Matter of Greenburger v Tax Commn. of City of N.Y.

[*1] Matter of Greenburger v Tax Commn. of City of N.Y. 2007 NY Slip Op 51444(U) [16 Misc 3d 1116(A)] Decided on June 1, 2007 Supreme Court, New York County Schoenfeld, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through October 25, 2007; it will not be published in the printed Official Reports.

Decided on June 1, 2007
Supreme Court, New York County

In the Matter of Francis Greenburger, Petitioner,

against

The Tax Commission of the City of New York and the Commissioner of Finance of the City of New York, Respondents.



055446/90

Martin Schoenfeld, J.
"No Taxation Without Representation."
(Rev. Jonathan Mayhew, 1750)

Respondents, the Tax Commission of the City of New York and the Commissioner of Finance of the City of New York (hereinafter referred to as the "City") move to dismiss the consolidated petitions of Petitioner Francis Greenburger ("Greenburger"), alleging that Greenburger is not an aggrieved person within the meaning of Real Property Tax Law ("RPTL") § 704, and that therefore, he lacks standing to commence these RPTL, Article 7 tax assessment review proceedings. For the reasons stated herein, the City's motion to dismiss pursuant to CPLR 3211 is denied.

BACKGROUND

The subject property is a nineteen-story office building located at 55 Fifth Avenue, Manhattan, on the northeast corner of Fifth Avenue and 12th Street, identified as block 570, lot 1.

During the period under review, it was owned in its entirety by Yeshiva University ("Yeshiva"), with the lower floors being occupied by Yeshiva's Benjamin N. Cardozo School of Law. Since Yeshiva is a not-for-profit educational institution, the City has exempted that part of the building used by its Law School from the payment of real property taxes.

Under a 99-year term lease dated March 2, 1984 (the "Lease"), Greenburger occupied floors fourteen through nineteen. Subsequently, floors eleven through thirteen were added as part of the Lease agreement. Pursuant to Article 28 of the Lease, it was contemplated that these upper floors would be converted, on Greenburger's behalf, to condominium ownership. In fact, in October 1995, Yeshiva filed a Condominium Declaration for the conversion. In January 1996, Yeshiva then filed a new deed, transferring its interest in the upper floors, and thereby, terminating the Lease.

For the tax years 1989/90 through 1995/1996, while the Lease was in full force and effect, Greenburger commenced tax certiorari proceedings seeking to reduce the real estate tax [*2]assessments for the non-exempt portions of the building. During the same tax years, a retail drug store occupied the corner portion of the building's ground floor, and a publishing company occupied the ninth floor. The combined occupancy of these latter two tenants, according to Greenburger's Memorandum of Law, which is unrefuted by the City, constituted, at best, "less than 8% of the space in the Premises."

The requisite payment of real estate taxes is addressed in Article 6 of the Lease, which states in pertinent part: Tenant acknowledges that the "Property"...is currently partially exempt from the payment of Taxes...to the extent the Property is used or occupied for tax-exempt purposes. If at any time the portion of the Property presently exempt from the payment of Taxes, shall not be exempt from the payment of Taxes, the parties agree that Taxes levied and assessed against the Property are to be allocated and charged each fiscal tax year of the City of New York pro-rata to those portions of the Property... not used or occupied for tax-exempt purposes.

[Lease, Article 6.01 (a) ( i)] Tenant shall, upon the determination of Taxes chargeable to the Premises...promptly upon demand by Landlord pay to Landlord the amount so determined.

[Lease, Article 6.01 (a) (ii)] Tenant shall have the right to direct Landlord to contest or review any and all Taxes...by legal proceedings or in such manner as Landlord in its opinion shall deem advisable to be conducted by counsel reasonably acceptable to Tenant, which proceedings or other steps taken by Landlord if instituted at the direction of Tenant shall be conducted at Tenant's expense and free of expense to Landlord.

[Lease, Article 6.01 (d)]

CONTENTIONS

The City, referring to the standards set forth in the seminal case Matter of Waldbaum, Inc. v. Finance Administrator of the City of NY, 74 NY2d 128 (1989), argues that Greenburger lacks standing to proceed as an "aggrieved" person. In particular, the City contends that Greenburger "was not the only non-exempt tenant in the building and was to pay landlord Yeshiva and not the City, a fractional share of the entire tax levy." Moreover, the City contends that pursuant to the Lease "only Yeshiva could contest or review any property assessments", and that Greenburger "was merely entitled at its own expense to direct Yeshiva to make such a protest."

