SLG 1185 Sixth A LLC v Hedman & Costigan, PC

[*1] SLG 1185 Sixth A LLC v Hedman & Costigan, PC 2009 NY Slip Op 51246(U) [24 Misc 3d 1203(A)] Decided on June 18, 2009 Civil Court Of The City Of New York, New York County Jaffe, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 18, 2009
Civil Court of the City of New York, New York County

SLG 1185 Sixth A LLC, Petitioner - Landlord,

against

Hedman & Costigan, PC, Respondent -Tenant,



080265/08



For petitioner:

Joelle B. Taub, Esq.

Stempel Bennett Claman & Hochberg, PC

675 Third Avenue

New York, NY 10017

212-681-6500

For respondent:

James V. Costigan, Esq.

Hedman & Costigan, PC

1185 Avenue of the Americas

New York, NY 10036

212-302-8989

Barbara Jaffe, J.

In this summary nonpayment commercial proceeding, petitioner moves pursuant to CPLR 3212(a) for an order granting it summary judgment dismissing respondent's defenses and counterclaim and awarding it a judgment of possession and a money judgment for additional rent due from April 2008 through and including December 2008 and for attorney fees. The issues raised are: (1) whether petitioner's failure to comply strictly with the timing requirement of the ground rent arbitration procedure invalidates the arbitration award or excuses respondent from paying the ground rent escalation; (2) whether petitioner's failure to advise respondent that the arbitration had not yet been held at the time they were negotiating the fifth lease modification and [*2]extension relieves respondent of its obligation to pay the escalation; and (3) whether the managing agent's failure to bill the greater amount of the escalation constitutes a waiver of petitioner's right to charge the amount found by the arbitrators.

I. UNDISPUTED FACTS

Petitioner obtained the building in which the subject premises is located by ground lease dated September 17, 1969. (Affidavit of Joan Thompson, dated Dec. 30, 2008 [Thompson Affid.], Exh. 1). By lease dated January 20, 1986, respondent took possession of a portion of the 20th floor. (Id., Exh. 2; Affidavit of Kenneth F. Florek in Opposition to Landlord's Motion for Summary Judgment, dated Jan. 8, 2009 [Florek Affid.]). The lease is subject and subordinate to the ground lease. (Thompson Affid., Exh. 2).

In the original 1986 lease, the parties agreed that after December 1, 2005, respondent's rent would increase pursuant to one of two formulae, the first based on a fixed number and percentage and the second based on the results of an arbitration as provided for in Article 3 of the ground lease. (Id.). In section 3.01(a) of article 3 of the ground lease, petitioner agreed to pay overlandlord net annual rent of $725,000 from commencement to and including the last day of the 35th year following the completion date of the building, and thereafter either $825,000 or a sum equal to seven (7%) per centum per annum of the fair market value of Parcel 1 of the Demised Land, to be determined by arbitration as provided in Article 16, whichever of said sums is higher, for the period from the first day of the 36th year following the Completion Date of the Building to and including the expiration of the term of this Lease, including the renewal period provided in Article 15.

(Id., Exh. 1).

Arbitrations pursuant to the ground lease are governed by article 16. Section 16.02 specifically addresses an arbitration to determine the fair market value of the premises in issue here and requires, in section 16.02(b), that the arbitration be held at the beginning of the 35th year following the commencement date, that an award be issued not later than three months after submission to arbitration, and that if the arbitrators cannot timely decide, that they appoint a third arbitrator. (Id.).

In paragraph 45 of the parties' lease, respondent acknowledged that it had been advised that the $725,000 net annual rental rate payable under the ground lease will be increased after December 1, 2005 to $825,000 or a sum equal to seven (7%) percent per annum of the fair market value of the land as determined by arbitration (all as provided in Article 3 of the Ground Lease), whichever of said sums is higher, plus . . . a sum equal to the difference between . . . [$825,000] and $725,000 a year, for the period between June 29, 2004 and November 30, 2005, payable in twenty (20) equal quarter annual installments, commencing on December 1, 2005.

