Opinion
No. 97 C 5068.
May 10, 2000.
MEMORANDUM OPINION AND ORDER
In this landlord/tenant dispute, Plaintiff Brinks Hofer Gilson Lione, Ltd. ("Brinks"), a Chicago law firm, charges its landlord, The Equitable Life Assurance Society of the United States ("Equitable"), with breach of a commercial real estate lease. Brinks claims Equitable overcharged Brinks for its share of ownership taxes and operating expenses between 1989 and 1995. Jurisdiction in this case is based on 28 U.S.C. § 1332. The parties are citizens of different states, and the claims set forth in Brinks' Complaint and Equitable's Counterclaim exceed $100,000 exclusive of interest and costs. This case came before the court for a five-day bench trial in May of 1999. Having heard testimony and arguments and having reviewed the evidence submitted by both parties, the court issues the following findings of fact and conclusions of law.
Equitable brought a counterclaim for damages incurred during the sale of the Building in 1996. According to Equitable, Brinks' failure to pay rent during that period adversely affected Equitable's bargaining position, resulting in a lower sales price than Equitable would otherwise have recovered. On April 30, 1999, this court dismissed Equitable's counterclaim. The court concluded that Equitable had assigned any of its contract claims against Brinks, and that Equitable's allegation that Brinks "got into the middle of Equitable's deal with the Purchaser" does not state a cognizable claim.
FINDINGS OF FACT
The Parties
1. Brinks is an Illinois professional corporation with its principal place of business in Chicago, Illinois. Equitable is a New York corporation with its principal place of business in New York.
The Building
2. For several years prior to September 20, 1996, Equitable owned a building located at 455 North City-front Plaza Drive in Chicago, Illinois (the "Building"), commonly known as the NBC Tower, so named for its anchor tenant, NBC. The Building consists of three levels of parking below grade ("LL1," "LL2," and "LL3"); 35 floors of television studios, office and retail space above grade; and three floors above grade dedicated to mechanical systems. In 1996, Equitable retained the services of Eastlake Studios ("Eastlake"), an architectural firm, to measure the gross, usable and rentable square feet of each floor of the Building (as those terms are defined by the Building Owners and Managers Association ("BOMA"). The parties agree that Eastlake's 1996 measurement are appropriate measurements to be considered by the court.
The Lease
3. Equitable, as landlord, and Brinks, as tenant, entered into a lease dated May 3, 1988 (the "Lease") for certain space at the Building. The Lease was amended three times, on December 1, 1988, July 15, 1989, and July 3, 1991.
4. Effective September 20, 1996, Equitable sold the Building to Chicago NBC Tower, L.P., a Delaware limited partnership ("Chicago NBC Tower"). On December 2, 1996, Brinks executed a Fourth Lease Agreement with Chicago NBC Tower. Equitable is not a party to this Fourth Lease Agreement.
5. The Lease provided for Brinks' occupancy at various times of all or portions of the twenty-eighth (28th), thirty-third (33rd), thirty-fourth (34th), thirty-fifth (35th), thirty-sixth (36th), and thirty-seventh (37th) floors of the Building. Pursuant to the express terms of the Lease, Brinks was not only obligated to pay monthly rent, but in addition, escalations for operating expenses and real estate taxes on a monthly basis. Brinks' proportionate share of the rentable square feet in the Office Section of the Building (defined in the Lease to be floors 7-37) for the relevant years is as follows:
10.58% for the period from May 3, 1988 to November 30, 1988 (Original Lease);
10.59% for the period from December 1, 1988 to July 14, 1989 (First Amendment);
12.02% for the period from July 15, 1989 to July 2, 1991 (Second Amendment);
15.029% for the period from July 3, 1991 to July 30, 1996 (Third Amendment); and
12.02% for the period August 1, 1996 to the present (Fourth Amendment).
Article 3(A)(vii) of the Lease sets forth the method to calculate Brinks' proportionate share of the rentable square feet in the Office Section. For example, in the original lease the 10.58% proportionate share was "calculated by dividing 64,616 (being the rentable area of the Premise [the space rented by Brinks]) by 610,989 (being the rentable area of the Office Section)." (May 3, 1988 Lease, Art. 3(A)(vii).)
Real Estate Taxes
6. Article 3(A)(vi)(a) of the Lease sets forth the method by which ownership taxes would be attributed to tenants of the Office Section, including Brinks ("Real Estate Tax Formula"):
The amount of ad valorem real and personal property taxes against Landlord's real and personal property to be included in Ownership Taxes shall be the amount assessed for any calendar year attributable to the Office Section, notwithstanding that such taxes are billed and payable in a subsequent calendar year . . . . If the amount of any Ownership Taxes attributable to the Office Section cannot be separately ascertained, the amount of Ownership Taxes to be attributed to the Office Section shall be the amount obtained by multiplying the Ownership Taxes by the percentage resulting from dividing the gross floor area (expressed in square feet) of the Office Section by the gross floor area (expressed in square feet) of that portion of the Building designed for tenant occupancy in which the Office Section is included as a part of the tax assessment.
