Clear Channel Spectacolor Media L.L.C. v Times Sq. JV LLC

[*1] Clear Channel Spectacolor Media L.L.C. v Times Sq. JV LLC 2009 NY Slip Op 50947(U) [23 Misc 3d 1126(A)] Decided on April 23, 2009 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 23, 2009
Supreme Court, New York County

Clear Channel Spectacolor Media L.L.C., Plaintiff,

against

Times Square JV LLC and The City Investment Fund, L.P., Defendants.



602263/07



ATTORNEYS FOR PLAINTIFF:

Herrick Feinstein, LLP

Mara B. Levin, Esq.,

John Oleske, Esq.

2 Park Avenue

New York, New York 10016

ATTORNEYS FOR DEFENDANTS:

Kennedy Johnson Gallagher LLC

James Kennedy, Esq.

John M. Magliery, Esq.

99 Wall Street, 15th Floor

New York, New York 10005

Bernard J. Fried, J.

This action concerns a lease of valuable billboard space located above the Crowne Plaza Hotel, at 1605 Broadway, in the Times Square section of Manhattan.

The tenant, plaintiff Clear Channel Spectacolor Media L.L.C. (Clear Channel) requests an order granting a preliminary injunction to restrain the landlords, defendants Times Square JV LLC (Times Square JV) and the City Investment Fund, L.P. (CIF) (together, Times Square JV), from taking any steps to terminate Clear Channel's lease or otherwise interfering with Clear Channel's possession and use of said billboard space. Since it is undisputed that Clear Channel exercised the 10-year renewal option contained in the lease of the billboard space 26 days late, the primary issue in this case is whether it is entitled to a renewal lease on equitable grounds.

In July 2007, when this action was commenced, I granted Clear Channel's request for "Yellowstone" relief in order to maintain the status quo. In connection with this preliminary injunction motion, on July 7, 2008, by interim decision (Interim Decision), the matter was referred to a referee to hear and report on a preliminary factual question concerning the commencement date of the subject lease. Pursuant to the Interim Decision, the remainder of the motion was held in [*2]abeyance pending resolution of this question. Subsequently, the parties stipulated that the lease commenced in July 1997, and therefore, if not tolled, the lease would have expired on June 30, 2007. The preliminary injunction motion is now ripe for determination, and, for the reasons set forth below, the motion is granted.

Briefly [FN1], Clear Channel is in the business of leasing outdoor billboard advertising spaces, and, in turn, subleasing the use of those venues to parties seeking to advertise their products and/or services thereon. It is alleged that Times Square JV is the owner of the Crowne Plaza Hotel, and that CIF controls or owns Times Square JV.

Under a lease, dated January 1, 1997 (Lease), Clear Channel's predecessor leased billboard space at the Crowne Plaza Hotel from Times Square JV's predecessor, for a term of 10 years. The Lease provides, in paragraph 2.02, that "[t]he initial term of this Lease shall commence on the Commencement Date and shall end at the end of the tenth Percentage Rent Year." The Lease defines "Commencement Date" to mean "the earlier of (a) September 29, 1997 or (b) the date upon which Tenant first received any gross income for the use of any of the Billboard Spaces." "Percentage Rent Year" is defined as "(a) the period commencing on the Commencement Date and ending on the last day of the eleventh calendar month following the calendar month in which the commencement date occurs; and (b) each successive twelve month period during the Initial Term . . . which ends on the anniversary of such last day of such eleventh calendar month." Thus, if the Commencement Date is any date other than the first date of a given month, then the Initial Term will be slightly less than 10 years.

The Lease grants Clear Channel an option to renew for three additional 10-year terms. Under paragraph 2.02, Clear Channel could exercise the renewal option "by giving Landlord at least 90 days prior written notice of Tenant's election to extend the current term of the Lease."

Although the parties initially disagreed as to when the Lease commenced, they now concur that the Lease began on July 22, 1997, and that the Lease, if not renewed, would have expired on June 30, 2007. Thus, pursuant to the terms of the Lease, Clear Channel was required to give notice of its intent, if any, to renew the Lease by March 30, 2007, i.e., 90 days prior to June 30, 2007. Clear Channel attempted to exercise the renewal option on April 26, 2007. Times Square JV rejected this as untimely.

