819 REALTY GROUP LLC, Petitioner-Landlord, v. BEAST FITNESS EVOLVED LLC, Respondent-Tenant, 'XYZ Corp”, Respondent-Undertenant.
Petitioner moves This Honorable Court by Notice of Motion, Opposed, pursuant to CPLR 3212(a) for an Order granting Summary Judgment in favor of Petitioner and against Respondents for the relief sought in the Petition, Judgment of Possession of leasehold together with such other and further relief deemed just and proper. For the reasons set forth below, Petitioner's motion is DENIED.
PROCEDURAL AND FACTUAL HISTORY
Petitioner and Respondent entered into a lease agreement, dated September 28, 2016, for leasehold under construction without certificate of occupancy. Petitioner drafted lease and included within an insurance clause, contained in paragraph 46(a), rent insurance 1 for base rent and additional rents for a period of 12 months. Petitioner alleges Respondent, a fitness club, has caused an insurance default under the lease by failing to obtain and continuously maintain the alleged rent insurance throughout the term of the lease. On May 31, 2018, Petitioner served Respondent with a Fifteen Day Notice of Default and Opportunity to Cure, demanding Respondent to cure on or before June 20, 2018, and in part alleging the following:
“You have failed to provide proof as required by paragraph 46(a) that ‘Tenant shall also maintain rent insurance (for Base Rent and additional rents) for a period of twelve months’.”
Due to Respondent's alleged failure to cure breaches stated in the Fifteen Day Notice of Default, Petitioner then served a Five Day Notice of Termination on June 21, 2018, notifying Respondent that tenancy was canceled and terminated as of July 3, 2018. On July 30, 2018, Petitioner commenced the instant holdover proceeding by the service and filing of a Notice of Petition and Petition on the basis that Respondent continued possession of the premises after the July 3, 2018 expiration date of the Five Day Notice of Termination. Issue joined upon Respondent's Verified Answer served on September 7, 2018 and filed with the Court on September 12, 2018. On October 1, 2018, Respondent served and filed a Motion for Discovery and a Protective Order against Petitioner's subpoena for records pertaining to alleged cure of other non-related alleged breaches, which was denied without prejudice by the court on October 3, 2018. Respondent then served and filed a Motion to Dismiss for failure to state a cause of action on November 5, 2018, which was denied by the court in a decision dated November 16, 2018.
Both parties appeared and matters adjourned on January 15, 16, 24 of 2019. In the interim, Petitioner served and filed the instant Motion for Summary Judgment on March 22, 2019. At March 27, 2019 appearance both parties stipulated to the adjournment of the motion to May 2, 2019.
Petitioner moves by notice of motion to establish that as a matter of law, the admissible evidence presented within the motion papers make out a prima facie entitlement to summary judgment pursuant to NYS CPLR 3212 (b):
(b) Supporting proof; grounds; relief to either party. A motion for summary judgment shall be supported by affidavit, by a copy of the pleadings and by other available proof, such as depositions and written admissions. The affidavit shall be by a person having knowledge of the facts; it shall recite all the material facts; and it shall show that there is no defense to the cause of action or that the cause of action or defense has no merit. Where an expert affidavit is submitted in support of, or opposition to, a motion for summary judgment, the court shall not decline to consider the affidavit because an expert exchange pursuant to subparagraph (i) of paragraph (1) of subdivision (d) of section 3101 was not furnished prior to the submission of the affidavit. The motion shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party. Except as provided in subdivision (c) of this rule the motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact. If it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion.
