Opinion
65558/04.
Decided September 30, 2004.
Petitioner by Richard Salzman, Esq. of Salzman Salzman LLP.
Respondent by Jeremy Krantz, Esq. of Smith Krantz, LLP.
This is the third summary non-payment proceeding instituted by Oceana Holding Corp. against Atlantic Oceana Co., Inc. [Descriptions of the first two proceedings are omitted.]
The third and instant proceeding was commenced by Order to Show Cause and Petition pursuant to RPAPL § 733(2), each dated April 2, 2004. The Petition seeks rent through March 2004 of $152,491.10, water, sewer and late payment charges of $16,902.00, and Fire Department charges of $1,890.00, as enumerated in a Demand to Pay Rent dated March 4. (The Petition alleges other outstanding charges, but the claim for these was waived at trial.) The Petition describes the premises from which removal is sought as "First Floor, `Restaurant and nightclub' 1029 Brighton Beach Avenue, Brooklyn, N.Y." (Petition, ¶ 8.)
In lieu of answer, Atlantic Oceana moved for dismissal of the proceeding, contending that the operative documents fail to adequately "describe the premises from which removal is sought." (RPAPL § 741.) Atlantic asserted that, "in direct contravention of Respondent's Lease, Petitioner seeks removal from the `First Floor "Restaurant and Night Club'" in the subject building despite the fact that the Lease demises the entire building to Respondent, including the second and third floors, and the basement." (Affirmation in Support of Cross Motion to Dismiss, ¶ 2 [emphasis in original].)
The Court convened a framed-issue hearing, which was held on several days from April 16 through April 27. Recognizing that the evidence at the hearing would also likely be relevant to defenses that Atlantic intended to raise on the merits, the Court made clear that evidence at the hearing would serve as evidence at any trial in the proceeding. In a Decision and Order dated May 21, 2004, the Court denied Atlantic's motion, concluding that the designation found in the Petition was sufficient to meet the statutory requirement. The Court agreed with Oceana that the description is of "contiguous, easily defined and identifiable space [that] can be readily identified by a marshall without reference to outside sources" ( see Petitioner's Memorandum of Law, at 9.) The Court determined that it need not resolve Atlantic's contention that the "Lease demises the entire Building to Respondent" ( see Respondent Post Hearing Memorandum of Law in Support of Motion to Dismiss, at 4).
Atlantic Oceana's Verified Answer dated June 1, 2004 asserted 25 "affirmative defenses", including challenges to Oceana Holding's standing (¶¶ 21-23), and defenses of actual eviction and constructive eviction.
The trial was held from June 7 through June 9. At the conclusion of trial, the Court invited post-trial memoranda, and both parties accepted the invitation with well-written and well-reasoned documents. Neither party, however, supplied the Court with a transcript of the extensive testimony at the framed-issue hearing and the trial. The Court has relied, therefore, on its own notes and recollection.
Motion to Amend/Standing
On August 1, 1995, Oceana leased to M.A.Y. Entertainment Group, Inc. premises described as "1023-29 Brighton Beach Av ( sic)", for a period of ten years commencing December 1, 1995. The premises were to be used as a "restoran ( sic)" and the monthly rent was $10,000.00. Michael Bronstein was the President of M.A.Y. Entertainment, and with his son owned a 75% interest; the other 25% was owned by Yuri Beyn. M.A.Y. Entertainment filed a Certificate of Dissolution dated June 10, 1999 with the New York Department of State, and the Department of Taxation and Finance consented to the dissolution on July 13, 1999.
Meanwhile, on January 24, 1999, M.A.Y. Entertainment Group, Inc. executed the lease for the subject premises with Atlantic Oceana Co., Inc. The term is fifteen years, from February 1, 1999 through January 31, 2014, at an initial monthly rent of $15,000.00. Atlantic Oceana has three shareholders, each owning one-third: Aharov Yosofov, Naum Yusifov and Angelika Roytvayn. Ms. Roytvayn is Aharov Yosofov's wife, and, despite different spelling of their surnames, Aharov Yosofov and Naum Yusifov are brothers. Also, Naum is the son-in-law of Yuri Beyn, one of the shareholders in M.A.Y. Entertainment.
At the framed-issue hearing or the trial, or both, the Court heard from Michael Bronstein, Yuri Beyn, Aharon Yosofov, Angelica Roytvayn, and Naum Yusifov. There were several other witnesses, but the named principals are responsible for most of the testimonial record. It should be noted that Naum has been estranged from his brother and his brother's wife, and litigation among them is pending in Supreme Court.
[The Court determines that Oceana Holding has standing as successor to M.A.Y. Entertainment under M.A.Y.'s lease with Atlantic Oceana, and grants Oceana Holding's motion to amend the Petition to correct errors concerning its standing.]
M.A.Y. Entertainment/Atlantic Oceana Lease
The subject lease consists of a Standard Form of Store Lease and an extensive typewritten Rider. Both the Form and the Rider were signed on behalf of M.A.Y. Entertainment Group by Michael Bronstein and on behalf of Atlantic Oceana Co., Inc. by Aharon Yosofov, Angelika Roytvayn, and Naum Yusifov. The proposed lease was prepared by or for M.A.Y. Entertainment, but its provisions were negotiated with Atlantic, and changes to the draft were made. Provisions were crossed out in Articles 5 (Window Cleaning), 10 (Eminent Domain), 28 (Water Charges), 30 (Elevators, Heat and Cleaning), 43 (Real Estate Tax Escalation), 44 (Operations), and 45 (Utilities).
The printed Form executed by the parties states that "Owner hereby leases to Tenant and Tenant hereby hires from Owner [blank] in the building known as 1029 Brighton Beach Avenue." (Emphasis added.) (Article 56 states that "`Owner' shall be deemed to mean sub-landlord and `Tenant' shall be deemed to mean sub-tenant.") It is apparent to the Court that either some description should have been inserted in the blank, or the word "in" should have deleted in the way that other words in the document were deleted by the parties. The separate provision that "Tenant shall use and occupy demised premises for restaurant and night club" cannot substitute for such a description.