Greenburger, in opposition to the City's motion, alleges that since Yeshiva is tax-exempt, he is actually responsible for payment of "almost, if not all" of the taxes, and therefore is the real "aggrieved person having standing to challenge the assessments." Moreover, Greenburger claims that in any event, he "was bestowed with the contractual entitlement to maintain the proceedings in the place and stead of [Yeshiva]." This is confirmed by two letters written by Yeshiva officials. The first letter, signed by Yeshiva's Vice President, dated May 13, 1996 states in part as follows: You have advised us that you are contesting, with the appropriate New York City [*3]agencies, the real estate tax assessments... affecting the Property for fiscal tax years 1989/90 through 1995/96...We acknowledge and agree that you may contest or review the Taxes for the Period by legal proceedings or in such manner as you believe advisable...provided that (a) such contest...shall be conducted at your expense and free of expense to us and (b) our obligation, if any, for Taxes...are not increased or otherwise adversely affected by reason of such contest... .

The second letter, signed by Yeshiva's Associate General Counsel, dated March 3. 2005

states in part as follows: Although the University is exempt from real estate taxes, you are not. Pursuant to Article 6.01 (a) (iii), you, as Tenant, were liable for real estate taxes on the Property. Consistent with your responsibility for real estate taxes, Article 6.01 (d) provides that you are responsible for the expenses of any proceedings to contest real estate taxes, and that you are entitled to retain the net proceeds of any refund, remission or abatement which results from any such proceeding. The only logical conclusion is that you were also authorized to initiate and prosecute any such proceeding. Article 6.01 (d) also bestows upon you the power to direct and compel Yeshiva to prosecute, on your behalf, certiorari proceedings. Implicit in this grant is your entitlement to prosecute certiorari proceedings directly. The grant of power to you to direct Yeshiva to do so was never intended to divest you of your right to do so on your account.

The City, in reply, alleges that the belated letters are an attempt to retrofit the Lease provisions, which terms are at odds with Greenburger's actions. Thus, regarding the first letter, the City states that it "does not rise to the level of a contractually granted authority to challenge the assessments", but, "merely acknowledges that the proceedings have already been commenced and that [Yeshiva] does not oppose them." As for the second letter, the City contends that it is merely an attempt to respond to the City's arguments "by injecting meaning into the 1984 Lease that clearly was not there." Further, according to the City, the second letter conflicts with the earlier one which "makes clear that there was no contractual agreement... between Yeshiva and Greenburger that empowered [Greenburger} to commence the instant proceedings."

DISCUSSION

According to RPTL § 704, any person claiming to be aggrieved by any real property assessment may commence an Article 7 tax proceeding to challenge that assessment. The term aggrieved person has in certain respects been interpreted by case law. As noted above, the City contends that Greenburger lacks standing to proceed as an aggrieved person because he fails to meet the criteria set forth in the case of Matter of Waldbaum, Inc. v. Finance Administrator of the City of NY, 74 NY2d 128 (1989). There, the Court of Appeals clearly acknowledges that a taxpayer's right to have his assessment reviewed "should be liberally construed", and "should not be defeated by a technicality." Id. at 133. (emphasis added). However, the Court further states: A fractional lessee lacks standing to maintain a tax certiorari proceeding unless the lease expressly confers the right to assert the lessors's undivided property [*4]interest in a challenge of the assessment, or unless the lessee is required to pay directly the taxes levied against the lessors's undivided parcel. In either instance, the assessment must also have a direct adverse affect on the challenger's pecuniary interest. Id. at 132.

Simply stated, the facts in Waldbaum are as follows: Petitioner Waldbaum's wholly owned subsidiary entered into a 20-year lease with landlord Carlyle Shopping Center, Inc . for the rental of 49% of Carlyle's premises. The lease obligated Waldbaum to pay a fixed "minimum rent" as well as a fluctuating "percentage rent" based upon gross annual sales. Waldbaum was also required to pay as "additional rent", a 49% pro rata share of the real property taxes to the extent that it exceeded a certain base tax. However, payment of this "additional rent" was to be reduced by any "percentage rent" owing. Therefore, a tax increase would only cause an increase in the annual rent if Waldbaum's pro rata tax escalation share exceeded the "percentage rent" owed that year. Stated another way, whether or not "additional rent" needed to be paid was based upon a formula whereby the net annual computation of a pro rata tax increase was to be offset by the percentage of gross sales for that same tax year.

