Motion Seq. 001-004 are consolidated for purposes of this decision.

This combined CPLR article 78 proceeding and action for declaratory judgment was brought by certain tenants of 3333 Broadway, New York, New York, against Riverside Park Community LLC and Riverside Park Community II LLC (collectively Riverside), Urban American Management LLC (Urban American) and the New York City Educational Construction Fund (ECF).^[FN1] The building is a 1,190-unit apartment complex located in the Hamilton Heights section of West Harlem, on the blocks bounded by West 133rd Street, 135th Street, Riverside Drive and Broadway. The building opened in 1976 and until 2005 was in the state's Mitchell-Lama program for low and moderate-income housing. Respondent Mildred [*2]Branch is a retired city employee who has lived in the building since its construction in 1976. The New Concerned Tenants' Association is an incorporated association of tenants who live at 3333 Broadway.

The gravamen of the complaint is that ECF and Riverside breached a contractual obligation to Petitioners as third-party beneficiaries when the original Ground Lease was amended in June 2006 by removing a restrictive provision requiring that the building remain dedicated to low and moderate income housing. Petitioners claim that the current owner of the high-rise building is trying to displace existing tenants from their apartments or to raise rents beyond what they can afford. Consequently, Petitioners seek a judgment declaring the 2006 amendment null and void.

Additionally, the tenants allege that the ECF failed to comply with the New York State Environmental Quality Review Act (SEQRA) by not considering the environmental impact of the amendment on the community. They seek to require ECF to prepare an environmental impact statement pursuant to Environmental Conservation Law (ECL) 8-0109 (2). The Petition also seeks an injunction: (1) mandating restoration of the original Ground Lease, (2) prohibiting the eviction of low and moderate income tenants based solely on their inability to pay market rate rents, and (3) prohibiting further offerings of vacant apartments to persons who are not of low or moderate income.

Riverside I is a housing company organized pursuant to Article II of the Public Housing Finance Law (PHFL), also known as the Mitchell-Lama Law. The overall goal of the Public Housing Finance Law is to stimulate private housing production for low and moderate income persons and families. Riverside I was the building's first owner; Riverside II was the successor- in-interest of the apartment building. Urban American is the current owner of the building. Urban American is a real estate investment and management company. ECF is the owner of the land upon which the building is situated, having obtained title from New York City in 1972. ECF is a New York City public benefit corporation that was created by an act of the State's Legislature (Education Law, Article 10, Section 450 et. seq) to counter a shortage of public elementary and secondary school buildings in New York City (see Education Law § 451).

In order to raise the funds necessary to pay for its construction projects, ECF is authorized to construct combined occupancy structures that permit schools to be constructed together with private commercial or residential developments (see generally Education Law § 454 "The New York City Educational Construction Fund Act").As well, ECF has the power to apply the revenues received from both portions of a combined occupancy structure for the payment of bonds issued to construct schools. The Act empowers ECF to enter into agreements and leases to acquire real property and to sublease, transfer or convey real property to third parties when necessary for the exercise of its corporate powers (Mars Associates, Inc. v New York City Constr. Fund, 126 AD2d 178 [1st Dept], lv denied 70 NY2d 747 [1987] ). Significantly, the Act does not require that any lease or transfer arrangement provide for low or moderate-income housing.

Since the developer was no longer in the Mitchell-Lama program, Respondents contend [*3]that ECF and the developer could lawfully modify the lease rent provision so as to increase the lease rent to a fair market rate. In support of their motion to dismiss, they argue that (1) the petition is time-barred, (2) SEQRA review was unnecessary, and (3) the tenants lack standing as they are not third-party beneficiaries of the Ground Lease. Additionally, Respondents claim that Petitioners have not been injured by the Ground Lease amendment and argue that housing subsidies are still in place, ensuring that the rents of existing, eligible low or middle-income tenants have been preserved.

