6 WEST 20TH ST. TENANTS CORP., Petitioner-Landlord, v. Michael DEZERTZOV and Neomi Dezertzov, 6 West 20th Street, Ground Floor and Portion of Cellar, New York, New York 10011 (the “Premises”), Respondents-Tenants, NY Loft Kitchen & Home Interiors d/b/a Nyloft, Dezer Properties LLC, “John Doe,” and/or “Jane Doe,” Respondents-Undertenants.
By amended petition (Petition),1 Petitioner-Landlord 6 West 20th St. Tenants Corp. (Petitioner-Landlord or Petitioner) seeks a final judgment of possession removing Michael Dezertzov and Neomi Dezertzov (Respondents-Tenants) from possession of the premises, as well as a judgment against Respondents-Tenants for rent and additional rent in arrears, with interest, costs and disbursements.2
The Petition describes the premises as the “Ground Floor and Portion of the Cellar, shown on Exhibit C” attached to the Petition (Premises), at the building located at 6 West 20th Street, New York, New York 10011 (Building) (Petition at ¶ 2). Petitioner-Landlord alleges in the Petition that, pursuant to a proprietary lease, Respondents-Tenants owe it maintenance and additional rent/maintenance as set forth in an account history annexed to the Petition. There is no document entitled “account history” annexed to the Petition. The Petition contains a “Statement” dated October 1, 2018, addressed to “Dezer Properties Attn: Leslie” seeking three capital assessments in the amount of $64,000, each due in 2018, and late fees. At trial, the Court granted Petitioner-Landlord's motion to amend its Petition to include a June 2019 assessment.
At trial, Petitioner-Landlord acknowledged that it did not have any proprietary lease showing Respondents-Tenants as proprietary lessees or shareholders of the Premises. Stock certificates or assignments for Respondents-Tenants for the Premises were also not offered into evidence. The crux of Petitioner-Landlord's argument is that the Offering Plan for the Building mandates execution of a proprietary lease for the Premises and that the circumstantial evidence admitted at trial shows that Respondents-Tenants are the Premises’ proprietary lessees. Petitioner-Landlord also argues that Respondents-Tenants are liable for assessments as the holders of unsold shares and that they paid the 2014 and 2016 assessments without objection. In their closing arguments at trial, Petitioner-Landlord for the first time asked this Court to draw a negative inference against Respondents-Tenants based upon their failure to testify or to attend trial.
Respondents-Tenants and Respondent-Undertenant Dezer Properties LLC (Dezer Properties) (collectively Respondents) deny that Respondents-Tenants are the proprietary lessees of the Premises and assert that Petitioner-Landlord failed to establish its prima facie case. Respondents argue, inter alia, that Dezer Properties is the Sponsor and holder of the unsold shares to the Premises and that Dezer Properties never executed a proprietary lease for the Premises. Respondents also argue that to the extent Petitioner-Landlord wants this Court to issue a declaratory judgment that Respondents-Tenants or Dezer Properties should have signed a proprietary lease pursuant to the terms of the Offering Plan and are therefore liable for the assessments thereunder, this Court lacks the subject matter jurisdiction to do so.
Upon considering all trial testimony, documents in evidence and posttrial briefs, this Court holds that Petitioner-Landlord failed to establish its prima facie case. The Court also finds that even if Petitioner-Landlord established its prima facie case, which it did not, Petitioner-Landlord failed to prove their case based on the overall evidence and testimony adduced at trial. The Court declines to draw a negative inference against Respondents-Tenants. Petitioner-Landlord could have, but failed to, request Respondents-Tenants’ presence at trial, and this Court holds that Petitioner-Landlord's request for an adverse inference raised during summation was untimely. Since Petitioner is not seeking a declaration or a money judgment against Dezer Properties, the Court need not address Respondents’ arguments in that regard. To the extent Respondents seek judgment on their counterclaims, the Court finds that they failed to prove their entitlement to judgment on those claims at trial.
Pursuant to RPAPL 711(2), a nonpayment proceeding must be based on a default in the payment of rent pursuant to an “agreement under which the premises are held.” It is Petitioner-Landlord's prima facie burden to establish the existence of an agreement by Respondents-Tenants to pay the assessments as “rent” (see 615 Nostrand Ave. Corp. v Roach, 15 Misc 3d 1, 4 [App Term, 2d Dept 2006]; Lincoln Amsterdam House, Inc. v Tymus, 50 Misc 3d 1209[A], 2016 NY Slip Op 50056[U], *2 [Civ Ct, NY County 2016]; see also Promenade Global LLC v Abraham, 44 Misc 3d 1205[A], 2014 NY Slip Op 51025[U], *2 [Civ Ct, NY County 2014]; Fishbein v Mackay, 36 Misc 3d 1228[A], 2012 NY Slip Op 51529[U], *3 [Civ Ct, NY County 2012]). “The relation of landlord and tenant is always created by contract, express or implied, and will not be implied where the acts and conduct of the parties negative its existence” (Stern v Equitable Trust Co. of NY, 238 NY 267, 269 ; 615 Nostrand Ave. Corp. at 4).
Petitioner-Landlord has the burden to produce the original lease or a satisfactory explanation for its absence from a credible witness (see Hon. Gerald Lebovits & Michael B. Terk, A Guide to New York State Commercial Landlord-Tenant Law and Procedure-Part II, NY St BJ, March/April 2015, at 38). It is also Petitioner-Landlord's burden to provide a ledger showing that the assessments demanded are owed by Respondents-Tenants (id.). If Petitioner-Landlord met its prima facie burden but the evidence overall is evenly balanced, then Petitioner-Landlord failed to meet its overall burden (see Rinaldi & Sons v Wells Fargo Alarm Serv., 39 NY2d 191, 196 ; 300 E.34th St. Co. v Habeeb, 248 AD2d 50, 55-56 [1st Dept 1997]).
