Opinion
No. 84237/2013.
01-23-2015
Fred BRENNER and Jodi B. Brenner, as Trustee of the FB Irrevocable Trust Agreement Number 1 dated January 1, 2004, Petitioner, v. GENERAL PLUMBING CORPORATION, Respondent.
DeLotto & Fajardo, LLP by Lauren DeLotto, Esq., New York, Attorney for Petitioner. Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., New York, Attorney for Respondent.
DeLotto & Fajardo, LLP by Lauren DeLotto, Esq., New York, Attorney for Petitioner.
Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., New York, Attorney for Respondent.
Opinion
HARRIET L. THOMPSON, J.
The instant case is a commercial summary proceeding for non-payment of rent. In or about July 12, 2013, the Petitioner had served on the Respondent a 10–day rent demand. According to the Affidavit of Service, the 10–day rent demand was served on Andrew Moran, allegedly employed by General Plumbing Corporation, at the premises sought to be recovered. The 10–day rent demand stated that the Respondent was indebted to the Petitioner in the sum of $274,732 .47 which represents all rent due through July 11, 2013 and demanded that the aforementioned sum be paid on or before July 26, 2013. Annexed to the rent demand was a chart stating the above name and address of the Respondent and is entitled, “Lease–Fixed Rent Escalation for CPI Increases Calculation worksheet to determine Monthly delinquency before interest charges from April 11, 2007 through July 11, 2013.”
The demand states that the delinquent fixed rent due and owing is the sum of $239,959.81, 5% late charge in the sum of $11,997.99, interest at prime rate in the sum of $22,775.44 for a grand total of $274,732.47.
After the Respondent did not tender the aforementioned sum, the Petitioner proceeded with the service of the Notice of Petition and Petition seeking to recover possession for nonpayment of rent.
The Respondent appears by counsel, the Law Offices of Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., that interposed an answer which alleged various defenses and counterclaims. The answer specifically asserts that General Plumbing Corporation is the only party in possession, specifically that the trade names of that corporation are not independent entities but are trade names of the major corporation and thus, the pleadings should be amended to delete the unnecessary named parties. The Respondent disputes the allegations contained in the petition in regards to the amount due and owing.
In addition, the Respondent asserts that on July 25, 2013, the Respondent filed a declaratory judgment action in the Supreme Court of the State of New York in the County of Kings in the Commercial Division under Index Number 504231/2013 to determine, inter alia, the amount of rent owed on the subject premises. Until that determination is made, the Respondent allegedly deposited the sum of $92,457.22 into its attorney trust account and claims that this amount is owed in rent arrears.
Further, the answer contains other affirmative defenses, to wit: a declaratory judgment action is pending in Supreme Court which seeks a determination of the amount of rent owed and the subject proceeding should be removed and consolidated with that action; this proceeding should be dismissed based on the pending declaratory judgment action; the petition fails to state a cause of action upon which relief can be granted; this court lacks subject matter jurisdiction on the grounds that the Petitioner failed to serve a rent demand as prescribed by law; the rent demand is based on an improper and unclear rental amount; the court lacks personal jurisdiction since the notice of petition and petition were not served in accordance with the law; the petition fails to state a cause of action for rent and additional rent because the petition is unclear and the rental amount is improper; the Petitioner is not the person authorized pursuant to RPAPL § 721 to commence this proceeding; the petition should be dismissed on the grounds that it was not issued by a proper party; the Petitioner failed to serve the proper predicate notice in accordance with the law; the landlord's claims are barred by the doctrine of laches, waiver and estoppel; and the petition should be dismissed for the failure to state a cause of action because it fails to allege sufficient facts concerning the alleged rental amount between the Petitioner and the Respondent.
The answer was filed with the court on August 13, 2013, and it appears that a court date was granted by the Clerk of the Court for August 15, 2013.
Subsequently, the Respondent submitted an Order to Show Cause on August 8, 2013 returnable on August 19, 2013 seeking a stay of the commercial non-payment proceeding, and for removal and consolidation of the commercial non-payment proceeding with the aforementioned declaratory judgment action.
It appears from the record that there was an ex-parte order to accelerate the Order to Show Cause from August 19, 2013 to August 15, 2013.
On August 9, 2013, upon the application of the Petitioner's attorney, the Respondent's motion was accelerated to August 15, 2013. The Petitioner was required to serve a copy of the order on the Respondent by August 9, 2013.
On August 15, 2013, after substantial conference with the Court, the parties entered into a two-attorney stipulation which adjourned the case for trial to September 15, 2013. The Respondent explicitly withdrew with prejudice the following defenses in the answer: third, fourth, fifth, sixth, ninth, tenth, eleventh and twelfth. Additionally, the Respondent represented that General Plumbing Inc. was the sole occupant in possession and the proceeding was discontinued against all undertenants and the pleadings were amended accordingly.
On August 19, 2013, the Petitioners' attorney served a Notice of Motion returnable on September 4, 2013 to admit Robert L. Povui, Esq ., an attorney admitted before the courts of the State of New Jersey, pro hac vice as counsel on behalf of the Respondent-tenant, General Plumbing Inc. for this proceeding.
As to the Respondent's Order to Show Cause that seeks to stay the summary proceeding pending a final determination of the Supreme Court action, or for removal and for consolidation of the summary proceeding with the declaratory judgment action. The Respondent claims that the essential facts between the parties are not in dispute, however, the Respondent claims that the Petitioner's interpretation of the provision in the lease is incorrect. The Respondent states, in essence, that the above sum of $274,732.47 has been incorrectly calculated based upon the following rationale: the landlord wrongfully attempts to charge the Respondent late fees and interest for unpaid rent going back to August 2007 notwithstanding the fact that the rent demand for such rent was made in April 2013; the landlord failed to take into account the negative changes in the CPI Index as required by the lease; the Petitioner compounds the rent by calculating the fixed rent retroactively to a period of time prior to the date that the Petitioner would be entitled to collect any increase from the Respondent as of August 2007; and the Respondent's method of calculation more fully complies with the terms of the lease. The Respondent's calculation, pursuant to the Respondent's interpretation of the disputed lease, yields uncollected rent for the subject premises in the amount of $92,457.22 and said sum has been deposited in its attorney's trust account.
The Respondent further argues that the non-payment proceeding should be stayed pending a determination of the declaratory judgment action. According to the Respondent, the Respondent commenced the declaratory judgment action in or about July 25, 2013, and subsequently, on July 31, 2013, the landlord commenced the instant non-payment proceeding. The Respondent claims that both actions are pending for the same relief, and since the declaratory judgment was first in time, the summary proceedings should be stayed pending a determination of the declaratory judgment action. In the alternative, the Respondent claims that the non-payment proceeding should be stayed, removed and consolidated with the declaratory judgment action.
In the interim, the request for a stay in the Supreme Court of this summary proceeding was denied by the Hon. Carolyn E. Demarest, J.S.C., on August 15, 2013.
The Petitioner's motion to accelerate was granted as per order and the Order to Show Cause by Respondent was withdrawn, and the parties agreed that the undersigned would proceed with a trial on the merits. Additionally, the Respondent was directed to provide its calculations of the fixed rent, late fees and interest on or before August 6, 2013 by email. The case was adjourned for trial to September 25, 2013.
On September 25, 2013, this case was referred to the undersigned for trial. The parties admitted the following documents into evidence on consent and without reservation except as stated below:
Petitioner's Exhibit “1”—a certified copy of a deed of ownership dated February 6, 1984 from the Walben Company to Fred Brenner for the property known as 436 Keap Street, Brooklyn, New York;
Petitioner's Exhibit “2”—a certified copy of a deed of ownership dated February 12, 2004 in which Fred Brenner transferred 80% of his rights, title and interest to Jodi B. Brenner, as trustee of the FB Irrevocable Grantor Trust Agreement dated January 1, 2004; his reversionary interest constituting 20% of the trust corpus;
Petitioner's Exhibit “3”—a lease agreement dated January 1, 2004 that commenced on January 1, 2004 between Jodi B. Brenner and Fred Brenner as landlord and General Plumbing Corporation, as tenant for the premises known as 436 Keap Street, Brooklyn, New York, the terms of which shall be more fully discussed below;
Petitioner's Exhibit “4”—a certified copy of the Department of Labor Table 24 entitled “Historical Consumer Price Index for all Urban Consumers (CPI–U): U.S. city average, all items”–4 pages numbers 69–72 for a time period from 1913–2013 and Table 24C entitled “Historical Chained Consumer Price Index for all Urban Consumers (C–CPI–U): U.S. city average, all items”–1 page from for the time period from 1999–2013;
Petitioner's Exhibit “5”—the State of New York State Board of Real Property Services RP–5217 NYC commonly referred to as the Real Property Transfer Report for the above transfer in Exhibit “2”;
Petitioner's Exhibit “6”—a letter dated May 23, 2013 from Fred Brenner and Jodi Brenner to Irwin Brenner, as President of General Plumbing, stating the sums alleged due and owing by the Respondent in the sum of $309,768.00 with supporting calculations. Exhibit “6” in evidence was admitted without prejudice to the Respondent's claims that the Petitioner's calculations are incorrect.
After these admissions into evidence on consent, the Petitioners called Steven Bandini to testify in their case-in-chief. Mr. Bandini testified that he is a partner at the firm of Zapken & Loeb, LLP and has been a C.P.A. for nearly 25 years. He was acquainted with Jodi Brenner and not her father, and was hired by Jodi Brenner to perform calculations for the rental amounts due for the premises known as 436 Keap Street, Brooklyn, New York. He testified that he was retained to calculate the fixed rent and all increases, late charges and interest from August 2007 to the date.
The witness further testified that he performed the calculations that were admitted into evidence as Petitioner's Exhibit “6” (enclosed in the letter dated May 23, 2013). He was requested to perform the calculations from 2000 through 2013 but then was requested to revise the calculations from 2004 through May 2013. He further testified that he applied Table 24 to calculate the fixed rent and the subsequent increases because that table better represented the terms of the lease than the “Chained” CPI. Mr. Bandini testified that Petitioner's Exhibit “7”, admitted into evidence on consent, were also his calculations. For a significant portion of his testimony, he explained the application of the CPI to the fixed rent and the compounding of the yearly rent increases for the purposes of calculating the fixed rent from 2004–2013. For example in the 2008, the fixed rent was calculated as follows:
[[[Include an example of the calculation.]]]
For 2007, the witness testified that he was informed by Jodi Brenner that she could only collect from August 2007 through December 2007 and then from January 2008 to September 2013. The chart reflects the years of rent increase calculations that are not collectible and the years of rent increase calculations that are collectible. It was conceded by both parties that the Petitioners are precluded from collecting rent for the years 2005 through July 2007 based on the application of the sixyear statute of limitation for breach of contract. Therefore, the Petitioner seeks to collect rent from August 2007 through and including September 2013.
The witness further described the calculation of the late fee. The late fee is calculated as follows:
[[[insert mathematical calculation]]].
The total amount of the late fees as claimed by the Petitioner from August 2007 through September 2013 is $12,470.24.
The witness further testified that Petitioner's Exhibit “8”, admitted into evidence with no objection, was the Prime Interest Rate History from December 1, 1947 through and including December 16, 2008. The witness acknowledged that the chart only went through December 16, 2008 but asserted that as a CPA, he has personal and professional knowledge that the prime interest rate as obtained from the Wall Street Journal has remained the same from December 16, 2008 through September 18, 2013 at a rate of 3.25%. He asserted that the calculations set forth in Petitioner's “7” show the interest rate due and owing on a monthly basis from August 2007 through September 2013 for a grand total of $24,635.82.
On cross-examination, the witness stated that not only did he prepare a rent arrears chart using the CPI index, he also prepared a chart using the Chained CPI index as instructed by Mrs. DeLotto. Mrs. DeLotto appeared at trial as Petitioner's co-counsel. He stated again that it was his decision to apply Table 24 as opposed to Table 24C for the fixed rent calculations and he based his actions on the language in the lease, notwithstanding substantial cross-examination by the Respondent in this area.
Mr. Bandini also indicated that the first time that he did the calculations was in December 2012. He testified that he was not instructed by anyone to use any specific chart. He reviewed the lease and intentionally coordinated the language of the lease to match the appropriate table. The accountant asserted that the lease did not contain the word “chained” CPI and further stated that “I would say table 24 most closely resembles the words in the lease. It didn't include the word chained.” (Bandini Cross, p. 61, lines 8–17 and 18–21).
Additionally, the witness stated that “being a C.P.A., we get many different types of agreements, whether partnership agreements, trust agreements, lease agreements and we were asked to review those to see what either accounting or tax implications they have. I do look at them and reread through them. I do not—I do take a look at them.” (Bandini, p. 47, lines 1–7).
