Opinion
187-03.
Decided September 16, 2004.
Kramer, Levin, Naftalis Frankel, LLP, New York, New York, counsel for plaintiff.
Cullen, Dykman, Bleakley Platt, LLP, Garden City, New York, counsel for defendant.
Plaintiff, Fair Oak, L.L.C. ("Fair Oak"), and Defendant, Greenpoint Financial Corp. ("Greenpoint") each move for summary judgment.
BACKGROUND
The parties to this action seek an interpretation of the tax escalation clause contained in a lease dated November 8, 1995 ("Lease") between Triad IV Associates ("Triad") and Greenpoint for portions of the first and second floors of 1981 Marcus Avenue, Lake Success. Fair Oak is the successor-in-interest to Great Oak, L.L.C. which is the successor-in-interest to Triad IV Associates.
Paragraph 8 of the Lease contains the tax escalation clause at issue. The tax escalation clause runs nearly three pages single spaced. It contains 11 separate definitional provisions. The tax escalation clause was not written in "plain English."
Paragraph 8(C) of the Lease contains the payment provisions of the tax escalation clause. This provision requires the landlord to provide the tenant with a statement setting forth the amount of the increased taxes on the building that the tenant is obligated to pay. The statement is to be accompanied by the landlord's calculation of how the tenant's tax payment was determined and a copy of the tax bill for the property. Thereafter, the tenant is required to pay the landlord the calculated amount by the later of fifteen (15) days following receipt by the tenant of the statement or twenty (20) days prior to the date upon which the tax payment is due.
Paragraph 8 (F) requires the landlord to refund to Greenpoint its pro rata share of any tax refund obtained as a result of a tax certiorari proceeding less reasonable expenses incurred in successfully contesting the assessment.
Triad successfully prosecuted tax certiorari proceedings contesting the assessed valuation of the property for the tax years 1994/1995 through 1999/2000. By Order and Judgment dated November 5, 1999, the assessed valuation of the property was reduced and the landlord received a refund of taxes for each of those tax years. The reduction in the assessed value of the property obtained as a result of the tax certiorari proceedings was rather substantial $675,400.00 for the tax year 1995/96 and $688,300.00 for the tax year 1996/1997. The assessed value of the property for these years is important inasmuch as the base real estate tax used to calculate Greenpoint's tax escalation payments is dependent upon the assessed value of the property during these tax years.
Great Oak also successfully mantained a tax certiorari proceeding challenging the assessments for the years 2000/2001 and 2001/2002. These proceedings resulted in reductions of the assessed valuation and a refund of taxes for the properties for both of these years.
Paragraph 8(A)(6), the section whose interpretation is primarily in dispute, reads as follows:
"Base Assessed Valuation" shall mean the average of the estimated dollar amount of full assessed value of the Real Property determined by the Nassau County Assessor's Office during the Base Tax Year without giving effect to any reduction thereof pursuant to any abatement, exemption or other reduction applicable to the Real Property during the Base Tax Year."
The "Base Tax Year" is the ". . . twelve month period commencing with the Rent Commencement Date." The Rent Commencement Date was in early 1996.
The parties agree that their were no exemptions or abatements during the relevant years. However, the parties dispute the effect that the tax certiorari proceeding for the "Base Tax Year" has on the calculation of the tax due date escalation clause.
Fair Oak asserts that pursuant to the tax escalation provision of the Lease the Base Real Estate Tax, for the purposes of calculating the payments due from Greenpoint, should be calculated using the assessed value of the property as determined in the tax certiorari proceeding.
Greenpoint argues that the Base Real Estate Tax upon which the tax escalation should be calculated is fixed as of the Base Tax Year and cannot be adjusted as a result of the tax certiorari proceeding. Greenpoint argues that Fair Oak or its predecessors received the tax refund from Nassau County for the Base Real Estate Tax year. Greenpoint asserts that if Fair Oak recalculates the tax escalation reducing the Base Assessed Valuation to the amount fixed by the tax certiorari judgment that Fair Oak would be receiving a windfall since it received a tax refund from Nassau County and increased tax escalation payments from Greenpoint.
DISCUSSION
A lease is a contract that is subject to the same rules of construction as is any other agreement. George Backer Mgt. Corp. v. Acme Quilting Co., Inc., 46 NY2d 211 (1978); and 1009 Second Avenue Associates v. New York City Off Track Betting Corp., 248 AD2d 106 (1st Dept., 1998).
The intent of the parties is to be determined from the language of the lease. Id. Where the language of a lease is clear and unambiguous, the intent of the parties is to be determined from the language of the lease. Martin v. Glenzan Assocs., Inc., 75 AD2d 660 (3rd Dept., 1980), See also, P.J. Clarke's v. 919 Third Ave. Assocs., 178 AD2d 173 (1st Dept., 1991). The words of the lease should be interpreted using their plain meaning. Martin v. Glenzan Assocs., Inc., supra. The court should refrain from interpreting the language of the lease in such a way as would distort its meaning or render any provisions of the lease meaningless. Poughkeepsie Savings Bank, FSB v. G.M.S.Y. Assocs., 238 AD2d 327 (2nd Dept., 1997).
