Appellate Division, First Department — Summary of Opinion

Case: American Jewish Theatre, Inc. v. Roundabout Theatre Company, Inc., et al.

Court: Appellate Division of the Supreme Court of New York, First Department

Date: April 21, 1994

Appeal from: Supreme Court, New York County (Shirley Fingerhood, J.)

Concurrence noted: Sullivan, J.P., Carro, Wallach, Kupferman and Ross, JJ.

Factual and Procedural Background

Defendant Roundabout Theatre Company ("Roundabout") was the prime tenant of the Susan Bloch Theatre in Manhattan. Defendant Haimes served as Roundabout's producing director and defendant Richard as its general manager. In 1991 plaintiff (American Jewish Theatre, Inc.) entered into an agreement with Roundabout for use of the theatre premises for a six-month period ending March 31, 1992. The agreement granted Roundabout a right to terminate the agreement for cause upon notice and failure to cure, and it contained an option to renew for up to six additional months if exercised in writing by February 1, 1992 and the first of each month thereafter.

Plaintiff exercised the option and the parties agreed to extend the term through April 30, 1993, with an additional option available through August 30, 1993 provided the new option was exercised in writing by March 1st and the first of each month thereafter. The original agreement, incorporated by reference in the extension agreement, contained a broad arbitration clause for resolution of all disputes.

During the latest extension period, a rental dispute arose. In July 1993 defendants notified plaintiff that because of plaintiff's breach they would re-occupy the premises in seven days and in any event would not renew the agreement beyond August 30, 1993. Defendants forcibly entered the premises, removed plaintiff's personal property, and began changing the door locks. Plaintiff brought an action seeking injunctive and other relief. Defendants cross-moved to compel arbitration. The trial-level (IAS) court recognized, at least prima facie, a leasehold relationship between the parties; this appeal relates to the resulting rulings concerning characterization, arbitration, and injunctive relief.

Legal Issues Presented

Whether the agreement between the parties should be characterized as a license (revocable at will) or as a lease creating a leasehold tenant with protection from summary eviction.
Whether the parties' disputes over liability and damages under the agreement are governed by the contract's broad arbitration clause and therefore must be resolved through arbitration.
Whether injunctive relief (including bonding) was necessary or appropriate, and if so, whether any such relief could extend beyond August 30, 1993.

Arguments of the Parties

Defendants' Arguments

Defendants contended the agreement was properly characterized as a "license," revocable at will by the licensor.
They pointed out that the instrument was denominated a "license," and the parties were referred to as "licensor" and "licensee" throughout the agreement (with only brief, limited uses of the word "lease").
Defendants cross-moved to compel arbitration, relying on the arbitration clause incorporated in the agreement.

Plaintiff's Arguments

Plaintiff argued it was a leasehold tenant and therefore entitled to the protections afforded leasehold tenants, including protection from summary eviction.
Plaintiff sought injunctive and other relief following defendants' re-entry, removal of property, and changing of locks.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
City of New York v. Pennsylvania R.R. Co., 37 N.Y.2d 298, 300	That characterization of the proprietary relationship depends on the manifest intention of the parties rather than the labels or technical language of the instrument.	The court cited this case to support cutting through contractual verbiage and looking to the parties' manifested intent to determine whether the arrangement created a leasehold or a license.
The Statement v Pilgrim's Landing, 49 A.D.2d 28	Authority for the proposition that the manifest intention of the parties controls characterization of the property interest.	Used along with City of New York v. Pennsylvania R.R. Co. to emphasize that labels in the agreement do not control and that the substance of the parties' relationship governs.
Feder v. Caliguira, 8 N.Y.2d 400, 404	That the nature of transfer of absolute control and possession differentiates a lease from a license or other property arrangements.	The court relied on this principle to explain the analytical distinction between a lease (granting exclusive possession) and a license (connoting mere use or occupancy).
Hartzler v. Westair, Inc., 55 A.D.2d 905	That a license is cancellable at will and without cause.	The court cited this authority to describe the typical legal consequences of a license and contrast them with the fixed-term, non-revocability characteristic of a leasehold relationship.

Court's Reasoning and Analysis

The court began by stating the controlling analytical principle: characterization of the parties' proprietary relationship turns on the manifest intention of the parties and the substance of the transaction, not the labels or technical language used in the contract. Citing precedents, the court explained the functional difference between a license and a lease: a license permits use or occupancy of the grantor's premises and is generally cancellable at will, while a lease grants exclusive possession of designated space to a tenant for a fixed term and is terminable only in accordance with the lease's terms and notice requirements.

