Damages to Building from Tenants

from The New York Law Journal, July 20, 2006


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TAG 380 LLC v. JP Morgan Chase Bank, 300405 TSN 2005


On the First cause of action in an amount not less than $3,000,000., for
failure to restore the leased premises, 380 Madison Avenue, to their
original condition, with respect to alterations, upon the expiration of
the lease as set forth in §6.04 of the lease.


On the Second cause of action in an amount not less than $3,000,000.,
for failure to keep the leased premises in good working order and
condition as required by §7.01 of the lease.


On the Third cause of action in an amount to be proven at trial, for
failure to comply with §8.01 of the lease.


On the Fourth cause of action in an amount to be proven at trial, for
failure to comply with §§6.05 and 28.01 of the lease.


On the Fifth cause of action in an amount not less than $314,737.92 for
failure to pay additional rent as set forth in §3.02 of the lease.


On the Sixth cause of action in an amount not less than $64,764.65 for
failure to pay additional rent based on changes in taxes as set forth in
§3.03 of the lease.
This matter was referred to this court on April 24, 2006 for a trial.
During the trial the parties entered into a stipulation of settlement on
the record to resolve the Third, Fifth and Sixth causes of action, for a
total sum of $308,606.13 inclusive of interest through April 30, 2006.
The trial proceeded with respect to the First, Second and Fourth causes
of action.
Plaintiff alleges that at the time defendant vacated the premises it was
supposed to remove major tenant alterations such as:
A Glycol cooling system, double glazed windows on 13th floor,
supplemental air-conditioning units, a Halon fire suppression system,
Electrical and telecommunications wiring, a UPS system.
It is also alleged that defendant failed to make repairs to the building
plumbing system in the bathrooms, and that defendant failed to leave the
premises in good repair and broom clean condition, as evidenced by a
punch list of items in disrepair given to defendant on October 15, 2002.
Defendant counters that pursuant to §6.04 of the lease it was not
required to remove the major alterations, nor pursuant to §7.01 to
make repairs to the plumbing system in the bathroom. Finally defendant
asserts that it left the premises in good working order and in a broom
clean condition, ordinary wear and tear excepted, as contemplated in
§28 of the lease.
At trial plaintiff presented the testimony of four live witnesses,
Raymond Cuddy, the property manager at the subject premises; Ted
D'Alessandro, the building's chief engineer; Joseph Riccardi,
self-employed at Persistence Construction; Charles Guigno, managing
director of Stamack construction; and the video deposition testimony of
Steven Chapman taken on April 18, 2006. In 1993 Mr. Chapman was employed
by HRO International and was responsible for operations and construction
at the subject building.
Defendant presented the testimony of James Burgess who managed the space
at 380 Madison Avenue for defendant from 1998-2002; Jesus Soto a
maintenance handyman employed by Cushman & Wakefield at the premises;
and Joseph Gottdant, an electrician for 20 years, employed by Unity
Electric who performed disconnect work at the premises.
In 1981 Chemical Bank leased Six floors 9-14 at 380 Madison Avenue
(hereinafter the "premises") from Uris 380 Madison Corp. In 1989 the
15th floor was added and a portion of the 2nd Floor in 1997. In 1989 the
property was sold to 380 Madison Avenue Partnership, a wholly-owned
affiliate of HRO International, Ltd. Spartan Madison Corp., subsequently
became the landlord, retaining HRO as managing agent until February
2001. Plaintiff TAG 380 bought the lease to the building in February
2001 becoming the landlord one and a half years before the lease expired
in September 30, 2002. [see Defendant's Trial Memorandum]. Defendant
occupied the premises for a period of 20 years and made numerous
alterations to the premises, in accordance with the lease.
During the term of the lease defendant made numerous additions and
alterations to the premises. It installed a Glycol cooling system, which
is a massive installation of machines sitting atop the building's 13th
floor set back. It has heat exchangers, fans , pumps, switches, wires,
ducts and piping that run throughout the building from the 9th through
the 14th floor. It is also connected to supplemental air-conditioning
units throughout the building. This system along with the supplemental
air-conditioning system can only be removed at great expense and damage
to the premises. The systems are completely intertwined with the space.
To remove them the ceilings and floors have to be lifted. The
Supplemental air-conditioning systems, connected to the Glycol system
have duct work to vent throughout the rooms. There are pipes under the
floor tied into the base of the building to deliver water to the unit.
The components of the supplemental air-conditioning system are visible
throughout the seven floors [9th-15th]. The pipes, wires, ducts go
through walls, ceilings and floors.
Defendant also installed a Halon fire suppression system. It is tied to
the premises and can only be removed by taking out the ceilings, lifting
floors and going into walls, thereby causing extensive damage to the
premises. Additionally, defendant installed an Uninterrupted Power
Supply (UPS) system, weighing about 5,000 pounds, to insure power in the
event of a power failure. There are wires running through conduits,
cable trays and LAN rooms from one floor to another throughout the
premises. To remove the UPS system would cause damage to the premises
because would have to tear up floors and walls.
There are Electronic Data Processing cables that run throughout the
premises, through floors, walls and ceilings. To remove these wires
there would have to be major demolition of the premises. Ceilings,
floors and walls would have to be torn. These wires run to electric
closets that are kept locked by the landlord. In order for the tenant to
have access to these closets it must request it from the landlord.
When defendant vacated the premises it took photographs to show the
condition of the premises at the time. It also toured the premises with
a representative of plaintiff. During the tour defendant was not told
that it had to remove or replace anything. After defendant had left the
premises plaintiff served on defendant a punch list of items that needed
to be removed from the premises or repaired. The items that needed
repair were considered to be damaged beyond ordinary wear and tear.
Defendant concedes certain items on the punch list show damage beyond
wear and tear.
One of the items which plaintiff places on the list, which defendant
does not concede it is responsible for, is damage to the plumbing
fixtures in the toilets. Defendant asserts that landlord was responsible
for repairing these and that tenant was only responsible for the stalls.

