862 LLC v. ALIBABA TERRACE INC JOHN AND JANE UNDERTENANTS 10 866 SECOND AVE CORP FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA HASHEMITE KINGDOM OF JORDAN KINGDOM OF SAUDI ARABIA KINGDOM OF MOROCCO REPUBLIC OF PORTUGAL DAGBER CORP HELLENIC REPUBLIC STATE OF BAHRAIN JOHN JANE CONDOMINIUM UNIT OWNERS 10 (2026)

This decade-long action arises from the tenant's default on a 55-year lease of commercial premises and development rights, made by plaintiff-landlord, 862 Second Avenue LLC to defendant-tenant 2 Dag Hammarskjold Plaza Condominium. This court previously granted summary judgment on liability to plaintiff and referred to a special referee (Elizabeth Shamahs, Ref.) to hear and report on the amount in post-lease-termination use and occupancy (U&O) and attorney fees to which plaintiff is entitled.

Plaintiff now moves, and defendant cross-moves, to confirm in part and reject in part the referee's report. The motion and cross-motion are both granted in part and denied in part; and the referee's report is confirmed in part and rejected in part.

BACKGROUND

I. This Action

Plaintiff's predecessor-in-interest and defendant's predecessor-in-interest owned adjoining parcels of land along Second Avenue between East 46th and 47th Streets in Manhattan. In 1968, defendant leased plaintiff's parcel (located at 862 Second Avenue) and air rights appurtenant to that parcel, for a term running until 2023. Defendant was able to obtain zoning permissions to transfer those air rights to defendant's adjoining parcel, and to use those rights to facilitate its construction of a 15-story condominium on that parcel (located at 864-868 Second Avenue). (See 862 Second Ave. LLC v 2 Dag Hammarskjold Plaza Condominium, 2021 NY Slip Op 50563[U], *2 [Sup Ct, NY County 2021], affd 205 AD3d 447 [1st Dept 2022].) As permitted by the lease, the tenant built a 15-story building using a large portion of those development rights. (See id.)

Ownership of the respective parcels and the parties' respective rights under the lease were eventually assigned to plaintiff and defendant here.

In March 2016, defendant defaulted on the lease. Plaintiff terminated the lease effective August 17, 2016. (See id.) Defendant remained on the premises. Plaintiff then brought this action for unpaid rent and U&O. (See NYSCEF No. 27 [amended complaint].)

In 2021, this court granted plaintiff's motion for partial summary judgment and declared that all rights under the lease—including the development rights—reverted back to plaintiff upon termination of the lease. (See 862 Second Ave. LLC, 2021 NY Slip Op 50563[U] at *4.) This court rejected defendant's contention that the impossibility doctrine prevents reversion of the development rights to plaintiff—i.e., "that it is impossible to transfer the used development rights unless [defendant] demolishes part of its own building." (862 Second Ave. LLC, 2021 NY Slip Op 50563[U] at *3-4.) Instead, the court concluded that transfer of the rights would occur from defendant back to plaintiff once an event occurs that makes transfer feasible, such as re-development of the building. (See id.)

This court also concluded that defendant owes plaintiff damages, comprised of (i) rent owed from before the lease termination; (ii) U&O accruing from the lease termination until the (future) transfer back to plaintiff of the development rights; and attorney fees and costs. (See id. at *4.) This court referred the question of the appropriate amount in damages to a special referee to hear and report.¹ (See id.)

II. Proceedings Before the Special Referee

This court directed the special referee to assess the amount of damages in unpaid rent, past U&O, and future U&O for which defendant is liable from the lease termination in August 2016 onward. The referee held several hearings in 2023 and 2024; and the parties provided post-hearing memorandums. (See NYSCEF No. 516 at 1 [referee's report].)

The parties agreed before the referee that defendant had since paid amounts owed from August 2016 through June 2022.  ² And they stipulated to the amount that defendant owed in unpaid rent from June 2022 through the lease expiration date in May 2023. (See id. at 5-6.) The parties' disagreements instead focused on the amounts that defendant should be required to pay in future U&O and attorney fees.

