
    F & F Restaurant Corp., Appellant, v Wells, Goode & Benefit, Ltd., et al., Respondents.
    Argued January 10, 1984;
    decided April 3, 1984
    
      POINTS OF COUNSEL
    
      Donald S. Snider and Gerald M. Levine for appellant.
    I. The existence of a conditional side lease which by its terms becomes void on the happening of an event cannot be construed as a surrender of a prior existing lease. (Aron v Gillman, 309 NY 157; Manson v Curtis, 223 NY 313.) II. The two versions of the October lease should be read together as contemporaneous writings. (Nau v Vulcan Rail & Constr. Co., 286 NY 188; Knowles v Toone, 96 NY 533; Marsh v Dodge, 66 NY 533.) III. The third-party beneficiary agreement contained in rider paragraph 49 expressly manifests the intention of the parties to protect “any future assignee” from losing its possessory rights to the leasehold estate. (Matter of Associated Teachers of Huntington v Board of Educ., 33 NY2d 229; Cutler v Hartford Life Ins. Co., 22 NY2d 245; Goodman-Marks Assoc. v Westbury Post Assoc., 70 AD2d 145; Beveridge v New York El. R. R. Co., 112 NY 1.) IV. Margin Call and F & F were each assigned their predecessor’s entire possessory interest in the leased premises, not merely a piece of paper. (New Amsterdam Cas. Co. v National Union Fire Ins. Co., 266 NY 254; Stewart v Long Is. R.R. Co., 102 NY 601; Mann v Munch Brewery, 225 NY 189; Meeder v Provident Sav. Life Assur. Soc., 171 NY 432.) V. The failure to obtain consent from Neuman for the two lease assignments cannot affect their validity where Neuman agreed to accept and recognize the April lease which contained the landlord’s covenant that it shall not unreasonably withhold permission to assign the lease. (Arlu Assoc. v Rosner, 14 AD2d 272, 12 NY2d 693; Williams v Haddock, 145 NY 144.)
    
      Joseph A. D’Addario and Sanford Silver for respondents.
    I. Upon the execution of the contract of sale herein respondent as the contract vendee became the equitable owner of the property, and the contract vendor could not as against said contract vendee thereafter encumber the title so contracted for with a new lease. (Ferry v Stephens, 66 NY 321; Thomson v Smith, 63 NY 301; Lewis v Smith, 9 NY 502; 
      Williams v Haddock, 145 NY 144; Engle v Tinker Nat. Bank, 269 F Supp 199; Buffalo Sav. Bank v Siger, Inc., 28 AD2d 815; Klapp v Dealy, 213 App Div 523.) II. The evidence amply sustains the finding of the trial court that the lease under which appellant tenant was in possession was the lease dated October 29, 1979, without the reversion rider. (Orr v Doubleday, Page & Co., 223 NY 334, 700; Metropolitan Fuel Distrs. v Coogan, 277 App Div 138; People by Long Is. State Park Comm. v Savage, 236 App Div 745; Soft-Lite Lens Co. v Squibb & Sons, 23 Misc 2d 777; Wernick v Mehl Realty Co., 190 Misc 400; Goldstein v Totman, 163 Misc 114.) III. The contract vendee was under no obligation to join appellant as a party defendant in his specific performance action. (Wrightsville Hardware Co. v Assets Realization Co., 159 App Div 849; Stoddard v Stoddard, 227 NY 13; Garfein v McInnis, 248 NY 261; Hulbert v Clark, 57 Hun 558, 128 NY 295; Merritt v Youmans, 21 App Div 256.) IV. The trial court was correct in finding that Suffolk did not have the authority to consent to the assignment of the lease to appellant long after the signing of the contract by the landlord with respondent, Neuman, and after the filing of the notice of pendency of action herein. (Niman v Niman, 269 App Div 675.) V. The dissenting opinion of the court below is contrary to the facts and law of the case. (Melnick v Kulka, 228 App Div 321.)
   OPINION OF THE COURT

Meyer, J.

One who purchases real property subject to a lease which gives the tenant the option to renew for an additional seven years and the right to assign subject to consent of the landlord, such consent not, however, to be unreasonably withheld, may not, unless he can show reason for withholding consent, oust an assignee of the tenant, notwithstanding that upon the tenant’s exercise, after execution of the purchase contract, of the renewal option the seller and the tenant agreed to revised rent provisions. Although the purchaser is not bound by the rent provision changes, he is bound to honor the renewal on the terms of the original lease and not unreasonably to withhold consent to assignment of the lease as extended. The order of the Appellate Division should, therefore, be reversed and the matter remitted to Supreme Court for consideration of the question whether the present owner (successor to the purchaser) has reasonable grounds for withholding consent to the assignment of the lease to plaintiff.

