New York Overnight Partners, L.P. v. Gordon

• Citation: 217 A.D.2d 20,633 N.Y.S.2d 288
• Parties: NEW YORK OVERNIGHT PARTNERS, L.P., Plaintiff and Counterclaim-Defendant-Appellant, v. Joan GORDON, Alice S. Kandell and Donald Trump, Defendants and Counterclaimants-Respondents.
• Decision Date: 09 November 1995
• Court: New York Supreme Court Appellate Division

Page 288

633 N.Y.S.2d 288

217 A.D.2d 20

NEW YORK OVERNIGHT PARTNERS, L.P., Plaintiff and Counterclaim-Defendant-Appellant, v. Joan GORDON, Alice S. Kandell and Donald Trump, Defendants and Counterclaimants-Respondents.

Supreme Court, Appellate Division First Department.

Nov. 9, 1995.

John G. Hutchinson, of counsel (Sidley & Austin, attorneys), for plaintiff and counterclaim-defendant-appellant.

John A. Kornfeld, of counsel (Jay Goldberg, P.C., attorneys), for defendants and counterclaimants-respondents.

Before KUPFERMAN, J.P., and ASCH, WILLIAMS and TOM, JJ.

TOM, Justice.

The issue raised in this appeal is whether the term "land", as utilized in a certain Ground Lease Agreement, includes the Hotel and improvements situated on the site, for the purpose of setting rent for the renewal lease terms.

The Ground Lease Agreement in question (the Lease) was executed on or about December 30, 1963 between Massachusetts Mutual Life Insurance Company, as lessor, and Louis Berry and F.B.M. Manufacturing Company, as lessees, and concerned the premises designated as 112 Central Park South, New York, New York. The building located on the site was known at that time as the Navarro Hotel and is currently known as the Ritz-Carlton Hotel. Plaintiff and counterclaim defendant-appellant New York Overnight Partners, L.P. is the successor-in-interest to the original lessee and defendants and counterclaimants-respondents Joan Gordon, Alice S. Kandell and Donald Trump are the successors-in-interest to the original lessor.

The lease provides for an initial term of thirty-years with an annual rental rate of $78,000. Article VI of the Lease further provides that the lessee shall have the right to extend the Lease term for four successive fifteen-year periods at a rental based upon "the appraised value of the land [at the time of each renewal] but to be not less than Seventy Eight Thousand ($78,000) Dollars annually".

Plaintiff asserts in its complaint that in October 1993, or three months prior to the expiration of the Lease, representatives of the parties to the Agreement commenced negotiations in an attempt to agree on the "appraised value" of the land and to set an appropriate rental amount for the first renewal term. It was, and is, plaintiff's position that the term "land" as used in the Lease refers to the vacant parcel of land, exclusive of the hotel and all other improvements, and subject to current governmental restrictions, including zoning regulations, as well as restrictions set forth in the Lease. Defendants, on the other hand, maintain that the land should be appraised free and clear of all encumbrances and restrictions contained in the Lease and free and clear of all governmental ordinances and zoning restrictions, but with the benefit of the fully constructed hotel and all other improvements on the site.

On or about July 27, 1994, plaintiff Overnight Partners commenced the underlying declaratory judgment action seeking, inter alia, a legal construction of the term "the appraised value of the land" as it is used in Section 6.01(b) and throughout the Lease for the purpose of fixing rent for the renewal terms. On or about September 23, 1994, defendants answered the amended complaint and interposed a counterclaim which seeks a declaratory judgment interpreting the phrase "the appraised value of the land".

The parties, who wished "to expedite the resolution of this dispute", entered into a Stipulation dated September 21, 1994 (the Stipulation) ¹ pursuant to which plaintiff agreed to withdraw, without prejudice, its first, second, fourth and fifth causes of action, leaving the third cause of action, which sought declaratory relief with respect to the proper legal construction of the terms of the Lease. The parties further agreed that plaintiff would move, and defendants would cross-move, for summary judgment within a scheduled time-frame and would refrain from instituting any appraisal or arbitration proceeding regarding the construction of the language of the Lease "pending the entry of a final judgment from which all rights of appeal, including an appeal to the Court of Appeals, have been exhausted or waived".

Consistent with the terms of the Stipulation, the summary judgment motions were filed, with plaintiff relying exclusively on the language of the Lease and defendants also relying on other documentation, including an agreement entitled "Landlord Consent" prepared by plaintiff's counsel and executed by the parties on September 17, 1992.