(May 3, 1988 Lease, Art. 3(A)(vi)(a) (emphasis supplied).) The Lease in 3(A)(iii) further defines "Office Section" to mean "that portion of the Building located from the seventh (7th) through the thirty-seventh (37th) floors thereof, inclusive." (May 3, 1988 Lease, Art. 3(A)(iii).) The term that "portion of the Building designed for tenant occupancy," however, is not further defined in the lease.
8. The Ownership Tax bill for the Building was the following in relevant years:
Year Paid/Year Incurred Total 1990/1989 $1,209,719 1991/1990 $2,835,550 1992/1991 $4,811,676 1993/1992 $6,238,018 1994/1993 $6,954,860 1995/1994 $6,897,678 1996/1995 $7,036,403
Using the Real Estate Tax Formula set out in Article 3(A)(vi)(a), between 1989 and 1996, Equitable charged the tenants who occupied the Office Section of the Building for 75.13% of the Ownership Tax bill.
As described above, the Office Section percentage share = (gross floor area of the Office Section)/(gross floor area of that portion of the Building designed for tenant occupancy). Between 1989 and 1996, Equitable charged the tenants in the Office Section of the Building for 75.13% of the Ownership Tax bill. As discussed more fully below, Plaintiff Brinks asserts that Equitable miscalculated by failing to include the square footage attributable to LL1, LL3, and the retail section in the denominator. Adding this square footage to the denominator, Brinks asserts the proper ratio is 668,546/1,074,406, or 62.22%.
Operating Expenses
8. According to the Lease, Brinks agreed to pay a proportionate share of the "Office Section Operating Expenses." Articles 3(A)(iv) and 3(A)(v) of the Lease provide the method for determining by which operating expenses would be attributed to Brinks. The term "Office Section Operating Expenses" was defined in Article 3(A)(iv) as follows:
To calculate Brinks' "proportionate share of the Office Section" the formula in Article 3(A)(vii) is used. (See footnote 2 supra.)
"Office Section Operating Expenses" means the sum of the following:
(a) those Operating Expenses incurred solely in connection with the ownership, management, maintenance and operation of the Office Section during a calendar year; and
(b) the Office Section's reasonable proportionate share of those Operating Expenses incurred in connection with the ownership, management, maintenance, and operation of the Building and Property which benefit the Office Section but cannot be attributed to one single portion of the Building.
(May 3, 1988 Lease, Art. 3(A)(iv).) As exceptions to Article 3(A)(iv), Article 3(A)(v) identifies a list of expenses which were not to be charged to Brinks. In relevant part, Article 3(A)(v) provides:
"Operating Expenses" means all expenses, costs, and disbursements. . . . except the following:
(h) wages, salaries, or other compensation paid to employees above the level of building manager
* * *
(l) expenses in connection with maintaining and operating for profit (i.e. competitive rates are charged, as opposed to no charge at all) any garage operated by the Landlord.
(May 3, 1988 Lease, Art. 3(A)(v)(h), (l).)
9. The total Operating Expense bill for the Building was the following for relevant years:
Year Total Operating Expenses 1990 $ 3,140,253 1991 $ 3,897,395 1992 $ 4,217,715 1993 $ 4,421,805 1994 $ 4,384,853 1995 $ 4,202,386
10. From 1989 through 1996, the salaries of two management people in the Building have always been passed through to the tenants as operating expenses. (Equitable's Proposed Finding of Fact and Conclusions of Law ¶ 37.) From the inception of the lease until 1993, the titles of those persons were "Building Manager" and "Assistant Building Manager." In 1994 and 1995, Equitable made management changes and employed two individuals, one under the title "Property Manager" and the other, his assistant, titled "Building Manager." The parties have stipulated that over the course of those two years, Equitable charged as an operating expense $230,000 in salary and benefits to Larry Atkins, who at that time held the title of "Property Manager."
11. Between 1990 and 1993, Equitable paid a private building manager, Compass Management Co., a 2.5% management fee on all monies collected from tenants. Equitable charged the fee back to its tenants. In 1995 and 1996, Equitable reduced the management fee to 2%. The total management fee paid to Compass was calculated by taking the applicable percentage (either 2% or 2.5%) of all collections from tenants, including rent, real estate taxes and operating expenses.
The management fee was charged to the general operating expense budget of the Building. The tenants were then charged back the management fee at a rate proportionate with the amount of gross square footage each occupied. With respect to NBC, however, Equitable required payment of only a small portion of the management fee (approximately 4.6%), considerably less than NBC's proportionate share of the gross square footage of the Building (23.5%). Equitable passed through the amount which it did not charge NBC to the remaining tenants of the Office Section, including Brinks.
