Benedict Realty Co. v City of New York

[*1] Benedict Realty Co. v City of New York 2006 NY Slip Op 50720(U) [11 Misc 3d 1086(A)] Decided on April 24, 2006 Supreme Court, Richmond County McMahon, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 24, 2006
Supreme Court, Richmond County

Benedict Realty Co., n/k/a BENEDICT RICHMOND LLC, Plaintiff,

against

City of New York, Defendant.



10784/03

Judith N. McMahon, J.

Factual Background

In June, 1994, the plaintiff Benedict Realty Co. and the defendant City of New York, through its agency, Department of General Services, entered into a written lease for 22,456 square feet (part of the first and fourth floors and the entire 2nd and 3rd floors) of office space at 36 Richmond Terrace, Staten Island, New York. Benedict Realty Co. is the owner of the subject premises known as 36 Richmond Terrace. The space was leased for the use of the "Staten Island District Attorney's Office for Executive and Administrative offices or for such other similar purposes as the Commissioner of General Services may determine . . ." The duration of the lease was five years, commencing on June 15, 1994, and terminating on June 14, 1999. The rent was $371,197.68 per annum, plus a pro rata share of escalations in operating expenses. Further, the lease provided that it could "not be altered or modified except by a writing signed by both parties." Finally, the lease set forth [*2]that it "shall be binding upon the parties hereto, their successors, legal representatives and assigns." (Plaintiff's Exhibit E)

When the lease expired in June, 1999, the District Attorney's Office continued to occupy the premises as a month-to-month tenant pursuant to Article 20 of the lease. Article 20 provided that the plaintiff would not hold "the tenant liable as [a] holdover tenant should it continue to occupy" the premises after the expiration of the lease; however, the tenant shall be deemed a month to month tenant. (Plaintiff's Exhibit E).

In May, 2000, the Department of Citywide Administrative Services (DCAS) (formerly Department of General Services) inquired of the plaintiff about executing a new lease. The New York City Human Resources Administration (HRA) needed temporary space for its staff while its permanent location at 201 Bay Street, Staten Island, was being renovated.

In a "Letter of Intent" (Plaintiff's Affidavit in Support), dated November 6, 2000, Peter Murtagh, Executive Director of DCAS, outlined the terms of the new lease. The first line of the letter stated that the City was interested in leasing the space for "use by the Human Resources Administration, or for such other use as the Commissioner of the Department of Citywide Administrative Services may determine". The space was the same 22,456 square feet as the original lease, but the rent would be $404,206 per annum for the first five years, and $449,120.00 per annum for the last five years. The letter also provided that the plaintiff would, prior to the commencement of the lease, renovate the elevator to make it compliant with the American with Disabilities Act. The letter further provided that the plaintiff would make all interior and exterior repairs. Additionally, the letter set forth that the tenant had the right to cancel the lease upon 180 days prior written notice any time after 2 years. Finally, the letter advised that "A copy of the City's standard lease is enclosed for your review. . . Please be advised that this offer could be revised or withdrawn at anytime and is subject to approval by the Office of Management and Budget, the Commissioner of the Department of Citywide Administrative Services, and the Corporation Counsel of the City of New York" (Plaintiff's Exhibit F).

On February 25, 2001, the District Attorney's Office vacated the premises. DCAS re-assigned the space to HRA. (Defendant's Exhibit J) Additionally, the lease was re-registered with the New York City Comptroller's Office until July 14, 2000, and then again until July 14, 2003. (Defendant's Exhibit I)

Thereafter, HRA began renovating the building in preparation for occupancy. During the course of HRA's renovations, it was discovered that the premises did not comply with the New York City Building Code. The building had no security alarm or fire detection system, and the elevator did not comply with the Americans with Disabilities Act. Moreover, the roof was leaking and needed to be replaced. (Defendant's Exhibits E, L, and N) The plaintiff installed a new elevator, put on a new roof, replaced toilets throughout the building and rewired all the air conditioning units. The cost for these renovations and repairs was $254,115.59.

