Daily Development for Thursday, April 20, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD/TENANT; DEFAULT; WAIVER: Under form lease guarantee that states
that guarantors obligations will terminate if the tenant is not in
default during the first three years of lease, tenant will not be
regarded as in default if it habitually pays rent within a 20 day "grace
period" following due date if landlord consistently accepts such payment
without objection. 

Madison Avenue Leasehold, L.L.C.  v. Madison Bentley Associates, L.L.C.
, 811 N.Y.S. 2d 47 (N.Y. App. Div. 2006)

This case is noteworthy for a lot of little things.  First, the Bentley
dealer runs out on the lease.  That's "man bites dog" news a little bit.
Second a New York court actually writes a lengthy opinion explaining its
result (wonder of wonders.)  Perhaps the latter event is explained by
the fact that one of the judges vigorously dissented, leading the author
of the majority opinion to develop his thoughts further than he might
otherwise have done.

The lease was the Standard Form of Store Lease published by the Real
Estate Board of New York, Inc.  Presumably the guarantee came from the
same source, although we're not told. 

The guaranty stated that the guarantors were relieved of their guaranty
if the tenant "shall not have been in monetary default . . . at any time
during the first three years of the lease."  Tenant routinely paid rent
late, but within 20 days of the due date.

The default language, which the court correctly notes is "not a model of
clarity" on the issue of when a default occurs, read as follows:

"It tenant defaults in . . . the covenant for the payment of rent . . .
and if tenant shall not have diligently commenced curing such default
within such twenty (20) day period . . . then owner may serve a written
three (3) days notice of cancellation of this lease upon tenant." 

Tenant quit the lease three years and three months following
commencement (what a coincidence!!). In fact, after three years, the
rent subsidy that tenant was receiving from the manufacturer of its
Bentleys, Rolls Royce, expired.  Likely all those Bentley cars on the
showroom floor did not belong to tenant, and there wasn't any money to
pay the default damages.   Obviously, the fight was about whether the
guarantee had been released. 

The court acknowledged, as the dissent asserted, that it was likely that
the failure to pay rent on the original due date ought to be regarded as
a "default."  But it held that the landlord's consistent pattern of
accepting late payments without comment constituted a waiver of its
right to declare a default. 

The landlord noted that the concept of waiver usually occurs in an
equitable context.  Here, there was solely a suit for damages, not
forfeiture of the leasehold estate, as the tenant had abandoned.  But
the court responded that waiver analysis is appropriate both for legal
and equitable disputes.

Of course, the fact that landlord had waived its right to enforce the
default provisions of the lease as a consequence of the late payments
didn't necessarily mean that tenant hadn't "defaulted" for purposes of
the guarantee release.  In fact, the default clause appears to say that
failure to pay on time is a "default."  But the court, despite the fact
that it claimed that waiver is appropriate in a legal context, used the
waiver here as a kind of estoppel of the landlord's right to assert that
the late payments were defaults:

Having failed, over the course of three years, to give Bentley any
notice that timely payment of rent would be required, landlord may not
now insist that the tenant's failure to strictly comply with the timely
payment condition of the lease constitutes a default."

The court viewed its interpretation as necessary to the well being of
the law in light of the facts that the lease was a standard form lease
and that its interpretation was, in its view, reflective of the probably
intent of these parties and the market in general in the interpretation
of the document. 

Landlord attempted a second ploy: the anti-waiver language in the
guarantee itself: The guarantee stated that the individual defendants'
obligations "shall in no wise be . . . terminated, affected, diminished
or impaired by reason of . . . the failure to assert . . . rights or
remedies reserved to Landlord [under the Lease]."  Further, the guaranty
provided that the guarantors' liability "shall in no way be affected . .
. by reason of any extension of time that may be granted by Landlord to
the Tenant."  Landlord pointed out that the alleged "waiver" that
prevented it from asserting that Tenant had defaulted during the first
three years arose from an extension of time.