On September 19, 1979, defendant Neuman contracted to purchase from Suffolk Industrial Commodities (Suffolk) the premises at 13 South William Street in Manhattan. The contract stated that the sale was subject to a lease dated April 10, 1979, between Suffolk and Pussycat Lounge (Pussycat). That lease, which was exhibited to Neuman, expired March 31, 1980, but gave Pussycat the option of extending the term for a further period of seven years to March 31,1987. It also provided for assignment of the lease with the written consent of the landlord which the landlord “shall not unreasonably withhold.”

On October 2, 1979, Pussycat exercised its renewal option, after which, on October 29, 1979, two separate lease documents were executed between Suffolk and Pussycat. Each was for a term running from November 1, 1979 through March 31, 1987, but contained more stringent noise and hours limitations on the tenant and reduced the fixed rent from $2,400 to $2,000 per month but required the tenant to pay 50% of real estate taxes and fire and liability insurance premiums and, unless the tenant installed its own heating system and water meters, 50% of the heating costs and water and sewer charges. The only significant difference between the two October 29, 1979 leases was that one contained but the other did not a rider paragraph defining the rights of the parties in the event the contract with Neuman, which Suffolk had disaffirmed claiming that the down payment check had been dishonored, were held valid or if Suffolk decided to consummate the contract.

On October 31, 1979, Neuman began an action for specific performance and filed a notice of pendency. On March 31,1980, Pussycat executed an assignment to Margin Call Restaurant, Inc., and on November 7, 1980, Margin Call executed an assignment to plaintiff, in each case with the consent of Suffolk, and delivered with the assignment the October 29, 1979 lease which did not contain the rider referred to above. Neuman’s specific performance action having resulted in judgment in his favor, Suffolk, on February 2, 1982, deeded the premises to defendant Wells, Goode and Benefit, Ltd., Neuman’s successor. Plaintiff’s February rent check having been returned by the latter’s attorney with a letter stating the intention to commence eviction proceedings, plaintiff began the present action seeking judgment declaring the rights and legal relations of the parties. Supreme Court concluded that although Suffolk was the legal owner of the property when the October lease was executed, Neuman, as purchaser, was the equitable owner, and as to him the October lease was void as an illegal encumbrance. Based upon that conclusion it held that Pussycat and Margin Call had nothing to assign and plaintiff, having received nothing, could not remain in the premises. Plaintiff’s argument that it was successor by assignment of Pussycat’s rights under the April lease was rejected on the ground that Neuman’s consent to the 1980 assignments had not been obtained and that, in any event, plaintiff could be a third-party beneficiary of the April lease only if it had been assigned the October lease which contained the rider paragraph referred to above, which the court found not to be the case.

The Appellate Division affirmed, two Justices dissenting, for the reasons stated by Supreme Court. The dissenters would have held that plaintiff was entitled to remain in the premises under either the April or the October lease, at defendant’s option. They reasoned that Neuman was bound by the April lease subject to which he had purchased and that the failure to obtain his consent to the 1980 assignments was not a bar unless he could show cause for withholding consent. We agree.

Although a seller of real property may not, after contracting to sell, encumber the property to the purchaser’s disadvantage (Fruhauf v Bendheim, 127 NY 587; West 72nd St. Realty Corp. v Yeshiva Chofetz Chaim, 205 Misc 124, mod on other grounds 284 App Div 962, mot for lv to app den 285 App Div 806), and in that sense the purchaser is deemed to be the equitable owner (Williams v Haddock, 145 NY 144,150; see 7 Williston, Contracts [3d ed], § 927, p 819), a purchaser who obtains specific performance of his contract is entitled to no greater rights than he would have had had the contract been performed at the agreed time (see Bostwick v Beach, 105 NY 661, 663). Neuman purchased subject to the April lease and to the rights of renewal and of assignment which that lease contained, but not subject to the altered terms contained in the October lease, even though arguably in his favor. That the October lease was void as to Neuman did not, however, invalidate the April lease, unless by their actions the parties to it had themselves invalidated it.

From the execution of a subsequent lease inconsistent with an earlier one, surrender of the earlier lease may be implied (Coe v Hobby, 72 NY 141,146), but for there to be a surrender “there must be a new lease, valid in law, to pass an interest according to the contract and intention of the parties” (id., at p 147). There is, however, no surrender if the new lease is ineffective (Chamberlain v Dunlop, 126 NY 45, 51; see Smith v Kerr, 108 NY 31, 38; 2 Walsh, Real Property, § 190, pp 338-339; 34. NY Jur, Landlord & Tenant, § 392, pp 237-238), or when the purpose of the new lease is to obtain a renewal or extension of the term (Witmark v New York El. R. R. Co., 149 NY 393, 396, affg 76 Hun 302, 306). It follows that though Pussycat could take nothing by the October lease without Neuman’s consent, it retained its rights, under the April lease and its exercise of the option in that lease, to a term ending March 31, 1987, and to assign subject to the consent provision of the lease.

