Opinion
24475 2010.
Decided February 28, 2011.
Background
Staples The Office Superstore East, Inc. (Staples) and C.E. Flushing, LLC entered a commercial lease agreement, dated October 25, 2006, wherein Staples agreed to lease approximately 20,790 square feet, in a building to be known as Flushing Town Center and located at 131-07 40th Road, Flushing, New York. Flushing Town Center III, L.P. (Flushing) is alleged to be the successor in interest to C.E. Flushing, LLC. Flushing Town Center is now known as the Sky View Center, a newly built retail mall and residential complex.
The initial lease term is 15 years. Section 3.1 states that the Commencement Date is the date of Delivery of Possession, while section 4.1 states that the Rent Commencement Date shall be 90 days following the Delivery of Possession.
Section 14.8 of the lease is a co-tenancy provision, which provides, in pertinent part, as follows:
"Notwithstanding anything in this Lease to the contrary, in the event that the Co-Tenancy Requirement (as defined below) shall not have been met by the Rent Commencement Date, Tenant may elect (as its sole remedies) to either (I) delay the Rent Commencement Date until not more than 30 days after the Co-Tenancy Requirement has been met (and in such event the Rent Commencement Date hereunder shall be deemed to be the earlier of Tenant's opening for business within the Premises or the expiration of the 30-day period); or(ii)open for business prior to the Co-Tenancy Requirement has been met but, in lieu of Base Rent owed here under, Tenant shall pay to Landlord percentage rent in an amount equal to 2% of Gross Sales (as defined in Section 14.19 hereof) during each such month that the Co-Tenancy Requirement is not met (up to a maximum each month equal to the monthly Base Rent that would have been due during such month). In the event the Co-Tenancy Requirement is not met within 200 days after the original Rent Commencement Date hereunder, Tenant shall have the right as its sole remedy to terminate this Lease upon notice to Landlord delivered at any time prior to the earlier of (I) 60 days after the expiration of the 200-day period, or (II) the Co-Tenancy is met . . . For the purposes of this Section 14.18 the Co-Tenancy Requirement' shall mean Home Depot (or a national retailer having not less than 100 stores and occupying not less than 100,000 square feet) being open for business within substantially all of the premises identified on Exhibit A."
On January 5, 2009, Staples learned that the landlord was considering renting the space below it to BJ's Wholesale Club (BJ's), rather than Home Depot, and informed the landlord that BJ's occupancy would not satisfy the lease's co-tenancy requirement. The landlord, in a letter dated January 12, 2009 expressed its disagreement with Staple's position. By letter dated May 27, 2009, Staples informed the landlord that it fully intended to comply with its obligations under the lease, and expected the landlord to do the same. Staples also reiterated its position that BJ's is a regional retailer, not a national retailer, and thus does not satisfy the lease's co-tenancy requirement.
It is undisputed that the premises directly below that which Staples contracted to occupy is leased to BJ's, and that Home Depot is not a tenant in the Sky View Center.
Flushing, in a letter dated October 30, 2009, advised Staples that pursuant to section 2.4.1 of the lease, delivery of possession occurred on that date. Staples, by letter dated November 12, 2009, responded as follows: "As you are aware, since at least early January of this year Tenant has been very clear that, because BJ's Wholesale Club is not a national retailer (and is in fact a regional retailer operating only in 16 states in the eastern U.S.), it will not satisfy the Co-Tenancy Requirement set forth in section 14.18 of the Lease. Tenant reserves all of its rights and remedies (including, without limitation, its rights to postpone the Rent Commencement Date and to terminate the Lease) in connection with any failure by Landlord to satisfy the Co-Tenancy Requirement within the time frame set forth in Section 14.18 of the Lease."
Staples, reiterated the above and further asserted:
"This letter [dated December 1, 2009], as well as prior communications, put you on notice that the Co-Tenancy Requirement set forth in § 14.18 of the Lease has not been satisfied.