Separate Provision to Lease Garage Space
12. As noted, the Building has three levels of parking below grade. The second level of the parking garage, LL2, is leased by NBC for its exclusive use. The first and third levels of the parking garage, LL1 and LL3, are open to the public and were designed for and used for the hourly and/or day-to-day parking of automobiles and other motor vehicles. Certain spaces on LL1 and LL3 were reserved for employees of certain tenants of the Building as set forth in those tenants' leases. Article 44 of the Lease at issue here states the following:
Landlord hereby leases to Tenant and Tenant hereby accepts twenty-five (25) parking spaces within the Building to be made initially available to Tenant at the commencement of the Term of this lease and thereafter through the Term for a monthly rental and other terms and conditions equal to the rate Landlord is prepared to offer such parking spaces to third parties in good faith from time to time.
(May 3, 1988 Lease, Art. 44.)
Calculation of the Ownership Property Taxes
13. When allocating its real estate tax bills, Equitable did not include the approximately 120,000 gross square feet attributable to LL1 and LL3 nor the 25,000 gross square feet attributable to the retail section in the denominator of the Office Section Ownership Tax formula. Brinks did not raise an objection to the exclusion of the Building's parking garage from the methodology being utilized until 1996. From 1989 through July 1996, Brinks timely paid all bills for rent on a monthly basis, including the bill for operating expenses and real estate taxes.
Brinks' Surrender of 28th Floor and Equitable's Sale of the Building
14. In April 1996, Brinks, through its agent, Goldie B. Wolfe, notified Equitable that Brinks had undergone a reduction in the number of its attorneys and that it anticipated a future reduction in receivables. Along with this notification, Brinks requested that Equitable agree to accept a surrender of the twenty-eighth (28th) floor portion of the Premises in exchange for a corresponding reduction in rent, and that Equitable agree to additional rent reductions for the remaining portions of the Premises. Equitable rejected this request, advising Brinks that the information provided by Brinks did not support a rent reduction.
15. Sometime during the spring of 1996, Equitable decided to market the Building. On July 1, 1996, Equitable entered into a Letter of Intent with Chicago NBC Tower to sell the Building and adjacent real estate for $185,000,000. Thereafter, Chicago NBC Tower began its due diligence review, including a review of all leases in force at the Building.
16. On August 1, 1996, Brinks relocated its personnel from the twenty-eighth (28th) floor, and stopped paying rent on that portion of the Premises. Thereafter, Equitable and Brinks failed to reach an accord on any aspects of the proposed rent reduction or return of the twenty-eighth (28th) floor Premises.
17. As part of the sale negotiations and due diligence inquiries between Equitable and Chicago NBC Tower relating to the sale of the Building, Equitable disclosed Brinks' decision to stop paying rent on the twenty-eight (28th) floor portion of the Premises. At the same time, Equitable Real Estate Investment Management, Inc., a Delaware corporation related to Equitable ("EREIM"), was a tenant on the thirty-second (32nd) floor of the Building. EREIM's lease was set to expire on September 30, 1996.
The record does not reveal exactly how EREIM is "related" to Equitable.
18. On or about September 3, 1996, EREIM executed an amendment to its lease, extending the term for five years, to September 30, 2001. According to Equitable, EREIM was "forced" to sign the lease amendment at an unfavorable rental rate in order to "save the Equitable/Chicago NBC Tower" sale by compensating for the projected lost income resulting from Brinks' evacuation of the 28th floor. Also as part of the sale negotiations between Chicago NBC Tower and Equitable, Chicago NBC Tower demanded, and Equitable acquiesced, in an assignment of its rent claim against Brinks. Effective September 20, 1996, Equitable sold the Building to Chicago NBC Tower.
19. In late September 1996, Equitable's officers introduced Chicago NBC Tower representatives to Brinks officers as representatives of the Building. Equitable advised Brinks to engage in any future negotiations regarding the Lease with Chicago NBC Tower. Thereafter, on December 2, 1996, Chicago NBC Tower and Brinks entered into the Fourth Lease Amendment.
The Present Action
20. On July 17, 1997, Plaintiff Brinks filed a five-count breach of contract action. In Count I, Brinks alleges that Equitable miscalculated the real estate taxes attributable to LL1 and LL3. In Count II, Brinks alleges that Equitable miscalculated the real estate taxes attributable to floors 1-6. In Count III, Brinks claims overcharges relating to the salary and expenses of personnel titled above the building manager. In Count IV, Brinks claims overcharges of operating expenses which were attributable to the retail tenants, the garage portion of the Building, and building tenant NBC. In Count V, Brinks asserts a claim for overcharges relating to the 2 to 2.5% surcharge which has been added to all of the alleged overcharges identified in Counts I through IV.
DISCUSSION
A. Count I and Count II
In its first two claims, Brinks asserts that it was overcharged when it paid real estate taxes attributable to LL1 and LL3 (Count I), and the retail section (Count II) of the Building. Brinks contends that LL1, LL3, and the retail section are "portions of the Building designed for tenant occupancy" and thus should have been included in the denominator of the Real Estate Tax Formula, thereby lowering the percentage of the Office Section's Ownership Tax. Defendant Equitable contends it properly excluded LL1, LL3, and the retail section, in that those levels are not "designed for tenant occupancy." Specifically, Equitable argues that LL1, LL3, and the retail section are amenities provided for the office tenants. With specific reference to LL1 and LL3, Equitable argues that those levels should be excluded in that the space is (1) designed for public use; (2) not of comparable value to rest of the office space; and (3) designed for use of cars, not to be occupied by tenants as an office suite.