Furthermore, on cross examination, the Respondent admitted into evidence Respondent's Exhibit “A” which are the Petitioner's calculations based on using Table 24C. This document was admitted into evidence with no objection. As the witness previously testified, he was asked to create Respondent's Exhibit “A” based on Table 24C which reflects the chained CPI. The calculations are from January 1, 2005 through September 25, 2013.
One of the important issues that was raised by Respondent's attorney on cross-examination, was why did the C.P.A. use a fixed rent to calculate all future rent increases that has not been paid by Fred Brenner as the tenant. In his example, the Respondent was paying $225,000.00 yearly or $18,750.00 monthly which could have been the fixed rent. Instead, the C.P.A. calculated the annual fixed rent with the CPI increase to establish a fixed rent prior to the cutoff date that the rent was going to be collected from the Respondent. Once again, the witness was directed to the provision of the lease which deals with a determination of the fixed rent. The witness relied on the literal interpretation of the lease which specifically states in provision 3.1 that “on each anniversary of the commencement date during the term of the annual fixed rent shall be increased, which increase shall be equal to the percentage increase in the U.S. Bureau of Labor Statistics Consumer Price Index, all urban consumers, all items indexed, for the preceding 12 months”. Notwithstanding the Respondent's disagreement with the C.P .A.'s interpretation, Mr. Bandini was consistent that his calculations in Petitioner's Exhibit “7 were accurate and reflected the lease language.
Specifically with regards to the interpretation of the fixed rent, the Respondent had an ample opportunity to bring in a witness, its own experts to rebut the C.P.A.'s assessment and interpretation of the lease provisions. For example, in 2009, according to the C.P.A., the CPI index was –0.4%. Since the C.P.A.'s interpretation was that it was negative, in his opinion, there was no increase due. According to his interpretation of the lease, the annual rent could only be adjusted if the CPI increase is a positive number and/or positive increase. Since it was negative, there was no increase due for 2009. The Respondent elected to not call any witnesses to support its contentions.
At the conclusion of cross-examination, direct and redirect, the parties agreed and stipulated that Mr. Bandini appears as a fact witness and as a C.P.A. and concededly, Mr. Bandini was the C.P.A. hired by the Petitioner to perform the calculations of the fixed rent, the CPI increases, the interest and late fees for the underlying summary proceeding. However, the parties agreed that he was not deemed an expert in this proceeding.
At the conclusion of the testimony of Mr. Bandini, the Petitioner rested on its case-in-chief.
After recess, the Respondent commenced its case-in-chief and called Irwin Brenner as the first witness. Mr. Brenner revealed that he is Fred Brenner's son from Fred Brenner's first marriage. He stated that the Petitioner, Jodi Brenner, is Fred Brenner's daughter from his second marriage, therefore, his half-sister. In addition, the witness testified that Fred Brenner has a second daughter, Shari Brenner, also from the second marriage. The records below will also show that Deborah Brenner is also a daughter of Fred Brenner; of which marriage, this Court is unclear.
The witness testified that the first time he was presented with a duly executed copy of Petitioner's Exhibit “3”, the lease in question, was in November 2012. He believed it was around Thanksgiving. Apparently, according to his testimony and communications between him and Jodi Brenner, the witness stated that the document had been retained by the offices of the attorneys that set up the real estate trust and prepared the lease.
The attorney, not the witness, directed this court's attention to the fact that Fred Brenner is now seeking to collect late fees, fixed rent and interest in this non-payment proceeding during the time period in which Fred Brenner was the tenant in occupancy of the subject premises. The attorney made clear that not only is he the landlord in this case, but he was operating General Plumbing as it President until 2008, and therefore, also the tenant. (Brenner–direct–Schewe, p. 78, lines 21–25). The attorney was also quite clear in his statements on the record on p. 78, lines 4–14 that Fred Brenner is essentially asking for late fees for what he did not pay when he was the prime tenant. The Respondent argues that Fred Brenner had the opportunity to pay the CPI increases and did not pay them for 11 years, but now wants his son, Irwin Brenner, “who is in this predicament for late fees and interest on payments he did not make, “hahaha”, to pay for his neglect. Notwithstanding the fact that the answer did not contain the equitable arguments made by the attorney, he states that the Respondent seeks to have this court deem these facts and circumstances unjust and improper.
The witness further testified that he and his father did not have an on-going relationship for many years and at one point, his father approached him about getting involved in the plumbing business. He testified that Fred Brenner was, in fact, running the corporation until about 2008. Irwin Brenner became involved in September 1989 and “pretty much did whatever his talents allowed him to do at that time”; he worked for the purposes of making it easier for the corporation until Fred Brenner finally decided to retire.
He informed the court that he was a dentist in Central Pennsylvania, and after his father's second divorce, he was asked if he was interested in coming into the business. He said he was “kind of surprised” since him and his father did not have an ongoing relationship. However, as a result of this transition from Fred Brenner operating the business until he decided to retire, the parties retained an attorney to set up the real estate trust and lease agreement.
He further testified that in the beginning, he had 20% ownership transferred to him in the first 3 years, which brings him until about 1992 or 1993. He was not certain of the year. However, he was certain that Fred Brenner was the President until around January 2008 and from at least 2004 to 2008, Fred Brenner never paid rent in excess of $225,000.00 a year for the property. He stated to the Court that Fred Brenner had the authority to pay the rent increase because he was in control of the checks, he was the President and ran the financial end of the operation but he did not. The witness further stated that from 2004 until April 2013, during the time that he operated the business, no written or oral request was ever made for any CPI increase.
According to the witness, and strenuously objected to by Petitioner's attorney, the first demand for the CPI increases was made in May 2013 when he received Petitioner's Exhibit “6”, the May 2013 letter from Jodi Brenner and Fred Brenner to him as the President of General Plumbing. The letter contained the accountant's fixed rent calculations, late fees and interest alleged due and owing by General Plumbing.
The attorney for the Petitioner insisted that this Court has only to review two lease provisions, namely, § 38.8, a non-waiver clause, and § 3.3, that states that the landlord, without notice or demand and without any abatement or setoff, did not have to demand the rent to maintain an action to collect the rent. Thus, the Respondent's reliance on the late written notice from the Petitioner is of no consequence. The attorney for the Petitioner also urges this Court to take notice that the Respondent has waived the affirmative defenses of waiver, estoppel and laches, and accordingly, the testimony regarding those issues should be stricken as irrelevant.
The witness's objection to the 10–day rent demand was based on two significant factors. First, he objected to the fact that Fred Brenner was attempting to collect rent during a time period when Fred Brenner was the tenant of the Respondent corporation. The second objection was that even though he was aware that there was a six-year statute of limitations that prevented the Petitioners from going back and collecting rent prior to 2007, his objection was the manner in which the rent was calculated. He did not think that the fixed rent should have been calculated on an amount that had not been the fixed rent for the prior tenant. In addition, the witness talked about the inequity of Fred Brenner not having paid the rent and now his son having to pay all of the rent increases.
The witness further testified that he did his own calculations and in his estimation, the sum that he owes is around $92,000.00 and further testified that a sum of $100,000.00 had been deposited in the escrow of his attorney in good faith to demonstrate his ability to pay the rent when that amount was finally resolved between the parties and/or after trial.
On September 26, 2013, the Respondent continued with its case-in-chief. The Respondent testified that in his calculations, as stated in Respondent's Exhibit “E”, he used the chained CPI tables. He and his daughter did these calculations. When asked why he used the chained CPI index, the witness stated “well, there didn't appear to be an exact match for anything that was described in the lease, and I thought I should use the one that was most favorable to me.” (Brenner, p. 12, lines 15–18). The difference between his calculations and the landlord's calculations, according to Irwin Brenner, can be simplified as follows, “I believe compounding would refer to piling on in a colloquial term and I read this multiple times with my daughter and it seemed like the lease specified it be applied to the fixed rent, if I remember the term correctly.” (Brenner, p. 15, lines 20–24). The Respondent's chart shows that he used $225,000.00 as the fixed rent and that amount remained the same for each preceding year.
In regards to the landlord's claim, he stated that they started at, I guess year 2 and kept changing the fixed rent number and I disagree. “[Y]ou use $225,000.00 times the CPI for each of the years and the landlord used a larger number as the years moved on, and his reply was that they used the previous amount each year”. (Brenner, p. 16, lines 10–18).
Respondent's Exhibit “E” was admitted into evidence without objection which were the Respondent's calculations using the same base rent of $225,000.00 each year plus the CPI increase.
On cross-examination, the witness was unyielding, and insisted that notwithstanding the attorneys for the Petitioner's claim that his testimony was inconsistent, he used the chained CPI index “because it was as clear as I can find that matched the lease and because it was more favorable for the corporation rather than some other CPI index that also did not match the lease (Brenner-cross, p. 22, lines 15–18).
The balance of the testimony on direct and cross primarily dealt with a difference in Petitioner's Exhibit “9” and Respondent's Exhibit “E”. The former document, Petitioner's “9”, was created by the Respondent in or about May 2013. Respondent's Exhibit “E” was produced for the purposes of trial and attempted to correct a mistake made by the Respondent in the calculations. It appears that the calculations neglected to include 2013.
The Respondent then rested its case-in-chief and the Petitioner elected not to call any rebuttal witnesses.
During summation, the Respondent states that the policy in this state is to construe an ambiguity in a contract against the person that drafted it.Both parties interpreted the lease provisions that were favorable to them. The Respondent asserts that the rent provision is patently ambiguous. According to the Respondent, the fixed rent is a defined term under the lease and that amount is $225,000.0, and it states that it should be increase by the CPI percentages. The Respondent asserts that Mr. Brenner's calculations tried to go by the exact language in the lease. “He multiplied the fixed rent, which is a defined term, by the previous year's CPI increase.” (Schewe, p. 44, lines 18–25). The Respondent argues that the landlord's calculations compound that number. They increased the fixed rent each year and used that inflated number multiplied by the CPI to come up with yet a larger number which they then used the next year and multiplied by the CPI again. (Schewe, p. 45, lines 1–6).
The Respondent's attorney also argues that the CPI increases include only positive increases; they also include negative increases. The attorney states that “they used 0 for the CPI where Mr. Brenner used the actual CPI number which happens to be negative (Schewe, p. 46, lines 1–7). The attorney contends, once again, that this provision is ambiguous, that the language in the lease isn't clear where only positive increases are to be considered or whether both positive and negative increases are to be factored into the calculation of the rent”. The Respondent argues that the above ambiguity should be construed against the drafter of the agreement, the Petitioner.
The Respondent rhetorically asked: where does the landlord get the increases? According to the Respondent, the critical question is where to start. For the Respondent, the Petitioner was able to get the increases on a fixed rent during a time period prior to their ability to collect the rent increase. The Respondent contends that the Petitioner should be barred from getting any rent increase from any time period prior to the preclusion period based on the statute of limitation. Lastly, the Respondent contends that the late fees and interest are also in dispute. The Respondent argues that it is patently unfair and inequitable that “the landlord be unjustly enriched by collecting late fees and interest on rent that the landlord himself, Fred Brenner, failed to pay when he was the President from the signing of the lease in 2004 until he stepped down as president of the Respondent corporation in 2008.” (Schewe, p. 48, lines 4–13).
The Respondent ends its summation by stating that these parties have a genuine dispute about the rent calculations and amount due and owing, and have landed in the Civil Court for a final resolution.
The Petitionesr, in summation, contends that the Respondent is being disingenuous in its alleged claims of good faith by depositing the alleged sum due in escrow. The Petitioners state that whether or not it was the original calculations under Petitioner's “9” or the correct calculations under Respondent's “E”, the sum that the Respondent states was due and owing was not deposited in the escrow account. More importantly, the Petitioners argue that the only difference between the chart relied upon by the Petitioner and the chart relied upon by the Respondent is the use of the word “chained”. The Petitioner asserts that the lease agreement does not use the word “chained” CPI and therefore, the Respondent's application of Table 24C, the chained CPI index, is inappropriate.
The Petitioner's attorney also contends that the lease clearly states that the fixed rent will increase each year. The attorney relies on the plain language in the lease. She contends that the lease defines the term “fixed rent” and then states that the fixed rent shall increase each and every year. The lease itself, it is contended, completely belies the Respondent's argument that the rent should remain the identical fixed rent at the sum of $225,000.00, as claimed by the Respondent.
The Petitioners also argues that the no waiver clause and no abatement clause as described in provisions § 8.8 and § 9.1, respectively, preclude the Respondents from any reduction in rent. Counsel asserts that although the Petitioners did not collect the rent, this non-waiver clause precludes the Petitioners from waiving the right to collect the rent increase.