In its post-hearing memorandum, plaintiff argued that defendant should be required to pay plaintiff $170,000 a year in U&O, going forward. Plaintiff's position was based on its expert's calculation, which estimated the diminution in market rental value of plaintiff's property resulting from the loss of the development rights that were being used by defendant in its building. (See NYSCEF No. 506 at 20 [plaintiff's post-hearing memorandum].) Defendant contended that it should be required to pay $137,500 a year in future U&O, instead. Defendant based this position on the market rental value of the development rights that remain occupied by defendant's building. (NYSCEF No. 515 at 23 [defendant's post-hearing memorandum].)

In December 2024, the referee issued her report and recommendation. (See NYSCEF No. 516.) The referee rejected both parties' damages proposals. The referee concluded that defendant had not held over on plaintiff's development rights and was therefore not entitled to U&O. (See NYSCEF No. 516 at 8.) This conclusion stemmed from the referee's understanding that plaintiff owned (and had leased to defendant) both parcels of land and both buildings at issue in this action (862 Second Avenue and 864-868 Second Avenue), rather than just 862 Second Avenue. (See id. at 3, 8.) Based on this understanding, the referee rejected the premise of plaintiff's damages claim, "that Defendant somehow continues to 'use and occupy' any portion of the Parcel 2 building" (864-868 Second Avenue), because defendant returned the parcels and buildings. (Id. at 8.) Instead, the "air and development rights to both of those parcels reverted to Plaintiff on August 17, 2016, after Defendant lost its lease," as " 'incidents of plaintiff's ownership' of both parcels." (Id.) The referee concluded, therefore, that plaintiff "continues to own the same amount of air and development rights accruing to each parcel as it did before it executed the 1966 and 1968 leases," whereas defendant "has had no authority to affect those 'incidents of ownership since August 17, 20216," has "derived no profit from them since that date," and thus "cannot be said to be 'using' or 'occupying them.' " (Id.)

Having rejected the parties' holdover-damages-related arguments, the referee concluded that the only potentially applicable ground for damages was a liquidated-damages provision in article 15 of the lease—a provision that neither party had relied on. Under this provision, plaintiff is entitled to damages "when a tenancy is terminated and the tenant defaults on its covenant to 'restore or rebuild' the premises to " 'the same condition as that in which the Tenant . . . agreed to surrender them to the Landlord at the expiration of the term hereof." (Id. at 9.) The referee held that although the applicability of this provision is not certain, because plaintiff "did not ever demand that Defendant is obligated to 'restore or rebuild' the building" at 864-868 Second Avenue "so that it no longer incorporated any of the . . . air and development rights" appurtenant to 862 Second, liquidated damages under article 15 constituted plaintiff's "only legal recourse for the 'holdover damages' it seeks." (Id. at 9-10.) If applicable, the referee explained, article 15 would provide for damages consisting of "the cost of demolishing the entire [15-story] building," prorated "to account only for the FAR that is occupied by the borrowed Parcel 1 air and development rights," and then discounted to account for an interest provision. (Id. at 10.) The referee recommended that plaintiff be awarded an amount in liquidated damages to be determined based on article 15 of the lease. (Id. at 28.)

On attorney fees, the referee awarded plaintiff against defendant $2,517,091.50. (See NYSCEF No. 516 at 28.) In particular, the referee awarded $2,334,759.63 in attorney fees, costs, and disbursements to one of plaintiff's attorneys, Paul Hastings. (See id.) Notably, the referee concluded that Paul Hasting's had not provided evidence to support its billing rates and therefore calculated the attorney fees owed based on the lowest rates that the firm charged. (See id. at 22.) The referee further reduced the fee award by 10% (although defendant requested a 30% reduction) to account for Paul Hasting's practice of block billing. (See id. at 23.) Despite defendant's request, the referee declined to further reduce the attorney-fee award due to Paul Hastings's use of quarter-hour billing and defendant's claims that Paul Hastings billed plaintiff excessively.

Ultimately, the referee recommended that defendant be held liable for $313,920.40 in rent from June 22, 2022, until May 31, 2023 (as stipulated by the parties); U&O to be determined based on article 15 of the lease; and $2,517,091.50 in attorney fees, costs, and disbursements. (See id. at 28.)

