Supreme Court, New York County, April 7, 2023

Seyfarth Shaw LLP, New York City (Jerry A. Montag of counsel), for plaintiff.

Lester Schwab Katz & Dwyer, LLP, New York City (Dennis M. Rothman of counsel), for defendant.

I. Undisputed Background Facts

On January 22, 2015, defendant tenant entered a commercial lease with plaintiff landlord, for 6,000 square feet of retail space for a Bed Bath & Beyond store at 66 Boerum Place, Kings County, when the building was under construction for conversion to mixed-use property. The lease, which the parties agree is authenticated and admissible, defines "building" as "the building to be constructed on the Land (as defined in Section 1.1.20 below) and to contain approximately 60,000 square feet of retail space in the basement, ground floor, second and third floors and approximately 75 residential apartments on the upper floors." (Aff of Marcelo Klajnbart, exhibit B, § 1.1.4.) The construction continued until December 20, 2018, when the New York City Department of Buildings (DOB) issued a final certificate of occupancy.

The lease includes a tax escalation provision:

"Subject to the abatement in Taxes to the extent Landlord obtains the benefits under the[*2]'ICAP Program' as hereinafter described, from and after the Rent Commencement Date, if the Taxes for any Tax Year (defined in Section 4.3.4 below) shall be greater than the Taxes for the Base Tax Year (defined in Section 4.3.4 below) (said differential being referred to herein as the 'Increased Tax Amount'), then Tenant shall pay to Landlord for each such Tax Year during the Term hereof, Tenant's Pro Rata Share of the Increased Tax Amount . . . . For the purposes of determining Tenant's Tax Payment hereunder, the Increased Tax Amount shall{**80 Misc 3d at 603} not reflect a future increase (i.e., occurring subsequent to the Base Tax Year) in the square foot area of the Building over the square foot area thereof existing during the Base Tax Year." (Id. § 4.3.2 [emphasis added].)

The lease defines "Tenant's Pro Rata Share" as "Ten Percent (10%)" (id. § 1.1.37); "Base Tax Year" as "the Tax Year in which the Delivery Date occurs" (id. § 4.3.6); and "Tax Year" as "the tax fiscal year for which Taxes are levied by the Department of Finance of the City of New York (currently July 1 through June 30)." (Id. § 4.3.5.) The parties agree that the Delivery Date occurred February 20, 2017, so the Base Tax Year is July 1, 2016, to June 30, 2017. The parties also agree that the building's taxes were assessed at $153,764.00 in the Base Tax Year on January 5, 2016, as a retail space. (NY City Charter § 1507.)

On January 5, 2017, the New York City Department of Finance (DOF) continued to assess the building as a retail space and taxed $1,882,653.00. Plaintiff subsequently subtracted $153,764.00 from $1,882,653.00 to calculate the building's increase in taxes from the Base Tax Year, then multiplied that figure by 10%, defendant's pro rata share, to determine defendant's tax burden for the 2017-2018 tax year, for a total of $166,888.90. Defendant paid this amount in full. In February 2018, however, DOF divided the building into two tax parcels: lot 1101 for the retail space and lot 1102 for the residential space and assessed taxes for each lot. The taxes on the retail space decreased due to plaintiff's participation in the Industrial & Commercial Abatement Program (ICAP), but the building's overall taxes increased due to the addition of the residential space.

When plaintiff calculated defendant's tax burden for the 2018-2019 tax year, plaintiff charged defendant 10% of the total increase in taxes based on the tax assessments for both the retail and the residential space. Defendant refused to pay the increase in taxes attributable to the residential space, but made a partial payment for what defendant calculated as its tax burden on the retail space. Defendant continued to assess its own tax burden after 2018-2019 and made another partial payment for the 2019-2020 tax year, no payment for the 2020-2021 tax year, and an alleged overpayment for the 2021-2022 tax year.{**80 Misc 3d at 604}

II. Summary Judgment

Plaintiff now moves for summary judgment on defendant's breach of the lease and dismissing defendant's affirmative defenses. (CPLR 3211 [b]; 3212 [b], [e].) Defendant withdraws its third, fourth, sixth, and ninth affirmative defenses, but cross-moves for summary judgment dismissing the complaint. (CPLR 3212 [b].) After oral argument August 31, 2022, and repeated but unsuccessful attempts at settling this action, the court grants defendant's cross-motion as follows.

