World Trade Center Properties, L.L.C. et al v. United Airlines, Inc. et al
ORDER AND OPINION CONSTRUING WTCP LEASES AND REGULATING FURTHER PROCEEDINGS: This opinion follows remand by the Second Circuit Court of Appeals and construes the relevant provisions of the four identical net leases (the "Lease") for Buildin gs One, Two, Three, and Four of the World Trade Center, destroyed on September 11, 2001 by terrorist-related aircraft crashes. My interpretation of the terms and conditions of the Lease shall provide the parameters by which the parties' experts should express their opinions as to the values of the the leaseholds immediately following their destruction on September 11, 2001. (As further set forth in the order). A status conference will be held on April 25, 2017, at 2:30 p.m., to hear the pa rties' comments and to regulate further proceedings consistent with this opinion. Any written submissions are due by April 20, 2017. (Status Conference set for 4/25/2017 at 02:30 PM before Judge Alvin K. Hellerstein.) (Signed by Judge Alvin K. Hellerstein on 4/6/2017) Filed In Associated Cases: 1:21-mc-00101-AKH, 1:08-cv-03719-AKH, 1:08-cv-03722-AKH(cla)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UOC#:.~~-------~DATE FILED: ~ ~ O(o- 26 /=t.
ORDER 1AND OPl'""T ...
CONSTRUING WTCP LEASES
AND REGULATING FURTHER
IN RE SEPTEMBER 11 LITIGATION
World Trade Center Properties LLC, 1 World
Trade Center LLC, 2 World Trade Center LLC, 3
World Trade Center LLC, 4 World Trade Center
LLC, 7 World Trade Center Company, LP,
21 MC 101 (AKH)
08 Civ. 3719 (AKH)
08 Civ. 3722 (AKH)
-againstAmerican Airlines, Inc., AMR Corporation,
United Airlines, Inc., UAL Corporation,
Massachusetts Port Authority, Colgan Air, Inc.,
U.S. Airways Group, Inc., Huntleigh USA
Corporation, Globe Aviation Services
Corporation, U.S. Airways, Inc.,
ALVIN K. HELLERSTEIN, U.S.D.J.:
This opinion follows remand by the Second Circuit Court of Appeals and
construes the relevant provisions of the four identical net leases (the "Lease") for Buildings One,
Two, Three, and Four of the World Trade Center, destroyed on September 11, 2001 by terroristrelated aircraft crashes. My interpretation of the terms and conditions of the Lease shall provide
the parameters by which the parties' experts should express their opinions as to the values of the
the leaseholds immediately following their destruction on September 11, 2001.
I. PROCEDURAL HISTORY
Plaintiffs are the lessees of Buildings One, Two, Three, Four, and Seven of the
World Trade Center.1 They brought two lawsuits against various aviation companies and
security contractors2, alleging that defendants’ negligence in overseeing airport security systems
allowed terrorists to carry out the attacks of September 11: one lawsuit for the destruction of
Buildings One, Three, and Seven, see 08-cv-3722, and the second for the destruction of
Buildings Two and Four, see 08-cv-3719. Upon signing the 99–year leases, WTCP procured
multiple-company insurance coverage aggregating $3.5468 billion per occurrence, covering both
property damage and business interruption risks. After extensive litigation, plaintiffs recovered
Plaintiffs 1 World Trade Center LLC, 2 World Trade Center LLC, 3 World Trade Center LLC (formerly known as
5 World Trade Center LLC), and 4 World Trade Center LLC held the leaseholds to Buildings 1, 2, 4, and 5 of the
World Trade Center (the “Main Site” buildings). Plaintiff World Trade Center Properties LLC (“WTCP”) is the
indirect parent of these entities through another set of companies, and is in turn a subsidiary of other entities. The
hierarchy of these companies, showing Larry A. Silverstein as their ultimate owner, is set out as Appendix A to In re
Sept. 11th Liab. Ins. Coverage Cases, 333 F. Supp. 2d 111 (S.D.N.Y. 2004), and is reproduced as an appendix to
7 World Trade Company, LP (“7WTCo”), another company of the Silverstein Group, held the lease to Building 7.
The parties agreed to stay 7WTCo’s claims pending resolution of the claims of the net lessees of the Main Site
buildings, since the resolution of the latter is likely to determine the former. 21 MC 101, Dkt. No. 1928, Stipulation
and Order Staying 7 World Trade Center Company LP’s Claims.
Plaintiffs 1 World Trade Center LLC and 3 World Trade Center LLC were the only lessees that were appellants
before the Second Circuit. See In re Sept. 11 Litig., 802 F.3d 314, 321 n.1 (2d Cir. 2015). The parties agree that the
Second Circuit’s Mandate applies to all the leasehold entities. See 21 MC 101, Dkt. No. 1905, Letter Addressed to
Judge Alvin K. Hellerstein re: Status Update.
The defendants before the Court of Appeals included: American Airlines, Inc.; AMR Corporation; United Airlines,
Inc.; UAL Corporation; Massachusetts Port Authority; Continental Airlines, Inc.; Colgan Air, Inc.; US Airways
Group, Inc.; Huntleigh USA Corporation; Globe Aviation Services Corporation; Burns International Security
Services Corporation; Burn International Services Corporation; Pinkerton’s Inc.; Securitas A.B.; and U.S. Airways,
Inc. In re Sept. 11 Litig., 802 F.3d 314, 321 n.2 (2d Cir. 2015).
Continental Airlines, Inc., Burns International Security Services Corporation, Burns International Services
Corporation, Pinkerton’s Inc., and Securitas A.B. are not defendants on remand, having earlier been dismissed from
the case. See 21 MC 101, Stipulation and Order of Dismissal, Dkt. 1726 (dismissing Continental Airlines); 21 MC
101, Stipulation and Order of Dismissal, Dkt. 1412 (dismissing Burns International Security Services Corporation,
Burns International Services Corporation, Pinkerton's LLC f/k/a Pinkerton’s Inc., and Securitas AB).
The remaining defendants in this case are: American Airlines, Inc.; American Airlines Group, Inc. (f/k/a AMR
Corporation); United Air Lines, Inc.; United Continental Holdings (f/k/a UAL Corporation); US Airways, Inc.; US
Airways Group, Inc.; Colgan Air, Inc.; Globe Aviation Services Corporation; Huntleigh USA Corporation; and
Massachusetts Port Authority. The parties shall conform the caption to include only these remaining defendants.
$4.044 billion from their insurers. In re Sept. 11 Litig., 957 F. Supp. 2d 501, 511 (S.D.N.Y.
2013), aff’d in part, vacated in part, remanded, 802 F.3d 314 (2d Cir. 2015).