On its face, the Lease does not provide that Brinks must pay the real estate taxes attributable to the garage space on LL1, LL3 or the retail section. Rather, the Lease provides that the tenant "shall pay to Landlord . . . an amount (`the Ownership Tax Amount') equal to Tenant's Ownership Tax Share of Ownership Taxes attributable to the Office Section for each calendar year of the Term." As set forth above, the lease defines "the amount of Ownership Taxes to be attributed to the Office Section" by means of a formula:
LL1 and LL3 cover 120,000 square feet. The retail section covers 25,000 square feet.
(gross floor area of the Office Section) (Ownership Taxes) * ___________________________________________ (gross floor area of that portion of the Building designed for tenant occupancy)
The gross floor area of the Office Section, also referred to here as the numerator of the equation, is not in dispute. What is hotly contested, however, is what should be included in the denominator. The Lease defines the denominator as "the gross floor area of that portion of the Building designed for tenant occupancy." The phrase "that portion of the Building designed for tenant occupancy" is not further defined in the lease.
It is black-letter contract law in Illinois that where the terms of a contract are clear and unambiguous, their meaning must be determined solely from the language of the agreement itself. See Reynolds v. Coleman, 173 Ill. App.3d 585, 592, 527 N.E.2d 897, 902-03 (1st Dist. 1988). In this case, however, the parties agree, and the court concurs, that this phrase is ambiguous. In such circumstances, extrinsic evidence is admissible in order to clarify meaning. See Hodgman, Inc. v. Feld, 113 Ill. App.3d 423, 428, 447 N.E.2d 450, 454 (2d Dist. 1983). Extrinsic evidence not only includes evidence of what meaning the parties themselves attached to the terms at issue, but also evidence of the course of performance, course of dealing, and industry-wide customs or trade usage. See Gollberg v. Bramson Publ. Co., 685 F.2d 224, 225-26 (7th Cir. 1982). In construing the phrase "designed for tenant occupancy," the parties invite the court to consider each of those factors as well as tenets of contract construction and dictionary definitions of the relevant terms. The court reviews these factors individually.
1. Dictionary Definitions
Plaintiff Brinks invites the court to take notice of common dictionary definitions of the terms. Zurich Ins. Co. v. Northbrook Excess and Surplus Ins. Co., 145 Ill. App.3d 175, 187, 494 N.E.2d 634, 642 (1st Dist. 1986), aff'd, 118 Ill.2d 23, 514 N.E.2d 150 (1987). Merriam Webster's Collegiate Dictionary (10th ed.) defines "tenant" as "one who holds or possesses real estate by any kind of right," and "occupancy" as "a building or part of a building intended to be occupied (as by a tenant)." MERRIAM WEBSTER'S COLLEGIATE DICTIONARY (10th ed.). These definitions, however, shed no genuine light on the meaning of the phrase "that portion of the Building designed for tenant occupancy."
2. Contract Construction
The Real Estate Tax Formula specifically states that the tenant shall pay "an amount equal to Tenant's Ownership Tax Share of Ownership Taxes attributable to the Office Section. . . ." (emphasis added). As noted above, the term "Office Section" is defined in the Lease as floors 7-37. Substituting this definition, the Lease thus provides that tenants like Brinks pay their share of real estate taxes "attributable to floors 7-37." By not including the LL1, LL3, and the retail section in the denominator, as Equitable has done in the instant case, Equitable effectively requires Brinks to pay for a portion of the taxes "attributable to floors 7-37, LL1, LL3, and the retail section." Such a construction flies in the face of the fundamental principle that requires the court to construe an ambiguous provision in harmony with the rest of the contract. See Butler v. Economy Fire and Casualty Co., 199 Ill. App.3d 1015, 1021, 557 N.E.2d 1281, 1286 (2nd Dist. 1990) ("In construing a contract, it is presumed that all provisions were inserted for a purpose, and conflicting provisions will be reconciled if possible so as to give effect to all of the contract's provisions."); see also Calumet Constr. Corp. v. Metro. Sanitary Dist., 222 Ill. App.3d 374, 377, 581 N.E.2d 206, 208 (1st Dist. 1991) ("It is a well established principle in the law of contracts that a construction should be adopted which harmonizes all the various parts so that no provision is deemed conflicting with or repugnant to, or neutralizing of any other.") Applying this principle here, the court concludes that the interpretation for which Equitable argues is inconsistent with the term "Office Section" which the Lease specifically defines at Art. 3(A)(iii).
With particular respect to LL1 and LL3, additional support for the conclusion that the garage is "designed for tenant occupancy" is found in Article 44 of the Lease which is entitled "Parking." That section provides:
Landlord hereby leases to Tenant and Tenant hereby accepts twenty-five (25) parking spaces within the Building . . . for a monthly rental [rate] . . . In the event that Tenant elects at any time not to lease any or all of such spaces, . . . Landlord shall . . . be free to lease such space to any other party.
