Ninety-Five Madison Co. v Active Health Mgt.

[*1] Ninety-Five Madison Co. v Active Health Mgt. 2007 NY Slip Op 51765(U) [16 Misc 3d 1140(A)] Decided on June 22, 2007 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 22, 2007
Civil Court of the City of New York, New York County

Ninety-Five Madison Company, Petitioner-Landlord,

against

Active Health Management, Respondent-Tenant, "John Doe" and "Jane Doe", Respondent-Undertenants.



L&T 69865/2006

Barbara Jaffe, J.

A bench trial was held before me on January 23, 24, 25, 30, and 31, 2007, in this commercial holdover proceeding on petitioner's action to recover possession of the 13th and 14th of 15 floors at 95 Madison Avenue, New York, New York, located between 28th and 29th Streets, and to recover past rent. Testifying for petitioner were Rita Sklar and Michael McDermott; testifying for respondent were Arthur Halper, Michael Hudson, John Bridge, James Starr, and Professor Jeffrey Gordon. For the following reasons, the petition is granted.

I. INTRODUCTION

Petitioner, a partnership of two general partners, one of whom is Sklar, and respondent, a medical management innovator which was privately held, entered into a commercial lease dated October 26, 1999 for two floors at the subject premises. Subsequently, the parties entered into negotiations with a view toward respondent renting additional space in the building. Shortly after the negotiations broke down, respondent entered into a reverse triangular merger agreement with insurance giant Aetna Inc., after which negotiations resumed. Also discussed during the course of the negotiations was petitioner's possible waiver of any default arising from respondent's failure to obtain its consent to an alleged deemed assignment under the lease or provide petitioner with documentation allegedly required under the lease as a result of the transaction with Aetna Inc. When the negotiations again terminated, petitioner served respondent with a notice to cure. In response, respondent proffered to petitioner an assignment of the lease to Aetna Life Insurance Company (Aetna Life) which, unlike Aetna Inc., is licensed to do business in New York.

The issues thus presented here are: 1) whether respondent's transaction with Aetna Inc. constituted a transfer to Aetna Inc. in excess of 25 percent of respondent's stock or interest;

2) whether the transaction effected the transfer of respondent's equity interests and if so, whether [*2]respondent failed to provide petitioner with documentation required under the lease; and

3) whether petitioner waived respondent's default by accepting rent during the period of the default and/or by engaging in negotiations with a view toward waiving the default. The parties submit these issues in advance of a hearing as to damages, if necessary.

II. FACTUAL FINDINGS

In negotiating the lease, the parties utilized petitioner's standard form, which they modified to their requirements. Article 11 of the lease prohibits an assignment of the lease without petitioner's prior written consent. (Joint Trial Exhibits Binder 1 [Binder 1], tab 1). The parties further agreed that if the lease be assigned, petitioner may, after respondent's default, collect rent from the assignee and apply it to the rent reserved, although in such an event, the assignment will not be deemed a waiver of Article 11. (Id.). In Article 25, the parties agreed that petitioner's receipt of rent "with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to be waived by [petitioner] unless such waiver be in writing by [petitioner]." (Id.).

Article 64 of the rider to the lease supplements Article 11 and sets forth lengthy and detailed rules regarding assignments. (Id.). Although respondent construes the testimony of McDermott, respondent's Chief Financial Officer at the time of the lease negotiations, as evidence that Article 64 was not negotiated, I find, to the contrary, that Article 64 was negotiated by McDermott and Sklar, two sophisticated individuals who paid careful attention to its numerous terms.