Defendants moved for summary judgment after substantial discovery proceedings
and fruitless mediations, arguing that the insurance recoveries exceeded plaintiffs’ potential tort
recoveries. Id. at 501. After a series of rulings and discoveries, culminating in a five day bench
trial, I entered judgment for defendants and held that any potential tort recovery by plaintiffs
would have to be offset against their insurance recoveries, and that plaintiffs’ insurance recovery
exceeded their potential tort recovery. Id. at 511. Plaintiffs appealed, and the Court of Appeals
affirmed my holdings that plaintiffs are entitled to compensation only for the diminution of value
of their leasehold interests as a result of the attacks and not reconstruction costs, that they cannot
recover consequential damages, and that, pursuant to CPLR § 4545, their insurance recoveries
corresponded to, and offset, their potential tort award. In re Sept. 11 Litig., 802 F.3d 314, 321–
22 (2d Cir. 2015).
The Court of Appeals also vacated and remanded for further proceedings. The
Court directed me (1) to recalculate the diminution in value of the leasehold interests, utilizing
the willing-buyer, willing-seller approach and allowing for negative valuation when calculating
the post-attack value, and (2) to recalculate prejudgment interest using New York’s statutory
prejudgment interest rate rather than the federal funds rate, and only on a final damages award.
Id. at 322.
I had held that the damages that plaintiffs could recover were the difference
between the market values immediately before and immediately after September 11, 2001. I
held that plaintiffs’ argument that their leaseholds could have a negative value was a subterfuge
to recover reconstruction costs. See In re Sept. 11 Litig., No. 21 MC 101AKH, 2009 WL
1181057, at *1, 3 (S.D.N.Y. Apr. 30, 2009), vacated and remanded, 802 F.3d 314 (2d Cir.
2015). However, the Court of Appeals determined that:
WTCP’s rental payments created the leasehold interest, but do not
necessarily reflect the amount that a buyer in the open market
would have paid to assume WTCP’s rights and obligations under
the leases—the relevant inquiry when assessing the market value
of a leasehold estate. Similarly, $0 is an incorrect post-attack
valuation. Although WTCP could expect to receive $0 in rent from
the destroyed buildings, that figure fails to account for the
company’s obligation to, at a minimum, continue paying rent.
In re Sept. 11 Litig., 802 F.3d at 336.
Continuing its reasoning, the Court ruled that since WTCP had continuing rental
obligations to the Port Authority, “WTCP’s leasehold interests had a negative value after the
attacks, and the diminution-in-value calculation must incorporate that negative market value.”
Id. Accordingly, the Court remanded so that “those continuing obligations [under the Lease] that
are unrelated to reconstruction” of the WTC Towers could be considered and valued. Id. at 337.
My task now is to “reassess the diminution in value of th[e] leasehold estates by
considering their pre- and post-attack market values, with the post-attack values measured as if
the Leased Buildings were not reconstructed.” Id. at 338. The market value of the leaseholds is
to be determined by “the price at which the lease–rather than the physical property in the estate–
would change hands between a willing buyer and a willing seller in a competitive market,”
considering “the rights and the obligations associated with the lease.” Id. at 335. Furthermore,
in valuing the leaseholds, the Court held that “it is emphatically not the case that Plaintiffs are
entitled to damages that reflect a guaranteed profit on their leases.” Id. at 338.
The Court suggested two ways to determine the value of the leaseholds under a
“willing-buyer, willing-seller approach”: (1) a “sales comparison approach” comparing
properties similar to the subject property, and (2) an “income capitalization approach” analyzing
reasonably anticipated costs and revenues and capitalizing the income into an indication of
present value. Id. at 335. The result could be “either a positive or a negative market value.” Id.
II. PRE-ATTACK VALUATION
I had determined the pre-9/11 value as $2.805 billion, the price that the Silverstein
companies had offered, and that the Port Authority had accepted, in April, 2001 for four identical
99-year net Leases to the World Trade Center properties other than Tower Seven. The Court of
Appeals disagreed, ruling that the $2.805 billion figure “reflects only the net present value . . . of
rental payments that WTCP committed to make to the Port Authority and not the pre-attack
value of the leasehold interest.” Id. at 336 (internal quotation marks omitted). However, it left
to me “to decide, in the first instance, whether there is a genuine dispute of material fact about
whether WTCP’s pre-attack leasehold interests had positive value, using the principles outlined
[in the mandate].” Id. at 338.
I hold, on remand and after careful consideration of the record, that $2.805 billion
reflects the amount that a buyer in the open market would have paid to assume WTCP’s rights
and obligations under the Lease immediately before the terrorists’ attack on September 11, 2001.
The plaintiffs agreed to pay this value in April 2001, when their bid at auction was accepted by
the Port Authority. That $2.805 billion value encompasses more than the net present value of
rental payments: it reflects all income that Silverstein anticipated he would earn over the 99-year
life of the leaseholds, less costs and anticipated expenses. The Court of Appeals recognized this:
It is also significant that WTCP signed its lease agreements shortly
before the terrorist attacks. The district court was correct to
observe that market value often reflects expected profits. Indeed,
both this Court and New York courts agree that [m]arket value
damages are based on future profits as estimated by potential
buyers who form the market and reflect the buyer’s discount for
the fact that the profits would be postponed and ... uncertain.
When there is a recent sale price for the subject asset, negotiated
by parties at arm’s length, that price may be the best evidence of
the asset’s market value taking into account expected profits.
In re Sept. 11 Litig., 802 F.3d at 337 (internal quotation marks and citations omitted) (emphasis
added); see Schonfeld v. Hilliard, 218 F.3d 164, 178 (2d Cir. 2000). The agreed price followed a
worldwide auction conducted by the Port Authority for the World Trade Center properties, in
which Silverstein Properties and other real estate companies bid for the 99-year net Leases. The
bundle of rights, obligations and expectations that WTCP purchased in the competitive auction,
and that were reflected in the lease agreements for the properties, were eventually the same
rights, obligations and expectations that a willing buyer would have paid, and a willing seller
would have accepted, immediately before the destruction of the properties on September 11,
I recognize that the Second Circuit, citing plaintiff’s expert Sheldon Gottlieb,
stated that “$2.805 billion reflects only the net present value . . . of rental payments that WTCP
committed to make to the Port Authority and not the pre-attack value of the leasehold interest.”
In re Sept. 11 Litig., 802 F.3d at 336. However, Gottlieb, in his fuller remarks, explained that the
$2.805 valuation also “included the up-front payment, fixed lease payments and the contingent
supplemental lease payments.” 21 MC 101, Gottlieb Declaration, ECF 598 at 4. The Port
Authority’s reversionary fee interest in the World Trade Center properties was not included in
the values of the leaseholds, and should not be included, for the Port Authority is not a party
plaintiff, and the WTCP plaintiffs did not own, and could not sell, that interest.
The $2.805 billion agreed value, as of April 2001, became the value as of
September 11, 2001, since plaintiffs declined the Court’s offer to show any change in value
between the date of contracting and September 11, 2001. See In re Sept. 11 Litig., No. 21MC101
(AKH), 2009 WL 2058385, at *1 (S.D.N.Y. May 26, 2009); In re Sept. 11th Litig., 590 F. Supp.
