Berg v. Hudesman

Facts

P and D executed a ground lease in 1959 that terminates in 2058. D removed a residence from the property, as allowed by the lease agreement, and constructed a commercial building on the land. This building was originally leased to Safeway Stores for 15 years. Upon Safeway's removal, D converted the building to a small shopping center which was subleased to a number of tenants during the period at issue. In August 1987, P brought the present suit, contending that for several years D incorrectly calculated the rent due P under the ground lease. The lease contains the following provision: (3) Rental. The rental shall be $5,000.00 per year, payable in advance on or before the 19th day of October of each year during the term of this lease. On the first of the month in which the annual rent falls due, D prior to paying the annual rental of  5,000.00, each year during the term hereof, commencing with the 15th year, shall refer to the then current United States Consumer Price Index (all items) as compiled by the Bureau of Labor Statistics of the United States Department of Labor (1947 - 1949 = 100). If such index reading at date hereof reflects an increase or decrease in the purchasing power of the United States Dollar equal to five percent (5%) or more, the minimum rent payment hereunder shall be proportionately increased or decreased to the end that rent payments are annually adjusted to maintain the same purchasing power they represented at the date hereof, provided that the total increase or decrease above or below the original rental of $ 5,000.00 per year shall in no event exceed three percent (3%) multiplied by the number of years of said term which shall have expired. D shall also pay ten (10% of net rentals received after the third year of said term from tenants of any buildings constructed on said property. If D uses or enters into any agreement for the use of said property or any portion thereof for parking or thoroughfare purposes for the benefit of any business conducted in a building or buildings on other property, a portion of any such building or buildings shall be assumed to be on the above-described property for the purpose of computing rental hereto. Said portion shall be in the same proportion as the area of the above-described property used for such purposes bears to the total area used for building, parking, and thoroughfare purposes for the benefit of such business. Net rentals shall be defined as gross rentals from the actual tenants, less payments made for taxes and assessments, insurance on said premises, management fees not to exceed five (5%) percent of gross rentals, and real estate commissions not to exceed five (5%) percent of the gross rentals for the first ten (10) years and two-and-a-half (2 1/2%) percent of the gross rentals thereafter, and depreciation actually taken for income tax purposes. Commencing with the 16th year after completion of the first building constructed on said property, the rental shall be as computed above, or it shall be 50% percent of net rentals, whichever is greater. P moved for partial summary judgment, asking the court to declare that the same formula for calculating the percentage rent due the landlord applied throughout the term of the lease, that all receipts from subtenants be included in 'gross rentals,' and that only those expenses listed as deductible in the formula are deductible in calculating rent due. The trial court granted the motion for partial summary judgment and held that the rental provisions are clear and unambiguous. D moved to vacate the order granting partial summary judgment to provide that any reimbursements from the subtenants be excluded from the definition of 'gross rentals' unless the expenses for which the reimbursements were made can be deducted to determine 'net rentals.' D submitted affidavits of intent and the circumstances surrounding the making of the lease. P filed a final summary judgment motion. The trial court denied D's motion and granted the second summary judgment motion. D appealed. D advanced two theories; whether the lease is only a partially integrated contract, i.e., whether the writing is a final expression of those terms which it contains, but not a complete expression of all terms agreed upon; and whether the rental clause is ambiguous. D wanted to present extrinsic evidence to prove omitted but not inconsistent terms, or to determine the intent of the parties. The Court of Appeals reversed in part. The Court of Appeals based its definitions of gross rentals upon what it believed to be the intent of the drafter of the lease. The Court of Appeals then remanded for resolution of factual questions regarding what expenses were paid by the original subtenants and whether the amounts deducted by the tenant are of the same character as payments made by the original subtenants for maintenance, repairs, and improvements of the property. This appeal resulted. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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