To obtain summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence eliminating all material issues of fact. (Bill Birds, Inc. v Stein Law Firm, P.C., 35 NY3d 173, 179 [2020]; Friends of [*3]Thayer Lake LLC v Brown, 27 NY3d 1039, 1043 [2016]; Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d 40, 49 [2015]; Voss v Netherlands Ins. Co., 22 NY3d 728, 734 [2014].) Once the moving party satisfies this standard, the burden shifts to the opposing party to rebut that prima facie showing, by producing evidence, in admissible form, sufficient to require a trial of material factual issues. (Bill Birds, Inc. v Stein Law Firm, P.C., 35 NY3d at 179; De Lourdes Torres v Jones, 26 NY3d 742, 763 [2016]; Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d at 49; Morales v D & A Food Serv., 10 NY3d 911, 913 [2008].) In evaluating the evidence for purposes of these motions, the court construes the evidence in the light most favorable to the opposing party. (Stonehill Capital Mgt. LLC v Bank of the W., 28 NY3d 439, 448 [2016]; De Lourdes Torres v Jones, 26 NY3d at 763; William J. Jenack Estate Appraisers & Auctioneers, Inc. v Rabizadeh, 22 NY3d 470, 475 [2013]; Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012].)

III. Defendant's Tax Obligations under the Lease

The court must construe the lease to effectuate the parties' intent and, where the contract is unambiguous, enforce its plain meaning. (Donohue v Cuomo, 38 NY3d 1, 13 [2022]; Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Mar. Ins. Co., 31 NY3d 131, 135 [2018]; Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d 313, 321 [2017]; Littleton Constr. Ltd. v Huber Constr., Inc., 27 NY3d 1081, 1083 [2016].) A contract is ambiguous when it is reasonably susceptible of more than one interpretation. (Donohue v Cuomo, 38 NY3d at 13; Lend Lease [US] Constr. LMB Inc. v Zurich Am. Ins. Co., 28 NY3d 675, 682 [2017]; Schulte Roth & Zabel LLP v Metropolitan 919 3rd Ave. LLC, 202 AD3d 641, 641 [1st Dept 2022].) A contract's provisions{**80 Misc 3d at 605} are not ambiguous, however, merely because the parties interpret the provisions differently. (Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Mar. Ins. Co., 31 NY3d at 135; Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d at 321; Universal Am. Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675, 680 [2015].)

The parties dispute whether the residential space was "existing" during the Base Tax Year. (Klajnbart aff, exhibit B, § 4.3.2.) Since the lease provides no definition for "existing," a lamentable word for any contract, the court refers to dictionaries to determine the term's ordinary meaning. (Universal Am. Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d at 681; National Auditing Servs. & Consulting, LLC v 511 Prop., LLC, 186 AD3d 1160, 1160 [1st Dept 2020].) Dictionary definitions of "existing" provide:

Oxford Languages via Google.com: "in existence or operation at the time under consideration; current" (Google, existing [https://www.google.com/search?q=existing] [last accessed Mar. 14, 2023], citing Oxford Languages);

Dictionary.com: "already or previously in place, before being replaced, altered, or added to" (Dictionary.com, existing [https://www.dictionary.com/browse/existing] [last accessed Mar. 14, 2023]);

Oxford Advanced Learner's Dictionary: "found or used now" (Oxford Learner's Dictionaries, existing [https://www.oxfordlearnersdictionaries.com/us/definition/english/existing] [last accessed Mar. 14, 2023]);

Cambridge Dictionary: "used to refer to something that exists now" (Cambridge Dictionary, existing [http://dictionary.cambridge.org/us/dictionary/english/existing] [last [*4]accessed Mar. 14, 2023]).

Each definition considers "existing" a current assessment. Thus, to consider the "square foot area" as "existing" in the Base Tax Year (Klajnbart aff, exhibit B, § 4.3.2), the square foot area must have been assessed that year.

Plaintiff relies on the temporary certificates of occupancy (TCOs) issued by DOB to show that the residential area was constructed during the Base Tax Year, suggesting that the residential square foot area was "existing" that year, regardless whether the apartments were fully constructed. Defendant maintains that the TCOs on which plaintiff relies show that{**80 Misc 3d at 606} the residential square foot area was not "existing" until DOB issued a TCO for the residential floors and apartments, which occurred after the Base Tax Year.

