The historic Manhattan restaurant Pete’s Tavern recently won the right to continue operating its sidewalk café as it has done for more than fifty years, over its landlord’s objection. DMF Gramercy Enterprises, Inc. v. Lillian Troy 1999 Trust, 2014 N.Y. App. Div. LEXIS ___, 2014 N.Y. Slip Op. 07110 (1st Dep’t Oct. 21, 2014).
The restaurant’s current lease was entered into in 1964 and runs until 2020. Both prior to and throughout the lease term, the restaurant has operated a sidewalk café during the warmer months. The sidewalk café is located just outside the restaurant building, on a sidewalk owned by the City of New York. Operating a sidewalk café in New York City requires a permit from the Department of Consumer Affairs (DCA), which requires the consent of the landlord. For many years the landlord had provided its consent, but in 2012 the landlord notified DCA that it was revoking such consent. The restaurant sued the landlord seeking a mandatory injunction requiring the landlord to reinstate its consent to the sidewalk café.
The trial court issued the requested injunction and the Appellate Division has affirmed that decision. The terms of the lease provide that the landlord would sign applications or other documents necessary for the restaurant to operate a sidewalk café adjacent to the leased premises. Even if the lease did not contain that provision, the court continued, other language in the lease contemplated that the landlord would allow the restaurant to continue operating as it had in the past.
Given this language, the court held that the landlord could not revoke its consent in the absence of a good-faith reason to do so. Under New York law, all contracts, including leases, are deemed to include an implied covenant of good faith and fair dealing in the course of performance, under which neither party may take actions that will have the effect of destroying or injuring the other party’s right to receive the fruits of the contract. Since the lease contained no provision reserving to the landlord the right to terminate consent in its sole discretion, to permit the landlord to withhold or revoke its consent at will would destroy the tenant’s right to “receive the fruits of the contract” relating to the sidewalk café, which provides a substantial part of the restaurant’s annual income.