Interestingly, the Petitioners also argue that the Respondent failed to prove that the landlord drafted the lease. The attorney states that when you read the lease, it is a very well-negotiated lease—an arm's length transaction and that there was no testimony on either side who drafted this lease (DeLotto, p. 55, lines 3–8). She states that there are two important terms that demonstrate that both parties drafted the lease. In fact, two significant terms, namely the option to buy and the right of first refusal to purchase, are atypical terms that are favorable to the tenant, and demonstrate that the agreement was not just your customary pro-landlord agreement but an agreement that was obviously worked out between the parties.
The Petitioner's attorney also contends that the late fees and interest provisions should be enforced by this Court, and notwithstanding the Respondent's argument that they do not owe the amount demanded by the landlord, their admission through their own calculations, constitutes grounds for the imposition of both late fees and interest. According to the Petitioners, the rent demand was made in good faith, and not only did the Respondent admit to owing at least $139,000.00, they admit that they have deposited this sum in escrow. Under these facts, the Petitioners still urge this Court to find that this rent deposit payment made by the Respondent is a definite acknowledgement of the debt and accordingly, the Petitioners are entitled to late fees and interest.
As set forth in the record, the attorneys agreed to submit post-trial briefs. In the Respondent's post-trial memorandum of law, for the sake of brevity, the Respondent asserts the same arguments made in summation and at trial, but asserts addition facts for consideration by the Court.
The Respondent contends that the lease was executed on January 1, 2004 and provided for one-year terms with automatic annual extensions until either the landlord or the tenant provide written notice to the other seeking to terminate the tenancy at least ninety days in advance. According to the Respondent, the lease was automatically renewed annually each year since 2004, except when the Petitioners purportedly canceled the lease by notice of termination, dated July 1, 2013. The notice provided that the lease would expire on December 31, 2013 and thus on that day the tenant was required to surrender and quit the premises.
According to the Respondent, the May 22, 2013 letter was in retaliation for the Respondent's written notice to the Petitioners of the Respondent's intent to exercise the option to purchase the adjoining property known as 432 Keap Street, Brooklyn, N.Y. and the Respondent requested that this Court refer to the deposition transcript between the parties.
The Respondent asserts that their interpretation of the lease is more consistent with the lease. The Respondent argues that the annual fixed rent shall be increased by using the same fixed rent or $225,000.00 as the multiplier of the CPI each year, then add the increase to the previous year's increased rent as opposed to compounding the increases by using the previous year's increased rent as the multiplier.
In regards to the issues of late fees and interest, the Respondent states that Irwin Brenner should not be required to pay any late or interest charges because “he believed it was unfair for Fred Brenner to collect on unpaid rent he never paid as President of General now that he retired. Fred Brenner is currently seeking late fees and interest for CPI increases that he, as the past President of General Plumbing, did not pay”. (Affirmation of Michael J.P. Schewe, Esq. at pars. 57 and 58). Since General was never in default of the lease, these fees should not be collected.
The Respondent also states that the action should be dismissed since the rent demand contains ambiguities. The Respondent also claims that the provisions of the lease that are ambiguous should be construed against the Petitioners. The Petitioners, Fred Brenner and Jodi Brenner, were never called to the witness stand to explain these ambiguous provisions. In addition, the Respondent alleges that the consumer price index is ambiguous and therefore, should be resolved in favor of General. The Respondent then states that based upon this ambiguity, the CPI table that the Respondent used should be used by the Court, and any ambiguity construed in favor of General.
Lastly, the Respondent argues that the Petitioner-landlord is not entitled to attorney's fees or costs because this proceeding was a good faith dispute over the amount of rent owed and not strictly an action to recover unpaid rent. Since the sum alleged due by the Respondent was deposited in General's attorney escrow account in the sum of $100,000.00, the Respondent claims that it is a genuine dispute in which the parties should be responsible for their own attorney fees. Since General Plumbing was never in default of the lease, legal fees are not warranted under Section 8.2 of the lease.
General Plumbing requests judgment striking the rent increase provision from the lease and a finding that such increase is fatally unclear and improper, or alternatively, declaring the amount of rent contained in Irwin Brenner's calculation from August 2007 until December 2013 the correct amount due and owing so that these amounts can be paid to Petitioner-landlord.
In its trial memorandum of law, the Petitioners claim entitlement to the entry of a judgment of possession against Respondent General Plumbing Corporation in the amount of $286,511.08 representing all rent, additional rent, late fees and interest due through and including September 30, 2013. The Petitioners claim that the Respondent does not contest the Petitioner's prima facie case except for the Petitioner's calculation of fixed rent and the collectability of late fees and interest.
The Petitioners also claim that the Respondent has agreed that General owes $139,441.44 according to the Respondent's own version of the rent calculation. The Petitioners assert that the Respondent has in its case-in-chief asserted arguments sounding in equity: the equitable defenses of laches, waiver and estoppel. The Petitioners remind this Court and the Respondent that the Respondent withdrew the eleventh affirmative defense with prejudice which alleged the aforementioned defenses. The Petitioners argue that the Respondent has one affirmative defense, the seventh affirmative defense, which provides that “the non-payment petition fails to state a cause of action for rent and additional rent demanded because it is based on an improper and unclear rental amount.” (Respondent's answer at page 5).
The Petitioners assert that there was no testimony in the record to support the claim by the Respondent that the rental agreement was drafted by the Petitioners. There was no evidence that either party negotiated the lease or that it was not negotiated by and between both of the parties. This alleged fact is evident by the two provisions which have terms favorable to the tenant; to wit, the purchase of the property and the right of first refusal to purchase. (Petitioner's Exhibit “3” at article 30, p. 26). The Petitioners, instead says that the Court should look at this agreement as an agreement that was negotiated between two sophisticated commercial entities and accordingly no inference should be construed against either party. For Petitioners, the Court should construe the lease terms and conditions in their plain and ordinary meaning.
The Petitioners argues that the applicable provisions of the lease, namely article 3, section 3.1, which defines the term fixed rent, is clear and unambiguous and states that the Petitioner's calculation of the rent arrears, late fees and interest as set forth in Petitioner's “7” admitted into evidence is proper and in accordance with the terms of the lease. Petitioner argues that the C.P.A.'s testimony is consistent with the terms of the lease. The Petitioners argue that if the drafter of the agreement had intended the chained consumer price index to be used for rent calculation, they would have specifically included that term “chained” CPI.
The Petitioners claim that Mr. Bandini's calculations and interpretation of the lease provisions gave each word and phrase its plain and logical meaning. The Petitioner's interpretation of the lease provision more closely matches the lease and is unbiased. Unlike the Respondent, the Petitioner states that the landlord did not merely interpret the lease through a construction that favors the Petitioners, but rather interpreted the lease by applying its clear and unambiguous terms. The Petitioners state that this Court should disregard the Respondent's claim that the lease terms are ambiguous since there was never any ambiguity raised in the answer or in the Supreme Court action. The Petitioners, in fact, state that the only real difference between the parties was the method of calculation of the rent. The Petitioners specifically assert that the Respondent's pre-offered interpretation, if adopted by this Court, would require this Court to run afoul of well-settled contract principals and would require this Court to rewrite the lease contrary to law.
With regard to the statute of limitations, there was no dispute that the six-year statute of limitations precludes the landlord from the collection of the fixed rent more than 6 years before the commencement of the proceeding. However, it does not preclude the Petitioners from the calculation of the fixed rent prior to the six year time frame.
The Petitioners lastly state that the Petitioners are entitled to late fees and interest. The Petitioners contends that the Respondent does not dispute that the lease provides for the payment of late fees and interest nor does the Respondent dispute the Petitioner's method of calculating the late fees or interest. The Respondent simply asserts that the imposition of both fees would be patently unfair to the Respondent and would somehow unjustly enrich the Petitioners. In addition, the lease is clear that the fixed rent and additional charges shall be paid to the Petitioners without notice or demand or without reduction.
In addition, the lease agreement specifically provides that the tenant agrees to pay all costs and expenses incurred by the landlord in the collection and/or enforcement of the lease including attorney's fees, whether or not a lawsuit is commenced. According to the Petitioners, the Petitioners request that the Court set a date for a hearing for the amount of attorney's fees and costs for the Petitioners.
For the reasons stated above, the Petitioners asserted entitlement to entry of a judgment for all rent and additional rent as calculated in Petitioner's Exhibit “7” and a hearing for the determination of attorney's fees, costs and expenses to be awarded to the Petitioners.
findings of facts and conclusions of law
STANDARD OF JUDICIAL REVIEW OF ALL EVIDENCE
Our multi-tier judicial system safeguards our rights to due process of law. As a multi-tier judicial system, great deference is given to the trial courts. It has been firmly established that “[t]he credibility of the witnesses, the reconciliation of conflicting statements, a determination of which evidence should be accepted and which should be rejected, the truthfulness and accuracy of the testimony, whether contradictory or not, are issues for the trier of fact.
The memory, motive, mental capacity, accuracy of observation and statement, truthfulness and other tests of the reliability of witnesses can be passed upon with greater safety by a trial judge who sees and hears the witness than by appellate judges who simply read the “printed record” (Barnet v. Cannizzaro, 3 A.D.2d 745, 747, 160 N.Y.S.2d 329 [citation omitted]; see LeBron v. Brentwood Union Free School District, 212 A.D.2d 5112, 5113, 623 N.Y.S.2d 117 ; Segal v. MacDaniel Ford, 201 A.D.2d 717, 608 N.Y.S.2d 324 ). See also Healey v. Williams, 30 AD3d 466, 818 N.Y.S.2d 121 (App.Div., 2d Dept., 2006) in which the Appellate Division, Second Department held that the trial court's finding that the marital stipulation, which included a prescription against oral modification, was nonetheless orally modified and was supported by the evidence in the record. The trial court properly credited the testimony of the father in that proceeding upholding the above rule. In reviewing a determination made after a non-jury trial, “the power of the Appellate Division is as broad as that of the Trial Court and it may render the judgment as it finds warranted by the facts, taking into account that in a closed case the trial judge ‘had the advantage of seeing the witness' “ (Northern Westchester Professional Park Assocs. v. Town of Bedford, 60 N.Y.2d 492, 499, 470 N.Y.S.2d 350, 458 N.E.2d 809 [citation omitted], quoting York Mortgage Corp. v. Clotr Constr. Co., 254 N.Y. 128, 133–134, 172 N.E. 265 ).
See also Lelekakis v. Kamamis, 41 AD3d 662, 839 N.Y.S.2d 773 (App.Div., 2d Dept., 2007) where the Appellate Division found that contrary to the Defendant's contentions, the Supreme Court finding that the signature of the Defendant, Stanley Kamamis, on the Option Agreement was not forged, was not against the weight of the evidence. “As this case was tried by the court, without a jury, this court's power to review the evidence is as broad as that of the trial court, with appropriate regard given to the discretion of the trial judge who was in the position to assess the credibility of the witnesses.” (779 East N.Y. Avenue Assoc., LLC v. Gurary, 31 AD3d 627, 628, 819 N.Y.S.2d 921 ; see Northern Westchester Professional Park Assocs. v. Town of Bedford, supra ). In that case, the Court specifically found that the Trial Court was not required to credit the testimony of the Plaintiff's handwriting expert and apparently did not. “This case, in which there is no concrete evidence except the Option Agreement, was almost exclusively a matter of determining the relative credibility of the parties. On this record, there is no basis to disturb the Trial Court's determination that the signature was not forged”.
In this case, the Petitioners have asserted that the Respondent has waived all defenses except as stated above and accordingly, this Court can not apply principles of equity. The Petitioner's run afoul of long standing common law principles and the CPLR. The Respondent's answer, like all others served and filed in the courts, should contain a general relief clause, or sometimes referred to as the”decretal” paragraph, in which the party seeks “such other and further relief as this Court deems to be just and proper” under the facts and circumstance of the case. The Petitioners suggests that this Court consider only the contract and its terms and ignore the family relationship, history and dynamics involved in this proceeding in making its determination. Petitioners moved to strike the testimony of Irwin Brenner, who candidly, disclosed to the Court at least what he believes were the motive of the Petitioners in the commencement of this proceeding. As discussed below, all the evidence, including public records, leads this Court to conclude more than the parties sought to disclose.
