New York Law Review

Tag: Leasehold

  • Newport Associates, Inc. v. Solow, 30 N.Y.2d 263 (1972): Air Rights and Zoning Lot Definitions in Leasehold Agreements

    Newport Associates, Inc. v. Solow, 30 N.Y.2d 263 (1972)

    A long-term lease, absent specific restrictions, allows a lessee to utilize the air rights associated with the leased property under zoning regulations, even if the lease does not explicitly grant those rights, and the lessor loses the ability to independently transfer those rights.

    Summary

    Newport Associates (lessor) sued Sheldon Solow (lessee) to prevent him from using the unused air rights above Newport’s property (which Solow leased) for the construction of a building on Solow’s adjacent property. Solow’s lease was long-term. The New York Court of Appeals held that Solow, as a long-term lessee, could utilize the air rights associated with the leased property because the lease lacked any provision restricting his right to do so under the zoning resolution. The court reasoned that under the zoning resolution, Solow was effectively the owner of a single “zoning lot,” encompassing both his fee simple property and the leasehold, and could therefore utilize the floor area ratio associated with that combined lot. The court emphasized that the lease did not reserve air rights to the lessor.

    Facts

    1. Newport Associates owned property at 4 West 58th Street in New York City.
    2. Sheldon Solow leased the property from Newport under a long-term lease expiring in 2052.
    3. Solow owned adjacent parcels at 10-40 West 58th Street and 9-25 West 57th Street.
    4. Solow began constructing a 45-story office building on his property, utilizing the unused floor area ratio (air rights) from the leased property, per a building permit.
    5. The lease between Newport and Solow contained a clause allowing alterations to the existing building with some restrictions, but was silent about air rights.

    Procedural History

    1. Newport sued Solow to determine a claim to real property, arguing the lease didn’t convey air rights and Solow’s construction diminished the value of its reversionary interest.
    2. The trial court granted summary judgment for Solow, holding he was authorized to use the unused floor area ratio.
    3. The Appellate Division reversed, granting summary judgment to Newport, finding Solow’s construction was an elimination of a valuable property right.
    4. The New York Court of Appeals reversed the Appellate Division and reinstated the trial court’s judgment.

    Issue(s)

    1. Whether a long-term lease, absent explicit restrictions, allows the lessee to utilize the unused air rights associated with the leased property for construction on adjacent property owned by the lessee.

    Holding

    1. Yes, because under the applicable zoning resolution, the lessee was effectively the owner of a single zoning lot, and the lease contained no provision precluding the lessee’s exercise of rights under the zoning resolution.

    Court’s Reasoning

    1. The court focused on the New York City Zoning Resolution’s definition of a “zoning lot,” which could include multiple contiguous lots under single ownership, including long-term leases (at least 50 years with a renewal option to total at least 75 years).
    2. Because Solow’s lease met the definition of ownership under the Zoning Resolution, and his properties were contiguous, he was entitled to treat them as a single zoning lot for floor area ratio calculations.
    3. The lease did not contain any provision that precluded Solow’s use of the air rights in question.
    4. The court rejected Newport’s argument that it lost the right to sell its air rights to owners on the other side of the leased property, stating that, given Solow’s ownership and the Zoning Resolution, Newport possessed no such right of sale.
    5. The court emphasized that whatever rights Newport may have had were lost as a result of the zoning ordinance itself, not any violation of the lease by Solow.
    6. Judge Breitel’s concurrence highlighted that Newport lost a valuable asset but failed to reserve air development rights in the lease, a step lessors of long-term leaseholds may want to take.
    7. The court states, “[W]hatever rights that plaintiff may otherwise have had were not lost by any act of the defendant, but rather as a result of the operation of the ordinance. Since defendant did not violate any of the provisions of the lease, plaintiff is not entitled to relief.”

  • Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77 (1970): Measure of Damages for Partial Eviction

    Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77 (1970)

    In a partial actual eviction, the measure of damages is the difference between the actual rental value of the premises and the rent reserved under the lease, and the award should be reduced to its present value.

    Summary

    Barash, a commercial tenant, sued Pennsylvania Terminal after being forcibly evicted from a portion of its leased premises to accommodate elevator construction for a new tenant. The lower courts awarded treble damages based on the difference between the market rental value and the rent paid under the lease. The New York Court of Appeals reversed, holding that the correct measure of damages for a partial actual eviction is the difference between the market rental value and the rent reserved in the lease, discounted to its present value. Additionally, the court clarified the calculation of lost profits and distinguished between a “nominal” award in the legal sense versus a conservative estimate of damages.

    Facts

    Barash leased the entire eighth floor of a building for commercial art and subleasing purposes under a 10-year lease with escalating rent. Pennsylvania Terminal, the lessor, forcibly ejected Barash from 269 square feet of valuable office space to construct elevators for a new tenant leasing floors below. Barash paid $1.90 per square foot under the lease but the space had an actual value of $5 per square foot.

    Procedural History

    Barash sued Pennsylvania Terminal for forcible ejectment, seeking treble damages. The trial court awarded treble damages, calculating the loss based on the difference between the market rental value ($5/sq ft) and the lease rate ($1.90/sq ft). The Appellate Division modified the judgment by eliminating legal expenses but otherwise affirmed. Pennsylvania Terminal appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the proper measure of damages for a partial actual eviction is the difference between the market rental value and the rent reserved under the lease, and whether that award should be reduced to its present value.
    2. Whether the award for lost profits was speculative and conjectural.
    3. Whether the trial court’s designation of a $1,000 award as “nominal” was an error.