For the first two Lease Years, the monthly rent was $15,000.00, and beginning February 1, 2001 "the rent shall increase by five (5%) percent of the prior years' rent during the term of this Lease." (Article 41.) There is no dispute that, except for three months in mid-1999 when Atlantic paid only $13,000.00, and until the commencement of the first non-payment proceeding, Atlantic paid $15,000.00 each month and did not pay any increased amount. The lease contains provisions for water and sewer charges (Articles 28, 45), for which the Petition seeks payment, but Atlantic maintains that it has no obligation under the lease to pay them. ( See Respondent's Post-Trial Memorandum of Law, at 28-29.)
Atlantic's primary defense to this proceeding is that its "rent obligation was suspended because Petitioner unlawfully took back and excluded Respondent from substantial portions of the demised premises, easements appurtenant thereto, and/or space otherwise appurtenant to the demised premises." ( Id., at 2.) These portions or spaces are specified as: "the parking garage for patrons; the basement (which not only contained necessary storage but also a dressing and smoking room for staff); the lobby; two coatrooms located on the first-floor; two additional storage rooms located on the second floor; . . . kitchen space on three levels of the building . . . [and] the second floor mezzanine and the second-floor theatre." ( Id., at 3.)
Atlantic relies on theories of actual and constructive eviction. ( Id., at 5-9.) "Eviction as a defense to a claim for rent does not depend upon a covenant for quiet enjoyment, either express or implied. It suspends the obligation of payment either in whole or in part, because it involves a failure of consideration for which rent is paid." ( Fifth Avenue Building Co. v. Kernochan, 221 NY 370, 372.)
. . .
An actual eviction, "though partial only . . . suspends the entire rent because the landlord is not permitted to apportion his own wrong." ( Fifth Avenue Building Co. v. Kernochan, 221 NY at 372; see also 81 Franklin Co. v. Ginaccini, 160 AD2d 558, 559 [1st Dept 1990]; 487 Elmwood, Inc. v. Hassett, 107 AD2d 285, 289 [4th Dept 1985]; Frame v. Horizons Wine Cheese, Ltd., 95 AD2d 514, 517 [2d Dept 1983].) "[L]iability for all rent is suspended although the tenant remains in possession of the portion of the premises from which he was not evicted." ( Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d 77, 83.)
"An actual eviction occurs only when the landlord wrongfully ousts the tenant from physical possession of the leased premises. There must be a physical expulsion or exclusion." ( Id., at 82-83.) When there has been "no physical expulsion or exclusion of the tenant," but "the landlord's wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises," there may be a constructive eviction. ( Id., at 83.) "The tenant, however, must abandon possession in order to claim that there was a constructive eviction." ( Id.; see also 428 Camera Corp. v. Tandy Corp., 272 AD2d 72, 73 [1st Dept 2000]; Scolamiero v. Cincotta, 128 AD2d 224, 226 [3d Dept 1987]; Union Dime Savings Bank v. Frohlich, 57 AD2d 862, 862 [2d Dept 1977].)
"To be an eviction, constructive or actual, there must be a wrongful act by the landlord which deprives the tenant of the beneficial enjoyment or actual possession of the demised premises." ( Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d at 82 [emphasis added].) "[I]n an action for rent, it is not sufficient for the tenant to defend on the theory that there was a diminution of the beneficial enjoyment of the property." ( Dave Herstein Co. v. Columbia Pictures Corp., 4 NY2d 117, 120-21.)
. . .
A constructive eviction may be partial, rather than total, in which case the tenant must have abandoned only the portion of the premises affected. ( See Johnson v. Cabrera, 246 AD2d 578, 578-79 [2d Dept 1998]; Minjak Co. v. Randolph, 140 AD2d 245, 248-40 [1st Dept 1988]; County Holding Corp. v. Brati Inc., 2002 NY Slip Op 40204[U] at *2 [2d and 11th Jud Dists]; Manhattan Mansions v. Moe's Pizza, 149 Misc2d 43, 45-46 [Civ Ct, NY County 1990].) "[T]he landlord cannot recover the full amount of the rent in a commercial setting if the tenant has been actually or constructively evicted from either the whole or any part of the premises." ( Id., at 44.)
Unlike a partial actual eviction, for which the entire rent obligation is suspended, a partial constructive eviction will result in an abatement of a portion of the rent. "[W]hen the tenant is constructively evicted from a portion of the premises by the landlord's actions, he should not be obligated to pay the full amount of the rent." ( Minjak Co. v. Randolph, 140 AD2d at 248.) In the commercial context, the amount of the abatement due the tenant, measured by the diminution in value, must be established by expert testimony. ( See Arbern Realty Co. v. Clay Craft Planters Co., Inc., 188 Misc2d 314, 316 [App Term, 2d Dept 2001].)
Crucial to any defense based upon eviction, actual or constructive, is the delineation of the space that the tenant is entitled to use and enjoy. In most cases, the language of the lease will determine that space. In this case, however, the lease is deficient, in that the description of the premises, previously quoted, does not specify the space "in" the building that is reserved for Atlantic's use.
The other provisions of the lease, at the least, confirm the deficiency in the description of the premises, in that, throughout the lease, the "premises" are distinguished from the "building". ( See, for example, Articles 33, 45[A], 46[A].) But that usage and other provisions also provide internal evidence that the entire building was not the subject of the lease. Article 44 refers to "other leases in the building", "renting of vacant space in the building", and the "tenants in the building", suggesting that Atlantic would not be the only lessee or tenant and that it would not be occupying all of the space. Apparently, at Ms. Roytvayn's request, other provisions in Article 44 were deleted, but these were permitted to remain.
Even more telling, perhaps, is the "option to buy" found in Article 57. Atlantic is granted the option to "purchase the business" during the first two years of the lease for $750,000. If the "option to purchase the Premises" were exercised, "such purchase shall be subject to the terms and conditions" of the lease, except that the monthly rent would be decreased. The "Premises" and the "business" are equated, but could not mean the entire building.
