Opinion
13531/06.
Decided September 26, 2007.
Lynn Gartner, LLP — Robert Lynn, Mineola, New York, For Plaintiff Counsel.
Seyfarth Shaw, LLP, New York, New York, For Defendant Counsel.
Plaintiff commenced an action for partition pursuant to RPAPL § 915, and moves pursuant to CPLR 3211(b) to dismiss the affirmative defenses of Defendant FULTON INTEREST LLC, (hereinafter "FULTON INTEREST"), and for an order pursuant to CPLR 3212 granting it summary judgment on Defendant's counterclaims. Defendant opposes the partition to the extent of seeking an actual partition rather than partition sale and cross-moves to compel Plaintiff SNYDER FULTON STREET LLC, (hereinafter, "SNYDER FULTON"), to give an accounting.
Upon review and consideration of the Summons and Verified Complaint, dated May 1, 2006; the Verified Answer with Affirmative Defenses and Counterclaims of FULTON INTEREST, dated June 14, 2006; the Notice of Motion of SNYDER FULTON, dated September 25, 2006; the Affirmation of Robert P. Lynn, Jr., Esq, dated September 26 2006, and the exhibits annexed thereto; the Affidavit of Linda Barber, dated September 26, 2006; Plaintiff's Memorandum of Law dated September 26, 2006; the Amended Notice of Cross-Motion of FULTON INTEREST, dated November 7, 2006, the Affidavit of Richard M. Resnik, Esq., dated November 7, 2006, and the exhibits annexed thereto; Defendant's Memorandum of Law, dated November 7, 2006; the Reply Affirmation of Richard M. Resnik Esq., dated November 28, 2006, and the exhibit annexed thereto; the Affidavit of Thomas Bittner, dated November 28, 2006; Plaintiff's Memorandum of Law, dated May 4, 2007; argument of counsel on April 24, 2007; and after an inspection of the building on April 27, 2007, and a hearing held on May 7, May 9-10, May16, May 22, June 4, June 6, and June 11, 2007; after argument of counsel, and upon review and consideration of Plaintiff's Post Trial Memorandum of Law and Proposed Findings of Fact, dated July 12, 2007, and Defendant's Post Trial Memorandum of Law and Proposed Findings of Fact, dated July 12, 2007; and after due deliberation, Defendant's Cross motion is denied and Plaintiff's motion and application for partition is granted, both to the extent set forth below.
FINDINGS OF FACT
The court makes the following findings of fact:
Plaintiff seeks to partition the property known as 490 Fulton Street. The property occupies Block 159 Lot 1 in Brooklyn, which consists of the eastern half of the block bounded by Fulton, Bond, Livingston and Elm Streets.
On the lot is a five story commercial building that formerly was the site of the Frederick Loeser Department store and later Mays Department Store. The building has frontages on Fulton, Bond and Livingston Streets.
There is a 31 foot by 73 ½ foot portion of the lot at the corner of Livingston and Bond street, (hereinafter the "outparcel"), that based on the evidence currently before the court, is not owned by Plaintiff or Defendant. The building herein occupies the outparcel, and there is no wall separating the outparcel from the rest of the lot.
Both Plaintiff and Defendant are Limited Liability Companies organized and operated pursuant to the Laws of the State of New York and own the property as tenants in common.
Plaintiff owns an undivided 6/7 interest in the property and Defendant owns a 1/7 undivided interest in the property. Plaintiff acquired its interest in the property in 1998. Defendant purchased its interest in the property in February 2005 from a third party. Defendant's purchase agreement contained a confidentiality clause and Plaintiff was not notified of Defendant's purchase until after it occurred.
No tenant-in-common agreement, partnership agreement, operating or management agreements exist between Plaintiff and Defendant.
Plaintiff and Defendant own the land only, which is encumbered by a ground lease held by J. W. Mays Inc., (hereinafter "Mays"), who owns and manages the building. Mays became the lessee pursuant to an assignment of a 1947 lease between Ellen Parsons and Frederick Loeser Co. Inc. In 1968 that lease was extended through 1989. In 1991, the lease was again extended through April 30, 2010.
This lease contains a provision which subordinates the lease to any mortgage of the property provided the principal amount secured by the mortgage does not exceed 60% of the fair value of the land, or 60% of the assessed value of the land as assessed by the City of New York.
Neither Plaintiff or Defendant has any active role in managing the building, each simply receives their portion of the rent from the ground lease directly from Mays.
