Opinion
78755/05.
Decided October 6, 2006.
In a Decision After Trial dated May 18, 2006, this Court found and concluded that Petitioner, New York Economic Development Corporation, is entitled to possession of premises located at Bush Terminal, Brooklyn, now in possession of Respondent, Harborside Mini Storage, Inc. ( See New York City Economic Dev. Corp., v. Harborside Mini Stor., Inc., 12 Misc 3d 1155 [A], 2006 NY Slip Op 50904[U] [Civ Ct, Kings County].) Specifically, the Court found and concluded that Respondent occupies the premises as a month-to-month tenant whose tenancy expired on June 30, 2005 pursuant to Petitioner's notice of termination; the Court rejected Respondent's contention that it occupies the premises pursuant to a sublease dated June 30, 1999 that states an expiration date of December 31, 2008 (the "Sublease.")
In a Supplemental Decision After Trial dated May 24, 2006, this Court found and concluded that Respondent had established its counterclaim for damages based upon a partial constructive eviction. ( See New York City Economic Dev. Corp. v. Harborside Mini Stor., Inc., 12 Misc 3d 1160 [A], 2006 NY Slip Op 50974[U] [Civ Ct, Kings County].) Specifically, the Court found and concluded that, beginning in January 2003 and continuing through trial in February 2006, there were "repeated and significant failures in the only elevator serving the premises and Respondent's customers." ( See id., at *3.)
Based upon those findings and conclusions, the Court scheduled a further hearing for evidence addressed to three issues: Petitioner's claim for use and occupancy subsequent to the expiration of Respondent's tenancy on June 30, 2005; Respondent's claim for direct and incidental damages for partial constructive eviction; and the appropriate length of the stay on the issuance or execution of the warrant of eviction. That hearing was held on July 17, 18, 20, and 21, 2006.
Use and Occupancy
"[I]n an action to recover possession of real property, damages for the withholding of the property, including the value of use and occupancy are recoverable . . . from the time the tenant begins to hold over without the landlord's consent." ( South Street Limited Partnership v. Jade Sea Restaurant, 187 AD2d 397, 397 [1st Dept 1992].) "[A]n occupant's duty to pay the landlord for its use and occupancy of the premises is predicated upon the theory of quantum meruit, and is imposed by law for the purpose of bringing about justice without reference to the intention of the parties." ( Eighteen Associates, LLC v. Nanjim Leasing Corp., 257 AD2d 559, 559-60 [2nd Dept 1999] [internal quotation marks and citations omitted]; see also De Camp v. Bullard, 159 NY 450, 454; BGB Realty, LLC v. Annunziata, ___ Misc 3d ___ [A], 2006 NY Slip Op 51270[U], *2 [App Term, 2nd Dept].)
The statutes and cases articulate different standards for determination of use and occupancy. ( See RPAPL § 741 ["fair value"]; RPAPL § 749 (3) ["reasonable value"]; RPAPL § 220 ["reasonable compensation"]; 150-18-28 Union Turnpike Associates v. Board of Managers of Village Mall at Hillcrest Condominium, ___ Misc 3d ___ [A], 2006 NY Slip Op 51248[U], *1 [App Term, 2nd Dept] ["fair rental value"]; T.J. Montana Enterprises, Inc. v. Centoni, 10 Misc 3d 137 [A], 2005 NY Slip Op 51247[U] [App Term, 1st Dept] ["fair market rental value"]; 2641 Concourse Co v. City University of NY, 137 Misc 2d 802, 802-03 [Ct Claims 1987] ["fair market value"]; Beacway Operating Corp. v. Concert Arts Society, Inc., 123 Misc 2d 452, 454 [Civ Ct, NY County 1984] ["fair market value"].) However articulated, it is the landlord's burden to establish. ( See East Soho Corp. v. Delancey Live Poultry, Inc., 11 Misc 3d 1088 [A], 2006 NY Slip Op 50763[U], *3 [Civ Ct, NY County]; 2641 Concourse Co. v. City University of NY, 137 Misc 2d at 805; Beacway Operating Corp. v. Concert Arts Society, Inc., 123 Misc 2d at 453].)
Because of the focus on market rent, "all those things must be taken into consideration which would be present in the minds" of a prospective landlord and tenant. ( See Sparkill Realty Corp. v. State of New York, 254 AD 78, 84 [3rd Dept 1938].) In the first instance, the consideration of the landlord and tenant before the court, as reflected in the amount of rent paid pursuant to the expired tenancy, is at least "some evidence" of market rent. ( See Goelet v. National Surety Co., 249 NY 287, 295; see also Adler v. Edwards, 6 Misc 3d 1024 [A], 2005 NY Slip Op 50168[U], *1 [Civ Ct, Kings County]; 438 W. 19th St. Operating Corp. v. Metropolitan Oldsmobile, Inc., 142 Misc 2d 170, 173-74 [Civ Ct, NY County 1989]; 2641 Concourse Co. v. City University of NY, 137 Misc 2d at 805.)