Although a lease is both a conveyance of an interest in real property and a contract, like other contracts its meaning is determined by the intent of the parties. ( See Farrell Lines, Inc. v. City of New York, 30 NY2d 76, 82-83; JIHL Associates v. Frank, 137 AD2d 655, 656 [2d Dept 1988].) The Court should "consider the lease as a whole" and attempt to "adopt a reasonable construction of its provisions." ( See Hsieh v. Pudge Corp., 122 AD2d 198, 199 [2d Dept 1986]; see also Tri Messine Construction Co., Inc. v. Telesector Resources Group, Inc., 287 AD2d 558 [2d Dept 2001].)
"[W]hile the parol evidence rule requires the exclusion of evidence of conversations, negotiations and agreements made prior to or contemporaneous with the execution of a written lease which may tend to vary or contradict its terms . . ., such proof is generally admissible to explain ambiguities therein." ( 67 Wall Street Co. v. Franklin National Bank, 37 NY2d 245, 248-49; see also Coliseum Towers Associates v. County of Nassau, 2 AD3d 562, 564 [2d Dept 2003].) Moreover, where there is ambiguity, "[e]vidence of practical construction may . . . be referenced." ( Continental Casualty Co. v. Rapid-American Corp., 80 NY2d 640, 651; see also Citibank, N.A. v. 666 Fifth Avenue Ltd. Partnership, 2 AD3d 331, 332 [1st Dept 2003]; Coliseum Towers Associates v. County of Nassau, 2 AD3d at 564; Beacon Terminal Corp. v. Chemprene, Inc., 75 AD2d 350, 354 [2d Dept 1980] ["the meaning of the ambiguous contract was fixed by the parties' conduct"].)
Generally, "in cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it and favorable to a party who had no voice in the election of its lanaguage." ( 67 Wall Street Co. v. Franklin National Bank, 37 NY2d at 249.) This "contra proferentem doctrine", however, is inapplicable when both parties participated in negotiating the terms. ( See Citibank, N.A. v. 666 Fifth Avenue Ltd. Partnership, 2 AD3d at 331; Coliseum Towers Associates v. County of Nassau, 2 AD3d at 565.)
A modification of a lease "may be proved circumstantially by the conduct of the parties", with "proof of each element to the formulation of a contract, including mutual assent to its terms." ( Beacon Terminal Corp. v. Chemprene, Inc., 75 AD2d at 354-55.)
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In the absence of an enforceable modification, there may be a provable waiver, the "intentional abandonment or relinquishment of a known right or advantage." ( See Beacon Terminal Corp. v. Chemprene, Inc., 75 AD2d at 355 [ quoting Alsens American Portland Cement Works v. Degnon Contracting Co., 222 NY 34, 37.) "Negligence, oversight, or thoughtlessness does not create [a waiver]. The intention to relinquish the right or advantage must be proved." ( Id.) "Unexplained delay is evidence of waiver and acquiescence in non-performance." ( City of New York v. New York Central Railroad Co., 275 NY 287, 293.) A waiver "may be accomplished . . . by such conduct or failure to act as to evidence an intent not to claim the purported advantage." ( Bono v. Cucinella, 298 AD2d 483, 484 [2d Dept 2002] [ quoting Hadden v. Consolidated Edison Co. of New York, Inc., 45 NY2d 466, 469; see also Simon Son Upholstery, Inc. v. 601 West Associates, LLC, 268 AD2d 359, 359 [1st Dept 2000] ["course of dealings"]; Stapleton v. Mattera, 266 AD2d 531, 531 [2d Dept 1999] ["oral course of dealing"].)
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Unlike an oral modification of a prior written agreement, which "results in the creation of a new contract between the parties which pro tanto supplants the affected provisions of the original agreement" ( see Cappelli v. State Farm Mutual Automobile Ins. Co., 259 AD2d 581, 582 [2d Dept 1999]), a waiver, "not being a binding agreement, can, to the extent that it is executory, be withdrawn, provided the party whose performance has been waived is given notice of withdrawal and a reasonable time after notice within which to perform" ( Nassau Trust Co. v. Montrose Concrete Products Corp., 56 NY2d 175, 184; see also DeCapua v. Dine-A-Mate, Inc., 292 AD2d 489, 491 [2d Dept 2002]; Mikal Realty Co. v. Carreras, 268 AD2d 435 [2d Dept 2000].)
. . .
A review of the history of the lease, the parties' interactions before its execution, and the course of its performance, encompassing a period of more than five years, is undertaken less to discover the specifics of what in fact happened, but rather in an attempt to gain insight into what the parties understood and believed to be their contract.
History and Performance
The building designated 1029 Brighton Beach Avenue contains a lobby that provides access to the space used by Atlantic Oceana as a restaurant, nightclub, and catering hall. The lobby contains two coatrooms and bathrooms, and a small office, and provides access to a basement and, with two staircases, to the second floor of the building.
The space used by Atlantic is primarily on the first floor, but includes space on more than one level that is accessed from the first floor. There is a large open area for sitting and dancing, with both terraced levels and balconies; there is a stage and at least one backstage upper level that includes a sound and light both; and there is a kitchen providing access to two upper levels that include refrigeration and storage. In approved building plans introduced into evidence, these are either specifically designated (for example, "balcony") or are designated as "levels". Not only are these various levels accessed from the first floor, they are, for the most part, inaccessible from the second floor of the building.
The second floor, today, is used as a theatre by N.Y.C. Millennium Theatre, Inc. under lease from Oceana Holding. Access is provided by the two lobby staircases to a bar/lounge area that testimony and documents refer to as the "mezzanine". The theatre is reached through the mezzanine, and includes dressing rooms, an office, recording room, and projection booth. The theatre is equipped with fixed seating, which was installed by Millennium.
The basement has been mentioned. As described in the Certificate of Occupancy, the basement is used for "Boiler Room Machinery And Storage." The Certificate of Occupancy also lists "Stores" at street level and "offices" and "apartments" on the second and third floors that are accessed directly from the street. There is a garage that is accessed from Brighton 11th Street, but the garage does not appear on the Certificate of Occupancy for 1029 Brighton Beach Avenue.