Plaintiff moves and defendant cross-moves to confirm the report in part and to reject the report in part. The motion and cross-motion are each granted in part and denied in part.

DISCUSSION

I. Stipulated Damages

The parties stipulated that defendant owes plaintiff $313,920.40 in unpaid rent and additional rent that accrued between June 22, 2022, and the expiration of the lease on May 31, 2023. (See NYSCEF No. 516 at 5 [referee's report].) The branches of plaintiff's motion and defendant's cross-motion to confirm this portion of the referee's report are granted.

II. U&O on Land Development Rights

Analyzing the referee's recommendation about the amount of post-expiration damages to which plaintiff is entitled is more complicated. As described above, the referee recommended that this increment of damages should be assessed based on the liquidated-damages provision of article 15 of the lease. On the current motion and cross-motion, defendant argues that article 15 liquidated damages is an appropriate form of (and formula for) plaintiff's damages, and that this part of the referee's recommendation should be confirmed. (See NYSCEF No. 524 at 7-10.) Plaintiff, on the other hand, contends that the referee's reliance on article 15 was the product of a misunderstanding of the legal status of the two parcels at issue. (See NYSCEF No. 519 at 9-13.) This court agrees with plaintiff.

As an initial matter, the reference itself was based on this court's conclusion—as affirmed by the First Department—that defendant was continuing to use plaintiff's development rights, and that this continued use constituted a holdover for which plaintiff is entitled to compensation in the form of U&O. (See 862 Second Ave., 2021 NY Slip Op 50563[U], *2-3, affd 205 AD3d at 447.) The reference therefore directed the referee to hear and report on the issue of the "damages that [defendant] owes for holding over in the premises and development rights" after August 2016. (See id. at *6 [emphasis added].) In rejecting the premise that a holdover had occurred in the first place and starting the damages analysis over from scratch, the referee acted contrary to (and beyond the scope of) the reference.

And, as plaintiff contends, the referee took this approach based on a misapprehension of the record. The referee understood plaintiff to have leased both parcels (862 Second Avenue and 864-868 Second) to defendant, not just 862 Second, such that when plaintiff terminated the lease, both parcels—and the buildings on them—reverted to plaintiff. (See NYSCEF No. 516 at 8-9.) On this view, at lease termination, plaintiff regained the 15-story building on the 864-868 parcel that had been built in part using the development rights appurtenant to 862; and plaintiff now had both its buildings and its development rights back, no holdover occurred, because defendant had nothing left in which it could hold over. (See id.)

This factual understanding, however, is incorrect. Defendant (or its predecessor in interest) at all times owned the 864-868 Second Avenue parcel. Defendant leased only (i) the physical parcel at 862 Second Avenue; and (ii) the intangible development rights appurtenant to 862 Second, which defendant used in building its 15-story building at 864-868 Second. (See NYSCEF No. 460 at 1 [lease's description of the leased premises and rights]; id. at 20 [discussing defendant's ownership of the adjoining parcel].) When the lease terminated, the rights to the parcel and development rights at 862 Second reverted to plaintiff. But defendant still has the building at 864-868 that had been built using (most of) the 862 development rights. And the 862 development rights used to build a (larger) building at 864-868, although technically owned by plaintiff, cannot be used by plaintiff as long as the 864-868 building remained in place. (See 862 Second Ave., 205 AD3d at 447 [discussing this point].) Plaintiff is therefore entitled to compensation from defendant for defendant's continued "use" or "occupancy" of those rights, as incorporated into defendant's building.

Contrary to the referee's conclusion, article 15 of the lease is not plaintiff's "only legal recourse for the 'holdover damages' it seeks." (NYSCEF No. 516 at 10.) Plaintiff is instead entitled to compensation directly for the value of the 862 Second development rights that remain tied up in defendant's building at 864-868 Second.³ To determine the appropriate amount of that compensation in the form of U&O, this court examines for itself the record before the referee, drawing on the parties' experts' damage-calculation reports.⁴

Plaintiff seeks $170,000 a year in U&O damages based on one of its expert's calculations: the difference between the annual market rent for plaintiff's parcel, plus all development rights and the market rent for the parcel with un-reverted development rights (difference in market rent for the whole parcel). (See NYSCEF No. 458 at 6 [plaintiff's expert report].) Plaintiff's expert found that but for the used development rights, the annual market rent for plaintiff's property would be $350,000. (See NYSCEF No. 458 at 7.) The expert then concluded that the annual market rent—when plaintiff retains only the unused development rights and a future reversion of the used development rights—is $180,000. (See id. at 6-7.) Plaintiff's expert thus opined that plaintiff's damages for allowing defendant to continue to use the development rights until reversion is $170,000 a year, the difference between those property rental values. (See id. at 7.)

