Opinion
78755/05.
Decided May 24, 2006.
In a Decision After Trial dated May 18, 2006, the Court found and concluded that Petitioner, New York City 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 Development Corp. v. Harborside Mini Storage, Inc., ___ Misc 3d ___, 2006 NY Slip Op 50904[U] [Civ Ct, Kings County].) The Court agreed with Petitioner that Respondent is in possession of Building 56 as a month-to-month tenant, rather than pursuant to a long-term sublease with a prior lessee (the "Sublease"), and that the tenancy has been terminated effective June 30, 2005. Although Petitioner was awarded a judgment of possession, issuance of a warrant was stayed pending a scheduled hearing on the appropriate length, terms and conditions of a further stay of issuance or execution.
Petitioner also seeks use and occupancy for the period subsequent to termination, as well as electricity charges allegedly due. At trial, the parties stipulated to rent or use and occupancy in the total amount of $124,833.35 through February 28, 2006, and the continued accrual of rent or use and occupancy at the rate of $41,666.67 monthly through judgment. The total amount due through May 2006 then would be $249,833.36. That amount, however, would be subject to offset for any damages Respondent might have proven on its counterclaims. The amount of arrears, moreover, presumably reflects credits for payments made under reservation of rights pursuant to stipulation during this proceeding.
In addition to use and occupancy, Petitioner seeks payment of $124,462.30, representing electricity charges allegedly due for the period December 2004 through January 2006. Apparently to avoid invocation of the provisions of the Sublease, Petitioner suggests that Respondent's obligation to pay electricity charges arose, in effect, as part of a contract implied in fact, by reason of the conduct of the parties ( see Jemzura v. Jemzura, 36 NY2d 496, 503-04; Wells v. Mann, 45 NY 327, 331), and a Stipulation, Consent Order and Final Judgment entered in a 2004 non-payment proceeding between them ( see Petitioner's Exhibit 3, the "Non-Payment Stipulation"). In the Stipulation, Respondent agreed "to abide with [its] existing obligations to timely pay [its] monthly rent and electricity usage charges" ( see id., ¶ 11). ( See Petitioner's Post-Trial Memorandum of Law, at 11-12, 36-37.)
The Court notes, in the first instance, that an obligation to pay electricity charges could not, in any event, be found in the Sublease. Article 12 on "Electric Current" states that "[r]ates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereo." The Rider to Lease addresses electricity in Articles 42 and 67, neither of which provides for the payment of electricity charges to the landlord, because both assume that the tenant will obtain service directly from the utility.
Since it is clear, in any event, that, in the absence of a lease provision stating otherwise, electricity charges are not "rent", and in the Non-Payment Stipulation's only reference are explicitly distinguished from "rent", the Court is without subject matter jurisdiction to award any electricity charges in this Article 7 proceeding. ( See Rector, Church Wardens and Vestrymen of Trinity Church in City of New York v. Chung King House of Metal, Inc., 193 Misc 2d 44, 48-51 [Civ Ct, NY County 2002]; see also Graham Realty Associates LLC v. Peller, 11 Misc 3d 132 [A], 2006 NY Slip Op 50352[U] [App Term, 2nd Dept].)
Respondent goes further and requests a "full refund of all monthly electrical charges paid to Petitioner from December 2002 to the present plus interest." ( See Respondent's Supplemental Post-Trial Memorandum, at 15-16.) There is no counterclaim in Respondent's Verified Answer, Affirmative Defenses and Counterclaims for a refund of electrical charges, and, in any event, since the payments were not collected as "rent", the Court has no jurisdiction in this proceeding for their recovery. To the extent, however, that electrical charges have been paid or deposited during this proceeding pursuant to a stipulation in which Respondent reserved its rights with respect thereto, those amounts shall be offset against any amount ultimately determined to be due to Petitioner as use and occupancy.
Respondent does assert in its Verified Amended Answer, Affirmative Defenses and Counterclaims both Affirmative Defenses and Counterclaims based upon allegations of partial actual eviction and partial constructive eviction. In addition to dismissal of Petitioner's claim for use and occupancy, Respondent seeks "[a]ll rent and additional rent . . . paid to Petitioner", as well as other specified damages. Respondent may obtain damages in this proceeding for amounts paid to Petitioner as rent for months other than those for which Petitioner is seeking rent arrears. ( See Committed Community Associates v. Croswell, 171 Misc 2d 340, 343 [App Term, 2nd Dept 1997], aff'd 250 AD2d 845 [2nd Dept 1998]; see also All 4 Sports Fitness, Inc. v. Hamilton, Kane, Martin Enterprises, Inc., 22 AD3d 512, 513-14 [2nd Dept 2005].) The Court notes, however, that the Non-Payment Stipulation addressed Petitioner's claim for rent through May 2004.