[The Court reviews the history of use of the first and second floors prior to January 1999, as well as pre-lease discussions between M.A.Y. Entertainment and Atlantic Oceana. The Court notes that the testimony as to pre-lease discussions was in conflict.]
Atlantic Oceana's claim to various spaces at 1029 Brighton Beach Avenue includes space to which it has not received access since the inception of the lease namely, the garage and one of the rooms on the upper level of the kitchen; space to which it was given access for a time, but to which access was withdrawn namely, the basement, second-floor mezzanine and theatre, and one of the lobby coatrooms; and space to which it had exclusive access for a time, but now shares with Millennium namely, the lobby. None of these spaces are specifically mentioned in the lease for any purpose.
Difficulties arose relatively early in Atlantic's tenancy. For three months during mid-1999, Atlantic Oceana paid only $13,000.00 of the $15,000.00 monthly rent. Aharon Yosofov testified that the deduction was made because Atlantic was denied access to the basement. The basement had been used by Atlantic for storage of tables, chairs, linens, canned supplies and fixtures, and as a dressing room for the waiters. Naum Yusifov testified that use of the basement was expressly permitted on the condition that it was kept clean, and Mr. Bronstein acknowledged that he did not object "in a huge way" to Atlantic's use. Atlantic was allowed access to the basement, and it resumed paying $15,000.00 each month. The $6,000.00 withheld for those three months, however, was not paid. Also at this time, one of two locked rooms on the upper level of the kitchen was made available to Atlantic. As Mr. Bronstein put it, M.AY./Oceana "gave up" the one room at Atlantic's request.
Also about this time, according to Naum Yusifov, Atlantic Oceana begin using the mezzanine for, what the parties characterized during testimony, as "chupa parties". These were religious wedding ceremonies that used a traditional canopy, the "chupa", and, for observant Jews, the ceremony could not take place where the food would be served. There was a wide disparity in the testimony about the number of chupa parties that took place. The theatre was also used for several seminars or lectures. Because Atlantic did not arrange for electric service to the second floor, extension cords brought electricity for lighting from the first floor. Mr. Bronstein and Mr. Beyn testified to having objected to Atlantic's use of the second floor when they learned of it, but Angelika Roytvayn denied that there were any complaints. Mr. Bronstein acknowledged, however, that Atlantic was given permission to continue using the second floor until it was leased to someone else.
That occurred in early 2000, when Oceana Holding and Millennium executed the lease for the "2nd Floor Theatre". The lease has a ten year term beginning February 1, 2000, with a monthly rental the first year of $18,232.60 and annual escalations. (As noted, this is the same amount Victor Entertainment would have paid during that year had it remained in possession.) In May, Millennium installed doors to the two lobby staircases that provided access to the mezzanine and theatre. Within two or three days after Millennium's request, Atlantic Oceana removed its chupa, chairs, and extension cords from the second floor.
Aharon Yosofov testified that he complained to Messrs. Bronstein and Beyn when Atlantic was deprived of the use of the second floor. But, unlike the previous year when access to the basement was denied, Atlantic made no deduction from the rent, and paid according to the lease until February of the following year.
As noted, the lease provides that, beginning February 1, 2001, the monthly rent "shall increase five (5%) percent of the prior years' rent during the term of this Lease." (Article 41.) Atlantic, however, continued to pay at the $15,000.00 rate.
. . .
Aharon Yosofov said that, when his brother left, Atlantic was denied use of the basement. Mr. Bronstein maintained that the basement was not locked until February 2003, and that the reason was threats of citations because of smoking and littering by Atlantic's employees. (The basement was recently unlocked by the Fire Department during an alarm.) Atlantic, in any event, removed the material that had been stored in the basement, and stored it in a dressing room, thereby interfering with the room's use for that purpose, or stored it in the alley where it has been damaged by exposure to the elements. (Ms. Roytvayn acknowledged that at least some of the damaged furniture would have been supplied by M.A.Y. Entertainment.)
With all this, the only written communication that Atlantic acknowledges having directed to M.A.Y. Entertainment or Oceana Holding is a letter dated February 4, 2003 that concerns "several items that to this day we have not been able to resolve through past requests." Ms. Roytvayn testified that the letter addressed "90% of our problems." As it relates to the issues under consideration, the letter makes complaint about the back-up and flooding conditions, and about the use of space:
"We had also been promised this entire duration of time that a room that you occupy, within our restaurant will be opened and clear out, so that we could finally have a place to store some of our furniture. Since like all other promises, being broken by you, when you allowed us to store out restaurant chairs and tables in the basement where the sewer was constantly backing up, but even that storage was taken from us . . . [Y]ou [have] occupied much needed storage space for over 4-5 years within our restaurant."
For Oceana's part, the only written communication that was admitted into evidence (other than documents related to the legal proceedings between them) is a December 10, 2003 letter, in which Mr. Bronstein charges that Atlantic is responsible for the back-up and flooding conditions.
Leased Premises/Easements/Licenses
In its Post Trial Memorandum of Law, Atlantic has stepped back from any contention that the lease demised the "entire Building" at 1029 Brighton Beach Avenue. It now maintains that "[t]he demising language of Respondent's Lease . . . fully supports Respondent's position in that said language does not limit the demised premises to any particular portion of the Building." (Respondent's Post Trial Memorandum of Law, at 22 [footnote omitted].)
In addition to the internal evidence in the lease and the Certificate of Occupancy, as described above, the testimony of Aharon Yosofov and Angelika Roytvayn vitiated any claim that Atlantic was leasing the entire building. Both acknowledged that none of the stores or offices were included. Ms. Roytvayn understood "no less than 75%" of the building was being leased, and Mr. Yosofov testified to leasing 75% of the building.