2d 535, 547 (S.D.N.Y. 2008)3. This valuation is further reinforced by WTCP’s own
contemporaneous audited financial statement, showing a carrying value of its leasehold as $2.8
billion. See 21 MC 101, Barry Declaration, ECF 505, Ex. W, World Trade Center Properties
LLC and Subsidiaries Consolidated Financial Statements as of December 31, 2001, dated April
22, 2002 (“Management has estimated the Company’s financial reporting loss from the Terrorist
Attacks is equivalent to the carrying value of the Impaired Assets, which was approximately $2.8
billion.”). Furthermore, a brochure that Silverstein Properties distributed to investors during the
period of purchase showed the value of the leaseholds as $2.844 billion. Id. at Ex. P, Silverstein
Properties, Inc., World Trade Center Office Complex Brochure (“The total price [of the net
Lease] is $3.239 billion, which is comprised of $2.844 billion for the office portion and $395
million for the retail portion [assumed by The Westfield Group].”).4
Plaintiffs declined to accept the Court’s offer to prove a difference in value
between the date of contract purchase, April 26, 2001, and September 11, 2001. In re Sept. 11
Litig., 2009 WL 1181057, at *1. Plaintiffs are estopped to claim any different value now. See
Simon v. Safelite Glass Corp., 128 F.3d 68, 71 (2d Cir. 1997) (“Judicial estoppel prevents a party
On December 11, 2008, I held:
The parties, as ready, willing and able buyers and sellers, agreed to a $2.805 billion consideration
for the four net leases on April 26, 2001, when their contract was signed and delivered. They
conveyed the net leases on July 16, 2001, when the transactions closed. The time lapse to
September 11, 2001 is short enough to be entitled to a presumption of equivalence as the best
evidence of market value. However, the parties may introduce proof to overcome the
presumption, for market values can fluctuate rapidly, and the value of property privately owned
and managed by an experienced real estate developer may enjoy a different market value than
property owned and managed by a governmental bureaucracy.
Thus, I deny summary judgment. WTCP shall have until February 28, 2009 to show, by motion,
that the towers’ value changed between April 26, 2001 and September 11, 2001. Failing such a
motion or an adequate showing, the court will issue an appropriate amended order.
In re Sept. 11th Litig., 590 F. Supp. 2d at 547 (internal quotation marks and citation omitted).
The record does not explain the difference between the value shown on Silverstein’s financial statements—$2.805
billion—and the value shown in the brochure. The difference is not material to the issues before me.
in a legal proceeding from taking a position contrary to a position the party has taken in an
earlier proceeding.”). In light of my holding, the parties’ experts shall not express opinions on
the pre-attack value of the leaseholds.
III. POST-ATTACK VALUATION
To calculate the post-attack value, I must first construe the terms and conditions
of the four identical net Leases, which define the benefits and burdens of the leaseholds, and
govern the price a willing buyer and a willing seller, respectively, would demand. Prior to the
proceedings following remand, I had no occasion to analyze the terms and conditions of the
Leases because the parties had not offered the Leases into evidence to support their value
estimates. The parties made their arguments on the basis of proofs of the costs of rebuilding the
towers in relation to New York’s “lesser of two” rule. See 21 MC 101, ECF 504, 601. On
remand, however, the terms and conditions of the Leases must be considered to define the rights
and the obligations which the parties, and hypothetical buyers and sellers, must consider. I
consider these terms and conditions in the next section below, and follow with an analysis to be
used by the parties’ experts as the bases for their opinions.
The Relevant Provisions of the Leases
a. The Net Lessee’s Obligations
The net Lease provides four categories of rent payable by the lessee: an “Initial
Rent Payment” at the time of contracting; an escalating “Base Rent” during the 99-year term of
the Lease; an “Additional Base Rent” for the first thirty years of the Lease, to the extent
operating income exceeds certain expenses; and a “Percentage Rent.” Lease ¶¶ 5.1, 5.2, 5.3, 5.6.
Operating income includes insurance recoveries, to wit: “the proceeds of any rental and/or
business interruption insurance paid in lieu” of rental revenue from subtenants. Lease ¶
As to the Initial Rent Payment, the parties agree that it was $491.3 million and
that it was paid. See 21 MC 101, Table of Disputed Provisions, ECF 1930 at 21. Paragraph 5.1
creates this obligation:
5.1 The Lessee shall pay, as rent for the letting of the Premises, to
the Port Authority, on the Commencement Date, without notice
and demand, an amount equal to the Initial Rent Payment, as
adjusted for certain prorations and similar items set forth in the
Contract to Lease.
As to the Base Rent, set out in Schedule 5.1(a) of the Lease, the aggregate Base
Rent begins at $93.50 million per year for the first five years of the Lease, increases to $111.50
million per year for the next five years, and continues to escalate in five-year intervals to $2.19
billion per year for the last five years. The sum for the full lease term of 99 years, without
discounting to present value, amounts to $75.79 billion. 21 MC 101, Letter re: Response to
Questions Raised in the July 19 Conference, ECF 1935 at 1. The obligation to pay Base Rent is
stated in ¶ 5.2:
5.2 The Lessee shall pay, as rent for the letting of the Premises, to
the Port Authority, without notice or demand, the amounts set forth
on Schedule 5.1(a) for each Lease Year (collectively, “Base
Rent”), in equal monthly installments in advance, commencing on
the Commencement Date and continuing thereafter on the first day
of each calendar month throughout the Term, which amounts shall
be prorated for any partial calendar months.
As to Additional Base Rent, paragraph 5.3 provides for an additional $6.47
million per year in equal monthly installments for the first thirty years of the Lease, but only to
the extent of “Excess Income,” defined as operating income for the immediately preceding
month less the reserves used to pay the senior mortgage, debt service, operating expenses,
payments on a specified loan, and capital costs expended in the immediately preceding month.
Paragraph 5.3 provides:
5.3 The Lessee shall pay, as additional rent for the letting of the
Premises, to the Port Authority, without notice or demand, an
amount equal to . . . $6,473,500 for each full calendar year . . .
during the first 30 Lease Years. . . .in equal monthly installments
in arrears, to the extent of Excess Income . . . . “Excess Income”
shall be deemed to be equal to (x) Operating Income for the
immediately preceding month, less (y) (i) Rental (other than
Additional Base Rent and Unpaid Additional Base Rent) paid
during such immediately preceding calendar month, (ii) any and all
reserves required to have been funded during such immediately
preceding calendar month pursuant to the terms of the Senior
Mortgage or any refinancing thereof, (iii) Debt Service payable
during the immediately preceding calendar month, (iv) Operating
Expenses (exclusive of Rental) paid during the immediately
preceding calendar month, (v) Operating Expenses (exclusive of
Rental) paid during the immediately preceding calendar month, (v)
regularly scheduled payments of principal and interest on the
Mezzanine Loan payable during the immediately preceding
calendar month, and (vi) any Capital Costs expended during the
immediately preceding calendar month (other than Capital Costs
that were actually paid for with proceeds of the Mezzanine Loan).
As to Percentage Rent, the lessee is to pay 0.5% of its gross revenue per year for
the first 10 years of the Lease and 1.5% of its gross revenues per year for the remaining years.