For a consecutive number of years, Waldbaum commenced tax certiorari proceedings challenging the validity of real property tax assessments levied against Carlyle. At no time was

Waldbaum ever assigned Carlyle's right to bring any such proceedings. In fact, Carlyle itself initiated, but later abandoned, duplicative proceedings for some of these same tax years. Further, Waldbaum instituted tax proceedings in certain years, for which it was not required to pay "additional rent" as a result of any real estate tax increases. This was because, pursuant to the lease formula, the pro-rata tax escalation was less than the percentage gross sales in those years.

The Court, in finding that Waldbaum was not "a party aggrieved sufficient" to warrant a personal tax assessment challenge, made clear that it wanted "to protect the taxing authority from multiple litigation." Id. at 134. Moreover, the Court was concerned that the lease failed to impose an obligation "for a corresponding increase in rent payment tied directly to a tax increase, but [rather] was keyed by formula to a deductible, variable offset." Id. Therefore, in holding that Waldbaum lacked standing, the Court concluded that "[t]his contractual formula renders the impact of a tax increase legally remote... and is, thus, an insufficient predicate for allowing [Waldbaum} to bring a personal tax certiorari proceeding...". Id. at 135 (emphasis added).

The facts in Waldbaum are in sharp contrast to those presented here. First, Yeshiva, unlike Carlyle, is tax-exempt. Therefore, Yeshiva has no real pecuniary incentive to pursue its own tax assessment challenge. Second, unlike Waldbaum, whose subsidiary leases less than half of Carlyle's premises, Greenburger occupies more than ninety percent of the subject property's taxable space. Additionally, while Waldbaum is only required to pay such amount as exceeds a certain base tax, Greenburger must pay the actual tax assessment chargeable to the property. As a result, Greenburger, unlike Waldbaum, is clearly responsible for the overwhelming proportion of all taxes due on the subject premises. Third, perhaps most significantly, while Waldbaum may be remotely obligated to pay a tax increase as "additional rent" based upon a complex formula, Greenburger's tax obligation, stated in a separate "Taxes" provision, is definite and [*5]straightforward.[FN1]

In any event, unlike Waldbaum, where Carlyle had never assigned its right to bring tax assessment proceedings (a fact noted in the Appellate Division decision, 141 AD2d 10, 13),

Yeshiva, by letter dated May 13, 1996, clearly allows Greenburger to do so. This letter, meant to persuade the City that it should review Greenburger's tax assessment claims, was a reasonable response to the City's own rather belated assertion that Greenburger lacks standing. It was not, however, meant to be a concession that such an assignment was even necessary. In this regard,

Yeshiva, by letter dated March 3, 2005, confirms the parties' intention that pursuant to the Lease, Greenburger was always authorized to contest the real estate tax assessments. According to Yeshiva, "a fair reading of the Lease" leads to this conclusion. As previously noted, the Lease contains language showing that while Yeshiva is tax-exempt, Greenburger is not; that not only is Greenburger liable for real estate taxes, but is solely responsible for the expenses of any proceeding to contest those taxes; and, that Greenburger is entitled to receive compensation for any refund resulting from such challenges. Therefore, at the very least, it is not unreasonable to conclude that Yeshiva never intended to reserve solely for itself, the right to commence tax certiorari proceedings.[FN2] Rather, it appears that the parties' intent was to ensure that Yeshiva would be indemnified, or otherwise be assured, that it would not incur expenses or be subject to any kind of tax obligation as a result of such proceedings. Thus, contrary to the City's contention, the two letters are consistent, both with each other, and with the Lease, by amplifying the parties' actual intention.

As noted in Federal Insurance Co. v. American Insurance Co., 258 AD2d 39, 44 (1st Dept 1999), in construing the provisions of an agreement, "the judicial function is to give effect to the parties' intentions." Moreover, it is stated therein: "The parties to an agreement know best what they meant, and their action under it is often the strongest evidence of their meaning." Id.

The March 3rd letter ends as follows:

In sum, the City's interpretation of the Lease is erroneous and does not accurately [*6] reflect the parties' agreement. Your commencement and maintenance of tax certiorari proceedings is and was entirely consistent with your rights under the Lease.