Applying that standard, the Appellate Division agreed with the IAS Court's determination that, at least prima facie, the agreement created a leasehold relationship rather than a mere license. Because the agreement (and its extension) contained a broad arbitration clause, the court held that disputes concerning liability and damages arising from breach of the agreement must be decided in arbitration — the contractual forum designated for dispute resolution.

The court then addressed the appropriate scope and duration of equitable relief. It observed that plaintiff's interest in the property could not extend beyond the outer option date of August 30, 1993. Given that limitation on the duration of plaintiff's possessory interest, the court concluded there was no necessity for injunctive relief (or for bonding to secure such relief) beyond August 30, 1993. Thus injunctive relief, if any, was constrained by the fixed expiry of the parties' contractual arrangement as extended.

Holding and Implications

Holding: The court held that, at least prima facie, the parties' agreement created a leasehold relationship rather than a mere license; disputes over liability and damages under the agreement are to be resolved through the agreement's broad arbitration clause; and plaintiff's possessory interest could not extend beyond August 30, 1993, so injunctive relief (and bonding for such relief) was unnecessary beyond that date.

Implications: The direct consequence for the parties was twofold: (1) the liability and damages aspects of the dispute must await resolution in arbitration as provided by the contract; and (2) any injunctive relief will not and need not extend past August 30, 1993. The opinion does not elaborate broader, novel legal principles beyond applying established characterizations (lease vs. license) and enforcing the contract's arbitration clause.

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AMERICAN JEWISH THEATRE, INC., Respondent, v. ROUNDABOUT THEATRE COMPANY, INC., et al., Appellants.

Defendant Roundabout Theatre Company is the prime tenant of the Susan Bloch Theatre, on West 26th Street in Manhattan. Defendant Haimes is Roundabout's producing director, and defendant Richard its general manager. In 1991 plaintiff entered into an agreement with Roundabout for the use of the theatre premises for a six-month period ending March 31, 1992. Roundabout was given the right to terminate the agreement for cause, upon notice and failure to cure. The agreement contained an option to renew for up to six additional months, if exercised in writing by February 1, 1992 and the first of each month thereafter. Plaintiff did pick up the option, and the parties agreed to extend through April 30, 1993, with an additional option available through August 30 of that year, provided the new option was exercised in writing by March 1st and the first of each month thereafter. The original agreement, which was incorporated by reference in the subsequent extension agreement, contained a broad arbitration clause for the resolution of all disputes.

When a rental dispute arose during the latest extension period, defendants notified plaintiff in July 1993 that because of plaintiff's breach, defendants would be re-occupying the premises seven days hence, and in any event, would not renew the agreement beyond August 30. Defendants forcibly entered, removed plaintiff's personal property, and commenced to change the door locks. Plaintiff then brought this action for injunctive and other relief. Defendants cross-moved to compel arbitration.

Defendants took the position that the agreement was a license, revocable at will by the licensor. Indeed, the agreement was denominated a "license", with the parties described throughout as "licensor" and "licensee". (Only in the final two paragraphs of the original agreement was the word "lease" briefly used.) Plaintiff, on the other hand, argued that it was a leasehold tenant, and thus entitled to protection from summary eviction.

What defines the proprietary relationship between the parties is not its characterization or the technical language used in the instrument, but rather the manifest intention of the parties (City of New York v Pennsylvania R.R. Co., 37 N.Y.2d 298, 300; The Statement v Pilgrim's Landing, 49 A.D.2d 28; see, 1 Rasch, New York Landlord and Tenant § 4.1 [3d ed]). The nature of the transfer of absolute control and possession is what differentiates a lease from a license or any other arrangement dealing with property rights (Feder v Caliguira, 8 N.Y.2d 400, 404). Whereas a license connotes use or occupancy of the grantor's premises, a lease grants exclusive possession of designated space to a tenant, subject to rights specifically reserved by the lessor. The former is cancellable at will, and without cause (Hartzler v Westair, Inc., 55 A.D.2d 905). Where one party's interest in another's real property exists for a fixed term, not revocable at will, and terminable only on notice, a landlord-tenant relationship has been created.

The IAS Court was correct in cutting through the verbiage of the agreement and recognizing, at least prima facie, a leasehold relationship between the parties. Since arbitration is the designated avenue for dispute resolution, the questions of liability and damages for breach of the agreement must await determination in that forum. But by the same token, under no circumstances could plaintiff's interest in the property extend beyond August 30, 1993. Thus, there was no necessity for injunctive relief, or bonding therefor, beyond that date.

Concur — Sullivan, J.P., Carro, Wallach, Kupferman and Ross, JJ.

AMERICAN JEWISH THTR. v. ROUNDABOUT THTR