Plaza Hotel Associates v. Wellington Associates, Inc.

• Decision Date: 23 January 1973
• Citation: 73 Misc.2d 6,340 N.Y.S.2d 796
• Parties: PLAZA HOTEL ASSOCIATES and Hotel Corporation of America, Plaintiffs, v. WELLINGTON ASSOCIATES, INC., Defendant.
• Court: New York Supreme Court

Page 796

340 N.Y.S.2d 796

73 Misc.2d 6

PLAZA HOTEL ASSOCIATES and Hotel Corporation of America, Plaintiffs, v. WELLINGTON ASSOCIATES, INC., Defendant.

Supreme Court, Special Term, New York County, Part I.

Jan. 23, 1973.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Simon H. Rifkind and Arthur Liman, New York City, of counsel), for plaintiffs.

McLaughlin & Stern, Ballen & Miller, New York City (Leo Brady, New York City, of counsel), and Kirschenbaum & Shapiro, New York City, for defendant.

ABRAHAM J. GELLINOFF, Justice:

As the result of various conveyances, leases, subleases and assignments, plaintiff Plaza Hotel Associates and defendant Wellington Associates, Inc. each own an undivided half interest in the land on which the Hotel Plaza, in New York City, is situated. In addition, Plaza is the lessee of defendant's half interest in the land, and also owns the buildings and structures on the entire land. Plaintiff Hotel Corporation of America is a sublessee of the half interest in the land owned by defendant, as well as the lessee of the half interest owned by Plaza; and it is also the operator of the hotel.

The controversy before the court pertains to the lease by defendant to plaintiff Plaza of defendant's half interest in the land. Under Article Two of that lease, Plaza is obligated to pay defendant an annual ground rental equal to 3% Of the 'value' on October 1, 1965, of 'all of the land,' exclusive of the buildings and improvements thereon. Under Article Three defendant is required to contribute a portion of all real estate taxes on the entire land, buildings and improvements--pursuant to a formula which takes into account the value of all the land and the value of the land, buildings and improvements as a whole. The lease provides that if the parties are unable to agree on the value of the land, and the value of the land, buildings and improvements as a whole, such values shall be dtermined by appraisers.

The parties were unable to agree on the values, and therefore conducted an appraisal, resulting in a valuation of $28,000,000 for the land only. The appraisers made no valuation at all for the land, buildings and improvements as a whole. Thereafter, on motion by plaintiffs, this court set aside the appraisers' valuation because the appraisers erroneously valued the land as vacant and available for its highest and best use, and not as already encumbered by the long term lease which restricts the use of the land to hotel purposes only (55 Misc.2d 483, 285 N.Y.S.2d 941 (Sup.Ct.N.Y.Co., 1967)).

After the Appellate Division and the Court of Appeals affirmed this court's judgment directing a new appraisal (28 A.D.2d 1209, 285 N.Y.S.2d 267 (1st Dept. 1967), aff'd on opinion at Special Term, 22 N.Y.2d 846, 293 N.Y.S.2d 108, 239 N.E.2d 736 (1968)), the parties, unable to agree on new appraisers, stipulated that this court, sitting without a jury, pursuant to CPLR Article 42, make a finding of the value of the land, and a separate finding of the value of the land, buildings and improvements as a whole, and thereby determine the rent payable by Plaza to defendant, and the proportion of real estate taxes to be contributed by defendant. The parties also consented to the appointment of a referee to hear and report. The referee's report is now before the court, together with motions by plaintiffs to reject, and by defendant to modify, the report (motions number 97 and 196 of September 6, 1972). The court hereby makes the necessary findings pursuant to the stipulation, and the order entered thereon.

The Plaza Hotel is, as the parties agree, a unique piece of property. It fronts on Grand Army Plaza, a public park, on the west side of Fifth Avenue, and occupies the entire block front between 58th Street and 59th Street (Central Park South), with a total plot area of 56,234 square feet. The hotel's formal address is 768 Fifth Avenue. The main building situated at the corner of Grand Army Plaza and Central Park South, a 19-story and penthouse steel and stone fireproof structure, with basement and sub-basement, was built in 1906--1907, on a plot of 37,645 square feet. An addition, fronting on West 58th Street, was built in 1921, on a plot of 16,079 square feet. The seven story annex at 22 Central Park South, was built in 1921--1922 on a plot of approximately 2500 square feet. The buildings have an aggregate content of 12,969,483 cubic feet.

On October 1, 1965--the date as of which the property is to be valued--the hotel had approximately 990 rooms, about 946 of which were available for guest occupancy. A typical floor contained 67 guest rooms and 45 bedrooms. In the hotel buildings, there were also restaurants, dining rooms, social function rooms, stores, offices and showcase and concession space.