Plaintiff primarily relies on a TCO issued December 6, 2016, to demonstrate that DOB recognized the building included "11 stories" and "75 dwelling units" in the Base Tax Year. (Klajnbart aff, exhibit D, at 1.) Neither figure, however, establishes whether the residential square foot area, which is the operative measure, actually was assessed. Square footage measures the floor area, so the attestation by plaintiff's witness Klajnbart that the walls, windows, mechanical equipment, or other components were completed is immaterial.

The TCO instead shows that only nonparty Marshalls, another commercial tenant, could use the "floors cellar, 1st, second, third and boiler room on the roof" (id. at 3), which plaintiff concedes is not part of the residential space. In fact, every TCO issued throughout the Base Tax Year concerned the already existing retail space, without comment concerning the residential space that remained under construction. Therefore, absent any reference to the residential floors in a TCO, plaintiff fails to demonstrate that those floors were "existing" in the Base Tax Year.

On the other hand, DOB issued its first TCO for the building's tenth floor July 14, 2017, and for floors 4-11 July 27, 2017, which the parties agree constitute the building's total residential space. Thus, when the building's tax assessment for the 2018-2019 tax year was fixed January 5, 2018, DOF assessed separate taxes for the retail and residential spaces, since DOB had issued a TCO for the residential floors and apartments that previous summer. Although plaintiff insists that the lease does not use "completed" to determine that the residential square foot area was "existing" in the Base Tax Year, plaintiff fails to overcome the fact that DOF taxed the residential space only after DOB issued a TCO for the substantially completed residential floors and apartments.

Klajnbart also offers photographs of the building and its top floor to show they have been "existing" since 2016, but he does not attest that he worked for plaintiff or was familiar with the building when the photographs were taken, raising a factual question as to their authenticity. (People v Price, 29 NY3d 472, 477 [2017].) Even if the court considers the photographs authenticated and admissible, they merely show the building's facade and a portion of the top floor, which plaintiff admits{**80 Misc 3d at 607} were all under construction throughout the Base Tax Year. Consequently, the residential space was not "existing" for tax purposes until after plaintiff received a TCO for that space.

Finally, enforcing the tax escalation clause would contravene New York public policy, as plaintiff's increased taxes resulted "from improvements on the property redounding solely to the benefit of the landlord." (Enchantments Inc. v 424 E. 9th LLC, 129 AD3d 589, 590 [1st Dept 2015], quoting Credit Exch. v 461 Eighth Ave. Assoc., 69 NY2d 994, 997 [1987].) Even [*5]though defendant's tax liability ultimately decreased through plaintiff's participation in the ICAP, the improvements that increased plaintiff's taxes were the completed residential apartments, which provided no benefit to defendant as a commercial tenant. (Enchantments Inc. v 424 E. 9th LLC, 129 AD3d at 590; 223 W. Corp. v B & D Leistner Props., 21 AD3d 810, 811 [1st Dept 2005].)

IV. Conclusion

For all these reasons, defendant is not obligated to pay a pro rata share of plaintiff's increase in taxes attributable to the residential space, since those taxes resulted from an increase in the square foot area after the Base Tax Year, pursuant to the parties' lease. (P.A. Bldg. Co. v City of New York, 10 NY3d 430, 441 [2008].) Therefore the court denies plaintiff's motion for summary judgment, except to the extent of dismissing defendant's third, fourth, sixth, and ninth affirmative defenses based on defendant's withdrawal of those defenses, and grants defendant's cross-motion for summary judgment dismissing the complaint. (CPLR 3211 [b]; 3212 [b].) Plaintiff acknowledges that, if the court grants defendant summary judgment, the court need not address the remainder of defendant's affirmative defenses.

Defendant also asks to amend its answer to add a counterclaim for plaintiff's breach of the implied covenant of good faith and fair dealing. The court denies this request since defendant did not include it in defendant's notice of cross-motion (Matter of Ramirez v Selective Advisors Group, LLC, 202 AD3d 608, 608-609 [1st Dept 2022]; Matter of Sedina V.L. v Markis R.C., 198 AD3d 599, 599-600 [1st Dept 2021]; Ran v Weiner, 170 AD3d 425, 426 [1st Dept 2019]; Henderson-Jones v City of New York, 120 AD3d 1123, 1124 [1st Dept 2014]), and it is unnecessary{**80 Misc 3d at 608} given the dismissal of plaintiff's breach of contract claim. The parties shall attend a preliminary conference May 16, 2023, at 11:00 a.m., via video, to proceed with disclosure on defendant's counterclaim for an accounting.