It is well-established law that summary judgment is a drastic remedy in that it deprives the non-movant party of her day in court and should only be granted if there is no material and triable issue of fact (Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 ; Alvarez v. Prospect Hosp., 68 NY2d 320 ). The burden is upon movant to make its prima facie showing of entitlement to judgment as a matter of law by tendering sufficient admissible evidence to demonstrate the absence of any material issue of fact (Winegrad v. New York Univ. Med. Center, 64 NY2d 851, 853; Zuckerman v. City of New York, 49 NY2d 557, 562; Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395, 404; see also Giuffrida v. Citibank, 100 NY2d 72 ). It must clearly appear to the court that unequivocally there is no material and triable issue of fact presented from the motion papers (Di Menna & Sons v. City of New York, 301 NY 118 [Ct App 1950]). Where the court finds an existence of such an issue or where the issue may be so deemed “arguable” requires denial of summary judgment (Braun v. Carey, 280 App Div 1019 [3d Dept 1952]; Barrett v. Jacobs, 255 NY 520, 522 [Ct App 1931]). “Issue-finding, rather than issue-determination, is the key to the procedure” for the court (Esteve v. Avad, 271 App Div 725, 727 [1st Dept 1947]; Gravenhorst v. Zimmerman, 236 NY 22, 38-39 [Ct App 1923]). In evaluating a motion for summary judgment, a court is not to engage in determining credibility of an issue, but rather whether there exists an issue that requires determination of credibility (S.J. Capelin Assoc. v. Globe Mfg. Corp., 34 NY2d 338 ). Moreover, where the court finds that there is even one material relevant issue that requires determination of credibility, in and of itself is sufficient for denial of motion (Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395, 404-05 ). When reviewing the motion, the papers must be strictly scrutinized in the light most favorable to the opposing party (Pearson v. Dix McBride, 63 AD3d 895, 883 [2nd Dept 2009]; Robinson v. Strong Mem. Hosp., 98 AD2d 976 [4th Dept 1983]). Movant has the initial burden of coming forward with admissible evidence to support the finding of a prima facie entitlement as to warrant the court's directing judgment in movant's favor as a matter of law notwithstanding sufficiency of opposition or lack thereof (Winegrad v. New York Univ. Med. Center, 64 NY2d 851, 853 [Ct App 1985]). Once movant's burden has been met, burden to rebut then shifts to the opposition to demonstrate, by admissible evidence, the existence of a material factual issue in dispute requiring a fact-finder's determination at trial (see Friends of Animals v. Associated Fur Mfrs., 46 NY2d 1065, 1067 [Ct App 1979]; see also Alvarez v. Prospect Hosp., 68 NY2d 320 [Ct App 1986]; Zuckerman v. City of New York, 49 NY2d 557 [Ct App1980]). Opposition papers relying upon general overbroad allegations or mere conclusory immaterial non-relevant facts or law, unsupported by competent admissible evidence sufficient to require a trial will fail to satisfy burden to defeat summary judgment (Fileccia v. Massapequa Gen. Hosp., supra; Bustamonte v. Koval, 98 AD2d 739 [2d Dept 1983]; Pan v. Coburn, 95 AD2d 670 [1st Dept 1983]; Himber v. Pfizer Labs., 82 AD2d 776 [1st Dept 1981]; Baldwin v. Gretz, 65 AD2d 876 [3d Dept 1978]; Century Ctr. Ltd. v. Davis, 100 AD2d 564 [2d Dept 1984]). Where the court finds but a scintilla of doubt as to the existence of a triable issue of fact in dispute, summary judgment must be denied (Moskowitz v. Garlock, 23 AD2d 943 [3d Dept 1965]).
In the instant matter, Petitioner-Corporate Landlord entered a commercial lease with Respondent-Corporate Tenant for a term of 15 years and 3 months and now seeks judgment of possession in summary holdover proceeding for Respondent's breach of lease for failure to acquire rent insurance as per lease clause 46(a). Rent insurance is a misnomer. There is no such policy in the highly specialized area of insurance. Rather, the proper terminology is rental value coverage as an endorsement within a broader Business Insurance Policy (see n 1, supra). Rental value coverage is highly specialized and hyper technical in its application - whether policy owned by landlord or as here, owned by tenant. Petitioner argues that Respondent upon receipt of notice to cure dated June 20, 2018 failed to petition Supreme Court for Yellowstone Injunction to stay action on summary proceeding for holdover eviction for breach of lease, which would have allowed stay of time period during which respondent must cure alleged default of lease (First Nat. Stores Inc. v. Yellowstone Shopping Center, 21 NY2d 630 [Ct App 1968]). Therefore, respondent would have been allowed to cure default by any other means other than termination of the commercial lease. Nonetheless, Respondent failed to so do.