In preparation for this litigation plaintiff asked Joseph Riccardi to
prepare an estimate of the cost to remove the items it claims must be
removed, to repair the items it claims must be repaired and to replace
the items it claims must be replaced. Mr. Riccardi took the punch list,
walked through the premises and placed a value on the job to remove
repair or replace the items on the list. He admitted that his estimate
is not accurate because he needs to have plans before he can make an
accurate estimate. He based his conclusions on the fact that the
premises are situated in a class "A" building and the Union trades must
be called in to perform the job. Mr. Riccardi estimated that in this
building it cost $500 to remove a steel clip, $1500 to remove paper from
a vent, $14900 to remove double glaze windows, $250 to replace a light
switch, to replace ceiling tiles $6200. He admitted his estimate is
inflated by 3-5% to compensate for the lack of plans.


Defendant presented the testimony of Jesus Soto, handyman at the
premises, and of Mr. Gottdant, the licensed Union electrician who worked
on the move out. They went through the list of items conceded by
defendant it needed to repair, remove or replace and arrived at a figure
far less than that arrived at by Mr. Riccardi. The number arrived at,
taking into consideration the cost of materials and total man hours is
$37,848 to repair, remove or replace items damaged beyond ordinary wear
and tear. On cross-examination Mr. Ricciardi conceded that if there was
no need to remove the Glycol system, then the cost of removing the
double glazed windows would be $5,000 to $6,000 dollars because only the
inside glazing, soffit and convector covers would have to be removed.
Removal of the glass alone would cost approximately $2,000 but there
would be a need for other people to do other things involved such as
painting.
Finally, plaintiff did not request defendant remove the Glycol cooling
system, Supplemental air-conditioning system, Halon fire suppression
system, UPS system, or Electronic Data Processing wires at the time of
their installation or within 30 days thereafter.
LEGAL ANALYSIS
Ordinarily it is the court's responsibility to interpret written
instruments. In the interpretation of the written instrument the court
has analyzed the applicable provisions of the lease in their entirety,
searching for the probable intent of the parties. In searching for the
probable intent of the parties the fair and reasonable meaning of the
words control. When the terms of the contract are clear and unambiguous
the intent of the parties must be found within the four corners of the
contract.


The court should construe the contract with due consideration to
execution, circumstances and purpose and give the agreement fair and
reasonable interpretation. Primary attention must be given to the
purpose of the parties in making the contract. Further, the document
should be read as a whole to ensure that excessive emphasis is not
placed upon particular words or phrases.

In 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. The same rules of
construction applicable to contracts generally apply in the
interpretation of leases.


The relevant clauses in the lease are clear and unambiguous.
§6.01prohibit tenant from making structural alterations to the
premises without landlord's prior written consent. It also confers on
Landlord the prerogative of approving contractors, setting the time and
manner work is to be performed, and compels tenant to obtain waiver of
mechanic's and other liens on the real property signed by architects
engineers, contractors, mechanics and designers involved in the work.
These unconditional waivers were to be delivered to landlord prior to
commencement of the work.
It therefore is a logical conclusion that prior to defendant's
installation of the Glycol System, supplemental air-conditioning system,
Halon fire suppression system , Electronic Data Processing installations
or UPS system the landlord had to be on notice that these systems were
going to be installed. Otherwise tenant would have been in violation of
this clause in the lease. There is nothing on the record of this trial
evincing tenant's non-compliance with §6.01 of the lease.
§6.04 makes all alterations of a permanent nature and which cannot be
removed without "damage" to the premises or building property of
landlord. Tenant shall not be required to restore the premises to the
condition it was prior to the alterations unless it has been so advised
by landlord within 30 days of approving the alteration or within 30 days
of submission of plans for the alteration if no approval is required.
Included in the list of alterations considered to be of a permanent
nature are stairways, slab openings, SPECIAL ELECTRONIC DATA PROCESSING
OR COMMUNICATION INSTALLATIONS, vaults, food preparation facilities,
private lavatories, projections rooms.
It is undisputed that following installation of these systems there was
no notice from landlord to tenant that the premises had to be restored
to their condition prior to the system's installations.


