ADDITIONAL CASES 538 Morgan Realty LLC, Third-Party Plaintiff v. Haidong Weng and Shun Kuan Liu, Third-Party Defendants The following e-filed papers read herein: NYSCEF Doc Nos. Notice of Motion/Order to Show Cause/Petition/Cross Motion and Affidavits (Affirmations) Annexed 700-719 Opposing Affidavits (Affirmations) 720-732 Reply Affidavits (Affirmations) 733-736 Defendant/third-party plaintiff 538 Morgan Realty LLC (538 Realty), and defendants SD Int’l Inc. (SD), Dian Kui Su, Qing Mei Zhao, and Tian Fang Su (collectively, defendants) move for an order upwardly modifying and adjusting the use and occupancy previously ordered by the court. Plaintiffs, 538 Morgan Avenue Properties LLC (538 Avenue) and NY Stone Kitchen Depot, Inc. (NY Stone and collectively, plaintiffs), oppose. Background A full recitation of the facts can be found in this court’s previous decision dated August 20, 2020 (August 2020 Decision) and the decision and order of the Hon. Sylvia G. Ash dated May 3, 2017 (May 2017 Decision). On or around March 3, 2015, plaintiff NY Stone entered into an agreement with defendant SD to purchase SD’s business, the import and sale of stone, marble, tiles and counter tops. In conjunction with the purchase of the business, the parties entered into a separate real estate contract dated March 3, 2015, whereby plaintiff 538 Avenue purchased from defendant 538 Realty the real property known as 538 Morgan Avenue in Brooklyn, New York (hereinafter Property). The Property was the location of the business. Starting from March 3, 2015, NY Stone paid monthly rent to SD in the amount of $21,252.00. The parties agreed that monthly rent would be payable until transfer of ownership of the Property from defendant 538 Realty to plaintiff 538 Avenue. For reasons disputed by the parties, by letter dated May 8, 2015, defendant 538 Realty cancelled the real estate contract. As a result, on June 24, 2015, plaintiffs commenced the instant action asserting causes of action for, among other things, breach of contract and specific performance. In the May 2017 Decision, the court, among other things, granted plaintiffs’ motion seeking a preliminary injunction enjoining defendants from interfering with plaintiffs’ tenancy at the Property during the pendency of the litigation on the condition that plaintiffs post an undertaking and continue to pay monthly use and occupancy in the amount of $21,252.00. Thereafter, upon defendants’ motion to renew and reargue the May 2017 Decision, the court, by decision dated November 15, 2017, upwardly modified plaintiffs’ monthly use and occupancy from $21,252.00 to $22,986.00 starting January 1, 2018, and further held that “use and occupancy may be adjusted on a yearly basis” (NYSCEF Doc No. 709, pg. 2). On May 13, 2020, plaintiffs moved, under motion sequence 33, for an order seeking, among other things, a downward modification of the use and occupancy in light of the Covid-19 crisis. By cross motion dated June 15, 2020, defendants moved for, among other things, an upward adjustment of plaintiffs’ use and occupancy based on plaintiffs’ alleged “abusive” use of the Property and the fact that carrying costs for the Property, such as taxes and insurance, as well as the fair market value of the Property, had increased substantially since 2015. In the August 2020 Decision, this court denied plaintiffs’ motion finding that plaintiffs failed to satisfy their burden that use and occupancy should be modified in the form of forgiveness since plaintiffs failed to submit any competent evidence, such as financial documentation or an affidavit by an accountant, that they could not, in fact, pay use and occupancy. The court also denied defendants’ motion seeking an upward modification on the basis that defendant’s expert report failed to consider the effect of the Covid-19 pandemic on rent prices in the area where the Property was located. Although the court found that defendants provided evidence of other expenses supporting an increase in use and occupancy, absent an updated rent study, the court ruled that such evidence was insufficient to support an upward modification. The court denied defendants’ motion with leave to renew upon submission of an updated rent analysis report. Now, with the instant motion, defendants again seek an upward modification of the use and occupancy based on an updated rent analysis report from their real estate appraisal expert, Brian Donegan (Donegan). According to Donegan’s December 2020 report, based on the market rents of five nearby properties, Donegan asserts that the minimum adjusted rent is $14.89 per square (sq) foot (ft) and the maximum is $25.53 per sq ft (NYSCEF Doc No. 716, Donegan’s Rent Study, pg. 10). And that the mean adjusted rent is $19.81 per sq ft and the median adjusted rent is $19.51 per sq ft (id.). Based on the foregoing, Donegan opines that the market rent for the Property is $19.50 per sq ft and, thus, $390,000 annually (Property is approximately 20,000 sq ft) or $32,500 monthly, excluding real estate taxes, insurance, repairs and maintenance. Defendants also submit their invoices for real estate taxes, insurance and water charges arguing that since 2015, the costs for the foregoing have increased substantially. The court notes, however, that defendants’ submission indicates that while yearly real estate taxes have increased from $40,967.00 in 2015 to $86,236.42 in 2021, property insurance costs have stayed nearly the same from 2015 ($12,027.00 in 2015 and $12,432.88 in 2020). Defendants also only provide an aggregate total water and sewer charge from March 2015 to September 2019 of $2,353.67 for 55 months which averages to a monthly charge of $42.79. Based upon the foregoing expenses, defendants submit that the fair market value of the monthly rent for the subject Property should be $40,772, ($32,500.00 base rent plus $7,186.00 for taxes plus $1,036 for insurance costs plus $50 for monthly water and sewer) (see NYSCEF Doc No. 707, Affidavit in Support of Motion, 25). Defendants also contend that plaintiffs owe $22,986 in arrears, having failed to pay one month’s use and occupancy in May of 2020. In opposition to defendants’ motion, plaintiffs proffer the affidavit of Haidong Weng (Weng), principal of NY Stone, as well as “revenue statements” for 2019-2020,1 to support their position that the pandemic has negatively impacted NY Stone’s revenue. According to Weng, NY Stone’s revenue has dropped over 25 percent from $4.186 million to $3.127 million from 2019 to 2020 (NYSCEF Doc No, 721, Weng Affidavit, 6). Weng also states that the first quarter of 2021 showed diminished revenues and that, if those numbers continue, 2021 will be worse than 2020 (id). Regarding defendants’ expert report, plaintiffs assert that multiple issues exist that render the report’s conclusion as to appropriate use and occupancy inaccurate. Specifically, that the report assumes that title to the property is good and marketable failing to take into consideration the substantial “cloud” over title due to plaintiffs’ instant lawsuit seeking specific performance. Secondly, that the report assumes responsible ownership and competent property management but that, as attested to by Weng in his affidavit, defendants have neglected deteriorating structural conditions at the Property including major roof leakage and damage to the sidewalk that defendants failed to fix or otherwise address (id. at
