Opinion
LT-064226-19
10-28-2019
BP 510 MADISON LLC, Petitioner-Landlord, v. PROSIRIS CAPITAL MANAGEMENT LLC, Respondent-Tenant, "XYZ Corp.," Respondent-Subtenant.
Menachem J. Kastner, Esq., Cozen O'Connor, for Petitioner Ryan O. Miller, Esq., Kishner Miller Himes P.C., for Respondent
Menachem J. Kastner, Esq., Cozen O'Connor, for Petitioner
Ryan O. Miller, Esq., Kishner Miller Himes P.C., for Respondent
Dakota D. Ramseur, J.
In this commercial summary holdover proceeding, Petitioner/Landlord moves pursuant to CPLR 3212 and 3211 for summary judgment dismissing Respondent/Tenant's affirmative defenses and granting Landlord a possessory and monetary judgment (001). Landlord also moves for use and occupancy (002). Over Tenant's opposition, the Court grants Landlord's motion for summary judgment (001) and a hearing to determine fees. Based on this holding, the Court also denies Landlord's motion for use and occupancy (002) as moot.
BACKGROUND FACTS AND PROCEDURAL HISTORY
Landlord and Tenant executed a lease on June 6, 2013 (Landlord/Holdridge Aff, Exh C [the "Lease"] ). On June 5, 2019, Landlord served Respondent with a five-day notice of default alleging Tenant's failure to pay rent and additional rent totaling $440,998.80 and demanding payment by June 17, 2019 (Landlord/Kastner Affirm, Exh A ). The notice to cure attached an accounts receivable report detailing the rent and additional rent, including water and electric charges, operating expenses, monthly estimated real estate taxes and reconciliations, and base rent (Landlord/Kastner Affirm , Exh A ).
When Tenant did not cure, Landlord served Tenant with a notice of termination on June 18, 2019, advising Tenant that the Lease would be terminated effective June 25, 2019 (Landlord/Kastner Affirm, Exh B ). When Tenant failed to vacate, Landlord commenced this proceeding (Landlord/Kastner Affirm, Exh C ). Tenant answered and asserted nineteen affirmative defenses (Landlord/Kastner Affirm, Exh D ).
DISCUSSION
"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] ).
Landlord has satisfied its prima facie burden by demonstrating that Landlord owns the subject building (Landlord/Holdridge Aff, Exh A ), that Landlord and Tenant executed the Lease, that Tenant breached the lease by failing to, among other things, pay base and additional rent (Landlord/Kastner Affirm, Exh A at Exh B ), that Landlord served Tenant with a notice of default pursuant to the lease and a notice of termination when Tenant did not cure (Landlord/Kastner Affirm, Exhs A, B ), that Tenant has failed to vacate the premises, and that Landlord properly served the Petition. Based on its termination, Landlord also justifies charging double the Lease's base rent as holdover rent after the Lease's termination (Lease ¶ 20.17).
After a conference on these motions' first return date, the parties noted that Landlord's ledger incorrectly charged both base and holdover rent for several months. These irregularities were corrected in the newest ledger (Landlord/Holdridge Reply Aff, Exh D ).
Tenant does not oppose Petitioner's arguments regarding dismissal of Tenant's affirmative defenses or challenge any of Tenant's exhibits or arguments except to challenge two items of additional rent, operating expenses and real estate taxes, arguing that Landlord failed to provide notice of these charges as required by the lease. Tenant further argues that this failure invalidates the predicate notice, thereby requiring dismissal of this proceeding. The Court disagrees.
Tenant bases its argument upon selective interpretation (and citation) of Lease ¶ 6.1.2(a)(i), which provides that Landlord is required to provide specific notices only in certain situations:
estimated payments by Tenant on account of Tenant's Share of the Tax Excess and Tax Expenses shall be made on the first day of each and every calendar month during the remainder of the Lease Term and otherwise in the same fashion herein provided for the payment of Annual Fixed Rent. The monthly amount so to be paid to Landlord shall be sufficient to provide Landlord by the time an installment of Taxes and Tax Expenses are due a sum equal to a proportionate installment of the Tenant's Share of Tax Excess for such tax Year, as reasonably estimated by Landlord from time to time, on account of Tenant's Share of the Tax Excess and Tax Expenses for the then current Tax Year. Promptly after receipt by Landlord of bills for such Taxes and Tax Expenses, Landlord shall advise Tenant in writing of the amount of the Tenant Share of Tax Excess for such Tax Year and any shortfall or overpayment on account thereof and the computation of Tenant's payment on account thereof. but if the required payments on account thereof for such Tax Year are greater than estimated payments theretofore made on account thereof, for such Tax Year, Tenant shall make payment to Landlord within thirty (30) days after being so advised in writing by Landlord. Upon Tenant's written request, Landlord shall promptly provide Tenant with copies of bills for Taxes and Tax Expenses.
