Case Confirms Tenant Waiver of Statutory Right to Redeem Effectively Includes A Waiver of Lender’s Statutory Right to Redeem
Rosenberg & Estis, P.C. prevailed Wednesday in State Supreme Court in New York County in a case of first impression, successfully arguing that a Manhattan commercial property owner needed only a ground lessee to waive its statutory right to redeem a lease terminated after default. The ruling affirms that a ground lessee’s waiver constitutes a waiver of the leasehold mortgagee’s statutory right to redeem that lease.
Michael A. Pensabene, a member of the firm’s Litigation Department, together with Peter Kane, of counsel, represented the landlord, Joseph E. Marx Company, Inc. (Marx Realty), owner of 545 Madison Avenue, before Justice Andrea Masley. The case was commenced by lender Wells Fargo Bank N.A. seeking a judgment declaring that Wells Fargo had a right to redeem the leasehold interest in the 17-story, 139,540-square-foot office and retail tower at the southeast corner of Madison Avenue and 55th Street, owned by Marx Realty.
On July 11, 2019, Marx Realty notified then-tenant Thor Equities, the Manhattan real estate development, leasing and management firm, that it owed $554,583 in unpaid rent on top of $1.6 million in back property taxes for a lease of the entire property. Marx obtained a September 12, 2019 civil court judgement against Thor, awarding Marx possession of the tower. Local authorities successfully evicted Thor on October 15, 2019.
Well Fargo’s standing in the case dates to 2014, when Wells took over Thor’s $30 million CMBS loan, first issued by Barclays in 2014, which Thor secured with its ground lease for 545 Madison Avenue. In the recently decided case, Wells argued that, as a lender under Section 763 of New York State Real Property Actions and Proceedings Law, the bank had the statutory right to redeem Thor’s lease for up to a year following Thor’s October 15, 2019 eviction.
Wells sought the court’s declaration that it had a right to redeem the lease, despite not noticing Marx of its intention to exercise that right. Marx counterargued that Wells was not entitled to exercise a right to redeem the lease pursuant to RPAPL Section 763 because Thor waived both its right under its lease and that of its lender. The case turned on the language of RPAPL Section 763. In relevant part, it prescribes that a lessee’s judgment creditor has up to a year to notice intent to redeem a lease following an eviction warrant “unless by the terms of the lease the lessee shall have waived his (emphasis added) right to redeem.”
Wells maintained that “his” referred to the lender. Wells, in turn, construed the statute to mean the creditor’s one-year right of redemption remained intact because lender had not waived its right. The court held that, regardless of the male pronoun “his,” RPAPL Section 763 “unambiguously prohibits” a lender or mortgagee of a leasehold from exercising redemption rights if the tenant waives its right to redeem under the Lease.
Additionally, the court found that Wells could not selectively interpret the statute’s wording, and courts are obligated to effectuate a legislature’s intent with a law and to seek to construe the whole of a statute. Since evicting Thor in late 2019, Marx publicly announced and completed $24 million in renovations at 545 Madison Avenue, including a new lobby, the creation of 20,000 square feet of prebuilt office suites on the building’s third and 14th floors and 5,000 square feet of amenities.
“This case of first impression confirms that what has long been practiced when drafting leases is proper in that a waiver of the statutory right of redemption from a tenant alone is sufficient to protect a landlord,” Pensabene said. “This important decision reinforces the rights of landlords and, in this case, preserves the sweat equity and ingenuity that Marx put into the property, which has transformed the building to create highly attractive, contemporary office spaces.”