The only letter sent by landlord to tenant pertained to the double
glazed window s installed on the 13th floor set back. This letter made
reference to the Glycol cooling system, but it was sent years after the
system had been installed. §6.04 of the lease gives landlord only 30
days to request the restoration otherwise it is waived. With respect to
the Glycol system the landlord failed to act within the period allowed
by the lease, therefore it has waived the right to request the same be
removed.
§6.05 relates to MOVABLE PROPERTY and trade fixtures which remain the
property of the tenant and must be removed at the expiration of the
lease. If tenant intends to leave the property it must give landlord
notice no less than 3 months prior to the end of the lease. If tenant
fails to give such notice then landlord may remove the property at
tenant's expense.
There is no evidence that tenant sent landlord a writing to the effect
it was leaving property falling under this section in the premises.
Tenant failed to give landlord notice that it was leaving shelving,
blinds, projection screens, counters and signs. This movable property
belongs to tenant and it must be removed by tenant or by landlord at
tenant's expense. Defendant has conceded that it must remove this
property except for the projection screen. Defendant must remove the
projection screen from the premises or plaintiff may remove the same at
defendant's expense. Mr. Ricciardi makes an allowance of $6,000 to
remove the projection screen devises in the conference and training
rooms. Given that the witness numbers been have shown to be inflated,
this court will discount this figure by 50% and award plaintiff $3,000
for the removal of these devices.
Plaintiff argues that the Glycol system, air-conditioning system, Halon
fire suppression system, UPS system, Electronic Date processing
installations are all trade fixtures and fall under §6.05, because
they can all be removed.
The law of fixtures was evolved by the judiciary in order to ameliorate
the harsh result to those who substantially improved property but who
had less than a fee interest. The view in New York is broad. Here
machinery is deemed a fixture when it is installed in such a manner that
its removal will result in material injury to it or the realty, or where
the building in which it is placed was specially designed to house it,
or where there is other evidence that its installation was of a
permanent nature. Refrigerating machinery, boilers built into a
building, electric wiring, pipes to conduct electricity and gas from one
part of the building to another considered a part of the realty after
installation and not fixtures.

Under New York law, in order to promote efficient use of leased property
by a tenant, trade fixtures, which is a fixture or improvement that is
annexed to real property by tenant for purpose of carrying on its
business during a lease term, retains its classification as personal
property to the extent that it can be removed without substantial injury
to the freehold. The record is replete with evidence that removal of
the systems in question (Glycol, air- conditioning, electronic wires,
halon system, UPS) would cause material injury to the premises. Even if
we were to agree with plaintiff that these are trade fixtures under New
York law they lose their character because their removal would cause
injury to the premises.
The terms of the lease are clear and precise, these alterations are of a
permanent nature and property of the landlord. The terms of the lease
are controlling with respect to fixtures, their ownership and
entitlement to removal thereof.

Plaintiff requests repair to the bathrooms, however §7.01(b) confers
that responsibility to the landlord.
Landlord did not give tenant notice in accordance with §31.01of the
lease that tenant remove the Glycol system, Halon System, UPS system,
Electronic data processing wiring, supplemental air-conditioning system
at the time of their installation. These systems are not trade fixtures,
their removal would cause material injury to the premises and possibly
the building. Under New York law they are permanent installations that
fall under §6.04 of the lease. Pursuant to this section they are
property of the landlord and remain with the premises. However, tenant
was provided notice of the double glazed windows and must remove the
same.
Tenant had to remove movable property unless it gave landlord notice at
least 3 months prior to lease termination that it intended to leave
them. There is no evidence that such notice was given. Under §6.05
tenant must remove this property or landlord may remove it at tenant's
expense. Tenant has conceded the removal of some of these items.
However, tenant must also remove the projection screen.
Under §7.01(b) landlord is responsible for repairs to electrical,
plumbing, heating, ventilation and air-conditioning systems of the
building as well as plumbing fixtures and plumbing hardware in the core
toilets. Therefore, tenant shall not be responsible for repairs to
toilets, plumbing fixtures or to convector covers in the bathrooms.
Accordingly, for the foregoing stated reasons it is the decision and
judgment of this court that the First cause of action is dismissed, the
Second cause of action is dismissed, on the Fourth cause of action
Judgment is awarded in favor of plaintiff and against the defendant in
the amount of $45,848.00 [$37,848 to replace ,remove and repair items of
ordinary wear and tear,$5000 to remove double glazed windows, $3000 to
remove projection screens]. The clerk of the court shall enter judgment
in favor of plaintiff and against the defendant in the amount of
$45,848.00 with interest from September 30, 2002, plus costs and
disbursements."
for more information see www.houstonrealtyadvisors.net


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