A recent decision by the Appellate Division, First Department, Murray Hill Mews Owners v. Rio Restaurant Associates,1 evidences the importance for commercial tenants, with annual rent escalation provisions in their leases, to review and analyze their leases and the landlord’s billing statements when annual increases go into effect.2 Likewise, to avoid long-term uncertainty and potential litigation years into a tenancy, commercial landlords must carefully review and analyze their rent escalation provisions—and then re-review and re-analyze them—well before execution of the lease. Recycling such provisions which worked (or were fortunately not challenged) in the last decade, will no longer work today when there is a whole industry specializing in auditing escalations. And boilerplate provisions lifted verbatim from other leases or from real estate treatises—while ostensibly a cost-saving device—is surely a recipe for litigation.

This need for re-examination, re-review and re-analysis is made more manifest by the history of this recent decision where the lower court, on landlord’s motion for summary judgment, ruled in favor of the landlord as to its application of the annual rent escalation provision for more than seven years. The Appellate Term reversed and ruled that there was an issue of fact—an ambiguity—in the application of the rent escalation provision which had to await a trial. The Appellate Division reversed the Appellate Term, reinstated the lower court, and ruled that the landlord’s application of the unambiguous rent escalation provision was the proper one without the need for a trial.

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