Tenant Disputed Rent Calculation Based on CPI Adjustment

Facts: The lease between the owner of a warehouse and its tenant set out base rent for the first several years of the lease. Under the lease, every seven years the base rent would be adjusted to include the original base rent plus an amount calculated using changes in the Consumer Price Index (CPI), which is published by the U.S. Department of Labor and is designed to measure changes over time in prices paid by urban consumers for various goods and services. This can include commercial leases. The first increase in base rent using a CPI calculation took place in September 2009. The tenant disputed the amount that the owner claimed it owed then. According to the tenant, the accurate amount would have been nearly $9,000 lower. 

After a series of requests by both the owner and tenant asking a lower court for a declaration of the proper way to adjust the base rent using CPI, each asked the district court for a judgment in its favor without a trial. The owner asserted that the tenant hadn’t paid the correct amount of rent and sued for the difference between what the tenant had already paid and the amount the owner expected. The tenant asserted that it had paid the correct amount of rent.

Decision: A Mississippi district court ruled in favor of the tenant.

Reasoning: The court determined that the portions of the lease pertaining to the base rent and calculation of CPI were ambiguous. It allowed the owner and tenant to present extrinsic evidence—that is, evidence other than the lease document itself—to establish the correct calculation method. The district court noted that lease provisions are ambiguous where they are susceptible to two or more reasonable interpretations, or where one provision is in direct conflict with another provision, or where terms are unclear or of “doubtful meaning.” It noted that here it was clear that the lease required $38,750 plus CPI in rent starting in September 2009; but it was “less than clear” as to how CPI calculations were to be made starting in September, 2009.

The owner and the tenant had more than one interpretation of the lease’s CPI adjustment provision over the course of their dispute, the district court said. The owner’s employees stated different amounts that they believed the CPI calculations should be based on. Some of those interpretations would result in conflicting lease clauses, said the district court. The court noted that, in the absence of a clear formula in the lease, it would use the tenant’s “course of performance”— that is, the uniform amount of rent that it had paid each month under the lease until now.

The district court stated that it was well settled from past decisions that where a contract is ambiguous, the parties’ performance is often the best evidence of what the contract requires of them. Thus, the trial court determined that the way the tenant had calculated its past payments constituted relevant extrinsic evidence of its payment obligations. The owner wasn’t entitled to collect any additional rent.

• Enniss Family Realty I, LLC v. Schneider National Carriers, Inc., June 2013