On November 22, 2021, Justice Ostrager of the New York County Commercial Division issued a decision in Glaze Teriyaki, LLC v. MacArthur Props. I, LLC, 2021 NY Slip Op. 32421(U), holding that a lease provision requiring a tenant to reimburse the landlord for its legal fees in a suit relating to the tenant’s default was enforceable, explaining:
Article 19 provides in relevant part that:
If Tenant shall default in the observance or performance of any term or covenant on Tenant’s part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder, and if Owner, in connection therewith or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorneys’ fees, instituting, prosecuting or defending any actions or proceedings, such sums so paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within fifteen (15) days of rendition of any bill or statement to Tenant therefor and if Tenant’s lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages.
As the Owner correctly notes, and as the Appellate Division confirmed, the dispute between these parties began when the Owner served the Tenant with a notice dated October 23, 2013, claiming that the Tenant was in default of the Lease due to an improper exhaust system that violated the 2008 New York City Mechanical Code in the Administrative Code of City of New York. On November 7, 2013, the Tenant commenced this action pursuant to First Natl. Stores v Yellowstone Shopping Ctr., 21 N.Y.2d 630 (1968), seeking, among other things, to enjoin the Owner from terminating the Lease and for a declaration that the Tenant was not in default of the Lease. Thus, the Owner argues here, the Owner’s fee application falls squarely within the terms of Article 19 of the Lease because the Owner incurred fees in an action involving a lease default.
. . .
As the Tenant correctly argues, it is well-established that: Under the general rule, attorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule. . . .[T]he Court rejects the Tenant’s argument and agrees with the Owner that Article 19 provides an adequate basis for the attorney’s fees claims in this case. Citing Matter of Krodel v Amalgamated Dwellings Inc., 166 AD3d 412 (1st Dep’t 2018), the Tenant argues that Article 19 constitutes an unenforceable penalty because it requires the Tenant to pay the Owner’s attorney’s fees without any mention of prevailing party status. But Krodel is distinguishable on a number of grounds. First, it applies to a residential tenant-shareholder being asked to pay attorney’s fees pursuant to the cooperative’s standard form proprietary lease, whereas here we have two sophisticated businesspeople who heavily negotiated the terms of a commercial lease. Further, the holding in Krodel was specific, and the First Department limited its ruling to its finding that an attorneys’ fees provision which provides that the tenant must pay attorneys’ fees if it commences an action against the landlord based upon the default of the landlord is unconscionable and unenforceable as a penalty The tenant in Krodel had commenced suit against the cooperative corporation alleging that the cooperative had defaulted under the terms of the lease by refusing to transfer to the tenant certain shares owned by the tenant’s husband. In contrast, the Tenant in the present action before this Court commenced this action for a Yellowstone injunction and a finding that the Tenant was not in breach of its Lease. The Tenant did not sue the Owner for breach of the Lease. Therefore, Krodel has no application here, and the Court does not find that Article 19 as drafted constitutes and unenforceable penalty. It is also noteworthy that the Tenant itself included in its Complaint a cause of action for attorney’s fees under the Lease.
(Internal quotations and citations omitted).