Tapestry, Inc. v L'Objet Retail, LLC

[*1] Tapestry, Inc. v L'Objet Retail, LLC 2019 NY Slip Op 51815(U) Decided on October 25, 2019 Civil Court Of The City Of New York, New York County Ramseur, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 25, 2019
Civil Court of the City of New York, New York County

Tapestry, Inc., Petitioner-Sublandlord,

against

L'Objet Retail, LLC d/b/a L'OBJET, Respondent-Subtenant.



LT-063290/19



Petitioner-Sublandlord

Joshua Kopelowitz, Esq.

Rosenberg & Estis, P.C.

Respondent-Subtenant

Lynn Armentrout, Esq. Bruce H. Beckmann, Esq.

Beckmann & Associates LLC
Dakota D. Ramseur, J.

In this, Petitioner-Sublandlord Tapestry, Inc. seeks to recover possession of the ground floor and subbasement space of 370 Bleecker Street, New York, New York 10014 from, and a monetary judgment against, Subtenant L'Objet Retail, LLC. Sublandlord moves pursuant to CPLR 3212 for summary judgment on the Petition and dismissing Subtenant's affirmative defenses (sequence 001). Subtenant opposes and cross-moves: (1) pursuant to CPLR 3025 to amend its Answer to assert two additional affirmative defenses, "failure to perform condition precedent" and "mutual mistake"; and (2) pursuant to CPLR 3212, for summary judgment on the first of the new "condition precedent" defense (sequence 002). For the reasons below, Sublandlord's motion is granted, Subtenant's cross-motion is denied, and the matter shall be scheduled for a fee hearing.

PROCEDURAL HISTORY AND BACKGROUND FACTS

Sublandlord is the prime tenant of the commercial Premises pursuant to a January 19, 2007 lease agreement, amended and later extended by an August 31, 2009 agreement (Sublandlord Exh D [collectively the "Overlease"]) with Tamara Properties, Inc. and Gomidas Holding Corporation (collectively "Landlord"). Subtenant leased the space from Sublandlord through a June 2, 2016 sublease (Sublandlord Exh E [the "Sublease"]), approved by Landlord in a June 2, 2016 consent (Sublandlord Exh F [the "Consent"]). The Premises are not part of a multiple dwelling or subject to rent stabilization or control (Sublandlord/Bates Aff ¶¶ 15-16).

The Sublease provides that "[a]ll of the terms, provisions, covenants, agreements and conditions of the Lease are incorporated herein by reference and made a part of this Sublease with the same force and effect as though set forth in full herein" (¶ 3[B]). The Sublease also provides that it is "expressly subject and subordinate to all of the terms, provisions, covenants, agreements of the Lease [and to] all instruments, agreements and other matters to which the Lease is or shall be subject or subordinate" (¶ 7). Similarly, the Consent provides that "[t]he Sublease shall be subject and subordinate at all times to all of the covenants, agreements, terms, provisions and conditions of the Lease as may be or hereafter modified or amended (with or without Sublessee's consent and of this Consent" (¶ 3).

Like the Overlease, the Sublease required fixed rent payments on the first of each month (Overlease ¶ 42; Sublease ¶ 2). The Sublease also required payment of additional rent including Subtenant's share of real estate taxes and Sublandlord's 23% proportionate share of additional rent (¶ 2[C]-[D]; Overlease ¶¶ 52-53). As discussed below, Subtenant argues, as the basis for one of its two new proposed affirmative defenses, that Sublandlord failed to provide notices prerequisite to the real estate tax payment.

Subtenant does not dispute that, despite Sublandlord's regular transmission of base rent invoices, Subtenant has paid only half the base rent since April 1, 2018 (see Sublandlord/Bates Aff ¶ 34, Exhs A, G; Subtenant/Yifrach Aff ¶¶ 7-8, 17-20). Nor does Subtenant dispute that Sublandlord sent an invoice on April 5, 2019 for 2017, 2018, and 2019 real estate taxes (with supporting documentation) totaling additional rent of $117,550.74 (Sublandlord Exh G; Subtenant/Yifrach Aff ¶ 19).

