Peach Parking Corp. v. 346 W. 40TH St., LLC

• Decision Date: 03 May 2007
• Docket Number: 9926N.
• Citation: 2007 NY Slip Op 03859,42 A.D.3d 82,835 N.Y.S.2d 172
• Parties: PEACH PARKING CORP., Plaintiff, v. 346 WEST 40TH STREET, LLC, Defendant, HERTZ CORPORATION, Respondent, and KINNEY SYSTEM, INC., Appellant.
• Court: New York Supreme Court — Appellate Division

42 A.D.3d 82

835 N.Y.S.2d 172

2007 NY Slip Op 03859

PEACH PARKING CORP., Plaintiff, v. 346 WEST 40TH STREET, LLC, Defendant, HERTZ CORPORATION, Respondent, and KINNEY SYSTEM, INC., Appellant.

9926N.

Appellate Division of the Supreme Court of the State of New York, First Department.

May 3, 2007.

Meier Franzino & Scher, LLP, New York City (Steven K. Meier and Davida S. Scher of counsel), for appellant.

Proskauer Rose LLP, New York City (Stacy L. Ceslowitz, Margaret A. Dale and Jason M. Husgen of counsel), for respondent.

OPINION OF THE COURT

MAZZARELLI, J.P.

This case arises out of Hertz Corporation's sublease of a garage building located at 346 West 40th Street. Defendant 346 West 40th Street (the Owner) owns the property and the building. Under a February 2, 1978 lease (the Prime Lease), the Owner's predecessor-in-interest leased the property to defendant Kinney System, Inc. (Kinney). The Prime Lease required Kinney to make all structural and nonstructural repairs to the garage. However, an addendum to the Prime Lease limited Kinney's liability for structural repairs to $50,000, absent its gross negligence.

On March 24, 1978, Kinney subleased the property to plaintiff Peach Parking Corp. (Peach). Like the Prime Lease, this sublease contained a provision stating that Peach would "look solely to the [Owner] for the ... making of repairs, alterations or improvements" in excess of $50,000. Thus, similar to the situation with Kinney, Peach's obligations with regard to structural repairs were limited to $50,000.

By an agreement dated November 26, 2001, Peach sub-subleased the garage to defendant Hertz Corporation (Hertz). Like the prior leases, the sublease between Peach and Hertz contained a $50,000 limitation for structural repairs. It provided that "[Hertz] shall have no obligation or liability for any structural repairs to the Premises, except to the extent such structural repairs are necessitated by the grossly negligent or willful acts of [Hertz]."

The Hertz sublease contained an "as is" clause, which stated:

"[Hertz] agrees that it enters into this Sublease Agreement without any representations or warranties by [Peach] ... as to the present or future condition of the Premises or the appurtenances thereof or any improvements therein or thereon. [Hertz] agrees further to accept the Premises `as is' in their condition at the time possession is given to [Hertz] without requiring any alterations, improvements, repairs or decorations to be made by [Peach], or at [Peach]'s expense, either at the time possession is given to [Hertz] or during the entire term of this Sublease Agreement."

It also provided:

"This Sublease Agreement shall not be effective until Kinney and the [Owner] (i) have given their written consent to the terms and conditions of this Sublease Agreement and (ii) have agreed that so long as [Hertz] shall not be in default under the terms of this Sublease Agreement, in spite of any default of [Peach] or Kinney under the First Sublease or the Prime Lease, this Sublease Agreement shall remain in full force and effect and the possession of the Premises by [Hertz] shall not be disturbed."

The Hertz sublease also contained an integration clause. That clause stated: "[a]ny prior understanding or representation of any kind preceding the date of this Sublease Agreement shall not be binding on either party except to the extent incorporated in this Sublease Agreement."

Prior to entering into the sublease, Thomas Scelba, Hertz's Director of Development, realized the property had problems. He exchanged e-mails with Tom Sabella, Hertz's Staff Vice-President of Real Estate, between July 12 and July 19 regarding both (1) Hertz's responsibilities under the proposed sublease, and (2) the degree of independent investigation of structural integrity of the property to be conducted by Hertz. Notably, in one of these e-mails Scelba stated:

"I reviewed the photos [of the property] and see structural, water intrusion and maintenance issues I could investigate. If there is no chance of adjusting our cost on this deal, or if it is in such high demand that we will take it `as-is,' I wouldn't waste the money for detailed reviews" (emphasis supplied).

Despite its knowledge of potential problems, Hertz did not undertake a detailed study of the structural conditions at the garage. Rather, Hertz retained an architectural firm to perform only a "cursory observation of the structural elements" of the property.

Hertz was concerned that the over-landlords would not accept responsibility for structural repairs, especially because Peach would not allow Hertz to communicate with the Owner or Kinney during the leasing negotiations. As a result, in January 2002, Hertz requested that all the parties to all the leases governing the property (the Owner, Kinney, Peach, and Hertz) enter into a "Consent Agreement." In this agreement, all parties affirmed that there were no defaults under any of the existing leases. In March 2002, after each had signed the Consent Agreement, Hertz took possession of the property. In 2004, the Owner served a default notice, stating that Kinney, Peach, and Hertz must correct structural problems at the garage.

Peach commenced this declaratory judgment action against the Owner, Kinney, and Hertz. Peach sought a declaration that it was not obliged to make any repairs, and that it was entitled to reimbursement from the defendants for any repairs that it made. In its answer, Hertz interposed counterclaims against Peach for abatement of rent and constructive eviction. Hertz then moved for leave to amend its answer to interpose various additional claims, including a counterclaim and cross claims for fraud. In the portion of the order appealed, the IAS court granted Hertz leave to assert the fraud claims. Kinney appeals.

It is Kinney's contention that Hertz had all of the relevant evidence available to it, and...