Trial Needed to Determine Allocation of Real Estate Taxes

Facts: A mall owner signed a 20-year ground lease with a tenant for space in which to operate a movie theater. The lease included several clauses concerning the allocation of real estate taxes between the owner and tenant, including who was responsible for having the premises assessed for taxes and the formula for how the tenant’s share of those taxes would be calculated.

When the tenant didn’t have the premises assessed, the owner did and then requested that the tenant pay its portion of those taxes. The tenant disagreed with the amount that the owner claimed it owed. It paid $67,000 toward the taxes, nearly half of the amount the owner claimed was due. The tenant argued that under the lease, the formula allocating the tenant’s reasonable share of real estate taxes should be based on the square footage of its leased space, excluding common areas and its parking spaces. The owner argued that the language of the lease was unambiguous and that it clearly required that real estate taxes be allocated by the square footage of the tenant’s leased premises, including the taxes attributable to parking and common areas.

After the tenant’s partial payment, the owner sued the tenant for breach of its lease for not paying the full amount of taxes that it allegedly owed. The tenant and the owner each asked the trial court for a judgment in its favor without a trial. The trial court ruled in favor of the tenant, determining that the square footage of only the movie theater should be used to calculate the amount of taxes. The owner appealed.

Decision: A Florida appeals court reversed the decision and ordered a trial.

Reasoning: The appeals court said that the matter couldn’t be resolved without a trial because there were differing interpretations of the lease provisions concerning the allocation of real estate taxes. The owner asserted that the trial court had erred by adopting a formula for calculating taxes that wasn’t supported by any language in the lease. The appeals court agreed. It said that the provisions of the lease were ambiguous. That was because the lease didn’t define the term “real estate taxes” or clearly say how to determine how to allocate the tenant’s share of them under the terms of the lease. The various sections of the lease relating to the real estate taxes appeared to be internally inconsistent, noted the appeals court, with each section stating a different way to determine the taxes.

The appeals court said that when the terms in contract language, such as that in a lease, are inconsistent, the lease is usually ambiguous because it’s susceptible to more than one reasonable interpretation. Interpreting ambiguous terms required considering extrinsic evidence—that is, evidence other than the actual lease, such as statutes or common law principles. The appeals court pointed out that it wasn’t appropriate to consider this type of evidence on a motion for a judgment without a trial. Rather, a trial was needed in cases where the intent of the parties to a contract was a question of fact.

• Inland Am. Retail Mgmt. LLC v. Cinemaworld of Fla., Inc., June 2013