At the end of October, 2001, HRA moved into the building, after the renovations and repairs were approved by the New York City Department of Buildings. (Defendant's Exhibit E) In addition to the 22,456 square feet previously occupied by the District [*3]Attorney's Office, HRA occupied more space on the first and third floors. The plaintiff contends that the parties agreed to a rent of $6,100.50 per month for the space on the third floor and $1,060.00 per month for the first floor. The City alleges that it only agreed to pay an additional $6,100.50 per month for the additional space.

In a letter dated April 3, 2002, the City notified the plaintiff that HRA, the tenant by assignment, would be terminating the lease. The City was giving 30 days Notice pursuant to the "Tenant Not a Holdover Tenant" provision of the Lease. HRA vacated the premises on April 30, 2002. The City paid the last month's rent of $38,509.12 on April 29, 2002. (Defendant's Exhibit R and S).

Procedural Background

In July, 2002, the plaintiff filed a Notice of Claim against the defendant in the amount of $718,513.09. The plaintiff itemized the cost as follows: $254,115.59 for changes made as required by City and costs of restoration; $79,306.50 for rents due up to April 30, 2002($6,100.50 per month for the 14 months that HRA occupied the premises); $385,091 for rents due for remainder of minimum term ($38,509.12 per month for 10 months). In the attachment to the Notice of Claim, the plaintiff set forth that the parties had agreed that defendant would pay $6,100.50 a month for the additional space. (Defendant's Exhibit C) In March, 2003, the plaintiff commenced this action based on breach of contract and fraud. In addition to damages as set forth in the Notice of Claim, the plaintiff sought $2.1 million in punitive damages. (Plaintiff's Exhibit A) Following joinder of issue, the plaintiff moved for summary judgment on all causes of action. The City cross-moved for summary judgment dismissing the complaint.

In support, the plaintiff argues that the City had breached its contract to rent the space for a minimum of 24 months; and thus, owes 10 months of rent as specified in the letter of intent. The plaintiff also asserts that the City owes 24 months of the additional rent never paid, and the costs for renovations and repairs made to the building. The plaintiff submitted the transcript of the deposition of Peter Murtagh, an Executive Director/Senior Portfolio Manager with DCAS to support its position. Murtagh had testified that the City owed the plaintiff 10 months rent because the minimum time frame HRA was to rent the premises was 24 months. Murtagh also testified that HRA had used two additional suites that were not part of the premises included in the lease. Finally, Murtagh testified that HRA had agreed to pay $75,000 of the cost of installing the elevator. (Plaintiff's Exhibit G)

In support of its cross-motion for summary judgment, the City alleges that plaintiff's cause of action for lost rents and operating expenses escalations is barred by the Statute of Frauds. The letter of intent was merely an "Agreement to Agree", which is unenforceable. HRA occupied the premises under the "Tenant Not A Holdover Tenant" provision of the original lease. Additionally, the City contends that Murtagh's statements that the City was liable for 10 months rent and for the renovations are inadmissible as Murtagh did not have the authority to bind the City. Further, the City asserts that the renovations and repairs made to the building were required under the original lease. Finally, the City concedes that it owes $1,594.00 in operating expenses and that it agreed to [*4]pay $6,100.50 per month for the additional space, but it did not agree to pay another $1,060.00 per month for space on the third floor.

In reply the plaintiff argues that the Letter of Intent qualified as a "note or memorandum" to satisfy the Statute of Frauds. Additionally, the contract was enforceable due to partial performance. Finally, the plaintiff asserts that the City was guilty of fraud because it represented that it was going to enter into a lease when it never intended to.

