Notice of Petition 51 Park Place

EDON 11123~2011

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Petitioner,

"against-

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,

Respondent.

NOTICE OF PETITION

1 1 1 1 3 2 7 3

PLEASE TAKE NOTICE, upon the annexed verified petition of 5 1 Park Place LH, LLC,

and upon all the papers and proceedings heretofore had herein, the undersigned will move

pursuant to CPLR 7507, 75 1 1 and/or 760 1 in Room 130 of the courthouse, located at 60 Centre

Street, on the 6'h day of January, 2012 at 9:30 a.m. of that day or as soon thereafter as counsel

can be heard, for an order vacating the arbitratiodappraisal award issued on August 24, 2011

together with such other and further relief as may be just, proper and equitable.

PLEASE TAKE FURTHER NOTICE, that demand is hereby made that service of any

answering papers to the meion be served at least seven (7) days before the return date.

Dated: November 22,201 1 New York, New York

Yours etc., Goldberg Weprin Finkel Goldstein, LL>

" 7 ! 6

1 "

New York, New York 10036 (212) 221-5700 NOV 8Z 2ofE

Supreme Court Records OnLine Library - page 1 of 14

TO:

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CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. 4 Irving Place New York, New York


Petitioner,

-against- PETITION

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,

Petitioner 51 Park Place LH, LLC, as and for its petitioner to vacate the

ArbitratiodAppraisal award defined below pursuant to CPLR 7507, 7511 andor 7601,

respectfully avers as follows:

PARTIES

1. Petitioner herein, 51 Park Place LH, LLC (“Petitioner”), is the current lessee of

the demised premises at issue and a New York limited liability company with an address at 51

Park Place, New York, New York.

2. Respondent, Consolidated Edison Company of New York Inc. (Ton Ed”), is a

New York corporation with an address of 4 Irving Place, New York, New York and is the

current lessors of the demised premises at issue.

OVERVIEW

3. This case has a long and eventful history, but has ended with a wholly illogical,

invalid and untenable valuation award in which the fair market of the premises at 5 1 Park Place,

New York, New York (the “Premises”) was determined, but not in the way required by the lease.

4. Rather, in concluding what the fair market value of the Premises was as of August

2008 (and February 2010 for purposes of the purchase option), the appraisers failed to adhere to


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the specific directive that the value be determined as vacant and unimproved but subject to the

subject lease.

5 . In fact, the appraisers failed to even consider the most fundamental factor of a

leased property, for the purpose of valuation, to wit, rental income.

6. No valuation of a rental property can be legitimate without including in the

calculus, the actual/potential rental income stream.

7. Moreover, the appraisers’ determination violates both the contract and applicable

statute because the appraisers failed to execute their required oaths and issue a proper

determination, which defects vitiate the award.

8. Because the decision of the appraisers is invalid as a matter of fact and law and is

fundamentally flawed, pursuant to CPLR 7507, 751 1 and 7601, Petitioner hereby moves to

vacate the award and the Determination (as herein defined) should be vacated.

BACKGROUND

9. Con Ed is the owner of the Premises and Petitioner is the successor tenant of the

Premises under that certain Agreement of Lease dated August 1, 1972 (the “Lease”) originally

by and between Con Ed, as landlord, and 49 Park Associates, Inc., as tenant. A copy of the Lease

is annexed hereto as Exhibit “B”.

10.

1 1.

The initial term of the Lease expired on July 3 1 , 2008.

During the initial term of the Lease, the rent rose from $12,500 per year in 1973-

1974 to $33,000 per year in 2008.

12, The Lease contains a provision pursuant to which the tenant is entitled to exercise

up to three (3) renewal options of twenty-one (21) years each.

13. Plaintiff duly exercised its first right to renew the Lease.


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14. Section 1.04 of the Lease establishes the procedure for establishing the rent which

is to be due during a renewal period:

The Rental which Tenant agrees to pay during each renewal term shall be an amount per annum equal to % of 1% in excess of the prime rate . . . , of the fair market value . . . of the Land only considered as vacant and unimproved . . . provided however, that the Rental, regardless of such market value, shall in no event be less than $33,000.00 per annum during any renewal term.

- See, Exhibit “B”.

15. The Lease provides that, if the parties could not agree on the fair market value of

the Premises, a valuation proceeding would be utilized to determine the value.

16. Pursuant to the Lease, each party was to appoint an appraiser (who was required

to have very specific experience and credentials) and, if the two appraisers could not agree on a

fair market value within thirty days, the appointees would then chose a similarly experienced and

credentialed third appraiser to serve as an umpire.

