Court Opinion

ID: 5905495
Source: CourtListenerOpinion
Date Created: 2022-01-13 03:35:38.584508+00
Date Added: 2024-06-11T08:45:49.362000
License: Public Domain

Harwood, J.
(concurring in part and dissenting in part).
We must determine on this appeal whether a lessee’s obligation to pay "additional rent” in an amount related to but not determined by real property tax assessments confers standing on the lessee to challenge the validity of the assessments. I *21conclude that it does not and therefore vote to reverse the order insofar as appealed from and dismiss the proceedings.
By agreement dated July 6, 1961, the petitioner, through a wholly owned subsidiary, became a 20-year lessee of certain store space constituting approximately 49% of the landlord’s premises. By the lease, the petitioner was obligated to pay an annual "minimum rent” of $51,750 and, as a "percentage rent”, a sum equal to 1 Vi% of its gross annual sales over a specified base amount. It was also obligated to pay, as "additional rent”, an amount equal to 49% of the real estate taxes imposed against the entire property which exceeded the "base amount” of taxes assessed at the time the entire property became fully rented. However, pursuant to paragraph 69 of the lease, payment of "additional rent” pursuant to the tax escalation clause was credited against "percentage rent to be paid by [petitioner] for the same year”. Thus, if real estate taxes rose above the base amount, a payment was required pursuant to the tax escalation clause, but that payment reduced the amount, if any, due under the "percentage rent” clause.
By multiple proceedings, the petitioner challenged the validity of tax assessments for tax years between 1971 and 1982. The petitioner’s landlord filed duplicative certiorari proceedings for some of those tax years, but those proceedings, as well as some commenced by the petitioner, have apparently been abandoned. Presently before us are the now consolidated proceedings commenced by the petitioner concerning tax years 1974-1975 through 1980-1981 (except for 1978-1979) and a proceeding concerning the 1981-1982 tax year which the petitioner acknowledges was brought by mistake.
In 1985, the petitioner made application, inter alia, for partial summary judgment declaring that it had standing to challenge the assessments of the tax years addressed by the consolidated proceeding. The appellants cross-moved for an order dismissing that proceeding and the proceeding concerning the 1981-1982 tax year. There is no indication in the record made on these motions as to whether the petitioner was obligated to pay additional rent pursuant to the tax escalation clause before 1977, perhaps because the taxes did not until then rise above the base amount. By stipulation, the parties established that in each of the calendar years 1977 through 1980 the petitioner owed its landlord, pursuant to the tax escalation clause, a sum which ranged between $15,935 for 1977 and $14,536 for 1980. However, because of the credit *22against the amount due pursuant to the percentage rent clause, the amount actually paid the landlord as "additional rent” ranged from $8,695 in 1977 to $1,735 in 1980. No figures were provided for 1981, the final year of the lease.
We recognize that all tax laws are to be construed against the taxing authority (see, e.g., People ex rel. Bingham Operating Corp. v Eyrich, 265 App Div 562). We also recognize that, in order to provide relief to unfairly burdened "taxpayers” (see, Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9, 11), any person or corporation "aggrieved” by a tax assessment has standing to challenge its validity (see, Real Property Tax Law § 704 [1]; Administrative Code of City of New York § 11-231). However, to determine that the petitioner here is "aggrieved” by tax assessments when the payment allegedly constituting the pecuniary harm is measured not by the amount of the tax but by the petitioner’s gross sales, is to depart from the well-established rule that the pecuniary injury caused by a complained-of assessment must be "direct” and not "remote and consequential” (see, Matter of Walker, 75 NY 354, 357; see also, Matter of Suburbia Fed. Sav. & Loan Assn. v Mayor of Inc. Vil. of Lynbrook, 76 AD2d 841; cf., Matter of Ames Dept. Stores v Assessor of Town of Concord, supra).
