Yorkville Restaurant, Inc. v. Perlbinder , 34 A.D.2d 14 ( 1970 )

Stevens, P. J.

This is an appeal from an interim judgment which granted certain relief to plaintiff and severed issues as to damages raised by the complaint and the cross claim of defendant Jermy Coffee Shops, Inc. (Jermy).

May 5,1953, plaintiff as tenant executed a lease with Raymond Ziplow and Jack Resnick, landlords, for the store and basement premises of No. 166 East 86th Street adjacent on the east to the building entrance known as 164-166 East 86th Street, including the portion of the rear yard of the building known as 1520 and 1522 Third Avenue, in the Borough of Manhattan. The lease was for a period of 10 years and the premises were to be operated as a restaurant, bar and grill.

May 7, 1953, the lease was properly recorded. The lease, in addition to defining the term “ landlord ”, obviated the necessity for further agreement by deeming and construing in the event of a sale or lease ‘ ‘ that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of the Landlord hereunder.” Paragraph 34 of said lease provided ‘ ‘ the covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in the lease, their assigns.”

Under paragraph 60 the landlord was expressly given the right to cancel and terminate the lease upon certain stated conditions on or after June 30,1958, for the purpose of demolishing the existing building and erecting a new building ‘ ‘ in its place and stead.” However, paragraph 61 provided: “In the event that the Landlord shall cancel and terminate this lease as provided in the foregoing paragraph [i.e., paragraph 60], then the Landlord agrees that if at any time prior to six months after the completion of the new building tobe erected on said premises they shall negotiate a new bona fide lease for any store premises in said building to be used and occupied for a restaurant and bar, then the Landlord shall offer to execute a lease containing the same terms and conditions with the Tenant hereunder and shall deliver to the Tenant hereunder a copy of such lease with the prospective Tenant and shall further deliver to the Tenant hereunder the proposed lease with the Tenant hereunder and if the Tenant hereunder shall fail to execute such lease within fifteen days after tender thereof, then the Tenant shall have no right to enter into any such lease in said new building.” (Emphasis supplied.)

The leased premises were contained in Lot 39 only, in Block 1514 of the New York County Tax Map.

In December, 1961 Ziplow and Resnick conveyed Lot 39 to Manhattan Savings Bank (Manhattan), then the owner of other contiguous lots in Block 1514. Manhattan, by lease dated December 8, 1961, entered into a 33-year lease with T. F. C. of New York, Inc. (T. F. C.), which lease on March 16, 1965 was assigned to 185 East 85th St. Company, the appellant herein.

Pursuant to paragraph 60, T. F. C., by letter dated May 10, 1962, canceled plaintiff’s lease and subsequently made payment of $8,000 as provided therein. The building on Lot 39 and buildings on certain contiguous lots were demolished and a new apartment building erected on said lots, which building was completed about July 1967. The original plans did not contain a provision for a restaurant, but ultimately there was such provision. The net result of such construction is a single building.

By lease dated January 11, 1966 (subsequently modified to provide that the term shall commence January 1, 1967, rather than December 1, 1966) appellant leased a certain portion of the premises to Jermy Coffee Shops, Inc. (Jermy) for use as a restaurant. It is not disputed that the leased premises are not over the space occupied by Lot 39, but include space in what formerly had been a part of Lot 42, designated as 154-162 East 86th Street, when the parcels were separate. Plaintiff’s original landlords were never in the chain of title of Lot 42. It is not disputed that a right of first refusal was never extended to plaintiff for the restaurant space in the building.

By letter dated October 17, 1966, sent by registered mail to Manhattan, T. F. C. and appellant 185 E. 85th St. Company (185), plaintiff, through its attorneys, demanded compliance with paragraph 61 of the original Ziplow, Resnick lease of May 5, 1953, and noted that it had not been given its claimed right of first refusal. This letter was followed by a letter dated November 18, 1966, to 185, a copy of which was sent to T. F. C.