Expert opinion is also evidence of market rent. But an "expert's qualifications" alone ( see Shore Haven Apts. No. 6, Inc. v. Commissioners of Fin. of City of NY, 93 AD2d 233, 236 [2nd Dept 1983]), or an "opinion bolstered by . . . general experience" alone ( see 2641 Concourse Co. v. City University of NY, 137 Misc 2d at 806), will be insufficient. "When an expert opinion lacks factual support . . . it carries little probative value . . . and should be rejected." ( 150-18-28 Union Turnpike Associates v. Board of Managers of Village Mall at Hillcrest Condominium, 2006 NY Slip Op 51248 [U], at *1 [ quoting Shore Haven Apts No. 6, Inc. v. Commissioners of Fin. Of City of NY, 93 AD2d at 236].)
Specifically, expert opinion as to market rent may be based upon "comparable rentals." ( See 2641 Concourse Co. v. City University of NY, 137 Misc 2d at 805; see also Freidus v. Eisenberg, 123 AD2d 174, 178 [2nd Dept 1986] ["cognizable method"]. "[T]he expert witness begins with the [rental] prices of the comparable [premises] and makes adjustments upon them based upon his own experience to arrive at a probable market price for the subject premises for its highest and best use." ( See Matter of City of NY [Shorefront High School], 25 NY2d 146, 148-49; see also Latham Holding, Inc. v. State of New York, 16 NY2d 41, 45-46.) If the adjustments are too substantial, however, in nature or degree, the "transactions cease to be comparable . . . [and] los[e] their evidentiary weight." ( See 2641 Concourse Co. v. City University of NY, 137 Misc 2d at 806-07; see also East Soho Corp. v. Delancey Live Poultry Inc., 2006 NY Slip Op 50763[U], at *4.)
"It is almost invariably the case that the value . . . is not the figure claimed by either [party] and advanced by their respective experts. The court is not bound to choose between these figures and select one of them based upon an evaluation of the capabilities or the character of the respective experts." ( Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 AD2d 153, 161 [1st Dept 1961], aff'd 12 NY2d 1086.) But "the court's ultimate conclusion of value, as well as its findings on the various components that go into the process . . . must fall within the range of the evidence." ( Blue Hill Plaza Assoc. v. Assessor of the Town of Orangetown, 230 AD2d 846, 848 [2nd Dept 1996].)
The Court agrees with Petitioner that "[t]he tenant's monthly base charge under their ( sic) monthly occupancy provides the starting point for fixing the amount of use and occupancy." ( See Petitioner's Post-Hearing Memorandum of Law, at 5.) From the time Respondent took occupancy of the premises in July 1999, purportedly pursuant to the Sublease with Petitioner's predecessor lessor, through the last month of its month-to-month tenancy, June 2005, Respondent paid monthly rent of $41, 666.67.
The Sublease provides that, beginning July 2004, the monthly rent would increase to $63,400.00, an increase of more than 50%. Neither party points to any testimony or other evidence explaining the reason(s) for such a substantial increase, or to any testimony or other evidence explaining the reason(s) Petitioner and Respondent did not implement it. Petitioner makes no mention of the scheduled increase, presumably because it appears in a lease agreement that Petitioner has disavowed. For the same reason, among others, Respondent contends that the increased rent is not controlling against it.
But at the least, and with an important qualification, the scheduled rent of $63,400.00 beginning July 2004 is found in a lease transaction that is most comparable to one that might be negotiated for the subject premises. The qualification is that the rent amount reflects the expectation of both parties to the Sublease that Respondent would remain in the premises through December 2008. As will appear, because no prospective tenant will occupy the premises for any period of time that would be expected in the market, even Petitioner's expert concedes that his estimate of market rent based upon a lease transaction of five years' duration must be discounted by up to 35%. For now, it is enough to note that, so discounted, the rent found in the Sublease becomes $41, 210.00.
