Respondent Chista, Inc. ("respondent" or "Chista") moves for an order pursuant to CPLR § 3212, granting it summary judgment dismissing this commercial holdover proceeding on the ground that the Notice of Petition and Petition were not served in accordance with the requirements of NY Real Property Actions and Proceedings Law ("RPAPL") § 735. Petitioner 537 Greenwich LLC ("petitioner" or "537 Greenwich") opposes the motion and cross-moves for an order as follows:

(1)pursuant to CPLR § 3212, granting it summary judgment striking and/or dismissing respondent's first, second, third, fourth, fifth, seventh and eighth affirmative defenses and first, third, [*2]fifth, sixth, ninth, tenth, eleventh, and fourteenth counterclaims;

(2)pursuant to CPLR § 407 and 603, severing or bifurcating "any and all of Respondent's remaining counterclaims or those which have not been dismissed"; and

(3)pursuant to CPLR § 3212, granting it a final judgment of possession.

Respondent opposes the cross-motion. Both the motion and cross-motion are consolidated herein for disposition.

On November 9, 2006, respondent commenced an action against petitioner by summons and verified complaint in Supreme Court, New York County under Index No. 116873/2006 alleging thirteen causes of action including breach of fiduciary duty as a joint venturer, breach of the Lease which "imperil[s] Chista's business and good will", unjust enrichment, lost profits, loss of business and income, fraud, and multiple requests for declaratory judgments that Chista duly exercised its option to renew the Lease and is entitled to a renewal Lease effective January 1, 2007 ("Supreme Court Action"). (Exhibit "A" to the Affirmation of Mitchell D. Haddad dated January 31, 2008 [Haddad Aff.], in opposition to respondent's motion and in support of petitioner's cross-motion). Petitioner interposed an answer to the verified complaint. (Exhibit "B" to the Haddad Aff.).

On March 9, 2007, petitioner commenced this holdover proceeding against respondent based on the alleged expiration of Chista's tenancy on December 31, 2006. Instead of interposing an answer in the holdover proceeding, respondent moved by order to show cause containing an interim stay in the Supreme Court to have this holdover proceeding removed and consolidated with the Supreme Court Action. On April 30, 2007, the Hon. Arthur Engoron, J.C.C., marked the holdover proceeding off-calendar due to the Supreme Court stay. By decision and order dated May 9, 2007, the Hon. Herman Cahn, J.S.C., denied respondent's motion for removal and consolidation, but stayed the Supreme Court Action pending resolution of this holdover proceeding. (Exhibit "D" to the Haddad Aff.). Respondent appealed Justice Cahn's decision and order. On November 15, 2007, the Appellate Division, First Department unanimously affirmed Justice Cahn's decision. Langotsky v 537 Greenwich LLC, 45 AD3d 405 (1st Dept 2007). (Exhibit "E" to the Haddad Aff.).

On November 28, 2007, petitioner moved to restore this holdover proceeding to the calendar. Respondent opposed the restoration motion. On December 10, 2007, the Hon. Jeffrey Oing, J.C.C., granted petitioner's motion to the extent of restoring the holdover proceeding to the Part 52 calendar on January 14, 2008, and ordered respondent to serve and file an answer by December 31, 2007. Respondent interposed an answer asserting similar defenses and counterclaims that it alleged in the Supreme Court Action.^[FN1]

Petitioner is the landlord of the building located at 537-545 Greenwich Street, New York , New York ("subject building"). Respondent is the long-term tenant of certain portions of the second, third and six floors of the subject building ("subject premises").

On October 9, 1995, Alon Langotsky ("Langotsky") individually entered into a five year lease to occupy the southern portion of the third floor of the subject building. In December 1996, Langotsky also leased the southerly portion of the sixth floor. Thereafter, Langotsky and his wife, Daphna Dor, as the sole shareholders of the corporation, formed Chista, Inc. In July 2002, Chista was substituted for Langotsky as the named tenant for the southerly portion of the third and six floors. At that time, Chista also leased the easterly portion of the second floor. The parties simultaneously amended the leases so that they would expire on December 31, 2006, unless respondent exercised three successive renewal options to extend the leases through June 30, 2022. The first renewal option was to have been exercised in writing by June 30, 2006 for a term from January 1, 2007 through June 30, 2012; the second renewal option had a deadline of January 1, 2012 for a five year term from July 1, 2012 through June 30, 2017; and the third renewal had a deadline of January 1, 2017 for an additional five year term beginning on July 1, 2017 and expiring on June 30, 2022. The three separate leases for each of the three floors are cross-linked. Chista uses the subject premises as an art studio, showroom and storage facilities.

