Lease Term Determining CAM Costs Not Ambiguous

Facts: A restaurant tenant rented space in a strip center. The entire property was 82,875 square feet. The “buildingfootprint” and the total leasable area was 21,415 square feet. The restaurant tenant leased 6,281 square feet of the property. In addition to base rent, the tenant was to pay a proportionate share of common area maintenance (CAM) charges. The lease defined this proportionate share as the ratio of “the square footage of the leased premises as compared to the total square footage in the Center.” From the beginning of the lease, the tenant paid its proportionate share of CAM charges—29 percent—based upon the owner’s interpretation that the “total square footage in the center” meant the amount of leasable square footage in the building footprint. Later, the tenant began questioning the calculation of CAM charges, asserting that its proportionate share should be based upon the amount of square footage of the lot—not just of the building itself. The owner asked a trial court for a declaration that the phrase “total square footage in the Center” referred to the leasable square footage of the building footprint. The tenant sought a declaration that the phrase referred to the total square footage of the lot, and it sought overpayments that it allegedly made for CAM charges.

The owner’s calculation was based on a definition of “the Center” as thebuilding’s total leasable area, which is the same area as the building’s footprint. But the tenant’s accountant determined that the tenant should be charged only 7.58 percent of CAM costs. He arrived at this calculation by dividing the tenant’s leased area (6,281 square feet) by the entire area of the lot (82,875 square feet). This calculation utilized a definition of “the Center” as the lot. According to those calculations, the tenant had overpaid its CAM charges by $32,923.12 over the course of 14 years. The tenant unilaterally gave itself a credit forthat amount and used that credit to offset future bills.

The trial court found that the term “Center” was ambiguous in the lease. The trial court found that there was “no specific percentage stated in the lease for CAM costs” and that “both the 29 percent and the 7.58 percent are derivable from the lease, depending on whether the center is considered the entire lot or only the building.” The trial court evaluated parol evidence—that is, evidence aside from the terms within the lease itself—to define the term “Center.” The trial court considered the parties’ conduct, including the parties’ use of a 29 percent proportionate ratio for 14 years before a dispute arose. The trial court also considered industry standards and the lease’s commercial practicability. It determined that the tenant’s interpretation of the lease was “not a reasonable interpretation for a commercial lease where the owner intends to make a profit.” The trial court concluded that “the proper interpretation of the meaning of ‘Center’ . . . is the leasable square footage of the building.” Therefore, the tenant owed a proportionate share equal to 29.3 percent of CAM expenses. It granted the owner declaratory judgment and dismissed the tenant’s claim. The tenant appealed.

Decision: A Nebraska appeals court reversed the decision of the lower court.

Reasoning: On appeal, the tenant claimed that the trial court erred in: (1) finding the term “Center” was ambiguous in thelease; (2) considering parol evidence in construing the term “Center”; (3) calculating the tenant’s proportionate share of annual real estate taxes, snow removal charges, and not separately metered utility charges at 29 percent rather than 7.58 percent; and (4) construing the term “Center” in a way that “effectively rewrote controlling terms of thelease.”

If a contract is ambiguous, the contract’s meaning is a question of fact and courts may consider extrinsic evidence in determining the meaning of the contract, said the appeals court.However, the appeals court didn’t need to examine outside evidence. It stated that its analysis of the lease showed that the term “Center” was susceptible to only one reasonable meaning, that being the “lot.” Because the term “Center” was not ambiguous, the trial court erred in considering parol evidence and extrinsic evidence in defining the term, said the appeals court. It sent the case back to the lower court for a declaratory judgment in favor of the tenant.

• Soleiman Bros., LLC v. Concord Neighborhood Corp., October 2012