Petitioner contends that, "[f]or the purpose of assessing fair market use and occupancy, the Respondent, a holdover occupant, must be treated in the same manner as its neighboring tenants with lease agreements." (Petitioner's Post-Hearing Memorandum of Law, at 11.) Assuming the correctness of that contention as a general proposition, the Court cannot ignore the testimony of Petitioner's expert that he requested, but was refused, information concerning the rent amounts being paid by other tenants at Bush Terminal information that Petitioner would be expected to want known to support a higher estimate of market rent for these premises. "[A]n unfavorable inference may be drawn when a party fails to produce evidence which is within its control and which it is naturally expected to produce" ( Grunty v. Deepdale General Hospital, 163 AD2d 564, 566 [2nd Dept 1990]), particularly where, as here, the party offers "no reasonable explanation for failing to produce it" ( see Wilkie v. NYC Health and Hospitals Corp., 274 AD2d 474, 474 [2nd Dept 2000].)
Rather, therefore, than offer an opinion on market rent based upon Respondent's "neighboring tenants with lease agreements," Petitioner presents the report and testimony of William E. Shubert, a licensed real estate appraiser, who relies on fourteen allegedly comparable rental transactions, none of which relates to rental of an entire building that will be demolished by its owner when the tenant vacates. In estimating the market rent of a seven-floor, 315,000 square foot building occupied by a single tenant, Mr. Shubert identifies six street-level transactions and eight upper-floor transactions with lease terms, where specified, of three to ten years.
Finding a range after adjustments of $7.15 per square foot to $9.96 per square foot for street-level premises, and $4.90 per square foot to $6.65 per square foot for upper-floor transactions, Mr. Shubert bases his computations on $9.00 and $4.80, respectively, for street-level and upper-floors. The crucial decision to choose amounts representing approximately 90% of the highest number of each range is nowhere explained in Mr. Shubert's report or testimony.
The Court infers instead, based upon Petitioner's failure to provide Mr. Shubert with information on Bush Terminal rents, that the lowest numbers of each range would be more appropriate.
The purportedly comparable transactions, moreover, were identified on the basis of oral information that Mr. Shubert received from brokers and unidentified others; there was no inspection of written leases or the premises themselves. Although the use of comparable transactions to determine market value is clearly deemed reliable in the real estate appraisal profession, Mr. Shubert did not establish by reference to professional standards or guidelines that oral information is generally deemed reliable, nor did he establish the reliability of the particular sources he used. ( See Wagman v. Bradshaw, 292 AD2d 84, 85 [2nd Dept 2002].) Respondent did not object to Mr. Shubert's opinion on those grounds, but at the least the deficiencies undermine the probative value of the comparisons and the opinion as to market rent on which they are based.
In making his assessment, Mr. Shubert discounted his estimated upper-floor market rent by 20% to reflect the interruptions in elevator service that were the basis of this Court's finding of partial constructive eviction. Specifically, the Court in effect accepted the testimony of Respondent's President, Eyal Eli Noach, that during more recent periods the elevator malfunctioned "an overall of 30% each month, effectively depriving Respondent and its customers of access to 90% of the building." ( See 2006 NY Slip Op 50974[U], at *4.) Mr. Shubert was not given a copy of this Court's decision, and assumed in making his adjustment that the elevator would be functioning 75% to 85% of the time an assumption that quantitatively is not consistent with the Court's own finding and does not clearly acknowledge that the elevator malfunctions are sporadic and unpredictable.
The Court acknowledges the testimony at the hearing that repairs to the elevator were made subsequent to the Court's decision, but in light of the witness's concession that the repairs were not designed to correct a fundamental cause of the malfunctions, and since malfunctions have occurred subsequent to the repairs, the Court will proceed on the basis of its earlier finding. The Court also acknowledges that Mr. Shubert characterized his 20% adjustment for the elevator as a "judgment call," but it could hardly have been anything more in the absence of real-world experience. As such, however, the Court does not deem itself constrained by Mr. Shubert's adjustment, even in the absence of expert support for an alternative.
At the hearing, Mr. Shubert agreed that his market rate assessment must also be adjusted for two other differences between his purportedly comparable transactions and the facts and circumstances of this case. First, Mr. Shubert agreed that a lower market rent would obtain for a single lessee of the entire 315,000 square feet of the building, than for multiple lessees of "typical" 7,500 square feet areas. Mr. Shubert's "from the hip" adjustment at the hearing for this difference was 15%.
More importantly, Mr. Shubert agreed that a lower market rent would be obtained when, as here, the lessee would not be assured of occupancy for a fixed term of significant length, rather than for his "typical" five-year lease term. The "temporary and uncertain duration" of occupancy has also been recognized as highly important in case law on market rent. ( See Village of Port Chester v. Martinez, 18 AD3d 564, 565-66 [2nd Dept 2005]; see also Falso Heating and Sheet Metal Co., Inc. v. State of New York, 59 Misc 2d 12, 13 [Ct Claims, 1967].) Here, the "temporary and uncertain duration" of occupancy, if any, results from "plans to close the building as soon as the Court permits the landlord to execute on the warrant of eviction" ( see Petitioner's Pre-Hearing Memorandum of Law, at 21) a circumstance that was not disclosed to Mr. Shubert when he was commissioned to undertake his appraisal. Mr. Shubert's "from the hip" adjustment at the hearing for a month-to-month tenancy was 35%.
