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JFK Holding Company LLC, et al., Plaintiffs-Appellants v. City of New York

July 3, 2012

JFK HOLDING COMPANY LLC, ET AL., PLAINTIFFS-APPELLANTS,
v.
CITY OF NEW YORK, ET AL., DEFENDANTS, THE SALVATION ARMY, DEFENDANT-RESPONDENT.



Plaintiffs appeal from a judgment of the Supreme Court, New York County (Cynthia S. Kern, J.), entered November 5, 2010, insofar as appealed from as limited by the briefs, granting the motion of defendant The Salvation Army to dismiss the complaint as against it.

The opinion of the court was delivered by: Manzanet-Daniels, J.

JFK Holding Co. LLC v City of New York

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on July 3, 2012

David B. Saxe, J.P. David Friedman James M. Catterson Helen E. Freedman Sallie Manzanet-Daniels, JJ. Index

MANZANET DANIELS, J.

Defendant The Salvation Army entered into a lease agreement with plaintiffs landlords JFK Holding Company LLC and J.F.K. Acquisition Group (collectively, JFK) for use of the Carlton House Hotel, located at 138-10 North Conduit Avenue, Queens, New York, as a Tier II homeless facility pursuant to a parallel services agreement with the Department of Homeless Services (DHS) and the City of New York. The lease and the services agreement were negotiated together, and The Salvation Army's obligations under the lease were funded by and through the services agreement.

During its tenancy, The Salvation Army failed to take the most basic steps to maintain the facility in a safe and sanitary condition, as a result of which the property deteriorated precipitously. The City Comptroller's Office determined that maintenance of the property was so totally ignored that the property suffered extensive water infiltration and damage, peeling paint, contaminated carpeting, leaking fixtures, damaged appliances and infestations of roaches, mice, bedbugs and other vermin. When it vacated the property, in September 2005, The Salvation Army left an uninhabitable building, rife with code violations, structural problems, water damage and mold.

The lease provided that it was being entered into "solely in order to enable Tenant to fulfill its obligations to [DHS] under the Services Agreement." The lease could be terminated in the event the City terminated the services agreement, provided that The Salvation Army gave 30 days written notice, paid JFK a $10 million early termination fee, and restored the Carlton House to "the same condition in which the leased premises was at the commencement of th[e] lease." In addition, paragraph 12 of the lease required The Salvation Army to maintain the premises in "good and safe condition and repair, and fit to be used for their intended use . . . except for ordinary wear and tear," and to "take every other action, at Tenant's sole cost and expense, reasonably necessary or appropriate for the preservation and safety of the leased premises."

Paragraph 31 further provided that in the event DHS failed to pay amounts owing pursuant to the services agreement, The Salvation Army would "use commercially reasonable efforts to enforce its rights against [DHS] under the Services Agreement or otherwise, and Landlord agrees to fully reimburse Tenant for all of its costs in any such enforcement action." The same provision limited The Salvation Army's liability to amounts paid pursuant to the services agreement.

On September 9, 2005, JFK notified The Salvation Army that the express conditions precedent to effective termination of the lease had yet to be satisfied, including payment of the termination fee and repairs and restoration necessary to return Carlton House to its pre-lease condition. Yet, The Salvation Army did nothing to ensure that DHS or the City paid for the restoration of the property, as the City was obligated to do per the terms of the services agreement, prior to its expiration [*fn1]. Indeed, The Salvation Army took no action to obtain the funding necessary from DHS or the City or otherwise to enforce or preserve its rights under the services agreement. As a result, DHS and the City are no longer obligated to repay The Salvation Army for expenses relating to the property's restoration, since the services agreement provides that any claim against the City or DHS must be interposed within six months after termination of the services agreement or accrual of the cause of action.

Carlton House is presently uninhabitable. Plaintiffs allege that it will cost approximately $200 million to restore the property to ...


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