Mott Haven Furniture Co., Inc. v. Finance Adm'r

• Decision Date: 27 June 1985
• Parties: In the Matter of the Application of MOTT HAVEN FURNITURE COMPANY, INC., Petitioner, v. The FINANCE ADMINISTRATOR and the Tax Commission of the City of New York, Respondents.
• Court: New York Supreme Court

Page 213

497 N.Y.S.2d 213

130 Misc.2d 667

In the Matter of the Application of MOTT HAVEN FURNITURE

COMPANY, INC., Petitioner, v. The FINANCE ADMINISTRATOR and the Tax Commission of the City

of New York, Respondents.

Supreme Court, Special Term,

Bronx County, Part VI.

June 27, 1985.

Brandt & Brandt, by Peter H. Brandt, New York City, for petitioner Mott Haven Furniture Co., Inc.

Frederick A.O. Schwarz, Jr., Corp. Counsel of City of New York by Joseph A. Vogel, New York City, for respondents, Finance Adm'r et ano.

WALLACE R. COTTON, Justice:

Motions by the respondents, Finance Administrator and the Tax Commission of the City of New York (hereinafter "City") to consolidate the duplicate petitions filed by petitioner, Mott Haven Furniture Company, Inc. ("Mott Haven"), and to dismiss the consolidated proceedings are both granted.

Pursuant to Article 7 of the New York Real Property Tax Law ("RPTL"), Paul Ray Associates ("Paul Ray"), the landlord of the property at issue filed petitions to challenge the assessment on the entire property in each of the tax years 19 76/77 through 19 83/84. At the same time, Mott Haven, who leased 35% of the property from Paul Ray, filed duplicate petitions for the tax years 19 76/77 through 19 82/83, excluding the tax year 19 80/81.

Under a tax escalation clause included in the lease agreement with Paul Ray, petitioner was obliged to pay as "additional rent" one-third of any increase in real estate taxes for the subject property above the taxes due for the 19 69/70 base year. Paragraph 49 of the lease dated July 14, 1970, reads as follows:

It is understood and agreed that in the event the amount of real estate taxes imposed upon the land and/or buildings of which the demised premises are a part, by the City of New York or by any other Municipal or taxing authority shall exceed the amount of real estate taxes imposed upon such land and/or buildings for the real estate tax year of 19 69/70 at any time during the term of this lease, tenant shall pay to landlord, as additional rent hereunder, an amount equal to Thirty-Three and One-Third (33 1/3%) Percent of the amount of such increase in real estate taxes during each year in which such increase occurs, which payment is to be made in advance and shall be due and payable on the first day of August in each real estate tax year in which such increase shall occur. The tax bill of the City of New York or of such other Municipal or taxing authority shall be conclusive evidence of the amount to be paid by tenant. (Emphasis supplied).

Petitioner has submitted bills indicating payments under this clause of $8,133.76, $8,039.27, $8,039.27, and $3,226.76 for the tax years 19 76/77, 19 77/78, 19 78/79, and 19 79/80, respectively (Exhibits 2 through 5 attached to petitioner's Reply Affirmation).

The City moved to consolidate the duplicate petitions into the proceeding for the tax year 19 76/77. The City further moved to dismiss the consolidated petitions.

Petitioner responded by making a motion to consolidate its proceedings with those pending in the name of Paul Ray and by making a motion ordering discovery of the lease and records of the real estate tax payments made by all the tenants on the property. Petitioner later amended its notice of motion and cross-motion upon locating its own lease as well as bills for escalation payments made to Paul Ray for the tax years 19 76/77 through 19 79/80. The proceedings for the tax years 19 81/82 and 19 82/83 were discontinued by stipulation.

In March 1983, Paul Ray met with the Tax Commission and successfully negotiated a settlement for the tax years 19 82/83 and 19 83/84. Because the City is responsible for only one refund on a reduction in assessment, the settlement was subject to the discontinuance of all other outstanding petitions on the property. Petitioner's subsequent failure to discontinue its duplicate petitions has prevented the Tax Commission settlement from being processed.