In his report, Mr. Shubert estimated monthly market rent for Building G at $141,667.00. If the low-end rent of comparables is used rather than the high end, and if a 30% adjustment is made for the malfunctioning elevator rather than 20%, and if a 15% single-lessee adjustment is made, and if a 35% month-to-month adjustment is made, Mr. Shubert's estimated monthly market rent becomes $51,993.75.
Respondent contends that there are additional deficiencies in Mr. Shubert's determination of market rent, including the wide range of net adjustments for purported comparables from minus 35% to plus 14%, but Respondent presents no contrary expert opinion that such a range materially undermines a professional appraiser's assessment. No matter, because the deficiencies identified above are sufficient to lead the Court to conclude that Mr. Shubert's adjusted market rent cannot establish use and occupancy here.
To recap, Petitioner failed to provide important information to Mr. Shubert, namely, rental data for other properties at Bush Terminal and the plans to demolish Building G when it is vacated. The reliability of the sources of Mr. Shubert's comparables was not established, and Mr. Shubert acknowledged the necessity of further adjustment for a single lessee and a month-to-month tenancy. Those adjustments were made on the stand without any foundational support, and are, therefore, even more suspect than the "judgment call" that Mr. Shubert made for the malfunctioning elevator, which itself was based on an inaccurate assumption about the frequency of malfunction. The Court recognizes that the circumstance of Building G's planned demise disconnects any determination of market rent from commercial reality. Indeed, that is the fundamental point of Respondent's expert's opinion, which will be discussed presently. But had Petitioner given Mr. Shubert fuller information, the expert might have at least attempted to find reliable support for an opinion at trial.
Respondent's expert, real estate broker Michael C. O'Brien, III, testified consistent with his report that "fair market value, i.e., the amount a prospective tenant on the open market would be willing to pay for the Premises in its current state is zero, or next to nothing." ( See Letter dated July 10, 2006 from Michael C. O' Brien, III to Oved and Oved LLP, at 3.) Mr. O'Brien's opinion is based primarily on the unavailability of a long-term lease and the single, unpredictable elevator serving the upper six floors of the building.
There have been unusual cases in which the court has determined that property had no rental value, such as when the tenant has only "technical possession" but "no actual use and occupancy of the premises" ( see 438 W. 19th St. Operating Corp. v. Metropolitan Oldsmobile, Inc., 142 Misc 2d 170, 173 [Civ Ct, NY County 1989]), or the property is "vacant land which [can] be used for residential purposes only" and the possibility of rental "lacks connection with economic reality" ( see Freidus v. Eisenberg, 123 AD2d at 179-81.) But here, as Petitioner contends, "even looking at a scenario where the elevator never works, the first floor would still have a rental value" ( see Petitioner's Post-Hearing Memorandum of Law, at 7), and, although Building G may not have high value to a new tenant without the promise of a long-term tenancy, it certainly seems to have value to the tenant who has fought strenuously to retain possession since June 2005. As noted above, an award of use and occupancy is predicated upon the doctrine of quantum meruit ( see Eighteen Associates, LLC v. Nanjim Leasing Corp., 257 AD2d at 559-60), which "was developed by the law in order to make sure that a person who receives the benefit of services pays the reasonable value of such services to the person who performed them" ( see Zoltar v. New York Life Ins. Co., 172 AD2d 27, 33 [1st Dept 1991].)
Although Mr. O'Brien testified as to market rent at the hearing, his opnion "was not supported by any market data information or explanation of adjustments and comparisons and thus was lacking in probative value. " (See Crady v. Newcomb, 142 AD2d 940, 941 [4th Dept 1988] ; see also Vicillo v. State of New York, 24 AD2d 534, 535 [4th Dept 1965].)
Having in effect set aside both Mr. Shubert's and Mr. O'Brien's opinions, the Court agrees with Respondent that "[e]stablishing fair market value by reference to the parties' rental history is especially applicable where the premises is unique and/or there is lack of probative evidence concerning the open market' method and truly comparable properties" ( see Respondent's Final Post-Trial Memorandum, at 6.) As discussed above, the scheduled rent in the Sublease, discounted by Mr. Shubert's adjustment of 35%, presumably favorable to Petitioner, would be $41,210.00.