It would be unfitting, one could even dare say negligent, for this Court to ignore any facts divulged from motion practice, testimony, documentary evidence or deposition testimony, particularly the familial relationship between the parties and the history of the subject property. The motive, mental capacity, accuracy of observation and statement, truthfulness and other tests of the reliability of witnesses are the tools of truth or falsity to be assessed by the trial judge, the final arbiter of the facts, in any determination of the rights and liabilities between the parties here. (Barnet v. Cannizzaro, 3 A.D.2d 745, 747, 160 N.Y.S.2d 329 ; LeBron v. Brentwood Union Free School District, 212 A.D.2d 5112, 5113, 623 N.Y.S.2d 117 ; Segal v. MacDaniel Ford, 201 A.D.2d 717, 608 N.Y.S.2d 324 ). All of the pertinent evidence, even those that this Court shall take judicial notice of, including the findings in the decision and order of Justice Carolyn E. Demarest, dated July 24, 2014 and real estate history of the subject premises as described on the NYC ACRIS system, are relevant.
The most relevant facts between the parties in both lawsuits are consistent and not in dispute and are as follows: Fred Brenner purchased two adjoining properties, namely, 432 Keap Street and 436 Keap Street, Brooklyn, NY. Fred Brenner was the owner and CEO of the General Plumbing Corp. from 1964 to about December 2007, and had the rights to exclusive possession, use and occupancy of 436 Keap Street, Brooklyn, N.Y. for the operation of his plumbing business.
The precise date of his retirement from the company and the exact date that his son, Irwin Brenner, became the CEO and President of the Respondent corporation have not been fully disclosed to this Court or to the Supreme Court. A historical review of the real estate records show that the initial lease and the disputed lease began all lease terms with the property known as 436 Keap Street, Brooklyn, N.Y. from January 1, of a given year and ended on December 31, of a given year. Therefore, since the testimony of Irwin Brenner was somewhat consistent with the findings of Justice Demarest, this Court shall presume the date of his father's retirement was in or about December 31, 2007.
As equally important, this Court takes judicial notice pursuant to the NYS Technology Law of the NYC Department of Finance, Office of the City Register, Automated City Register Information System (ACRIS) for 432 and 436 Keap Street, Brooklyn, NY. (Petitioner Exhibit “1” and “2” and the other documents presented to the court). Additionally, the public records reveal the history of both properties and the gravamen of the dispute between the parties.
Before laying out the history of these properties, it is important to take notice that these property addresses are interchangeable. A review of Petitioner's “1” and “2” shows that the properties, although different addresses, have the same block numbers and lot numbers. Some of the irregularities of the records are not relevant for the purposes of this decision but may become relevant to the parties in future real estate transactions.
432 Keap Street a/k/a 432–434 Keap Street a/k/a 139–147 Hope Street, Brooklyn, N.Y. designated as Block 2375, Lots 1 and Lot 2 now contains a one story building with a mezzanine. In 1977, it was supposed to be used as a parking lot for 13 cars and then in 1991, designed as a warehouse for plumbing supplies, storage for commercial vehicles and accessory parking for nine cars, assessory storage and a mandate that the owner, at its cost and expense, maintain a paid employee, 24/7, to handle the parking lot.
436 Keap Street a/k/a 436–438 Keap Street a/k/a 149–153 Hope Street designated as Block 2375, Lot 3 now contains a two story building. As of October 8, 1948, it was a parking lot; and in February 1961, it was constructed into a factory and storage. It is designated as “E–9/Warehouse”.
More significant, for the purpose of establishing the genuine basis for this familial dispute, is the fact that the Department of Buildings designated both properties as “special district MX–8–Mixed use–8 (Greenpoint–Williamsburg ). It is common knowledge that Greenpoint–Williamsburg is one of the affluent areas in Brooklyn; this Court would even venture to say, probably the most affluent in the country.
A little more history places all of the above into prospective. The latter property, 436 Keap Street, was owned privately until in or around 1971 when the N.Y. City Industrial Development Agency, authorized to create industrial development sites and to acquire, construct, reconstruct, lease and improve any building which was suitable for manufacturing, warehousing, and to promote, develop, encourage and assist in industrial development for our city and for the economic welfare of the people of the state of New York, acquired the property. This agency, by it enabling act, issued bonds to assist in the acquisition of the property and agreed to lease the property to a qualified company that would not remove its manufacturing and industrial business from the state for a favorable return on its capital investment. The cost of the acquisition and the bonds that provide the capital to lease the property was $1,150,000.00.
Now, it appears that after the acquisition and development of the property, there were several transfers, between various banking institutions which were involved in the bonding by the city. For our purposes, it is relevant to reveal that as of December 8, 1980, the Walben Company, a private NYS partnership entered into a thirty-five year lease and option to purchase with Fred Brenner. The agreement commenced on December 9, 1980 and terminates on December 31, 2015. The lease terms commenced on January 1, 1980 and terminated on December 31, 1980 at a rate of $36,000.00 per annum or $3,000.00 month for the following lease terms: January 1, 1981 through December 31, 1981; January 1, 1982 through December 31, 1982; January 1, 1983 through December 31, 1983; January 1, 1984 through December 31, 1984; January 1, 1985 through December 31, 1985; January 1, 1986 through December 31, 1986; January 1, 1987 through December 31, 1987; and for each year thereafter, until its expiration from January 1, 1988 to December 31, 2015 at a rate of $60,000.00 per annum or $5,000.00 per month. The “Net” lease provided that Fred Brenner was responsible for all taxes, water and sewer charges, gas, light, heat, telephone, electricity, power and other utility. This agreement recognized that at the time of its inception, the above properties, were both included on “a common real estate tax bill”. The agreement was secured by a promissory note of $232,000.00 and a mortgage was recorded at reel 1203 and page 1429.
Fred Brenner was granted an exclusive and irrevocable option to purchase the property during the option period for the first 7 years. After April 1, 1994, the Walben Company could elect to sell the premises to Fred Brenner by notice and he would have the right to purchase as stated in the option. Any time between December 5, 1987 and December 31, 2015, Fred Brenner had the option to give the Walben Company notice of intention to purchase and the option was effective whether he was in possession or out of possession. In addition, the option price was $300,000.00 plus the costs of any assessments by the city on improvements made by the tenant.
The record shows that on February 2, 1984, the property was transferred by deed to Fred Brenner; on May 10, 1989, Fred Brenner secured a mortgage in the sum of $377,000.00 for the payment of the property. This mortgage and the underlying mortgage to Walben Company was satisfied in or about May 17, 2002.
Now, in a deed of ownership dated February 12, 2004, Fred Brenner transferred 80% of his rights, title and interest to Jodi B. Brenner, as trustee of the FB Irrevocable Grantor Trust Agreement dated January 1, 2004; his reversionary interest constituting 20% of the trust corpus (Petitioner's Exhibit “2”). Simultaneously, the parties executed a lease agreement dated January 1, 2004 that commenced on January 1, 2004 to the “expiration date”, that is unspecified in the lease, between Jodi B. Brenner as Trustee and Fred Brenner as landlords and General Plumbing Corporation, as the tenant for the premises known as 436 Kent Street, Brooklyn, New York, the terms of which shall be more fully described below (Petitioner's Exhibit “3”). This was a quit claim deed for no consideration to the Trust and was “a sale between related companies or partners in business”.
On the date of this last transaction, Fred Brenner represented that he resides at 7035 Montrico Drive, Boca Rotan, FL; on his other legal documents he describes his legal residence at 17 Clemson Lane, Woodbury, N.Y. and then 2 Bay Club Drive, Bayside, N Y. Thus, Fred Brenner represents that he was the president from 2004 to 2007 while a resident of Florida.
Lastly, pending this written decision, on May 13, 2014, Fred Brenner, by power of attorney dated September 23, 2013 and Jodi Brenner as Trustee, transferred all rights, title and interest in the premises known as 432 Keap Street, Brooklyn, N.Y. to “Keap The Hope LLC” in accordance with a contract of sale dated February 4, 2014 in an arms length transaction for a purchase price in the sum of $10,600,000.00. The NYS and NYC transfer taxes were paid by Keap The Hope LLC for $278,250.00 and $42,400.00, respectively.
The Court has had an opportunity to review the entire disputed lease agreement and the prior agreement between the former owner, the Walben Company and Fred Brenner, and finds that the agreements are substantively the same. They were “Net” leases for the entire properties that contained yearly terms from January 1, to December 31, did not increase the fixed rent for many years and contained options to purchase the property as stated below.
This Court shall rely on these facts in the analysis below.
CONTRACTUAL AMBIGUITY
Any determination in this proceeding must first be guided by principles of contract law. A fundamental tenant of contract law is that the agreements should be construed in accordance with the intent of the parties and the best evidence of the parties' intent is what they express in their written contract.
Legal research readily discloses that the first stage of such inquiry in any breach of contract claim is whether the underlying contract, albeit, in this case, a lease agreement, is uneqivocable and contains the necessary provisions to constitute a meeting of the minds between the parties. A determination of whether or not an agreement is ambiguous is a question of law to be decided by the courts and only after an analysis of the four corners of the instrument (see Kass v. Kass, 91 N.Y.2d 554, 566, 673 N.Y.S.2d 350 [1998] ; Todd v. Grandoe Corp., 302 A.D.2d 789, 790, 756 N.Y.S.2d 658 [2003] ). Suffice to say, if any ambiguity exists in the instrument, then the courts will look to extrinsic evidence and may consider such facts in its analysis of the terms contained therein (see F & K Supply v. Willowbrook Dev. Co., 288 A.D.2d 713, 714, 732 N.Y.S.2d 734 [2001] ; Ruthman, Mercadant & Hadjis v. Nardiello, 260 A.D.2d 904, 906, 688 N.Y.S.2d 823 [1999] ). See also Goldman v. White Plains Center for Nursing Care, LLC, 11 NY3d 173, 176 (2008) ; MHR Capital Partners L.P. v. Presstek, 12 NY3d 640 (2009) ; Van Shift Holdings Ltd. v. Energy Improv Structure Acquisition Corp., 65 AD3d 405 (1st Dept., 2009).
In interpreting any contract, the courts will not look outside of the four corners of the instrument especially “where the instrument was negotiated between sophisticated, counseled people negotiating at arm's length [internal quotation marks and citations omitted].” Tag 380, LLC v. ComMet 380, Inc., 10 NY3d 507, 513 (2008) ; Logiudice v. Logiudice, 67 AD3d 544 (1st Dept., 2009).
An agreement “is unambiguous if the language it uses has a definite precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion' “ (Greenfield v. Philes Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, [2002], quoting Vreed v. Ins. Co. of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 351 [1978] ; see Williams v. Village of Endicott, 91 AD3d 1160, 1162, 936 N.Y.S.2d 759 [2012] ). See also the recent matter of Colonial Pacific Leasing Corp. v. Brown, 28 Misc.3d 1214(a), 2010WL2927283 (N.Y.Supp.) in which Plaintiff's motion for summary judgment was denied and the Defendant's motion for summary judgment dismissing the complaint was granted based on various ambiguities in the underlying documentary evidence submitted by the Plaintiff.
In addition, “it is a recognized rule of construction that a court should not adopt an interpretation which will operate to leave a provision of a contract without force and effect. An interpretation that gives effect to all the terms of an agreement is preferable to one that ignores terms or accords them an unreasonable interpretation [internal quotation marks and certain citations omitted].” Ruttenberg v. David Data Systems Corp., 215 A.D.2d 191, 196 (1st Dept., 1995).
Just as important to the court's inherent and statutory power to determine the intention of the parties to a contract, both federal and state courts approve of the inherent power of the judiciary to “employ” its own knowledge, experience and expertise in its determination of the admissible evidence and conclusion that should be drawn from the evidence. The knowledge, experience and expertise of this Court in residential and commercial real estate is fitting and appropriate in this case. In making such an evaluation, the court itself is an expert and may make an independent judgment of facts and reconcile any ambiguity. (See Schodnue v. Lek, 283 A.D.2d 200, 724 N.Y.S.2d 305 (App.Div.., 1st Dept, 2001) in which the court approved of the use of a Referee's own knowledge, experience and expertise to assist in determining the time required to perform legal services and to determine the reasonableness of the claimed fee. See also Matter of Rahney v. Blun, 95 A.D.2d 294, 300 ; Jordan v. Freeman, 40 A.D.2d 656, 657 ).
Based upon the above case law, this court is obligated to review the entire written lease agreement between the parties, not just the provisions that the parties proffer as evidence in support of their respective claims. Notwithstanding the fact that the Petitioner, Fred Brenner, in this proceeding was also the former President of the Respondent-corporation, the Court finds that this commercial lease agreement dated 2004 is an arms length transaction between family members and definitely contains provisions that are not customary in commercial transactions.
There are several terms that the Court deems not the usual and customary terms and conditions in commercial leases. The first provision is the “automatic extension”. Under New York law, the law abhors automatic extensions particularly in contractual agreements that deal with services (citations omitted ). Rarely does any commercial lease self-execute with automatic one year extensions. Based on the fact that this transaction was between family members, the terms were obviously negotiated by this family to keep the property in their family. The parties were flexible enough that either party could terminate the commercial lease agreement with 90 days notice as defined in the automatic extension. If such termination provisions are indeed included in commercial leases, they are usually in the form of what is commonly referred to as “good guy clauses” that are beyond the scope of this proceeding.