According to Subtenant, an economic downturn affected luxury flagship stores in the [*2]area, thus decreasing foot traffic and sales to its store and "reducing the value of its space as a retail store and its market rental value" (Subtenant/Yifrach Aff ¶ 7). Subtenant's General Manager Bashar Alhuneidi asserts attempts, to no avail, to "discuss the matter of rent" from September 2017 to March 2018. Thus, "based on a market analysis of local comparable rents," Subtenant unilaterally elected to pay half of monthly base rent—according to Subtenant, for several months "without [Sublandlord's] comment or objection" (Subtenant/Yifrach Aff ¶ 9).

In July 2018, the parties engaged in rent negotiations by phone and email (Subtenant Exh D). According to Subtenant, the Premises were marketed and advertised by Sublandlord's broker "as 600 square feet of retail, first-floor space" (Subtenant/Yifrach Aff ¶¶ 2, 12-13, Exh D). When Subtenant subsequently had the space measured professionally—Subtenant does not specify when—the dimensions turned out to be 526 square feet (id.). In the negotiation emails and here, Sublandlord argues that the monthly rent was calculated to include additional basement square footage (Subtenant Exh C). The parties never executed any subsequent agreement, Subtenant continued to pay less than the full base rent, and Sublandlord eventually commenced this action. Subtenant answered and asserted two affirmative defenses: (1) modification, waiver, and estoppel; and (2) laches.

Sublandlord now moves for summary judgment awarding a monetary and possessory judgment, attorneys' fees and costs, and dismissing Subtenant's affirmative defenses. Subtenant opposes and cross-moves to amend its Answer to assert two new defenses, Sublandlord's "failure to perform a condition precedent" and "mutual mistake," and for summary judgment on the "condition precedent" defense.[FN1]

DISCUSSION

I. Subtenant's cross-motion to amend/for summary judgment (002)

A. Sufficiency of proposed amended complaint

As a preliminary matter, Sublandlord argues in reply that Subtenant's cross-motion is defective because it fails to attach a "redline or other document showing the track changes to the pleading" (Sublandlord/Kopelowitz Reply Affirm ¶ 39). The Court disagrees.

CPLR 3025(b) provides, in relevant part, that "any motion to amend or supplement pleadings shall be accompanied by the proposed amended or supplemental pleading clearly showing the changes or additions to be made to the pleading." As the 2011 Recommendations of the Advisory Committee on Civil Practice note, this requires only that "the moving party [must] attach a copy of the proposed amended pleading to any motion to amend that pleading, clearly showing the proposed changes to the pleading." While "[m]any federal courts by local rule require the movant to attach the proposed pleading and to show by redline the changes in the [*3]complaint or answer that the movant proposes," (id.), our courts do not have a similar rule. As Sublandlord acknowledges, "the provision does not prescribe exactly how the changes are to be shown, but any document marked with 'track changes,' or some similar program, will likely suffice" (Sublandlord/Kopelowitz Affirm ¶ 39, citing Connors, CPLR 3025:9A [2012] [emphasis added]).

Here, Subtenant has submitted a Proposed Amended Complaint. While a redline copy highlighting specific changes would have been ideal (and represents ideal practice in such motions), there is no prejudice to Sublandlord here. The Court can clearly discern that the only changes to the Answer are the removal of the second affirmative defense of laches and substitution of two new defenses. As evidenced by its lengthy reply, Sublandlord was evidently able to do the same. Sublandlord's reliance upon Scialdone v Stepping Stones Assoc., L.P., (148 AD3d 950, 952 [2d Dept 2017]), is unavailing because the plaintiff in that action "submitted no such amended complaint," not an inadequate amended complaint. Accordingly, the Court addresses the substance of the defenses.

B. Substance of proposed amendments

"Leave to amend shall be freely given" "absent prejudice or surprise resulting therefrom, unless the proposed amendment is palpably insufficient or patently devoid of merit" (CPLR 3025[b]; Y.A. v Conair Corp., 154 AD3d 611, 612 [1st Dept 2017]). In opposition to the cross-motion, Sublandlord does not argue prejudice, instead arguing only that Subtenant's proposed amendments are meritless.[FN2]

1. "Condition precedent" defense (real estate taxes)

The first defense which Subtenant seeks to interpose is that Sublandlord may not recover real estate taxes because the latter failed to timely send notice to Subtenant of the taxes pursuant to Sublease ¶ 2. The Court finds this defense to be devoid of merit, and denies leave to amend.

