Old Country Rd. Realty, LP v Zisholtz & Zisholtz, LLP
Annotate this CaseDecided on September 26, 2016
District Court of Nassau County, First District
Old Country Road Realty, LP, Petitioner(s)
against
Zisholtz & Zisholtz, LLP, "JOHN DOEs" (Nos. 1 through 3) and "JANE DOE" (Nos. 1 through 3), Respondent(s)
LT-002181-16
Patrick McCormick, Esq., Campolo, Middleton & McCormick, LLP, Attorneys for Petitioner, 4175 Veterans Memorial Highway, Suite 400, Ronkonkoma, New York 11779, (631) 738-9100; Gerald Zisholtz, Esq., Zisholtz & Zisholtz, Respondents pro se, 170 Old Country Road
Mineola, New York 11501, (516) 741-2200.
Scott Fairgrieve, J.
Petitioner, Old Country Road Realty, LP (OLD COUNTRY) has commenced a non-payment proceeding against Zisholtz & Zisholtz, LP (ZISHOLTZ), concerning Suite 300, 170 Old Country Road, Mineola, New York. Paragraph 2 of the Petition states the following concerning the Lease and Amendments thereto:
"2. Respondent, ZISHOLTZ & ZISHOLTZ, LLP, is Tenant of the premises, entered into possession under a written Agreement of Lease made on or about February 3, 2005, between Respondent and Petitioner, as modified by a First Amendment of Lease dated March 1, 2010, as further modified by a Second Amendment of Lease dated March 19, 2012, as further modified by a Third Amendment of Lease dated December 23, 2014, wherein Respondent promises to pay Petitioner as basic rent due under the Lease $7,398.66 per month for the months of January 2016 through December 2016, in advance of the 1st day of each month, plus additional rent as set forth therein including 993.45 per month for electricity plus late charges."
A Demand, dated April 13, 2016, was purportedly served upon Respondent which states that ZISHOLTZ owes $2,531.70 as follows:
"PLEASE TAKE NOTICE that you are justly indebted to Old Country Road Realty, L.P. ("Landlord"), Landlord of the above described Demised Premises, as follows:
January 6, 2016
Late Charge, 5% of $993.42
$49.67
March 1, 2016
Legal Fees (2016 General Certiorari Fee)
$48.29
March 1, 2016
Electric (03/2016)
$993.42
March 1, 2016
R/E Taxes - General (01/2016-12/2016)
$266.41
March 6, 2016
Late Charge, 5% of $1308.12
$65.41
April 1, 2016
Electric (04/2016)
$993.42
April 4, 2016
Late Charge ($2,301.54 @ 5%)
$115.08
TOTAL: $2,531.70"
Petitioner seeks attorney fees pursuant to Paragraph 19 of the Lease and Paragraph 13 of the Rider.
ZISHOLTZ moves for an order dismissing the Petition pursuant to CPLR 3211(A)(4), on the ground that another action is pending in the Nassau County Supreme Court. In support, ZISHOLTZ submits the Affidavit of Gerald Zisholtz, sworn to May 20, 2016. Mr. Zisholtz states that he is a member of ZISHOLTZ. ZISHOLTZ contends that the Petition is defective because Exhibit "A" is not attached. However, ZISHOLTZ does not stand "on ceremony," and addresses the merits.
ZISHOLTZ maintains that the late charges of $2,531.70 sought by Petitioner are illegal. Paragraph 13 of the Zisholtz Affidavit states:
"13. The claim is made that there is 5% due on $993.42 on January 6, 2016 in the sum of $49.67. This claim is illegal for at least two reasons. First, that it is usurious and second, it does not in any way even remotely apply to damages actually sustained and is an unconscionable penalty."
Paragraph 15 of the Zisholtz Affidavit states that the late charge of 5% is usurious because the late charge calculates to an interest rate of 328% interest rate per annum.
ZISHOLTZ contends that Section 23 of the Lease Rider provides for a 5 day grace period for which no late charge can be changed. Section 23 of the Lease Rider states in part:
"If Tenant shall default in the payment of the rent reserved herein, or any item of additional rent herein mentioned, or any part of either, during any two months, whether or not consecutive, in any twelve (12) month period, and (i) such default continued for more than five (5) days after written notice of such default by Landlord to Tenant, and (ii) Landlord, after the expiration of such five (5) day grace period, served upon Tenant petitions and notices of petition to dispossess Tenant by summary proceedings in each such instance, then, notwithstanding that such defaults may have been cured prior to the entry of a judgement against Tenant, any further default in the payment of any money due Landlord hereunder which shall continue for more than ten (10) days after Landlord shall give a written notice of such default shall be deemed to be deliberate and Landlord may thereafter serve a written three (3) days notice of cancellation of this Lease and the term hereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the term thereof, and Tenant shall then quit and surrender the Demised Premises to Landlord, but Tenant shall remain liable as elsewhere provided in this Lease."