It is uncontroverted that the Offering Plan requires all purchasers of units in the Building and the holder of unsold shares for any unit not sold to a third party to sign an identical form of a proprietary lease.
Petitioner-Landlord relies upon the following circumstantial evidence to show that it was Respondents-Tenants who signed a proprietary lease for the Premises and therefore owe the assessments at issue: the 1979 Resolutions purportedly adopted by Petitioner-Landlord's Board of Directors (1979 Resolutions) (Exhibit 6); lists of shareholders attached to certificates purportedly created by the Board of Directors’ Secretary in 1997 through 2001 (Exhibit 7); a selection of Petitioner-Landlord's annual shareholder and Board of Directors meeting minutes between 2000 and 2012 (Exhibit 8); a selection of Petitioner-Landlord's Board of Directors meeting minutes between 2007 and 2012 (Exhibits 9, 27); and the minutes of two emergency general shareholders meetings for the Building in 2011 (Exhibit 10).
Petitioner-Landlord first argues that Respondents-Tenants must be the proprietary lessees of the Premises, since the second paragraph of the 1979 Resolutions mentions Respondents-Tenants as “lessees” and because the third paragraph states that the Board resolved to increase the floor space “leased under the proprietary lease of the store and basement” (Exhibit 6).
The second and third paragraphs of the 1979 Resolutions state as follows:
“RESOLVED, that the Agreement entered into between Michael Dezertzov and Neomi Dezertzov as lessees, and Michael Dezertzov as President of 6 West 20th St. Tenants Corp. dated August 1, 1979, relating to the granting of an egress through the basement of the premises under certain conditions, is hereby adopted by the Board of Directors.
RESOLVED, that floor space leased under the proprietary lease of the store and basement be increased as outlined in blue in accord with the following floor plan and without a reallocation of shares or the issuance of additional shares.” (Exhibit 6.)
The 1979 Resolutions were admitted, without objection, as a business record and an ancient document. Accordingly, the Court must consider this evidence and give it the probative value or weight it may possess (see Matter of Findlay, 253 NY 1, 11 , citing Flora v Carbean, 38 NY 111 ; Matter of Del Valle v Sugarman, 44 AD2d 523 [1st Dept 1974]). Upon close examination, and for the reasons given below, the Court finds that the 1979 Resolutions and the reference to the contents of the 1979 Agreement have no probative value to show that Respondent-Tenants were the owners, shareholders or the proprietary lessees of the Premises.
The 1979 Agreement is not attached to the 1979 Resolutions and it was not admitted into evidence as a separate document. As such, the statements regarding the contents of the 1979 Agreement in the second paragraph of the 1979 Resolutions is hearsay-within-hearsay and entitled to little, if any, weight (see e.g. Olson v Brenntag N. Am., Inc., 62 Misc 3d 1228[A], 2019 NY Slip Op 50309[U], *6 [Sup Ct, NY County 2019]). The Court notes that the second paragraph of the 1979 Resolutions fails to specify the nature of Respondents-Tenants’ alleged leasehold. While it refers to Respondents-Tenants as “lessees,” the second paragraph fails to state whether Respondents-Tenants were proprietary lessees or lessees under a rental agreement.
The reference in the 1979 Resolutions to Respondents-Tenants purportedly granting an egress is not determinative, since a lessee under a rental agreement may create a right-of-way egress during the term of his or her lease (see 49 NY Jur 2d Easements § 21, citing Nemmer Furniture Co. v Select Furniture Co., 25 Misc 2d 895 [Sup Ct, Erie County 1960]). Notably, the rest of the 1979 Resolutions consistently uses the terminology “owner of the proprietary lease” when it is referring to other units, but not when it refers to Respondents-Tenants. The 1979 Resolutions, furthermore, fail to show that Respondents-Tenants were the proprietary lessees when the assessments passed and came due in the late 2010s.
There are also discrepancies between the content contained within the 1979 Resolutions and the Petition, which the Petitioner-Landlord fails to explain. While the 1979 Resolutions describe a proprietary lease for “the store and basement,” the Petition describes the Premises as the entire ground floor and a portion of the cellar. Moreover, the 1979 Resolutions and its annexed floor plan show that the floor space under the proprietary lease was increased to include a refuse room. The floor plan annexed to the Petition shows that the refuse room was excluded from the Premises. These discrepancies raise questions as to the validity of the 1979 Resolutions.
Minutes from meetings of Petitioner-Landlord's Board of Directors and shareholders, in evidence as Exhibits 9 and 10, raise further questions as to the validity of the 1979 Resolutions, and the 1979 Agreement in particular. Paragraph 5 from the minutes of a Board of Directors meeting, dated July 17, 2008, states as follows: “Philip Leif [Board member in attendance] brought to the attention of the Board an August 1979 signed agreement providing space in the basement for use as a second way of egress. This will be evaluated further for its validity before approaching Michael Dezer” (Exhibit 9). This paragraph clearly questions the validity of the 1979 Agreement.
Additionally, paragraph 3 of Minutes of the Emergency General Shareholders Meeting, dated May 19, 2011 (Exhibit 10), indicates that an egress was never granted in 1979. That paragraph states, in pertinent part: “[I]f Dezer does not allow a second way of egress through his unit, the Board of Directors ․ can require him to give up the space needed ․ [T]he building needs the use of Dezer's space to create the second way of egress” (id.). These paragraphs, when read together, indicate that the 1979 Agreement, purportedly granting an egress in the basement, is invalid.