The IAS court, in a handwritten, one-page decision entered March 21, 1995, denied plaintiff's motion, granted defendants' cross-motion, and dismissed the complaint. The court, relying exclusively on a proposition set forth in a pre-Civil War Court of Appeals case decided in 1848, and failing to make any reference to the language of the Lease, wrote:

The plaintiff lessee contends that the word "land" should be construed to mean only the raw or naked ground, and not to include the building constructed on that land, or any other improvements. The contrary has long been established. In 1848, in the first volume of official reports by the highest court of this state, it was held that unless defined to the contrary, "land" includes not only the soil but everything attached by nature or man, including the trees and buildings. Mott v. Palmer, 1 N.Y. 564, 572-3. That principle has constantly been restated. Eg., City of New York v. Mississippi Holding, Ltd., 126 Misc.2d 865, 866, 483 N.Y.S.2d 956. Further, it is ridiculous to hold that the original lessor would have entered into the case upon the construction urged by the present plaintiff. Rather, the land should be appraised in view of the highest and best and most advantageous use to which it can be put.

The primary issue before us concerns the use of the word "land" as employed in Section 6.01(b) of the Lease. Section 6.01(b) provides in pertinent part:

That each extended term shall be upon the same terms, covenants and conditions as in this lease provided, except that the net annual basic rental for each fifteen (15) year extended term shall be at the rate of six and one-half (6 1/2) per cent of the appraised value of the land but to be not less than Seventy Eight Thousand ($78,000) Dollars annually, payable in the manner and in accordance with the provisions of Section 3.01 of Article III hereof. Such appraised value is to be determined as of the date any such extended period commences. (emphasis added).

Plaintiff avers that the word "land" is unambiguously defined within the four corners of the Lease and, therefore, the IAS court erred when it relied on a common-law definition of the word "land" which is directly at odds with the meaning of the word as employed in the Lease.

It is clear that lease interpretation is subject to the same rules of construction which are applicable to other agreements (Backer Mgt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 217, 413 N.Y.S.2d 135, 385 N.E.2d 1062; Matter of Wallace v. 600 Partners Co., 205 A.D.2d 202, 205, 618 N.Y.S.2d 298; Matter of Cale Dev. Co., Inc. v. Conciliation and Appeals Bd., 94 A.D.2d 229, 234, 463 N.Y.S.2d 814, aff'd 61 N.Y.2d 976, 475 N.Y.S.2d 278, 463 N.E.2d 619). As such, the parties' intention is to be ascertained from the language employed and, absent ambiguity, interpretation is a matter of law to be determined solely by the court (W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162-163, 565 N.Y.S.2d 440, 566 N.E.2d 639; Chimart Assocs. v. Paul, 66 N.Y.2d 570, 572, 498 N.Y.S.2d 344, 489 N.E.2d 231; Hartford Acc. & Ind. Co. v. Wesolowski, 33 N.Y.2d 169, 171-172, 350 N.Y.S.2d 895, 305 N.E.2d 907; Louis R. Morandi, P.C. v. Charter Mgmt. Co., 159 A.D.2d 422, 423, 166 A.D.2d 286, 553 N.Y.S.2d 663).

In Mott v. Palmer, supra, the case upon which the IAS court relied, the court did not hold differently as it recognized that its definition of "land" would not be applicable had the parties to the deed agreed, in writing, that improvements would be excluded from the "land" in issue (id., at 572-573, see also, Kinkead v. United States, 150 U.S. 483, 491, 14 S.Ct. 172, 37 L.Ed. 1152).

A review of the various provisions of the Lease supports plaintiff's position. Initially, it must be noted that the word "land" is not specifically defined in the "Definitions" section of the Lease. Section 1.04 of the Lease defines "Improvements" as:

Any and all buildings being premises known and described as 112 Central Park South, sometimes also known as Navarro Hotel, New York, and the structures and improvements now or at any time hereafter erected, constructed or situated upon said premises or any part thereof. The Improvements shall include such buildings, structures and improvements ... that is to say, including all but the land. The above described structures and equipment are herein called "Improvements".

EXCEPTING the land and Demised Premises hereinafter described in Article II, Section 2.01. (emphasis added).

Section 2.03 of the Lease makes it clear that the plaintiff lessee owns title to the Improvements and provides, in pertinent part:

The parties acknowledge that Lessee holds title to the Improvements and has the right to maintain the Improvements on the Demised Premises subject to the terms of this lease. (Emphasis added.)

Thus, by its own terms, the Lease distinguishes the "Improvements", owned by the plaintiff, and the "Demised Premises" or "land", owned by the defendants. The Lease also provides a mechanism by which the ownership of the "Improvements" will be transferred to the defendants upon the termination of the Lease. Section 6A.01(c) of the Lease states, in relevant part The Lessee covenants and agrees not to execute and deliver or release any new sublease to a sub-tenant which would extend beyond the terms of this lease, it being the intention of the parties that the Lessor at the termination of this lease shall be the sole owner of the...