Indeed, both parties address Respondent's allegations of actual and constructive eviction without reference to three distinct periods in Respondent's possession of the premises subsequent to Petitioner's change in status from the City's representative to "substitute sublessor". There is, first, the period from December 2002, the commencement of Petitioner's lease, through May 2004, the period addressed in the Non-Payment Stipulation. Neither party offers argument on whether Respondent waived any claim for damages for that period. Then there is the period from June 2004 through June 2005, during which Respondent held the premises as a month-to-month tenant, and rent accrued (as the parties have stipulated) at the rate of $41,666.67. For this period, the law of actual and constructive eviction would apply to any right to recovery that Respondent might have for all or part of any payments made. And then there is the period from July 2005 through judgment, when any amount paid by or due from Respondent would represent use and occupancy. During this period, Respondent did not have possession as a tenant, and eviction concepts are inapposite.
Subject, therefore, to future resolution of the issues present with respect to the period prior to June 2004 and to the period subsequent to June 2005, the Court has considered Respondent's allegations of actual and constructive eviction. The Court finds and concludes, based upon the virtually uncontradicted evidence at trial, that Respondent has established a partial constructive eviction beginning in January 2003 and continuing through February 2006. This conclusion and finding is based upon repeated and significant failures in the only elevator serving the premises and Respondent's customers.
Building 56 contains a basement, an office and loading dock on the first floor, and six floors of self-storage units for personal and business use by Respondent's customers. There are 1,014 storage units, approximately half of which were occupied at the time of trial. The building is served by a single elevator, which is 40-50 years old. Except for a three-foot wide stairway, there is no access to floors two through seven without the elevator.
Approximately half of the occupied storage units are rented for personal use, and half for commercial use. The commercial storage customers include a tire company, a video company, tile companies, furniture companies, moving and storage companies, and a food distributor. Most of the commercial storage units are located on floors two through seven. Although a renter for personal use might visit the space once a month, the commercial renters require frequent daily access, as often as ten times each day. The renters pay for their space on a monthly basis pursuant to agreements of varying duration.
The elevator has failed repeatedly since January 2003. In that month, the elevator was out of service for 23 days; in January of this year, the elevator was out of service for 13 days. The periods during which the elevator was unavailable became more frequent each year. In 2004, the elevator was out approximately once a month; it is now out at least twice each month on the average. Duration could range from 8 to 24 hours on weekdays, to two or three days on weekends, with more recent periods averaging at the higher end. Respondent's President, Eyal Eli Noach, testified to an overall of 30% each month, effectively depriving Respondent and its customers of access to 90% of the building.
Mr. Noach also testified that Respondent has suffered a continuing loss of customers because of the problems with the elevator. He estimated approximately one million dollars in lost revenue (without, however, articulating a basis for the estimate), and described $20,000.00 in refunds to customers because of lack of access (also without documentary substantiation for the most part.)
There is no dispute that Petitioner is responsible for repair of the elevator, and for ensuring its proper functioning. Specifically, Mr. Noach testified, without contradiction, that Petitioner's Vice President, Matt Halloran, promised him in April 2003 that the elevator problems would be remedied. Petitioner's witnesses at trial, including Carmine Giordano, its employee, and Robert Dejongh and Michael Burack, employees of Petitioner's on-site representative, Turner Construction Company, all acknowledged Petitioner's responsibility for the proper functioning of the elevator, although they tended to minimize the frequency and duration of the episodes when the elevator was out of service.
Mr. Burack also provided testimony as to the likely cause of the elevator problems, the cost of correction, and Petitioner's efforts and intentions with respect to correction. The elevator ceases to function properly when the basement of the building fills with water, and the metal contacts that control the operation of the elevator become wet. The apparent source of the water is an underground fresh water stream sea water, sewage, and rain all having been ruled out.
