NYSCEF Doc Nos. Notice of Motion/Order to Show Cause/Petition/Cross Motion and Affidavits (Affirmations) 10-15 23 Opposing Affidavits (Affirmations) 26-42 43-45 Reply Affidavits (Affirmations) 43-45 In this action to reform the rent provision of a 1984 ground lease, defendant The City of New York, sued herein as “The City of New York, acting through The Department of Citywide Administrative Services” (the City) moves (M.S. 1) for an order: (1) dismissing the October 25, 2021 unverified complaint (complaint) pursuant to CPLR 3211 (a) (7); (2) dismissing the complaint, pursuant to CPLR 3211 (a) (1); and (3) dismissing the first cause of action (mutual mistake) and the sixth cause of action (declaring the 1984 rent provision is unconscionable and unenforceable) as it is barred by the applicable statute of limitations, pursuant to CPLR 3211 (a) (5). Plaintiff SEZ Foster LLC (SEZ) cross-moves (M.S. 2) for an order, pursuant to CPLR 3025 (b), granting it leave to amend its complaint. Background On September 1, 2021, SEZ commenced this action by filing a summons with notice and simultaneously commenced a related special proceeding (under Index No. 522548/2021) to stay arbitration of the parties’ dispute regarding the rent provision in the 1984 Lease. On October 5, 2021, SEZ filed an unverified complaint in this action alleging: “[t]his is an action to reform and/or declare unenforceable a manifestly unconscionable rent increase provision in a [1984] ground lease between Plaintiff and the City. Pursuant to Article 22 of the [1984] Lease…if Plaintiff timely exercises its option to renew the Lease beyond the Initial Term [September 1, 1984 through December 31, 2015], the annual Basic Rent for the renewal terms are determined in accordance with a formula set forth in Section 22.02 of the Lease [based on the fair market value (FMV) of the Land and the average Treasury Bond rate]. In or about August 2015, the City served Plaintiff with an untimely notice pursuant to Section 22.02 of the Lease stating that based upon the City’s alleged application of the Lease renewal rent formula, the Basic Rent payable for the Land for the First Renewal Term under the Lease would increase from $18,758 per annum [which was set in 1984] to $1,100,000 per annum upon the commencement of the First Renewal Term on January 1, 2016. Plaintiff rejected the City’s determination of the Basic Rent for the First Renewal Term as set forth in the untimely notice on several grounds, including, inter alia, that certain of the provisions of Section 22.02 of the Lease setting forth the rent renewal formula [according to the Average Bond Rate and the FMV of the Land], if applied as drafted [in 1984], would yield a result that is unconscionable and manifestly unjust and would strip the Lease of all economic benefit to Plaintiff. Instead, Plaintiff sought to modify the rent renewal formula contained in Article 22 of the Lease to accord with similar modifications that the City had previously agreed to with respect to other similar leases. However, the City refused to modify Plaintiff’s Lease. (NYSCEF Doc No. 4, complaint at 1 [emphasis added]). In addition to challenging the 1984 rent renewal formula, the complaint also alleges that the FMV of the Land is $2 million rather than the City’s appraised value of $12 million. The complaint further alleges that in August 2021, the City served SEZ with a notice to arbitrate the parties’ ongoing dispute regarding the Basic Rent for the First Renewal Term, pursuant to Article 23 of the Lease, despite the fact that Section 23.03 of the 1984 Lease provides that “the arbitrators shall have no power to modify any of the provisions of this Lease…” (id. at
3 and 16 [emphasis added]). The complaint also alleges that “Section 22.03 of the Lease provides that ‘[i]f the parties are unable to agree on the FMV of the Land on or before June 30, 2015, with respect to the First Renewal Term…then the FMV shall be determined by arbitration as provided in Article 23 hereof”. The complaint alleges that SEZ rejected the City’s proposed rent renewal and “[s]ince the inception of the First Renewal Term, which commenced on January 1, 2016 and at all relevant times up to the present, the City billed Plaintiff in the amount of the Basic Rent for the Initial Term and accepted same from Plaintiff without controversy”. The complaint alleges that “on August 12, 2021 — over six years after the City served its August 2015 letter purporting to set the Basic Rent for the First Renewal Term — Plaintiff received a Notice of Intent to Arbitrate…pursuant to Article 23 of the Lease…with respect to the [FMV] of the Land” (id. at 32). SEZ, in response, commenced this plenary action to reform the 1984 Lease and the related special proceeding to stay arbitration pending the resolution of this action (id. at 33). The complaint asserts the following six causes of action: (1) reformation of Section 22.02 of the 1984 Lease regarding the Basic Rent renewal formula based on mutual mistake of non-party REA, SEZ’s predecessor in interest, and the City “to reflect the parties’ true intent that a rent increase upon renewal should be based on a reasonable understanding of interest rate behavior and fluctuations at the time the renewal term commenced [on January 1, 2016]” (id. at 40); (2) a judgment declaring that the City is precluded from arbitrating the FMV of the Land and enforcing any increase in Basic Rent during the First Renewal Term for failure to satisfy the condition precedent in Section 22.03 of the 1984 Lease, which required the City “to serve its Renewal Term Rent Notice, advising Plaintiff of the increase in Basic Rent on or before June 30, 2015″ (id. at
