The central issue before me on the pending motions is whether tax abatements granted to the defendant cooperative which are passed through to the tenant-cooperators should be considered in determining the amount of tax escalation payable by the plaintiff-commercial tenant.

The pending motions are i) by plaintiff seeking summary judgment on its claim for overpayments of tax escalation rent of $80,289.46 for the tax years from 1998-1999 through 2004-2005; ii) by plaintiff to amend its complaint to seek declaratory relief with respect to future tax years; and iii) by defendant for summary judgment dismissing the complaint. At oral argument plaintiff agreed that its claim would be limited under the statute of limitations to tax escalation payments made after February 2000 (Tr. 1/19/07, p. 6), and by stipulation dated January 29, 2007, plaintiff limited its monetary claim to $56,675.77.

The subject lease dated August 31, 1979 (the "Lease") demises unto the plaintiff the cellar, garage and stores at 196 East 75th Street (the "Building"). The plaintiff is an entity which was controlled by the sponsor of the conversion of the Building to cooperative status and the Lease was executed prior to such conversion. The provisions relating to real estate tax escalation payments are set forth in article VI and provide in part as follows:

"(a)For the purposes of this Article, it is understood and agreed:

(i) The words base assessed valuation' shall be the total fully assessed valuation (made without regard or giving effect to any exemption or abatement) of the parcel of land shown as Lot 40, Block 1409 of the Tax Map of New York Country and the building and improvements thereon (of which the demised premises are a part) for the New York City real estate tax year commencing July 1, 1979 and ending July (sic) 30, 1980;

(ii) the words base tax rate' shall be the real estate tax rate for the Borough of Manhattan for the New York City real estate tax year commencing July 1, 1979 and ending June 30, 1980;

(iii) the words base amount of real estate taxes' shall be the dollar amount computed by and resulting from the application of the base tax rate' to the base assessed valuation.' [*2]

(b) The Tenant agrees to pay to the Landlord as additional rent during each lease year subsequent to the New York City real estate tax year commencing July 1, 1979 and ending June 30, 1980, Fourteen and one-half (14 ½%) percent of the dollar amount of any increase in such real estate taxes on the said land, buildings and improvements (of which the demised premises are a part) over and above the base amount of real estate taxes,' whether such increase in real estate taxes shall be occasioned by an increase in assessed valuation or an increase in tax rate, or both."

The complaint alleges that commencing with the 1998-1999 tax year, plaintiff was fraudulently overcharged for increases in real estate taxes in that it was charged and it paid 14½% of the said increase in taxes that were billed by the City to defendant. However, in each year defendant did not pay the City the amount billed, but rather paid a lesser amount due to "rebates, abatements and refunds." The parties agree that under the aforequoted article VI(a)(iii), the "base amount of real estate taxes" is $210,000.

As an example of the nature of plaintiff's claim, it appears that for the 2001-2002 tax year defendant was billed $706,418.76 in real estate taxes, but after "rebates, abatements and refunds" only paid real estate taxes of $631,156.98. Plaintiff states that for that year it paid tax escalation charges of $71,980.72, being 14½% of the difference between 706,418.76 and the base amount of $210,000, whereas it asserts it should only have paid $61,067.76, being 14½% of the difference between $631,156.98 and $210,000. Plaintiff's claims for the other years involved in this action are similar.

Plaintiff asserts that it did not discover that the charges were improper until some time in 2005, and that it then demanded a refund from defendant. In support of its position, plaintiff relies on the 2002 First Department decision in Ran First Associates v. 363 East 76th Street, 297 AD2d 506 ("Ran"). There the subject lease clause provided for a tax escalation "[i]n the event the real estate taxes ... assessed against the (property in any fiscal year) ... shall be greater than the amount of real estate taxes on the real property attributed to the base year." In such event, the tenant was to pay "5.5% of the increase in real estate taxes on the entire real property for such tax year over the amount of such actual real estate taxes attributable to the base year." The controversy therein resulted from the action of the landlord adding "certain tax exemptions or abatements" to the "amount of real estate taxes ... assessed against" the property. In finding in favor of the tenant, the court concluded that since the escalation clause defines "real estate taxes" as "taxes ... assessed or imposed" upon the property, the "definition does not include the amount of tax exemptions or abatements" (p. 508). The court further stated that "[e]nforcing the lease escalation clause as written is consistent with the well-settled law that such clauses are meant to provide relief for the landlord where "assessed" tax requires actual payment'" (p. 509), quoting Fairfax Company v. Whelan Drug Co., Inc., 105 AD2d 647, 648 (1st Dept. 1984).