Based upon the foregoing provision, ZISHOLTZ claims that the late charge of 5% or $49.67 has no relationship to the actual costs incurred.
ZISHOLTZ also contends that the electric charge contained in the Lease is illegal [*2]because:
"22. Article 11 of the lease provides that the landlord shall supply the tenant with the electricity and the tenant would have to pay a portion of the excess over $10,087 per annum. My office occupies a minor portion of the building and $993.42 is totally disproportionate to the amount due. I have repeatedly requested an accounting and have not gotten it.
23. Moreover, a landlord who provides electricity on a sub-metered basis can only charge 10% over the actual costs as administrative fees. We do not know what the actual costs are. Annexed hereto and made a part hereof as Exhibit "D" is a copy of a letter dated March 1, 2016 which is only one of several letters sent to the Petitioner requesting the accounting that has never been furnished."
Given the above, ZISHOLTZ has requested an accounting of the electric charges.
ZISHOLTZ has also commenced an action in the Supreme Court, Nassau County seeking reimbursement of the excess electricity payments made and a return of $3,290.00. The $3,290.00 was taken from the Security being held by OLD COUNTRY and was the subject of a prior summary proceeding in the Nassau District Court.
The Supreme Court action was commenced on April 15, 2016 which predated the commencement of this summary proceeding, which was commenced on May 4, 2016.
In the case at bar, OLD COUNTRY cross-moves for summary judgment. The Affidavit of Vice President Michael Palmeri, sworn to June 29, 2016, submitted by OLD COUNTRY in its support of the Cross Motion states that OLD COUNTRY is the Landlord and Tenant of 170 Old Country Road, Mineola. OLD COUNTRY and ZISHOLTZ entered into a written Agreement of Lease in 2005. This Lease was amended 3 times in 2010, 2012 and 2014. The Lease and its Amendments provided that the electrical charge was additional rent. The electrical charge started at $840.58 and increased to $993.42.
Section 11 of the Lease Rider provides that the electrical charge is additional rent:
"A. In addition to the Base Rent and any other additional rent as set forth herein, the Tenant shall pay as additional rent the sum of $10,087.00 per annum payable in equal monthly installments on the first of each month of $840.58 for the electricity which the Landlord supplies to the Tenant for HVAC and for normal office consumption. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character of electric energy furnished to the Demised Premises by reason of any requirement, act or omission of the Public Utility serving the Building with electricity or for any other reason not attributable to Landlord. Landlord shall furnish and install all replacement lighting tubes, [*3]lamps, bulbs and ballasts required in the Demised Premises, at Tenant's expense."
Paragraph 4 of the Third Amendment of Lease, dated December 23, 2014, provides that the electric charge would be $11,921 on an annual basis or $993.42 per month:
"4. In addition to the Base Rent herein and modifying Section '11' of the Lease and Section '4' of the First Amendment of Lease, Tenant shall pay the sum of $3.25 per square foot for electricity use in the Demised Premises. Accordingly, Tenant shall pay the annual amount of $11,921.00, payable in equal monthly installments on the first of each month of $993.42. All other provisions of Section '11' of the Lease shall remain in full force and effect, except in Subsection 'C' thereof, '2004' shall be changed to '2015' and '2005' shall be changed to '2016'."
Petitioner seeks to recover a five percent (5%) late fee on amounts remaining unpaid after the 1st of each month, which includes basic rent and additional rent. Section 20 of the Lease Rider provides as follows:
"If Tenant fails to pay any installment of Base Rent or additional rent when due, Tenant will pay a late charge of $0.05 for each $1.00 which remains unpaid per month, in compensation for the additional expenses incurred by Landlord in processing such late payments. In addition, Tenant shall pay to Landlord interest in the amount of .05% per day for a total of 1.5% per month. This interest shall be calculated from the first day of the month until payment is received by Landlord. In the event any check tendered by Tenant should not be honored for any reason, Tenant shall pay to Landlord immediately upon demand a service fee of Fifty and xx/100 ($50.00) Dollars."
Petitioner seeks the total of $20,832.34 (through June, 2016) which is comprised of base rent and additional rent of electric fees, taxes, late charges, 3rd Street tag No.3138 replacement, and legal fees.