Interestingly, in reviewing the Lease, it is also significant to note that the sole language

referring to a "pro-rata" payment of taxes appears in Article 6.01(a)(i), which, as stated above, only provides that if any part of the tax-exempt portion of the property should no longer be exempt, then the parties agree to an allocation of those tax charges. Again, unless such event happens, there is clearly no incentive on Yeshiva's part to pursue a tax certiorari challenge. Further, there is no reference in the Lease as to any allocation between Greenburger and the two minor commercial occupants. In any event, as a practical matter, it would not make economic sense for either of them to bring independent claims and incur litigation expenses, when Greenburger occupies more than ninety percent of the non-exempt portion of the property. Therefore, given the particular circumstances of this case, the reality is that it would be unfair to consider Greenburger as merely a fractional lessee. Moreover, as already noted, Greenburger's tax obligation under the Lease is not keyed to some remote contractual formula measured, for example, by gross annual sales. Rather, the immediate and "actual impact on [Greenburger's]

pecuniary interest" is evident, because his Lease obligation to pay taxes corresponds with, and is directly tied to any and all tax increases imposed by the City.

While this case involves more than a mere technicality, the facts are such that Greenburger's right to challenge the tax assessment should, nevertheless, not be defeated.

Unlike Waldbaum, the instant circumstances do not create any undue administrative burdens upon the City. Nor can the City say that in this case it is genuinely concerned with duplicative petitions, multiple litigation, or a conflicting property valuation. On the other hand, with Yeshiva having no real pecuniary interest in pursuing the matter, unless Greenburger has standing as an aggrieved person, the City is essentially given the inequitable advantage of having carte blanche to assess and tax the subject property.

In considering who qualifies as an aggrieved party, the Court in People ex rel. Bingham Operating Corp v. Eyrich, 265 AD 562, 564-5 (3d Dept 1943), recognizing that "an assessment is levied against the land and not against the owner", further states that "all tax laws are to be strictly construed against the taxing power." This case is cited in Waldbaum by the Appellate Division, supra at 22, and its pronouncement continues to be relevant today. See Debovoise & Plimpton v. New York State Dept. of Taxation & Finance, 80 NY2d 657, 661 (1993); Matter of Niagara Mohawk Power Corp. v. Town of Clay Bd. of Assessors, 208 AD2d 170, 173 (4th Dept 1995); Matter of Tennessee Gas Pipeline Co. v. Town of Chatham Bd. of Assessors, 213 AD2d 103, 106 (3d Dept 1995). Applying that principle to the instant facts, this Court finds that Greenburger sufficiently qualifies, pursuant to RPTL § 704, as an aggrieved person able to challenge the City's tax assessments, and that such finding is consistent with Waldbaum.

CONCLUSION

Thus for the reasons set forth herein, the City's motion for an order dismissing the consolidated petitions of Greenburger, pursuant to CPLR 3211, on the ground that the [*7]proceedings are barred for lack of standing is denied.

Counsel shall contact the Clerk of I.A.S. Part 25 to obtain a pre-trial conference date.

This opinion constitutes the decision and order of the Court.

Date:June 1, 2007

J.S.C.

. Footnotes

Footnote 1:It is also interesting to note in passing the difference between Waldbaum's and Greenburger's relation to their respective spaces. While Waldbaum paid both a fixed and a fluctuating rent for a 20-year lease, Greenburger's rent was only ten dollars per annum. However, Greenburger appears to have paid millions of dollars for the grant of rights to purchase the non-exempt tax part of the subject building for the purpose of condominium conversion. Thus, while Waldbaum's subsidiary was a true tenant, Greenburger, during the tax years in issue, was in essence a contract vendee. In this regard, see Matter of Mack v. Assessor of the Town of Ramapo, 72 AD2d 604 (2d Dept 1979).

Footnote 2: See Matter of Reckson FS Ltd. Partnership v Bd. of Assessors and /or Assessor of the Town of Smithtown, NYLJ, June 2, 1999, at 36, col 5 (Sup Ct. Suffolk Co.) which states: "While the lease does contain a demand procedure whereby the tenant can force the landlord to commence a tax certiorari proceeding, the cost of which is borne by the tenant, it does not limit the tenant's right to commence its own proceeding if the tenant chooses not to implement the demand procedure."