In short, plaintiff's expert testified that the development rights have no rental value unless they are appurtenant to plaintiff's building and therefore that the damages calculation would need to account for the rental value of the building as encumbered by the used development rights. (See NYSCEF No. 452 at 19-20, 102-103.) Plaintiff argues that this damages calculation takes into account the harm plaintiff will suffer and is consistent with trespass damages. (See NYSCEF No. 528 at 9; see also NYSCEF No. 452 at 13 [plaintiff's expert's testimony].)

Defendant disputes this calculation. According to defendant's expert, the question is not about the effect the inability to use development rights has on the rental value of the parcel, but the rental value of the used development rights themselves. (See NYSCEF No. 489 at 3 [defendant's expert's report].) According to defendant, using a damages calculation based on the market rental value of the property as a whole would allow plaintiff to recoup consequential damages. (See NYSCEF No. 524 at 12-13; NYSCEF No. 489 at 9.)

The court agrees with defendant. Development rights are real property in and of themselves. (See Harmit Realties LLC v 835 Ave. of Americas, L.P., 128 AD3d 460, 460 [1st Dept 2015].) And they may be sold independently from a parcel of land. (See 301 E. 60th St. LLC v Competitive Sols. LLC, 217 AD3d 79, 87 [1st Dept 2023] [requiring specific performance of sale of air rights alone].) Accordingly, this court is unpersuaded that development rights cannot also be rented out and therefore subject to U&O in the case of a holdover. Moreover, to hold that plaintiff may not seek U&O for holdover on the development rights alone would be inconsistent with this court's summary-judgment decision, which awarded U&O corresponding both to defendant's holdover on the premises and its holdover with respect to the development rights. (See 862 Second Ave. LLC, 2021 NY Slip Op 50563[U] at *6.)

In addition, the court agrees with defendant that damages based on the value of the parcel would constitute consequential damages. (See NYSCEF No. 489 at 9; NYSCEF No. 515 at 9.) If the rental value of the development rights could not be parsed out from the building's rental value, then damages encompassing the building's diminution in rental value would flow directly from defendant's holdover of the development rights. But the development rights have their own independent value. Damages stemming from the building's rental value thus do not arise directly from the holdover of those development rights. (See Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of New York, 10 NY3d 187, 192 [2008] [discussing the meaning of consequential damages].) And it is undisputed that the lease does not provide for consequential damages. Plaintiff therefore may not obtain that form of relief. (See Sushi Tatsu, LLC v Benaresh, 162 AD3d 577, 578 [1st Dept 2018].)

This court is also unpersuaded by plaintiff's contention that the U&O damages here should be analogized to trespass damages. U&O stems from a party's occupation of premises—as originally permitted by a lease—whereas a trespass does not. Moreover, plaintiff has raised no trespass claim in this action. (See NYSCEF No. 27 [amended complaint].)

Both parties concede that the market value of the used development rights (when not encumbered by the possibility of reversion), as of June 22, 2022, would be $2,745,375 (which both parties have rounded to $2,750,000). (See NYSCEF No. 458 at 11; NYSCEF No. 489 at 3; accord NYSCEF No. 450 at 108-109, 179; NYSCEF No. 451 at 10 [plaintiff's expert's testimony at trial].) Plaintiff's expert, however, does not take the used-development rights' market value and translate it into an estimate of the annual market rent that could be obtained for the used development rights. (See NYSCEF No. 458; NYSCEF No. 451 at 117, 160 [defendant's expert's testimony].) On the other hand, defendant's expert opined that applying a 5% return rate to the used development rights would "convert the fee value of the development rights into an estimate of Annual Market Rent."⁵ (NYSCEF No. 489 at 4.) Defendant's expert thus applied the 5% rate to $2,750,000 yielding a $137,500 yearly rental value.⁶