(Id., Exh. 2). Respondent also agreed that if: during the term of the Lease, if any, subsequent to December 1, 2005, the annual Ground Rent reserved and payable on and after said date shall exceed the prior annual Ground Rent of $725,000 a year, then Tenant shall pay to Landlord, as additional rent under this [*3]Lease, effective as of December 1, 2005 and thereafter, a sum equal to Tenant's percentage of any such increase in the annual Ground Rent reserved and payable under the Ground Lease. Said additional rent shall be payable in equal monthly installments.

(Id.). The parties also agreed that respondent's percentage of any such increase would be computed by multiplying the total annual increase in the ground rent "by a fraction, the numerator of which is the total rentable square foot area of the demised premises as of November 30, 2005, and/or from time to time demised to [respondent], and the denominator of which is the total rentable square foot area of the office and commercial space in the Building." (Id.).Pursuant to article 39 of the parties' lease, all amounts payable by respondent in excess of fixed rent "shall be deemed additional rent." (Id., Exh. 2). And article 24 provides that there shall be no waiver of petitioner's rights. (Id.).

The parties executed five written modification and extension agreements over the years. (Id., Exhs. 3-7). None of these pertinent lease provisions have been modified by any of the modification and extension agreements. Although the arbitration was to have commenced by June 28, 2003, the arbitrators did not meet until March 7, 2005. (Florek Affid.).

By arbitration award dated May 31, 2005, the ground rent for the building was increased to $6,909,000 based on the findings of two arbitrators that the fair market value of the building was $98,700,000. (Id., Exh. 8). Petitioner first billed respondent $97.72 in December 1, 2005 on the understanding that the alternative ground rent increase was in effect and on June 20, 2006 petitioner billed respondent $6,492.01 and then $6,075.63 for the ground rent increase based on the arbitrators' determination. Respondent commenced paying the increase under protest in July 2006 and continued to do so until April 2008, paying a total of $121,512.60. As of the end of December 2008, respondent owed petitioner $89,224.16 of the increase. (Id., Exh. 9; Reply Affirmation of Joelle B. Taub, Esq., dated Jan. 14, 2009 [Taub Reply Aff.]; Florek Affid.).

By three-day notice served July 24, 2008, petitioner sought from respondent $58,994.85 representing the increased ground rent for January 2006 to June 2006 and from April 2008 to July 2008. By notice of petition and petition dated August 6, 2008, petitioner sought the same from respondent, plus attorney fees in the amount of $750 and future attorney fees. (Id., Exh. 10).

In its answer, respondent denied liability for the amounts claimed on the ground that petitioner breached the arbitration provision of the ground lease by commencing the arbitration well after June 28, 2003, and not until the execution of the fifth modification and extension agreement, and by failing to appoint a third arbitrator after the two arbitrators failed to reach an agreement within 30 days of their first meeting. It also alleged that petitioner not only concealed the fact that the arbitration had not yet occurred when the parties were negotiating the fifth lease modification and extension dated February 23, 2005, but deceived it during the negotiations by offering to waive two months rent.

Respondent thus asserted that the petition should be denied based on petitioner's breach of the ground lease or on unclean hands and laches, and also challenged petitioner's computation of the ground rent. Based on the foregoing and on its belief that petitioner has no lawful claim to the rent it paid under protest, respondent sought a judgment on its counterclaim in the amount of $121,512.60 plus interest. (Id., Exh. 11).

