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Ninth Street Associates v. 20 East Ninth Street Corp.

Supreme Court of New York, New York County

June 14, 2013

20 EAST NINTH STREET CORPORATION, Defendant. No. 650434/10.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Thomas A. Cunnane, Jr., Cuddy & Feder LLP by Andrew Schriever, for Plaintiff.

Smith Gambrell & Russell LLP, by Donald Rosenthal for Defendant.


Plaintiff moves for summary judgment. Defendant cross-moves for summary judgment dismissing the complaint and granting its counterclaim.

The parties in this action seek a declaratory judgment as to plaintiff Ninth Street Associates' (" Ninth Street" ) contractual right to renew a valuable lease related to commercial space in a cooperative building.

Ninth Street is a partnership and lessee of the premises located at 20 East 9th Street, New York, New York. Defendant 20 East Ninth Street Corporation (" the Co-op" ) is the cooperative corporation that owns the premises. The building was converted to a cooperative apartment corporation in 1974 by Ninth Street's predecessor-in-interest. Before the conversion, the sponsor was the tenant under a long-term ground lease. At the conversion, the Co-op became a tenant under a ground lease.

On March 1, 1955, University-Eighth Corporation (the Ground Tenant) entered into a ground lease with the Trustees of the Sailors' Snug Harbor for the premises, which was subsequently amended on November 1, 1963, in a first renewal lease. The term of the ground lease, as amended, was to be deemed renewed for a first renewal term from 1992 to 2003, unless the Ground Tenant elected not to renew. The ground lease was to renew for successive terms 2003 through 2024; 2024 through 2045; and 2045 through 2066.

In 1974, the Ground Tenant sponsored the conversion to a cooperative and assigned its rights under the ground lease to the Co-op. The lease at issue here, which covered the commercial space, was executed by the parties on February 26, 1974. The lease ran from February 26, 1974, to March 1, 1992. An automatic renewal gave an additional term of 11 years. With respect to further renewal rights applicable to the commercial space, the lease provided that it would be automatically renewed, conditioned on the simultaneous renewal of the ground lease and Ninth Street's option to renew the lease. If Ninth Street gave written notice to the Co-op of its decision not to renew, there would be no renewal.

On July 26, 1979, the Trustees of the Sailor's Snug Harbor sold its ownership of the building to the Co-op. The deed provided as follows: " Said Agreement or [Ground Lease] shall survive delivery of this deed and shall not be deemed to merge in the fee interest hereby conveyed."

On March 2, 1993, the Co-op, without giving notice to Ninth Street, recorded a memorandum of termination with respect to Ninth Street's lease. The Co-op asserted in the memorandum that the lease had expired as of March 1, 1992. Ninth Street opposed termination and, after negotiations with counsel, the parties entered into an amendment of the lease, dated September 23, 1993. In the amendment, the parties agreed to renew the lease for the period from 2003 through 2024.

In this action, Ninth Street maintains that it is entitled to continued possession of the commercial space on the premises pursuant to a commercial lease between the parties. Ninth Street contends that the lease enables it to extend its possession of this space until 2066 based on a series of renewals provided two conditions are met: first, that the Co-op continue to maintain its leasehold interest in the entire building; and second, that the commercial lease automatically renews unless Ninth Street expressly elected not to renew. Both conditions have been met. The Co-op counters that, pursuant to its terms, renewal of the lease is conditioned upon the Co-op renewing the ground lease. The ground lease cannot be renewed as it expired in 1992. Therefore, the lease cannot be renewed for the 2024-2045 term.

Because a lease is both a conveyance of an interest in real property and a contract, like other contracts its meaning is determined by the intent of the parties (See Farrell Lines, Inc. v.. City of New York, 30 N.Y.2d 76, 82-3 [1972] ). Where a written lease is complete, clear and unambiguous on its face, it must be enforced according to the plain meaning of its terms ( Nola Realty LLC v. DM & M Holding L.L.C., 33 A.D.3d 523, 526 [1st Dep't, 2006] ). A court may not re-write the terms of a lease in order to reflect the real intention of the parties where to do so would contradict the clearly expressed language of the document ( Ran First Associates v. 363 East 76th Street Corporation, 297 A.D.2d 506, 508 [1st Dep't, 2002] ).

