Friday, May 08, 2009

Snag in AY? Appeals court upholds decision that said Boymelgreen improperly assigned lease of footprint building to Ratner

In a unanimous decision that may crimp the state’s pursuit of eminent domain on the Atlantic Yards site, a state appeals court has upheld a judge’s March 2007 decision that Henry Weinstein’s tenant, developer Shaya Boymelgreen, improperly assigned leases to a Pacific Street building and adjacent parking lot to an affiliate of Forest City Ratner.

The Appellate Division: Second Judicial Department, in one case, known as 752 PACIFIC, LLC v PACIFIC CARLTON DEVELOPMENT CORP. and argued 11/17/08 stated:
The Supreme Court properly awarded the landlords summary judgment on their third and fourth counterclaims to the extent of declaring that the tenants’ assignment of their respective leases violated the leases and that the leases are terminated.... The terms of the subject leases are clear and unambiguous.

The court further bolstered Weinstein’s case, ruling that the Supreme Court erred in not giving Weinstein back possession of the properties at issue:
Having found that the tenants breached the leases, and the landlords thereafter terminated the leases, the Supreme Court should have granted the landlords such relief.

“I couldn’t be more pleased. I’m happy that the rule of law prevailed,” Weinstein said this morning, adding that he thought the previous ruling, which did not give him back the premises, might have indicated that the judge wanted him to settle the dispute with Forest City Ratner.

As with the previous iteration of the case, an appeal seems likely, though I haven’t confirmed that. Still, the unanimity of the decision makes it less likely it’ll be overturned.

Implications for AY

Boymelgreen has remained a tenant in the six-story building on Pacific Street just east of Carlton Avenue. (The space had been leased back from AY 535 Carlton, a Forest City Ratner affiliate.)

As I wrote in March 2007, the ruling can't stop the state from using eminent domain to take the properties, but it might make it more costly, as Weinstein has contended that Boymelgreen’s deal with Ratner would diminish the value of his property.

Forest City Ratner told the New York Times in 2007 that it did not believe the ruling would have an impact on the project. Because this property is in Phase 2, the eastern portion of the project site, it might be thought that condemnation could begin on the arena block while this case remains in litigation. However, the General Project Plan states (p. 2 of this [URL corrected May 11] PDF):
All of the properties within the Project Site would be acquired by ESDC... at the outset of Project implementation.


After all, Weinstein's property is needed for the interim surface parking for construction workers and the arena.

Now, said Weinstein, there should be a hearing on damages, in which the tenants have to pay fair market rent, which would be much higher than the rent in the previous lease. “We’re going to demand that they put up money,” Weinstein said, regarding the rent. “With all these economic problems going on, we’re very concerned there are not going to be assets to collect from a judgment.”

ESDC role

The lease assignment, Weinstein argued, allowed the Empire State Development Corporation (ESDC) to deceptively portray—since October 2005—that Forest City Ratner “controlled” the land, thus suggesting a lesser need for eminent domain. Weinstein’s companies are plaintiffs in the pending state eminent domain case regarding AY.

According to this oudated map (right) from the ESDC, the asterixes indicated: FCRC has closed on an option to take by assignment the lessee's interests under the ground leases for these properties. However, the property owner has objected to such assignments.


The latest ownership map is more accurate.

Second case: mixed decision

In a companion case, which also involved Forest City Ratner along with Boymelgreen, PACIFIC CARLTON DEVELOPMENT CORP v 752 PACIFIC, LLC, the appeals court ruled that it was appropriate for the lower court to grant the portion of the motion in which Forest City Ratner and affiliates argued they were not liable to a breach of contract, because they were not actual parties to the contract alleged to have been breached.

The court also ruled that it was appropriate for the lower court to grant the portion of the motion in which Boymelgreen himself was not personally responsible, because his personal guarantee of the leases had already expired.

Weinstein did win a partial victory, however. The appeals court stated:
However, the court erred in granting those branches of the motions which were to dismiss the second cause of action alleging tortious interference with the leases insofar as asserted against Boymelgreen and the Forest City defendants.

[Clarification 5/10]: I'd written that Weinstein can pursue damages. He still has to win in trial court.

Original decision

State Supreme Court Justice Ira B. Harkavy more than two years ago ruled (PDF) that Boymelgreen’s lease assignment to Ratner violated the terms of the original leases with Weinstein, which required the landlord’s “written consent,” and declaring the latter leases “terminated.”

Companies controlled by Weinstein own the six-story yellow former manufacturing building at 752-766 Pacific Street, as well as two adjacent lots, used as a parking lot. They make up about one acre of the planned 22-acre site.

The leases between Weinstein and Boymelgreen, for just under 49 years, were signed in October 1999, long before the Atlantic Yards plan was contemplated, and about six months after Boymelgreen bought the nearby former Daily News printing plant, which was subsequently converted to the Newswalk building of luxury condos. (Boymelgreen also sold the Ward Bakery, seen as a potential hotel, to Forest City.)

The leases provide that the tenants may assign their leases with the consents of the landlord, which “shall not be unreasonably withheld or delayed.” At issue was whether Weinstein unreasonably withheld the lease.

Around 3/31/05, Boymelgreen and Ratner agreed on a one-year option for Ratner to acquire Boymelgreen’s lease. (That was about the same time that Boymelgreen agreed to sell two nearby properties to Ratner for $44 million.)

On 2/16/06, they asked Weinstein by letter to consent to the agreement, according to Boymelgreen’s complaint. Weinstein didn’t reply--Boymelgreen mailed the request to an outdated address for Weinstein--so on 3/2/06, two weeks later, they closed the transaction, contending there was no reasonable basis to any objection.

The courts have disagreed.

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