This case presents the following distinct facts.^[FN2] In 1995, the subject premises were in a "profound state of disrepair, and in dire need of rehabilitation." (Langotsky Affidavit sworn to on February 20, 2008 ["Langotsky Aff."], at ¶ 3). Between 1995 and 2004, Langotsky and Chista invested more than $325,000.00 in substantial improvements to the subject premises to create "an attractive and highly appealing place for a designer to do business from a previously run-down space." (Id. at ¶¶ 3-4). The value of the improvements exceeded $1,000,000.00 because Langotsky provided his own professional design skills and expertise as well as personal labor at no cost and secured supplies at deeply discounted prices. (Id.). Langotsky and Chista made the following major improvements:

reintroduction of electricity to the sixth and second floors, installation of a boiler and stove, installation of electrical wiring and fixtures for lighting, laying 16,000 square feet of new terraza floor, sheet rocking ceilings, installation of five bathrooms, installation of two kitchens, installation of washer/dryer, installation of high security doors, and the erection of walls and partitions to shape the expanse of space.

(Id. at ¶ 4). They also made extensive improvements to the common areas such as the "refurbishing of the lobby, stairway, and southern elevator shaft." (Id. at ¶ 5). Langotsky and Chista allegedly intended and expected to amortize the huge cost of the above substantial improvements over the course of the lease term which extended through 2022 based on the renewal options. (Id. at ¶¶ 3 and 5).

In addition, Langotsky and Chista allegedly maintained both their subject premises and the [*4]common areas including "making repairs, arranging for deliveries of oil to the [subject] building's boiler, performing cement work, cleaning the building, restoring worn parts of the [subject] building's facade, painting, etc." (Id. at ¶ 6). As an acknowledgment of Chista's efforts to improve the subject building and to attract other high-profile art and design tenants to the subject building, petitioner agreed to pay signage costs and to name the subject building the "Chista Design Center." (Id. at ¶ 7 and Exhibit "1").

In 2005, petitioner and respondent began discussions to develop the subject building as a design center with Jay Dor, Langotsky's father-in-law, together with two possible developers, Peter Moore ("Moore") and David Katz of MacArthur Holdings, LLC ("Katz or "MacArthur"). There were many e-mail communications between the above participants.

Sometime prior to May, 2005, petitioner, Langotsky, Jay Dor, and Moore had preliminary discussions to develop a "hotel condominium" above the subject building. (Id. at ¶ 8 and Exhibit "3"). In particular, Moore proposed a long-term lease with Chista for 20,000 square feet. (Id.). In furtherance of Chista's goal to develop the subject building as a design center with it as the anchor tenant, Chista built a design studio on the second floor in November 2005. (Id. at ¶ 9). It was completed in January 2006, at a cost of $15,000.00. (Id.). Ultimately, Moore's proposal was rejected and Langotsky identified MacArthur as an alternate real estate developer. (Id. at ¶ 10).

On December 8, 2005, Jay Dor provided a written proposal dated November 28, 2005 for a joint venture with petitioner, respondent and MacArthur to develop the subject building. (Id. at ¶ 11 and Exhibit "5"). On December 20, 2005, Katz responded and revised Jay Dor's proposal. (Id. at ¶ 12 and Exhibit "6"). On March 27, 2006, Langotsky circulated his own proposal wherein he clearly articulated that Chista would continue to be the "anchor" tenant for the proposed new design center. (Id. at ¶ 13 and Exhibit "7"). In addition, Langotsky provided for Chista's relocation costs that could exceed $1,000,000.00 during the construction phase. (Id. and Exhibit "7"). Langotsky envisioned occupying a minimum of 10,000 to 14,000 square feet in the new building. (Id. and Exhibit "7"). Chista "would only forgo its favorable lease agreement for the one time payment of $1,000,000 plus any other concessions which other tenants are entitled to, such as free rent and space improvement allowance." (Id. and Exhibit "7"). Langotsky also sought the payment of $3,000,000.00 to nullify his "long lease agreement" in favor of another anchor tenant. (Id. and Exhibit "7" to the Motion).