Brinks points out that this provision suggests that if a tenant opted not to lease the parking spaces, the Landlord could seek out other tenants to occupy such parking spaces. Thus, Brinks concludes the parking space was freely alienable and designed to be marketed in the same manner as any other space "designed for tenant occupancy."
Equitable responds by pointing out that LL1, LL3, and the retail section are (1) amenities for the benefit of the tenants; and (2) designed for public use. In Equitable's view, space having these characteristics can not be deemed "designed for tenant occupancy." Equitable concludes that Brinks was properly charged for its share of the taxes attributable to LL1, LL3, and the retail stores, because Brinks' percentage occupancy of the Office Section serves as a proxy for the benefit that Brinks receives from these amenities.
The court is unpersuaded by Equitable's arguments. First, the Building has many other facilities, such as a restaurant and bank, that are deemed amenities for tenants but whose space is nevertheless deemed "designed for tenant occupancy." Moreover, the fact that the LL1 and LL3 garage floors and the retail section are open to the public does not disqualify such sections as space "designed for tenant occupancy"; indeed the bank, restaurants, and other retail establishments (which Equitable concedes are designed for tenant occupancy) are also open to the public.
3. NBC Lease
In further support of its argument that LL1 and LL3 are "designed for tenant occupancy," Brinks points out that the parking garage at LL2 is expressly leased to NBC and was included by Equitable as a part of the building "designed for tenant occupancy." Significantly, Equitable did not charge the Office Section for real estate taxes attributable to this space. Brinks concludes that inasmuch as LL2 was designed for tenant occupancy, LL1 and LL3, designed in the same fashion, are also "designed for tenant occupancy."
Equitable's arguments against this conclusion are unpersuasive. First, Equitable urges the court to disregard comparisons to the NBC lease because it is "very different," but does not provide a reason why another lease on space within the same building is not at least minimally probative.
Second, Equitable notes that although LL2 is included in the NBC lease, it is not necessarily "designed for tenant occupancy." In support, Equitable observes that the 38th floor mechanical room is also included in the NBC lease, but the parties have stipulated that the space in the mechanical rooms is not at issue here. Brinks responds by noting it never conceded that the mechanical room on the 38th floor could not be considered space "designed for tenant occupancy." Instead, Brinks asserts, the reason it agreed to disregard the mechanical rooms was that the 38th floor only covers 3,400 square feet; adding that small amount to the denominator of approximately 1,100,000 square feet would be de minimis. In addition, Brinks points out that the 38th floor, unlike the other two mechanical floors, is leased to NBC as storage for NBC's broadcast equipment.
Finally, Equitable asserts that LL1 and LL3 are not "designed for tenant occupancy" in that those levels are designed for and used for the temporary parking of automobiles. Again, however, the court notes that NBC's space, which is also designed for the use of temporary parking, is included as area "designed for tenant occupancy." Thus, the fact that portions of LL1 and LL3 are allotted for temporary parking does not preclude its consideration as area "designed for tenant occupancy."
4. Testimony
Both parties offer extensive extrinsic evidence regarding the intentions of the individuals who were involved in the Lease's initial drafting process. The attorney who represented Brinks at the initial meeting, George Covington ("Covington"), testified that he requested the insertion of the language "attributable to the Office Section" in various places of the Lease to protect his client from paying taxes attributable to any portion of the building except floors 7-37.
Equitable counters with testimony from Peter Sarasek ("Sarasek"), its attorney who negotiated the initial Lease, who testified that his intention in drafting Article 3(A)(vi)(a) of the Lease was to pass through all real estate taxes to the office tenants of the Building and thus leave no remaining real estate taxes for Equitable to pay. Sarasek also testified that the custom and practice in the commercial real estate industry is to exclude the area contained in any parking garage from the calculations utilized to determine the office tenants' proportionate share of real estate taxes. Sarasek testified, further, that he intended for the Brinks/Equitable lease to operate in the same fashion as the lease for the John Hancock Center and 401 North Michigan Avenue, two buildings with which Sarasek was familiar at the time. In both of those buildings, the garage section of the building is not included in determining a tenant's proportionate share of real estate taxes.
Brinks counters by pointing out that neither the lease for the John Hancock Center nor the lease for 401 North Michigan Avenue use the language contained in the Brinks lease, and thus they are of minimal relevance. Brinks contends that evidence of industry custom and practice is of little help in this case due to the unique nature of the Real Estate Tax Formula. Metro-Goldwyn Mayer, Inc. v. ABC-Great States, Inc., 8 Ill. App.3d 836, 838, 291 N.E.2d 200, 201 (1st Dist. 1972). ("To be binding, an industry custom must be so well known, uniform, long established and generally acquiesced in as to induce a belief that the parties contracted with reference to it, nothing appearing in their contract to the contrary.")
