Notice of Motion and Affidavits Annexed: 1 Affirmation in Opposition: 2 Reply Affirmation: 3 This commercial non-payment summary proceeding was commenced on November 14, 2019 with 2195 Grand Concourse (“Petitioner”) alleging that 9 Star Deli Corp. (“Respondent”) had not paid (i) October 2019 rent by $1,621.56, (ii) November 2019 rent in the amount of $6,696.78, and (iii) real estate taxes of $37,609.48 for a total of $45,927.82. Respondent denies the allegations and filed a motion to dismiss and grant summary judgment in favor of the Respondent pursuant to CPLR §§3211 and 3212 (the “Motion”). Petitioner opposed the Motion (the “Opposition”) and Respondent filed its reply (the “Reply”). The Petitioner and the Respondent entered a lease, dated July 29, 2015 (the “Lease”). Respondent’s Ex. C. It is undisputed that the tax escalation clause in the Lease Rider at paragraph 36 is controlling (the “Clause”). The Clause provided in relevant part that: …Tenant shall pay an additional rent to Landlord Fifteen (15 percent) percent of any increase in taxes over and above the base real estate tax, prior to any adjustments and/or discounts for the base year of 2008-2009, which may be imposed upon the property of which the premises hereby demise are a part in each and every year during the period of this lease…. A tax bill reflecting said base amount shall be sufficient evidence of the amount base real estate tax for 2008-2009. In the event that the Landlord institutes proceeding to reduce the assessed valuation and as a result is reduced then in the event the tenant agrees to pay fifteen (15 percent) percent of all expenses including but not limited to attorney’s fee, appraiser’s fee, court cost, etc. which were incurred by Landlord in connection with such reduction as to the amount due from tenant herein as additional rent as hereinabove. Respondent’s Ex. C at 36. The only defined terms in the Clause were Landlord and Tenant. Otherwise the Lease does not specifically define any other terms in connection with the taxes. Respondent has submitted and the Court takes judicial notice of the third and fourth quarter New York City Department of Finance tax bills for the tax year 2018-2019 (the “Tax Bills”), the periods relevant to the Petitioner’s rent demand. The Court takes judicial notice that New York City Department of Finance’s property tax year runs from July 1 through June 30 rather than following a calendar year. In the third quarter of 2018-2019 tax year, the tax rate was changed and the annual tax bill for the property was adjusted accordingly from the amount originally billed in June 2018. The Tax Bills contain a section explaining how the property tax was calculated. The Tax Bills do not use the terms adjustments, discounts, or base amount. Fairfax Precedent Respondent argues in its Motion that the additional rent of $37,609.48 is not owed because it is not the correct amount of real estate taxes pursuant to the Lease. Respondent argues that Petitioner miscalculated the real estate tax owed by using the real estate taxes calculated applying the tax rate by the billable assessed value rather than the annual property tax the Petitioner was responsible for paying after abatements had been applied. The Respondent argues that its interpretation of the Lease is required under Fairfax Co. v. Whelen Drug Co., Inc., 105 AD2d 647 (App. Div. 1st Dep’t 1984). Fairfax Co. v. Whelen Drug Co. was an action for declaratory judgment to determine the tax obligations of a pre-existing commercial tenant (“Whelen”) in a building after its conversion into residential apartments. Id. There were no disputed facts. The lease, entered into before the conversion, stated that the tenant was responsible for 4.95 percent on any increases over the 1975 tax base year in real estate taxes or assessments or any other assessment ordinary or extraordinary, foreseeable or unforeseeable. Id. Sometime between 1979-1980, during Whelen’s lease of the commercial space, the building was converted to residential units. Id. As a result of the conversion the building received a tax abatement and exemption pursuant to section J51-2.5 of the Administrative Code of the City of New York. Id. The dispute arose between the parties as to whether the abatement and exemption should reduce the amounts owed by Whelen. Whelen argued that the calculation of its percentage of the taxes due should be based exclusively on the increase in the net amount of taxes actually paid by the building and not on pre-adjustment tax assessments. In its construction of the Whelen lease, the court focused on the last statement in the tax clause which stated “[T]he submission of a duplicate tax bill of the Landlord shall be deemed to be conclusive evidence of the payment of real estate taxes payable by the Landlord and should be the basis for computation of any additional rent to be paid hereunder by Tenant.” Id. (emphasis added). The court found that the tax escalation clause was meant to provide relief for the landlord where assessed tax required actual payment. The court interpreted this sentence as indicating that the actual evidence of payment of the bill was to dictate the calculation of taxes owed by Whelen. Id. The court held that a contrary interpretation would