In a letter agreement, dated June 28, 2007, the parties set forth the substance of their dispute, and "[i]n order to facilitate negotiations towards a potential settlement of the . . . dispute . . . agreed to temporarily preserve the status quo" by, among other things, agreeing that, prior to July 11, 2007, Times Square JV would not take any steps to interfere with Clear Channel's tenancy. The letter further states that "at the end of the status quo period, the parties will have whatever rights and obligations they may have under the lease today . . . ."

The parties were unable to resolve their differences, and, on July 10, 2007, Clear Channel commenced this action for injunctive relief, and moved, by order to show cause, for a preliminary injunction in order to protect its interests in the continuation of the subject billboard lease pending a determination on the merits.

To succeed on a motion for a preliminary [*3]injunction, a movant must show: (a) a probability of success in the underlying action; (b) danger of irreparable injury in the absence of an injunction; and (c) a balancing of the equities in its favor (Aetna Ins. Co. v Capasso, 75 NY2d 860, 862 [1990]; Coinmach Corp. v Fordham Hill Owners Corp., 3 AD3d 312, 314 [1st Dept 2004]).

In the leading case, J.N.A. Realty Corp. v Cross Bay Chelsea, Inc. (42 NY2d 392 [1977]), the Court of Appeals recognized a tenant's exercise of an option to renew a lease as valid, notwithstanding that the option was exercised belatedly, where: (a) the tenant made considerable investments in improvement of the property; (b) the failure to renew was due to mere "inattention;" and (c) the landlord would not be meaningfully prejudiced by permitting the late renewal (id. at 399-400). As explained in one treatise:

"Generally, a tenant who fails to timely exercise an option to renew a lease is without remedy at law, and such failure will forfeit the tenant's right to renew. However, equity will intervene to relieve the tenant from the consequences of an untimely renewal notice where the tenant's failure or delay is the result of inadvertence or honest mistake, the tenant has made valuable and substantial improvements to the leased premises with the intent to renew the lease, nonrenewal would result in a substantial loss to the tenant, and the landlord would not be prejudiced by the delay."

(Citations omitted; 74A NY Jur 2d ["Landlord & Tenant," "Extension or Renewal of Lease," "Lease Provisions for Extension or Renewal," "Operation of Lease Provisions"] §796 ["Time for giving notice; failure to give notice - Equitable relief from failure to give timely notice"]).The parties vigorously dispute whether Clear Channel has satisfied its burden to establish the elements set forth in the J.N.A. Realty case and its progeny, as well as the familiar requisite elements required for a preliminary injunction.

Clear Channel submits that a review of the relevant case law shows that the principles of J.N.A. Realty are liberally applied where, as here, a tenant mistakenly fails to renew on time, proffers evidence as to its investments, good will and forfeiture, and the landlord is not prejudiced. It contends that its delay in exercising the option to renew was minimal and due to inadvertent error, and that, since the inception of the Lease, it has invested significant time, money and other resources in reliance upon its expectation that the Lease would be renewed pursuant to its terms, and that it would have the right to use and enjoy the leasehold for at least another 10 years. In support, Clear Channel submits, among other things, that: (a) it attempted to exercise its renewal option only 26 days late; (b) it invested more than $1.4 million in fixed improvements to the leasehold, including an approximately $230,000 in 2005; (c) if the Lease was renewed, Clear Channel would be entitled to at least $500,000 in additional contractual depreciation; (d) the leasehold is extremely valuable and cannot be replaced with a leasehold in another location, and the investments made therein cannot be relocated; (e) the location of the leasehold and the spectacular signs that Clear Channel has constructed are unique and irreplaceable, and have generated substantial good will that would be lost if Clear Channel were forced to vacate the premises; and (f) it has shown, and Times Square JV has not refuted, that Times Square JV will suffer no prejudice if it were compelled to permit the renewal of the Lease. Clear Channel maintains that, under these circumstances, equity should intervene and treat its notice as timely and valid, and its valuable leasehold and investments therein should be protected from forfeiture (see J.N.A. Realty Corp., 42 NY2d 392, supra; Popyork, LLC v 80 Court St. Corp., 23 AD3d 538 [2d Dept 2005]).