"You are put on further notice that Tenant elects to delay the Rent Commencement Date until not more than thirty (30) days after the Co-Tenancy Requirement has been satisfied and will not open for business upon the Landlord's failure to satisfy this Lease requirement.
"Tenant also advises Landlord that in the event the Co-Tenancy Requirement is not meet within 200 days after the original Rent Commencement Date, which is February 1, 2010, Tenant is terminating this Lease and this lease shall be deemed notification of the termination as of August 20, 2010, that being the 201st day following the original Rent Commencement Date.
"Tenant reserves any and all rights and remedies under the Lease based upon the Landlord's knowing failure to satisfy the Co-Tenancy Requirement of § 14.18."
On or about December 7, 2009, Flushing responded that it disputed Staples' positions and contended that it expected "BJ's Wholesale Club to open for business in January 2010, in the premises at Sky View Center (formerly Flushing Town Center). At that time, the Lease Co-Tenancy Requirement will be met and Tenant will be obligated to pay rent and additional rent commencing on the Rent Commencement Date without any delay whatsoever in said Rent Commencement Date."
Prior Litigation
On January 21, 2010, Staples commenced an action in this court entitled Staples, The Office Superstore, East, Inc. v Flushing Town Center III, LP (Index No. 1712/2010) wherein it sought a preliminary and permanent injunction to enjoin Flushing from taking any action to terminate or default Staples under the lease for failure to pay rent and additional rent pending a determination by the court of the parties' rights under the lease's co-tenancy clause. In its complaint, Staples alleged that BJ's Wholesale Club is not a national retailer and therefore, the co-tenancy clause had not been met. Staples, moved for a temporary restraining order on February 24, 2010, and Flushing cross-moved to dismiss the complaint on the grounds that it was a landlord-tenant dispute, and that the Supreme Court was not the appropriate forum to litigate the issues presented.
By order dated March 2, 2010 the Hon. Orin R. Kitzes, J.S.C. denied Staples' motion for injunctive relief as it had shown it was entitled to such relief, and noted that with respect to the co-tenancy clause the evidence presented raised a genuine issue of fact. The court granted the cross-motion to dismiss the complaint on the grounds that the Supreme Court was not an appropriate forum to determine the landlord-tenant dispute.
Flushing, thereafter, commenced a non-payment proceeding, entitled Flushing Town Center III, LP v The Office Superstore, East, Inc. (Index No. 060087/10) in the Civil Court of the City of New York, Queens County to recover rent arrears in the sum of $147,451.91. Staples moved to dismiss the petition and Flushing cross-moved for summary judgment in its favor. The Hon. Leslie J. Purificacion, by order dated July 30, 2010, granted Staples' motion to dismiss the petition and denied Flushing's cross-motion. The court determined that as Staples was not in possession of the subject premises at the time the action was commenced, no jurisdictional basis existed for maintaining the summary proceeding. The court made no determination with respect to Staples' claim regarding the co-tenancy requirement of the lease, and stated that the parties could seek their remedies in a plenary action based on contract in the appropriate forum.
Background to the Instant Litigation
By letter dated September 2, 2010, Staples informed Flushing that it was exercising its option to terminate the lease pursuant to section 14.18. Staples recited that the landlord purported to advise the tenant that Delivery of Possession had occurred on October 30, 2009; that pursuant to section 4.1 of the lease, the Rent Commencement Date is the 90th day following delivery of possession, which was January 28, 2009; that Staples advised the landlord that the co-tenancy requirement had not been met, because BJ's Wholesale Club is not a national retailer, but merely a regional retailer operating in 15 states in the eastern portion of United States; and that Staples had advised the landlord that the Lease would be deemed terminated if the co-tenancy requirement was not met within 200 days of the original Rent Commencement Date. Staples further determined that as more than 200 days had now elapsed and the landlord has not complied with the co-tenancy requirement, it was exercising its option pursuant to section 14.18 of the lease to terminate said lease. Finally, Staples averred that it was reserving any and all rights and remedies under the lease and applicable law, based upon the landlord's failure to satisfy the co-tenancy requirement and other applicable provisions of the lease.