II. CONTENTIONS[*4]

Petitioner claims that it is entitled to an order granting it summary judgment on its petition and that respondent's affirmative defenses and counterclaim should be dismissed. It asserts that respondent's argument wrongly presumes the existence of a condition precedent to its liability under article 45 of the lease, and that absent the existence of such a condition, strict compliance with the arbitration provision is not required. Rather, petitioner argues that its substantial compliance with the arbitration provisions warrants enforcement of the ground rent increase and observes that as it was obligated to pay the higher ground rent notwithstanding any failure to comply strictly with the arbitration procedures, respondent is not entitled to rely on the arbitration provisions to excuse its failure to pay the increased ground rent. (Affirmation of Joelle B. Taub, Esq., dated Dec. 30, 2008 [Taub Aff.]). It also maintains that the fifth modification of the base rent has no impact on respondent's obligation to pay the ground rent increase, citing 458 Broadway Leasing, LLC v Bundlee Fabrics, Inc., 15 Misc 3d 135(A), 2007 NY Slip Op 50741(U) (App Term, 1st Dept 2005). Finally, petitioner computes the increase as follows: $72,907.56, payable monthly at $6,075.63. (Florek Affid.,Exh. 12).

Petitioner also asserts that the no waiver clause in the lease precludes respondent from defending or counterclaiming on the ground of waiver. And in denying respondent's accusation that its hands were "unclean" when negotiating the fifth modification and extension, it observes that the possibility of a future increase is fully set forth in article 45 which was disclosed during the initial lease negotiations, and that respondent's failure to inquire into it precludes it from claiming to have been deceived. (Taub Aff.).

Respondent opposes petitioner's motion on the grounds that petitioner has failed to establish, prima facie, its right to summary judgment by failing to prove that it substantially complied with the arbitration provisions of the lease and that there exist unresolved factual issues. It maintains that it expected that the arbitration provisions would be followed and alleges that petitioner "was bound to follow the Original Lease in order to protect [it] from an improper increase in ground rent," and that petitioner's predecessor failed to reveal during the negotiations of the fifth modification that the arbitration was only then being conducted or that the procedures were not being followed. While petitioner and overlandlord could waive compliance, respondent claims that its rights as a third party may not be abrogated by the waiver. (Affirmation of James V. Costigan, Esq., dated Aug. 11, 2008).

In reply, petitioner argues that respondent fails to raise a triable issue of fact warranting the denial of its motion. It denies that respondent's "expectancy" that the arbitration provisions would be followed or that it was bound to protect respondent from an improper increase is supported by legal authority, and argues that absent any language requiring strict compliance with the arbitration provisions as a condition precedent to respondent's obligation to pay the ground rent increase, such a condition may not be imposed. (Taub Reply Aff.). Petitioner rejects respondent's assertion that it had no notice of the increase, given article 45 of the lease, and notes that article 45 does not require petitioner to provide respondent with such information and that respondent does not allege that it requested any information concerning the arbitration during the negotiations for the fifth modification. Consequently, petitioner maintains that respondent's subjective belief that the rent set forth in the fifth modification and extension agreement was the rent payable over the term of the extension is irrelevant, and denies that it waived its right to collect the full amount of the ground rent increase. [*5]

Petitioner also denies that its predecessor's mistake in billing respondent $97.72 in increased rent from December 2005 to March 2006 constitutes a waiver of its right to bill it for the correct amount. It concedes that as respondent paid the erroneous amount, it is entitled to a credit of $684.04, resulting in a balance due of $88,540.12. (Id.).

Finally, petitioner requests that the court amend the caption of the proceeding to reflect that the zip code for respondent's premises is 10036 rather than 10038.

III. ANALYSIS

Summary judgment may be granted upon a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence sufficient to eliminate material issues of fact. (CPLR 3212[b]; Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; Winegrad v New York Univ. Med. Center, 64 NY2d 851, 853 [1985]). A failure to establish a prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. (Winegrad, 64 NY2d at 853).

When the party seeking summary judgment demonstrates entitlement to judgment, the burden shifts to the opponent to "rebut that prima facie showing" (Bethlehem Steel Corp. v Solow, 51 NY2d 870, 872 [1980]), by producing "evidentiary proof in admissible form sufficient to require a trial of material questions of fact." (GTF Mktg. v Colonial Aluminum Sales, 66 NY2d 965, 968 [1985]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). In opposing such a motion, the party must "lay bare" its evidentiary proof. (Silberstein, Awad & Miklos, P.C. v Carson, 304 AD2d 817, 818 [2d Dept 2003]). Conclusory allegations are insufficient to defeat the motion. (Zuckerman, 49 NY2d 562).

