A standard lease clause millions of landlords rely on just got hauled back into court
A lease clause that landlords across New York have long treated as routine is now facing a class action.
The Appellate Division, First Department, on October 22, 2026 partially reversed a lower court’s dismissal of a tenant’s class action against Ninety Five Wall Street LLC. The decision reinstated two claims: one alleging the landlord acted in bad faith by charging fees that undercut the tenant’s rights under state law, and another asking the court to declare those fee provisions void.
At issue are two provisions in the tenant’s lease. Paragraph 11 required payment of a “reletting charge,” described as “a reasonable estimate of such damages” that “is due whether or not our reletting attempts succeed.” A separate lease buyout agreement required two months’ rent to exit the lease early - even if the landlord found a replacement tenant right away and at the same rate.
The tenant argued both provisions collide with Real Property Law Section 227-e, New York’s statute requiring landlords to make reasonable efforts to re-rent a unit when a tenant leaves. The statute does not leave much room for debate: “Any provision in a lease that exempts a landlord’s duty to mitigate damages under this section shall be void as contrary to public policy.”
Here is the practical problem the tenant identified. Under Section 227-e, if a landlord re-rents the unit quickly, the departing tenant may owe nothing at all. A flat fee charged regardless of outcome - whether or not the unit is re-rented, and however fast - strips that protection away.
The landlord argued the fees were a fair bargain between the parties and that because the tenant did not breach the lease, there were no damages to mitigate. The appellate panel disagreed.
The court found the tenant’s allegations were enough to keep the case alive. It held that New York’s implied promise of good faith and fair dealing - a promise built into every contract in the state - requires parties to avoid doing “anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” A promise not to charge amounts barred by Section 227-e, the court reasoned, falls within that protection.
The landlord also argued the fees should not be treated as pre-set damage estimates. The court did not bite. Whether the charges qualify as that or not, the panel wrote, “they still have to be enforceable in light of this State’s public policy, which includes Real Property Law § 227-e.”
The court also reinstated a separate claim asking for a class-wide ruling on whether these lease provisions are enforceable under Section 227-e - a question the court found was distinct from the tenant’s individual circumstances.
Not everything survived. The tenant’s claim that the landlord was unjustly enriched stayed dismissed, with the court finding it fell within the scope of the parties’ written agreements.
The case now returns to the trial court on the reinstated claims. What makes it worth watching is the class dimension. The tenant is represented by Bursor and Fisher. If the class is certified and the legal theory holds, landlords across New York using similar reletting or early termination fee structures could face challenges.
For property managers and landlords, this is the kind of decision that deserves a second look at your standard lease language - particularly any clause that collects a fixed fee from a departing tenant regardless of how quickly you fill the unit.