Times Square JV challenges Clear Channel's claim that its delay in exercising the option was [*4]attributable to a genuine honest mistake or inadvertent failure as opposed to a calculated judgment (see Nobu Next Door, LLC v Fine Arts Housing, Inc., 4 NY3d 839 [2005]). Times Square JV further submits that Clear Channel's claim that it will suffer an unwarranted forfeiture is illusory and insufficient to support the requested relief (see Soho Development Corp. v Dean & DeLuca Inc., 131 AD2d 385 [1st Dept 1987]; see also Kunze v Arito, Inc., 48 AD3d 272 [1st Dept 2008]; 5 East 41 Check Cashing Corp. v Park & Fifth Owner, LLC, 44 AD3d 373 [1st Dept 2007]; Trieste Group, LLC v Ark Fifth Avenue Corp., 13 AD3d 207 [1st Dept 2004]), primarily, because Clear Channel has allegedly recouped most, or all, of its capital expenditures as a result of, among other things, certain provisions in the Lease (notably, the Contractual Depreciation Provision and the Fee Sharing Provision in the Lease) and its income tax depreciation of the capital expenditures. Times Square JV also disputes Clear Channels' allegations of expenditures, including its assertion of an additional $230,000 in improvements not previously mentioned by it.

Times Square JV's opposition rests largely upon its argument that Clear Channel's amortization of its investments in the leasehold by tax and contractual depreciation diminishes or refutes any alleged forfeiture it might suffer if it is not permitted to renew the Lease(see e.g. Soho Development Corp. v Dean & DeLuca Inc., 131 AD2d 385, supra). This argument misses the point. As explained by the Hon. Shlomo S. Hagler, J.C.C. in 537 Greenwich LLC v Chista, Inc. (19 Misc 3d 1133 [A], 2008 NY Slip Op 50989 [U] * 8 [Civ Ct, NY County, 2008]), the equitable interest in a leasehold may be protected against forfeiture under at least two circumstances:

The first is where the tenant has in good faith made substantial improvements to the premises intending to renew the lease, the landlord is not harmed by the delay in notice, and the tenant would sustain substantial loss if the lease were not renewed. J.N.A. Realty Corp., 42 NY2d at 398 (citing 2 Pomeroy, Equity Jurisprudence [5th ed. § 453b, p. 296); 5 East 41 Check Cashing Corp. v Park & Fifth Owner, LLC, 44 AD3d 373 (1st Dept 2007); Kunze v Arito, Inc., 48 AD3d 272 (1st Dept 2008). The second circumstance is where, even though there is no indication of substantial improvements having been made, the tenant stands to lose a substantial and valuable asset if it loses its long standing location for a retail business because the location is an important part of the good will of the tenant's enterprise. Kunze v Arito, Inc., 48 AD3d 272 (1st Dept 2008); J.N.A. Realty Corp., 42 NY2d at 398 (citing Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449 [1971]).

As the above-quoted case illustrates, in determining whether to permit a lease renewal on equitable grounds, courts are permitted to examine not only a tenant's substantial improvements in a leasehold, but also whether the tenant has created substantial good will in the subject property. Thus, regardless of whether a tenant has depreciated or amortized its investments, equitable protection may be granted, where a lease termination will cost the tenant the good will it has developed, by virtue of its longstanding presence in a particular location. Applying this principle here, regardless of whether Clear Channel has already depreciated its investments in the leasehold, as Times Square JV claims, Clear Channel has sufficiently demonstrated that, as a result of its efforts and improvements to the leasehold, it has developed substantial good will that is inseparable from the location of the Lease, which could not simply be moved to another location. Times Square JV has not refuted this showing.

Upon review, and contrary to Times Square JV's contention, Clear Channel has satisfactorily demonstrated each element required for a grant of a preliminary injunction, and Times Square JV has not come forward with sufficient evidence to rebut or refute Clear Channel's showing. In this [*5]regard, Clear Channel has demonstrated that its failure to timely renew the Lease was the result of an innocent error, and that, at all relevant times, it intended to renew the Lease. The evidence further supports Clear Channel's claim that its investments were made in reliance upon its expected renewal of the Lease. Clear Channel has likewise demonstrated that the balance of the equities favor Clear Channel. While Times Square JV has not shown that it would suffer prejudice by permitting such renewal, Clear Channel has demonstrated the injury it would suffer if it were not allowed to renew the Lease.

Accordingly, the motion by plaintiff Clear Channel Spectacolor Media L.L.C. for a preliminary injunction is granted. Settle order on notice providing for an adequate undertaking.

Dated:April 23, 2009ENTER:

______________________J.S.C. Footnotes

Footnote 1:Many of these facts are set forth in the Interim Decision. For convenience, they are restated here.