" The rules governing the construction of ambiguous contracts are not triggered unless the court first finds an ambiguity" ( Matter of Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548 [1995] ). The test of whether a lease provision is ambiguous was summarized in 239 East 79th Owners Corp. v. Lam 79 & 2 Corp., 30 A.D.3d 167 [1st Dep't, 2006]. There, the Court wrote:

Whether a contract is ambiguous is a question of law to be resolved by the court. Such ambiguity exists only where the provision in controversy is reasonably or fairly susceptible of different interpretations or may have two or more different meanings, although the mere assertion by a party that contract language means something other than what it clearly says is not sufficient to raise a triable issue of fact.

239 East 79th Owners, 30 A.D.3d at 168 (citations omitted).

" [W]hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended is generally inadmissible to add to or vary the writing" ' Vision Dev. Group of Broward County, LLC v. Chelsey Funding, LLC, 43 A.D.3d 373, 374 (1st Dept 2007), quoting W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).

Ninth Street's right to renew is set forth in subparagraph 24(c) of the lease, which provides as follows:

" If the term of this lease shall have been renewed as provided in subparagraphs (a) and (b) of this Paragraph and if [defendant] shall have exercised its right to renew the term of the [Ground Lease] referred to in Paragraph 8 hereof for a renewal term commencing March 1, 2024 and continuing until March 1, 2045, then the term hereof shall be deemed renewed for a third renewal term commencing on March 1, 2024 and expiring on March 1, 2045, at the annual rental of $255,000, subject to increase as provided in subparagraph (g) of this Paragraph 24 unless [plaintiff] gives written notice to the [defendant] on or before September 1, 2023 of its intention to quit the demised premises at the expiration of the second renewal term."

The clause unambiguously provides that renewal of the lease is dependant upon renewal of the ground lease.

The parties' intent with respect to Ninth Street's renewal rights is further confirmed by two documents executed contemporaneously with the 1974 conversion.

The Memorandum of Lease executed by the parties and recorded states that the tenant Ninth Street had the right to renew:

At Tenant's option, Tenant may renew the lease for four additional terms, the first of which shall commence on the termination of the initial term of the lease and shall continue until March 1, 2003; the second shall commence on March 1, 2003 and continue until March 1, 2024; the third shall commence on March 1, 2024 and continue until March 1, 2045; the fourth shall commence March 1, 2045 and continue until March 1, 2066. The term of the lease shall be deemed renewed for the first renewal term commencing March 1, 1992 unless Tenant gives written notice to Landlord on or before September 1, 1991 of its intention to quit the demised premises at the expiration of the initial term. Each of the additional renewal terms above mentioned shall be deemed in effect only if the Landlord shall have exercised its right to renew that certain Ground Lease dated as of March 1, 1955 made between the Trustees of the Sailors' Snug Harbor in the City of New York, as Lessor, and University-Eighth Corp., as Lessee, a memorandum of which lease was recorded in the office of the City. (emphasis added)

The Offering Plan states, in pertinent part, that:

On the Closing Date the Apartment Corporation, as landlord, will enter into a lease (the Master Lease) of the space occupied by the restaurant, bank, retail stores and garage with a corporation to be owned by the Sponsor-Seller as tenant, for an initial term expiring March 1, 1992, at a basic annual rent of $255,000. The initial term of the Master Lease will be renewable by the tenant at the same basic annual rent for a first renewal term to expire March 1, 2003 and a second renewal term to expire March 1, 2024 and if the Apartment Corporation exercises its right to renew the Ground Lease for the renewal terms granted therein, the tenant will have the further right to renew the Master Lease at the same basic annual rent for an additional term of terms which shall be co-terminous therewith. (emphasis added)

The ground lease was acquired by the Co-op in 1979. The Co-op permitted the ground lease to expire in 1992 subsequent to its acquisition of the lease interest to the premises. Thus, Ninth Street lost its right to renew the lease upon expiration of the ground lease.