Ben Randall is the attorney for the current owner of the NBC Tower, who has practiced real estate law for 25 years. Randall testified that he had never seen a lease provision such as the one at issue, but that it is common practice for office tenants of a commercial building to pay the Building's real estate taxes on a pro rata basis. (Trial Transcript, Randall, at pp. 79-80.) Randall also testified that many leases provide that office tenants will pay taxes for the retail section of the building. He explained this is the case because most retail tenants have "gross leases" as opposed to "net leases." Randall noted, however, that whether retail tenants pay for the taxes and operating expenses attributable to their leasehold is not uniform. (Id. at 74-75.) Specifically, he noted that there have been wide variations in the net rental rates and the type of exclusions and inclusions that are negotiated. (Id. 74-79.)
A gross lease in the commercial real estate leasing industry generally means a lease whereby a tenant pays a flat sum for rent which includes the tenant's operating expenses and real estate taxes for the building. A net lease, on the other hand, means that the tenant is obligated to pay, in addition to base rent, its pro rata share of operating expenses and real estate taxes.
John Lindell, Equitable's own expert witness, is a certified public accountant and a partner with KPMG LLP. Lindell testified that the division of the tax bill of a commercial property into a subset of the building (i.e., "taxes attributable to the Office Section") was unusual and unique in his experience. (Trial Tr., Lindell, at 435-36.) Lindell also testified, however, that the custom and practice in the commercial leasing industry is to exclude the area contained in any parking garage from the calculations utilized to determine the office tenants' proportionate share of real estate taxes. (Id. at 423.)
The court is unmoved by the extrinsic evidence the parties have furnished. Testimony of Covington's and Sarasek's subjective intent of how they intended the lease to operate, where not communicated to the other party, carries very little weight in resolving ambiguities in the lease. Board of Trustees of The University of Illinois v. Insurance Corp. of Ireland, 750 F. Supp. 1375, 1380 (N.D.Ill. 1990). "What was merely in the mind of one contracting party would be relevant only in a legal system that used `meeting of minds' in kind of a literalist approach to a metaphysical problem. What is instead significant, of course, is a party's communicated rather than its purely subjective intent." Quaker Alloy Casting Co. v. Gulfco Indus., Inc., 686 F. Supp. 1319, 1333 n. 28 (N.D.Ill. 1988). Equally unmoving, the testimony of Randall and Lindell failed to clarify the ambiguities in the Lease.
5. Course of Conduct
Where a lease is ambiguous, the court may, in determining what the parties intended, consider the conduct of the parties after the lessee takes possession of the premises. Cory v. Minton, 49 Ill. App.3d 312, 316-17, 364 N.E.2d 311, 314 (1st Dist. 1977). In the instant case, Equitable points out that from 1989 through 1995, Brinks paid its real estate taxes according to Equitable's methodology without objection. In Equitable's view, the seven years of payment establishes a course of performance which conclusively defines any ambiguities in the Lease.
Brinks explains that it did not object from 1989 through 1995 because it did not know it was being charged for the garage. Brinks contends that it first learned of the overcharges in 1996 and thus its act of paying its bills cannot stand as a course of conduct which establishes intent or contract construction. Sid Rattner ("Rattner"), a partner in the accounting firm of Freidman, Einstein, Ramer and Schwartz, LLP, was retained by Brinks in late 1995 to conduct an audit of its Lease with Equitable. (Trial Transcript, Rattner, at 271, 331.) It was not until Rattner issued his findings noting the overcharges that Brinks became aware of the Equitable's alleged misconduct. In addition to this argument, Brinks points to the "no waiver" clause in the Lease:
No waiver of any condition expressed in this Lease shall be implied by any neglect of Landlord or Tenant to enforce any remedy on account of the violation of such condition if such violation be continued or repeated subsequently. . . .
(May 3, 1988 Lease, Art. 16.) The court concludes that Brinks did not intentionally relinquish a known right and therefore has not waived its claims.
6. Construction Against Drafter
Where other evidence has proved unsuccessful in clarifying ambiguities in a contract's language, the court is guided by the fundamental tenets of contract interpretation which require ambiguities to be construed against the drafter, the landlord, and the lessor. See Dowd Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 478, 693 N.E.2d 358, 368 (1998) ("any ambiguity in the terms of a contract must be resolved against the drafter of the disputed provision."); Chicago Housing Authority v. Rose, 203 Ill. App.3d 208, 216, 560 N.E.2d 1131, 1136 (1st Dist. 1990) ("where there is any doubt or uncertainty as to the meaning of the language used in a lease it should be construed most strongly against the lessor and in favor of the lessee."); Northwest Suburban Fellowship, Inc. v. Department of Revenue, 298 Ill. App.3d 880, 886, 700 N.E.2d 102, 106 (1st Dist. 1998) ("where there is any doubt as to the meaning of a lease, it should be construed most strongly against the lessor and in favor of the lessee."). In this case, Equitable was drafter, the landlord, and the lessor.