The motion to consolidate Mott Haven's petitions for all the previously mentioned tax years into this proceeding for the tax year 19 76/77 is granted. The same property is under review for each of the above indicated tax years and common questions of law and fact have been presented (see RPTL § 710). A consolidation benefits all parties involved by reducing the time and expense which would be incurred in litigating, in separate proceedings, similar issues involving identical parties.

The respondents' motion for dismissal of the consolidated proceedings raises the troublesome issue of standing under Section 704, subdivision 1, of the RPTL. The question before the court is whether a commercial tenant has standing to sue the Tax Commission under RPTL § 704 and New York City Charter and Administrative Code § 166-1.0(a) as a consequence of a tax escalation clause contained in its lease when the owner of the property has also filed. It is one of first impression for this court. Although we remain sensitive to the fact that the interests of property owners and tenants necessarily conflict, a problem frequently compounded by the owners' superior bargaining position, and are aware that courts often afford tenants substantial protection of their interests, we hold that as a matter of law and public policy, where duplicate petitions have been filed, tax escalation clauses are insufficient to give commercial tenants standing to sue the Tax Commission.

Petitioner urges the court to accept the definition of an aggrieved party as one "whose pecuniary interests are or may be adversely affected by an illegal assessment", and to regard the escalation payments as sufficient to give the party standing under this definition, without further considering the nature of the injury.

We respond to this suggestion by pointing to pertinent statutes which provide that "any person claiming to be aggrieved by any assessment of real property upon any assessment roll may commence a proceeding (RPTL § 704, subd. 1; City Administrative Code § 166-1.0) (Emphasis supplied)".

The parameters of the term "aggrieved" are as elusive as they are ill-defined; nonetheless, it is clear that in order to be a "person aggrieved", one's pecuniary interests must be, or have the potential to be, adversely affected by an assessment (Matter of Farash v. Jacobs, 120 Misc.2d 284, 466 N.Y.S.2d 186; Matter of Mack v. Assessor of Ramapo, 72 A.D.2d 604, 421 N.Y.S.2d 109; People ex rel. Bingham Operating Co. v. Byrds, 265 App.Div. 562, 40 N.Y.S.2d 33; Matter of Ames Department Stores v. Assessor of Concord, 102 A.D.2d 9, 476 N.Y.S.2d 222). These cases do not modify or contradict the long standing rule that the injury sustained must be the direct result of the assessment and not remote and consequential (Matter of Walter, 75 N.Y. 354, 357; Matter of Suburbia Federal Savings and Loan Assoc., 76 A.D.2d 841, 428 N.Y.S.2d 323; Board of Education v. Parsons, 61 Misc.2d 838, 306 N.Y.S.2d 833). In Farash, supra, the petitioners were owners of non-residential properties which had been reassessed or newly assessed. There, the court found that a reduction in assessments on neighboring property directly affected petitioners' property by increasing his tax burden. In both Matter of Nat. Mack, supra, and Bingham Operation Corp., supra, present owners were allowed to obtain relief pursuant to proceedings commenced by previous owners for they were actually paying the tax. And in Ames, supra, petitioner was a net lessee who was obligated under the lease to pay his pro-rata share of the taxes and who was assigned the right to contest tax assessments in his own name. Thus, despite the liberal language of these cases, the requirement that the party be directly injured by the tax assessment remains a condition for standing.

A commercial tenant has standing to sue if he is directly obligated or legally liable under a contract to pay the real estate taxes on the property (McLean's Dept. Stores, Inc. v. Commission of Assessment of Binghamton, 2 A.D.2d 98, 153 N.Y.S.2d 342; New York Yankees, Inc. v. Tax Commission of New York, 74 Misc.2d 752, 345 N.Y.S.2d 858), or if the owner's right to challenge the assessment has been assigned to him (Matter of Ames, 102 A.D.2d at 10, 476 N.Y.S.2d 222; Matter of 44 East 23rd Street Associates v. F.W. Woolworth Co., New York County Clerk's Index No. 1669 4/84, Sup.Ct., N.Y. Co.). In order for the tenant to be considered a party aggrieved and to have standing for review, these obligations, liabilities, and assignments must be clearly expressed in the lease agreement between the owner and the tenant. No such expression appears in the lease presently before the court.

Petitioner bases his claim for standing upon a tax escalation clause found in the lease. A tax escalation clause, however, does not directly obligate or make a tenant legally liable to pay the real...