Opinion
79374/03.
Decided December 18, 2003.
By Decision/Order dated October 6, 2003 (McClanahan, J.), this Court granted respondent Wesley Harris' motion pursuant to Civil Practice Law and Rules ("CPLR") § 2201 and stayed the instant licensee holdover proceeding pending the outcome of a related Supreme Court action between the parties. The Court set the matter down for a hearing to determine the amount for an appropriate undertaking which respondent must post as a condition of the stay of this summary holdover proceeding.
The hearing took place on November 12, 2003. Petitioner called Catherine Cosentino and Mary McNamara as witnesses. In rebuttal, respondent Harris provided limited testimony. Respondent called no other witnesses.
THE UNDERTAKING
Jurisdiction over summary proceedings is conferred to the Civil Court by New York City Civil Court Act ("CCA") § 204. In exercising its jurisdiction, the Civil Court has "all of the powers that the supreme court would have in like actions and proceedings. CCA § 212. One of these powers is the granting of a stay of the proceeding. Pursuant to CPLR 2201, the court may stay proceedings "in a proper case, upon such terms as may be just." In the instant proceeding, the Court conditioned the stay on the posting of an undertaking.
The purpose and function of an undertaking is to reimburse a party for damages sustained if it is later finally determined that the stay was erroneously granted. See Margolies v. Encounter, Inc., 42 NY2d 475 (1977). As applied here, the other salutary purpose for the undertaking is to maintain the status quo between the parties while the stay of the proceeding is in effect.
The fixing of the amount of the undertaking is a matter within the sound discretion of the court. Crippen v. United Petroleum Feedstocks, Inc., 245 AD2d 152 (1st Dept 1997). As observed, "[t]he trial court in establishing the amount of the security or undertaking must, of necessity, do so on a conjectural basis, guided by divergent estimates of damages offered by the opponents before the court and by the trial judge's own experience and knowledge." See Howard Johnson Company v. Parkside Development Corporation, 169 Ind.App 379 (Court of Appeals of Indiana, First District). Notwithstanding the imprecise nature of the analysis, the amount of the undertaking must be rationally related to the amount of the potential damages the non-moving party establishes he/she might suffer, Clover Street Associates v. Nilson, 244 AD2d 312 (2nd Dept 1997), and the court must decline to consider speculative claims of damages in fixing the amount of the undertaking. Blueberries Gourmet, Inc. v. Aris Realty Corp., 255 AD2d 348 (2nd Dept 1998).
PETITIONER'S POTENTIAL DAMAGES
Petitioner claims potential damages resulting from the inability to collect use and occupancy for Apartment 4W in Knox Hall and Apartment 321 in McGiffert Hall, both located on the Union Theological Seminary campus; and the lost rental income attributable to the lease agreement between petitioner and Columbia University.
McGiffert Hall, Apartment 321
Petitioner claims its potential damages include the value of use and occupancy of this space because Apartment 321 located in McGiffert Hall was reassigned to Professor Harris pursuant to the procedures recommended by the faculty and adopted by the Board of Directors of petitioner. Thus, the space must be held vacant for his future use.
This Court disagrees.
Professor Harris opted out of the reassignment process and has continually rejected the offer of Apartment 321. His position in this litigation and in the related Supreme Court action is that he was not bound by the procedures adopted by the Board of Directors of petitioner. Thus, respondent has waived any claim to this apartment. If Professor Harris' position is not vindicated, he will have to accept any available accommodation that remains in McGiffert Hall. Since petitioner is not required to keep Apartment 321 vacant, it cannot claim any foregone use and occupancy as a measure of its potential damages resulting from the stay of this holdover proceeding.
Knox Hall, Apartment 4W
It is well settled that a holdover tenant retaining possession is liable for the reasonable use and occupancy of the premises for the period during which the tenant is in possession. Luchina Realty v. Flatcher, 180 NYS 732 (App Trm 1st Dept). Following the amendment of Real Property Actions and Procedure Law ("RPAPL") § 741(5) in 1976 to permit fair use and occupancy to be awarded in summary proceedings, use and occupancy has been awarded against subtenants and other third parties, including licensees. See New York University v. Contrastano, NYLJ, April 20, 1989, at p. 23, col 2 (App Trm 1st Dept); Ministers, Elders and Deacons of the Reformed Protestant Dutch Church of the City of New York v. City of New York, 152 Misc2d 936 (Civ Ct NY Co 1991).