Statement of Facts

A.The Ground Lease

On or about September 14, 1972, ECF entered into a lease agreement (Ground Lease) with a private developer, Riverside Park Community (Stage 1), for the non-school portion of a combined occupancy structure to be built at 3333 Broadway. ^[FN2] Part of the property was leased to the New York City Board of Education and became Intermediate School 195 and the non-school portion was designated for residential housing. The land upon which the combined occupancy structure was to be built was owned by ECF and had been acquired by it under a grant from the City of New York. The grant was for the purposes contained within the ECF Act, i.e., school construction. There was no condition placed upon the grant which would require maintenance of low or moderate-income housing.

The Ground Lease between ECF and Riverside had a term of seventy-five years. In exchange for paying below-market rate for the land, the developer, Riverside I, agreed to enter into the New York State Mitchell-Lama program. ^[FN3] The ECF set a Ground Lease rental amount that was below market, with the proviso that the non-school portion would be used in accordance with the Mitchell-Lama program for persons and families of low or moderate income. As well, Section 102 of the contract stated "The Demised Premises shall be used for residential purposes for persons and families of low or moderate income only."

Because of difficulties in encouraging private developers to enter the program, the "buy out" provision of the law, as originally enacted, was amended and owners of buildings that obtained loans after May 1, 1959 were entitled to leave the program twenty years (rather than [*4]thirty-five years) after the building's occupancy date without the permission of the supervising agency, provided that they paid the balance of the mortgage and all other expenses incurred in the dissolution. At that time, the developer would lose its tax abatements and be free from all rent restrictions. PHFL § 35 (2).

B.Withdrawal from Mitchell-Lama Program

After thirty years Riverside exercised its option, under PHFL § 35, to withdraw from the program. On March 19, 2004, Riverside I announced to the tenants of the complex its intent to voluntarily dissolve itself and exit the Mitchell-Lama program. The notice stated that the anticipated effective date of dissolution would be April 1, 2005 and under that plan:

"The Owner has made arrangements to pay off the mortgage and elected to terminate

the United States Department of Housing and Urban Development (HUD) Section 236 Interest Reduction Subsidy Contract (236 Contract) on or about April 1, 2005. In

exchange for the termination of the 236 Contract, and as part of HUD's program to

preserve low and moderate income housing, we have applied to HUD and requested

that they provide eligible residents with an alternative housing subsidy program

called the Section 8 Enhanced Voucher Program. These Enhanced Vouchers

will permit Riverside Park Community (Stage 1) to remain available to our low/middle

income residents.

While prepayment of the mortgage and termination of the 236 Contract ("prepayment/

termination") could result in a rent increase, it does not necessarily mean that the

resident's portion of the rent will go up ...The Enhanced Voucher will enable you to

continue to live at Riverside Park.... and pay no more than 30% of your income. If you

are currently paying more than 30% of your income for rent, you may not receive a rent

increase ...

Please note that as a result of the prepayment/termination process, your rent cannot

be raised for 60 days after the prepayment/termination. "

The notice contained a telephone number for residents to call with any questions was posted in the building. Riverside claims that representatives met with board members of the Riverside Park Tenants Association. On September 7, 2004, another notice was posted which was virtually identical to the March 19th Notice. By letter dated October 26, 2004, the New York City Housing and Preservation (HPD) agency advised residents of their eligibility for Section 8 Enhanced Vouchers and that Section 8 applications were due by December 31, 2004. A public information meeting was held on January 27, 2005. Tenants who did not qualify for Section 8 vouchers were informed that, under a Landlord Assistance Plan, they would receive rent increases which would resemble rent stabilization increases. These tenants would have no rent increases for one year. The vast majority of tenants applied for and were found eligible for [*5]Section 8 which provides federal monies to assist with their rent.^[FN4]

C.Prior Litigation

On March 25, 2005, Riverside I ended its participation in the Mitchell-Lama program. On or about the same date, the original lessee, Riverside I, assigned its rights under the Ground Lease to Riverside Park Community II, LLC (Riverside II). On that same day, two residents and the Tenants 4 Tenants Association - the predecessor to The New Concerned Tenants Association - brought a motion, by Order to Show Cause, seeking a temporary restraining order (TRO) prohibiting the owners from leaving the Mitchell-Lama program. In the alternative, tenants sought a legally binding plan ensuring that the building would remain dedicated to persons of low and moderate income. Tenants argued that they would be subject to immediate eviction if injunctive relief was not granted. Justice Lucindo Suarez, New York County Supreme Court, issued a TRO which enjoined Riverside Park I and any related entity from removing the building from the Mitchell-Lama program and terminating its HUD Section 236 Interest Reduction Subsidy Contract. In response, Riverside I submitted affidavits stating that the Ground Lease with ECF would ensure the building would continue to be for low and moderate income residents:

