Tower Leasing Co. v. 11 West 42nd Street, Inc.

Dore, J. In WMCA, Inc., v. Blockfront Realty Corp. (272 App. Div. 800 [May, 1947]), this court held that the defendant therein, a tenant of an entire building subletting to undertenants all the rental space in the premises, was merely in constructive possession and not entitled to protection of the emergency rent [470] laws. In Axelrod v. 11 West 42nd St. (274 App. Div. 651 [Feb., 1949], affd 299 N. Y. 765), this court distinguished the WMCA case (supra) and held that the tenant therein (this tenant) was not in constructive possession but occupied the entire area for office and business purposes, i.e., to conduct the business of subletting rental space and furnishing service in connection therewith and was entitled to full protection of the emergency rent laws. After the decision of this court in February, 1949, the Legislature by chapter 430 of the Laws of 1951, effective March 31, 1951, amended that portion of section 4 (now subd. 4 thereof), amending the said law to provide for the first time that prime tenants who sublet to others more than 20% of the space which the prime tenant rents from the owner, must furnish on demand by the landlord the statement herein in question. Plaintiff tenant refused to furnish the statement demanded by defendant landlord and brought this suit for a declaratory judgment contending the amendment has no application to plaintiff. We think the learned Referee properly held that the statute was applicable. The New York State Legislative Annual for 1949 (p. 248, subd. [i]), referring to a prior amendment concerning statutory tenants who sublet to others 20% or more of their leased space (L. 1949, ch. 535), says: “ Sublessees by another amendment, would be made tenants of a landlord in certain instances where the main statutory tenants sublet 20 per cent or more of their leased space to others. The courts would have power and be expected to decide questions of the allocable value of space and services. Many such main tenants have unjustly enriched themselves at the expense of landlords whose rents are frozen and also deprive the City of the benefits of increased valuations for taxing purposes.” The 1951 amendment, requiring the statement by the main tenant here in question, both in letter and spirit, by its express terms is applicable to the relationship between the parties herein. It applies to “ any tenant ”; viz., any tenant under the Business Rent Law (L. 1945, ch. 314, as amd.). By statutory definition that refers only to tenants of business space and expressly excludes dwelling space in hotels and rooming houses or apartment houses (see § 2, subd. [a]). Nothing in the amendment sustains this tenant’s contentions. This record establishes that except for a relatively small space reserved for plaintiff’s office and reception room, plaintiff sublets all of the space originally covered by the leases. Mr. Axelrod, plaintiff’s president, admitted that a number of plaintiff’s [471] subtenants rent and occupy whole rooms or complete offices as distinguished from mere desk space, many of them having their own stenographers and telephones. The tenant relies on our decision in Axelrod v. 11 West 42nd St. (supra) and claims it is here controlling against the landlord. But in that case we merely held (p. 653) on the facts disclosed that this tenant was not in constructive possession but in effect in actual possession and “ entitled to the full protection of the emergency rent laws.” As above indicated, the amendments we are now construing were passed subsequent to our decision in the Axelrod case. It is proper to assume that in passing the amendment the Legislature was not in ignorance of our decision. In amending subdivision 4 of section 4, the Legislature could have exempted a state of facts, such as here disclosed, where the tenant subleases space and renders services but there is no such exemption in the amendment. By its terms it applies to “ any tenant ” who is subletting “ twenty per centum or more of the business space occupied by him” (emphasis supplied) and it covers a state of facts in which a tenant renders services to his subtenants, precisely such a state of facts as is here presented. The amendment was not intended to put plaintiff out of business but was intended to prevent plaintiff and others similarly situated from retaining solely for themselves large profits they may have been making from subleasing space in the landlord’s building at the expense of the landlord “ whose rents are frozen ”. The application of subdivision 4 of section 4 to plaintiff does not violate any of the purposes of the emergency rent legislation. In any event that is a question that should be addressed to the Legislature. We hold that by its terms, as herein interpreted, the amendment applies to this tenant, that the learned Referee was correct in so holding, and that plaintiff is required to serve the statement specified in the section. This tenant may not have its cake and eat it too; it may not claim, as it did in the Axelrod case, the protection of the emergency rent laws without complying with their provisions subsequently enacted; when that case was decided, the amendment now before us was not in existence. Under the first clause of amended subdivision 4, any tenant who sublets 20% or more of the business space occupied by him must pay the landlord each month the gross rents receivable by Tiim from all subtenants less the reasonable value of the prime tenant’s services to the subtenants plus the emergency rent allocable to the business space retained by the tenant for his own use; there are other clauses, (b) and (c), of the same subdivision. [472] We need not consider the construction of clause (h) of the law, as the landlord is not proceeding under that subdivision. Under the state of facts herein disclosed, we interpret the statutory phrase “ less the reasonable value of the services supplied ” to include under ordinary circumstances a reasonable profit to the prime tenant for the services so supplied. In normal business usage, the reasonable value of services rendered includes a reasonable profit, otherwise a man in business rendering services would merely be reimbursed for actual expenditures and thus not enabled to procure any margin of profit that would permit his business to continue. Under that clause, however, the prime tenant may properly claim a profit on the business services as such rendered to its subtenants, incidental to the sublet space but not on the sublet space as such. We so interpret the third decretal paragraph of the judgment appealed from and on such interpretation affirm it with the rest of the decree. The learned referee also properly permitted the tenant an opportunity to comply with the statute and furnish the landlord with the statement required under the second paragraph of subdivision 4 as of the original date. The statement was not furnished within the twenty days because, in good faith, the tenant and its counsel believed the statute was not applicable. If the parties will approach their relationship in a fair and practical way, they should be able to formulate a fair working arrangement without additional unnecessary litigation. The judgment appealed from should be affirmed, without costs, the date of plaintiff’s permitted compliance with the statute to be fixed at ten days after service of the order herein with notice of entry.