As so adjusted, the scheduled rent does not reflect the effect of the unpredictably malfunctioning elevator. For the reasons amply explained above, the Court deems a 30% adjustment to be appropriate. To the extent that adjustment is higher than Mr. Shubert's, the Court again notes that his estimate was based upon assumptions that were not consistent with the findings in this Court's previous opinion. As to Respondent, it concedes that those findings, "factoring in the sporadic and unpredictable nature of the Elevator condition . . . warrant a straight 30 percent reduction to use and occupancy." ( See Respondent's Final Post-Trial Memorandum, at 42.)
When the scheduled rent, previously adjusted to $41,210.00, is further adjusted by 30%, the amount of monthly use and occupancy becomes $28,847.00. The Court finds and concludes that, from July 1, 2005 until Respondent surrenders possession of the premises or is evicted, Petitioner is entitled to use and occupancy at the rate of $28,847.00 monthly.
Damages for Partial Constructive Eviction
As previously held, Respondent's direct damages for partial constructive eviction should be determined by "the difference between the rental value of the premises with the use of the appurtenance or facility and the rental value without it." ( See 2006 NY Slip Op 50974[U], at *7-*8 [ quoting Henry A. Fabruycky, Inc. v. Nad Realty Corp., 261 AD 268, 269 (2nd Dept 1941)].) The Court has set aside Mr. Shubert's opinion as to current market rent, assuming near-full use of the only elevator serving the premises, and will, therefore, set aside his opinion as to past market rent, based as it is on a 6% annual discount retrospectively applied. Mr. O' Brien did not offer an opinion as to past market rent.
The Court finds and concludes that the market rent for the premises during the period January 2003 through termination of the tenancy in June 2005, assuming full use of the elevator, was $41,666.67 monthly, the amount agreed to be paid by Respondent and accepted by Petitioner. Before determining the market rent without full use of the elevator, the Court must address Petitioner's contention that, by reason of two stipulations entered in other proceedings, Respondent may not collect damages for virtually the entire period prior to termination of the tenancy.
In a non-payment proceeding instituted by Petitioner against Respondent in 2004, Petitioner sought rent arrears through May 2004. The parties executed a Stipulation, Consent Order and Final Judgment, in which Respondent agreed to pay $444,830.09 in 43 installments, with the last due on December 1, 2007. In the Stipulation, "Petitioner agree[d] to waive one month's rent in the amount of $41,666.67." Nowhere in the Stipulation is the reason for the waiver specified, but both Mr. Noach, Respondent's President, and Steven Lazarus, Petitioner's Senior Vice President, testified that the reason was serious elevator malfunction in January 2003. Mr. Noach testified that Respondent's acceptance of the one month waiver was not intended to compensate Respondent for elevator malfunction for the entire period through May 2004, but Mr. Lazarus testified that it was intended as a full settlement.
Petitioner also instituted a non-payment proceeding against Harborside Café Restaurant, Inc., an affiliate of Respondent, that was settled by a Stipulation Staying Execution of Warrant dated March 7, 2005. This later Stipulation incorporated the earlier one, which had also addressed arrears owed by the affiliate. In a footnote, "[d]ue to lack of elevator service in the building, Petitioner . . . agreed to waive November 2004 rent and reduce December 2004 rent for [Respondent] by 50%." The "building" referred to is Building G, premises separate from the premises occupied by Respondent's affiliate.
The testimony of the parties' respective witnesses again differed as to the intent of the rent waiver. The only other evidence on the issue was an internal memorandum of Petitioner dated 10 days after the Stipulation that reads: "Due to lack of elevator service in November 2004 and a portion of December 2004, [Petitioner] agreed to waive the rent for November 2004 and December 2004." Mr. Lazarus was not the author of the memorandum, but he received a copy.
The memorandum undermines his contention that the rent waiver was intended to compensate Respondent for lack of elevator service for the entire period up to the date of the Stipulation.
"Stipulations of settlement are essentially contracts and will be construed in accordance with contract principles and the parties' intent." ( Charter Realty Development Corp. v. New Roc Associates, L.P., 293 AD2d 438, 439 [2nd Dept 2002] [ quoting Serna v. Pergament Distributors, Inc., 182 AD2d 985, 986 (3rd Dept 1992)].) "The subject agreement should only be read to cover matters which both parties intend to resolve. . . . Where, as here, the written agreement contains no unequivocal language expressive of intent, intent is an issue to be determined by the trier of fact based upon the inferences to be drawn from the conversations and negotiations of the parties and the surrounding circumstances." ( Equitable Tower Associates v. Asarco Incorporated, 127 AD2d 456, 457 [1st Dept 1987].)
