Property damage claim not precluded by exculpatory clause

After Midnight Co. LLC v MIP 145 E. 57th St., LLC

Decided November 16, 2015 at Sup. Ct., New York County

 

The issue here was whether an exculpatory clause precluded recovery of property damages caused by construction in the building.

In this case, the Plaintiff relocated from the 12th floor to the 11th floor of the building to allow for construction of a penthouse directly above the 12th floor.  The parties entered into an extension of the original lease as well as a subsequent amendment, both of which were governed by the same terms of the original lease unless specifically stated otherwise.

The Defendant argued that Plaintiff’s claims were barred by the exculpatory clause in the Amendment, which stated that the Landlord shall not be liable for “any interruption of business, lost profits or any other damages” associated with the relocation, as well as the provision in the lease which excused the Landlord’s liability for “inconvenience, annoyance or injury to business” arising from construction of the building.  In contrast, Plaintiff argued that the paragraphs of the lease which stated that Tenant’s sole remedy in instances where Landlord failed to comply with the covenants was by way of an action for breach of contract, and that Landlord was obligated to use “commercially reasonable efforts not to disrupt Tenant’s business.”

The Court found that the provisions relied upon by the Plaintiff are subject to the exculpatory clause, as there was no provision in the lease stating that the exculpatory clause “does not extend to matters specifically provided for elsewhere in the lease.”  The exculpatory clause further precluded Plaintiff’s claims of fraud and unjust enrichment (as it is a quasi-contractual remedy).

However, the Court pointed out that the provisions allowed Plaintiff to recover for injuries other than “inconvenience, annoyance or injury to business,” such as property loss.  Furthermore, the Court stated that it is against public policy to contractually insulate oneself against a claim of gross negligence.  Thus, the exculpatory clause did not exclude claims for property loss nor gross negligence.

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