Both Plaintiff and Defendant have stated that they do not intend to demolish the building but seek to renovate and use the existing structure.
The certificate of occupancy issued for the building also covers 25 Elm Street, a building on the adjacent lot, Block 158 Lot 1, which comprises the western end of the block bounded by Fulton, Bond, Livingston and Elm Streets. The two buildings have a common certificate of occupancy and are also currently arranged as one building. Access to the upper stories of 490 Fulton Street is gained through the entrance to 25 Elm Street. The existing heating and electrical systems for 490 Fulton are also located in 25 Elm Street.
A new certificate of occupancy will be required when 490 Fulton is separated from 25 Elm Street, whether the 490 Fulton is physically partitioned or it is partitioned by sale. A new or amended certificate of occupancy will require that the building or buildings be brought up to the current building code.
The building is approximately 190, 000 square feet with a footprint that is roughly 125 feet by 293 feet, or 36,000 square feet, including the outparcel.
The structural system of 490 Fulton Street consists of the four exterior walls and rows of columns running from the fifth floor to the basement. The columns support a series of girders and floor joists. The ground floor and part of the second floor has been subdivided into retail spaces that are accessible from the street. The upper floors are undivided and largely unimproved.
There is a central bank of four elevated near the center of the building that has been boarded up. There are also two elevators located by the northeast corner of the building and two elevators located by Livingston Street. It is unclear if they are operable. Currently the elevators in 25 Elm Street are used to get from floor to floor in 490 Fulton Street.
There are three sets of fire stairways. One is by the Fulton Street wall, one is an exterior stairway on Bond Street, and one is by the Livingston Street wall, next to and unseparated from the elevators. Neither the Bond Street or Livingston Street stairs meet current code.
There are bathrooms on the upper floors, on the Livingston Street side of the building only, that are ancient and unusable without complete renovation.
The heating system consists of old steam radiators placed around the exterior walls and supplied by a boiler located in 25 Elm Street. The system is operable. There is no air conditioning system in the upper floors and the ventilation is provided by windows in the exterior walls.
Although the upper floors are largely undivided and unimproved, the building is structurally sound. New plumbing, heating, sprinkler, and electrical systems would be required to render the upper floors usable for any purpose other than storage, whether or not the property was physically partitioned or partitioned by sale. Likewise, new elevators and fire stairs would be required to obtain a new certificate of occupancy, whether or not the building was physically partitioned.
If the building were physically partitioned, there would have to be two sets of mechanical systems and two sets of elevators and fire stairs instead of one. However, the cost of creating two new mechanical systems for this largely undivided and unimproved space would not be significantly higher than the cost of creating one set of systems.
Given the unimproved and undivided nature of most of the building, and the fact that a new certificate of occupancy will be required when the building is separated from 25 Elm Street, almost all of the costs, apart from constructing the demising wall, an extra elevator and extra fire stairway, would be incurred whether or not the property was physically partitioned.
It was contested whether a loading dock would be required if the building were partitioned. A new loading would be required if the partition is considered a new development. However if the splitting of the existing building into two buildings by constructing a demising wall is a "new development" under the Zoning Resolution, then the loading dock wold be required by the separation of 490 Fulton Street from 25 Elm Street, whether or not 490 Fulton is physical partitioned or sold.
The building can be divided by constructing two load bearing masonry walls running from Bond Street to the western wall of the property. There are no insurmountable engineering impediments to constructing such a set of walls. The walls would be constructed from the floor of the subcellar to the roof. The walls can be constructed without removing any of the existing columns or demolishing any part of the building.
The cost of such walls would be approximately 1.5 million dollars which is not out of proportion to the value of building or the other costs associated with the renovation, that will be necessary if the building is to be tenanted. Defendant has stipulated that it would bear the cost of constructing the demising walls.
The property is large enough that a wall can be placed in such a manner that two viable lots would result from the division. The separation of the outparcel is a more expensive undertaking but will have to be done whether or not the building is physically partitioned or sold.
A parcel fronting 125 feet along Livingston Street and extending at least 60 feet in depth would result in a economically viable lot. The normal depth for a retail space in this part of Brooklyn is 100 feet. The value of space deeper than 100 feet from the street drops dramatically.
