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HUB Properties Trust v. Senior Care Centers of America, Inc.

A-2063-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

LEASES; INTERPRETATION—A lease provision is enforced as it reads, but the course of dealing between parties can aid in interpretation; consequently, it doesn’t matter if a landlord’s actions are reasonable when they are inconsistent with express provisions of the lease.

A commercial lease required the tenant to pay its share of the “Annual Operating Costs” for the property. The lease defined “Annual Operating Costs” to mean “the cost to Landlord of operating and maintaining the Property during each calendar year of the term.” It went on to provide specifically that these costs “include by way of example rather than limitation: real property taxes, insurance premiums, fees, impositions, costs for repair, maintenance, service contracts, management fees, governmental permits, overhead expenses, costs of furnishing water, sewer, gas, and electricity… and the costs of any other items attributable to operating or maintaining any and all of Property… .” After purchasing the office building, the new landlord began to bill a tenant for “overhead” expenses. Those charges included general administrative expenses, salaries and benefits, maintenance supplies, fire protection and audit fees except for the fire protection charges, all of the fees were incurred by the landlord with respect to its entire property portfolio and that the landlord had then allocated its total costs to this particular building upon a square footage basis. The lower court then found that “operating costs involving properties other than the property contained in the leased premises were not properly chargeable to the tenant.” One of the factors was the lower court’s review of prior dealings between the previous landlord and the same tenant. Because a commercial lease is governed by contract principles, a court is required to “give plain meaning to the contract terms and may not write a different or better contract than the one entered into by the parties.” The definition of “Annual Operating Costs” included the costs “of operating and maintaining the Property.” It also permitted inclusion of “costs of other items attributable to operating or maintaining any or all of the property.” The “property” was defined in the lease as the specific office building. According to the Appellate Division, it didn’t matter, “therefore, that the expenses charged [to the tenant] were consistent with or even less expensive than other commercial buildings in the region. Of the five categories charged as additional rent, four were based on [the landlord’s] expenses incurred in all of its buildings.” As the Appellate Division read the lease, the only expenses that could be charged as additional rent were those that were “incurred solely through managing the [specific property] and not any of the other [landlord’s] buildings.” Further, throughout the course of dealings between the prior landlord and the tenant, the charges did not include “overhead expenses” and all expenses charged were “directly related to expenses incurred at the specific property.” Past dealings of contracting parties are probative of the parties’ intent.

The landlord argued that the lower court should never have considered parol evidence because it violated the merger clause of the lease. It further argued that the parole evidence rule prohibited introduction of oral promises “which tend to alter or vary an integrated written instrument.” The Appellate Division rejected those arguments. None of the parol evidence rule, the Statute of Frauds, and the lease prohibited the lower court from considering the course of dealing between the original parties as an aid in interpreting the parties’ intent. Further, when the landlord argued that the “no waiver” provision of the lease permitted it, as the new landlord, to impose those charges, the Court responded by saying that “there was no clear act by [the prior landlord] that signified an intention to relinquish any known right.” Lastly, the Appellate Division concluded that the tenant would probably remain entitled to attorney’s fees and costs even though it partially reversed the lower court’s decision with respect to the propriety of charging the tenant for fire protection.


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