The Court gives no weight to the certification page at the end of the 1979 Resolutions exhibit since the certification page clearly does not pertain to the rest of the exhibit. The exhibit consists of perforated, loose-leaf pages and there are multiple discrepancies between the certification page and the rest of the exhibit. The certification page refers to a single resolution, while the first page of the exhibit refers to multiple “resolutions” (Exhibit 6). While the certification page refers to the “resolution hereto annexed” being adopted on August 24, 1979 (id.), the 1979 Resolutions are signed on August 1, 1979. While the certification refers to a resolution amending the proprietary lease, there is no mention of any amendment within the body of the 1979 Resolutions. While the last paragraph of the certification states that “the undersigned have ․ affixed the seal of the corporation hereto” (id.), the exhibit lacks any indication of a corporate seal. Finally, the copy of the 1979 Resolutions in the original Offering Plan does not contain the certification page. Accordingly, the Court finds that the certification fails to give the rest of the exhibit any additional evidentiary weight.
The next document Petitioner-Landlord relies on to prove its prima facie case is the signed minutes from two emergency general shareholders meetings, dated May 12, 2011 and May 19, 2011 (Exhibit 10 [May 12 and 19, 2011 minutes]). Petitioner-Landlord argues that these minutes “identify Michael Dezer as the ‘owner’ of the Premises” (Petitioner's posttrial brief at 10). Petitioner-Landlord points to paragraph 4 of the minutes dated May 12, 2011, which states, in part, that in 2005, the Board was unable “to come to a reasonable financial agreement with Michael Dezer to allow a second way of egress through the basement of his store unit” (Exhibit 10). Petitioner-Landlord also notes that paragraph 3 of the minutes dated May 19, 2011 state that “if Dezer does not allow a second way of egress through his unit, the Board of Directors ․ can require him to give up the space” and that “the building needs the use of Dezer's space to create the second way of egress” (id.).
The Court disagrees with Petitioner-Landlord's assessment that by merely referencing “his store unit” or “Dezer's space,” the May 12 and 19, 2011 minutes identify Michael Dezer as the “owner” of the Premises. The minutes fail to expressly state that either Respondent-Tenant is the owner, shareholder or proprietary lessee of the Premises. Moreover, Michael Gelhard, a Treasurer of Petitioner-Landlord's Board of Directors, testified that while many units were owned by limited liability companies (LLCs), he often used the last names of individuals associated with those LLCs, including “Dezer,” as a shorthand on documents. He explained that “[w]e know each other as people, not as companies” (10/30 tr at 19, line 25; at 20, line 1).
Mr. Gelhard also testified that the Board is more careful with “legal” documents that require “the correct legal name,” as opposed to an “informational” document, such as an informational email or reminder of money owed (11/1 tr at 49-50). Since section 624(a) of the Business Corporation Law does not mandate an accurate disclosure of shareholders within corporation minutes, and because of Mr. Gelhard's testimony that the Board takes less care with names where the law does not mandate accuracy (11/1 tr at 49), the Court does not attach any significance to references to “Dezer” or “Michael Dezer” in the May 12 and 19, 2011 minutes. Moreover, Mr. Gelhard was not involved with the Building at the time the minutes were drafted, and thus he did not have personal knowledge as to their creation. The Court notes that the minutes show that neither Respondent-Tenant was present at the shareholder meetings, thus indicating that they may not have been shareholders at that time.
Petitioner-Landlord also relies upon lists of shareholders attached to copies of certificates purportedly created by a former Secretary of the Board, John Carriglio, for the years 1997 to 2001 (Exhibit 7). Each signed certificate refers to an attached exhibit A. Each exhibit A contains a list of “shareholders ․ prepared by John Carriglio ․ as of the close of business on” a specified date for the specified year. Each list states that Respondents-Tenants were the “[s]hareholder[s]” for the store and basement containing 128 shares. Upon careful examination, the Court finds that these certificates fail to show that Respondents-Tenants were the shareholders of the Premises in the late 2010s, when the assessments passed and came due.
In his testimony, Mr. Gelhard surmised that the Secretary knew the names of the shareholders because when shares are purchased, “the information is recorded” and if the information changes, “it gets changed in the company records, so it's a current living, breathing address list” (10/24 tr at 10, lines 5-7). Mr. Gelhard acknowledged that he was not involved with the Building at the time the certificates were made, no testimony was offered by John Carriglio or anyone else with personal knowledge of the making of these certificates, and Petitioner-Landlord failed to offer into evidence any recent certificates and/or the Secretary's book at trial. Mr. Gelhard also acknowledged that the certificates do not say what record the Secretary looked at to make the shareholder lists and that he was “just assuming” how the lists were made (id. at 7, lines 6-8). Additionally, while Mr. Gelhard testified that the shareholder list is a “current living, breathing address list” (10/24 tr at 10), the evidence at trial shows otherwise. While Mr. Gelhard testified that he and his wife own an apartment in the Building, he is not mentioned on any of the shareholder lists. Moreover, while Mr. Gelhard testified that the current shareholder of the third floor is an LLC controlled by Ed Strauss, the lists show that the shareholders for the third floor from 1997 to 2001 were “Scott & Jonathan Elias.”
