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December 29, 1948

COHEN et al.

The opinion of the court was delivered by: RYAN

This motion is made by the owners of a parcel of real property, the fee to which the Government has taken in condemnation, for an order directing payment of funds deposited in the Registry of this court to the holder of the first mortgage and the balance to the owners.

The tenant-lessee appears and opposes any payment to the owners until the value of its leasehold interest has been fixed and due provision made as compensation for its taking.

 The pending proceedings concern certain property located in two square blocks -- First Avenue to Avenue A, Borough of Manhattan, New York City. The notice and petition in condemnation were filed by the Government on September 30, 1948. The property was taken by declaration of taking filed on November 29, 1948, under and in accordance with the Act of Congress approved February 26, 1931, 46 Stat. 1421, 40 U.S.C.A. § 258a, for use in connection with the establishment of a Veterans Administration Hospital. The Government, on November 29, 1948, deposited with the Registry of this court the sum of $ 620,000 for Parcel '8,' the property involved in this motion. Judgment on the declaration of taking was filed on December 1, 1948.

 Gertrude Cohen, Claire Joy Halprin, Bessie Klasky and Hazel Kucharski (hereafter, the landlord-owner), were the owners in fee simple each owning a one-fourth interest in Parcel '8,' said premises being known as 425-435 East 24th Street, Borough of Manhattan, New York City. The Guardian Life Insurance Company of America (named in the proceedings as Guardian Life Insurance Company) is the owner of the first mortgage upon which there is unpaid $ 276,262.01. Knickerbocker Printing Corporation (named in the proceedings as Knickerbocker Printing Co., hereafter, the tenant) is the lessee.

 The lease dated May 8, 1946, is made between Knickerbocker Printing Co., as tenant, and 435 East 24th Street Corporation, as landlord; it covers the entire eleven-story building erected on the property; and it is for a term of 21 years to commence on May 1, 1946, and end on April 30, 1967. The 435 East 24th Street Corporation is an entirely owned and controlled stock subsidiary of Knickerbocker Printing Co., so that the tenant, in effect, granted itself the lease and made its own terms and conditions.

 The present landlord-owner acquired title by purchase from the 435 East 24th Street Corporation under contract dated November 11, 1946, paying as purchase price $ 185,000 in cash, and the balance by taking subject to a first mortgage of $ 297,737.50. The mortgage has since been reduced by principal payments amounting to $ 21,475, making the total cash investment $ 206,475, in addition to closing disbursements.

 The tenant contends that by the terms of its lease it is entitled to receive a portion of any award made in condemnation for the property, and further urges that the property was sold at a price, which in the light of subsequent real estate developments in New York City is burdened by an increasingly valuable lease, which allegedly has eaten into the equity of the landlord-owner of the property.

 There appears to be no reason why payment should not be made to the Guardian Life Insurance Company for the full amount due on the first mortgage. We are concerned then with the disposition of the balance remaining on deposit, only.

 The court may award and direct immediate payment to the landlord-owner of the entire deposit, part or none of it, but in any event only of such portion as to which he has a clear and unquestionable right. The funds deposited in court stand in place of the realty itself; they are subject to claims of all lienholders against the property at the time of taking. United States v. Certain Land in City of St. Louis, Mo., D.C.Mo.1939, 29 F.Supp. 92. A lease with an unexpired term of more than 20 years and with the tenant in actual possession is such a lien.

 The landlord-owner claims upon the theory that the lease by its terms expired with the taking. This involves an examination of the lease.

 The lease is on a printed form frequently seen in courts as the subject of litigation. In its original form it is long drawn, containing thirty-four clauses many of them with a number of subdivisions. In the final form in which it was signed, we find a number of clauses partly or entirely deleted and changed by interpolation; in addition, there are four riders and an addendum of four clauses. The result is a hodgepodge affair not clearly definitive of the rights and obligations of the parties.

 Our attention is first drawn to paragraph '13' of the lease, the condemnation clause contained in the original printed form, which reads as follows:

 'If the whole or any part of demised premises shall be taken or condemned by any competent authority for any public or quasi public use or purpose, then, and in that event, the term of this lease shall cease and terminate from the date when the possession of the part so taken shall be required for such use or purpose, and without apportionment of the award. The current rental, however, shall in any such case be apportioned.'

 To this was added Rider '45' with a notation that it was to be inserted immediately before the last sentence of the ...

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