Opinion
113827/06.
Decided on February 10, 2009.
Penn Proefriedt Swartzfeld Schwartz (Michael F. Schwartz, of counsel), attorneys for plaintiff, New York, NY.
Stempel Bennett Claman Hochberg (James E. Schwartz, of counsel), attorneys for defendant, New York, NY.
In this action tried before me without a jury, plaintiff seeks a judgment declaring that under the subject lease it has the right to renovate the portion of the premises leased to it that was subject to an option into self-storage facilities.
Pursuant to a lease dated December 1, 2001 plaintiff leased from defendant-landlord approximately 75,000 square feet of the building (the "Non-Option Space") located at 2350 Fifth Avenue in Manhattan (the "Building")for a term of 30 years through November 30, 2031 (the "Lease"). Pursuant to paragraph 22.03 thereof, plaintiff was given the option to lease the additional (approximately 50,000 square feet) space in the Building (the "Option Space") then occupied by the Harlem Tabernacle Church of New York, Inc. (the "Church"). The space had previously been altered for use as a public school, but such proposed use did not materialize because of a toxic condition at the premises, and the lease with the Board of Education was terminated and a lease was entered into with the Church. When the Church's lease expired in 2005, plaintiff exercised its option to rent said space. Without requesting or obtaining defendant's written consent, plaintiff had previously renovated the Non-Option Space by creating self-storage cages for use by its customers, and had made significant structural changes, including the addition of approximately 20,000 square feet to the Building (defendant's memorandum of law dated November 20, 2008, p. 6).
While plaintiff has since paid the rent provided in the Lease for the Option Space, it has not occupied the space because on September 14, 2006 the defendant sent plaintiff a notice stating that it would be in default under the Lease "if you proceed with the demolishing/removal of any of the walls, ceilings or parts of the structure of the Church premises . . . (as) [t]his intended action is in violation of the Lease [articles 15 and 21.01(a)(c)]."
In November 2006 this action was commenced. By order dated March 20, 2007 I dismissed all causes of action other than for the declaratory relief referred to above.
Paragraph 10.02 of the Lease provides the following with respect to the permitted use of the premises:
Tenant shall have the exclusive right to occupy the Demised Premises and the Property as a storage facility, warehouse facility, parking facility and for the sale of storage, packaging and shipping materials. In addition, upon ten days prior written notice to the Landlord and provided such use(s) are not excluded as listed on Schedule E, the Tenant shall have the right to change the use to any other lawful use, as is them permitted by the applicable zoning laws and ordinances or is permitted by lawful variance.
Under paragraph 21.01(a) plaintiff is entitled to "perform any non-structural construction, renovations or improvements at or to the Demised Premises . . . without the prior written consent of the Landlord provided . . . such work does not adversely effect (sic) the structural integrity of the Demised Premises." However, central to this litigation, said paragraph prohibits plaintiff from performing any "structural changes to the Property without the prior written consent of the Landlord." Added to the paragraph in ink was a statement that "the creation of an additional elevator shaft shall not be deemed a structural change." Paragraph 15.01 requires that at the expiration of the term of the Lease, "all non-structural improvements, additions and alterations . . . previously made by Tenant . . . shall, at Landlord's option, be removed and the Demised Premises restored at Tenant's sole expense."
After plaintiff exercised the said option, a one-page amendment to the Lease was executed as of June 1, 2005 affirming that the Church's premises would be deemed part of the Demised Premises, clarifying the rental obligations, and agreeing that as amended "all of the terms and conditions of the Lease shall remain in full force and effect." Upon execution of the amendment plaintiff became the lessee of the entire Building.
Plaintiff had submitted to defendant a one-page diagram showing the renovations it intended to make in the Option Space, which resulted in defendant sending the aforesaid notice of September 14, 2006. At trial, defendant's witness stated that it had no objection to certain alterations, but objected to others, without specifically stating the exact proposed alterations to which there was objection. Part of the alterations proposed in order to install self-storage cages would involve slicing through cinder block walls, tearing out kitchen and bathroom facilities and other improvements that had been erected for the proposed school use. While the Non-Option Space was more open than the Option Space, the renovations performed there involved alterations similar to that now proposed by plaintiff.
The evidence was clear that it was understood by both parties that, while under § 10.02 plaintiff had the right (with limited exceptions) to use the Building for any lawful use, the plaintiff intended to convert the Option Space for use as additional self-storage facilities, so that the entire Building would be so used.
There was no evidence of any negotiations with respect to the use in the Lease of the term "structural." Such term has, under the case law, been subject to various definitions, e.g., Wall Nut Products, Inc. v. Radar Central Corporation, 20 AD2d 125 (1st Dept. 1963); Harar Realty Corp. v. Michlin Hill, Inc., 86 AD2d 182 (1st Dept. 1982); Frequency Electronics, Inc. v. We're Associates Company, 120 AD2d 489 (2nd Dept. 1986); Garrow v. Smith, 198 AD2d 622 (3rd Dept. 1993).
A basic principle of contract interpretation is that a "contract should not be interpreted to produce a result that is . . . contrary to the reasonable expectations of the parties" [Lipper Holdings, LLC v. Trident Holdings, LLC, 1 AD3d 170, 171 (1st Dept. 2003)]. See also, Sutton v. East River Savings Bank, 55 NY2d 550, 555 (1982); HGGD Retail Services, LLC v. 44-45 Broadway Realty Co., 37 AD3d 43, 49-50 (1st Dept. 2006); Bestform, Inc. v. Herman, 23 AD3d 253, 254 (1st Dept. 2005).
Under the circumstances presented, I find that the most appropriate test in aid of the proper interpretation of the Lease is the course of conduct of the parties since the execution thereof in 2001. 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 might 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). In Four Seasons Hotel Ltd. v. Vinnik, 127 AD2d 310 (1st Dept. 1987), it was stated that "the parties whole course of dealing (may) be considered in determining what the letter means" (p. 322). See also, Citibank v. Fifth Avenue Limited Partnership, 2 AD3d 331 (1st Dept. 2003); Time Warner Entertainment Co., L.P. v. Brustowsky, 221 AD2d 268 (1st Dept. 1995); Studley v. National Fuel Gas Supply Corporation, 107 AD2d 122, 128 (1st Dept. 1985).
Here, as aforesaid, prior to the execution of the 2005 amendment of the Lease adding the Option Space thereto, plaintiff performed alterations that could properly be deemed structural, including its addition of 20,000 square feet to that area of the Building, without seeking or obtaining the defendant's consent. The claim of defendant that it was unaware of such renovations is not supported by the evidence. The testimony showed that it was within the reasonable expectation of the parties that plaintiff would employ the Option Space for the same use as the Non-Option Space, which use would require similar alterations. It was also established that none of the proposed renovations would involve the weight-bearing walls, nor adversely affect the structural integrity of the Building. Further, there was no expectation that the Option Space would be used as a school, which use never occurred because of a toxic condition. In any event, plaintiff recognizes
its obligation under the Lease to restore the premises to its present condition on the termination thereof.
In conclusion, I find that the renovations proposed by plaintiff are not violative of § 21.01(a) of the Lease, and thus declare that plaintiff may convert the Option Space for self-storage use in accordance with the proposal submitted by it.
The Clerk shall enter judgment accordingly.