Therefore, this first significant article of the lease demonstrates an arms length transaction between these parties notwithstanding their familiar relationship.
More importantly, the “Buy Sell” provisions in article 15 are certainly not customary in commercial transactions and is a defining factor in this closely-held family lease. The lease gives the tenant, its successor and assigns, an irrevocable exclusive option to purchase the property. The only obligatory act is to serve written notice to the landlord. If the tenant does, in fact, exercise the option, the landlord shall, not may, sell to the tenant and the tenant shall purchase the property (emphasis added ). The property then would be assessed at the fair market value and the parties specifically elected three appraisers to get involved in this process. One appraiser from each party and the third elected by the appraisers themselves.
As significant, § 15.2, “the right of first refusal” provides that upon receipt by the landlord of a solicited bona fide offer to purchase the property, the landlord shall immediately give written notice of that fact to the tenant. Upon receipt of that notice, the tenant shall have the option to purchase the property. The price to be paid by the tenant for the premises shall be the lesser of the proposed purchase price set forth in the notice of transfer or the purchase price as defined by § 15.1 above. In the event the tenant exercise the right of first refusal, the tenant shall within 90 days thereafter to give written notice of the tenant's intent to exercise.
These provisions are concrete evidence that the parties intended for this property to remain in their family and if not, that the purchase price be fair and equitable if a family member elected to purchase the property. It is also apparent that based on the fact that the Petitioner, Fred Brenner was at one point the tenant, he retained the power and ability to purchase the property on his own accord or to exercise the right of first refusal in the event that somebody else sought to purchase the property, at his sole discretion.
Therefore, any claims by the Respondent that there was any ambiguity in this closely held family lease, business and property are easily defeated; in fact, these provisions establish to the contrary. All members of the family participated in the creation of the lease agreement and were fully aware of the terms and conditions. The knowledge of the Respondent, Irwin Brenner, as argued by the Petitioners, is imputed to him as the President of the corporation and certainly as a family member of this closely held family business and property. All of the other provisions of the lease were customary provisions in the typical landlord and tenant lease agreement including, but not limited to, specified use restrictions, restrictions on assigning the lease and recordation of the lease, the customary provisions for insurance, the right of subrogation, default provisions, and the like.
Article 3 entitled “Consideration” contains the provisions for the fixed rent, additional charge, late charges and accord and satisfaction, and this Court finds that these provisions of the lease are clear, concise and unambiguous. In fact, the court finds the entire lease agreement, clear, concise and unambiguous, and based on the above case law, shall enforce the agreement according to its plain and ordinary terms and meanings.
The fixed rent provision states that the “tenant agrees to pay to landlord a fixed rent in accordance with the following for each year of the terms of this lease (such being hereinafter referred to”fixed rent”), the fixed rent to be paid in monthly installments, in advance, on the commencement date and thereafter on the first day of each month during the term of this lease. The annual fixed rent shall initially be $225,000.00 payable in equal monthly installments of $18,750.00.
“On each anniversary of the commencement date, during the term, the annual fixed rent shall be increased, which increase shall be equal to the percentage increase in the U.S. Bureau of Labor Statistics § Consumer Price Index, all urban consumers, all items index, for the preceding twelve months”.
Section 3.2, framed as “additional charges”, provides that “tenant” and landlord agree that the rent accruing under this lease shall be net to landlord and that all taxes, costs, fees, expenses and charges of every kind and nature (additional charges) relating to the premises, except the taxes of the landlord referred to in § 6.3 and any payment for interest or principal under any mortgage related to the premises, which may arise or become due during the term or any extension of this lease, shall be paid by tenant, and that tenant shall indemnify and save harmless landlord from any and against them.”
Provision 3.3, delineated as “late charges” provides as follows: “[a]ll fixed rent, additional charges and any other sums payable by tenant hereunder shall be paid to landlord without notice or demand or without abatement, deduction or setoff. All fixed rent or other payment delinquent for a period in excess of 10 days shall be subject to a late charge of 5% of the amount of the delinquent payment. In addition, all sums owing hereunder shall, commencing 10 days after their due date, their interest at a rate per annum equal to the “Prime Rate”, as the same may be charged from time to time and published in the Wall Street Journal, (the “Interest Rate”), from the applicable due date. Tenant shall also pay any sales and use tax or other similar character that is imposed upon or measured by the fixed rent, additional charges and/or other sums payable hereunder.”
For the purposes of this decision, § 3.4, namely, “accord and satisfaction” is only relevant to the extent that the provision provides that no payment by the tenant or receipt by the landlord of any lesser amount than the amount stipulated to be paid hereunder shall be deemed other than on account of the earlier stipulated rent or additional rent nor shall any endorsement or statement on any check or letter be deemed in accord and satisfaction, and landlord may accept any check or payment without any prejudice to landlord's rights to recover the balance due or to pursue any other remedy available to landlord.” Stated another way, the landlord's acceptance of the lower rent does not waive the landlord's right to collect the additional sum the landlord claims due and owing in this proceeding.
A review of the above language leads this Court to no other conclusion than that the intentions of the parties was that the fixed rent or the initial rent would be $225,000.00 for the first year and for each year thereafter, the fixed rent would be increased in accordance with the consumer price index as set forth in article 24 of the lease. The lease does not make any reference whatsoever to the “chained” CPI or any of the other theories that have been proffered by the Respondent. The Court, hence, finds that the Petitioners are entitled to the rent increases as stated in the lease.
In addition, the Respondent argues that the calculation by the C.P.A. Bandini is incorrect. The Respondent's contentions are also without merit. The Court has reviewed the calculations by the C.P.A. as admitted into evidence as Petitioner's Exhibit “7” and finds that the calculations are arithmetically accurate and are in accordance with the method set forth in the lease agreement between the parties.
Notwithstanding the fact that the current landlord, then tenant, did not increase the rent during his tenure, and the court believes that this was intentional, the lease agreement specifically provides for the increases in dispute.
Contrary to the contentions by the Petitioner, notwithstanding the lack of defenses stated in the Respondent's answer, this Court will not ignore the facts, admitted by both parties, that the Petitioner never paid any rent increases and unreasonably delayed in the commencement of this proceeding. As stated above in the matter of Healey v. Williams, 30 AD3d 466, 818 N.Y.S.2d 121 (App.Div., 2d Dept., 2006) despite a marital stipulation, which included a prescription against oral modification, the trial court findings that the parties nonetheless orally modified the agreement was supported by the evidence in the record and affirmed.
As a general rule, a landlord is not entitled to a possessory judgment in a summary eviction proceeding for a “stale” claim for rent—or where the landlord has failed to institute a summary proceeding for a substantial period of time to the detriment of the tenant. Rodriguez v. Torres, 1/22/2003 N.Y.L.J. 22, col. 1 (Civ.Ct. Kings Co.); McLaughlin v. Timms, 11/30/84 N.Y.L.J. 4, col. 3 (App. Term 1st Dept); Airco Alloys Division, Airco Inc. v. Niagara Mohawk Power Corp., 76 A.D.2d 68, 430 N.Y.S.2d 179 (4th Dep't 1980) ; 220–55 46th Ave Owners v. National Ventures, 3/11/92 N.Y.L.J. 25, col. 6 (Civ.Ct. Queens Co.); Gabmar Realty Corp v. Titronics, 8/14/96 N.Y.L.J. 27, col. 5 (City Ct. White Plains).
To establish the defense of laches, two essential facts must be found; first, an egregious, protracted delay and second, substantial prejudice to the party affected. Genesee Hospital v. Kramarsky, 95 Misc.2d 609, 408 N.Y.S.2d 279 (Sup.Ct.Monroe Co., 1978) ; Airco Alloys v. Niagra Corp., 76 A.D.2d 68, 430 N.Y.S.2d 179 (4th Dept.1980).
Laches is an equitable doctrine based on fairness (Continental Cas. Co. v. Employers Ins. Co. of Wausau, 60 AD3d 128, 137, 871 N.Y.S.2d 48 [2008] ). For the doctrine to apply, there must be a showing of unexplained delay and prejudice (see Saratoga County Chamber of Commerce v. Pataki, 100 N.Y.2d 801, 816, 766 N.Y.S.2d 654, 798 N.E.2d 1047 [2003] ). Whether a party has suffered “injury, change of position, loss of evidence, or some other disadvantage resulting from the delay” (Matter of Linker, 23 AD3d 186, 189, 803 N.Y.S.2d 534 [2005], quoting Skrodelis v. Norbergs, 272 A.D.2d 316, 317, 707 N.Y.S.2d 197 [2000] ) “depends on the facts of the case” (Continental Cas. Co. v. Employers Ins. Co. of Wausau, 60 AD3d at 137, 871 N.Y.S.2d 48 ).
More importantly, for this proceeding, the case law holds that the defense of laches is not a viable defense to commercial nonpayment disputes. See Landlord and Tenant Practice in New York, Section 14:351 at 14–186 [West's N.Y. Practice Series, vol F, 2007] ) footnote No.1 which cites: Kalimian v. Collezioni Fifth Ave ., Inc., N.Y.L.J., 11/13/98, p. 28, col. 3 (App.Term, 1st Dep't); U.B.O. Realty Corp. v. Fulton, N.Y.L.J., 9/8/93, p. 21, col. 1 (App.Term, 1st Dep't) (laches “finds application only in the context of residential nonpayments”). Similarly, the court in South Street Seaport v. Ry—Allie Candy Corp., 14 Misc.3d 1208, 836 N.Y.S.2d 490 (Civ Ct, NYC 2006), affirmed that laches doesn't apply to commercial summary proceedings; 501 Seventh Ave. Associates v. 501 Seventh Ave. Bake Corp., 2002 WL 31065240, 2007 N.Y. Slip Op 50362 (Civ Ct, NYC 2002); see also Karagiannis v. Nasah/Hyer, 35 Misc.3d 37, 943 N.Y.S.2d 816 (AT, 2nd & 11th JD, 2012). Mere delay without a showing of prejudice does not constitute laches (Premier Capital, LLC v. Best Traders, Inc., 88 AD3d 677, 930 N.Y.S.2d 249 [2011] ; Dwyer v. Mazzola, 171 A.D.2d 726, 727, 567 N.Y.S.2d 281 [1991] ). In determining whether rent claims are stale, proof of prior litigation between the parties may negate a defense based on laches (e.g. Roxborough Apts. Corp. v. Becker, 31 Misc.3d 138[A], 2011 N.Y. Slip Op. 50753[U], 2011 WL 1631913 [App. Term., 1st Dept 2011] ; Baumrind v. Valentine, 2002 N.Y. Slip Op. 50137[U], 2002 WL 704461 [App. Term., 1st Dept 2002] ).
In this case, it is irrefutable that the landlord utterly failed to pay or collect the rent increases for the period of August 2007–May 2013 for the Respondent corporation. In addition, no evidence was ever presented to show that the Petitioner ever commenced any proceeding to recover the rent increases. Under these facts, the Petitioners have commenced this action to recover part of the rent during Fred Brenner's tenure as a tenant. In the opinion of this Court, such action is not only in bad faith, but also “an egregious, protracted delay”. According to the Respondent, this litigation would not have ensued but for his exercise of the option to purchase 432 Keap Street, Brooklyn, NY. Despite this claim, the Respondent had the absolute right as a matter of law to exercise the option in accordance with the terms of the underlying lease agreement in dispute. This Court is of the opinion that this action ensue due to the fact that the other property was in contract for sale and the Respondent attempted to “interfere” with that sale by the exercise of the option.
Despite the above facts, the evidence in this case does not support a finding of any substantial prejudice to the Respondent. Irwin Brenner never testified to any substantial personal or corporate prejudice due to the rent increase. Although the laches defense is not applicable in commercial proceedings, this Court has the discretion to determine if the Petitioner is entitled to entry of a judgment of possession or for money or both based on all of the above facts. However, since the Respondent has not proffered any evidence of prejudice or harm, the Court finds that there is no prejudice or harm to the Respondent corporation as a result of the rent increases. In fact, both the Respondent and his attorney submitted evidence that the sums that they believed owed is deposited into the escrow account of his attorney. Since the Respondent has deposited the rent that he claims is due, this Court can reasonably conclude that the Respondent has the ability to pay any sums determined due and owing by this Court.
For all of the reasons stated above, the lease is not ambiguous, has been construed by its plain and ordinary terms and conditions, and is enforceable against the Respondent as stated below.
C.