Defendant asserts that it has been billing plaintiff for escalation on the full amount of tax billed to it, without considering abatements or exemptions, every year subsequent to the tax year ending June 30, 1980 (¶ 5 of affidavit of Mitchell Tenzer), and this did not result in a windfall to it in that the abatements are passed through to the tenant-cooperators in the form of a reduction in maintenance. In support of dismissal, defendant argues both that the Lease clause here requires a different result from Ran, and that the payments by plaintiff were voluntarily made and thus not now recoverable, relying on the 2006 First Department decision in Eighty Eight Bleecker Co., [*3]LLC v. 88 Bleecker Street Owners, Inc., 34 AD3d 244, where it was said (p. 247) that "plaintiff's failure to make inquiry regarding the tax increases for over 20 years raises the applicability of the voluntary payment doctrine ... (as) plaintiff made the tax payments without having made any effort to learn what its legal obligations were,'" quoting Gimbel Brothers, Inc. v. Brook Shopping Centers, Inc., 118 AD2d 532, 535 (2nd Dept. 1986). To support this conclusion, the court observed (p. 247):

"Computation of the taxes was not an overly burdensome task, particularly for a sophisticated entity such as plaintiff. The tax bills reflect both the total gross tax owed for the premises and itemized adjustments therefor, such as the J-51 abatement. Review of the tax bills, to which it was entitled pursuant to the terms of the lease, would have allowed plaintiff readily to ascertain the appropriate amount of its liability under the tax escalation clause for each of the years in question."

In Fairfax Company v. Whelan v. Whelan Drug Co., Inc., supra (relied upon in Ran), the court was concerned with a potential "windfall" to the landlord if the escalations were not based on an actual payment by the landlord [see also, S.B.S. Associates v. Weissman-Heller, Inc., 190 AD2d 529 (1st Dept. 1993); 1100 Avenue of the Americas Associates v. Bryant Imports, Inc., 234 AD2d 101 (1st Dept. 1996)]. However, a similar argument was rejected in George Backer Management Corp. v. Acme Quilting Co., Inc., 46 NY2d 211 (1978), with respect to the labor costs of the landlord. There the court found that "the lease contains no requirement that rent escalation be measured by actual costs as opposed to the common industry-wide criterion chosen by the parties here," which tied rent increases to labor rates set forth in an agreement between the building workers' union and a real estate industry organization. Accord: Dezertov v. Brele Realty Corp., NYLJ, December 16, 1982, p. 7, c. 2 (App. Term, 1st Dept.); S.R. Leon Co., Inc. v The Towers, 194 AD2d 600 (2nd Dept. 1993)(the court enforced a tax escalation based on the amount of square footage of the building as set forth in the lease which was different from the actual square footage); 609 Corporation v. Park Towers South Company, LLC, NYLJ, December 8, 2004 (Sup. Ct., NY Co.) ("The parties to a lease may mutually agree for the purpose of an escalation clause that the building shall be deemed' to be a certain number of square feet or a specific percentage at variance with its true size or percentage"). In Wellington Tower Associates, L.P. v. New York First Avenue CVS, Inc., 3 AD3d 460 (1st Dept. 2004), lv. to app. dism. 3 NY3d 690 (2004), the court indicated that a lease clause that evinced "an unequivocal intent that tenant's additional rent obligation for real estate taxes is to include real estate taxes that are refunded to or otherwise not actually paid by landlord due to a RPTL § 421-a abatement" would be enforceable. Accord: 1152 First Avenue LLC v. MNY Associates, LLC, 2004 WL 2482636 (App. Term, 1st Dept. 2004).

