## Facts

- Commercial landlords David Gotlieb and Enid Blaymore leased Brooklyn property to Taco Bell Corporation under a 20-year ground lease dated August 15, 1991, for construction and operation of a restaurant.
- The lease required Taco Bell to use diligence to obtain permits and approvals and allowed cancellation if permits were not obtained within a six-month permitting period ending February 15, 1992.
- Community opposition arose soon after execution; Taco Bell participated in meetings and proposed design and operational changes to address concerns.
- On February 10, 1992, Taco Bell sought changes to lease terms.
- On February 14, 1992, Taco Bell filed a permit application and, the same day, sent a letter repudiating the lease.
- The landlords rejected the requested changes and repudiation and stated they would hold Taco Bell to the existing lease.
- The landlords later pursued re-letting: they met with Rite Aid on October 19, 1993, and sent Rite Aid a written lease proposal on November 3, 1993, at higher rents than the Taco Bell lease.
- The landlords sued seeking accrued and future rent (including accelerated rent), the value of an unbuilt building, and attorneys’ fees and costs.
- The district judge granted summary judgment for the landlords on liability and referred the matter for a bench trial on damages before a magistrate judge by consent.

## Issues

1. Whether the landlords’ negotiations with Rite Aid and delivery of a proposed lease constituted acceptance of Taco Bell’s repudiation/surrender by operation of law, terminating the lease.
2. If so, how that acceptance affected the measure of damages, including recoverability of future (accelerated) rent, building-value damages, and attorneys’ fees.

## Decision

- The court held that the landlords’ conduct in proposing a lease to Rite Aid and proceeding to re-let for their own account was inconsistent with continuation of Taco Bell’s tenancy.
- That conduct constituted acceptance of Taco Bell’s surrender/repudiation by operation of law, terminating the lease as of the time of that acceptance.
- As a result, the landlords’ recovery was limited to damages accruing before the acceptance of surrender.
- The landlords could not recover accelerated future rent for the remainder of the 20-year term, and their broader claimed consequential amounts (including the unbuilt structure value) were constrained by the termination date.
- Attorneys’ fees were addressed under the lease and were recoverable only to the extent authorized and consistent with the reduced damages framework.

## Legal Principles

- Under New York law, a landlord may accept a tenant’s surrender expressly or by conduct so inconsistent with continuation of the tenancy that acceptance is implied (surrender by operation of law).
- A landlord’s pursuit of a new tenant for its own account—such as sending a proposed lease to a replacement tenant—can constitute acceptance of a prior tenant’s repudiation.
- Once surrender is accepted by operation of law, the lease terminates and the landlord’s rent-based recovery is generally cut off as of the acceptance date; claims for the remainder of the term (including acceleration) are not recoverable after termination.
- Damages for breach of a lease must be measured in light of post-breach actions that terminate the landlord-tenant relationship.

## Conclusion

Although Taco Bell’s liability for breach had been established, the landlords’ later decision to pursue a replacement lease on their own account operated as an implied acceptance of Taco Bell’s surrender, terminating the lease and limiting damages largely to amounts accruing before that acceptance.


Gotlieb v. Taco Bell Corp., 871 F. Supp. 147 (E.D.N.Y. 1994)