Given that defendant's expert's calculations are based on the value of the used development rights, as opposed to the value of plaintiff's whole parcel, the court adopts defendant's $137,500 yearly rental valuation for the used development rights. The parties agree that the annual U&O amount is subject to adjustment for inflation. The parties further agree that this adjustment should be based on the formula provided in article 35 of the lease, which calculates additional rent. (See NYSCEF No. 524 at 16; NYSCEF No. 519 at 25; NYSCEF No. 460 at 64 [lease article 15].)

III. Attorney Fees

Plaintiff moves to confirm the referee's recommendation for an overall attorney-fee award of $2,517,091.50 against defendant. (See NYSCEF No. 519 at 8.) As part of that award, the referee awarded $2,334,759.63 to plaintiff's attorneys, the law firm of Paul Hastings, LLP ($2,579,961.25, minus 10% due to block billing, plus $12,794.51 in costs and disbursements). Defendant cross-moves to reject the portion of the attorney-fee award recommended for Paul Hastings. (NYSCEF No. 524 at 16.)

a. Defendant first contends that Paul Hastings's fees should be reduced by 30% due to its use of block billing. Defendant says that the referee's report found that 63.55% of counsel's fees involved block billing, but that the referee awarded only "the standard 10% block billing reduction." (NYSCEF No. 516 at 23 [referee's report].) Defendant argues that a 10% reduction is insufficient in light of the degree to which Paul Hastings block billed and "that a 10% reduction for block billing by a law firm is not a standard in the First Department." (NYSCEF No. 524 at 18.)

The court disagrees with defendant. That the referee believed that 10% reduction is "standard" does not necessarily mean that she believed any potential reduction must be capped at 10%. (See Community Counseling & Mediation Services v Chera, 115 AD3d 589, 590 [1st Dept 2014] ["[T]here is no per se rule as to the maximum or minimum that block-billed fees should be reduced to account for unnecessary work."].) In its post-trial brief, defendant advocated for a 30% reduction. (See NYSCEF No. 515 at 33.) The referee had the opportunity to consider the 30% rate. But the referee, after hearing from witnesses—namely, counsel's partner, Jodi Kleinick—and examining the block-billing entries at issue, concluded that 10% was the appropriate percentage to reduce Paul Hastings's fees. This conclusion was a permissible interpretation of the record. This court is unpersuaded that the referee's "conclusions could not have been reached under any fair interpretation of the evidence, particularly where the findings of fact largely rest upon considerations relating to the credibility of witnesses."  ⁷ (Cohen v Akabas & Cohen, 71 AD3d 419, 420 [1st Dept 2010].) The court declines to award a further reduction of legal fees due to block billing.

b. Defendant next argues that Paul Hastings's fees should be reduced by a further 20% because it billed plaintiff in quarter-hour increments—a billing rate that tends to "substantially overstate the amount of time spent" on smaller tasks. (NYSCEF No. 524 at 19.) Defendant contends that the referee did not consider the quarter-hour-billing issue when determining the attorney-fee award. (See id.) Conversely, plaintiff argues that quarter-hour billing is permissible and that a reduction is unwarranted when the total amount of time spent on the litigation is reasonable. (See NYSCEF No. 528 at 4.)

Quarter-hour increments are technically permissible. (See S.B.H. Realty v Santana, 2017 NY Slip Op 51280[U], *5 [Civ Ct, Bronx County 2017] ["A timekeeping system based on time blocks of .25 hours is acceptable."].) But using quarter-hour increments is frowned upon, because it "has a tendency to obfuscate the amount of time expended on distinct tasks and introduces an element of vagueness into a fee application, making it difficult to determine if the reported hours are duplicative or unnecessary." (Thomas v United States, 2011 WL 6057898, *7 [SD NY, Dec. 5, 2011, No. 02 Civ. 5746].) Given the number of hours and tasks dedicated to this action, the court concludes that Paul Hastings's use of quarter-hour billing increased the potential for that obfuscation and that an additional 5% fee reduction is warranted. (See Local No. 46 Metallic Lathers Union and Reinforcing Iron Workers Welfare Tr., Annuity Fund, Pension Fund, Apprenticeship Fund, Vacation Funds, Scholarship Fund, and Other Funds v Brookman Const. Co., Inc., 2013 WL 5304358, at *5 [ED NY, Sept. 19, 2013, No. 12—CV—2180] [imposing 5% reduction for quarter-hour-increment billing].)