THE FIXED RENT BASED ON FIXED RENT INCREASES PRIOR TO THE STATUTE OF LIMITATION IS NOT PRECLUDED
One of the critical components of the Respondent's claims involve the manner and method of the rent calculation by the Petitioner. The Respondent claims that the Petitioner is not entitled to increase the fixed rent for the commercial space and if allowed to collect the yearly increases by the Court, that the Court preclude the Petitioner from using any rental amount for any time period before the statute of limitation; in this case, prior to August 2007. The Respondent's arguments are fatally flawed and unsupported by any case authority. The identical claim was made by residential rent regulated tenants before the Court of Appeals years ago in opposition to the implementation by the former state DHCR to allow rent increases in the legal regulated rent based on major capital improvements. This position was unsustainable based on the realities of the residential real estate market and thus, even more applicable to commercial real estate.
In the well known case of Bryant Avenue Tenant's Assoc., et al v. Edward I. Koch, 84 N.Y.2d 960, 644 N.E.2d 1381 (1994), the IAS court was reversed that held that the Rent Stabilization statute itself prohibited the merger of MCI rent increases with the legal regulated rent. The IAS court concluded that, even though DHCR limits MCI increases to 6% per year, the fact that such MCI increases become part of the legal regulated rent, which is then subjected to other annual rent increases, such as annual Rent Guidelines Board (“RGB”) increases, has the effect of compounding the MCI increases (emphasis added ). According to the IAS court, because of the compounding of the rent increases, the practical effect of merging an annual 6% MCI is to increase the MCI in excess of 6%. It was argued that to allow the MCI to become a permanent part of the base rent would be tantamount to forcing the tenants to pay for the increase forever. The High Court outright rejected this rationale and dismissed the Appellant's claims, similarly proffered by the General Plumbing in this case, that the resulting “compounding” is a windfall to the Petitioners that should be disallowed. The High Court stated that such an absurd result could not have been—and surely was not—intended by the Legislature.
The Court opined that the Legislature as well as the Judiciary have repeatedly concluded that the purpose of the rent regulatory laws and codes that allow MCIs to become part of the permanent base rent is to provide an incentive to owners of residential property to improve and upgrade their buildings. See, e.g., Assembly Debates, infra, at 293–94; Ansonia I, infra; Park Knoll Tenants' Ass'n v. DHCR, infra (“if landlords were limited to recoupment of actual costs, there would be no incentive for such improvements”). “Accordingly, the conclusion urged by the Appellants, and unanimously rejected by the First Department, that permanent increases in the base rent for MCIs violate the public policy underlying the RSL, rests on a fundamentally flawed, one-sided view of the RSL. The Rent Stabilization Law that Mayor Lindsay proposed was born of the need to balance the protection of tenants with the need to encourage private investment in residential housing. As Mayor Lindsay stated then: “[t]he City is faced then with an extraordinarily critical and delicate problem. We must prevent unfair and excessive rent increases, which landlords are in a position to impose because of the scarcity of housing; but we must not hastily impose rigid controls in the private sector, or no builder will ever construct private housing in New York City again. If that happened, new construction would be at a standstill, the construction trades would suffer, and the City would be faced with a permanent housing shortage”. See Ansonia Residents' Ass'n v. DHCR, No. 17947/85 (Sup.Ct. N.Y. Co. Jan. 18, 1987), aff'd, 144 A.D.2d 1040 (1st Dep't), aff'd, 75 N.Y.2d 206 (1989) (“Ansonia I ”); Ansonia Residents' Ass'n v. DHCR, 141 Misc.2d 224 (Sup.Ct. N.Y. Co.1988), rev'd sub nom. Ansonia Assocs. v. DHCR, 157 A.D.2d 583 (1st Dep't 1990) (“Ansonia II ”); See RSL § 26–501; 8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124 (1970).” In conclusion, the High Court found that “the policies of DHCR both with respect to the merger of the increases into the stabilized rent, as well as allowing temporary retroactive rent increases to recover arrears, are fully supported by judicial precedent, the statute itself and the legislative history”.
If the High Court rejected this position for residential tenants, this Court rejects the Respondent's claim of inequity in the Accountant's calculation which allowed for the compounding of the increases in the yearly fixed rent. As described above and here, Respondent's argument that the landlord should not be entitled to compound the increase falls on deaf ears. Were this Court to adopt the Respondent's position here, the Petitioners, mainly Fred Brenner, would be deprived of the right to recoup his monetary investments in the subject property from the inception of his lease with right to purchase dated back to December 8, 1980.
With equal emphasis, but for the annual increases in the rent, there would be no profit (emphasis added ). The owner would be deprived of the necessary increases in revenue to maintain the property. Moreover, in this case, Fred Brenner would not have sufficient income from the property to keep up with the rate of inflation or pay ordinary expenses including but not limited to real estate taxes, water and sewer and/or insurance. Fred Brenner did not invest nearly his entire working life to yield some return on his investment.
Of equal significance, the Petitioner, Fred Brenner, should not be deprived of his ability to make a profit from the subject property particularly because of his initial investment in the property in the sum of $300,000.00 plus his costs including tax assessments for his improvements in the property. In addition, Fred Brenner made full payment of the underlying mortgage between him and the former owner, the Walben Company, in the sum of $377,200.00 recorded in the County Registry on March 10, 1989 and then payment in satisfaction of the mortgage to a banking institution which fully satisfied his financial obligation to the property recorded on May 17, 2002.
For these reasons, the Respondent's assertion has no merit, in fact or at law, and is contrary to customary commercial and business practices in this state and would abrogate the rights of the real property owner to derive commercial revenue from this property.
Additionally, the Respondent argues that the Petitioners are precluded from using the fixed rent increases prior to August 2007. This argument is also unavailing. Since this type of claim was likewise rejected by the Courts and the Legislature in residential rent regulation of private property (rent stabilization and rent control laws and regulations), certainly, such a claim is definitely not applicable to commercial real estate.
Briefly, prior to the Rent Regulatory Reform Act of 1997 (RRRA 1997), the DHCR permitted the examination of rent histories for any period prior to the four years preceding the filing of a rent overcharge complaint. The RRRA 1997 amended rent overcharge provisions of the RSL by adding language intended to preclude any examination of rental histories for any period prior to the four years preceding the filing of a rent overcharge complaint. (See EPTA § 12(a)(1); NYC Admin. Code § 26–516(a)). The amended statute was made applicable to all pending complaints. Under the prior law, the base date for an overcharge complaint filed on September 1, 1997 would have been April 1, 1993. Under the amended law, the base date is September 1, 1993.
RRRA 97 similarly amended the four year statute of limitations for rent overcharge claims raised in court and governed by CPLR 213–a. “While the strict four-year statute of limitations has been upheld in a number of court cases, questions concerning interpretation of the four year rule continue to reach the courts”. New York Landlord–Tenant Law, Tanbook, Part III, Rent Regulation, Editorial Comment (2014 ed. LexisNexis/Matthew Bender 2014). See the recent cases of Ador Realty LLC v. DHCR, 25 AD3d 128, 802 N.Y.S.2d 190 (2nd Dept., 2005) finding that the owner had to submit a rent history to substantiate rent increases eight years before the new tenant took occupancy in a challenge of the tenant to the longevity allowance under the rent law; Cintron v. Calogero, 15 NY3d 347 (2010) finding that the DHCR could consider rent reductions prior to the four year statute of limitations; and the Matter of Frimm v. DHCR, 15 NY3d 358 (2010) overturning the failure of the DHCR to consider rent history before the base date charged to the tenant in a fraud case.
Therefore, the Respondent's position regarding the compounding of the fixed rent and the prohibition against any rent increase of the fixed rent prior to the statute of limitations is not only unsupported by residential landlord and tenant law, it is contrary to customary commercial and real estate practices.
After review, this Court, accordingly, finds that the C.P.A.'s calculations made and admitted into evidence as Petitioner's “7” for the fixed rent increases are arithmetically accurate and supported by general commercial real estate practices in NYC. The Petitioners are hence entitled to establish the fixed rent based on increases that occurred prior to the application of the statute of limitations.
When comparing the total amount paid in Petitioner's Exhibit “7” and the Respondent's calculations under Respondent's “A”, the Court finds that the parties are in agreement as to the amount that was paid by the Respondent Corporation notwithstanding their underlying dispute about the method and manner of the rent calculation. The monthly rent with the CPI increase minus the amount that was paid and monthly delinquency amounts are also accurate. Petitioner's Exhibit “7” substantiates that the total rent delinquency amount is $249,404.97 and the Court finds this amount due and owing by the Respondent.
IMPOSITION OF LATE FEES AND INTEREST
Practically every commercial lease contains provisions for late fees, legal fees and liquidated damages that are intended to ensure timely rent payments and compliance with the terms and conditions of the lease. Since there is no statutory right to these kinds of fees, the tenant's liability for such fees must be contained in the lease agreement. With regard to late charges, they are typically in the form of a flat fee or interest at a rate determined by the landowner for noncompliance with the agreement.
Under both the Uniform Commercial Code (“UCC”) and common law, a myriad of commercial and residential cases reveal the necessity of the judiciary to determine the enforceability of such clauses. A history of the case authority illustrates that the primary question of fact for judicial review is whether such clauses are a “penalty” or “forfeiture” of a right not contemplated by the law or contrary to public policy. There are several standards of judicial review.
Notwithstanding the Courts' rules of enforcement, “implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance. This embraces a firm pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion” (Dalton v. Education Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N .E.2d 289 [internal quotation marks and citation omitted] ); Gallagher v. Lambert, 74 N.Y.2d 562, 549 N.Y.S.2d 945, 549 N.E.2d 136, rearg. denied 75 N.Y.2d 866, 552 N.Y.S.2d 931, 552 N.E.2d 179 ; Black v. MTV Networks, 172 A.D.2d 8, 576 N.Y.S.2d 846, appeal dismissed 79 N.Y.2d 915, 581 N.Y.S.2d 667, 590 N.E.2d 252 ).
As stated in NY Practice Series–Landlord and Tenant Practice in New York, § 10:11, it is well the implied covenant of good faith and fair dealings applies to leases. See also, Robert f. Dolan, Rasch's Landlord & Tenan–Summary Proceedings, § 6:13 entitled “Unconscionable Lease or Clause” wherein the doctrine is discussed. Notwithstanding this implied covenant, our Courts have assumed the role of policing disputed agreements.
Turning to the UCC, Article 2 that governs the statutory remedies for breach of contract in a commercial transaction for the sale of goods. In the early case of Equitable Lumber Corp. v. IPA Land Dev. Corp., 38 N.Y.2d 516, 344 N.E2d 391, 381 N.Y.S.2d 459, 1976 ), our highest court, in a case of first impression, was called on to determine the enforceability of a provision in a commercial sales contract which 1) stipulated that the seller may recover the reasonable value of attorney's fees incurred as a result of the buyer's breach and 2) attempted to liquate such sum at 30% of the amount recoverable by the plaintiff in the event that the buyer failed to make payments due under the contract which required the services of an attorney for collection.
The Court ruled that attorney's fees were not recoverable as damages in an action for breach of contract under the UCC or otherwise at law, unless expressly agreed to by the parties. The Court, in its analysis of the UCC, called to attention of all parties that the code itself allows the parties broad discretion to fashion their own remedies for breach of contract but continue to contain express limitations on the ability of the parties to alter the damages rules.
The UCC provisions, namely § 2–302 (unconscionability) and § 2–718 (liquidated damages clause) were analyzed by the Court. The majority stated that “[o]ur courts have, in the past, refused to enforce a liquidated damages provision which fixed damages grossly disproportionate to the harm actually sustained, or likely to be sustained, by the non-breaching party (14 N.Y.Jur., Damages, s 162; see e.g., Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 192 N .E. 297 ; Seidlitz v. Auerbach, 230 N.Y. 167, 129 N.E. 461 ; Weinstein & Sons v. City of New York, 264 App. Div. 398, 399, 35 N.Y.S.2d 530, 531, affd. 289 N.Y. 741, 46 N.E.2d 351 ; Parker v. Dairy-men's League Co-operative Assn., 222 App.Div. 341, 346, 226 N.Y.S. 226, 232 ).
In Wirth & Hamid Fair Booking (supra, 265 N.Y. p. 223, 192 N.E. p. 301 ), the High Court noted that “(l)iquidated damages constitute the compensation which the parties have agreed must be paid in satisfaction of the loss or injury which will follow (sic ) from a breach of contract. They must bear reasonable proportion to the actual loss. Otherwise, an agreement to pay a fixed sum, upon a breach of contract, is an agreement to pay a penalty, though the parties have chosen to call it liquidated damages,' and is unenforceable”. UCC § 2–302 of the code which articulates the principle of unconscionability provides in pertinent part: “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause so as to avoid any unconscionable result.” The principle underlying this section is the prevention of oppression and unfair surprise and not of disturbance of allocation of risk (Official Comment, McKinney's Cons.Laws of NY, Book 62 1/2, part I, Uniform Commercial Code, s 2–302, p. 193). It should be emphasized that in contrast to subdivision (1) of § 2–718 of the code discussed above, § 2–302 is limited to and focuses only on the time of contracting as the vantage point for the determination of unconscionability.