Pursuant to Article 64(K) of the rider, "the transfer, assignment or hypothecation of any stock or interest in [respondent] in the aggregate, whether in one or more transactions, in excess of twenty-five (25%) percent shall be deemed an assignment within the meaning of the provisions of this Article 64." (Id.). The parties also agreed, pursuant to Article 64(O[Y]), that in the event of "any transfer of the equity interests in [respondent], whether in a public offering or a private transaction," petitioner would not have the right to terminate the lease and its consent to a proposed assignment would not be required: provided [respondent] furnishes [petitioner] with written proof satisfactory to [petitioner] regarding such transactions(s), including proof satisfactory to [petitioner] that the proposed assignee or subtenant has a financial strength equal to or greater than [respondent] . . . and delivers to [petitioner] duplicate originals of the fully executed instrument of assignment pursuant to subdivision (F) of this Article 64 or duplicate originals of the fully executed sublease pursuant to subdivisions (H) or (I) of this Article 64 . . .

(Id.). Thus, where the transaction does not constitute a deemed assignment under Article 64(K), respondent must establish that its proposed assignee, e.g., the transferee of respondent's stock, is of equal or greater financial strength. As Article 64(O[Y]) is reasonably read as a corollary to Article 64(K), respondent's assertion that the assignee need not be the transferee lacks merit.

Moreover, the transaction must have been: effected in good faith . . . for the bona fide business purposes of [respondent] other than the transfer of this leasehold [and] that such transaction does not result in a substantial increase (as determined by [petitioner] in its reasonable discretion) of the number of persons utilizing the demised premises and/or the number of visitors to the Building, or a [*3]change in the character (as determined by [petitioner] in its reasonable discretion) of the persons utilizing the demised premises and/or visitors to the Building.

(Id.).

Respondent provided petitioner with security in the form of two letters of credit, each in the amount of $1,000,000. (Joint Trial Exhibits Binder 2 [Binder 2], tab 86). The parties agreed in Article 82(B, C) that if respondent was not in monetary defaultbeyond any grace and cure periods provided for in the lease, then one of the letters of credit would be reduced by $250,000 on April 2, 2005 and again, on April 2, 2006, and by $272,030 on April 2, 2007. (Binder 1, tab 1). However, the parties also agreed, pursuant to Article 82(D), that if respondent was in monetary default beyond any grace and cure periods provided for in the lease on any date on which a reduction pursuant to Article 82(B, C) was scheduled, then the reduction "shall be delayed for a period of one (1) year and in such case each subsequent reduction provided for herein shall also be delayed by one (1) additional year" (Id.). Moreover, in the event of a failure to cure any default in a timely fashion or if "for any reason, [respondent] fails to surrender to [petitioner] possession of the demised premises at the expiration or sooner termination" of the lease pursuant to Article 82(I, I), petitioner is given the option under Article 82 (I, M) of drawing on all or part of the security. (Id.).

In 2004, due to its rapid growth, respondent sought to lease additional space in the building. The parties attempted to negotiate respondent's use of the 15th floor pending the reconfiguration of the 13th and 14th floors. According to Halper, respondent's then President and Chief Executive Officer, the negotiations with Sklar were difficult and extended, resulting in respondent's agreement to not only pay above market rent, but to pay for all improvements and roll them into the lease as a deduction. It also agreed to advance money to petitioner to upgrade the lobby and replace the elevator. Respondent's broker was involved in the negotiations.

By letter of April 11, 2005, respondent asked that petitioner acknowledge that it was not in monetary default within the meaning of Article 82, and that the first $1 million security deposit be reduced to $750,000. (Id., tab 2). Sklar denied receiving the letter. At the time, respondent was in arrears for $70,329. Unbeknownst to Sklar, respondent withdrew $250,000 from the security deposit. By check dated April 29, 2005, respondent paid petitioner the $70,329 arrears. (Binder 2, tab 84). Starr, then respondent's Chief Financial Officer, denied that respondent drew from the security to cover the rent arrears. Having failed to establish that respondent withdrew from the security deposit with knowledge of its monetary default, I do not consider this evidence in reaching my decision.

Although acknowledging respondent's impressive innovations in the medical industry, Sklar was unwilling to rent it additional space, believing that its net operating income was insufficient to meet its obligations and that it was seeking new financing. Respondent thus leased additional space at 102 Madison Avenue.