The value of the square footage throughout the building is not uniform. The Fulton Street frontage is worth more than the Livingston Street frontage. The parties' experts agree that the Fulton Street ground floor frontage is worth $200 a square foot and that the upper floor space is worth $25-$30 per square foot. Plaintiff's appraiser testified that the Livingston Street frontage is worth 50 % of the Fulton Street frontage and the Bond Street frontage is worth 25% of the Fulton Street.
Given the unequal value of the various portions of the property it is not necessary to divide it strictly by square footage. It would be possible for commissioners to divide the property in a way which leaves the smaller portion large enough to be viable and still be worth approximately 1/7 the value of the larger portion.
Plaintiff's expert testified that the building, if it were in suitable condition for occupancy, would be worth $88 million as one parcel. He conceded that it would be worth less "as is" because the costs of putting it into a suitable condition for occupancy would have to be deducted. He did not however offer a value for the building as is. Defendant's expert valued the building at $75,800,000 as is as a single unit.
The value of the lot undivided is somewhere between $75 million and $80 million. The combined value of the two resulting lots if they were divided by a line somewhere between 60 to 120 feet from Livingston Street, would not be significantly less.
Plaintiff entered a contract of sale dated June 9, 2006, with EJFI Fulton Street, LLC to sell their interest in the property for $51,000,000. SNYDER FULTON believes that this is the fair market value of their interest. The property is to be sold as is. The closing is to take place within 30 days of SNYDER FULTON acquiring title to FULTON INTEREST's interest in the property or 30 days after the expiration of the ground lease held by Mays. The balance of $51 million purchase price is due on January 30, 2011 and is to be secured by a mortgage.
The agreement also requires SNYDER FULTON's counsel Robert Lynn Esq. ("Lynn") to bid on behalf of EJFI at any partition auction sale. It further provides that EJFI shall deposit with Lynn $10,000,000 to be used "solely for the purpose of bidding for the entirety of the subject real property so as to extinguish the ownership interests of FULTON INTEREST LLC".
Lynn is authorized to bid up to $70,000,000 for the entire property at a partition sale but must seek the consent of EJFI to bid above that amount.
SNYDER FULTON is entitled to retain any of the portion of the $10,000,000 that is not used in purchasing the property at a partition auction sale.
If Lynn is the successful bidder at a partition sale, then SNYDER Fulton is required to convey the property to EJFI for the $51,000,000 purchase price without any further compensation.
If a party other than Lynn is the successful bidder than SNYDER FULTON is required to turn over to EJFI any amount in excess of $51,000,000 which it receives for its interest in the property.
In the event that there is no partition sale then EJFI is still required to purchase SNYDER FULTON's interest for $51,000,000. In the event that EJFI defaults under the contract then SNYDER FULTON is entitled to the $4,000,000 deposit as liquidated damages.
The agreement contains a confidentiality provision and SNYDER FULTON did not disclose the agreement to FULTON INTEREST until it was ordered by this court to do so.
EJFI is paying all costs, including legal fees and expert witness fees, in connection with SNYDER FULTON's prosecution of this partition action.
ARGUMENT
Plaintiff seeks a partition of the property by sale and asserts that it is impractical to physically partition the property. It argues that the cost of physically dividing the building is excessive and would greatly diminish the value of the building.
Defendant opposes the request for partition on the grounds that, pursuant to its agreement with EJFI, Plaintiff is not the real party in interest. Defendant further argues that Plaintiff is not seeking partition in good faith and that its agreement with EJFI effectively prevents a legitimate public auction of the property. Defendant contends that in the event the Court finds partition appropriate then the property can and should be physically partitioned.
Defendant withdrew its 1st, 4th, 5th, 7th, and 8th affirmative defenses. Defendant's 2nd affirmative defense asserts that the property is not adequately described. Defendant's 12th affirmative defense is that the partition should be delayed until the existing ground lease expires. The remaining defenses involve Defendant's claims that Plaintiff is no longer a party in interest, that Plaintiff is acting in bad faith and that the property should be physically partitioned.
Defendant has pled a counterclaim demanding an accounting from Plaintiff and has withdrawn its second counterclaim alleging waste.
Plaintiff argues that notwithstanding its agreement with EJFI it still has standing to seek partition as a title owner and that nothing in the agreement evidences bad faith on its part in seeking partition. Plaintiff also argues that it should not be compelled to provide an accounting as there is nothing to account.
