premises are completely enclosed weathertight.
The Landlord notified Tower on January 23, 1992 that its space was substantially complete. By letter dated January 30, 1992, Tower rejected January 30, 1992 as the date of substantial completion based upon:
1. The Owner's continued failure to demonstrate that the demised premises are zoned for retail use as required by the Lease.
2. The Owner's failure to construct and deliver the premises as required by the Lease.
3. The Owner's failure to comply with the terms of substantial completion as defined in the Lease.
4. The Owner's failure to respond to our letter of December 27, 1991 [quoting the letter of Robert F. Liner dated January 30, 1992].
Items 1 and 4 are not in issue here.
The Landlord Substantially Complied with P 46(4)
Paragraph 46(4) provides that the "store space shall have 13 foot ceilings (slab to slab) on the street level and the second floor level . . . " Tower asserts that the Landlord has breached the Lease because the as-built ceiling heights on these floors is 12 feet, 6 inches slab to slab and, in some places on the second floor, 12 feet, 4 inches slab to slab.
Measuring a height from "slab to slab" means measuring from the top surface of one floor to the top surface of the floor above. The actual height from floor to ceiling is the slab-to-slab height reduced by the thickness of whatever structure separates the floors and any hung ceiling below that structure. The Lease anticipated a concrete construction, in which concrete slabs approximately 10 inches thick would be used for the street level and second floor. Accounting for the thickness of these slabs, therefore, the ceiling height on the first and second floors would have been 12 feet, 2 inches.
Despite the 6 to 8 inch differential between the anticipated slab-to-slab ceiling height and the as-built slab-to-slab ceiling height on the first and second floors, the effect on the floor-to-ceiling height is insubstantial. The structural ceiling contained in the present steel construction is 5 1/4 inches of concrete and metal deck. Thus, the floor-to-ceiling height is 12 feet, 3/4 inch in most places on the street level and second floor and 12 feet, 1/4 inch in some places on the second floor. In actuality, then, the as-built floor-to-ceiling height varies from that anticipated by the Lease and depicted in the Emery Roth drawings by only one and one-quarter to one and three-quarters of an inch. At the point of the beams, there is a differential of approximately two to four inches. I conclude that this is a de minimis differential which does not render substantial performance of the contract objectively impossible.
Square Footage is Subject to Arbitration
Paragraph 46(3) of the Lease requires the Landlord to provide Tower with approximately 11,850 square feet of second level store space, all +- 5% and such space shall be in accordance with the plan attached [at Exhibit A]." The Emery Roth drawings for the Building showed 11,456 square feet for the second floor, which was within 3.3% of the 11,850 square feet called for in the Lease. The first drawings by Ciardullo showed only 10,493 square feet on the second floor, a shortfall of 11.5%. The actual amount of space allocated to Tower on the second floor is now 10,600 square feet, which is 10.5% less than that called for in P 46(3). Tower claims that the Landlord's failure to provide it with the second-floor square footage provided in the Lease amounts to an actual eviction that suspends Tower's obligation to pay rent.
Paragraph 61(B) of the Lease precludes Tower from litigating the square footage issue. That paragraph provides in relevant part that "in the event the parties cannot agree upon the 'square footage of store space' then the determination thereof shall be submitted to arbitration before the American Arbitration Association in the City of New York . . . ." This provision is applicable to the present dispute over the square footage of the second floor.
However, Tower argues that the Landlord has waived its right to invoke arbitration by fully litigating the square footage issue without ever making a motion to compel arbitration.
Under New York law, although "not every foray into the courthouse effects a waiver of the right to arbitrate," Sherrill v. Grayco Builders, 64 N.Y.2d 261, 273, 486 N.Y.S.2d 159, 163, 475 N.E.2d 772 (1985), a contractual right to arbitrate may be waived or abandoned if the party invoking arbitration "manifests a preference 'clearly inconsistent with [his] later claim that the parties were obligated to settle their differences by arbitration." Id. (citation omitted). A manifestation of such intent may be found where that party affirmatively seeks the benefits of litigation, or, in the case of a defendant, "affirmatively accepts the judicial forum." See id. at 272, 486 N.Y.S. at 164; De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 405, 362 N.Y.S.2d 843, 846, 321 N.E.2d 770 (1974); Riggi v. Wade Lupe Constr. Co., 176 A.D.2d 1177, 575 N.Y.S.2d 613, 615 (3d Dep't 1991). "Affirmative acceptance of the judicial forum" giving rise to a forfeiture of the right to arbitrate has been found where the party seeking arbitration has aggressively engaged in litigation, whether in the form of pretrial motions or discovery, for an extensive period of time prior to making a demand for arbitration. See, e.g., Sherrill, 64 N.Y. 2d at 270-72, 486 N.Y.S.2d at 162-64; (defendant actively participated in litigation for over three years prior to making an arbitration demand, during which time extensive discovery took place, and continued litigative efforts after making demand); Nishio v. E.F. Hutton & Co., 168 A.D.2d 224, 224, 562 N.Y.S.2d 112 (1st Dep't 1990) (defendant waited over one year to seek a stay during which time he interposed answer with counterclaims and sought discovery).