As noted in the majority opinion, a lessee who is under a covenant to pay an assessment is aggrieved when an invalid assessment is made (Matter of Burke, 62 NY 224; see, Ames Dept. Stores v Assessor of Town of Evans, 126 AD2d 990; Matter of Caldor, Inc. v Board of Assessors, 104 AD2d 883; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98). That rule applies where, because the lessee occupies less than all of the assessed premises, it has covenanted to pay only its pro rata share of a tax, although in the cases so holding, the leases in which that covenant was contained also afforded the lessee the right to contest the assessment in the name of the lessor (Matter of Ames Dept. Stores v Assessor of Town of Concord, supra; cf., Matter of Caldor, Inc. v Board of Assessors, supra). In virtually all of the cases where a lessee was determined to be aggrieved by a tax assessment, the lessee was directly obligated to pay a "tax” rather than, as here, "rent” calculated pursuant to a fairly complicated formula based only in part on the amount of the tax (see, e.g., Matter of Burke, supra; Ames Dept. Stores v Assessor of Town of Evans, supra; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, *23supra). The only apparent departure is Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush (114 AD2d 726), by which we are not bound and with which I do not entirely agree.
In Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush (supra, at 727), the Appellate Division, Third Department, held that a lessee obligated to pay " 'all taxes and assessments’ ” was aggrieved within the meaning of RPTL 704 (1), even though the obligation was denominated as an "element of rent”. However, the Third Department held that the petitioner was aggrieved because it was obligated to make payment in an amount "determined by the tax assessment on the property” (Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush, supra, at 728), thereby implicitly recognizing that the pecuniary injury must result directly from the complained-of assessment. Apart from the fact that the petitioner here is not directly obligated to pay a tax (see, e.g., Matter of Burke, supra), and apart from the fact that the petitioner does not enjoy a contractual right to bring a tax review proceeding (see, e.g., Matter of Ames Dept. Stores v Assessor of Town of Concord, supra), a scrutiny of the various provisions of the petitioner’s lease (cf., Matter of Burke, supra, at 228) makes clear that amounts owed by the petitioner as "additional rent” were not "determined by the tax assessment on the property” (Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush, supra, at 728) but rather by the respective base amounts of, and the interplay between, the tax escalation and percentage rent clauses.
That petitioner’s "pecuniary harm” in the form of additional rent was not a direct result of a tax assessment is underscored by the majority holding that the petitioner has standing to challenge the tax assessments for some years, but not others. Its primary rationale for distinguishing, for standing purposes, among the various tax years is that no "tax-related” obligation could arise in years in which the amount due pursuant to the tax escalation clause was exceeded by the amount payable as percentage rent. In other words, although an amount was nominally due pursuant to the tax escalation clause, whether the petitioner was aggrieved by having to pay it is determined by whether its gross sales were of sufficient volume to warrant payment of a greater percentage rent. I conclude not only that the volume of the petitioner’s gross sales is too remote from the tax assessment to serve as the predicate for a tax certiorari proceeding but also that such a *24predicate would impose on the tax authority and the courts the burden of examining the lessee’s gross receipts for each year in order to determine the threshold question of standing.
Administrative convenience is no basis for denying standing to parties otherwise aggrieved (cf., Matter of Ames Dept. Stores v Assessor of Town of Concord, supra). But by the majority’s departure from the rule that in order to have standing in a tax certiorari proceeding, the petitioner must have suffered a pecuniary injury directly resulting from the assessment complained of, virtually every commercial tenant whose obligation to pay rent is but marginally related to the owner’s obligation to pay a tax is now permitted to challenge the taxing authority’s fixation of the latter’s tax obligation. No such effect is intended by Real Property Tax Law article 7.
Rubin and Spatt, JJ., concur with Bracken, J. P.; Harwood, J., concurs in part and dissents in part and votes to reverse the order insofar as appealed from, on the law, deny those branches of the petitioner’s motion which were for partial summary judgment determining that it has standing as an aggrieved party under Real Property Tax Law § 704 and Administrative Code of the City of New York § 11-231 (a) in the consolidated tax certiorari proceedings, and to grant the cross motion, with an opinion in which Kunzeman, J., concurs.
Ordered that the order is modified, on the law, by (1) adding to the first decretal paragraph thereof, after the words "Section 166-1.0 of the Administrative Code of the City of New York” the words "and has standing to challenge any tax assessment which, by the operation of paragraphs 58, 69 and 42 (b) of its lease, caused it to come under a legal obligation to pay additional rent” and (2) deleting the third decretal paragraph thereof and substituting therefor a provision granting that branch of the cross motion which is addressed to the proceeding challenging the assessment for the tax year 1981-1982; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements, and the matter is remitted to the Supreme Court, Queens County, for a hearing with respect to the remaining branches of the cross motion, in accordance with the opinion herewith.