After a review of the evidence, the High Court concluded that “under the circumstances of this case, the provision for payment of attorney's fees does not fail on the ground of unconscionability, although in a case involving disparity of bargaining power or oppressive practices, this principle may be the basis for invalidating such a contractual term”. Without sufficient evidence to make such a determination, the court remanded for those factual deficiencies.
The same principles of unconscionability as described in the UCC have been codified in New York. In New York, “[f]ortunately, the Legislature has provided a remedy in its enactment of RPL § 235–c whose purpose is to engraft the spirit of the Uniform Commercial Code into landlord and tenant relationships and to mandate a judicial policing against unconscionable results without strained construction of legal principles.”. See NY Real Prop. Law § 235–c ; Pine Top Associates v. Hirsch & Sons Deli World, Inc., 92 Misc. 29 470, 400 N.Y.S.2d 665 (1977).
In the seminal case of Truck Rent–a–Center, Inc., v. Puritan Farms 2nd, Inc., et al, 41 N.Y.2d 420, 361 N.E.2d 1015, 393 N.Y.S.2d 365 (1977), a milk delivery truck-lessor sued to enforce a liquidated damages provision in a lease. The Supreme Court, Queens County, rendered judgment for the plaintiff. The Supreme Court, Appellate Division, Second Judicial Department, at 51 A.D.2d 786, 380 N.Y.S.2d 37, affirmed by a divided court, and the defendant appealed. The Court of Appeals held that the lease provision requiring the lessee on breach of contract to pay one-half of all rentals that would have been due had the agreement be fully complied with bore a reasonable relation to amount of probable actual harm and was not a penalty. “Although lessee might have exercised purchase option for amount less than liquidated damages and although clause appeared on preprinted foreign portion of agreement, there being no indication of [any] disparity of bargaining power or of unconscionability”.
The primary issue before the court was whether the liquidated damages' provision was enforceable. “Liquidated damages constitute the compensation which, the parties have agreed, should be paid in order to satisfy any loss or injury flowing from a breach of their contract. (Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 223, 192 N.E. 297, 301.) In effect, a liquidated damage provision is an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement. (5 Williston, Contracts (3d ed.), § 776, p. 668.) Parties to a contract have the right to agree to such clauses, provided that the clause is neither unconscionable nor contrary to public policy. (Mosler Safe Co. v. Maiden Lane Safe Deposit Co., 199 N.Y. 479, 485, 93 N.E. 81, 83.) Provisions for liquidated damage have value in those situations where it would be difficult, if not actually impossible, to calculate the amount of actual damage. In such cases, the contracting parties may agree between themselves as to the amount of damages to be paid upon breach rather than leaving that amount to the calculation of a court or jury. (14 N.Y. Jur., Damages, s 155, pp. 4–5.)”
On the other hand, “liquidated damage provisions will not be enforced if it is against public policy to do so and public policy is firmly set against the imposition of penalties or forfeitures for which there is no statutory authority. (City of Rye v. Public Serv. Mut. Ins. Co., 34 N.Y.2d 470, 472–473, 358 N.Y.S.2d 391, 392–393, 315 N.E.2d 458, 459.) It is plain that a provision which requires, in the event of contractual breach, the payment of a sum of money grossly disproportionate to the amount of actual damages provides for penalty and is unenforceable. (e.g., Equitable Lbr. Corp. v. IPA Land Dev. Corp., 38 N.Y.2d 516, 521–522, 381 N.Y.S.2d 459, 462–463, 344 N.E.2d 391, 395–396, supra; Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 223, 192 N.E. 297, 301, supra; Mosler Safe Co. v. Maiden Lane Safe Deposit Co., 199 N.Y. 479, 485, 93 N.E. 81, 83, supra. )
As was stated eloquently long ago, to permit parties, in their unbridled discretion, to utilize penalties as damages, “would lead to the most terrible oppression in pecuniary dealing”. (Hoag v. McGinnis, 22 Wend. 163, 166 ; see also 425 Matter of Associated Gen. Contrs., N.Y. State Ch. (Savin Bros.), 36 N.Y.2d 957, 961–962, 373 N.Y.S.2d 555, 558–559, 335 N.E.2d 859, 861–862, (dissenting opn.).)”
The rule is now well established. “A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. (City of Rye v. Public Serv. Mut. Ins. Co., 34 N.Y.2d 470, 473, 358 N.Y.S.2d 391, 393, 315 N.E.2d 458, 459, supra; Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 223, 192 N.E. 297, 301, supra ; Curtis v. Van Bergh, 161 N.Y. 47, 55 N.E. 397; Ward v. Hudson Riv. Bldg. Co., 125 N.Y. 230, 26 N.E. 256, supra; Restatement, Contracts, s 339.) If, however, the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced. (Equitable Lbr. Co. v. IPA Land Dev. Corp., 38 N.Y.2d 516, 521–522, 381 N.Y.S.2d 459, 461–462, 344 N.E.2d 391, 394–395, supra ; Seidlitz v. Auerbach, 230 N.Y. 167, 172–173, 129 N.E. 461, 462–463 ; 14 N.Y.Jur., Damages, s 155.)
In interpreting a provision fixing damages, it is not material whether the parties themselves have chosen to call the provision one for liquidated damages', or have styled it as a penalty. (Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 225, 192 N.E. 297, 302, 1019, supra ; Ward v. Hudson Riv. Bldg. Co., 125 N.Y. 230, 234, 26 N.E. 256, supra. ) Such an approach would put too much faith in form and too little in substance; and should be interpreted as of the date of its making and not as of the date of its breach. (e.g., Seidlitz v. Auerbach, 230 N.Y. 167, 172, 129 N.E. 461, 462, supra. )”
In enforcing the liquidated damages clause, the Court found “no significance to the fact that the liquidated damages clause appears on the preprinted form portion of the agreement. The agreement was fully negotiated and the provisions of the form, in many other respects, were amended. There is no indication of any disparity of bargaining power or of unconscionability. The provision for liquidated damages related reasonably to potential harm that was difficult to estimate and did not constitute a disguised penalty”. Id. at 427.
In the commercial context, in Pryamid Centres and Co., v. Kenny Shoe Corp., 244 A.D.2d 625, 663 N.Y.S.2d 711 (AD3d Dept., 1997) it was held that a commercial lease that provides that the landlord is entitled to double the fixed rent or the average annual percentage rent, whichever is greater, was unenforceable. According to the court, the provision was intended to coerce defendant's performance rather than compensate plaintiff's for breach of contract. As such, “we agree with Supreme Court that the liquidated damages provisions of paragraph 6.02 is an unreasonable penalty that was disproportionate to any subsequent loss suffered by the plaintiffs.” See also an interesting case, namely, Babylon Village Equities v. Mitchell, 11 Misc.3d 84, 816 N.Y.S.2d 279 (AT, 2d & 11th Jud. Dist., 2006) in which the court determined that a final judgment of possession for the landlord should be vacated. “The award of legal fees was based on a lease clause which purported to entitle landlord to $250.00 if landlord commenced a summary proceeding predicate, inter alia, on tenant's nonpayment of rent and a total of $500.00 if the proceeding was brought to judgment. “However, notwithstanding any provision in the lease to the contrary, only a prevailing party is entitled to recover attorney's fees [see Nestor v. McDowell, 81 N.Y.2d 410, 415–416, 599 N.Y.S.2d 507, 615 N.E.2d 991[1993] ; Village of Hempstead v. Taliercio, 8 AD3d 476, 778 N.Y.S.2d 519 [2004] ”. In that case, the landlord did not prevail on the merits was respect to the central relief sought because there was no possessory judgment for any rent arrears.
The standard rule of law of excessive and unenforceable penalties remains identical for commercial property as shown in Pryamid Centres and Co., v. Kenny Shoe Corp., supra.; additionally, a late charge provision in a lease which awarded 365% per annum penalty was found to be “unreasonable and confiscatory in nature” and thus unenforceable (Sandra's Jewel Box Inc. v. 401 Hotel, L.P., 273 A.D.2d 1, 708 N.Y.S.2d 113 (1st Dep't 2000) ); a late fee of 10% of monthly rental amount was disallowed because “imposition of a fixed percentage of rent, without proof of actual costs or expenses incurred by the landlord, is unconscionable as it is disproportionately onerous and confiscatory in nature” (North Clinton Associates v. Rehman, ISLT 179–11, NYLJ 1202482550604 at 1 Dist., SUF, decided February 14, 2011).; a lease provision which prohibited the tenant from asserting a “defense to any action or proceeding,” held as unconscionable. (Ultrashmere House, Ltd. v. 38 Town Associates, 123 Misc.2d 102, 473 N.Y.S.2d 120 ).
In addition to the above, Courts struck some of the above types of lease provisions using the doctrine of contracts of adhesion'. After all, as Robert F. Dolan, Rasch's Landlord & Tenan–Summary Proceedings, § 2:8 at 112 [4th ed.], provides “all leases are subject to judicial scrutiny under the concept of unconscionability and if the lease is or any provision thereof is found to be unconscionable when made, the court may refuse to enforce the lease or to strike that unconscionable provision”.
A good analysis by Judge David A. Sears, in VP Village Park, LLC v. Victor, 40 Misc.3d 1233(A), 2013 WL 4565918 (N.Y. Just. Ct) ) depicts a dispute involving the validity of a late charge provision in a lease. He said that “[a] contract of adhesion is a contract formed as a product of gross inequality of bargaining power between the parties. Such a contract will be deemed unconscionable when it inflicts substantive unfairness on the weaker party. Such a contract often arises when a standardized form is presented to a party whose choice is either to accept or reject a contract without an opportunity to negotiate its terms. An adhesion contract tainted by unconscionability is unenforceable. A contract of adhesion will be set aside upon a showing of unfairness, undue oppression or unconscionability. Standardized contracts are not unenforceable merely because of an inequality of bargaining power of the parties without additional proof of unconscionablity or violation of public policy. In considering the doctrine of contracts of adhesion, a court must look for the elements of such a contract which are (1) a necessity of life; (2) a contract for the excessive benefit of the offeror; (3) an economic or other advantage of the offeror; and (4) the offer of a proposed contract on a take it or leave it basis. Spring Valley Garden Associates v. Earle, 112 Misc.2d 786 (Special Term Rockland County, 1982).
“In this case, the contract was drafted by VP Village Park Apartments, LLC consisting of 19 pages and providing for late fees in the event of a holdover. Although the late fee was not calculated by Petitioner as set forth in the lease, the late charge provision is excessive and grossly disproportionate to any amount of damages that could be sustained by the failure to pay rent in a timely fashion. The clause, if applied as written, could virtually spiral to the point that outstanding late charges would far and away exceed the monthly rent in little more than two months. In this Court's view, the late charge provision of this lease is a penalty. Accordingly, the late charge provision as drafted in the Petitioner's lease is deemed unconscionable and void”.
In Grand Baldwin Assos. v. Birnak, ABC Corp., 21 Misc.3d 1129(A), 2008 WL 4891113 (N.Y. Dist. Ct) Justice Fairgreive, similarly, after a detailed analysis supported by well settled landlord and tenant rules of law and reliance on many of the above cases including but not limited to Truck Rent–A–Center, Inc. v. Purtan Farmres 2nd Inc., supra; Wirth & Hamid Fair Booking v. Wirth, supra; and Equitable Lbr. Co. v. IPA Land Dev. Corp., supra, found the liquidated damages provision a penalty and not enforceable by law. His analysis involved a comparison of the recent case of Thirty–Third Equities Company LLC v. Americo Group, Inc. (294 A.D.2d 222, 743 N.Y.S.2d 10 [1st Dept., 2002] ), where the Court held that a liquidated damages clause calling for a 250% increase in rent was enforceable where the landlord had already found a new tenant to rent the premises at a 250% increase from the rent that the original tenant was paying for the space. Additionally, in Chatham Green Mgt. Corp. v. AAFE Mgt. Co., 2003 WL 22299083, 2003 N.Y. Slip Op. 51298(U) (N.Y. City Civ. Ct), a case involving a short term commercial lease agreement with a option to renew for five consecutive years, the Civil Court held that the lease provision awarded the landlord 3 times the base rent was unenforceable. The court reasoned that such an amount was not reasonably proportionate to the injury the landlord sustained as a result of the tenant's failure to vacate the premises.