A. Petitioner's prima facie case

Where parties rely on a written agreement, agree that the facts are not in dispute, and do not refer to any parol evidence to shed light upon the meaning of the contract, the interpretation of the written contract presents an issue of law which the court may determine on a motion for summary judgment. (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285 [1973]).

Here, petitioner has established, prima facie, that two arbitrators determined the fair market value of the building, that based on that determination, respondent's monthly share of the ground rent increase was $6,075.63, and that respondent owes it $88,540.12 through December 2008. Respondent raises legal, not factual, issues, namely, whether petitioner's failure to comply strictly with the arbitration provisions of the ground lease precludes it from collecting the increased ground rent as determined by the arbitrators and whether it waived its right to the increased ground rent by initially billing respondent based on the alternative computation set forth in the ground lease.

1. Compliance with arbitration provision

Absent any language in the arbitration provision of the ground lease or in article 45 of the parties' lease that is conditional or specifically provides that respondent need not pay the increased rent unless or until there is compliance with the arbitration provision, there is no basis for finding that strict compliance with the arbitration provision is a condition precedent to respondent's liability for the increased ground rent. (See Oppenheimer & Co., Inc. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685 [1995] ["Express conditions must be literally performed, whereas constructive conditions, which ordinarily arise from language of promise, are subject to [*6]the precept that substantial compliance is sufficient;" parties employed unmistakable language of condition such as "if," "unless and until"]; Unigard Sec. Ins. Co., Inc. v North River Ins. Co., 79 NY2d 576 [1992] [contractual duty ordinarily will not be construed as condition precedent absent clear language showing that parties intended to make it condition]).

Moreover, it has been held that an arbitration procedure provided for in a lease is enforceable despite a failure to comply strictly with it, such as where there is a delay in arbitration. (See ADB Mgt., LLC v Gardenberry, Inc., 36 AD3d 726 [2d Dept 2007] [landlord's delay in naming appraiser did not give tenant unilateral right to fix rent amount and then exercise renewal option; proper outcome was to extend tenant's option until appraisal process was completed]; IG Second Generation Partners, LP v Kaygreen Realty Co., 22 AD3d 463 [2d Dept 2005] [finding that defendant was obligated to participate in appraisal procedure to determine rental amount despite passing of deadline in lease]; Greenpoint Ave. Realty, LLC v Estate of Galasso, 18 Misc 3d 135[A], 2008 NY Slip Op 50208[U] [App Term, 2d & 11th Jud Dists 2008] [parties' default in timely fulfilling obligation under lease's appraisal process did not permit landlord to impose renewal rent unilaterally]). Also, that petitioner and overlandlord did not appoint a third arbitrator is immaterial given the substantial compliance with the arbitration provision.

In any event, as the arbitration provision appears only in the ground lease and pertains to petitioner and overlandlord only, respondent lacks standing to attack the provision or procedure. (See Minister, Elders & Deacons of the Reformed Protestant Dutch Church of the City of New York v 198 Broadway, Inc., 59 NY2d 170 [1983] [where sublease subject to terms of master lease, subtenant had no legal right to compel overtenant to exercise option to renew master lease in order to permit it to renew sublease]; Tiger Crane Martial Arts Inc. v Franchise Stores Realty Corp., 235 AD2d 994 [3d Dept 1997] [same]; 767 Third Ave., LLC v Kadem Cap. Mgt., Inc., 2002 WL 992059, 2002 NY Slip Op 50178[U] [App Term, 1st Dept], affd 303 AD2d 199 [1st Dept 2003] [subtenant lacked standing to assert landlord's waiver of provisions governing subletting set forth in overtenant's lease as it was not in contractual privity with landlord]).