For the next several months, the above participants continued to negotiate. On April 26, 2006, Katz indicated that they almost "worked everything out," but still faced certain obstacles. (Id. and Exhibit "4"). Ultimately MacArthur did not pursue the development project. (Id. at ¶ 14). However, Langotsky alleges that the remaining participants continued to actively pursue the development of the subject building. (Id. at ¶ 15).

In or about May 10, 2006, and with the petitioner's alleged consent, Langotsky retained an engineer to perform a study involving the placement of probes to confirm the structure of the subject building and analyze its capacity for future enlargement. (Id. at ¶ 16 and Exhibit "8").

For most of the summer of 2006, Langotsky was in Bali, Indonesia, "to source materials, design pieces, and generally establish Chista's inventory." (Id. at ¶ 17). Respondent missed its June 30, 2006 deadline to notify petitioner in writing to exercise its lease renewal option. Notwithstanding the above, on or about July 13, 2006, Jay Dor paid a retainer fee of $1,000.00 to the engineering firm. (Id. at ¶ 18 and Exhibit "9"). On July 25, 2006, the engineer confirmed the [*5]work to be performed. (Exhibit "10"). On August 9 and 25, 2006, petitioner e-mailed Jay Dor inquiring about the status of the engineering report. (Id. at ¶ 19 and Exhibit "11"). In early September 2006, there were further communications concerning the status of the engineering report which petitioner was eager to receive. (Id. at ¶ 20 and Exhibits "12, 13 and 14").

After Langotsky returned from Bali in late September 2006, petitioner verbally informed him that Chista's tenancy would terminate on December 31, 2006 because Chista failed to provide the written notice of lease renewal by the June 30, 2006 deadline. (Id. at ¶ 21). Thereafter, on September 27, 2006, Langotsky immediately notified petitioner in writing of Chista's intention to exercise its renewal option. (Id. at ¶ 22 and Exhibit "15"). On October 2, 2006, petitioner rejected the late renewal notice and notified Chista that its tenancy will terminate on December 31, 2006. (Exhibit "C" to the Minton Affidavit sworn to on January 29, 2008 ["Minton Aff."]). On October 11, 2006, the engineering firm sent Chista a bill seeking the balance of $5,003.00 for its work, which Chista duly paid on October 17, 2006. (Id. at ¶ 24 and Exhibits "16" and "17").

After petitioner rejected respondent's belated renewal notice, on October, 25, 2006, petitioner asked respondent for an estimate to perform various repairs to fire doors and the replacement of emergency lights in the common areas. (Id. at ¶ 25 and Exhibits "18" and "19").

Beginning November 21, 2006 through December 20, 2007, petitioner allegedly received eight unidentified ^[FN3] offers ranging from $35,000,000 to $39,000,000 to purchase the subject building. (Exhibit "H" to the Minton Reply Affidavit, sworn to on February 29, 2008). In six offers, one of the conditions of sale is delivery of a vacant building; the other two, including the highest recorded offer, do not have a vacancy delivery contingency.

The gravamen of respondent's motion is that petitioner did not serve the Notice of Petition and Petition at the "property sought to be recovered" which comprises certain portions of the second, third and six floors of the subject building. Petitioner argues that service was proper pursuant to RPAPL §735 (1) and CPLR § 311 because Ryan delivered the Notice of Petition and Petition in person to Dor, an employee and officer, who accepted it on Chista's behalf in the lobby of the subject building.