On May 27, 2005, Aetna Inc. and respondent entered into a "reverse triangular merger" agreement whereby respondent's shareholders, pursuant to a majority vote, tendered their shares to respondent in exchange for cash from Arizona Acquisitions Corporation (Arizona), an Aetna Inc. subsidiary specially formed for this transaction. Respondent's shares were thus converted into rights to receive the cash consideration, upon which they were cancelled and retired; the dissenting shareholders received the right to receive an appraisal. Arizona's shares were then [*4]"converted" into respondent's shares, which became Aetna Inc.'s, and Arizona was extinguished. Respondent survived the transaction and became a wholly-owned subsidiary of Aetna Inc. Respondent's directors resigned from respondent in order to allow for the change in control. (Id., tabs 4, 7; Binder 2, tab 83).

While the process by which the transaction between respondent and Aetna Inc. arose has applications and implications which pertain in the greater world of mergers and acquisitions, for the purposes of these parties and pursuant to the plain language of the lease, the transaction should be analyzed in terms of the results obtained. Although Gordon, respondent's expert in mergers and acquisitions, conclusorily testified that a reverse triangular merger effects no transfer, assignment or hypothecation of stock, the evidence established that after the transaction, respondent's shares, although cancelled and retired, were resurrected, so to speak, as the property of Aetna Inc. Absent any evidence that the cancellation, retirement, and resurrection of the shares held by respondent's original shareholders transformed the shares into something other than those held by respondent's original shareholders, I conclude that the shares were transferred to Aetna Inc., albeit in more than one step, a circumstance specifically contemplated by Article 64(K). (58A NY Jur 2d § 676 [expert opinion may be accepted or rejected by fact finder even if uncontradicted]).

I also observe that an exchange of outstanding shares for cash precludes a corporate merger from qualifying as a reorganization within the meaning of the federal tax law (28 USCA § 368[a][2][E][ii]), and has been characterized as "strongly indicative" of a sale. (Equifax Services, Inc. v Chlystek, 1989 WL 45345 [US Dist Ct, Kan 1989]; but see Equifax Services, Inc. v Hitz, 1991 WL 17651 [US Dist Ct, Kan 1991], affd 968 F 2d 1224 [10th Cir 1992] [tax law considerations inapposite]). Even if the tax law is not apposite here, I also find that as respondent's interests were also, in effect, transferred to Aetna Inc., the transaction obligated respondent to comply with the requirements set forth in Article 64(O[Y]).

In contrast to the circumstances presented in Dennis' Natural Mini-Meals, Inc. v 91 Fifth Avenue Corp., 172 AD2d 331 (1st Dept 1991), and in Rubinstein Bros. v Ole of 34th Street, Inc., 101 Misc 2d 563 (Civ Ct, New York County 1979), here, Article 64 is broad enough to cover the instant transaction. Those decisions are, moreover, distinguishable, as is Brentsun Realty Corp. v D'Urso Supermarkets, Inc., 182 AD2d 604 (2d Dept 1992), where under the lease a "transfer or sale of fifty percent (50%) or more of the stock of the Corporation" constituted an assignment, and the merger in issue was between a subsidiary corporation into its parent which resulted in no change in the beneficial ownership of the subsidiary.

For all of these reasons, I find that there occurred a transfer to Aetna Inc. of more than 25 percent of respondent's stock or interest which constitutes an assignment within the meaning of Article 64(K), and/or a transaction within the meaning of Article 64(O[Y]).

The transaction was announced in a press release. Absent sufficient probative evidence establishing that Sklar learned of the transaction much before November 2005, I find that respondent failed to prove that she learned of it in May or June 2005. In any event, petitioner's delay in serving the notice to cure immaterial in light of the no-waiver clause. (See infra, at 17).