Mr. Burack also made clear that Petitioner's efforts to correct the elevator problems were limited to repairs that were deemed necessary to minimize the risk of personal injury, and his understanding that Petitioner would not make any further efforts or investment because it plans to demolish the building after it is vacated by Respondent. Petitioner's plans for the building were essentially confirmed by its Senior Vice President, Steven Lazarus, who testified that "the conditions and the expenses are just too high for the taxpayers on this and we just feel that it's time to terminate the tenancy and close the building up." (Testimony of Steven Lazarus, February 28, 2006, T. at 221.)
In the absence of an express agreement to make repairs, the landlord in a commercial lease has no obligation to do so, and the tenant's obligation to pay the rent is not affected by the landlord's failure to repair. ( See Patrick Pontiac Nissan, Inc. v. Jotric Land Development, 269 AD2d 803, 803 [4th Dept 2000]; Refrigeration for Science, Inc. v. Deacon Realty Corp., 70 Misc 2d 500, 504-05 [Sup Ct, Nassau County 1972], aff'd 42 AD2d 691 [2nd Dept 1973].) Here, as noted, there was, at the least, an agreement implied in fact that Petitioner would make such repairs to the elevator as to ensure its proper functioning.
Where, moreover, there has been an actual or constructive eviction from all or part of the premises, the commercial tenant may be relieved of its obligation to pay the full amount of the rent. ( See Johnson v. Cabrera, 246 AD2d 578, 578-79 [2nd Dept 1998].) "To be an eviction, constructive or actual, there must be a wrongful act by the landlord which deprives the tenant of the beneficial enjoyment or actual possession of the demised premises." ( Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d 77, 82.) "In an action for rent, it is not sufficient for the tenant to defend on the theory that there was a diminution of the beneficial enjoyment of the property." ( Dave Herstein Co. v. Columbia Pictures Corp., 4 NY2d 117, 120-21.) A "constructive" eviction differs from an "actual" eviction in the nature of the landlord's conduct that results in the eviction, and in the tenant's remedies for the eviction.
"An actual eviction occurs only when the landlord ousts the tenant from physical possession of the leased premises. There must be a physical expulsion or exclusion." ( Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d at 82-83.) "Untenantability of a portion of the demised premises as opposed to physical expulsion therefrom does not give rise to a partial actual eviction." ( Meerbaum v. Crepes D'Asie, Inc., 85 Misc 2d 345, 346 [App Term, 2nd Dept 1975].)
When there has been "no physical expulsion or exclusion of the tenant", but "the landlord's wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises", there may be a constructive eviction. ( Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d at 83.) "The tenant, however, must abandon possession in order to claim that there was a constructive eviction." ( Id.; see also 428 Camera Corp. v. Tandy Corp., 272 AD2d 72, 73 [1st Dept 2000]; Union Dime Savings Bank v. Frohlich, 57 AD2d 862, 862 [2nd Dept 1977].) But a constructive eviction may be partial, rather than total, in which case the tenant must have abandoned only the portion of the premises affected. ( See Johnson v. Cabrera, 246 AD2d at 578-79; Minjak Co. v. Randolph, 140 AD2d 245, 248-50 [1st Dept 1988]; County Holding Corp. v. Brati Inc., 2002 NY Slip Op 40204[U], *3 [App Term, 2nd Dept].)
Deprivation of the use of a freight elevator has been the basis, in whole or in part, of a finding of partial actual eviction. ( See Union City Union Suit Co., Ltd. v. Miller, 162 AD2d 101, 104 [1st Dept 1990]; Libby Properties v. Gross, 76 NYS2d 568, 569 [App Term, 1st Dept 1948]; Broadway-Spring St. Corp. v. Jack Berens Export Corp., 12 Misc 2d 460, 465 [Manhattan Mun Ct 1958]; see also Henry A. Fabrycky, Inc., v. Nad Realty Corp., 261 AD 268, 269 [2nd Dept 1941]; Hall v. Irwin, 78 AD 107, 112 [1st Dept 1903].) It is not enough, however, that access is merely made "slower, less convenient, less pleasant, and more difficult." ( See Cut-Outs, Inc. v. Man Yun Real Estate Corp., 286 AD2d 258, 261 [1st Dept 2001]; Graubard, Mollen, Horowitz, Pomeranz Shapiro v. 600 Third Avenue Associates, 240 AD2d 161, 161 [1st Dept 1997].)