Contractual rights, moreover, including a right to damages for breach, may be waived, if "knowingly, voluntarily and intentionally abandoned." ( See Fundamental Portfolio Advisors, Inc. v. Toqueville Asset Management, L.P., 7 NY3d 96, 104.) "Such abandonment may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage. . . . Generally, the existence of an intent to forgo such a right is a question of fact." ( Id. [internal quotation marks and citations omitted]; see also Dice v. Inwood Hill Condominium, 237 AD2d 403, 404 [2nd Dept 1997].) "The acts and language of the party must be given, as evidence, their natural and logical effect under the circumstances of the case." ( Alsens American Portland Cement Works v. Degnon Contracting Co., 222 NY 34, 37.) These principles are fully applicable to the landlord/tenant relationship. ( See Jefpaul Garage Corp. v. Presbyterian Hosp in the City of New York, 61 NY2d 442, 446; Won's Cards, Inc. v. Samsondale/Haverstraw Equities, Ltd., 165 AD2d 157, 163-64 [3rd Dept 1991].)
The Court finds and concludes that Respondent's execution of the 2004 stipulation waived any claim to damages for partial constructive eviction for the period January 2003 through May 2004, but that the 2005 stipulation did not waive any claim to damages for partial constructive eviction after May 2004. Again, the 2004 stipulation was entered in a proceeding to which Respondent was party; the 2005 stipulation was entered in a proceeding to which Respondent was not a party; Respondent executed the former, but not the latter.
At the time of execution of the 2004 stipulation, Respondent's claim for damages for partial constructive eviction had fully accrued for the months of occupancy for which rent was payable pursuant to the stipulation. Although "the mere payment of rent during the period of occupancy does not constitute a waiver of the constructive eviction" ( Leider v. 80 William St. Co., Inc., 22 AD2d 952, 953 [2nd Dept 1964]), here there was a negotiated agreement for Respondent's payment of in excess of $400,000.00 in arrears, in exchange for Petitioner's agreement to forbear from eviction so long as the installment payments were timely made.
Also, although the 42-month schedule of installments could not create a right to continued occupancy during that period ( see Thruway Center Associates, L.P. v. AM Associates, 5 AD3d 376, 376 [2nd Dept 2004]), it reflects the parties' shared hope, at the least, that the relationship would continue with a fresh start. The 2004 stipulation contained no express reservation of rights as to damages that might have resulted from a partial constructive eviction during the period for which rent was payable pursuant to the stipulation, while allowing for an abatement in the amount of one month's rent that, the parties agree, was due to an eviction during that period. ( See Harmin Realty Co. v. Tesa, 2003 NY Slip Op 50015 [U], *1 [App Term, 1st Dept].) And until this proceeding, Respondent apparently never made a claim for a further abatement for the period covered by the stipulation. ( See Glassman v. Lear Publishing, Inc., 221 AD2d 180, 181 [1st Dept 1995].)
On the other hand, Petitioner does not contend that the 2004 stipulation modified Petitioner's obligation to repair the elevator under the implied terms of the tenancy, nor does it contend that it constituted a waiver of damages that might occur in the future as a result of a partial constructive eviction. ( Compare Shelvin Plaza Associates, LLC v. Lew Lieberbaum Holdings Co., Inc., 18 AD3d 730, 731-32 [2nd Dept 2005].) The 2005 stipulation was not executed by Respondent, was not entered in a proceeding to which Respondent was a party, and does not address any rent obligation of Respondent. The language of the stipulation, considered in the light of Petitioner's internal memorandum and the context of the stipulation as a whole, is more readily understood as providing an abatement only for the interruption of elevator service during the two months specified. There is nothing in the stipulation or the related facts and circumstances that suggests that it was intended or understood as a further balance of Petitioner's and Respondent's accounts with respect to different premises.
Respondent is entitled, therefore, to damages for partial constructive eviction for the period June 2004 through June 2005, except for November and December 2004. Having determined above that the market rent for the premises assuming full use of the elevator was $41,666.67 monthly, the question now is the market rent during the applicable period without full use of the elevator. The Court's factual findings after trial were that the average periods of elevator service interruption were approximately one-third less in 2005, and approximately one-third less again in 2004. Starting with the 30% adjustment to market rent that the Court found justified for current use and occupancy, adjustments of 10% and 20% for 2004 and 2005 would likewise appear justified. The Court notes again Mr. Shubert's proposed adjustment of 20% for the upper floors only, extrapolated to approximately 17% for the building as a whole, and that Mr. Shubert's proposed adjustment reflects assumptions about the availability of the elevator that more nearly resemble the earlier period.