Petitioner served a 5 Day Notice upon ZISHOLTZ, dated April 13, 2016, demanding payment of $2,531.70 or surrender of the premises. The 5 Day Notice was served on April 14, 2016, and no payment was made.
Patrick McCormick, Esq., submits his Affirmation dated June 30, 2016, in support of OLD COUNTRY's motion for summary judgment. Mr. McCormick states that a statutory rent demand was properly served on April 14, 2016 upon Respondent for the additional rent owed for which OLD COUNTRY is entitled to summary judgment.
OLD COUNTRY contends that the late fee of 5% per month is not usurious because a lease payment is not a loan or a forbearance. The 5% late fee is not unconscionable because it was negotiated by sophisticated business people for a commercial lease.
OLD COUNTRY further contends that the five (5) day grace period is not applicable as provided in Paragraph 23 of the Lease Rider, because the five (5) day period only applies when the Landlord serves a notice of default seeking to terminate the lease. Since no default notice was served, OLD COUNTRY maintains that ZISHOLTZ is not entitled to a five (5) day grace period. The 5% late charge was properly charged because no grace period exists. In sum, OLD COUNTRY argues that the rent and additional rent is due on the first of the month and there is no grace period.
According to OLD COUNTRY, the Lease and its Amendments provide for an electric charge payable on a monthly basis, which Respondent had paid for over 10 years. The charge was not based upon actual consumption.
It is OLD COUNTRY's position that under Public Service Law Section 5, the New York Public Service Commission has no jurisdiction over commercial leases. Therefore, the New York Public Service Commission cannot impact the Lease by a tariff.
Mr. McCormick points out that the statutory rent demand (5 Day Notice) was served on April 14, 2016. The Respondent commenced the Supreme Court action after the service of the demand and before the May 3, 2016 filing of the Notice of Petition and Petition.
Gerald Zisholtz has submitted an additional Affidavit, sworn to on July 12, 2016. He states summary judgment is not appropriate because no answer has been served.
Gerald Zisholtz has also submitted a Reply Affidavit (additional Affidavit), sworn to July 12, 2016. He complains that OLD COUNTRY inappropriately deducted $3,820.00 from the $16,964.50 being held as security.
As previously noted, the current proceedings were instituted following the service of a 5 Day Notice, dated April 13, 2016. ZISHOLTZ commenced the Supreme Court action on April 15, 2016, which is before the commencement of the summary proceeding. ZISHOLTZ contends that the Supreme Court must determine the dispute because ZISHOLTZ is requesting a declaratory judgment and other equitable relief which the District Court has no jurisdiction to grant.
Patrick McCormick has submitted his Reply Affirmation, dated July 18, 2016. He states that the court can consider the motion for summary judgment because the Respondent had adequate opportunity to submit evidence to oppose summary judgment as demonstrated by the 3 Affidavits submitted by Gerald Zisholtz.
Decision
This court gave notice to all parties in it's decision dated September 6, 2016 that it was going to treat all papers submitted as seeking summary judgment. The court gave the parties [*4]until September 15, 2016 to submit additional affidavits, exhibits or documents for consideration on the motion for summary judgment.
The court grants summary judgment to OLD COUNTRY. In the case at bar, the demand was served on April 13, 2016, followed by the summary proceeding being commenced shortly thereafter. The Supreme Court action was commenced between the demand and the summary proceeding. This court has "broad discretion as to the disposition of an action when another action is pending . . . " See Montalvo v. Air Dock Systems, 37 AD3d 567, 830 NYS2d 255 (2nd Dept 2007); 342 West 30th Street Corp. v. Bradbury, 30 Misc 3d 132(A), 2011 Slip Op 50037(U) (App Term, 1st Dept 2011). In the case at bar, this court can determine all issues in an expeditious manner. The purpose of summary proceedings is to quickly resolve cases.
The electric charge in the case at bar, is legal and does not violate New York State law. The parties signed a Lease on February 3, 2005, which provided for an electrical charge of $10,087.00 per annum or $840.58 monthly. The parties signed 3 Amendments of the Lease, which provided for electrical charges as follows:
(1) First Amendment of Lease, dated March 1, 2010, Paragraph 4 provided for $3.00 per square foot for electric us calculated to be $11,004.00 per annum or $917.00 per month.
(2) Second Amendment of Lease, dated March 19, 2012, did not provide for an electrical increase but reaffirmed all provisions of the Lease in Paragraph 4:
"Subject to the provisions of this Second Amendment of Lease, all of the terms, covenants and conditions of the Lease shall remain in full force and effect and binding upon the parties hereto, their heirs, administrators, executors and, except as may be otherwise provided in the Lease, their permitted assigns."