17. Thereafter, the determination of any two appraisers would be determinative.

18. Specifically, the Lease provides, in pertinent part, as follows:

The appraiser specified . . , shall be a licensed real estate broker doing business in the borough of Manhattan, City and State of New York, and having not less than ten (10) years active experience as brokers and appraisers in said Borough. Before proceeding to determine the fair market value of said land, the appraisers so appointed shall subscribe and swear to an oath fairly and impartially to determine such value. If within thirty (30) days following the appointment of the latter of said appraisers, said two appraisers shall be unable to agree upon the then fair market value of said Land as aforesaid, the said appraisers shall appoint by instrument in writing, as third appraiser, an impartial person, similarly qualified, who upon taking similar oath, shall proceed with the two appraisers first appointed to determine the then fair market value of said Land as aforesaid . . .



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19. After Petitioner exercised its option to renew, the parties did not agree on the fair

market value of the Premises and each hired an appraiser, Jerome Haims for Petitioner, and

Robert Von Ancken, for Con Ed.

20. Faced with the requirement to proceed with the Lease-prescribed appraisal

process, and retention of a third appraiser, Petitioner and Con Ed met to establish the procedures

and schedule for the appraisal process, which resulted in an agreement dated November 23, 2010

(the “November Agreement”) which memorialized the following agreed-upon schedule:

December 15,2010 -

January 14,2011 --

March 15,2011 *-

March 23,201 1

April 15,201 1 --

May 5,201 1 --

Plaintiff‘s and Defendant’s appraisers shall exchange their respective appraisals

The appraisers issue a joint determination of value or, failing that, shall submit their respective appraisals to the third appraiser, J o b Pearson.

Rebuttal appraisals to be exchanged

Three appraiser to meet to discuss and determine fair market value of the Premises

The determination of fair market value is to be issued

Plaintiff and Defendant to enter into an agreement specifying the amount of the Rental for the Renewal Period


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A copy of the November Agreement is annexed hereto as Exhibit “C”.

2 1. In December 20 10, Petitioner requested a small extension of time based on the

intervening holidays and Con Ed agreed to the request, answering with its own request for an

extension of the aforementioned dates because it wanted to conduct more invasive environmental

’ testing of the Premises. I

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22. By agreement dated December 2 1 , 20 10, the deadlines were extended such that,

among other things, the deadline for the appraisers’ determination was June 13,201 1.

23. While Petitioner was cooperative and agreed to the extension of the dates, the

unintended and unanticipated consequence of that cooperation was additional delays by the

appraisers in arriving upon their determination which led to the determination not being issued in

April, as originally anticipated, or even in June, as Petitioner was willing to tolerate, but rather

on August 24,20 1 1.

The Option to Purchase

24.

25.

The Lease gave Petitioner an option to purchase the Premises.

The purchase price for the option to purchase was to be determined by a similar

appraisal process as that established for determination of the rent in the renewal term.

26. The purchase appraisal process is prescribed by Article 22 of the Lease, in

pertinent part, as follows:

The purchase price to be paid by Tenant to Landlord in respect of such conveyance shall be the fair market value of the Land, Vacant, Unimproved and Unencumbered [by the Lease], and shall be fixed by appraisal of the Demised Premises as of the date of the notice of the exercise of the option.



27, The parties agreed to utilize the same appraisal process and appraisers to

determine the fair market value of the Premises for purposes of both the new rent and the

purchase price, but further agreed that the valuation for the purchase price determination would

not factor in the Lease inasmuch as the Lease specifically excluded itself from that calculation.

- See, Exhibit “B” at Article 22.02,

The Appraisal Process

28. Upon their respective retention, each of the parties’ appraisers issued an appraisal

of the fair market value of the Premises, vacant and unimproved but subject to the Lease, as

required by the Lease and as agreed to by the parties.

29. Mr. Haims determined that the fair market value of the Premises was $3,670,000

while Mr. Von Ancken opined that the fair market value was $1 5,109,250.

30. After meeting and discussing the foregoing appraised valuations, Mr. Haims and

Mr. Von Ancken were not able to agree on a fair market value,

3 1. In light of the deadlock, a third appraiser, John Pearson, was retained to serve as

the required third appraiser.

32. By determination dated August 10,201 1 (but emailed to the parties on August 24,

20 1 1) (the “Determination”), the appraisers issued their conclusion that the fair market value of

the Premises, was $10,350,000 with respect to the rental calculation and $10,700,000 with

respect to the purchase option. A copy of the Determination is annexed hereto as Exhibit “A”.

33. The Determination was not acknowledged.


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THE DETERMINATION MUST BE VACATED

34. The Determination suffers from numerous defects and deficiencies, procedural,

technical and substantive, which render it invalid as a matter of fact and law, and which require

its rejection and vacatur.

The Valuation Fails to Properly Take the Lease Into Account

35. In a valuation such as that at bar, the Court of Appeals has directed that the fair

market value must be determined as subject to the Lease

36. While both appraisers, and presumably, Mr. Pearson in serving as the third

appraiser, purported to determine the value of the Premises as subject to the Lease, it is apparent

that they did not do so properly.

