## Facts

- Thom Rock Realty Co., L.P. owned and developed the International Design Center in Long Island City as a specialized showroom complex for the contract furniture industry.
- In 1984, Herman Miller, Inc., a contract furniture manufacturer, signed a 10-year lease for showroom space in Center I after leaving its Manhattan showroom.
- The lease restricted Herman Miller’s use to showroom purposes and required operation and maintenance consistent with a first-class showroom open during designated hours to support a coordinated, multi-tenant showroom environment.
- After an economic downturn, Thom Rock leased substantial space in the complex to non-showroom tenants, including Stars Production Services and the New York City School Construction Authority.
- Herman Miller claimed these non-showroom leases changed the character of the building from a contract-furniture showroom center to an ordinary commercial structure, reducing the value of its leasehold.
- After a bench trial, the district court found a landlord restrictive-use covenant in the lease and found Thom Rock in breach, but awarded a limited remedy based on valuing the premises as office space and effectively shortening the lease term by nine months.
- Thom Rock appealed the covenant and breach findings; Herman Miller cross-appealed the damages measure and the limited remedy.

## Issues

1. Whether the lease, read as a whole, contained a restrictive-use covenant limiting the landlord to leasing the building to contract furniture (or similar) showrooms.
2. Whether leasing space to non-showroom tenants breached that covenant.
3. Whether the district court applied the correct measure and form of damages for the breach.

## Decision

- The court affirmed that the lease contained a restrictive-use covenant binding the landlord to maintain the showroom-only character contemplated by the parties.
- The court affirmed that Thom Rock breached the covenant by leasing space to non-showroom tenants such as Stars and the NYCSCA.
- The court vacated the damages award and remanded for a new damages determination.
- The court held the district court erred by valuing Herman Miller’s loss as if the space were ordinary office space and by using a damages approach that did not reflect the benefit of the showroom-centered bargain.

## Legal Principles

- A commercial lease must be construed as an integrated document; mutual obligations may be implied from the lease’s overall structure, purpose, and interdependent provisions, not only from isolated clauses.
- Where a lease reflects a coordinated, specialized tenant environment (e.g., a showroom center), provisions restricting a tenant’s use and requiring coordinated operations may support an implied landlord covenant not to defeat the agreed property character by leasing to incompatible tenants.
- Economic hardship does not, without contractual authorization, permit a landlord to abandon a core contractual scheme by materially changing the tenant mix in a manner inconsistent with the lease’s purpose.
- Contract damages must reflect the benefit of the bargain and must be measured using a valuation baseline consistent with the use and character promised by the agreement; generic valuation categories that disregard the contracted-for use may be reversible error.
- External market conditions may be considered in damages, but they cannot be used in a way that effectively nullifies the breaching party’s contractual obligation or rests on unsupported allocations.

## Conclusion

The Second Circuit held that the lease obligated the landlord to preserve the contract-furniture showroom character of the property and that leasing to non-showroom tenants breached that obligation; it affirmed liability but vacated and remanded because the damages analysis did not value the loss in a manner consistent with the showroom-centered bargain.


Herman Miller, Inc. v. Thom Rock Realty Co., 46 F.3d 183 (2d Cir. 1995)