Paragraph 5.6 provides this obligation and paragraphs 5.7.1 and 5.7.2 define relevant terms, as
5.6 For each full or partial calendar year during the Term, the
Lessee shall pay, for the letting of the Premises during such period
. . . an amount (“Percentage Rent” . . .) equal to the Applicable
Percentage of the amount of Gross Revenues for such full or
partial calendar year . . . .
5.7.1 . . . the term “Applicable Percentage” shall mean, with
respect to (i) the first (1st) Lease Year through and including the
tenth (10th) Lease Year, one-half of one percent (0.5%), and (ii) the
eleventh (11th) Lease Year and thereafter throughout the remainder
of the Term, one and one-half of one percent (1.5%).
5.7.2 . . . Gross Revenues” shall mean . . . . fixed rent, percentage
rent, antenna income, parking income and amounts received in
connection with exterior Signs, or the net proceeds of any rental
and/or business interruption insurance paid in lieu thereof, received
by the Lessee or for the account of the Lessee from . . . the use and
occupancy of all or any portion of the Premises . . . and  the Fair
Market Rental Value of the premises. . . .
Payments in Lieu of Taxes
In addition to rent, the net lessee provides for payments to the Port Authority to
reimburse it for a portion of the payments in lieu of taxes that the Port Authority had agreed to
pay to the City of New York (“PILOT” payments). A “City Agreement” between the Port
Authority and the City fixes the Port Authority’s PILOT as a base amount of $1.709.5 The
lessee’s obligation to the Port Authority is determined according to the rentable square feet
available each year for leasing. Paragraphs 6.10 and 6.10.1 provide:
6.10 The Lessee shall pay to the Port Authority . . . in semi-annual
installments . . . commencing on January 1, 2002 and thereafter on
the first day of each January and July throughout the Term . . . the
following amounts[:] . . . .
6.10.1 The Lessee’s Allocated Share of the amount that is currently
payable by the Port Authority to the City of New York in lieu of
taxes with respect to the World Trade Center (the ‘Existing PILOT
Base’) pursuant to the Existing City Agreement . . . ., which
amount shall be adjusted annually . . . in accordance with the
provisions of the Existing City Agreement . . .
The Lease calculates the “Lessee’s Allocated Share” as a proportional fraction
reassessed from time to time: the number of square feet leased to the lessee to the total number of
square feet in all of the WTC buildings (estimated as 8,150,594 square feet). Paragraph 1.150
According to the City Agreement, the Port Authority agreed to make PILOT payments to the City: “[T]he Port
Authority shall pay to the City for the tax year commencing July 1, 1967 and for each succeeding tax year thereafter,
in lieu of taxes . . . [t]he total of $1,708,624.03” plus a provision for escalation as rentable square feet exceeds
4,000,000 square feet. City Agreement, ¶¶ 1, 6.
Lessee’s Allocated Share shall mean the proportion which the total
number of rentable square feet in the Premises for which PILOT is
payable . . . bears from time to time to the total number of rentable
square feet contained in all space in the World Trade Center as to
which PILOT is payable, which shall be expressed as a fraction,
the numerator of which shall be the total number of rentable square
feet of taxable space in the Premises as to which PILOT is payable
and the denominator of which shall be the total number of rentable
square feet of taxable space in the World Trade Center as to which
PILOT is payable . . . As of the January 25, 2001 . . . the total
number of taxable square feet in the World Trade Center is
represented by the Port Authority to be, and shall be deemed to be
8,150,594 square feet.
For the period July 1, 2001 through June 30, 2002, the Port Authority paid New
York City PILOT payments of $31.494 million, and the lessees paid the Port Authority $20.839
million. 21 MC 101, Letter re: Response to Questions Raised in the July 19 Conference, ECF
1935 at 1. The parties represented that, through June 30, 2005, the Port Authority paid basic
payments to New York City of $1.709 million and that WTCP reimbursed the Port Authority
$1.264 million. See 21 MC 101, Table of Disputed Provisions, ECF 1930 at 28, Ex. 6.
Obligations to Maintain the Premises and Common Areas
The Lease requires the lessee to care, maintain, repair or rebuild the premises,
including the common areas. Paragraphs 13.1 and 13.2 provide:
13.1 . . . the Lessee shall, throughout the Term of this Agreement,
assume the entire responsibility, and shall relieve the Port
Authority of all responsibility, for all care, maintenance, repair and
rebuilding whatsoever in the Premises, whether such maintenance,
repair or rebuilding be ordinary or extraordinary, partial or entire,
foreseen or unforeseen, structural or otherwise and without
limiting the generality of the foregoing, the Lessee shall:
(a) At all times keep the Premises clean, and in an orderly
condition and appearance, . . . .
13.2: . . . [Pursuant] to the [Reciprocal Easement Operating
Agreement (REOA)], the Net Lessees’ Association (i) will clean,
maintain and make, or cause to be cleaned maintained, or made, all
necessary repairs and restorations of, and replacement to, (A) the
Appurtenances, (B) the Common Building Systems and (C) the
Common Areas . . . The Lessee shall take all reasonable safety
precautions necessary to protect persons or property on the
Premises pending the completion of any necessary repairs to be
performed by the Net Lessees’ Association pursuant to the
provisions of the REOA.
The record has no quantification of this obligation. The City and FEMA absorbed
the substantial expense of clearing the World Trade Center site of debris resulting from the
collapse of the World Trade Center towers on September 11, 2001, and the record does not show
any bill or demand to the lessees that they should pay or reimburse the City or FEMA. There is
no proof of probable future expense.
Obligation to Insure the Buildings
The Lease provides that the lessee is required to insure the buildings against loss
from fire and other causes for the lesser of $1.5 billion or “actual replacement cost.” Lease ¶
14.1.1. It also requires the lessee to obtain loss of revenue/business interruption insurance to
protect against loss of rent and PILOT payments to the extent of at least three years’ coverage.
There is to be no exclusion for terrorist acts, if such coverage is available “at commercially
reasonable rates.” Id. Paragraph 14.1 and subparagraphs provide:
14.1 . . . the Lessee shall procure and maintain . . . the following
policies of insurance in the limits set forth below . . . . :
14.1.1 Fire and property damage insurance covering and insuring
the Building . . . against loss or damage by fire or such other
hazards and risks as may be covered by a standard form of all risk
policy of loss or damage, subject to standard exclusions, including
flood and earthquake, with no exclusion for terrorist acts. If the
deletion of such an exclusion for “terrorist acts” is unavailable at
commercially reasonable rates, the Lessee shall promptly notify
the Port Authority of such unavailability. . . . Such insurance (other
than flood and earthquake insurance) shall be maintained in an
amount equal to the lesser of (x) an amount sufficient to insure and
keep insured at all times during the Term the items of property
described in this Subsection, except for the footings and
foundations, to the extent of not less than the Full Insurance Value,
and (y) . . . ($1,500,000,000) per occurrence. Insurance for flood
and earthquake shall be maintained . . . in an amount of not less
than . . . ($500,000,000), in the aggregate, when the flood and
earthquake insurance required to be maintained in accordance with
this Lease and the Other Leases are taken together. The term “Full
Insurance Value” shall mean the actual replacement cost of the
items of property described in this Subsection.