The purpose of a tax escalation clause is to shift the burden of increased tax assessments from the landlord to the tenant to pay increased real property taxes during the lease terms. S.B.S. Assocs. v. Weissman-Heller, Inc., 190 AD2d 529 (1st Dept., 1993). "What is intended is that the tax assessed will actually be paid by the landlord, resulting in an increased expense to the landlord, a proportionate share of which is to be borne by the tenant (citation omitted)". 1100 Avenue of the Americas Associates v. Bryant Imports, Inc., 161 Misc 2d 582, 584 (App. Term, 1st Dept., 1994)
Tax escalation clauses are not to be interpreted in a way that would provide the landlord with a windfall. Wellington Tower Assocs., L.P. v. New York First Ave. CVS, Inc., 3 A.D.3d 460 (1st Dept., 2004); and Rudd v. 176 West 87th Street Owners Corp., 283 AD2d 202 (1st Dept., 2001); and 388 West Broadway, L.L.C. v. New York Art Exchange, Inc., 224 NYLJ 12, p. 24, col. 2 (Sup Ct. NY Co. 7/19/00).
In this case, the interpretation proposed by Greenpoint is in accord with both the intent of the parties and the language of the tax escalation clause of the Lease.
Paragraph 8(12)(B) of the lease requires the tenant to pay to the landlord the its proportionate share of any tax increases resulting from an increase in either the assessed valuation of the property over the Base Assessed Valuation or an increase of the tax rates over the Base Real Estate Tax Rate.
Tax increases are determined by figuring the product of the Assessed Valuation and the Tax Rate for a Tax Year and subtracting from that the product of the Base Assessed Valuation and the Base Real Estate Tax Rates. Lease ¶ 8(A)(12). Stated more simply, the base tax amount is subtracted from the current tax amount. Greenpoint then pays a percentage of the difference between these two figures as its proportionate share of the tax escalation. The percentage that Greenpoint pays is fixed by the lease and an amendment thereto.
The lease fixes the base tax rate upon which all tax escalations are to be calculated as of the Base Tax Year. This Base Real Estate Tax figure cannot be modified once it is set. Any reduction in the assessed value of the property including any reduction obtained through a tax certiorari proceeding cannot reduce the Base Real Estate Tax rate.
A reduction of the assessed valuation of the property through a tax certiorari proceeding is an "other reduction" of the Base Assessed Valuation for the purpose of Paragraph 8(A)(6) of the Lease. Any other interpretation would render those words "other reduction" meaningless.
This interpretation of the Lease permits Fair Oak to calculate Greenpoint's tax increase obligations annually and permits the proper calculation of the refund of any overpayment resulting from a successful tax certiorari challenge. Lease ¶ 8(F).
All tax escalation payments are based upon the assessed value of the property for the base tax year. Fair Oak wants to use the assessment as determined by the tax certiorari proceeding for the base tax year to calculate the Base Real Estate Tax for the purposes of determining increase in the real property tax for the purposes of the tax escalation clause. Greenpoint asserts that the assessment as fixed by the Nassau County Assessor and not the assessment as determined by the certiorari proceeding should be used to calculate the Base Real Estate Tax for determine the Base Real Estate Tax for the purposes of the tax escalation Clause.
Thus, the Court finds that the term "Base Assessed Valuation" to mean the assessed valuation of the property without taking into account the reduction obtained for that period as a result of the tax certiorari proceeding.
Fair Oak's reliance upon J.C. Penney Co., Inc. v. 1700 Broadway Co., 104 Misc 2d 787 (Sup.Ct. N.Y. Co., 1980) is misplaced. In J.C. Penney, the base tax upon which future tax escalations would be determined could be changed at any time until the assessment for the property had been "finally determined." Therefore, the Penney's lease contemplated a change in the base real estate tax if the assessed value of the property were modified.
The Lease herein does not contain such language. The Lease fixes base tax rate for the purposes of calculating the tax escalations as of the Base Tax Year. This figure was permanently fixed once the tax rate was established and the Nassau County Assessor determined the assessed value of the property for the Base Tax Year.
Now that the Court has interpreted the provisions of the tax escalation clause of the Lease, the matter must be set down for a hearing determine the amount of the additional real estate taxes due and payable by Greenpoint pursuant to the tax escalation clause. See, 388 West Broadway, L.L.C. v. New York Art Exchange, Inc., supra.
Paragraph 26(I) of the lease provides that if Greenpoint commences an action against the landlord and it is successful in that action, the Landlord agreed to reimburse Greenpoint for its reasonable attorney's fees. Greenpoint commenced an action by asserting counterclaims.
Lease provisions that provide for the payment of legal fees to the successful party are enforceable. See, Arent, Fox, Kinter, Plotkin Kahn, PLLC v. Lurzer GmbH, 297 AD2d 590 (1st Dept., 2002). Legal fees are awarded on a quantum meruit basis ( Simoni v. Time-Line, Inc., 272 AD2d 537 [2nd Dept., 2000]; and Borg v. Belair Ridge Development Corp., 270 AD2d 377 [2nd Dept., 2000]) which shall be established at a hearing.
Accordingly, it is,
ORDERED, that Defendant's motion for summary judgment is granted; and it is further,
ORDERED, that Plaintiff's motion for summary judgment is denied; and it is further,
ORDERED, that the matter is respectfully referred to Special Referee Thomas V. Dana on November 4, 2004 at 10:00 a.m. to hear and determine all issues regarding the amount of additional rent that Greenpoint is obligated to pay pursuant to the terms of the Rent Escalation provisions of the Lease and any amendments thereto and to hear and determine all issues relating to the award of reasonable attorney's fees to Greenpoint's attorneys; and it is further,
ORDERED, that counsel for Greenpoint shall serve a copy of this Order upon the attorneys for the Plaintiff and file with the Clerk of the Court a copy of this Order and a
Note of Issue and shall pay the appropriate fees on or before October 21, 2004; and it is further,
ORDERED, that the upon the Special Referee determining the amount of taxes that Greenpoint is obligated to pay and determining the fair and reasonable value of legal fees to be awarded, the County Clerk is directed to enter judgment thereon.
This constitutes the decision and Order of the Court.