durakovic did not go inside the premises. However, the photographs in evidence depicted the premises with two exterior walls of glass, allowing passersby to see inside. He also testified that, when the doors and curtains were open, an observer was able to see the party taking place. He did not state the frequency of the curtains and/or doors being open. Nonetheless, the level of discomfort caused to the residents of the building was made clear. Durakovic testified that, although he did not enter while the parties were going on, he knew there were parties taking place because there was music “blasting all hours of the day”; he could see people both inside and outside the premises, and the residents called him regularly to complain.
Once Realty Corp.’s witnesses completed their testimony, a prima facie motion to dismiss was made and denied. Bridge Cafe’s application to dismiss based upon allegedly defective predicate notices was similarly denied. Thereafter, Marion Jefferson testified on behalf of Bridge Cafe as its only witness for the defense.
Jefferson supervised all the events at the premises. On his direct examination, when his attorney inquired about Jefferson’s actions in response to the NTC, he said he took down the advertisement over the entrance doorway. When the Court asked whether he did anything else after receiving the NTC, the answer was a simple “No.” Apparently, Jefferson was under the misguided belief that the only act required to effect a cure was to remove a sign.
Initially, Jefferson did not come across as a flagrant fabricator of untruths. When he stated the events determine the hours of operation of Bridge Cafe, that was entirely plausible. When Jefferson testified the hours are “Usually twelve in the afternoon to maybe six or six to eleven”, that was clearly stretching the bounds of the truth. However, when he testified that no alcohol was served at, or brought to, the premises by others, he lost all credibility with this Court. Advertisements including the phrase “Premium Beverages” or boasting the size of a marble bar did not connote service at a juice bar. To imply that bridal and engagement parties, as well as Super Bowl parties, were dry events, and to expect the Court would actually believe that myth, Jefferson must have thought the presiding judge just fell off the proverbial turnip truck. Jefferson lost all credibility when he stated without equivocation that alcohol was not served at the premises or brought in by others.
At the conclusion of the trial, counsel for Realty Corp. sought a judgment of possession together with a money judgment in the sum of $54,600.90, representing all base rent/use and occupancy through September 2020. Realty Corp. reserved its claim for attorney’s fees and late fees for a subsequent hearing. Realty Corp.’s claim for real estate taxes was severed.
Under the lease, the only permitted use of the premises was for a restaurant. While some restaurants may have occasional parties at their sites, an establishment that runs its business solely to provide a party venue for the catering of various celebratory occasions, until the wee morning hours on weekends, was not a restaurant in the true sense of the term. The premises had no activity whatsoever on Mondays through Thursdays. The only nights when business was conducted were Fridays through Sundays and obviously, alcohol was served at those events.
Bridge Cafe made a feeble attempt to deflect the responsibility for its lease violation by implying that, if Realty Corp. had granted Bridge Cafe access to the basement for the tenant to run a gas line, Bridge Cafe would not have violated the lease. That was nothing but additional mythology. Bridge Cafe agreed to take the utilities in “as is” condition. Pursuant to §6 of the lease: “Such electric current and gas shall be furnished to Tenant by means of the then existing Building systems, feeders, risers and wiring . . .” At the determination of Realty Corp., if and when alterations were necessary, the lease provided a means to do so. No defense was raised, nor was any admissible evidence introduced, which either claimed such alterations were necessary or that Bridge Cafe followed the lease requirements and was rebuffed by Realty Corp.
Pursuant to NYC Administrative Code, it was unlawful for Bridge Cafe “to conduct, maintain or operate, or engage in the business of conducting, maintaining or operating a public dance hall, cabaret or catering establishment unless the premises wherein the same is conducted, maintained or operated are licensed in the manner prescribed herein.”
Further, according to NY Alcoholic Beverage Control Law, Bridge Cafe was required to obtain a license to sell liquor on the premises, which was commonly known as a cabaret.
The cabaret license must in both form and in substance be a license to the person specifically licensed to operate the cabaret and sell liquor at retail to be consumed on the premises specifically licensed. And the license is also deemed to include a license to sell wine and beer at retail to be consumed under the same terms and conditions, without the payment of any additional fees.
The “sale” of alcohol is defined in the ABC Law as any transfer, exchange, or barter in any manner or by any means whatsoever for a consideration, and includes and means, all sales made by any person, whether principal, proprietor, agent, servant or employee of any alcoholic beverage, “To sell” includes to solicit or receive an order for, to keep or expose for sale, and to keep with intent to sell and shall include the delivery of any alcoholic beverage in the state.
Bridge Cafe was not licensed to operate a catering establishment and was unlicensed to sell alcohol. Thus, it was not legally permitted to operate a catering facility or to serve alcoholic beverages. And could not conduct its business without violating the lease covenant prohibiting it from violating “any law, ordinance regulation or statute of any governmental agency”. Bridge Cafe was presumed to know that such licenses were required, particularly since Jefferson was apparently a seasoned businessman. The establishment had been in operation since 2016 and by Jefferson’s own admission, he had a separate restaurant at another location.
The Court found that Bridge Cafe violated the lease because it used the premises as an unlicensed catering facility which violated laws, ordinances regulations, or statutes of a governmental agency, i.e. the New York State Liquor Authority. That impermissible use was conducted in a manner that constituted a public or private nuisance and disturbed the quiet enjoyment of other tenants in the building. Bridge Cafe also interfered with the use of other areas of the building in that it caused discomfort, annoyance, or inconvenience to Realty Corp. and the tenants of the building. Furthermore, that behavior created noise to be audible outside of the premises and audible in and around the building or residences of other tenants.
Finally, the Court found it troublesome that Bridge Cafe continued to run indoor events with gatherings of many people throughout the pandemic. In doing so, Bridge Cafe created and maintained a public health hazard. Some of the evidentiary photos depicted people in close proximity to each other in groups on the sidewalk in front of the premises. Others showed people entering or leaving the premises. It was noteworthy that, other than the police officers, none of the people featured in the photographs captured by the security cameras were wearing face masks. The Court could only hope no one was rendered ill from their attendance as guests or employees of Bridge Café.
Realty Corp. proved the landlord-tenant relationship between the parties and that the lease between them was violated by Bridge Cafe. And Bridge Cafe did not sustain its defenses against the allegations of wrongdoing and those of a procedural nature were not successful. Bridge Cafe was responsible for payment of rent arrears and late fees as calculated under the Lease freely executed by the parties.
Realty Corp. was awarded a judgment of possession against Bridge Cafe and a money judgment for all rent and additional rent through September 2020, in the sum of $54,600.90, together with the costs and disbursements of the proceeding.
Although use and occupancy were set at a holdover rate of 150% upon termination of the lease, Realty Corp. did not seek use and occupancy at the holdover rate in its petition. Therefore, use and occupancy were set at the rates set forth in the lease, i.e. $4,370.91 for the months of October 2020 through January 2021 (the natural expiration of the Lease).
Realty Corp. was permitted to restore the matter to the calendar for the purpose of an attorneys’ fee and late fee hearing, once it obtained possession from Bridge Cafe. But if Bridge Cafe remained in possession past January 31, 2021, the amount of reasonable monthly use and occupancy for the time frame of February 1, 2021, through the return of possession to Realty Corp. would be determined at the attorney’s fee hearing. Realty Corp.’s claim for real estate taxes was preserved and severed for a plenary action.