Furthermore, Petitioner-Landlord failed to introduce into evidence a book or record of the shareholders for the relevant time period, although Petitioner-Landlord is required to keep such records pursuant to Business Corporation Law § 624(a) and Petitioner-Landlord's own bylaws. Section 624(a) mandates that “[e]ach corporation ․ shall keep at the office of the corporation in this state or at the office of its transfer agent or registrar in this state a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof.” Article IV, Section 4 of Petitioner-Landlord's bylaws also require the Secretary to maintain a book “containing the names, alphabetically arranged, of all persons who are shareholders of the Corporation, showing their places of residence, the number of shares held by them, respectively, the time when they respectively became the owners thereof, and the amount paid thereon, and the denomination and the amount of all share issuance or transfer stamps affixed therefor, and such book shall be open for inspection as provided by law” (Exhibit 3 at 110-111). Petitioner-Landlord failed to provide any explanation or to even address the issue as to why the mandatory record of shareholders was not offered into evidence at trial to help the Court ascertain the shareholders of the Premises from 2018 to 2019, when the assessments came due.
Petitioner-Landlord further argues that Respondents-Tenants’ status as proprietary lessees is reflected in the minutes of annual shareholder and Board of Directors meetings for the building between 2000 and 2012, submitted as Exhibit 8. Exhibit 8 consists of, among other things, a selection of Minutes of Annual Shareholder Meetings for years 2000 to 2003, 2005, 2008 to 2009, 2011 and 2012. In its posttrial brief, Petitioner-Landlord asserts that in “each of the annual shareholder meetings, Respondents’ individual names appear as in attendance, by proxy through Richard Angel” (Petitioner's posttrial brief at 10). Petitioner further alleges that “the minutes for the 2012 annual shareholders meeting ․ include a voting roster [2012 Voting Roster] for the shareholders present,” and that “[t]he voting roster reflects that [Respondents-Tenants’] 128 shares for the Premises were represented at the meeting by their proxy Richard Angel ․” (id.).
While some of the annual shareholder meeting minutes from 2000 to 2012 show that Respondents-Tenants appeared by proxy, these minutes predate by several years the relevant time period of 2018 to 2019, when the assessments came due. Petitioner-Landlord failed to submit any credible evidence showing that Respondents-Tenants were the shareholders or the proprietary lessees after 2012. The only evidence after 2012 that contains Respondents-Tenants’ names as shareholders are the assessment notices (Exhibits 16-17, 19-21, 26), which Mr. Gelhard admitted had inaccurate shareholder information (10/24/19 tr at 55; 10/30/19 tr at 19-20).
Furthermore, the Court gives little weight to the 2012 Voting Roster for the following reasons. Mr. Gelhard acknowledged that he was not involved with the Building at the time the minutes were made. Mr. Gelhard testified that he did not know who prepared the 2012 Voting Roster; nor did he know the source for the names on the voting roster. He testified that he was just “guessing” as to whether the roster contained accurate legal names of shareholders (11/1 tr at 49-50). The March 2, 2012 minutes, to which the 2012 Voting Roster was purportedly attached, are unsigned. Petitioner-Landlord failed to provide any testimony explaining why these minutes are unsigned or the significance of a signature or the lack thereof. Mr. Gelhard's testimony that Board meeting minutes “should be signed but sometimes they are not,” and that “[t]his is not a professional board of directors,” undermines the credibility of the unsigned minutes (10/30 tr at 25, lines 15-16). Moreover, the March 2, 2012 minutes do not refer to the 2012 Voting Roster or any attachment. Thus, the 2012 Voting Roster appears to be a separate document. Accordingly, the Court finds that the 2012 Voting Roster fails to establish that Respondents-Tenants were shareholders at the time the assessments passed and came due.
Petitioner-Landlord also relies on various Board of Directors Meeting minutes spanning from April 11, 2007 to November 16, 2012 (Exhibits 9 and 27). Upon careful consideration, the Court finds the minutes to be unreliable, given their incompleteness, Mr. Gelhard's lack of knowledge as to how these documents were created and kept, Mr. Gelhard's testimony that “[t]his is not a professional board of directors” (10/30 tr at 25, lines 15-16), and the evidence contained within the minutes that contradicts Petitioner-Landlord's assertions.
Although the Board appeared to meet on a monthly basis, some monthly minutes are missing without any explanation from either side. While some of the minutes are signed by the Board's president and secretary, some are not. The minutes dated April 11, 2007 indicate that a title search “was suggested regarding an easement for the second way of egress” (Exhibit 27, ¶ 5). Although the results of this title search, if ever performed, would certainly be useful to this Court to ascertain the ownership status of the Premises, Petitioner-Landlord has failed to discuss or even address this issue or the results of any title search. Furthermore, minutes dated January 10, 2008 suggest that Dezer Properties, as opposed to Respondents-Tenants, own the store space, because they state that “Dezer Properties” would “install a new system on the internal double doors to allow access from the basement into the store space for emergency use” (Exhibit 27); these minutes do not refer to Respondents-Tenants.
The Court further finds that Mr. Gelhard's testimony lacked credibility since it was contradictory, equivocal and unsupported by evidence. Mr. Gelhard asserted that the “ground floor” was “transferred to a party associated with the sponsor” (10/8 tr at 15, lines 1-3), that Respondents-Tenants were the shareholders of the “ground floor” at the time the 1979 Resolutions passed (see 10/8 tr at 36, lines 21-24), and that all unsold shares were transferred to Respondents-Tenants (10/30 tr at 29, lines 16-21).3 However, Mr. Gelhard also testified that the “sponsor always intended to keep the ground floor apartment and didn't like the idea of shareholders in the building telling him who he could and couldn't sublease the shop to” (10/30 tr at 43, lines 6-9). Furthermore, while Mr. Gelhard testified that the ground floor was transferred to Respondents-Tenants, no transfer document for the Premises was submitted or admitted into evidence by either side. The Court notes that Petitioner's bylaws require the Secretary of the Board to keep a record of any transfers (see Exhibit 3 at 114, Section 4).