Paragraph 14.1.2 provides for business interruption insurance:
14.1.2: “Loss of Revenue/Business interruption insurance in such
amounts as shall reasonably be required by the Port Authority for
protection against loss of the payments which the Lessee is
required to make to the Port Authority, including but not limited
to, Base Rent, Percentage Rent, . . . for a period of at least three (3)
years when the Premises, or a portion thereof, is out of operation
due to fire or such other risks and hazards . . .
The lessee is required also to obtain other categories of insurance:
14.1.3 War risk insurance upon the Building, if and when such
insurance is obtainable, at commercially reasonable rates . . .
14.1.4 Commercial general liability insurance on an occurrence
from during the Term in the minimum amount of . . .
($100,000,000) combined single limit per occurrence . . . .
14.1.5 Automobile liability insurance . . . in an amount of not less
than . . . ($10,000,000) combined single limit.
14.1.6 Environmental liability covering environmental hazards
arising from the Premises and discovered or occurring after the
Commencement Date in an amount not less than . . . ($5,000,000)
14.1.7 Boiler and machinery insurance covering all steam,
mechanical and electrical equipment . . . in an amount not less than
. . . ($25,000,000) per accident . . .
14.1.8 Workers’ compensation or employer’s liability insurance, as
required by law.
14.1.9 Garagekeepers’s Legal Liability coverage in the amount of .
. . ($2,000,000) per occurrence . . .
14.1.10 Fire and property damage insurance covering . . . the Artwork against loss
or damage . . . .
Obligations to Repair or Replace Damaged or Destroyed Structure
The Lease provides, in the case of damage to the leased premises or structures
thereon, that the lessee shall remove all debris and rebuild, restore, repair and replace the
destroyed premises, according to the original plans and specifications “to the extent feasible,
prudent and commercially reasonable,” and without the right to quit or surrender the premises,
terminate the Lease, or suspend or reduce its rent. Paragraph 15.1 and subsequent paragraphs
15.1 If the Premises (other than the Appurtenances) or any
structures, improvements, fixtures and equipment, furnishings and
physical property located thereon, or any part thereof, shall be
damaged or destroyed by fire, the elements, the public enemy or
other casualty, or by reason of any cause whatsoever and whether
partial or total, the Lessee, at its sole cost and expense, and
whether or not such damage or destruction is covered by insurance
proceeds sufficient for the purpose, shall remove all debris
resulting from such damage or destruction, and shall rebuild,
restore, repair and replace the Premises (other than the
Appurtenances) and any structures, improvements, fixtures and
equipment, furnishings and physical property located thereon
substantially in accordance, to the extent feasible, prudent and
commercially reasonable, with the plans and specifications for the
same as they existed prior to such damage or destruction or with
the consent in writing of the Port Authority, which consent shall
not be unreasonably withheld, conditioned or delayed, make such
other repairs, replacements, changes or alterations as is mutually
agreed to by the Port Authority and the Lessee. Such rebuilding,
restoration, repairs, replacements, or alterations shall be
commenced promptly and shall proceed with all due diligence
subject to the terms and conditions of this Agreement, including,
without limitation, the terms and provisions of Section 19 of this
Agreement. . . .
15.1.4 . . . no destruction of, or damage to the whole or any part of
the Premises or any structures, improvements, fixtures, and
equipment, furnishings or other property located thereon by fire or
any other casualty, cause or condition shall permit the Lessee to
surrender or terminate this Agreement or shall relieve the Lessee
from its liability to make payment of any monies, charges, fees or
rentals or additional rentals payable under this Agreement or from
any of its other obligations hereunder. The Lessee waives any
rights now or hereafter conferred upon the Lessee by statute or
otherwise to quit or surrender the Premises and terminate this
Agreement or any part thereof, or to any suspension, diminution,
abatement or reduction of rent on account of any destruction or
damage, except as elsewhere specifically provided herein. . . .
15.5 The REOA provides that in the event of a casualty affecting
portions of the Common Areas or Common Building Systems, the
Net Lessees’ Association shall repair or rebuild such damage with
due diligence, unless otherwise directed by applicable law.
Paragraph 15.1.5 provides that the Port Authority shall have
priority, as respect to the lessee, to certain insurance proceeds payable in the event
that: (1) the Main Site buildings are damaged or destroyed; (2) the cost of
restoring and repairing the buildings is expected to exceed the amount of WTCP’s
insurance; (3) WTCP defaults on its obligation to rebuild; and (4) the Port
Authority decides not to fund the gap between the insurance amount and the cost
of restoration and repair. The Lease provides that insurance proceeds for the
destruction of the Main Site buildings must be made available for and applied to
the payment of the cost of rebuilding. Lease ¶ 15.2. If there are insurance
proceeds remaining after the rebuilding costs have been covered, the balance shall
be paid to the lessee, unless the mortgagee has a right to it. Lease ¶ 15.4.
b. The Lessee as a Single Purpose Entity
The Lease provides that the lessee shall be a “Single Purpose Entity,” and defines
the term as “a Person, other than an individual, which  is formed or organized solely for the
purpose of holding . . . an ownership interest in the leasehold estate.” Lease ¶ 1.264. Paragraph
The Lessee and its managing member(s) and/or general partner(s)
is, at all times since the Commencement Date, and shall remain
during the Term, a Single Purpose Entity. The Lessee shall do all
things necessary to preserve its status as a Single Purpose Entity
and to preserve and keep in full force and effect its existence,
franchises, rights and privileges under the laws of the State of New
York so as to have and retain the right to lease the Premises or
transact business in the State of New York and the laws of any
other state to which the Lessee is subject. Notwithstanding the
foregoing, the provisions of this Section 23 shall not be effective if
and for as long as it is not customary in mortgage-backed securities
transactions that borrowing entities be required to satisfy Single
Purpose Entity or similar criteria.
c. Liabilities and Limitation of Liabilities
If the lessee fails to perform any of its obligations under the Lease, the
Port Authority may perform such obligations and require the lessee to pay the Port
Authority’s reasonable expenses and costs. Paragraphs 35.1 and 35.2 provide:
35.1 If the Lessee shall fail or refuse to perform any of its obligations under this
Agreement beyond any applicable notice and grace periods, the Port Authority, in
addition to all other remedies available to it, shall have the right to perform, . . .
any of the same, and the Lessee shall pay the Port Authority’s reasonable cost
thereof promptly. . . ."
35.2 ‘Cost’ or ‘costs’ of the Port Authority in this Agreement shall mean and only
include, and be limited to, (i) payroll costs including but not limited to
contributions to the retirement system, or the cost of participation in other pension
plans or systems, insurance costs, sick leave pay, holiday, vacation, authorized
absence pay or other fringe benefits; (ii) costs of materials, supplies and
equipment used (including rental thereof); (iii) payments to contractors; (iv) any
other direct costs; and (v) ten percent (10%) of the foregoing; and with respect to
clauses (i) through (iv), only such costs that are actually incurred by the Port
Authority in the performance of the action or work shall be included. . . .