The Court cannot accept, however, Oceana's contention that, since "[t]he tenant's defense was that virtually the entire building was rented", "[t]he eviction defense has been submitted to this Court to be rejected or accepted in its entirety." (Petitioner's Post Trial Memorandum of Law, at 27, 28.) At least as early as its Post Hearing Memorandum of Law in Support of Motion to Dismiss, Atlantic suggested that certain of the space claimed might be subject to easement or license, and this Court's Decision and Order on that motion noted "the lobby of the building, and space accessed through the lobby, for which, all agree, Respondent possesses at least an easement or license." Although the Court cannot fault Oceana for determining, as a matter of advocacy, to structure its legal contentions and arguments on an all-or-nothing basis, Oceana cannot preclude the Court from assessing all of the evidence, and determining its significance under applicable law.
Most importantly, Mr. Bronstein acknowledged without hesitation that some of the space claimed by Atlantic is, indeed, available for its use the lobby, coatroom and office and that other space claimed was used for a time with Oceana's consent the basement and the mezzanine and the theatre. None of that space is included within the "First Floor, `Restaurant and Nightclub' "described in the Petition. The general merger and "no oral modification" clauses, as well as the preclusion of easements and licenses not specified in the lease, all found in Article 20, cannot be used to suppress the significance of Mr. Bronstein's clear admissions. (See Matisoff v. Dobi, 90 NY2d 127, 134; Bono v. Cucinella, 298 AD2d at 484; Design Concepts Ltd. v. Walsh, 293 AD2d 605, 606-07 [2d Dept 2002].)
The task, then, is to consider all of the space claimed, and determine whether Atlantic has been evicted from any of it, actually or constructively, so as to be released from all or part of the rent. Those determinations, in turn, depend upon determinations as to whether the space claimed by Atlantic is subject to the lease or to an implied easement, such that there may be an "eviction".
Based upon the lease itself, the conduct of the parties before and after its execution, and the surrounding circumstances, the Court finds that, with the exception of the storage room on the upper level of the kitchen, none of the space claimed by Atlantic Oceana is expressly included within the demised premises, but that all of it, with the exception of the garage, was subject to either easement or license. In effect, the Court adopts Petitioner's description of the demised premises as the contiguous, easily defined and identifiable space that is the first floor restaurant and nightclub. "While the word restaurant has no strict meaning, it seems to have been used indiscriminately as a name for all places where refreshments can be had, from a mere eating house and cookshop to any other place where eatables are furnished to be consumed on premises." ( Salerno v. B.C. Posner Construction Co., 39 Misc2d 699, 702 [Sup Ct, Westchester County 1963].)
That understanding of the scope of the lease follows from the general conviction that the parties did not intend a lease of the "entire Building", and, more specifically, that they did not intend that Atlantic Oceana would have exclusive use of the second-floor mezzanine and theatre for the term of the lease. With that so, the parties could not have intended that Atlantic Oceana would have exclusive use of those other spaces that would be as useful, if not necessary, to the occupant of the second floor as they are to Atlantic. The Court's finding that the parties did not intend that the lease include the second floor is based, in addition to the internal evidence in the lease, on two primary considerations: Atlantic's conduct with respect to the space, and the commercial unreasonableness of a contrary conclusion.
Atlantic's conduct with respect to the second floor strongly suggests, if not compels, the conclusion that, despite the professed importance of the space to its business, Atlantic did not understand that it had exclusive possession for the term of the lease. During the almost one-year period after Atlantic took possession of the first floor, it made no investment to the second-floor mezzanine and theatre. Atlantic did not even establish an account for electricity service in the space, relying, instead, on extension cords to bring service from the first floor. And when the second floor was leased to Millennium, rather than expressing displeasure at having its space taken away, as it had the previous year when denied access to the basement, by withholding or deduction from the rent or by other strong action, Atlantic quickly and quietly removed the chupa, chairs and extension cords. In the one writing to Oceana that Atlantic acknowledges, it referred to broken promises about the storeroom and the basement, but said nothing about the second floor.
Nor would Atlantic's understanding have been commercially reasonable if it had included possession of the second floor for 15 years. Both the lease to Victor Entertainment in 1995 and the lease to Millennium in 2000 provide evidence that the second floor had a market rental equal to that of the first floor. Even recognizing that the location had not established a good trackrecord for success, prospective lessees with the experience and sophistication of Aharon Yosofov and Angelika Roytvayn could not have reasonably understood that for 15 years they would receive a 50% discount of the rental value of the property.
The determination, however, that the lease did not expressly include the second-floor theater or mezzanine does not necessarily require the conclusion that Atlantic has or had no rights to their use. During the initial year of its occupancy of the first floor, Atlantic was permitted to use the second floor, before being deprived of use by the lease to Millennium and the installation of doors to the staircases. If Atlantic's use of the second floor was by right pursuant to an implied easement, and not merely by leave pursuant to a revocable license, Oceana's lease to Millennium and the latter's installation of the doors under its authority would constitute wrongful acts of a landlord (Oceana now standing for M.A.Y.) and an actual partial eviction.
"Easements and licenses in real property are distinct in principle, though it is sometimes difficult to distinguish them . . . An easement implies an interest in land ordinarily created by a grant, and is permanent in nature . . . A license does not imply an interest in land, but is a mere personal privilege to commit some act or series of acts on the land of another without possessing any estate therein." ( Millbrook Hunt, Inc. v. Smith, 249 AD2d 281, 282 [2d Dept 1998].)
A license may be revocable at will or extend for a definite period of time ( see North Shore Mart v. Grand Union Co., 58 Misc2d 640, 643 [Dist Ct, Nassau County 1968]; Nemmer Furniture Co. v. Select Furniture Co., 25 Misc2d 895, 899 [Sup Ct, Erie County 1960]); and a license for a definite period "cannot be prematurely ended without creating a cause for action for breach" ( see id.).
