RITE AID OF NEW YORK, INC. and Rite Aid Corporation, Plaintiffs,
CHALFONTE REALTY CORP., Defendant. No. 651329/12.
This decision has been referenced in a table in the New York Supplement.
Mara B. Levin, Michael Berengarten, Herrick, Feinstein LLP, New York, for Plaintiff's.
Jacqueline Handel-Harbour, Sperber Denenberg & Kahan, P.C., New York, for Defendant's.
MELVIN L. SCHWEITZER, J.
This action was commenced by plaintiffs Rite Aid of New York, Inc. and Rite Aid Corporation (collectively Rite Aid) against Chalfonte Realty Corporation (" Chalfonte Realty" ). Rite Aid alleges that Chalfonte Realty overcharged it in real estate taxes in connection with a lease agreement and is suing for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Rite Aid seeks damages and a declaration as to the proper amount of taxes that are due through the remainder of the lease term.
Rite Aid and Chalfonte Realty executed a lease agreement in 1996 in which Chalfonte Realty agreed to lease Rite Aid property for a drug retail store located at 220 West 70th Street, New York, New York 10023 (the " premises" ). The lease was amended in 1997 to provide for a fifteen-year term. The premises are located in a high-rise building with approximately 229 residential and four non-residential units. The premises were delivered to Rite Aid in the 1998/1999 tax year (the " base year" ). The lease agreement describes the payment of real estate taxes in paragraph 48, which reads:
The Tenant shall pay as additional rent Fifty (50%) percent of the amount of the real estate taxes and assessments over and above the amounts paid or assessed for real estate taxes and assessments for the tax year in which the Premises are delivered to Tenant (expected to be in 1998/1999), for the premises of which the space leased herein forms a part, in any and every year during the term of this lease.
Additionally, paragraph 54 of the lease states that Rite Aid's obligation to pay 50% of the real estate taxes does not extend to any tax increase attributed to the residential parts of the building: " if it is determined that a part of a tax increase is due to a higher assessed value of the residential parts of the building, then tenant's percentage of such increase will be reduced accordingly." Rite Aid was provided with yearly invoices that detailed its real estate taxes; many of these invoices were also accompanied by a " Statement of Detail" from the New York City Department of Finance.
On January 15, 2011, Rite Aid obtained a Notice of Property Value in order to determine whether Chalfonte Realty had correctly calculated its real estate tax obligations. According to the Notice of Property Value, the market value of the premises was $32, 218,000. The city used a gross income of $6,325,308 to calculate the building's market value. Because Rite Aid's gross income for the 2011/2012 tax year only comprised 6.9% of the gross income used to calculate the property value of the building, Rite Aid alleges that Chalfonte Realty charged it for real estate taxes ascribable to residential parts of the building and breached the lease agreement in doing so. On January 16, 2012, Rite Aid sent a letter to Chalfonte Realty expressing concern that it was overpaying its real estate taxes, requesting a refund of its alleged overpayment for the 2011/2012 year, and asking for all tax statements and invoices dating back to the beginning of the lease. Three days later, Chalfonte Realty responded by rejecting Rite Aid's claim that it was owed reimbursement. Around February 27, 2012, Chalfonte Realty gave Rite Aid 5 days' notice requiring payment for real estate taxes due for January and February of 2012; Rite Aid paid the taxes under protest to avoid a default under the lease. Rite Aid filed this suit on April 24, 2012.
Chalfonte Realty now moves to dismiss Rite Aid's breach of contract claim as time barred pursuant to CPLR 3211(a)(5), and moves to dismiss Rite Aid's breach of good faith and fair dealing and its unjust enrichment claims pursuant to CPLR 3211(a)(1) and (7).
Rite Aid's Breach of Contract Claim
In support of its motion to dismiss the breach of contract claim as time barred, Chalfonte Realty cites an appellate division case, Goldman Copeland Associates P.C. v. Goodstein Bros. & Co., Inc., 268 A.D.2d 370, 371 (1st Dept.2000), which held that if the tax formula used by the landlord remains constant and the tenant is given notice of the method used to calculate the taxes or possesses all the information needed to challenge the accuracy of the tax computations, the cause of action for rent overpayment accrues when a tenant first receives notice of the tax computation method. Rite Aid claims that, though Chalfonte Realty provided it with invoices and statement details, these documents did not contain sufficient information to determine whether a portion of the real estate taxes was ascribable to the residential parts of the building, and therefore, it could not have challenged its real estate taxes when it first began to pay them. Because the court must give the nonmoving party the benefit of every doubt when deciding a motion to dismiss, the court accepts as true the allegations contained in the complaint. Since Rite Aid pleads that it was not provided with the information needed to challenge its taxes, the cause of action for breach of contract as pleaded did not accrue upon Rite Aid's first receipt of notice of its real estate taxes.
Chalfonte Realty's reliance on the voluntary payment doctrine, which bars claims for overcharges if the tenant paid them consistently without inquiry or protest, also fails. Though Rite Aid did not protest its real estate taxes until 2011, it alleges that it paid the real estate taxes believing that Chalfonte Realty would, by its own initiative, reduce Rite Aid's real estate tax obligations in accordance with paragraph 54 of the lease agreement, which Rite Aid now believes Chalfonte Realty failed to do. Chalfonte Realty, however, faults Rite Aid for failing to perform its own due diligence to determine whether or not the tax calculations were correct. Rite Aid was likely operating under a material mistake as to which party had the responsibility to ensure that proper deductions were made from the real estate taxes. See Eighty-Eight Bleecker Co., LLC v. 88 Bleecker Street Owners, Inc., 34 A.D.3d 244, 246 (1st Dept.2006) (barring a tenant's claim for rent overcharge under the voluntary payment doctrine because it had paid its rent without inquiry and because it had not been operating under a mistake of fact while making those payments). Paragraph 54 does not place the burden of verifying ...