In a facsimile transmission dated November 10, 2005, Sklar confirmed the scheduling of a meeting for November 21 with Starr concerning renewed negotiations between the parties, this time for the 15th floor. Halper decided to negotiate directly with Sklar, without the assistance of the broker. [*5]

In her November 10 memorandum, Sklar posed several questions in anticipation of the meeting, among them, questions relating to the Aetna transaction. (Id., tab 17). Although Halper testified that respondent had offered Sklar information concerning the transaction the preceding summer, respondent replied in writing through Starr that respondent had been "acquired by Aetna Insurance Company," that Aetna "is a national healthcare company based in Hartford, CT," and that "Aetna's revenues will exceed $20 billion in 2005 and they currently have over $43 billion in total assets." (Id., tab 19). Starr characterized respondent as a wholly-owned subsidiary of Aetna, although in response to Sklar's question as to whether the insurance company would guarantee the new lease if respondent was not a wholly-owned subsidiary, he stated that it would be "determined based on structure of lease." (Id.).

Sklar was confused by Starr's response, and Halper and Starr conceded that Starr's response was incorrect in that Aetna Inc. had acquired respondent and there is no such entity as "Aetna Insurance Company." Starr insisted that the error was inadvertent and denied having intended to deceive Sklar. Given the scale of the transaction with Aetna Inc. and the interests Halper and Starr had in it, I find that the error was not inadvertent but was intended to obfuscate.Halper, Starr, and Michael Lenahan, respondent's counsel at the time the lease modification was negotiated, attended the November 21 meeting with Sklar, which she summarized in a memorandum to them dated December 1, 2005. (Id., tab 22). In paragraph five, Sklar again requested details concerning the Aetna transaction.

In a memorandum from Halper and Starr, dated December 2, 2005 and copied to Lenahan, respondent transmitted a written proposal for leasing the 15th floor which included a provision for a brokerage commission which respondent would put toward construction costs. (Id., tabs 23, 26, 40).

In a memorandum dated December 4, 2005, Sklar made it clear to respondent that time was of the essence in the negotiations for the 15th floor. (Id., tab 27). As she considered herself inadequately informed about the Aetna transaction, in another memorandum, she again asked for "[p]roof of the legal relationship between [respondent] and Aetna and a letter from Aetna on how the relationship affects Aetna's responsibility under the current and the proposed lease modification . . ." She also asked whether Aetna would guarantee the lease if it was not legally responsible for respondent's financial obligations, and requested respondent's complete audited financials for the last three years. (Id., tab 31).

In responses written on Sklar's memorandum, Halper, Starr, and Lenahan indicated that "Aetna has no responsibility" under the current and proposed lease modification, and that respondent "is signing the Lease Modification in its own right." (Id., tab 32). In response to Sklar's query as to whether Aetna was legally responsible for respondent's financial obligations, Halper, Starr, and Lenahan said "no," but agreed to provide respondent's audited financials. (Id.). Respondent indicated that one-half of the proposed broker's commission would be paid by petitioner. (Id.). On another copy of Sklar's December 4 memorandum, Halper, Starr, and Lenahan wrote "ridiculous" opposite Sklar's request for proof of the legal relationship with Aetna. (Id., tab 33).

Sklar fruitlessly continued to request information about the Aetna transaction. (Binder 2, tab 39). She nonetheless received and deposited respondent's rent checks without reservation through December 2005, including checks issued by Aetna Life's agent, Trammel Crow Services, Inc., commencing in November 2005. (Id., tab 82). When she came to the decision, in [*6]January 2006, that the Aetna transaction affected a change in the ownership of respondent and that respondent was "stonewalling" with respect to certain aspects of the negotiations for the lease modification, Sklar began endorsing respondent's rent checks with "all rights reserved." (Id., tab 42). At the end of January 2006, Halper halted the negotiations. By letter dated February 2, 2006, Sklar expressed her view that the negotiations were at a standstill for various reasons. (Id., tab 45).