Here, despite Mr. Noach's testimony that Respondent incurred additional labor expenses for carrying items up the stairs when that was possible, for the periods of time that the elevator was not operable Respondent and its customers were effectively denied access to the upper floors of Building 56. The real distinguishing factor, however, between the facts here and in the cited cases is the nature of the landlord's conduct resulting in the deprivation of service, which, in this case, is a failure to properly repair, rather than any affirmative act.
With the exception of a 1933 Appellate Term decision that has never been cited, Pease Piano Co. v. Well-Bilt Table Co. ( 149 Misc 837 [App Term, 1st Dept 1933]), this Court has found no case in which a finding of partial actual eviction was premised upon a mere failure of the landlord to act. ( See also Meerbaum v. Crepes D'Asie, Inc., 85 Misc 2d at 346.) There is a statement in a recent Second Department decision that "[f]ailure to repair [a] building can constitute an actual or constructive eviction." ( See 34-35th Corp. v. 1-10 Industry Associates, LLC, 16 AD3d 579, 580 [2nd Dept 2005].) But in the only case cited for the proposition, Frame v. Horizons Wine Cheese, Ltd. ( 95 AD2d 514 [2nd Dept 1983]), the landlord failed to repair the wall of a building in which the tenant operated a bar and grill, with the result that occupancy of the building was prohibited by court order.
Even with "persistent neglect", when "the tenant is deprived of the beneficial enjoyment" of the premises, "and the consideration for which he agrees to pay rent fails", the finding is of constructive, not actual, eviction. ( See Tallman v. Murphy, 120 NY 345, 352.) Similarly, when the tenant's use and enjoyment of a portion of the premises resulted from the "landlord's willful act" in using "inferior quality" materials, the claim could only be for a constructive eviction, since it "was not alleged that [the landlord] physically ousted or excluded" the tenant. ( See Bet Construction Corp. v. City of New York, 96 Misc 2d 1102, 1105 [Sup Ct, Kings County 1978].)
Even if the landlord's failure to act or its half measures could be transformed by characterization as "arbitrary" ( see Fifth Avenue Estates, Inc. v. Scull, 42 Misc 2d 1052, 1053 [App Term, 1st Dept 1964]; Davies, Turner Co. v. Schatzen, 124 Misc 170, 171 [App Term, 1st Dept 1924]), the evidence here does not establish that Petitioner's conduct may be so characterized. A landlord's good faith determination to limit expenses for services to a month-to-month tenant of a building that it intends to demolish cannot be characterized as "arbitrary".
Such a good faith determination, however, does not immunize the landlord from the consequences of a constructive eviction, if a failure to act or its half measures, in breach of an agreement to provide a service essential to access and the operation of a tenant's business, "substantially and materially deprive[s] the tenant of the beneficial use and enjoyment of the premises." ( See Barash v. Pennsylvania Terminal Real Estate Corp., 26 NY2d at 83.) The evidence at trial requires a finding of repeated and significant failures in the only elevator serving the premises and Respondent's customers. Although not necessary to a finding of partial constructive eviction, the evidence also supports the conclusion that Petitioner was aware of the consequences for Respondent's business and profitability, particularly when operating on a so-called "net lease" basis repeatedly invoked by Petitioner.
Unlike a partial actual eviction, for which the entire rent obligation is suspended ( see Fifth Avenue Building Co. v. Kernochan, 221 NY 370, 372; Whaling Willie's Roadhouse Grill, Inc. v. Sea Gulls Partners, Inc., 17 AD3d 453, 453 [2nd Dept 2006]; but see Eastside Exhibition Corp. v. 210 East 86th Street Corp., 23 AD3d 100, 104-05 [1st Dept 2005]), a partial constructive eviction will result only in an abatement of a portion of the rent or an award of damages. "When the tenant is constructively evicted from a portion of the premises by the landlord's actions, he should not be obligated to pay the full amount of the rent." ( Minjak Co. v. Randolph, 140 AD2d at 248.)