Ninth Street maintains that the Co-op breached the implied covenant of good faith and fair dealing rendering the express conditions of the ground lease inoperative. The purpose of the renewal provision in the ground lease was to protect the Co-op from an obligation to renew the lease in the event it lost its rights in the ground lease. Once the Co-op acquired the ground lease, its renewal conditions became meaningless. Therefore, Ninth Street has the right to renew its commercial lease as long as the Co-op owns the property.

At its core, Ninth Street would have this Court re-write the parties' agreement to effectuate the current reality. The Court declines to do so because Ninth Street should have reasonably foreseen that the Co-op could acquire the ground lease. Ninth Street could have added lease provisions when it executed the lease in 1974 requiring renewal through 2066 in the event the Co-op became the owner of the property.

The doctrine of the covenant of good faith and fair dealing does not permit a party to add terms that alter the meaning of the agreement ( Greenfield v. Phillies Records, Inc., 98 N.Y.2d 562 (2002); Middle Village Assocs. v. Pergament Home Centers, Inc., 184 Misc.2d 552, 557 (Sup.Ct., Nassau Co.2000), citing Dalton v. Educational Testing Serv., 87 N.Y.2d 384 (1995); see also D & L Holdings, LLC v. RCG Goldman Co., LLC, 287 A.D.2d 65, 73 [1st Dept., 2001] (" [t]he covenant of good faith and fair dealing cannot be used to add a new term to a contract, especially to a commercial contract between two sophisticated commercial parties represented by counsel" ); Phoenix Capital Invs. LLC v. Ellington Mgt. Group, L.L .C., 51 A.D.3d 549 [1st Dept., 2008] ).

Next, Ninth Street argues that the Co-op is estopped from contesting its right to renew the lease as it detrimentally relied for decades based on the conduct of the parties that it had the right to an automatic renewal until 2066.

Ninth Street points to the parties' negotiations in 1993 which resulted in the 1993 lease amendment that included the following term— " " subject to such further renewals as provided for in the lease" — as proof that the Co-op agreed to a lease extension beyond 1993.

Further, Ninth Street states that on various occasions, it publically declared in the Co-op's presence its position that it had a right of renewal until 2066, without the Co-op's contrary assertions. Ninth Street contends that the Co-op had the opportunity to contradict it and failed. Ninth Street contends that this is a basis for a claim in equitable estoppel, claiming that the Co-op's failure to respond placed Ninth Street in a detrimental position.

In 2008, Ninth Street sought approval from the Co-op for a sublease with CVS, a pharmacy. The sublease provided that CVS would remain in possession several months after the alleged termination of the lease. This sublease allegedly received the tacit approval of the Co-op, which failed to object to Ninth Street for almost a year after the sublease went into effect. Ninth Street asserts that the Co-op knew, or should have known, that Ninth Street was relying on the validity of the renewal provisions in the lease.

Ninth Street states that the Co-op should be estopped because it provided an estoppel certificate to Ninth Street in 2004, in which the Co-op allegedly confirmed that the lease was in full force and effect. Ninth Street claims that a specific individual, Jean Grant, bought a substantial partnership interest in Ninth Street from her relatives in 2009, based on the estoppel certificate that the lease was renewable through 2066.