(3) Third Amendment of Lease, dated December 23, 2014, increases the electrical charge to $3.25 per square foot for a total of $11,921.00 per annum or $993.42 per month.
In Accurate Copy Service of America, Inc. v. Fisk Bldg., 72 AD3d 456, 899 NYS2d 157 (1st Dept 2010), the commercial tenants' claim, that the electric charge was inappropriate, was dismissed by the First Department because:
"The first cause of action alleging breach of the subject leases was properly dismissed, since the complaint fails to even allege that Fisk did not enforce the electricity provisions of the leases in conformance with their terms or that the profit earned by Fisk violates the terms of the leases. Dismissal of the second cause of action for unjust enrichment was warranted because there is an enforceable agreement between the parties (see Singer Asset Fin. Co., LLC v. Melvin, 33 AD3d 355, 358, 822 N.Y.S.2d 68 [2006])."
The Court rejected the claims that the leases were unconscionable because the plaintiffs failed to allege and prove a lack of meaningful choice, and noted that the commercial tenants were free to not rent from the defendant and go elsewhere.
Here, a sophisticated party such as ZISHOLTZ had a meaningful choice to walk away and rent elsewhere. Instead, ZISHOLTZ signed 4 separate Agreements confirming the electric charge and has paid the same over a 10 year period.
The First Department noted in Accurate that commercial leases will not be upset by courts for the "purpose of alleviating a hard or oppressive bargain." Furthermore, the Accurate Court rejected the claim that the electric charge is illegal because same resulted in a profit:
"As pertains to the specific arguments put forth by plaintiffs, we note that 'escalation clauses are common in commercial leases and have been approved and enforced according to their terms' (Meyers Parking Sys. v. 475 Park Ave. S. Co., 186 AD2d 92, 92, 588 N.Y.S.2d 32 [1992]). In George Backer, the Court of Appeals approved of the common practice in commercial leases of using formulas for computing additional rent charges, even where the charges are not tied to the landlord's actual costs and may result in the landlord obtaining a profit in excess of its actual costs. The Court noted that the clause before it 'contain[ed] no requirement that rent escalations be measured by actual costs' and held that the clause was not unconscionable even though the landlord received 'economic advantage' of the formula (46 NY2d at 218, 413 N.Y.S.2d 135, 385 N.E.2d 1062). It does not avail plaintiffs to describe the profit in this case as a 'windfall,' since it is the result of a formula to which the parties agreed. Nor is this case distinguished from George Backer because the escalation clause in that case was tied to an objective industry accepted wage -rate chart (id. at 218, 413 N.Y.S.2d 135, 385 N.E.2d 1062)."
Other cases upholding electric charges, such as that in the case at bar, include Compton Advertising, Inc. v. Madison-59th Street Corp, 91 Misc 2d 768, 398 NYS2d 607 (NY Sup 1977), aff'd 63 AD2d 942, 407 NYS2d 436 (1st Dept 1978), and In re New York Skyline, 432 B.R. 66 (2010).
The claim by ZISHOLTZ that the 5% late fee is usurious is similarly rejected. The 5% late fee is legal in a commercial setting. K.I.D.E. Associates Ltd. v. Garage Estates Co., 280 AD2d 251, 720 NYS2d 114 (1st Dept 2001); Orix Credit Alliance, Inc. v. Northeastern Tech Excavating Corp., 222 AD2d 796 (3rd Dept 1995), Citipostal, Inc. v. Unistar Learning, 283 AD2d 916 (4th Dept 2001), Salamone v. Russo, 129 AD3d 879 (2nd Dept 2015).
Finally, the court notes that Paragraph 34 of the Lease Rider allows the tenant to deduct from the security any rent or additional rent not paid.
Justice Murphy has issued his order, dated August 29, 2016, concerning the issues raised herein. The Supreme Court also upholds the electrical charge, 5% late fee, and deduction of $3,820.00 from the security deposit by ZISHOLTZ. Justice Murphy also rejects ZISHOLTZ's claim that there is a 5 day grace period for payment.
Conclusion
Old Country is granted summary judgment. This matter is set down for an inquest of damages on October 20, 2016, before this court, in Civil 1, Room 279, at 11 a.m.
So Ordered:
/s/ Hon. Scott Fairgrieve
DISTRICT COURT JUDGE
Dated: September 26, 2016
cc: Zisholtz & Zisholtz, LLP, Respondent pro se
Campolo, Middleton & McCormick, LLP, attorneys for Petitioner
SF/mp
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