However, the Lease is a net lease. “Notwithstanding anything contained”
in the Lease “to the contrary,” the lessee, and its partners or owners, cannot be charged
personally with liability. In the event of a default by the lessee, the Port Authority may
not recover beyond the lessee’s gross operating revenues, insurance proceeds, and
condemnation awards. It may not look beyond the lessee’s “estate and interest in the
premises.” Its sole remedy, beyond recovering gross revenues, is to “terminate the
[l]essee’s estate and interest in the premises.” Paragraph 16.1 provides:
16.1 Notwithstanding anything contained in this Agreement to the
contrary, the Lessee and its direct or indirect partners (general or
limited), members, shareholders, directors, officers, agents and
employees, and their respective successors and assigns, shall not
be charged personally with any liability or held personally liable
under any term or provision of this Agreement or because of its
execution or attempted execution . . . or because of any breach or
attempted or alleged breach hereof, and if the Lessee is in breach
or default with respect to any obligation undertaken by it hereunder
or otherwise under this Agreement other than (i) an action against
the Lessee to remove the Lessee from possession during the
continuance of an Event of Default . . ., or (ii) an action against the
Lessee to collect a judgment or other judicial process or arbitration
award requiring payment of money by the Lessee from any Gross
Revenues, insurance proceeds, and condemnation awards
thereafter payable to the Lessee with respect to the Premises.
Paragraph 16.1 continues:
[T]he Port Authority shall look solely to the Lessee’s estate and
interest in the Premises (including, without limitation, any Gross
Revenues, insurance proceeds, and condemnation awards
thereafter payable to the Lessee with respect to the Premises) and
the Port Authority’s sole remedy in the event of any such breach or
default by the Lessee hereunder shall be to terminate the Lessee’s
estate and interest in the Premises and, subject to the provisions of
Section 21.1 below, to collect a judgment or other judicial process
or arbitration award requiring payment of money by the Lessee
from any Gross Revenues, insurance proceeds, and condemnation
awards thereafter payable to the Lessee with respect to the
Premises, subject nevertheless to the rights of a Mortgagee to cure
such breach or default in accordance with the applicable provisions
of this Agreement.
d. Lease Binding on Successors and Assigns
The Lease binds and inures to the benefit of successors and assigns. Paragraph 58
[T]his Agreement shall be binding upon and inure to the benefit of
the Port Authority, the Lessee, and their respective successors and
assigns, and all references in this Agreement to the ‘Port
Authority’ or the “Lessee’, except as otherwise provided herein,
shall include the respective successors and assigns of such parties
(including the successors and assigns of the Port Authority with
respect to the Premises).
The Common Area and the Reciprocal Easement and Operating Agreement
The lessees were parties also to a Reciprocal Easement and Operating Agreement
(“REOA”) with the Port Authority. An association of the net lessees, the Net Lessees
Association, agreed to keep the sidewalks and common areas clean and free from dirt, snow, ice,
rubbish and obstructions, to provide security systems, equipment and personnel to keep the areas
secure, and to hire contractors and personnel to manage and operate the area to preserve life,
health and safety. REOA § 4.1. The Net Lessees Association agreed also to insure the area to
the same levels as were prescribed in the net Lease. REOA § 8.1. The REOA provided,
similarly to the Lease, that the Port Authority could not recover against a lessee or the Net
Lessees Association except from gross revenues, insurance proceeds, and condemnation awards.
REOA § 18.2, provides:
Notwithstanding anything contained in this Agreement to the
contrary, no Lessee and none of any Lessee’s direct or indirect
partners (general or limited), members, shareholders, directors,
officers, agents and employees, and their respective successors and
assigns, shall be charged personally with any liability or held
personally liable under any term or provision of this Agreement . .
. or because of any breach or attempted or alleged breach hereof
either by such Lessee or by the Net Lessees’ Association of its
duties hereunder . . . the Port Authority shall have no cause of
action against [a Lessee or the Net Lessees’ Association] to
enforce the terms, covenants, conditions, warranties, and
obligations of the Lessee and/or the Net Lessees’ Association
under this Agreement other than an action . . . to collect a judgment
or other judicial process or arbitration award requiring payment of
money by such Lessee and/or the Net Lessees’ Association from
any Gross Revenues[,] . . . insurance proceeds, and condemnation
awards. . . .
Discussion: The Framework for Experts’ Opinions
The leaseholds to the World Trade Center Main Site properties are defined by
four separate but identical agreements, each between the Port Authority and a single purpose
entity controlled by Larry A. Silverstein. See infra Appendix A. My task on remand is to value
these leaseholds by determining “the price at which [the leaseholds] would change hands
between a willing buyer and a willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of relevant facts.” In re Sept. 11 Litig., 802 F.3d at 335
(quoting United States v. Cartwright, 411 U.S. 546, 551 (1973)).
A hypothetical ready, willing and able purchaser or seller of an interest in
property will have to answer two basic questions when valuing the interest: (1) what revenues is
the property likely to produce; and (2) what expenses burden the property, including those
already attached to it and those likely to be incurred in the future? See id. (observing that fair
market value can be measured by “analyzing expected costs and revenues from the property to
generate an assessment of future income”). The experts must now address these considerations
in the context of a hypothetical sale of the leaseholds immediately following the September 11,
2001 destruction of the World Trade Center towers either by valuing relevant sales comparisons
or by capitalizing reasonably anticipated revenues and expenses. See In re Sept. 11 Litig., 802
F.3d at 336.
a. The Interpretation of the Provisions of a Lease, if Clear and
Unambiguous, are Matters of Law to be Decided by the Court
New York law governs the Lease. Lease ¶ 50.5. Under New York law,
the interpretation of the provisions of a clear and unambiguous lease term is a matter of
law to be decided by the Court. See W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d
639, 642 (N.Y. 1990). When parties set down their agreement in a clear, complete
written document, their writing should be interpreted as a whole and enforced according
to its terms. See S. Rd. Assocs., LLC v. Int’l Bus. Machines Corp., 826 N.E.2d 806, 809
(N.Y. 2005); Cobalt Blue Corp. v. 184 W. 10th St. Corp., 650 N.Y.S.2d 720, 722 (1st
Dep’t 1996). This precept “is particularly important in the context of real property
transactions, where commercial certainty is a paramount concern, and where . . . the
instrument was negotiated between sophisticated, counseled business people negotiating
at arm’s length.” S. Rd. Associates, 826 N.E.2d at 809 (internal quotation marks
b. Obligation to Rebuild, Restore, Repair and Replace
The Lease provides that the lessee shall, at its sole cost and expense, “rebuild,
restore, repair and replace” the Main Site buildings if they are damaged or destroyed in a manner
“substantially in accordance, to the extent feasible, prudent and commercially reasonable, with
the plans and specifications . . . as they existed prior to” the damaged or destroyed Main Site
buildings, or as mutually agreed. Lease ¶ 15.1.