The service requirements for the Notice of Petition and Petition are governed by Article 7 of the RPAPL. Section 735 of the RPAPL sets forth the procedure for service, in pertinent part, as [*6]follows:

§ 735. Manner of service; filing; when service complete

1. Service of the notice of petition and petition shall be made by personally delivering them to the respondent; or by delivering to and leaving personally with a person of suitable age and discretion who resides or is employed at the property sought to be recovered, a copy of the notice of petition and petition, if upon reasonable application admittance can be obtained and such person found who will receive it; or if admittance cannot be obtained and such person found, by affixing a copy of the notice and petition upon a conspicuous part of the property sought to be removed or placing a copy under the entrance door of such premises; and in addition, within one day after such delivering to such suitable person or such affixing or placement, by mailing to the respondent both by registered or certified mail and by regular first class mail,

***

(b) if a corporation, joint-stock or other unincorporated association, as follows: at the property sought to be recovered, and if the principal office or principal place of business of such corporation, joint-stock or other unincorporated association is not located on the property sought to be recovered, and if the petitioner shall have written information of the principal office or principal place of business within the state, at the last place as to which petitioner has such information, or if the petitioner shall have no such information but shall have written information of any office or place of business within the state, to any such place as to which the petitioner has such information. Allegations as to such information as may affect the mailing address shall be set forth either in the petition, or in a separate affidavit and filed as part of the proof of service.

CPLR § 311(a)(1) provides for personal service upon a corporation, in pertinent

part, as follows:

to an officer, director, managing or general agent, or

cashier, assistant cashier or to any other agent authorized

by appointment or by law to receive service.

RPAPL §735 (1) is silent as to the proper method of effectuating personal delivery on a corporate respondent. Therefore, many courts have resorted to the analogous CPLR § 311 standard, which permits service on a corporation by delivery to the above enumerated officers or to authorized agents. Milchman v Wonderful Discount Ctr., NYLJ, January 5, 1993, p. 22. col. 4 (Civ Ct, NY County); Manhattan Embassy Co. v Embassy Parking Corp., 164 Misc 2d 977 (Civ Ct, NY County 1995); Rodney Co. N.V., Inc. v Riverbank America, NYLJ, October 7, 1997, p. 26, col. 5 (Civ Ct, NY County); Fiftieth Broadway Corp. v 1627 Bway. Operating, Inc., NYLJ, June 7, 2000, p. 27. col. 5 (Civ Ct, NY County); McDee Family LP v Royal T's Gymnastics, Inc., 15 Misc 3d 1145(A) (Dist Ct, Nassau County 2007).

In Rodney Co. N.V., Inc. v Riverbank America, supra, the court was presented with a similar [*7]issue as to whether service was properly effectuated on a corporation by delivery of the papers to a corporate officer, not at the "property sought to be recovered." Relying on the Appellate Term, the trial court held that "[i]t was immaterial that such delivery occurred in a corporate office other than the premises sought to be recovered." Id., citing to Rockefeller Center Properties v Hoffritz for Cutlery, Inc., NYLJ, March 23, 1993, p. 21, col. 4 (App Term 1st Dept) (landlord properly served corporate tenant's assistant manager at only one of two floors sought to be recovered).

While it may be debatable that the above described service complies with the second level of RPAPL §735 service which authorizes delivery to "a person of suitable age and discretion . . . employed at the property sought to be recovered," it was certainly proper under CPLR § 311(a)(1), as Daphna Dor was a corporate officer who voluntarily accepted service on Chista's behalf.

Waiver of Personal Jurisdictional Defense

by Asserting Unrelated Counterclaims

Assuming that respondent had a viable personal jurisdictional defense based on improper service of the Notice of Petition and Petition, it effectively waived such defense by asserting unrelated counterclaims. The Court of Appeals has adopted a rule holding that by asserting an unrelated counterclaim the defendant waives a defense of lack of personal jurisdiction because the party is taking affirmative advantage of the court's jurisdiction. Textile Technology Exchange, Inc. v Davis, 81 NY2d 56 (1993). The court clarified that a "counterclaim will only be related' for these purposes when such counterclaim could be potentially be barred under the principles of collateral estoppel where the parties or their privies are the same and where the issues in the plaintiff's claims are potentially identical and decisive of issues raised in the counterclaims. . . . While all counterclaims are permissive' (CPLR 3019), the spectre of collateral estoppel often requires a defendant to bring certain counterclaims in order to avoid the risk of later preclusion. . . ." Id., at 59 (internal citations omitted). See also Sneddon v Greene, 17 Misc 3d 1 (App Term 9th & 10th Jud Dists 2007) (defendant waived personal jurisdictional defense by asserting unrelated counterclaim for alleged overpayments of rent which was authorized by the court as it would not have been subject to later preclusion).