On or about September 14, 2010, Flushing rejected the positions taken by Staples, and stated that based upon the tenant's failure to pay rent and the landlord's prior letter of March 11, 2010, it "hereby notifies Tenant that in accordance with section 12.1, the Lease is hereby terminated and that the Landlord is entitled to lawful possession of the Premises. Landlord further notified Tenant that in accordance with section 12.2 of the Lease, Tenant is now liable to pay Landlord damages as set forth therein, as well as all past due Base Rent and such other payments as owed under the Lease."
The Instant Litigation:
A. The Pleadings
On September 27, 2010, Staples commenced the within action for declaratory judgment and injunctive relief. The first cause of action alleges that the plaintiff is ready, willing and able to cure the alleged defaults in the landlord's purported notice to cure, short of vacating the premises in the event that the court determines that the lease co-tenancy requirement was met, and seeks a Yellowstone injunction, enjoining defendant from taking any steps to terminate the lease based upon the purported notice to cure, and from commencing any action or proceeding to obtain possession of the premises based upon the purported notice to cure.
The second cause of action seeks a declaration stating that BJ's Wholesale Club is not a national retailer.
The third cause of action seeks a declaration stating that, upon the court granting the relief sought in the second cause of action, defendant has failed to satisfy the co-tenancy requirement of section 14.18 of the lease.
The fourth cause of action seeks a declaration that, upon finding that defendant has failed to satisfy the co-tenancy requirement of section 14.18 of the lease, plaintiff properly served a termination notice under section 14.18 of the lease.
The fifth cause of action seeks a declaration by this court that, by virtue of plaintiff's election of remedy pursuant to section 14.18 of the lease, plaintiff has no obligation to pay any rent under the lease and that the lease was duly terminated without any obligations or further liability by plaintiff to defendant.
The sixth cause of action seeks a declaratory judgment that plaintiff did not default on its obligations under the lease as alleged in the landlord's purported notice to cure and notice of termination and that these notices are legally defective, null and void.
The seventh cause of action seeks to permanently enjoin defendant, its employees, agents, servants, representatives and any persons acting on their behalf from taking any steps to terminate the lease, based upon the purported termination notice and purported cure notice; from commencing any action or proceeding to obtain possession of the premises based upon said notices; and from otherwise attempting to obtain possession of the premises based upon the landlord's purported termination notice and notice to cure, or otherwise claiming that the lease has terminated and seeking to obtain possession of the premises.
Plaintiff, herein, also seeks to recover attorney's fees and costs.
Defendant Flushing served an answer and interposed five affirmative defenses and four counterclaims. The first counterclaim seeks a declaration that Staples wrongfully terminated the lease; the second counterclaim seeks to recover, upon a determination that the lease was improperly terminated by the plaintiff, base rent and additional rent through October 2010 in the sum of $757,991.96, plus interest; the third counterclaim seeks a declaration that the lease was not terminated by plaintiff and remains in effect, and that, therefore, defendant is entitled to recover base rent and additional rent, through October 2010 in the sum of $757,991.96, plus interest; and the fourth counterclaim seeks to recover attorneys fees and costs pursuant to section 14.11 of the lease.
Staples served a reply to the counterclaims and interposed seven affirmative defenses.
