REVERSING WHAT it described as a misapplication of the law by a lower court, the Appellate Division, First Department, has issued a ruling that narrows the circumstances under which a liquidated damages clause in a commercial lease can be deemed unenforceable.
Last summer, Manhattan Supreme Court Justice Herman Cahn found that a liquidated damages clause was an unenforceable, purely punitive measure if a party had made no attempt to tie the damages to its probable loss. The issue arose in a suit brought by Bates Advertising USA Inc. against its landlord, 498 Seventh LLC, which had allegedly failed to complete numerous improvements to the Garment District building the advertising agency had rented.