As indicated, an easement may be created by express grant, or it may created "by estoppel or implication or necessity". ( See Saxon Garage Corp. v. Regency East Apartment Corp., 193 Misc2d 166, 168 [Sup Ct, NY County 2002].) An implied easement is an "implied grant in everything" that is used with the demised premises and that is "reasonably essential to their enjoyment." ( Rainbow Shop Patchogue Corp. v. Roosevelt Nassau Operating Corp., 60 Misc2d 896, 898 [Sup Ct, Kings County 1969], aff'd 34 AD2d 667 [2d Dept 1970]; see also Broadway-Spring St. Corp. v. Jack Berens Export Corp., 12 Misc2d 460, 465 [Manhattan Mun Ct 1958] ["reasonably essential", "reasonably necessary and essential"]; Mammy's Inc. and Pappy's Inc. v. All Continent Corp., 106 NYS2d 635, 638 [Sup Ct, NY County 1951] ["necessary . . . and not a mere convenience"]; see also Ruggiero v. Long Island Railroad, 161 AD2d 622, 623 [2d Dept 1990] ["necessary and essential"]; Greenblatt v. Zimmerman, 132 AD 283, 285 [1st Dept 1909].) If a tenant is deprived of the use of space that is subject to an easement, express or implied, there may be an actual or constructive eviction. ( See Appliance Giant, Inc. v. Columbia 90 Associates, LLC, 8 AD3d 932, 933 [3d Dept 2004]; 487 Elmwood, Inc. v. Hassett, 107 AD2d 285, 286-87 [4th Dept 1985]; 1328 Broadway, LLC v. MCM Footwear Ltd., 1 Misc3d 910[A], 2004 NY Slip Op 50018[U], *4 [Civ Ct, NY County].)
Applying these principles to Atlantic Oceana's use of the second-floor mezzanine and theatre, the Court finds that Atlantic was granted only a license to use the space until it was leased, presumably to a third party. Use of the second floor is not reasonably necessary to Atlantic's use of the first floor as a restaurant, or even as a restaurant serving particular religious, ethnic, or cultural communities. The testimony suggests no more than 10, and as few as 2, chupa parties during the initial year of Atlantic's lease. There was no documentary evidence of the number, and no testimonial or documentary evidence of the monetary value of those parties to Atlantic's business. Atlantic's conduct, including its prompt removal from the space upon Millennium's request and its failure to demonstrate objection by deduction of rent or otherwise, is evidence that Atlantic understood that, with the lease to Millennium, it license had come to an end.
Similarly, as to the garage, to which Atlantic was never given access for parking by its customers, the Court cannot conclude that on-site parking is reasonably necessary or essential to the operation of a restaurant in Brooklyn. Although parking areas in shopping centers have been found subject to easement ( see Appliance Giant, Inc. v. Columbia 90 Associates, LLC, 8 AD3d at 933; 487 Elmwood, Inc. v. Hassett, 107 AD2d at 288), the conclusion does not follow in the urban environment. Atlantic's principals testified to the importance to them of on-site parking, but implication of an easement cannot rest on the subjective attitudes or beliefs of one of the parties. Atlantic's conduct, including its willingness to resume payment of the full rent ten months into the lease even though, by then, it must have been apparent that the garage would not be delivered, is evidence that the garage was not reasonably necessary or essential to its business.
The basement, like the second floor, was used by Atlantic with M.A.Y.'s/Oceana's consent, and the question, therefore, is whether the use is pursuant to easement or license. The events of mid-1999 strongly suggest that, at least as of then, the parties intended use of the basement by Atlantic that was not subject to deprivation at will. For three months, Atlantic paid $2,000.00 less each month than the stated rent when it was deprived of the use of the basement, and resumed payment of the full amount only after access to the basement was restored. The alternatives are not limited to easement and license at will, and include a license for a definite term, for example, for a term measured by the term of the lease.
The Court does not consider that a separate dressing room or a smoking area for waiters would be reasonably necessary or essential to the use of the leased premises as a restaurant. But basement storage space was found "essential to the enjoyment of the lease" of a restaurant, albeit for a reason not applicable here. ( See Greenblatt v. Zimmerman, 132 AD at 285 [storage of coal].) In contrast, a restaurant's claim for "deprivation of use of a portion of cellar space" was rejected when the "evidence did not permit an accurate determination of the amount or location of the space" that the restaurant was to use. ( See Salerno v. B.C. Posner Construction Co., 39 Misc2d at 702; see also Telesca v. M.L. Bruenn Co., Inc., 71 Misc2d 208, 211 [New Rochelle City Court 1972] [storage space in basement not a necessity for an insurance agency business].)
Atlantic's principals testified to the difficulties that have resulted from the inability to use the basement for storage. But, as Oceana appropriately argues, there was no evidence as to the number of items stored, or the area of the basement that was required for storage, or how often (if at all) the stored material was used in the business, or the feasibility of off-site storage. ( See Petitioner's Post Trial Memorandum of Law, at 29.) Although the basement is accessed from the lobby and not the restaurant, there was no evidence as to its use by any of the other tenants, nor is it reasonable to assume that basement space would not be useful to them as well. ( See Levin v. 117 Limited Partnership, 291 AD2d 304 [1st Dept 2002].)
Atlantic's case for the need of storage space is compelling, but does not appear sufficiently different in kind or extent than the case that could be made by most businesses in the City. And, of course, not every business, or even most, can be deemed to have an easement to the basement. No doubt, here we have the events of mid-1999 and the evidence it provides that the parties had an understanding about Atlantic's use of the basement. For the reasons stated, however, the Court does not construe that understanding as the grant or recognition of an easement to the basement. Rather, the Court finds that Atlantic was granted a license to make reasonable use of the basement in connection with its business. Even if, however, the license is construed to extend to the end of the lease, and not be revokable at will by Oceana, its breach would provide Atlantic with a claim for damages and not a defense to the payment of rent. No such claim is asserted in this proceeding.
In contrast, Atlantic's use of the lobby to provide access to the restaurant for its customers must be deemed by way of an easement. ( See Appliance Giant, Inc. v. Columbia 90 Associates, LLC, 8 AD3d at 933; 125 Hempstead Turnpike Corp. v. Tracco Hempstead, Inc., 14 Misc2d 554, 558-59 [Sup Ct, NY County 1958].) It is necessary and essential that Atlantic have the use of the lobby for this purpose. Atlantic's easement is non-exclusive, and Millennium too has an easement for ingress and egress. Neither has an easement in the coatrooms, or to use the lobby to meet with prospective customers.