Furthermore, Judge Fairgrieve reasoned that “the Petitioner is seeking to enforce a liquidation clause that calls for trebling the minimum amount of rent. Such an amount bears no relation to harm actually suffered by the Petitioner. For the five years of the subject lease, the Petitioner consistently increased the annual rent in increments of $875.00. Accordingly, it would seem unjust and unconscionable to award Petitioner treble rent when the value of the premises gradually increased throughout the last five years in steady increments of $875.00. Furthermore, and rightfully so, “[l]iquidated damages provisions are valuable in situations where it is difficult to ascertain the actual damage. It is the right of the parties to agree upon liquidated damages that would be paid in case of a breach of the lease, rather than leaving such an amount to the discretion of the court or jury. Truck Rent–A–Center, Inc., 41 N.Y.2d at 424, (citing, 14 N.Y. Jur, Damages, § 155, pp. 4–5). However, where a liquidated damages clause is absolute and unjustly enriches one party over another, such a clause should be considered unconscionable and held unenforceable by law because same constitutes a penalty, (see, 3 Dolan, Rasch's Landlord and Tenant–Summary Proceedings, § 6.13, at 282 [4th Ed] ).
In Rossrock Fund II LP v. Arroyo, 34 Misc.3d 1211(A), 2012 WL 127444 (N.Y. Sup.) a forbearance agreement in a foreclosure action was rescinded on the grounds of unconscionability. The Court (J. Steinhart) concluded that case authority reveals “two major elements which have been labeled by commentators [as] procedural and substantive unconscionability” (State of New York v. Wolowitz, 96 A.D.2d 47, 67 [1983] ). “The procedural element of unconscionability concerns the contract formation process and the alleged lack of meaningful choice; the substantive element looks to the content of the contract, per se” (State of New York v. Wolowitz, 96 A.D.2d at 67 ; see Lawrence v. Graubard Miller, 11 NY3d 588, 595 [2008] ). Examples of procedural unconscionability “include, but are certainly not limited to, high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance in the understanding and acumen of the parties” (State of New York v. Wolowitz, 96 A.D.2d at 67 ). “Examples of unreasonably favorable contractual provisions are virtually limitless but include inflated prices, unfair termination clauses, unfair limitations on consequential damages and improper disclaimers of warranty” (id. at 67–68 ).
Having said all of the above, in summary, late charges are recoverable; however, the amount of a late charge, when awarded, must be reasonable and nonpunitive, and must bear some reasonable relationship to the amount of rent involved. (67–25 Dartmouth St Corp v. Silbermann II, 8/11/93 N.Y.L.J. 24, col. 5 [App. Term 2d and 11th Jud. Dists.] ). Moreover, the agreement between the parties must provide for the payment of late charges, (330 3rd Ave Corp v. Valli, 5/27/97 N.Y.L.J. 31, col. 5 [App. Term 1st Dep't] ), and the agreement must specifically provide that the late charges are collectible as “additional rent.” Park Towers Tenants Corp v. Gashi, 9/21/94 N.Y.L.J. 21, col. 1 (App. Term 1st Dep't). See, generally, Parkchester Apartments v. Lewis, 4/22/98 N.Y.L.J. 27, col. 3 (Civ.Ct. Bronx Co.).Thus, the Courts will enforce late and legal fee provisions of rental agreements when a landlord is required to proceed against the tenant(s) for the payment of rent or for the breach of some other material term of the lease, the necessary and reasonable legal fees when expressly agreed upon by the tenant may lawfully be treated as additional rent and enforceable. 379 Madison Avenue Inc. v. Stuyvesant Co., 242 App .Div. 567, 275 N.Y.S. 953, aff'd. 268 N.Y. 576, 198 N.E. 412 ; Morningside v. Lucille, 70 Misc.2d 760, 334 N.Y.S.2d 735 ; Maplewood Mgmt. v. Jackson, 113 Misc.2d 142, 448 N.Y.S.2d 966 (Dist.Ct.1982). See also CPMI, Inc. v. Kolaj, 65 AD3d 605, 885 N.Y.S.2d 496 (2009 N.Y. Slip Op. 06231 ) holding that a late opening charge of two commercial leases was a valid form of liquidated damages, and not an unenforceable penalty. In upholding the trial court's determination, the Appellate Division found that “a party has a right to recover attorneys fee pursuant to the lease provision, and “recoverable fees are those that are reasonable” citing Miller Realty Assoc. v. Amendola, 51 AD3d 987, 859 N.Y.S.2d 258.
In a case strikingly similar to the case at bar, the Appellate Division, Second Department in the matter of Gordon v. Eshaaghoff, 60 AD3d 807, 876 N.Y.S.2d 433 (A.D., 2d Dept., 2009), the landlord sued his tenants to recover for damages for alleged breach of contract of a residential lease. The Supreme Court ruled in the landlord's favor but precluded the collection of the tenant's security deposit or $50.00 per day as late fees for all rent payments made within 10 days of the due date. The Appellate Court held, inter alia, that the landlord could not recover the late fees reasoning that “[t]he Supreme Court properly declined to award the plaintiff the sum of $50.00 per day as a late fee While the lease provided that the landlord “may” impose the late fee, there was no evidence submitted at trial to demonstrate that the plaintiff ever imposed the fee.”
In the case at bar, it is important to review the late fee provision again to determine if the amount of a late charge, if awarded, is reasonable and nonpunitive, and bears some reasonable relationship to the amount of rent. Provision 3.3, entitled “late charges” provides as follows: “[a]ll fixed rent, additional charges and any other sums payable by tenant hereunder shall be paid to landlord without notice or demand or without abatement, deduction or setoff. All fixed rent or other payment delinquent for a period in excess of 10 days shall be subject to a late charge of 5% of the amount of the delinquent payment. In addition, all sums owing hereunder shall, commencing 10 days after their due date, their interest at a rate per annum equal to the “Prime Rate”, as the same may be charged from time to time and published in the Wall Street Journal, (the “Interest Rate”), from the applicable due date. Tenant shall also pay any sales and use tax or other similar character that is imposed upon or measured by the fixed rent, additional charges and/or other sums payable hereunder”.
As one can conclude from the history of commercial transactions with this property, all of the commercial lease agreements were not only recorded but also “run with the land”. So the initial lease and option to purchase did not contain the typical late fee provision as opposed to that of the disputed lease, but did contain a penalty for nonpayment of “additional rent” as follows: “in default of the payment of any taxes or other charges herein set forth, after ten day notice to tenant, the landlord may pay the same and the amount so paid with interest thereon at twelve (12) percent may be added as additional rent to the next installment of rent becoming due.”.
In this disputed lease, the pivotal language of the late fee provision is that all late payments of the fixed rent or other payments be “delinquent” for a period in excess of ten (10) days, shall be “subject” to a late charge of “5% of the amount of the delinquent payment”. Webster defines delinquent, inter alia, as ignoring a duty, commitment or responsibility, or as unpaid finance and overdue payment.
Under the particular facts in this case as established above, the Court does not find that the Respondent corporation was delinquent' in the payment of the monthly rent. The alleged breach of this rental agreement is more akin to a procedural' breach rather than a substantive breach. Until May 23, 2013, the fixed rent, without any CPI increase as prescribed in the lease, was tendered and accepted without reservation by the Petitioners. As compelling, there was no evidence that late fees were ever billed to the Respondent corporation or collected by Fred Brenner as the owner or paid by Fred Brenner as the tenant or his son, Irwin Brenner as the current president of the Respondent corporation (Gordon v. Eshaaghoff, 60 AD3d 807, 876 N.Y.S.2d 433 (A.D., 2d Dept., 2009).
Notwithstanding Petitioner's claim that the Respondent is contractually obligated to pay the late fees, and the lease states that such sums are due, “without notice or demand and without abatement, deduction or set-off”, this Court, pursuant to the above case authority and RPAPL 235–c, finds that the late fee claims, under these particular facts, are unreasonable, are intended as a penalty and therefore, unenforceable. Moreover, the Petitioner's assessment of late fees with interest are “unreasonable and confiscatory in nature” (943 Lexington Avenue, Inc. v. Niarchos, 83 Misc.2d 803, 373 N.Y.S.2d 787 (App Term, 1st Dept 1975) ; Raanana Realty Corp. v. Louis J. Rotondi Restaurant Corp., 1/9/91 N.Y. Law Journal 23, col 3 (1st Judicial Dept, N.Y. Co); Parkchester Apartments Co v. Lewis, 4/22/98 N.Y. Law Journal (1st Judicial Dept, Bronx Co); Rock v. Kleeper, 23 Misc.3d 1103(A), 2009 WL 865514 (N.Y. City Ct.) ; Sandra's Jewel Box Inc. v. 401 Hotel, L.P., 273 A.D.2d 1, 708 N.Y.S.2d 113 (1st Dep't 2000) ; North Clinton Associates v. Rehman, ISLT 179–11, NYLJ 1202482550604 at 1 Dist., SUF, decided February 14, 2011; Ultrashmere House, Ltd. v. 38 Town Associates, 123 Misc.2d 102, 473 N.Y.S.2d 120 ).
Moreover, the method used by the CPA to calculate the late fees and interest is flawed and extract a penalty, are unjust and inequitable. Although the Court has determined that the calculations of the C.P.A. are arithmetically accurate, the application of the late fee provision to the difference between the amount of rent paid by the Respondent ($18,750.00) and the fixed rent with the CPI increase for six years would actually award the Petitioners a true windfall. The Petitioners would unfairly recover monetary penalties against the Respondent for rent increases that the Petitioners did not impose or collect in any manner whatsoever.
As significant, the Respondent was not responsible for the rent increases; suffice it to say, the Petitioners were in complete control of the collection of rent and to make a determination of any rent increases. Imagine the loud cries from the halls of justice if this Court were to impose late fees for alleged delinquent rent payments under these facts where no rent increases were ever paid or collected from the inception of the lease in 2004 to May 31, 2013 between family members. These facts and the above history of this property demand that there be no imposition of the late fees and interest. It is the opinion of this Court that such imposition would be unreasonable and contrary to good public policy.
Second, while the lease states that late payment shall be “subject to a late charge”, there was no evidence submitted at trial to demonstrate that the plaintiff ever imposed the fee.” Gordon v. Eshaaghoff, 60 AD3d 807, 876 N.Y.S.2d 433 (A.D., 2d Dept., 2009). This provision, in the opinion of this Court, is not absolutely mandatory; it gives the Petitioners discretion to impose the fee. If the imposition of late payment was mandatory, the Petitioner's would have imposed the late fee each month of delinquency prior to this law suit. Here, the late fees and interest are being used to coerce Respondent's performance rather than to compensate the Petitioner's for any breach of contract (Pryamid Centres and Co., v. Kenny Shoe Corp., 244 A.D.2d 625, 663 N.Y.S.2d 711 (AD3d Dept., 1997). Since the Petitioner's did not impose any late fees prior to May 23, 2013, this Court shall not permit the Petitioner to impose those fees and find the late fees and interest sought to be imposed here unenforceable as a matter of fact and law.
This Court seeks to be crystal clear that the late fee provision, standing alone, is not unconscionable. Although the court reads the late fee provision as unambiguous and finds that the provision, in and of itself, is not unconscionable, the imposition of late fees and interest, under these facts, are inherently inequitable.
It is clear to the Court that this family feud was ignited by the Respondent's exercise of the option in the disputed lease to purchase the adjoining property at 432 Keap Street, Brooklyn, NY, as was his testimony. As demonstrated above, the Parklot Corp., owned by the three daughters of Fred Brenner, sought to sell the property and when General Plumbing, operated by Fred Brenner's son, Irwin Brenner, their brother, tried to purchase the property himself, in accordance with the lease agreement, this conflict began. Now that the other property is sold, maybe this conflict will end. After all, Irwin Brenner has the right to purchase 436 Keap Street, Brooklyn, N.Y. as set forth in the lease agreement if he so desires at probably an even greater sum than 432 Keap Street, since it contains a commercial business in addition to the real property.
CONCLUSION
For all the reasons set forth above, the Petitioner is entitled to entry of a judgment for money and for possession in the sum of $249,404.97, the warrant of eviction shall issue forthwith and the execution stayed five days.
All claims for late fees and interest are denied with prejudice through and including September 30, 2013.
A courtesy copy of this decision and order shall be mailed by the Court to both parties.
The Petitioner shall, upon entry of the decision and order by the Clerk of the Court, serve a copy of the decision and order and the final judgment on the Respondent with notice of entry within 30 days thereof and file proof of service with the Clerk of the Court.
This constitutes the Decision and Order of this court.