Realty Law Digest
Scott E. Mollen, a partner at Herrick, Feinstein, discusses "Columbia University v. D'Agostino Supermarkets," a decision involving a clash of competing public policy considerations: freedom to contract, enforceability of settlement agreements and the unenforceability of illegal penalties.
December 22, 2020 at 12:36 PM
17 minute read
Scott Mollen
Liquidated Damages Provision Violated Public Policy as an Illegal Penalty—It Was Grossly Disproportionate to the Actual Damages—Dissent Asserted It Should Be Enforced as a Valid Settlement Agreement Between Two Sophisticated Counseled Commercial Parties—Landlord-Tenant Surrender Agreement
This decision involved the "propriety of a liquidated damages provision" (damage provision) in a landlord-tenant "surrender agreement" (agreement). The New York Court of Appeals held that the agreement is "an unenforceable penalty in contravention of public policy."
The plaintiff landlord and the defendant supermarket tenant had entered into a 15-year lease. In year 13 of the lease period, the tenant facing "financial difficulties," entered into the agreement that "terminated the lease in exchange for (tenant's) surrender of the premises and a staggered payment of $261,751.73."
The agreement provided that if the tenant defaulted or failed to cure upon notice,
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