Contesting the merits through the judicial process has been held to be an affirmative acceptance that waives a right to a later stay of the action. See De Sapio, 35 N.Y.2d at 405, 362 N.Y.S.2d at 846.
The Landlord did participate in discovery regarding the square footage issue and did defend against Tower's square footage claims at trial. Nevertheless, the procedural posture and expedited nature of this case distinguish it from those in which a waiver has been found. This case was originally brought by the Landlord as a declaratory judgment action relating solely to Tower's termination of the Lease pursuant to P 59(A)'s TCO requirement. The square footage issue did not come up until May 8, 1992 when Tower filed its answer and counterclaims. Although this court ordered discovery to take place as to the square footage issue, this was over the Landlord's objection of May 13, 1992. On May 29, 1992, the Landlord submitted its Reply to Counterclaims, in which it raised P 61(B)'s arbitration clause as an affirmative defense. At trial, which took place over a one-week period in the beginning of June, the square footage issue was litigated.
Thus, the Landlord's participation in the litigation over the square footage issue was neither "aggressive" or "extensive," as implicitly defined by the cases cited above. The subject was put in issue less than one month prior to trial, and then only over objection by the Landlord. Under these circumstances, the Landlord's interposition of P 61(B) as an affirmative defense in its Reply negates the conclusion that it "affirmatively accepted . . . the judicial forum"; the Landlord was essentially trapped into litigating this claim.
As the New York Court of Appeals has stated, "where urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, waiver will not occur where plaintiff 'moves in court for protective relief in order to preserve the status quo while at the same time exercising its right under the contract to demand arbitration." Sherrill, 64 N.Y.2d at 273, 486 N.Y.S.2d at 163.
Even if the Landlord had waived its right to demand arbitration on this issue, however, the shortfall in square footage would not constitute an anticipatory repudiation of the Lease. Paragraph 61(B) specifically provides that the remedy for such an occurrence is a rent-reduction proportionate to the difference between the actual and projected square footage. Thus, the Landlord's conduct does not render substantial performance of the Lease impossible.
Paragraph 46(10) of the Lease requires the Landlord to construct a service vestibule for a service elevator. The Lease does not explicitly set forth in words the dimensions for the service vestibule, nor does Exhibit A to the Lease delineate the square footage of the service vestibule. Therefore, although Tower now argues that it was very important that the service vestibule be large enough for certain delivery and storage purposes, it never made the dimensions of this area a term of the Lease. Although the vestibule as constructed may be unfit for its intended use, it does not constitute an anticipatory repudiation of the Lease.
Claim Relating to Noise from the Dalton Gymnasia is Premature
When the Building's construction was changed from concrete to steel, the slab thickness of the floor between the Dalton gymnasia and the second floor of the Tower space was reduced from ten inches of concrete to 5 1/4 inches of concrete and steel deck. According to Tower, due to this change, the "impact noise" created by such things as bouncing balls and running feet will breach the covenant of quiet enjoyment contained in P 22 of the Lease, which provides that: "Owner covenants and agrees with Tenant that upon Tenant paying rent and additional rent and observing and performing all the terms, covenants and conditions . . . . Tenant may peaceably and quietly enjoy the premises hereby demised . . . ."
Although experts for parties testified that transmission of some impact noise is inevitable under the present construction, this claim is premature. First, as of this date, neither Tower nor Dalton is occupying its space; the gymnasia floors have not been installed; and no actual tests have been performed at the premises taking into consideration a finished floor and constantly playing music. As reported by the Landlord's expert, it is highly doubtful that a "real problem will occur," given the acoustical "insensitivity" of the Tower space." Thus, there is no evidence at this time establishing the extent to which impact noise will be perceived in the Tower space, if at all. Second, Tower does not yet have the right to invoke P 22's covenant of quiet enjoyment, which is triggered "upon Tenant paying rent and additional rent and observing terms, covenants and conditions . . . ." Because Tower has not commenced performance of these obligations, P 22 does not apply.
Upon the findings and conclusions set forth above, judgment will be entered granting the relief sought in the complaint, with costs. Tower's counterclaim and affirmative defenses will be dismissed. Submit judgments on notice.
It is so ordered.
New York, N. Y.
July 21, 1992
ROBERT W. SWEET