    Holding

    1. Yes, because the measure of damages is the difference between the actual rental value and the agreed-upon but unpaid rent, and the award should be reduced to its present value to avoid overcompensating the plaintiff.
    2. No, because there was sufficient evidence to support the award for lost profits based on the loss of the employee’s contribution to the company’s income.
    3. No, because the court used the term “nominal” to indicate a conservative estimate of damages, not in its strict legal sense.

    Court’s Reasoning

    The court held that the correct measure of damages for partial eviction is the difference between the market rental value of the space and the rent reserved under the lease. It cited numerous cases, including Peerless Candy Co. v. Halbreich, to support this rule. The court noted that the award should be reduced to its present value, stating, “We think that due regard for an award which neither overcompensates the plaintiff nor unduly penalizes the defendants warrants reduction of the award to its present value.”

    The court rejected the argument that the lost profit award was speculative, finding sufficient evidence to support the award based on the lost employee’s contribution. Citing Wakeman v. Wheeler & Wilson Mfg. Co., the court stated, “When it is certain that damages have been caused by a breach of contract, and the only uncertainty is as to their amount, there can rarely be good reason for refusing, on account of such uncertainty, any damages whatever for the breach.”

    Regarding the $1,000 “nominal” award, the court clarified that the term was used to indicate a conservative estimate of damages, not a nominal award in the strict legal sense (e.g., 6 cents or $1). The court agreed with the Appellate Division that there was sufficient evidence to predicate a finding of loss of profits in the sum of $1,000.

    The court emphasized the importance of correctly calculating damages to avoid unjust enrichment or undue penalty, specifying that “the rent which the tenant would have been liable to pay if he had enjoyed the possession is to be deducted from the value of the use and occupation during the period of the withholding of the possession.”

  • Ampco Printing-Adv. Corp. v. City of New York, 14 N.Y.2d 16 (1964): Upholding Commercial Rent Tax Against Constitutional Challenges

    Ampco Printing-Adv. Corp. v. City of New York, 14 N.Y.2d 16 (1964)

    A commercial rent tax imposed on tenants is constitutional and not an unconstitutional tax on real estate, ad valorem tax on intangible property, or a violation of due process or equal protection.

    Summary

    This case addresses the constitutionality of New York City’s Commercial Rent or Occupancy Tax Law, which taxes tenants based on their rent. Plaintiffs, including businesses and a property owner, challenged the law, arguing it violated the New York State Constitution and the U.S. Constitution. The New York Court of Appeals upheld the tax, finding it was not a tax on real estate, nor an ad valorem tax on intangible personal property, and that it did not violate due process or equal protection. The court emphasized the tax was on the tenant’s use of property for commercial purposes, a valid exercise of the state’s taxing power.

    Facts

    The City of New York enacted Local Law No. 38 imposing a tax on persons occupying premises for commercial activities, measured by rent paid. Ampco Printing and other plaintiffs, including a parking business and a real property owner, challenged the law as unconstitutional. They argued it was essentially a real estate tax exceeding constitutional limits, an improper tax on intangible property, and discriminatory.

    Procedural History

    Plaintiffs filed actions seeking a declaratory judgment that the enabling act and local law were unconstitutional. The City of New York and the Attorney General intervened as defendants. All parties moved for summary judgment. Special Term rejected the plaintiffs’ contentions and upheld the law. The plaintiffs appealed directly to the New York Court of Appeals on constitutional grounds.

    Issue(s)

    1. Whether the commercial rent or occupancy tax is a tax on real estate in violation of Article VIII, Section 10 of the New York State Constitution?

    2. Whether the tax constitutes an ad valorem tax on intangible personal property in violation of Article XVI, Section 3 of the New York State Constitution?

    3. Whether the tax violates the due process or equal protection clauses of the State or Federal Constitution?

    Holding

    1. No, because the tax is imposed on tenants, not on real estate or owners of real estate; leaseholds are considered personal property.

    2. No, because the tax is not an ad valorem tax and even if it were, it would be on a leasehold, which is not intangible personal property.

    3. No, because the tax is a valid exercise of the taxing power and the classification between tenant occupants and owner occupants is not arbitrary.

    Court’s Reasoning

    The court reasoned that the tax was imposed on tenants based on their rent for using premises for commercial purposes, not directly on the real estate itself. The court cited precedent establishing that a leasehold is considered personal property (a “chattel real”), not real property. The court rejected the argument that the tax’s economic impact made it equivalent to a real estate tax, citing Bromley v. McCaughn, stating that “a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise.”

    Regarding the ad valorem argument, the court noted that the tax was not based on the value of the property but on the rent paid. Moreover, even if it were an ad valorem tax, it would be on a tangible leasehold, not an intangible asset. The court further explained that the intent of Article XVI, Section 3 was to protect nonresidents from taxes on money and securities held in New York, not to exempt leaseholds.

    Finally, the court held that the tax did not violate due process, as it was a valid exercise of the taxing power, or equal protection. The court emphasized the broad power of classification in taxation and found the distinction between tenants and owners, or between tenants paying different rent amounts, was not arbitrary. The court reasoned that a “state of facts reasonably can be conceived that would sustain it.” The court noted that the tax was imposed solely to raise revenue and was not motivated by any other purpose.