Davis Polk & Wardwell is staying in the midtown Manhattan building that has served as its headquarters since 1989 after resolving a four-month legal fight with the property’s owner over how much the firm should pay to renew the lease on the 22 floors of space it occupies there.
Papers filed in Manhattan Supreme Court on Aug. 13 show that a pair of lawsuits filed by Davis Polk against Lexington Operating Partners have been dismissed with prejudice and that the adversaries will pay their own costs. In one of the suits, the judge wrote that “the action has settled in accordance to a stipulation between the parties.”
The attorney representing Lexington, Nixon Peabody construction partner Adam Gilbert, confirmed that his client and Davis Polk have settled the dispute. Gilbert said the two had reached an agreement without conducting an arbitration and that Davis Polk will remain in its offices at 450 Lexington Avenue. He declined further comment.
An attorney for Davis Polk, Christopher Major at Meister Seelig & Fein, referred questions to the firm. A Davis Polk spokeswoman declined to comment.
At the heart of the standoff was a 10-year lease renewal set to go into effect in June. When Lexington—whose parent company is Dubai-based Istithmar World—sought a sizable rent increase prior to the renewal’s execution, Davis Polk balked at what it thought was an unfair price. Under its previous 20-year lease, the firm paid roughly $83 per square foot in gross rent, which includes expenses, taxes, and utilities. Lexington initially sought gross rent of $96.40 per square foot, which it said was market value, in the lease renewal.
As The Am Law Daily has previously reported, Davis Polk responded to the proposed rent hike by suing Lexington in Manhattan Supreme Court in April seeking to force the matter into arbitration and following up with a separate suit in June after Lexington filed a default notice for what it said was unpaid June rent. (Davis Polk said it had paid Lexington $3.6 million that month and had placed roughly $693,000 into escrow to cover any potential rent increase.)
As the litigation wore on, Davis Polk and Lexington also fought over how much rentable square feet exists in the portion of the building inhabited by the firm, with Davis Polk pegging that figure at 649,769. Lexington contended in court papers that when it tried to have an appraiser evaluate the space, Davis Polk repeatedly blocked the landlord’s access. The firm, Lexington lawyer Gilbert claimed in court papers, “has continuously refused to provide rudimentary cooperation, access and information that is customary in rent re-set arbitrations.”
For its part, Davis Polk said in court filings that Lexington’s attempt to dispatch an appraiser to the building was “yet another tactic to delay the arbitration.”
Supreme Court Justice Shirley Kornreich sent the two sides to arbitration in June, but a formal agreement with the arbitrator chosen, Raymond Cirz of Integra Realty Resources, does not appear to have been signed.
Even with the suits resolved, Lexington may not be Davis Polk’s landlord much longer. According to media reports, RXR Realty, a New York real estate firm, is in contract to buy 450 Lexington Avenue. The Wall Street Journal reported in July that RXR already owns half of the $600 million in debt that current landlord Istithmar took on to refinance the mortgage on the 40-story tower in 2007, a year after it purchased the building.
The discontinued suits are Davis Polk & Wardwell v. Lexington Operating Partners, 652037-2012 and 651267-2012.
@|Sara Randazzo, a reporter for The Am Law Daily, an affiliate of the Law Journal, can be contacted at firstname.lastname@example.org.