Getz Plaza Corp. v Staten Is. WG, LLC
Annotate this CaseDecided on December 4, 2014
Civil Court of the City of New York, Richmond County
Getz Plaza Corp., Petitioner,
against
Staten Island WG, LLC, MASSI SI LLC, NOODLE DEVELOPMENT COMPANY AND WALGREEN INC., Respondents.
L & T No. 51622/14
M. Joseph Levin, Esq.
68-16 Queens Boulevard, Suite 206
Elmhurst, NY 11373
Attorneys For Respondent Massi SI LLC
Howard M. File, Esq. P.C.
260 Christoper Lane, Suite 102
Staten Island, NY 10314
Attorneys For Petitioner
Lee Anav Chung White & Kim LLP
Michael M. Yi, Esq.
156 Fifth Avenue, Suite 303
New York, NY 10010
Attorneys For Respondent Walgreen Eastern Co. Inc.
Philip S. Straniere, J.
Recitation, as required by CPLR 2219(a), of the papers considered in the review of this
MOTION FOR SUMMARY JUDGMENT
PapersNumbered
Notice of Motion and Affidavits Annexed............................................1
Affirmation in Opposition......................................................................2
[*2]Upon the foregoing cited papers, the Decision/Order on this Motion is as follows:
Petitioner, Getz Plaza Corp., commenced this commercial summary proceeding against the respondents, Staten Island WG, LLC (WG), Massi SI LLC (Massi), Noddle Development Company (Noodle) and Walgreen Inc. (Walgreen), alleging that the respondents' tenancy was terminated when they failed to cure a default under the terms of the lease. All sides are represented by counsel.
Although Walgreen has appeared, based on the below referenced Building Lease and counsel's representations, the proper respondent should be Walgreen Eastern Co., Inc., the tenant on that lease and not Walgreen Inc.
Currently before the court is a motion for summary judgment by Massi pursuant to CPLR §3212 to dismiss the proceeding. Petitioner opposed that motion. Petitioner filed a cross-motion for summary judgment granting it a judgment of possession. Respondent Massi opposed that motion. None of the other parties have submitted papers in regard to either motion. Additional motions between petitioner and respondents other than Massi were withdrawn.
On August 1, 2003, Getz, as landlord, entered into a Ground Lease with WG, as tenant, for a term that terminates on July 31, 2052. Massi is the assignee of the round lessee of the Getz Ground Lease with WG, while Walgreen is now the subtenant of Massi. WG and Walgreen entered into a written lease for a building to be erected by WG at the site set forth in the Ground Lease. The Building Lease also terminates on July 31, 2052 and provided for monthly rent payment of $24,583.33 above the monthly rent in the Ground Lease. This figure remains constant for the entire fifty year term of the Building Lease. The Building Lease also provides for additional rent payments based on gross sales at the store.
On March 17, 2014, petitioner caused to be issued a Thirty Day Notice to Cure by "April 30, 2014 or thirty (30) days after your receipt of this Notice, which ever is later". This notice alleges that the respondents were in breach of paragraph 7 of the Ground Lease having failed to pay water and sewer charges as required by that agreement. Service of the Notice was completed on March 31, 2014 when an additional copy was mailed to the respondents.
On May 1, 2014, petitioner caused to be issued a Ten Day Notice of Termination informing respondents that the Ground Lease would terminate on May 15, 2014 for failure to cure the default by the April 30, 2014 date set forth in the March 17, 2014 notice. Service of the Ten Day Notice was completed by mailing an additional copy on May 5, 2014.
Petitioner's notice of petition and petition dated May 16, 2014 were filed with the clerk of the court on May 22, 2014.
Respondent Massi had caused to be issued a check from to the NYC Water Board on May 8, 2014 in the amount of $8,594.82. The check was credited to the account on May 15, 2014. Which means that the default had been cured prior to the litigation being commenced and the check had been issued and credited to the respondent's account with the NYC Water Board prior to the date petitioner set for termination of tenancy, May 15, 2014.
Petitioner commenced this proceeding alleging that the respondents failed to pay $8,594.92 in municipal water and sewer charges as required by the Ground Lease. Petitioner asserts that notice was given to all of the respondents and none of them cured the default in a timely manner nor sought a "Yellowstone Injunction"[First National Stores v Yellowstone Shopping Center, Inc., 21 NY2d 630(1968)]. Petitioner contends that the default was not cured until May 15, 2014, after the April 30, 2014 cure period.
