Case Title: Barnan Associates v. 196 Owners Corp.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2010-03-25T00:00:00Z

Document:
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This memorandum is uncorrected and subject to revision before
publication in the New York Reports.
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No. 33  
Barnan Associates,
            Respondent,
        v.
196 Owners Corp.,
            Appellant.
Barry G. Margolis, for appellant.
Michael B. Kramer, for respondent.
MEMORANDUM:
The order of the Appellate Division should be reversed,
with costs, and the order of Supreme Court reinstated.  
Plaintiff Barnan Associates LLC is a commercial tenant
on the ground floor of a cooperative apartment building owned by
defendant 196 Owners Corp., and located at 196 East 75th Street
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No. 033
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in New York City.  In 1979, prior to the building's cooperative
conversion, Barnan entered into a lease agreement with then
landlord, nonparty Robert Olnick Associates.  The parties agreed
that Barnan would pay "Fixed Net Rent" and "Additional Rent based
on Increase in Real Estate Taxes," as a commercial tenant of the
building.  The lease states in relevant part: 
"The Tenant agrees to pay to the Landlord as
additional rent during each lease year
subject to the New York City real estate tax
year commencing July 1, 1979 and ending June
30, 1980, Fourteen and one-half (14 1/2%)
percent of the dollar amount of any increase
in such real estate taxes on the said land,
building and improvements (of which the
demised premises are a part) over and above
the 'base amount of real estate taxes,'
whether such real estate taxes shall be
occasioned by an increase in assessed
valuation or an increase in tax rate, or
both."
 
The parties defined the following 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 [the subject]
land . . . for the New York City real estate
tax year commencing July 1, 1979 and ending
July [sic] 30, 1980"; . . . 'base tax rate'
shall be the real estate tax for the Borough
of Manhattan for the New York City real
estate tax year commencing July 1, 1979 and
ending June 30, 1980; [and] . . . 'base
amount of the 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.'"  
Accordingly, Barnan has paid 14½% "of the dollar amount of any
increase in the real estate taxes" on the premises for the
subsequent tax years.  
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Sometime after the lease was executed, Robert Olnick
Associates sponsored the building's cooperative conversion.  As a
result of the conversion, 196 Owners Corp., a cooperative
corporation, was created.  By 1981, the corporation was the
building's owner and successor landlord of the lease.  More than
a decade later, the State of New York enacted certain tax benefit
programs targeting condominium owners and cooperative tenant-
shareholders.  Since the 1998-1999 tax year, tenant-shareholders
in the subject building have availed themselves of certain tax
benefit programs, pursuant to Real Property Tax Law §§ 425 and
467-a, which come in the form of tax abatements and exemptions. 
The City of New York calculates these abatements and exemptions
and directs payment from the building's real estate tax
assessment, which the corporation pays to tenant-shareholders
directly.  
In 2005, Barnan became aware that, since the 1998-1999
tax year, its yearly 14½% tax share of the building's billable
taxes included the tenant-shareholders' tax abatements and
exemptions.  Barnan has since claimed that the corporation
overcharged it in tax rents as the corporation failed to deduct
the tax abatements and exemptions paid to the tenant-shareholders
from its proportionate tax liability.  Barnan demanded
reimbursement, and corporation refused.  In 2006, Barnan
commenced this action against the corporation for, among other
things, reimbursement of the alleged overcharges.  Barnan
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contends that the lease between the parties entitles it to deduct
from its tax rents the tax abatements and exemptions that the
corporation pays to the individual tenant-shareholders.  
Supreme Court granted defendant's motion for summary
judgment dismissing the complaint.  It found that the tax
escalation clause of the lease agreement was ambiguous as to
whether tax abatements and exemptions should be excluded from the
amount of real estate taxes assessed against the property and
relied upon "the course of conduct of the parties since the
defendant acquired title to the building."  The Appellate
Division unanimously modified, on the law, by granting
plaintiff's motion for summary relief, directing judgment in
favor of plaintiff in the sum of $56,675.77, and denying
defendant's cross motion (Barnan Associates v 196 Owners Corp.,
56 AD3d 309 [2008]).  The court rejected Supreme Court's finding
of ambiguity and application of the voluntary payment doctrine,
and concluded that the result below was contrary to cases
involving tax escalation clauses (id. at 311).  
The terms of the lease determine whether Barnan is
entitled to deduct the relevant tax abatements and exemptions
from its tax rents (Raleigh Assoc v Henry, 302 NY 467, 474
[1951]; see also Fairfax Co. v Whelan Drug Co., 105 AD2d 647 [1st
Dept 1984]; Park Sq. Garage v New York Univ., 27 AD2d 460 [1st
Dept 1967]).  Here, the tax escalation clause unambiguously
states that the additional tax charged to Barnan applies to "any
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No. 033
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increase in such real estate taxes" on the land greater than the
"base amount of real estate taxes."  In addition, the base amount
is determined with reference to the "base assessed valuation" --
a term that the lease requires be calculated "without regard or
giving effect to any exception or abatement."  Thus it would be
illogical to give effect to exemptions and abatements in
calculating the "increase in such real estate taxes" and the
resulting escalation.  Moreover, in this case, the tax benefit
programs did not decrease the corporation's tax liability (cf.
Fairfax Co. v Whelan Drug Co., 105 AD2d 647 [1st Dept 1984] [the
tenant was not required to pay additional taxes to the landlord
pursuant to the tax escalation clause because the actual property
tax reduced by more than 50%]).  Accordingly, the corporation
properly increased Barnan's rent pursuant to the tax escalation
clause by 14½% of the increase in real estate taxes, including
the amount the corporation was required to pay to the eligible
tenant-shareholders pursuant to the tax benefit programs. 
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order reversed, with costs, and order of Supreme Court, New York
County, reinstated, in a memorandum.  Judges Ciparick, Graffeo,
Read, Smith, Pigott and Jones concur.  Chief Judge Lippman took
no part.
Decided March 25, 2010