ANALYSIS
Partition actions are governed by Article 9 of the RPAPL, § 901 which provides that a partition action may be brought by one holding or in possession as a tenant in common. Clearly Plaintiff as a fee holder of a 6/7 share of the land is a party entitled to bring a partition action under section 901. The fact that Plaintiff has sold its interest to a contract vendee does not divest it of standing. Jones v Gabrielli, 6 AD2d 542, 180 NYS2d 58, (3rd Dept 1958).
Also, Defendant's counterclaim for an accounting is unwarranted. While an accounting is provided for in RPAPL, given the unique relationship between these parties, an accounting would serve no purpose. There is no tenant in common agreement or any other contractual relationship between Plaintiff and Defendant. Neither has any role nor makes any expenditures in operating or maintaining the property. Each party simply receives its share of the rent directly from the net lessee. For this reason the counterclaim for an accounting should be denied.
Additionally Defendant has not shown the Plaintiff has come with unclean hands, or that the agreement it has with EJFI would prevent a fair partition sale. There is nothing improper in Plaintiff's contract to sell its current interest in the property to EJFI. Nor is there anything improper in EJFI paying the costs of this litigation or using Plaintiff's counsel to bid for the property at any auction sale. Though complicated, the agreement is legitimately designed to effect the transfer of Plaintiff's interest for a set sum and to allocate the risks inherent in purchasing Defendant's interest, either at an auction sale, if partition by sale were granted, or by other means.
Defendant's argument that the agreement with EJFI effectively discourages bidders is misplaced. The fact that EJFI will not have to pay more than $51 million for Plaintiff's interest, no matter how high the bidding goes, would not deter potential bidders. It is of no material concern to other bidders that a portion of the successful bid will go to EJFI rather than Plaintiff. The fact that EJFI would have to pay less than the final bid price is merely a reflection of the fact that they in essence have already purchased 6/7 of the property. It is no different from the advantage any tenant in common, that owned a significant portion of a property, would have against an outside bidder in a partition auction.
Although Defendant raised as a second affirmative defense that the complaint does not identify the property with sufficient particularity, it never identified in what way the identification of the property was insufficient. A complaint for partition must describe the property with reasonable certainty. RPAPL 905. The description in the complaint which includes both a complete metes and bounds description annexed as schedule "A," as well as the Block and Lot number is clearly sufficient.
INTERLOCUTORY ORDER
Pursuant to RPAPL 915, the Court must issue an interlocutory order which first determines the parties' rights, shares and interest in the property. In this case, Plaintiff and Defendant are both tenants in common, with Plaintiff holding a 6/7 portion of the fee and Defendant holding a 1/7 portion of the fee.
Next the court must direct that partition be made between the parties according to their respective rights unless the Court determines "that a partition thereof cannot be made without great prejudice to the owners." RPAPL 915.
The statute is clear that property must be physically partitioned unless it can not be done without great prejudice to the owners. Chittenden v Gates, 18 AD 169, 45 NYS 768 (2nd Dept 1897); Vlcek v Vlcek, 42 AD2d 308, 346 NYS2d 893 (3rd Dept 1973).
The New York Courts have long accorded this requirement great weight.
"The question is not whether a sale is more agreeable or even in some respects more advantageous to some of the parties. The statute makes the sale a secondary consideration. The question first to be considered and adjudicated is can there be an actual partition? There is but one instance in which the court has a right to direct a sale, and that is where partition can not be made without great prejudice to the owners." Moore v Hatfield, 71 Misc 282, 130 NYS 115 (Cty Co. Nassau 1911), at 284, 117.
Although partition is an equitable action, the remedy of partition by sale is a creature of statute, available in limited circumstances, and must be strictly construed.
The statutory preference for physical partition has been the law for several centuries. At common law tenants in common did not have a right to partition. The right of tenants in common to compel partition was created by the Statutes of Henry VIII. Blackstone's Commentaries, Book 2 Chap. 12 Sec IV page 194. Those statutes provided for a writ of partition out of Chancery for tenants in common, but they did not provide for partition by sale.31 Hen. VIII c. I., as amended by 32 Hen. VIII c. 32.
The New York colonial statutes similarly did not provide for partition by sale; the addition of the option of sale, where actual partition was impractical, was created after the revolution, by act of the New York State Legislature. 3 Columbia. Law Review 5, pg 301 (1903), citing 2 Jones Varick 207 (1788)
The limitation on partition by sale was retained by the New York Legislature in its revised statutes, providing for a partition by sale only where "it shall appear that a partition thereof cannot be made without great prejudice." Revised Statues Part III Chap.V Title 3 §§ 1, 28 (1830).