"[I]t is clear that most tenants' rights will be enhanced, and that their rights

will not be diminished. Significantly, while the program is slated to leave the

Mitchell-Lama program, it will be subject to HUD regulations and annual

inspection, and the ground lease is not being amended. Thus, the low and

moderate income nature of the housing is slated to be preserved."

See Petition, exhibit A, ¶ 4; exhibit B, ¶¶ 13-14.

Following the submission of these affidavits to the court, the parties entered a Stipulation of Discontinuance on January 3, 2006. The first cause of action which sought to enjoin Riverside I from removing the building from the Mitchell-Lama program was discontinued with prejudice. The second cause of action which sought to enjoin Riverside prepaying its mortgage was also discontinued with prejudice. The third cause of action which sought a judgment declaring that any proposed change in the Ground Lease requirement that the building be used only to provide housing to individuals and families of low or moderate income be subject to review pursuant to the New York State Environmental Quality Review Act and the New York City Environmental Quality Review Regulations was discontinued without prejudice. The stipulation was filed and entered on April 10, 2006. Fourteen months later, ECF and Riverside agreed to amend the Ground Lease. By virtue of that amendment, Petitioners now seek to re-institute the claims which had previously been discontinued without prejudice.

D.Amendment to the Ground Lease

On or about June 13, 2006, there was a public meeting where the Board of Trustees for ECF adopted a resolution stating that the developer was "no longer required to operate its housing under the affordable housing guidelines for the remainder of the lease term period." See Smarr affidavit, exhibit D, Board Resolution, dated June 13, 2006. Notice of the meeting was placed in the City Record newspaper on June 8, 2006 and the agenda for the meeting was sent to numerous elected officials and entities, including the Mayor, City Council President, all five Borough Presidents, the Chair of the City Council Education Committee and the Executive Offices of the United Federation of Teachers (UFT) and the Council of Supervisors and Administrators (CSA). Item number five on the agenda was the authorization of the Second Amendment to the Ground Lease. Id. On that same day, ECF and Riverside II entered into an amendment of the Ground Lease, entitled "Second Amendment of Lease." ^[FN5] See Petition, exhibit E. The amended lease deleted Section 102 of the original lease, containing the requirement that the building be dedicated to low and moderate income tenants. As amended, the Ground Lease provides that:

" The Demised Premises shall be used for residential purposes, as well as for retail and

other commercial purposes as may be permitted by the certificate of occupancy for the

Building, and for no other purpose."

A.Standing [*7]

The essential question before the Court is whether petitioners have standing to enforce the income covenant of the original Ground Lease as third-party beneficiaries. The test for determining who is a third-party beneficiary in New York is whether the two principal parties entered into the contract with the intention, either express or implied, of directly and primarily benefitting a third party (Mendel v Henry Phipps Plaza West, Inc., 6 NY3d 783, 786 [2006] citing Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314, 336 [1983] (tenants were held not to be third-party beneficiaries of the land disposition agreement conveying city property to the owner and to lack standing to enforce a restrictive covenant against the housing company); see also Restatement [Second ] of Contracts § 302 (1); Restatement [Second] of Contracts § 308.

The party claiming to be a third-party beneficiary has the burden of demonstrating that the contract terms grant it an enforceable right (see Fourth Ocean Putnam Corp v Interstate Wrecking Co., Inc., 66 NY2d 38 [1985]; Alicea v City of New York, 145 AD2d 315, 317 [1st Dept 1988]). A party sits as a third-party beneficiary "only by establishing (1) the existence of a valid contract between other parties (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties to compensate him if the benefit is lost." [internal citations omitted]. Alicea v City of New York, 145 AD2d at 317. The Alicea court went on to say that an intended beneficiary is one whose

"[R]ight to performance is appropriate to effectuate the intention of the parties' to thecontract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or the circumstances indicate that the promisee intends togive the beneficiary the benefit of the promised performance' (Restatement [Second]of Contracts § 302 [1] [a], [b])" (id. at 317-318).