37. The critical factor in determining the value of a property which is subject to a

lease, is the rental income which is or could be derived under that lease.

38. The appraisers in their respective appraisals did factor in the consequences of the

existence of the Lease inasmuch as both recognized that the Lease prevented use of the Premises

as condominiums (the highest and best use), they failed to appreciate - and factor in - the impact

of the potential rental income that a hypothetical tenant occupying the Premises under the Lease

would be willing or reasonably able to pay and that defect tainted the Determination as it did

their respective appraisals.

39. A tenant holding a leasehold of the Premises under the Lease would face

significant and expensive obstacles to profitably develop and operate the Premises which would


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necessarily significantly and deleteriously impact the rent which such tenant could be expected

to pay.

40. This significantly lower rental stream must concomitantly significantly lower the

fair market value of the Premises.

4 1. The appraisers failed to consider, analyze and utilize this significant diminishing

factor in arriving upon their determination of the fair market value and, as such, arrived upon a

erroneously inflated valuation.

42. Because the appraisers utilized a flawed and defective methodology, the

Determination is fatally compromised and the result is contrary to fact and law, is arbitrary and

without evidentiary foundation.

43. The valuation set forth in the Determination is flawed, defective and patently

unsupportable and, as such, the Determination should be rejected and vacated.

44.

be vacated.

The appraisers so imperfectly executed their duties that the Determination must

The Appraisers Did Not Execute Their Oaths As Required By the Lease

45. The Lease requires that prior to undertaking their duties in determining the fair

market value of the Premises, “the appraisers appointed shall subscribed and swear to an oath

fairly and impartially to determine such value.” See, Exhibit “B”, at Article 1.05.

46. Upon information and belief, Messrs. Haims, Von Ancken and/or Pearson failed

to subscribe and swear to an oath to fairly and impartially” determine the value of the Premises.


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47. As a matter of contract and law, because the appraisers failed to execute their

oaths before undertaking the duties and issuing their Determination, the Determination is

rendered invalid and must be rejected.

The Determination Was Not Acknowledged

48. By statute, an award following an appraisalhrbitration process must be in writing,

and must be signed and acknowledged,

49. For a determination to be enforceable, it must be affirmed and attested to by the

determining parties before a notary public,

50. The Determination was not affirmed as required by statute.

5 1. The Determination has not been attested to before a notary public.

52. The Determination is legally defective and must be rejected and vacated as a

matter of law.

RELIEF REOUESTED

53. Petitioner respectfully requests that the Determination be vacated pursuant to

CPLR 7507, 75 1 1 and 7601 inasmuch as it is contractually, procedurally and statutorily and

legally deficient and defective.

WHEREFORE, Petitioner respectfully requests judgment vacating the Determination and

remanding the matter to the arbitrators for proper determination of the fair market value of the

Premises, as well as awarding to Petitioner such further and different relief as the Court may

deem just and appropriate in these circumstances.


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Dated: November 22,201 1 New York, New York

Goldberg Weprin Finkel Goldstein, LLP

Attornkys for Petitio er

New York, New York 10036 150 1 Broadway, 22" L (2 12) 22 1-5700

TO: Consolidated Edison Company of New York, Inc. 4 Irving Place New York, New York


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VERIFICATION

STATE OF NEW YORK )

COUNTY OF NEW YORK ) ) ss,:

I, the undersigned, an attorney admitted to practice in the courts of the State of New York state that I am a partner of the law firm of Goldberg Weprin Finkel Goldstein, LLP, attorneys for Petitioner; I have read the foregoing Petition and know the contents thereof; the same is true to my knowledge, except as to those matters therein alleged to be on information and belief, and as to those matters I believe them to be true. The reason this verification is made by me in that a member of the Petitioner is not in the County in which I maintain my law office.

Dated: New York, New York November 22,201 1


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SUPREME COURT OF NEW YORK STATE OF NEW YORK, COUNTY OF NEW YORK Index No, h Year

2 * 51 PARK PLACE LH LLC

Petitioner -- against -- CONSOLIDATED EDISON COMPANY OF NEW YORK

Respondent

NOTICE OF PETITION AND VERIFIED PETITION

GOLDBERG WEPRIN FINKEL GOLDSTEIN LLP

Attorneyls) for

I 501 BROADWAY N E W YORK, N.Y. 10036

(2 1 2) 22 1 -5700

~~~

Signature (Rule 130-1.1-a) To

Print name beneath

Attorney(s) for

Service of a copy of the within is hereby admitted,

Dated:

PLEASE TAKE NOTICE:

0 NOTICE OF ENTRY

that the within is a (certified) true copy of a duly entered in the office of the clerk of the within named court on

NOTICE OF SETTLEMENT

that an order will be presented for settlement to the HON. within named Court, at on at

Dated,

M.

of which the within is a true copy one of the judges of the


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Notice of Petition 51 Park Place

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