The singular material triable issue of fact here is when was rental value coverage to commence. It is well established law where “[i]n cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it, and favorably to a party who had no voice in the selection of its language” (67 Wall St. Co. v. Franklin Natl. Bank, 37 NY2d 245, 249 [Ct App 1975]; see also Jacobson v. Sassower, 66 NY2d 991, 993 [Ct App 1985]). Petitioner drafted the 30-page, 65-clause lease and rider. Thereby, any ambiguity or confusion as to the lease will be viewed in the light most favorable to non-drafter, here the Respondent. In drafting the lease, Petitioner failed to explicitly, specifically and did contradictorily state or delineate when the “12 month” rental value coverage period was to commence. Petitioner argument is based on the beginning of Insurance clause 46(a) of lease which states, “Tenant shall obtain and keep in full force and effect during the term of this Lease insurance”. However, the rental value coverage phrase at issue is disconnected from the beginning of clause 46(a) by the inclusion of “for a period of 12 months.” If this phrase had not been included, then the beginning of clause 46(a) would have been consistent, such that Petitioner's argument that it intended rental value coverage to also be “in full force and effect during the term of this lease” may have been persuasive. However, based upon the “12 month” phrase inserted at the end thereto, that argument fails and presents a material triable issue of fact as to when indeed the period for rental value coverage should have commenced. There was no meeting of the minds and it was incumbent on Petitioner as drafter of lease to have ensured that lease should have been unequivocally perception-proof and the plain language contained therein was not subject to arbitrary and inconsistent interpretations. Petitioner failed to do so and now argues that the interpretation should have been based upon beginning of clause 46(a). If this “12 month” phrase had not been included at the end of the overarching insurance clause 46(a), then the beginning of clause 46(a) would have been a consistent follow-through to the last sentence in the insurance clause. However, this insertion disconnected the “12 month” rental value coverage phrase from the beginning of clause 46(a). Therefore, Petitioner's argument fails and presents a triable issue of fact as to when indeed the 12-month period commenced for rental value coverage. There was no meeting of the minds here. Rather, its inartful drafting left it open to ambiguity and confusion and therefore in the light most favorable to Respondent as non-drafter there is created a material triable issue of fact.
The oft cited seminal case in denying Yellowstone Injunction for insurance lapse as being an incurable default opines, “[the] readiness to cure the alleged violation by procuring, during the cure period, insurance coverage prospectively is unavailing, as such policy does not protect defendant against the unknown universe of any claims arising during the period of no insurance coverage” (Kyung Sik Kim v. Idylwood, NY, LLC, 66 AD3d 528, 529, 886 NYS 2d 337, 337, 2009 NY App. Div. LEXIS 7333, *1-2, 2009 NY Slip Op 7459, 1 [1st Dept 2009]; see C & N Camera & Elecs. v. Farmore Realty, 178 AD2d 310, 311, 577 NYS 2d 613 ; see also Prince Fashions, Inc. v. 60G 542 Broadway Owner, LLC, 149 AD3d 529, 53 NYS 3d 24 [1st Dept 2017]). Unlike other insurance coverages, rental value coverage is distinctive in its operation and application. Whereas, where there is a lapse of liability coverage there may be insidious unseen lurking insured perils that may become apparent later, rental value coverage is not as such. Rather, rental value coverage has no such import. By its very nature in its application rental value coverage is prospective. Rental value coverage is triggered after an insured peril is apparent which causes the landlord to impose a rent abatement of the leasehold. Nevertheless, if agreed to in the lease where tenant breaches and there is an insurance lapse then it would indeed be an incurable default that may not be cured prospectively under the current state of the law. It is here opined that rental value coverage should be considered an exception to the current state of precedent. A landlord's decision to abate or not to abate after an insured peril is the triggering event for the application of rental value coverage. Unlike liability coverage, where the insured peril in and of itself is the triggering event, when that insidious unseen lurking insured peril comes to light. Thus, the landlord controls the triggering event as to rental value coverage and not the insured peril, as it would be the triggering event as to liability coverage
Petitioner's argument in and of itself presents material triable issue of fact where it argues “thus at a minimum there was a lapse of insurance for 6 months and even longer if you go by date of lease” (Affirmation in Support, clause 33). The dispositive terms in Petitioner's argument evincing a material triable issue of fact is “at a minimum” and “even longer if.” Not even does Petitioner argue a date certain that rental value coverage was to commence pursuant to its own drafted language of the lease. How so, may this court now determine that there is no material triable issue of fact. On the contrary, this issue as to when rental value coverage was to commence is the singular material triable issue of fact. At oral argument, Petitioner stated in the alternative, that where the court found that the commencement date of rental coverage did present a material triable issue of fact, then in the alternative, court must grant summary judgment due to Respondent's breach in purchasing rental value coverage below the amount of insurance required as per lease (base rent and additional rent). However, this court is not so persuaded. Respondent's argument that rental value coverage commenced January 2019 when Petitioner obtained temporary certificate of occupancy and therefore rent obligation as well as rental value coverage commenced February 2019, pursuant to clause 40 of the lease, is persuasive. If there is no rent obligation pursuant to the lease until Petitioner landlord procures temporary certificate of occupancy, then rental value coverage would have been superfluous. Consequently, returning to that singular material triable issue of fact: when was rental value coverage to commence where rental obligation was not to commence until Petitioner obtained temporary certificate of occupancy.