Coming to the facts in the case at bar, notwithstanding both parties arguments that the aforequoted terms of the Lease are unambiguous and clearly support their respective opposing positions as to whether the decision in Ran governs, I find the provisions to be ambiguous. Under such circumstances, the normal practice would be to take testimony from the parties who negotiated the instrument. However, the Lease was drafted by the sponsor of the cooperative conversion (an affiliate of plaintiff) and executed prior to the transfer of the Building to the defendant cooperative. Thus, it would not appear to have been negotiated between independent parties, with the consequence that testimony as to the intent of the drafter would not be helpful in [*4]properly interpreting the Lease.

Under these circumstances, I find that the most appropriate test in aid of the proper interpretation is the course of conduct of the parties since the defendant acquired title to the Building. In Slatt v. Slatt, 64 NY2d 966 (1985), the court indicated that "in the instance of an ambiguity or where the contract is of doubtful meaning' ... (it would be appropriate) to examine the conduct of the parties over the intervening years" (p. 967). In Federal Insurance Company v. American Insurance Company, 258 AD2d 39 (1st Dept. 1999), the court quoted the following from Old Colony Trust Co. v. City of Omaha, 230 U.S. 100, 118 (1913): "Generally speaking, the practical interpretation of a contract by the parties to it for any considerable period of time before it comes to be the subject of controversy is deemed of great, if not controlling influence" (p. 44). See also, Citibank v. Fifth Avenue Limited Partnership, 2 AD3d 331 (1st Dept. 2003)("We also reject plaintiff's argument that its behavior after the execution of the leases was insufficiently uniform and knowing to constitute a course of conduct."); Studley v. National Fuel Gas Supply Corporation, 107 AD2d 122, 128 (1st Dept. 1985).

Here, plaintiff has not disputed defendant's assertion that since it acquired title to the Building plaintiff has always paid the tax escalation based on the amount of tax billed by the City to defendant. It is further noted that during that period plaintiff has had a representative sit as a member of the defendant's board of directors and thus could obtain information with respect to tax bills received by defendant. Under these circumstances, I find that plaintiff's payment of tax escalations based on the amount billed to defendant constitutes an acknowledgment by it of the appropriate interpretation of the escalation clause.

Moreover, the submitted papers demonstrate that the payments made by plaintiff during the years defendant has owned the Building would, in any event, constitute "voluntary payments" under the doctrine discussed in Eighty Eight Bleecker Co., LLC v. 88 Bleecker Street Owners, Inc., supra, and thus would not now be recoverable.

Although not specifically raised by defendant, I further find that plaintiff's entire claim is time barred under the doctrine set forth in Goldman Copeland Associates, P.C. v. Goodstein Bros. & Co., Inc., 268 AD2d 370 (1st Dept. 2000), lv. to ap. dism. 95 NY2d 825 (2000) and 96 NY2d 796 (2001), rearg. den. 96 NY2d 897 (2001), where the First Department, in concluding that tenant's claim for wage escalation overcharges was time barred, wrote (p. 371):

"It is undisputed that the landlord gave the tenant detailed yearly porter wage escalation statements for the years in question, which were paid by the tenant without protest. Since such statements consistently used the same formula in determining the escalation, the tenant's overcharge claim accrued upon its receipt of the first statement almost 12 years before it commenced this action. At that time it had all of the information it needed to contest the manner in which the landlord computed the escalation. The tenant's alternative argument that the yearly increase due under the porter wage escalation clause created a new cause of action each and every year is unpersuasive in the context of a dispute involving the computational methodology that remained constant over the years for which the computation is being challenged."

Similar to the facts in the foregoing case, it appears that the formula for the calculation of the tax escalation charges here has been constant through the many years of the Lease. Hence, the entire claim is now barred as having been accrued more that six years prior to the [*5]commencement of this action. See also, Kramer, Levin, Naftalis & Frankel, LLP v. Metropolitan 919 3rd Avenue, LLC, 6 Misc 3d 796 (Sup. Ct., NY Co. 2004).

In light of the foregoing, plaintiff's motion for summary judgment and for leave to amend its complaint are both denied, and defendant's motion for summary judgment dismissing the complaint is granted. The Clerk shall enter judgment accordingly.

Date: May 9, 2007_______________

J.S.C.