Mr. Gelhard testified on direct examination that he had been a member of Petitioner-Landlord's Board of Directors since 2014 and an owner of an apartment in the building since 2015 (10/8 tr at 3, lines 16-18). However, on cross examination, Mr. Gelhard testified that he had been a “shareholder and involved in the building since 2013” (10/30 tr at 24, lines 10-12). When asked whether the ground floor retail space is an apartment, Mr. Gelhard stated that “[i]n the context of the documentation it is,” but then he added: “It's clearly not an apartment, nobody is living in there. Actually, that's not clearly true” (10/30 tr at 45, lines 16-19).
When it was noted that the Building's Offering Plan indicated that 133 shares were allocated to the “store and basement” and that 128 was handwritten next to the typewritten “133.00” (10/8 tr at 10-11), Mr. Gelhard testified as follows: “I know that the ground floor has 12.8 percent of shares. I don't know. I do -- I do, sorry. The eleventh floor got increased. The ground floor got reduced at some point” (id. at 11, lines 7-10). His testimony regarding a reduction in the shares allocated to the store and basement contradicts the language in the 1979 Resolutions resolving “that [the] floor space ․ of the store and basement be increased as outlined ․ without a reallocation of shares or the issuance of additional shares” (Exhibit 6). Moreover, Petitioner-Landlord failed to submit any documentation supporting Mr. Gelhard's assertion that the “ground floor got reduced at some point” (10/8 tr at 11, lines 9-10).
Mr. Gelhard testified that he did not send the notice of the 2018 assessments at issue, admitted into evidence as Exhibit 16, to Respondents-Tenants; rather, he testified that he sent it to “[their] representative, Richard [Angel]” (10/24 tr at 52, lines 6-8) because the Board has “something from Rich Angel saying please send” all correspondence to him (id., lines 14-15). However, Petitioner-Landlord failed to submit any document memorializing such communication by Mr. Angel. Furthermore, when asked whether Mr. Angel requested that correspondence be sent on behalf of Dezer Properties or Respondents-Tenants “personally,” Mr. Gelhard responded, “I don't know” (id., lines 16-18).
Mr. Gelhard's testimony regarding the original Offering Plan is contradicted by the plain terms of the original Offering Plan and an amended offering plan, dated May 31, 1978 (May 31, 1978 Amended Offering Plan). The original Offering Plan offered units for commercial use only (Exhibit 2 at 2). The date of the first offering of the original Offering Plan was February 10, 1978 (id. at title page). The original Offering Plan provides that if purchase agreements were executed and accepted for the sale of “at least 4 units” to existing tenants within 60 days of the first offering on February 10, 1978 — that is, by April 11, 1978 — then the “Sponsor must declare the Plan effective as a commercial cooperative ․ by filed amendment” (id. at 15). The original Offering Plan further provides that, “once the Offering Plan has been declared effective, it may not be abandoned except for a defect in title” (id.). The original Offering Plan also provides that, in the event the Sponsor “has not received at least 4 signed Subscription Agreements ․ from existing tenants,” then the “Sponsor may at any time after 60 days from the first offering ․ by filed amendment,” amend the original Offering Plan “to provide for the sale of the units ․ for future conversion to” a multiple dwelling allowing for residential use (id.).
Although Michael Gelhard testified that the original Offering Plan became effective within the 60-day timeframe provided in the original Offering Plan, Petitioner-Landlord failed to submit any amendment declaring the original Offering Plan effective as a commercial cooperative within that timeframe. Nor was there any testimony or evidence as to a defect in title. Instead, Petitioner-Landlord submitted the May 31, 1978 Offering Plan, which declared the original Offering Plan effective, as amended, to provide for residential use (see Exhibit 3, ¶ 1).
The May 31, 1978 Amended Offering Plan, dated more than 60 days from the February 10, 1978 date of the first offering, states that only three subscription agreements were received for residential occupancy and that “[n]o Subscription Agreements” were received for commercial use” (Exhibit 3). Accordingly, contrary to Mr. Gelhard's testimony, the evidence shows that the original Offering Plan was not declared effective as a commercial cooperative within the 60-day timeframe provided in the original Offering Plan. Rather, the evidence shows that, after failing to receive at least 4 signed subscription agreements within 60 days from the first offering, the Sponsor selected to amend the original Offering Plan to provide for the sale of units for purposes of future conversion to residential use.
Mr. Gelhard testified that the May 31, 1978 Amended Offering Plan, and the blank-form proprietary lease attached to it, are the operative documents for the Building. However, another amended offering plan, dated June 28, 1978, with another blank-form proprietary lease, is contained in the original Offering Plan. Neither side explains why this amended offering plan and proprietary lease, which postdate the May 31, 1978 Amended Offering Plan and proprietary lease, are not the operative documents.