Where the trier of fact was to find that rental value coverage pursuant to lease clause 40 commenced February 2019, then notice to cure served upon Respondent on June 20, 2018, was premature and this summary holdover proceeding as to rental value coverage must be dismissed since there would not have been a lapse in rental value coverage insurance as Petitioner argues. Rather, Petitioner as drafter of the lease cannot with certainty state when rental value coverage was to commence, however now requests this court to consider the drastic remedy of judgment as a matter of law. On the contrary, there remains that singular material triable issue of fact that must be decided by the fact finder to ultimately determine the outcome of this commercial summary holdover proceeding: what is the commencement date of rental value coverage pursuant to the lease. Both parties conceded at oral agreement that Respondent commenced actual use and occupancy of leasehold and payment of rent May 2018, in contradiction to the lease which stated that use and occupancy was to commence when Petitioner obtained temporary certificate of occupancy, pursuant to clause 40. Petitioner therefore argues arbitrarily that “12 month” rental value coverage should have at least commenced at that time. However, this is inconsistent with the written lease. Petitioner as drafter of lease failed to memorialize this oral agreement in a writing as an addendum or rider to lease to set specific and explicit parameters, which could have included an unambiguous commencement of rental value coverage date certain of May 1, 2018. Rather, in Petitioner's failure to so do, it is now bound by the terms of the lease and not any oral agreements made outside of the four-corners of the lease.
Consequently, Petitioner-movant has failed to meet its burden establishing prima facie case for judgment as a matter of law. For the foregoing reasons, Petitioner's Motion for Summary Judgment is DENIED.
The foregoing constitutes the opinion, decision, and order of This Honorable Court.
1. Oftentimes as in this instant matter herein, a commercial lease requires tenant to carry a policy of “rent insurance”. However, there is no Rent Insurance policy, per se. Rather, it's available as part of Business Income Coverage, generally contained within a commercial property insurance policy with endorsement providing for “rental value” on its Declaration Page. ‘[I]f there is no physical damage to the insured property, absent specialized additional coverage (such as Contingent Business Interruption coverage for when another property experiences physical damage or such as Utility Services Interruption coverage), you don't get paid for ‘rental value.’ this insurance coverage is not credit insurance — it is a part of a property insurance policy.” Further, “if rent does abate, the premium a tenant paid to cover ‘rental value’ is, ‘down the gutter’ because the tenant's insurance company never has to pay.” Tenant's rental value coverage encompasses both the basic rent as well as whatever amounts a tenant would have paid on account of operating expenses, taxes, and the like. In addition, the term includes payment for other items a tenant would have been paying had it not been for damage from an insured peril. That means, by way of example, it covers utility bills the tenant would have been paying. “Basically, rental value coverage kicks in when the rent stops by reason of the casualty and ends when the rent begins again. the insurance carrier is going to stop paying when the rent ‘should have restarted.’ A tenant's policy, on the other hand, should not penalize the tenant for its landlord's foot dragging. Keep in mind, however, if the rent hasn't abated upon the occurrence of damage, then the tenant has to keep paying rent. So, if the landlord drags its feet or interferes with its tenant's restoration, the tenant may have a ‘delay’ claim against its landlord. In such a case, the tenant's insurance company, upon reimbursing the tenant for the rent, would be able to step into its insured's shoes and take the claim over. remember that if the rent abates and a landlord, insist that the tenant have ‘rental value’ coverage, then [landlord] negotiated for ‘nothing’ because if tenant experiences no loss — the rent stopped — its carrier never has to pay. If the tenant has to obtain and maintain ‘rental value’ coverage (and, as we now know, the rent doesn't abate), its landlord will want to be an ‘Additional Insured’ as to the ‘rental value’ coverage” (What Would Rent Insurance Be If There Were Such A Thing? [May 12, 2013], http://www.retailrealestatelaw.com/archives/1822).
Sandra E. Roper, J.
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