The Legislature retained this limitation when it enacted the Civil Code of Procedure, (CCP 1876 §§ 1546, 1549), when it enacted the Civil Procedure Act, (CPA 1920 § 1024) and in RPAPL 915 when it adopted the CPLR in 1962.
While today courts are more likely to approve partition by sale, and actual partition is relatively rare, the statutory requirement that a property be physically partitioned unless it would result in great prejudice to the owners has never been eliminated by the legislature or the courts. see, Loughran v Cruickshank, 8AD3d 799, 778 NYS2d 225 (3rd Dept 2004); Ferguson v McLoughlin, 184 AD2d 294, 584, NYS2d 816 (1st Dept. 1992) Patrick v Presiter, 73 Misc 2d 639, 341 NYS2d 806 (Su. Ct. Sullivan Co. 1972).
In two recent cases, the Appellate Division Third Department has affirmed decisions requiring the physical partition of real property. Hunt v Hunt , 13 AD3d 1041, 788 NYS2d 219 (3rd Dept. 2004) and Schwartz v Meisner, 198 AD2d 634, 603 NYS2d 626, (3rd Dept. 1993).
In the cases where New York Courts have upheld a partition sale, they have done so upon a finding that actual partition would not be practical or would result in great prejudice.
Recently the Appellate Division Second Department upheld a partition by sale on the finding that, "the plaintiff established her entitlement to summary judgment directing that the real property be partitioned and sold at public auction by demonstrating that the subject property was so circumstanced that partition [alone] thereof cannot be made without great prejudice to the owners" Donlon v Diamico , 33 AD3d 841, 823 NYS2d 483 (2nd Dept. 2006), citing Chittenden v Gates, 18 AD 169, 173 (2nd Dept. 1897); and RPAPL 901.
The Third Department also recently upheld a partition by sale with the court reaffirming that physically partitioning the property is the preferred method and is presumed appropriate unless one party demonstrates that actual physical division would cause great prejudice to the owners. Loughran v Cruickshank, 8AD3d 799, 778 NYS2d 225 (3rd Dept 2004). The Third Department approved the partition sale upon a finding that property could not be divided without great prejudice to the owners because right of ways for access to the parcels if divided was questionable. The court found that without guarantied right of ways for access, the parcels were not viable. Id., at 801, 228.
Also, the First Department has reaffirmed that the RPAPL allows a sale only where physical partition would greatly prejudice the owners. Ferguson v McLoughlin, 184 AD2d 294, 584, NYS2d 816 (1st Dept. 1992). In that case the court allowed a sale on the finding that, because the five story building was on a lot that was only 18 feet 11 inches by 62 ½ feet, and has a single set of building systems, to divide it would destroy its marketability and render it virtually inalienable. Id., at 295, 817.
New York Courts have not abandoned the statutory limitation on partition by sale but have been cognizant of the evolving meaning of "great prejudice", in light of the increasing urbanization and commodification of real property.
There are three ways in which a party can show that physical partition would cause great prejudice. The first, is that there is some physical obstacle or peculiarity in the site that would make division impractical. An example of such a situation would be where one of the resulting lots would not have access to a public highway such as in Loughran v Cruickshank, supra ; or where actual partition would require demolition of a structure, as in Vail v Vail, 17 NY Civ. Proc. R. 38, 52 Hun 520, 23 NY St. Rep. 574, 5 NYS 872 (Su. Ct. NY Co. 1889).
The second way, would be to demonstrate that any division of the property would result in unusable or non-viable lots. This would be in a situation where the property in question is so small that to divide it would leave lots too small to be usable, such as in Ferguson v McLoughlin, supra.
The third way is to prove that the value of the property divided would be significantly less than the value of the property undivided. Though this analysis of the relative market value of the property, is a departure from the historic view of real property as having importance beyond its monetary value, it has long been accepted by New York Courts. Chittenden v Gates, 18 AD 169, 45 NYS 768 (2nd Dept 1897); Clason v Clason, 6 Paige Ch. 541, 3 NY Ch. Ann. 1094 aff'd 18 Wend. 369 (1837).