Sublease ¶ 2 provides that

(C) Subtenant shall reimburse Sublandlord, as additional rent , for the following amounts paid by Sublandlord to Landlord on account of Subtenant, pursuant to the applicable provisions of the Lease:(i) Subtenant's Proportionate Share of "Taxes" (as defined in the Lease) that shall be payable by Sublandlord to Landlord from time to time as and when required by the Lease with respect to the Lease Premises; and(ii) Subtenant's Proportionate Share of "Additional Rent" (as defined in the Lease) that shall be payable by Sublandlord to Landlord from time to time as and when required by the Lease with respect to the Lease Premises. Sublandlord shall send Subtenant electronic or written invoices (together with copies of [*4]invoices received from Landlord, which Landlord invoices shall be conclusive evidence of the amounts payable on account of Taxes and Additional Rent) from time to time as and when furnished to it by Landlord during the Sublease Term setting forth the amount of the foregoing reimbursement then due and payable to Sublandlord pursuant to this Paragraph 2(C), and the amount so to be reimbursed or paid to Sublandlord shall be due and payable by Subtenant by the later to occur of:(x) [15] days thereafter; and(y) [10] business days prior to the date on which the corresponding payment shall be payable to Landlord.

"When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms" (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004]). This rule has "special import in the context of real property transactions, where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length" (id.). Courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include. Hence, courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing" (id.).

Subtenant argues that Sublandlord failed to comply with the Sublease by failing to send tax invoices "as and when furnished to it by Landlord," instead "allow[ing] three years of taxes to accumulate" before sending "a single invoice a month before serving the [predicate] rent demand" (Subtenant Memo of Law at p 8). As Sublandlord argues in reply, however, the "as and when" language relied upon by Subtenant does not condition payment of real estate taxes upon compliance with any specific deadline for Sublandlord to transmit invoices to Subtenant (Mount Sinai Hosp. v 1998 Alexander Karten Annuity Trust, 110 AD3d 288, 297 [1st Dept 2013] [" there is no language in the lease that explicitly makes Mount Sinai's obligation to pay additional rent conditional on submission of the statement 'as soon as reasonably practicable' after the end of the year."]).

Importantly, though the Mount Sinai court recognized that "a reasonable tenant would have been justified in understanding that the landlord would submit an additional rent statement for a given year within a reasonable time after the expiration of that year," it premised this concern upon "[t]he difficulty of verifying the landlord's claimed operating costs naturally increases with the passage of time" which would impair the tenant's ability "to manag[e] its own affairs" and "deem accounts for a given year closed at some point" (id.). Real estate taxes are distinguishable, as they are easier than operating costs to objectively verify, even years later, through the use of public records. Indeed, the parties' ability to insert specific deadlines where desired is evidenced by the very next subparagraphs, (x) and (y), which designate such timelines. Notably, Subtenant does not challenge the substance of the tax notices attached to the invoices sent on April 5, 2019, and did not object until this cross-motion.

Additionally, Subtenant's citations are distinguishable, as the provisions in those cases contained an ascertainable chronological deadline (Weisblatt v Schwimmer, 249 AD2d 297, 298 [2d Dept 1998] ["The landlord was also required to advise the tenant of the common operating costs for each calendar year '[p]rior to the beginning of each calendar year.'"] [emphasis added]; Walton v E. Analytical Labs, 246 AD2d 532, 533 [2d Dept 1998] ["After the end of each [*5]calendar year, the Landlord will submit a statement showing the computation of proportionate increase in operating expenses, as herein above provided."] [emphasis added]). Accordingly, the branch of Subtenant's motion seeking to amend the Answer by interposing a "condition precedent" defense is denied.

2. "Mutual mistake" defense (square footage)

Subtenant's "mutual mistake" defense rests on an argument that the parties both understood that the Premises were 600 square feet rather than the 526 revealed by a post-Sublease survey, and that Sublandlord's broker misrepresented the size of the space. Sublandlord replies that the Overlease and Sublease's merger clauses preclude any such defense, that any square footage discrepancy is insignificant, and that Subtenant could have discovered any discrepancy through due diligence. The Court agrees with Sublandlord.