c. Finally, defendant contends that Paul Hastings's fees should be reduced by an additional 20% to account for "unexplainable, unreasonable, and excessive charges." (NYSCEF No. 524 at 21.) Defendant identifies numerous examples of those charges, which, it says, the referee did not properly address in her report. (Id.)

The court disagrees with defendant. The court should confirm a referee report when "the findings are substantially supported by the record." (HSBC Bank USA, N.A. v Wu, 242 AD3d 599, 601 [1st Dept 2025].) Although the referee here did not explicitly discuss each of defendant's objections individually, it is evident from her report that she considered those objections. (See NYSCEF No. 516 at 21 [referee], citing NYSCEF No. 515 at 39-44 [defendant's post-trial submission].) The referee also considered the evidence presented to her—to the point that she reduced Paul Hastings's attorneys' hourly rates to address any unreasonableness in their billing rates. (See id. at 21-22.) The court concludes that the referee's determinations on defendant's objections are substantially supported by the record and that additional 20% reduction is unwarranted.

This court determines that in total, the Paul Hastings increment of plaintiff's attorney fees should be reduced by 15% (10% for block billing and 5% for quarter-hour billing). Applying an additional 5% reduction, defendant owes $2,205,761.57 ($2,334,759.63 - $128,998.06).⁸

IV. Interest

The referee made one award of prejudgment interest: interest on the entire amount in damages, accruing at the statutory rate of nine percent from the date plaintiff commenced this action, October 13, 2016. (See NYSCEF No. 516 at 28.)

In challenging that award, defendant argues that none of the categories of damages (stipulated damages, U&O, or attorney fees) are subject to interest running from that date. Defendant contends that the court should award interest in multiple increments. In particular, Defendant argues that because the rent damages apply to unpaid rent from June 2022 through May 2023—long after the action was commenced in 2016—interest on that amount should run from the date of this court's decision on this motion.(See NYSCEF No. 524 at 23.) For the holdover damages accruing between June 1, 2023, through the date of this motion, defendant reiterates its position that this court should adopt the liquidated-damages provision as the measure of damages, and that a liquidated-damages award inherently covers interest, making a separate interest award unnecessary. (See id. at 24.) With respect to attorney fees, defendant argues that it would be most practical for interest to run from the date of confirmation of the attorney-fee award. (See id. at 24-25.)

Plaintiff contends that this court should confirm the referee's interest awards. (NYSCEF No. 519 at 2.) Alternatively, on reply, plaintiff argues that this court should award interest on the stipulated damages running from an intermediate date under CPLR 5001, which plaintiff says would be December 11, 2022. (See NYSCEF No. 528 at 12.) On the U&O for the used development rights, plaintiff contends that interest should run from the intermediate date of July 1, 2022. (See id.) Finally, on attorney fees, plaintiff says that interest on fees incurred before this court's summary-judgment decision should run from the date of that decision (June 17, 2021); and that interest on fees incurred after that decision from June 22, 2021, until October 31, 2023, should run from an intermediate date, which, it says, is June 22, 2022. (See id. at 13; NYSCEF No. 506 at 67.)

This court concludes, first of all, that interest must be assessed in multiple increments, each with its own accrual date, rather than as one unified award.

a. For stipulated damages and U&O, this court concludes that interest should run from reasonable intermediate dates. Under CPLR 5001, "[w]here such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date." Using the date of this decision as the starting point for interest would undercompensate plaintiff for the harm incurred before this action began. In contrast, using this action's commencement date as the starting point would make plaintiff more than whole. (See Hon. Mark C. Dillon, Prac Commentaries, McKinney's Cons Laws of NY, C5001:1 [2023 ed] ["The award of interest is founded on the underlying theory that there has been a deprivation of use of money and that the sole function of interest is to make the aggrieved party whole."].) And because this court rejects defendant's position that damages should be awarded based on the lease's liquidated-damages provision (as discussed above), the court is unpersuaded by defendant's corollary argument that a separate interest award is unnecessary as having already been incorporated into the damages to be awarded.