In the instant case, Plaintiff has not demonstrated that physical partition would cause great prejudice. There is no physical impediment to dividing the property. Even though the property has a building on it, the building is uniquely suited to being divided. It is largely unimproved and undivided. Given its structural system of columns, a demising wall could be constructed parallel to Fulton and Livingston Streets at almost any point in the building. The current, mechanical systems, including electric and plumbing, are minimal to vestigial. The boiler and electrical panels are in the adjacent building. Unlike the situation in Vail v Vail, supra, physical partition would not require demolition of any significant part of the building.
Plaintiff also has not demonstrated that division of the property would result in unusable or non-viable lots. The property in question is relatively large, approximately 125 feet by 293 feet. Given the different value of the various frontages of the building it is not necessary to divide the property into 6/7 and 1/7 shares by square footage. It is possible divide the property by a line running somewhere between 60 and 120 feet from Livingston Street and create two parcels with relative monetary values of 6/7 and 1/7. Both resulting parcels would be larger than the average commercial lot in Brooklyn and would viable for retail use on the first floor and for office use on the upper floors.
Plaintiffs have also failed to demonstrate that dividing the property would greatly reduce its value. Although there is no mathematic formula, in order to constitute great prejudice the difference in value must be significant.
Appraisers for both parties calculated the market value of the building by determining the net rental income the building would produce, as retail and office space, and then applying a capitalization rate to that amount.
Defendant's appraiser stated that if the building were divided 100 feet from Livingston Street there would be relatively little difference in value between the building whole or divided. The Livingston parcel would be worth $7,300,000 and the Fulton parcel would be worth $68,500,000 for a total of $75,800,000.
Plaintiff's appraiser, Theodore Powers stated that the building would be worth $88 million in a rehabilitated condition and $44 million if divided, which would constitute a 50% reduction in value. Powers arrived at this figure by starting with the assumption that the building would be divided 38 feet from Livingston Street, resulting in a 1/7 and 6/7 division by square footage. He calculated the rental values of the various floors assuming an 38 feet deep store, and deducted 40% for expenses and then he capitalized the net income at 6.5%. He then took that capitalized rate for the 38 foot deep Livingston Street portion and divided that by 1/7 to come up his value of the whole building.
There are two basic problems with this analysis. The first is basing the rental values on a division of the parcel by a line running 38 feet from Livingston Street. A lot 38 feet deep would be a substandard retail space in part because entrances, stairways, elevators and mechanical systems would take up a great percentage of the available floor space. Such a lot would thus command a relatively low rent. As discussed earlier the wall dividing the building could be placed at almost any point between an existing row of columns.
The only reason to divide the property at 38 feet from Livingston Street would be to divide it according to the parties respective interests in the building on square footage alone. However this ignores the fact that the Fulton Street frontage is worth much more than the Livingston Street frontage. The fact that various part of the property have differing value is not a sufficient reason to justify a partition by sale. Chittenden v Gates, 18 AD 169; 45 NYS 169 (2nd Dept. 1897). The property should be divided based on the market value of the various parcels not simply its square footage.
A retail space that was 60 feet deep would be viable and a space that was 100 feet deep would be a typical retail depth for Brooklyn. Powers offered no figures for the value of the building if were divided at anywhere between 60 or 100 feet from Livingston Street.
The second problem is that by extrapolating the combined value of both parcels from the Livingston Street parcel, the higher value of the Fulton Street frontage is ignored. Both appraisers put the rental value of the Fulton Street frontage at $200 a square foot. If the calculation were done separately for the Fulton Street parcel, using $200 a square foot, rather than extrapolating of the Fulton parcel using the Livingston Street value of $80 a square foot, the result would have been much closer to the $75 million current value of the building undivided.
Powers testified that the reason that the divided building would be worth less was because of a loss of light and air. Specifically he testified that where the building as a whole has windows on three sides, if it were divided the resulting two parcels would only have light and air on two sides each. However the current and projected use of the property is for retail and office space. No evidence was introduced to show the impact that this type of a diminution of natural light and air would have any significant impact of the value of the property as retail space. This type of use is not particularly dependant upon natural light or air.
If the building were divided, each parcel would have windows on only two sides. However, that would not result in a loss of window access as a percentage of the total floor area. The same amount of window space would exist, it would simply be divided. As Defendant's appraiser testified, given the relatively generous amount of window space existing in the building, it would have sufficient light and air, even if it were divided by a demising wall 100 feet in from Livingston Street.