Tenant cites only the portions immediately before and between the bolded portions above, which require that Landlord "shall advise Tenant in writing" of any tax share overpayments and require Tenant's payment only upon 30 days' written notice. That is, Tenant omits the entire first portion of the provision above, which requires estimated tax share payments by the first of each month, without any notice requirement (see Tenant/Miller Affirm ¶¶ 4-6). Viewed in this context, and the additional context of the first bolded portion above, the Lease clearly limits its notice requirement only to situations in which Tenant has underpaid its tax share and Landlord desires to recoup the balance ( Beal Sav. Bank v. Sommer , 8 NY3d 318, 324 [2007] ["The court should construe the agreements so as to give full meaning and effect to the material provisions"] ). To the extent that Tenant also argues that any such charges are inappropriate because Landlord did not send Tenant tax bills, the second bolded portion—also not included in Tenant's papers—requires that documentation only "upon Tenant's written request."
Tenant's affidavit contains only a conclusory statement that "despite Tenant's written requests for [the amount of the tenant share of tax excess], Landlord has never provided any writing detailing the amount, or the calculation of the amount, of Tenant's share of the taxes." Tenant does not, however, attach any such requests or specify when or how they were sent. In contrast, Landlord attaches to its reply numerous letters and statements detailing a $67,032.00 charge for fiscal year 2019 real estate tax reconciliation (Landlord Reply Exhs A, C ). Though Tenant replied orally, on the return date, that Landlord's notices were void because they were improperly sent to a Jeannine Boyer at the Premises instead of "Jerry Chang," as required by Lease ¶ 20.9(ii), the Court disagrees. As Landlord argued in rebuttal, that requirement applied to "any notice, demand, request, approval, consent or other communication," but excluded, as the final sentence of the same provision provides, "rent bills and statements regarding Taxes, Operating Expenses and Fitness Facility Operating Expenses," which "shall be deemed sufficiently given or rendered if sent by United States Mail," without regard to any other method or addressee (Landlord Exh C ).
Tenant's affidavit identifies a request for "same," with an unclear antecedent. The Court bases its interpretation upon Tenant's quotation of Lease ¶ 6.1.2 immediately prior.
Similarly, Tenant's only other challenge relates to operating expenses, including water charges. The relevant Lease provision is substantively identical to the provision above governing real estate taxes, except that the operating expense clause does, as Tenant argues, set an explicit deadline requiring Landlord, "within 180 days after the end of each Operating Year, [to] submit to Tenant a reasonably detailed statement of Operating Expenses for such Operating Year and a reconciliation of the Tenant's Share of Excess Operating Expenses for such Operating Year and Tenant's payments on account thereof" (Lease ¶ 6.2.2[i] ). However, as above, Landlord sent such a document to Tenant on April 1, 2019.
Nonetheless, even if the Court agreed with Tenant's interpretation of the tax share and operating expense notice requirements, and Tenant's argument that Landlord's failure to comply with those requirements invalided the related portions of Landlord's notice to cure and/or notice to terminate, the Court would nevertheless decline to dismiss.