In this case, respondent has asserted fourteen counterclaims seeking millions of dollars in damages, including breach of fiduciary duty as a joint venturer, breach of the Lease which "imperil[s] Respondent's business and good will", unjust enrichment, lost profits, loss of business and income, fraud, deprivation of quiet use and enjoyment of the subject premises, multiple requests for declaratory judgments that respondent duly exercised its option to renew the Lease and is entitled to a renewal Lease effective January 1, 2007, awarding respondent legal fees not less than $250,000.00, and return of its security deposit. Many of these counterclaims are unrelated. For instance, there is no provision in the Lease or statutory authority ^[FN4] for respondent to recover legal fees in this commercial holdover proceeding. In addition, while the Appellate Division stated in a related matter ^[FN5] that respondent was "free" to assert certain equitable defenses and counterclaims for money [*8]damages, it is apparent that Civil Court lacks the authority to provide such declaratory judgment relief ^[FN6] or to order the return of the security deposit and/or to apply it as a set-off against outstanding rent owed.

Since the respondent has asserted unrelated counterclaims in response to petitioner's holdover proceeding, respondent has waived any personal jurisdiction defenses as per Textile Technology Exchange v Davis, supra.

The movant has the burden of proving entitlement of summary judgment. Winegrad v N.Y.U. Medical Center, 64 NY2d 851 (1985). "[T]he remedy of summary judgment is a drastic one, which should not be granted where there is any doubt as to the existence of a triable issue (Moskowitz v Garlock, 23 AD2d 943, 944) or where the issue is even arguable (Barrett v Jacobs, 255 NY 520, 522) since it serves to deprive a party of his day in court. Relief should be granted only where no genuine, triable issue of fact exists (see Werfel v Zivnostenska Banka, 287 NY 91)." Broadway 111th Street Associates v Morris, 160 AD2d 182, 185 (1st Dept 1990) (quoting Gibson v American Export Isbrandtsen Lines, 125 AD2d 65, 74 [1st Dept 1987]).

Procedural Infirmities

Petitioner's cross-motion suffers from several procedural infirmities. First, while the parties attached voluminous supporting papers and exhibits on this round of motion practice, the petitioner (as well as respondent) inexplicably failed to submit a copy of the answer along with its motion papers. CPLR § 3212(b) requires a motion for summary judgment to attach a copy of all the pleading, which includes the answer. Hamilton v City of New York, 262 AD2d 283 (2d Dept 1999); Lawlor v County of Nassau, 166 AD2d 692 (2d Dept 1990). Second, the affidavits of Stuart Minton, Jr., sworn to on January 29,2008 and February 29, 2008, and notarized in the State of Massachusetts, do not comply with CPLR § 2309(c) as they are not accompanied with a requisite certificate of conformity.

Late Exercise of Renewal Options

It is well settled law that a written notice exercising an option to renew a lease is ineffective unless it is provided within the time specified in the parties' underlying lease agreement. J.N.A. Realty Corp. v Cross-Bay Chelsea, Inc., 42 NY2d 392, 396 (1977). However, while the courts recognize this legal doctrine, equity may intervene to relieve a party of the consequences of its own neglect or inaction under certain limited circumstances. Id.

It is noteworthy that the landmark case of J.N.A. Realty Corp. v Cross-Bay Chelsea, Inc., supra, involved an appeal of an underlying trial in Civil Court in which the tenant Foro Romano Corp. ("Foro") assigned its interest in its restaurant and lease to Cross Bay Chelsea, Inc. ("Chelsea") with consent of the landlord J.N.A. Realty Corp. ("JNA"). As part of the approved sale, Chelsea [*9]obtained an extension of the option to renew the lease from 10 years to 24 years. Chelsea paid Foro $155,000 for the sale of the restaurant which included $40,000 for the value of the fixtures and chattels. JNA had always informed Chelsea of its obligations under the lease, including a June 13, 1973 letter concerning JNA's request for payment of certain taxes. However, at that time, JNA did not inform Chelsea that its option to renew would expire in about two weeks. Chelsea failed to timely exercise its long-term option to renew the lease. Chelsea spent an additional $15,000 on improvements, "at least part of which had been expended after the option had expired" or "during the tenancy" or "before the June, 1968 closing." 42 NY2d at 396, 399 and 402 (emphasis added). The trial judge did not permit petitioner to present evidence that it "had negotiated with another tenant after the option to renew had lapsed." Id. at 396. The Court of Appeals reversed this ruling because:

It may be that after the tenant's default the landlord, relying on the agreement, in good faith, made other commitments for the premises. But if JNA did not rely on the letter of the agreement then, it should not be permitted to rely on it now to exact a substantial forfeiture for the tenant's unwitting default. This, however, must be resolved at trial.