Subsequently, the matter not having been adjusted, an action for specific performance Avas instituted. As noted, it is from an interim judgment granting specific performance, after a nonjury trial, that this appeal is taken.

There are two basic questions to be resolved. Did the option covenant run with the land, and if so, did it extend to include the entire area of the new building which is considered as a single unit.

It was clearly intended, and indeed is expressly stated, that under certain conditions the option would survive the lease termination. Unless the lease were terminated by affirmative act pursuant to paragraph 60, the lease, being an estate for years, would ordinarily have terminated by efflux of time specified in the lease. The parties, perhaps in an attempt to balance the equities, agreed if termination occurred pursuant to paragraph 60, and a new building were erected, plaintiff would have a right of first refusal of a matching lease. This was a burden which affected and concerned the land. Moreover, from the series of conveyances there was clearly a resulting privity of estate between plaintiff, Ziplow & Resnick, the original landlord, and 185, at least as to the Lot 39 area.

The broader question, whether the covenant is to be construed as including a contiguous area and the single building erected, can be answered only by reference to the original lease, and the surrounding circumstances in order to determine the parties’ intent, and whether it might reasonably have been envisaged that any new construction, following upon demolition, would include an expanded area.

By the terms of the 1953 lease Yorkville was bound to expend a substantial sum, specified in the lease, which not only improved that portion of the premises occupied by it, but enhanced the value of the total property. The term of the lease would afford a recoupment of its investment, hopefully with profit. That demolition and erection of a new building was in the area of contemplation is evidenced by the lease provision in paragraph 60, where the landlord’s right to demolish is acknowledged. The right became effective at approximately the midpoint of the lease. While payment of a consideration to Yorkville was stipulated, the parties evidently felt payment alone would not suffice to make Yorkville whole. Despite the provision for payment of $8,000 if the lease were terminated after July 1, 1961 and any time prior to June 30, 1963, the parties saw fit to include in paragraph 61 the provision for an offer of a matching lease. Additionally, demolition and new construction could reasonably contemplate expanded construction rather than mere replacement within identical bounds.

The language with reference to a new building 11 on said premises ’ ’ and a lease for ‘1 any store premises in said building ” should reasonably be construed to mean the premises in which the proposed restaurant is located when such premises, as here, consist of a single unit even though the building embraces more than the original Lot 39 (cf. Daitch Crystal Dairies v. Neisloss, 8 A D 2d 965, affd. 8 N Y 2d 723; Topol v. Smoleroff Development Corp., 264 App. Div. 164). This we believe was the intent of the parties under the lease language considered as a whole. The covenant should be so construed as to carry out their intent. It should be noted, also, that the base lease of 1953 provided for annual progressive minimum rentals plus a percentage rental of the total gross income. -Such a potential benefit to a landlord would not ordinarily be lightly discarded merely by construction of a new building if the building housed a restaurant and bar. The covenants, conditions and agreement, as earlier noted, bound the heirs, distributees, successors, assigns, etc., of the parties. Thus the covenants and conditions were not personal to the landlord.

There is privity of estate between 185 and Yorltville’s original landlord. Since 185 was in the direct chain of title it may be held to have notice of the covenant. It is not necessary to rest upon a mere inference because not only was the lease recorded, which would at least afford constructive notice, but a title abstract report issued to 185 so indicated (cf. Bird v. Salt Hill Corp., 282 App. Div. 1047).

It does not appear that Yorkville delayed unreasonably in the effort to enforce its rights once it became aware of the fact that the new building would house a restaurant and bar. Nor does it appear that 185 suffered prejudice by any action on the part of Yorkville for the new restaurant was practically completed when Yorkville learned of its existence. Nor is the present situation a result of any conduct or misrepresentation by York-ville. The claim of laches was properly rejected (30A C. J. S., Equity, § 128).

We hold, also that the option had not expired because the language of paragraph 61 extended such option beyond the date of expiration of the original term of the lease subject to certain conditions which are here present.

The interim judgment appealed from should be affirmed, with costs.