As an initial matter, Tenant does not actually cross-move to dismiss, which itself justifies procedural denial. Even addressing the substance, however, "[w]here a lease between commercial parties contains a conditional limitation for nonpayment of rent, it shall be enforced in the absence of a showing of fraud, exploitive overreaching or other unconscionable conduct on the part of the landlord" ( Grand Liberte Co-op., Inc. v. Bilhaud , 126 Misc 2d 961, 963-64 [App Term 1st Dept 1984] ). That said, a predicate notice of default/notice to cure must "specifically apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if the claimed default is not cured within a set period of time" ( PS Food Corp. v. Granville Payne Retail, LLC , 45 Misc 3d 1216(A) [NY Sup 2014], affd, 140 AD3d 1046 [2d Dept 2016] ). The notice "must set forth sufficient facts to establish grounds for the tenant's eviction, and inform the tenant as to how the tenant violated the lease, as well as the conduct required to prevent eviction" (id. ). Such notices, which may not be amended or supplemented, must "unequivocally and unambiguously inform the tenant how it has violated the lease and the conduct required to prevent eviction" ( 496 Broadway Realty, LLC v. Kyung Sik Kim , 18 Misc 3d 1119(A) [Civ Ct NY County 2008] ; Garland v. Titan W. Assoc. , 147 AD2d 304, 310 [1st Dept 1989] ; see also Oxford Towers, Co., LLC v. Leites, 41 AD3d 144 [1st Dept 2007] ["Measured against the test of reasonableness, the notice used here was facially sufficient, as it fairly stated the nature of landlord's claim and the facts necessary to establish the existence of grounds for eviction. The obvious typographical error in the notice could not have materially misled or confused the tenant or hindered the preparation of his defense."] ).
Holdover actions often relate to notices to cure non-rent defaults; because lease requirements can often be vague or byzantine, courts require that a notice to cure alleging non-monetary lease defaults be explicit (see e.g. Chinatown Apartments, Inc. v. Chu Cho Lam , 51 NY2d 786, 788 [1980] ["The deficiency in the notice arises from its failure to cite any specific prohibition in the lease which had been violated by the construction of the ‘cube’ "]; 496 Broadway Realty, LLC v. Kyung Sik Kim , 18 Misc 3d 1119(A) [Civ Ct NY County 2008] ["The notice fails to tell Respondent what obligations of his tenancy he has breached, what laws, orders, rules and directions of what governmental authorities he has failed to comply with in order to use the premises for a retail store; what violations exist in the premises; what violations he has failed to remove; what permits were required for alterations to the storefront, installation of an awning and a security gate."]; ShopRite Supermarkets, Inc. v. Yonkers Plaza Shopping, LLC , 29 AD3d 564, 566 [2d Dept 2006] [" the notice to cure sufficiently apprised the plaintiff of its obligations under the lease, gave a sufficient description of the areas of the building which needed repairs, and specified the consequences if the violation was not cured within a set period of time."] ).
In contrast, "[i]f such defaults include unpaid rent, a proper demand for rent must fairly afford the tenant, at least, actual notice of the alleged amount due and of the period for which such claim is made. At a minimum, the landlord or his agent should clearly inform the tenant of the particular period for which a rent payment is allegedly in default and of the approximate good faith sum of rent assertedly due for each such period " ( 542 Holding Corp. v. Prince Fashions, Inc. , 46 AD3d 309, 311 [1st Dept 2007] [emphasis added] ). This aligns with the requirements in non-payment actions (see e.g. JDM Washington St., LLC v. 90 Washington Rest. Assoc., LLC , 36 Misc 3d 769, 775 [Civ Ct 2012] [" the sum demanded in the predicate notice needs to be a good faith approximation of the rent that a tenant would have to pay to prevent litigation".] ). In order to withstand scrutiny, a rent demand must, at minimum, inform a tenant "particular period for which a rent payment is allegedly in default and of the approximate good faith sum of rent assertedly due for each such period" such that a tenant could identify and remedy the default in order to avoid litigation ( 3463 Third Ave. Realty LLC v. Vasquez , 59 Misc 3d 1224(A) [Civ Ct NY County 2018] ).
Our courts have held, as Tenant argues, that invalidating a portion of a notice to cure can invalidate the entire notice, even if other portions are viable, where the defect is "substantive" ( 542 Holding Corp. , 46 AD3d at 311 ). The First Department, invalidating an entire notice to cure though only a portion was defective, held that
where the notice to cure claimed defaults and sought additional rent without specifying when these sums became due or when the lease-mandated annual accountings were allegedly delivered to Prince, and, with regard to additional rent for the years 2001 and 2002, was served prior to the running of the lease-mandated 30—day period subsequent to delivery of an annual accounting, the motion court correctly determined that it was defective due to its "fail(ure) to delineate between the base rent and additional rent and/or to specify with particularity when the rent became due" ( 46 AD3d at 311 ).