Reasonable value is fair market value, that is, the amount in cash which a willing purchaser would pay and a willing seller would take. Beacway Operating Corporation v. Concert Arts Society, Inc., 123 Misc2d 452 (Civ Ct NY Co 1984). In making a determination as to value, the court has the obligation to appraise the actual value of the property taking into consideration whatever restrictions apply because of agreements between the parties or other factors. 438 W. 19th St. Operating Corp. v. Metropolitan Oldsmobile, Inc., 142 Misc2d 170 (Civ Ct NY Co 1989).
In Plaza Hotel Assocs. v. Wellington Assocs., 28 AD2d 1209, aff'd 22 NY2d 846 (1968), the court found a lesser value to the land because of a contract requirement that a hotel be maintained there, holding that "valuations of land must take into consideration all encumbrances thereon, including restrictions as to its use."
Catherine Cosentino, real estate appraiser, testified that the value of use and occupancy of Apartment 4W located in Knox Hall, with the total area of 5600 square feet, ranged between $5400 and $6000. She observed that the subject premises is not a typical residential situation since it is part of a seminary/religious environment, noting the absence of truly comparable rental space, i.e., other religious institutions. Furthermore, there were no historical rental comparisons since the apartments in Knox Hall are not rented to the public, but assigned to faculty and other designated employees of Union Theological Seminary. Her appraisal attempted to include certain adjustments for this unique residential/institutional property.
The Court's consideration must of necessity include any contractual restrictions which would bear on petitioner's right to collect the fair use and occupancy and, thus, be related to petitioner's potential damages.
The Agreement of Lease Between Union Theological Seminary and The Trustees of Columbia University in the City of New York dated March 11, 2003 (the "Columbia Lease"), provides, in relevant part:
2.4. If the Landlord [petitioner] obtains vacant possession of a portion, but less than all, of any Tenant [Columbia University] Space, Landlord shall not lease or permit the occupancy of such space to third parties (other than Tenant), it being the intent that such vacated portion of a Tenant Space shall remain vacant (other than for Landlord's own use and leases to Tenant) until such Tenant Space, in its entirety, is made available to Tenant for purposes of delivery of possession. Except for (i) occupancy of Knox by certain staff, faculty and/or students, and (ii) a lease or leases to Tenant of portions of the Premises . . ., no person or entity, other than Landlord, has the right to possession of any portion of the Premises.
Petitioner is not entitled to include use and occupancy for Apartment 4W located in Knox Hall as potential damages resulting from the stay of this summary proceeding.
The Columbia Lease expressly prohibits petitioner from renting space in Knox Hall to a third party. By contract, petitioner has limited the pool of potential lessees to its own employees and Columbia University. Thus, even if petitioner had immediate possession of Apartment 4W, petitioner would not be able to demand even the minimum market rate of $5400 per month as testified to by its expert.
As for petitioner's employees, there is no proof of arms-length negotiations based on prevailing market rate rents for comparable space. For example, there is no proof of the amount of rent Union Theological Seminary would charge a student for space in Knox Hall. The testimony of Mary McNamara, Executive Vice President and Chief Operating Officer for petitioner, establishes that faculty members and high ranking employees are assigned housing as part of their employment compensation. Nothing in the record indicates that petitioner considers prevailing market rents for space in Knox Hall when making these assignments.
While petitioner has the right to collect rent for Apartment 4W if it were to deliver immediate possession to Columbia University, the amount is not set by the market but by contract, namely the Columbia Lease. In sum, petitioner is not entitled to collect the reasonable value of use and occupancy for Apartment 4W from Columbia University. Any claim that it will demand market rate rent from current or future employees is clearly speculative and must be disregarded by the Court.
Moreover, the Letter Agreement re-issued December 8, 1998, between petitioner and respondent provides, in relevant part:
Your [respondent] annual cash salary will be $58,000. In addition, you will be provided an unfurnished apartment, Apartment 4W, on campus (with utilities included) at no cost to you . . . If one reckons housing provided as a value equivalent to a third of salary, your compensation for 1998-99 is calculated at $77,333.
Professor Harris' rent is incident of his employment as a tenured faculty member of Union Theological Seminary. Petitioner bases this licensee holdover proceeding on the termination of his license to use Apartment 4W. However, Professor Harris' employment with petitioner has not been terminated, and he continues to carry-out his functions as a tenured professor. The parties negotiated that an amount equal to one third of Professor Harris' salary was attributable to housing, specifically his use of Apartment 4W.
To now require him to pay for the use and occupancy of this space would adversely effect the terms and conditions of his employment. The fact that Professor Harris is still employed with petitioner distinguishes this holdover proceeding from the typical situation where an employee is terminated and holds over without the landlord's consent, i.e., a superintendent of residential building. Here, petitioner is still receiving the full benefit of Professor Harris' services. The payment of use and occupancy without a concomitant increase in his cash salary or other benefits would inequitably require Professor Harris to forego one-third of his salary in order to maintain the stay of the instant proceeding. This result would hardly maintain the status quo between the parties.