Ninth Street alleges that the Co-op concealed the fact that, as of 2009, when it furnished an estoppel certificate acknowledging that the lease was in full force and effect, and that the parties' rights thereunder had not been changed, the Co-op sought an inquiry regarding ways of reducing the duration of the lease. According to Ninth Street, the Co-op allegedly sought to decrease the value of Ninth Street's property. Ninth Street claims that Grant paid over $10 million for a 44.44% interest in the partnership based on a valuation assuming renewal rights would remain until 2066. Had the Co-op disclosed what it knew as of 2009, Grant would not have entered into the transaction at the price she paid, at least without a resolution of the issue. Ninth Street argues that if the Co-op is not estopped, Grant will have paid twice the value of what she purchased based on not being informed by the Co-op that the Co-op was pursuing a shift in its position which would cut the value of the leasehold she pledged as collateral.

The law provides that to support a finding of estoppel, a party advancing the argument must establish: (1) conduct by the party to be estopped that amounts to a false representation or concealment of a material fact; (2) an intention, or at least expectation, that such conduct will be acted upon by the other party; and (3) actual or constructive knowledge of the real facts. See BWA Corp. v. Alltrans Express U.S.A., 112 A.D.2d 850, 853 (1st Dept 1985). In addition, the proponent of the estoppel argument must also show as to itself a lack of knowledge of the true facts; its reliance upon the misleading conduct of the party to be estopped; and a prejudicial change in its position. ( Id. ).

The primary conduct alleged in the complaint involves silence, or a refusal to respond to plaintiff's continual assertions of its renewal rights. " [I]t is only where a party has a duty to speak and fails to do so ... that silence gives rise to an estoppel." ' See Fisher Bros. Sales v. United Trading Co. Desarrollo y Comercio, 191 A.D.2d 310, 312 (1st Dept 1993).

Estoppel " is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party's words or conduct, has been misled into acting upon the belief that such enforcement would not be sought (citations omitted)." Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P., 7 N.Y.3d 96, 106 (2006).

The language that Ninth Street references from the 1993 amendment is from the " Whereas" clause and does not give rise to a claim of estoppel. A Whereas clause cannot create a right not contained in the amendment's operative clauses (see Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc., 65 A.D.3d 445 [1st Dept., 2009] ). The operative terms of the lease amendment state as follows: " Except as herein expressly modified, all the terms, provisions, covenants and conditions of the Lease shall continue in full force and effect." Thus, subparagraph 24(c), which conditioned renewal of the commercial lease upon renewal of the ground lease, remained enforceable. There is no false representation or concealment of a material fact.

The Court finds that there are insufficient grounds for allowing estoppel based on silence. There is no fiduciary or confidential relationship between the parties, or any claim of exclusive knowledge on the Co-op's part. The Co-op does not owe a duty to Ninth Street to state that the renewals do not extend after 2024. Its position that the lease would not have been renewed after 2024— based on the March 2, 1993 memorandum of termination of the lease and the September 23, 1993 amendment where the lease was renewed from 2003 through 2024— should have been clear to Ninth Street.

Ninth Street's estoppel claims are largely vague and speculative. The 2004 estoppel certificate fails to specify any claims of renewal rights. Since the estoppel certificate simply stated that the lease remained in full force and effect, Jean Grant's purchase of a partnership interest in 2009 based on the belief that the lease was renewable until 2066 does not constitute estoppel. Consent to the CVS sublease beyond 2024 is not tantamount to approval by the Co-op of the renewal to 2066. There is no remote indication of fraud in any of the Co-op's actions as alleged by Ninth Street.

Finally, the doctrine of laches has no application here because the Co-op had no legal obligation to disclose its intent not to renew after 2024.

Accordingly, it is

ORDERED that Ninth Street's motion for summary judgment is denied; and it is further

ORDERED that the Co-op's cross-motion for summary judgment dismissing the complaint is granted, and the complaint is dismissed with costs and disbursements to the Co-op as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further ORDERED that the Co-op's cross-motion on its counterclaim is granted; and it is further

ADJUDGED and DECLARED that based on the terms of the lease, the 1993 lease amendment and the ground lease, Ninth Street's right to renew terminates in 2024 and that Ninth Street has no right to renew after March 1, 2024.

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