To the extent respondent claims that it is a third-party beneficiary of the ground lease, it has failed to demonstrate that the lease expressly conferred benefits upon it or that overlandlord otherwise undertook a specific duty toward it. (See Tamco Enterprises, Inc. v Mitsubishi Elec. Am., Inc., 190 AD2d 623 [1st Dept 1993], lv denied 82 NY2d 659 [subtenant cannot avail itself of provisions in prime lease as third-party beneficiary as landlord never undertook duty toward it or intended to confer benefits on it]). And respondent's mere expectancy confers no rights.

Finally, as the ground lease obliges petitioner to pay increased "annual" rent to overlandlord as determined by the arbitration, and as the parties' lease requires respondent to pay the increased annual rent as "additional" rent, the ground lease provision has no impact on respondent's obligation to pay the increased rent, which is a separate and independent obligation under its lease. (458 Broadway Leasing, LLC, 15 Misc 3d 135[A], 2007 NY Slip Op 50741[U] [provision in original lease to arbitrate fair market value of "annual rent" during renewal period did not affect tenant's obligation to pay "additional rent" which was "separately defined, independent obligation" under lease]).

Thus, respondent has failed to demonstrated that the failure to comply strictly with the [*7]arbitration provision in the ground lease precludes petitioner from prevailing here.

2. Waiver of increased rent

In light of petitioner's predecessor's undisputed mistake in billing respondent for the increased ground rent and the no-waiver clause of the parties' lease, there is an insufficient basis for finding that petitioner waived its right to bill respondent for the correct increased ground rent. (See Elite Gold, Inc. v TT Jewelry Outlet Corp., 31 AD3d 338 [1st Dept 2006] [given lease's clear and unambiguous no-waiver language, court erred in finding that landlord waived its right to collect higher holdover rent by billing defendant at lower rate for period of time]; IG Second Generation Partners, LP, 22 AD3d at 465 [plaintiffs did not waive right to receive bargained-for rent amount particularly in light of lease's clear and unambiguous no-waiver clause]; Palace Renaissance, Inc. v Sareb Rest. Corp., 10 Misc 3d 137[A], 2005 NY Slip Op 52162[U] [App Term, 1st Dept 2005] [giving proper effect to no-waiver provision in lease, any delay by landlord in billing for annual rent increases indisputably due under lease did not support tenant's claim of waiver or laches]; see also Ave. of the Americas Deli Corp. v MA Enterprises, Inc., 4 Misc 3d 139[A], 2004 NY Slip Op 50941[U] [App Term, 1st Dept 2004] [language of no-waiver clause defeated claim of waiver as matter of law]).

B. Respondent's defenses and counterclaim

Respondent's defenses pertaining to the arbitration have been addressed above. Its remaining defenses of laches and unclean hands may not be raised in a commercial landlord-tenant summary proceeding seeking rent arrears. (UBO Realty Corp. v Fulton, NYLJ, Sept. 8, 1993, at 21, col 1 [App Term, 1st Dept] [laches]; 518 East 80th St. Co., LLC v Smith, 251 AD2d 215 [1st Dept 1998] [defense of unclean hands unavailable to claim for rent arrears]).

In any event, notice of the arbitration provision was given in respondent' s lease and nothing therein required petitioner to notify it that the arbitration was conducted or delayed. Absent any evidence that petitioner concealed the arbitration from respondent or that respondent inquired into it and was misled by petitioner, there is no basis for finding that petitioner had "unclean hands." And, as I have found that petitioner is entitled to the increased rent (supra III.A), respondent's counterclaim for a refund has no merit.

Respondent's defenses and counterclaim are thus dismissed.

IV. CONCLUSION

Accordingly, petitioner's motion for an order granting it summary judgment is granted. A judgment of possession is granted with the warrant of eviction to issue forthwith, execution stayed five days. Petitioner is also granted a money judgment against respondent in the sum of $88,540.12, plus costs and disbursements. The caption of the proceeding is deemed amended to reflect respondent's address with the zip code 10036 instead of 10038. The parties are directed to jointly contact chambers to schedule a hearing on petitioner's attorney fees.

This constitutes the decision and order of the court.

_______________________________

Barbara Jaffe, JCC [*8]

DATED:June 18, 2009

New York, New York