In a letter dated February 7, petitioner's counsel notified respondent that "an event of default exists under the above Lease" in that Sklar understood that "a change in control of [respondent] has occurred" and that "no request has been made for [petitioner] to approve the assignment of the above lease or sublease by [respondent] pursuant to Section 64(C) nor has [respondent], among other things, complied with Section 64(O) by submitting written proof of such transactions and the assignee's or subtenant's financial strength which is satisfactory to [petitioner]." (Id., tabs 46, 47).

In response to an email from respondent's counsel, petitioner's counsel denied that respondent had fulfilled the conditions set forth in paragraph 64(O) of the rider in that it had not delivered financial statements of the proposed assignee or the executed duplicate originals of the assignment. He also denied that a press release announcing the merger adequately described it. (Id., tab 48).

Petitioner offered respondent another opportunity to cure the alleged default by again requesting documentation underlying the Aetna transaction in a letter from counsel dated February 16, 2006, and further explaining petitioner's position in a letter dated February 17. (Id., tabs 50, 51).

By email dated February 23, 2006, respondent's counsel sent petitioner's counsel a draft of a letter setting forth details of the transaction, along with Aetna's annual financial reports for fiscal years 2002 through 2004, certified financial statements for 2003 through 2005, and the certificate of merger between Arizona and respondent. (Id., tab 52). The finalized letter and attachments were sent to petitioner on February 24, 2006. (Id., tab 54). Negotiations with Sklar for the lease modification apparently continued (id., tabs 55, 57), at least to the extent that petitioner's counsel continued, by letter dated March 3, to request additional information concerning the Aetna transaction (id., tab 56).

By letter dated March 8, petitioner's counsel expressed his understanding that negotiations for the 15th floor had terminated, and that he had still not received the information he requested in his March 3 letter, adding that "[t]his request is being made as a courtesy and should not be construed to waive any defaults which have occurred under the above Lease or extend in any manner the time period, if any, which may exist to cure or remedy such defaults." (Id., tabs 58, 59).

A formal notice to cure was sent to respondent on March 9, 2006. (Id., tabs 60, 63). The following day, respondent purported to cure any deficiencies alluded to by petitioner's counsel regarding the required documentation (id., tab 62), and sent via facsimile transmission on March 13, 2006, a form of assignment which Starr stated would be executed by "Aetna" (id., tab 64).

Sklar was stunned when she received the form of assignment reflecting that Aetna Life was the assignee and not Aetna Inc. According to Halper, in offering Aetna Life as the assignee, respondent was simply trying to placate Sklar as he believed there was no basis for deeming the transaction an assignment of the lease. According to Starr, however, as Aetna Inc. is not [*7]licensed to do business in New York, whereas Aetna Life is, respondent had no choice but to offer Aetna Life as the assignee, an explanation I reject. (See Storwal Intl., Inc. v Thom Rock Realty Co., LP, 784 F Supp 1141 [SDNY 1992] [signing of lease by foreign corporation does not constitute doing business in New York within meaning of BCL § 1312]).

In an email sent to respondent on March 16, 2006, petitioner's counsel conveyed petitioner's preference that Aetna Inc., and not Aetna Life, be assigned the lease, and observed that petitioner had received no financials from Aetna Life. (Id., tab 65). Counsel also informed respondent that an "additional event of default may exist" as the amount of the letters of credit "may have been reduced at a time when the tenant was in monetary default under the Lease and that this portion of the security has not been restored." Counsel reiterated petitioner's position that nothing should be construed to consent to or waive any rights with respect to any default or violation of the lease. (Id.).

In response, respondent sent petitioner's counsel Aetna Life's most recent annual report which he claimed reflects that Aetna Life's net worth as of December 31, 2005 was approximately 40 times respondent's, thus demonstrating that the assignment to Aetna Life would represent a "huge credit upgrade" for petitioner. (Id., tab 85). By email dated March 21, 2006, petitioner's counsel reiterated petitioner's preference that Aetna Inc. be assigned the lease. (Id., tab 67). The parties further clarified that petitioner was rejecting the assignment to Aetna Life. (Id., tab 68). Sklar was irritated with respondent and justifiably believed that it had negotiated dishonestly, particularly because of the attempt to include an unearned brokerage commission in the deal for the additional space.