In addition to his unreliable testimony, the Court finds that Mr. Gelhard, Petitioner-Landlord's sole witness, failed to provide a satisfactory explanation for the missing proprietary lease, sublease or a stock certificate for the Premises (see Hon. Gerald Lebovits & Michael B. Terk, A Guide to New York State Commercial Landlord-Tenant Law and Procedure-Part II, NY St BJ, March/April 2015, at 38). Mr. Gelhard testified that he thought the “Dezer Group” held the stock certificate and the Proprietary Lease, but he did not know (10/8 tr at 30). He added that the “document ․ ha[d] passed through a number of hundred hands over” a 40-year period and that he thought it had “been lost” (id.). Mr. Gelhard testified that he searched for the “document” (id.). However, he acknowledged that he did not search for the sublease or any consent to the sublease for Respondent-Undertenant NY Loft Kitchen & Home Interiors d/b/a NYLoft, which could have provided information as to the ownership of the shares to the Premises. He also did not look for any consent by the Board or the managing agent to a transfer of the shares from the Sponsor to Respondents-Tenants. Nor did he indicate whether he looked for any lease, sublease, or consent to any lease or sublease to Dezer Properties; he only testified that he had never seen any of those documents. Petitioner-Landlord failed to request any documents from Respondents-Tenants.
Petitioner-Landlord was able to produce and admit into evidence two other proprietary leases for other units in the building, executed by Respondents-Tenants — one dating back to 1978 and the other dating back to 1979 (see Exhibits 12, 14). One of the proprietary leases contains an assignment of the proprietary lease, executed by Respondents-Tenants in 1980 (see Exhibit 14). Petitioner-Landlord failed to explain why it was able to find and produce these similarly “ancient” documents (10/24 tr at 28-32), but not the missing documents pertaining to the Premises. Mr. Gelhard testified that he did not know (10/30 tr 35, lines 20-21).
The bylaws in Petitioner-Landlord's May 31, 1978 Amended Offering Plan provide that Petitioner-Landlord or its managing agent must maintain a duplicate original of each proprietary lease (see Exhibit 3 at 111). However, Petitioner-Landlord failed to produce anyone from its managing agent's office to testify. Petitioner-Landlord's failure to produce either a proprietary lease, a sublease or a stock certificate for the Premises, while producing proprietary leases executed by Respondents-Tenants for other units in the building, undermines the credibility of Petitioner-Landlord's assertions that the documents existed but were somehow lost. Courts have dismissed summary proceedings where, as here, these documents were missing (see e.g. 2016 NY Slip Op 50056[U]; 2014 NY Slip Op 51025[U]; Williams v Williams, 46 Misc 3d 1201[A], 2014 NY Slip Op 51771[U] [Civ Ct, NY County 2014]).
Furthermore, while Petitioner-Landlord submitted evidence showing that the standard, blank-form proprietary lease, attached to the May 31, 1978 Amended Offering Plan, had been amended on two occasions, once in 2001 and again in 2008 (Exhibits 4, 5), the certification attached to the 1979 Resolutions indicates that there was another amendment in 1979 (Exhibit 6). In particular, the third paragraph of the certification states, in pertinent part, that “no further corporate action or approval is necessary to amend the proprietary lease in the manner provided in said resolution” (id.). That 1979 amendment was not offered into evidence.
Moreover, Petitioner-Landlord failed to submit into evidence any recent proprietary leases. The blank-form proprietary lease Petitioner relies upon provides that “any lease” may be altered if the variation is authorized, by written consent or affirmative vote, by lessees owning at least two-thirds of the Lessor's shares (Exhibit 3, ¶ 6). Without all of the amendments to the blank-form proprietary lease, a recent, executed proprietary lease, or a proprietary lease for the Premises, the Court cannot determine whether Respondents-Tenants owed the assessments at issue pursuant to a proprietary lease or some other agreement.
Despite Petitioner-Landlord's assertions that Respondents-Tenants paid the 2014 and 2016 assessments without objection, the evidence shows that Petitioner-Landlord charged, and Dezer Properties, rather than Respondents-Tenants, paid those assessments. Petitioner-Landlord's ledgers in evidence are in the name of “Dezer Properties” as “Occupant” (see Exhibits 18, 24). The ledgers cover the period of September 1, 2013 to October 7, 2019 — a period that Petitioner-Landlord fails to address via Board meeting minutes, shareholder meeting minutes and Secretary certificates.4 One ledger shows a payment of $12,800 in April 2014 for a “special assessment” not at issue here (Exhibit 24). Mr. Gelhard testified that the “special assessment” was charged to the account of Dezer Properties and that Dezer Properties paid it. The other ledger, which was admitted into evidence on consent and without testimony, shows that the first of four $64,000 capital assessments at issue here was paid in 2016 (Exhibits 16, 18). As noted, this ledger is in the name of Dezer Properties. Petitioner-Landlord failed to submit either a maintenance or a rent ledger in the name of Respondents-Tenants. Accordingly, the Court discredits Petitioner-Landlord's assertions that Respondents-Tenants, as proprietary lessees, paid the assessments in 2014 and 2016.
The Court also finds the ledgers to be some evidence that Dezer Properties is the tenant-shareholder, rather than an undertenant of the Premises. Indeed, while Mr. Gelhard testified that NY Loft is the subtenant or undertenant, there was no testimony as to Dezer Properties being an undertenant.
Given the absence of any proprietary lease or stock certificate for the Premises, the unreliability of the circumstantial evidence, the inconsistent and unreliable testimony of Mr. Gelhard, and Petitioner-Landlord's failure to submit relevant and/or recent corporate documentation, the Court finds that Petitioner-Landlord failed to meet its prima facie burden of establishing that Respondents-Tenants are liable for assessments pursuant to a proprietary lease or some other agreement.
Nevertheless, even if Petitioner-Landlord met its prima facie burden, which this Court finds it did not, Petitioner-Landlord failed to meet its overall burden to establish, by a “fair preponderance of the credible evidence” (Rinaldi, 39 NY2d at 196; 300 E. 34th St. Co., 248 AD2d at 55, 56), that Respondents-Tenants owe assessments under a proprietary lease or some other agreement for the Premises.
