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Case:  Saks & Company v. Swiss Bank Corporation, 1995 WL 11044 (S.D.N.Y. 1995)

How did lease require landlord and tenant to resolve disagreements over allocation of responsibility for real estate taxes?

Ground lease called for arbitration to determine allocation of real estate taxes between landlord and tenant in case of dispute. In this case, there were two allocations which were required in order to establish the tax responsibility of the parties.

The tax lot assessed by the city included both ground underlying new construction (partly leased by tenant) and ground underlying old construction (none of the old contruction was leased by tenant.) Before the landlord could apportion taxes to the tenant for its share of the taxes on the new construction, the landlord had to establish what portion of the taxes on the tax lot were attributable to the new construction. Since the new construction was not separately assessed, this was not a black and white issue. In fact, the tenant disagreed with landlord's approach to this apportionment. which had to be separated before the allocation could be made of the new construction. The tenant wanted to address this issue in an arbitration under the arbitration clause in the lease. The landlord argued that the arbitration clause did not cover disputes relating to tax apportionment as between the new construction and the old construction. The landlord argued that the arbitration only included disputes as between the landlord and tenant relating to the new construction. The landlord had a low assessment on its old construction which it did not want to risk having to share with the tenant in case of an adverse ruling by the arbitrator.

The court analyzed the language of the lease and concluded that the language of the arbitration clause was not limited as claimed by landlord. It determined that the language of the clause applied to the dispute regarding the allocation as between the old building and the new building, thereby requiring arbitration of the entire real estate tax dispute.