- Court
- New York Supreme Court, Appellate Division, First Department
- Case Name
- City of New York v. Crest Housing Co., LLC
- Slip Op. No.
- 2026 NY Slip Op 03265
- Decision Date
- May 26, 2026
- Docket No.
- Index No. 452282/22, Appeal No. 6715, Case No. 2025-03518
Background
The City of New York, as tenant, sued its landlord entities—Crest Housing Co., LLC, Better Housing Co., LLC, and HPA Holdings Co., LLC—over the proper calculation of additional rent for real estate tax escalations under their commercial lease. The lease defined the tenant’s tax liability as 52% of any increase in real estate taxes assessed beyond the amount assessed in fiscal year 2008, and the tenant’s payment was triggered upon the landlord’s supplying a copy of the tax bill showing that the taxes had been paid.
The landlord secured a tax abatement under the City’s Industrial and Commercial Abatement Program (ICAP), which reduced its actual tax payments. However, the landlord calculated the tenant’s additional rent based on the full assessed tax amount before the abatement was applied, effectively collecting additional rent for taxes it did not actually pay. The tenant sued for breach of contract and a declaratory judgment that the tax escalation should be calculated on the amount the landlord actually paid after applying the abatement.
The landlord moved for summary judgment dismissing the complaint and on its counterclaims for a declaratory judgment and money judgment for tax arrears. Supreme Court (Moyne, J.) denied the landlord’s motion, searched the record, and awarded summary judgment to the tenant on both causes of action. The court also dismissed the landlord’s counterclaims and affirmative defenses of account stated and laches.
Holding
The First Department unanimously affirmed. The court found the tax escalation clause in the lease unambiguously defined the tenant’s tax liability as 52% of any increase to the assessed real estate taxes, with payment triggered by the landlord providing a copy of the tax bill showing taxes had been paid. The abatement was nowhere mentioned within the tax escalation clause or the broader lease.
Citing established First Department precedent, the court held that without an unequivocal intent by the parties that the tenant’s tax share was to be calculated without consideration for taxes refunded or abated, the agreement could not be read to permit a landlord to recover additional rent for taxes it did not actually pay. Real estate tax escalation clauses are designed to afford relief to a landlord where an increased assessment required actual payment. The court properly calculated and awarded a money judgment in the tenant’s favor for the overpayment amount.
The court also upheld the dismissal of the landlord’s affirmative defense of account stated, finding no support for the contention that the tenant acquiesced in the calculation method. The laches defense likewise failed because the landlord could not demonstrate any prejudice.
Key Takeaways
- Real estate tax escalation clauses are construed to cover only taxes a landlord actually pays; absent unequivocal contrary language, a landlord cannot collect additional rent based on taxes that have been abated or refunded.
- Where a landlord secures a tax abatement such as ICAP, the tenant’s share of tax escalations must be calculated on the reduced tax bill unless the lease explicitly provides otherwise.
- The account stated defense concerns the correctness of individual balance items, not the underlying formula for calculating amounts owed prospectively.
- Laches requires a demonstration of prejudice; mere passage of time alone is insufficient.
Why It Matters
This decision provides important guidance for commercial landlords and tenants regarding the interplay between tax escalation clauses and government tax abatement programs. Landlords who secure ICAP or similar abatements cannot use the pre-abatement tax amount to calculate tenants’ additional rent unless the lease explicitly permits it. The ruling also underscores that New York courts will closely scrutinize lease language and will not permit a landlord to profit from a tax abatement at the tenant’s expense. Both landlords and tenants should carefully draft tax escalation clauses to address the treatment of any abatements, credits, or exemptions to avoid future disputes.