The opinion of the court was delivered by: FULLAM
OPINION AND ORDER NO. 484
The Trustees of the Debtor own the fee title to the Waldorf-Astoria Hotel in the City of New York. This property, comprising an entire block bounded by 49th and 50th Streets and by Park Avenue and Lexington Avenue, is presently leased to the Hotel Waldorf-Astoria Corporation under a long-term lease. A dispute has arisen as to the proper method of determining the rentals due and payable under this lease, and the matter has been submitted to this Court for decision. For convenience, the lessor will be referred to as "the Railroad," and the tenant will be referred to as "the Hotel."
Under date of September 1, 1929, the Railroad leased the property to the Hotel for a term of 26 years and 11 months (January 1, 1930 to December 1, 1956), with renewal options for two additional terms of 21 years each. This document will be referred to as "the original lease." The Railroad contributed approximately $10,000,000 toward the cost of construction of the Hotel building. The original lease required the Hotel to pay a fixed annual ground rental, "sinking fund rental" at the rate of 2% per year on the $10,000,000 construction advance, and a "building rental" representing 6% annual interest on the unpaid balance of the $10,000,000. The Hotel was also required to pay a stated portion of taxes, and certain other charges. The Hotel was also required to supply, maintain and replace furnishings and equipment, and to add to them from time to time as necessary for the operation of the establishment as a first-class luxury hotel.
The building was completed and the Hotel opened for business in October 1931, but immediately experienced financial difficulties. On June 30, 1934, the Hotel filed a petition for reorganization under Section 77B of the Bankruptcy Act, in the United States District Court for the Southern District of New York.
As of December 31, 1934, the Hotel was in arrears in the payment of ground rentals, building rental and taxes in the total amount of $3,418,806.76, and in the payment of sinking fund rentals in the amount of $599,900. In addition, the Hotel was in arrears on its bond interest.
Ultimately, a plan of reorganization was adopted, and approved by the reorganization court as of January 3, 1936. Under the terms of the plan, the rental arrearages were cancelled, and a new lease was entered into; and the Railroad received title to the furniture and furnishings of the Hotel.
In essence, the new lease provided for sliding scale rentals, dependent upon the profitability of the Hotel operations. In conformity with the plan of reorganization, the new lease provided for a substantial reduction in rental at such time as an "equality date" might be reached. It is the determination of this "equality date" which gives rise to the present controversy.
According to the Trustees' calculations, as of December 31, 1970, additional payments aggregating $14,826,618.68 would be required before the "equality date" is reached; whereas, the Hotel claims that the equality date was attained in November of 1970, resulting in an overpayment for the year 1970 in the sum of $226,488.50, plus additional sums since that date.
The reorganization plan, at page 4, provided:
" Future Adjustment of Rent. The New Lease will provide that if the aggregate of the rentals (in addition to taxes and service charges) received by the Landlord under the Original Lease to the effective date of the New Lease and of the rentals received by the Landlord under the New Lease, and under any Renewals, shall, at any time equal the aggregate of the following (the time when such event may occur being herein called the Equality Date):
"(1) the sums which would have been payable as Ground Rental under the Original Lease, and the renewals thereof, assuming the Original Lease, and the renewals thereof, to have continued to the Equality Date;
"(2) the sum of $10,000,000 advanced by the Landlord towards the cost of the construction of the building, with simple interest on the unpaid balances of said amount at the rate of 6% per annum from the date of each advance on account thereof to the date of full payment thereof;