Accordingly, this Court must decline to include use and occupancy of Apartment 4W located in Knox Hall as part of the potential damages resulting from the stay of this summary holdover proceeding.
The Columbia Lease
Paragraph 2.3 of the Columbia Lease allows petitioner to give permission to Columbia University to enter into possession of all or a portion of Knox Hall prior to the lease commencement date of September 2004. In such event, the base rent is to be pro-rated, based upon the rentable square footage of the portion occupied, compared to the rentable square footage for the entire space. The total square footage of Knox Hall is approximately 46,111 square feet above grade and 5,422 square feet below grade for a total leased space of 51,533. The annual base rent for Knox Hall is $759,532, exclusive of any applicable renewal increases and other adjustments.
Petitioner's expert testified that Apartment 4W in Knox Hall is approximately 5600 square feet. Thus, if petitioner agreed to allow Columbia to rent this space prior to the commencement date for the lease of the entire rentable space, it would be entitled to a pro-rated rent in the amount of $6,879 per month ($759,532/51,533 X 5600/12). Petitioner formally terminated Professor Harris' license as of June 19, 2003. See Notice of Termination of License And/Or Notice to Quit dated June 2, 2003. The amount of $41,274 ($6,879 x 6 months) must be considered part of petitioner's potential damages which would result from the imposition of the stay of this proceeding should Professor Harris be unsuccessful in Supreme Court.
In addition to these damages which reflect the value of rent which cannot be collected by petitioner pursuant to the express terms of the Columbia Lease, petitioner has established additional damages which may result from a delay in the commencement date for possession of Knox Hall.
Pursuant to paragraph 3.1 of the Columbia Lease, Columbia University can charge the sum of $1,255 per day for each day of any delay in delivering possession of Knox Hall. This provision of the Columbia Lease will not apply to Knox Hall until the commencement date of September 2004. This amount must be multiplied by a reasonable number to secure petitioner in the event Columbia University exercises its right under the lease.
To date, the parties have entered into a motion schedule in Supreme Court for submission of all dispositive motions. CPLR 2219(a) provides that an order determining a motion shall be made within sixty (60) days after the motion is submitted for decision. If these motions are denied, there will then be the possibility of a trial on the merits. If petitioner is successful during the pretrial stage, respondent may file an appeal.
In discussing the matter with the Clerk of the Appellate Division, the average time to perfect an appeal without any discretionary enlargements of the statutory time to appeal is generally eight to nine months. Depending on the complexity of the legal and factual issues, the Appellate Court usually renders its determination within four months. Accordingly, the Court determines that a reasonable time period to set as security for damages resulting from paragraph 3.1 of the Columbia Lease is six months. This period takes into account the time remaining before the lease commencement date, any enlargements of the time to appeal and the crowded trial and appellate dockets.
Therefore, the amount to be secured under this provision of the Columbia Lease is $225,900 (180 x 1,255), which is rationally related to petitioner's potential damages.
Petitioner contends that the undertaking should further secure it against the possibility that Columbia University would exercise its right to cancel the lease with respect to Knox Hall if complete possession is not delivered by September 1, 2006. If granted, the undertaking would equal approximately $37,217,068 (49 years x $759,532).
The Court declines to accept this amount as part of petitioner's potential damages. The date of 2006 is over two years away. It is inconceivable that the Supreme court litigation regarding Knox Hall would not be terminated prior to this default date. If respondent is successful at the trial stage, any appeal would be filed by petitioner and not implicate the stay imposed by this Court.
As noted earlier, the fixing of an undertaking is not a precise science. If the amount fixed by this Court becomes inadequate based on changed circumstances, petitioner may make a timely application for its increase. Carpenter Hughes v. De Joseph, 29 Misc2d 519 (Sup Ct Onondaga Co 1961). Likewise, the undertaking may be reduced if respondent has clear proof establishing that the amount is excessive in comparison with petitioner's potential damages resulting from the stay of this proceeding. Donald Shaffer, Inc. v. Shaffer, 44 AD2d 725 (2nd Dept 1974).
Based on the foregoing, the Court determines after hearing that the amount of an appropriate undertaking as a condition to the stay of this proceeding is $267,174. Respondent is also directed to pay into his attorney's escrow the amount of $6,879 per month commencing January 31, 2004 and each month thereafter until the termination of the Supreme Court action and any appeal filed by Professor Harris of an adverse determination by Supreme Court.
The Court shall mail courtesy copies of its decision/order to counsel.