The appropriate remedy for a partial constructive eviction depends in great measure upon whether the tenant has paid the rent during the period of eviction. When the tenant has not paid the rent, a partial constructive eviction may serve as a defense in the landlord's action for rent. ( See Arbern Realty Co. v. Clay Craft Planters Co., Inc., 188 Misc 2d 314, 315-16 [App Term, 2nd Dept 2001].) "In cases of partial eviction, the tenant's refusal to pay rent constitutes an election of remedies and the tenant has no claim for damages'." ( 487 Elmwood, Inc. v. Hassett, 107 AD2d 285, 288 [4th Dept 1985] [ quoting Frame v. Horizons Wine Cheese, Ltd., 95 AD2d at 518].) A recent Third Department decision suggests, however, that "where the rent is unpaid and the value lost exceeds the rent", there may be a claim for "the different between the actual rental value attributable to the portion of the premises which [the tenant] could not use and the part of the rent that is attributable to the same portion." ( See Appliance Giant, Inc. v. Columbia 90 Associates, LLC, 8 AD3d 932, 933-34 [3rd Dept 2004].)
When the tenant has paid the rent, the tenant "waive[s] the right to claim that it was discharged from any rent or liability for its occupation of the residue of the premises and the waiver operate[s] as an estoppel against it." ( See 487 Elmwood, Inc. v. Hassett, 107 AD2d at 289.) But, having paid the rent, the tenant has a claim for damages arising from the eviction. ( See id.; see also 85 John Street Partnership v. Kaye Ins. Associates, L.P., 261 AD2d 104, 105 [1st Dept 1999]; 81 Franklin Co. v. Ginaccini, 160 AD2d 558, 559 [1st Dept 1990].)
Direct damages for a partial eviction consist of "that part of the rent attributable to the portion of the premises from which [the tenant] was evicted", as well as "the difference, if any, between the rent attributable to the portion of the premises from which [the tenant] was evicted and the actual rental value of that same portion of the premises." ( See Appliance Giant, Inc. v. Columbia 90 Associates, LLC, 8 AD3d at 933; see also 487 Elmwood, Inc. v. Hassett, 107 AD2d at 519.) The formulation is space-oriented, and may not serve well when the eviction results from an interference with access, caused by repeated, but sporadic and unpredictable, conditions.
A somewhat different formulation focuses more generally on "diminution in the value of [the] premises." ( See Arbern Realty Co. v. Clay Craft Planters Co., Inc., 188 Misc 2d at 315.) The tenant is entitled to "the difference between the rental value of the premises with the use of the appurtenance or facility and the rental value without it." ( See Henry A. Fabrycky, Inc., v. Nad Realty Corp., 261 AD at 269.) For the most part, expert testimony will be required to establish the two "rental values". ( See 487 Elmwood, Inc. v. Hassett, 107 AD2d at 289; Arbern Realty Co. v. Clay Craft Planters Co., Inc., 188 Misc 2d at 316.) When, as in this case, unpredictability is a material factor in the harm caused by the eviction, this alternative formulation appears much more suitable to fair compensation for the tenant.
In addition to direct damages, the tenant should also be entitled to "incidental" or "special damages", such as, in this case, the expenses incurred by Respondent in carrying customers' property when the elevator was out of service. ( See id.)
And, finally, in an appropriate case, the tenant may recover "consequential damages", including lost profits. ( See P.W.B. Enterprises, Inc. v. Moklam Enterprises, Inc., 243 AD2d 350, 350 [1st Dept 1997]; 81 Franklin Co. v. Ginaccini, 160 AD2d at 559; Elmwood, Inc. v. Hassett, 107 AD2d at 289; Frame v. Horizons Wine Cheese, Ltd., 95 AD2d at 519.) To say that damages of this kind are recoverable, however, is not to say that they must be recoverable in this proceeding. Respondent contends that "the undisputed evidence at trial demonstrated [it] lost significant customers, business and profits, and incurred significant additional expenses, as a direct and proximate result of the Elevator being inoperable for large spans of time", but that "due to time constraints at trial . . ., Respondent was not able to present evidence on this issue to the full extent possible." (Respondent's Supplemental Post-Trial Memorandum, at 34.) The Court is inclined to agree on both points, which supports the conclusion that claims for damages of this sort are best resolved in a plenary proceeding. ( See Amdar Co. v. Hahali, 145 Misc 2d 987, 988 [App Term, 1st Dept 1990].)
A hearing has been scheduled for July 5, 2006 for evidence addressed to the appropriate length of the stay on the issuance or execution of the warrant. That hearing will also address Petitioner's claim for use and occupancy subsequent to judgment and Respondent's claim for direct and incidental damages for partial constructive eviction. In the meanwhile, the parties might come to agree with the Court's often-repeated suggestion, that they, rather than the Court, would be in the better position to make the business judgments necessarily implicated in the resolution of this controversy.