| Tappan Golf Dr. Range, Inc. v Tappan Prop., Inc. |
| 2009 NY Slip Op 08963 [68 AD3d 440] |
| December 3, 2009 |
| Appellate Division, First Department |
| Tappan Golf Drive Range, Inc., Appellant, v TappanProperty, Inc., Respondent. |
—[*1]
Judgment, Supreme Court, New York County (Steven E. Liebman, Special Ref.), enteredFebruary 24, 2009, awarding plaintiff damages in the principal amount of $204,715, withstatutory interest from January 23, 2009, unanimously modified, on the law, to award plaintiffdamages in the principal amount of $350,000, with statutory interest from September 6, 1996,less an offset, in favor of defendant, of taxes and interest in the amount stipulated to before thespecial referee, of interest since January 5, 2009 on the principal sum of $65,145, as well asattorney's fees in the stipulated amount, the matter remanded for entry of an amended judgmentconsistent herewith, and otherwise affirmed, without costs.
In April 1995, plaintiff leased a golf driving range from defendant for a term of 18 years. Asrequired by the lease, plaintiff gave defendant a security deposit of $350,000. Plaintiffadmittedly failed to pay school taxes owed on or about August 14, 1996, in violation of leaseprovisions which required it to pay those taxes as "additional rent." Consequently, on September4, 1996, defendant obtained a possessory judgment in the Justice Court for the Town ofOrangetown, Rockland County. Defendant reentered the premises and resumed operation of thedriving range for its own benefit until selling the property in 2001.
At the trial of this action (Herman Cahn, J.), in which plaintiff seeks the return of its securitydeposit, defendant admitted that, pursuant to the lease on September 6, 1996, when the certificateof deposit account containing plaintiff's $350,000 security deposit matured, it deposited thosemonies into its own corporate account, and used the monies to pay expenses, including theunpaid school taxes, as well as legal fees incurred in prosecuting the Justice Court action.However, General Obligations Law § 7-103 (1) forbids landlords from comminglingsecurity deposit monies with their own funds, and defendant's admitted commingling ofplaintiff's security deposit vested in plaintiff an "immediate right" to receive those monies(LeRoy v Sayers, 217 AD2d 63, 68-69 [1995]). General Obligations Law § 7-103(3) provides that the anticommingling protections of General Obligations Law § 7-103 (1)cannot be waived and that the provision of the lease purporting to grant defendant the right tocommingle the security deposit was "absolutely void" under the statute.
Thus, the trial court erred in holding that the interest rate of 0% provided for under the leasecontinued to apply to the security deposit monies for so long as defendant was holding them.Upon breaching its fiduciary duty not to commingle the money, defendant "forfeited any right[it] had to avail [it]self of the security deposit for any purpose" (Dan Klores Assoc. v [*2]Abramoff, 288 AD2d 121, 122 [2001] [internal quotationmarks omitted]). Defendant could no longer claim the benefit of the interest rate provided forunder the lease. Instead, the statutory rate of 9% applied from the moment of comminglingforward (CPLR 5001, 5004). Because defendant, as landlord, functioned as a "trustee of thedeposit, not a debtor" (Matter of Perfection Tech. Servs. Press [Cherno-Dalecar RealtyCorp.], 22 AD2d 352, 356 [1965], affd 18 NY2d 644 [1966] [discussing apredecessor statute to General Obligations Law § 7-103]), any debts owed by plaintiffcould not be offset against the commingled security deposit funds (see Dan KloresAssoc., 288 AD2d at 122). Nor could defendant raise plaintiff's breach of the lease as adefense to plaintiff's action to recover the commingled funds (see LeRoy, 217 AD2d at68). The trial court correctly declined to deduct the unpaid school taxes from the commingledsecurity deposit monies, prior to calculating interest due to plaintiff.
We note, however, that defendant is entitled to an offset of the taxes and interest in theamount stipulated to before the special referee, of interest since January 5, 2009 on the principalsum of $65,145, as well as attorney's fees in the stipulated amount. Concur—Saxe, J.P.,Friedman, Acosta, Renwick and Abdus-Salaam, JJ.