Although he opined that the building would be worth only half as much divided, Powers also admitted that large department stores historically pay substantially less per square foot than small retail stores.
This is significant because of the large size of the lot at issue. It is far larger than the standard retail store in Brooklyn. Even if it were divided 100 feet from Livingston Street, the two resulting parcels would be significantly larger than the average retail lot.
Since both sides have stated they do not intend to demolish the building, the property would only be worth more undivided, if the space as a whole would command higher rent than the space subdivided. However, the evidence presented was the opposite.
The users who would require such large, undivided, space are typically department stores, or big box stores. However both sides' appraisers agreed that department stores or large retail users pay lower rents per square foot than small retailers. Defendant produced evidence that area rents for retail spaces in the range of 1400 to 2500 square feet (assuming a standard 100 foot depth), were roughly $240 a square foot. This is approximately 20% higher than the $200 a square foot that both sides estimated for the Fulton Street frontage of the current building. Both appraisers estimated that that the rental value of the upper floors as office space would remain approximately $25 a square foot even if the building was divided.
It also must be noted, that the inspection of the building revealed that the current tenant Mays no longer uses or leases the property as a department store but in fact has subdivided and sublet the retail space to several smaller retailers.
To put the matter another way, there is no great prejudice to dividing the property if the retail space commands higher rentals subdivided than it would if the space were undivided.
Plaintiff has not met its burden of demonstrating that a physical partition would cause great prejudice to the owners. Therefore the property must be actually partitioned and not partitioned by sale.
Defendant has also raised as a defense that the building would be worth significantly more if it were not partitioned until after the lease with Mays expires, and that they would be greatly prejudiced if the property were partitioned before the lease expires.
In terms of a partition sale, the evidence presented indicated that the presence of the tenants on the property would not have a significant impact on the sale because the lease expires on its own terms in 2010. However, the clause in the lease which only subordinates the lease to a mortgage that does not exceed 60% of the fair value or the assessed value of the building, could have a significant impact. Any purchaser who closed before the expiration of the lease would have to put up 40% or more of the value of building, and have that significant amount of equity tied up at least until the lease expired. This could limit the number of investors who would be willing to purchase the property, as well as the amount they would be willing to pay for it.
However, since the Plaintiff has failed to demonstrate sufficient prejudice to justify a partition by sale, the court need not consider whether a partition sale should postponed until the expiration of the lease.
As to physical partition before the expiration of the lease, an existing lease is not a bar to a partition. Willard v Willard, 145 US 116, 12 S.Ct. 818 (1892); Woodworth v Campbell, 5 Paige Ch. 518, 3 NY Ch. Ann. 812 (1835).
In this case the continuation of the lease does not present any significant problems to a physical partition. While the construction of the demising wall could not occur until after the lease expires, the parties would not be entitled to occupy the building in any event, before the lease expires. Given that the parties have no role in maintaining or managing the building, and no contractual agreement between them that would require their cooperation, there is no impediment in postponing the physical partition until the lease expires. The parties can simply continue to collect their portion of the ground rent directly from Mays until the lease expires or is terminated.
By reason of the foregoing, Defendant's 2nd, 3rd, 6th, and 9th affirmative defense are dismissed and both Plaintiff and Defendant are granted summary judgement to the extent of the issuing an interlocutory order that the property must be physically partitioned. The court will appoint the commissioners to determine the manner in which the partition shall be made. They will be directed to divide the property so, as nearly as possible, Plaintiff's parcel is worth 6/7 of the market value of the total and Defendant's parcel is worth 1/7 of the market value of the total. They will be further directed to award a payment of owelty to one of the parties, if necessary to adjust for any variance in the value of the parcels from the respective interests of the parties. The Defendant has assumed the responsibility for the cost of constructing the demising wall so those costs will not be considered by the commissioners in making the division, but shall be born by the Defendant. Each party shall be responsible for all of the renovation costs necessary for the portion of the premises they are granted apart from the demising wall. The commissioners shall take into account the costs of renovating each portion of the property in calculating the value of that portion. The Court will consider the appointment, as a commissioner, any freeholder agreed upon by both parties, and will allow the parties to make a written submission to the commissioners setting forth how they believe the property should be divided.
WHEREFORE, the Plaintiff is entitled to an interlocutory order determining that it has a 6/7 interest in the property and the Defendant has a 1/7 interest in the property and directing that actual partition be made between the parties according to their respective interests in the property as outlined above. Settle order on notice.