Adopting an abatement rate of 17%, the Court finds and concludes that Respondent's damages for the period June 2004 through June 2005, exclusive of November and December 2004, were $7,083.33 for each of the 11 months. The monthly abatement represents the difference between the market rate assuming full use of the elevator, $41,666.67, and the market rate without full use, $34,583.34. The total amount of direct damages is, therefore, $77,916.63.
The Court has determined that, in addition to direct damages, Respondent is also entitled to incidental or special damages, such as the expenses incurred by Respondent in moving its customers' property when the elevator was out of service. ( See 2006 NY Slip Op 50974[U], at *8.) Respondent's President, Eyal Eli Noach, testified that Respondent hired day laborers to assist in moving its customers' property, and made special arrangements for assistance with moving companies that rented space in the building.Mr. Noach testified that the payments to day laborers were made in cash, and averaged approximately $800.00 each month. In the absence of any documentation to support these cash payments, and the lack of specificity on time and amount as to the 13-month period for which damages may be awarded, the Court finds and concludes that an award for this item of damages is not warranted. In contrast, Respondent presented documentation to support payments to moving companies in November and December 2004, the months for which an abatement was provided in the 2005 stipulation, that total $17,085.00.
Respondent also seeks recovery of "massive amounts of adjustments and rent credit given to customers based on the Elevator," and "the fact that, since 2004, Respondent has left five to seven units located on the first floor of the premises vacant and un-rented to act as temporary storage area for customers who cannot access the upper floors due to the Elevator being down." ( See Respondent's Final Post-Trial Memorandum, at 57.) The Court considers these items of damages, to the extent recoverable, to be in the nature of consequential damages that, as the Court has previously stated, may be sought in a plenary action. ( See 2006 NY Slip Op 50974[U], at * 8.)
Respondent, therefore, is entitled to recover direct damages of $77,916.63 and indirect damages of $17,085.00 for a total of $95,001.63.
By the Court's computation, use and occupancy for the 16-month period July 2005 through October 2006 would be $487,191.34, representing 14 months at $28,847.00 monthly and two months, March and April 2006, at $41,666.67 monthly stipulated at trial. To be deducted from use and occupancy owed are the payments made by Respondent as use and occupancy pursuant to stipulations, $291,833.35 (Respondent says $291,830.00; Petitioner gives the slightly higher amount in its Post-Hearing Memorandum of Law, at 13-14); the amount of electrical charges that the Court has previously determined should be offset, $48,334.00 ( see 2006 NY Slip Op 50974[U], *2), and the amount of direct and indirect damages for partial constructive eviction, $95,001.63. Respondent owes, therefore, $52,022.36.
Length of the Stay
As previously determined ( see 2006 NY Slip Op 50904[U], at *13), this Court has considerable discretion in staying the execution of the warrant of eviction so as to allow Respondent a "reasonable opportunity to obtain other suitable premises" ( see 64 B Venture v. American Realty Co, 179 AD2d 374, 375 [1st Dept 1992]. Although the Court rejected Respondent's contention at trial that principles of equitable estoppel required that Respondent be permitted to retain possession of the premises for the full term of the Sublease with Petitioner's predecessor ( see 2006 NY Slip Op 50904[U], at *10-*12), the Court did find that "Petitioner was equally responsible with Respondent for the uncertainties surrounding Respondent's tenancy" ( see id., at *13.)
Indeed, the testimony at the more recent hearing confirms Petitioner's complicity in bringing Respondent to its present situation that is, as having developed a customer base of approximately 500 individuals and businesses who have stored property on the premises, and who must now move that property with or without Respondent's assistance. As Steven Lazarus testified, as late as March 2005, when the 2005 stipulation was executed, and only two months prior to the May 17 notice of termination, Petitioner and Respondent both had reason to hope for, if not expect, Respondent's continuing operation and development of its business on the premises. A change of direction by Petitioner alone, prompted in part by a change in management personnel, brought Respondent to this place.
It does not deny Petitioner its right to make legitimate business decisions about the direction of its business to require that it share responsibility for the consequences of those decisions, particularly the consequences to third parties who made their own business decisions in light of circumstances that had existed, and continued with Petitioner's acquiescence at least, for several years. The Court recognizes that Respondent seeks time not only for its customers to move their property, but for Respondent to move its business. In the particular, and perhaps unusual, circumstances of this case, the Court concludes that Respondent should be allowed a reasonable opportunity to do that. The Court notes the contractual obligations that Respondent undertook to customers up to the virtual eve of dispatch of the unexpected notice of termination, and the substantial rental adjustments that Respondent made in attempting to retain its customers' business.