There is a significant absence of documentary evidence from Petitioner-Landlord after 2012, including the years from 2016 to 2019 — the time period that the assessments passed and came due. The absence of documentary evidence is a significant factor to consider in evaluating the evidence, especially when the testimony of the petitioner's sole witness, as in this case, lacks credibility (see 300 E. 34th St. Co. at 55).
Furthermore, the evidence admitted at trial during the relevant time period fails to show that Respondents-Tenants were treated as shareholders. As noted above, Petitioner-Landlord's ledgers between 2013 and 2019, in evidence as Exhibit 18 and 24, show that Dezer Properties rather than Respondents-Tenants had an account that was charged and credited for assessments paid, including the first of the four assessments passed in 2016. These ledgers indicate that there was some form of an agreement between Dezer Properties and Petitioner-Landlord pursuant to which these assessments were charged and paid. This documentation is some evidence of a landlord-tenant relationship (see RPAPL 711; see generally Stern, 238 NY at 269). Indeed, Mr. Gelhard testified that Petitioner-Landlord's ledger with the account in Dezer Properties’ name, in evidence as Exhibit 24, “shows [the] shareholder's account with the co-operative” (10/24 tr at 42).
Respondents submitted other recent evidence showing that Dezer Properties is the holder of the shares to the Premises and liable for the assessments. For instance, a statement from Petitioner-Landlord's managing company, dated November 1, 2019, seeking the assessments at issue (Exhibit O) is addressed to Dezer Properties. It requests that the checks be made payable to Petitioner-Landlord. Respondents-Tenants are not mentioned in the statement.
The Registration Application to the Loft Board, dated August 5, 2013, certified by Michael Gelhard as the Treasurer “under penalties provided by law, including fines and/or imprisonment,” lists Dezer Properties as the commercial tenant of the ground floor and does not mention Respondents-Tenants as either commercial or residential tenants (Exhibit A). The Certification of Service page (Certification) for the application shows that a copy of the application was served on Dezer Properties, but not Respondents-Tenants. If Respondents-Tenants were the shareholders of the premises as Petitioner-Landlord argues, the Court expects that Respondents-Tenants would have been notified of the application process before the Loft Board.
An email from Bill Irwin, a shareholder of the tenth floor, dated July 1, 2013 (Exhibit P), summarizes a meeting between the Board and shareholders of Petitioner-Landlord on June 26, 2013. It is addressed to Petitioner-Landlords’ “Share-Holders,” including, among others, Michael Gelhard, and it lists “Dezer Properties” as the “share-holders” of the “ground floor” (id.). The email fails to mention Respondents-Tenants.
Respondents’ Exhibit S is an email from Daniel Adams, an account executive from Maxwell-Kates, the managing agent for the building, dated May 21, 2019, with an attached document entitled, “Financial Statements and Independent Auditors’ Report For the Year Ended December 31, 2018” (2018 Financial Statement Audit Report). The email containing the 2018 Financial Statement Audit Report was sent to Richard Angel at “dezerproperties.com” but not to Respondents-Tenants (Exhibit S). The 2018 Financial Statement Audit Report states that “Management is responsible for the preparation” of the financial statements and that the auditors reviewed the financial statements of Petitioner-Landlord as well as “the related notes to the financial statements” (id.).
Notably, paragraph 7 of the document, in the section entitled “Notes to Financial Statements” (Notes) states that “[a]s of December 31, 2018, the Sponsor owned 1 apartment” accounting for “128 shares ․ of the total used shares” (Exhibit S). Although Mr. Gelhard testified that he “ha[d] not noticed that notation before” (10/30 tr at 49), he acknowledged that he “know[s] [these financials] very well,” (10/30 tr at 48) and he was Petitioner-Landlord's Treasurer at the time. In his testimony Mr. Gelhard acknowledged that this reference to 128 shares meant the ground floor. Michael Gelhard also testified that the reference to the “Sponsor” meant the original Sponsor; he did not state that the “Sponsor” meant Respondents-Tenants. Both sides agree that the Sponsor is now Dezer Properties, not Respondents-Tenants.
Moreover, paragraph 7 appears to indicate that the 2018 assessments at issue here were paid. It states that “[f]or the year ended December 31, 2018, ․ capital assessment income of $192,000 was attributed to the Sponsor's apartment” (Exhibit S). This paragraph appears to refer to the capital assessments that Petitioner-Landlord argues were unpaid in 2018. Indeed, the Petition refers to assessments owed in the total amount of $192,000 and attaches a statement, dated October 1, 2018, addressed to Dezer Properties, seeking capital assessments in that amount, as well as late fees. No explanation was given as to why the Notes referred to the $192,000 capital assessment for 2018 as “income.”
In its closing arguments Petitioner-Landlord for the first time stated its concern that Respondents-Tenants did not testify or attend the trial and requested that the Court draw a negative inference. This Court declines to do so. The case was conferenced by the Court prior to trial and Petitioner-Landlord knew that Respondents-Tenants were not planning to testify. Nevertheless, petitioner-Landlord made its motion for an adverse inference after the close of evidence. Accordingly, Petitioner-Landlord's request is untimely (see e.g. 3657 Realty Co., LLC v Jones, 52 AD3d 272 [1st Dept 2008], lv dismissed 11 NY3d 829 ).