The court finds that HRA occupied the premises pursuant to the "Tenant not a Holdover Provision" of the original lease. Accordingly, the City is not liable for 10 months additional rent under the 24 month minimum term set forth in the Letter of Intent. Additionally, the City is not responsible for the costs of renovations and repairs that the plaintiff was required to make to the building under the original lease. Further, the plaintiff is not entitled to punitive damages. Finally, as the City concedes that it owes $1,594 for operating expenses and that it agreed to pay $6,050 per month for the additional space, the plaintiff is entitled to a judgment of $80,900.50 against the City.

Analysis

1. Breach of Contract

When interpreting contracts, the law is clear that "when parties set down their agreement in a clear, complete document, their writing should . . . be enforced according to its terms" (W.W.W. Assoc. v. Giancontieri, 77 NY2d 157, 162 [1990]; see, Reiss v. Financial Performance Corp., 97 NY2d 195, 198 [2001]). This rule's special import has been emphasized "in the context of real property transactions, where commercial certainty is a paramount concern, and where . . the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length" (Matter of Wallace v. 600 Partners Co., 86 NY2d 543, 548 [1995]; see, Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co., 1 NY3d 470, 475 [2004]).

There is no dispute that the parties entered into a valid contract on June 14, 1994. Although the lease had an expiration date of June 14, 1999, it provided that the City could continue to occupy the premises thereafter as a month to month tenant. Additionally, the lease provided that the City could use the premises at its discretion. Hence, after the District Attorney vacated the building, the City had the authority to assign the space to HRA. Contrary to the plaintiff's contention, there is no evidence that this lease was terminated prior to April 30, 2002 (the City gave a month notice terminating the lease in a letter dated April 3, 2002).

The crux of the plaintiff's argument is that the original lease was terminated when the District Attorney's Office vacated the premises and was replaced it with the "Letter of Intent" dated November 6, 2000. Pursuant to the "Letter of Intent", the minimum term of the lease was 24 months. Accordingly, the plaintiff contends, the City owes it for 10 months rent not paid after HRA vacated the premises.

The law is well settled that "if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed" (Scheck v. Francis, 26 NY2d 466, 469-470 [1970]; see Lost Creek Ass. v. Marine Midland Bank, 293 [*5]AD2d 719 [2d Dept. 2002]; Silverite Constr. Co., Inc. v. Montefiore Medical Center, 239 AD2d 336 [2d Dept. 1997]). Here, the "Letter of Intent" specified that the lease was enclosed for the plaintiff's review, and that the offer could be withdrawn at any time prior to the approval of the appropriate agencies. Thus, the letter agreement itself contemplated the execution of a formal lease agreement (see, Venture Manufacturing Ltd. v. Matco Group, Inc., 6 AD3d 850 [2d Dept. 2004]). Accordingly, the writing relied upon by the plaintiff was merely an agreement to agree, which is unenforceable under the statute of frauds (see, Williamsburg Business Park, LLC v. Brooklyn Navy Yard Development Corp., 2 AD2d 439 [2d Dept. 2003]; Sabetfard v Smith, 306 AD2d 265 [2d Dept. 2003]).

The plaintiff alternatively argues that even if the "Letter of Intent" does not satisfy the statute of frauds, it is enforceable due to partial performance. The problem with this argument is that the parties had already entered into a valid lease and any performance was pursuant to the original lease, not the "Letter of Intent". In fact, at his deposition, Aldo Giovanucci, the Principal of the plaintiff, testified that the City paid the same rent when the District Attorney occupied the premises and when HRA occupied the premises. (Def.'s Exhibit K, Pg 29). Thus, the court rejects the argument that the rent payment was a partial performance under the "Letter of Intent", and not of the original lease.

Similarly, the court rejects the plaintiff's contention that the repairs and renovations to the building were partial performance of the "Letter of Intent". Article 7 of the original lease provides that "At its own expense, Landlord agrees to" make all improvements to comply with the law, including, without limitation, the American with Disabilities Act of 1990 (Plaintiff's Exhibit A, pg. 15). Thus, the repairs and renovations were made so that the elevator would be ADA compliant and so that the building would comply not only with the New York City Building Code, but also with the original lease and the law. Hence, the City is not responsible for these costs.

