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Case:  MTS, Inc. v. 200 East 87th St. Associates, 899 F.Supp. 1180 (S.D.N.Y. 1995)

Issue
Must space audit dispute be submitted to arbitration under terms of lease?

Discussion
Lease for retail space in mixed use facility constructed on East 87th Street required the parties to submit any claimed deficiencies in square footage to arbitration. Originally landlord sued for a court order that tenant was not entitled to avoid its lease responsibilities by reason of landlord's failure to timely construct the space in compliance with the lease. The landlord won its declaratory judgment in the original suit which was upheld on appeal. The court refused in the first case to address the claim by tenant relating to the alleged square footage deficiency, holding that this was reserved for arbitration.

Holding
In the current case the court confirmed that the lease required the square footage deficiency issue to be arbitrated. It held that the first decision's holding that the alleged shortfall in square footage did not relieve tenant of the lease obligations was not preclusive on the issue of whether or the extent to which the alleged shortfall (less than 10%) entitled the tenant to a rent reduction under the terms of the lease.