The assignment by Pussycat to Margin Call was, therefore, not wholly invalid as the courts below have held. We need not now decide whether Suffolk’s consent to that assignment would be sufficient had Pussycat not been given notice of Neuman’s interest under the contract of sale, for the rider establishes that prior to the assignment to Margin Call, Pussycat was aware of that contract. It is enough on this point to note that Neuman as equitable owner had the right to withhold consent only if he had a reasonable ground for so doing and that the existence of a reasonable ground must be proved by Neuman’s successor, the present owner, and will not be presumed. For like reason the assignment from Margin Call to plaintiff must be given effect unless the landlord can establish a reasonable ground for withholding consent.

The fact that the assignments to Margin Call and to plaintiff purported to be of the October rather than the April lease is not fatal. Having assigned the right to possession of the entire premises for the entire term to which it was entitled under the April lease, Pussycat will not be heard to say that its assignment conveyed nothing because it referred to a document of another date but for the same premises and term (see Thompson v Simpson, 128 NY 270, 286; Stewart v Long Is. R. R. Co., 102 NY 601, 608; Christie v Gage, 71 NY 189,193), and the same rule applies to Margin Call’s assignment to plaintiff. The assignees under those respective assignments have not suggested that the present landlord is limited by the October lease nor has plaintiff contested the right of the landlord to enforce the terms of the April lease. The landlord is, thus, in the same position that Neuman would have been had title closed on the contract date, provided only that it is afforded the opportunity to establish, if it can, reasonable ground for withholding consent to plaintiff’s occupancy as assignee. Neuman’s decree of specific performance entitled him and his codefendant, as his successor in interest, to no more (Bostwick v Beach, 105 NY 661, 663, supra).

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court, New York County, for further proceedings in accordance with this opinion.

Jones, J.

(dissenting). I accept the finding of Supreme Court, affirmed by the majority at the Appellate Division, that the lease purportedly assigned by Pussycat to Margin Call and by Margin Call to plaintiff was plaintiff’s exhibit 2, the lease dated October 29, 1979 which did not include rider paragraph 49 (the paragraph which accorded recognition to the prior lease between the parties dated April 10, 1979). There is no evidence in the record sufficient to support a finding that this lease dated October 29, 1979 was intended by the parties as an extension of their prior lease or that it was executed in implementation of the tenant’s October 2,1979 exercise of its option to renew that lease, and neither court below so determined. In fact, although the expiry date was consistent, i.e., March 31, 1987, the substantive terms of the October 29, 1979 lease were significantly different from those of the lease which it replaced, and there is neither any reference therein to the prior lease nor any internal provision from which it could be inferred that it was intended as an extension of that lease. As a replacement or substitute lease it gave rise to the implication that the earlier lease had been surrendered (majority opn, at p 502).

In any event, the assignments from Pussycat to Margin Call and from Margin Call to plaintiff made explicit reference only to the lease dated October 29, 1979, no reference whatsoever was made to the original lease dated April 10, 1979 or to any rights of the assignors thereunder. I am, therefore, in agreement with Justice Arnold G. Fraiman in Supreme Court and the majority at the Appellate Division that the lease dated October 29, 1979 was void as to defendants-respondents whose standing, in consequence of the outcome of the action for specific performance of their contract to purchase the property, related back to September 19, 1979 the date of their contract, and that plaintiff accordingly acquired no rights to possession against defendants in consequence of the assignment by Margin Call to it of the October 29, 1979 lease.

I would, therefore, affirm the order of the Appellate Division.

Chief Judge Cooke and Judges Simons and Kaye concur with Judge Meyer; Judge Jones dissents and votes to affirm in a separate opinion in which Judges Jasen and Wachtler concur.

Order reversed, etc. 
      
      . The paragraph read, in full: “Tenant recognizes that tenant’s prior lease dated April 10, 1979 relative to these premises was annexed to a proposed Contract of Sale dated September 19, 1979 between Suffolk Industrial Commodities, Inc., and Edwin M. Neuman, which contract has been disaffirmed by Suffolk by reason of failure of consideration. Tenant understands and agrees, for itself and on behalf of any future assignee or sublessee, that if the aforementioned contract is held to be valid by any court or if landlord herein for any reason, in its sole and absolute discretion, decides to consummate an agreement of sale with Edwin Neuman, this lease shall be void and of no further effect and tenant shall have only those rights and obligations as are set forth in the prior lease dated April 10,1979. Under no circumstances shall any liability, charge or obligation attach to landlord by reason of its exercise of its option to sell the building to Edwin Neuman.”
     
      
      . In view of the conclusion hereafter reached, the fact that the assignments were accompanied by the version of the October lease which did not contain the rider is not relevant.
     
      
      . To reason as does the dissent ignores the principle long ago declared in Van Rensselaer’s Heirs v Penniman (6 Wend 569, 579) that, “As this presumption of a surrender arises from the acts of the parties, which are supposed to indicate an intention to that effect, it must follow that where no such intention can be presumed, without doing violence to common sense, the presumption cannot be supported” (accord Coe v Hobby, 72 NY 141, 146).
     