The parties stipulated to damages of $294,070,20 in holdover rent and $19,850.20 in building repair charges covering from June 22, 2022, through May 31, 2023 (lease expiration date). (See NYSCEF No. 516 at 5-6; NYSCEF No. 456 at 3-4.) These damages add up to $313,920.40. The reasonable intermediate date from which interest should run on that sum is December 11, 2022.

It is undisputed that U&O began to accrue on June 1, 2023.⁹ (See NYSCEF No. 516 at 6.) Interest on the U&O that accrued from June 1, 2023, through the date of this decision is subject to interest running from the intermediate date of December 14, 2024.

b. Next, the court concludes that interest on the legal fees accrued up and until this court's summary-judgment decision runs from the date of that decision: June 17, 2021. (See Housing Corp. v Jimco Restoration Corp., 77 AD3d 502, 502-503 [1st Dept 2010] [holding that interest on attorney-fee claim runs from date of underlying judgment rather than the judgment issued by the special referee].) As for attorney fees incurred from June 22, 2021, until October 31, 2023, the court concludes that interest should run from an intermediate date. In the court's calculation, however, that date is September 1, 2022.

V. Additional Judgments

Plaintiff argues that it should automatically be awarded further judgments against defendant should defendant default on its obligations enumerated in this decision. (See NYSCEF No. 528 at 13, citing NYSCEF No. 239 at 4.) Defendant opposes this request, arguing that plaintiff may instead avail itself of enforcement remedies under CPLR article 52. (See NYSCEF No. 529 at 20.)

The court declines, at this juncture, to implement a mechanism designed to award a conditional judgment triggered by a future default. Plaintiff may avail itself of article 52 procedures by motion made on notice, should the need arise.¹⁰

Accordingly, it is

ORDERED that the branches of plaintiff's motion and defendant's cross-motion to confirm the referee's award of $313,920.40 in stipulated damages in favor of plaintiff and against defendant is granted, with interest at the statutory rate running from December 11, 2022; and it is further

ORDERED that the branches of plaintiff's motion to reject the referee's recommendation on U&O damages and defendant's cross-motion to confirm the referee's recommendation on U&O damages is denied; and plaintiff is awarded holdover U&O at the rate of $137,500 a year, which will remain ongoing until the used development rights are transferred back to plaintiff and which will be adjusted for inflation under article 35 of the lease ; and it is further

ORDERED that plaintiff awarded a judgment of U&O in the amount of $421,917.80 against defendant for U&O accrued from June 1, 2023, through the date of this decision ($137,500 for three years, plus U&O accrued, as prorated, from June 1, 2026, through the date of this decision); and it is further

ORDERED that plaintiff is awarded interest as against defendant on the $421,917.80 in U&O accrued from June 1, 2023, through the date of this decision, running from the intermediate date of December 14, 2024; and it is further

ORDERED that the branch of plaintiff's motion to confirm the referee's recommended award for attorney fees is denied and defendant's cross-motion to reject the referee's recommended award for attorney is granted to the extent that plaintiff is awarded $2,205,761.57 to cover attorney fees accrued through Paul Hastings, LLP; and it is further

ORDERED that plaintiff is awarded statutory interest on the attorney-fees, costs, and disbursements award for legal fees and costs and disbursements incurred from before and until June 17, 2021 (this court's summary-judgment decision) running from June 17, 2021; and it is further

ORDERED that plaintiff is awarded statutory interest on the attorney-fee, costs, and disbursements award for legal fees and costs and disbursements incurred from June 22, 2021, until October 31, 2023, running from the intermediate date of September 1, 2022; and it is further

ORDERED that the remaining portions of the referee's report are confirmed; and it is further

ORDERED that plaintiff shall serve notice of entry on defendant; and shall serve notice of entry on the office of the County Clerk (using the NYSCEF filing event "Notice to the County Clerk - CPLR § 8019 (c)"), which shall enter judgment accordingly.