Respondent Massi's motion for summary judgment dismissing this nonpayment proceeding is granted. Petitioner's cross-motion for summary judgment is denied.
First, the term of the Ground Lease is fifty-years and the rental value of the lease is in excess of $16,000,000.00. A failure to cure a water/sewer charge payment of about $8,600.00 until two weeks after the cure date in petitioner's notice is a de minimis violation of the lease terms. It is not a material breach and is not a basis to terminate a lease of such length or monetary value, especially considering the cost of constructing a store on the land. Petitioner has not established that it has been harmed in any way or its interests in the real property impaired by respondent's "breach" of the agreement and late payment of the water/sewer charge. Petitioner has not established that this late payment is a repetitious practice of the respondent requiring the petitioner to regularly send default notices, to retain counsel, or to commence legal proceedings. There is no showing that the actions of the respondent were willful or there was any prejudice to the petitioner.The rules of equity relieve the respondent of any penalties for its failure to timely act under these circumstances as it would result in the forfeiture of a valuable asset, this long term lease and the improvements to the property by respondent [Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449 (1971)].
It appears that under the terms of the Ground Lease, the petitioner has no responsibility for the payment of any utility or municipal charges. Paragraph 7 of the Ground Lease makes these payments the sole responsibility of the respondent. This means that the petitioner was not required to make payment for them in the event of default, as the building constructed is free-standing, built at respondent's sole cost and expense pursuant to an agreement between WG and Walgreen to which petitioner consented. Payment of these utility expenses, including the water/sewer charge under the terms of the Building Lease, is the responsibility of Walgreen. Paragraph 17 of the Building Lease sets forth the rights and remedies of the parties in the event of a default in the performance of the terms of the agreement.
Second, the respondent has a leasehold mortgage from Wachovia Bank, NA, on the premises that respondent Massi assumed from its predecessor WG. It is not disclosed what entity currently is holding this mortgage as Wachovia has ceased operating under that name. The respondent alleges that the mortgage is in the amount of $3,100,000.00. In connection with respondent securing the leasehold mortgage, petitioner, as the landlord, executed a Ground Lessor Estoppel And Agreement. This was required to ensure that the lender would fund construction of the tenant's building. Paragraph 7 of the Estoppel Agreement required the petitioner-landlord to give notice to the lender on "any default by Tenant under the Lease simultaneously with sending such notice to Tenant, and no exercise of remedy by Landlord as a result of any such default, shall be effective unless such notice shall have been delivered to Lender." In spite of being a party to this agreement, there is no indication that the petitioner caused to be served upon the lender any of the predicate notices nor the pleadings in this proceeding. Therefore, petitioner has failed to comply with a condition precedent to effectively commence this litigation, that is giving notice of the lender of the default.
Third, respondent alleges in its motion papers that Paragraph 14(a) of the Ground Lease limits the petitioner-landlord's remedy for a breach by the tenant of a lease term as follows:
If any fixed rent is due and remains unpaid for ten (10) days after receipt ofnotice from Landlord, or if Tenant breaches any other covenants of thisLease and if such other breach continues for thirty (30) days after receipt ofnotice from Landlord, Landlord shall then but not until then, as its sole legalremedy but in addition to its remedies in equity, if available have the right tosue for rent and other sums due Landlord under this Lease; but if Tenantshall pay said rent within ten (10) days, or in good faith within said thirty(30) days commence to correct such other breach, and diligently proceedtherewith, then Tenant shall not be considered in default. Without limitingthe foregoing, in no case and under no circumstances shall termination ofthis Lease be a permitted Landlord remedy. Landlord shall in no evententitled to accelerate rent and/or other charges due by Tenant under thisLease, except that any payments under this Lease paid more than 30 daysafter due date shall include a 5% penalty.
Apparently this clause in on page 12 of the lease agreement. Unfortunately, none of the copies of the lease agreement submitted by any of the parties contains that page where it is supposed to be, presumably between page 11 and 13. It appears between page 16 and 17. I checked, this is not an example of Abbott and Costello arithmetic.
The paragraph only is applicable to a failure to pay "fixed rent." Although section 2 of the lease is labeled "Rent," that paragraph does not use the term "fixed rent" in describing those payments. "Fixed rent" is not described anywhere in the Ground Lease. Perhaps it is a reference to the provision of the Building Lease between Massi and Walgreen where there is a monthly rent set forth for the entire term of the lease and an additional rent payment tied to gross sales. A reading of the rental terms of that agreement leads to the conclusion that the monthly rent recited for the fifty-year term is what the parties meant by "fixed rent" because it does not fluctuate while the gross sales [*3]portion would fluctuate on a monthly basis. Apparently the "fixed rent" language was included in the Ground Lease as it was executed the same date as the Building Lease.