Petitioner served respondent with notice that as of five business days from March 23, 2006, the lease would terminate. (Id., tabs 70, 71). In April 2006, given the default, consequent acceleration of the termination of the lease, and respondent's failure to vacate the premises, in April 2006, Sklar drew $1.75 million, or the entire balance remaining, on the letters of credit. Pursuant to court order, respondent has paid use and occupancy to petitioner since April 2006, and has never sought injunctive relief seeking time to cure. It still occupies the premises.

Although Sklar had agreed to waive respondent's default if the lease modification had been executed, she denies that she sought to terminate respondent's lease as a strategy designed to pressure respondent to enter into the lease modification. She concedes that the Aetna transaction affected no change in the use of the premises, that there has been no change in the business transacted by respondent on the premises, that if petitioner prevails on the instant petition, respondent will owe it the balance of the lease on an accelerated basis, and that petitioner will have the right to evict respondent and re-let the premises at a higher rent.

Michael Hudson, then Chief Financial Officer of a group at Aetna Inc. which focused on medical management services, was one of the leaders of the due diligence team which concluded that nothing militated against Aetna's acquisition of respondent. Although Hudson recognized that schedule 3.05(a) of the due diligence report prepared for the merger indicated that petitioner's consent to an assignment resulting from the merger was required (Binder 1, tab 4; Binder 2, tab 87), he felt that the consequences of a lease termination were not so substantial as to cause an interruption of Aetna Inc.'s business sufficient to constitute an obstacle to the merger. John Bridge, head of the business development group at Aetna Inc., agreed with Hudson, characterizing the real estate and lease issues as de minimis and respondent's lease as a "paltry" share of Aetna Inc.'s real estate holdings. He maintained that it was Aetna Inc.'s prerogative to [*8]close the deal absent any required consents. Although waivers of any requirements set forth in schedule 3.05(a) were required to be in writing pursuant to section 7.01(a) of the due diligence report and a $40 million escrow fund was established in the event respondent failed to fulfill any of the terms of the merger agreement, Bridge felt that a written waiver of consent was unnecessary. From Halper's perspective, the absence of petitioner's consent was Aetna Inc.'s problem as respondent had informed it of the issue.

III. ANALYSIS

At the close of petitioner's case, respondent moved for a trial order of dismissal, arguing that the evidence established that the Aetna transaction did not constitute a transfer within the meaning of Article 64(K) or (O[Y]) of the lease and that therefore, petitioner had failed to prove that respondent had breached the lease by failing to obtain its consent to the assignment or by offering Aetna Life instead of Aetna Inc. as the proposed assignee. Alternatively, respondent argued that in light of Sklar's knowledge of the transaction and petitioner's acceptance of rent during the period of alleged default, any default was waived and thus, petitioner failed to establish, prima facie, that it had breached the lease.

Petitioner sought a directed verdict, claiming that by virtue of respondent's admission in its agreement with Aetna Inc. that petitioner's consent was required for the assignment, respondent should be estopped from denying that consent was not required, and denying it had waived the default given the no-waiver clause of the lease and its repeated good faith attempts to obtain more information concerning the transaction. I reserved decision on both motions pending receipt of memoranda from the parties. Petitioner's reply memoranda was filed with the court on May 25, 2007.

I now deny respondent's motion and petitioner's motion for a directed verdict, and grant petitioner judgment at the close of the evidence for the following reasons:

In interpreting a contract such as a lease, the court must construe it in accordance with the parties' intent. (Greenfield v Philles Records, Inc., 98 NY2d 562 [2002]). As the best evidence of a parties' intent is their written agreement, one that is complete, clear, and unambiguous must be enforced according to the plain meaning of its terms. (Id.). Here, as respondent concedes, the requirements set forth in Article 64 are clear and unambiguous. (See supra, at 3-4). To the extent that Article 64 is not clear and unambiguous, I find that respondent, through the conduct of its principals, has forfeited any equitable right it might have had to avoid a forfeiture via a more favorable construction of Article 64.