Id. at 400 (emphasis added).

Another well established principle is that the law abhors the forfeiture of a leasehold interest. Mooney v Bryne, 163 NY 86 (1900). In order to avoid a forfeiture, the Court of Appeals considers the tenant's excuse and weighs the prejudice of the parties. Where the tenant's fault was "as Cardozo says mere venial inattention' . . . [no forfeiture is warranted because] the gravity of the loss is certainly out of all proportion to the gravity of the fault." J.N.A. Realty Corp. v Cross-Bay Chelsea, Inc., 42 NY2d at 399 (1977). Such an equitable interest may be protected against forfeiture under at least two circumstances. The first is where the tenant has in good faith made substantial improvements to the premises intending to renew the lease, the landlord is not harmed by the delay in notice, and the tenant would sustain substantial loss if the lease were not renewed. J.N.A. Realty Corp., 42 NY2d at 398 (citing 2 Pomeroy, Equity Jurisprudence [5th ed. § 453b, p. 296); 5 East 41 Check Cashing Corp. v Park & Fifth Owner, LLC, 44 AD3d 373 (1st Dept 2007); Kunze v Arito, Inc., 48 AD3d 272 (1st Dept 2008). The second circumstance is where, even though there is no indication of substantial improvements having been made, the tenant stands to lose a substantial and valuable asset if it loses its long standing location for a retail business because the location is an important part of the good will of the tenant's enterprise. Kunze v Arito, Inc., 48 AD3d 272 (1st Dept 2008); J.N.A. Realty Corp., 42 NY2d at 398 (citing Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449 [1971]).

Chista's Valid Excuse

In this case, it is quite apparent that Chista did not deliberatively fail to exercise its valuable option to renew its long-term leases which could potentially run another fourteen years through 2022. Chista's excuse or fault can be classified as mere inadvertence or "venial inattention."

The facts clearly demonstrate that a few months prior to the June 30, 2006 renewal deadline, Chista and Langotsky were actively engaged in preserving their long-term lease, and furthering their goal to develop the subject building as a design center with Chista as the anchor tenant. Specifically, Langotsky sought relocation costs that exceeded one million dollars for its temporary relocation during the development stage and envisioned occupying a minimum of 10,000 to 14,000 square feet [*10]in the new building. In addition, Chista "would only forgo its favorable lease agreement for the one time payment of $1,000,000 plus any other concessions which other tenants are entitled to, such as free rent and space improvement allowance." (Exhibit "7" to the Langotsky Aff.). Indeed, just a few weeks before the deadline, Chista and Langotsky, with the petitioner's apparent approval, contacted an engineering firm to conduct a study to analyze the feasibility to actualize their plans for the subject building. (Exhibit "8" to the Langotsky Aff.). Even several weeks after the deadline passed, petitioner anxiously inquired as to the status of the engineering report. (Exhibit "11" to the Langotsky Aff.).

As a result of the communications between Chista and the petitioner, there is a question of fact whether petitioner knew or should have known that Chista intended to renew the leases. See Tritt v Huffman & Boyle Co., 121 AD2d 531, 532 (2d Dept 1986)

Chista Would Sustain Substantial Loss

It is also clear that Chista would sustain a substantial loss if the leases were not renewed. Chista invested more than $325,000.00 in substantial improvements to the subject premises and the value of the improvements increased to more than $1,000,000.00 when Chista's "sweat equity" was included. As also stated above, Chista valued its leasehold interest at more than $3,000,000.00 in its prior negotiations with petitioner. Moreover, Chista asserts that the loss of its lease would put Chista "out of business" because the "size of the pieces that Chista designs and sells requires large expanses of space to be properly shown, as well as an elevator to accommodate them." (Langotsky Aff. at ¶ 29).