B: The Motions for Summary Judgment
In support of its motion for summary judgment Staples submits an affidavit from Bernard I. Schachter, its Senior Vice-President, Real Estate. Mr. Schachter states that at the time the lease was negotiated, the parties were both represented by counsel and Staples was advised that the space directly below that which it was to occupy would be leased to Home Depot. He states that the co-tenancy requirement was extremely important to Staples and that having Home Depot, or a similar national retailer, as a co-tenant was a key provision Staples required be included in the lease. Mr. Schachter contends that a co-tenancy brings customer traffic to the shopping center and that, as Staples was entering into a 15-year lease, it wanted the strength and stability of a Home Depot or other national retailer. He states that having a national retailer in the space below was particularly important as it considered the shopping center to be a high risk project, because its store would be located on the second floor, requiring customers to pay for parking in an indoor garage, which typically generates less traffic than free outdoor parking. He also stated that Staples considers BJ's Wholesale Club to be a direct competitor as it sells many of the same items such as paper, ink cartridges, printers, computers, and cameras. Finally Mr. Schachter asserts that if Staples had known that BJ's Wholesale Club would be occupying adjacent space, it would either not have entered into the lease, or would not have entered into the lease on the same terms.
Defendant Flushing, in support of its motion for summary judgment, submits an affidavit from C. Bradley Mendelson, Executive Vice-President, Retail Services, at Cushman Wakefield, a commercial real estate services firm. Mr. Mendelson states, in pertinent part, that in his experience in retail brokerage and leasing the term "national" retailer meaner a retailer with name awareness in the nation, and does not require locations spread throughout every region of the United States. He states that in the field of retail leasing in New York City, the term "local" is understood to mean New York City and its environs, the term "regional" is understood to mean the northeast and the term "national" is understood to mean spanning multiple, but not necessarily, all regions of the country. He states that he considers BJ's to be a national retailer because it has stores in three of the four official United States Census regions, its products and services are available throughout the nation via e-commence, it is a Fortune 500 company listed on the New York Stock Exchange with total revenues in excess of $10 billion dollars and has millions of members.
Flushing further contends that Staples seek to avoid the lease due to the downturn in the economy, and that it improperly terminated the lease.
In opposition to Flushing's motion, Staples submits a second affidavit from Mr. Schachter, and affidavits from David Smookler, a partner in Dartmouth Company a commercial real estate brokerage firm, and Chase Welles, an Executive Vice-President of Northwest Atlantic Realty Services, a real estate consulting firm. Mr. Smookler and Mr. Welles both contend that, in their experience, the term "national retailer" means stores spread across the United States, and not only in one region or section of the country; that they would not normally use the US Census data to determine whether one is a national retailer; that even if a retailer is nationally known or nationally recognized, it would generally not be considered a national retailer absent physical locations across the country; and that co-tenancy provisions are not intended to capture internet retailers.
Additionally, the parties each submit various documents pertaining to BJ's, including information set forth on its website and various articles and commentaries from reporters and economic analysts.
Legal Issues
The subject lease is a contract and the rules of contract interpretation are well-established. "[W]hen parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms," and this rule is applied with special force "in the context of real property transactions, where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length" ( Vermont Teddy Bear Co. v 538 Madison Realty Co. , 1 NY3d 470 , 475 [internal quotation marks, ellipses and citations omitted]). Courts may not "by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing" ( Reiss v Financial Performance Corp., 97 NY2d 195, 199 [internal quotation marks and citation omitted]).
"Whether an agreement is ambiguous is a question of law for the courts . . . Ambiguity is determined by looking within the four corners of the document, not to outside sources" ( Kass v Kass, 91 NY2d 554, 566 [citations omitted]). The entire contract must be reviewed and "[p]articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought" ( Atwater Co. v Panama R.R. Co., 246 NY 519, 524 [1927]). Where the language chosen by the parties has "a definite and precise meaning," there is no ambiguity ( Greenfield v Philles Records, 98 NY2d 562, 569 [citation omitted]). "[C]lear contractual language does not become ambiguous simply because the parties to the litigation argue different interpretations" ( Riverside S. Planning Corp. v CRP/Extell Riverside, L.P. , 60 AD3d 61 , 67, affd 13 NY3d 398; see also DiPasquale v Gutfleish , 73 AD3d 544 ).
Here, the parties were represented by counsel and negotiated the terms of a 45-page lease. This dispute focuses on whether, under the lease's co-tenancy requirement, BJ's is a "national retailer having not less than 100 stores."