As Sublandlord argues, any pre-Sublease negotiations are irrelevant based on the merger clauses (Sioris v 25 W. 43rd St. Co., 223 AD2d 475, 475 [1st Dept 1996] [general merger clause in the lease precluded tenant's claim that he relied on oral representations by the predecessor landlord]; Noah Trading Co. Inc. v Bell, 54 Misc 3d 134[A], 2017 NY Slip Op 50089[U], *1 [App Term 1st Dept 2017] [" parol evidence as to representations by the landlord's leasing agent is barred by the merger clause "]). Here, the Overlease, Sublease, and Consent each contained merger clauses and required any modifications to be in writing (Sublease ¶ 14; Overlease ¶ 20; Consent ¶ 11). The Sublease also contained a provision stating that "Subtenant accepts the Premises in its 'as is' condition" and another authorizing specific installations ("a wall and a credenza with small sink (on the shop side, not the office side)," both of which imply some familiarity with the Premises' layout (¶¶ 1[B], 20).

Even if the Court looked past those clauses, however, a party asserting a mutual mistake defense must meet "the heavy burden of coming forward with unequivocal evidence of mutual mistake in evidentiary form" (Gulf Ins. Co. v Transatlantic Reins. Co., 69 AD3d 71, 87 [1st Dept 2009]). "While mutual mistake will justify rescission where the mistake exists at the time the contract is entered into and the mistake is substantial, it may not be invoked by a party to avoid the consequences of its own negligence (P.K. Dev. v Elvem Dev. Corp., 226 AD2d 200, 201-202 [1st Dept 1996] [" defendant's negligence, or [c]onscious ignorance, regarding the actual occupancy of the unit bars rescission; as owner of the unit in question, defendant, in the exercise of ordinary care, should have known or could easily have ascertained whether the unit was occupied."] [emphasis added]).

Here, Subtenant could easily have ascertained the precise size of the Premises prior to the signing of the Sublease, and any alleged difference is relatively small: 12.4%, not the 50% rent reduction which Subtenant decided upon (cf Keos, Inc. v Helgen Indus., Inc., 2009 NY Slip Op 32326[U], *3 [Sup Ct, Nassau County 2009] [loss of 700 of 7800 square feet was "clearly substantial" where listing explicitly described premises as 7800 square feet and listed price as "$7.25" and annual rent calculation in lease invoked advertised square footage). The Court also notes that if the parties, both sophisticated commercial entities represented by counsel, had intended to include the precise square footage of the Premises, or condition rent upon that square footage, they could easily have included language to that effect. Accordingly, the branch of Subtenant's motion seeking to amend the Answer to interpose an affirmative defense for "mutual mistake" is denied.

C. Subtenant's motion for summary judgment

Based on the Court's denial of the branch of Subtenant's motion seeking to interpose the "condition precedent" defense, the branch seeking summary judgment on that defense must also be denied.

II. Sublandlord's motion for summary judgment

"The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; CPLR 3212[b]).

Subtenant has, except as noted below, conceded the prima facie elements of Sublandlord's claim—ownership, regulatory status, non-payment—and thus concedes those facts, including $157,113.98 in base rent and late fees (Madeline D'Anthony Enters., Inc. v Sokolowsky, 101 AD3d 606, 609 [1st Dept 2012]; Sublandlord Exh L). Subtenant's arguments rely primarily on its first (and now only) affirmative defense: "modification, estoppel, and waiver." The thrust of this defense is that Sublandlord waived its right to the claimed arrears by accepting half of base rent for several months and/or agreed orally to modify the Sublease. The defense is unavailing.

Here, the Overlease, which is incorporated by the Sublease (¶3[B]), contained: (1) a no-waiver clause permitting Landlord to accept less than the monthly rent "without prejudice to [Landlord's] right to recover the balance " (¶ 24); a provision permitting Landlord to allocate any partial rent or additional rent payments "in whole or in part to any other charges or to any combination thereof" (¶ 43[E]); and Sublandlord/Tenant's waiver, if arrears existed, of any right "to designate the items against which any payments made by Tenant are to be credited " (¶ 43[F]). Additionally, as noted above, he Overlease, Sublease, and Consent all required any modifications to be in writing (Sublease ¶ 14; Overlease ¶ 20; Consent ¶ 11).