The court concluded:

"Thus, where the performance is rendered directly to a third party, that party isgenerally considered an intended beneficiary of the contract [citation omitted]. Thebest evidence, however, of whether the contracting parties intended a benefit to accrueto a third party can be ascertained from the contract itself [citation omitted]. An intentto benefit a third party can also be found when "no one other than the third party canrecover if the promissor breaches the contract or the language of the contractotherwise clearly evidences an intent to permit enforcement by the third party."[citation omitted].

Recently, in Kofin v Court Plaza Inc. (23 Misc 3d 1121 [A], 2009 NY Slip Op 50876 [U] [2009]), the New York County Supreme Court held that plaintiffs, who were low to moderate income tenants of a building which withdrew from the Mitchell-Lama program were not third-party beneficiaries of a lease that the developer had entered into with ECF. In reaching its conclusion, the court examined the language of the Ground Lease that is identical to the lease language in this case. The Court found that:

"It is evident that the ground lease contains nothing more than a restrictive covenant incapable of [*8]creating any affirmative duty. Nothing in the clause distinguishes the plaintiffs from every other person in the world eligible, under an undefined standard, for low or moderate income rent. Nor is there a standard for determining the point at which rent becomes other than low or moderate income rent."

Id. at *4.

Petitioners attempt to distinguish Kofin claiming that the court there wrongly relied on a holding by the lower court in the Cooper Gramercy case that was explicitly reversed by the First Department (see Kofin, supra, at *4). While it is true that the Appellate Division held, in Concerned Cooper Gramercy Tenants' Assn. v New York City Educ. Const. Fund, 13 AD3d 61 [1st Dept 2004]) that similarly situated tenants possess standing as third-party beneficiaries, that case preceded the Mendel case in the Court of Appeals which, in 2006, denied standing to tenants who sought to enforce a low-income clause in a Land Development Agreement (LDA) when the project withdrew from the Mitchell Lama program. As the Appellate Division later observed, the claim "lacks merit, inasmuch as [the tenants] lack standing to assert any rights under the Land Disposition Agreement." Mendel v Henry Phipps Plaza West, 27 AD3d 375, 377 (1st Dept 2006).

Petitioners next seek to distinguish Mendel on the ground that, unlike the present case, the LDA explicitly negated any intent to permit its enforcement by third parties (Mendel, 6 NY3d at 786-787). However, this Court agrees with the observation in Kofin that to find "a right of enforcement by third-parties may be read into a contract in the absence of an explicit prohibition against such a right ignores logic and [precedential] jurisprudence." Kofin, supra, at *4.

Ultimately, the Court must decide whether the parties to the original Ground Lease intended to confer certain benefits, as a condition of the lease, upon tenants past, present and future, who were not parties to the lease. Based on the holdings of Mendel, Alicea and Kofin, it is clear that the tenants have no standing to challenge the amendment to the Ground Lease. The putative class of incidental beneficiaries are such merely because the parties to the lease intended to generate some public benefit and purpose, beyond school construction, in return for economic relief conferred upon developers to entice them to engage in joint projects with ECF. The public purpose, the noble goal of attempting to increase availability of lower and middle income housing, is not to be confused with a private right vested in certain tenants who happen to enjoy the advantages of that public purpose.

In addition, as in Concerned Cooper Gramercy Tenants' Assn. v New York City Educ. Const. Fund (13 AD3d 61 [1st Dept 2004]).the tenants' challenge is unavailing because they have "failed to point to language within [the Ground Lease] mandating that publicly assisted housing be provided for the Ground Lease's entire 75-year term (cf. Matter of Columbus Park Corp. v Dept. of Hous. Preservation & Dev., 80 NY2d 19, 28 [1992])." There comes a point where, as here, the parties to the lease are free to decide that the economic incentives may be abandoned in return for a release in the obligation to create available low and middle income housing for potential future tenants, while recognizing, as here, a commitment to protect existing [*9]tenants against sharp rent increases or diminished services.