result in a windfall not envisioned by the lease. Accordingly, the court found that Whelen’s tax liability was to be calculated only upon the taxes actually paid after whatever abatements or adjustments are made. Barnan Precedent Petitioner argues that the Motion’s reliance on Fairfax Co. v. Whelen Drug Co. is misplaced. Petitioner instead argues that Barnan Associates v. 19 Owners Corp., 14 NY3d 780 (2010) is controlling. Petitioner argues that Barnan stood for the proposition that the lease language is dispositive whereas in Fairfax the language in question was ambiguous. Petitioner argues that the Lease explicitly states that the real estate calculation must be based on the real estate tax prior to any adjustments and/or discounts. Petitioner argues this can only be interpreted to exclude the consideration of abatements in the calculation of taxes owed by Respondent. Barnan was a commercial tenant on the ground floor of a cooperative apartment building. Barnan, 14 NY3d 780. Approximately nine years after having entered into its lease, the building received certain tax abatements and exemptions. The City of New York calculated these abatements and exemptions and directed payment from the building’s real estate tax assessment to the tenant shareholders directly. Id. at 783. The abatements and exemptions did not reduce the building’s overall liability. Id. at 784. Six years after the abatements and exemptions were applied, Barnan became aware of the payments of a portion of the property taxes to the eligible tenant-shareholders. Id. at 784. Barnan then brought the action seeking reimbursement of past paid property tax. The subject tax escalation clause in Barnan stated in relevant part: The Tenant agrees to pay to the Landlord as additional rent during each lease year subsequent to the New York City real estate tax year commencing July 1, 1979 and ending June 30, 1980, Fourteen and one-half (14 ½) percent of the dollar amount of any increase in such real estate taxes on the said land, buildings and improvements…over and above the ‘base amount of real estate taxes,’ whether such increase in real estate taxes shall be occasioned by an increase in assessed valuation or an increase in tax rate, or both. Id. at 782. The Barnan lease defined “base assessed valuation, base tax rate, and base amount of real estate taxes”. Base amount of real estate taxes was defined as the dollar amount computed by and resulting from the application of the base tax rate to the base assessed valuation — thereby clearly identifying the portions of the New York City tax bill to be used in its calculation using terms easily correlated to terms and figures used in the property tax bills themselves. The Court of Appeals held that the terms of the lease were dispositive. Id. at 784. Based on the clearly defined amounts to be used in the tax escalation clause, the Court of Appeals reversed the lower court and granted summary judgment to the respondent, landlord. Id. Discussion Lease interpretation, like all contracts, is predicated on the language of the written agreement first and foremost. Wallace v. 600 Partners Co., 205 AD2d 202, 205 (App. Div. 1st Dep’t 1994) (internal citations omitted) see also Barnan, 14 NY3d 780. A trial is warranted only if the Court deems the words ambiguous. Bethlehem Steel Co. v. Turner Constr. Co., 2 NY2d 456, 459 (1957); id. Here the Court finds no ambiguity in the language. Petitioner seeks to introduce ambiguity in its opposition through its misleading emphasis on a portion of a dependent clause in the Lease without considering the rest. The Opposition states that the calculation of taxes owed by Respondent must be made “prior to any adjustments and/or discounts”. However, the Opposition leaves off the remainder of the dependent clause upon which it relies because it continues to narrow the exclusion of any adjustments or discounts to only those “for the base year of 2008-2009″. The entire dependent clause that the Opposition argues the Court should rely on states “prior to any adjustments and/or discounts for the base year of 2008-2009″. The exclusion of abatements and discounts was limited to those applied to the property tax year from 2008-2009. The limited application is made clear by its delineation by commas. Further, the language is significant not only for what is included but also for what was noticeably not, namely any similar modification or limitation to the definition of taxes which may be imposed upon the property during the period of this lease. IT IS HEREBY ORDERED AND ADJUDGED that the Motion is granted to the extent set forth herein; and it is hereby ORDERED AND ADJUDGED that summary judgment is granted as to the proper calculation for additional rent pursuant to the Lease; and it is further ORDERED AND ADJUDGED that the amount owed by Respondent for the relevant period is fixed at $4,589.45 rather than the $37,609.48 demanded; and it is further ORDERED AND ADJUDGED that the only remaining issue for trial is whether the Respondent continues to owe (i) October 2019 rent of $1,621.56, (ii) November 2019 rent of $6,696.78, and (iii) real estate taxes of $4,589.45 for a total of $12,907.79. This constitutes the decision and order of the Court. Dated: September 14, 2020