As Sublandlord argues, "giving proper effect to the 'no waiver' provision of the lease, any delay by landlord in billing for additional rent undisputedly due under the lease does not support a claim of waiver or laches," or justify estopping collection of rent payments (458 Broadway Leasing, LLC v Bundlee Fabrics Inc., 15 Misc 3d 135[A], 135A, 2007 NY Slip Op 50741[U], *2 [App Term 1st Dept 2007]). "While parties to a lease may, by mutual agreement, disregard a no-waiver clause, some performance confirming the modification must be present, and it must be unequivocally referable to the oral modification" (1890 Adam Clayton Powell LLC v Penant, 52 Misc 3d 76, 78 [App Term 1st Dept 2016], citing Rose v Spa Realty Assoc., 42 NY2d 338, 343 [1977]).

"Waiver is an intentional relinquishment of a known right and should not be lightly presumed. Such intention must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act" (EchoStar Satellite L.L.C. v ESPN, Inc., 79 AD3d 614, 617-618 [1st Dept 2010]). Evidence of waiver should take the form of "active involvement indicating an [*6]agreement to modify the lease"; "passive acceptance" does not suffice (Penant, 52 Misc 3d at 78 ["At most, tenant has shown only a passive acceptance by landlord of prior instances of multiple roommates."], citing Paramount Leasehold, L.P. v 43rd St. Deli, Inc, 136 AD3d 563, 567 [1st Dept 2016]; see also Echostar 79 AD3d at 618 ["Disney's failure to press for interest amounts to mere silence or inaction, which are insufficient to establish an intent to waive a known right. EchoStar points to no affirmative action on Disney's part from which one can infer that Disney surrendered its contractual right to demand interest."]).

Here, Subtenant's own submissions undermine its defense. The earliest email relied upon by Subtenant "reiterate[s] what was discussed" on a July 11, 2018 phone call, a few months after the initial default in April, regarding market rates in the area and "look[ing] forward to a positive response"; recognizing, in other words, that no agreement had been reached (Subtenant Exh C at p 5). Indeed, Sublandlord's immediate response notes that a further meeting is required "to see if there is anything that [Sublandlord] can do" (id. at p 4). A subsequent email from Subtenant on August 22, 2018 again "look[s] forward to a positive response" (id. at pp 2-3). Subsequent emails from Sublandlord on September 22, 2018 and January 9, 2019 acknowledge that Subtenant continued to pay half of base rent, but also inquired as to when those arrears would be paid (id. at pp 1-2). The emails do not provide, in other words, any indication of modification or waiver, let alone unequivocal evidence. At most, the emails constitute "passive acceptance" of half of base rent while (ultimately unsuccessful) negotiations proceeded, which does not satisfy Subtenant's burden. Accordingly, Sublandlord has demonstrated entitlement to summary judgment for the full amount sought, $280,542.26.

Finally, Sublandlord seeks attorneys' fees. Because the Overlease permits recovery of attorneys' fees incurred "in connection with any default to pay rent" (¶ 19), and because Sublandlord has substantially prevailed, Sublandlord is entitled to a hearing on the amount of said fees.

CONCLUSION AND ORDER

For the above reasons, it is hereby

ORDERED and ADJUDGED that Petitioner's motion for summary judgment (001) shall be GRANTED, and the Clerk of Court shall enter possessory judgment for Petitioner, warrant to issue forthwith, earliest execution date November 7, 2019; and it is further

ORDERED and ADJUDGED that the Clerk of Court shall enter a monetary judgment for Petitioner against Respondent of $280,542.26, plus interest from the Petition filing date and costs; and it is further

ORDERED that the matter shall be scheduled for a fee hearing on November 20, 2019 at 9:30 a.m. in Room 775, 111 Centre St., New York, NY; and it is further

ORDERED that Respondent's motion to amend and/or for summary judgment (002) is DENIED; and it is further

ORDERED that Petitioner shall, within 5 days of receipt, serve a copy of this order with notice of entry upon Respondent.

This constitutes the decision and order of the Court.

Dated: October 25, 2019

New York, NY

___________________________

Dakota D. Ramseur, J.C.C.

Footnotes

Footnote 1: The "condition precedent" defense replaces the existing second affirmative defense of laches, which the Court now deems waived based on Subtenant's Proposed Amended Answer. The affirmative defense of laches is, in any event, inapplicable to commercial non-payment proceedings (UBO Realty Corp. v Fulton, NYLJ, Sept. 8, 1993, at 21, col 1 [App Term, 1st Dept]).

Footnote 2: Given that this is a summary proceeding designed for expeditious resolution, and a relatively new one at that, Sublandlord cannot demonstrate prejudice.