Finally, the City concedes that it owes the plaintiff $1,594 for operating expenses and that it agreed to pay the plaintiff $6,100.50 per month for additional rental space. The plaintiff asserts that in addition to this amount, the City agreed to pay another $1,060.00 per month for space on the first floor. However, at his deposition, Giovanucci admitted that he has no written proof that the City agreed to pay an additional $1,060 per month. (Def.'s Exhibit K, pg. 20) Additionally, the City submitted payment statements sent to it by the plaintiff, requesting only $6,150 per month. (Def.'s Exhibit R) Further, in its Notice of Claim, the plaintiff only demanded an additional $6,150 per month for the 14 months that HRA occupied the premises. Thus, the plaintiff is only entitled to a $79,306.50 for additional rent owed by the City.

2. Fraud

The plaintiff contends that even if the court rejects its claim for breach of contract, the City should be liable on a theory of fraud. The plaintiff asserts that the City never intended to enter into a second lease with the plaintiff. The City only intended to use the premises as swing space for HRA while their permanent location was being renovated. Because of this deception, the plaintiff should be awarded punitive damages in addition to the lost rent and costs for repairs.

Initially, the plaintiff's cause of action sounding in fraud must be dismissed. It is a [*6]well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated (see, Clark-Fitzpatrick, Inc. v. Long Island Rail Road Co., 70 NY2d 382, 388 [1987]). Here, the plaintiff's allegations regarding the fraud are merely restatements of its claim that the "Letter of Intent" is enforceable. Moreover, the demand for punitive damages must be dismissed as punitive damages generally may not be assessed against a governmental entity because it would ultimately punish only the innocent taxpayers (see, Clark-Fitzpatrick Inc. v. Long Island Rail Road Co., 70 NY2d 382, supra; Sharapata v. Town of Islip, 56 NY2d 332 [1982]; Hubbard v. Town of Sand Lake, 246 AD2d 708 [3d Dept 1998]).

Although the plaintiff contends that the City never intended to execute the second lease, it also argues that the City should be equitably estopped from denying that it owes 10 months rent and $75,000 for elevator repairs because Murtagh, an agent of the City, admitted at his deposition that the plaintiff was due this amount. Initially, it is well established that estoppel is unavailable against a public agency (see, Mattter of Parkview Ass. v. City of New York, 71 NY2d 274 [1988]; Granada v City of Kingston, 58 NY2d 705 [1982]; Public Improvements, Inc. v. Board of Education of the City of New York, 56 NY2d 850 [1982]). The City, pursuant to law, cannot comply with the "Letter of Intent" because the second lease was not approved by the Office of Management and Budget, the Commissioner of the Department of Citywide Administrative Services, and the Corporation Counsel of the City of New York (see, New York City Charter § 384[a]; New York City Administrative Code § 4-203). These approvals are not mere formalities or technicalities (see, Henry Modell & Co. v. City of New York, 159 AD2d 354 [2d Dept. 1990]).

Moreover, pursuant to the law in the Second Department, Murtagh's declaration is not admissible as an admission against the principal because he did not have authority to speak on behalf of the City (see, Alvarez v. First National Supermarkets, 11 AD3d 572 [2d Dept. 2004]; Simpson v. New York City Transit Authority, 283 AD2d 419 [2d Dept. 2001]; Brkani v. City of New York, 211 AD2d 740 [2d Dept. 1995]; Risoli v. Long Island Lighting Co., 195 AD2d 543 [2d Dept. 1993]). Accordingly, it is

ORDERED that the plaintiff's motion for summary judgment is granted to the extent that it is entitled to a judgment of $80,900.50 against the City; and it is further

ORDERED that the City's motion for partial summary judgment is granted to the extent that the plaintiff's demand for breach of contract and fraud causes of action are dismissed.

This is the Decision and Order of the Court.

E N T E R,

Dated:

J.S.C.