Beyond the language in the restrictive covenant, the Ground Lease contains no further references or promises to the tenants. They have not pled any facts leading to the conclusion that the lease agreement between the two signatories was entered into for the purpose of benefitting them directly. As well, the tenants have not pled any facts that ECF or the developer took on any obligations for their personal benefit for 75 years, the entire term of the lease. Rather, any promises made to the tenants were made during negotiations to lease the land to the developer. Thirdly, and crucially, there is nothing in the record which supports an inference that the developer explicitly promised to maintain the restrictive covenant for any period of time when the prior litigation was resolved. The Stipulation of Discontinuance was merely a statement of withdrawal without prejudice, not a superceding contract intended by the parties to extinguish the agreement between the developer and ECF.

In this case, the use restriction and the developer's participation in the Mitchell-Lama program, as a practical matter, were tied together. Once the developer withdrew from the Mitchell-Lama program and subsidies ended for the building, the rationale for below-market rates and the restricted use provision was eliminated. Unlike the tenants in Concerned Cooper Gramercy, 3333 Broadway is no longer under the protection of the Mitchell-Lama law, nor are tenants fighting against the removal of the building from the program. Furthermore, any attempt to construe the original Ground Lease agreement as prohibiting respondents from removing the income restriction provision may, in fact, run afoul of the Mitchell-Lama statutory scheme permitting developers to opt out of the program after just twenty years. Neither the statute nor the lease explicitly confer standing upon the tenants. To argue for an implied extension beyond the twenty-year opt out period with implied standing by some tenants might even discourage participation by developers in the future. In any event, whether this is a consequence which may ensue or is to be avoided is a policy choice for the Legislature and the parties to this agreement. It is not a choice left to this Court.

As to the claims of harassment and reduced maintenance, those actions if proven are obviously wrong and unlawful. However, they can be contested in the normal course, in the proper forum, Housing Court, on a case-by-case basis since each individual charge is fact-specific and would not be remedied by simply reinstating the amended income clause. As to the claims of eviction resulting from rent increases, almost all the tenants are covered by Section 8 Enhanced Vouchers and their rents have not been affected. In sum, no specific injury has been alleged in the Petition which can be traced to the Ground Lease amendment.

B.The Statute of Limitations Issue

CPLR § 217 imposes a general four months period to institute a proceeding against a body or officer which is applicable to Article 78 proceedings involving public benefit corporations. T here is no authority in the law that tenants were required to receive individual notice of the Ground Lease amendment. The agency action under attack is not of a judicial or adjudicatory nature. Because there was no fraud, misrepresentation or deception in this instance, [*10]the Court finds that the June 13, 2006 date - the date of the resolution and signing of the amended lease - was the starting date for the statute of limitations. See Jones v Amicone, 27 AD3d 465 (2d Dept 2006) (agency's determination that commits it to definite course of future conduct constitutes final determination for statute of limitations purposes). The determination became final and binding on that date. Since the petition was filed more than four months after the amended lease agreement was finalized, it is untimely and must be dismissed.^[FN8]

C.SEQRA Review

The Court also finds that ECF's determination to amend the Ground Lease without an environmental impact statement (EIS) was not arbitrary or capricious or in derogation of SEQRA regulations. The Ground Lease amendment was not a Type I action or any other kind of action requiring SEQRA review.

Conclusion

Petitioners have stated neither a cognizable statutory or contract claim which they may enforce. While the court is mindful that there is a continuing shortage of decent and affordable housing for low and moderate income families, the Court cannot solve that problem by reading an obligation into the Ground Lease which does not exist. For all the above-mentioned reasons, Respondents' cross-motion to dismiss the petition is granted.

This constitutes the Decision and Order of the Court.

Dated: July 10, 2009

ENTER:

________________________

James A. Yates, J.S.C.

[*11]