Equitable asserts that construction against the draftsman applies only when there are no other rules of construction that are useful in resolving the ambiguity. In this case, however, other rules of construction have indeed been fruitless in deciphering the Lease's ambiguities. The court has reviewed the extrinsic evidence, and as discussed above, the meaning of certain phrases in the lease remain ambiguous. Thus the court can apply this rule of construction. Bidlack v. Wheelabrator Corp., 993 F.2d 603, 609 (7th Cir.) (noting that drafting rules of construction only apply after extrinsic evidence has failed to resolve the issue), cert. denied, 510 U.S. 905 (1993).
Another rule of construction that militates against Equitable is the Illinois common law presumption that a landlord is responsible for paying the real estate taxes attributable to all real property it owns. Metropolitan Airport Authority v. Farliza Corp., 50 Ill. App.3d 994, 997, 366 N.E.2d 112, 113 (3d Dist. 1977). If an owner of land wishes to pass on some portion of the tax bill, the landlord must identify the portion of the tax bill to be paid in clear and concise terms. Id.; see also 601 West 81st Street Corp. v. City of Chicago, 129 Ill. App.3d 410, 415, 472 N.E.2d 827, 831 (1st Dist. 1984) ("in order for the lessor to shift the obligation to pay taxes from itself to the lessee, the lease must express this shift in clear, concise terms.") Any failure to expressly identify the proportion of taxes to be paid by a tenant should be resolved in the tenant's favor. Metropolitan Airport Authority, 50 Ill. App.3d at 997, 366 N.E.2d at 113. Conclusion as to Count I and Count II Resolving the ambiguities in favor of the tenant, the court concludes that LL1, LL3, and the retail section were "designed for tenant occupancy." Accordingly, the court holds Equitable liable for breach of contract in failing to include the square footage of these areas in the denominator of the Real Estate Tax Formula set out in Article 3(A)(vi)(a).
B. Count III
In Count III, Brinks alleges a breach of contract for overcharges related to the salary and expenses of personnel titled above the building manager. Under Article 3(A)(v)(h) of the Lease, Equitable was prohibited from charging as an operating expense "wages, salaries, or other compensation paid to employees above the level of building manager." The parties have stipulated that for more than two years, Equitable included as an operating expense $230,000 in salary and benefits paid to the "Property Manager" Atkins, who supervised the "Building Manager." On the account of such overcharge, Brinks claims it is entitled to judgement in the amount of $34,000 (i.e. 15% of $230,000). Equitable argues that it changed the employees' job titles in 1994-1995 due to "title inflation," an industry-wide phenomenon. Thus, Equitable asks the court to look past the titles and recognize that the same persons are performing the same functions that were performed under different titles at the time the Lease was executed. The Lease does not refer to job functions, however, it refers to titles. If, as Equitable suggests, the industry practice of building management has required "title inflation," that is a risk that was expressly contemplated at the time the Lease was drafted and expressly provided for. Applying the plain and ordinary meaning of the Article 3(A)(v)(h), which the court is obligated to follow, the court holds that Equitable improperly charged Brinks for the salary and benefits of the individual with the title "Property Manager" during the years 1994 and 1995.
Initially, the titles of those persons were Building Manager and Assistant Building Manager.
C. Count IV
In Count IV, Brinks asserts a breach of contract for overcharges of operating expenses which were attributable to the retail tenants, the garage portion of the Building, and building tenant NBC. Under the lease, Brinks was required to pay its proportionate share of (1) the Operating Expenses solely incurred by the Office Section and (2) a reasonable proportionate share of those Operating Expenses which the Office Section benefitted from but were not solely attributable to the Office Section. The parties agree that the Office Section did not solely incur any operating expenses. Thus, the remaining issue is whether Equitable reasonably allocated the Operating Expenses attributable to the Office Section and other portions of the Building. Significantly, the court notes that with respect to real estate taxes, the Lease provided a mathematical formula for dividing up the Office Section's portion. Conversely, for purposes of allocating the operating expenses, the Lease simply provides that the Office Section pay its "reasonable proportionate share."
1. Operating Expenses Attributable to LL1 and LL3
With reference to the operating expenses attributable to the LL1 and LL3, Article 3(A)(v)(l) of the Lease specifically defines Operating Expenses as excluding "expenses in connection with maintaining and operating for profit (i.e. competitive rates are charged, as opposed to no charge at all) any garage operated by the Landlord." It is well-established that a court may not rewrite a contract to suit one of the parties, and that when the terms are clear and unambiguous, they must be enforced as written. Michigan Ave. Nat'l Bank v. Evans, Inc., 176 Ill. App.3d 1047, 531 N.E.2d 872 (1st Dist. 1988); app. denied, 125 Ill.2d 567, 537 N.E.2d 811 (1989); see also Menke v. Country Mutual Ins. Co., 78 Ill.2d 420, 423, 401 N.E.2d 539, 541 (1980) ("if a clause is unambiguous, there is no need for construction, and the term may be applied as written.") The court holds that with respect to LL1 and LL3, the Lease is clear and unambiguous; and the Operating Expenses attributable to the Office Section should not include the operating expenses attributable to LL1 and LL3.
