Owner Couldn't Recalculate Tax Escalations Based on Newly Assessed Valuations

A lease's real estate tax escalation clause required the tenant to pay, as additional rent, a portion of increases in real estate taxes. Increases would be calculated using the assessed valuation for that tax year minus the base assessed valuation. The lease defined “base assessed valuation” as a value determined by the county assessor's office, “without giving effect to any reduction thereof pursuant to any abatement, exemption, or other reduction applicable to the Real Property during the Base Tax Year.”

The owner initiated tax proceedings, and a court reduced the assessed valuation for the base tax year and later years. But the newly reduced assessed valuations, though lower than the original assessed valuations, increased from year to year, while the original assessed valuations didn't. The owner recalculated the tax escalations using the newly reduced assessed valuations and billed the tenant for more additional rent, which the tenant refused to pay. The owner then sued.

A New York appeals court dismissed the owner's lawsuit. It ruled that the newly reduced assessed valuations for the base tax year resulting from the tax proceeding can't be used to compute the base assessed valuation. The court noted that the parties knew of the impending tax proceeding when they negotiated the lease. But they chose to define “base assessed valuation” in a way that didn't permit future modifications [Fair Oak, LLC v. Greenpoint Financial Corp.].