In so holding, the First Department cited to 200 W. 58th St. LLC v. Little Egypt Corp. , (7 Misc 3d 1017(A) [Civ Ct NY County 2005] ), in which Justice Billings, examining the notice to cure as a whole, invalidated the entire notice despite the viability of at least one valid provision. There, the notice charged the respondent with "selling the same merchandise as other tenants in the building at a substantially lower price" without identifying the merchandize or co-tenants," and further charged the respondent with "blocking access to other stores" without identifying the other stores. Despite finding that a third item in the notice to cure was viable, Justice Billings, confronting a "partially deficient notice afford[ing] respondent an opportunity, at best, for only a partial cure ," invalidated the entire notice because the "inclusion of unspecific and equivocal grounds for termination and equally ill-defined methods of curing such ‘violations’ fails in the notice [to cure]'s fundamental purpose" (id. [emphasis added] ).
By comparison, nothing in this notice to cure was confusing or contradictory, nor would the notice "plac[e] tenants in the unnecessarily precarious and untenable position of simply not knowing what to do to maintain their tenancy" ( Little Egypt , 7 Misc 3d 1017[A] ). Unlike Little Egypt and 542 Holding Corp. , the path here was clear and non-contradictory: at minimum, Tenant was on notice that a cure would require paying base rent and estimated real estate taxes and operating expenses, as stated in the Lease and notice to cure.
However, despite multiple appearances on these motions, Tenant's argument remains limited to several items of additional rent. The only four cases cited by Tenant do, indeed, support its proposition that a landlord may not recover additional rent where the landlord fails to comply with the prerequisite lease provisions (see Miller Affirm ¶¶ 9-16). However, those cases are limited to recovery of additional rent in a plenary action. None address the issue here: the validity of a notice to cure a rent default which, as Landlord argues and Tenant implicitly acknowledges, is undisputedly correct as to the majority of the charges.
Even accepting Tenant's argument that Landlord's demand for real estate tax and operating expense undercharging/reconciliation was improper based on failure to comply with the Lease's notice provisions, those items are a small fraction of the overall arrears, and thus not a "substantive defect" invalidating the notice to cure's "good faith approximation" of rent owed. Landlord's detailed notice to cure delineates between base rent and additional rent, and further attaches a ledger itemizing the arrears. At minimum, the notice to cure correctly and specifically informed Tenant that base rent, estimated real estate tax payments, and estimated operating expenses, all due on the first of each month, remained unpaid. Thus, the allegations were not "impermissibly vague" ( 69 E.M. LLC v. Mejia , 49 Misc 3d 152(A) [App Term 1st Dept 2015], citing 542 Holding Corp. , 46 AD3d at 311 ). Accordingly, there is no issue of fact remaining for trial, and summary judgment is appropriate. Based on this holding, Landlord's second motion, which seeks use and occupancy, is denied as moot.
To the extent that Tenant also argued that dismissal is justified by Landlord's drawing down of the letter of credit tendered as security, this is belied by the Lease, which provides that Landlord may draw upon the letter of credit "without prejudice" upon Tenant's holdover, "whether such damages accrue before or after summary proceedings " (Lease ¶¶ 22.02, 19.3). Finally, as the prevailing party, Petitioner is entitled to reasonable attorneys' fees and costs, to be determined at a future hearing (Lease ¶ 18; Excelsior 57th Corp. v. Winters , 227 AD2d 146, 147 [1st Dept 1996] ).
To the extent that Landlord's updated ledger reflects legal fees which have not been justified at a hearing, those have been subtracted from the current judgment.
CONCLUSION AND ORDER
For the above reasons, it is hereby
ORDERED and ADJUDGED that Petitioner's motion for summary judgment (001) is GRANTED in its entirety, and the Clerk of Court shall enter possessory judgment for Petitioner and a monetary judgment in the amount of $1,522,413.03, plus interest from the Petition filing date and costs; and it is further
ORDERED that the earliest date on which the warrant may execute is November 7, 2019; and it is further
ORDERED that the parties shall appear before the undersigned on November 27, 2019 at 2:30 PM for an attorneys' fee hearing; and it is further
ORDERED that Petitioner's motion for use and occupancy (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.