Time is up for the residents of Carnegie House, as their battle over their ground lease rent heads to arbitration.
The co-op board of 100 West 57th Street and the entity that owns the building’s retail space have been fighting what they expect to be a massive increase in their ground rent. After unsuccessful attempts to stall arbitration through litigation, as well as a state bill that would have capped ground lease rent increases, arbitration is slated to begin Monday.
Shareholders of the co-op continued to put up a fight last week, but an eleventh-hour attempt to postpone the hearing failed on Thursday.
The board filed a petition Tuesday, alleging that a neutral umpire appointed as one of three arbitrators should be disqualified due to “proof” of his “appearance of impropriety and clear apparent bias and partiality.” The petition points to the fact that attorneys for land owners, a joint venture tied to Cammeby’s International Group and David Werner Real Estate, approached the umpire with another, unrelated job, to appraise a vacant parcel in Manhattan.
In a letter to the court, attorney Stephen Meister, who represents the landowners, specifies that Nixon Peabody, co-counsel on the case, reached out to the umpire to serve as an arbitrator related to the other site.
The petition alleges that the umpire appeared poised to take the other job and that his disclosure of the offer was “woefully deficient” because it glossed over his conversations with the attorneys. The board asked the umpire to recuse himself, but he declined and also indicated that he would not take up the separate job.
In his letter, Meister framed the petition as the latest of the board’s “Herculean attempts” to hold up the ground lease rent reset. He wrote that the board waited until the lead up to the July 4 holiday weekend to file their petition to “feign the need for emergent relief,” even though the umpire had disclosed the offer in May. On Thursday, a spokesperson for the landowners said the board was once again “desperately relying on false claims and distortions to support a court intervention.”
Judge David Cohen on Thursday issued a blunt order declining to grant the delay, writing that the petition “lacks any merit.”
The board is expected to appeal.
“Our billionaire landowners are once again pulling out all the stops to evade basic fairness,” Richard Hirsch, president of the board, said in a statement. “Now they’re intent on jeopardizing our chances at a neutral arbitration process to set our next rent — the only legal recourse left for our building.”
The ground lease rent at Carnegie House expired on March 15. The lease was renewed, but the land owners and the co-op board have yet to agree on a new rent.
Initial talks pegged the potential new rent at $40 million, or 10 times the current rate. The board came back with $5.4 million and then increased the offer by $50,000, according to court filings. The owners then pitched $25 million.
The board and Georgetown 57, an LLC that controls the building’s retail space, filed a lawsuit in September asking the court to temporarily halt ground lease negotiations, but the judge declined that request in November and dismissed the case entirely in March.
The co-op’s shareholders had also lobbied in favor of state legislation that would cap rent increases on ground leases and guarantee renewals. An amended version of that bill introduced this year removed the cap, but granted tenants the first opportunity to buy a ground lease if the owner decides to sell. That measure passed in the Senate but stalled out in the Assembly this session.
Ground-lease rent disputes are not unusual, but the fight over such arrangements in residential buildings has fed into broader debates over how New York should address its affordability crisis. Proponents of the state bill said it would protect a rare form of affordable home ownership in the city. Opponents said it would wrongfully interfere with private contracts and protect wealthy co-op shareholders who bought into their buildings at a discount, due to the threat of ground lease rent increases.
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