What Happened: A landlord sued a tenant and its guarantor for failure to pay real estate tax escalations and water charges due under the lease as additional rent. The tenant denied responsibility for the charges because the landlord didn’t notify or serve a written demand for its proportionate share of the real estate tax escalations or water and countersued the landlord for not returning its security deposit.

Ruling: The New York court handed down a mixed decision, finding the tenant and guarantor liable for $268,911 in unpaid rent but also ruling against the landlord on the security deposit issue.

Reasoning: The lease specifically set out the proportionate share of the real estate tax escalations and water charges that the tenant had to pay. Nothing in the lease, the court reasoned, created “an express or implied condition precedent” obligating the landlord to notify or demand that the tenant pay those amounts. Nor did the lease require the landlord to serve notice of the tenant’s failure to pay rent or additional rent. Although charging the tenant contemporaneously for those amounts of additional rent would have been “the better course,” the leases didn’t require the landlord to calculate and apprise the tenant of the amounts due. 

However, the court continued, while not affecting the tenant’s duty to pay the additional rent charges, the landlord’s commingling of the security deposit with its own funds limited the landlord’s recourse rights against the security deposit. Rather than just a straight offset for the base amount, the tenant was entitled to statutory interest on the claim for the security deposit, the court concluded.

• Abarrotes Mixteca Corp., Inc. v. Brisk, 2025 N.Y. App. Div. LEXIS 35, 2025 NY Slip Op 00034