Atlantic asserts that "[l]arge, noisy crowds attend the Millennium Theatre productions", and that "Atlantic's guests have to struggle through the crowds in the lobby to reach the dining area." (Respondent's Post-Trial Memorandum of Law, at 15.) The result, according to Atlantic, is that, "since February 2000, the lobby has been rendered useless for [its] business purposes." ( Id., at 15-16.) Assuming that the Millennium crowds can be tied to or constitute a wrongful act by Oceana Holding ( see Scolamiero v. Cincotta, 128 AD2d 224, 226 [3d Dept 1987]), Atlantic's claim must fail because it is still in possession of the lobby, and, therefore, there has been no eviction, actual or constructive. Moreover, there was no evidence, expert or otherwise, of the diminution of rental value resulting from a partial constructive eviction. ( See 487 Elmwood, Inc. v. Hassett, 107 AD2d at 289; Arbern Realty Co. v. Clay Craft Planters Co., Inc., 188 Misc2d 314, 316 [App Term, 2d Dept 2001].)
Finally, there is the one space that seems clearly to fall within the demised premises, the storage room on an upper level of the kitchen, Oceana Holding appears to acknowledge this with its characterization "first floor storage room" ( see Petitioner's Post-Trial Memorandum of Law, at 16), but says nothing about it except that "[a]s a matter of law there can be no claim of eviction from space that was never delivered" ( see id.). Oceana relies on the First Department's decision in Carnegie Hall v. Zysman ( 238 AD 515 [1st Dept 1933]), which held that a lessee's claim that it was not put in possession of all the space agreed upon "is not a defense or a bar to tenant's obligation to pay rent while [it] remains in occupation ( id., at 519). "There was no actual eviction from any part of the premises" ( id. at 518), and "[t]he lessee's remedy is by an action to recover damages for a breach of the covenant" to put tenant in full possession ( id., at 519 [ quoting O'Brien v. Smith, 13 NYS 408 [1st Dept], aff'd 129 NY 620.)
The holding of Carnegie Hall and similar cases is sometimes stated as a definitional rule, such that "no one could be evicted from something of which he has never been possessed." ( See Electronic Corporation of America v. Famous Realty, 87 NYS2d 169, 172 [Sup Ct, Kings County], aff'd 275 AD 859 [2d Dept 1949] [ quoting Forshaw v. Hathaway, 112 Misc 112, 114 (App Term, 2d Dept 1920)].) Later decisions in the First Department, however, appear to consider the rule to rest on the "element of laches and waiver", found in the tenant's knowledge when it took possession that the landlord was unable to deliver the entire premises. ( See Fifth Avene Estates, Inc. v. Scull, 42 Misc2d 1052, 1054 [App Term, 1st Dept 1964].) And so, in its most recent pronouncement on the subject, the First Department said:
" Once tenant learned that landlord, through no fault of its own, could not deliver a portion of the agreed demise, tenant could either refuse to accept the smaller demise, or accept it along with the rent called for in the lease . . ., or accept it along with the reduced rent that landlord computed based on the square footage delivered . . . By choosing to remain in possession of the smaller demise, tenant necessarily accepted the reduced rent offered by landlord . . . Tenant's counterclaim for damages based on landlord's failure to deliver the agreed demise . . ., assuming it was not compromised by his acceptance of the smaller leasehold for a lower rent, is time-barred." ( Rachel Bridge Corp. v. Dishi, 4 AD3d 256, 256-57 [1st Dept 2004] [emphasis added].)
The status of the holding in Carnegie Hall and similar cases is less clear in the Second Department. In Forshaw v. Hathaway ( 112 Misc 112), relied upon in Carnegie Hall, Appellate Term reached a conclusion similar to the First Department's:
"If a landlord fails to give to his tenant possession of all that the letting calls for the tenant is not obliged to accept any portion of the premises . . . If, however, a tenant knowing he cannot get possession of all the property accepts possession of a portion of it he is not put in that position through any wrongful act of the landlord . . . This makes him liable for the rent called for by the lease." ( Id., at 115 [emphasis added].)
The tenant may, however, "recover his damages from the landlord's failure to give him possession of the whole property as agreed." ( Id.)
In Electronic Corporation of America v. Famous Realty (87 NYS2d 169, aff'd 275 AD2d 859), the tenant did not receive the entire space because the landlord failed to remove a vault as promised. The Second Department affirmed the trial court's conclusion that the tenant could not claim a eviction, merely citing Forshaw v. Hathaway ( 112 Misc 112) and O'Brien v. Smith (13 NYS 408, aff'd 129 NY 620), also relied upon in Carnegie Hall, as well as early cases concerning a landlord's covenant to repair ( see Thomson-Houston Electric Co. v. Durant Land Improvement Co., 144 NY 34; Drago v. Mead, 30 AD 258 [2d Dept 1898].) The trial court had rested heavily on waiver. ( Electronic Corp. of America v. Famous Realty, 87 NYS2d at 172-73.)
The most recent pronouncement by an appellate court in the Second Department, Meerbaum v. Crepes D'Asie, Inc. ( 85 Misc2d 345 [App Term, 2d Dept], rev'g 81 Misc2d 842 [Dist Ct, Nassau County 1975]), involved a landlord's failure to repair the premises for the tenant's use as promised. The lower court found that "[t]he landlord, by its willful refusal to complete and comply with the covenants of the lease, never delivered possession of the basement portion of the premises to [the] tenant." (81 Missc2d at 849.) Summarizing Forshaw v. Hathaway ( 112 Misc 112), and Carnegie Hall ( 238 AD 515) and subsequent cases, the trial court stated:
"It has been held that should a tenant take possession of less than the entire premises described in a lease, knowing in advance that it could not get the entire demise and having with such knowledge, elected to take the available portion, such action would be a waiver of the defense of an actual partial eviction . . . However . . ., where the tenant takes possession of a portion of the premises without knowing that the remaining portion would not be available to it there would be no waiver by the tenant, and a failure or the willful interference by the landlord with the tenant's right of possession of the remaining portion of the premises results in an actual eviction." ( 81 Misc2d at 847-48.)