To the extent Respondents seek a judgment in their favor on the counterclaims asserted in their verified answer (see Respondents’ posttrial brief at 34), the Court finds that they are not entitled to such relief because they failed to address, much less establish, their counterclaims at trial. The first counterclaim alleges that Petitioner-Landlord improperly charged Dezer Properties, and that Dezer Properties paid, assessments in the amount of $64,000 “related to the conversion/legalization of the upper floors of the Building for residential use” (Respondents’ verified answer at ¶ 47). Respondents argue that they are entitled to a refund because the assessments were passed to convert and legalize the other units for residential occupancy and that, under the terms of the original Offering Plan and the May 31, 1978 Amended Offering Plan, Dezer Properties is not responsible for the costs incurred to convert the other units in the building to residential use.
This Court disagrees that the 2016 assessment was passed to convert and legalize the upper floors of the building for residential use for the following reasons. The evidence at trial, particularly the assessment notice admitted as exhibit 16, shows that the 2016 assessment at issue was passed to upgrade the “building's infrastructure and operating systems” to obtain a certificate of occupancy allowing for residential use of the building (Exhibit 16). The assessment notice indicates that the contemplated work encompassed the Building itself or its common areas, such as the elevators, the plumbing and electrical systems, and the sprinkler system. The notice also noted that a “common access shaft” and a “Second Means of Egress” would be created, and that the “basement area” would be reorganized (id.). The notice does not refer to work inside any individual units.
Richard Angel, the only witness for Respondents and a manager for Dezer Properties, testified that the work involved the conversion of the building to residential use. He noted that this work included the addition of an egress and hallway in the basement, the creation of pump rooms, elevator rooms and gas lines, and the redirection of gas lines, water lines, and electrical lines throughout the basement, including its common area. He also noted that the work involved new wiring for the fire alarm and sprinkler systems in the basement, and the creation of an accessible toilet room for all to use in the basement. He did not testify about any work inside any unit. Therefore, based on Richard Angel's testimony, the work appeared to include the Building itself and its common areas.
The May 31, 1978 Amended Offering Plan provided for the conversion of the building to residential use. Paragraph 6 of the May 31, 1978 Amended Offering Plan states that “all unit owners shall use their best efforts ․ to assist in the acquisition by the corporation of a Certificate of Occupancy for residential use of the building” (Exhibit 3 at 3). More importantly, it states that the “Sponsor, as holder of unsold shares, will be responsible for his proportionate share of the cost of renovation required to be made to the building itself and in any common shares [sic] of the building” (id.). It also states that the Sponsor is responsible for the costs of renovating any unsold units, and that the Tenant-Shareholders are responsible for the costs of renovating any sold units. To the extent these provisions conflict with the provisions in the original Offering Plan, the May 31, 1978 Amended Offering Plan explicitly provides that its provisions “shall prevail” (id. at 5).
Accordingly, pursuant to the May 31, 1978 Amended Offering Plan, the Sponsor, as the holder of unsold shares, is required to pay its proportionate share of the cost of renovating the Building and its common areas. As noted, both sides agree that Dezer Properties is the current Sponsor, and there is evidence that Dezer Properties is the holder of the unsold shares to the commercial premises. There is also evidence, including Michael Gelhard's testimony, that the commercial premises owns 12.8 percent of the shares in the Building, and that its proportionate share of the $2 million assessment passed in 2016 to renovate the Building and its common areas is $256,000, or four installments of $64,000.
To the extent the work performed involved the interior of units, the Court finds that Respondents failed to meet their burden of establishing that the 2016 assessment included the costs of work to the interior of units, and not the common areas or the Building itself.
Given that both sides agree that Dezer Properties is the current Sponsor, the evidence that Dezer Properties is the holder of the unsold shares to the commercial premises, the language of the May 31, 1978 Amended Offering Plan requiring the Sponsor, as the holder of unsold shares, to pay its proportionate share of the cost of renovating the Building and its common areas, and the evidence showing the purpose of the assessments and the nature of the work performed, the Court finds no basis for granting Respondents’ counterclaim seeking a return of the $64,000 assessment purportedly paid by Dezer Properties in 2016.
This Court further holds that Respondents-Tenants failed to establish their entitlement to attorneys’ fees, costs and disbursements to the extent “there is a lease or agreement between the parties” (Respondents’ verified answer at ¶ 52). Respondents-Tenants failed to submit into evidence any lease for the Premises, and there was no testimony or other evidence regarding attorneys’ fees.
In conclusion, the Court finds that Petitioner-Landlord failed to meet its prima facie and overall burden of establishing that Respondents-Tenants owe the assessments at issue pursuant to an agreement, and that Respondents failed to establish that Dezer Properties is entitled to a return of the $64,000 assessment allegedly paid in 2016. Accordingly, the Petition and counterclaims are dismissed.
This Constitutes the Decision and Order of the Court.
1. The Petition is contained in Petitioner-Landlord's reply memorandum of law in further support of its cross motion to amend the petition. The cross motion to amend was granted by Decision/Order dated May 14, 2019 (Samuels, J.).
2. At trial, the parties stipulated on the record to admitting without objection the rent demand, the notice of petition and Petition, and the corresponding affidavits of service.
3. Mr. Gelhard testified that the “ground floor and cellar” are counted as one floor (10/30 tr at 30, line 13). Accordingly, his reference to the “ground floor” throughout his testimony appears to encompass the cellar.
4. Petitioner-Landlord submitted only one Annual Shareholders Meeting minutes during this time period. It is dated June 26, 2019 and fails to indicate the owner of the shares to the Premises. Nor does it list the attendees at the meeting.
Elena Baron, J.
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