While respondent denies having had a motive to deceive Sklar given its position that the transaction did not constitute an assignment under the lease, its conduct reflects otherwise. Not only was Starr's explanation for offering Aetna Life and not Aetna Inc. as the proposed assignee without legal basis (see supra, at 12), but respondent's communications with Aetna Inc. (schedule 3.05[a] of the due diligence report) reflect that it perceived a need for petitioner's consent. Thus, Halper's explanation that respondent offered the assignment to Aetna Life simply to placate Sklar cannot be credited. Additionally, although respondent maintains that it had been explained to Sklar that "insurance regulations" prohibited Aetna from "directly do[ing] business in New York (Respondent's Post-Trial Brief, at 3), it cites no supporting legal or factual basis for that assertion.

Moreover, Halper and Starr were, at best, disingenuous in their communications with petitioner concerning the nature of the Aetna transaction. Even if they had nothing of great [*9]substance to hide from Sklar, their negotiations and correspondence with her suggest dishonesty and gamesmanship, and reveal that respondent's principals underestimated Sklar, who irritated Halper with her attention to detail and success at obtaining from respondent an above-market rent and security deposit. To the extent that Halper indicated that respondent agreed to pay a high rent and security deposit as a result of being coerced by Sklar, I find it more likely that respondent, and by extension, Aetna Inc., were motivated by a climbing real estate market. In any event, that market conditions were favorable to petitioner does not mean that respondent was unfairly treated by petitioner, and any resulting "windfall" obtained by petitioner was the product of the calculated risk respondent took that its business would be disrupted as a result of failing to obtain petitioner's consent to what could be deemed an assignment arising from the transfer of respondent's interests.

Sklar, by contrast, was patient with respondent in her repeated attempts to obtain its compliance with Article 64. She presumed that respondent was acting honestly until she had an objective reason to believe otherwise, which arose from respondent's attempt to include an unearned real estate commission in the lease modification and its failure to inform her as to the details of the transaction. As an owner and landlord of a commercial premises in Manhattan at the time of perhaps the hottest real estate market in recent history, Sklar was not obliged to permit anything other than strict compliance with the lease notwithstanding her prior indication that she would waive the default upon execution of the lease modification.

That being said, I also hold that in view of the complete, clear, and unambiguous no-waiver clauses in the lease, petitioner did not waive the default despite having accepted rent from respondent and Aetna Life with some reason to believe that a default had occurred and having engaged in negotiations with respondent concerning the default. (See Jefpaul Garage Corp. v Presbyterian Hosp. in NY, 61 NY2d 442, 446 [1984]; Avenue 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]). Moreover, as in Elite Gold, Inc. v TT Jewelry Outlet Corp., Sklar was unaware that respondent would not sign the lease modification (with its waiver of the default), or that Aetna Inc. was not to be the assignee. Consequently, it was not "unmistakably manifested that [petitioner] intended to surrender its right" to declare a default and terminate the lease. (31 AD3d 338 [1st Dept 2006]).Petitioner was thereby authorized to withdraw the entire balance remaining on the letters of credit pursuant to Article 82(I, M).

IV. CONCLUSION

For all of these reasons, I conclude that as respondent breached the lease, petitioner was within its rights in serving respondent with the notice to cure and notice of termination and thus, the petition is granted. As petitioner was also justified in withdrawing the entire balance remaining on the letters of credit, respondent's counterclaim is dismissed.

Thus, a judgment of possession is granted petitioner. Warrant to issue forthwith and stayed for five days. The parties are directed to contact my chambers jointly in order to schedule a hearing on the remaining issues.

This constitutes the decision and order of the court.

_______________________________ [*10]

Barbara Jaffe, JCC

DATED:June 22, 2007

New York, New York