Since the parties did not define the term "national" in the lease, the ordinary and natural meaning of the words national and retailer are dispositive. Black's Law Dictionary (9th ed. 2009) defines national as "nationwide in scope," while retail is defined as "a person or entity engaged in the business of selling personal property to the public or to consumers, as opposed to selling to those who intend to resell the items." Contrary to defendant's assertions, the term "nationally known" is not the equivalent of "national retailer," and the court will not re-write the parties' lease in order to change its plain meaning.
The court finds that there is no need to rely on the affidavits submitted by the parties in support of their claims with respect to the definition of "national retailer," as this term does not have a special meaning which cannot be determined absent expert evidence. In addition, the unsworn statements made by various news commentators and financial analysts regarding BJ's status as either a regional or national retailer are not in admissible form, lack probative value, and were not considered by this court.
The documentary evidence submitted by the parties establishes that BJ's consistently holds itself out as a leading operator of membership warehouse clubs in the eastern United States. It is undisputed that BJ's operates its stores solely in the following 15 states: Connecticut, Delaware, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and Virginia.
The parties submit a map of the United States utilized by the United States Census Bureau which splits the nation into regions and divisions. This map illustrates, at the most, that BJ's stores are concentrated mainly in states along the eastern seaboard, with a few stores located in one Mid-Western state, Ohio. BJ's does not operate any retail stores in the remainder of the United States.
Although BJ's is styled as a wholesale club, it sells merchandise directly to members of the public who either purchase yearly club memberships, are offered temporary trial memberships, or use one-day member passes for which a surcharge is added. BJ's, thus, is a retailer within the ordinary meaning of the word.
BJ's also sells some merchandise to its members via its website, and permits non-members limited access to such sales. However, the fact that merchandise may be purchased online does not transform BJ's into a national retailer within the meaning of the subject lease. Here, the purpose of the co-tenancy clause is to attract consumers to shop at the subject premises; not to encourage the same consumers to make their purchases over the internet. As it is clear that BJ's retail operations are not nationwide is scope, this court concludes that BJ's is a regional, not a national retailer.
Conclusion
Those branches of plaintiff's motion which seek summary judgment on the second and third cause of action, and that branch of defendant's motion for summary judgment on its first counterclaim are granted. This court hereby declares that BJ's is not a "national retailer" within the meaning of the lease's co-tenancy requirement and that the defendant has failed to satisfy the co-tenancy requirement of section 14.18 of the lease.That branch of the plaintiff's motion which seeks summary judgment on the fourth cause of action is granted. This court hereby declares that Staples properly elected to delay the Rent Commencement Date in its letter of December 1, 2009, pursuant to section 14.18 of the lease, and thereafter properly elected to terminate the lease in its letter of September 2, 2010, pursuant to section 14.18 of the lease, as Flushing failed to comply with the lease's co-tenancy requirement.
That branch of plaintiff's motion which seeks summary judgment on the fifth cause of action is granted. This court hereby declares that plaintiff has no obligation to pay any rent under the lease and that the lease was duly terminated without any obligations or further liability by plaintiff to defendant, as plaintiff properly exercised its remedies under section 14.18.
That branch of plaintiff's motion which seeks summary judgment on its sixth cause of action is granted. This court hereby declares that plaintiff did not default on its obligations under the lease as alleged in the landlord's notice to cure and notice of termination and that said notices are null and void.
As this court has made the above declarations, the branch of the plaintiff's motion which seeks summary judgment on its first cause of action for a Yellowstone injunction and that branch of the plaintiff's motion which seeks summary judgment on the seventh cause of action for a permanent injunction, are denied as moot.
Finally, that branch of the plaintiff's motion which seeks summary judgment dismissing defendant's second, third and fourth counterclaims is granted, and that branch of defendant's motion which seeks summary judgment in its favor on these counterclaims is denied in its entirety.