Daily Development for Friday, November 22, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

LANDLORD/TENANT; CHARACTERIZATION AS A LEASE: Rooftop cellular antenna agreement is a lease, rather than a license, where the agreement contais many provisions typical of a lease and conferred rights well beyond those of a licensee or holder of a mere temporary privilege.

Nextel of New York v. Time Management Corp. 746 N.Y.S.2d 169 (A.D. 2 Dept. 2002).

In a dispute with the landlord, the tenant claimed the right to invoke a New York real estate convention available to lessees - a "Yellowstone injunction" - which prohibits the landlord from terminating the tenant's possession of the premises until the existence of an alleged default is fully resolved by the court. (The injunction does not, by the way, permit the tenant to reinstate if the landlord had validly terminated the lease prior to the issuance of the injunction. Such an injunction is available to leasehold tenants, but not, by definition to licensees.) Generally speaking, licensees have no right to possession, or to have their physical use of the property protected by the courts. They may be entitled to damages for breach of their contractual expectations, but have no specific right in the property.

The plaintiff claimed that the parties' agreement granted defendant a non-exclusive license to utilize a portion of the premises for its equipment. Therefore it had no actual possessory right to be protected by a Yellowstone injunction. Defendant Nextel contended that the agreement was a lease granting it the rights and protections of a tenant.

The agreement in question provided for the defendant to install its equipment on the roof and to occupy 200 square feet of interior space. The defendant was to partition off its interior space and access to such space was to be exclusive. The term of the lease was for five years with five automatic renewal terms of five years each. The defendant had unlimited access to the premises and had the right of quiet enjoyment. In short, the agreement contained many provision typical of a lease. The court commented that a license gives no interest in land. It confers only the non-exclusive, revocable right to enter the land of the licensor to perform an act. The central distinguishing feature of a lease is the surrender of absolute possession and control of property to another party for an agreed-upon rental.

The court held the agreement was a lease and not a license. It commented that "[w]hether a given agreement is a lease or a license depends upon the parties' intentions."

Comment 1: The tenant may have get more than it wanted from this result. There are situations in which cellular users would prefer to be characterized as licensees to avoid the impact of a property tax that would fall upon tenants. This distinction may not be meaningful in New York City, which finds a way to tax everyone for everything.

Comment 2: The editor is uncomfortable with the statement by the court that the characterization of the agreement depends upon the intent of the parties. This is true only as to the parties' intent with respect to their respective rights, not with respect to the characterization itself. For instance, courts have found relationships to be licenses even when the parties in their documentation have labeled them "leases" and vice versa.

Comment 3: In a prior DD, for 4/20/95, the editor had this to say about characterizations of leases and licenses:

Of course it is appropriate to classify interests. Real estate agreements never will articulate all of the parties' expectations - the transactions costs are to high. Consequently, if we are to have any level of predictability and avoid litigation of every conceivable issue, we should have "default" parameters that apply when the parties have not stipulated otherwise.

In the editor's view, ad hoc analysis of the parties' intent after a dispute arises frequently does not result in an accurate statement of intent, but rather in the court's rough view of the just result after everything has hit the fan. Real estate investors don't like to take the risk of whimsical judgments by subsequent courts. Hence, we value predictability.

Without characterization of the interest, we are left with either no "default" construction or only one. In either case, we will have less predictability and, most likely, less adherence to the true expectations of the parties at time of agreement.

Both of the above cases use characterization techniques to a certain extent. In both cases, one could question the court's conclusions as overly "result oriented." But the technique is useful, even though, on the edges, one can always criticize the result.

Comment 4: Here's what the editor has added to Friedman's discussion in his supplement to Friedman on Leases. (The Supplement is about to be published in a new edition.)

" The California state law test distinguishing between a lease and a license is whether the contract gives exclusive possession of the premises against all the world, including the owner, in which case it is a lease, or whether it merely confers the privilege to occupy under the owner, in which case it is a license. See In re Safeguard Self-Storage Trust, 2 F.3d 967 (9th Cir. 1993) (holding that self-storage agreements were leases rather than licenses). In determining whether an agreement is a "lease," the appropriate focus is on the economic realities of the agreement as analyzed under state law. In re SCCC Associates II, L.P., 158 B.R. 1004 (Bankr. N.D. Cal. 1992). See also In re Best Prods. Co., Inc., 157 B.R. 222 (Bankr. S.D.N.Y. 1993).

A contract by which a city agrees to pay a hotel to shelter homeless persons if the hotel elects to do so is not a lease. Davis v. Dinkins, 613 N.Y.S.2d 933 (App. Div. 1994). An agreement for the use of a kiosk in a shopping mall constitutes a lease, not a license. See Schloss v. Sachs, 631 N.E.2d 212 (Ohio Mun. Ct. 1993). An agreement establishing a right to use a public sports stadium for professional baseball eighty days a year is not a lease, even though so denominated by the parties. Golden W. Baseball Co. v. City of Anaheim, 31 Cal. Rptr. 2d 378 (Ct. App. 1994) (This case is a useful guide to persons about to engage in the negotiation of stadium leases. If you want economic control over an area, you had better be specific). See also Am. Jewish Theater, Inc. v. Roundabout Theater Co., Inc., 610 N.Y.S.2d 256 (App.

Div. 1994) (parties' characterization in a written agreement that agreement is a license is not dispositive-when possession is granted for an identified period-agreement is a lease).

Comment 5: For more on Yellowstone injunctions, see Waldbaum, Inc. v. Fifth Avenue of Long Island Realty Associates, 650 N.E. 2d 1299 (N.Y. 1995)..

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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