Petitioner, on the other hand, has not shown that it will suffer particular prejudice by allowing Respondent a reasonable opportunity to relocate its business. There was no evidence of Petitioner's or the City's plans for the site after Building G is demolished, and, therefore, no evidence of how delay will affect those plans either practicably or economically. Petitioner has continued to make safety-related repairs to Building G, but, as Respondent has demonstrated from documents proffered by Petitioner, since termination of the tenancy in June 2005 Petitioner's expenses for those repairs have averaged less than $8,000.00 monthly. ( See Respondent's Final Post-Trial Memorandum, at 67-69). Although Mr. Lazarus's general testimony as to profitability, unsupported with financial statements and the like, is not without some value, it does not provide solid foundation for a finding of undue prejudice.
The Court also recognizes, however, that a "prudent tenant" in Respondent's position would have "started planning and effecting its relocation" before now. ( See 64 B Venture v. American Realty Co, 179 AD2d at 375). More than a year has passed since termination of the tenancy, and more than five months since this Court granted Petitioner judgment of possession. Although Respondent cannot be charged with undue delay in bringing the proceeding to resolution, and the issues presented provided more than fair ground for dispute, the Court had expected some evidence at the hearing of substantial effort by Respondent to locate suitable premises for its business, or of some plan during the past 17 months to deal with the possibility that the Court would determine that it must leave. Mr. Noach testified that only within the three or four previous weeks had Respondent begun its search for suitable premises. And although there was general testimony that another Building G would not be easy to find for leasing, there was no attempt to establish time parameters, particularly from Respondent's real-estate-broker expert.
Finally, but significantly, is the practical problem of emptying the building with the use of a single elevator that has persistently failed under the much less stressful circumstances of routine use. Mr. Noach testified that it would take at least a year to empty the building with the elevator in its current condition, and that the particularly heavy freight of certain commercial customers (such as tile suppliers) would render the elevator unusable. Again, this conclusory testimony was not supported by any effort at quantitative evaluation by either Respondent or a consultant with specialized knowledge. The common-sense value of the testimony is not sufficient assistance to the Court in determining reasonable time requirements.
Associated with the length of the stay are the conditions under which it will continue, the most important, of course, being timely payment of use and occupancy. Except for the requests by Petitioner for insurance and bond, which will be discussed, neither party addresses the issue. Perhaps they assume that Respondent's continued possession will be subject to the same terms and conditions of the month-to-month tenancy, but, as the Court has noted on several occasions, the full complement of those terms and conditions has not been determined in this proceeding.
The parties have, however, proceeded subsequent to the termination without apparent significant disagreement as to the rules governing their relationship, as they did during the previous two and a half years, and the Court can only hope that significant disagreement will not now arise. The Court's preliminary view is that, should any significant disagreement arise, it should be resolved in a plenary action, together with other issues that have been reserved for that forum, rather than as part of the Court's supervision of the stay.
Petitioner requests that, "as a consideration for any stay of execution", Respondent should be required to obtain insurance coverage and provide Petitioner with documentation that it has been obtained, supporting the request with the contention that "all the month to month tenants at the Bush Industrial Terminal Complex have insurance coverage as required by the Landlord." ( See Petitioner's Post-Hearing Memorandum of Law, at 22.) But Petitioner provides no evidence of that, and no description of any insurance coverage that is in fact required or that would be advisable and customary under the circumstances. There has been no finding that insurance was a requirement of this month-to-month tenancy, and no request for any during the many months this proceeding has been before this Court.
Petitioner also requests that Respondent be required to post a $250,000 bond. Although acknowledging that the "purpose and function of an undertaking is to reimburse a party for damages sustained if it is later determined that the stay was erroneously granted", the bond is requested for the entirely different purpose of "ensur[ing] that Respondent is not using the time to profit and continue leasing the space without removing its subtenants." ( See id., at 21.) In any event, Petitioner does not detail any special damages that might be sustained "if it is later determined that the stay was erroneously granted." The provision for use and occupancy would compensate Petitioner for the damages sustained as a matter of course from the holdover.
The warrant of eviction shall issue forthwith. Execution of the warrant is stayed, in the first instance, until October 15, 2006 for Respondent to pay Petitioner $52,022.36. If the payment is timely made, execution of the warrant shall be further stayed until March 31, 2007, provided that Respondent pay use and occupancy of $28,847.00 monthly, due no later than the fifth day of each month, beginning November 5, 2006. Should Respondent fail to make timely payment of use and occupancy for any month, the warrant may execute on the marshal's notice.