The Court of Appeals instructed that “the post-attack valuation should operate
under the hypothetical that the Leased Buildings were not rebuilt.” In re Sept. 11 Litig., 802 F.3d
at 337. It also determined that because of the lessees’ continuing rental obligations “WTCP’s
leasehold interests had a negative value after the attacks, and the diminution-in-value calculation
must incorporate that negative market value.” Id. at 336. Consistent with this framework, the
experts’ shall provide a valuation that omits rebuilding costs but includes Base Rent and other
continuing obligations, but not the costs of reconstruction. Id. at 337.
However, New York law requires that “[a] lease is to be interpreted as a whole
and construed to carry out the parties’ intent, gathered, if possible, from the language of the
lease.” Papa Gino’s of Am., Inc. v. Plaza at Latham Assocs., 524 N.Y.S.2d 536, 537 (3d Dep’t
1988). The requirements to interpret the Lease as a whole, in the context of all of its provisions,
makes it impossible to exclude the rebuilding clause, ¶ 15.1 from consideration. That paragraph
requires the lessee to “rebuild, restore, repair and replace the Premises . . . substantially in
accordance, to the extent feasible, prudent and commercially reasonable, with the plans and
specifications for the same as they existed prior to such damage or destruction . . . .” The experts
shall extend their opinions to take account of the obligations provided by ¶ 15.1. See Riverside
S. Planning Corp. v. CRP/Extell Riverside, L.P., 920 N.E.2d 359, 363 (N.Y. 2009) (“Courts may
not by construction add or excise terms, nor distort the meaning of those used and thereby make
a new contract for the parties under the guise of interpreting the writing.” (internal quotations
Paragraph 15.1 gives rise to expectations of revenues and net income, as well as
expenses in excess of insurance proceeds. Properties rebuilt either in accordance with “plans and
specifications . . . as they existed prior to such damage or destruction,” or as “mutually agreed to
by the Port Authority and the Lessee”, as required by ¶ 15.1, are valuable because they give rise
to substantial revenues and net income. The rebuilt structures of the World Trade Center,
located at the hub of public transit linking New Jersey and the entire New York metropolitan
region, and proximate to the business, commerce, financing and entertainment centers of New
York City, will have great value. The leases that cover these properties have even greater value
for they fix rental expenses to the market conditions as of April 2001, but allow for escalating
revenues over the remainder of the twenty-first century.
The experts shall take all of this information into consideration in expressing a
value of the leaseholds as of a date immediately after September 11, 2001: the prospects for
revenues and net income, the expenses of rebuilding according to ¶ 15.1, the Base Rent, the
Additional Base Rent, the Percentage Rent, and the PILOT payments that will come due once
profitability is achieved, as well as all related expenses.
c. Obligations to Pay Rent
The Lease provides several categories of rent: an Initial Rent Payment of $491.3
million paid at the Commencement Date of the Lease, Lease ¶ 5.1; an escalating Aggregate Base
Rent payable monthly through the 99-year term of the lease and amounting to $75.79 billion,
before discounting to present value, Lease ¶ 5.2; an Additional Base Rent payable if and “to the
extent” the lessee enjoys “Operating Income for the immediately preceding month” in excess of
expenses, Lease ¶ 5.3; and Percentage Rent if and to the extent the lessor has enjoyed Gross
Revenues for the preceding year, Lease ¶¶ 5.6, 5.7.1, 5.7.2.
Each of these categories of rent are continuing obligations under the Lease.
Paragraph 15.1.4 provides also that the destruction of the leased premises does not relieve the
lessee of its rental and payment obligations, or enable the lessee to quit or surrender the
premises. See In re Sept. 11 Litig., 802 F.3d at 330 (“[T]he value of the leasehold interest after
the destructive event must take into account the lessee’s obligation to make future rental
However, of the rental provisions, only the Aggregate Base Rent remains a
continuing burden. It is the only rent category that a willing buyer will have to pay unless and
until the World Trade Center buildings are rebuilt. The Initial Base Rent was paid at the
commencement of the leasehold and is not again owed. The obligations to pay Additional Base
Rent and Percentage Rent are dependent on Operating Income and Gross Revenues, respectively,
in preceding periods. With the destruction of the World Trade Center buildings underlying the
leaseholds on September 11, 2001, there will not be Operating Income or Gross Revenues unless
and until the Main Site buildings are rebuilt. If and when this happens, and Operating Income
and Gross Revenues come into being, then these expenses will once again become owed.
The experts’ valuations must consider the Aggregate Base Rent of $75.79 billion
over the 99-year period of the leaseholds, discounted to present value as at September 11, 2001.
This expense continues, regardless whether the buildings are rebuilt, and regardless whether the
lessees experience Operating Income or Gross Revenues. See Lease ¶ 5.2. The Additional Base
Rent and the Percentage Rent, since they are both dependent on the existence of profits and
revenues, do not burden the leaseholds in their present condition, for they will not be payable by
a purchaser of the leaseholds until the buildings are rebuilt and rental income again flows.
Plaintiffs argue that they remain presently obligated to pay Additional Base Rent and Percentage
Rent, but ¶¶ 5.3 and 5.6 of the Lease plainly make these obligations conditional on the existence
of Operating Profits and Gross Revenues in preceding periods, and there were none after 9/11.
Paragraph 15.1.4, cited by plaintiffs for the provision that the “[d]estruction of the WTC
buildings does not relieve Plaintiffs of their obligation to continue to make  rental payments to
the Port Authority,” 21 MC 101, Table of Disputed Provisions, ECF 1930 at 19, does not apply
because there will not be Additional Base Rent or Percentage Rent of which to be “relieved”
until the buildings are rebuilt and net income again flows.
d. Obligations for Continuing PILOT Payments
The parties dispute if, after destruction of the World Trade Center buildings and
subject to their repair or reconstruction, the lessees are obliged to make PILOT payments. I hold
that the lessees are not so required.
Paragraph 6.10.1 requires the lessee to pay an Allocated Share of the Port
Authority’s obligation to make PILOT payments to the City. The term, Allocated Share is
defined as “the proportion which the total number of rentable square feet in the Premises for
which PILOT is payable . . . bears from time to time to the total number of rentable square feet
contained in all space in the World Trade Center as to which PILOT is payable.” Lease, ¶ 1.150.
The latter number, the denominator of the fraction, is quantified by the Lease as 8,150,594
square feet. Id. The former number, the amount of square feet that the Lessee is able to rent, is
not quantified and, under the Lease, has to be “adjusted annually”, Lease, ¶ 6.10.1, and
determined “from time to time.” Id. at ¶ 1.150.
After September 11, 2001,” the lessees had no “rentable square feet in the
Premises” to rent, id., for the Premises had been destroyed. Although the Port Authority
remained obligated under their City Agreement to pay PILOT to the City for rentable square feet
for which it continued to receive rents, see supra note 4, the lessee’s obligation to pay
reimbursement to the City was suspended pending repair or reconstruction of the premises
rentable by the lessees.