Applying these principles, the trial court held that the tenant had sustained a defense of actual partial eviction.
Appellate Term reversed, treating the case as involving the "[u]ntenantability of the demised premises." ( 85 Misc2d at 346.) But a new trial was ordered to allow the tenant to prove its damages as a result of the landlord's breach of the covenants in the lease. ( Id.)
All considered, whether characterized a waiver rule or not, Carnegie Hall and similar cases appear to turn on whether the tenant has elected to take possession with knowledge that the landlord would not be delivering all that was promised. As a waiver rule, it would carry a unique stripe in that the landlord's duty and breach are not avoided, since a claim for damages is still viable, and because it appears clear from the cases that, unlike other waivers, which can be revoked to the extent still executory, this one is for the duration to the extent that it affects the obligation to pay rent.
Here, the testimony would support the conclusion that Atlantic Oceana took possession expecting, based on assurances received, that the storage room would be made available. Article 23 of the lease, Failure to Give Possession, could not be understood to apply to the landlord's retention of a portion of the demised premises for its own use. Even if, however, the taking of possession at the commencement of the lease term under such circumstances would not preclude a claim for suspension or abatement of rent, the time must arrive, as it did here, when the tenant must acknowledge that the undelivered space would remain so.
Again, the events of mid-1999 are crucial. Atlantic was given access to one of the two locked rooms, and its use of the basement allowed to resume when Atlantic resumed payment of the full amount of the stated rent. It might be that there was a modification of the lease substituting the use of one space, the basement, for another, the locked room. ( See SRM Card Shop, Inc. v. 1740 Broadway Associates, L.P., 2 AD3d 136, 140 [1st Dept 2003]; Broad Hollow Realty Corp. v. Chase Manhattan Bank, NYLJ, March 31, 1999, at 25 [Dist Ct, Suffolk County].) But none of the principals testified to any such express agreement. The effect would, in any event, be a waiver by Atlantic of any right to a suspension or abatement of rent. Whether or not the 1999 arrangement affected Atlantic's claim for damages, and for how long, are issues that would be resolved if such a claim is asserted.
In sum, the Court concludes that, whatever complaint Atlantic Oceana might legitimately make about its inability to use any of the various spaces to which it has laid claim, Atlantic's remedy is to seek damages for Oceana's breach of the lease or a related license. Similarly, to the extent that Atlantic has paid electric charges, or borne maintenance and repair costs, that are attributable to space occupied or used by Oceana or Millennium ( see Respondent's Post-Trial Memorandum of Law, at 20-21), it can seek a remedy for breach of an implied or quasi-contract.
Rent and Other Charges
In its Petition, Oceana Holding seeks $152,491.10 as unpaid rent through March 2004, $16,902.00 as "water and sewer and late payment charge on past due amount"; and $1,890.00 as "Fire Department Bill (A/C charge)." Other amounts sought in the Petition were waived at trial.
. . .
Atlantic Oceana does not contend that Oceana Holding waived its claim for any of the amounts unpaid by reason of its accepting Atlantic's payments of $15,000.00 each month for approximately two and one-half years. Atlantic does contend, however, that "A Possessory Judgment May Not Be Based on Stale Rent that is More Than Three Months Old." (Respondent's Post-Trial Memorandum of Law, at 13-14, 30.)
There is no evidence that Oceana Holding "was manipulating the tenant with the tenant's ultimate inability to satisfy a judgment and consequent eviction in mind." ( See Haberman v. Singer, 3 AD3d 188, 192 [1st Dept 2004].) Nor did Atlantic Oceana "establish either prejudice or detrimental reliance resulting from the lapse of time." ( See Bissell v. Pyramid Companies, 125 AD2d 876, 877-78 [3d Dept 1986]; see also Marriott v. Shaw, 151 Misc2d 938, 940-46 [Civ Ct, Kings Country 1991]; 269 Associates v. Yerkes, 113 Misc2d 450, 455-57 [Civ Ct, NY County 1982].) "The tenant has the burden of demonstrating that the landlord did not proceed with reasonable diligence under the facts of the particular case." ( Id., at 457.) Those facts would include that a commercial tenant, rather than a residential occupant, is involved. ( See Zenila Realty Corp. v. Masterandrea, 123 Misc2d 1, 8 [Civ Ct, NY County 1884].)
Atlantic contends that "Petitioner's laches has prejudiced Respondents by inducing Respondent to continue to invest time and money in the demised premises . . . and by creating a situation in which Respondent now may not be able to pay the alleged arrears." (Respondent's Post Trial Memorandum of Law, at 30.) But Atlantic cites no testimony or other evidence to provide a factual foundation for these contentions, and the Court is not aware of any.
In June 2003, before Atlantic began withholding the entire rent, the rent in arrears was less than $45,000.00. Oceana waited only two months to commence the first non-payment proceeding. If now, more than a year later, Atlantic has greater difficulty paying the arrears, that consequence would appear to flow from Atlantic's decision to defend Oceana's three proceedings in a manner that could only delay a court determination on the merits.
. . .
Petitioner is entitled to costs ( see RPAPL § 747) and interest, with the latter "calculated on a monthly basis" ( see European-American Banking Corp. v. Chock Full O'Nuts Corp., 109 Misc2d 615, 620 [App Term, 1st Dept 1981]; see also South Ferry Building Co. v. J. Henry Schroder Bank Trust Co., 122 Misc2d 595, 596 [App Term, 1st Dept 1983]), but no showing is made as to the amount of either. Petitioner may move for amendment of the money judgment to include interest and costs, as well as attorney fees.
Judgment is rendered in favor of Petitioner for $166,440.10 (representing rent owed through March 2004 of $152,491.10 and water and sewer charges as additional rent of $13,949.00). Payment shall be made within five days after service by Petitioner of a copy of the judgment with notice of entry. Petitioner is also awarded a conditional judgment of possession, which shall be stayed for the period specified for the payment of arrears; if payment is made as specified, the judgment shall be vacated; if payment is not made as specified, a warrant shall issue forthwith, with execution stayed five days.