The court disagreed, and said that the language of the guaranty did not
cure the problem with the establishment of the condition precedent to
the guaranty being in effect - the lack of a default within the first
three years.  The editor will try to explain the majority position,
which seems quite clear to it, simply by quoting the language of the

"As previously stated, because landlord, by a course of conduct
extending over a period of years, waived the tenant's late payment of
rent, there was no 'monetary default' by the tenant under the lease
during the applicable three-year period, the guaranty neither took
effect nor was extended, and the guarantors were never subject to its
terms and obligations.  Once waived, the default in timely payment of
rent, is extinguished and cannot later be revived, like a phoenix, into
a material default for the purpose of extending the period of the
collateral guaranty." 

The decision.  Justice McGuire, in dissent, took the position that in
fact the interpretation of the majority was not what the parties
probably expected - in fact it was far from it:

"[T]his waiver analysis ignores the economic realities of th elease in
light of the guaranty.  The guaranty effectively shifted the ultimate
risk of [tenant's] non performance of the obligation to make rent
payments from [Landlord] to the [guarantors.] Accordingly, [Landlord]
had no economic reason to notify [tenant] of [tenant's] own habigually
late payments during the very period in which [landlord] allegedly
waived its rights by failing to do so.  To insist on pain of waiver that
[landlord] formally advise [tenant] of what it already knew makes little
sense.  On the facts of this case, in particular, that the [guarantors]
are [tenant's] principals, the waiver analysis is all the more
confounding, for it reduces to this: [Landlord] waived the rights it
bargained for under the guaranty by failing formally to belabor the
obvious both to [tenant] and [guarantor.]"

Judge McGuire was perfectly willing to concede that the Landlord might
have waived its rights against Tenant to terminate the lease for late
payment of rent.  But, he asserted, this does not mean that Landlord
ever waived its right to assert against guarantors that a default had

Comment 1: Judge McGuire is correct.  The majority's view is so much
Phoenix poop.  Of course the guarantee "anti waiver" language
specifically applied to this case.  It consistently stated that it there
would be no waiver based upon failure to respond or to delay response to
acts of the tenant.  It was addressed entirely to a further
interpretation of the meaning of the lease insofar as the guarantor's
relationship with the Landlord was concerned.  To read the lease as
independent of the meaning ascribed to it in the guarantee, for purposes
of reading the guarantee, is absurd.Items reported here and in the ABA
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters.  The same is true of all
commentary provided by contributors to the DIRT
list.  Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality


DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5  15 messages per work day.

Daily Developments are posted every work day.  To
subscribe, send the message

subscribe Dirt [your name]



To cancel your subscription, send the message
signoff DIRT to the address:


for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically
residential real estate matters.  Because real estate brokers generally
this service more valuable, it is named "BrokerDIRT."  But residential
specialist attorneys, title insurers, lenders and others interested in
residential market will want to subscribe to this alternative list.  If
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT,
BrokerDIRT carries all DIRT traffic in addition to the residential

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]



To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:


DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.

DIRT has a WebPage at:

Comment 2: Usually, waiver arguments are used to support a claim that
the party asserting waiver was "lulled into a false sense of security"
by the other sides failure to assert its rights. But that didn't happen
here.  Exactly what would the guarantors have done differently had they
known that the landlord regarded late payment of the lease as a default,
and no joking around?   Made sure all payments were on time after the
first late payment?  This wouldn't have mattered - the first late
payment cost them their three year "out."  Defaulted sooner?  This would
only have exposed them to more liability?  Done something to the tenant?
What? [In fact, it appears that they were the tenant in other clothing.)
The opinion is wrong.  Let's see if there's an appeal.  (The case was
decided March 14.)


To be removed from this mailing list, please go to
or send an email message to the address listserv@listserv.umkc.edu,
with the text SIGNOFF DIRT in the body of the message. Problems
or questions should be directed to manager@listserv.umkc.edu.



To be removed from this mailing list, please go to
or send an email message to the address listserv@listserv.umkc.edu,
with the text SIGNOFF DIRT in the body of the message. Problems
or questions should be directed to manager@listserv.umkc.edu.


To be removed from this mailing list, please go to <https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://listserv.umkc.edu/listserv/wa.exe?SUBED1=DIRT%26A=1> or send an email message to the address listserv@listserv.umkc.edu, with the text SIGNOFF DIRT in the body of the message.

Problems or questions should be directed to manager@listserv.umkc.edu.