A fair reading of the Ground Lease and the Building Lease leads to the conclusion that water and sewer charges are not included in the definition of "fixed rent" to be subject to the limitation on the landlord's remedy for nonpayment in Paragraph 14(a). Therefore the failure of the respondent to make a timely payment of that amount to the Water Board, is a default of a general lease term.
Paragraph 7 of the lease, "Utilities" requires the respondent-tenant to "pay when due all bills for water, sewer rents, sewer charges...." It does not specify that the failure of the tenant to pay these charges constitutes either "rent, fixed rent or additional rent" under the lease terms. Nor does it give the landlord a specific remedy if the monies are not timely paid. This paragraph does not even by its terms authorize the landlord to pay the outstanding bill and then seek to be reimbursed by the tenant.
Petitioner had to give thirty days notice to the respondent of the breach, which it did. Once the respondent failed to make payment Paragraph 14 limited the petitioner's "sole legal remedy" to "sue for rent and other sums due Landlord under this Lease." Giving this clause its plain meaning, the petitioner could have brought a plenary action for money damages.
As the payment in dispute is not "rent" or additional rent, the question arises whether a right to bring summary payment for nonpayment is permitted. Real Property Actions and Proceedings Law §711(3) permits a summary proceeding to be commenced for nonpayment "of any taxes or assessments levied on the premises" which the tenant has agreed in writing. Such a proceeding would be permitted under the facts of this case but for the parties agreeing in the Ground Lease to only allow an action for money damages and not for recovery of the property. A summary proceeding is therefore prohibited by the Ground Lease if as a result the petitioner could obtain possession of the premises.
Paragraph 14(a) specifically says: "Without limiting the foregoing, in no case and under no circumstances shall termination of this Lease be a permitted Landlord remedy." The plain meaning of this clause is that then during the term of the lease, the landlord's sole remedy is a money judgment in regard to any breach of the lease. Recovery of the premises does not appear is not a permitted remedy. Petitioner is entitled to a 5% penalty on "any payments" paid after the due date. Common sense would tell you that the landlord would only be entitled to a 5% penalty on monies due it from the tenant or on monies it paid to third parties for the benefit of the tenant to cure a tenant's default. Under that reasoning, if petitioner had paid the water/sewer bill of $8.594.92, petitioner would be entitled to $429.75 as a penalty fee.
On the other hand Paragraph 14(a) does not say the penalty is imposed only on monies the landlord pays on behalf of the tenant, it says the 5% penalty is imposed for "any payments under this Lease paid more than 30 days after its due date." Therefore [*4]because the water/sewer payment was made more than 30 days after its due date, petitioner is entitled to invoke the monetary penalty of $429.75.
Fourth, the court must question whether the landlord has any standing to commence a summary proceeding based on the tenant's failure to timely pay the water/sewer charges or any utility charges because this is a Ground Lease of vacant land. Even though there is a clause in regard to water/sewer and utility charges in the Ground Lease (Paragraph 7), no such utilities or municipal services existed at the site when the Ground Lease was entered into. Such a clause was irrelevant to the Ground Lease, but was an integral clause in the Building Lease. The tenant, Massi, constructed the building pursuant to a separate agreement with Walgreen. The water/sewer service and utility charges are supposed to be in the Building Lease tenant's name and for the account of that tenant. The bill in question was paid in Massi's name and Massi had recourse to seek reimbursement from its tenant Walgreen under the terms of the Building Lease. Petitioner was aware of the Building Lease and its terms and conditions. It would seem that petitioner's rights should only be able to be exercised in the event the Build Lease tenant and landlord failed to make payments and the water/sewer charge was in danger of becoming a lien on the property which would adversely effect petitioner's title. That is not the case here.
Conclusion:
Respondent's motion for summary judgment dismissing the proceeding is granted. Petitioner's cross-motion for summary judgment is denied.
The default is not material. It did not impact on petitioner in a manner which would justify forfeiture of a fifty-year, sixteen million dollar lease. Further, by the lease terms petitioner agreed to limit his remedies solely to an action for money damages and not to seek termination of the Ground Lease. Petitioner is stuck with the agreement it made.
The foregoing constitutes the decision and order of the court.
Dated:December 4, 2014
Staten Island, NYHON. PHILIP S. STRANIERE
Judge, Civil Court
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