Chista Made Improvements with Intent to Renew Leases

Chista has in good faith made improvements to the subject premises with the intent to renew the leases. In furtherance of Chista's goal to develop the subject building as a design center with it as the anchor tenant, Chista built a design studio on the second floor in November 2005. It was completed in January 2006, at a cost of $15,000.00, just a few months prior to the renewal deadline.

While there is authority for the proposition that improvements may be "effectively amortized and depreciated over the life of the lease" and the tenant consequently "reaped the benefit of any initial expenditure" (Soho Development Corp. v Dean & DeLuca, 131 AD3d 385, 386 [1st Dept 1987]), the Court of Appeals in J.N.A. Realty Corp.,supra, did not rest its opinion on such an argument. In fact, the Court of Appeals in J.N.A. Realty Corp. found persuasive that a mere $15,000 in improvements partly made after the option expired, and the new tenant had only been in possession for about five years, was sufficient to require remand for a new trial on the remaining issue of petitioner's possible prejudice. In addition, at least one appellate court rejected a trial court's determination which rested on a determination that the tenant's improvements were "minimal in comparison" to those of another case. Grunberg v George Associates, 104 AD2d 745, 746 (1st Dept 1984).

Long-Standing Location and Good Will

Even assuming, arguendo, that it is determined that Chista did not make substantial improvements to the premises, or that the improvements were not made with the intention of [*11]renewing the lease, Chista's equitable interest may still be recognized and protected if it maintains the subject premises as a "long-standing location for a retail business" and "an important part of the good will of that enterprise." J.N.A. Realty Corp., 42 NY2d at 398; Sy Jack Realty Co., 27 NY2d at 452; Nanuet National Bank v Saramo Holding Co, 153 AD2d 927 (2d Dept 1989), leave to appeal denied, 75 NY2d 705 (1990) (court held after trial that tenant's equitable interest was established because of the good will that it developed at premises constructed to suit the tenant's particular needs and tenant had approximately 1500 customers). The holding in Soho Development Corp. v Dean & DeLuca, 131 AD3d 385 (1st Dept 1987) is distinguishable since the court found, after a trial, that the relocation of this famous tenant to a nearby location would have little effect on its business.

In this regard, Chista has presented uncontroverted testimony that it maintains the subject premises as its "long-standing location for a retail business" and that the current premises are "an important part of the good will of that enterprise." As Langotsky averred:

Chista's occupancy in the building known as the Chista Design Center is important to its success. Eviction poses a serious threat to its good will and business, which have been established in part through its long-term occupancy and location at 537 Greenwich Street. Chista and I have built our business around the building's space and what it could facilitate. Indeed Chista has received industry-wide recognition for the beauty of the space we have created, which has been featured in prominent advertisements and photographic magazine spreads. Also, Chista has advertised in design publications its address as the "Chista Design Center 537 Greenwich Street." Furthermore, the size of the pieces that Chista designs and sells requires large expanses of space to be properly shown, as well as an elevator that can accommodate them. Given today's real estate market and the size of the space that Chista's pieces require, relocation would be so costly that it would put Chista out of business.

(Langotsky Aff. at ¶ 29).

Petitioner's Prejudice

The tenant is also required to demonstrate that the landlord would not be prejudiced by the renewal. Dan's Supreme Supermarkets, Inc. v Redmont Realty Co., 216 AD2d 512 (2d Dept 1995) (the landlord's "inability to consummate a valuable lease because of the unavailability of the premises would clearly be prejudicial"); Nanuet National Bank v Saramo Holding Co, supra.

Here, petitioner alleged it will suffer prejudice because of its inability to sell the subject building. From November 21, 2006 through December 20, 2007, petitioner allegedly received eight written offers ranging from $35,000,000 to $39,000,000 to purchase the subject building.^[FN7] In six offers, one of the conditions of sale is delivery of a vacant building; however, the other two offers, including the highest recorded offer, do not have a vacancy delivery contingency. (Exhibit "H" to Minton Reply Aff.).