2. Operating Expenses Attributable to Retail Section
Brinks argues that the Equitable unreasonably allocated operating expenses attributable to the Office Section without deducting those operating expenses attributable to the retail section. Unlike the garage section, the Lease does not provide an express exception for such operating expenses. Equitable explained that it allocated the Building's operating expenses using a gross square footage formula, similar to the Real Estate Tax Formula. In other words, the Office Section's proportionate share of the Building's total Operating Expenses was contingent upon the percentage of the Building's total gross square footage it occupied. Here, as with the real estate tax calculation, Equitable excluded from the denominator the gross square footage of the retail portions of the Building. Equitable argues it was reasonable to exclude the retail section in that the retail section was an amenity to the Building and that it used far fewer of the services included in the operating expenses than did the Office Section. In further support of the reasonableness of its billing practices, Equitable again points out that Brinks acquiesced in such construction by paying according to this methodology from 1989 to 1995. Moreover, to this date, Sun Belt, the agent for the present owner of the Building, calculates Brinks' proportionate share of the operating costs using precisely the same methodology that Equitable used when it owned the Building.
Reasonableness, by its own definition, suggests that there may be more than one acceptable method for calculating operating expenses. Equitable has presented a sufficiently reasonable explanation for its methodology. The court concludes that Equitable did not breach the contract with respect to operating expenses related to retail section.
3. Operating Expenses Attributable to NBC
Brinks asserts that it paid a disproportionate share of the Operating Expense because Equitable's lease with NBC requires NBC to pay only 21.25% of the operating Expenses when in fact it occupies 23.5% of the gross square footage of the Building. Since Equitable would subtract whatever operating expenses NBC owed from the total Operating Expenses and bill the remainder to the Office Section tenants, the Office Section tenants, including Brinks, were overcharged 2.25% (23.5%-21.25% = 2.25%) of the total Operating Expenses. Equitable does not dispute these facts, but claims its billing practices were reasonable in that NBC utilizes far fewer of the services included in the operating expense bill. Equitable also points out that NBC provided its own security, janitorial, maintenance, and cleaning services, and paid its own electricity bill. Moreover, as was the case with the retail section, the fact that Brinks paid according to Equitable's methodology for seven years and the current building manager SunBelt calculates the operating expenses in the same manner militate in favor of a finding of reasonableness.
Although Equitable chose to base its formula for dividing up operating expenses roughly on the gross square footage of the Building, it was not obligated to do so. The Lease only required that the allocation be reasonable. Thus, any discrepancy in Equitable's calculations, such as the 2.25% disparity in gross square footage of NBC's occupancy, does not necessarily equate to an unreasonable allocation. Indeed, Equitable has provided a reasonable explanation for its methodology and thus the court concludes that Equitable did not breach the contract with respect to operating expenses related to NBC.
4. Management Fees
Brinks claims it was overcharged a management fee attributable to NBC. Between 1990 and 1993, Equitable paid its manager, Compass, a 2.5% management fee on all monies collected from tenants and charged back to the tenants the 2.5% fee. In 1994 through 1996, Equitable reduced the management fee to 2%. The management fee was calculated by taking either 2% or 2.5%, which ever applied, of the total amount of rent, Operating Expenses, and Ownership Taxes received from all Building tenants. This amount was paid to Compass, and Equitable would recover the cost by charging the fee back to the tenants in the form of an Operating Expense. Equitable would charge back NBC only approximately 4.6% percent of the management fee. Equitable claims that it charged NBC a relatively small amount because NBC did not use the majority of the management services.
The Lease did not set out a specific formula instructing how management fees should be allocated. The Lease only required that the allocation be reasonable and that term affords wide latitude. Thus, the court holds that Equitable's percentage allocation used to charge back the management fees was reasonable. The court holds, however, that if NBC used only a minor portion of the management services, it is unreasonable to fully include NBC's rent, taxes, and operating costs for management services not used by NBC. By including NBC rent, taxes and operating costs in the total management fees collected, Compass was collecting management fees for services it did not provide. In other words, Compass was collecting management fees from the tenants other than NBC for services it was allegedly providing to NBC.
The court concludes that Equitable's practice of charging back Brinks a management fee which was largely attributable to NBC was unreasonable.
D. Count V
In Count V, Brinks asserts a claim for overcharges relating to the 2% to 2.5% surcharge which Equitable charged as a management fee. Inasmuch as the management fee was computed by taking a percentage of the total collection (i.e. rent, real estate taxes, an operating expenses), and that the court has found that in certain instances the amount of real estate taxes and operating expenses were miscalculated, the court rules that Brinks is entitled to an additional refund (2% or 2.5% depending on the applicable year) for overcharges on the account of the management fee.
CONCLUSION
For the reasons set forth above, the court will enter judgment in favor of Brinks and against Equitable on Counts I, II, III, and V. On Count IV, the court will enter judgment in favor of Equitable with respect to the retail space, garage space, and management fee claims, and in favor of Brinks with respect to the garage. The parties are directed to prepare and submit a draft judgment order reflecting the calculations required by the court's determinations, on or before May 26, 2000.
The parties' stipulation concerning these calculations will be without prejudice to their rights to challenge the court's determinations on appeal.