The parties have not provided any extrinsic evidence relevant to this issue. Their
practice also is not enlightening. On the first certification date set by the Lease, January 25,
2002 for the year beginning July 1, 2001 and ending June 30, 2002, the Port Authority paid
PILOT to the City in the amount of $31.494 million, and the lessees reimbursed the City $20.839
million as their proportional share. Lease, ¶¶ 6.10.1, 1.150. As of the following year’s
certification, January 25, 2003, certifying for the year beginning July 1, 2002 and ending June
30, 2003—a year when the lessees had no rentable space to rent—the parties represented that the
Port Authority paid PILOT to the City in the amount of $1.709 million, and that the lessees
reimbursed the Port Authority to the extent of $1.264 million. See 21 MC 101, Reimbursement
of PILOT Expense, ECF 1930, Ex. 6. Since the City Agreement provided that rentable square
feet could not be less than 4,000,000 square feet, the continuing level of payments from the Port
Authority to the City of base PILOT is understandable. City Agreement ¶ 6(1)(b). However, the
Lease contains no parallel provision and, in the absence of any rentable square feet, the lessee
has no obligation to pay, or reimburse, PILOT to the Port Authority. In the absence of a
rationale, the reimbursement payment by the lessees to the Port Authority may be understood as
a good-will payment, outside of any obligation in the Lease.6
The experts shall value the lessees’ obligation to reimburse the Port Authority for
PILOT as zero, pending reconstruction. Without a persuasive rationale supporting a
reimbursement obligation of the lessees during a period when they had no rentable space to rent,
any accommodation between landlord and tenant must be considered as informal, made for
good-will, and not relevant to the value of the leasehold.
e. Other Continuing Obligations
The lessee remains obligated to purchase the various categories of insurance
provided by the Lease, as these obligations do not implicate income. See Lease ¶ 14.1. The
In any case, the lessee’s reimbursed payments to the Port Authority of $1.2 million per year is small in relation to
the value of the Lease.
lessee also remains obligated to maintain and secure the property, even in the absence of
rebuilding. See Lease ¶¶ 13.1, 13.2; REOA § 4.1. A willing buyer would therefore have to
assume these categories of expenses. The experts may project the estimated costs of these
burdens to the extent that there is relevant information in the record on which to base their
f. Lease Provisions Limiting Tenant’s Liability to Landlord
The holders of the net Leases—1 World Trade Center LLC, 2 World Trade Center
LLC, 3 World Trade Center LLC, and 4 World Trade Center LLC—are single purpose entities,
whose only purpose is holding their respective net Lease. See Lease ¶¶ 1.264, 23. They have no
income or assets other than that gained or incurred from their respective leaseholds. WTCP, the
parent corporation of the four lessees, is not itself a lessee of any of the properties. Although a
plaintiff, the record shows no proof of damages to WTCP independent of the claims of its
subsidiaries, the lessee corporations.
The lessees are the only parties that can be liable to the Port Authority for the
obligations provided by the net Leases, or their breach: Paragraph 16.1 of each Lease provides
that “[n]otwithstanding anything contained in this [Lease] to the contrary,” the Port Authority
cannot recover for a breach against a member or shareholder of the lessee, or against any
successor or assign. And as to a lessee, the Port Authority may look “solely to the Lessee’s
estate and interest in the premises (including, without limitation, any Gross Revenues, insurance
proceeds, and condemnation awards thereafter payable to the Lessee with respect to the
Premises).” Id. In the event of a breach of any of the lessee’s obligations under their respective
Lease, the Port Authority’s only other “sole remedy” is to “terminate the [l]essee’s estate and
These limitations on the lessee’s liability affect the leasehold’s value. If the
burdens of a leasehold exceed reasonable expectations of revenue, a ready, willing and able
buyer may wish to demand a sum from the lessee to relieve it of its anticipated burden of
negative income flow. But the seller may not be willing to pay a buyer, for Paragraph 16.1
eliminates any concern about liability beyond its own accumulated or potential revenues from
the leasehold. Furthermore, under Paragraph 16.1, the buyer, as successor to the lessee, will not
have liability to the Port Authority until it gains income for, as a newcomer to the premises, it
will not have “Gross Revenues, insurance proceeds, [or] condemnation awards.” Id.
Plaintiffs argue that Paragraph 16.1 simply “shield[s]” WTCP’s affiliates and
investors, but “does not purport to cut off WTCP’s own liability to the Port Authority or
otherwise release WTCP of any Lease obligations.” 21 MC 101, Table of Disputed Lease
Provisions, ECF 1930 at 5. The argument is without merit. The “notwithstanding” clause of ¶
16.1 makes clear that the provisions of Paragraph 16.1 prevail over clauses that provide for
continuing obligations, such as the obligations to continue paying rent to the Port Authority and
to rebuild according to the buildings’ original plans and specifications. See Lease ¶¶15.1, 15.1.4.
Both the New York Court of Appeals and the Second Circuit have “recognized many times that
under New York law, clauses similar to the phrase ‘[n]otwithstanding any other provision’ trump
conflicting contract terms.” Bank of New York v. First Millennium, Inc., 607 F.3d 905, 917 (2d
Cir. 2010); Beardslee v. Inflection Energy, LLC, 31 N.E.3d 80, 85, reargument denied, 37
N.E.3d 105 (N.Y. 2015) (same).
The experts’ valuations must consider the readiness, willingness, and abilities of
buyer and seller, not separately to buy and to sell, but in relation to consummating a purchase
and sale transaction with single purpose entities. If the buyer offers to purchase the net Lease by
demanding a significant payment from the seller, as if the Lease had negative value, would a
hypothetical reasonable seller agree to sell at such terms? Would there be a meeting of the
minds, or would the seller spurn the demand, knowing that its liability to the Port Authority for
non-payment of continuing obligations could not extend beyond the lessee’s estate, that is, the
lessee’s receipts from insurance and its revenues and income from prior periods, and that the Port
Authority’s only alternative remedy would be to terminate the Lease? These are questions that
the experts must answer.
The Court of Appeals posited that “WTCP’s leasehold interests had a negative
value after the attacks . . . .” In re Sept. 11 Litig., 802 F.3d 314, 336 (2d Cir. 2015). However, in
all likelihood, the World Trade Center properties remain a valuable asset. The leaseholds control
valuable Manhattan properties, even in their destroyed state after the terrorist-related aircraft
crashed into the World Trade Center. Rebuilding would be expensive, either according to plans
and specifications existing prior to the buildings’ destruction, and the parties may agree, and may
exceed insurance recoveries, but close to 99 years of profitability remain after the hypothetical
purchase and sale as of September 12, 2001, with the potential of escalating rental income to the
lessee from the rebuilt properties, subject to relatively fixed rental obligations of the lessee to the
Port Authority. The situs of the World Trade Center, as a hub of public transit linking New
Jersey and the entire New York metropolitan region, make it a most valuable property. How
valuable—and what effects the provisions of the Lease as construed by this Court may have—
shall be addressed by the opinions of the experts.
IV. FURTHER PROCEEDINGS
A status conference will be held on April 25, 2017, at 2:30 p.m., to hear the
parties' comments and to regulate further proceedings consistent with this opinion. Any written
submissions are due by April 20, 2017.
Dated: New York, New York
April 6, 2017
AL VIN K. HELLERSTEIN
United States District Judge
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