Petitioner's allegations are insufficient for several reasons. First, the written offers may not be considered herein as they are not in admissible form due to the petitioner's unilateral redaction of the offeror's identities. Mackey v Southampton Hospital, 264 AD2d 410 (2d Dept 1999); Marano [*12]v Mercy Hospital, 241 AD2d 48 (2d Dept 1998). Second, the highest recorded offer is not contingent on the delivery of a vacant building. Thus, it follows that respondent would not necessarily have to vacate the subject premises for petitioner to receive the maximum offered amount for the sale of the subject building. Third, petitioner failed to allege that it either negotiated or made any commitments whatsoever in relation to either the sale of the building or rental of the subject premises based on the expectation that Chista's leases would expire on December 31, 2006. Petitioner merely submitted offers it received without ever expressing its intent to negotiate with any purchaser or to enter into a contract of sale for the sale of the subject building. Absent some specific commitment to either negotiate and/or sell the subject building or rent the subject premises, petitioner's allegations of prejudice are unsupported speculations. Dan's Supreme Supermarkets, Inc. v Redmont Realty Co., supra; Nanuet National Bank v Saramo Holding Co, supra. Finally, the issue of petitioner's alleged prejudice would require a trial to uncover more factual information, as expressly stated in J.N.A. Realty Corp. v Cross-Bay Chelsea, Inc., supra.

Severance of Counterclaims

CPLR § 407 authorizes a court at any time to sever a counterclaim in a special or summary proceeding to continue as a plenary action. Where a tenant's counterclaim in a holdover proceeding is not inextricably intertwined with the landlord's main claim for possession, it should be severed from the summary proceeding as it may inordinately delay the summary nature of the special proceeding. Sutton Fifty-Six Co. v Fridecky, 93 AD2d 720 (1st Dept 1983). "Where the counterclaim has nothing whatsoever to do with the issue of whether the landlord is entitled to possession of his property, the counterclaim ought not be considered. Under such circumstances, the court should sever the counterclaim from the proceeding. Summary proceedings are special proceedings and under CPLR 407, the court may at any time order a severance." 3 Rasch, New York Landlord and Tenant §43:43 (4th ed. 1992).

In this case, this Court exercises its discretion to sever respondent's First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Twelfth and Thirteenth Counterclaims as they are not inextricably intertwined with petitioner's main claim for possession and would inordinately delay this summary proceeding. Moreover, these counterclaims are duplicative of the causes of action respondent asserted first in the Supreme Court Action.^[FN8] These counterclaims are better suited in the Supreme Court due to the protracted and unique nature of the relief sought (i.e., declaratory judgments) that would require extensive discovery which is ordinarily discouraged in summary proceedings.

Remaining Counterclaims and Defenses

As this Court alluded to in oral argument and conceded on the record, there is no contractual agreement or statutory authority for respondent to recover attorney's fees (Eleventh Counterclaim). In addition, respondent's Fourteenth Counterclaim for the return of the security deposit is premature as Chista currently remains in possession of the subject premises and it is governed by the express [*13]terms of the leases. Therefore, respondent's Eleventh and Fourteenth Counterclaims are dismissed.

As more fully stated above, respondent's first affirmative defense is stricken as respondent was properly served and Chista effectively waived its right to interpose a personal jurisdictional defense. Respondent's third affirmative defense is also stricken as the petition complies with the requirements of RPAPL § 741. Respondent's second affirmative defense of failure to state a cause of action must remain for trial as it is mere "surplusage" which may be asserted at any time even if not pleaded. Riland v Frederick S. Todman & Co., 56 AD2d 350 (1st Dept 1977). Respondent's fourth, fifth, seventh and eighth affirmative defenses relate to Chista's attempt to protect its valuable equitable interest in the subject premises. For the reasons stated above, these defenses must remain for trial.

Accordingly, respondent's motion for summary judgment dismissing this proceeding for lack of personal jurisdiction is denied. Petitioner's cross-motion for summary judgment is granted to the extent of striking respondent's first and third affirmative defenses, dismissing respondent's Eleventh and Fourteenth Counterclaims, and severing respondent's First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Twelfth and Thirteenth Counterclaims. This matter shall be shall be placed on the Part 52 calendar on June 2, 2008, at 9:30 a.m.

The foregoing constitutes the decision and order of this Court. Courtesy copies of this decision and order have been mailed to counsel for the parties.

Dated:New York, New York

May 14, 2008Hon. Shlomo S. Hagler, J.C.C.