Defendant, through an affiliate, acquired its undivided half interest in the land as of October 1, 1965, by buying, and simultaneously exercising an option to purchase. This option entitled the holder to purchase an undivided half interest in the land by paying $400,000, and assuming one-half of the unpaid mortgage indebtedness on the entire land. The option agreement also provided that when it was exercised, the optionee was required to execute and deliver the above-described lease of the half interest in the land to the then owner of the remaining half interest in the land, upon its request. This was done; Plaza, which already owned the remaining half interest in the land, thus also became lessee of defendant's half interest in the land.

Defendant bought the option from Hilton Hotels Corporation for $3,600,000. The total price paid for acquiring the undivided half interest in the land, therefore, was roughly $5,000,000.--$3,600,000. paid for the option; $400,000. paid to the grantor, as provided in the option agreement; and $910,410.50, one-half the then existing mortgage indebtedness, by assuming payment thereof.

In order to find the value of the land, and the value of the land, buildings and improvements as a whole, the court must first determine what the contracting parties meant by 'value'. The lease itself does not define what the parties intended the term to mean, nor does it prescribe the factors to be considered. Under the circumstances, however, including the provision for an appraisal, it must be presumed that the parties intended 'value' to mean its fair value, sometimes referred to as 'market value'. (Cf. People ex rel. Parklin Operating Corp. v. Miller, 287 N.Y. 126, 38 N.E.2d 465 (1941); People ex rel. Gale v. Tax Commission, 17 A.D.2d 225, 233 N.Y.S.2d 501 (1st Dept. 1962); Matter of Kittelberger, 4 A.D.2d 218, 163 N.Y.S.2d 856 (4th Dept. 1957).)

As the Appellate Division for the Fourth Department stated in Matter of Kittelberger, (4 A.D.2d 218, 222, 163 N.Y.S.2d 856, 859 (4th Dept. 1957)): 'The phrase 'market value' in its legal sense has two meanings.' The first meaning is 'the price established by public sales or sales in the way of ordinary business.' The term is also 'frequently used in a secondary or figurative sense, meaning actual value, the fair or reasonable value'; or, as the Court of Appeals has phrased it, 'An estimate and a determination of what is the fair, economic, just and equitable value under normal conditions' (In re Board of Water Supply of City of New York, 277 N.Y. 452, 459, 14 N.E.2d 789, 792 (1938).

Plaintiffs contend that since there was a sale of an undivided half interest in the land as of October 1, 1965, the very date as of which the valuation is required to be made, 'value', at least as to the land alone, is precisely twice the sale price of the undividued half interest. Alternatively, they argue, such sale price is entitled to 'overwhelming weight' in determining the actual value of all the land. Defendant, however, contends that under the circumstances of the creation of the option and the purchase of the half interest, the purchase price therefor is not indicative of the true 'value' of all the land. Obviously the parties did not intend that the 'value' of the land for the purpose of determining the rent and tax contribution, should be arrived at by doubling the price paid for the undivided half interest, or the lease would have so provided; it would not have mandated that such 'value' be determined by appraisers. In finding the value of all the land the court must take into consideration the price paid by defendant for its half interest, but should do so only to the extent warranted by all other factors involved.

Price and value are not synonymous. 'Price is determined by short term factors and by the caprices of the market. Value on the other hand is dependent upon long term factors and is directly related to the intrinsic worth of the property that resists the impact of temorary and abnormal conditions. Neither price nor value can be determined by mathematical calculations, and value, even more than price, is a matter of judgment reached after a full consideration of all the relevant elements that may conceivably affect it' (People ex rel. Buck v. Rapp, et al., 36 N.Y.S.2d 790, 796 (Sup.Ct. Monroe Co. 1942) aff'd 266 App.Div. 709, 41 N.Y.S.2d 185 (3rd Dept. 1943)). 'The concept of a fluid market such as that existing in regard to corporate securities, where one sale can indicate the value at the time, is just not true with respect to real estate' (Matter of City of New York (Maxwell), 15 A.D.2d 153, 162, 222 N.Y.S.2d 786, 794 (1st Dept. 1961), aff'd 12 N.Y.2d 1086, 240 N.Y.S.2d 30, 190 N.E.2d 423 (1963)).

Sometimes a selling price may be the best determinant of market value and be entitled to great or overwhelming weight. But, before relying on the selling price, the court must examine the circumstances of the sale--whether the transaction was conducted at arm's length, and whether the sale was an ordinary one and thus reflective of true value, or abnormal and unusual, and not reflective of actual value (see, In re Board of Water Supply...