DATE 6/25/2026

FOOTNOTES

1.   The court directed that in determining the "damages that Second Avenue is entitled to for Dag's use and occupancy of the premises and development rights since August 18, 2016," the referee would take "into account Dag's payments under the use-and-occupancy order" previously issued by the court. (862 Second Ave. LLC, 2021 NY Slip Op 50563[U] at *4-5.) This court's use-and-occupancy order had instructed defendant to pay U&O pendente lite. (See 862 Second Ave. v 2 Dag Hammarskjold Plaza Condominium, 2018 NY Slip Op 31339[U], *3 [Sup Ct, NY County 2018], affd 185 AD3d 421 [1st Dept 2020].)

2.   The court technically ordered that the U&O be calculated starting from August 2016. Since then, defendant paid all amounts owed from 2016 until June 22, 2022. (NYSCEF No. 516 at 5-6 [referee report].) The referee's calculation, and also this court's calculation here, thus runs from June 22, 2022.

3.   This court is skeptical in any event that article 15's liquidated-damages provision would apply to the present circumstances. Article 15 provides that once the lease is terminated due to a default, the tenant agrees that the premises shall be remain "in the same condition as that in which the Tenant has agreed to s[u]rrender them to the Landlord at the expiration" of the lease term. (NYSCEF No. 460 at 39.) Article 31 of the lease, governing surrender, provides that defendant must "surrender and yield up unto the Landlord all and singular the demised premises, free of occupants, broom-clean, together with all alterations, additions and improvements which may have been made upon the premises, in good order and repair, reasonable wear and tear excepted." (Id. at 60 [emphasis added].) And the lease expressly contemplates the possibility that "buildings and improvements . . . may be erected on said premises." (Id. at 1 [defining "demised premises"].) Articles 15 and 31 thus do not prohibit defendant from returning possession to plaintiff of the premises as improved with a building built by defendant; and these lease provisions do not address the legal rights by which defendant is able to erect any buildings on the premises during the lease term.

4.   The referee found both experts to be credible. She found only defendant's expert to be persuasive, however, because that expert sufficiently challenged plaintiff's expert's computation methods. (See NYSCEF No. 516 at 6.) And she found that plaintiff's expert's report was speculative. (See id.)

5.   Defendant's expert opined that both he and plaintiff's expert agreed on the 5% return rate on the development rights. (See NYSCEF No. 489 at 4.) In this court's view, however, plaintiff's expert applied a 5% return rate to the value of plaintiff's entire parcel, not to the value of the development rights alone. (See NYSCEF No. 458 at 17 [Table 10].)

6.   Defendant argues that its expert's calculation is consistent with article 14 of the lease, which provides that on lease termination, the tenant must pay to landlord the rent and additional rent reserved under the lease, minus any rent landlord received on reletting the premises. (NYSCEF No 524 at 11, citing NYSCEF No. 460 at 37 [lease, art 14 [b] [2]].) According to defendant, this measure is the equivalent of U&O. (See id.)

7.   In particular, the referee found that some of Ms. Kleinick's responses on cross-examination "cast sufficient doubt on the accuracy of some of Paul Hastings' 'block billing entries' as to make it challenging to determine whether the time charged for the work in those entries was reasonable." (NYSCEF No. 516 at 23.)

8.   The $2,334,759.62 includes the $12,794.51 in costs and disbursements.

9.   As discussed above, the parties stipulated before the referee that defendant had made additional payments for rent/additional rent for the period from the lease termination date (August 16, 2016) and the date of eviction of defendant's subtenant (June 22, 2022). (See NYSCEF No. 516 at 5.) And the parties further stipulated to the amount of holdover damages for the period between the subtenant's eviction and the lease's expiration on May 31, 2023. (See id.) U&O for the development rights thus began to accrue on June 1, 2023.

10.   For instance, plaintiff may seek a judgment on future U&O, once accrued, should defendant fail to pay that U&O. Any such judgment may be sought by motion made on notice in this action.

Gerald Lebovits, J.